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PRODUCTION SHARING CONTRACT
I1AWLER AREA
KURDISTAN REGION
BETWEEN
THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ
AND
NORBEST LIMITED
TABLE OF CONTENTS
PREAMBLE
Article 1 DEFINITIONS
Article 2 SCOPE OF THE CUN TRACI
Article 3 CONTRACT AREA
Article 4 OPTIONS OF GOVERNMENT PARTTCIPATTGN AND THIRD PARTY
PARTICIPATION
Article 5 OPERATOR
Article 6 TERM QF THE CONT RACT
Article 7 RELINQUISHMENTS
Article 8 MANAGEMENT COMMITTEE
Article 9 GUARANTEES
Article 10 MINIMUM HXPIORATION WORK OBI l(SATIONS
Article 11 hXPlOKAIION WORK PRCXiRAMS AND BUDGETS
Article 12 DISCOVERY AND DEVELOPMENT
Article 13 DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND
BUDGETS
Article 14 NATURAL GAS
Article 15 ACCOUNTING AND AUDITS
Article 16 CONTRACTOR'S RIGHTS AND OBLIGATIONS
Article 17 USE OF LAND AND EXISTING INTRASTRUCTl RE
Article 18 ASSISTANCE FROM THE GOVERNMENT
Article 19 EQUIPMENT AND MATERIALS
Article 20 TITLE TO THE ASSErS
Article 21 USE OF THE ASSETS
Article 22 SUBCONTRACTING
Article 23 PERSONNEL TRAINING ANDTECHNOLOGICAI. ASSISTANCE
Article 24 ROYALTY
2'11S
Article 25 RICO VERY OK PETROLEUM COSTS
Article 2(> SI IARJNO OK PROFIT PETROLEUM
Article 27 VALUATION AND METERING OF CRUDE Oil. ANI) NAIURAL GAS
Article 28 DOMESTIC MARKET - SALE OF GOVERNMENT SI IA RE
Article 29 FINANCIAL PROVISIONS
Article 30 CUSTOMS PROVISIONS
Article 31 TAX PROVISIONS
Article 32 BONUSES
Article 33 PIPELINES
Article 34 UNmSATION
Article 35 LIABILITY AND INSURANCE
Article 36 INFORMATION AND CONFIDENTIAL! 1Y
Article 37 ENVIRONMENTAL PROVISIONS
Article 38 DECOMMISSIONING
Article 39 ASSIGNMENT AND CHANGE OF CONTROL
Article 40 FORCE MAJEURL
Article 41 WAIVER OF SOVEREIGN IMMUNITY
Article 42 ARBITRATION AND EXPERT DETERMINATION
Article 43 GOVERNING LAW. FISC AL ST ABILITY, AMLNDMiiN TS AND VALID! IV
Article 44 NOTICES
.Article 45 TERMINATION
Article 46 APPLICATION OF CORRUPTION LAWS
Article 47 EFFECTIVE DATE
Annex A CONTRACT AREA MAP AND LIST OF COORD]N A EES
Annex U CONTRACT SUB-ARE AS MAP .AND LIST OI COORDINATES
Annex C COMPANY UUNDERTAKING
Annex D ACCOUNTING PROCEDURE
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t*
PRODUCTION SHARING C ONTRACT
BETWEEN
The KURDISTAN REGIONAL GOVERNMENT OF IRAQ (hereafter referred to as the
“GOVERNMENT). duly represented by the Minima of Niiturul Resources;
AND
NORBKST 1,1 \ll I'KI), ;i company established ami exist ini; umlcr tin laws of < yprus, whose
registered ofticc is at Themistokli Deni. 5 Elcnion Building. 1st door, I’.C. I06f* Nicosia,
Cyprus, an Affiliate of INK-BP Holding and duly represented by its Attorney Alexey
Kuzmichev,
(henafto, referred to as Hie •CONTRACTOR")
WHEREAS
(A) I lie GOVERNMENT wislics to develop the petroleum wealth of the Kurdistan
Region (us defined in this Contract) in u way that nchiovrs the highest benefit to (lie
people of the Kurdistan Region and all of Iraq, using the most ndvunml techniques of
murkd principles and encouraging investment, consistent with the Constitution of Iraq
including Article 112 thereof;
(It) In accordance with the Constitution of Imq, the prevailing lav. of the Kurdixiai
Region is the Kurdistan Region Law (as defined in this Contract), except with regard
to a matter wholly widan llic exclusive jurisdiction of the Government of Iraq;
(O The National Assembly of the Kurdistan Region approved the Oil and Gas Law of the
Kurdistan Region - Iraq (I aw No. 22 of 2007) which law regulates Petroleum
Operations, including production sharing contracts;
(D) The GOVERNMENT intends to present to the National Assembly of the Kurdistan
Region a law to authorise the GOVERNMENT, by contract or other authorisation, to
exempt investors in long terra projects relating to the conduct of petroleum operations
in the Kurdistan Region from Kurdistan Region taxation, to indemnify such holders
against liability lo pay such taxation, and.br to guarantee the stability of the applicable
legal, fiscal and economic conditions of such projects; and
iE) Each CONTRACTOR Entity is a company.
(i) with the financial capability, aid the technical knowledge and technical ability.
to cany otM Petroleum Operations in the Contract Area (as defined in this
Contract) under the terms of this Contract;
(ii) having a record of compliance with the principles of good corporaic citizenship;
and
(iii) willing to cooperate with the GOVERNMENT by entering into this Contract,
thereby assisting the GOVERNMENT to develop the Kurdistan Region
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petroleum industry, thereby promoting the economic development of the
Kurdistan Region and Iraq and the social wcllaic of its people.
NOW. THEREFORE, THE PARTIES HAW. AGREED AS FOLLOWS
ARTICLE 1 - DEFINITIONS
l.l ( iipituliscd terms and expressions in this Contract shall have the following meaning,
unless otherwise specified:
Abroad means outside of the Kurdistan Region and other pails of Iraq.
Access Authorisation is defined in Article 17.9.
Accounts is defined in Article 15.1.
Accounting Procedure means die Accounting Procedure attached to this Contract as
Annex D and constituting an integral part of this Contract.
Adjacent C'ontract Area is defined in Article *4 I.
Adjustment Dale is defined in Article 27.6.
Affiliated Company or Affiliate means, as regards any of the compuucs or entitio
constituting the CONTRACTOR, a ami|»my or other legal entity -shich:
(a) controls a < IONTKAC TOR Bntily; or
(b) is controlled by a < !ON I MAC TOR Entity; or
(c) controls or is controlled hv u company or entity which controls n
CONTRACTOR Entity ,
but shall not include the GOVERNMENT in respect of the Public Company. For the
purpose of this definition, “control” means direct or indirect ownership or control of
fifty per cent (50%) at more ol the voting rights, appointment of lire directors, or
assets upon liquidation of the applicable entity at its shareholders’ meetings or their
equivalent.
Agreed Terms is defined in Article 14.1 (Ha).
Appraisal Area means the area defined in Article 12.2.
Appraisal Work Program and Budget is defined in Article 12.2.
Appraisal Repor t is defined in Article 12.4.
Appraisal Well means a well drilled for the purpose of evaluating the commercial
potential of a geological feature or a geological structure in which Petroleum has been
discovered.
A mi's-Length Sale* mean* sales of Petroleum in freely convertible currencies
between sc I lets and buyers having mi direct or indirect relationship or common
interest wlintsocvcr with each other that could reasonably influence the soles price
Such Arm’s- Length Sales shall exclude:
in) sales between or among any of the CONTRACTOR Entities and their
respective Affiliates;
(b) sales involving the GOVERNMENT or die < iovernment oflraq; and
(c) sales involving exchanges and any transnelions not relating to normal
commercial practices.
Assets means nil land, platforniH. pipelines, plant, equipment, machinery, wells,
facilities and nil other installations and structures and ull Materials awl Equipment.
Associated Natural Gas means (i) any Natural Gas dissolved ui Crude Oil undci
reservoir conditions and (ii) any residue gas remaining utter the extraction of Crude
Oil from a reservoir.
Audit Request Period isdcllnotl in Article 15.3(a)
Available Associated Natural Cun is dofinixl in .Article 25. L
Available Crude Oil is defined in Article 25.1.
Available Non-Associated Natural (.'ns is defined in Article 25.1
Available Petroleum is defined in Article 25 I
Barrel means a quantity of f«*rt) two (4?) I S gallons as a unit to measure liquids, at a
temperature of sixtv degrees (60=) Fahrenheit and pressure of fourteen point seven
(14.7) psL
Radgets means any budgets prepared by. or on behalf of. the CONTRACTOR
pursuant hi this Contract and forming pun of an Exploration Work Program nnd
Budget iintbor .in Appraisal Work Program and Budget and or a Gas Marketing Work
Program and Budget aixPor a Dcvdoptiicnt Work Program and Budget awLor a
Production Work Program and Budget
Calendar Year means a period of twelve (12) consecutive .Months, commencing I
January and ending on 31 December of the same year.
Chairman is defined in Article R.l
Commercial Discovery means a Discovery which is potentially commercial when
taking into account all technical, operational, commercial and financial data collected
when carrying out appraisal works or similar operations, including recoverable
rewvrs of Petroleum, sustainable regular production levels and other material
technical, operational, commercial and financial parameters, all in accordance with
prudent international petroleum industry practice.
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Commercial Production means the production of Petroleum front the Production
Aren in accordance with annual Production Woik Program and Budget.
Constitution of Iraq means die permanent constitution of Iraq approved by the people
of Iraq in the get tern I referendum of I 5 ()ctnhcar 2005.
Contract means this production sharing contract, including its Annexes A, B, C and
D that are an integral part hereof, ns well ns any extension, renewal, substitution or
amendment of this production sharing contract that may be agreed in writing by die
Parties in accordance with Article 13.7.
Contract Area means the area described and defined in Annex A attached to this
Contract and constituting an integral purl of this Contract, and any modifications
made to that Annex in accordance with the provisions of this Contract, through
amendments, surrender, withdrawal, exteasion or otherwise.
Contract Sub-area is defined in Article 3.
Contract Year means a period of twelve (l 2) consecutive Months starting from the
Effective Date or any anniversary of the mid KITcctive Date.
CONTRACTOR includes and comprises each and all CONTRACTOR Entities,
including any Public Company or third Party Participant nominated by the
GOVERNMENT pursuant to Article 4. and/or any assignee of all or part of the rights
and obligations under this Contract in accordance with Article 39.
CONTRACTOR Entity means any Person which is for the time bang a component ot
tlic CONTRACTOR, andfor any assignee of all or part of tftc rights and obligations of
such Person under this Contract in accordance with Article 39.
( rude Oil means all liquid hydrocarbons in their unprocessed «atc or obtained from
Natural Gas by condensation nr any »*thcr means of extraction
Dcconinruioninj; Casts means dll the costs and expenditures incurred by the
CONTRACTOR when carrying out Decommissioning Operations, including those
defined in the Accounting Procedure
Decommissioning Operations means any works, together with all related and
auxiliary activities. f«*r dccununisskming and/or removal and/or abandonment and
making safe all of the Assets and site restoration and remediation related thereto in
relation to any Production Area.
Decommtssnning Plan is defined in Article 38.7.
Decommissioning Reserve Fund is defined in Article >8.1 and includes nil
contributions paid into such fund and all interest accumulated such fond.
Deductible Amount is defined in Article 35.12.
Delivery Point means the point alter ccracbon. specified in the approved Development
Plan for a Production Area, at which the Crude Oil. Associated Natural Gas andor Norv
Associated Natural Gas is metered for the purpoics of Article 27.5. valued for the
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purposes of Article 27,1 and ready to be taken and disposed of consistent with prudent
international petroleum industry practice, and at which a Party may acquiio title to its
sliure ol I’clmlcum under this Contract or such other point which may lie ngtvod by tite
Pnrtici
Development Costs means all the costs and expenditures incurred by tlie
CONTRACTOR when carrying out Development Operations, including those
dcliuoil hi the Accounting Procedure.
Development Operations means all development operations or works conducted in
accordance with a Development Plan up to the Delivery Point with a view to
developing a Production Area, including: drilling of wells: primary and subsequent
recovery projects and pressure maintenance; survey, engineering, building and
erecting or laying of production plants and facilities (including: separators;
compressors; generate is. pumps and tankage; gathering lines; pipelines and all
facilities required to be installed lor production, pressure maintenance, and treatment,
storage and transportation of Petroleum): obtaining of such materials, equipment,
machinery, items and supplies as may be required or expedient for the foregoing
activities, uml nil auxiliary operations ami activities required or expedient for the
production of Petroleum from the Production Area
Development Period in defined in Article 6.
Development Plan means n plnn for development dell nod in Article 12 K.
Development Well means tiny well drilled niter the d ue of approval of the
Development Plan for the purpose of producing Petroleum, increasing or accelerating
production of Petroleum, including injection wells and dn lxrfes. .Any well drilled
within a Production Area shall be deemed a Development Well.
Development Work Program and Budget means the development work program
and budget prepared pursuant to Article 13.2.
Discovery means a discovery of Petroleum within the limits of the Contract Area
resulting from Petroleum Operations carried out under this Contract, provided such
Petroleum is recoverable at the surface with a measurable flow utilising technique*
used in prudent international petroleum industry practice
Dispute is defined in Article 42.1.
Dollar (1'SS) means the legal currency (dollar) of the United Stales of America
(USA).
Effective Date means the date on which the conditions referred to in Article 47 have
been fulfilled.
Environment Fund is defined in Article 23.9.
Eqnipment and Material* is defined in Article 19.1.
S'1I8
exploration Costs means all the costs and expenditure incurred by the
CON'I RACTOR when carrying oul Exploration Operations, including those defined
in the Accounting Procedure.
Exploration Operations means uny and all operations conducted with a view to
discovering Petroleum, including: nny activities necessary to commence operations;
any topographical, hydrographicol, geological, geophysical, aerial and other surveys
and activities (including interpretations, analyses and related studies) to investigate
the subsurface for the location of Petroleum; drilling of shot holes, core holes and
stratigraphic test holes; spud, drilling, testing, coring, logging and equipping of
Exploration Wells or Appraisal Wells; procurement of such services, miUeritd,
equipment, machinery, items and supplies as may be required or expedient for the
foregoing activities, and all auxiliary operations and activities required or expedient
for the conduct of the foregoing activities.
Exploration Period is defined in Article 6.
Exploration kenliil is defined in Article 6.3.
Exploration Well menus uny well drilled for the purpose of confirming a geological
structure or stratigraphic unit in which no Discovery has previously been made by the
CONTRACTOR.
Exploration Work Program and Budget means the exploration work program and
budget prepared pursuant to Article 11.1.
Export Crude Oil is defined m Article243.
Export Noo-Associated Natural Gas is defined in Article 243
Export I’d ndrum is defined in Article 24.2.
Kirat Commercial Declaration Date is defined in .Article 4.1.
First Exploration WclK is defined in Article 10.2 (c).
first Production means the moment wten Commercial Production of Crude Oil or
Non-Avneioted Natural Gas (as the ease may be) first commences, by flowing at the rale
forecast m the Development Plan without interruption for a minimum of forty eight (48)
hours.
Force Mnjeiirr is defined in Article 40.2.
Gas Development is defined in Article 14.10.
iim Marketing Costs means all costs and expenditure incuucd by die
CONTRACTOR when carrying nut (ins Marketing Operations, including those
defined in the Accounting Procedure.
(.as Marketing Operations means any and all of the activities and operations
umlcmplalcd by Article 14.6.
WIIX
\/
Gas Marketing Work Program and Budget means the marketing work program and
budget prepared pur*uuntto Article 14.8.
Government Intern! is defined in .Article 4.1.
Government of Iraq means the Federal Government of the Republic of Iraq, which
hold* office under tlie Constitution of Iraq ami any minister, ministry, department,
subdivision, agency. authority, council, commnice, or other constituent element
thereof and shall, without limitation, include an> corporation owned and or controlled
by an> of the foregoing.
International Murkei Price is defined in Article 27.2.
Iraq means the entirely of the Republic of Iraq, including tlie Kurdistan Region.
Joint (>|ktsiting Agreement means any agreement executed by tlie
C'OMKAC' I'Uk entities at any time Tor the purpose of regulating between such
entities the terms under which the Petroleum Operations will be conducted, which
agreement shall be: (a) consistent with prudent international petroleum industry
practice; (b) as between such entities, supplementary to this Contract; and (c)
consistent with the provisions of the Contract.
Kurdistan Region means the Federal Region of Kurdistan recognised by tlie
Constitution of Iraq and having the same meaning as ‘Region’ as in the Kurdistan
Region Oil iindGus I nw.
Kurdistan Region Law menus all statutes, decrees, edicts, codes, orders, rules
ordinances ad regulations of the GOVFUNMLNT or of any other local, municipal,
territorial, provincial or any other duly constituted governmental authority nr agency
in the Kurdistan Region.
Kurdistan Region Oil and Gas Law menus the Oil und Cna law of the Kurdistan
Region - Iraq (Law \*o. 22 of2007) as the same may be amended
Ijiw means all applicable bus including the following: constitutional law. civil law.
common law. international law. equity, treanes. statutes, decrees, edicts, codes,
orders, judgements, rules, ordinances and regulations of any local, municipal,
territorial provincial federated, national or any other duly constituted governmental
authority or agency.
LCL\ is defined in Article 42.1(b).
LIBOR means tlie London Inter-Bank Offered Rate . which r>>ll.«r deposits f.» one
(I) month an? ottered in tlie inter-bank market in London, as quoted in the Finnnciul
Times of London for the day in question. In the event that such rate is not published in
the Financial Times, it shall mean the London lntcr-bank Offered Rule at which
Dollai deposits Ibr one month arc offered for the nearest day us quoted by Nulionnl
Westminster IJnnk pic.
Management C ommittee is defined in Article 8.
Maximum ICfllcicnl Rate (.V1LR) is defined in Article 16.12,
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\L
Minimum Exploration Obligation!* is defined in Article 10.1
Minimum Financial Commitment means:
(a) in respect of the First Sub-Period, the total of the amounts set out in Articles
10.2(d) ami 10.2(e); and
(b) in respect of the Second Sub-Period, Hie amount act out in Article lU.3
Month means a calendar month according to the Gregorian calendar
Natural Gas means ull gaicouH IVMrolcum and inerts.
Non-Associated Natural Gas means any Natural (ins which is not any Associated
Natural Gas.
Notice of Dispute is defined in Article 42.1.
Operator means the entity designated hy the CONTRACTOR pursuant to Article 5
which, in the name und on behalf of the CONTRACTOR, ahull carry out ull
Petroleum Operations. II at any time tlicic exists inoio Hum one (I) Operutor under
this Contract. any leloicoce Intern to tin.' term ’Operator’ shall he to each Operator with
respect to the parts of the Contract Area in which such Operator conducts Petroleum
Operations.
Option of Government Participation is defined in Articled 1
Option of Third Party Participation is defined in Articled.?
Party or Parties means the GOVERNMENT and/or each CONTRACTOR Entity
andor the < CONTRACTOR
Permits meuns all licences, permits, consents, authorisations or other permissions, as
the context requires.
Person shall include natural and juristic persons (including corporations and
governmental agencies).
Petroleum means:
(a) ary natiffaDy occurring hydrocarbon in a gaseous or iiquai state;
(b) any mixture of naturally occurring hydrocarbons in a gaseous or liquid .'late; «h
(c) any Petroleum (as defined in paragraphs (a) and (b) above) th3i ha\ been
returned to a Reservoir.
Petroleum Cost* means all costs and expenditure incurred by the CON TR AC 'TOR
for the Petroleum Operations, and which the CONTRACTOR is entitled to recover
under this Contract and its Accounting Procedure, including Decommissioning Costs.
Development Costs, Exploration Tests, Gas Mart ding Costs and Production ( ostv
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Petroleum Field means a Reservoir or group of Reservoirs within u common geological
structure or stratigraphic unit, which may Income part of a Production Aren pursuant to
a Development Plan.
Petroleum Operations means all Exploration Operations. Gns Marketing Operations.
Development Operations. Production Operations and Decommissioning < Iporationa,
.is well us any other activities or operations directly or indirectly related or connected
with the said operations (including health, safety and environmental operations and
activities) and authorised or contemplated by. or performed in accordance with, this
Contract.
Pipeline Costs is defined in Article 33.5
Production Aren means such areas within the Contract Area designated as a
production area in nn approved Development Plan prepared pursuant to Article 12.
For tire avoidance of doubt, ali superjacent or subjacent strata of the Reservoir in
which a Commercial Discovery is located lire automatically included in the relevant
Production Aren
Production Bonus means any bonus due pursuant to Article 32.3 or 32.4.
Production Costs means all the costs and expenditure incurred by the
CONTRACTOR in carrying out lire Production Operations, including those defined
in the Accounting Procedure.
Production Operations means any works, together with all related and auxiliary
activities, for the production ot Petroleum from the start of Commercial I “reduction,
including: extraction, injection, stimulation, pumping, treacnan. storage, engineering,
operating, servicing, repairing, aid maintaining any wells, plants, equipment,
pipelines, terminals and any other installations and facilities, and any related
operations and auxiliary operations, and storage and transportation of Petroleum from
the Production Area to the Delivery Point.
Production Rental i* defined in Article 13.10.
Production Work Prirgraa and Hud-cf shall mean the production wink program
and budget prepared pursuant to Article 13.6.
Profit Crude Ol is defined in Article 26.1.
Profit Natural Gas is defined m Article 26.1.
Profit Prlroleum is defined in Article 26.1.
Proposed Contract is defined in Article 14.10(a).
Public Company means u public company duly register**! and incorporated in the
Kurdistan Region and regulated by the GOVERNMENT under the Kurdistan Region
Oil and Oas Law.
Public Officer means a civil .servant, including a member or employee of a public entity,
a member of the Kurdistan National Assembly ur a member of the GOVERN Ml NT.
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Quarter means a period of three (3) consecutive Months starting on the first day of
January. April. July or October respectively.
Reservoir means a subsurface ruck totmaiioii containin'’ an individual and separate
lutural accumulation of producible Petroleum characterised by a single natural prenuc
system.
“R” Factor is defined in .Article 26.4.
Royalty is defined in Article 24.
Second Exploration Wells is defined in Article 10.3 (b).
Semester means a period of six (6) consecutive Months starting from the first day of
January or July respectively.
Senior Representatives is defined in Article 42.1(a).
Subcontractor means any entity of any contracting tier providing services and/or
undertaking works relating to the Petroleum Operations directly or indirectly on
behalf or. the CONTRACTOR or any CONTRACTOR Entity.
Sub-Period and Sab-Period* arc defined in Article 6 2.
Taxes 11tears ail current or future levies, duties, payments, charges, impositions,
imposts, withholdings, fees, taxes (including value added tax or other sales or
transaction based tax, corporation rax. income tax. capital gams tax. stamp duty, land
tax. registration tax. capital and wealth tax. profit tax. dividend tax or withholdings,
transfer tax. customs duties branch or permanent establishment tax or withholdings,
tax on income from movable capiuil aixl fixed tax on transfers) or contributions
payable to or imposed by the GOVERNMENT.
Third Party Interest is defined in Article 4.8
Third Party Participant is defined in Article 4.9
Work Program moms any work program prepared by, or go behalf of, the
CONTRACTOR pursuant to this Contract and forming part of an Exploration Work
Program and Budget and/or an Appraisal Work Program and Budget and'or a Gas
Marketing \kork Program and Budget rnxl'or n Development Work Program and
Budget andor a Production Work Program and Budget.
Vice-Chairman is defined in Article 8.1.
In this Contract, unless the context otherwise requires or is specifically otherwise
stated:
(a) headings are to be ignored;
(b) “including" and similar words do not imply any limitations.
(c) singular incltnlcs plural and vice vena and
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(d) reference to an “Article" is to nr article of this Contract and to a ParaGraph”
is to a paragraph in the Accounting Procedure.
au riCLB 2 scon: 01 tiii: contract
2.1 liiis Contract is a production-sharing arrangement with respect to the Contract Aren,
whereby the GOVERNMENT has iIk' right, pursuant to the Constitution of Iraq, to
regulate and oversee Petroleum Operations within the Contract Area.
I hr purpose of this Contract is to define the respective rights and obligations of the
Parties ami tlic terms and conditions under which Uk CONTRACTOR shall carry out
all the Petroleum Operations.
My entering into this < ’ontrucl, the GOVERNMENT grants the CONTRACTOR the
exclusive right -hkI authority to conduct all Petroleum Operations in the Contract Aren
as detailed in Article 3.
2.2 Upon the CONTRACTOR’, request, tlic GOVERNMENT shall provide and/or
procure all Permits relating to the Petroleum Operations required by the
CONTRACTOR to fulfil its obligations under this Contract, including those relating
to any extension and renewal periods and including those required by the Government
nl Iraq. I lie GOVERNMENT (i) represents and warrants to the CON TRACTOR
that it has not done mvl has not omitted to do anything that would cause the
cancellation or suspension of this Contract or any Permit granted under this Article
2.2 or pursuant to this Contract; and (ii) covenants that it will no; do. or omit to do,
anything that would cause the cancellation or suspension of this Contract or any
Permit granted under this Ankle 2.2 or pursuant to this Contract For tlic avoidance
of doubt, nothing in this Ankle shall affect the rights and obligations of tlie Ponies
pursuant to Article 43.
2.3 The CONTRACTOR shall conduct nil Petroleum Operations within the Contract
Area at its sole cost, risk and peril on behalf of the GOVERNMENT, pursuant to this
Contract, including ihe following operations
(a) Technical .Services
Implementation of all technical, human and material resources reason «M>
required for execution of the Petroleum Operations, in accordance with
prudent international petroleum industry practice.
(b) Financial Serv ice.
J]te responsibility lot funding tlic Exploration Operations and. in the event of
a Commercial Discovery, Development, Production and Decommissioning
Operations, pursuant to this Contract.
For the funding of Petroleum Operations, each CONTRACTOR I'.nlily shall
be entitled lo have recourse to external financing from either its Affiliated
Companies or from any third purties.
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(c) Administrative Services
Implementation of all appropriate management and administration livlimqucs
for execution of the Petroleum Operations under this Contract. in accordance
with prudent international petrol com industry practice.
2.4 During il* terra of this Contract, the CON PKACTOR shall he responsible to the
COVKMNMEN r for the conduct of Petroleum Operations within die Contract Area
pursuant to the terms of this Contract.
2.5 Notural resources other than Petroleum shall lie excluded from the *opc of this
Contract, even if the CONTRACTOR discovers any such resources when executing
its obligations pursuant to this Contract
2.6 I ho CONTRACTOR shall only be entitled to recover Petroleum Costs incurred
under this Contract in the event of a Commercial Discovery. Recovery of Petroleum
Costs shall occur within the limits provided under Article 25.
2.7 During the temi of this Contract. Profit Crude Oil und/nr Pnifit Natural Gas produced
Ifnm I'ctrolcum Operations shall be shared between the Parties in accordance with tin*
provisions of Article 26.
2.8 for the execution of Petroleum Operations under Ihiv ( ontract. the (’ONTRACTOR
slull have tlie right to;
(a) freely access and operate within the Contract Area, as well as any facilities
KODciukxl w ith the Retnilcun Operations, wherever they may be located.
(b) freely me arm roads located within the Contract Area and outside the
Contract Area for the construction, installation, maintenance. operation and
removal of ppdinos and other facilities required lor the Petroleum
Operations.
(c) freely use sand, water, electricity and any other natural tc»«iurv.e» located
inside or outside the Contract Area for the Petroleum Operation'.
use any qualified foreign and local personnel and’or Subcontractors required
for the conduct of Petroleum Operations in accordance with Articles 22 und
23. Any foreign personnel working in the Kurdistan Region shall require prior
authorisation of Hie GOVERNMENT (such authorisitkm not to he
■urowbly delayed or withheld) und the GOVERNMENT shall obtain any
authorisation required by the Govenanent of Iraq;
(e) imp.ir any goods, matcnalv equipment andor services required for the
Petroleum Operations in accordance with .Articles 19.22 and 3% and
If) freely use Und or property belonging to the Kurdistan Regan, and the
GOVERNMENT will rast the CONTRACTOR with facilrurm* the me hy
the CONI RACTOR of any private property in the Kurdistan Region
1*11*
ARTICLE 3-CONTKAC I AREA AND SUB-AREAS
3.1 I'lie initial Contract Area covers the lluwldi nrwi mul extends ovci nil arid of unc
llnms'iml live hundred and thirty tivn si|iuirv kilometres (1532 km'l. as detailed and
indicated on ihc map attached in Annex A and is delimited by the following
coordinates:
Longitudo (dog Y(mN,
Latitudo (dog min X(mE)
■Mlm
A Sfet- 1C®
A *33032
B 362429 434120 382700 4030000
- {
fc 301805 435110 307000 4016000
D1 361706 440032 411000 4010000
r - ■ 301045 440930 424306 4004160
E
F 360?SO 435343 405000 3990005"
n a moo 1Q7QQ4 3991022
JDDOaD
360521 434318 364915 399450?
H l --------- ■***
1 360247 433708 375!>07 _ JM9979
I ■ i |
1 1 rut a 4035038
«# JOl VAy 433310 360010 400W88
K 361354
L 361146 433507 3/2800 4006700
* 361727 434125 362400 *017000
N 361646 433301 4019675
O 3C2225 433158 366376 ' 4026373
the UOVI RNMEVT, by execution of din Contract, hereby validates and nfprovts
I ho foregoing c««-ordinaies of the ( ontract Ami
The total area of the Contract Aresi may he reduced only in accordance with the
provisions of this Centra.--
3.2 The initial CuOraci Area comists ot four |4) Contract Sub-areas : I law lei. KhabaL
I hour Uagh. and Zab. Those C.miran Solvere*. :«e detailed oo the reap attached in
Annex B and those Contract SuK areas aw delimited by tft lodewing coordinate* :
Hawfcr:
Rom, I Xtmt Yt-tM)
I
ii
A 361708 440032 4110CO 4016000
361046 440930 424306 4004160
C 300256 435043 405000 3990000
r° 360653 435031 395807 4000982
16/118
d* Xtr.fi Y(*N)
--- 403378ft
433032
DimirUaeb ■ j n B 5 B
Y(mN)
4017000
382400
A 361727 434125 m " A 405000 3000000
0 360259 i ‘IJvtnj 3H/H91 1981022
c 358825 4.15703
0 361146 | 433607 372600 4008/00
Z«b:
Point' (dog X(mE) V(mN>
A 3813C4 433310 JUjj < 7
B 361148“ 433507 ‘ 372600 4006TOO
C 360521 4S5iS 384815 9M4S82
~6~ 433705 * 375507 3909979
E 36*0^9 432733 361433 4009036
ARTICLE 4 OPTIONS OF GOVERNMENT PARTICIPATION AND THIRD
PARTY PAR nClPATlO.N
4.1 n«e GOVERNMENT shall have ihc option of part Kipling through a PuMn
C «T*f*> « ihn Comet. ■ respect of the enhrr ('unifact Ami. a» a
CONTR ACTOR F-arv. m* aa urvhvidrd interest ia die IVtmloar Operabooi mi
aU Jk other dutka. obiifauuns »d iiaMit.es of the CONTRACTOR (byc as
prvARkd m aiiJ ■d'od u» thia Article 4» under Has Contract in m**xt of Hie Contract
Area, of tip to thirty-five per cent 05%). and net less than five per cent <5%» (the
“Govern*eat Interest ). soch option being referred to herein as the "Option of
Government Parlkipatma''. I hc GOVERNMENT shall be entitled to exercise Ihc
Option of novemmmi Participation by notifying the CONTRACTOR in writing of
such election mid the size of tlic Government I merest-
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4.2 The GOVERNMENT may exercise the Option of Government Pari ioipotion at any
lime in the ixsriod commencing on the Effective Dutc and ending one hundred and
eighty (1X0) days alter the dale on which CONTRACTOR declares the first
Commercial Discovery (which date of declaration is referred lo heroin iis ihc "First
t oinmercial Declaration Date”), by nominating to the CONTRACTOR, in writing.
ii Public Company. If the GOVERNMENT does not notify the CON I KACTOR of
such election within such period, the Option of Government Participation shall he
deemed to have been waived, save for in relation to any pre-emption rights to
participate that may be granted pursuant to Article 3d.2.
4.3 If the GOVERNMENT exercises the Option of Government Participation in
accordance with Articles 4.1 and 4.2:
(a) the effective date of such participation shall be the date of the notice by which
the GOVERNMENT exercises its Option of Government Participation or tire
First Commciciul Decimation Date, whichever is the earlier;
(b) the Public Contpuny shall iKirticipie .is a CONTRACTOR Entity under this
Contnici from such effective date, with all its rights, duties, obligations and
liabilities under this Contract, save as provided in and subject to the provisions
of Ibis Article 4;
(c) the Public Company sluill not huve any liability to the other CONTRACTOR
Entities to contribute its Government I merest share of all Petroleum Costs
incurred before the f irst Commercial Declaration Date and its Government
Interest sliurc ol Mich Petroleum Costs sluill be the responsibility of the other
CONTRACTOR Entities, provided always tlat such other CON I K At I OK
Entities sliall be entitled (through the CONTRACTOR) i<> inm-r .ill .i*l
Petroleum Costs in accordance with Article 25;
(d) if, pursuant to the terms of the Joint Operating Agreement, the Publ:«
Company participates in the development of tlie Coinmrtci i I >iwo\cry. ii
shall be liable to the other CONTRACTOR Entities lo contribute i .
t lovornineiit Interest share of all Petroleum Costs intuited on or after the first
Commercial Declaration Date, with the exception of the Production bonuses
referred to in Article 32. and shall be entitled (through the CONTRACTOR)
to recover all such Petroleum Costs in accordance with Article 25. including
the Petroleum Costs which it lias reimbursed pursuant lo Article -1.1 (e),
(c) if such Option or Government Participation is exercised on or alter the l iist
Commercial Declaration Date, the Public Company shall, within thirty (30)
days ol tlk' date on which the GOVERNMENT notified the
CONTRACTOR of its election, reimburse the other CONTRACTOR
Entities lor all Petroleum Costs for which it is liable pursuant to Article 4. 3(d)
ami which huve Ireen incurred by such other CONTRACTOR Entities on or
after live first Commercial Declaration Date but prior to and including the
date of the notice pursuant to which the GOVERNMENT exercises its Option
of Government Participation. From the date of such notice, the Public
Company sluill pay the Government Interest share of such Petroleum Costs
directly;
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(f) if the GOVERNMFN l exercises ils Option of t lovemment Participation after
the First Commercial Declaration Date, llu* CONTRACTOR shall make
available to the Public Company u drawdown facility to cover the Government
Interest equity sluue of up lo the amount of three hundred million Dollars
(IISS 300,000.000) to cover the Government Interest share of
CONTRACTOR'S costs from the First Commercial Declaration Date. Cost
shall he recovered by the CON TRACIORn.s u Petroleum Cost; and
Government Intern so assigned shall he deemed to be held by the
GOVERNMENT and in accordance with the principle in Article 16.13. the
Public Company will he individually and separately liable (and not jointly and
severally liable with the other CONTRACTOR Entities) to lire
GOVERNMENT for its obligations, duties nnd liabilities under this Contract
ns a CONTRACTOR Entity and the provisions of Article 4.5 shall apply.
