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AMENDED AND RESTATED
PRODUCTION SHARING AGREEMENT
BETWEEN
THE KURDISTAN REGIONAL GOVER.VMEM
AND
SHAKAL PRODUCTION. LTD.
TRIE AX OIL LTD.
AND
PET01L PETROLEUM AND PETROLEUM PRODUCTS
INTERNATIONAL EXPLORATION AND PRODUCT! ION INC.
DATED
FEBRUARY 25. 2007
TABLE OF CONTENTS
PREAMBLE
Article 1 DEFINITIONS
Article 2 SCOPE OF THE CONTRACT
Article 3 CONTRACT AREA
Article -1 GOVERNMENT PARTICIPATING INTEREST
Article 5 OPERATOR
Article 6 TERM OF THE CONTR ACT
Article 7 RELINQUISHMENTS
Article 8 M A NAGEM1 ;NT COMM ITTE E
Article 9 GUARANTEES
Article 10 MINIMUM EXPLORATION WORK OBLIGATIONS
Article 11 EXPLORATION WORK PROGRAMS AND BUDGETS
Article 12 DISCOVERY AND DEVELOPMENT
Article 13 DEVELOPMENT AND PRODUCTION WORK PROGRAMS
AND BUDGETS
Article 14 NATURAL GAS
Article 15 ACCOUN TING AND AUDITS
Article 16 CONTRACTOR'S RIGHTS AND OBLIGATIONS
Article 17 USE OF LAND AND EXISTING INFRASTRUCTURE
Article 18 ASSISTANCE FROM THE GOVERNMENT
Article 19 EQUIPMENT AND MATERIALS
Article 20 TITLE TO THE ASSETS
Article 21 USE OF THE ASSETS
Article 22 SUBCONTRACTING
Ks
Article 23 PERSONNEL AND TRAINING
Article 24 ROYALTY
Article 25 RECOVERY OF PETROLEUM COSTS
Article 26 SHARING OT PROFIT PfcTROLEl \1
■Article 27 VALUATION AND METERING OF CRUDE OIL AND NA1T RAL GAS
.Ankle 28 DOMESTIC MARKET - SALE OF GOVERNMENT SHARI
.Article 29 FINANC IAL PROVISIONS
.Article 30 CUSTOMS PROVISIONS
.Article 31 TAX PROV ISIONS
Ankle 32 BONUSES
.Article 33 PIPELINES
Artkle 34 IJNTT1SAT ION
Ankle 35 LIABIUTV' AN D INSURANCE
Ankle 36 INFORMATION AND CONUDENTIAUTY
Article 37 ENVIRONMENTAL PROVISIONS
Article 38 DECOMMISSIONING
Article 39 ASSIGNMENT AND CHANGE OF CONTROL
Article 40 FORCE MAJEURE
Artkle 4| WAIVER OF SOV EREIGN IMMUNITY
Artkle 42 ARBITRATION AND EXPERT DETERV1INATION
.Article 43 GOVERNING LAW. FISCAL STABILITY AMENDMENTS AND
VALIDITY
Artkle 44 NOTICES
Artkle 45 TERMINATION
Article 46 APPLICATION OF CORRUPTION LAWS
Article 47 GOVERNMENT REVIEW
Article 48 EFFECTIVE DATE
Annex A CONTRACT AREA MAP AND LIST OF COORDINA ITS
Annex B ACCOUNTING PROCEDURE
4
Au.Q^h
AMENDED AND RESTATED
PRODUCTION SHARING AGREEMENT
BETW ns
The KURDISTAN REGIONAL GOVERNMENT OF IRAQ (hereafter referred to ns the
"GOVERNMENT”), duly represented by the Minuter of Natural Resources;
AND
SHAKAI, PRODUCTION, LTD., PEI'OII. PETROLEUM AND PI I KOLEI M
PRODUCrS INTERNATIONAL EXPLORATION AND PRODI'C IION INC......I
TRILAX OIL LTD..
WHEREAS.
(A) The GOVERNMENT wishes to develop tin: petroleum wealth of the Kurd Man Reg >n
(as defined m this Contract) in a way that achieves the highest benefit to the people of
the Kmdiuan Region and all of Iraq, using the most advanced techniques of market
piinciples and encouraging investment, consistent with Article 112 of the Constitution of
Iraq,
(B) In accordance with the Constitution of Iraq, the prevailing law of the Kurdistan Region is
the Kutdistan Region Law (as defined in this Contract), except with regard to a matter
wholly within the exclusive jurisdiction of the Government of Iraq.
(C) The GOVERNMENT has established, by Act of the Parliament of the Kurdistan
Region, n Ministry of Natural Resources in the Kurdistan Region, with responsibility
for all natural resources except for water, and forestry:
Kutdistan Region Petroleum Act (as defined in this Contract), to regulate Petroleum
Operations (as defined in this Contract), including production sharing contracts,
(I ) SHAKAI, PRODUCTION. LTD., PE FOIL PETROLEUM AND PEI KOLEUM
PRODIK IS INTERNATIONAL EXPLORATION AND PRODUCTION INC.,
and TRILAX OIL LTD. each is a company.
. (i) with die financial capability, and the technical knowledge and technical ability,
to carry out 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 corporate citizenship,
and
Kj Ax
fTMn
(iii) willing to cooperate with the GOVERNMENT by entering into this Contract,
thereby assisting the GOVERNMENT to develop the Kurdistan Region
petroleum industry, thereby promoting tlie economic development of the
Kurdistan Region and Iraq and the social welfare of its people.
(F) The Regional Government of Sulaimanivah of the Interim Joint Regional Administration
of Northern Iraq entered into a production sharing agreement (the “AGREEMENT" or
CONTRACT “) dated January 14. 2003 with Pet Oil Petroleum and Petroleum Products
International Exploration and Production Inc (“PctOil").
(G) By a Deed of Assignment and Support Agreement dated of even date and approved by
the GOVERNMENT, the rights of the CONTRACTOR are now owned by Shakal
Production. Ltd.. Trilax Oil. Ltd . and PetOil,
dll The CONTRACTOR has held discussions with the GOVERNMENT concerning the
reduction of the Contract Area and certain changes to tlie terms of the Contract, including
those discussions held in Ankara. Turkey, between April 3'*. 4*. and 5* of 2005
II) the CONTRACTOR desires to release, and docs hereby release, part of the lands
enginally covered by the Contract such that the lands covered by the .Agreement arc only
the lands within the Contract Area as lierein defined, and
(J) the Parties desire to amend and restate the Contract in its entiretv.
NOW, THERE PORE. THE PARTIES HAVE vC.RFFO AS FOLLOWS
ARTICLE I - DEFINITIONS
Capitalised terms and expressions in this Agreement shall have the following meaning,
unless otherwise specified:
Abroad means outside of the Kurdistan Region and other parts of Iraq
Accounting Procedure means the Accounting Procedure attached to this Contract as
Annex B and constituting an integral part of this Contract
Affiliated Company or Affiliate means, as regards any of the companies or entities
constituting the CONTRACTOR, a company or other legal entity which
(a) controls an entity constituting the CONTRACTOR; or
(b) is controlled by an entity constituting the CONTRACTOR; or
(c) controls or is controlled by a company or entity which controls an entity constituting
the CONTRACTOR
2
For I he purpose of this definition, "control" means direct or indirect ownership or control of
the majority of the voting rights of the applicable entity at its shareholders’ meetings or their
equivalent
Appraisal Area means the area defined in Article 12 2
Appraisal Program is defined in Article 12 2
Appraisal Report is defined in Article 12 '1
Appraisal Well means a well drilled for the purpose of evaluating the commercial potential
of it geological feature or a geological structure in which Petroleum has been discovered
Arm's-l-ength Sales means sides of Petroleum in freely convertible currencies between
sellers and buyers having no direct or indirect relationship or common interest whatsoever
with each other that could reasonably influence the sales price Such Arm's-Length Sales
shall exclude
(a) sales between the CONTRACTOR and its Affiliates.
lb) stiles involving the GOVERNMENT or the Government oflraq.
(c) sales involving exchanges and any transactions not relating to normal commercial
practices.
Assets means all platforms, pipelines, plant, equipment, machinery, wells, facilities and all
other installations and structures and all Materials and Equipment
Associated Natural Gas means any Natural Gas dissolved in Crude Oil under reservoir
conditions
Available Associated Natural Gas is defined in Article 25 1
Available Crude Oil is defined in Article 25 |
Available Non-Associated Natural Gas is defined in Article 25 I.
Available Petroleum is defined in Article 25.1.
Barrel means a quantity of forty-two (42) US gallons as a unit to measure liquids, at a
temperature of sixty degrees (60") Fahrenheit and pressure of fourteen point seven (14 7) p«.i
Budgets means any budgets prepared by. or on behalf of. the CONTRACTOR pursuant to
this Contract and forming pan of an Exploration Work Program and Budget and’or an
Appraisal Work Program and Budget anflor a Gas Marketing Work Program and Budget
and'or a Development Work Program and Budget and/or 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.
A
3
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 but not limited to recoverable reserves
of Petroleum, sustainable regular production levels and other material technical, operational,
commercial and financial parameters, all m accordance with standard practices in the
international petroleum industry
Commercial Production meant the production of Petroleum from the Production Area in
accordance wtth annual Production Work* Program and Budget
( onstitulnri of Iraq means the permanent constitution of Iraq approved by the people of Iraq
in the general leferendum of 15 October 2005.
Contract means this production sharing contract, including its Annexes A - B that are an
integral part hereof, as well at any extension, renewal, substitution or amendment of this
production sharing contract that may be agreed in writing by the Panics
Contract Area means the area dewnbed and defined in Annex \ attached to this Contract
and any modifications made to that Annex in accordance with the provisions of th* Contract
Contract Year means a period of twelve (12) consecutive Months waning from the
Effective Date or any anniversary of the said Effective Dale
CONTRACTOR means, eithei jointly or individually, Shakal Production. Lid. PctOii
Petroleum and Petroleum Products International Exploration and Production Inc , and Tula*
Oil Ltd. and Affiliates and/or any assignee of all or part of the rights and obligations under
this Contract of each in accordance with Article 39 of this Contract and. for the avoidance of
doubt, at any time when there is only one entity constituting the CONTRACTOR, any
reference made in this Contract to "the entities constituting the CONTRACTOR or the
CONTRACTOR entities" or similar reference, shall be deemed to mean "the entity
constituting the CONTRACTOR" ShakaI Petroleum. Ltd . PetOil Petroleum and Petroleum
Pioducts International Exploration and Production Inc . and Trilax Oil Ltd own the interest
of the Contractor in the follow ing percentages
Shaknl Production. Ltd 33 1/3 %
PctOii Petroleum and Petroleum Products
International Exploration and Production Inc 33 1/3 %
Trilax Oil Ltd 33 1/3%
Crude Oil means all liquid hydrocarbons in their unprocessed sutc or obtained from Natural Cias
by condensation or any other means of extraction
DecommissioniagCosts means all the costs, cxpendituic. liabilities and obligations incurred
by the CONTRACTOR when carrying out Decommissioning Operations
Decommissioning Operation* means any works, together with all related and auxiliary
activities, for decommissioning and/or removal and/or abandonment and making safe all of
the Assets and site restoration related thereto in relation to any Production Area
4
Decommissioning Reserve Fund is defined in Article 38 1 and includes all contributions paid
into such fund and all interest accumulated such fund
Delivery Point means the place after extraction, specified in the Development Plan foe a
Petroleum Field, at which the Crude Oil. Associated Natural Gas ardor Non*Associated
Natural Gas i« metered for the purposes of Article 27 7, valued for the purposes of Article 27 I
and ready to he taken and disposed of. consistent with intemanona. practice, and at which a
Party may acquire title m its share of Petroleum under this Contract or such other point which
may be agreed by the Panics
Development Costs means all the costs, expenditure, liabilities and obligations incurred by
the ( ON I RACTOR when carrying out Development Operation'
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
Petroleum Field, including but not limited to drilling of wells, primary and subsequent
recovery protects and pressure maintenance, survey, engineering, building and erecting oi
laying of production plants and facilities (including but not limited to: separators:
compressors, generators, pumps and tankage, gathering lines pipelines and all facilities
required to he installed for 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, and all auxiliary
operations and activities required or expedient for the production of Petroleum from the
Production Aren
Development Period is defined in Article 6 of this Contract
Development Plan means a plan for development defined in Article 12 8 of this Contract
Devdopment Well means any well drilled after the date of approval of the Development
Plan for the purpose of producing Petroleum, increasing or acceletating production of
Petroleum, including injection wells and dry holes Any well drilled within a Production Area
shall be deemed a Development Well
Devdopment 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 ftow utilising techniques used in the
international petroleum industry
Dollar (USS) means the legal currency (dollar) of the United States of America (USA)
Effective Date means the date on which the conditions referred to in Article 48 of this
Contract have been fulfilled.
Equipment and Materials is defined in Article l‘> I
5
Exploration Costs means all the costs, expenditure, liabilities and obligations incurred by
the CONTRACTOR when carrying out Exploration Operations
Exploration Operations means any and all operations conducted with a vie" to discovering
Petroleum, including but not limited to any activities necessary to commerce operations; any
topographical, hydrographical, 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, coting, logging and equipping of Exploration Wells or
Appraisal Wells, piocurement of such services material, equipment machinery, items and
supplies as may be required or expedient for the foregoing activities, and all auxilurv
operations and activities required or expedient for the conduct of the foregoing activities
Exploration Period is defined in Article 6 of this Contract
Exploration Well means mO drilled for the purpose of confirm inf a geological
structure or rjatigraphic unit in which no Discovery has previously been made by the
CONTRACTOR
I iploration Work Program and Budget means the exploration work program and budget
prepared pursuant to Article 11 I
Export C rude Oil is defined m Article 24 2.
Export Noil-Associated Natural Gas '* defined in Article 2-1 2
hxpan Petroleum is defined in Article 24 2
First Exploration Well is defined in Article 10 2 (c)
First Production means the moment when Commercial Production of Crude Oil or Non-
Assooated Natural Gas (as the case may be) lust commences, by flowing at the rale forecast in
the Development Plan without interruption for a minimum of forty eight (48) hour*
Force Majeure is defined in Article 40 2
Gas Marketing Costs means all costs, expenditure, liabilities and obligations incurred by the
CONTRACTOR when earning out Gas Marketing Operations
Gas Marketing Operations lias moans any ami all oi the activities and operations
contemplated by Article 14 6
Gas Marketing Work Program and Budget means the marketing work p-ogram and budget
prepared pursuant to Article 14 8
Government of Iraq means the Federal Government or the Republic of Iraq, which holds
office under the Constitution of Iraq
International Market Price is defined in Article 27 2 of this Contract
6
Joint Operating Agreement meant any agreement executed by the entities constituting the
CONTRACTOR at any lime for the purpose of regulating between such entities the terms
under which the Petroleum Operations will be conducted, which agreement shall be (a)
consistent with international standards in the petroleum industry. as between such
entities, supplementary to this Contract; and (c) consistent with the provisions of the
Contract
Kurdistan Region means the Kurdistan Region of Iraq recognised hy the Constitution of Iraq
and having the same meaning as in the Kurdistan Region Petroleum Act
Kurdistan Region law means all statutes, decrees, edicts, codes, orders, rules, otdmanccs
and iemulations of the GOVERNMENT or of any othet local, municipal, territorial,
provincial, or any other duly constituted governmental authority or agency in the Kutdistan
Region
Kurdistan Region Petroleum Act means the draft Kurdistan Region Petroleum Act to be
presented to the Parliament of the Kurdistan Region or. when tliat Act enters into force, the
Act
1.11 ss means all applicable laws Including without limitation the following constitutional law.
civil law. common law. international law. equity, treaties, 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
LIBOR means the London Inter-Bank Offered Rate at which Dollar deposit' for one (I)
Month arc offeted in the inter-bank market m London, as quoted in the Financial Times of
loodon for the day in question In the event that such raie is not published in the Financial
Times, rt shall mean the London Inter-hank Offered Raie at which Dollar deposits for one
Month arc offered for the nearest day as quoted by National Westminster Bank pic
Management Committee is defined in Article 8 of this Contract
Minimum Exploration Obligations is defined in Article 10 I of this Contract
Month means a calendar month according to the Gregorian calendar
Natural Gas means all gaseous Petroleum and inerts
Non-Associatcd Natural Gas means any Natural Gas which is not dissolved in Crude Oil
under reservoir conditions
Operator means the entity designated by the CONTRACTOR pursuant to Article * of this
Contract which, in the name and on behalf of the CONTRACTOR, shall carry out ail
Petroleum Operations If at any time there exists more than one (!) Operator under this
Contract, anv reference herein to the term 'Operator' shall be to each Operator with respect »o
the pans of the Contract Aren in which such Operator conducts Petroleum Operations
Party or Parties means the GOVERNMENT and/or the CONTRACTOR
A
7
Permits means all licences, permits, comenu, authorisations or other permissions, as the
context requires
PetOil Petroleum and Petroleum Products International Exploration and Production
Inc. means the legal entity so named established in accordance with the laws of the 1'urkcv
Petroleum means
(a) any naturally occurring hydrocarbon in a gaseous or liquid Mate.
(b) any mixture of naturally occurring hydrocarbons in a gaseous or liquid state, or
(c) any Petroleum (as defined in paragraphs (a) and (b) above) that has been returned to a
Reservoir
Petroleum Cost* mean' all costs and expenditure incurred by the ( ON I M AC I OK for the
Petroleum Operations, and which the CONTRACTOR is entitled to recover under this
Contract and its Accounting Procedure attached to this Contract as Annex l» including those
Costs and expenses incurred the Contractoi and its predecessors in mtcicsi from January 14,
200J, to the Effective Dale
Petroleum Field means a Reservoir or group of Reservoirs within a common geological
structure or stratigraphic unit from which Petroleum may be produced ami which has been
declared as a Commercial Discovery by the CONTRACTOR pursuant to Article 12 6 (a) or
Article M 5(a)
Petroleum Operations means all Exploration Operations, Gas Marketing Operations
Development Operations. Production Operations and Decommissioning Operations, as well
as any other activities or operations directly ot indirectly related or connected with ihc said
operations (including but not limited to health, safety and environmental operations and
activities) and authorised or contemplated hy. or performed in accordance with, this Contract
Production Area means such areas within the Contract Area designated as a protection area
m an approved Development Plan prepared pursuant to Article 12 of this Contract For the
avoidance of doubt, all superjacent or subjacent strata of the Reservoir in winch a
Commercial Discovery is locaied are automatically included in the relevant Production Area
Production Costs means all the costs, expenditure, liabilities and obligations incutted by the
< ON l RACTOK in cairying out the Production Operations
Production Operations means any works, together with all related and auxiliary activities,
for the production of Petroleum from the start of Commercial Production, including but not
limited to extraction, injection, stimulation, pumping, treatment, storage engineering,
operating’, servicing, repairing, and maintaining any weds, plants, equipment, pipelines,
terminals
operations, and storage and transportation of Petroleum from the Production Aica to the
Delivery Point
Prod actios Work Program and Budget shall the production work program and
budget prepared pursuant to Article 13 6
Profit Crude OH is defined in Article 26 I
Profit Natural Gas is defined in Article 26 I
Profit Petroleum is defined in Article 26 1
Public Officer means a civil servant, including a member or employee of a pAlic titty, a
member of the Parliament or a member of the Ciovernmeni.
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 rock formation containing an individual and separate natural
accumulation of producible Petroleum characterised by a single natural pressure system
“R“ Factor is defined in Article 26 4
Royalty is defined in Article 24
Second Exploration W ell is defined in Article 10 3 (b)
Semester means a period of six (6) consecutive Months Mailing from the first day of January
oi July respectively
Sliaknl Production, I .Id. means the legal entity so named established in accordance with the
laws of the Cayman Islands
Subcontractor means any entity of any contracting tier providing services and/or
undertaking works relating to the Petroleum Operations under the overall supervision by. and
on behalf of. the CONTRACTOR.
Sub-Period and Sub-Periods arc defined in Article 6 2
Trial OH lad means the legal entity so named established in accordance with the laws of
the Cayman Islands
Work Program means any work program prepared by. or on 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
Work Program and Budget andor a Development Work Program and Budget and/or a
Production Work Program and Budget
9
ARTICLE 2 - SCOPE OF THE CONTRACT
2 1 This Contract is a production-sharing arrangement with respect to the Contract Area,
whereby the GOVERNMENT, and hav the tight pursuant to the Constitution oT Iraq,
to regulate and oversee Petroleum Operations within the Contract Area
The purpose of this Contract is to define the respective rights and obligations of the
Panics and the terms and conditions undo which the CONTRACTOR shall carry
out all the Petroleum Operations
liy entering into this Agreement, the GOVERN MEM grants the CONTRACTOR
the exclusive right and authority to conduct ull Petroleum Operations in the Contract
Area as detailed in Article 3 below
2 2 Upon the CONTRACTORS request, the GOVERN NO N V shall provide all required
Permits relating to the Petroleum Operations required by the CONTRACTOR to
fulfil its obligations under this Contract, including those relating to an\ extension and
renewal periods and including those requited by the Government of Iraq The
(.ON I RNMENT (i) represents and warrants to die CONTRACTOR thai t • .i\ ml
done and las not omitted to do anything that would cause the cancellation or
suspension of this Contract or any Permit granted pursuant to this Contract, and (u)
covenants that it will not do. or omit to do, anything that would cause the cancellation
or suspension of this Contract or any Permit granted pursuant to this Contract
2 3. Ihc CON IR ACTOR shall conduct all Petroleum Operations within the C omiact \ica
at its sole cost, nsk and pcnl on behalf of the GOVERNMENT, pursuant to this
Contract, including but not limited to the following operations
(a) Technical Ser> ices
Implementation of all technical, human and mateml resources reasonably
required foe execution of the Petroleum Operations, in accordance with
standard practices prevailing in the inter national petroleum industrv
(b) Financial Services
The responsibility foe funding the Exploration Operations and. in the event of
a Commercial Discovery. Development. Production and Decommissioning
Operations, pursuant to this Contract
For the tunding of Petroleum Operations, each entity constituting the
CONTRACTOR shall be entitled to have recourse to external financing from
either its Affiliated Companies or from any third parties
(O Administrative Services
Implementation of all appropriate management and administration techniques
for execution of the Petroleum Operations under this Contract, in accordance
with standard practices prevailing in the international petroleum industry
K
10
2 4 During the term of this Contract, the CONTRACTOR shall be responsible to the
GOVERNMENT for the conduct of Petroleum Operations within the C ontract Area
pursuant to the teems of this Contract
2 5 Natural resources other than Petroleum shall be excluded from the scope of this
Contract, even if tire CONTRACTOR discovers any such resources when executing
its obligations pursuant to this Contract
2 6 The 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 of this Contract
2 7 During the term of this Contract. Profit ( rode Oil and/or Profit Natural Gas produced
from Petroleum Operations shall be shared between the Parties in accordance with tlu
provisions of Article 26 of this Contract
2 8 hoi the said sharing of any Profit ( rude Oil and/or Profit Natural Gas, each entity
constituting the CONTRACTOR shall he irealod as a separate entity and shall act lor
its own account for income tax purposes
2 9 For the execution of Petroleum Operations under this Contract, the CONTRA( IOR
shall have the right to
(a) freely access and operate within the Contract Area, as well as any facilities
associated with the Petroleum Operations wherever they mav be located
(b) freely use access roads located within the Contract Area and outside the
Contract Area foe the construction, installation, maintenance and removal of
pipelines and other facilities required for the Petroleum Operations.
(c> freely use sand, water, electricity and any other natural resource* located
inside or outside the Contract Area for the Petroleum Operations.
(d) use any qualified foreign and local personnel and or Subcontractors required
for the conduct of Petroleum Operation* in accordance with Article* 22 and 23
of this Contract Any foreign personnel working in the Kurdistan Region shall
require poor authorisation of the GOVERNMENT (such authorisation not to
be unreasonably delayed or withheld) and the GOVERNMENT shall obtain
any authorisation required by the Government of Iraq.