4.4 I lie Public Company may. ;ii its discretion, assign pail in all of its Government
Interest to a third party or parties which is another Public Company duly authorised
by the GOVERNMENT, provided that in no event shall a Irunsfer be made which
would result in the transferor or transferee holding less than a five per cent (5%)
participating interest.
In the event of such an assignment in another Public Company, for the purposes of
Article 37 of the Kurdistan Region Oil nnd Gas l aw. the Government Interest so
assigned shall deemed to be held by the GOVERNMENT and in accordance with the
principle in Article 16.13, the Public Company to which such Government Interest is
transferred will be individually and separately liable (mid not iointly m>J sever illy
liable with the oilier CONTRACTOR Entities) to lire GOVERNMENT for its
obligations, duties and liabilities under this Contract us n C'ONTR ACTOR (•'< uty an !
the provisions of Article 4.5 shall apply.
4.5 Any failure by the Public Company to perform any of its obligations or to vmsfy uu>
of its duties or liabilities under tliis Contract as a CONTRACTOR Entity shall not be
considered as a default of the other CONTRACTOR Entities and shall in no ease be
invoked by die GOVERNMENT to terminate this Contract or exercise any other
rights or remedies in respect of such default that may be available to it.
The capacity of a Public Company as a CONTRACTOR I mity. as it may arise
pursuant to the provisions of this Contract, shall in no event cancel or affect the rights
of the other CONTRACTOR Entities to seek to settle a dispute or to refer such
dispute to arbitration or expert determination in accordance with the provisions of
Article 42.
4.6 A Public Company may assign part or all of ils Government Interest to a third party or
parties (not being a Public Company) and for the avoidance of doubt flic provisions of
Articles 39.1. 39.2 and 39.3 shall not apply. Any such assignee shall be jointly and
severally liable with (lie other CON I KACTOR Entities.
For the avoidance of doubt, following any assignment by a Public Company of nil or
part or all of a Government Interest to a third parly which is not a Public Company* in
19/1 IK
accordance with the provisions ol this Article 4, the provisions of Ankles 39 I, 39.2
and 39 3 shall jpplv lo any suh-ojiaan assignment of such interest
4.7 Where a Joint Operating Agreement lias Urn executed by the COMUACTOK
Emilies prior to any exercise of the Option of Oovernmem Participation pursuant to
tins Article 4. ihc Public Compuny nominated by the GOVERNMENT shall hecumc
a pony to *uch agreement. with any amendment* necessary to be consistent with ihc
principles ol this Article 4. Where a Joint Operating Agreement is nor in place pfior
to the exercise of thr Option ol Government Participation puruant to this Article 4.
the Public Oenpanv and the other < OMR ACTOR Entities shall, within a
reasonable period of lime, negotiate in good fuilli and enter into u Joint Operating
Agreement and shall during live period between the exercising ol' the Option of
Government Participation and the execution ot the Joint Operating Agreement,
comply with Article 4 14(a) and (b) as tftbey were provisions of this Contract
4.X I he GOVERNMENT shall have the option of nominating a third party, in respect of
cacti Contract Sub-on*. as a CONTRACTOR Entity, with an undivided interest in
I lie Petroleum Operations in respect of that Coninu-i Sub-area and all live nth. r rights,
duties, obligations and liabilities of tl»e CONTRACTOR (wvc us provided in and
subject to this Article 4). under this Contract in respect of the Contract Sub-area, of up
to, hut not including, /croper cent (0%) and ik»I less than zero per cent (0%) (the
“Third Party Interest-). such option being tdetrai to herein aa the Optica cf
Third Party Participation .
4 « The GOVERNMENT may exercise the Option of Thud Parly Participation for c*h
('unmet Sub-area m any time poor to the date twdvc (12) months following the
Effective IhMe by nominating to the CONTRACTOR in writing, the M/e of the
I hird Party Interest and a nominated enwp---y which h-t* adequate resources and
capacity to dmhage the ohiiy..ik«to of a CONTRACTOR Entity under this Cunttact
in respect of that Contract Sub-area and a Joint Operating Agreement in respect
thereof
He tore the expiry of a period of eight (X» months (such period c«H!imcnnng upon the
Effective Date) the Parties shall have caused to have commenced, and prior to the
expiry of the twelve (12) month period following the Effective Itoc. hove fullv
completed, an investigation earned out into such nominated company in respect of.
and K cordai.ec with, tlie standards and requirements of the United States Federal Law
Foreign Corrupt Practices Act of 1977 (as may he amended from time to time), ard
the Partin, acting reasonably, shall he fully satisfied with thr remits of such
investigation. In the event that the Parties are m. satisfied, the nominated company
shall be deemed the I hird Party Participant
For the avoidance of doubt, the GOVERNMENT may only exercise the Option ol
Third Party Participation once for each C ontract Sub-area, in respect of one Third
Party Participant only for each Contract Sub-area, and alter ash exercise the resulting
Third Party Interest mar not be increased under this Article 4. However, m the event
2011*
thal the r»*> na:cd company doc*. m*» loJfil the enk-ria set out in this Article 4.9. the
GOVERNMENT shall:
(a) hive the option, upon tlx.- formal rejection of a nomination, to nominate u
second company (such company not fo he an Affiliate of any previously
nominated compuny) and die criteria set out in this Article 4.9 shall be applied
to such Nexond company. provided tli.it tin- twelve (12) month period ret out in
this Article 4.9 shall continue to run Ifom the Effective Date and shall not be
[**sipencil, rt- started or in any other way altered: and
(b) in the event that such second company shill noi. in the opinion of the Parties
I acting reasonably) fulfil the criteria set out in this Article 4 9. nominate, and
the CONTRACTOR shall accept, n Ihiblic Company as tltc Third Party
Participant.
l or the avoidance ol ilouht. for the purposes of this Article 4 9. a Public Company
sliull be a wholly owned entity of the GOVERNMENT
4.10 If the GOVERNMENT nominates a Third Pany Participant pursuant to and in
accordance with Articles 4 K und 4.9, that I'hinl Party Partici|mnt sluill have the Third
Purty Interest.
4.11 II the GOVERNMENT does not nominate n Third Parly Fur ticipunt pursuant to and
in accordance with Articles 4.8 and 4 9 then the Option of Third Party Participation
shall be deemed to have been waived in respect of the relevant ('outran Sukarea.
4.12 U the Option of Third Parly Participation is cMtrd in accordance w ith Articles 4.8
and 4.9:
(a) the effective dale of such participation shall be the Effective Bare,
notwittenmhng that the exercise of the Option ol I bird Party Participator
under Article 4 8 occurs after such dale.
(h) the Third Party Partiapuni shall, upon signature of a binding and cnfcnxable
instrument of alignment and nuvuimo in respect of this Contract referred to in
Article 39.3. pay to the CON TRACTOR, bv wa> of cleared funds to a bark
•cam* nominated by the CONTRACTOR, an amount csuivafcnt to the
proportion of Petroleum Coats incurred b> lb. CONTRAC TOR in respect of
the relevant Contract Sub-ana up until the date of such payme« attributable k»
the Third Party interest;
(c) upon payment pursuant to ami in accordance with Article 4.12(b) nml the
execution or the instrument referred to in Article 4.12(b). the Third Party
Participant shall participate its o CONTRAC IOR I tilily under this Contract
in respect of the relevant Contract Sub-area ns if it lud ken u
CONTRACTOR Emily from the KfTeeme Date, with all its rights, duties,
obligations and liabilities under this Contiact in iv.spcct of the relevant
Contract Sub-area; uml
(cl) where a Joint Operating Agreement has been executed by the
CONTRAC TOR Entities in respect of the relevant Contract Sub-area prior to
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nny exercise of tlic Option of Third Party Participation pursuant to Artick 4.8
and 4 •). the Hiird Party Participant xlmll. upon signature ol the instrument
retimed V»> in Article 4.12(b). become a port)- to such Joint Operating
Agreement on the terms thereof.
(c) If a Join! Operating Agreement is not in place prior to the GOVERNMENT
exertising the Option ol Hurd Party Paiticipaiion. then the Third Party
PHtkipaot and the other C CONTRACTOR Entities shall within a reasoniible
pend of lime, negotiate in good faith and enter into a Join! Operating
Ay reement and vhall during the period It. wren the exercising of the (tprioo of
Third Parly Participation and the execution ol the Joint Operating Agreement,
comply with Article 4 14(a) and (b» as if they were provisions of this Contract
Onler of ExereWnR Options
4.11 Notwithstanding Articles 4 8 to 4 12. if llw GOVERNMENT exercises the Option of
Govcinmcnt Participation:
(a) after the GOVERNMENT )»•' exercised the Option of Third Party
Participation, the Government Intcicst slutll be assigned under this Article 4 to
the Public Compuny by the CONTRACTOR Entities pro rata to their
respective participating interest' under this Crininat in respect of the relevant
Conlnict Sub-area; and
(b) prior to the GOVERNMENT exercising the Option of Third Pam
Participation, then the Third Putty I merest shall be reduced by a percentage so
as to put the other C ON 1 RAC!OR Entity (other than the Peru* holding
the Government Interact) and the Third Party Participant in the petition they
would have been in had the Option oflhird Party Porticipotion been exercised
before the < *ptic* of Government Parti ripaoor
Joint Operating Agreement PmOrioos
4.14 Any Joint Operating Agreement entered into in relation to this Contract dmll be
consistent with the principles of tht* Artick 4 and shall provide as follows:
(a) ail decisions of any operating committee established under such Joint
Operating Agreement shall require the affirmative vole of an agreed
percentage of participating interests held thereunder, which in am event shall
be not more than revolt* live per cent (75%); and
(b) in the event of a proposed transfer by any CONTRACTOR Entity of part of a
participating interest under soefc Joint Operating Agreement, including ary
Government Interest or Third Parly Interest:
(i) no transfer may he modo which would rwull in the transferor or
transferee holding l««s iluin a five pci cent (5%) participating interest;
(ii) the proposed thud |wrty assignee must demonstrate to tlic reasonable
satisfaction of each of the extant CONTRACTOR Entities that it lus
the liruncM capability to perform it* payment obligations under tlic
(‘ontrset and undo* tlw Joint Operating Agreement; and
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(iii) the proposed third party assignee shall enter inu> nn instrument
siillsfbctory to each of tlw extant CONTRACTOR Entities m. as to
assume and to perform the obligations of tire Ininxtcror.
ARTICLE 5 - OPERATOR
5.1 IV CONI KM TOR hereby designates Norbest Limited to act as the Operator on
behalf of the CONTRACTOR tor tin- execution of the Petroleum Operations. The
CONTRACTOR shall at any time base the right to appcirt another entit> k the
Operator, upon giving the GOVERNMENT not less than thin> (W) days prior
Witten notice of such appointment.
I he CONTRACTOR shall submit to the GOVERNMENT tor comment any agreement
regarding or regulating the Operator's appointment mid its conduct of Petroleum
Operations on behalf of the CONTRACTOR pursuant to this Contract prior to
execution of such agreement
5.3 In lire event of tk‘ occurrence of ciilier of the following, the COVERNMKN I may
require the CONTRACTOR to appoint another entity as Operator as soon as u»
reasonably practicable:
(a) if on order has been pn.vr.1 in court declaring the bankruptcy. liquidation, or
dissolution of the Operator, or
(h) if the Operator termnates the achvitm ureter this Contort delegated to it by the
CONTRACTOR or a material proportion thereof. «hL as a re ill the
CONTRACTOR fails to fulfil its obligations under the Contract.
ARTICLE 6 - TERM OF THE CONTRACT
6 I This Contract corrpnjes an Exploration Period and a Development Period, as defined
bdowt
6J IV bxpl. .ration Pcrkxl 'ball hr for an initial term of live (5) Contract Years.
xr\u viable on a yearly bu s (as provided in Articles 6.5 and 6.6) up to a maximum
period of wxen (7) Contract Year* Marling from the f ffectixe Date. IV initial term
.*f five (5) years shall be subdivided m rwj(2) sub-penock us follow*
(a) an initial sub-pern*! of three (3) Contract Year*- ("First Sab-Period”), and
tb) a second sub-period of two (2) Contract Yean (~See---d Sub-Period l.
each a "Sub-Period” and collectively Sab-Period'”
It is understood that the right of the CONTRACTOR to accede to the next Sub-Period
or any extension thereof shall be subject to fulfilment of the Minimum Exploration
23/118
Obligations or minimum work obligations applicable to Uk previous Sub-Period or
extension thereof (as the case iikis he).
6.3 U linin'
GOVERNMENT, «n arrears an annual surface rental for the Contract Area. as may
he reduced by rc'.inqurdunmt from Line In time pursuant to Article 7, of ten Doll**.
(USMO) per square kilometre per Contract Year (“Exploration Rental"). Such
Exploration Rental shall be considered as a Patmlcum Cost uikI sluilf he recovered by the
COM H \< TOR in accordiutce with the pm\ isiom of Articles I and 25
M If the ('< INTRACTOR divide* not to enter into the Second Sub-Period. it sliall notify
the GOVERNMENT at least lliirty (30) da>» pnoc to the expiry ol the First Sub^
Period and provided that the data from the Pint Exploration Wefl dcwnsualcs U>«
there is ikt reasonable technics case fix drilling the Second Exploration WeH in the
Contract Ana*, the I xptoraCun Period shall expire * the end of the Fb*i Sub-Period,
unless tie hint Sub-Period has favn extended pursuant to Article 6.5 and'ur Article 6.6.
6.5 If the < ON I RACTOll has t ui filled its Minimum Exploration Obligations for a Sub-
Plnod of the Exploration Period but considers that additional work is required prior.
(a) to deciding to submit nn Appraisal Work Program ami Hud get as provided
under Article 12.2 in respect of a Discovery, or
(b) to deciding to declare a Discovers as u Commercial Dixovciy in accordance
with Article 12.6(a) or 14.5(a). which additional work mny include the
picpiuution undtar execution of m Appvmsal Work Program and Budget as
provided untlcr Article 122 and'or Cm Marketing Operations.
the CONTRACTOR will auUnrtkally he entitled to extensions, each of one (I)
Contract Year, of the Dmi xirretu Sub-Period. up to tlie end of the maximum
Exploration Period of wen (7» Contract Years, (as provided in Article 6.2). The
deration shall te submitted in writing io the GOVTRNMINT at k-.«U thirty (30)
days prior to the end of the then current Sub-Period or the end of the then current
extenton (as the arr may be).
6.6 Without prejudice to Article 6.5. u***i expiry of the initial term of the Exploration
Period, if it consider* it has m4 ci.uiplrted its cxpkxafcon cvaiuaiian ol the Cuntrrwi
Area, the CONI RAtlOR du.ll he entitled to an extension of the Secood Sub-
Period. provided it notifies the GOVERN Ml N I in wtitrng at least thirty (30) days
prior to the end of such Sub IVnnd. U^ether with a proposal for a num.-nan work
obligation for such rxLxmon. Any such cxlennoo shall not exceed one (1) Contrml
Yew Upon the expiry of such extension, if it considers it has Sill not complete*! it*
evaluation of the Couturet Aieu. the t ONI RACTOR shall be entitled to a lurthci
exteuMoa of one(l) < ontrnct Year provided that it notifies the GOVERN MEN I in
wTtttrc at least thirty (30) days poor to the end of the wtgmal extenM.m The right of
the CONTRACTOR to accede to the lurthet c*tcrt*an shall N to fuKibnent
of the minimum wwi obligation applicable to the original extension.
6.7 Subtext to Article 6.4. at acv time during the Exploration Period, upon thirty (30) day s
jviw notice io the GOVERNMENT tfce CONTRACTOR shall have the right
24/118
wiUxluw from this Cooua.i provided ihat the outstanding Minimum Exploration
Obligations relating to the then current Sub-Period have been completed in
uccoedmre v.-:* the Contract. or * has jxud n. the GOVERNMENT the ■mounts
specified in Article IOJ or Article 103. whichever is ifpiicabfc to the tbai current Suh-
Perxid
N * If no Commercial Discovery has been made M the end of the I xp 'romion Period
(including any extentom thereof) this Contract shall terminate.
6.9 If a Ducovery b made within the nwnimura Exploration Penod of seven (7) Con trait
Years (as provided in Article 6 2). and if the CONI H ACTOR caw cider* it has no*
had time to complete sufDch-nl Gas Marketing Operations (o declare die Discovery a
Commercial Discovery pursuant to Article 12.6(a) or 14.5(a), the CON IK ACTOR
dull he entitled to request an extenrion of the Explcaution Period (notwithstanding
the maximum pciiod provided in Article 6.2). provided it so requests the
GOVERNMENT in writing at least ihirt> (30) days prior to tlie end of tlic maximum
I xplorntion Period, logctlicr with a proposal for Cias Mnrketing Operations to lv
nndertaken during such extension. It granted by the GOVERNMENT, any such
extension shall not exceed two (2) < ontract Years. Upon the cxpir>' of such extension,
if it considers it lias still not completed it* (nu Marketing Operations relating to such
Discovery, tlic CONTRACTOR sluill he entitled to request a ftirtlwr extension of two
(21 Contract Years provided dial it <> requests tin- GOVERNMENT in writing at
least thirty (30) days prior to the end of the original extension, together with a
proposal for Gas Marketing Operations to he undertaken during such extension
iwvcfrBacai **ir»*j
610 If the C ONTRACTOK considers th.il a Discovery of Crude OH and any Associated
Naiwal Qaili (onuncrci.il I toon-cry. ibe CONTRACTOR shall have the
exclusive right to develop and produce axh Guranetaal Discovery, pursuant U) the
terms of this Cootract I he Devck>pmait Period foe a Coomarial Discovery of Crude
OH ard any Associated Natural (few Aril be twenty (20) yeses commencing on the
dccbr&ion of such Commercial Discovery b> CONTRACTOR. :n accordant with
.Article 126(a). with an uutonulic right lo a five (5) year externum.
611 If the CONTRACTOR a«dc»s that a Ihwflvery of Non-A scaled Natural (ias b
a Commercial Discovery, the CONTRACTOR shall have the exclusive right to
develop and produce such (ommcrvial Itoon.-ry. pursuant to the terms of ihb
Contract The Development Period tor a Commercial Discovery of Noo-Amcbled
NanrJ Gas doll tv twenty (20) yean enran---*tg on the deUarauai of roch
Commercial Discovery by (X)N TRACTOR. in accordance with Article 126(a) or
Article 143(a). with an autimssic right to a five (5) year extotsma.
6 12 If Commercial Production from a Production Area b still possible at the end of its
IVrvdoptneni Perkd as defined in Articles 6.10 o* 6.11 then, upon its request. the
CONTRACT OR dull be entitled lo an extension of such Development Period order
tlv me terms as thotv provided in this Contract. Such requeM Ail be nwlc in
writing by the CON TRACTOR at least six (6) Months before the end of live said
Devdotanent Period.
The term of any such extension of the Development Period shall be;
25/118
(u) five (5) Ycbim for Crude (hi and any Aaaucialed Natural (its, and/or
(b) five(5) Years forNia AawriMlJ Natural Gas
6.13 Hie CONTKACIOK shall have the right to terminate Production Operations tor any
Production Area at any time during the term of this Contract, subject to giving
notice to the GOVERNMENT of at least ninety (901 days Phis Contract shall
terminate on the expiry date of the last Production Arm or when Pinductioo
Operations for nil Production Arens have Icmiuuilcd.
ARTICLE7 - RK1JNQU1SILMEMN
7 1 Subject to the of Art* lev 7.2 aid 7.3. the CONI H \( TOR shall surrender
port"** *'l the Contract Aren as fallows;
(a) ;U the end of the initial tv mi of the Exploration Period referred to in Article
6-2. twenty five per cent (25*-%) of the net area detemuned Wy subtracting the
Production Areas from tlic initial C ontract Area;
(b) at the end of the first extension period entered into under this ( outrun niter the
end of the initial term of the Exploration Period referred to in Article 6.2, ui
additional twenty five pa cent (25%) of the net area determined by subtracting
the Production Areas from the remaining part of the Contract Arm; and
(c) at the end of the Exploration Period (including all extensions thereof), all of
the remaining area that ik not in a Production .Area.
12 for the plication of Article 7.1;
(a) any areas already relinquished pursuant to Ankle 7.4 diall be deducted from
areas to be surrendered; and
(b) the CONI RAfTOR dull have the right to determine the area, shape and
voik-n of the Cemet Area »o be kept, provided that such aareniaed portratei
of the Contract Area .dull he in corraguous Mocks.
73 It the relinquishment referred to in Article 7 I cun only be achieved by including part
of ar Appraisal Area, then theie percentages shall he reduced lo exclude such
Appraisal Area.
7.4 During the Exploration Period, the C < »NTK AC It »M may at the end of each Contract
Year surrender all or any |«n of the Contract Area by written notice «nt lo the
GOVERNMENT at tea* thirty (J0» days ui *Jvancc of the proposed date of
sanonfcr, subject to the provisions of this Article 7.4 Such voluntary surrenders
during the Exploration Pen. J iJv.ll be deemed cxjual to the obligah-y rebrvjuiv mom
referred to unJa Article 7.1. I his Contract shall terminate in the event of the surrender
of the entire Contract Area.
7.5 No surrender provided under Article 7.4 .dull exempt the CONTRACTOR from its
outstanding obligations inter this i ««uract In the event the ( OMRACTOK elects to
surrender the enure C'.mtnirt Area without having fulfilled the Minimum Exploration
26/1 IK
Obligations relating to the then ament Sub-Pcrkxl as provided in Article 10.2 or
Article 103. the CONTRACTOR shall pay 10 the GOVERNMENT the relevant
demanding amoirt as detailed in Article 10.2 or Article 10.3. as the case may be.
7.6 I he botmdarics of the portion of the Contract Area to be relinquished by the
CONTRACTOR shall be communicated to the GOVERNMENT by written notice at
least thirty (50) days in advance of the relevant date for relinquishment, pursuant to
Article 7.1-
ARTICLE 8 - MANAGEMENT COMMITTEE
8.1 A Management Committee -hall be established within thirty (30) days following the
HfTeetive Date l<*r the purpose of providing orderly direction of all matters pertaining
to the Petroleum Operations and the Work Programs. Within such period, each of the
GOVERNMENT and the CONTRACTOR shall b> written notice nominate it*
respective member* of the Management Committee and their deputies.
Tlic Management Committee shall comprise two (2) members designated by the
GOVERNM1 \ I and two (2) members designated by the CONTRACTOR.
Upon ten (10) days notice, each of the GOVERNMENT and the CONTRACTOR
may substitute uny ol ita members of the Management Committee. The churman of
the Mnnagcmenl Committee shall be ooe of the members designated h> the
GOVERNMENT (the “Chairman’’). The vice-chairman of the Mi .igei enl
Committee sluill lie one of the mcmheis designated by T <• CONTRACTOR (tlw
"Vlec-Chairmani'’). In the absence of the Chnirmnn. the Vice-Chairman shall chair
the meeting.
Each Party shall have the right to invite a reasonable number of observers as deemed
necessary to attend the meetings of the Management Committee ir a non-voting
capacity.
8.2 The Management Committee shall review, deliberate, decide and give advice,
suggestions and recommendations to the Parties regarding the following subject
matters:
(a) Work Programs and Budgets;
(b) tlie CONTRACTOR'S activity reports:
(c) production levels submiUcd by the CONTRACTOR, based on pruden:
international petroleum industry practice:
(d) Accounts ol Petroleum C osts:
(e) procurement procedures for potential Subcontractors, submitted by the
CONTRACTOR in accordance with Ankle 193;
(0 Development Plan and Budget for each Production Area;
(g) any matter having j material adverse affect on Petroleum Operations;
27/118
(h) nny other subject mailer of a material nature I hr Humes arc willing to
consider.
8 1 Each of the GOVERNMENT and the (‘ON IR \
the Management Committee. Ihe Management Committee cannot validly deliberate
union each of the GOVERNMENT and die CONTRACTOR is represented by at
least one (1) of its member* or its deputy.
The Management Committee shall attempt to reach unanimous agreement on any
subject matter being submitted In the eveni ihe Management Committee cannot
reach unanimous agreement, a scomd meeting shall be bdd within fotaken (|4> day*
Except a* provided foe in Article 1.4 and Article 8.5. m the event that no agreement is
reached ut the second meeting, die Uiainnun Khali have the tie-breaking vole.
8.1 In tin- cvoiil dial, during ihe Exploration Period, no agreement is reached at tl»e mxnnd
mceiing of ihe Management Committee, us provided for in Ankle 8 l. or unanimous
approval is not obtained, as required pursuant to Artklc 8.5; then the proposal nude
by the < ONTRACTOR shall be deemed adopted by the Management ( ommitlcr
8.5 Nolwithwimding ihe provisions of Article 8.3. mid subject in Article 8.4. unanimous
approval of the Management Cummilloc sh nil be required for:
(a) approval of. and any material revision to. nny Exploration Work Program and
Budget prepared after ihe first Commercial Discovery m the Ptrxhaakm Area
reLnmg to such Ccnuncrcial I>jootc») .
(b) approval of. and any material revision to. the DevcUqimcni Plan, die
production sciicdule. lifting schedule and IVvclopmcnl and Pr«*duction Work
Progiani' and Budgets;
(c) establishment of rules of procedure for the Management <.-nmirtee;
(d)
«) ijipruv.il of. and any material revision to. [xecircmcnl pnaxdures for goods
anchor »ervk«. submitted by the CON IKACTCIR in irconlnnee with Arack
19J (unless such promises have »xvn ikemed approved by the Management
tfi Committee in antrdancc with Arock 19 tl;
appvoval of. ami any mmenal revision to. any fxv^a.-cd pipeline projixt.
vuhmiiuxJ by CONTRACTOR in accordance with Article 33.3;
<8>
approval of a first rare bonk in which to place the Ikcommivimmg Reserve
Find, in accordance with Axode 38.1.
(h) approval ot aaJ any material revision to. any proposed Dccnmmisaccmg Plan
submitted punumt to Artick 58.7 on any Deeommissiccinij Work Program and
Budget or Gas Marketing Wctk Program and Budget;
28MI8
(i) any Term*. of Reference which it required u» be prepued and agrwxl lor the
|wrp«n« of expen detenu, rolx«. pur-auait lo Article 42.2;
(j) approval of any custs in excess of ten per cent (10%) above any Budget; and
ik) any nutter having a material aJime cftcct on Fctroleuni (>paautt.
1.6 Ordinary mcciinp of the Mn^nm C .armittec shall take place n the Ktadistan
Region. alternately at the offices of the GOVERNMENT and those of the
CO.M KACIOH or irt any other location ugrrod between Parties, .it least twin* n
Contniet Your prior to the date of the first Commercial Discovery and three times a
Contract Yew tliereafier.
X .7 Either the GOVERNMENT or the CONTRACTOR may call on extraordinary
meeting of the Management Committee to discus-, important issues or developments
related to Petroleum Operations, subject to giving reasonable prior notice, specifying
the matters to be disctmixl nt the meeting. to the other Party I he Management
Committee mny from time to time make decision* by correspondence provided all the
membem have indicated tltcir approval of such decisions in such correspondence.
8.8 l Inlets at least one (I) member or its deputy nfeneh of the GOVERNMENT .ind the
CON I RA
period not to exceed eight (8) days. The Party Ik mg pa-sent shall then notify the other
Party of the new date time and locution for tin* nxvtinp
8.9 I Ik* iigcndn for meetings of tlie Management ( otnmittce shall be pa-pared by the
CONTRACT OR in accordance with instructions of the Chairman and communicated
to the Parlies at least fifteen (15) days prior to the dale of the meet in* Ihe agenda
shall include any subject matter proposed b> citlteT the GOVERNMENT or ihe
CONTRACTOR. Dacisnin «»t the Mnnagrroect Committee will he m*Je ax the
meetings. Ihe CONTRACTOR shall be responsible for preparing and keep mg
minutes of the decision* made at the rmetingv Copies of such minutes shall be
forwarded lo each Party f* review and approval. Each Party dull review and
approve such minutes within ten (10) day* of receipt of tlie draft minute* A Party
who faib to notify in writing its approval or disapproval of such mini** within such
ten (10)days shall be donned to hove approved the minutes.
8.10 If required, the Management t '<>mntOce may request the creatwc of a techrocal w h-
committee or any other subcommittee to assist it. Any such auhommsltae dull he
composed of a reasonable number »»f experts from the GOVERNMENT and the
CONTRACTOR After each meeting, the technical subcommittee or my other stih
committee shall deliver a written report to the Management Committee
8.11 Any emb and expenditure acutcd by the CONTRACTOR for of die
Management Committee or any tevhncs or any
shall be considered as Petroleum Cm6 and shall be recovered by
CONI RAC TOR in accordance with the pros riiont of Articles *nd 25.
29018
AKI M If 9 - CUARANTERS
I nch CONTRACTOR Entity kIwiII provide- Ik- GOVERNMENT, if so required by
the laitci pursuant Hi written notice received hy the CONTRACTOR Emily within
thirty (30) duys of the l-'lUvtivc Dale, with a corporate guarantee in a form as shall he
agreed in good faith between Hr (JOVERNMKNT and each CONTRACTOR Entity
no* later than ninety (90) chi>» after the Lffcxlivc Date, provided that such corporate
giAirantci shall he given only in respect of the Minimum Financial Commitment for Ik
Fire Sub-Period and shall expire automatically upon completion of the performance of
the Minimum Exploration < thligations set out in Article 10.2(d) and (c) or expenditure ol
-arh Minimum Financial Commitment, whichever is the earlier..
Not later than sixty (60) days alter the commencement of the Second Sub Period. each
CONTRACTOR Entity shall provide tk- GOVERNMENT, if x> required by the
latter pursuant to written notice received b> tk CONTRACTOR I otity within thirty
(30) days of such commencement date, with a corporate guarantee in
(n) Uk form substantially agreed hetween (lie GOVEKNMEN1 and each
CONTRACTOR Entity for tk- Find Sub Period, if any. subject to making the
changes necessary in order lor the corporate guarantee to apply only to t‘ >
Second Sub-Period, nr
(b) if tlierc is no agreed form, in a ferrr as dull be agreed in good lakh between
the GOVERNMENT tuid each CONTRACTOR 1-jitit) not later Own ninety
(90) days after the GOVERN MEN I * notice.
und provided in each case tluit such corporate guarantee shall be given only in respect
of the Minimum Financial Commitment for the Second Sub-Period and that such
corporate guarantee shall expire automatically upon completion of Ik performance of
the Minimum Exploration Obligations set out in Article 10.3 (b) or expenditure of
such Minimum Financial Commitment, whichever is the earlier.
In the event of an assignment by a CONTRACTOR Entity in accordance with
Article 39, the relevant third party assignee shall provide the GOVERNMENT, if so
required hy the latter pursuant to written notice given to such assignee within thirty
(30) days of the Effective Dale, with a corporate guarantee in the form agreed
pur'iiani to Article 9.1 or 9 2. ax applicable to the then current Sub-Period or. in the
absence of any soch agreed form of corporate guarantee, in a form os shall be agreed in
good faith between die GOVKKNMKNI und such assignee not later dun ninety (9(1)
days after tk effective elute <»l tk assignment, provided dial such corporate guarantee
shall be given only in respect of die Minimum I mam ml (Commitment for tk then current
Sub-Period, and shall expire automatically upon completion of the performance of Ik-
Minimum Exploration ()hiigAliun« set out in Articles 10.2(d) and (e) or Article 10.3(b). ns
tk case may k. or expendit .re of such Minimum financial Commitment whichever it
the earlier.
30T18
ARTICLE 10-MINIMUM EXPLORATION WORK OBLIGATIONS
10.1 Thu CONTRACTOR duill nI.iii I xpkmtfion Operations within thirty (30) days of
Management Committee approval of the Exploration Work Program and Budget m
accordance with Anidc K I he CONTRACTOR shall perform geological,
geophysical and'or drillm}’ w«>rk» as provided under Articles Ift? to 10 J (the
“Minimum t xplorutiofl Obligations", If applicable. the said Minimum Exploration
OWigntioiw shall be perfonned during each Sub-Period in accordance with prudent
international petroleum industry pmclice.
10.2 During the Tint Sub-Period, the CONTRACTOR shall
(a)
carry out gEOtagiial and gciphysical studies, uxnprraq? ds: Mknsmg-
(i) the compilation of a technical database;
(ii) the performance of a remote sensing study:
(iii) a field visit to verify initial geological and geophysical work and
remote sensing results and plan lor two dimensional seismic
Acquisition; and
curry out n duta search for existing dntn specific to this Contract Area,
< 1*1
comprising die following;
well data, if available, for example, electric logs;
(ii) seismic data and gravity data, if available: and
(iii) reprocess seismic data, if available*,
(O perform field work c**mprising simciural. i
Id)
acquire, proc** and interpret one thousand (1000) I me kilometres of Iwo
dimension.!! seismic data within tlac Contract Area, onmnittiag for this
purpose a minimum financial umouni of five million Dollars (USS
5.000.000); and
(e» drill three (3) fcxplueaooo Weds (the F**l WHkT within
Contract Area, eocrratnng fer thj
■Uioo DoUora (USl I S^OOdJtlO).
10.3 During the Second Sub-Period, the COM RA< IC >K xlusll:
(a> acquire, process and .nk-ipret further sofanfc data (being either two
dimensional or three dimensional). it the CONTRACTOR comiders that the
results from die Rat Exploration Wells justify the ao|Usiti.Ki of further
seismic data; and
(b) drill two(2) Exploration Well* (the “Sccand Exploration Wilts") committing
for this piaposc a miiuiiaan financial amount of ten mills «i Ihdlars (USS
31/118
10.000.000), union die data from the HrM Exploration Wells demonstrate ilm
there is nut ■ reasonable technical case for drilling the Second Exploration
Wells in the Contract Area.