(e) import any goods, materials, equipment and/or services required for the
Petroleum Operations in accordance with Article* 19. 22 and 30. and
(0 freely use land or property belonging to the Kurdistan Region
2 10 The Government hereby unconditionally and irrevocably warrants to and lor the
benefit of Contractor
(a) that the Contract Area is available for the conduct of exclusive Petroleum
Operations by Contractor, and that no other non-governmental party has a
Kf
n
claim or right (antecedent or extant) to conduct Petroleum Operations, or to
produce or to receive Petroleum in or from the Contract Area, and
(b) the Got eminent shall for the duration of this Agreement and subject 10
applicable Kurdistan petroleum law at the time take all appropriate measures
to upliold tlic cnforceabiliu of this Agreement m accordance with its terms as
a legal and binding instrument throu^soui the I ederal Region of Kurdistan
and the Republic of Iraq
2 11 The ( onimcior hereby unconditionally and irrevocably represents and warrants to and for
the benefit of the Government that it has not, to its knowledge, done and l»n> not omitted
to do anything that would cause the cancellation 01 suspension of this Agreement and
indemnifies and holds the Government harmless from am liability, costs claims or
damages that ihe Government may suffer as a result of live failure or macctr*' of am of
such warrants
ARTICLE 3-CONTRACT ARI \
The mitral Contract Area covers the area with the geographic location and co-ordinates
described in Annex A attached hereto and shown on the map in Annex A attached hereto and
extends five huitJicd twenty eight square kilometres (528 Lm ■ rrvxeorlet' and is delimited
by the following coordinates
CO,MS X COOHt) - EAST-] YCOOM «TM iat - north ~] Ton - e ast |
r---z--- ia --- 1 ---c- -1--.1 Vv
a DJ4UJ1.10 MyJJVO'-' tw 34 47 44- 4 7 44 19
B 492441 35 36S03fil 01 44 55 or
C 485027 95 3847006 24 34 4 5 a* 1 44 so ir
D 514676 16 3825'6> 52_ 34 34 04-__ 45 0» 36-
. • i
[±- 519630 OJ 3825073 21 34 34 00= ~ 4T12 51-1
523126 4/ ““iriTor"
* 3822338 08 34’ 32' 33* 45 17 30
The GOVERNMENT, by execution of this Contract hereby validates and approves the
foregoing co-ordinates of Ihe Contract Area
Hie total area of the Contract Area may be reduced only in accordance with the provisions of
this Contract
ARTICLE 4 - GOVERNMENT PARTICIPATING INTEREST
4 I The GOVERNMENT shall have the option of participating in this Contract, m
respect of the entire Contract Area, as a CONTRAC TOR entity, with an undivided
interest m the Petroleum Operations and all the othci rights, duties, obligations and
12
liabilities of the CONTRACTOR, under this Contract in respect of the Contract
Areti of twenty-five per cent (25%) (the "Government Interest"), such option bang
referred to herein as the “Option to Participate" The GOVERNMENT shall be
entitled to exercise the Option to Participate by notifying the CONTRACTOR in
writing of such election at any time in the period commencing on the Effective Date
and ending one hundred and eighty (180) days after the date on which
CONTRACTOR declares the first Commercial Discovery in the Contract Area
(which date of declaration is referred to herein as the "First Commercial
Declaration Date") If the GOVERNMENT does not notify the CON TRACTOR
of such election within such period, it shall be deemed to have waived its right to
exercise the Option to Participate and shall have no further rights wluitsocvci in
rcs|icct of any such participation.
4 2 If the GOVERNMENT exercises the Option to Participate in accordance with
Article 4 I
(a) the effective date of such participation shall be the date of the notice by which
the GOVERNMENT exercises its Option to Participate or the first
Commercial Declaration Date, whichever is the earlier.
(b) the GOVERNMENT shall participate as a CON I RACTOR entity undei tins
Contract 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 this Article 4;
|c) the GOVERNMENT shall not have any liability to the other
CONTRACTOR entities to contribute its Government Interest share of all
Petroleum Costs incurred before the First Commercial Declaration Date and
its Government Interest share of such Petroleum Costs shall be the
responsibility of the other CONTRACTOR entities, provided always that
such other CONTRACTOR entities shall be entitled to recover all such
Petroleum Costs in accordance with Article 25.
(d) if. pursuant to the terms of the Joint Operating Agreement, the
GOVERNMENT participates in the development of the Commercial
Discovery, it shall be liable to the other CONTRACTOR entities to
contribute its Government Interest sliarc of all Petroleum Costs incurred on or
after the First Commercial Declaration Date, with the exception of the
production bonuses referred to in Article 32 and shall be entitled to recover all
such Petroleum Costs in actotdance with Article 25. including the Petroleum
Costs which it has reimbursed pursuant to Article 4 2 (e>;
(e) if such Option to Participate is exercised on or after the First Commercial
Declaration Date, the GOVERNMENT shall, withirf thirty (30) days of the
date of so notify ing the CONTRACTOR of its election, reimburse the other
CONTRACTOR entities for all Petroleum Costs for which it is liable
pursuant to Article 4 2 (d) and which have been incurred by such other
CONTRACTOR entities on or after the First Commercial Declaration Date
but prior to and including the date of the notice pursuant to which it exercises
13
its Option to Participate From the date of such notice, the GOVERNMENT
shall pay the Government Interest share of such Petroleum Costs directly.
(1) the provisions of Article 16 13 shall apply in respect of any Government
Interest when held by the GOVERNMENT and the GOVERNMENT will
be individually and separately liable (and not jointly and severally liable with
the other CONTRACTOR entities) to the GOVERNMENT for its
obligations, duties and liabilities under this Contract as a CONTRACTOR
entity and the provisions of Article 4 4 shall apply.
4 3 The GOVERNMENT may. at its discretion, assign part or all of its Government
Interest to a third party or panics which is a public company regulated by the
GOVERNMENT under the Kurdistan Region Petroleum Act (a “Public
Conipnny"), provided that in the event of a transfer of pan of the Government
Interest, such Government Interest will not be less than live per cent (5%)
In the event of such an assignment to a Public Company, for the purposes of Article
39 oE the Kurdistan Region Petroleum Act. the Government Interest so assigned shall
deemed to he held by the GOVERNMENT and in accordance with the principle in
Article 16 13 of this Contract, the Public Company to which such Government
Interest is transferred will Ire individually and separately liable (and not jointly and
severally liable with the otliet CONTRACTOR entities) to the GOVERNMENT for
us obligations, duties and liabilities under this Contract as a CONTRACTOR entity
and the provisions of Article 4.4 shall apply
4 4 Any failure by the GOVERNMENT andor a Public Company to perform any of its
or their obligations or to satisfy any of its or their duties oi liabilities undet this
Contract as a CON IRACTOR entity shall not be considered as a default of the other
CONTRACTOR entities and shall in no case be invoked by the GOVERNMENI
to terminate this Contract
The capacity of the GOVERNMENT and'or a Public Company as a
C ON TRACTOR entity, 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
4S The GOVERNMENT and/or a Public Company may assign part or all of its
Government Interest to a third party or parties (not being a Public Company), subject
to the provisions of Article 4 6 (and for the avoidance of doubt the provisions of
Ankles 39 I. 39 2 and 39 3 shall not apply)
For the avoidance of doubt, following any assignment by the GOVERNMENT
and/or a Public Company of all or pan or all of a Government Interest to a third party
which is not a Public Company, in accordance with the provisions of this Ankle 4.
the provisions of Ankles 39 1. 39 2 and 39 3 shall apply to any subsequent
assignment of such interest.
4 6 Where a Joint Operating Agreement has been executed by the CONTRACTOR
entities prior to any exercise of the Option to Pailicipatc pursuant to this Aniclc 4. the
GOVERNMENT shall become a party to such agreement, with any amendments
necessary to be consistent with the principles of this Article 4 Where a Joint
Operating Agreement is not in place prior to the exercise of the Option to Participate
pursuant to this Article 4, the GOVERNMENT and the other CONTRACTOR
entities shall, within a reasonable period of time, negotiate in good faith and enter into
.» Joint Operating Agreement and shall duiing the period between the exercising of
the Option to Participate and the execution of the Joint Operating Agreement, comply
with paragraphs (a) and (b) inclusive of Article 4 7 as if they were provisions of this
Conti act
4 7 Any Joint Operating Agreement entered into in relation to this Contract shall be
consistent with the principles of this Article 4 ami shall provide as follow s
in) all decisions of any operating committee established under such Joint
Opciatmg Agreement shall require the affirmative vote of an agreed
percentage of participating interests held thereunder, which in any event shall
nor more than sixty-five percent.
ib) in the event of a proposed transfer by any CONTRACTOR entity of part of a
participating interest under such Joint Operating Agreement, including but not
limited to any Government Interest
li) the interest to be transferred will not be less than five per cent (5%).
ml the proposed third party assignee demonstrates to the reasonable
satisfaction of each of the entities constituting the CONTRACTOR
that it has the financial capability to perform us payment obligations
under the Contract and under the Joint Operating Agreement, and
reasonably satisfactory to each of the entities constituting the
CONTRACTOR to perform the obligations of the transferor
4 8 l or the avoidance of doubt, there shall be no right of assignment in respect of the
Opt Kin to Participate
ARTICLE 5-OPERATOR
s I Within thirty (30) days of the Effective Date, tlx* CONTRACTOR shall notify the
GOVERNMENT of the pany to act asOpcratoi Should the parties fail to so notify the
GOVERNMENT, the GOVERNMENT shall select one of the parties holding an
interest in tlx: Contract as Opeiator. The selection of Operator shall require the approval
of the GOVERNMENT, which approval shall not be unreasonably denied The
CONTRACTOR shall at any time have the right to appoint anothci entity as the
Operator subject to GOVERNMENT approval as aforesaid
5 2 The CONTRACTOR shall submit to the GOVERNMENT for comment any
agreement regarding or regulating the Operator’s appointment and its contfcici
15
of Petroleum Operations on behalf of the CONTRACTOR pursuant to this
Conraci poor to execution of such agreement
5 3 In the e\ent of the occurrence of am of the following. the GOVERNMENT may require
the CONTRACTOR to appoint another entity as Operator as soon as is reasonably
practicable
(a) if an order has been passed in court declaring the bankruptcy, liquidation, or
dissolution of the Operator.
(b) if the Operator terminates its activities under this Contract or a materia!
proportion thereof, and as a result CONTRACTOR fails to fulfil its
obligations under the Contract.
\R IICLE 6 - TERM OK TIIE CONTRACT
0 I This Contract comprises an Expkiraiion Penod and a Development Period, as defined
below
I vploration Period
6 2 The Exploration Penod shall be tor an initial term of five (5) Contract Years,
extendable on a yearly basis (as provided m Article 6 5 and 66) up to a maximum
period of seven (7) Contract Years, starting from the EITective Date The initial tarn
of five (5) years shall be subdivided in two (2) sub-pa inds as follows
(a) an initial sub-period of three (3) Contract Years ("l ust Sub-Period"):
(b) a second sub-period of two (2) Contract Years ("Second Sub-Period">.
each a "Sub-Period" and collectively "Sub-Periods
It is understood that the right of the CONTRACTOR 10 accede 10 the next Suli-
Period shall be .subject to fulfilment of the Minimum Exploration Obligations
applicable to the previous Sub-Period
<>» During the Exploration Period, the CONTRACTOR shall pav to the GOV I RNMENT.
in arrears, an annual surface rental for the Contract Area, as may be reduced by
relinquishment from time to time pursuant to Article 7. of ter Dollars (US$ 10) per
square kilometre per Contract Year ("Exploration Rental ) Such Exploration Rental
shall be considered as a Petroleum Cost and shall be recovered by the ( ONTRACTOR
in accordance with the provisions of Articles I and 2$
6 4 If the CONTRACTOR decides not to enter into the Second Sub-Period, it shall
nolify the GOVERNMENT at least thirty (30) days prior to the expiry of the First
Sub-Period and. provided that the data from the First Exploration Well demonstrates that
there is no reasonable technical case for drilling the Second Exploration Well in the
Contract Arc®, ihc Exploration Period shall expire at the end of the I irsi Sub-Period,
unless the First Sub-Period has been extended pursuant to Article 6 5 and/or Article 6.6.
16
6.5 If ihe CONTRACTOR has fulfilled its Minimum Exploration Oblivions for a Sub-
Period of the Exploration Period but considers that additional work is required prior
(a) to deciding to submit an Appraisal Program as provided under Article 12 2 of
this Contract in respect of a Discovery, or
(b) to deciding to declare a Discovery as a Commercial Discovery in accordance
with Article 12.6 (a) or 14 5 (a), which additional work may include the
preparation and/or execution of an Appraisal Program as provided under
Article 12 2 of this Contract and'or Gas Marketing Operations.
the CONTRACTOR will automatically be entitled to extensions, each of one (I)
Contract Year, of the then current Sub-Period, up to the end of the maximum
Exploration Period of seven (7) Contract Years. (a\ provided in Article 6 2) I he
CONTRACTOR’S notification of such extension and its duration shall be submitted
in writing to the GOVERNMENT at least thirty (30) das s prior to the end of the then
current Sub-Period or the end of the then current extension (as the case may be)
6 6 Without prejudice to Article 6 5. upon expiry of the initial term of the Exploration
Period, if it considers it lias not completed its exploration evaluation of the Contract
Aica. the CONTRACTOR shall be entitled to an extension of the Second Sub-
Period provided it so requests the GOVERNMENT in wining at least thirty (30)
days pnoi to the end of Mich Sub-Period, together with a propovil lor a minimum
work obligation for such extension Any such extension shall not exceed one
Contract Year I'pon the expiry of such extension, if it considers it has still not
completed in evaluation of the Contract Area, the CON IRACTOR shall be entitled
to a further extension of one (I) Contract Year provided that it so requests the
GOVERNMENT in writing at least thirty (30) days poor to the end of the original
cxtcn&on
6 7 Subject to Article 6 4. at any time during the Exploration Period, upon thirty (30)
days poor notice to the GOVERNMENT, the CONTRACTOR shall have the right
to withdraw from this Contract provided that the out#andmg Minimum Exploration
Obligations relating to the then current Sub-Period have been completed in
accordance with the Contract, or it has paid to the GOVERNMENT the amounts
specified in Article 10 2 or Article 10 3 of this Contract, whichever is applicable to the
then current Sub Period
6 8 If no Commercial Discovery has been made within the Contract Area at the end of the
Exploration Period (including any extensions thereof) this Contract shall laminate
6 9 If a Discovers is made within the maximum Exploration Period of seven (7) Contract
Years (as provided in Article 6 2). and if the CONTRACTOR consider* it has not
had time to complete sufficient Gas Marketing Operations to declare the Discovery a
Commercial Discovery pursuant to Article 12 6 (a) or 14 5 (ak the CONTRACTOR
shall be entitled to request an extension of the Exploration Period (notwithstanding
the maximum period provided in Article 6.2). provided it so requests the
GOVERNMENT in writing at least thirty (30) days poor to the end of the maximum
Exploration Paiod. together with a proposal for Gas Marketing Operations to be
undertaken during such extension If granted by the GOVERNMENT, any such
A.
17
extension shall not exceed two (2) Contract Years l-'pon the expiry of such
extension, if it considers it has still not completed its Gas Marketing Operations
relating to such Discovery, the CONTRAC I OK shall be entitled to request a further
extension of two (2) Contract Yeais provided that it so requests the GOVERNMENT
in writing at least thirty (50) days prior to the end of the original extension, together
with a proposal for Gas Marketing Operations to be undertaken during such
extension.
6 10 If the CONTRACTOR considers that a Discovery of ( rude Oil and any Associated
Natural Gas is a Commercial Discovery, the CONTRACTOR shall have the
exclusive right to develop and pioducc such Commercial Discovery'- pursuant to the
terms of this Contract The Development Period for a Commercial Discovery of Cmdc
Oil and any Associated Nalmal Gas dull lx." twenty (20) years commencing on the
declaration of such Commercial Discovery by COM RACTOR in accordance with
Article 12 6 (a) of this Contract, with an automatic right to a five (5) year extension
(> 11 If the CONTRACTOR considers that a Discovery of Non-Associated Natural Gas is
a Commercial Discovery the CONTRACTOR 'hall have the exclusive right to
develop and produce such Commercial Discovery, pursuant to the terms o! this
Contract The Development Period for a Commercial Discovery of Non-Associated
Natural Gas shall be twenty (20) years, commencing on the declaration of such
Commercial Discovery by CONTRACTOR, ill accordance with Article 126 (a) or
Article 14 5 (a) of this Contract, with an automatic light lo a five (5) year extension
0.12 If Commercial Production from a Production Area is soil possible at the end of ill
Development Period as defined in Articles 6 10 or 6 11 above then, upon its request
the CONTRACTOR shall be era a led to an extension of such Development Period
under the same terms as those provided in this Contract Such request shall be nude in
writing by the CONTRACTOR at least six (6) Months before the end of the said
Development Period
The torn of any such extension of the Development Period shall be
(a) five (5) Years for Crude Oil and any Associated Natural Gas. and or
(b) fist: (5) Years for Non-Associated Natural Gas
Ml The CONTRACTOR shall have the right to terminate Production Operations for an\
Production Area at any time during the term of this Contract, subject to giving
notice to the GOVERNMENT of at least ninety (90) days rhis Contract shall
terminate on the expiry date of the last Production Area or when Production
Operations for all Production Areas have terminated
if
18
ARTICLE 7 - REIJNQITSIIMEN l>
7 I Suhjcct to the (vovwni of Artkfca 72 «d 73. the CON I K \< IOK shall surrender
portion* of the Contract Area a* follow*
la) twenty percent (25%) of the initial Contract Are* excluding any Prediction
Area*, at the end of the initial term of the Exploration Period leferred to in
Article 6 2. and
lb) .m additional twenty five percent (25%) of that pail of the C ontract Area
excluding any Production Areas, remaining at the end of each extension period
entered into under tin* Contract at the end of the initial terra of the Exploration
Period referred to in Article 6 2
7 2 For tile application of Article 7 I
(a) any areas already relinquished pursuant to Article 7 I Mow sli.ill be deducted
from areas to be surrendered;
(b) the CONTRACTOR shall have die right to determine the area, shape and
location of the Contract Area to be kepi, and
(c> areas relinquished under Article 7 1(a) shall be contiguous and areas relinquished
under Article 7 1(b) shall be contiguous
73 If the rrlinqurthmcvt referred to in Artide 7.1 can only be adaeved bv nclufrng pan of
the area of a Discovery. these percentages shall be reduced to exclude the Orson ex
7 4 During the Expiration Period. the CONTRACTOR may at the end of each Contract
Year surrender all or any part of the Contract Area by written notice sent to the
GOVERNMENT at lea« thirty (30) days in advance of the proposed date of surrender
subject to the provisions of ths Artide 7 4 Such voluntary surrenders during the
Exploration Period shall be deemed equal to the obligator* relinquish meres relerred to
under Article 7 I This Contract shall terminal in the event of total surrender of the
Contract Area
7 5 No surrender provided undo Artide 74 shall exempt the C ONTRACTOR from itv
outstanding obligations under this Contract In the event the CONTRACTOR elect* to
surrender the entee Contract Area without having fulfilled the Minimum Exploration
Obligations rdating to the then current Sub-Period as provided in Article 10 2 or Article
10 3. the CONTRACTOR shall pay to the GOVERNMENT the relevant outstanding
amour* as detailed m Article IP 2 or Artide 10 3. as the case may be
76 The boundaries of the pertain of the Contract Area to be relinquished by the
C ON TRAC ~l OR shall be commumcaed to the GO\ I.RNMI NT by -men notice at
lc*« thnty (30) days m advance of the retevar* date for relinquishment pursuant to
Article 7 I
¥
A
AR 11C IK 8 - MANAGEMENT COMMITTEE
8 1 A Management Committee shall be established within thirty (50) days following the
Effective Date fot tlie purpose of providing orddlv direction of all matters pertaining
to the Petroleum Operations and Work Program
The Management Committee shall comprise an equal number of members designated
b> each Party two (2) members designated by the GOVERNMENT and two (2)
members designated by the CONTRACTOR
Upon ten (10) days notice, each Paitv may substitute any of its members of the
Management Committee The chairman of the Management Committee shall be one
of the members designated by the GOVERNMENT (the “Chairman**) The vice
chairman of the Management Committee shall be one of the members designated by
the CONTRACTOR (the “Vice-Chairman"). In the absence of the Chairman, the
Vice-Chairman shall chair the meeting
Each Parts shall have the right to invite a reasonable number of observers as deemed
necessary to attend the meetings of the Management Committee m a non-voting
capacity
8.2 The Management Committee shall review, deliberate, decide and give advice,
suggestions and recommendations to the Panies regarding the following subject
matters:
(a) Work Programs and Budgets.
(b) the ( ONTRA(TOR's activity reports;
(c) production levels submitted by the CONTRACTOR based on generally
accepted practice in the international petroleum industry .
(d) accounts of Petroleum Costs;
(c) procurement procedures for potential Subcontractors, with an estimated sub¬
contract value in excess of ten million Dollars (SI 0,000.000). submitted by the
CONTRACTOR in accordance with Article 19 3,
(t) Development Plan and Budget for each Petroleum Field
(g) any matter having a material adverse affect on Petroleum Operations.
(h) any other subject matter of a material nature that the Panics arc willing to
consider
8 3 Each Party shall have one (I) vote in the Management Committee The Management
Committee cannot validly deliberate unless each Party is represented by at least one
(I) of its members or its deputy
20
The Management Committee shall attempt to reach unanimous agreement on any subject
matter being submitted In the event tin* Management Committee cannot reach
unanimous agreement, a second meeting shall be held within fourteen (14) days to
discuss the same subject matter and attempt to reach a unanimous decision
Except as provided for in Article 8 4 and Article 8 *. in the event tlut no agreement is
reached at the second meeting, the Chairman shall ha\c the trc-breaking vote
8 4 In the event that, during the Exploration Period, no agreement is readied at the second
meeting of the Management Committee, as provided for in Article 8 3. or unanimous
CONTRACTOR shall he deemed adopted by the Management Committee
8 5 Notwithstanding rise provisions of Article 8 3. unanimous approval of the Management
Committee shall be requited for
(a) approval of. and any matenal revision to. any Exploration Work Program and
Budget prepared alter the first Commercial Discovers in the Production Area
relating lo such Commercial Discovery' (unless such Exploiation Work Program
and Budget has been deemed approved by the Management Committee in
accordance with Article 11.4);
(b) approval of. ami any material revision to. the Development Plan the productwn
schedule, lifting schedule and Development and Pioduclioii Work Programs and
Budgets (unless such Development Plan has been deemed approved by the
Management Committee in accordance wiih Article 12 9 or Article 12 10).
(d) establishment of odes of procedure for the Management Committee.
(c) approval of, and any material revision to. procurement procedures for goods
and/or services, submitted by the CONTRACTOR in accordance with Article
19 3 (unless such procedures have been deemed approved by the Management
Committee in accordance wuh Article 19 3).
(0 approval of. and any material revision to. any proposed pipeline project,
submitted by CONTRACTOR in accordance with Article 33 3.
(g) approval of a first rate hank in which to place the Decommissioning Reserve
Fund, in accordance with Article 38 I
(h) approval of. and any material revision to. any proposed decommissioning and
site restoration plan.