10.4 Notwviaaand ng thr pKNukus in Antics 102 to I0J. for tlic execution of the
Minimum Exploration Obligations under Articles 10.2 to 10.3, it is agreed as follows:
<;i) Minimum I xpkiration Obligations in Ihe Second Sub-Period shall only apply in
the event the CONTRACTOR h..s not elected to notify the (sOVKRNMENT
ib.it it will not enter into the Second Sub Period. in accordance with and
subject to Article 6.4.
(b) Subject to Article 10.4(a), the CONTRACTOR shall be required to meet its
Minimum Exploration Obligations lor tltc rqipliciihle Sub-Period, even if this
entails exceeding the Minimum financial C 'ommrtmcnl toe such Sub-Period If the
CONTRACTOR has sail'tin I its Minimum Exploration Obligations without
having spent the total Minimum f-uuncial Conunilment for such Sub-Period, it
vluill be deemed to have tstinlkd its Minimum Exploration Obligations for
such Sub-Period.
(c) l och Exploration Well shall he drilled to tl»c depth agreed by the Management
Committee unlem
(i) the formation is encountered at .i lesser depth than original!)
anticipated;
tii) basement u encountered at a lesser depth than originally anticipated;
(in) in the CONTRACTOR’S sole upiiuon continued drilling of the
relevant Exploration Well prcsrxas a hazard due to t'w pr^etacc of
abnormal or unforexen conditions;
liv) insurmountable technical problems arc encountered rendering it
impractical to cor, acne drilling with standard equipment; or
(v) petroleum formatoos are encountered whose penetration require*
laying protective casing that does not enable the depth *jwd by the
M.aii|Mi»ni Gnonincc to be reacted.
If drilling is stopped for any of the foregoing reasons, the Exploration Well
shall he deemed to have been drilled to Ihe depth agreed by the Management
Committee and (he CONTRACTOR shall be deemed to have satisfied its
Minimum Exploration Obligations in respect of the Exploration Well
Id) Any geological or geophysical work carried out or any ttmtnlc data acquired,
processed or interpreted or any Exploration Well drilled or any other work
performed in excess of the Minimum Exploration Obligations and/or any
amounts spent in excess of the total Minimum Fir-incul ( ooinmmini in any
given Sub-Period, stall be earned forward to Ihe next Sub-Period or any
extension period and shall he taken into account to satisfy the Minimum
Exploration Obligation? and/or the total Minimum Financial Commitnient for
such subsequent Sub-Period or extension period
32/IIS
(i*) Tor the avoidance of doubt, if: (i) in the first Sub Period, the
CONTRACTOR perform* any of the Minimum Exploration Obligations
prescribed for the Second Sub-Period in Article 10-3; and (ii) the
CONTRAC TOR has not elected to notify the COVTRYMENT that it will
not alter into the Second Sub-1'cnod (in accordance with and subject to Article
6.4), the performance of such Minimum Exploration Obligations shall be
deemed lo wlixTy the anme Minimum Exploration Obligations for the Second
Sub-Period
ARTICLE 11 - KXPLOKA I ION WORK PROCRAMS AND BUDGETS
I l.l Within forty-live (45) days lollowing the Effective Dale, the CONTRACTOR shall
prepare and submit to the Management Committee a proposed work program «ind
budget relating to Exploration Operations (the Tiploration Work Pribram and
Budget") for Uve remainder of the Calendar Year. Thereafter. no later than I October
in each Calendar Year, the CONTRACTOR shall submit a proposed Exploration
Work Program and {fudge: to the Mmuigement Committee for the billowing Calendar
Year.
II 2 fnch Exploration Work Program and Budget shall include details of. but not be
limited to. the following:
(a) work to be undertaken;
(b) materials, goods and equipment to he acquired-.
IC) con csimalc of services Id be provided including services by third part*,
and or Affiliated Companies of ary CONTRACTOR Entity; and
Id I estimated expenditures, broken down by cost centre in accordance with the
Accounting Procedure.
11J The Management Committee shall meet w iihin sixty (60) day t following its receipt of
COKntALTOR i proposal to examine and approve the Fxplomian W.wk Program
and Budget
11.4 If the GOVFJtNMI N I requests any modification to the Exploration Work Program
and Budget, the Management Committee shall meet to discuss the Exploration Work
Program and Dudget und proposed modifications thereto within Uic sixty (60) day
period referred to in Article IU. The CONI RAC I OR shall communicate its
comments on any such requested modification* to the GOVERNMENT at the
meeting of the Management Committee or in writing prior to such meeting.
11.5 The CONTRACTOR shall be authorised to make expenditures not budgeted in un
approved Exploration Work Program and Budget provided that the aggregute amount
of such expenditures shall not exceed ten per cent (IIP*) ol the approved Exploration
Work Program and Budget in any Calendar Year and provided further that such
excess expenditures shall he reported as soon as is reasonably practicable m the
Management < Committee For the avoidance o( doubt all excess expenditure* shall be
33/111
recovered I" the CONTRA* TOR h UOfteee with the provision* o1 Articles 1
und 25. provided tlui any ouww expenditures above the ten per cent (10%) limit shall
only be recovered with tin- unanimous approval ol the Management ( mnmillce.
I l.h In case* of emergency, the CONTRACTOR may incur such additional expenditures
as it deems necessary to protect life, environment or property. Such additional
expenditures shall be reported promptly to the Management Committee For the
avoidance of doubt such additional expenditure shall he considered Petroleum Costs
and shall he recovered by the CONTRACTOR in accordance with lire provisions of
Articles I and 25.
ARTICLE 12 - DISCOVERY AM) DEVELOPMENT
111 If the drilling of an Exploration Well results in a Discovery. the CONTRACTOR
shall notify the GOVERNMENT within lorty-eight (48) bourn ol completing tests
oonfliming the presumed existence of such Discovery or within such longer period as
(lie < 'ONTRACTOR reasonably requires to dotvnnine whether or not there is a
Discovery. Within thirty (30) dnya Following notification of the said Discovery, the
CONTRACTOR shall present to the Management Committee all technical data then
available together with its opinion on the commercial potential of the suid Discovery
(the *'Discovery Report”) The CON I RA< I OR shall provide in a timely inuncr such
other infunnatioo relating to the Discovery ax the GOVERNMEN T mny reasonably
request.
112 If. pursuant to Article 111. the CONTRACTOR amsuicr. that the Discovery has
conmcrcial potential it shall, withm ninety (90) days following acmfrcaCoo to the
GOVE K>MI N r of the Discovery. suborn an appraisal program m respect ol the
Discovery tthe ‘ Appraisal Work Program and lludgri' • to the Management
Committee. The Management Committee shall examine the Appraisal Work Program
and Budget within thirty (30) days of its receipt. If the GOVERNMENT requests any
modification to the Appraisal W'ort Program and Budget, the Management
Committee shall meet to diwuss the Appraisal Work Program and Budget and the
requested modifications thereto within sittv (60) days fruru its receipt of the prepused
.Appraisal Work Program and Budget. The CONTRAITOR shall communicate rtx
comments on any such requested modification! to the GOVERNMENT at the
meeting of the Management C ommitlce or in writing prior to such meeting.
The Appraisal Work Program iiihI Budget sliall include the following:
(a) an appraisal works program and budget, in accordance with prudent
international petroleum industry practice.
(h) an estimated time-frame for completion of apjauisil works: and
(u) the delimitation of the area to be evaluated, the surliice of which shall not
exceed twice (2 x) the surface of the geological structure or prospect to be
fl'asol (the “Appraisal Area").
34/118
PV6
12.3 If. following a Discover), a rig acceptable 10 ihc CON rRACTOR in available to dnll
a welL ihc CONTRACTOR inay drill a»> additional hxploration Well or am
Appraisal Well deemed necessary f»y the € OKI RACTOR before or during the
Mimpntcnl Cfl---illBt'i review of the Discovery Report provided in accordance
with Article III or its review of the Appraisal Work Pn^rarn and Budget.
Ihc CONTRACTOR shall he authorised lo incur expenditures not budgeted «n an
approved Appraisal Work Program and Budget provided that the aggregate amount of
such expenditures shall not exceed ten per cent (10%) of tlie uppimed Appraisal
Work Program and Budget in any Calendar Ycur ami provided further that such
excess expenditures shall be repotted bb »wii b.s is reasonably practicable to the
Management Committee. frn the iivoidancr of doubc all excew expenditures shall be
recovered by tlie C ON I RACTOR in accotdaucc with the proviriom of .Articles I
and 25. provided that any excess expenditure* above the ten per cent (10%) limit shall
only he recovered with the unuiiiinouK approval of the Management Committee.
\ppraisal Kcpyft
12.4 Ihc CONTRACTOR shall submit a detailed report relating to tlie Diwxivety (the
‘’Appraisal Report") to the Management Committee within ninety (90) days
following completion of the Appraisal Work Program und Budget
12.5 I lie Appmisol Report shall include tlie following
(a) geological conditions;
(b) physical properties of any liquids.
(c) sulphur, sediment and water content.
(d) type of substances obtained;
(f) production forecast per well: and
(g) a preliminary estimate of recoverable rcsen es.
12.6 Together with its Appraisal Report, the CONTRACTOR shall submit a written
statement to the Management Committee npccil'y ing that:
(a) the CONTRACTOR has determined that live Discovery is u Commercial
Dtscovciy;
(b) the CONTRACTOR has determined tin* the Discovery is not a Commercial
Discovery;
(c) the CONTRACTOR hns determined that the Discovery is a significant
Discovery, which may become a Coniiiioroinl Discovery subject to additional
exploration and/or appraisal works within or outside of the Appraisal Area, or
35/118
(d) tlic CONTRACTOR has determined that the Discovery is a Mgnificiini
Discovery ofNon-AsMKialal Natural tins, which may become n ( onimercinl
I >i wo very subject to tins Marketing Operations in accordance with
Article 14.5.
12.7 In cose the statement of the CONTRACTOR corresponds to Article 116(c). the
CONTRACTOR shall submit a Work Program and Budget to Uic Management
('•Nnmitlcc within thirt) (30) days following such statement. Any well drilled to
evaluate the said significant I >iscovcry shall ba considered an Exploration Well.
118 If the I JiKOvoy has hern declared a Commercial Discovery by the CONTR \CTOR
pursumU to Article 12.6(a) or Article 14 5(4). the CONTRACTOR dioll Mibmit a
proposed Development Plan to the Management Commiltee within one hundrod
eighty (180) days following such declaration. I he Devdopmeni Plan shall be in
iHvunliince with prudent iniernational petroleum indudry practice. Except with the
consent of the GOVERNMEN T, such Development Plan shall include details of the
following as applicable:
(a) the delimitation of ilk- Pnxluction Area, taking into account the results of the
Appraisal Report regording the importance of the Petroleum Field within the
Appraisal Area.
(b) drilling and completion of Development Wells;
(c) drilling and complcuor of water or Natural C»as injection wells.
(d) laving of gathering pipelines;
(e) insui lotion of separators, tanks, pumps and any other associated production
and injection facilities for the production:
(D treatment and transportation of Petroleum to the processing and storage
fueilmcs onshore or otTshorc;
«j) laving of export pipelines inadc or outside the Contract Area to the storage
facility or Delivery Point.
t i) plan for the utilisation of Associated Natural (>*s;
(j) training commitment in accordance with Article 23;
Ik) a preliminary decommissioning and site roturtf km plan;
(I) all contracts and arrangements made or lu be mude by the CONTRACTOR
for the sale of Natural this;
(tn) to the extent available, all contracts und arrangements made or to be made by
Persons in respect of that Natural Gas downstream of die point at which it is to
3^118
he sold by the C ONTRACTOR and which ure rdevnnt to the juice at which
(and other term* on which) it is to In- sold by the CONTRACTOR or me
otherwise idevinl to the detcrminotion of the value of it for the purposes of
this Contract, but not beyond the point at which it is fir* disposed of in an
Arm's I ength Sale;
(o) any oilier operations not expressly |>rovid«l for in this Contract but reasonably
necessary for Development Operations. l*roduction Operations and delivery of
Petroleum produced. In accordance with prudent international petroleum
iixkrtry j-eactice.
!29 fbe V4joeoinil Cornmincc shall use its best gfibns to approve the Development
Plan within sixty (60) days after its receipt of such plan. The Development Period for
each Commercial Discovery within a Development Plan dull be extended for the
number of days in excess of such sixty (60) .fcsv period that it takes for (he
Management Committee ht approve the Development PI®. The Development PI®
shall be considered apjHovul by the GOVERNMENT if the GOVERNMENT,
tlirouy.li its representatives on the Management Committee, indicates its approval in
writing.
12.10 If the GOVERNMENI rcx|ucsis any modificutlons to the Development Plan, then Ihc
Management Committee shall meet within sixty (60) days ol receipt b> the
CONTRACTOR of the GOVERNMEN IT written notification of requested
modifications accompanied by all the documents visit tying such request, ard slwli
discuss such request The COM k ACTOR shall communicate itaev nment* on my
such requited modifications to the GOVERNMENT at such meeting or in writing
pru* to such meeting. Any nmdilk .ition approved by the Management Committee at
such meeting or within a fiutltcr period of thirty (30) days from the date of such
meeting shall he inaxpofnicd ink) the Development Plan which shall then be deemed
approved and adopted.
12.11 If the CONTRACTOR makes several Commercial Discoveries within the Contract
Area each such C ommercial Discovery will have a separate Production Aren IK
CONTRACTOR shall be entitled to develop and to produce rnrh Commercial
Discovery and the GOVERNMENT shall provide the appropriate Permits covering
each Product n m Area In a»* the area covered by the Commercial Dimes cry extends
beyond the boundaries of the Contract Area, and to the extent such area outside the
Contract Area « not the subject of a Petroleum Contract (as defined in the Kunlwtin
Region Oil and tias law) with a third party, the prov isiorts of Article W 2 Anil apply
ARTICLE 13 - DEVELOPMENT AND PRODI
HIDCET
HI Upon the approval of the Development Plan by the Management Committee, the
CONTRACTOR shall start the Development Operati«TO for tK Commercial
[>iscovcry in accordance with the Development Plan and prudent international
petroleum industry practice
37/111
132 Within ninety (90) days following approval of the Developmenl Plan by the
Management Committee, the CONTRACTOR shall prepare and submit to tin-
Management Committee a proposed work program and budget for Development
Operations (the "Development Work Program and Budget") to be curried out in the
Production Area for the duration of the Development Operations I here a Per. no latei
than I October in each Calendar Year, the < ON’I RACTOR shall submit to the
Management Committee updates in respect of its Development Work Program and
Budget. To enable the Management Con mi it tee to forecast expenditures, cadi
Development Work Program tutd Budget slmll include details of (lie following:
(a) works to be carried out;
(b) material and equipment to be squired by main categories.
(e> type of services to be provided, distinguishing between third parties und
Affiliated Companies of any COM RAC TOR I ntity; and
(d) categories of general and administrative expenditure.
13.3 If any modification to the Development Work Program and Budget is requested by
the GOVERNMENT, the Management Committee slk.il meet to discuss the
Dcvel.ipm.iit Work Program and Budget and pi of-mod modifications thereto within
sixty (60) days from its receipt of the proposed Development Work Program and
Budget. Mu* CONTRACTOR shall communicate it* comments «»n any such
requested modification* to the GOVERNMENT ul the meeting of the Management
Committee or in wriung pea* to such imvtiny
134 The CONTRACTOR stall be authorised Id inew cxpovfinicj nrt budgeted in an
approved l^vekpnent Work l»ropram and Budget provided that (hr aggregate
amount of such expenditure Roll not exceed ten per cent (10%) of the proved
Development Work Program and Budget in any Calendar Year anJ provided further
that such excess expenditures shall he reported at toon as b reasonably practicable to
the Management Committee for the avoidance of doubt, all excess expenditures
shall be recovered by the < ONI M ACTOR in accordance with the pro visions or
Article* I and 25. provided that any cxccas expenditures above the ten per cent (10%)
limit shall only be recovered with the uturomo* approval of Ac Management
13.5 In cate* of emergency, the C ONI RAC KIR may incur -atch additional expenditures
as it deems necessary In protect life, environment or property. Such additional
expenditures shall he reported promptly to the Management Committee. For the
avoidance of doubt, such additional expenditure duill be considered Petroleum Costs
and shall be recovered by the CONTRACTOR in accordance with the provisions of
Articles 1 and 25.
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IV6 No later than 1 < fctobcr of the Calendar Year preceding thr estimated commencement
of production puraiani to an approved Development Plan and thereafter no later thnr
I October in each Calendar Year, the CONTRACTOR dull prepare and submit to
the Management (•miniitiec a proposed work program ml budget for Production
Operation* (the Production Work Program and Budget") for the following
Calendar Year. To enable the Manaj.-nert (omennee to facufl expenditure*. the
Production Work Program and Budget dull include detail- off the foil owing
(a) wab to he carried out;
(b) material and equipment to be acquired by main categoric;
«c) type of services to be provided, distinguishing between third pernios and
Affiliated Companicsofany CON I'KAt TOR Entity: nnd
(d) categories of general aod administrative expenditure
13.7 II any modification to the Production Work Program and Budget is requested by the
GOVERNMENT, the Management Committee shall meet to discuss live Production
Work Program and Budget an»l proposed modifications thereto within :
from in receipt of the proposed Pioduclion Work Program and Budget Hie
CONTRACTOR shall communicate its comments on any such requested
modifications to the GOVERN MEN r at the meeting of the Managemert Committee
or in writing prior to such meeting.
13 * The CONI H ACT OR shall be authorised to incur expenditure- no* budget cxI in an
approved Production Work Program and Budget provided that the aggregate amount
of such expenditure* .shill not exceed ten per ccm (10%) of tl*c ajiproved ProductMin
Work Program nnd Budget in any Calendar Year and provided further thm such
excess expenditures dial I he reported as soon an reasonably practicable to the
Management < •nominee Kor the avoidance ofdoutx. all execs expenditures shall he
recovered by the CONTRACTOR in accanhnce with the provide** of Article* I
«d 25. pro' »ded dial any cxcc«* expenditure above the ten per cent (10%) limit shall
only be recovered with the unanimous approval of the Management Committee
13 9 In eases of etra-igency, the CON TRACTOR may incur such additional expenditure
as it decna necessary to protect life environment or property. Such additional
expenditures shall be reported promptly to the Management Committee For the
avoidance of doufc. wish additMmal expenditure shall be considered Petroleum t «*sts
and shall he recovered by the CONTRACTOR n accordance with the provi-»«B of
Articles 1 and 25.
13 10 .After the commencement of Commcrcoal Product).m the CONTRACTOR shall pa'
to the GOVERNMENT, in arrears, an annual surface icnul for the Production Area,
of one hundred Dolton (US$100) per square kilometre per Contract Year
I Prodactioa RentaT)- Such Production Rental shall he considered as a Petroleum
Cos and shall he recovered by the CONTRACTOR in accordance with the
provisions of Articles I and 25.
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AH I in » 14 - NATURAL HAS
14.1 To laic account of spentic conditions relating to Natural Gat and to promote Ms
development it the Ktmfcflan Region, ’-he GOVERNMENT will giant qioafic
henefus to the CONTRACTOR on principles maicrially similar u» daw contained in
this Contract including, umsiMmi with the Kurdistan Region Oil and Gas Law. more
generous provisuim in respect of the recover) ol Petroleum Costs and Ihc during of
Profit Petroleum than in respect of Crude Oil.
14J> The CONrRACTOH may free*) me am Natural Ga> reared to, the Petroleum
Operations If Icclir .ally and «wk«ncaDy justified, the CON IK VfTOR shall in
priority use an) Natural Gas for the purpose of enhancing recovery of Crude Oil in
accordance with prudent international petroleum industry practice as follows.
14.J Any cxccn A »v erased Natural In* produced (hat is neither used in the Petroleum
Operations not develop*! nd sold by the CONTRACTOR dull, upon the
GOVERNMENT* written request, be transferred m the first practicable delivery
point as agreed between the Panics free of charge to the GOVERNMENT. In such
ease, the GOVERN M KM dull be solely responsible for colltxling, treating
compressing und tnnspnrting such Natural Gas from such agreed delivery point and
shall he solely liable for any jJd in nal direct .md indirect costs associated therewith
The cootinKtkm and operation of required facilities as wdl as the offtake ol such
cxcc-n Associated Natural Gas by the GOVERNMENT shall occur in accordance
with prudent international petroleum industry practice and shall not interfere with the
production, lifting and transportulion of Ihc Crude Oil by the CONTRACTOR. For
the avoidance of doubt, all expenditure inclined by the CONTRACTOR up to such
agreed delivery point shall be considered Petroleum Colts und shall be recovered by
tlK CONTRACTOR in accordance with ihc provisions of Articles I ami 23.
In the event the GOVERNMENT finds n mariet for Associated Natural Gas. it shall
piumptly give written notice to the C ON I KA< TOR. and the CONTRACTOR muv
elect to participate in supplying Mich AsMieiulod Natural C.hs wiihin ninety (90) days
following notification thereof by the GOVERNMENT. If the CONTRACTOR
elects to participate in supplying Associated Natural (ins to such market, all
expenditures associated with any necessary lacilitios shall be paid for by the
CONTRACTOR For the uvoiduncc of doubt, such expenditure incurred shnll be
considered Petroleum Costs and shall be recovered by the CONTRACTOR in
accordance with the provisions of Articles 1 and 25.
Non Associated Natural Gas
14 4 Until an approved Natural Gas sales contract i.x executed in respect of all volumes of
Natural Gas expected to be produced, the CONTRACTOR shall be entitled during
the Exploration Period and the Development Period to carry out <«* Marketing
Operations.
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14.5 If, pursuant to Article 12.6(d). the CONTRACTOR hits determined that the Discovery
is u significant Discovery of Non-Associatcd Natural Gas. which muy become it
Commcroinl Discovery subject to C *iih Marketing Operations, it sltnll carry out Gas
Marketing Operations, at the end of which it shall submit a written vuttcnieiit to the
Stoupemeai Committee specifying tful
(a) the CONTRACTOR has Jeter mined that the Di«ovciy is a ( otnmercial
Discovery, or
lb) the CONTRACTOR lias determined that the Discovery is not u Commercial
Discovery.
14.6 Tor the purpose of this Contract. “Cm Marketing Operation*' means any activity
under this Contract relating to the marketing of Non-Atsocuicd Natural <«as.
including any evaluation to find a commercial market for such Ncrt-AsMicaaUsi
Natural Gas and’or to find a commercially viable technical means of extraction of
such Non-Associated Natural Gas and may include activiti.»related to evaluating tire
quantities of Non-Assocuicxi Natural Gas to be sold, its quality, the geographic
location of potential markets to be supplied as well ut evaluating the cost* of
production, transportation and distribution of the Non Associated Natural Gas Iron
the Delivery Point to the relevant market
14 7 All costs and expending incurred by the CONTRACTOR in the performance of the
Ktivhies in relation to the tins Marketing Operations shall he considered Petroleum
Costs.
14.8 No later Ihun I October of the Calendar Year preceding the Calendar Year m which
any Gas Marketing Operation* me due to occur, the CONTRACTOR shall prepare
and submit to the Management Committee its Gas Marketing Work Program ml
Budget for the following Calendar Yoar. To enable the Management Committee to
forecast expenditure*, the Gas Marketing Work Program and Budget shall include ihc
following:
(a) works to lie earned out;
(h) type of services to be provided, distinguishing between third panics and
Affiliated companies of any (OMR At I OK huMy; and
(c) categories of general aaj admimstraliv e cspenditiac
If any modification to the Gas Marketing Work Program and Budget is requeued hy
the GOVERNMENT, the Management Committee shall meet to discuss the Goa
Marketing Woik Program and Budget and proposed modifications thereto within sixty
(60» days from its receipt of the proposed Ga& Marketing Work Program and Budget.
The CONTRACTOR shall comnuaiK.aH' it> comment. m imy such requeued
modifications to the GOV ERNMENT at the mcctu* of the Management Committee
or in wniing prior to such meeting
14.9 Ihc COM HACTOR shall be aulhoibed to incur expenditure* not budgeted in an
approved Gas Marixtuig Work Program and Budget provided that the aggregate
amount of such expendixurc 'hull not exceed ten per cent (10%) of the approved (ns
41/111
Marketing Work Program nntl Budget in any Calcniliu Year ami provided further thut
such excess expenditures shall be reported as soon ns reasonably practicable to the
Management Committee. For the avoidance of doubt, all excess expenditures shall he
recovered by the CONTRACTOR in Accordance with the provisions of Articles I
and 25. provided that am excess expenditure above the len per cent (10%) limit shall
only he recovered with die unanimous approval ot the Management ( 'otnraiuee.
14.10 If any Non-Associated Natural (ias is discovered within the Contract Area, and the
CONTRACTOR reasonably considers th.it the Non-Associated Natural Gas
Discovery will only be n Commercial Discovery il certain terms of this Contract are
amended, it shall be entitled to request amewhiK'nls to this Contract with its realms
The GOVERNMENT dull in good faith give rca»waMe conaderarioB to the
CONTRACTOR'S prq*
faith attempt to agree on the necessary ame>ulm<
unable to agree on such amendments, and the Exploration Period expires without the
CONTRACTOR having declared such Discovery ui be a Commercial Discovery in
accordaixv with Article \2.6(*) or -Article 14 5(ak and subsequently within a period
of eight (I) yeas from the end of swh rxplarahon Period, the GOVERNMENT
reaches < pcrmenl with any third party to dock? *>ich D xovery (the “Gas
Dc\rUpm««r ». then the following provisions shell apply:
(a) either before or upon agreement in relation to the Gas Development having
been reached
prvxluction during and/or operating or other like agreement», hut bet ore such
agreement is signed (the “Proposed C •ulmrt ') (subject only to the rights of
each CON TRACTOR Entity to pre-empt such Proposed Contract pnranant to
Article 14.10(b) and such conditions as may he applicable), the
GOVERNMENT shall, as soon as lawoniibly practicable filler the occurrence
of such circumstances, serve on each of the CONTRACTOR Entities, ii
notice to that oftcct and ahull with such notice provide such information and
main terms of such agreement as the CONTRACTOR Entities may
reasonably request In determine if they will exercise their rights (the “Abroad
Terns"), including:
(i) the identity of such third party;
(ii) the effective date of the Proposed Contract;
(in) the applicable commercial terms, including bemuse*. royalties, awl
recovery, profit .sharing, taxation and any other similar terms: and
(iv) all and any material condition* to which the Proposed Contract il
subject.
(b) Upon a request from any C ON TRAC II >R Entity, the GOVERNMENT will
provide all the CONTRACTOR Entities with such further inlormatior onJ
terms as may be mmuM) requested by any CONTRACTOR Entity.
Within iuc hundred .md eighty days (ISO) days after receipt of a notice arJ
.an father information under Article I4.I0U) in rdatnei to a Proposed
extract each of the CONTRACTOR Hi*him shall elect either:
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(i» to enter into the Proposed Contract on the snmc or substantially similar
u-nns to the Agreed Tciiiih, with the right to cost recover all Petroleum
Costs incurred under this Contract against all Petroleum revenues
received under the Proposed Contract up to any cost recovery limits
out therein; or
(ii) to waive the aforesaid tight of pre-emption in relation to the Proposed
Contract.
and shall serve notice accordingly upon the GOVERNMENT and nil the
CON I RAC row Entities and in default of receipt by the GOVERNMENT
of any such notice within such |
such CONI RAt TOR Entity ahull he deemed conclusively to have served a
notice electing to waive its aforesaid right of pre-emption in relation to the
Proposed Contract
(c) In the event that more than one of the CONTRACTOR Entities exercises its
rights under Article I4.l0(b)(i) in relation to the Proposed Contract, :hen the
GOVKRNMKN I shall transfer or grant each such < ONTRACTOR Entity
an interest in the Proponed Contract upon the Agreed Terms (in accordance
with Article !4.lO
percentage interests bear to the aggregate of their rosfwtive percentage
intervals under the relevant Joint Operating Agreement (a> it applied at the end
of the Exploration Period) or in such other proportions as such
( ON TKA< TOR Entities shall agree between them.
(d) In the event lliut one of the CONTRACTOR Enlitic* cm ci.w-n its rights
under Article !4.10(b)(i) in relation to the Proposed Contract then tlac
GOVERNMENT shall inmsfcr or grant the whole of the intero* in the
Proposed Contract upon the Agreed Tains (in accordance with 14 IO|h»(i)) lo
such CONTRACTOR EiHhy.
(c) In tlie event that none of the CONTRACTOR Entities exercises its rights
under Article I4.l0(b)(i) llien iIk* GOVERNMENT may enter into the
Proposed Contract on terms no more favourable lo its countei|»urty limn tlio
Agreed Terms and. in such ease, lire aforesaid rights of pre-emption shall
thereupon cease to apply in relation to the Proposed Contract.
I4|| If the pre-emption rights in Article 14 10 .in- not exercised and the GOVIRN.MEN I
enters into ihe Proposed Contract with the third party uoncemod. tin-
GOVERNMENT will use its best endeavours to avoid any effect which may hamper
the Petroleum Operations of tlie < < )NI KACTOK while producing Petroleum.
FlariBU
14 12 riortng of Natural <«s in the course of activities provided for under this Contract, is
pn4iibiied exivpt (i) short-lenn flaring tor a tlaring period of up lo twelve (12) Moiitlw
necessary lor lesnng or other opcrntionaJ or emergency reasons in accordance with
|inxknt international petroleum industry practice (which sfuill include the flaring of
Associated Niilunil (ins to the extent tlie CONTRACTOR considers that re-injecting
Associated Natural fins is not justified technically anti economically and provided the
43,118
tk. p.10
GOVERN Ml N r decides not to take each Aranciatad Natural Gas), or (u> wdh the
prior ■ulfcnriMbon of the GOVERNM» > f. such .uthcrisaaor not to he nuwuhh
withheld or delayed. The CONI KACTOR shall submit Midi tv**-* to the
GOVERN Ml N I’, winch shall include an evaluation of raramahk alternatives to flaring
that have been considered along with infcwmnlian on the amount and quality of Natural
Gas involved and the duration of Itx1 requeued Haring
ARTICLE 15- \CC Ol MIX. AND ALDUS
15.1 The CONI KACTOR shall keep in •«' «•fliers m the Kiuduan Region copies of all
hooks and accounts of all revenues relating to the Petroleum Operations and nil
Petroleum Costs (tin- "Accounts"), except during tlie fvxplonition Period, when the
CONTRACTOR ahull be entitled to keep tlie Accounts ui hs headquarters Abroad. Tlte
Accounts slutll reded in detail expendlltnv incurred as n function of the quantities and
value of Petroleum produced. and thill he kept for a period of five (5) yenra. All
Accounts which are made available In the GOV IRNMENT in accordance with the
provisions of this t attract shall be prepared in the English language. The Accounts •itnll
be kept m aocmtnnoe with pnident international petroleum industry practice nnd in
accordance with the provisions of tin- Accounting Procedure. The Accounts slull he
kept in Dollars, which shall lie the rol'erenco currency for the purposes of this
Contract
15.2 Within ninety (90) days following the end of each Calendar Year, tlie
CONTRACTOR shall submit to tlie GOVERNMENT a summary statement of all
Petroleum Costs incurred during the -aid Calendar Yea TV -atrmaiy flakncni >i-a"
also include a profit caktanao puruant to the provisions of Artsle .*f>
IS? The GOVERNMENT shall have the right:
(a) to request an auJit of the Accounts with respect to each t dlcn Air Year within
a period of two (2) Calendar Years following the enJ .4 v*h Calendar Year
(the-Audit Request Period"! and
petroleum inJiKtry accounting practice to undertake or a»rd the
GOVERNMENT to undertake Uk audit.
Notwithstanding paragraphs (a) and
shall have the right to audit the Account* with respect to rack Calendar Year at any
time in die COR of manifest error or fraud
15.4 The luKorie cost of retaining am auditor pursuant to Article 15 J shall V home by
the < ONTRACTOR ^nd treated as a Petroleum Cost for the piaptne of coat recovery
under Articles 1 and 25.
15.5 During the Audit Request Period lor any Calendar Year Itul not thereafter, the
GOVERNMENT, noting reasonably iiiul in accordance with prudent iiileriuitional
petroleum industry practice, may request in writing nil nuMuuihly available
information and justifications for it1- audit of Petroleum Costs
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15.6 Should ihc GOVERNMENT consider, on the haws of data and information available,
that llic CONTRACTOR made a material mistake or there is any irregularity in
respect of the Accounts and considers that any corrections, adjustments or
amendments Should be made, the GOVERNMENT shall make any audit exceptions
in writing and notified to the CONTRACTOR within six (6) Montiis of the date of
request referred to in Article 15.3. and tailire to give such written exception within
such time dull be deemed to be an acknowledgement of the cnTTCctnea of the
CONTRAC TOR S Accounts
15.7 In respect of any audit exception made by the GOVERNMENT in accordance with
Article 15.6. the CONTRACTOR shall then have sixty (60) days to moke necessary
corrections, adjustment' or amendments or to present its comments in writing or
request a meeting with the GOVERNMENT The GOVERNMENT shall within
thirty (30) da>T of the CONTRACTOR** response, notify the CONTRACTOR in
writing ot ito position on the corrections, affustmccu. amendments or uunanents. If
therrallrr them still exists a disagreement between the GOVERNMENT and the
CONTRACTOR, the dispute will he settled in accordance with Article 15.9.
15.8 In aklition to the annul statements of Petroleum Costs as provided in Article 15.2.
the CONTRACTOR shall provide the GOVERNMENT with such production
statements and reports, as required pursuant to Article 16.3
15.9 Any dispuic between the Parties under this Article 15 that cannot he willed amicably
within nxty (60> days of the GOVERNMENT** find iwricc into Artide 15.7, may be
submitted hi an expert on the request of either the GOVERNMENT or the
CON'I KACTOR in accordance with the proviNitmn of Article* 4?.1 Notwithstanding
the provisions of Article 42. in tins specific instance the decision of the expert sliall
not necessarily be final uml either Party ma> decide to submit the mailer to urbitrntion
in accordance with the provisions of Article 42.1.
ARTICLE 16-C ONI RACTOR’S RIGHTS AND OBI.IGATIONS
PgrniaflviH Kviimvnlativc
16.1 If IVH done already, within ninety (90) dnva following the Effective Ode, each
CON TRACTOR Entity shall open an office and appoint a permanent representative
in the Kurdistan Region, who may be conlix led by the GOVERNMENT with regard
to any mailer relating to this Qmd and will be entitled to receive any
cornapoodonoe addressed to such CONTRACTOR Entity.
162 The CON TRACTOR shall carry out all Petroleum Operations in accordance wiih the
provisions of this Contract, pmdent internalwod pc1n4ciini industry (ROicc and
applicable Kurdrstan Region I aw.
The CONTRACTOR dull be responsible for tlx- conduct, management, control and
administration of Petroleum Operations and shull he entitled to conduct Pcinilctini
Operations in accordance with the provisions o( tins Contract. In conducting its
Petroleum Operation*, die CONTRACTOR dull have the right to use any Affiliate
45'118
of each CONTRACTOR Tnliiy. its and their Subcontractors, and the employee*,
consultants, and agents of each of Hu- lorvuoing. The CONTRACTOR and all such
Persons shall ai all times have free access to the Contract Area and any Production
Areas for the purpose of carrying out Petroleum Operanonv
If* » The CONTRACTOR dull provide the GOVERNMENT with pcnodic data and
activity reports roluliug to Petroleum Operations. Said report* shall include detail* of
the following:
(a) information .uni data regarding nil Exploration Operations, Development
Operations and Production Operations (as applicable > performed during the
Calcixl.u Yenr, including an> quantities of Pebotcum produced and sold;
by the CONTRACTOR;
(c) a frtiilcmcnl specifying the nunilwt of personnel, their title, their nationality a*
well ax a report tut any medical services and equipment nude available to such
personnel; and
(d) a icwri|itive stulcmem of all capital assets acquired for the Petroleum
Operation*. indicating the date and jxicc or cost of their acquisition.
Operation*
It. I Ore CONTRACTOR may freely use any Pwmfcun pmdix.-d vodrn the Contract
Area for the Petroleum Operations.
If»\ The CONTRACTOR shall at all times provide rononahlc assistance as nuy
reasonably be requeued by the GOVERNMENT during its review and verification
of records and of any other information relating U> Petroleum t>pcrations nl the
offices, worksites or any other facilities of the < ONI RAC TOR
l pur giving reaxonable prior m*ic* to the CON TRACTOR the GOVERNMENT
may send a icasoruhle number of rvpmeinathes to the work sites or any other
facilities of thr CONTRACTOR in the Kurdistan Region to perfonn such reviews
and verifications Ike representatives of the GOVERNMENT shall at all times
comply with any ulety revolutions imposed by the CON IK ACTOR and such
reviews taxi verifications shall not hinder the smooth progress of the Petroleum
Operations
\cvcvsre_hacfttk.
16 6 For the performance of the Petroleum Operations, the CONTRACTOR, ary Affiliate
of each CON IKACTOR Entity, it' and their Subcontractors and the employees,
consultant* ami agents of each of the foregoing shall at all times he granted free
access to the Contract Area and to any facilities for the Petroleum Operations located
46AII
within (-I (»ulMile ul the Contract Area i»r wiiliin or outside the Production Area, for
the puriHiM’ of currying out the Petroleum Operations.
I ic of facililip
Id? Upon notice Horn the GOVERNMENT, the CONTRACTOR shall make available
to a reasonable numbei of representatives of t!»e GOVERN MKM' those of the
CONTRACTOR'S facilities which arc necessary to enable mkTs representatives to
perform Iheii tusks rduted to this Contract and the Kurdistun Region Oil and (ins I uw
including, in ease of works to he performed on work wles, transportation,
accommodation mid boon!, under the same conditions as those provided by tlic
CON TRACTOR for its own personnel.
Notwithstanding Article 168. the GOVERNMENT shall indemnify and hold
ItantilcHs each CONTRACTOR Entity Against nil losses, damages and liability
arising under any claim, demand, nction or proceeding brought or initialed against any
CONTRACTOR Entity by any representative of the GOVERNMENT in connection
with the access to or uae of tlie facilities by such representatives.
16X The CONTRACTOR shall l»c responsible for any loss or damage caused to Hard
parties by its or its Subcontractors personnel solely and directly resulting from their
negligent*), errors or omissions in accordance with applicable Kurdistan Region Law.
Intellectual Property Right*
U> <* In its tVtmlciim Operations. the CON TRACTOR shall rasped any fsticnts belonging
to third parties
1610 The CONTRACTOR shall as was as rewnahh practicable inform the
GOVERNMENT of any nutcral litigation retain* to this Contract.
Safety
1611 The CON I RACTOR shall implement a health. safety and environment program and
take ncvcNviry measures lo ensure hygiene, health and solely of its personnel carry ing
out lYlmlcum Operations in accordaace with prudrat irtcrnanonal petmletan iaJuflry
pfaciKC.
Said measures shall include fix- following:
(n) supplying first aid and safety equipment for each work urea and maintaining a
Ix-.ilihy environment for personnel;
(b) reporting to the GOVERNMENT within seventy-two (72) hours of such
accident. 3nv accident where personnel bits been injured while engaged in
Petroleum Operations and resulting in such personnel being unable to return to
work;
47/118
/10
|c) implement!iif .1 pninil-to-wvk procedure around huudoos equipment and
installations:
Id) providing safe storage areas for explosives detonators and any other
dangerous products used in the operations;
(0) supplying fire-extinguishing equipment in each work area;
(0 tar the pcepoac <*f taking control of .my Mow i«*r or file which could damage
the environment or fVftofcw f ield, in accordance with prudent incm=iaco*l
petroleum industry practice: and
Ig) for the purpow: of preventing any involuntary uycetKin of Hinds in petroleum
formations and production of Crude Oil and Natural Gas at rates that do not
conform to prudent imcnmiional petroleum industry practice.
16 12 Subject to Article 43.2. m the event the production mtc of the individual wells und
Reservoir of a Petroleum field is to be set below the Maximum Efficient Rate
( MK.R-1 for the Reservoir, as provided far in the IXvolopmeni Plan, as a
consequence of a decision !*>• the GOVF.RNMFN I or any federal or international
regulatory body, the GOVERNMENT undertakes to allocate any such reduction
fairly and equitably among the various operators (including the GOVERNMENT)
then pioducing in the Kurdiwan Region, pro mtn their respective production rates. In
siu'li event, the GOVERNMENT shall grant an extension ol the Development Period
of ary Production Area so affected for a reasonable peimd of time in order to produce
the Petroleum which would otherwise have already been produced, had the MTR for
the indivkhni wells ami Reservoir of the Petroleum field hern nw ntuned
16.13 Ibe respective n»*fua. Jute*, ahligafcacs rod liabilities ol the CONI RAC TOR and
the GOVERNMENT under this Coctracl are m be underwood as being separate and
individual and not joint and several The Parties agree that this Contract shall not
create and shall not he deemed to have created a partnership or oilier form of
association between them
Lifting
1614 The GOVERNMENT and each CO.YIRAtTOK I ntity dull have the righrrod the
obligation to take in kind and *cjwalcly sell or otherwu* dispose of their respective
shares of Petroleum 1 Ipon iippmvul of the Development Plan, the Parties shall meet
as soon as practicable to reach a detailed agreement governing the lifting of Petroleum
by each such CONI KM IOK Entity. Such lilting agreement shall include the
following:
(a) tl*e obligation of (lu« GOVERNMENT und cuclt CONTRACT OK Entity to
lift, regularly Ihrougltout each Calendar Year, their share ol Petroleum
produced front the Production Area;
48.118
(b) notification procedures l»v ihc Operator to the GOV I H.NMKNT and each
CONTRACTOR Entity regarding entitle menu und n variability of Petroleum
Im lilting bv ench Party during each lilting period und nominations by each
Party, and
the right of the Partial u> lift any Available Petroleum not *ticdu!cd for lifting
ard or not lifted by the other Party during each vjdi lifting period.
16.1$ The CONTRACTOR Entities shall sell and transfer to the GOV1 KNMENT. upon
written miuon of the GOVERNMENT, any amounts of Cnidc Oil that the
GOVERNMENT shall deem necessary to meet Kurdistan Region internal
consumption requirement* The sales price of such ( rude Oil shall be the
Inleniaiional Murker Price. The GOVERNMENT shall provide site
CONTRACTOR Entities with not h»s than six (6) Months' advance written notice
of its intention to buy such (’rude Oil.
Payments Khali be made in Dollars rand otherwise on terms consistent with prudent
inter niilioiml petroleum industry practice, und in n timely manner. The
CONTRACTOR Entities obligation to sell Crude Oil to the GOVERNMENT shall
be, with the other operators (including the GOVERNMENT) then producing in the
Kurdistan Region, pro rain to their respective production rmlcn.
I he provisions of this Article 16.15 shall not apply lo Non-Associated Natural Gas.
ARTKT.K 17-USE O* LAND AND EXISTING INFRASTRIK T I Kf
17.1 The GOVERNMENT shall make available to the CONTRACTOR any land or
property in the Kurferan Region required far the Petroleum Operation* provided,
however the CONTRACTOR dull nut request to use any sa* land unles there is
aiustifiaWc need for iL IV CONTRACTOR shall have the right to build and
maintain, above and below ground, any facilities require! I«*r the Petroleum
(>perntions.
17.2 If it becomes necessary for conduct of the Petroleum Operations to occupy and use
any land or property in the Kurdistan Region belonging to third parties, tlic
(TIN TRACTOR shall endeavour to reach amicable agreement with tlie owners of
such land 11 such amicable agiccment cannot be reached, tho CONTRACTOR shall
notify the GOVERN Ml! IS T <>n receipt of such notification:
(a) the GOVERNMEN T dull I determine the amount of compensation to be puid
by the CONTRACTOR to the owner, if occupation will he for n short
duration: or
(b) the GOVERNMENT shall expropriate the land or property in accordance
with applicable Kurdistan Region I .aw. if such occupation will be long lasting
or makes it henceforth impossible to resume original usage of such Innd or
property. Any properly rights shall he acquired by and recorded in the name
of the GOVERNMENT, bur the CON TRACTOR ihaJJ be entitled free uv
*>'118
the land or property foi the Petroleum Operation* f»* tl*- enure duration of
this Contract
The aiikmin til Uic compensation in Article 17.2(a) shall In- liiir nnd reasonable, in
accordance With Article 29 of the KunJisUn Kepi on Oil uml Gm Law. and shall take
into account the rights of the owner and any effective use of the land or property by Its
owner at the time of occupation by the CONTRACTOR. All reasonable costs.
of liar Kiadi-aan Region Oil aid G» law) winch results from such expropriation shall
be borne b> the < OVTRACTOK hoc the avoidaiKC of douK, %uJ» co*s. expenses
and compensation incurred by the CONTRACTOR shnll hr considered Petroleum
Costs and shall be recovered by the CONTRACTOR in accordance with the
provisions of Articles 1 and 25.
17.3 Tor its Petroleum Operations, the CONTRACTOR shall hat* the right in the
kuidistun Region to use. subject to applicable law. any railway, tramway, road,
airport, landing field, canal, river, bodge or waterway, any telecommunications
network and any existing pipelines or transportation infrastructure. on terms no less
fimmmUlt tluin (hiiv offered to otlicr entities and, miles- gmemlly in force, to be
mutually agreed.
17 •! Under national emergencies due to environmental entustrophe or disaster, or internal
or exlern.il war. tlw COVKRNMENT shall have the righl to request to u*: any
Inmsportalion and communication facilities installed liy the CONTRACTOR In
such eases, the request shall originate from the Minister o! Natural Resources. For the
avoidance ol doubt, such costs, expenses oc labilities incurred by the
< OMKUTOk hereunder shall be COUMifcred Petroleum C«4* and shall be
recovered by the CONTRACTOR in accordance with the provisions of Ankles I
and 25.
17.5 For its Petroleum Operations, th. CONTRACTOR shall have the right in the
Kurdistan Rqtimi to clear land, excavate, drill, bore, construct, mvl. place, procure.
storage and diqnml facilities, pnmarv disallaton units <
units, separation units, sulphur plant* and any other facilities or iwullaticms for the
Petroleum Operations, in adifition to pipelines, pumping satioas. generators. r-wrr
plants, high voltage lines, telephone, radio and any other tel ccimmninRii rams system*,
as well as warehouse*, offices sheds, homes foe per*wind, hospitals, schools,
premises. dike*. vehicles, railways. ruwH. bridges, airlines, airports and any olltef
iransportatum facilities. garages, hangars. workshops foundries repair shops and anv
other auxiliary facilities fin the Petodeom Operations anl generally, everything
which is required tor its performance of the Petrolcian OperaUetv I he
CONTRACTOR Ml have the right to select the location for the** facilito
17.6 For its Petroleum Operations, the CONTRACTOR shall have the right in (he
Kurdistan Region, subject to compliance with applicable Kurdistan Region Ijw. to
remove and use the lOfwml. fully-grown timber, clay. sand. lime, gypsum, stone*
(other than precious stones) and other similar v id-stance- as required for its Petroleum
5ans
I :*• < (IVTRaCTOR shall lave the right in the Kurdistan Region lo toko or u*c im
wilier necessary for ihc Petroleum Operations provided ii does not damage any
existing irrigation or navigation systems tuul tlmi land, houses or watering points
belonging t<» third parties are not deprived oflhelr use.
17.7 The GOVERNMENT shall have the right in the Kurdistan Region to build, operate
uml maintain roads, railways, airports, landtag strips, canals, bridges. prrtrctiaa dams.
the ( 'onuacf Area, provided this does nra imru «• the costs, or comprutniMT or have a
material adverse effect on the performance of the Petroleum Operations If the
construction, operation juxI maintenance of such facilities by the GOVKRNMENI
results in increased cost or expense lor ihr I * >NIH M 'FOR then, for the avoidance
of doubt, such cost and cxjwnse •dalI he considered Petroleum Costs and dull he
recovered b> the CONTRACTOR id accordnc with the proviriniH of Articles I
and 25.
17.8 Upon icqucst of the CONTRACTOR. Ute GOVERNMENT shall prohibit tlic
construction of residential or commercial buildings in the vicinity of'facilities used for
the Petroleum Operations that may be declared dangerous due to the Petroleum
Operations and to prohibit any interference with tin use of any facilities required for
the Petroleum Operations.
17 9 Access to the Contract Area may be granted pui a unit to an Access Authorisation, as shall
be defined ia and consistent with, the Kurdistan Region Oil and Gas Law, to authorised
third parties on reasonable terms and conditions (including coordination), including
Persons authorised to construct. install and operate structures, facilities and mSiUatiom.
and to any >«a ahtr wkU provided that nothing in the Access Auth.wi'ution n* m this
Article 17 9 authorise* the holder to drill a Wdl or to perform uny Ktrolcum t Iperabons
■OnactAia
The GOVERNMENT sMI give the CONTRACTOR adequate odv«cc notice of
any Access Automation in respect of the Contract Area and shall rad grant any
Access Authorisation in respect of the Contract Area until it has t iken into account
any submissions made by the C ONTRACTOR nor in such a way that there is undue
interference with i* hindrance of the rights and activities of the CONTRACTOR
ARTICLE It - \SSIVI \NOI FROM THE GOVERNMENT
IX I To the extent allowed by Kurdistan Regain l aw and Iraqi law and at the specific
request of the CONTRACTOR, the GOVERNMENT shall take all necessary step-,
to avast the CONTRACTOR Entities in. but not limited to. the following ureas:
(a) securing any nccrna> Permits fur the use and installation of means of
(b) securing regulatory Permit* m matters of customs or irnpoa export:
(c) '•.curing entry and exit \ ivet. work and resideiK* permits os well as any other
administrative Permits for each CONTRACTOR Entity’s, its Affiliate-$ and
its Subcontractors' foreign personnel (including their family members)
51/118
working in I he Kin.liv.an Region and any other part of Iraq during the
iiiiplcmcn tattoo of this Contract:
anal)sis or processing for the Petroleum Operator*:
(e| relations uiih federal and local authorities and adnimbtratuiris. including for
the purposes of the remainder of this Ank le IS. I;
(0 securing any neccvary environmental Permits.
(pi obtaining any other Permits requested by my CONTRA*TOR Fnrity for the
Pe*nrieum < tperaunns:
(hi acccM hi any existing data and information, including data and information
relating to the Contract .Area held by previous operators or tout!actors; and
(i) pmviding all necessary security foe Petroleum Operations
IH.2 Within the rape of services to be provided under tins Article IS. reasonable and duly
justified expense* incurred b> the (iOYKRNMFYT or jaiJ to th.rd parties dull be
charged to lire CONTRACTOR and shall be considered Petr.rieum Costs and shall be
recovered by the CONTRACTOR as Petroleum Costs in accordance with the
provisions of .Ankles I ami 25
ARTICLE 19 - EQUIPMENT AND MAT» RlAl.*i
19.1 llic CONTRACTOR dull supply, or procun- the supply of. nil materials. equipment
machinery, tools, spate patLs ami nny other items or goods required for lltc Petroleum
Operations (”Ki|iiipim’nl aad Materials”).
19.2 Said Equipment and Materials shall be provided by the CONTRA (TOR in
accordance with the relevant Work l*rograin.s .umI Budgets
19.1 As soon as possible after the Effective Date, the CON I KAt'l tilt shall provide the
Management Committee wilh a copy of ils procedures tor procurement ol Equipment
and Materials tuid/or services l«r the Petroleum Operations .is required by the
provisions of /Article H.2 (e). including die criteria for lender evaluation, which
procedures and criteria .shall l*c in accord.incc with prudent international petroleum
industry practice. If the Management Committee docs not request any modification*
to the procuicrocnt procedures within thirty (30) dav s after receiving such procedures,
the proccdutcs slull be deemrd approved by the Management Committee,
19.4 The CONTRACTOR shall give priority to Equipment and Materials that arc readily
available in the Kurdistan Region and other parts of Iraq to the extent their price, grade,
quality, quantity, specifications, purchase, delivery and other commercial and
technical term* arc comparable in all material rejects with those generally available m
the interluimiuJ petmlcum mdtitfry.
52/118
ARTICLE 20 - TITLE TO ASSETS
20.1 During the Exploration Period, any Avrl* iiujuircd by the < ONI RACTOR lor (he
I’cuolinini Operations shall remain tin- property of the CONTRACTOR, the
CON rKACTOR Entities. their AfffliulcNor their Subcontractors. as Ihc case may be
20.2 During the Development Period, subject to Article 21, all Assets acquired by the
C’O.N TRACTOR lor the Petroleum Operations shall become the property of the
GOVERNMENT upon the completion of ilic recovery or the costs ot all such assets
by (lie CONTRACTOR, or the end of the Contract, whichev er Ik the earlier.
20.1 Iho provisions of Article 20.2 shall not apply to any Assets leased by the
CONTRACTOR or belonging to an Affiliated Company of a CONTRACTOR
Crlity or belonging to its or their Subcontractors or its or their employees
ARTICLE 21 - I Sf OF I IIF. ASSETS
21.1 Each CONTRACTOR Entity shall have llic exclusive right to use, free of any
charge, all Assets described in Article 20. both before and alio recovery of the cost of
the same, lor the Petroleum Operations, tts well ns for any petroleum operations under
Other agreements in the Kurdistan Region to which it or any of its Affiliates is a party,
provided that the Petroleum Operations take priority. Ihc GOVERNMENT agrees
not in transfer or otherwise dispose of any of such Assets without the
CONTRACTOR’S prior written approval
21.2 The CONTRACTOR nay frrrly move to the Contract Aren any Assets from any
rriioquKiwO portion of the (ontraci Area, or from any other area in the KtadisMi
Region.
ARTICLE 22 - SUBCONTRACTING
22.1 The CONTRAC TOR shall craurr that any Subcontractor* it have all
22.2 The CONTKACTOR shall give priority lo Subcaxractarx from the Kunfcaan K*vnn
and other parts of lr*t lo the extent thru c««nprtence. rates. experience, reputation,
qualifications tfracadltcx. credit rating ami terras of availability. delivery aad other
commercial term* arc. in the CONTRACTOR'S sole opinion, comparable in nil
material respects widi those provided by foreign companies operating in the
international petroleum indtttfry Such Subcontractors must be bona fide KurdWai
Reukin companies not related to any Pubbe Officer, duvetiy or indirectly, and must have
all necessary resources and capacity
22.3 Selection of Subcontractors shall take place in accordance with the procurement
procedures submitted by tl»r CON TRACTOR to the Management Committee in
accordance with Article 19.3 and approved by the Management Committee.
22.4 The CONTRACTOR shall provide Iho GOVKRNMKN1 with copies of agreements
entered into with Subcontractors, where their timounl exceeds the limit set by the
Management Committee from time to lime
33/1 It
fjf
AK IICIV 2.3 PERSONNEL, TRAINING, AND TEC IINOLOCIC AL ASSISI ANC I
1'crvninrl
23.1 lor the Petroleum Operations. the CONTRACTOR shall give, ami shall require its
Subcontractors to give, preference to personnel from the Kunliojui Region and other
partii «*f Iraq to the extent such personnel have ilx- technical capability, qualifications,
competence and experience required to perform the work.
- 3.2 I he CONTRACTOR Entities shall give due consideration to the secondment of
GOVERNMENT personnel to the CONTRACTOR Entities and o! Use
CONTRACTOR Entities’ personnel to the GOVERNMENT duimg the various
phase* of the Petrolcuui Operations Terms and conditions for such secondment shall
be mutually agreed by the Panics and am costs associated therewith shall he
considered Petroloum Costs and shall I* recovered by the CONTRACTOR in
aoconlnncc with the provisions of Articles 1 and 25.
23.3 Each CONTRACTOR Fruity and its Affiliates and Subcontract!»rs shall have the
right to hire foreign per-wind whenever the personnel from the Kurdistan Region and
other parts of Iraq do not have the requisite technical aqiahiliry. quaiifxatioiK or
experience for positions to l*c lillud ns required pursuant to Article 23.1 In the event
any such foreign personnel and/or a member of their family engage in activities or
commit nets which breach Kurdi'Un Region Law. the CONTRACTOR shall, at the
request of the NLuugcmcr: (’ominitkv take the necessary step# lo repatriate such
tndividuaJ(s)
23.4 For the lira live (5) Contract Yews, the CONTRACTOR shall provide up to one
million Dollars (USSI.000.000) in advance <--*+ Contract Year to the
GOVERNMENT for the recruitment or •n. -m-nt of personnel, whether fr«»m tl •
Kurdistan Region oilier parts of Iraq or Abroad, to the Ministry ol N.imi Re- m -
The selection of such personnel shall be at the dmcrolHwi of tlx Minuter of Natural
Resources. Such cose shall he considered as Petroleum Costs and dudl he recovered m
accordance with the provisions of Articles I and 25.
Traltiim;
23.5 In a planned way, in accordance with the proviriorat of this Article 23.5 mid Articles 23.6
and 23.7. the CONTRACTOR shall tram all its |»cisonncl from tlx* Kurdistan Region
and other parts of Iraq directly or indirectly involved in the Petroleum Operations f«w
the puipinc of improving their knowledge and professional qualifications in order that
such personnel gradually reach the level of knowlcxlge and profcsakmal qualification
held by the CONTRAtTOR Entities’ foreign workers with un equivalent resume.
Such training dial I also include the transfer of knowledge of petroleum technology and
the necessary management experience so as to eiiuhlc the personnel bom the Kurdistan
Region and other parts of Iraq to apply advanced nnd appropriate technology in the
Petroleum Operations. to the extent permitted by applicable l aw and agreements with
third parties, and subject to appropriate confidentiality agreement*
2« ft In addition to the requirements of Article 23.1. tlic nxniiunent. integration and training of
the CONTRACTOR Entities' personnel from the Kurdistan Region and other parts
of Iraq shall be planned, which plans shall be submitted to the Management Committee
54'll 8
Ifar its approval. Ihc training plan dull take into consideration tic rtx|uireinmtaof Article
23.5 and may include training liir the GOVERNMENT* permnnul, (Spending on the
extent U» which llte amount allocated to the naming plan, ns prescribed h>' Article 23.7. is
available fitter Inking into consideration (he (ruining of the CON TRACTOR Entities'
Kurdistan Region mid other Iraqi personnel.
Within ninety
the Management Committee a proposed training plan for the remainder «l the
Calendar Year I hereafter, no later tluin I October in each ( alendur Year, the
CONTRACTOR sfiull submit a proposed training plan to tlx* Management
Committee for the following Calendar Year.
2.1,7 The training plan referred to in Article 23.6 duill provide for the allocation of the
amount of up to six hundred thousand Dollars (US$600,000) for each Contract Year
during the Exploration Period and up to one million two hundred thousand Dollars
(US$1,200,000) lor cnch Contract Year during the Development Period
2YK Each CONTRACTOR lintity shall be responsible for the training awe* which it may
incur in respect of the personnel it employs from the Kurdistan Region and other part* ol
Iraq. All such iciwmablo costs shall be considctcd as Petroleum Costs and shall be
recovered in accordance with the provisions of Articles I and 25. Costs incurred by
the CONTRACTOR for training programs far the GOVERNMENT’S personnel
shall be borne by the < ONTRACTOR only to the extent that they ore included in the
CONTRACTOR'S training plan, pursuant to Article 23.6 and shall also be considered
as Petroleum Costs and shall he recovered in accordance with the provisions of
Articles I and 23. IV* cost of all other training programs for the C.O\ KKNM1M \
penoand shall he the GOVERNMENT a re*po«v,bd*>
23.9 hram tlx- ,k*- of First Production from the Contract Ana. tl* (ON TRACTOR shall
contribute the amount of six hundred thranind Dollars (I ISSOOO.OOO) each Cootraet
Year during the Exploration Period and onr million two hundred thousand Dollar*
(US$1.200.000) for each Contract Ye* during the DcvdopMl Period into the
environment fund edaHHted b> the CJOVERNMi N T tor the hrncln of the n**al
environment of the Ktadislai Region, pursuant to the Kurdistan Region Oil and Ga»
hv* (the T nvironmcni Fund"). Such amounts shall be deemed 10 be Pttrukun
Costs and dull be recovered in Kconlaice with Aftkfca 1 and 25
23.10 Any expenditue incurred by the CONTRACTOR unifcr this Article 23 shall be
considered Petroleum Cods and dull be recovered in accordance with Articles I and 25.
23.11 Before the end of the fin* Contract Year, the CONTRACTOR dull provide to the
GOVERNMENT in kind technological and logistical assume to the Kurdisiiin
Region petroleum sector, including geological computing hardware and software and
such oilier equipment as tire Minister of Niitural Resources muy require, up lo the
value of four million Dollars (USS4.00D.tl00). The form of such ohm stance sluill In*
mutually agreed by the Parties and any certs associated llwrcwith .sluill he considered
SS/llt
Petroleum Costs and shall he recovered by the CONTKACTOR « accordance with
the provisjonxof Articles 1 and 25.
ARTICLE 24 - ROYALTY
24.1 The CONTRACTOR shall pay totie GOV EKNMENT a portm of Pcsirkuin poxiuetd
and saved from the Contact Area, as provided n this Article 24 (the -Royalty'i
24.2 The Royalty dull be applied on all Petroleum produced and saved from the Contract
Area which i> Crude Oil or Non-Associated Natural Gas. except foe Petroleum used it
Petroleum Operations, re-injected in u Petroleum Field, lost flared tw for Pdndrum that
cannot be used or *ild tnd such Crude Oil and Non-Assnchtui N.iluml (!» (excluding the
excepted Petroleum) -hall be referred to collectively as “Espavt Petroleum and
s^orudy and respectively as Export Crude OtT and ' Export Noo-Vv-iriatcd
24J If payable m ur4i. trv araoux of the Royalty calculated by applying (he Royalty rates
provided under Article 24 4 shall be pod by the CONTRAC TOR as duectcd b* the
GOVERNMENT. in accord*** with Article 24.7.
If payable in kind, the quantity ofKixHt Petrolcan corresponding lo the Royalty and
calculated h> applying the Rovaltv rates provided under Article 24.4 stall be delivered
in kind by th: CONTRACTOR to the GOVERNMENI j the Delivery Point Title raid
risk of loss of the Royalty paid in krad dwll he tnmstcrred at the Delivery PoinL
Unless the GOVERNMENT iwjuirev the Royalty so be paid ui kind, by giving the
CONI KAC I OK not leas thnn ninety (90) days prior written notice prior to the
commencement of the relevant Quarter, the GOVKRNMF.NI dmll he deemed to
have elected to receive the Royulty in lull und in cash for the relevant Quarter.
24.4 The Royally due on any Lxpuit Petroleum produced and saved in the Contract Area
dull !*• determined daily by iipplyinp the following relevant Royally rule, to the
I-sport Crude Oil or to the Export Non-Associated Natural ( i.i> (i^ the cum.- may be)
produced and saved on tlul day;
(a) Far Export Crude Oil;
tl*- Royalty rale fot Export Crude Oil shall be ten per cent (I0%». which, for
the avoidance of doubt, .shall apply regardless of the gravity of the oil; and
(b) For Export Non Assm-iuted Natural Gas:
the Royalty rate for Export Non As*.crated Natural Gas shall be ten per cent
(I0H).
-M-5 Associated Natural Cms und any other Petroleum shall be exempt from any Royally
24.6 |f( pursuant to Article 24.1, the GOVERNMENT receives die Royally in kind, und
puraunnt lo Article 28. the GOVERNMENT request* awistance tor the sale of nil or
part of tile Royally received in kind. ouch COIVI KAC TOR Entity shall assist the
GOVERNMENT in selling ail or port of such Royalty received in kind (belonging to
56/111
the GO'TWNMEM » in consideration of a comnitadon per Burrel pm able lo such
CONTRACTOR Knlity. in nccordance with Ankle 2*
24.7 If. pursuant lo Article .’4.1. the GOVERNMENT receives the Royalty in cash:
(o> any Export Crude Oil shall b< valued at tlic International Market Price
obtained ut the Delivery Point, aadcliird in Ankle 27J;
(b) any Export Non Associated Natural (ms slmll he valued at the actual price
obtained at the Deliveiy Point under un iipprovcd contract, as provided in Article
27.3;
fc) the CONTRACTOR shall pay such Royalty cueh Quarter, in arrears, within
thirty ««)) dnyx of Ihe end of each Quarter, and shall calculate the payment
due tor the relevant Quarter by reference lo the price for the Import Petroleum
at the Delivery Point, determined in accordance with paragraphs tn) and (b)
above, iiihI the Royally due on the l-xport Petroleum, determined in
meordnnee with Article 24.4, for the said Quarter; and
(d) the CONTRACTOR Entities shall he entitled to export freely the volume of
Export PctriJenni corresp«*nding to the Royalty determined in accordance with
Article 24.4 for the purpose of paying the Royalty in cash
Alt riCT-i: 25 H M < »M:RV OF PETROLEUM COST S
25.1 All Export Crude Oil produced and wved from the Contract Area shall, after
deduction of any quantities of Export Crude Oil Joe for Royally pursuant to Article
24 he considered as ’AvaibMe < 'rode OiT
All Associated Natural Gas produced and -aved from the Contract Area, except for
Associated Natural Gas which iv tned in Petroleum Opaationx re-injected m a
Petroleum Kidd. laa. tlared or cannot be used or add. dull be considered us “AvaHs hie
A will ait (I Natural Gas".
AH Export Non-Associated Natural Gas produced .uid saved from the Contract Area
shall, after deduction of any qiaui Hus. of Export Noo-Associated Natural Gas due for
Rtiyahy pursuant to Article 24. be considered as ' Available Nan-Awacialed Natural
Gas"
*Available Petroleum" means Available Crude Oil. Available Awciaie.1 Natural Gas
and Available Non-Associated Natural (in*
25.2 Far the purpose of this Article 25
(a) any Available Crude (Kl dull he vahoad at the International Martel Price
cMained at the Delivery Point, as defined ir Article 272. and
(b) mi) Available Avmciated Nstural Gas and any Available Non A^ociated
Natural Gas shall be valued at ihe actual price obtained at the Delivery Point
under an approved contract. *. pnwidcd in Article 273.
57/11*
25.3 Subject lo the provisions of this (oncract. from the First Production m the Contract
Aren, the CONTRACTOR shall nl all limes be entitled to recover all Petrokum
Costs incurred under this Onm. of up to forty per cent (40%) of Available (rink
Oil (which, for the avoidance of doubt, dull apply regardless of the gravity of the oil)
25.4 and Available Associated Natural Gas, produced and saved within any Calendar Year.
Available Grade Oil above this percentage or otherwise not used for the recovery of
Petroleum Costs shall be Profit Crude Oil.
Subject to the provisions of this Contract, from First Production in tlw Contract Aim
live CONTRACTOR shall at all times be entitled to recover nil Petroleum Costs
incurred under this Contract of up to fifty pc* cent (50%) of Available Noo-
Awnciuted Natural Gas produced and saved within any Calendar Year Available
25.5 Non-Associated Natural Cias above this percentage or otherwise not uaod for the
recovery of Petroleum Costs shall be Profit Natural (his,
For live application of Article 25.3 nnd 25.4. the CONTRACTOR shall keep u
detailed account of Petroleum Costs in accordnnoe with the provisions detailed in Iho
Accounting Procedure. Recovery of Petroleum Costs shall occur in the following
order:
(a) Production Costs:
(b) hxploration Costs (including appraisal costs and further exploration within the
Contract Area);
(c) Oas Marketing Costs;
(d) IN-vcioprr.em Coats; and
25.6 Total recovery of Petroleum Costs during any C alendar Year, expressed in quantities
of Petroleum, shall not exceed the relevant percentages indicated m Articles 253 and
25.4. If in any Calendar Year, the Available Crude Oil and/or Available Non-
AtMocmlod Natural Gas do not allow tlw CONTRACTOR to recover all its
Petroleum Costs pursuant to this Article 25. the amount of un-rccovcrcd Petroleum
25.7 Costs in nuclt Calendm Yam slmll be curried forward indefinitely to the subsequent
< .ilciiil.il Years until nil Petroleum Costs urc fully recovered, hut. save as provided in
Articles 14.10 and JX.4. in no other case after the termination of the Contract
fhc provisions of Articles 27 5 and 27.6 shall \v applied to determine the quantities ol
Available Crude Ol and/or Available Non-Associated Natural (ius due lo the
25.8 C ON I It AC TOR for the recovery of its Petroleum Costs.
rhe quantities of Petroleum corresponding to tlw share of Available Petroleum due to
the CONTRACTOR for tlsc recovery of its Petroleum Costs shall be delivered to the
CONTRACTOR at the Delivery Point lillc and risk of loss of such Available
Petroleum shall be transferred at the Delivery Point
srn*
V.