(i) any terms of reference which are requited to be prepared and agreed for the
purposes of expert determination, pursuant to Article 42 3. and
(j) any matter having a matet ial adverse affect on Petroleum ()permions
8 6 Ordinary meetings of the Management Committee shall take place in the Kurdistan
Region, alternately at the offices of the GOVERNMENI and those
21
CONTRACTOR, or at any other location agreed between Parties, at least twice a
Contract Year prior to the date of the first Commercial Discovery and three times a
Contract Year thereafter
8 7 Cither Party may call an extraordinary meeting of the Management Committee to
discuss important issues or developments related to Petroleum Operations, subject to
giving reasonable prior notice, specifying the matters to be discussed at the meeting,
to the other Party The Management Committee may from time to time make
decisions by correspondence provided all the members have indicated their approval
of such decisions in such correspondence
8 X Unless at least one (I) member or its deputy of each Party is present, the Management
Committee shall be adjourned foi n period not to exceed eight (81 days The Party
being present sliall then notify the otlici Party of the new date time and location for
the meeting
8.9 I he agenda for meetings of the Management Committee shall be prepared by the
Operator in accordance with instructions of the Chairman and communicated to the
Parties at least fifteen (15) days print to the date of the meeting I he agenda shall
include any subject matter proposed by either Party The Operator shall be
responsible for preparing and keeping minutes of the meetings and decisions Copies
of such minutes shall be forwarded to each Party for review and approval Each Party
shall review and approve such minutes within ten (10) days of receipt of the dial)
minutes A Party who fails to notify in writing its approval or disapproval of such
minutes within such ter. (10) days shall be deemed lo base approved the ir notes
8 10 If required, the Management Committee may request the creation of a technical sub¬
committee or any other sub-committce to assist it Any such sub-cominee shall be
composed of a reasonable number of expens from the GOVERNMENT and the
CONTRACTOR After each meeting, the technical sub-committee or any other sub¬
committee shall deliver a written report to the Management Committee
8 11 Any costs and expenditure incuned by the CONTRACTOR fox meetings of the
Management Committee ot any technical sub-committee or any other sub-committee
shall be considered as Petroleum Costs and shall be recovered by the
( ON I RAC TOR in accordance with the provisions of Articles I and -5
ARTICLE 9 - GUARANTEES
9 I Each entity constituting the CON TRACTOR shall provide the GOVERNMENT, if so
required by the latter pursuant lo written notice received by the CONTRACTOR entity
within thirty (30) days of the Effective Date, with a corporate guarantee m a form as shall
be agreed in good faith between the GOVERNMENT and each CONTRACTOR entity
not later than ninety (90) days after the Effective Date provided that such corporate
guarantee shall be given only in respect of the Minimum Exploration Obligations for the
First Sub-Period up to the total amount of the minimum financial commitment for the
Minimum Exploration Obligations for the First Sub-Pcnod (as such details are provided
in Article 10 2) and shall expire automatically upon completion of the performance of
fCf
22
such Minimum Exploration Obligations or expenditure of such minimum financial
commitment, whichever is the earlier
9.2 Not later than sixty (60) days allcr the commencement of the Second Sub-Period, each
entity constituting the CONTRACTOR shall provide the GOVERNMENT, if so
required by the latter pursuant to written notice received by the CONTRACTOR entity
within thirty (30) days of such commencement date, with a corporate guarantee in the
form substantially agreed between the GOVERNMENT and each CONTRAC EOR
entity for the First Sub-Period, subject to making the changes necessary in order for the
corporate guarantee to apply only to tire Second Period Minimum Exploration
Obligations up to the total amount of the minimum financial commitment for the
Minimum Exploration Obligations lor the Second Sub-Penod (as such details are
provided in Article 103). and provided that such corporate guarantee shall expire
automatically upon completion of the performance of such Minimum Exploration
Obligations or expenditure of such minimum financial commitment, whichever is the
earlier
9.3 In the event of an assignment by a CONTRACTOR entitv in accordance with
Anicle 39. the relevant third party assignee shall provide the GOVERNMEN T, if so
inquired by the latter pursuant to written notice given to such assignee within thirty (30)
days of the Effective Date, with a corporate guarantee in the form agreed pursuant to
Article 9 I or 9.2, as applicable to the then current Sub-Period or in the absence of any
such agreed form of corporate guniantcc, in a form as shall be agreed in good faith
between the GOVERNMENT and such assignee not later than ninety (90) days after the
effective date of the assignment, provided that such corporate guarantee snali be given
only in rcs|>cct of the Minimum Exploration Obligations for the then ament Sub-Penod
up to the total amount of the minimum financial commitment for the Minimum
Exploration Obligations for such Sub-Period (as such details arc provided in Article 10 2
o* Article 10 3. as the case may be), and shall expire automatical!) upon completion of
the performance of such Minimum Exploration Obligations or expenditure of such
minimum financial commitment whichever is the earlier
ART 1C EE 10-MINIMUM EXPLORATION WORK OBI.IGA I IONS
101 The CONTRACTOR shall start Exploration Operations within thirl) (30) days of
Management Committee approval of the Exploration Work Program and Budget in
accordance with Article 8 of this Contract The CONTRACTOR shall perform
geological, geophysical and'or drilling works as provided under Articles 10 2 to 10 3
below (the Minimum Exploration Obligations' i If applicable, the said Minimum
Exploration Obligations shall be performed during each Sub-Penod in accordance with
good and prudent international oilfield practice
102 .During the Eirst Sub-Penod. the CONTRACTOR shall
(a) carry out geological and geophysical studies, composing the toUrMing
(i) the compilation of a technical database.
(li) the performance of a remote sensing study.
23
(iii) a field visit to verify initial geological and geophysical work and remote
sensing results and plan for two dimensional seismic acquisition; and
(b) carry out a data search for existing data specific to this Contract Area,
comprising the following
(i) well data, if available, for example, electric logs.
(ii) seismic data and gravity data, if available, and
(iii) icproccss seismic data, if available
(c) perform field work comprising structural, stratigraphic and lithologic mapping
and sampling.
acquire, process and interpret three hundred (300) line kilometre* of two
dimensional seismic data, committing for this purpose ;i minimum financial
amount of three million Dollars (US$3,000,000). and
(e) drill one (I) Exploration Well (the “First Exploration Well'). committing lor
this purpose a minimum financial amount of seven and one half million Dollars
(USS7.500.000) including testing and coring as appropriate
103 During the Second Sub-Period, the < ONTRACrOR shall
(a) ncquiic process and interpret furilicr seismic data (being either two
dimensional or three dimensional), if the C ON IKACTOR consider* that the
results (tom the First Exploration Well justify the acquisition of further
seismic data, and
drill one (I) Exploration Well (the * Second Eiploration Well") committing
for this purpose a minimum financial amount of five million Dollars
(USS5.000.000) including testing and coring as appropriate, unless the dau
from the First Exploration Well demonstrates that there is not a reasonable
technical case for drilling the Second Exploration Well in the Contract .Area
10 4 Notwithstanding the provisions m Articles 10 2 to 10 J dwve. for the execution of the
Minimum Exploration Obligations undo Articles 10 2 to 10 ) above. * is agreed as follows
(a) Minimum Exploration Obligations in the Second Sub-Period shall only apply in
the event the CONTRACTOR has not elected to notify the GOVERNMENT
that a will not enter into the Second Sub-Penod. m accordance with and subject to
Article 6 4
il*» Subject to Article 10 4
Minimum Exploration Obligations for the applicable Sub-Penod. even if this
entails exceeding the minimum financial amount for such Sub-Penod If the
CONTRACTOR has satisfied its Minimum Exploration Obligation* without
having spent the total minimum financial amount for such Sub-Period, it shall
be deemed to have satisfied as Minimum Exploration Obligations for such
Sub-Penod
24
bach Exploration Well shall be drilled to the depth agreed by the Management
Committee unless
(i) the formation is encountered at a lesser depth than originally
anticipated.
(ii> basement is encountered at a lesser depth than originally anticipated.
(iii) in the CONTRACTOR'S sole opinion continued drilling of the
relevant Exploration Well presents a hazard due to the presence of
abnormal or unforeseen conditions.
(iv) rock formations are encountered rendering it impractical to continue
drilling with standard equipment.
(v) petroleum formations arc encountered whose penetration requires
laying protective casing that does not enable the depth agreed by the
Management Committee to be reached
If drilling is stopped for any of the foregoing reasons, the Exploration Well
shall be deemed to have been drilled to the depth agreed by rhe Management
Committee and the CON I R \< TOR shall be deemed to have satisfied its
Minimum Exploration Obligations in respect of the Exploration Well
Any geological or geophysical work carried out or any seism c data acquired,
processed or interpreted or any Exploration Well dulled or any other work
performed in excess of the Minimum Exploration Obligations and/or any
amounts spent in excess of the total minimum financial amount in any given
Sub-Period, shall be carried forward to the next Sub-Period and shall be taken
into account to satisfy the Minimum Exploration Obligations and/or the total
minimum financial amount for such subsequent Sub-Period
For the avoidance of doubt, if (i> in the First Sub-Period, ( ONTKAt IOR
performs any of the Minimum Exploration Obligations prescribed for the
Second Sub-Period in Article 10.3. and (ii) CONTRACTOR has not elected
to notify the GOVERNMENT that it will not enter into the Second Sub-Period
(in accordance with and subject to Article 6.4). the performance of such
Minimum Exploration Obligations shall be deemed to satisfy the same
Minimum Exploration Obligations lor the Second Sub-Period
ARTICLE 11 - EXPLORATION WORK PROGRAMS AND BUDGETS
11 I Within forty-five (45) days following the Effective Date, the CONTRACTOR shall
submit to the Management Committee a proposed work program and budget relating
to Exploration Operations (the "Exploration Work Program and Budget") for the
remainder of the Calendar Yeai Thereafter, no later than I Octobei in each Calendar
Year, the CONTRACTOR shall submit a proposed Exploration Work Program and
Budget to the Management Committee for the following Calendar Year
11 2 Each 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 be acquired.
(c) cost estimate of services to be provided including services by third parties
and/or Affiliated Companies of any entity constituting CONTRACTOR.
Id) estimated expenditures, broken down by cost centre in accordance with the
Accounting Procedure
11 3 The Management Committee shall meet within sixty (60) days following its receipt of
CONTRACTOR'S ptoposal to examine and. unless already deemed approved
pursuant to the provisions of Article 11 4 below approve the Fxploration Work
Program and Budget
11 4 Any modification to the Exploration Work Program and Budget requested by the
GOVERNMENT shall be subm.tted to the CONTRACTOR »Mhm thirty (30) days
following receipt of the proposed Exploration Work Program and Budget by ihe
Management Committee accompanied by all the documents justifying such request
If the GOVERNMENT does not request any modifications to the E xploration Work
Program and Budget within the above set timeframe the Exploration Work Program
and Budget shall be deemed approved by the Management Committee If the
GOVERNMENT does request am modifications to the Exploration Work Program
and Budget the CONTRACTOR shall communicate its comments on any such
requested modifications to the GOVERNMENT at the meeting of the Management
Committee or in writing prior to such meeting
115 The CONTRACTOR shall be authorised to make expenditures not budgeted in an
approved I vploration Work Program and Budget provided (hat the aggregate amount
of such expend it ui ex shall not exceed ten percent (10%) of the approved Exploration
Work Program and Budget in any Calendar Year and provided further that such
' excess cxpendituics shall be reported as soon as is reasonably practicable to the
Management Committee Fix the avoidance of doubt, such excess expenditures shall
be considered Petroleum Costs and shall be recovered by the CONTRACTOR in
accordance with the provisions of .Articles I and 25
117 In cases of emergency, the CONTRACTOR may incur such additional expenditures
as it deems necessary to protect life, environment or property Such additional
26
expenditures shall be reported promptly to the Management Committee f or the
avoidance of doubt, such additional c\|>enditure shall lie considered Petroleum Costs
and shall be recovered by the CONTRACTOR in accordance with the provisions of
Articles I and 2S
AIM IC'I.K 12 - DISCOVERY AND DEVELOPMENT
12 I If the drilling of an Exploration Well results in a Discovery, the CONTRACTOR
shall notify tl»c GOVERNMENT within forty-eight (4S) hours of completing tests
confirming the presumed existence of such Discovery or within such longer period as
CONTRACTOR reasonably requires to determine whether or not there is a
Discovery Within thirty (30) days following notification of the said Discovery, the
CONTRA< I’OR shall present to the Management Committee all technical data then
available together with its opinion on the commercial potential of tire said Discovery
(the ’Discovery Report") The CONTRACTOR shall provide in a timely manner such
other information relating to the Discovery as the GOVERNMENT may reasonably
request
AlHU'lMMl!. Program
12 2 If. pursuant to Article 12 I above, the CONTRACTOR considers that the Discovery
has commercial potential it shall, within ninety (90) days following notification to the
GOVERNMENT of the Discovery, submit an appraisal program in respect of the
Discovery (the 'Appraisal Program*) to the Management Committee The
Management Committee shall examine the Appraisal Program within thirty (30) days
Committee if it has not provided lire CONTRACTOR with its objections
accompanied by all the documents justifying such objection within thirty (30) days
following receipt of the said Appraisal Program If any such objection is made, the
Management Committee shall meet to discuss the Appraisal Program and such
objections thereto within sixty (60) days from its receipt of the proposed Appraisal
Progiaiti The CONTRACTOR shall communicate its comments on any such
objections to the GOVERNMENT at the meeting of the Management Committee or
in wntmg prior to such meeting
The Apptaisal Program shall include hut not be limited to the following
(a) an appraisal works program and budget,
(l>) an estimated time-frame for completion of appraisal works.
(c) the delimitation of the area to be evaluated, the surface of which shall not
exceed twice (2 x) the surface of the geological structure or prospect to be
appraised (the "Appraisal Area”)
12 3 If. following a Discovery, a ng acceptable to CO.NTR.ACTOR is available to drill a
well, the CONTRACTOR may drill any additional Exploration Well or any
Appraisal Well deemed necessary by the CONTRACTOR before or during the
A.
27
Management Committee's review of the Discovery Report prodded in accordance
with Article 12 I or its review of the Appraisal Program
Vpnnmal Report
12 4 Ihe < ONTRACTOR shall submit a detailed report relating to the Discovery (the
'Appraisal Report") to the Management Committee within ninety (90) days
following completion of the Appraisal Program
12 5 The Appraisal Repon shall include but not be limited to the following
(a) geological conditions.
th) physical properties of any liquids.
(d) type of substances obtained.
(e) Natural Gas composition.
(0 production forecast per well, and
(g) a preliminary estimate of recoverable reserves
12 6 Together with its .Appraisal Report, the CONTRACTOR shall submit a written
statement to the Management Committee specify ing that
Discovery, or
(b) the C ONTRACTOR has determined that the Discovers is not a Commercial
Discovery, or
(c) the CONTRACTOR has determined that the Discovery is a significant
Discovery, which may become a Commercial Discovery subject to additional
exploration and/or appraisal works within or outside of the Appraisal Area, or
(d) the CONTRACTOR has determined that the Discovery is a significant
Discovery of Non-Associated Natural Gas. which may become a Commercial
Discovery subject to Gas Marketing Operations, in accordance with Article
145.
12 7 In case the statement of the CONTRACTOR corresponds to Article 12 6(c). the
CONTRACTOR shall submit a Wort Program and Budget to the Management
Committee within thirty (50) days following such statement Any well drilled to
evaluate the said significant Discovery shall be considered an Exploration Well
28
Development Plan
I? X If the Discovery has been declared a Commercial Discovery by the CONTRACTOR
pursuant to Article 12 6 (a) or Article 14.5 (a), the CONTRACTOR shall submit a
proposed Development Plan to the Management Committee within one hundred
eighty (IHO) days following the said declaration Such Development Plan shall
include details of. but not be limited to. the following:
Appraisal Report regarding the importance of the Petroleum Field to lie
developed within the Appraisal Area;
(b) drilling and completion of Development Wells;
Id) laying of gathering pipelines.
installation of separators, tanks, pumps and any other associated production
and injection facilities for the production.
(0 treatment and transportation of Petroleum to the processing and storage
facilities onshore cm offshore.
(g) laying of export pipelines inside or outside the Contract Area to the storage
facility or Delivery Point;
(i) plan for the utilisation of .Associated Natural Gas.
(j) training commitment in accordance with Article 2i of this Contract.
a preliminary decommissioning and site restoration plan, and
(I) any other operations not expressly provided for in this Contract but reasonably
necessary for Development Operations. Production Operations and delivery of
Petroleum produced, in accordance with generally accepted practice in the
international petroleum industry
120 The Development Plan shall be deemed approved by the Management Committee if
the GOVERNMENT, through its representatives on the Management Committee,
has not requested any modifications thereto within sixty (60) days after receipt of the
said Development Plan by the Management Committee
12.10 If the GOVERNMENT requests any modifications to the Development Plan, then
the Parlies shall meet within sixty (60) day s of receipt by the CONTRACTOR of the
GOVERNMENTS written notification of requested modifications accompanied by
all the documents justifying such request, and shall discuss such request The
AO
29
CONTRACTOR shall communicate its comments on any such requested
modifications 10 the GOVERNMKN1 at such meeting or in writing prior to such
meeting. Any modification approved by the Management Committee at such meeting
or within a fuithci petiod of thirty (.10) days from the date of Rich meeting shall be
incorporated into the Development Plan which shall then be deemed approved and
adopted.
12 11 If the CONTRAC I OK makes several Commercial Discoveries within the Contrast
Area each such Commercial Discovery will hast a separate Production Area The
CONTRAC FOR shall be entitled to develop and to produce each Commercial
Discovery and the GOVERNMENT shall provide the appropriate Permits covering
the Production Area In case the area covered by the Commercial Discovery extends
beyond the boundaries of the Contract Area, and to the extern such area outside the
Contract Area is not the subject of a Petroleum Contract (as defined m the Kurdistan
Region Petroleum Act) with a third party, the provisions of Article 14 2 shall apply
ARTICLE 13 - DEVELOPMENT AND
PRODUCTION WOKh PROGRAMS AND III IX.» I
131 Upon the approve! of the Development Plan bv the Management Committee the
CONTRACTOR shall start the Development Operations for the Commercial
Discovery in accordance with the Development Plan and the prices generally
accepted in the international petroleum industry
Approval ofAnniiJil Development Works Programs and Budget
13.2 Within ninety (90) days following approval of the Development Plan by the
Management Committee, the CONTRACTOR shall prepare and submit to the
Management Committee a proposed work program and budget lor Development
Operations (the 'Development Work Program and Budget’) to be carried Out in the
Production .Area during the following Calendar Year Thereafter, no later than 1
October in each Calendar Year, the CONTRACTOR 'lull submit to the
Management Committee its Development Work Program and Budget for the
following Calendar Year To enable the Management Committee to forecast
expenditures, each Development Work Program and Budget shall include details of.
but not be limited to, the following
(a) works to be carried out.
(b) material and equipment to be acquired by main categories.
(c) type of services to be provided, distinguishing between third panics and
Affiliated Companies of any entity constituting CONTRACTOR and
id) categories of general and administrative expenditure
13 3 If ihc GOVERNMENT has not requested any modifications to the Deselopmcnt
Work Program and Budget through its representatives in the Management Commitee
within thirty (30) days from receipt of such proposal, the Development Work
Program and Budget shall be deemed approved by the Management Committee
Any modification to the Development Work Program and Budget requested fc> tlie
GOVERNMENT shall be submitted to the CONTRACTOR within thirty (30. iavs
following receipt of the proposed Development Work Program and Budget t> the
Management Committee, accompanied by all the documents justifying such request
If any such modification is proposed, ihe Management Committee shall me-e: to
discuss the Development Work Program and Budget and proposed modifies: ons
thereto within sixty (60) days from its receipt of the proposed Development '■
Program and Budget The CONTRACTOR shall communicate its comments c~ any
such requested modifications to the GOVERNMENT at the meeting c: the
Management Committee or in writing prior to such meeting
13 4 The CONTRACTOR shall be authorised to incur expenditures not budgeted " an
approved Development Work Program and Budget provided that the aggregate
amount of such expenditures shall not exceed ten percent (P/%) of the appr.-ved
Development Work Program and Budget in any Calendar Year and provided f_".her
that such excess expenditures shall be reported as soon as is reasonablv practice e to
the Management Committee For the avoidance of doubt, such excess exper : :ure
shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR
in accordance with the provisions of Articles I and 25
13 5 In cases of emergency, the CONTRACTOR may incur such additional expend ..res
as it deems necessary to protect life, environment or property Such add ■•. nal
expenditures shall be reported promptly to the Management Committee I the
avoidance of doubt, such additional expenditure shall be considered Petroleum 'is
and shall be recovered by the CONTRACTOR in accordance with the provist • > of
.Articles 1 and 25.
Approval of Annual Production Works Programs ami Budget
13.6 No later than I October of the Calendar Year preceding the estimated commence ~ ent
of production pursuant to an approved Development Plan and thereafter no late' tan
I October in each Calendar Year, the CONTRACTOR shall submit :: the
Management Committee a proposed work program and budget for Prod.- on
Operations (the "Production Work Program and Budget ) for the foil: • ng
Calendar Year To enable the Management Committee to forecast expenditure the
Production Work Program and Bridget shall include details of but not be limited to,
the following:
(a) works to be carried out.
(b) material ami equipment to be acquired by main categories.
31
(C> type of services to be provided, distinguishing between thud panics and
Affiliated Companies of any entity constituting CONTRACTOR, and
categories of general and administrative expenditure
13.7 If the GOVERNMENT has not requested any modifications to the Production Work
Program and Budget through its representatives in the Management Committee
within thirty (30) days from receipt of such proposal, the Production Work Program
and Budget shall lie deemed approved by the Management Committee
GOVERNMENT shall be submitted to the CONTRACTOR within thirty (30) days
following receipt of the proposed Production Work Program and Budget by the
Management Committee, accompanied by all the documents justifying such request
If any such modification is proposed, the Management Committee shall meet to
discuss the Production Woik Program and Budget and proposed modifications thereto
within sixty (60) days from its receipt of the proposed Production Work Program and
Budget The CONTRACTOR shall communicate its comments on any such
requested modifications to the GOVERNMENT at the meeting of the Management
Committee or in writing prior to such meeting
13 8 The CONTRACTOR 'hall be authorised to incur expenditures not budgeted in an
approved Production Wink Program and Budget provided that live aggregate amount
of such cxpcndiluies shall not exceed ten percent (10%) of the approved Production
Work Progiam and Budget in any Calendar Year and provided further that such
excess expenditures shall be reported as soon as reasonably practicable to the
Management Committee For the avoidance of doubt such excess expenditure shall
be considcicd Petroleum Costs and shall be recovered bv the CONTRACTOR in
accordance with the provisions of Articles 1 and 25
13 9 In eases of omcigeney the ( ONTRAC'TOR may incur such additional expenditure
as it deems necessary to protect life, environment or property. Such additional
expenditures shall he reported promptly to the Management Committee. For the
avoidance of doubt, such additional expenditure shall be considered Petroleum Costs
and shall be recovered by the CONTRACTOR in accordance with the provisions of
Articles I and 25
13 10 After the commencement of Commercial Production the CONTRACTOR shall pay
to the GOVERNMENT, in arrears, an annual surface rental for the Production Area,
of ten Dollars (CSSIO) per square kilometre per Contract Year ('‘Production
Rental ) Such Production Rental shall be considered as a Petroleum Cost and shall
be recovered by the CONTRACTOR in accordance with the provisions of Articles I
and 25
32
ARTICLE 14 - NATURAL GAS
VLy.fo.i'Jlie.rftrtflvum Qiwiitiyn?