25 Q Each CONTRACTOR Kniiiy shall be entitled In receive, take in kind and lu export
freely all Available Petroleum in which n is ami lied for recovery of ns Petroleum
(in accordance wilh ihe provisions of this Contract and to retain Abroad any
proceeds from the sale of nil such Available IVtiulcum. Petroleum Coals in each
Production Aren shall be recovered from Available Petroleum from the Contract Aren
25.10 Subject to Article 38.4. lor the avoidance of doubt. Petroleum Costs under this
Contract nre not recoverable against other contract areas hold b> ihe
CONTRACTOR.
ARTICLE 2b-SHARING OF PROFIT PETROLEUM
26.1 Under this Contract,
(a) "Profit Petroleum" means Profit Crude Oil and Prom Natural Gas;
(b) “Profit < 'rude Oil" means die quantities of Available Crude Oil and Available
Associated Natural Ga* produced from tin* Contract Area, after die recovery of
Petroleum Costs, in accordance wilh Articles 1 and 25; and
(c) Pndk Natural Gas“ moan. the quantities of Available Non-Asiociatcd Natural
Gas produced from ihe Contract Area, after the recovery of Petroleum Coats in
accordance wilh Articles 1 and 25.
26.2 From First Pioduclion and m and uhm Petroleum is being produced. the
CONTRACTOR shall he entitled to take a pmentago dare of Profit Crude Oil
sad or Profit Natural (ias in coirotk ration for ii» irvcsancnl in the Petroleum
Operations, which pcmmiape dvarr shall be determined in accordance with .Article
26.5.
26.3 To determine the percentage share of Profit Crude Oil and or Profit Natural Gas to
which the CONTRACTOR is emitted, the “K" Factor shall he calculated in
accordance with Article 26.4 ami dull be applied wrpiuiitcly to the Conti act Arca.
26.4 The -R* Factor shall be calculated as Mows
R = XA
where:
X: is equal to Cumulative Revenues actually received by the CONTR ACTOR;
Y is equal to Cumulative Cosu actually incurred by the i «Pfl RAC I OR. from
the dale of the of lias Contract
For the piapose of tins Article 26 4
Cumulative Revenue*" means total Revenum. as defined below, received by the
COffTRACTOR until the end of the relevant Semester, deternuned in accordance
with Article 26.7.
5*118
Kr» i*u«' mans the total amount actuals received by the CONTRACTOR for
recovery of its Petroleum (ots and it* 'hurc of Profit Petroleum in the Contract Area.
'Cumillative Costs' means all Petroleum Costs io the Contract Area, actually
incurred by the CONTRACTOR until the end of the relevant Semester. determined
ia accordance with Article 26.7.
Notwith'tanriiag the feeding provisions of tins Article 26 4. far the period from
Firx Production until the end of the Calcnd.ir Year m winch First Production ocean,
the “R? factor shall be deemed lobe leas llinn one (I).
26.5 I he share of Profit Petroleum to which the CONTRACTOR vhall he entitled from
First Production is:
(a) Ihr Profit Crude Oil. equal to the quint l ies of Petroleum rewilung from the
application of the relevant percentage as indicated bdow to the daily volume
of production of Profit Crude Oil within the < i hi tract Area at the corresponding
Delivery Point:
-R" factor CONTRACTORS % Share of Profit Crude Oil
R
1 < R
R -* 2 14%
und
(b) for Profit Natural Gju. equal to the quantities of Non-A»«ciaicd Natural Gas
resulting from the application of the relevant percentage as indicated below to
the daily volume of production of Profit Natural Gas within the Contract Area
in the corresponding Delivery Point:
-R" Factor CONTRACTOR’* % Share of Profit Natural Gas
R < or - 1 35%
I < or • 2.5 35- (35-18)•
R > 2.5 18%
.’6.6 I he ( ( »VI RAC *1 OK’s accounting shall account separately for all components for the
calculation of "X“ and **Y” values in the lormulu provided in Article 26.4.
26.7 For each Semester, starting from the I* of Janu.iry of the Calendar Year following the
Calendar Year in which I irM Production occurs, tlic CONTRACTOR shall calculate
Hie R" Factor applicable to the relevant Semester within thirty (30) duys of the
beginning of such Semester Hie "R" Factor to Ik* applied during n Semester shall be
that determined by applying tl*»* Cumulative Revenues actually received and the
Cumulative Cost* actually incurred up to and including the last Jay of the preceding
Semester.
6(V118
If ihc CONTRACTOR is unable lo calculate ilic ”R~ Factor lor Ihc relevant
Semester before an allocation of Profit Petroleum lor such Semester must l*c mode,
then the allocation of Profit Petroleum lor Ihc previous Semester shall he used for the
rolovnnt Semester. Upon (lie calculation of the "R" I actor for the rclcviuit Semester:
(a) if the allocation of Profit Petroleum in Uie previous Semester nn«l the relevant
Semester is the same, then do adjustment ahull he made: and
(b> if the allocation of the Profit Petroleum in tlw two Semesters is different, then
tin- CONTRACTOR shall make any adjustments to die Parties’ respective
shares of Profit Petroleum to restore them to the position flint tliey would have
been in had (he UR*' Factor for the relevant Semester been available from I lie
start of such Semester.
20.8 If at any time an error occurs in the calculation of the “R" Factor, resulting in a
change in the CONTRACTOR’S percentage dure of Profit Crude Oil and'or Profit
Natural Oav. the necessary correction shnll be made and unv adjustments shall apply
from the Semester in which the emir occuiml The Party having liciicfited from a
surplus of Profit Petroleum sliall surrender such surplus to die other Party, beginning
from the first day of the Semester following the Semester in which the error was
recognised. However, each lifting of Petroleum relating to such error by the Party
receiving die surplus shall not exceed twenty live per cent (25%) of die share of Profit
Petroleum to which such 'surrendering Party is entitled. For tlic avoidance of doubt, if
.it any time nn error occurs in the calculation ol the “K" Factor, which does not result
in a change in the CONTRACTOR’S percentage share of Profit Crude Oil and/or
Profit Natural Gas. nn correction shall be made.
26.9 The quantities of Profit Petroleum due to the CON TRACTOR shall he delivered lo
be CON IRACTOR Entities at the Delivery PmoL Title and risk of toss of such
Profit Petroleum dull he trurot erred In the CONTRACTOR Entities at (lie Delivery
Point
Each CON IRATTOR Knlily tdiall be entitled to receive, take in kind and to export
freely rt« share of Profit Petroleum in accordance with the provisions of this Contract
and to retain Abroad any proceeds from the sale of all such Profit Petroleum.
26.10 The share of the Profit Petroleum to which the GOVERNMENT is entitled in any
Calendar Year in accordance with Article 26.5 shall be deemed to include a portion
representing the corporate inoroe tax imposed upon and due by each
CONTRACTOR Entity. ai d which will he jxod dtrccrlv by the GOVERNMENT on
behalf of l« Midi entity representing the CON TRACTOR to the appropriate lux
authorities in accordance with Article 31.2. 11*c GOVERNMENT shall provide the
CONTRACTOR Entities with all written documentation and evidence reasonably
required by the CON I R ACK )H Entities to confirm that such corporate income tax
has been paid hy the GOVERNMENT
26.11 The quantities of Profit Petroleum due lo tl»e GOVERNMENT shall he delivered to
the GOVERNMENT at the Delivery Point. T itle and risk of lots of such Ptufll
Petroleum sltull be transferred at the Delivery Point.
•Mil
26.12 A! least twenty-one (21) Jays prior to CONTRACTORS estimated dale of First
Production and. subsequently, thirty (30) days prior to the beginning ol catch
Semester, the CONTRA! TOR shall prepare and deliver to the GOVERNMENT u
production program comprising the production forecast (or the next Semester and the
forwusl of the quantities of Crude Oil raid Natural (ins it* which each Party shall lx-
entitled during the said Semester.
2ft. M Within ninety (90) days following the end of each Calendar Year, the
CONTRACTOR shall prepare and deliver an annual production report to the
GOVERNMENT, stating the quantities of
l*arty is entitled, the quantities of Crude Oil and Natural Gu lifted by each Party and
the resulting over-lift or under-lift position of each Pony, purstwni to the lifting
agreement entered into pursuant to Article I ft. 14
20.14 Any costs or expenditure incurred by the CONTRACTOR, its Subcontractors or
suppliers relating to the lifting of the GOVERNMENT* shore of Petroleum by the
CONTRACTOR slutll not be considered PcUoleum Costs and shall be charged to the
GOVERNMENT according to terms to he mutuiilly agreed between the
CONTRACTOR and the GOVERNMENT
ARTIC LE 27 VALUATION AND METERING OF < RI lit OIL AND NA 11 RAL
GAS
Vnluation
27.1 for the purpose of tins Contract any Cnalc Oil produced in the Contract .Area dull be
valued at the end of each Quarter at the Delivery Point baaed or the ImcriMtuMul
Marie! Price, as defined in Ankle 27.2.
27.2 I be Intrraatioaal Market Price referred to m Article 27.1 duil be the wnghuxl
t'cragc price per Barrel. cxpreM*d in IXJ n, (>I ained bv the CONTRACTOR at
the Delivery point, by netback if nwesxarv. during the Quarter ending on the date of
valuati>«i for Arm's Length Sales of Crude Oi.
Ihe CONTRACTOR .hall provide evidence to the GOVERNMENT that the soles
of Crude Oil refened lo in Arlkle 272 are Arm’s I ength Sales. If the
GOVERNMENT cunadcrs that uny such sale of Crude Oil is not on the basis of an
Arm s Length Sale then the GOVERNMENT has the tight to refer the mutter to an
expert pursuant to Article 422.
In the event that there is on lifting of Crude Oil in the rekwant Quarter or no Arm's
Length Sakai, the applicable 'International Market Price ' foe such Quarter shall be
ihe weighted average pnee per Barrel obtained during that Quarter from Arm’s
Length Sulcs of Crude Oil of Use name or .on Inr gnirity and quality from other
production areas sold in nwirketn competing with Crude Oil produced from the
Contract Aren, taking into account gravity and quality differences and transportation
and other post Delivery Point costs
To determine such price, the Parties shall, prior to the commencement of Production,
agree on a basket of Crude Oil comparable to those produced in the Contract .Area and
62/118
v4d in the inicnu’Jciul maid. Pnco obtained shall be adjusted In account for my
variations nch as quality. specific gravity, sulpJiui t.mienl. transportation costs.
pcodiKt yield. ****nal variations in price and demand, general market trends .11*!
other term*; of sale.
27.3 I he pnee of Natural Gas shall he the adicil price obtained at the Delivery Point
(which may take into account quantities to be sokl. quality, pe-^mphic location of
uiaikct.v to he supplied as well as costs of production, transportation and distribution
of Natural Gas from the Delivery Point to the relevant market, in accordance with
standard international petroleum industry practice). Ihc hOVKKNMENT shall have
the right to res levs :md approve Natural Gas soles contracts.
AkippntinC Sjiiiyrnyiil
27.4 l„ accordance with this Article 27.4. tl»c GOVERNMEN I’ and the CONTRACTOR
shall establish a statement showing calculations of the value of Petroleum produced
and sold from the Contract Area. Such statement shall include following informalion:
(a) quantities of Crude Oil sold by the CONTRAC'IOK I otitics during the
preceding Month constituting Ann's Length Sulcs toy.ether with corresponding
sole prices;
(b) quantities of Crude Oil sold by die CONTRACTOR l;ntitics during live
preceding Month that do not Ini I in the category referred to in paragraph (n)
above, together with sale prices applied during such Month;
(c) inventory in storage belong.!* to the CONTRAITOK hnlilks at the
beginning and at the end ol the Month; and
(d) quantities of Naftoal Gas aold by the CONTRACTOR Entities and the
GOVERNMEN I" loveiher with snle prices realised
27 S AB Expert Petroleum dull he mrSered at the Delivery Point in accordance with
prudent intenuiiorul pctroleom industry practice and such meters shall be to ILwnl
me- er standards. All metering equipment shall be installed and operated by the
CONTRACTOR. Ihc GOVERNMENT shull. on receipt by the CONTRACTOR
of reasonable prior written notice, hiivc the right to inflect any such metering
equipment installed by the CON IK ACTOR, as well ns nil re lev not documents and
supporting information reasonably necessary to validate the accuracy of such
metering. All metering equipment dull be subject to periodic technical inspections in
accttfdancc with prudent international petroleum industry practice.
27.b If «,> metering equipment is defective. the CONTRA! T OK dull use all reasonable
endeavours to repair it within fifteen (15) days or. if deemed necessary by the
CONTRACTOR replace it at soon as reasonably practicable from the date the
defect became known. The "Adjustment Date dmll lv tin- last dale that the
metering equipment was known in np.nxd to )uivc been measuring correctly, or if not
known or agreed, the date that is midway between the dale die defect was discovered
and the Inst date the equipment was kin»wn to have measured correctly. The results
6VUK
Irani I he defective equipment slwill he disregarded foi tlie |htukI from the Adjustment
Date until tlic dale I hi defective equipment u. repaired or replaced and the
measurement for such period dial I he estimated'
(a> if check measuring equipment is installed and registering accurately, then by
using the measuu-n unis recorded by such check measuring equipment;
(b) if cheek measuring equipment is not installed or not registering, accurately,
then by correcting the error if the percentage of error is oscertainahle by
verification, calibration or mathematical calculation; or
(c) if neither method is feasible, then by estimating the volume and'or quantity
delivered based on deliveries during the preceding comparable period of time
when the metering equipment was registered accurately
27.7 Any disputes urising under this Article 27 shut) be settled by expert determination in
accordance with the provisions or Article 42 2.
ARTICLE 2ft SALK OF GOVERNMENT SHAKE
Upon the GOVLRNMENTs prior written notice of at least ninety (‘>0) days, each
CONTRACTOR Entity shall provide all rcumiuibly necessary assistance to (lie
GOVERNMENT for the sale of all
GOVERNMENT is entitled, in wmsidenttioo of a rales commission per Barrel to be
established in advance with reference to pie Jem international petroleum practice and to b<
mutually agreed upon between the Partxs.
ARTin.F. 29- FINANCIAL PROVISIONS
29.1 Any payment to he made by a CONTRACTOR h*.ty m the GOVERNMENT
pursuant to this Contract sail he in Dollars and dial! he off*l acaiiui any ootstaadmc
payments due by the GOVERNMENT to the CONTRACTOR I nuiy. or paid n*ui
the honk account duly designated by the GOV* KNMI M m wntmg and shall be
paid within thirty (30) days of the due date, alter which tmcrc* compounded mooihly
at the rate of I I BOR plus two (2) percentage poinU shall be applied
29.2 The GOVERNMENT may. at its sole discretion, direct the CONTRACTOR
bailies to pay:
(a) «i> Roy ally in cadi doe to the GOVTRNX ►NI purvuani to the provisions of
Article 24; and'or
(b) any proceeds from the sale undertaken l*v tin CONTRACTOR Entity on
behalf of the GOVERNMENT pursuant to Article 28 of any Crude Oil lo
which the GOV ERNMENT is entitled pursuant to Article 25; and'or
(c) any Production Bonus.
to a fund liir revenue sharing, which may in due course lx: established by legislation
consistent with the Constitution of Iraq, between the Government of Iraq and other
64118
regions (including (he Kurdistan Region) and govemnratev ol Iraq. Nothing in this
Ankle 29.2 shall be understood as implying any contractual relationship or other
relationship between the CONTRA* I OH and/or any CONTRACTOR Entity and
the Government of Iraq and/or the regions of Iraq (other than the Kurdistan Region)
and/or and govomorotes oflraq.
29.3 Any payment due by the GOVERNMENT to a CONTRACTOR nntity dull I*
offset against future payments due by such CONTRACTOR Entity to the
GOVERNMENT, o* paid in Dollars to the hank account designated by the
CONTRACTOR Entity in writing and shall he paid within thirty (30) days of the
dale of invoice, niter which interest compounded monthly nl the rate of LIB< >R plus
two (2) percentage points shall be applied.
79.-I Any currency conversion to he made under this Contract sluill I* at the exchange mle
of the Centra! Hunk of Iraq, provided such exchange rale applied to the
CON IRA* TOR I ntitics shall not be less favourable than the rate offered by other
private, commercial or industrial hunks in the international market In the absence of
the Central Honk of Iraq *n in the event that the Central Hank of Iraq is unable to
prmKlc the relevant cxcliangc rate, any currency conversion to be made under tins
Contract shall Iw at tlx- exchange rate ol a reputable commercial bunk carrying on
business in llie miomiitional market and approved by the Partica.
29,5 The CONTRACTOR shrill not renlioe uny gain or loss due to exchange rate
fluetuaii<*rvi and. consequently, any gam or loss reuniting from the exchange of
currency shall be citlx-r considered in revenue and credited to the Accounts or shall he
considered ax h Petroleum Cos and shall be recovered by the CON I RAfTOR in
accordance with Articles 1 and 25. as the case may be.
29 r» Each CONTRACTOR Entity shall at all times be entitled to freely convert into
Dollars or any other foreign currency an> Iraqi dinars received in the framework ol
the Petroleum Operations and lo frcch transfer the same Abroad Ihe conversion rate
dial! he os provided under Ankle 29.4.
29 7 Each CONTRACTOR Entity shall have the right to be paid, receive, keep, transfer
and use Abroad, x.tlxoit m> rwtncliun*. Jl proceeds of hs share of Petroleum.
29 S Each COM KA(T OR Eritity and its Subcontractors shall have the right to freely
open and maintain hank occ.miiits for Petroleum Operations within or outside Ihe
Kurdistan Region and other parts oflraq.
29 9 Each CONTRACTOR Entity shall have the right to pay in any free!) convertible
currency oil iU financial mjuiremrnM lor the Petroleum Operations and to convert
these currencies to Iraqi dinar, in any hank in the Kurdtsan Region or other parts of
Iraq, at the same exchange rale as provided under .Arack 29.4.
29 10 Each CONTRACTOR Emit) shall have the tight, without *>> restrictions, to freely
repatriate Abroad and to freely dfepuae of:
(a) any proceeds received in the Kunhsliai Region or other parts of Iraq horn the
Mik of Prtn4eum:
65-1 IS
(b) nm proceeds received from (4hcr operation* and activities carried out under
this Contract in the Kurdistan Region or otlirv puns of Iraq.
?9 11 Each CONTRACTOR Entity shall have the right (o pay in any foreign currency itv
ScbcwiUJCturs and fes expatriate personnel, either in the Kurdstai Region. other parti
of Iraq, or Abroad. Said SuhcmNraoari and expatriate peramnd shall be obliged to
transfer to the KurJefcai Riyh*i the amount of foreign currency required for their local
needs and they shall have the right to repntnale the proceeds of the sale of their
belongings in accordance with the regulations in force in the Kunli.-ton Region.
29.12 Each CONTRACTOR Polity 's Affiliates. SuhccotracUxs and their pasoimcl shall
equally benefit tram the siine rights as such «T)N|R\fTOR Eatity and its
personnel as regards this Art*ck 29.
29.13 for the firuuicing of Pcm4cu.n Opctatiot*. each CONTRACTOR Lnlity shall have
the right to have ice curve to cxU-rnul financing from tlurd parties or from its Affiliated
Companies Oft an arm's length basis.
AK n
30.1 All 'trviccv matenaL equipment, goods, consumables and products imported into the
KurdisLui Region and alhcr parts of Itaq by the CONTRACTOR, any
CONTR ACTOR Entity. h% Affiliate*, an) bubo umet*>r or any agent of any ot the
foregoing, for use or con' ini|4an in the Petroleum Operations snail be admitted free
and exempt from say and all luxes on import. Ihe CONTRACTOR, any
CONTRACTOR Entity, its Affiliates. »i> SubcooMor or any agent of any of the
foregoing shall have the light to re-export from the Kurdistan Region and other parts
of Iraq lice from all Taxes on export any material, equipment. good". consumables
and products tliut are no longer required for the Petroleum Operations, except where
title has passed to the GOVERNMENT in accordance with Article 20. in which case
re-export dull I be approved by the Management Commifloe
30.2 Ihe COM RAC TOR. any CONTRACTOR Entity, its Aflil .*cn uny Subcontractor
or any agent of any of the foregoing, and their pcr**nel or In.!mg their irmly
members) sliall have the right to freely import into the Kurdi.st.ai Region and other
parts of It:u| and re-export from the Kurdistan Region and otlvt pits ot Iraq iny
personal belongings and furniture free and exempt from inv T.ixct on import or
export. The sale in the Kurdrtan Rcgico and .kKt pri of Iraq of pcrvmal belonging'
and furniture of expatriate peranmd shall comply will kirdnaan Ke. ».*i 1j«w
30.3 Each CON I KACTOR Entity and its Affiliates shall be cot .led to Ir.vly exp-wt from
llui Kurdistan Region and other parts of Iraq, free of any I axes, any Petroleum to which
it b entitled pursuant to the provisions of this Cirtnxt
30.4 lb (,()V | RNMENT dull htamfy the CONTRACTOR, any CONTR ACTOR
Entity, its Affiliates, any Subcontractor or any a*cm of any of the foregoing, and their
personnel (including their family members) for any impart or expwt laves referral to in
Artick* 30.1. 302 or 30.3.
66T18
ARTICLE 31 - TAX PROVISIONS
31.1 Except as exprevUv provided in this Ankle 31, and without prejudice lo the
exemptions expressly provided for in Article 30 and in this Artklc 51, eoch
t'ONTRACTOK Entity, its Affiliates and any Subcontractor -hall. for the entire
duration of this Contract, be exempt from all Taxes as a rrnilt of its income, asset* ami
activities umkr this Contract The GOVERNMENT shall indemnify tuch
CONTRACTOR Entity upon iktnnnd agninst any liability to pay any I’uxin usvosvcd or
imposed ii|K»n mk-Ii mtity which relate to any of tlx- exemptions granted by the
GOVERNMENT under this Article 31.1. and under Articles 31.4 through 31.11.
»1.2 bach CONTRACTOR Entity shall be jvubjcii to corporate income tax on its income In mu
Petroleum Operations un pnivukd in Artklc 31.3. which shall be deemed lo ho inch -4\c
and in full and total dre* targe of any Tax on income, receipts, mmu.'- gams or profits
of each such entity Payment of tlie snd oirparale income tax dull be made lor the
entire duration of this ( ontruit directly to the official Kurdistan Region lux authorities
by the GOVERNMENT, for the account of each CONTRACTOR Entity, from the
GOVERNMENT** share of tire Profit Petroleum received pursuant to Article 26.
bach CONTRACTOR Entity shall, within sixty (60) days alter the end of each tux
year, provide a statement to the appropriate Kurdistan Region lax authorities of its
profits which are subject to corporate income lax, together with u calculation of the
umount of corpomte income tax due on those profits.
I he GOVERNMENT shall, within ninety (90) days niter the end of each Ux >«.
provide to each CON I KACTOK l "lily CO the appropriate official tax nxdpto from
the appropriate Kurdistan Region ux authorities or other relevant authority certifying
the pnvmcw of its corporate income tav dUennmed m the -»! -eatemm. and that
such entity has met all its Tax obligation* in the preceding Ux year, and (ii) a copy of
ai> return or other filing made by the GOVERNMENT in respact of Us payment of
corporate iiKOtnc Ux on behalf of aich CON I MAC TOR b ratty.
5I.J For the purposes of .Ankle 31.2:
(a) I he rate of corporate income ux to be applied u* «“h CONTRACTOR
Entity shall be the generally up pi Ruble rale prescribed in the Lav* of Taxation
(lav* No. 5 of 1999), passed by the National Aawmhly of the Kurdistan
Region, as may be amended from time to lime or substituted m respect of
Pen oleum Operations (as defined under the Kurdistan Region Oil and (his
I :tw) by u petroleum operations taxation law for the Kurdistan Region, but in
no went in excess of forty per cent (40%). I lie Parties acknowledge nnd agree
that at the Effective Date ol this Contract, the corporate income tax rule is
forty per cent (40%) for all net taxable profits in excess of nine million Irmp
dinnr.
(b) I he GOVERNMENT and the C CONTRACTOR agree (hut corporate income
tax shall be calculated for each CONTRACTOR I ntity on iu net taxable
profits under tlie Contract, ns calculated in accordant* with the provisions
relating thereto in the Accounting Procedure.
67/118
V.
31.4 l *h CONTRACTOR Fntity. ns Affili*cs as «xll as my Subcontractors shall be
ncmpl from an withholding tax applicable or any payment* made to them or by
them to or from Affiliates or third parlies. wbethrr inside or ouBade the Kurd ' -«n
Region aotl’or Iraq, for the entire duration of this Contract
31.5 Path CONTRACTOR Polity and its Affiliate* shall be exempt from Additional
Profits lax. as referred to in Article 40 of the KurduOan Region Oil and Cure Law or
any successor Tax.
11.A Each C ONTRACTOR Lntity and its Affiliate** -JailI he exempt from Surface Tax. n.x
referred to in Article 40 of (lie Kurdistan Region Oil and (las T aw or any successor
I UK.
31.7 Koch < ONTRACTOR Fntity and its Affiliate* dull he exempt from Windfall Profits
Taxes, as referred to in Article 40 of Hw KuidWan Region Oil and Gas Law or any
successor l ax.
31.8 liach CONTRACTOR Polity and any Subcontractor shall be subject to die payment
or withholding of the personal income tax and unuil «evurity contributions fi» which
with entity or Subcontractor is liable lo pay *a withhold in respect of its employees who
arc li»|i nationals, pursuant to the law of Taxation (Law No. 4 of 1999) passed by die
Nulinna) Assembly of the Kurdistan Region, as may be anicixkxl from time to time, in tin*
.same manner as the same shall be generally u|iplie»l lo nil other industries, except that n
CONTRACTOR Kntity or Subcontractor shulI not be liable for such taxes or
contributions with respect to employees of another Person.
•> It IS acknowledged thnt double tax treaties will have effect to give relief from taxes to.
but not limited to. the CONTRACTOR, CONTRACTOR Entities. Subcontractors
and employee* and other IVrwns in mxotihuxx- with the provision* of such double tax
treaties, but dial I not impure an additional burden of taxation.
31.10 Any value added tax t“\’ATT *all be cotwdacd as a Petroleum Ccal and shall he art
recovered m acaxdmce with the pwvwins of Amdes I and 25.
31.11 Aav value aVied in CVAT”). not otherwise nxovenUe by the COS IRACTOR ds
VAT law. dal he amJad a a PWndoan lost arxl *aD be coa recovered in
31.12 S.*wTthaanfing any otfier previskei lo the contrary m this Contract the Parties
acknowledge and agree that the provisions of this Article 31 shall apply individually
ai>J separately to all C'ONTRACTOR hmitie. under this ( oniraei ami that there shall
he no joint and several liability in respect of any liability, diny or obligation refcticd
to in Uiis Article 31.
ARTICLE .32 --- RONUSES
>*i-n.«tii i« Kimiji*
32.1 A signature bonus of twenty live million Dollars (USS 25.000.000) ("Signature
llonua”) shall be payable to the GOVERNMENT by the CONTRACTOR within
thirty (30) days of the I ffcctivc I lute.
61b 118
raiwvilv HwiWi.ng Ifomt-
32.2 A capacity building bonus of one hundred and seventy five million Dollars (US$
175.000,000) (“< 'Hpnelty Building Bonus") shall be payable to the GOVERNMENT
by ihc CONTRACTOR within thirty (30) days of the Effootive Data
i*nut ucUsii nonuses
32.3 In ihc event of n Crude Oil Commercial Discovery, the CONTRACTOR ahull pay
the following relevant ('aide Oil Production Bonus to the GOVERNMENT within
thirty (30) duys of the following relevant occurrence for each of the Contract Sub¬
areas:
(a) two million five hundred thousand Dollars (US $2,500,000) when hirst
Production of Crude Oil from tl*? Contract Suh-area commences;
(b) five million Dollars (US $5,000,000) when production of Crude Oil from the
Contract Sub area readies a cumulative amount of ten million Barrels of Crude
OU(lOmmbo);
(c) ten million Dollars (US SI0.000.000) when production of Crude Oil front the
Contract Sub- area reaches a cumulative amount of twenty live million Barrels of
('rude < >il (25 mmho); and
(d) twenty million Dollar. (US $20.(100,000) when production of Crude Oil from
the Contract Sub-area reaches a cumulative amount of fifty million Baucis of
Crude Oil (50 mrnbo).
32.4 In the event of a Noo-Asweitfed Natural Gas Commercial Discovery, the
CONTRACTOR shall pay the following relevant Non-Aaaodaffld Natural (las
Production Bonus to the GOVERNMENT within thirty (30) days of the following
relevant occurrence for each of the Contract Sub-areas.
(a) two million five hundred thousand Dollars (US $2*500,000) when Tirst
Production of Non-Associated Natural Gas from the Contract Sub-urea
commences;
(b) five million Dollars (US $5,000,000) when production of Non-Associated
Natural (ias from the Contract Sub-area reaches a cumulative amount of ten
million barrels of oil equi valent (10 mmboe);
(c) ten million Dollars (US $10,000,000) when production of Non-Associated
Natural Gas from the Contract Sub-area reaches a cumulative anaunr of twenty
five million hands of oil equivalent (25 mmboe), and
twenty million Dollars (US $20,000,000) when production of Non-Associated
Natural Gas from the Contract Sub-area reaches a cumulative amount of fifty
million hands of oil equivalent (50 mmboe).
'15 For Ihc purposes of this .Article 31 a Commercial Discovery shall be declared by the
CONTRACTOR to be either a Crude Oil Commercial Discovery or a Non-
Aswicialed ( Mis Commercial Discovery and under no circumstances shall a Production
69-1IX
ISonus he due in reaped or both Crude Oil and Non-Associated Nutunil (hw for the
Mane Ccunmorciid Discoverv.
recovery a*I payment
32.6 No bofRB due pirsuanl to this .Article 32 dull be deemed to he a IMroksan Cost
32.7 Payment b> the CONTRACTOR of am boo us due pursuant to this Article 32 shall
be made in Dollars by wire tram ter to a specified bank account of the
GOVERNMENT or by banker'* drat) and on receipt thereof the GOVERNMENT
shall forthwith issue a written receipt to the CONTRACTOR duly executed by the
Minister of Natural Resources of the GOVERNMENT or such other officer ol the
GOVERNMENT who shall he duly authorised to issue such receipt undet kurdiMan
Region law.
AKTICLK 33-PIPELINES
33.1 Ihc (GOVERNMENT sltill obtain uny required Permits for the transportation of
Potroleuin in the Kurdistan Region and in Iraq, as well us any necessary IVrmils and
casein cut rights for the construction of any pipelines and related facilities required for
the Petroleum Operations, as provided in Article 33.2.
33.2 Tlic GOVERNMENT undertakes to transfer to the CONTRACTOR its rights for
transportation of Petroleum by pipeline. I he CONTRACTOR shall luce tl>e nght hi
design, construct, operate and maintain pipelines and any related (online* Tor the
transportation of Petroleum produced under thi!» Contract
33.3 Prior to die construction of any pipeline and related facilities as provided in Article
33.2. the CONTRACTOR shall submit following information to the Management
Committee:
(n) proposed pipeline route and related facilities;
(b) forccnsced pipeline flow rate and capacity;
(c) estimate of financial investment and operating costs of the pipeline and ieluted
facilities;
(d) proposed financing schedule.
(e) construction schedule.
(f) general technical description of the pipeline and related facilities.
(g) construction plans and teals.
(h) preventive measures for damage to the cmirooment and third parties; and
(i) any other information relating »o the pipeline project
7
The Management Committee shall examine all the above information ami shall within
ninety (90) days, approve the proposed pipeline project in accordance with the
provisions of Article 8.5.
33.4 Subject to spare capacity being available and to their Petroleum being Compatible,
third parties shall he entitled to transport their Petroleum lluough any pipeline
constructed by the CONTRACTOR in accordance with this Article 33 on terms to be
agreed between the CONTRACTOR and such third party, rhosc terms shall I*
reasonable commercial terms and shall not discriminate among thin! party uwrs. The
t 'ON IKACTOR shall always have priority of access to such pipelines.
33.5 lo tIk? extent that they arc incurred upstream of the l>divcr> Point any costs
uwociuted with the design, construction, operation and maintenance of the pipeline**
and related facilities by CONTRACTOR under this Article 33 mpdiae C osta")
dull Iw considered Petroleum Costs and shall be recovered by the CONTRACTOR
in accordance with the provisions of Articles I and 25.
lift I he CONTRACTOR shall have the absolute right, without any exceptions and for
the entire duration of this Contract, to use. free of charge, any pipeline and related
facilities constructed by CONTRACTOR under this Article 33 and to transport
Petroleum produced from any Production Area and to operate and maintain any
pipeline and its related facilities, freely and without any additional costs.
33.7 To the extent related to transportation upstream of the Delivery Point, any tariffs
received from third parties for use of any pipeline and related facilities by
C ONTRACTOR ubJct thb Anick 33 stall be applied W Re recovery of Petroleum
Costs until all Pipeline CoMa huve heer fiilK rrrr vexed In the CONTRACTOR
pursuant lo the provWoM ol Articles 1 and 25 and shall not be included in income lor
corporate income tax purposes. The GO VERNMKNT dull be entitled fc> receive
such tariffs from thud part nr* f«»r tlicir u« of wadi pipeline and related facilities when
the said Pipeline Costs have hem fully recovered by the CONTRACTOR. The co*s
associated with providing such transportation services for thud parties up to the
Delivery Point shall be coaskfcftd Pipeline C-vsim ml therefor* Petroleum Costs and
shall be recovered by the CONTRACTOR in accordance with the provisions of
Articles I and 25.
33 * I pon recovery by the CONTRACTOR of all the Pipeline Costs, the operating and
maintenance costs of any pipeline and its related facilities shall be borne by the
< OYTRACTOR and shall be considered Petroleum Costs and shall be recovered by
the CONTRACTOR in accordance with the pros ms «*( Articles I and 25
33.9 I he GOVERNMENT shall have the same rights as the CONTRACTOR for me.
free of charge, of any pipeline and related facilities constructed by CONTRACTOR
under this Article 33 for the transportation of the share of Petroleum to which the
GOVERNMENT is entitled under this Contract up to the Delivery Point, provided that
where the GOVERNMENT is participating in its capacity as u CON TRACTOR Entity
pursuant to Article 4. it shall be liable for its share of Petroleum Costs.