14 I To lake account of specific conditions relating to Natural Gas and to promote its
development in the Kurdistan Region, the GOVERNMENT will grant specific
benefits to the CONTRACTOR on principles materially similar to those contained in
this Contract, including, consistent with the Kurdistan Region Petroleum Act. more
generous provisions in respect of the lecovery of Petroleum Costs and the sharing of
Profit Petroleum
14 2 The CONTRACTOR may freely use any Natural Gas required for the Petroleum
Operations If technically and economically justified, the CONTRACTOR shall in
priority use any Natural Gas for the purpose of enhancing recovery of Crude Oil in
accordance with standard practices in the international petroleum industry as follows
Associated Natural Gas
14.3 Any excess Associated Natuial Gas produced that is neither used in the Petroleum
Operations nor developed and sold by the CONTRACTOR shall, upon the
GOVERNMENT'S written request, he transfcircd at a delivery point to be agreed
between the Parties free of charge to the GOVERNMENT In such case, the
GOVERNMENT shall be solely responsible for collecting, treating, compressing
and transporting such Natural Gas front such agreed delivery point and shall be solely
liable for any additional direct and indirect costs associated therewith Tlw
construction and operation of required facilities as well js tl»c offtake of such excess
Associated Natural Gas shall occur in accordance with best practice in the
international petroleum industry and shall not interfere with the production, lifting
and transportation of the Crude Oil by the CONTRACTOR For the avoidance of
doubt, all expenditure incurred by the CONTRACTOR up to such agreed delivery
point shall be considered Petroleum Costs and shall be recovered by the
CONTRACTOR in accordance with the provisions of Articles I and 25
In the event the GOVERNMENT finds a market for Associated Natural Gas. it shall
promptly give written notice to the CONTRACT OR and the CON IRACTOR may
elect to participate in supplying such Associated Natural Gas within ninety (90) days
following notification thereof by the GOVERNMENT If the CONTRACTOR
elects to participate in supplying Associated Natural Gas to such market, all
expenditures associated with any necessary facilities shall be paid for by the
CONTRACTOR For the avoidance of doubt, such expenditure incurred shall be
considered Petroleum Costs and shall be recovered by the CONTRACTOR in
accordance with the provisions of Articles I and 25.
Non Associated Gn*
14 4 The CONT RACTOR shall be entitled at any time during the Exploration Period and the
Development Period to carry out (ins Marketing Operations
14.5 If, pursuant to Article 12 6 (d), the CONTRACTOR has determined that the
Discovery is a significant Discovery of Non-Associatcd Natural Gas, which may
33
become a Commercial Discovery subject to Gas Marketing Operations, it shall cany
out Gas Marketing Operations, at the end of which it shall submit a written statement
to the Management Committee specifying that
(n) the CONTRACTOR has determined that the Discovery is a Commercial
Discovery, or
(b) the CONTRACTOR has determined that the Discovery is not a Commercial
Discovery.
I-I 6 l or the purpose of this Agreement. "Gas Marketing Operations" means any activity
relating to the marketing of Non-Associated Natural Gas. including but not limited to any
evaluation to find « commercial market for such Non-Assodated Natural < ms and/or to
find a commercially viable technical means of extraction of such Non-Associated Natural
Gas and may include activities related to evaluating the quantities of Non-Associated
Natural (ins to be sold, its quality, the geographic location of potential markets to be
supplied as well as evaluating the costs of production, tiansportation and distribution
of the Non-Associated Natural Gas from the Delivery Point to the relev ant market
M 7 All costs ,iii(l expenditure incurred by rite CONTRACTOR in the performance of the
activities in relation to the Gas Marketing Operations shall be considered Petroleum
Costs
14 8 No later than I October of the Calendar Year preceding the Calendar Year in which
any Gas Marketing Operations are due to occur the CON TRAC I OR shall submit to
the Management Committee its Gas Marketing Work Program and Budget for I In-
following Calendar Year To enable the Management Committee to forecast
expenditures, the Gas Marketing Work Program and Budget shall include but not be
limited to the following
(a) works to be earned out.
(b) type of services to be provided, distinguishing between thud parties and
Affiliated companies of any entity constituting CONTRACTOR
(c) categories of general and administrate expenditure
If the GOVERNMENT has not requested any modifications to the Gas Marketing
Work Program and Budge; through its representatives in the Management Committee
within thirty (50) days from receipt of such proposal, the Gas Marketing Work
Program and Budget shall be deemed approved by the Management Committee
An\ modification to the Gas Marketing Work Program and Budget requested by the
GOVERNMENT shall be submitted to the CONTRACTOR within thirty (30) days
following receipt of the proposed Gas Marketing Work Program and Budget bv the
Management Committee, accompanied by all the documents justifying such request
If any such modification is proposed, the Management Committee shall meet to
discuss the Gas Marketing Work Program and Budget and proposed modifications
thereto within sixty (60) days from its receipt of the proposed Gas Marketing Work
Program and Budget The CONTRACTOR vhall communicate its comments on any
<6 m
such requested modifications to the GOVERNMENT at the meeting of the
Management Committee or in writing prior to such meeting
14 9 The COM RAC'TOR shall be authorised to incur expenditures not budgeted in an
approved Gas Marketing Work Program and Budget provided that the aggregate
amount of such expenditure shall not exceed ten percent (10%) of the approved
Budget m any Calendar Year and provided further that such excess expenditures shall
be reported as soon as reasonably practicable to the Management Committee for the
avoidance of doubt, such excess cxpcndiiuic shall be considered Petroleum Costs and
shall be recovered by the CONTRACTOR in accordance with the provisions of
Articles I and 25
14 10 If any Non-Associated Natural Gas is discovered within the Contract Area, and the
CONTRACTOR reasonably considers that the Non-Associated Natural Gas
Discovery will only he a Commercial Discovery if certain terms of tilts Contract arc
amended, it shall be entitled to request an amendment to this Contract, with its
reason' The GOV I RNMI \ I shall in good faith give reasonable consideration to
the CONTRACTOR s proposed amendment and reasons. If the GOVT MM MEN I
rejects such request, and the I xploration Period expires without the CONTRAC T OR
laving declared such Discovery to be a Commercial Discovery in accordance with
Article 12 6 (a) or Article 14 5 (a), and subsequently within a period of ten (10) years
from the end of such Exploration Period, the GOVERNMENT reaches agreement
with any third party to develop such Discovery, (the "Gas Development") then the
following provisions shall apply
(a) either before or upon agreement having been reached (and whether or not such
agreement is recorded in a fully termed production sharing andor operating or
other like agreement) in relation to the Gas Development (the Proposed
Contract') (subject only to the nghts of the CONT RACTOR entities to pre¬
empt such Proposed Contract pursuant to Article 14 10(b) below and such
conditions as may be applicable) then the GOVERNMENT shall, as soon as
reasonably practicable after the occurrence of such circumstances serve on each
of the CONTR\CTOR entities, a notice to that effect and shall with such
notice provide such information and mam terms of such agreement (else
“Agreed Terms') and including
(i) the identity of such thud party, and
(u) the effective date of the Proposed Contract, and
(in) the applicable commercial terms, including but not limned to bonuses
royalties, cost recovery, profit sharing, taxation and am other similar
. terms, and
(hr) * all and any material conditions to which the Proposed Contract is
subject
(b) Within one hundred and eighty days (180) days after receipt of a notice under
Article 14 10 (a) in relation to a Proposed Contract each of the
CONTRACTOR entities shall elect either
(i) to enter into the Proposed Contract on the same or substantially similar
terms to the Agreed Teims. 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
set out therein, or
(ii) to waive the afoicsaid light of pre-emption in relation to the Proposed
Contract,
and shall serve notice accordingly upon the GOVERNMENT and all the
CONTRACTOR entities and in default of receipt by the GOVERNMENT
of any such notice within such period of one hundred and eighty (180) days
such CONTRACTOR entity shall be 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
lights under Anicle 14 10(b) (i) m relation to the Proposed Contract then the
GOVERNMENT shall transfer tlic relevant interest upon the Agreed terms
tin accordance with 14 10 (b) (i)) to each of such CON TRACTOR entities so
exercising their rights, in the proportions in which then respective percentage
interests bear to the aggregate of their respective percentage interests under
the relevant Joint Operating Agreement (as it applied at the end of the
I xploration Period) or n such other proportions as such i ONTRACTOR
entities shall agree between them
(d) In the event that one of the CON TRACTOR entities exercises its nuhts undo
Anicle 14 10 (b) (i) in relation to the Proposed Contract then the
GOVERNMENT shall transfer the whole of the relevant interest upon the
Agreed Terms (in accordance with 14 10 (b) (i)> to such CON IK ACTOR
entity
(e) In the event that none of the CONTR ACTOR entities exercises us rights
under Anicle 14 10 (b) (i) then the aforesaid rights of pre-emption shall
thereupon cease to apply in relation to the Proposed Contract
(0 The provisions of this Anicle 14 10 shall survive any termination of this
Contract
14 11 If the pre-emption tights in .Anicle 14 10 arc not exercised and the GOVERN MEN I
enters into the Proposed Contract with live third party concerned, the GOVERNMENT
will use its best endeavours to avoid any clYecl which may hani|>cr the Petroleum
Operations of the CONTRACTOR while producing Petroleum
A. (J#*
36
Haring
14 12 In the course of activities provided for under this Contract, flaring of Natural (ias. except
short-term flaring necessary few testing or other operational reasons in accordance with
practice generally accepted in the international petroleum industry (which shall include
the flaring of Associated Natural (ias to tlie extent the CONTRACTOR considers that
re-mjecting Associated Natural Ci.sx is not justified technically and economically and
provided the GOVERNMENT decides not to take such Associated Natural (ias). is
prohibited, except on prior authorisation of the GOVERNMENT, such nulhotiMtion not
to Ik unreasonably withheld ot delayed. The CONTRACTOR shall submit such request
to tire GOVERNMENT, which shall include an evaluation of reasonable alternatives to
Hating that have been considered along with information on the amount and quality of
Natural (ias involved and the duration of the tequestod flaring
ARTICLE 15- ACCOUNTING AND AUDITS
15 I The CONTRACTOR shall keep in its offices in the Kurdistan Region copies of all
books and accounts relating to the Petroleum Operations (hereinafter the
"Accounts"), except during the Exploration Period, when the CONTRACTOR shall be
entitled to keep the Accounts at its headquarters The Accounts shall reflect in detail
expenditure incurred in function ol the quantities and value of Petroleum produced
All books and accounts which are made available to the GOVERNMENT in accordance
with the provisions of this Contract shall be picparcd in the English language Tlie
Accounts shall be kept in accordance with generally accepted practice and procedures
in the international petroleum industry and in accordance with the provtsionv of the
Accounting Procedure (attached hereto as Annex B) The Accounts shall he kept in
Dollars, which shall be the reference currency for the purposes of Articles 25. 26. 2’
and 31 ot this Contract
15 2 Within ninety (90) days following the end of each Calendar Year, the
CON TRACTOR shall submit to the GOVERNMENT a summary statement of all
Petroleum Costs inclined during the said Calendar Year The report shall also include a
profit calculation pursuant to the provisions of Article 26 of this Contract The right of the
GOVERNMENT to examine, verify and audit the said statements of Petroleum
Costs shall be exercised within a period of four (4) Calendar Years following the end
of the said Calendar Year, failing which no adjustments shall be made later Subject
to tlie said timeframe, the GOVERNMENT, acting reasonably and in accordance
with generally accepted international petroleum industry practice, may request in
writing all reasonably available information and justifications for its audit of
Petroleum Costs
•
Should the GOVERNMENT consider, on the basis of data and information
available that the CONTRACTOR made a material mistake or there is any
irregularity and considers that any corrections, adjustments or amendments should be
made the GOVERNMENT shall notify the CON TRACTOR in writing within the
said required timeframe The CONTRACTOR shall then have sixty (60) days to
make necessary corrections, adjustments or amendments or to present its comments
in writing or request a meeting with the GOVERNMENT The GOVERNMENT
CKT
37
shall within thirty (30) dnys of CONTRACTOR'S response, notify the
CONTRACTOR in writing of its position on the corrections, adjustments,
amendments or comments If thereafter there still exists a disagreement between the
GOVERNMENT and the CONTRACTOR, the dispute will be settled in
accordance with Article IS 4 of this Contract
IS J In addition to the annual statements of Petroleum Costs as provided in Article IS 2
above, the CONTRACTOR shall provide the GOVERNMENT with such
production statements and report a, ns required pursuant to Article 16 3
IS 4 Any dispute between the Parties under this Article IS that cannot be settled amicably
may he submitted to an expert in accordance with the provisions of Article 42 3 of
this Contract Notwithstanding the provisions of Article 42, in this specific instance
the decision of the expert shall nor necessarily he linal and either Pans may decide to
submit the matter to arbitration in accordance with the provisions of Article 42.1 of
this Contract
Alt I ICI.E 16 - CONTRACTOR’S RIG Ill'S AND OBLIGATIONS
I6i PcrnnHitm KimtHBiaiivt
If not done already, within ninoty (90) days following the Effective Date, the
CON TRACTOR shall open an office and appoint a permanent representative in the
Kurdistan Region, who ma> be contacted by the GOVERN'I» NI with regard to any
matter relaiing to this Contract and will be entitled to receive any correspondence
addressed to the CON TRACTOR
16 2 Conduct Of Petrol earn Operations
The CON I RACTOR shall cany out all Petroleum Operations in accordance with
the provisions of this Contract, generally accepted practice in the international
petroleum industry and applicable Kurdistan Region law
The CONTRACTOR shall be responsible for the conduct, management, control and
administration of Petroleum Operations and shall be entitled to confect Petroleum
Operations in accordance with the provisions of this Contact In conducting its
Petroleum Operations, the CONTRACTOR shall have die right to use any Affiliate
of each entity constituting COM RACTOR its and their Subcontractors and the
employees, consultants, and agents of each of the foregoing The C OM R ACTOR
and all such persons shall at all times have free access to the Contract Aren and any
Production Areas for the purpose of carrying out Petroleum Operations
38
16 3 information »»<*
The CONTRACTOR shall provide the GOVERNMENT with periodic data and
activity reports relating to Petroleum Operations. Said reports shall include details of.
but not be limited to. the following:
ta) information and data regarding all Exploration Operations, Development
Operations and Production Operations (as applicable) performed during the
Calendar Year, including any quantities of Petroleum produced and sold,
lb) data and information regarding any transportation facilities built and
operated by the < ON TRACTOR.
(c) a statement specifying the number of personnel, their title, their nationality
as well as a report on any medical services and equipment made available to
such personnel, and
id) a descriptive statement of nil capital assets acquired foi the Petroleum
Operations, indicating the date and price or cost of their acquisition
164 Requi.rjmt!».for 1‘vhblVMH. QpmliV'l)
The CONTRACTOR may freely use any Petroleum produced within the Contract
Area for the Petroleum Operations.
16 3 Suwmuon bv the GOVERNMENT
I he CON I RACTOR shall at all times provide reasonable assistance as may
reasonably be requested by the GOVERNMENT during its review and verification
of records and of any other information relating to Petroleum Operations at the
offices, worksites or any other facilities of the CONTRACTOR
Ipon giving reasonable prior notice to the CONTRACTOR, the GOVERNMENT
may send a reasonable number of representatives to the work-sites or any other
facilities of the CONTRACTOR in the Kurdistan Region to perform such reviews
and verifications The representatives of the GOVERNMENT shall at all times
comply with any safety regulations imposed by the CONTRACTOR and such
reviews and verifications shall not hinder the smooth progress of the Petroleum
Operations
16 6 AttOS 19 facMiff
For the performance of the Petroleum Operations, the CONTRACTOR, any Affiliate
of each entity constituting the CONTRACTOR its and their Subcontractors and the
employees, consultants and agents if each of the foregoing shall at all times be
granted free access to the Contract Area and to any facilities for the Petroleum
Operations located within or outside of the Contract Area or within or outside the
Production Area, for the purpose of carrying out the Petroleum Operations
A, l
39
16 7 Ise of Fat Hit in
The CONTRACTOR shall make available lo representatives of the
GOVFRNMEN I those facilities which are necessary to enable them to perform their
tasks including, in case of works to be performed on work sites, transportation,
accommodation and board, under the same conditions as those provided by the
CONTRACTOR for ns own personnel
lb* Loss or Damage
The CONTRACTOR shall be responsible for any loss or damage caused to thud
parties by its or its Subcontractors personnel so*dy and directly resulting from their
negligence, errors or omiiuom m accordance with applicable Kurdistan Region Law
If> 9 Intellectual I'ronrm Kn»ln%
In its Petroleum Operation*, the CONTRACTOR shall icvcci any patens (xi.'nvm
to third parties
If. 10 litigation
The CONTRACTOR shall as soon as reasonably practicable inform the
GOVERNMENT of any material litigation relating to tins Contract
16 II Safety
The CONTRACTOR shall implement a health, safely and cmironmcr.t program and
take necessary measures to ensure hygiene, health and safety of us personnel carrying
out Petroleum Operations in accordance with generally accepted practice in the
international petroleum industry
Said measures shall include but not be limited to the following
(a) supplying fust aid and safety equipment for each work area and maintaining a
healthy environment for personnel.
(b) reporting to the GOV I RS MI NT within seventy-two (72) hours any accident
where personnel has been injured while engaged in Petroleum Operations and
resulting in such personnel being unable to return to work.
(c) implementing a permit-to-work procedure around hazardous equipment and
installations.
(d) providing safe storage areas for explosives, detonators and any other
dangerous products used in the operations.
(e) supplying fire-extinguishing equipment in each work area
40
the environment or Petroleum Field, in accordance with generally accepted
practice in the international petroleum industry.
formations and production of Crude Oil and Natural Cias at rates that do not
conform to generally accepted practice in the international petroleum industry
16.12 Production Rates
Subject to Article 43.2 of this Contract, in the event the production rate of the
individual wells and Reservoir of a Petroleum Field is to be set below the Maximum
Efficient Rate (MER) for the Reservoir as provided for in the Development Plan as a
consequence of a decision by the GOVERNMENT -r any federal or international
regulator)1 body, the GOVERNMENT undertakes to allocate any such reduction
fairly and equitably among the various operators (including the GOVERNMENT)
then producing in the Kurdistan Region, pro rata their respective production rates In
such event the GOVERNMENT shall grant an extension ol the Development Period
of any Production Area so affected for a reasonable period of time in order to produce
the Petroleum which would otherwise have already been produced, had the MER for
the individual wells and Reservoir of the Petroleum Field been maintained
16 13 Lmi Stains
I he respective rights, duties, obligations and liabilities of the CONTRACTOR and
the GOVERNMENT under this Contract arc to be understood as being separate and
individual and not joint and several The Parties agree that this Contract shall not
create and shall not be deemed to have created a partnership or other form of
association between them
16 14 Lifting
The GOVERNMENT and each entity constituting the CONTRACTOR shall have
the right and the obligation to take in kind and separately sell or otherwise dispose of
their respective shares of Petroleum Upon approval 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 entity constituting the CONTRACTOR Such
lifting agreement shall include, inter alia, the following
(a) the obligation of the GOVERNMENT and each entity constituting the
CONTRACTOR to lift, regularly throughout each Calendar Year, their share
of Petroleum produced from the Production Area.
(b) notification procedures by thd Operator to the GOVERNMENT and each
entity constituting the CONTRACTOR regarding entitlements and
availability of Petroleum for lifting by each Party during each lifting period
and nominations by each Party.
the right of the Parties to lift any available Petroleum not scheduled for lilting
and/’or not lifted by the other Party during each such lifting period.
4. ^
The COYI RACTOR shall sell and transfer to the GOVERNMENT, upon written
request of the Ministry, any amounts of ( rude Oil that the GOVERNMENT shall
deem necessary to meet Kurdistan Region internal consumption requirements The
sales price of such Crude Oil shall he the International Market Price The
GOVERNMENT shall provide the CONTRACTOR with not less than six (6)
months' advance written notice of its intention to buy such Ciude Oil
Payments shall be made in US Dollars and otherwise on terms consistent with
international standards in the petroleum industry I he CONTRACTOR’S obligation
to sell Crude Oil to the GOVERNMENT shall be no greater than the obligation that
applies to another contractor, or otlier contractors in the Kurdistan Region
The provisions of this Article 16 15 shall not apply to Non-Associated Natural G*'
VIM l< IE 17 - USE OF LAND AND EX IS IING INI R VSTRt CTLRF
17 I The GOVERNMENT shall make available to Ik- C ON TRACTOR any land or
properly in tlx* Kurdistan Region required for the Petroleum Operations provided,
however, the CONTRACTOR shall not request to use any such land unless there is a
real need foi it The CONTRACTOR shall have the light to build and maintain,
above and below ground any facilities required for the Petroleum Operations
17 2 If it becomes necessary for conduct of the Petroleum Operation* to occupy and use
any land or property in the Kurdistan Region belonging to third parties, the
CONTRACTOR shall endeavour to reach amicable agreement with the owners of
such land If such amicable agreement cannot be reached the CON TRACT OR shall
notify’ the GOVERNMENT, on receipt of such notification the GOVERNMENT
shall determine the amount of compensation to be paid by the CONTRACTOR to
the owner if occupation will be for a short duration or the GOVERNMENT shall
expropriate the land or properly in accordance wkh applicable Kurdistan Region I j«
if such occupation will be long lasting or makes it henceforth impossible to resume
ongmal usage of such land or property The amount of such compensation shall be
fair and reasonable, in accordance with Article 37. Section I (a) (iii) of the Kurdistan
Region Petroleum Act. and shall lake into account the righis of the owixi and any
effective use of the land or property by its owner at the time of occupation by the
CONTRACTOR Any property rights shall be acquired by and recorded in the name
of the GOVERNMENT but the CONTRACTOR shall be entitled free use of the
land or property for the Petroleum Operations for the entire duration of this Contract
All reasonable costs, expenditure and lair and reasonable compensation (as required
pursuant to Article 37. Section I (a) (iii) of the Kurdistan Region Petroleum Act) which
results from such expropriation shall be borne by the CONTRACTOR For the
avoidance of doubt, such costs, expenses and compensation incurred by the
CONTRACTOR shall be considered Petroleum Costs and shall be recovered by the
CONTRACTOR in accordance with the provisions of Articles I and 25
42
17 3 For its Petroleum Operations, the CONTRACTOR shall have the right in Iraq to use.
subject to applicable Law, any railway, tramway, road, airport, landing field, canal,
liver, bridge or waterway, any telecommunications network and any existing
pipelines or tiunspotiation infrastructure. on terms no less favourable than those offered
to other entities and. unless generally in force, to be mutually agreed
I 7 '1 Under national emergencies due to environmental catastrophe or disaster, or internal
or external war. the GOVERNMENT shall have the right to request to use any
transportation and communication facilities installed by the CONTRACTOR In
such cases, the request shall originate from the Minister for Natural Resources For the
avoidance of doubt, such costs, expenses or liabilities incurred by the
CONTRACTOR hereunder shall be considered Petroleum Costs and shall be
recovered by the CONTRACTOR in accordance with the provisions of Articles I
and 25
17 5 I oi its Petroleum Operations, the CONTRACTOR shall have the right in the
Kurdistan Region to clear land, excavate, drill, bore, construct, erect, place, procure,
operate, manage and maintain ditches, tanks, wells, trenches, access roads,
excavations, dams, canals, watet mains, plants, reservoirs, basins, storage facilities,
primary distillation units, extraction and processing units, separation units, sulphur
plants and any other facilities or installations for the Petroleum Operations, in
addition to pipelines, pumping stations, generators, power plants, high voltage lines,
telephone, radio and any other telecommunications systems, as well as warehouses,
offices, sheds, houses for personnel, hospitals, schools, premises, dikes, vehicles,
railways, roads, bridges, airlines, airports and any other transportation facilities
garages hangars, workshops, foundries, repair shops and any other auxiliary facilities
for the Petroleum Operations and. generally, everything which is required for us
performance of the Petroleum Operations The CONTRACTOR shall have the right
to select the location for these facilities
17 6 For its Petroleum Operations, the CONTRACTOR shall have the right in the
Kuidistan Region, subject to compliance with applicable Kurdistan Region Law. to
remove and use the topsoil, fully-grown timber, clay. sand. lime, gypsum, stones
(other than precious stones) and other similar substances as required for its Petroleum
Operations
The C ON TRACTOR shall have the nght in the Kurdistan Region to take or use any
water necessary for the Petroleum Operations provided it does not damage any
existing irrigation or navigation systems and that land, houses or watering points
belonging to third parties are not deprived of that use
17 7 The GOVERNMENT shall have the right in the Kurdistan Region to build, operate
and maintain roads, railways, airports, landing strips, canals, bridges, protection
dams, police stations, military installations, pipelines and telecommunications
networks in the Contract Area, provided this docs not increase the costs, or
compromise or have an adverse material effect on the performance of the Petroleum
Operations If the construction, operation and maintenance of such facilities by the
GOVERNMENT results in incfe^ed cost or expense for the COM RACTOR then,
for the avoidance of doubt, such cost and expense shall be considered Petroleum
43
Cost* and shall be recovered by the CONTRACTOR in accordance with the
provisions of Articles I and 25
17 8 Upon request of the C ONTRACTOR the GOVERNMENT shall prohibit the
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 the use of any facilities required for
the Petroleum Operations
179 Access to the Contract Area may be granted pursuant to an Access Authorisation, as
defined in. and consistent with the Kurdistan Region Petroleum Aa. to authored third
parties on reasonable terms and conditions (including coordination». including persons
authorised to construct, install and operate smxarcs. facilities and uralhnom. and to
cam out other writ*, provided that nothing in the Access Authorisation or in this Article
17 9 authorises the holder to dnll a Well or to perform any Petroleum Operations m
Contract Area
The GOVERNMENT 'lull not grant an Access Authonsation in respect of the Contract
Area until it lias taken into account any submissions nude by the CONTRACTOR in
such a way that there is no undue interference with the rights of CONTRACTOR
ARTICLE 18 - ASSISI AN< I FROM HIE GOVERNMENT
18 I To the extent allowed by Kurdistan Region Law and Iraqi law and at the specific
request of the C ONTRACTOR the GOVERNMENT shall take at: necessary steps
to assist the CON TRACTOR in. but not limited U» the following areas
(a) securing any necessary Permits for the use and installation of means of
transportation and communications.