33.10 I he CONTRACTOR Tuill hear the co*J of operation and maintenance of any pipeline
ami related facilities constructed by CONTRACTOR under this Article 33 and ail
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risks of accidemal loss or damage to such pipeline ;uid related facilities while tlwy ure
required for Petroleum Operations.
33.11 The GOVERNMENT shall use best endeavours to ensure lliul the (XINTRACT*)R shall
be invited to participate in any services agreement or pip»*linc syndicates.
ARTICLE 34 - ONITISAI ION
34.1 In the event a Reservoir extends beyond the Contract Area into an adjacent area which
is the subject of another Petroleum Contract (ns defined by the Kurdistan Region Oil
mid (ins l.uw) (an “Adjacent Contract Area”), or in the event a Reservoir of un
Adjacent Contract Area extends into the Contract Area, the provisions of Article 47,
Paragraph Second of the Kurdistan Region Oil and Ous Law shall apply and the
GOVERNMENT shall require the CONTRACTOR and the contractor of the
Adjacent Contract Area to agree upon a schedule for reaching agreement of the terms
of the unitisulion of the Reservoir, which terms shall he based on reliable technical,
operational and economical parameters, all in accordance with prudent international
petroleum industry practice. In the event that the Minister of Natural Resources
decides the iniilisaiion pursuant to Article 47. Paragraph Third of the Kurdistan
Region Oil and Gas Law. and if the CONTRACTOR docs not agree with the decision
of the Minister of Natural Resources, the CON TRACTOR shall be entitled to
arbitration pursuant to the provisions of Article 42.1
34.2 For clarification and the avoidance of doubt and notwithstanding Ankle 47 oi if,-
Kurdistan Region Oil and Gas Law. in the event that a Reservoir extends beyond the
boundaries of the Contract Area into an adjacent area which is not the subject of
another Petroleum Contract (as defined by the Kurdistan Region Oil and Gas Law),
the GOVERNMENT shall, upon the CONTRACTOR'S request, lake the necessary
steps to extend the boundaries of Contract Area so as to include the entire Reservoir
within the Contract Area, provided that the CONTRACTOR car offer the
GOVERNMENT a competitive minimum work program for such adjacent area.
ARTICLE 35 - LIABILITY AND INSURANCE
I iiihititv
35.1 Subject to the other provisions of this Contract, the CONTRACTOR, in its capacity
as the entity responsible for the execution of the Petroleum Operations within the
Contract Area, shall he liable to third paries to the extent provided under applicable
law for ary losses and damage it may cau.se to them in conducting the Petroleum
Operations, aid shill defend, indemnify and hold harmless the GOVERNMENT with
respect to all claims for such loss or damage.
35.2 Notwithstanding die other provisions of tins Contract the CONTRACTOR and the
CONTRACTOR Entities shall not he liable to die GOVERNMENT or d* Public
Comfucy or other government agencies, authorities or bodies, courts or political
subdivisions for my damage cr loss or claims of any kind resulting from its eonduci of the
Petroleum Operations unless such damage or loss is the resuh of wilful misconduct or a
material failure to conduct Petroleum Operations in accordance with the terms of this.
Contract; provided, however, that such liability cnnnoi result in the event of any
omissions, errors or mistakes committed in good faith by the CONTRACTOR in the
exercise of the powers ami authorisations conferred ii|Hin the CONTRACTOR bv
virtue of this Contract, and further provided thnt in no event shall the
CONTRACTOR and the CONTRACTOR Entities be liable for any indirect or
consequential loss or damage wiuilsocvcr or any lost, damages, costs, expenses or
liabilities caused (directly or indirectly) by any of the following arising out of. relating
to. or connected with this Contract or the Petroleum Operations carried out under this
Contract: (i) reservoir or formation damage; (ii) inability to produce, use or dispose of
Petroleum; (iii) loss or deferment of income; (iv) special or punitive damages; or (v)
other indirect damages or losses whether or not similar to the foregoing.
35.3 The CONTRACTOR shall indemnity- and hold harmless the GOVERNMENT
against all losses, damages and liability arising under any claim, demand, action or
proceeding brought or instituted ngamst the GOVERNMENT by any employee of the
CONTRACTOR or of any Subcontractor or by any dependent thereof, tor personal
injuries, industrial illness, death «>r damage to pcrMuutl property sustained in connection
with, related to or arising out of the performance or non-performance of this Contract
regardless of the fault or negligence in whole or in party of any entity or individual.
35.4 Notwithstanding Article 35.1. the GOVERNMENT sluill indemnity and hold harmless
the CONTRAC TOR and the CONTRACTOR Entities against all losses, damages and
liability arising under any eluim, dutniiikl, action or proceeding brought or instituted
against the CONTRACTOR or any CON TRACTOR Entity by any employee of the
GOVERNMENT or of any Public Company or of any aibcontractor of the foregoing or
by any dependent of any such employee, lor pereonal injuries. industrial illness, death or
damage to personal property sustained in connection with, related to or nr -my out «•! lie
performance nr non-performance of this Contract regardless of the fault or negligence
in whole or in part of any entity or individual.
35.5 The CON III ACTOR shall take all necessary slops to respond to. and shall promptly
notify (lie GOVERNMENT o£ all emergency and other events (including explosions,
links and spills), occurring in relation to the Petroleum Operations which arc causing
or likely to cause material envirunmenlal damage or materia! risk to health and salcty.
Such notice shall include n summary description of the circumstances »nd -u ps Aon
and planned by the CONTRACTOR to control and remedy the dtutuion. The
CONTRACTOR sluill provide such additional reports to the GOVERNMENT as arc
reasonably necessary in respect of the effects of such events and tlie court* of all
actions taken to |>rcvcnt further loss and to mitigate deleterious effects.
35.6 In tlie event of emergency situations as set out in Article 35.4. at the request of the
CONTRACTOR, the GOVERNMENT, without prejudice and in addition to uny
indemnification obligations the GOVERNMENT may have, sluill assist tlie
CONTRAC TOR, 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 tie
(X)NTRA< .'TOR and by facilitating the measures taken by the CONTRACTOR to bring
inro the Kurdistan Region personnel, materials and equipment to be used in any such
emergency response or remedial or repair effort. The CONTRACTOR dial I reimburse
Ok- GOVERNMENTS reasonable and necessary costs incurred in stich efforts, which
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rdmbwcd amounts shall be con^dcred Petroleum Costs and -itill he recovered by the
CONTRACTOR inaccoidance with the provisions of Articles I and 25
35.7 1 he GOVERNMENT shall indemnify and hold harmlen the CONTRACTOR and
each CONTRACTOR Entity from and against all costs (including legal costs)
expenses, losses damages and liability which such Pcrvxi m.iy suffer or incur, or
"fci> result front such Person being denied, hindered or prevented fmm fully
exercising its rights or taking the full bene tit of Articles 29.4. and 29.6 to 29.11.
35.8 In accordance with prudent international petroleum industry practice, each
CONTRACTOR Entity shall maintain acy insurance required by applicable Kurdistan
Rapon I *w. ip. vwdl as any irr*inave approved by lie Management Committee.
Such insurance policies may cover
(a) loss of and damage to material and equipment used in the Petroleum
Operations; and
(b) personal injury, damage to thiril parties and rishs of pollution associated with
Petroleum Operations for reasonable amounts, within the limits approved by
the Management Committee.
35.9 Any insurance policy relating to this Contract dull name the GOVERNMENT as an
additional insured party and shall include a waiver of subrogation protecting the
GOVERNMENT against any claim, loss and d.ra*c reddling from any Petroleum
Operation conducted by or on behalf of the CONTRACTOR under this Contract to
the extent that the CON I K At TOR is liable for such claim. Ioks or dumage under Uiis
Contract. The CONTRACTOR sluill not he liable lor nnd font) not purchase insurance
cover for any claims arising fiom negligence or wilful misconduct of the
GOVERNMENT or of any Public < ompany or of any of its
any personnel of any of die foregoing.
35.10 Upon its written request, the GOVERNMENT sluill In- provided with insurance
certificates, including necessary details, for any insurance policy maintained by the
CONTRACTOR which relutes to this Contract.
35.11 Each CONTRACTOR Entity shall be responsible lor the filing ol all claims made
under any insurance |x>licy maintained by such CONTRACTOR Entity which relates
to this Contract. Any premiums and payments relating to such insurance policies shall
fcc considered Petroleum Costs and shall be recovvnxl by the CONTRACTOR in
accordance with foe provisions of Articles I and 25.
35.12 In any insurance policy maintained by a CONTRAC TOR Emily which relates to this
Contract, the amount for which the CONTRACTOR itself is liable (the Deductible
Amount") shall be reasonably determines! between the CON TRACTOR Entity and
the insurer and such Deductible Amount shall in tlx- event ol any insurance claim be
considered a Petroleum Cost and shall be recovered by the CONTRAC I OR in
accordance with the provisions of Articles I and 25.
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ARTICLE 36 - INFORMATION AND CONFIDENTIALITY
36.1 llu CONTRACTOR shall keep all records. dam and information relating to the
Petroleum Operations in accordance with tlie Kurdistan Region Oil and (i;ts l aw and
prudent international petroleum industry practice. In addition, it shall provide the
GOVERNMENT with such information and data as it is obliged to provide under
this Contract.
36.2 Upon the GOVERNMENTS written request, the CONTRACTOR shall provide the
GOVERNMENT with suniples of any rocks or any other items extracted during the
Petroleum Operations.
36.3 I he GOVERNMENT shall have title to all data and information, whether raw. derived,
processed, interpreted or analysed, obtained pursuant to this Contract
36.4 Each CONTRACTOR Entity shall have the right, without any limitation, to send Abroad
copies ol all reports and technical data, magnetic tapes and other data relating to the
Petroleum Operations. Magnetic tapes or other data, the original ol which must be
analysed and processed Abroad, may be transported out of tbc Kurdistan Region.
36.5 Any representatives authorised by the GOVERNMENT and notified to the
CONTRACTOR shall, upon reasonable prior written notice, have reasonable access
to any information and data relating to the Contract Area in the possession of the
CONTRACTOR which the CONTRACTOR is obliged to provide to the
GOVERNMENT pursuant to this Contract. It is understood that, when exercising
such right, the GOVERNMENT shall ensure it does not unduly interfere with or
hinder the CONTRACTOR'S rights and activities.
36.6 Tbc CONTRACTOR shall provide the GOVERNMENT upon the
GOVERNMENT'S written request any analysis information, reports, tapes or other
data (geological, geophysical. logs, interpretations, drilling reports, etc.) related to the
Petroleum Operations in the possession of the CONTRACTOR. All available
originals of such data dull be transferred to the GOVERNMENT at the end of this
Contract
36.7 Apart from the exceptions staled in this Artkk 36. lire Parties undertake to keep all
data and information relating to this Contract and the Petroleum Operation.'
confidential during the entire term of this Contraci and not to divulge or disekwe such
data or information to third parties without the specific consent of the oilier Parties,
such consent not to be unreasonably withheld or delayed. Ihe foregoing
confidentiality obligation shall not apply to informalion or data which
(a) is or. through no fault of any Party. becomes pan of the public domain;
(b) is known to the recipient at the date of disclosure;
(c) is required to be furnished in compliance with any applicable I aw. by a
government agency having jurisdiction ever a CONTRACTOR Entity, by a
court order or any other legal proceedings; or
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(d) i* required lo he disclosed pursuant lo the rules cx rcgulminns of any
government or recognised stock exchange taxing jurisdiction over a
CONTRACTOR Entity.
36-1 NotwithflaiKfcng the foregoing in Article 36.7. in accordance with prudent
internalkxwI petroleum industry practice, such data and inlormaOon nu) he dbclo*ed
to:
(a) Affiliates of each CONTRACTOR Entity;
(b) employees, ttflicen and directors of each CONrHWTOR Entity and their
respective Affiliated Companies for the purpose of the Petroleum Operations,
subject to each such entity taking customary precautions to ensure such
information is kept confidential:
(c) consultaiix or agents retained by any CONTRACTOR lintity or its Affiliates
for the purpose of analysing or evaluating information or dam.
(d) hanks or financial institutions retained by any TON IKAtTOR Entity «x it'
Affiliate with a view to financing Petroleum Operations, including any
professional consultants retained by such hank or financial institution:
(c) bona fide prospective assignees of a parucifuting ntrrot under this Contract
(including any entity with whom a CONTRACTOR Entity author its Affiliates
aru oanlueting honafidc negotiali^is Greeted towards a merger. oon*>h datum •*
(he rale of a mawnul pinion of its cc an Affiliates sharest.
(0 prospective or actual SuKr.rtrttorx and vpplici* engaged by a Pany where
disclosure of such infonnatioo b esamC J to axk or M^iplicr's
wvxk for such Party, aid
(g) any other Person or entity, upon the prior written approval of the non-
diackumg Parties.
provided that disclosure shall not he made purxuanl to paragraphs (c). (d). (c) and (f).
unless such third party has entered into a confidentiality undertaking
36.9 Any data and information relating lo relinquished »x surimdcred areas under this
Contnet shall become the exclusive property of the GOVE RNMENT, who shall
have the npht to use same for any purpose, in particular for the purpose of promoting
«kJ areas I .ach CONTRACTOR Entity sha! I be- entitled to keep coprcs of such data
an J mli rmalion and lo use such dau and information for any purpoor.
“6 10 Subject to the provision* of this Article 36. the COWTRAt TOR may not sell nor
exchange my data related to the Petroleum Operations without the approval of the
GOVERNMENT, which approval stall not hr unreavauNy withheld or delayed
where, in the CONTRACTOR'S reasonable opia .av *uch wic i* eactange would
benefit the Petroleum Ope ran.ns
76'IIR
ARTICLE 37 EN VIRONMENTAL PROVISIONS
37.1 I luring ihe performance of the Petroleum Operations, the CONTRACTOR shall take
reasonable measures to ensure that it, the Operator, its Subcontractors aiul agents
attend to the protection of the environment and prevention of pollution, in accordance
with prudent international petroleum industry- practice in similar physical and
ecological environments and any then applicable Kurdistan Region 1 uiw.
37.2 Prior to surrendering a portion of the Contract Area, the CONTRACTOR shall take
reasonable measures to abandon the area to be surrendered in accordance with prudent
international petroleum industry practice in similar physical and ecological
environments. Such measures shall include removal or closure in place of facilities,
material and equipment together with reasonable measures necessary for the
preservation of fauna, flora and ecosystems, all in accordance with prudent
international petroleum industry practice in similar physical and ecological
environments. The CONTRACTOR shall only be responsible for site restoration or
environmental damage to the extent the same pertains solely and directly to Petroleum
Operations conducted pursuant to this Contract.
37.3 The CONTRACTOR shall take reasonable precautions and measures in accordance
with prudent international petroleum industry practice in similar physical and
ecological environments to prevent any pollution which may arise directly us a result
of the Petroleum Operations and to protect the environment (fauna and flora), water
sources and any other natural resources when carrying out Petroleum Operations.
37/1 'Ihe CONTRACTOR shall, in accordance with patient international petroleum
industry practice in similar physical and ecological environments, respect the
preservation of property, agricultural areas, and fish cries, when carrying out
Petroleum Operation*
37.5 The CONTRAO < >K shall conduct and submit an environmental impact assessment
to the GOVERNMENT within *ix (6) months after the Effective Date.
National Parks and Naf rr Reserve Arras
37.6 The rOMRAt'lOK \hall take reasonable mexMKcrs to minimise any advert
material impact on national parks and nature reserves which m«> arise directly as a
result of the Petroleum Operations, in accordance with prudent international
petroleum industry practice in similar physical anJ ecological environments.
>7.7 The GOVERNMI NT: (i> represents and warrants that, on the Effective Date, there
are no national parks, nature reserves or other protected .treax located in whole or in
part within the GiKract Area where the CONTRACTOR shall not be entitled to
carry out Petroleum Operations and
Contract will not designate or create or permit the creation of any national parks
nature reserves or other protecud areas, located in whole or in pan within the
Contract Area.
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37.8 Any reasonable expenditure incurred by the CONTRACTOR in relation with this
Article 37 shall be deemed Petroleum Cost' and shall he recovered by the
COM K ACTOR in accordance with the provisions of Articles I and 25
37.9 Ihc CONTRACTOR is not responsible lor any pre-existing environmental
conditions or am acts of unrelated third panics.
ART 1C1.K 38 - DfiCOMM ISSIONING
38.1 lo civil tie the COM RACTOR to recover the costs associated with future Contract
Area Decommissioning Operations under this Contract, the CONTRACTOR shall
have Ihc right to establish a rejcrvc fund foe future decommissioning and vile
restoration (a Decora missioning Reserve Fund”) The Decommit toning Reserve
Fund may be established at any time during the final ten C IO) Calendar Years of the
term of lira Production Operations of a Production Area but. upon the reasonable
mines! by the CONTRACTOR, the GOVERNMENT shall allow the
CONTRACTOR to establish such tund over n onger period. Once established, the
CONTRACTOR sltall make regular contributions to the Decommissioning Reserve
Fund bused ii|N)ii estimated Petroleum Field ikcommisaonirg and site restoration
costs in accordance with prudent international petroleum industry practice, and taking
into account interest received and future interest expected to be earned on the
Decommissioning Reserve I in. Any contributions b' tl »* C ON IKA< TOR in tl
Decommissioning Reserve Fund shall be made in l>ollnr and shall he .UvttkxI
Petroleum Costs when paid into the reserve fund, and shall be recovered by the
CONTRACTOR in accordance with the provisions of Article.' I and 25.
Contributions to the Decommissioning Reserve Fund shall he placed with n lirsr rate
bank approved by the Management Committee in accordance with Article 8.5.
*82 If. at the end of the term of the Producuon Operations of the Production Area, the
COVFJCN\iENT decide' to take over production opera!ions in the Production Area.
(a) the GOVERNMENT rirall become liable for its future Decommissioning
Operations:
(b) the contributions and any interest accumulated in the Decommi'Momng
Reserve Fund, lo the extent that such contributions have been recovered nv
Petroleum Costs, vluill be paid lo the GOVERNMENT; and
(c) the GOVERNMENT shall rekra.se the CONTRACTOR and the
CONTRACTOR Emilies from any obligations relating to Decommissioning
Operitkms and shall indemnify the CONTRACTOR and ihc
CONTRACTOR Entities for any costs, liabilities, expenses, claim* or
obligations associated therewith.
38.3 If the CONTRACTOR undertakes the Production Area IXcuramissioning Operations,
Uie contributions and any interest accumulated in the Decommissioning Reserve Fund
shall be raid to the COVI KA< TOR and shali be used for the Decommissioning
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u
Operations. The CONTRACTOR shall undertake any such Decommissioning
Operations in accordance with prudent international petroleum industry practice in
similar physical and ecological environments.
38.4 If the Decommissioning Reserve Fund is paid to the CONTRACTOR and the
Decommissioning Reserve Fund is not sufficient to cover all Decommissioning Costs
for the Contract Area, the balance shall be paid by the CONTRACTOR and may be
recovered, if applicable, by the CONTRACTOR Entities or any of their Affiliates
Irani any other area which is the subject of another Petroleum Contract (as defined by
the Kurdistan Region Oil and (ias Law) anywhere in the Kurdistan Region and, to the
extent the hihuice is not recoverable as aforesaid, such remaining balance shall be paid
by the GOVERNMENT to the C ONTRACTOR
38.5 If ilie IVcomnnssammy Reserve Fund is paid to the CONTRACTOR and the
Decommissioning Reserve fund exceeds all Decoiimissioning Costs for the Contract
Area, the balance shall be transferred to the GOVERNMENT.
3X6 Any expenditure incurred by tlw COPfTRAC TOR in relation with this Article 38.
including any contributions to the Dccommi*f,ioning Reserve Fund, shall be deemed
Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with
the provisions of Articles I and 25.
38.7 The CON IKAOTOK shall submit to the Management Committee for approval in
accordance with Article 8.5 a detailed plan f *r decommissioning the Contract Area
facilities and site restoration (the "Decora mission rag Plan”). such Decommissioning
I’lun to bo submitted no later than twenty four (24) Months prior to the date estimated
by the CONTRACTOR for tlw end of Commercial Pr»U« lion from the Contract
Area. Tlie Management Committee shall provide comments, if any. on tin-
Decommissioning Plan within ninety (90) days after receipt. The CONTRACTOR'S
completion of tlw Decommissioning Operations in accordance, In all material
respects, with tlw Decommissioning Plan for a Production Ami approved by the
Management Committee shall satisfy all of the CONTRACTOR** obligations with
respect to the performance of Decommissioning Operations for such Production Aiea,
In the event (lie GOVERNMENT does not agree tlwt Decommissioning Oporulions
lor a Production Area were carried out in accordance with the approved
Decommissioning Plan, it must advise the CONTRACTOR within six (6) month* of
CONTRACTOR'S completion of such operations.
ARTICLE 39 ASSIGNMENT AND CHANGE OF CON'I KOI.
39.1 Bach CONTRACTOR Entity shall be free to sell, assign, transfer or otherwise
dispose of ull or part of its rights, obligations and interests under this Contract to an
Affiliated Company or to another CONTRACTOR Entity with the prior consent of
the GOVERNMENT, which consent shall not he unreasonably delayed or withheld.
Assignment to Hurd fHlIiva
39.2 Each CONTRACTOR Entity shall have the right to sell, assign. trnnsler or otherwise
dispose of all or part of its rights and interests under this Contract or in the normal
L 70/118
course of project financing to am third party (not being an Affiliated Company or
another CONTRACTOR Entity) with the prior consent of GOVERNMENT. and
each other CONTRACTOR Entity (if any) which consent shall not he unreasonably
delayed or wilhlicld. Any CONTRACTOR Entity proposing to sdl, assign, transfer
or otherwise dispose of all or part of its rights and interests under this Contract to any
such third party dull request such consent in writing, which request shall be
accompanied by reasonable evidence of the technical and financial capability of the
proposed third party assignee, unless such sale, assignment, transfer or other disposal
is in the normal course of project financing, in which ease the requirement for
reasonable evidence of technical and financial capability dull be automatically
waived. In the event that the Third Party Participant with a Third Party Interest
subject to Article 4.8 proposes to sdl. assign, transfer or otherwise dispose of all or
part of such Ihird Party Interest to a Person that is not an Affiliate, such Ihird Party
Participial shall first oiler to both the other CONTRA! I OR E ntity (or. it
applicable. CONTRACTOR Entities) and to the GOVERNMENT pre-emption
rights in reljlkm to such Hurd Party Interest, or part thereof. Such pre-emption rights
shall he offered on terms that arc at least as favourable as die terms upon which the
Third Party Interest (or part thereon has been offered to the interested Person Any
option by the GOVERNMENT to utilise such pre-emption rights > mil be subject to
the maximum participation limit imposed upon a Government Interest by Article 4 1.
ruithcmiorc. any sale, alignment, transfer or other disposal by the Third Party
Participant shall be subject to the minimum participation requirements imposed upon
the I hird Party Participant by Article 4.8. unless such sak. assignment, transfer or
other disposal is of the entire Third Party Interest taken pursuant to Article 4 X hor
the uvtiidunoc ol doubt, any sale, assignment, transfer or other disposal is in the
normal course of project financing h ill * t trigger any rights ol first oiler and shall
not he subject to any minimum participation requirement'
39.3 In order for any deed of sale, assignon-m. tr .m-.ler i-r oilier disposal as provided Ulster
.Articles 39.1 or 392 to be effective, the Parties and the relevant third pony, it any.
shall enter into a binding and enforceable instrument of assignment and novation,
which shall include an undcTtaLing by the transferee or assignee to fulfil the
obligations under this Contract which cocrcqwnd to the ini ere j irancfixrvd or nvagned
39.4 By way of clarification, and not in limitation of the foregoing provisions of this
Ankle 39. the GOVERNMENT shall not be considered to be acting unreasonably in
withholding consent to any such assignment if the assignment to such proposed
assignee is deemed contrary to the GOVERNMENT* interests, as evidenced in
writing to that effect sigard by the duly authorised representative of the
GOVERNMENT below.
39.5 In the event a CONTRACTOR Entity assigns or in any other way transfer* its rights
and interests under this Contract, including through the exercise of the Option of
Government Participation or the Option of Third Party Participation, whether in
whole or in part such assignment or transfer shall not give rise to ;tny I ax. including
on the consideration paid or received or on the income or gain therefrom
39.6 The GOVERNMENT may not at any time transfer any or all its rights and
obligations under this Contract to any Person, including to a Public Company or any
other company or entity. except in accordance with Article 4.
80/118
Change of CttlUfttl
39.7 Change nf Control" for the purpose of this Article 39.7 means am direct or indirect
change of the identity to the Person who Controls a CONTRACTOR Entity (whether
through merger, sale of shares or of other equity interests, or otherwise) through a
single transaction or senes of transactions, from one or more transferors to one or
more transferee's in which the market value of such entity’s participating interest
(which shall be as specified in the Joint Operating Agreement relating to this
Contract, or where tlicrc is only one CONTRACTOR Fntity, one hundred per tent
(100%) in this Contract represent* more than seventy live per cent (75%) ol the
aggregate market value of the assets of such entity and its Affiliates that arc subject to
the Change in Control. 1 or the purpose of this definition: "C ontrol means the direct
or indirect ownership or control of the majority of the voting righto of the applicable
entity at its shareholders' meetings or their equivalent: and market talar" shall be
determined hated upon the amount in cash a walling buyer would pay a willing seller
in an Arm's lamglh transaction.
Each CONTRAC TOR Hntity which in or anticipates with 4 reasonable degree of
certainty that it will be subject to a Change in Control, other than lo an Affiliated
Company or a CONTRACTOR Entity, dull notify the GOVERNMENT as soon as
practicable after it heroines aware of the Change in Control or anticipated Change in
Control and request the consent of GOVERNMENT, which consent shall not be
unreasonably delayed 01 withheld.
A Change in Control shall not give rise to any Tax including on the consideration paid
or received or on Hie income or gain therefrom.
ARTICLE 40 - FORCE MAJEURF.
4(1.1 No delay, delault. breach or omission of the CONTRACTOR in the execution of nny
of Its obligations under litis Contract shall be considered a failure to perform this
Contract or be the subject of 11 dispute if such delay, default, breach «>i omission is due
lo a ease of Forte MajCurc. In such event the CONTRACTOR shall promptly notify
the GOVERNMENT in writing and take all reasonably appropriate measures to
perform its obligations under this Contract to the extent possible. The time reMilting
front any such delay or curtailment in the execution of such obligation-, mere-used by
the time ncvewiry to repair any damage resulting from or occurred during such delay
or curtailment, vhnll be added lo any time period provided under this Contract
(including the Fjtploraiion Period and any extension thereto, any Sub lVnod and any
extension thereto and any IX-vel««pincm Period and any extension thereto). l*c Panics
shall meet as soon as possible after the notification of Force Majeurc w ith a view to
using reasonable endeavours to mitigate the effects thereof.
10.2 For die purpose of this Contract. "Force Majearr- means nny event that is
iirforvraxxihle. insurmountable and irresistible, not d*r to any error or omission by the
CONTRACTOR but due to circumstances beyond its control, winch prevents or
impedes execution of all or part of it* obligations under thin Contract. Sue* event>
vhnll include the folhming:
8 I/I 18
(a) war, whether declared or not. civil war, insurrection, riots, civil commotion,
terrorism, uny oilier hostile acts, whether internal or external:
(b) strikes or other labour conflicts;
(c) accidents or blowouts;
(d) quarantine restrictions or epidemics;
but without limitation. Hexyls, storms, cyclones, fires, lightning, or
earthquakes;
11) environmental restrictions, which the GOVKKNMKNT has not notified to the
CONTRACTOR;
(g) except in respect of the GOVERNMENT and/or any Public Company which
may I* a CONTRACTOR Entity, any acts or orders of the
GOVERNMENT, any minister, mininUy, department, sub-division, agency,
authority, council, committee, or other constituent dement thereof, any
corporation owned and/or controlled by the any of the foregoing; and
(h) any acts 01 orders of any oilier government churning or asserting jurisdiction
over the subject matter ol this Contract, uny minister, ministry, department,
sub-division, agency, authority, council, committee, or other constitixii
element tlicicof. or any corporation owned and/or controlled by any of the
foregoing.
40 3 I he intention of the Parties is that Force Majeure shall receive the interpretation that
complies most with prudent international petroleum industry practice. Force Majeure
allotting a C ONTRACTOR Entity or an Affiliated Company of a CON TRACTOR
Entity shall be deemed Force Majeure affecting the CONTRACTOR if tl»c
consequence of such Force Majeure prevents the performance of any of the
CONTRACTOR’S obligations under this Contract.
ARTICLE 41 --- WAIVER OF SOVEREIGN 1MMIIMI Y
The GOVERNMENT and any Public C ompany which may he a COM RAC FOR Entity at
,tny time hereby fully and irrevocably waives any claim to immunity for itself or any of its
asset s.
Ihi* waiver includes any claim to immunity from:
(n) any expert determination, mediation, or arbitration proceedings commenced pursuant
to Article 42;
(b) any judicial, administrative or other proceedings to uid the expert determination
mediation, or arbitration proceedings commenced pursuant to Article 42: and
(c) any effort to confirm, enforce or execute any decision, seitlemunt, award, judgment,
service of process, execution order or attachment (including pre-judgment attachment)
82/1 IS
thal results from an expert determination, mediation, arbitration or any judicial,
administrative or other proceedings commenced pursuant to this ContrncL
ARTICLE 42 - ARBITRATION AND EXPERT DETERMINATION
For the purpose of this Article 42.1, “Dispute” shall mean any dispute, controversy or
claim (of any ami every kind or type, whether based on contract, tort, statute,
regulation or otherwise) arising out of, relating to, or connected with this Contract or
the operations carried out under this Contract, including any dispute as die
construction, existence, validity, interpretation, enforceability, breach or termination
of this Contract, which raises between the Parties (or between any one or more
entities constituting the CONTRACTOR and the GOVERNMENT).
In the event of a Dispute, the parties to the Dispute shall use their reasonable
endeavours to negotiate promptly in good faith a mutually acceptable resolution of
such Dispute.
Subject to the provisions of Article 42.2. a Party who desires to submit n Dispute for
resolution which has not been promptly resolved as aforesaid shall commence the
dispute resolution process by providing the other parties to the Dispute written notice
of the Dispute ("Notice of Dispute”). The Notice of Dispute shall identify the praties
to tlur Dlsjnilc, shall contain a brief statement of the nature of the Dispute and the
relief requested and shall request negotiations among Senior Representatives.
(a) In the event that any Notice of Dispute ix given in accordance with this Article
42.1, the parlies to the Dispute shall first see*, settlement of the dispute by
negotiation between Senior Representatives. Senior Representative” means
any individual who has authority to negotiate the settlement of the Dispute for a
party to the Dispute, which for the CiOVKRNM) N f shall m«m the Minister of
Natural Resources. Wkbh thirty (30) days after the date of delivery of the
Notice of Dispute, the Senior Representatives representing the parties to the
Dispute .dial! meet at a mutually acceptable date, time raid place to exchange
relevant information in an anempt to resolve the Dispute If a Senior
Representative intends to be accompanied .a the meeting by a legal adviser, each
other party shall be given written notice of such intention raid its Senior
Representative may also be accompunicd at the meeting by o legal adviser.
(b) If the Dispuic cannot be resolved by negotiation in accordance with Article 42.1
(a) within sixty (60) (in s after the dale of tie icvcipt by e*;h party to the Dispute
of the Notice of Dispute or such farther period as the puties to the Dispute may
agree in writing, any party to the Dispute may seek wttkmcot of the dispute by
niediation in accordance with the London Court of International Arbitration
(/‘LC1A”) Mediation Procedure, which Procedure shall be deemed to be
incorporated by reference into this Article. nnJ the piriies to such Dispute
shall submit to such mediation procedure.
(c) If the Dispute is not settled within the earlier of (A) sixiv (60) days of the
appointment of the mediator, or such further period as the parties to the
*3'1IH
Dispute may otherwise agree in writing under the mediation procedure under
Article 42.1 (b). and (B) one hundred niid twenty (120) days after the delivery of
the Dispute Notice, any party to the Dispute may refer the Dispute to, and seek,
final resolution by, arbitration under tlwr LC'IA Rules, which Rules shall l>c
deemed to he incorporated by re I ere nee into this Article.
(i) Any aibitralion slmll If conducted by three (3) arbitrators.
(ii) If the parties to iIk Dispute me tlm GOVERNMENT and all the
CONTRACTOR Entities, the GOVERNMENT and the
CONTRACTOR shall each a|»|H*int one (I) arbitrator. If Uie parlies to
tire Dispute are the GOVERNMENT and more than one, but not all
the CONTRACTOR Entities, the GOVERNMENT shall appoint
one (1) arbitrator uikI such CONTRACTOR Entities shall appoint one
(I) arbitrator. II the turtles to the Depute are the GOVERN MEN!
and one CONTRACTOR Entity, the GOVERNMENT and such
(XJNTRACTOK Entity shall each appoint one (1) arbitrator.
(iii) In any event, the two arbitrators so appointed shall, in good faith, use
all reasonable endeavours to agree on the appointment of the third
arbitrator, who will cliinr tlh- urbitrnl tribunal In c,i.e of failure to
appoint an arbitrator or to agree on the appointment of the third
arbitrator. Rules ol the I .CIA shall apply,
(vi) Arbitration slmll Hike place hi I oiition, England. IIk language to he
used in tiny prior negotiation, mcdiulUm and i 1* uilmrotnMi 'hall Ik
English. During the arbitration procedure and until the arbitral
decision, the Parties slmll continue to perform their obligations and take
no actions that would impair tlx Contract. The arbitral award may be
enforced by any court of competent jurisdiction, including in the
Kurdistan Region. Any award shall be expressed in Dollars.
(v) I he Fait1agree tlut the arbitral award shall be final and not subject
to any appeal. including to the Courts or England on issues of Law.
(vi) With respect to tiny matter referred to arbitration under Article 43.4,
Uk arbitral triburtal shall have the authority to .-mend this Contract to
restore the economic posit ton referred to in Article 43.3.
Eincrt Dctcrminnti.ini
42.2 Any disagreement between the Parlies relating to Articles 15.9. 27.2 and 27.7. ns well
as any disagreement tho Parties agreo in ruler to mi expert, shall be submitted to an
expert. Die .Management Committee shall prepare nnd agree appropriate terms of
reference lo he submitted to the expert, in accordance with Article 8.5 (“Terms of
Reference''), ns soon as possible nflei Ihu I fleet ivc Date.