(b) securing regulatory Permits in miners of customs or impon/export.
(cl securing entry and exit visas, wort and residence permits as well as any other
administrative Permits for CONTRACTOR’* and its Subcontractors' foreign
personnel (including their family members) working in the Kurdistan Region
and any other pan of Iraq during the implementation of this Cornua.
id) securing any necessary Permits to send Abroad documents, data or samples
for analysis or processing for the Petroleum Operations.
(e) relations with federal and local authorities and adnvni'tration*. including for
the purposes of the remainder of this Anicle 18 1.
•
(0 securing any necessary environmental Permits.
(g) obtaining any other Permits requested by the CONTRACTOR for the
Petroleum Operations.
fT
A?
44
(h) access to any existing data and information. including data and infcnWBOi
relating to the Contract Area held by previous operators or contractors. and
(i) providing all reasonably necessary security for Petroleum Operations
IS 2 Within the scope of services to be provided under this Article IS. reasonable ami duly
justified expenses incurred by the GOVERNMENT or paid to third parties shall be
charged to the CONTRACTOR and shall be considered Petroleum Costs and shall
be recovered by the CONTRAC TOR as Petroleum Costs in accordance with the
provisions of Articles I and 25
ARTICLE 19 - EQUIPMENT AND MATERIALS
l'» 1 The CONTRACTOR shall supply, or procure the supply of. all materials,
equipment, machinery, tools, spate parts and any other items or goods required for the
Petroleum Operations ("Equipment and Materials")
19.2 Said Equipment and Materials shall be provided by the CONTRACTOR in
accordance with the relevant Work Programs and Budgets.
19 3 As soon as possible after the Effective Date, the CONTRACTOR shall provide the
Management Committee w ith a copy of its procedures for procurement of Equipment
and Materials and/or services for the Petroleum Operations a\ required b> the
provisions of Article 8 2 (e). including the criteria for tender evaluation, which
procedures and criteria shall be in accordance with generally accepted standards in
the international petroleum industry. If the Management Committee does not request
any modifications to the procurement procedures within thins (30) days, the
procedures shall be deemed approved by the Management Committee
19 4 The CONTRACTOR shall give priority to Equipment and Materials that are readily
available in the Kurdistan Region and other pans of Iraq to the extent their price,
grade, quality, quantity, specifications, purchase, delivers and other commercial and
technical terms arc comparable in all material respects with those generally available in
the international petroleum industry
ARTICLE 20 - TITLE TO ASSETS
20 1 During the Exploration Period, any Assets acquired by the CONTRACTOR for the
Petroleum Operations shall remain the property of the CONTRACTOR or its
Subcontractors, as the case may be
20 2 During the Development Period, subject to Article 21, all Assets acquired by the
CONTRACTOR for the Petroleum Operations shall become the property of the
GOVERNMENT upon the completion of the recovery of their cost by the
CONTRACTOR, or the end of the Contract, whichever is the earlier
20 3 The provisions of this Article 20 2 shall not apply to anv Assets leased by the
CONTRACTOR or belonging to an Affiliated Company of a C ONTRACTOR
entity or belonging to its or then Subcontractors or its or their employees
ARTICLE 21 - USE Of IMF. ASSETS
21 I Each entity constituting the CONTRACTOR shall have the exclusive right to use.
ftec of any charge, all Assets described in Article 20 for the Petroleum Operations, as
well as 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
lake priority The GOVERNMENT agrees not to transfer or otherwise dispose of
any of such Assets without the COS TRACTORS poor written approval
21 2 The CONTRACTOR may freely move to the Contract Area any Assets from any
relinquished portion of the Contract Area, or from any other area in the Kirditfaa
Region
ARTICLE 22 ■ SUIlCONTRACTING
22 I I lie CONTRACTOR shall ensure that any Subcontractors it engages have all the
requilito experience and qualifications
22.2 I he ('ONTRACTOR shall give priority to Subcontractors from the kurdman Region
and otlier pails of Iraq to the extent their competence, rales, experience icputation.
qualifications, specialties, credit rating and terms of availably, delivery and other
commercial terms arc. in the CONTRACTOR’S sole opoton comparable in all
material respects with those provided by foreign companies operating m the
international petroleum industry Subcontractors must be bona tide Kurdistan
companies not related to am Public Officer, directly or indirectly, and must have all
necessary resources and capacay
22 3 Selection of Subcontractors shall take place in accordance with the procurement
procedures submitted by the CONTRACTOR to the Management Committee in
accordance wuh Article 19.3 and approved by the Management Committee
22 4 The CONI RACTOR shall provide the GOVERNMENT with copies of agreements
entered into with Subcontractors, where their amount exceeds the limit set by the
Management Committee from time to time
r
46
ARTICLE 23- PERSONNEL AND IKMMM.
1‘cnuinicl
23 I For the Petroleum Operation*, the CON I RACTOR shall give, and shall require its
Subcontractors to give, preference to personnel from the Kurdistan Region and other
parts of Iraq to the extent such personnel have, in the sole opinion of the
CON TRACTOR or the Subcontractor (as the case may l>c). the technical capability,
qualifications, competence and experience required to perform the work
21 2 Che CONTRACTOR shall give due consideration to the secondment of
GOVERNMENT personnel to the CONTRACTOR and of CONTRACTOR
personnel to the GOVERNMENT during the various phases of the Petroleum
Operations Terms and conditions for such secondment shall he mutually agreed b>
the Parties and any costs associated therewith shall he considered Petroleum Costs
and shall be recovered by the C ONTRAC I OK in accordance with the provisions of
Articles 1 and 25.
23 3 The CONTRACTOR and its Subcontractors shall have the right io hire foreign
personnel whenever the personnel from the Kurdivtan Region and other pans of Iraq
do not have the requisite technical capability, qualifications oi experience foi
positions to be filled us icquucd pursuant to Article 23 I In the event any such
foreign personnel and'or a member of then family engage in activities or commit acts
which breach Kurdistan Region l.nw. the (ONTRAC TOR 'I > it :1k- requevt of the
MANAGEMENT COMMITTEE, take the necessary steps to repatriate such
individual(s)
liaiimut
2*4 In a planned way. in accordance with the provisions of this Article 23 4 and Articles 23 5
and 23 6. the CONTRACTOR shall tram all its personnel from the Kurdistan Region
and other parts of Iraq directly or indirectly involved in the Petroleum Operation' for the
purpose of improving their knowledge and professional qualifications m order that sich
;
the CONTRACTOR’S foreign workers with an equivalent resunse Such training shall
also usdude the transfer of knowledge of petroleum techroiogy and the necessary
management experience so as to enable the personnel from the kurdsun Region and
other pans of Iraq to apply advanced and appropriate technology in use in the Petroleum
Operations, to the extent permitted by applicable Law and agreements with third panics,
and subject to appropriate confidentiality agreements
2.3 5 In addition to the requirements of Ankle 23 I. the recruitment, mtcgiaiion and training of
the CONTRACTOR'S personnel from the Kurdistan Region and other pans of Iraq shall
be planned, which plans shall be submitted to the Management Committee for its
approval The training plan shall take into consideration the requirements of Article 23 4
and may include training for GOVERNMENT personnel, depending on the extent to
which the amount allocated to the training plan, as prescribed by Article 23 6. is available
after taking into consideration the training of the CONTRACTOR’S Kurdistan and other
Iraqi personnel
V-S
47
Within ninety (90) days of the Effective Date, the CONTRACTOR shall submit to the
Management Committee a proposed training plan for the remainder of the Calendar Year
Thereafter, no later than I October in each Calendar Year, the CONTRACTOR shall
submit a proposed training plan to the Management Committee for tin following C alendar
Year
23.6 I'lte training plan referred to in Article 23 S shall provide for the allocation of the amoum
of seventy five thousand Dollars (USS75.000) for each Contract Year during the
Exploration Period and one hundred fifty thousand Dollars (US$150,000) for each
Contract Year during the Production Period
23 7 I'ltc CONTRACTOR shall be responsible for the training costs which
CONTRACTOR may incur in respect tlx: personnel it employs from the Kurdistan
Region and other pails of Iraq All such costs shall be considered as Pet i oleum Costs and
shall be recovered in accordance with the provisions of Articles I and 25 Costs incurred
by the ( ON TRACTOR for training programs for GOVERNMENT personnel shall be
borne by CONTRACTOR only to the extent that they are included in the
CONTRACTOR'S training plan, pursuant to Article 23.5 and shall also be considered as
Petroleum Costs and shall be recovered in accordance with the provisions of Articles I
and 25. The cost of all Other training programs for GOVERNMENT personnel shall be
the GOVERNMENTS responsibility
The Environment Fund
23.8 From the date of First Production from the Contta-t Area, the CONTRACTOR ■•hall
contribute the amount of fifty thousand Dollars (I S S^t.000) each Contract Year during
the Exploration Period and seventy five thousand Dollars (US$75,000) dunng the
Development Period into the Environment Fund established by the CON ERNME N I for
the benefit of the natural environment of the Kurdistan Region, pursuant to the Kurdistan
Region Petroleum Act Such amount shall be deemed to be a Petroleum Cost and dull be
recovered in accordance with Articles I and 25
23.8 Any expenditure incurred by the CONTRACTOR under this Article 23 shall be
considered Petroleum Costs and shall be recovered in accordance with Articles I and 25
ARTICLE 24-ROYALTY
24 I The CONTRACTOR shall pay to the GOVERNMENT a portion of Petroleum produced
and saved from the Contract Area, as provided in this Article 24 (the “Royalty").
24.2 . The Royalty shall be applied on all Petroleum produced and saved from the Contract
Area which is Crude Oil or Non-Associated Natural Gas, except for Petroleum used in
Petroleum Operations, re-injectcd in the Petroleum Field, lost, flared or for Petroleum that
cannot be used or sold and such Crude Oil atxl Non-Associated Natural Gas (excluding
[lie excepted Petroleum) shall be referred to collectively as “Export Petroleum" ami
separately and respectively as "Export Crude OH" and "Export Non-Associated
48
Natural Gas"
243 If payable in cash, the amount of the Royalty calculated by applying the Royalty rates
provided under Article 24 4 shall be paid by the CONTRACTOR as directed by the
GOVERNMENT, in accordance with Article 24 7
If payable in kind, the quantity of Export Petroleum corresponding to the Royalty and
calculated by applying the Royalty rates prosided under Article 24 4 bdow. shall be
delivered in kind by the CONTRACTOR to the GOVERNMENT at the Delivery Point
Title and risk of loss of the Royalty paid in kind shall he transferred at the Delivery Point
Unless the GOVERNMENT requires the Royalty to be paid in kind, by giving the
CONTRACTOR not lev. than ninety (90) days prior written notice poor to the
commencement of the relevant Quarter, the GOVERNMENT shall be deemed to lusc
elected to receive the Royalty in full and in cash for the relevant Quarter
24 4 The Royally due on any Export Petroleum produced and saved in the Contract Area shall
be determined daily by applying the following teles ant Royalty rate, to the Export Crude
Oil or to the Export Non-Associated Natural Gas (as the case may he) produced and saved
on that dav
*
(a) For Export Crude Oil:
The Royalty rate for Export Crude Oil shall be ten percent (I0*»). which, for
live avoidance of doubt, shall apply regardless of the gravity of the oil
(h) For Export Non-Associated Natural Gas
The Royalty rate for Export Non-Associated Natural Gas shall be ten percent
(10%)
24 5 Associated Natural (ia$ and any other Petroleum shall be exempt from any Royally
24 6 If. pursuant to Article 24 3. the GOVERNMENT receives the Royalty in kind, and
pursuant to Article 28. the GOVERNMENT requests assistance for the sale of all or
part of the Royalty received in kind, the CONTRACTOR shall assist the
GOVERNMENT in selling all or pan of such Royalty received in kind (belonging to
the GOVERNMENT ) in consideration of a commission per barrel payable to the
CONTRACTOR, in accordance with Article 28
24 7 If. pursuant to Article 24 3. the GOVERNMENT receives the Royalty in cash
(a) any Export Crude Oil shall be valued at the Internationa! Market Price obtained
at the Delivery Point, as defined in Article 27 2.
(b) any Export Non-Associated Natural Gas shall be valued at the actual pnee
obtained at the Delivery Point, as prosided in Article 27 3.
(c) the CONTRACTOR shall pay such Royally each Quartet, in arrears, within
thirty- (30) days of the end of each Quarter, and shall calculate the payment
49
due for ihe relevant Quarter by reference to the price for the I mport
Petroleum at the Delivery Point, detenrined m accordance with paragraphs
(a) and (b> above, and the Rovahv due on the Import Petroleum. determined
•a accordance with Article 24 4. for the satd Quarter and
Id) the C ON T RACTOR shall be entitled to heels the Rovahv due on
the I sport Petroleum determined m accordance »«h An*k 24 4 for the
purpwe of paying the Rovahv in cash
\KIK I I 25- RECOVERY OF PFTROI.I I M < OSIN
25 I All I’.spoil ( rude Oil produced and saved from the Contrite! Aica shall, aflci
deduction ol'niiy quantities of Export Crude Oil due tin Royaltv pursuant to Article 2-1
of tlilit C'ontrnct, lie considered as "Available Crude Oil"
All Associated Natural Gas produced and saved from the Contract \rca except lot
Associated Natural Gas which is used in Petroleum Operations. if-injected m the
Petroleum I icld. lost. Hared or cannot be used or wild, shall be considered as ’Available
Associated Natural Gat'.
All F. sport Non-Associated Natural Gas produced and saved from the Contract Area
shall, after deduction of any quantities of Export Non-Assocuted Natural Gas due for
Rovah> pursuant to An.de 24 of the Craarao. be tt-udered as UatlaM* \*n-
Associated Natnral Gtt”
'AtaUh Prtrnimm km Available Crude Od. Available W^KUSed Natural Gas
25 2 For the purpose of thiv Article 25
i a) am Available Crude Oil shall be valued at the International VlarVct Price
obtained at tin- Delivers Point, as defined in Article 27 2 .ind
(b> any Available Associated Natural Gas and any Available Non-Associated
Natural G«v shall lie valued at ite actual puce obtained At the Delivery Point,
av provided in Article 27 V
25 » Subject to the provisions of this Contract, from the I usl Production in the Contract
Area, the CONTRACTOR shall a: all tiroes be entitled to recover all Petroleum
Costs incuned under this Contract, of fon> percent (40*.) of Available Crude Oil
(which for the avoidance of doubt, shall apply regardlesv of I* mavitv of the od) and
Available Associated Natural (ias produced and waved within any Calendar Year
25 4 Subject to the provisions of this Certraa. from First Production in the Contract Aren. the
CONTRACTOR 'hall at all times be entitled to recover all Petroleum Costs incuned
under this Contract of the greater of fifty-five percera (55S) or the maximum cost
recovery percentage for Natural Gas permitted by the Kurdistan Re- on Petrokum
I aw produced and used within any Calendar Year
50
25 5 For the application of Article 25 3 and 25 4 of tins Contract, the CONTRACTOR
shall keep a detailed account of Petroleum Costs in accordance with the provisions
detailed in the Accounting Procedure attached to this Contract as Annex H Recovery
of Pc', i oleum Costs vital I occur in the following order
(a) Production Costs.
(b) Exploration Costs (including appraisal costs and further exploration within the
Contract Area),
(c) Gas Marketing Costs.
(d) Development Costs,
Decommissioning Contributions
it being agreed that priority within each category listed above will be given to capital
assets m the ordet of their acquisition ('first in, first out')
25 6 Total recovery o! Petroleum Costs during any Calendar Year, expressed hi quantities
of Petroleum, shall not exceed the relevant percentages indicated in Ankles 25 3 and
25 4 If in any C alendar Year, the Available ( aide Oil and/or Available Non-
Associated Natural Gas do not allow the CONTRACTOR to recover all ns
Petroleum Costs pursuant to this .Article 25. the amount of un-recosered Petroleum
Coss in such Calendar Yeai shall be earned forward indefinitely to the subsequent
Calendar Years until all Petroleum Costs arc fully recovered, but. save as provided in
.Ankle 14 10, in no other case after the termination of the Contract
25 7 The provisions of Articles 27 7 and 27 8 shall be upplied to determine the quantities of
Available Crude Oil and/or Available Non-Associated Natural Gas due to the
CONTRACTOR lor the recovery of its Petroleum Costs
25.8 The quantities of Petroleum corresponding to the share of Available Petroleum due to
the CONTRACTOR for the recovery of its Petroleum Costs shall be delivered to the
CONTRACTOR at the Delivery Point Title and risk of loss of such Available
Petroleum shall be transferred at the Delivery Point
25 9 The CONTRAC I OK 'hall be entitled to receive, lake in kind und to expon freely all
Available Petroleum to which it is entitled for recovery of its Petroleum Costs in
accordance with the provisions of this Contract and to retain Abroad any proceeds
from the sale of all such Available Petroleum
25 10- For ihe avoidance of any doubt, the CONTRACTOR shall be entitled to fully
recover under this Contract any costs incurred prior to the Effective Date for any work
and operations relating to the Contract Area undertaken m respect of this Contract,
from the date of signature of this Contract
51
ARTICLE 26 - SHAKING OF PROFIT PETROLEUM
26 I Under this Contract,
(a) "Profit Petroleum" means Profit Crude Oil and Profit Natural Gas,
(b) 'Profit Crude Oil” means the quantities of Available Crude Oil and Available
Associated Natural Gas produced from the Contract Area, after the recovery of
Petroleum Costs, in accordance with Articles I and 25. and
(c) “Profit Natural Gas ' means the quantities of Available Non-Associated Natural
Gas produced from the Contract Area, after the recovery of Petroleum Costs
in accordance with Articles I and 2>
262 From First Production and as and when Petroleum is being produced, the
CONTRACTOR shall be entitled to take a percentage share of Profit Crude Oil
and/or Profit Natural Gas, in consideration for its investment in the Petroleum
Operations, which percentage share shall be determined in accordance with Article-
26 5
26.3 To determine the percentage share of Profit ( rode Oil and/or Profit Natural Gas to
which the CONTRACTOR is entitled the R" Tacto* shall be calculated in
accordance w ith Ankle 26 4 and shall be applied to the Contiact Area
26 4 The ~R" Factor shall be calculated as follows
R = X/Y
where
X is equal to Cumulative Revenues actually received by the CONTRACTOR.
V is equal to Cumulative Costs actually incurred by the CONTRACTOR,
from the date of the signature of this Contract
For the purpose of this Article 26.4.
Cumulative Revenues means total Revenues, as defined below, received by the
CONTRACTOR until the end of the relevant Quarter, determined in accordance
with Article 26 7
Revenues means the total amount actually received by the CONTRACTOR for
recovery of its Petroleum Costs and its share of Profit Petroleum in the Contract Aiea
Cumulative Costs means all Petroleum Costs in the Contract Area, actually incurred
by the CONTRACTOR until the end of the relevant Quarter, determined in
accordance with Article 26 7
52
Notwithstanding the foregoing provisions of this Article 26 4. for the period from
hirst Production until the end of the Calendar Year in which First Production occurs,
the' R" factor shall be deemed to be less than one
case of gas)
26 S I he share of Profit Petroleum to which the C ON I RAC TOR shall be entitled front
First Production is.
In) for Profit Crude Oil. equal to the quantities of Petroleum resulting from I he
application of the relevant percentage as indicated below to the daily volume
of production of Profit Crude Oil within live Contraci Area at the
corresponding Delivery Point
"R” Factor CONTRACTOR'S % Slmrr of Profit Crude Oil
"R” Factor C ON I R \f lOR's % Share of Profit
Petroleum
0
1 0000
2 OOOCKR 15 0%
and
(b) for Profit Natural Gas. equal to the quantities of Non-Associated
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 Contraci Area at the corresponding Delivery Point
R" Factor C ONTRACTORS % Share of Profit Natural Cm
"R" Faelor C ON I RACTOR's % Share of Profit
Petroleum
XR< 1.0000 40096
I 000(KR<2 0000 40% - «40% - 20%) x (R-1 0000))
2.000XR 200%
26 6 The CONTRACTOR'S accounting shall account separately for all components for the
calculation of’X* and "Y" values in the formula provided m Article 26 4 above
53
26 7 For each Quarter, tuning from the 1 * of January of ihc Calendar Year following the
Calendar Year in which Fir* Production occurs, the CONTRACTOR shall calculate
the 'R* factor applicable to the relevant Quarter within thirty (JO) days of the
beginning of such Quarter Ihc ’R" Factor to be applied during a Quartet shall be lhai
determined by applying the Cumulative Revenues actually received and the
Cumulative Costs actually incurred up to and including the last day of the preceding
Quarter
26 K If at any time an error occurs in the calculation of the *R" factor, resulting in a change
in the CONTRACTOR\ percentage share of Profit Crude Oil andor Profit Natural
Gas. the necessary correction shall be made and am adjustments shall apply from the
Quarter in which the error occurred The Party having benefited from a surplus of
Profit Petroleum shall surrender such surplus to the other Pans beginning from the
first day of the Quarter following the Quarter in which the error was recognised
However, each lifting of Petroleum relating to such error shall r t exceed twenty-fisc
percent (25%) of the share of Profit Petroleum to which such Mirrcndering Parts is
entitled for the avoidance of doubt, if at any time an error occurs in the calculator
of the "1C factor, which does not result in a change in the CONTRACTOR ■>
percentage share of Profit Crude Oil and/or Profit Natural Gas no correction shall K
made
26 0 The quantities of Profit Petroleum due to the CONTRACTOR »ha be delisered to
the (OM RAC I OR at the Delivery Point Title and risk of loss of such Profit
Petroleum shall be transferred to the CONTRACTOR at tlw Ddiscry Point
The CONTRACTOR shall be entitled to receive, take m kind and to export freely its
share of Profit Petroleum m 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 m any
Calendar Year in accordance with Article 26 5 of this Contract shall be deemed to
include a portion representing the corporate income tax imposed upon and due by
each entity constituting the CONTRACTOR, and which will be paid directly by the
GOVERNMENT on behalf ol each such entity representing the < ON TRACTOR to
the appropriate tax authorities in accordance with Article II 2 of this Contract The
GOVERNMENT shall provide the CONTRACTOR with all written documentation
and evidence reasonably required by the C OM RAC TOR to confirm that such
corporate income tax has been paid by the GOVERN MINT
26 11 The quantities of Profit Petroleum due to the GOV ERN MEN T shall be delivered to
the GOVERNMENT at the Delivery Point Title and risk of loss of such Profit
Petroleum shall be transferred at the Delivery Point
26 12 At the latest twenty-one (21) days prior to CONTRACTOR s estimated date of First
Production and. subsequently, thirty (30) days prior to the beginning of each Quarter,
the CONTRACTOR shall prepare and delwer to the GOVERNMENT a production
program comprising the production forecast tor the next Quarter and the forecast of
the quantities of Crude Oil and Natural Gas to which each Party shall be entitled
(hiring the said Quarter
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26 13 Within ninety (90) days following the end of each Calendar Year, the
CONTRACTOR shall deliver an annual production report to the GOVERNMENT,
slating the quantities of Ctude Oil and Natural Gas to which each Party is entakd. the
quantities of Crude Oil and Natural Gas lifted by each Party and the resulting over-lift
or under-lift position of each Party, pursuant to the lifting agreement entered into
pursuant to Article 16 14
Any costs or expenditure incurred by the (ONI RAC TOR us Subcontiactors or suppliers
relating to the lifting of the GOVERNMENTS share of Petroleum b\ the CON TRACTOR
shall not be considered Petroleum Costs and shall be charged to the GOVERNMENT
according to terms to be mutually agreed between the CONTRAt I OK and the
GOVERNMENT
ARTICLE 27
VALUATION AND METERING OE CRUM Oil AND N ATI R Al. C. AN
27 I Fot the purpose of this Contract, any Crude Oil produced in the Contract Area shall be
valued at the end of each Quarter at the Delivery Point based on the International
Market Pnce. as defined in Article 27 2.
27 2 The 'international Market Price* referred to in Article 27 1 shall be the average FOB
price per barrel, expressed in Dollars, obtained by the CONT RA* I OR at the
Delivery Point during the Quarter ending on the date of valuation for Aim’s Length
Sales of Ctude Oil
It is deemed that the CONTRACTOR will sell any Crude Oil on an Arm’s Length Sale If
the GOVERNMENT considers that any such vale of Crude Oil is not on the basis of an
Arm s Length Sale then the GOVERNMENT has the right to tefer tire matter to an
expert pursuant to Article 42 3
In tlie event that there is no lifting of Crude Oil in the televant Quarter, the applicable
"International Market Price” for such Quarter shall be the average FOB price per barrel
obtained during that Quarter from Arm's Length Sales of ( rude Oil of the same gravity
and quality from other production areas sold in markets competing with Crude Oil
produced from the Contract Area
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
sold in the international market Prices obtained shall be adjusted to account for any
variations such as quality, specific gravity, sulphur content, transportation costs, product
yield, seasonal variations in pnce and demand, general market trends and other terms of
27 3 The price of Natural Gas shall be the actual price obtained at the Delivery Point,
(which may take into account quantities to be sold, quality, geographic location of
55
markets to he supplied ns well as costs of production, transportation and distribution
of Natural (ias from the Delivery- Point to the relevant market, in accordance with
standard practice in the International gas industry)
Accounting Statement
27 4 In accordance with this Article 27.4, the GOVERNMENT and the CONTKAC I OK
shall establish a statement showing calculations of the value of Ciude Oil produced
and sold from the Contract Area Such statement shall include following information
(a) quantities of Crude Oil sold by the CONTRACTOR during the preceding
Month constituting Arm’s Length Sales together with corresponding sale
pnees;
(b) quantities of Crude Oil sold by the CONTRACTOR during the preceding
Month (hat do not fall in the category referred to in paragraph (a) above,
together with sale prices applied during such Month.
(c) inventory in storage belonging to tbe CONTRACTOR at the beginning and
at the end of the Month; and
(d) quantities of Natural (ias sold by the CONTRACTOR and the
GOVERNMENT together with sale prices realised
>ki?rl»g
27 7 AH Export Petroleum shall be metered at the Delivery Point in accordance with
generally accepted practice in the international petroleum industry and such meters
shall be to fiscal meter standards All metering equipment shall be installed and
operated by the CONTRACTOR The GOVERN MEN f shall, on receipt by the
CON | K \< IOR of reasonable prior written notice, have the right to inspect am
such metering equipment installed by the CONTRACTOR as well as all relevant
documents and supporting information reasonably nccessaiy to validate the accuracy
«»f such mctcimu Ml metering equipment shall he subject to periodic technical
inspections in accordance with standard practice in the international petroleum
industry
27 8 If any Mcrag equipment is defective ibe CONTRACTOR shall use aU reasonable
endeavours to repair it within fifteen (15) days or. if deemed necessary by the
CONTRACTOR replace it as soon as reasonably practicable from the date the
defect became known Such defect shall be deemed to have occurred in the middle of
the period between last calibration of the equipment that led to normal results and the
calibration evidencing the defect
27 9 Any disputes arising undo this Article 27 shall be settled by expert determination in
accordance with the provisions of Article 42 ? of this Contract
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ARTICLE 28 DOMESTIC MARKET - SALE OF GOVERNMENT SHARE
Upon I he GOVERNMENTS prior written notice of at least ninety (90) day*, the
COM RACIOR shall provide all reasonably necessary assistance to the GOVERNMENT
for the sale of all or pan of the quantities of Crude Oil to which the GOVERNMENT is
entitled, in consideration of a sales commission per band to be established with reference to
standard practice in the international petroleum business and to be mutually agreed upon
between the Paines
ARTICLE 2«>- FINANCIAL PROVISIONS
29 I Any payment to be made by the (ON I RAC I OR to the GOVERNMENT pursuant
10 this Contract sliall be in Dollars and paid into the bank account duly designated by
the GOVERNMENT in writing The GOVERNMENT may. at its sole discretion,
direct the CONTRACTOR to forward the Royally and/or proceeds of the sale of
quantities of Profit Petroleum due to the GOVERNMENT under this Contract to a
fund for revenue sharing with the Government of Iraq and oilier regions and
govcrnoiatcs in Iraq Nothing in this Article shall be understood as implying a
contractual or other relationship between the COM RACTOR and the Government
of Iraq
29 2 Any currency conversion to be made under this Contract shall be at the exchange rate
of the Central Hunk of Iraq presided such exchange rate applied to the
CONTRACTOR sliall not be less favourable than the rate offered h\ OthSf private,
commercial or industrial banks in the international marker In the absence of the
Central Bank of Iraq or in the event that the Central Bank of Iraq is unable to provide
the relevant exchange rate, any currency conversion to be made under this Contract
shall be at the exchange rale of a reputable commercial barn, carrying on buvness in
the international market and approved by the Parties The CONTRACTOR shall nut
realise any gain or loss due to exchange rate fluctuations and. consequently, any gam
or lots resulting from exchange rate fluctuations shall be either debited or credited to
the Petroleum Costs.
29 3 Any payment due by the GOVERNMENT to the CONTRACTOR shall he paid in
Dollars to the bank account designated by the CONTRACTOR within thirty (•<>)
days of the dale of invoice, after which interest at the rate of LIBOR plus two <2)
percentage points shall be applied
29 4 The CONTRACTOR shall at all times be entitled to freely convert into Dollars or
any other foreign currency any Iraqi dinars received in the framework of the
Petroleum Operations and to freely transfer the same Abroad The conversion rate
shall be as provided under Article 29.2
29 5 The CONI RACTOR shall have the right to be paid, receive, keep transfer and use
Abroad, without any restrictions, all proceeds of its share of Petroleum
A
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29.6 I he CONTRACTOR and its Subcontractors shall have the right to freely open and
maintain bank accounts for Petroleum Operations within or outside the Kurdistan
Region and other parts of Iraq
29 7 The CONTRACTOR shall have the right to pay in any freely convertible currency
all its financial requirements for the Petroleum Operations and to convert those
currencies to Iraqi dinars in any bank in the Kurdistan Region or other parts of Iraq, at
the same exchange rate as provided under Article 29 2
29 x The CONTRACTOR shall have the right, without any restrictions, to freely
repatriate Abroad and to freely dispose of:
ia) any proceeds received in ihe Kurdistan Region or other |\uts of Iraq from the
sale of Petroleum;
lb) any proceeds received from other operations and activities tarried out under
this Contract in the Kurdistan Region oi other parts of Iraq
29 9 The CONTRACTOR shall have the right to pa\ in an-, foreign currency its
Subcontractors and its expatriate personnel, either in the Kurdistar Region oilier parts
of Iraq, oi Abroad Said Subcontractors and expatriate personnel shall be obliged to
transfer to the Kurdistan Region the amount of foreign currency required for their local
needs and they shall have the right to repatriate the proceeds of the sale of their
belongings in accordance with the regulations in force in the Kurdistan Region
29 10 I he CONTRACTOR s Subcontractors and their personnel shall et;.;.illv benefit from
the same rights as the ( ONTRACTOR and its personnel as regards this Article 29
29 11 For the financing of Petroleum Operations, the CONTRACTOR shall have the right
to have recourse to external financing from third parties or from its Affiliated
Companies on an arm's length basis Any interests, costs and financial charges, as
well as any exchange losses associated with such financing, shall not Ik* considered
Petroleum Costs and shall not be recoverable in accordance with the provisions of
Articles 25
AIM K I K 30 - < USTOMS PROVISIONS
30 I All services, material, equipment, goods, consumables and products imported into
Kurdistan and other parts of Iraq by the CONTRAC TOR or its Subcontractors for use
or consumption in the Petroleum Operations shall be admitted (ice and exempt from
any and all customs or other duties, import taxes and any other charges or impositions
on import The CONTRACTOR and its Subcontractors shall have the right to re¬
export from Kurdistan and other parts of Iraq free from all export taxes, customs oi
other duties or any other charges or impositions on export any material, equipment,
goods, consumables and products that arc no longer required for the Petroleum
Operations
58
30 2 The CONTRA! TOR And its Subconi rectors ami iheii personnel shall have ihc right
lo ftedy import into the Kurdistan Region and other parts of Iraq and te-expon from
ihc Kurdistan Region and other pans of Iraq any personal belongings and furniture free
and exempt from any customs or other duties, import and export taxes and any other
charges or impositions on import or export 1 he sale in the Kurdistan Region and other
parts of Iraq of personal belongings and furniture of expatnate personnel shall comply
with Kurdistan Region Law
30 1 fach entity constituting the CONTRACTOR shall be entitled to freely export from
the Kurdistan Region and other parts of Iraq, free of any taxes, customs or other Ames
and other impositions or charges whatsoever, any Petroleum to which it is entitled
pursuant to the provisions of this Contract
30 4 rhe GOVERNMENT shall indemnify the CONTRACTOR for any customs duties
rcfeiTed to in Articles 30.1. 302 <»t 30 3 that may he levied by the Kurdistan Region oi
Government of Iraq or any other government body or court with jurisdiction in any part
of Iraq
ARTI( I.E .31 - I \X PROVISIONS
31.1 Except as expressly provided for in this Article 31, the CONTRACTOR shall be
exempt from all other taxes and impositions generally applicable to all other
industries or otherwise in the Kurdistan Regum
31 2 Each entity constituting the CONTRACTOR shall be subject to income tax
provided m Article 31 3 beta*. wh;ch shall be deemed to be inclusive and in full and
total discharge of any corporate income tax. any taxes on income from movable
capital, any taxes on capita! gains, any fixed taxes on transfery any taxes on windfall
profits or additional profits as well as all othei current or future Kurdistan Region and
Iraqi taxes based or assessed on income of any kind (whether State, provincial,
religious, tribal or local) ("Tax") Apart from the said Tax no other taxes, levies,
charges, impositions or withholdings that are based or assessed on income shall be
due by the entities constituting tbe CONTRACTOR Us Subcontractors, their
representatives, agents or employees to the GOVERNMENT or the Government of
Iraq or any of the subdivisions or administrations of cither such government as a
result of their activities under this Contract Payment of the said Tax shall be made
directly to the appropriate Kurdistan Region and. if applicable Iraqi lax authorities by
tbe GOVERNMENT, for the account of each entity constituting the
CON I RACTOR from its share of the Profit Petroleum received pursuant to Article
26 of this Conrad The GOVERNMENT shall, within ninety t90) days after the end
of each tax year, provide the appropriate tax icccipts to each entity constituting the
CONTRACTOR certifying the pavmcrt of us Tax and that it has met all us fiscal
obligations in the preceding tax year
31 3 For the purposes of Article 31 2
59
(a) The rate of corporate income tax to be applied to each ertity commuting the
CONTRACTOR shall be the applicable talc prescribed in the Law of Taxation,
law No 4 of 1999. passed by the parliament of the Kurdistan Region, as may be
amended from tune to time or substituted in respect of Petroleum Operations (as
defined under the Kurdisan Region Petroleum Act) b> a Petroleum Operations
Taxation Ac: (as defined under the Kixdistan Region Petroleum Act)
(b) The GOVERNMENT and the CONTRACTOR agree that corporate income
tax shall be calculated for each entity constituting the CON TRACTOR on its
net taxable profits under the Contract a\ calculated ia accordance with the
provisions relating thereto in the Accounting Procedure
5! 4 Each entity constituting the CONTRACTOR shall be exempt from payment of any
income tax. duties and other impositions on constitutive and modifying acts of
corporations for the entire duration of this Contract
31.5 The C ONTRACTOR as wdl as its Subcontracts shall be exempt from any
withholding tax applicable on any payments made to them or by them to or from
Affiliates or third parties, whether inside or outside Kurdistan and o* Iraq
316 The CONTRACTOR shall be exempt from Windfall Profits laxes and /Additional
Profits Tax. as referred to in Article 44 of the Kurdistan Region Petroleum Ad
317 The CON 1RACTOR shall be exempt from Stance Tax as irtened to in Amdc 44 of
the Kurdistan Region Petroleum Act
318 Each entity constituting the COM RAC TOR and any Subcontract* shall lie subject to
the payment of the personal income tax and social security contributions for which •><»)
entity ot Subcontractoi is liable lo pay in respect of its employees, pursuant to the I aw of
Taxation, Law No 4 of 1999. passed by the parliament of the Kurdistan Region, in the
same manner as generally applied to all other industries
319 It is acknowledged that Double Tax Treaties will have effect to give relief from taxes to.
but not limited to. the CONTRACTOR, contractor panics, foreign subcontractors and
expatriate employees in accordance with the provisions of such Double Tax Treaties, but
shall not impose an additional burden of taxation
31 10 The CONTRACTOR has the light to offset any value added tax ( VAT > or other tax not
settled by the GOVERNMENT again* any liabilny to tax under Article 31
ARTICLE 32 - BONUSES
Signature Bonus and local a»i)i»nwib capacity building fund
32 I A signature bonus of live million Dollars
deemed to have been paid to the GOVERNMENT by the CONTRACTOR in
recognition of the costs Contractor incurred prior to the Effective Date
? .
32.2 A local capacity building fund (“Capacity Building Fund**) of two million Dollars
(US$2,000,000) shall be payable to the GOVERNMENT by the CONTRACTOR in
two (2) instalments, the first instalment payable thirty (30) days from the date the
Contract is signed by the CONTRACTOR and the GOVERNMENT to coincide
with the Contract ratification by the GOVERNMENT, and the second instalment
payable thirty (30) days after the review period under Article 47.2. The payments due
pursuant to this Article 32.2 shall be deemed to be u Petroleum Cost.
Production Bonuses
32.3 In the event of a Crude Oil Commercial Discovery, the CONTRACTOR dull pay the
following relevant Crude Oil production bonus to the GOVERNMENT within thirty (30)
days of the following relevant occurrence:
(a) One million Dollars (USSI ,000,000) when First Production of Crude Oil from the
Contract .Area commences:
(h) Two and one half million Dollars (US $2,500,000) when production of Crude (>il
from the Contract Area reaches a cumulative amount of ten million bands of
Ciude Oil (10 mmbo);
(c) Five million Dollars (US $5,000,000) when production of ( rude Oil from the
Contract Area reaches a cumulative amount of twenty five million hands ol
Crude Oil (25 mmbo); and
(d) Ten million Dollars (US $10,000,000) when produrtior. of Crude Oil from the
Contract Area reaches a cumulative amount of fifty million bands of Crude Oil
<50mmboi
32.4 In the event of a Noo-Associated Natural Gas Commercial Discovery, the
C ONTRACTOR shall pay the following relevant Noo-Ax*»aaied Natural (as production
Ixwis to the GOVERNMENT within ihirty (30) days of the following relevant
(u) One million Dollars (US$1,000,000) when First Piwhoion of Non-Associated
Natural Gas from the Contract Area commences;
(h) Two and one half million Dollars (US $2^00.000) when production of Non-
Associated Natural
ten million bands of Crude Oil (10 mmbo) equivalent;
Ic) Five million Dollars (US $5,000,000) when production of Non-Associated Natiaal
Gas from the Contract Area reaches a cumulative amount of twenty five million
bands of Crude Oil (25 mmbo) equivalent: and
(d) Ten million Dollars (US $10,000,000) when production of Non-Associated
Natural Gas from the Contract Area reaches a cvanubnvc amount of m.ll w*
bands of Crude Oil (50 mmbo) equivalent
61
CONTRACTOR to be either a Crude Oil Commercial Discovery or a Nun-Associated
Gat Commercial Discovery’ and under no circumstances shall a production bonus be due
in respect of both Crude Oil and Nan-Associated Natural Gas for the same Commercial
Discovery
32 6 No production bonus due pursuant to Article 32 3 or Article 32 4 shall be deemed to be a
Petroleum ('on
ARTICLE 13-PI PRUNES
33 I The GOVERNMENT shall obtain any required Permits for the traiiqioitnlion of
Petroleum in the Kurdistan Region and in Iraq, as well as any necessary Pci mils and
casement rights for the construction of any pipelines and related facilities required lor the
Petroleum 0|>eralions. as provided in Article 33.2.
33 2 The GOVERNMENT undertakes to transfer to the CONTRA! I OK its rights for
transportation of Petroleum by pipeline The CONTRACTOR shall have the light to
design, construct, operate and maintain pipelines and any related facilities for the
transportation of Pelt oleum pioduced under this Contract
33 3 Prior to the construction of any pipeline and related facilities as provided in Amclc
33 2. the CONTRACTOR shall submit following information to the Management
Committee
(a) proposed pipeline route and related facilities.
(b) forecasted ptpd me flow rate and capacny.
(c) estimate of financial investment and operating costs of the pipeline and related
facilities.
(d) proposed financing schedule.
(e) construction schedule.
(0 general technical description of the pipeline and related facilities.
construction plans and tests.
(hi preventive measures for damage to the environment and thud parlies, and
proposed Delivery Point and any other information relating to the pipeline
protect
TV Management Committee shall examine all tV above information and shall with.n
ninety (*») days, approve tV proposed pipeline protect in accordance with the
provisions of Article 8 5 of this Conrad
62
33 4 Subject to spare capacity being available and to their Petroleum being compatible,
third parties shall be entitled to transport their Petroleum through any pipeline
constructed by the CONTRACTOR in accordance with this Article 33 on terms to
lie agreed between the CONTRACTOR and such third party Those terms shall be
reasonable commercial terms and shall not discriminate among third party users The
CON TRACTOR shall always have priority of access to such pipelines
V' 5 Any costs associated with the design, construction, operation arid maintenance of the
pipelines and related facilities by CONTRACTOR under this Article 33. including
financing costs ("Pipeline Costs' ) shall be considered Petroleum Costs and shall be
recovered by the CONTRACTOR in accordance with the provisions of Articles I
and 25
33 6 I he CON TRACTOR 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 committed 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 Any tariffs received from third parlies for use of any pipeline and related facilities by
CON TRACTOR under this Article 33 shall be applied to the recovery of Petroleum
Costs until all Pipeline Costs have been fully recovered by the CONTRAC TOR
pursuant to the provisions of Articles 1 and 25 of this Comma I he
GOVERNMENT shall he entitled to receive any tariffs from third parties for then
use of such pipeline and related facilities when the said Pipeline Costs have been fulls
recovered by the CONTRACTOR The costs associated with providing such
transportation services for third parties shall be considered Pipeline Costs and
therefore Petroleum Costs and shall be recovered by the CONTRACTOR in
accordance with the provisions of Articles I and 2S
33 8 Upon recovery by the CON TRACTOR of all live Pipeline Coos of rhe pipdinc and
related facilities, the operating and maintenance costs of any pipeline and its related
facilities shall be home by the CONTRACTOR and shall be considered Petroleum
Costs and shall be recovered by the CONTRACTOR in accordance with the
provisions of Articles I and 25
33 9 The GOVERNMENT shall have the same rights as the CONTRACTOR for use.
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, provided that where the
GOVERNMEN T is participating in its capacity as a CONTRACTOR entity puisuant
to Article 4. it shill Ik* liable few its share of Petroleum Costs
33.10 The CONTRA( TOR shall bear the custody and maintenance of any pipeline and related
facilities constructed by CONTRACTOR, under this Article 33 and all risks of
accidental low or damage to such pipeline and related facilities while they me tequired
for Petroleum Operations
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ARTICLE 34 - UNITISATION
J4 I In the event a Reservoir extends beyond the Contract Area into an adjacent area
which is the subject of another Petroleum Contract (as defined by the Kurdistan
Region Petroleum Act) (an "Adjacent Contract Aren"), or in the event a Reservoir
of an Adjacent Contract Area extends into the Contract Area, the provisions of Article
58, Section 3 of the Kurdistan Region Petroleum Act shall apply and the
GOVERNMENT shall require tin.- CONTRACTOR and the Contractor of the
Adjacent Contract Area to agree upon a schedule foi t eaching agreement of the terms
of the unitisation of the Reservoir, which terms shall he based on reliable technical,
operational and economical parameters, all m accordance with standard practice in
the international petroleum industry In the event that the Minister decides the
unitisation pursuant to Article 58. Section (b) of the Kurdistan Petroleum Act, and if
the CONTRACTOR docs not agree with the Minister's decision, the
CONTRACTOR shall be entitled to arbitration pursuant to the provisions of Article
42 I
*4 2 In the event that a Reser voir extends beyond the boundaries of the Contract Area into
adjacent an area which is not the subject of another Petroleum Contract (as defined by
the Kurdistan Region Petroleum Act), the GOVERNMENT shall, upon the
CONTRACTOR’S request, take 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 can offer the COVERNMTS I « competitive minimum
work program foe such adjacent area
ARTICLE 35 - LIABILITY AND INST RAM J
Liability
15 I Subject to the other provisions of this Contract, the CON I R AC TOR. in its capacity' as
the entity responsible for the execution of the Petroleum Operations within the Contract
Area, shall be liable to third parties to the extent provided under applicable Law for any
losses and damage it may cause to them in conducting the Petroleum Operations, and
shall defend, indemnity and hold harmless the GOVERNMENT with respect to all
claims for such loss or damage
35 2 The C ONTRACTOR shall not be liable to the GOVERNMENT for am damage or lots
or claims of any kind resulting from its conduct of the Petroleum Operations
, unless such damage or loss is the result of wilful misconduct or a
material failure to conduct Petroleum Operations in accordance with the terms of this
• Contract; provided, however, that such liability cannot result in the event of any
omissions, errors or mistakes committed in good faith by the C ON IKACTOR in the
exercise of the powers and authorisations conferred upon the C ONTRACTOR by
virtue of this Contract, and further provided that in no event shall the
CONTRACTOR be liable for any indirect or consequential loss or damage
whatsoever or any loss, damages, costs, expenses ot liabilities caused (directly or
64
indirectly) by any of the following aiising out of. relating to. or connected w ith 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 indemnify and hold harmless the GOVERNMENT against
all losses, damages and liability arising under any claim demand, action o* proceeding
brought or instituted against the GOVERNMENT by am employee of the
CONTRACTOR or of any Subcontractor or b\ am dependent thereof, for personal
injuries, industrial illness, death or damage to personal properly sustained in connection
With, related to or arising out of the performance or non-performance of this Contract
regardless of the lault or negligence in whole or in party of any entity or individual.