(a) Hie disagreement shall he submitted to .in expert appointed by mutual
agreement of the Panics within thirty (30) days following the date of
preparation and agreement M iIk I emu of Reference by the Management
Committee If the Parties ca u- agree on da- choice of the expert uilhin such
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r- i
thirty (30) day period, at the request of either Party, the expert shall lie
appointed by the President nl the Energy Institute in London. England. Any
expert appointed must have the necessary qualifications lor reviewing and
deciding on the subject matte* of the disagreement.
(b) The duties ot the expert shall be staled in Lite I enns ol Reference prepared and
agreed by the Management Committee. Nr* Management Committer shall
promptly provide the expert with the agreed Terms of Reference relating to the
disagreement. Each Party shall have the right to give to the expert in writing
any information which it considers useful, provided it does so within forty-five
(45) days after the expert's appointment. Such information shall be provided
to the other Party at the same time and such oilier Party shall be entitled to
provide comments on such information to the first Party ami the expert within
thirty (30) days after receiving such information. Hie expert sluill have the
right to review and verify any information he deems useful to assist him in his
review of lire? disagreement
(e) The expert sluill render his decision within forty-five (45) days of his receipt
of the Terms of Reference and the information referred to in Article 42.2.
Subject to the provisions of Article 15.9. any decision of the expert shall be
final and shall not be subject to any appeal, except in the ease of manifest
error, fraud or malpractice. Any costs and expenses associated with the expert
determination sluill be .shared equally between the Parties.
42.3 No negotiation, mediation, arbitration or expert determination procedure unJer this
Article 42 shall exempt the Parties from fulfilling their respective legal and'or
corn actual obligations.
ARTICLE 4J covi rning I .aw, fiscal stability and AMENDMENTS
Governing l aw
43.1 This Contract, including any dispute arising therefrom, thereunder or in relation
thereto and the agreement to arbitrate in Article 42. shall be governed by English law
(except any rule of English law w+tich would refer the matter to another jurisdiction),
together with any relevant nilcN customs and practices of international law. as well as
by principles and practice generally accepted in petroleum producing countries and in
the international petroleum industry.
Fiscal .Stability
43.2 Ihe obligations of the CONTRACTOR in respect of this Contract shall not be
changed by the GOVERNMENT and die general and overall equilibrium between
the Parties under this Contract shall tan he affected m a substantial and lasting
manner.
43.3 I he GOVERNMENT guarantees to the CONTRACTOR, for da- entire duration of
this Contract that it will mainiain the stability of the legal, fiscal and economic
cooditioru of this Contract as they result from tins Contract and as they result from
*5/1IX
The laws and regulations in force on the dale of signature of this Contract. The
CON l‘K ACIOK tan entered into lhi« Contract on the basis of the legaL fiscal and
cconi'nrc framework prevailing at the Effective Dale If. at any lime after Ihe
Effective l>alc, llcrc is any change in the legal, fiscal uixl/or economic framework
under ihe Kurdistan Region Law or other I aw applicable in or to the Kurdistan Region
which dctrimcr.ully affects the CONTRACTOR, the CONTRACTOR Entities or
any otltci Pci sun entitled to benefits under this Contract, ihe lerms and conditions of
the Contract shall be altered so as 10 restore ihe CONTRACTOR, the
CONTRACTOR Entities and any oilier Person entitled to benefits under thi>
Contract to the same overall economic position (taking into account home country
taxes) as llial which such Person would have been in. had no such chance in the legal,
fiscal and or ceoaomic framework occurred.
43 4 If the CONTRACTOR believes that its economic position, or the economic position
of a CONTRACTOR Entity or an> other Person entitled to benefits under this
Contract, has been detrimentally affected as provided in Article 43.3. upon the
CONTRACTOR'S written request the Panics shall meet to agree on any necessity
measures or making any appropriate amendments to the terms of this Contract to re¬
establishing the equilibrium between the Italics and restoring the CONTRACTOR,
the CONTRACTOR Entities or any other Person entitled to benefits under this
Contract to the position (taking ink* account Ixunc country taxes) H was in prior to the
occurrence of the change having such detrimental effcci Sh. uU! the Parties be unable
to agree on the merit of amending this Contract and/or on an> .imendments to be made
to this Contract within ninety (VO) days of die i
period as may be agreed by the Parties), llic CONTRACTOR may refer the matter in
dispute to arbitration as provided in Article 42.1, without the necessity of first referring
llic mutter to negotiation and mediation.
43.5 Without prejudice to the generality of the foregoing, the CONTRACT OK shall be
entitled to the benefit of any future changes to the petroleum legislation or any other
legislation complementing, amending or replacing it.
43.6 The Parties agree to cooperate in all possible ways with a view to fully achieving ihe
objectives of this Contract. The GOVERNMENT shall facilitate the performance of
the Petroleum Operations by promptly granting to Ihe CONTRACTOR any
necessary authorisation, permit, licence or access right and making available any
existing facilities and services with a view to the Parties obtaining maximum mutual
benefit from the Contract
Amendments
43.7 .Any amendment to this Contract shall be the subject of a formal amendment, duly
approved in writing by the Parties and subject to the same conditions of validity a-,
this Contract Notwithstanding the foregoing, the GOVERNMENT has the right and
authority to waive the application of the provisions of this Contract on a case-b)-care
basis without having to fulfil the conditions of validity of this Contract.
43 X 1 his Contract constitutes the entire agreement of the Panics and Miperedes any and
all prior understandings or agreements in respect of the subject matter of this Contract
86'! 18
43.9 Unless otherwise expressly stilted elsewhere in this Conlriict. ih> failure or delay of
any Party to exercise any right, power or remedy under this Contrail shall operate ns a
waiver thereof; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or future exercise thereof or the exercise of any oilier right,
power or remedy.
Validity
43.10 As signatories to this Contract for and on bdvilf of the GOVERNMENT. the Ministry
of \diiir.il RestHirees in the Kurdistan Region and the Regional Council for the Oil
and Gas Affairs of the Kurdistan Region - Iraq hereby represent that they agree am!
approve this Contract foe the purposes of the Kurdistan Region Oil and Gas 1 .aw
ARTICLE 44 - NO 11CHS
44.1 All notices, demands, instructions. waivers, consents or other communications to be
provided pursuant to this Contract shall be in writing in English, shall be effective
upon receipt, und shall be sent by receipted hand delivery or by email (followed by
delivery by reputable international air courier company with an establishment in Lrbii
in the Kurdistan Region) to the following addresws:
To the GOVERNMENT:
Attention:
His Excellency the Minister of Natural Resources
Address:
Ministry ol Niitnrnl Resources
KtirdisUin Regional Government
I*rhil, Kurdistan
Fan nil: mnrUhigoil.com
I'o the CONTRACTOR:
Attention: Alexey kii/miohcv
Address:
fhemistokli Dervi
5 Elenion Building
1st floor, P.C. 1066
H7/IIX
Nicosia. Cyprus
Email: alfudlrhWsgarnelru
A notice delivered by email (followed by air courier) shall, save for manifest error, be
deemed to have been delivered upon its transmission by emiiil
44.2 l ire above address and/or designated representative of any of the Parties may lie
changed on giving ten (10) days prior notice to the oilier Party delivered pursuant to
Article 44.1.
ARTICLE 45 - TERMINATION
45.1 Subject lo the provisions of Article 45.5, the GOVERNMENT slid I have the right to
terminate this Contract in the event the CONTRACTOR:
(a) fails to meet a material financial obligation expressly staled in this Contract: or
(b) during the First Sub-Period docs not carry out drilling and seismic acquisition,
as detailed in Article 10.2 or, during lire Second Sub-Period tor earlier), docs
not earn out drilling and seismic acquisition, as detailed in Article 10.1; or
«c) interrupts Production tor a period or more than ninety (90) consecutive days with
no cause or justification acceptable in accordance with this Contract or under
prudent international petroleum industry practice, it being recognised that horce
Ma cure is ai acceptable justification far \urii interruptions; or
(i) intentionally extracts or produces any mineral wtikh ts not covered by the object
of this Contract, unless such extraction or production is expre^dy authorised or
unavoidable as a result of operations earned out in accordance with prudent
international petroleum industry practice.
(c) irthe CONTRACTOR compos M-lcly one entity, is declared bankrupt in
accordance with applicable lam: or
(0 wilfully refuses to abide by regotianon. mediation, nrbiir.uian or expert decision
under Article 42.
4 52 I he GOVERNMENT may also terminate the Contract only in respect of one
CONTRACTOR Entity if such entity is subject lo a Change of Control for which the
GOVERNMENT has not given its authorisation in acnmhnrc with ArtiJc *9.7.
45.3 At any time prior to the Development Period, the CON TRACTOR shall have the
right to terminate this Contract by surrendering the entire Contract Area in accordance
with the provisions of Article 7.
45.4 During the Development Period, the
terminate this Conirnct at any time by surrendering all Production Areas, provided its
then current obligations have been satisfied in accordance with this Contract
88/118
L.
45.5 If the (JOVI R.NMEN T intends l«* exercise its right lo terminate this Contract
pursuant to Article 45 I it shall firu comply with the following provisions
(a) The GOVERNMENT shall notify the CON TRACTOR of its intention to
termtr.dtc this Contract stating the rcAv.ns for such termination and requesting
the latter:
(i) to remedy Uie default; «*
(it) to propose accc|Xiihlc compensation.
(b) If. within three (3) Months after the notice rclcnvd to in Article 45.5(n>. the
CONTRACTOR has not remedied the situation complained of by llie
GOVERNMENT to its satisfaction or offered compensation acceptable to the
GOVERNMENT in each wise acting rctisonubly, the GOVERNMENT shall
notify the CONTACTOR in writing that the Contract shall be terminated
from the termination date detailed in such notice. 'I his Contract shrill terminate
on such termination date unless the CONTRACTOR issues a notice ol
dispute as provided under Article 42, in which case this Contract shall remain
in force until a final settlement of the dispute lias been reached in accordance
with the dispute resolution provisions of Article 42,
I lie foregoing provisions of this Article 45.5 lire subject to the proviso that, in case of
a dispute where there has been breach of this Contract which has been submitted to
dispute resolution pursuant to Article 42. the GOVERNMENT shall not be entitled to
exercise its right to terminate this Contract prior to u linul determination under Article
42 in favour of the GOVERNMENT
45 6 If the GOVERNMENT terminates this Conrract pursuant to the provisions of Articles
45.1 and 45.5. the CONTRACTOR shall lose all its rights and interests under this
Contract. Notwithstanding the loregmng. the provisions of Articles 14.10. 16.7. 30.
31. 35.1, 35.3. 35.4. 35 7. 36. 38 2(c), 41, 47. 43.1 to 43.6 shall survive the
termination or expiry of this Contract.
45.7 If a CONTRACTOR Entity breaches Article 46.1 or 46.2 the GOVERNMENT or
another CONTRACTOR Entity may terminate this Contract in respect of the firal
C ONTRACTOR Entity.
45.8 If the Contract is lerminafax! under Article 45.2 or 45.7. the insen-a of the relevant
CONTRACTOR Entity shall be transferred to the other CONTRACTOR Entities in the
proportions in which their respective percentage interests bear to the aggregate of
their respective percentage interests under the relevant Joint Operating Agreement or
in such other proportions as such CONTRACTOR Entities shall agree between them
fix lie nurict value thereof (as Midi term » defined in Article 39.7). Such transfer shall
not give nc to any lax including on the consideration paid or received or on the
income or gam therefrom.
89/118
ARTICLE 4* - AFFLK'AHOA €>► CORRUPTION LAWS
46 1 If this Contract is rcasoTLibtv proven to have hern obtained in violation of Kurdistan
Rev ton Lav* concerning comjpcion. this Contract ii void ad job*
46.2 Each CONTRACTOR Fitk\ *rrw-rtwt if it u. ■ any taK- reason*h proven to be in
haa* of Kurdistan Region Law concerning corruption the provisiaaa at Article 4S 7
«pp*y-
ARTICLE 47 - EFFECTIVE l>A IE
Thb Contract shall become effective and be binding on the Patties upon the signature of the
Comiact by the duly authorised representative* of the GOVERNMENT and the
i ONER ACTOR. as provided below.
9WI1X
original* in Brfnl. the Kurd, si an Kagioa <« 10
1-nlcTvJ ii*«» m three |3)
2007
Far the Kl’KIMSTA* REGIONAL GOVERNMENT
l or each CONTRACTOR > «ihy
NORBT-NT LIMITED
ode Easting Northing I Longitude Latitude
A 366 358 4033 785 43 30 3? 36 26 24
B 382 700 4030 000 43 41 30 36 24 2 9
397 000 4018 000 43 51 10 36 18 05 43 43 "8 38 65*
D 411 000 4016 000 44 00 32 36 17 06 3989 979 43 37 05
E ~ 395 807 4000 982 43 50 31 36 08 53
E 382 400 4017 000 43 41 25 36 17 27
0 369 860 4019 675 43 33 01 36 18 48
H_ 368 376 4026 3781 43 31 58 36 22 25
Easting Northing Longitude Latitude
ode Eastmg I Northing Longitude Latitude | 382 400 4017 000 43 41 25 36 17 27
r 411 000 14016 000 44 00 32 36 17 06
405 000 3990 000 43 56 43 36 02 59
B 424 308 4004 160 44 09 30 36 10 45
c 405 000 3990 000 43 56 43 36 02 59
0 395 807 |4D00 982 43 50 31 36 08 531
TNK-OP t lotting
00 <>ty*4> Mi Tiw.nfrrnr
LVrtl. U\W OUfifct F4» • • to*; in 7/ia>
T^unmn IIo|mi.M*»70 +/+*> 7fl/i*ion
F.iiM mh.4^v»» ♦ Uiftwn
#s*'r+
,ooJi-m]&’#t,ty
0 3 HOH 2007
Ministry ofNatural Resources
Council of Ministers
Kurdistan Regional Government
Hit>il. KurdiMan-Iraq
I)utc:8 October 2007
i)au Sir%
ANNEX C; COM PAM I q.(kflskj«g
fR0l>lCTI9NSHAKjNGC ONj RAC TJUWI
GIVEN PI;RSI'ANT I<-> Ml lO.!', !>
A Production Sharing Contract hereafta ~C >»: r.a ' ! in respect o: Petroleum Opcraiiors relating 10
It loci lluwlcr Arc . in Kurdistan was executed in November 2007 between the Kurdistan Regional
Government of Iraq thereafter 'GOVERNMENT"), represented by the Minister of Natural
Resources, aii.l the Contractor, a company established and existing under the laws of Cyprus
» »ose registered office is at 5 Themiv.oclcs Dervis Street. Nicosia, with the registration number
300<40 (hereafter referred to as “the CONTRACTOR ).
1 Thu Is to confirm that, for the purposes of the Contract. J»e CONTRACTOR is an
Affiliated Company of TNK-BP Holding, a company incorporated under the laws of the
Russian Federation and having its registered office at bid.60 Oktyabrskaya Street, village
Uvat. Uvatskiy rayon. Tun ten region. Russian Federal win 6?6I70. rc/i^mioa number
10472 00 153 770 (hereinafter referral to as the “COMPANY").
2 The COMPANY, subject to accessary contracts und permits, undertakes to provide the
CONTRACTOR with full u> hnicol support necesmry for the CONTRACTOR to fulfil its
obligations under the Contract
.1. Hie Undertaking shall enter into force as of the l-'lToctive Date (as denned In the Contract)
and shall remain in force until the earlier of (a) termination of the Contract, lb) 7.032. or (c)
the Companies ceasing to be Afftliutod Companies
4. Terms defined in the Contract shall have the same meanings in this l Indcrtaking
5. This Undertaking shall be governed by. subject, to and construed uui intaptCted in
accordance with the substantive laws of England
n<
6. Any dispute between die GOVERNMENT and the COMPANY regarding this
Undertaking which cannot Jxr settled amicably between them within three months shall be
submitted to and linally settled by arbitration in accordance with the Contract, mat at is
mutandis.
TNK-BP Holding,
Name:
Position:
Signature
ANNEX p
A( ( Ol'MING I’RWlDllkl
PARAGRAPH I (MI NERAL PROVISIONS
1.1 Purpose
To classify expenditures, define l urilici Petroleum Costs (in addition to those defined
as such in the Articles of the Contract), ami prescribe the manner in which the
CONTRACTOR'S Accounts shall lx- prepared and approved.
1.2 Definitions
Words nnd phrases to which a meaning lias been assigned in Article I or other
Articles of the Contract shall have the same meaning when used in this Annex.
1.3 Inconsistency
In the event ol uny inconsistency or confiict between the provisions of this Annex mid
the other provisions of the Contract, then the other provisions of the Contract shall
prevail.
1.4 Acconntiag Records and Reports
1.4.1 The CONTRACTOR shall maintain the Accounts in accordance with Ankle 15.1
and in accordance with this Accounting Procedure, including m .icconlancc with the
charts of A cc* Hints agreed under Paragraph 1.4.2
1.42 Within sixty (60> days of the Effective Date. the CONTRA**1 OK dull submit to and
discuss with the GOV kKNMENT a proposed outline of charts of Accounts, which
outline shall be in accordance with generally accepted standards and recognized
accounting systems and consistent with normal petroleum industry practice and
procedures. Within ninety (90) days of receiving the above submission, the
GOVERNMENT shall either provide written notification of it*, approval of the
proposal or re^cesi in writing revisions to the proposal Within one hundred and
eighty (180) days alter the Effective Date, the CONTRACTOR and the
GOVERNMENT shall agree on tile outline of charts ol Accounts which shall
describe tlic basis of the accounting system and procedures to bo developed nnd used
under this Contract. Following such agreement, the CONTRACTOR shall
expeditiously prepare and provide the GOVERNMENT with formal copies of Ihe
coniinebensrve charts of Accounts mid manuals related to tlx- accounting, recording
und reporting functions, and procedures which arc. and shall be. observed under the
Contract.
1.4.3 Notwithstanding the generality’ of Ihe f«*regoing. the CONTRACTOR dull make
regular Statement* relating to the Petroleum Operations Ihem Statements arc as
shown;
95/118
(n) Production Statement (as indicated in Paragraph 6).
(c) < lost Recovery and Share Account Statement (as indicated in Paragraph K)
(d) Statement of hxpenditures and Receipts (as indicated in Pnmgrnph 9).
(c) Pinal Hnd-of-Year Statement (as indicated in Paragraph It)).
(Q Mudgct Statement (as indicated in Paragraph 12).
1.4.4 All reports and statements shall he prepared in accordance with the Contract,
Kurdistan Region Law. and where there are no relevant provisions of either of these,
in accordance with prudent international petroleum industry practice.
1.5 Language and Units of Account
All Accounts shall be maintained and prepared in the I nglish language and shall be
recorded in Dollars. Where necessary for clarification, tire COM RAC I OR may
also maintain Accounts in other currencies
1.6 Audit and Inspection Rights of the GOVERNMKN I
In addition to the provisions of .Articles 153 >* 15 7 fiJ 15.9. the following
provisions shall apply to any audit carried out in accordance with Articles 15'* to
15.7:
1.6.1 lor puiposcs of auditing, tlic GOV KKNMI .M. acting reasonably and in accordance
with prudent intemnlionnl petroleum industry practice, may examine and verify*, at
reasonable times upon reasonable prior written notice to the CONTRACTOR. ali
charges und credits relating to tlvc Petroleum Operations, such as books of account,
accounting entries, material records and inventories, vouchers, payrolls, invoices and
any other documents, correspondence nnd records including electronic records
reasonably considered necessary by the GOVERNMENT to audit and verify the
charges and credits, values and Iroulmwilh.
1.6.2 furthermore. the auditors shall have the right in connection with such audit, to visit
and inspect at reasonable times, all sites, plants, facilities, warehouses and offices <>i
the CONTRACTOR directly or indirectly serving the Petroleum Operations und to
question personnel associated with those Petroleum Operations,
I 63 Where the GOVERNMKN'I requires verification of charges mode by on Affiliated
Company of the CONTRACTOR, ihc GOVERNMENT shall have the right to
obtain an audit certificate for such cliungcs from an internationally recognized firm of
public accountants acceptable to both the GOVERNMENT and the
CONTRACTOR, which may be the CONTRACTOR’S statutory auditor.
1.6.4 All agreed adjustments resulting from an audit shall be promptly made in the
C ON TRACTOR'S Accounts and any consequential adjustments to payments due to
the CON’I RACTOR or to the GOVKRNMENT, as the case may Ic, shall be made
promptly.
96/11X
1.6.4 When issues are outstanding with respect to an audit, die CONTRACTOR .linll
maintain ilic relevant documents mill permit inspection tlnmxif until the issue is
resolved.
1.7 Payments
Unless as otherwise provided in Article 24. Article 29 or other Articles oi' the
Contract:
1.7.1 All payments between the Parties shall, unless otherwise agreed, be in Dollars and be
made through n bank designated in writing by each receiving party; and all sums due
under the Contract shall be paid within thirty (30) days following the end of the
Month in which the obligation to make such |>aymcnt occurred.
1.7.2 All sums due by one party to the other under the Contract shall, for each day such
sums arc overdue, bear interest compounded monthly at I.IHOK plus two per cent
(2%).
1.8 Currency Exchange Rales
In addition to the provisions of Article 29. the following provisions shall apply to any
exchanges of currency carried out in accordance with Article 29:
1.8.1 Amounts received and Petroleum Costs incurred, shall Ik- converted from other
currencies into Dollars in accordance with die CONTRACTOR’S usual accounting
procedures which shall reflect generally accepted accounting practices in t'ic
international petroleum industry , and with reference to exchange rates obtained in
accordance with Article 29.
1.9 Accrual Basts Cash Flow Ba*» and Report*
All books and Accounts shall he prepared on an accrual basis in accordance with
generally accepted accounting principles uwd in the international petroleum industry.
1.10 Values and Trmtments
Values and treatments proposed by the CONTRACTOR relating to all Petroleum
Costs shall be subject to challenge by the GOVERNMENT in the course of audit to
ensure that they are in accordance with the provisions of this Accounting Procedure.
PARAGRAPH 2-CLASSIFICATION. DEFINITION AND ALLOCATION OF
COSTS AND EXPENSES
2.1 Segregation of Costs and Expenses
Petroleum Costs shall be segregated in accordance with the purposes for which such
Petroleum Costs are made. The purposes winch shall qualify arc:
(a) there which have been included in the approved Work l*rogram ami Budget
for the year in which the Costs and Expenditures arc made;
97'IIS
(b> expenditures incurred in cure* of emergency ns set out in Am* lev 11.7, 13.5.
13.9 3S.S. 35.6 and any other Ankles of the Contract,
(c) any wild purposes agreed in tlx- Article* of the Contract, and
(d) oilier items which have ham agreed by the Parties from time lo time.
All Petroleum Costs recoverable under Paragraph 3 relating* to Petroleum Operations
shall b* classified, defined and allocated us set mu below.
2.2. Ksplorution Costs
l:\plmuiioo Cose are all direct anil allocated indirect costs and expenditures incurred
in carrying out the Exploration Operations, including all direct and allocated inducti
costs and exjxmditurcs incurred in tlx* ■eiireh tor Petroleum in an area vsliivh or was
ai the time when such costs and expenses were incurred, port of tlx- Contract Area
including:
2.2.1 Aerinl, geophysical, geochemical, puleonhilugieal. geological. topographical and
seismic surveys and studies and lltoir mterpretmion and purchased geological and
geophysical information.
2.2.2 Stratigraphic test hole drilling and water well drilling.
2.2 3 I ahmir materials. supplies, and services used in drilling and hxnuili.ni testing of
wells with the object of finding Petroleum or Apprairal Wells ciclial w any cofl* of
22.4 Facilities to the extent um*1 in support of the purposes described in Paragraphs 2 2.1.
22.2 and 2.2.3. including access roads
2.2 5 I hat portion of all service expenditures and that portion of all general and
administrative expenditures directly attributable to Exploration (lists or allocated
thereto on a consistent and equitable h*uv
22.6 Any other expenditures incurred in the •coreh for and appraisal of Petroleum after the
hflectiw IXiic urxl not otherwise covered under this Paragrap* 22.
2J <;•« MarkHMg < ovtv
(k Marin if QMS are ail direct and allocated indirect costs and cxpciditurcs
incurred in carrying out Ga> Marketing Operations and include that portnm ot all
tcrvicc expenditures and that portion of all general and administrative expend lures
directly atUibutablc lo Gas Murielirif Cost* or allocated thereto on a comiUcnl and
equitable basis
2.4 Ih-vdopmcnt ( o«.
IXnetopmcnf Cost* arc all direct and allocated indirect costs and expenditure*
incurred in carrying out Development Operation* including all direct and alWx.ncd
indirect cuds and expenditures incurred in
«*U1«
2.4.1 Drilling wells which arc completed as producing w«lb anil drilling wells for purposes
o:' producing from a Petroleum reservoir, whether these wells are dn or producing
and drilling wells for the injection of water or gas to enhance recovery of Petroleum.
2.42 Completing wells by way of installation of casing or equipment or otherwise after a
well has been drilled for the purpose of bringing the well into use us a producing well
or ns a well for the injection of water or gas to enhance recovery of Petroleum.
2.4.3 I’hc costs of Petroleum production, transport and storage futilities such as pipelines,
flow lines, production ami treatment units, wellhead equipment, subsurface
equipment, enhanced recovery systems. Petroleum storage facilities. and access roads
for production activities.
2.4.4 Engineering and design studies for |Ik; wells and facilities referred to in Paragraphs
2.4.1. 2.4.2 and 2.4.3.
And including that portion of all service expenditures and that portion of all general
ami administrative expenditures directly attributable to Development Costs or
allocated thereto on a consistent and equitable basis; and any other expenditure
incurred in the Development Operations nnd not otherwise covered under
Paragraph 2.3.
2.5 Production Costs
Production Costs arc all direct and allocated indirect costs and expenditures incurred
in carrying out Production Operations, including all direct and allocated indirect costs
and expenses incurred in Petroleum Operations after First Production which arc other
than Exploration Costs. Gas Marketing Costs. Development Costs and
Decommissioning Costs. Production Costs include that portion of all service
expenditures and that portion of all general and administraiive expenditures directly
anribtnahlc to Production Costs or allocated thereto on a consistent and equitable
basis
2.6 Deconimi"iomn” C tab
Decommissioning Costs arc all direct and allocated indirect costs and expenditures
incurred in carrying out I kr
service expenditures and that portion of all general and administrative expenditures
directly attributable to Decommissioning Costs or .illocatcxl thereto on a consistent
and equitable basis. and the Decommissioning Reserve Fund shall be determined on
such basis, in advance of incurring such costs, as provided in Article 38 and. for the
purposes of com recovery, the contributions to the Decommissioning Reserve Fund
shall be recovered in accordance with Article 3S.
2.7 Service F.xpraditurc*
Service expenditures are expenditures in support ol Petroleum Operations including
warehouses, vehicles, motorized rolling equipment, aircraft, lire nnd security stations,
workshops, writer und sewerage plants, power plants, housing, community and
recreational facilities und lurminrc, tools and equipment used in these activities
Service expenditures in nny Calendar Year shall include the costs incurred in such
99/1IX
year lo purchase and/or construct the said liicililics ns well us the annual cosis of
maintaining and operating the same. All service expenditures shall Ik: regularly
allocnled ns specified in Paragraphs 2.2.5, 2.3, 2.4, 2.5 and 2.<» to l'!xplor»tinn Costs,
Gas Marketing Costs, Development Costs. Production Costs iiikI Decommissioning
Costs respectively and shall lie separately shown under each of these categories.
Where service expenditures arc made in res|»cci of sliuicd facilities, the husis of
allocation of costs to Petroleum Operations shall lie consistent and equitable nnd shall
be specified.
2.8 General and Administrative Expenditures
Genet al and administrative expenditures are:
2.8.1 All main office, field olfice iind general administrative expenditures in the Kurdistan
Region including supervisory, accounting, procurement and employee relations
services.
2.8 2 Where the CONTRACTOR is an Affiliate of a group of companies whose
ho-Hltiuarlors is Abroad (a “Foreign CONTRACTOR”), an annual overhead charge
shall be made for services rendered (excluding the direct expenditures as referred in
Paragraph 3.l.2.(b)) by any Affiliate of the Foreign CONTRACTOR outside the
Kurdistan Region to support and manage Petroleum Operations under the Contract, or
Where the CONTRACTOR, not being a Foreign CONTRACTOR draws upon the
services of an Affiliate within the Kurdistan Region, an annual overhead charge diall
be made for services rendered (excluding the direct expenditures as referred in
Paragraphs .1.1.2.U) ar.d (b)) by such Affiliate to support and manage Petroleum
Operations under die Contract ("Parent C ompass Overhead”).
Parent Company Overhead will be deemed to cover the actual cost (being salaries,
wages and labour burden, employee benefits, travel, hotel and other normally
reimbursable expenses paid by the Affiliate of a CONTRACTOR in accordance with
its standard personnel policy in force in the relevant period, provision of office
accommodation and provision of services reasonably rccc'>*ry tor operation and
maintaining such staff offices) incurred for services rendered by those functions of
CON TRACT OR's Affiliate, such as. but not limited to. international production
headquarters, intentional exploration headquarters. treusury, payroll, taxation,
insurance, legal, communications, computer rcrviccs, controllers, personnel,
cxeculivc administrative management, research and development central engineering
;uh! process engineering which:
(a) cannot without unreasonable effort andu* expenditure or without the release
of confidential data proprietary to an> of the CONTRACTOR’S Affiliates, he
. barged under any other section of this Annex; and
(b) arc properly allocable to Petroleum Operations under the Contract It is
undergood, however, that services performed by he departments listed above
nnd other corporate departments which directly benefit Petroleum Operations
under the Contract shall be charged as direct costs in accordance with
Puragraph 3.
toon is
In respect of the coxts of the CONTRACTOR'S Parent Company Overltend, as
described above. Uic CON I RAC“1 OK shall charge monthly to Petroleum Operations
an amount equal to the total of the following:
2.8.2.1 Exploration Overhead
The CONTRACTOR shall be entitled to an annual charge based on a sliding scale
percentage and charged monthly to Petroleum Operations. The basis for applying this
percentage shall l>c the total ol Exploration Costs ami Gas Marketing Costs during
each Calendar Year (exclusive of this Exploration Overhead) or traction thereof less
expenditures which have been subjected to ilie two (2) per cent fee. referral to in
Paragraph 3.1.8(b). I he sliding scale percentage shall be the following:
For the first four million Dollars (US$4,000,000) four per cent (4%)
For the next four million Dollars (US$4,000,000) three per cent (3%)
Over eight million Dollurs (US$8,000,000) two per cent (2%)
The foregoing percentages may lx- reviewed hut not more often than annually, and
nny approved appropriate adjustment shall be made, if necessary, prospectively.
2.8.2 2 Development. Production mul Decommissioning Operations Overhead
The overhead rules applicable to Development, Production and Decommissioning
Operations shall be agreed between the Parties in due course and shall incorporate the
following guidelines:
(a) The CONTRACTOR'S charges must be charged as direct charges whenever
possible. Overhead charges ex- 4 only to com peltate the CON fRACTOR’s
Affiliates tor costs winch are property allocable to Petroleum Operations
under the Contract but which cannot, without unreasonable effort and-or
release of confidential data proprietary to the < OM KA< TOR'S Affiliates,
be charged under any other section Overhead ecus nre billed monthly
Overhead must be commensurate with services tendered and based on actual
cost studies but may not exceed :ui amount calculated ;r* u percentage of
certain annual expenditures excluding Exploration Costs and
(b) That percentage as well as the ty pes of expenditures w hich affect overhead
and those, which do not. shall be agreed among the Parties.
(c> The maximum percentage rare- may be revised by mutual agreement not more
often than annually. The initial maximum percentage rate* and the types of
expenditures to which they apply shall he agreed as soon as the Parties possess
reasonably reliable cost estimates for the relevant Production Area.
(d) Overhead charges arc not subject to audit by GOVERN ME N T.
(e) The CONTRACTOR shall upon request furnish at the end of each relevant
Calendar Year to the GOVERNMENT a confirmation by its statutory auditor
that the overhead costs actually charged do not duplicate any other charges
and that the method used in allocating overhead to Petroleum Operations
101/1 IS
hereunder as opposed to other activities is reasonable and in accordance with
generally accepted accountiii|! practices
( 0 I lie CONTRACTOR must hudgat lor overhead charges,
2.K.3 All general and administrative expenditures sludl be regularly allocated as specified in
Pnnigrnplw 2.2.5, 2.3. 2.4. 2.5 nnd 2.6 to Exploration Costs. Gas Marketing CoatH,
Development Costs, Production Costs and Decommissioning Costs respectively and
shall he se|mutely shown under each of these categories.
PAII ACiR AIM I 3 - COSTS, EXPENSES, EXPENDITURES AND CREDITS OF THE
CONTRACTOR
3.1 Coats Recoverable Without Further Approval of the GOVERNMENT
Petroleum Costs incurred by tire CONTRACTOR pursuant to the Contract as
clnsnitled under the headings referred to in Paragraph 2 shall be recoverable for the
purpose of Article 25 of the Contract (except to the extent provided in I'uragraph 4 or
elsewhere in this Annex) without further approval of the GOVERN MEN I’, subject to
midil as provided for in Article 15 and in Paragraph 1.6.
3.1.1 Surface Righhf
All direct costs necessary for the acquisition, renewal or relinquishment of surface
rights acquired and maintained in force for the purposes of the Contract
3.1.2 Labour and Associated Labour Co as
(a) The CONTRACTOR % locally recruited employees based m the Kurdistan
Region: Costs of all CONTRACTOR’S locally recruited employees who are
directly engiged in the conduct «>l Petroleum Operations under the Contract in
the Kurdistan Region. Such costs shall include the costs of salaries, wages,
bonuses, overtime, employee benefits and GOVERNMENT benefits for
employee'' and levies imposed on the CONTRACTOR as an employer,
transportation and relocation arsis within the Kurdistan Region of the
employee and such members of the employee's family (limited to spouse and
dependent children) as required by law or customary practice in the Kurdistan
Region. If such employees arc engaged in other activities in the Kurdistan
Region, in addition to Petroleum Operations, the cost of such employees shall
he apportioned on a time sheet basis according to sound and acceptable
accounting principles.