35 4 Notwithstanding Article 35.1, the GOVERNMENT shall indemnify and hold harmless
the CONTRACTOR against all losses, damages and liability arising under any claim,
demand, action or proceeding brought or instituted against the CONTRACTOR by any
employee of the GOVERNMENT or of any Public Company or of any subcontractor of
the foregoing or by any dependent of any such employee, for personal injuries, industrial
illness, death or damage to personal property sustained in connection with, related to or
arising out of the performance or non-performance of this Contract regardless of the fault
or negligence in whole or in party of any entity or individual
35 5 The CONTRACTOR shall take all necessary steps to respond to. and shall promptly
notify the GOVERNMENT of. all emergency and other events (including
explosions, leaks and spills), occurring in relation to the Petroleum Operations which
arc causing or likely to cause material environmental damage or material risk to
health and safely Such notice shall include a summary description of the
circumstances and steps taken and planned by the CONTRACTOR to control and
remedy lire situation The CONTRACTOR shall provide such additional reports to
the GOVERNMENT as are necessary in respect of the effect* of such events and the
course of all actions taken ro prevent further loss and to mitigate deleterious effects
35 6 In the event of emergency situations as set out in Article 35 4 abov c. at the request of the
CONTRACTOR, the GOVERNMENT, without prejudice and in addition to any
indemnification obligations the GOVERNMENT may have, shall assivr the
CONTRACTOR to the extent possible, in any emergency response, remedial or
repair effort by making available any labour, materials and equipment in reasonable
quantities requested by the CONTRACTOR which arc not otherwise readily available to
the CONTRACTOR and by facilitating the measures taken by the CONTRACTOR to
bring into the Kurdistan Region pervmnd. materials and equipment to be used in any
such emergency response or remedial or repair effort The CONTRACTOR shall
reimburse the GOVERNMENTS reasonable and necessary costs incurred in such
efforts, which reimbursed amounts shall be considered Petroleum Costs and shall be
recovered by the CON TRACTOR in accordance with the provisions of .•Articles I and 25
of this Contract
KS
65 • w
Imurmcf
35 7 In accoidaiicv wilh standard practice in i»k- international petroleum induRi}’- tire
CONTRACTOR shall maintain any insurance requirod by applicable Kurdistan Region
l.aw, as well as any insurance approved by lire Management Committee
Such insurance policies may cover
(a) loss of and damage to material and equipment used in the Petroleum
Operations,
(b) personal injury, damage to third panics and risks of pollution associated with
Petroleum Operations for reasonable amounts,
within the limits approved by the Management Committee
35 R Any insurance policy relating to tins Contract shall name the GOVERNMENT ns an
additional insured paity and shall include a waiver of subrogation protecting the
GOVERNMENT against any claim, loss and damage resulting from any Petroleum
Operation conducted by ot on behalf of the CON’I RAC IOR under this Contract, to the
extent that the CONTRACTOR is liable for such claim loss or damage under this
Contract The CONTRACTOR shall not be liable for and shall not purchase insurance
cover for any claims arising from negligence or wilful misconduct of the
GOVERNMENT or of any Public Company or of any of us or their subcontractors or of
any personnel of any of the foregoing
35 9 Upon ns written request the GOVERNMENT sha!! be presided with insurance
certificates, including necessan details, for a ns insurance polio maintained bs the
C ONTR ACTOR winch relates to this Contract
35 10 The CONTRACTOR shall be responsible for the filing of all claims made under any
insurance policy maintained by CONTRACTOR which relates to this Contract Any
premiums and payments relating to such insurance policies shall be considered Petroleum
Costs and shall be recovered by the CON IKACTOR in accordance with the provisions
of Articles I and 25 of this Contract
35 11 In am insurance pokey maintained by the CONTRACTOR wtach (dates to this
Contract the amount fix whkh the CONTRACTOR asdf is liable (the IkrductiMr
\mount I shall be reasonably determined between the CONTRACTOR and the msurer
and such Deductible .Amount shall m the event of any insurance claim be
considered a Petroleum Cost and shall be recosered by the CONTRACTOR in
accordance with the provisions of Articles I I and 25 of this Contract
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ARTICLE 36- INFORMATION \NI) CONFIDKNTI \I.IT\
56 I The CONTRACTOR shall keep all i©colds, data and information relation to the
Petroleum Operations in accordance with the Kurdistan Region Petroleum Act and
standard practice in the international petroleum industry. In addition, it shall provide
the GOVERNMENT with such information and data as it is obliged to provide under
this Contract
56 2 Upon the GOVERNMENTS written request, the < ONTRAC I OR shall provide the
GOVERNMENT with samples of any rocks or any other items extracted during the
Petroleum Operations
56 5 The GOVERNMENT shall have title to all data and information, whether raw. derived,
processed, interpreted or analysed, obtained pursuant to a Contract
36 •) The CONTRACTOR shall have the right, without any limitation, to send Abroad copies
of all reports and technical data, magnetic tapes and oilier data relating to the Petroleum
Operations Magnetic tapes or other data, the original of which must he analysed and
processed Abroad, may be transported out of the Kurdistan Region
56 S 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 ibe possession of the
CONTRACTOR which the CONTRACTOR is obliged to prosidc to the
GOVERNMENT pursuant to this Contract It is understood that, when exercising
such right, the GOVERNMENT shall ensure it does noi unduly interfere with or
hinder CONTRACTOR'S activities
366 The CONTRACTOR shall provide the GOVERNMENT upon the
GOVERNMENT’S written request with analysis information, reports, tapes or other
data (geological, geophysical, logs, interpretations, drilling reports, etc ) related to the
Petroleum Operations All available originals shall be tiansfened to the
GOVERNMENT at the end of this Contract
36 7 Apart from the exceptions stated in this Article 36. the Panics undertake to keep all
data and information relating to this Contract anil the Petroleum Operations
confidential during the enure term of this Contract and not to disulgc or disclose such
d2ta or information to third parties without the specific consent of the other Party,
such consent not to be unreasonably withheld or delayed The foregoing
confidentiality obligation shall not apply to information or data which
(a) is or. through no fault of cither Party, becomes part of the public domain.
(b) is known to the receiving Party at the date of disclosure, or
(c) is required to be furnished in compliance with any applicable Law. by a
government agency having jurisdiction over the entity constituting the
CONTRACTOR, by a court order or any other legal proceedings, or
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(d) is required to be disclosed pursuant to the rules or regulations of any
government or recognised stock exchange having jurisdiction over the entitv
constituting the CONTRACTOR
'<> N Notwithstanding the foregoing in Article 36 7. in accordance with standard practice in
Ihc international petroleum industry, such dam and information may be disclosed to
(a) Affiliates of each entity constituting CONTRACTOR;
(b) employees, officers and directors of each entity constituting the
CONTRACTOR 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) consultants or agents retained by any entity constituting the COM RACTOR
or its Affiliate for the purpose of analysing or evaluating information or daia.
(d) hanks or financial institutions retained by any entity constituting the
( OM RACTOR with a view to financing Petroleum Operations, including
any professional consultants retained b> such bank or financial institution.
(c) hiuia fu!e prospective assignees of a participating interest under this Contract
(including any entity with whom an entity constituting CONTRACTOR and/or
its Affiliates are conducting Inhui fide negotiations directed towards a merger,
consolidation or lire sale of a majority of its or an Affiliates shares).
(ft prospective or actual Subcontractors and suppliers engaged by a Party where
disclosure of such information is essential to such Subcontractor's or supplier's
work for such Parly, and
(g) any other person or entity, upon the poor written approval of the norv
disclosing Party.
provided that disclosure shall not be made pursuant to paragraphs
unless such third pans has entered into a confidentiality undertaking
36 9 Any data and information relating to relinquished or surrendered areas under this
Contract shall become the exclusive property of the GOVERNMENT, who shall
have the right to use same for any purpose, in particular for the purpose of promoting
said areas The CONTRACTOR shall be entitled to keep copies of such data anti
information and to use such data and information for any purpose
36 10 Subject to the provisions of this Article 36. the CONTRACTOR may not sell nor
exchange any data related to the Petroleum Operations w ithout the approval of the
GOVERNMENT, which approval shall not be unreasonably withheld or delayed
where, in CONTRACTOR’S reasonable opinion, such sale or exchange would
benefit the Petroleum Operations
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ARTICLE 37 - ENVIRONMENTAL PROVISIONS
37 I During ihe performance of the Petroleum Operations, the CONTRACTOR shall take
necessary measures to ensure that it, the Operator, its Subcontractors and agents
attend to the protection of the environment and prevention of pollution, in accordance
with standard practice in the international petroleum industry and any applicable
Kurdistan Region Law.
37 2 Prior to surrendering a portion of the Contract Area, the CONTRACTOR shall take
reasonable measures to clean the area to be surrendered in accordance with standard
piactice in the international petroleum industry Such measures shall include, inter
aim. removal of facilities, material and equipment together with icasonnble measures
necessary for the preservation of fauna, flora and ecosystems, all in accordance with
generally accepted practice in the international petroleum industry The
CONTRACTOR shall only be responsible for site restoration or environmental
damage to the extent the same pertains solely and directly to Petroleum Operations
pursuant to this Contract
37 3 fhe CONTRACTOR shall take reasonable precautions and measures to prevent any
pollution which may arise directly as 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 -I The CONTRACTOR shall respect the preservation of property, agricultural areas
and fisheries, when earning out Petroleum Operations
37 5 Before starting Exploration Operations within the Contract Area, the
CONTRACTOR shall conduct and submit an environmental impact assessment
National Parks and Nature Reserve Vreas
37 6 The CONTRACTOR shall take all ica.sonable measures to minimise any adverse
material impact on national parks and nature reserves which may arise directly as a
tesult of the Petroleum Operations, in accordance with generally accepted
envifonmenta! practices in the international petroleum industry
37 7 The GOVERNMENT (i) represents and warrants that, on the Effective Date, there
arc no national parks, nature reserves or other protected areas located in whole or in
part within the Contract Area where the CONTRACTOR shall not be entitled to
carry out Petroleum Operations and (ii) covenants that during the term ol this
C'ontract will not designate or create or permit the creation of any national parks,
nature reserves or other protected areas, located in whole ot in pan within the
Contract Area, where the CONTRACTOR is entitled to cany (Hit Petroleum
Operations
Expenditures
37 8 Any expenditure incurred by the CONTRACTOR in relation with this Article 37
shall be deemed Petroleum Costs and 'lull be recovered by the CON I RACTOR in
accordance with the provisions of Articles I and 25.
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ARTICLE 38 - DECOMMISSIONING
38 I To enable the CONTRACTOR lo recover the costs associated with future Petroleum
Field decommissioning and site restoration and any otltcr similar expenditure to be
borne by the CONTRACTOR under this Contract, the CONTRACTOR shall have
the right to establish a reserve fund for future decommissioning and site restoration (a
“Decommissioning Reserve Fund") The Decommissioning Reserve Fund may be
established at any time during the final ten (10) Calendar Yeats of the term of the
Production Operations of a Petroleum Field but. upon the reasonable request by the
CONTRACTOR, the GOVERNMENT shall allow the CONTRACTOR to
establish such fund over a longer period Once established, the CONTRACTOR
shall make regular contributions to the Decommissioning Reserve Fund based upon
estimated Petroleum Field decommissioning and site restoration cost.' m accordance
with standard principles and technical norms generally accepted in the international
petroleum industry. Any contributions by the CONTRACTOR to the
Decommissioning Reserve Fund shall be made in Dollars and shall be deemed
Petroleum Costs and tax deductible, in each case when paid into the reserve fund, and
shall be recovered by the CONTRACTOR in accordance with the provisions of
Articles I and 25 Contributions to the Decommissioning Reserve Fund shall he
placed with a first rate bank approved by the Management Committee in accordance
with Article 8.5.
38.2 If. at the end Of the term of the Production Operations of the Petroleum Field the
GOVERNMENT decides to take over production operations m the Petroleum Field
(i) the GOVERNMENT shall become liable for its future decommissioning and
site restoration,
(ii) the contributions and any interest accumulated in the Decommissioning
Reserve Fund, to the extent that such contributions have been recovered as
Petroleum Costs, shall be paid to the GOVERNMENT, and
(iii) the GOVERNMENT shall release the CONTRACTOR from any
obligations relating to decommissioning and site restoration and shall
indemnify the CONTRACTOR for any costs, liabilities expenses, claims or
obligations associated therewith
38 3 If the CONTRACTOR undertakes the Petroleum Field decommissioning and site
restoration works, the contributions and any interest accumulated in the
Decommissioning Reserve Fund shall be paid to the CONTRACTOR and shall be
used for the Petroleum Field Decommissioning Operations The CONTRACTOR
shall undertake any such Decommissioning Operations in accordance with standaid
practice in the international petroleum indust/y.
3X4 If that the Decommissioning Reserve Fund paid to the CONTRACTOR is not
sufficient to cover all Decommissioning Costs for the Petroleum Field, the balance
shall be paid by the CONTRACTOR and may be recovered as Petroleum Costs from
any other Production .Areas or. if applicable, from any other area which is the subject
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of another Petroleum Contract (as defined by the Kurdistan Region Petroleum Act) of
the CON I’R ACTOR or any of its Affiliates anywhere in the Kurdistan Region and. to
the extent the balance is not recoverable as aforesaid, such remaining balance shall be
paid by the GOVERNMENT
38 5 If that the Decommissioning Reserve Fund paid to the CONTRACTOR exceeds all
Decommissioning Costs for the Petroleum Field, the balance shall be allocated as
follows
(a) to the extent that it has been recovciod as Petroleum Costs, that amount shall
be transferred to the GOVERNMENT, and
(b) to the extent that it has not been recovered as Petroleum Costs, that amount
shall be re paid to the CONTRACTOR.
38 6 Any expenditure incurred by the CONT RACTOR in relation with this Article 18.
including but not limited to any contributions to the Decommissioning Reserve Fund,
shall be deemed Petroleum Costs and shall be recovered by the CONTRACTOR in
accordance with the provisions of Articles I and 25
ARTICLE 39-ASSIGNMENT and CHANGE OF CONTROL
39 I Fach entity constituting the COM RACTOR shall be free to sell, assign, transfer or
otherwise dispose of all or pan of its rights, obligations and interests under this
Contract to an Affiliated Company or to another entity constituting the
CONTRACTOR with the prior convert of GOVERNMENT, which consent shall not
be unreasonably delayed or withheld Such comer* stall be deemed having been
received if. after thirty (30) days from the dale of such request, the GOVERNMENT
has not made any objections m writing
Assignment to Third Parties
39 2 Each entity constituting the CONTRACTOR stall have the right to sell, assign
transfer or otherwise dispose of all ot pan of itv rights and interests under tins
Contract to any third party (not being an Affiliated Company oi another entity
constituting CONT RACTOR) with the prior consent of GOVERNMENT', which
consent shall not be unreasonably delayed oi withheld Any entity constituting
CONTRACTOR pioposing to sell, assign, transfer or otherwise dispose of all or part
of its rights and interests under this Contract to any such third party shall 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 Such consent
’ shall be deemed having been received if. after thirty (30) days from the date of such
request the GOVERNMENT has not made anv objections in writing
39 3 To be effective, any deed of sale. or other disposal as provided
under Articles 39 I or 39 2. the Parties a deed of assignment, which
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shall include an undertaking by such third party to fulfil any obligations under this
Contract
39 4 In the event an entity constituting the CONTRACTOR assigns or in any other way
tiansfcis its rights and interests under this Contract, whether in whole or in part, such
assignment or transfer shall not give rise to any tax. imposition or payment
whatsoever in the Kurdistan Region, whether currently existing or which may become
applicable in future
39 5 The GOVERNMENT may not at any time transfer all its rights and obligation'
under this Contract to a Public Company or any other company or entity one hundred
percent (100%) owned by the GOVERNMENT or otherwise, except in respect of Us
Gosemment Share (upon exercise of its Option to Participate) in accordance with
Article 4
Chany of Control
39 6 ( hang* of C ontrol” for the purpose of this Article 39 6 means any direct or indirect
Change of Control of an entity constituting CONTRACTOR (whether through
merger, sale of shares or of other equity interests, or otherwise) through a single
transaction or series of transactions, from one or more transferors to one or more
transferees, in which the market value of such entity's participating interest in this
<_ ontiact (which shall be as specified in the Joint Operating Agreement relating to this
Contract, oi whcic there is only one entity constituting CON I KA< I OK one
hundred (100%) percent) represents more than seventy five percent (100%-xx%
initial Government Interest) of the aggregate market value of the ,i'\ctsofsuch entity
and its Affiliates that arc subject to the change in Control For the purpose of this
definition "Control” means the means direct or indirect ownership or control of the
majority of the voting rights of the applicable entity at its shareholders’ meetings or
their equivalent, and "market value" shall be determined based upon the amount in
cash a willing buyer would pay a willing seller in an arm’s length transaction
Each entity constituting the CONTRACTOR which is subject to a Change in Control
ocher than to an Affiliated Company or an entity constituting CON rRACTOR must
obtain the prior consent of GOVERNMENT, which consent shall not be
unreasonably delayed or withheld Such consent shall be deemed having been
received if. affer thirty (30) days from the date of such request, the GOVERNMENT
has not made any objections in writing
A Change in Control shall not give rise to any tax. imposition or payment whatsoescr
in the Kurdistan Region, whether currently existing or which may become applicable
in future
ARI ICLE 40 - FORCE MAJEHRE
40 1 No delay, default, breach or omission of the CONTRACTOR in the execution of any
of its obligations under this Contract shall be considered a failure to perform this
Contract or be the subject of a dispute if such delay, default, breach or omission is due
n
lo a case of Force Majeurc In such event the C ONTR ACTOR 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 resulting
from any such delay or curtailment in the execution of such obligations, increased b>
the lime necessary to repair any damage resulting from or occurred during such dclav
or curtailment, shall be added to any time period provided under this Contract
(including without limitation the Exploration Period and any extension thereto, any Sub-
Period and any extension thereto and any Development Period and any extension
tlmcto) The Panics shall meet av soon
Majeurc with a view to using reasonable endeavours to mitigate the effects thereof
40 2 For the purpose of this Contract. “Force Majeure’ means any event that is
unforeseeable, insurmountable and irresistible, not due to any error or omission by the
CONTRACTOR but due to circumstance* beyond its control, which prevents
execution of 2ll or part of its obligations under this Contract Such events shall
include but not be limited to following
(a) war. whether declared or not. civil war. insurrection, riots, civil commotion
terrorism, any other hostile acts, whether internal or external.
(hi Strikes or other labour conflict'.
(c) accidents or blowouts.
(e) any act. event, happening or occurrence due to natural causes, in particular
floods, storms, cyclones, tires, lightning, or earthquakes.
<0 environmental restrictions, which the GOVI RN.MF.NT has no* notified to the
CONTRACTOR, ad
any acts or order of GOVERNMENT
Thei mention of the Panics is that Force Majeurc shall receive the intcrprctatio a that
complies most with general principles and practice prevailing in the international
petroleum industry Force Majeure affecting an Affiliated Company of an entity
constituting the CONTRACTOR shall be deemed Force Majeure affecting such
entity constituting the CONTRACTOR if the consequence of such Force Majeurc
prevents the performance of any of CONTRACTOR’S obligations under this
Contract
AM IICLE 41 - WAIVER OK SOVEREIGN IMMUNITY
The GOVERNMENT and anv Public Company w4*ch may be an enwy constituting
CONTRACTOR at any nine hereby fully and irrevocably waives any claim to immunity for
itsdfor any of as assets
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This waiver includes any claim 10 immunity from
(a) any expert deteimination, mediation, or arbitration proceedings commenced
pursuant to Article 42 this Contract,
(b) any judicial, administrative or other proceedings to aid the expert
determination, mediation, or arbitration proceedings commenced pursuant to
Article 42 of this Contract;
(c) any effort to confirm, enforce or execute any decision, settlement, award,
judgment, service of process, execution order or attachment (including pre¬
judgment attachment) that results from an expert determination, mediation,
arbitration or any judicial, administrative or other proceedings commenced
pursuant to this Contract
ARTICLE 42 - ARBITRATION AND EXPERT I>E'TERMINATION
NvaHilUi»». .Mediation pud Arbitration
42 I For the purpose of this Article 42 I. "Dispute" shall mean any dispute, controversy or
claim (of any and every kind or type, whether based on contract, ton statute
regulation or otherwise) arising out of. relating to. or connected with this Contract or
the operations carried out under this Contract, including without limitation any
dispute as the construction, existence, validity, interpretation, enforceability, breach
or termination of this Contract, which arises between the Panics (or between any one
or more entities constituting the C ON I RAC TOR and the GOVERNMENT)
Subject to the provisions of Article 42 3 of this Contract, a Party who desires to
submit a Dispute for resolution shall commence lire dispute resolution process by
providing the other parties to the Dispute wthten notice of the Dispute (“Notice of
Dispute") The Notice of Dispute shall identif) the parties to the Dispute, shall
contain a brief satement 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 is given in accordance with Article
42 2. the parties to the Dispute shall first seek 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 Within thirty (30) days afler the date of the receipt by each
party tp the Dispute of the Notice of Dispute, the Senior Representatives
representing the parties to the Dispute shall meet at a mutually acceptable date,
time and place to exchange relevant information in an attempt to resolve the
Dispute If a Senior Representative intends to be accompanied at the meeting by
a legal adviser, each other party shall be given written notice of such Intention
and its Senior Representative may also lie accompanied hi the meeting by a legal
adviser
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(b) If the Dispute cannot be resolved by neeooatior m accordance w*h Article 42 3
w«hm sixty (60) days after the date of the receipt by each party to the Disjxac of
the Notice of Dispute or such further period as the parties to the Dispute may
agree in writing any party to the Dispute may seek settlement of the dispuie by
mediation in accordance with the London Court of International Arbitration
(LCIA) Mediation Procedure, which Procedure sluill he deemed to he
incorporated by reference into this Article, and the parties to such Dispute
shall submit to such mediation procedure
(c) If the Dispute is not settled by mediation within sixty (60) days of the
appointment of the mediator, or such further period as the parties to the
Dispute may otherwise agree in writing, any party to tlie Dispute may refer the
Dispute to. and seek final resolution by. arbitration under the LCIA Rules,
which Rules shall be deemed to be incorporated by reference into this Article
(i) Any arbitration shall be conducted by three (3) aibitralors
(ii) If the parties to the Dispute are the GOVERNMENT and all the
entities constituting the CONTRACTOR the GOVERNMKM and
the CONTRACTOR shall each appoint one (I) arbitrator If the
parties to the Dispute are the GOVERNMENT and more than one.
but not all the entities constituting the CONTRACTOR, the
GOVERNMENT shall appoint one (I) arbitrator and such
CON I R ACTOR entities shall appoint one (I) aibitrator If the panics
to the Dispute are the GOVERNMENT and one e*4y constituting
the CONTRACTOR. the GOVERNMENT and such
CONTRACTOR entity shall each appoint one < I) arbitrator
(in) In any event, the two arbitrators so appointed shall, in good faith, use
al! reasonable cndcasouis to agree on the appointment of the third
arbitrator, who will chair the arbitral tribunal In case of failure to
appoint an arbitrator or to agree on the appointment of the third
aibitrator. Rules of the LCIA shall applv
(vi) Arbitration shall take place in London. England The language to be
used in any prior negotiation, mediation and m the arbitration shall be
English During rhe arbitration procedure and until the arbitral
decision, no Parts or CONTRACTOR entity shall act in a manner
that may affect the rights of the other Party or other CONTRACTOR
entities under this Contract The arbitral award may be enforced by any
court of competent jurisdiction, including the Kurdistan Region Any
award shall be expressed in Dollars
(v) The Parties agree that the arbitral award shall be final and not subject
to any’appeal
4- 2 No negotiation, mediation, arbitration or expert determination procedure under this
Article 42 shall exempt the Parties from fulfilling their respective legal andoc
contractual obligations
Any disagreement between the Parties relating to Articles 15 4. 27 2 and 27 9 of this
Contract, as well as any disagreement the Panics agree to refer to an expert, shall be
submitted to an expen The Management Committee shall prepare and agree
appropnate terms of reference relating to the disagreement to be submitted to the
expen. in accordance with Article 8 5 (Terms of Reference I
(a) The disagreement shall be submitted to an expert appointed by mutual
agreement of the Parties within thirty (30) days following the date of
preparation and agreement of the terms of reference mentioned in Article
•12 10 by the Management Committee ll the Ponies cannot agree on the
choice of the expen within such thirty (30) day period, at the request of either
Party, the expert shall be appointed by the President of the Energy Institute in
London. England Any expert appointed must have the necessary
quulillcnikins fot reviewing and deciding on the subject matte* of live
disagreement
> The duties of the expert shall be stated in the terms of reference piepaicd and
agreed by the Management Committee The Management Committee shall
piomptly provide the expen with the agreed terms of reference relating to the
disagicement Each Party shall have the tight to give to the expert m writing
my information which it considers useful The expert shall have the right to
review and verify any information lie deems useful to assist him in his review
of the disagreement
The expert shall tender his decision within forty-five (45) davs of his receipt
of (he terms of reference and the information referred to in Article 42 12
Subject to the provisions of Article 15 4 of this Contract, any decision of the
expert shall be final and shall not be subject to any appeal, except in the ease
of manifest error, fraud oi malpractice Any costs and expenses asxxiatcd
with the expert determination shall be shared equally between the Parties.