(b) Assigned Personnel: Costs of salaries and wages including bonuses of the
CONTRACTOR'S employees directly engaged in the conduct of the
Petroleum Operation* under die Contract whether tcmpiHuiily or permanently
assigned, irrespective of the location of such employees, it being underfund
that in the case of tlawc personnel only a portion of whose tune is wholly
dedicated to Petroleum Operations under the Contract, only that pns-iata
portion of applicable salaries, wages, and other costs as deli neared in
Paragraphs 3.1.2(0. (d). (c). (f) and (gX shall be cliaxgcd and the basis of such
pro-rata allot itim shall he specified.
102/118
L-.
The CONTRACTOR'* costs regarding holiday, vacation, sickness and
disability benefit* aul Using and housing and other customary allowance*
applicable to the salaries and wages chargeable under Paragraph 3.1.2(b)
(d) Kxpemes or contributions made pursuant to assessment' or obligations
imposed under I aw which air applkablc to the CONTRACTOR'S cost of
I he CONTRACTOR*! cost of caablishcd plans for employees’ group life
Cc)
insurance. ix*spiuluJlK>n. pension, sock purchases, savings bonus, and other
benefit plans of i like nature customarily granted to the CONTRACTOR'S
employees, provided however that such ant' arc in accordance with generally
accepted >~3od.ird.« in the international petroleum industry. applicable to
salaries and wage* chargeable to Petroleum Operations under
Paragraph 3.1 2tb)
including those made for travel and relocation of the expatriate employ ees,
including their families and personal effects, assigned to the Kurdistan Region
whose salaries and wages are charge.!Sto to Petroleum Operations under
Actual truBportabor expenses of expatriate pcrwncl transferred to Petrokum
Operations from their country of origin shall be charged to the Petroleum Operation'.
Transportation expenses of personnel transferred from Petroleum Operations to a
country other than the cinintiy of then origin siuill not he charged to the Petroleum
Operations. Transportation cost us used in this section shall mean the cost of freight
ami passenger service, meals, hotels, insurance and other expenditure* related to
vacation and transfer travel and authorized under the CONTRACTOR'* standard
personnel policies. The CON fRACTOR dvill ensure that all expcndituirv related Us
inmspmt.it it hi costs arc equitably allocaied to die *. tivities. which hove benefited
from the personnel concerned.
(g) Reasonable personal expenses of personnel wlmse salaries and wuges arc
chargeable to Petroleum Operations under Paragraph 3.1.2(b) and for which
expends such personnel arc reimbui'ed under the CONTRACTOR'S
standard personnel policies. In the event such expenses are not wholly
attributable to Petroleum Operations, the Petroleum Operations shall be
charged with only the applicable portion thereof, which shall bo determined on
an equitable basis.
*1.3 Transportation and Employee Relocation Costs
The cost of transportation of employees, equipment, materials and supplies other than
as provided in Paragraph 3.1.2(0 neoesaray for the conduct of the Petroleum
Operations under the Contract along with other related cost* such as. Ixit not limited
to. import duties, customs feel, unloading charge*, dock fees, and inland and ocean
freight charges.
103/118
1.1.4 (3ygg&.f?r Sen ices
(a) Third Parties
l>*c actual cosh of contract services, unices of professional conujlUri*
ulilitkv anJ other *rvices necessary for the conduct of the Petroleum
Operations under the Contract performed h> third parties other than an
Affiliate of the CONTRACTOR
(b) Affiliates of the CONTRACTOR
<•> Professional and Administrative Services Exposes cost of
pcufcs&iunal and aCminisrratrve services provided b> any Affiliate' «»f
the CONTRACTOR for the direct benefit of Petroleum Operatiom
uvljdng services provided by the production, exploration. legal,
procurement, financial, insurance, accounting and computer service'
div 1*401> other than those covered by paragraph.' 3.1.4 (b> (h). 3.1.6
and 3 1.8 (b) which CONTRACTOR may use in beu of having its
own employees Such charges shall retket the market cost of
providing their services. Such charges shall not include any element «»r
profit and shall be no more or lew favourable than similar charges for
other operation* earned on by the CONTR ACTOR and its Affiliate'.
I he chargcout rate shall include all coats incurred by Affiliates
incidental to the employ mer; of such personnel including all Labour
and A vwciafcd labour Costs and the cost of maintaining and operating
office* and providing all support services for such personnel. Coes of
travel of such personnel in respect of Petroleum Optwrinm will be
directly charged Ihe charge* for such services shall not exceed those
prevailing if performed by non-Aftihated third partus, taking into
account the quality and availability ol mm h w-rvices Where the wort is
perfonnod mil Hide the Ihhiio olficc base of such personnel the daily
rate shall I*' dutrged from the date such personnel leave the home
office base wlieie ll»cy usually work up In lltoir return thereto,
including days which are not working days in the location where the
work is performed, excluding any holiday entitlements derived h> such
personnel from their employment at ilteir home office huso.
(ii) Scientific or Technical Persoanrl cost ol •dnitific or technical
personnel services piovkled by luiy Allilmto of the CONTRACTOR
lor the direct benefit of Petroleum Operations. which cost shall be
charged on a cost of service basis and 'Imil not include any element of
proliL I he charge*>ut rate shall iiK'ltule all costs incutrcd by Affiliates
incidental to tin* employment of such personnel including all I ahnjr
and Associated Labour Costs and tin- cunt of llliiilltiiining ami operating
offices and providing all support wervicon lor -mch personnel costs of
travel of such personnel in respect of Petroleum Operations will be
directly cliarged. The charges fur such services diall not exceed those
prevailing if performed by non nllilinted third parties, taking into
to be done by such personnel is covered by an proved W ort Program
lOt'HS
and Budget, the CONTRACTOR shall not authors work by such
personnel v% T nil .ipprmd of the GOV'ERNMENI
(iii> Equipment and rarilitk* use of cquipaKOl and facilities o«iml and
furnished by the CONTRACTOR'S Affiliates. at rules enmmensurate
with the cost of ownership and operation: provided, however, tlul such
iales shall mx exceed those currently prevailing for Use supply of like
equipment ami facilities ori comparable terms in tl»e nrvn where the
Petroleum Operations are heing conducted and shall he on on ami’s
length Ixisis tin the request of the GOVERNMENT, the
CONTRACTOR shall provide tlxe GOVERNMENT' with evidence
of such rates being on an ami's length basis. (If the GOVT RNMENT
considers lluil miy such rule is not on an arm's length basis (lien the
GOVERNMENT has tin- right to refer the mallei to an ex|H-ri pursuant
to Article 42.2 of die Contract). T he equipment ami facilities referred to
licrcin shall exclude major investment hems such as (but not limited
to) drilling rigs, producing platforms, oil treating facilities, oil and gas
loading and transportation systems Storage and tcrminnl facilities and
other major fudluicv. rate* for which shall be subject to *puaic
agreement with the GOVERNMENT.
("oil of inquiring, leasing, installing, operating, repairing and maintaining
communication systems including radio und microwave facilities within and between
the Comma Area und the (ONI RAC TOR'S nearest base facility.
Net cost to the CONTRACTOR «»f .-stdilishirg. maintaining and operating any
office. sulvoflice- warehouse. housing or other facility directly serving the Petroleum
Operations. If any such facility services more than one contract area the nrt coNs
thereof dull be allocated an an equitable havv in accordance with prudent
international peSrokrum indium- practice
3.1.7 !• ixihigic.il and KnvirommtU
(n) (fesls incurred in the (Vintfuct Arc® as a result of legislation for archoooloffka]
and geophysical surveys relating to identification and protection of culliirul
sites or resources,
Costs incurred in environmental nr ecological surveys required hy regulatory
authorities, including an environmental impact assessment commissioned
pursuant to /Article 37.5 of the Contract and any other costs incurred in
complying with the requirement'' of Article 17;
(«) Costs to provide or have available pollution containment ami removal
equipment;
105/1IX
(d) Costs of actual control and cleanup of oil spills, and of such further
responsibilities resulting therefrom as may be required by applicable laws and
regulations;
approved scheme prepared in nccortlanou with Article 38 of the Contract;
(f) Any costs incurred for the decommissioning of facilities and site restoration,
including any related activity required by the GOVERNMENT or oilier
competent authority or by the Contract; und
(I!) Any contributions made by the CONTRACTOR to the Decommissioning
Reserve fund in accordance with Article 38. when such contributions are
made.
3.1.8 luiwadlluslif
Co,Ms of materials and supplies, equipment, machines, tools and any other goods of a
simllur nature used or consumed in Petroleum 0|*rations subject to the following:
(a| Acquisition - the CONTRACTOR shall only supply or purchase materials
for use in Petroleum Operations that may be used in the foreseeable future.
I he accumulation of surplus stocks und inventory shall be avoided so far as is
reasonably practical and consistent with efficient and economical operations.
Inventory levels shall, however, lake into account the time lag for
replacement, emergency needs, weather conditions affecting operations and
similar considerations.
(b) Components of costs, arm's length transaction* - except as otherwise
provided in paragraph 3.1.8(d) . material puicha.'oi by the CONTRACTOR
in arm's length transactions in the open market for use in the Fetroknim
Operations under the Contract shall be valued to include invoice price less
trade and cash discounts (if any). licence fees purchase and procurement fees
plus freight and forwarding charges between point of supply and point of
shipment, freight to port of destination, insurance, taxes, customs duties,
consular fees, excise taxes, other items chargeable against imported materials
und. where applicable, handling and transportation expen^-s from point of
importation to warehouse or operating she. Where an Affiliate of the
CONTRACTOR has arranged the purchase, coordinated the forwarding and
expediting effort its costs should not exceed those currently prevailing in
normal arm’s length transactions on the open market and in any ease shall Dot
exceed a fee equal to two per cert (2%) of the value of the materials added to
the cost of the materials purchased.
(c) Accounting - such material costs shall be charged to the accounting records
and books in accordance with the First in. First Out” (FIFO) method;
(J) Material purchaxrd from or sold to Affiliates of the CONTRACTOR or
transfericd from other activities of the CONTRACTOR to or from Petroleum
Operations under this Contract shall be valued and charged or credited at the
prices specified in Paragraphs 3.1 J(dX0.3.1.8(dXii) aid 3.1.8(d)(iii):
106,'! 18
I
r
i i) New material. including used new material moved from inventory
(Condition ‘'A”), shall be valued at the ouiTcnt international net price
which .shall not exceed the price prevailing in normal arm's length
imnsnctions in the open market.
(ii) Used material (Conditions "D’\ “C" and *’D”;
(A) Material which is in sound and serviceable couditum and if.
suitable for re use without reconditioning shall be classified as
Condition “B“ and priced at wvenly five per cent (75%) of the
current price of new material defined in Paragraph 3.l.8(d)(i);
t B) Material which cannot he classified 3s Condition "B“ but which
after reconditioning will be further serviceable for its original
function shall be classified ns Condition “C* and priced at not
more than fifty pet cent (50%) of the current price of new
material as defined in Paragraph 3.l.8(d>(i). The cost of
reconditioning dmll he charged to the reconditioned material
provided that the value of Condition “C" material plus the cost
of reconditioning do not exceed the value of Condition “B”
material;
(C) Material which cannot hi* classified as Condition “B” or
Condition "C“ shall ho classified as Condition “D” and priced
at a value commensurate with its use by the CONTRACTOR.
If material is not tit for use by the CONTRACTOR il shall be
disposed of as junk.
(iii) Material involving erection costs >HhI1 he charged at the applicable
condition percentage of the current knocked-down price of new
material * defined in Paragraph 3.1 X
(iv) When the m* of material is temporary and its service U» the Petroleum
Operations under the Contract does not justify the reduction in price as
provided for in paragraph 3.1.$.(d)tiiKb). >ueh material dull be priced
on a basis dial will result in a net charge to the accounts under the
Contract consistent with the value of the service rendered
(v) Premium price* - whenever material is not readily obtainable at
published or listed prices because of national emergencies, strikes or
other unuMul cause' over which the CONIKACTOK lias no control,
the CONTRACTOR may chary.c* Petroleum Operations for the
required material at the CONTRACTOR'S actual cost incurred in
providing such material. in making it suitable for use. and in moving it
to the Contract Area; provided notice in writing i% furnished to the
GOVERNMENT of the proposed charge prior to charging Petroleum
Operations for Midi material and the GOVERNMENT shall have the
right to challenge the transaction on audit.
(vi) Warranty of material furnished by the CONTRACTOR - the
CONTRACTOR docs not warrant the material furnished. In case of
107/118
defective material, credit shall not be passed to Petroleum Operations
until adjustment lias been received by (lie CONTRACTOR from the
manufacturers of the material or their agents.
(vii | Ad justments arising from material inventories conducted in accordance
with Paragraph 5.2.
(c) Equipment of the CONTRACTOR charged at rates not to exceed the average
commercial rates of non-nffiliatixl third parties for equipment, facilities,
installations and utilities for use in the area where the same arc used. On
request, the CONTRACTOR shall furnish a list of rates ami the basis of
application. Such rates shall he revised when found to he either excessive or
insufficient, but not more than once every six (6) Months.
Drilling tools and oilier equipment lost in the hole or damaged beyond repair
may he charged at replacement cost less depreciation plus transportation costs
(o deliver like equipment to the location where used.
(f) Use of leased or hired machinery and/or equipment in the Petroleum
Operations shall he charged at full cost to the CONTRACTOR This may
include mobilisation and de-mobilisation charges, lease and hire fees, as well
as other contractual costs.
All rentals of every kind ami nature levied by any GOVERNMENT and all Taxes
imposed :n connection with the CONI RAC TOR s assets. income or activities under
the Contract and paid directly by the CONTRACTOR or any CONTRACTOR
Entity (save where the contrary is expressly provided in the Contract) with the
exception of Taxes described in Article 31.2) and bonus payments made unde* Article
32.
If the CONTRACTOR, any CONTRACTOR Entity or any o| its Affiliated
Companies is subject to income or withholding tax as a result of services performed at
cost for the Petroleum Operations under the Contract, its charges for such services
may be increased by the amount required to cover such laves (grossed up) including
taxes on such gross up
3 1.10
Insurance premiums and costs incuned for insurance carried for the benefit of the
Petroleum Operations provided that such insurance ix customary, affords prudent
protection against risk and i» at a premium no higher than dial charged on a
competitive basis by insurance companies which are not Affiliated Companies of the
C ONI RAC TOR Except m cases of failure to insure where insurance coverage is
required pursuant to the Contract, actual costs and lows incurred chill he recoverable
to the extent not made good by insurance unless such loascs result solely from an act
of wilful misconduct by the CONTRACTOR. Such costs may include repair and
replacement of property in the Contract Area resulting from damages or lows
incuned by fire, flood, storm, theft, accident or such other cause.
IIIX.IIX
3.1.11 Legal l.xrcnso
All reasonable coots and expenses resulting from ilie handling, investigating,
asserting, defending, or settling of any claim or legal action necessary or expedient for
the procuring. perfecting, retention and protection of the Contract Area, and m
defending or prosecuting lawsuits involving die Contract Area <*r any third party
claim arising out of the Petroleum Operations under the Contrncl. or sunn paid in
respect of legal services necessary for the protection of the joint interest of the
GOVERNMKN I and the CONTRACTOR shall be recoverable. Such expenditures
shall include attorney's fees, court costs, arbitration cosl\ cists of investigation, arid
procurement of evidence and amounts paid in settlement or satisfaction of any such
litigation and cl lints provided such costs arc not coveted elsewhere in the Annex
Where Irynl services are rendered in such matters by salaried or regularly retained
lawyers of the CONTRACTOR or an Affiliated Company of the CONTRACTOR,
such compensation sludl be included instead under Paragraph 3.1.2 or 3.1.4(b) as
applicable.
3.1.12 Claims
Expenditures made in iIk settlement or satisfaction of any loss, claim, damage,
judgement or other expense arising out of or reluting to Petroleum Operations, except
as may otlierwisr be covered elsewhere in the Annex.
3.1.13 I g Costs
All costs and expenses incurred b> the CONTRACTOR in the of its
3.1.14 (ieneral apd AdmiristnOV^Coas
I he costs described in Paragraph 2.8 I and the charge described in Paragraph 2.8.2.
3.1.15 Banking Charges and (im'nc) I ttbnnge Losses
Charges and levs by the banks tor money transfers, pavmcms ard foreign exchange
transactions. as well as currency exchange kxwes irKurrod by the
conned:oc with the Petroleum Operations
3.1.16
Other reasonable expendhurcs not covered or dealt with m the foregoing provisions of
Paragraph 3 which arc necessarily incjrred by the CONTRACTOR for the proper,
economical and cflic tent conduct of Petroleum OpciatKmv
.3.2 Credit Under the Contract
The proceeds, other than the proceeds from the sale of Petroleum received from
Petroleum Operations under the Contract, including the items listed below shall he
credited to the Accounts tmder dv Contract for the purposes of Aniclc 25 of the
Contract:
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3.2.1 The proceeds of any insurance or cluim or judicial awards in connection with
Petroleum Operations under the Contrnci or any assets charged to live Accounts under
the Contract where such operations or assets have been insured and the premia
charged to the Accounts under the Contract.
3.2.2 Legal costs charged to the accounts under Paragraph 3 111 and subsequently
recov ered by die CONTRA f TOR.
3.2.3 Revenue received from llnrd parties for the use of properly or assets the cost of which
has been dunged to the Accounts under the Conti ac t
3.2.4 Any adiiMmenl received by the CONTRACTOR from the suitplicrs/manufacCurers
or their nponts in connection with a defective mater ml tin* cost of which was
previously charged hy the CONTRACTOR to the Accounts tiiMlcr the Contract.
3.2.5 Rentals, refunds, including refunds of taxes |>nid, or oilier credits received by the
CON TRACTOR which apply to any charge which has Iwcti made to the Accounts
tiiKlcr the Contract, hut excluding any award granted to the CONTRACTOR under
arbitvation or expert proceedings.
3.2.6 Costs originally charged to the Accounts under the ('ontruci for materials
subsequently exported from the Kurdistan Region or transferred to another Contract
Area within the Kurdistan Region
3.2 7 Proceeds from the sale or exchange by the CONTRACTOR of plant or facilities used
in Petroleum Operations the acquisition costs of which have hren charged us the
Accounts under the Contract.
3.2 tt Proceed* derived Oran the sale or iirrmr of any ini. led u <1 property the development
coats of which were incurred pursuant to and arc recoverable under the Contract
3.2 9 Proceeds derived from the sale, exchange. Rare. lure, trsrofcr or dup>«l in on?
manna whatsoever of any other item the costs of which have been charged to
Petroleum Operations
-*J Dapliralion of ( harges and Credits
Not withstanding any provision to the contrary in this Accounting Procedure. there
shall be no duplication of charges or credits to the Accounts under the Contract.
PARAGRAPH 4 - COSTS AND EXPENSES MU TO B» I RE.\ I ED AS
RECOVERABLE
The folk*mrg costs and expenditures dull not he included in the Petroleum Costs
recoverable under Artxie 25:
4.1. Taxes on income or profit paid to my GOVERNMENT authority except taxes and
duties that may he included in the costs of material and equipment purchavd for the
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4.2. Any payment made to the GOVERNMENT by reason of il>e failure of the
CONTKAC IX)K to Iiillll its Minimum Exploration Obligations in respect of tl»c
relevant Sub-Period under the Contract
4.3. I he oust of any letter of pnarantce. if any, required under the Contract;
4.4 I he bonuses set out in Article 32 of the Contract;
4.5. ( osts ol marketing or transportation of Petroleum beyond the Delivery Point
(excluding Gas Marketing Costs);
4.6. Attorney’s fees and other costs of proceedings in connection with arbitration under
Article 42 of the Contract or intornnlionnlly recognised independent expert
determination as provided in the Contract or this Accounting Procedure;
4.7 Any interests, lees, costs and expenses paid by the CONTRACTOR for loans and
any other form of financing or advances for the financing of the Petroleum Costs
entered into by the < .'ONTRACTOR with third parties or Affiliated Companies;
4.8 Any accounting provision for depreciation and/or amortisation, excluding any
adjustments in value pursuant to Paragraph 3.1.8;
4.0 Dividends, repayment of equity or repayment of intercompany loans:
4.10 Finos and penalties Imposed under Law.
PARAGRAPH 5- RECORDS AM) VALUATION Of \SSKTS
5.1 Records
The CONTRACTOR shall maintain detailed records of property in use for
Petroleum Operations under the Contract in accordance with prudent international
petroleum industry practice for exploration and production activities
5.2 Inventories
Inventories of property in use in Petroleum Operations shall be taken at reasonable
intervals but at least once a year with respect to movable assets and once every three
(3) years with respect to immovable assets. The CONTRACTOR shall give the
GOVERNMENT at least thirty (30) days written notice of its intention to take such
inventory and the GOVERNMENT shall base the right to be represented when such
inventory is taken.
Failure of the GOVERNMENT to be represented at an inventory shall bind the
GOVERNMENT to accept the inventory taken by the CONTRACTOR
The CONTRACTOR shall dearly inform GOVERNMENT about the principles
upon which valuation of the inventory has been based. The CONTRACTOR shall
make every effort to provide to the GOVERNMENT a full report on such inventory
within thirty (30) days of the raking of the inventory. When ar. astigrrnent of rights
under the Contract takes place the CONTRACTOR may. at the request of the
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assignee, take a special inventory provided that the costs o I such inventory tiro borne
by the assignee.
PARAGRAPH 6-PRODUCTION STAI'KMKN I
6.1 (’reduction Information
Without prejudice to the rights and obligations of the Parlies under Article 16 of the
Contract, from the date of First Production from the Contract Aren the
CONTRACTOR shall submit a monthly production statement to the
GOVERNMENT showing the following information separately for each producing
Development Area and in aggregate for the Contract Aren
6.1.1 The quantity of Crude Oil produced and saved.
6.1.2 fhc quality characteristics of such Crude Oil produced and saved
6.1.3 I he quantity of Natural Gas produced and saved.
6.1.4 I lie quality characteristics of such Natural Gas produced and reived.
6.1.5 The quantities of Crude Oil and Natural Gas used for the purposes of carrying on
drilling and production operations and pumping to field storage.
6.1.6 I lie quantities of Crude Oil and Natural Gas unavoidably lost.
6.1.7 The quantities of Natural
6.1.8 The size of Petroleum stocks held at the heginning of die calendar Month in question
6.1.9 I he sizc of Petroleum stocks held at the end of (lie calendar Month in question
6.1.10 The quantities of Natural Gas reinjected into the Reservoir.
6.1.11 In respect of the Contract .Area as a whole, die quantities of Petroleum transferred at
the Measurement Point All qunntiiun shown in this Statement shall be expressed in
both volumetric terms (Barrels of oil and cubic meters of gas) and in weight (metric
tonnes).
6.2 Submission of Production Statement
fhc Production Statement for each calendar Month shall be submitted to die
GOVERNMENT no later Hum ten (10) days idler the end of such calendar Month.
PARAGRAPH 7- VALUE OF PRODUCTION AND PRICING STATEMENT
Value of Production and Pricing Statement Information
I he CONTRACTOR shall, for the purposes of .Ankle 25 of the Contract, prepare a
statement providing calculations of the value nl Crude (»il produced and saved during
each Quarter
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r*
This "Value of Production and Pricing Statement** dull contain the following
information:
7.1.1 I lie quantities and prices rcnli/cd therefor by tin* ( OM KACTOR in respect of
miles of Natural (Ins and Crude Oil delivered to third patios made during the Quarter
in question.
7.1.2 I he quantities ami prices raili/ml therefor by the CONTRACTOR in respect of wit*
of Natural (ins and (’rude Oil delivered during the Quarter in question, other than to
Ihird Parties
7.2 Sahmlnvion of Value of Production and Pricing SlHtrmrnt
I lie Value ot Production nnd Pricing Statement I nr wiclt Quarter shall he submitted to
the GOVERNMENT not later than twenty-one 1> days after the end of such
Quarter.
PARAGRAPH •- COST RECOVERY AM) SHARE ACCOUNT STATEMENT
8.1 Coat Recovery Statement
The CONTRACTOR shall prepare with respect to each Quarter a Cost Recovery
Sutcinetii containing tin* following information:-
8.1.1 Recoverable Petroleum Costs carried forward from the previous Quarter, if any.
8.1.2 Recoverable Petroleum Cirtl foe the Quarter in question
8.1J Credits under the Contract fur the Quarter in question
8.1.4 Iota! Recoverable Petroleum Grft for the Quarter in question (Paragraph 1.1.1 pius
Paragraph l li net of Paragraph 8.1J ).
I.U Quantity and value of Petroleum applied locost recovery pursuant to Article 25 taken
h> the CONTRACTOR for the Quarter in quertMHi
1 1.6 Amount of recoverable Petroleum Costs to l»e carried forward into the neat Quarter
(Paragraph 8.1.4 net of Paragraph K. I $).
8J. CoaiBlalive Production Stt---mt
The CONTRACTOR dull prepare with raped to each Quarter a C umulative
Production Statement containing the following information:
8.2.1 Ihe cumulative production pnation at the end of the Quarter preceding the Quarter in
question.
8.2.2 Production of Export Petroleum for the Quarter in question
8.2 4 The cumulative production position at the end of the Quarter in queMion.
I1M18
< ? ' n»»- n-.HJBT of Petroleum applied hi Royalty puraur! to Article 24. c<»H re.ovrry
pursuant to Article 25 and Profit Petroleum pursuant u» Article 26 taken In the
GOVERNMENT and by the CONTRACTOR, respectively, during the Quarter w
*26 I he forecast of prcducooc and the dear of Petroleum applied to Royalty pursuant to
Article 24. cost recovery punuatt u» Article 25 and Profit Oil puraiunt lo Article 26
slue to the GOVERNMENT and to the CONTRACTOR, reaped ively, tor the ncxl
xuccoorling Quarter.
K.t Prr|ianttion and Submission nl Coal Recovery and Cumulative Production
Statements
H \ I Provisional Cost Recovery and Cuimiliiiivc Production Statements, containing
cnlimuted informatioo where necessary. slull be submitted by the CON TRACTOR
on the last day of each Quarter for tlwr purposes ol Article 25 of the Contract
X 1.2 I'inil quarterly Cost Recovery and < Timiil.itivv Production Statement* shall be
submitted within thirty (30) day s of the end of the Quarter in question.
8.4 Annual Statement
Jor the purposes of Article 25 of Ik Contract, nn Annual Cost recovery and
( iiiniilutive Production Statement shall he submitted within ninety (90l days ol the
end of each Year. The Annual Statement skill contain the categories of informnlJon
listed in Paragraphs 8.1 and 8.2 for tin- Your m question separated into the Quarters
of the Year in question and showing the cumulative positions at the end of the Year in
question with respect to cumulative uraccovered Petroleum CWn and Cumulative
Production.
PARAGRAPH 4 - STATEMENT OF EXPENDITURE AND KLCKIPIN
9.1 The CObfTRACTOR dull prepate with respect lo adi Quarter a Man-meat of
Expenditure and Receipt* under the Contract The Statement will dbtmguirfi between
Exploration CM*. Gat Marl cling Con*. Development Costs. Production C<**t» and
Decommissioning Co** and will identify m^or items of expenditmt* withm the*
categories. Ihe Statement will show the following:
9.1.1 Actual expenditures and iciciplk lor llie Quarter in question.
9.1.2 0emulative expenditure and racvfpts lo* ll»e budget t aleodar Year in question
9.1J Latest forecast c jmulalive expenditure* at the Calendar Year end
9.1.4 Variations between budget forecast and latest forecast aid explanations thereof
92 The Statement of Expcafctiae and Receipts of each Quarter shall he submitted to the
GOVERNMENT no later thrni thirty (*» day* after the end of such Quarter
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PARAGRAPH 10-FINAL END-OF-YEAR STATEMENT
The
contain information ns provided in the Production Statement, Value of Production and
Pricing Statement. Cost Recovery and Cumulative Production Statements and Statement of
Expenditures and Receipts hut will be based on actual quantities of Petroleum produced and
expenses incurred. I his Statement will he used to make any adjustments that arc necessary to
the payments made by die CONTRACTOR under the Contract. The Final End-of-Yeai
Statement of ciieh < alnidiir Year shall be submitted lo the GOVERNMENT within ninety
(90) days of the end of such Calendar Year.
PARAGRAPH II AUDITS
Eacli such icpnit ami Mntement provided lor in Paragraph 6 through 10 sliall 1* considered
true ami correct, unless the GOVERNMENT raises tui exception thereto within the
timeframe and under the process set out in Article 15 ol the Contract.
PARAGRAPH 12 - ANNUAL WORK PROGRAM AND BUDGET
11.1 Inch nnnual Work Program and Budget to he prepared in accordance with Articles
II. 12 and 14 of the Contract in respect ol Exploration Casts, Gas Marketing Costs.
Development Costs and Production Costs respectively will show the following:
11.1.1 Forecast expenditures for the budget ( aloudnr Year m question including a quarterly
classification ol such expenditures.
11.1.2 Cumulative expenditures to the end of said budget Calendar Year.
11.1.3 A schedule showing the most important individual items of Development Costs (if
applicable) for said budget Year.
PARAGRAPH 13 CON TRACTOR ENTITY INCOME TAX COMPUTATION
13.1 For the purpose of Article 31.3(b) of the Contract, the net taxable profits of each
CONTRACTOR Entity from all the Petroleum Operations carried out under this
Contract, shall be calculated in accordance u itb rhis Paragraph.
13.2 Each CONTRACTOR Entity shall maintain for each Calendar Year separate
Accounts with respect to the Petroleum Operations which shall he used, inter alia, to
establish a profit and loss account and a balance sheet which will show the results of
the Petroleum Operations carried out in such Calendar Year as well as the u.vd' and
liabilities assigned or directly related thereto. The profit and loss account will he
maintained under the accrual method of accounting
13-3 For purposes of determining the net taxable profits of each CONTRACTOR Entity
for corporate income tax purposes:
13.3.1 the profit and loss account of such CONTRACTOR Entity sluill he credited w ith the
following:
115/1 Iff
(a) if the Royalty is paid in cash pursuant to Article 24, revenues arising from the
disposal of Royalty volumes as recorded in such entity's Accounts and
determined in accordance with the provisions of Article 24;
(b) revenues arising from the disposal of any Available Petroleum to which such
entity is entitled lor recovery of its Petroleum Costs ns recorded in its
Accounts and determined in accordance with the provisions of Article 25;
(c) revenues from the disposal of any Profit Petroleum to which such entity is
entitled under Article 26 as is recorded in its Accounts and determined in
accordance with the provisions of Article 26;
(d) any other revenues or proceeds directly connected to the Petroleum Operations
including those arising from the disposal of minted Petroleum substances, or
from the treatment, storage and trans|X>rtatiun of products for third parties;
(e) any exchange gains realised or other financial income earned by such entity in
connection with the Petroleum Operations;
13.3.2 the profit and loss account lor such ( ON IKACTOK I ntity dial he debited with ail
charges incurred for the purposes of the Petroleum Operations whether incurred inside
or outside the Kurdistan Region, which charges shall include the following:
fii) in addition to the charges specifically set forth below in this Paragraph, ail
oilier Petroleum Costs, including the aN‘ of supplies, personnel and
manpower expenses, aiul (lie cost of services provided to the
CONTRACTOR in connection with the Petroleum Costs;
(b) if the Royalty is paid in cash pursuant to Article 24. Royally payments mule
and as recorded in such entity's Accounts and determined in accordance with
the provisions of Article 24;
(c) General and administrative expenditures related to the Petroleum Operations
performed under this Contract;
(
provisions:
(i) capital expenditures incurred by the CON TRACTOR for the purposes
of the Petroleum Operations shall be depreciated on a reducing balance
basis;
(ii) the depreciation rates, which shall be applicable from the Calendar
Year during which such capital expenditures arc incurred, or from the
Calendar Year during which tire assets corresponding to said capital
expenditures are put into normal service, whichever is Inter, for the
first Calendar Year in question and for each subsequent Calendar Year,
me ns follows:
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Nature of the capita! asset tu lie depreciated Annual depreciation Rate
Permanent buildings 10.0%
Temporary buildings 20.0%
Office and home furniture and fixtures 20.0%
Productive wells 20.0%
Production and delivery equipment 20.0%
Drilling equipment 20.0%
Pipelines 20.0%
Automotive equipment 20.0%
Mariik and aviation equipment 20.0%
All other capital assets 20.0%
(c) Exploration Costs (which for the avoidance nt doubt nclu.lo npprasal
cx|Kiiditures) shall be deductible on a reducing balance basis at the rate o)
20% per annum.
(I) interest and fees paid to creditors of the CONTRACTOR, for their actual
amount;
tg) losses of Assets resulting from destruction or damage, assets which are
renounced or abandoned during the year, assets which are transferred under
Article 20.2, bad debts, indemnifies paid to third parties as compensation for
damage;
(h) any other costs, expenses, losses or charges directly related to the Petroleum
<)|)cratiom. including exchange losses realised in connection with the
Petroleum Operations as well as the bonuses provided in Article 32, the
Exploration Rental provided in Article 6.3, the Production Rental provided in
Article 13.10. the allocation to training, provided in Article 23.7 and the
allocution to the Environment bund provided in Article 23.9. the costs
specified in Articles 23.11. 38.1 and 38.6 and transportation and marketing
costs l*yond the Delivery Point:
(i) die amount of non-offset losses relating to the previous Calendar Years, which
shall be cniriod forward for an indefinite period until full settlement of said
loss?' or termination of this Contract;
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13.3.3. the net profit of such CONTRACTOR Entity vital: he equal to ihr dffiacaoe
hdwwx all the amounts credited and all the ammunt dr hi led in the pro til and loss
account: and
(l) il this amount is negative. it shall constitute n low
(b) if the* amount is positive, il nIuiII be gnmxl up to tuke account of the (act that
such entity’s corporate income tax is being settled out ol the
GOVERNMENT’S share of the Profit Petroleum in accordance with Article
31 2. by applying the following formula in order to provide such entity’s net
taxable profits for corporate income tax purposes:
Net I iubb Net Profitv' QOO - Applicable Rate of Corporate Income L±Yj
Profits 100
13.4 For purposes of determining each CONTRACTOR Entity’s liability to corporxe
income tax for a lax year in respect ol the Petroleum Operations carried out under this
« untract. the net taxable protits (it ary) for such tax year shall be multiplied by the
applicable rate of corporate income tax. ux provided in .Article 31.3(a).
IIR/I1S