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ARTICLE 43-GOVERNING I AW. FISCAL STABILITY AND AMENDMENTS
Governing L«w
43 I This Contract. including any dispute arising therefrom, thereunder or in relation
thereto, shall be governed by English law (except any rule of English law which
would refer the inattei to another jurisdiction), together with any relevant rules,
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
43 2 The obligations of the CONTRACTOR resulting from this Contract shall not be
aggravated by the GOVERNMENT and the general and overall equilibrium between
the Carries under this Contract shall not be affected in a substantial and lasting
manner
43 .1 The GOVERNMENT gumantccs to the CON I RA( I OR for the entire duration of
this Contract, that it will maintain the stability of the fiscal and economic conditions
of this Contract, as they result from this Contract and as they result from the laws and
regulations in force on the date of signature of this Contract I he < OM RAC I OK
has entered into this Contract on the basis of tlie legal, fiscal and economic framework
prevailing at the Effective Date If. at any lime alter the I (Teelive Date, there is any
change in the legal, fiscal and'or economic framework under tlie Kurdistan Region
Law or other Law applicable in the Kurdistan Region which demmetmlK affects the
CONTRACTOR, the terms and conditions of the Contract shall be altered so as to
restore the CONTRACTOR to the same overall economic position as that which
CONTRACTOR would have been in. had no such change in the legal fiscal and or
economic framework occurred
43 4 If the CONTRACTOR believes tlut its economic position has been detrimentally
affected as provided in Article 43 3. upon the CONTRACTOR’S written request, the
Parties shall meet to agree on any necessary measures or making any appropriate
amendments to the terms of this Contraa with a view to re-establishing the economic
equilibrium between the Parties and resionng the CONTRACTOR to the position u
was in poor to the occurrence of the change having such detrimental effect Should
the Panics be unable to agree on the ment of amending this Ceramet and or on any
amendments to be made to this Contraa wr.hn ninety (90) days of CONTRACTOR s
request (or such other period at may be agreed by the Panics) the CONTRACTOR
may refer the matter in dispute to arbitration as provided in Article 42 I
43 5 Without prejudice to the generality of the foregoing, the CONTR ACTOR shall be
entitled to request the’benefit of any future change* to the petroleum legislation or
any other legislation complementing, amending or replacing it
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77
43 6 The Panics agree to cooperate in all possible ways with a view to fully achieving the
objectives of this Contract The GOVERNMENT shall facilitate the performance of
the Petroleum Operations by promptly granting to the 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 Except as provided in Article 47, 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 as this Contract
43 8 This Contract constitutes the entire agreement of the Parties and supersedes any and
all prior understandings or agreements in respect of the subject matter of this
Contract
43 9 Unless otherwise expressly stated elsewhere in this Contract, no failure or delay of
any Party to exercise any right, power ot remedy under tins Contract shall operate as
a waiver thereof, noi shall any single ot partial exercise of any such right, power oi
remedy preclude any other or fttture exercise thereof ot the exercise of any other
right, power or remedy
Validity
43 10 As signatory to this Contract for and on behalf of the GOVERN.'! I! N I. tire Ministry of
Natural Resources in the Kurdistan Region hereby represents that it approves this
Contract foe the purposes of the Kurdistan Region Petroleum Act. when it enters into
force
ARTICLE 44 - NOTICES
44 I To be valid, any correspondence, written communication or notice between the Parlies
'lull be in writing and may be delivered by hand or transmitted by electronic mail or
fax. at sender's option and expense, and (unless delivered by hand or acknow ledged or
otherwise agreed by the receiving Party) shall be confirmed by registered mail with
acknowledgement of receipt and shall become effective once received by the first of
these means of transmission These communications shall be addressed as follows
For the GOVERNMENT
Attention: Ashti A. Haw rami
Minister
Address: Council of Ministers
Kurdistan Regional Government
Erbil, Kurdistan - Iraq
Email: aslni.liawramiftfkrg.oig
78
For the CONTRACTOR
Shakal Production. Ltd.
Address 2500 City West Blvd
Suite 1750
Houston. TX 77042. USA
Phone -I 713-953 3210
Facsimile *1 713-953 3200
E-mail i ander
Com act person W Richard Anderson
PetOil Petroleum and Petroleum
Products International Ftploralion and
Production Inc.
Address: Koza Sokak No 43. (K)P
06700 Ankara. Turlev
Phone
•90 312 4408482
Facsimile •90 312 441 6026 4416027
E-mail alupetod cosk.m
Contact person M Ali Ak. General Manager
Trilai Oil Ltd
Address 15322 Chinabcriy Street
Ph
+ 1 757 945-9203
Facsimile * I 202 478-5216
E-mail |i mcgiii.re 19l9&;carthlmk.ncl
Contact person John R McGuire. Dircctoi
44 2 I he above address and/or designated representative of any of the Parties may he
changed on giving ten (10) days prior notice to the other Pans
ARTIC IE 45 - TERMINATION
45 l Subject to the provisions of Article 45.5. the GOVERNMENT shall have the right to
terminate this Contract in the event the CONTRACTOR
(a) fails to meet a material financial obligation expressly stated in this Contract,
or
(b) during the Fust Sub-Period does not carry out drilling and seismic acquisition,
as detailed in Article 10.2 of. during the Second Sub-Pcnod (or earlier), does
not carry out drilling and seismic acquisition, as detailed in Article 10.3; or
79
(c) interrupts Production for a period of more llun ninety (90) consecutive days with
no cause or justification acceptable in accordance with this Contract (including
force Majeure)or under normal international petroleum industry practice. «m
(
object of this Contract, unless such extraction or production is expressly
authorised or unavoidable as n result of operations carried out in accordance
with accepted international petroleum industry practice, or
(c) if the CONTRACTOR comprises vilely one entity, is declared bankrupt in
accordance with applicable l aw. or
(0 wilfully refuses to abide by negotiation. mediation, arbitration or expert decision
under Anidc 42 of tins Contract
45 2 The GOVERNMENT may also terminate the Contract only in respect of one
( OM KA< I OR entity if such entity is subject to a C hange of Control which has been
completed without having obtained the prior required authorisation from the
(.ON I RNMKN T (deemed or otherwise) in accordance with Article 396.
45 3 At any lime prior to the Development Period the CON TRACTOR shall have the light
to terminate this Contract by surrendering the entire Contract Area in accordance with the
provisions of Article 7 of this Contract
•15 4 During the Development Period, the CONTRACTOR shall have the right to
terminate this Contract at any time by surrendering all Product:on .Areas, provided its
then current obligations have been satisfied in accordance with this Contract
45 5 If the GOVERNMENT intends to exercise us right to terminate this Contrail
pursuant to Article 45.1, it shall fust comply with the following provisions
(a) The GOVERNMENT shall notify the CONTRACTOR of us intention to
terminate this Contract stating the reasons for such termination and requeuing
the latter
(i) to remedy the default within three (3) months: or
(li) to propose acceptable compensation
(b) If. by then end of the said three (3) month period referred to in Ankle 45 4
(a), the GOVERNMENT is not satisfied, it shall notify the CONTACTOR
in wilting that the Contract shall be terminated from the termination date
detailed in such notice This Contract shall terminate on such termination date
unless the CON TRACTOR issues a notice of dispute as provided under
At tide 41 of this Contract, in which ease this Contract shall remain in force
until a final settlement of the dispute has been reached in accordance with the
dispute resolution provisions of Article 41 of this Contract
The foregoing provisions of this Article 45 4 arc subject to the proviso that, in case of
a dispute where there has been breach of this Contract which has been subr'---~' •*»
Kf
80
arbitration pursuant to Article 41 of this Contract, the GOVERNMENT shall not be
entitled to exercise its right to terminate this Contract prior to a decision regarding the
dispute having been rendered by the arbitration tribunal
45 6 If the GOVERNMENT terminates this Contract pursuant to the provisions of Articles
45 I and 45 5. the CON I KACTOR shall lose all us rights and interests under this
Contract
ARTICLE 46- APPLICATION OKORRl PTION I.AWS
46 I If this Contract is reasonably proven to have been obtained in violation of Kurdistan
Region Law concerning corruption, this Contract is void /* mum
46 2 If the CONTRACTOR is at any time reasonably proven to be in breach of Kurdistan
Region Law concerning corruption, the CONI It ACTOR may lose this Contract or pail
of the Contract
ARTICLE 47 GOVERNMENT REVIEW
47.1 This Contract may be reviewed by the GOVERNMENT and amended by the
GOVERNMENT to the extent necessity to ensure that there is no material
inconsistency between this Contract and such reasonable cr«ena of probity and
commcrcialify which the GOVERNMENT may agree, m any petroleum iaw or other
instrument, shall apply to the existing petroleum contracts in the Kurdistan Region
47 2 Such review may take place within six months of the cntiy into force of any new
applicable petroleum law or instrument establishing those entena Such review will be
done only one time and shall be with respect to the applicable petroleum law under
discussion on the Effective Date
47 3 The CONTRACTOR may. within thirty (30) days of receiving such a notification,
respond to the proposed amendments The GOVERNMENT shall consider any such
response and shall, within sixty (60) days of the notification, further notify the
CON 1 RACTOR m writing of any decision to amend the contract or decision not to
amend This Contract shall be deemed to have been so amended on the date of
notification of the GOVERNMENTS decision to amend the Contract
ART ICLE 48- EFFECT IVE DATE
This Conrad shall become effective and be binding oo the Parties when both of the
following conditions have been satisfied -
(a) upon its signature by the duly authorised representatives of the GOVERNMENT and ihc
CONTRACTOR;
Kf
l the • jpacnx UtukSnv fund pa\mcnt t*\
(O'IKU I OK under Article ?Z Z
Inkictl Hilo in three < »> orientals in 1 rbil. kmduian Re re ton .'Drag or: FebiW> 2«'n 1
I or (io'cnntirni
Miimlrs of Nmural kc'nune'
Witness Win \ Hjmuiiii
Munster
W it lie.''
For Coiitrurtor
Mi*k*l l*rintuition. I lit
W Richard \mier-u>n
OlKVIiU
^ •/. V /
A / -
Witness
s:
For ( iMiiractor
PriOil Petroleum and Petroleum
Products International I xploralion
and Prod nr linn Inc.
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A L___(V
\\ irnev>
\V lines'
Fin < iiniracior
I film 0.1 l id
Direct..;
\V .mo'
ANNEX A
CONTRACT AHI \
Projection: i IM 7anc: «H\ Dilum: \W.S84
POINTS X COORD - EAST V COORD NORTH I AT- NORTH ION - EAST
1 ■ ^ »4i |
A 534031 75 3832686 29 34 38 08 45 77 15*
B 492441 35 3650381 Or
34'4r *4- 44 55 02*
c *85027 95 3847006 24 3*' 45 55' 4* 50 i r
0 ‘ 5146*6 16 3825161 52 34 34'04- 45 09 36*
» --- ---»«--- • ■ -»»»--- ' ■ - ■ 4 34' 37 30* ' 45 12*51*
E 519630 02 382223/41
F 523126 47 38250/3 21 • 34 3< 00' 45 15 or
0 526768 36 3822338 08 34' 32 33 45 17*30*
K4
ANNEX“B"
ACCOUNTING rROCF.Dl RL
Attached 10 and made pari of the Amended and Restated Production Sharing Agreement,
hereinafter called the “Agreement." effective February 25. 2007. by and between the
Kurdistan Regional Government and Shakal Production. Ltd. PctOil Petroleum and
Petroleum Products International Exploration and Production Inc . and Trilax Oil Ltd
SEC TION I
provisions
Li Ptiruou:
1.1.1 I lie |Hir|K>ke of this Accounting Procedure is to establish equitable methods
lor determining charges and credits applicable to operations under the
Agreement which idled the costs of Petroleum Operations to the end that no
Paiiy shall gain oi lose in relation to other Panics
It is intended dial approval of the Work Program and Budget as provided in
the Agi cement shall constitute approval of the rates and allocation methods
used iheicin to curicntly cliatgc the Petroleum Operations Accoum but
subject to verification by audit at a later date as provided in the Accounting
Procedure
1.1.2 The Parties agree, however, that if the methods prove unfair or inequitable to
Operator or Non-Operators, the Pames shall meet »:d .:i good faith endeavour
to agree on changes in methods deemed necessary to cortex: jov unfairness o:
inequity
1.2 Conflict with Agreement In the event of a conflict between the provisions of this
Accounting Procedure and the provisions of the Agreement to which this Accounting
Procedure is attached, the provisions of the Agreement shall prevail
1.3 Definition* I he definitions contained in Article I of the Agteement to which this
Accounting Procedure is attached shall apply to this Accounting Procedure and have
the same meanings when used herein Certain terms used heicm arc defined as
follows
“Country of Operation*" shall mean Iraq
“Material” shall mean personal properly (including, but not limited to. equipment
and supplies) acquired and held for use in Petroleum Operations
1.4.1 Operator shall at all limes maintain and keep true and correct records of the
production and disposition of all Petroleum, and of all costs and expenditures
under the Agreement, as well as other data necessary or proper for the tr
settlement of accounts between the Parties hereto in connection with their
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Kr i
rights and obligations under the Agreement and to enable Parties to comply
with their respective applicable income tax and other laws
1.4.2 Operator shall maintain accounting records pertaining to Petroleum Operations
in accordance with generally accepted accounting practices used in the
international petroleum industry and any applicable statutory obligations of
the Country of Operations as well as the provisions of the Agreement
1.4.3 Petroleum Operations Account records shall be maintained by Operntor in the
English language and in United States of America (••US”) currency and in
such other language and currency as may be required by the laws of the
Country of Operations Conversions of currency shall be recorded at the rate
actually experienced in that conversion Currency translations for
expenditures and receipts shall be recorded at the arithmetic average buying
and selling exchange rates for the New Iraqi Diner, and the United States
Dollars of the preceding month as determined by the local market
1.4.4 Any currency exchange gam or losses shall be credited or charged to the
Petroleum Operations Account, except as otherwise specified in this
Accounting Procedure
1.4.5 I lie accrual basis for accounting shall be used in preparing accounts
concerning the Petroleum Operations If a "cash" basis for accounting is used.
Operator shall show accruals as memorandum items
and BilUngs
1.5
1.5.1 l nless otherwise agreed by the Parties. Opcratot shil submit monthly to each
Party, on or before the 10* * Day of each month, statements of the costs and
expenditures incurred during the poor month, indicating by appropriate
classification the nature thereof the corresponding budget category. *nd the
portion of such costs charged to each of the Panto
These statements, as a minimum, shall contain the following information
• advances of funds setting forth the auiencies received from each Pam
• the vharc of each Party in total expenditures
• summary of costs, credits, and expenditures on a current month, year-
to-date and inception-to-date basis or other periodic basis, as agreed
by Panics
• details of unusual charges and credas in excess of US dollars SIO.OOO
(USS ten thousand t
1.5.2 Operator shall, upon request, furnish ti description of the accounting
classifications used by it
1.5.3 Amounts included in the statements and billings shall be expressed in US
currency and reconciled to the currencies advanced 4
2
1.5.4 Each Party shall be responsible for preparing its own accounting and tax
reports to meet the requirements of the Country of Operations and of all other
countries to which it may be subject Operator, to the extent that the
information is reasonably available from the Petroleum Operations Account
records, shall provide Non-Operators in n timely manner with the necessary
statements to facilitate the discharge of such responsibility
1.6 Payments and Advances Upon approval of any Work Program and Budget the
Contractor will provide nil required estimated cash requirements for the succeeding
month's operations
1.7 Audits
1.7.1 A Non-Operator, upon at least sixty (60) Days advance notice in wning to
Opcraioi and all other Non-Operators, shall have the right to audit the
Petroleum Operations Accounts and records of Operator relating to the
accounting hereunder for any Calertdai Year within the twenty-four (24)
month period following the end of such Calendar Year The cost of each such
audit shall be borne by Non-Operators conducting the audit It is provided,
however, that Non-Operators must take written exception to and make claim
upon the Operator for all discrepancies disclosed by said audit within said
twenty-four (24) month period Where there are two or more Non-Operators,
the Non-Opciutors shall make every reasonable effort to conduct joint or
simultaneous audits in a manner, which will result in a minimum of
inconvenience to the Operator Operator and Non-Operators shall make even
effort to resolve any claim resulting from an audit within a reasonable period
of time
A Non-Operator may audit the records of an Affiliate of Operator relating to
that Affiliate’s charges The provisions of this Accounting Procedure shall
apply mutans mu Hindu to such audits
f.7.2 Any information obtained by a Non-Operator under the provisions of this
Section I $ which does not relate directly to the Petroleum Operations shall be
kept confidential and shall not be disclosed to any party, except as would
otherwise be permitted by the Agreement.
1.7.3 In the event that the Operator is required by law to employ a public accounting
firm to audit the Petroleum Operations Account and records of Operator
relating to the accounting hereunder, the cost thereof shall be a charge against
the Petroleum Operations Account, and a copy of the audit shall be furnished
to each Party
1.8 Allocations If it becomes necessary tq allocate any costs or expenditures to or
between Petroleum Operations and any other operations, such allocation shall be
made on an equitable basis Upon request,.Operator shall furnish a description of its
allocation procedures pertaining to these costs and expenditures
SECTION II
IHKIKT ( IIAKOES
Operator shall charge the Petroleum Operation! Account with nil costs and expenditures
incurred in connection with Petroleum Operations It is also understood that cluuges I'oi
services iioimally provided by an operator such ns those contemplated in Section 2 7 2 which
are provided l>y Operator's Affiliates shall reflect the cost to tire Affiliate excluding profit,
for performing such services, except as otherwise provided in Section 2 6. Section 2 7 I. and
Section 2 ' I if selected
The costs and expenditures shall be recorded as required for the settlement of accounts
between the Parties hereto in connection with the rights and obligations under this Agicement
and for purposes of complying with the tax laws of the Country of Operations and of such
other countries io which any of the Parties may he subject Without in any way limiting the
generality of the foregoing, chargeable costs and expenditures shall include
2.1 I iccuses. Permits. Etc All costs, if any. attributable to the acquisition, maintenance,
renewal or relinquishment of licenses, penults lontiactual and/OT surface lights
acquired for Petroleum Operations when paid by Operator in accordance with the
provisions of the Agreement
2.2 Salfliisii
2.2.1 1 tie employees of Operator and tts Affiliates in the Country of Operations
directly engaged in Petroleum Operations whether Temporarily or permanently
assigned
2.2.2 The employees of Operator and ns Affiliates outside the Country of
Operations directly engaged in Petroleum Operations whether temporarily or
permanently assigned, and not otherwise covered in Sea ion 2 7 2
2.2.3 Salaries and wages, including everything constituting the employees total
compensation To the extent not included in salaries and wages, the Petroleum
Operations Account shall also be charged with the cos to Operator of holiday,
vacation, sickness, disability benefits, living and housing allowances, travel
time, bonuses, and other customary allowances applicable to the salaries and
wages chargeable hereunder as well as costs to Operator for employee
benefits, including but not limited to employee group life insurance, group
medical insurance, hospitalization, retirement, and ex her benefit plans of a like
nature applicable to labor costs of Operator Operator’s employees
participating in Country of Operations benefit plans may be charged at a
percentage rate to reflect payments or accruals made by Operator applicable to
such employees Such acctuals for Country of Operations benefit plans shall
not be paid by Non-Operators unless otherwise approved by the Co¬
ordination Committee, until the same ate due and payable to the employee,
upon withdrawal of a Party pursuant to the Agreement, or upon termination of
the Agreement, whichever occurs fust
4
4
2.2.4 Expenditures or contributions made pursuant to assessments imposed by
governmental authority for payments with respect thereto or on account of
such employees.
2.2.5 Salaries and wages charged in accordance with Operator's usual practice,
when and as paid or accrued, or on a basis of the Operator's average cost per
employee for each job category, and the rates to be charged shall be reviewed
at least annually. In determining the average cost per employee for each job
category, expatriate and national employee salaries and wages shall be
calculated separately. During a given period of time it is understood that some
costs for salaries and wages may be charged on an actual basis while the
remaining -costs for salaries and wages arc charged at a rate based upon the
above described average cost
2.2.<» Reasonable expenses (including related travel costs) of those employees
whose salaries and wages are chargeable to the Petroleum Operations Account
under Sections 2.2 I and 2.2.2 of this Section II and for which expenses the
employees arc reimbursed under the usual practice of Operator
2.2.7 If employees are engaged in other activities in addition to the Petroleum
Operations, the cost of such employees shall be allocated on an equitable
basis.
2.3 Employee Relocation Costs
2.3.1 Except as provided in Section 2 > >. Operators cost of employees' relocation
to or from the Agreement Area vicinity or location where the employees will
reside or work, whether permanently or temporarily assigned to the Petroleum
Operations If such employee works on other activities in addition to
Petroleum Operations, such relocation costs shall be allocated on an equitable
basis
2.3.2 Such relocation costs shall include transportation of employees, families,
personal and household effects of the employee and family, transit expenses,
and all other related costs in accordance with Operator s usual practice
2.3.3 Relocation costs from the vicinity of the Agreement Area to another location
classified as a foreign location by Operator shall not be chargeable to the
Petroleum Operations Account unless such foreign location is the point of
origin of the employee
2.4 Offices, Camps, and Miscellaneous Facilities Cost of maintaining any offices, sub¬
offices. camps, warehouses, housing, and other facilities of the Operator andior
Affiliates directly serving the Petroleum Operations If such facilities serve
operations in addition to the Petroleum Operations the costs shall be allocated to the
properties served on an equitable basis
2.5 Material Cost, net of discounts taken by Operator, of Material purchased or
furnished by Operator Such costs shall include, but are not limited to. export
brokers' fees, transportation charges, loading, unloading fees, export and import
duties and license fees associated with the procurement of Material and in-transi^^
losses, if any. not covered by insurance So far as il is reasonably practical and
consistent with efficient and economical operation, only such Material shall be
purchased for. and the cost thereof charged to, the Petroleum Operations Account as
may be required for immediate use
2.5.1 Purchasing fee When economical to do so. and required for the benefit of
the Petroleum Operations. Operator may request its Affiliates to provide
purchasing, expediting and traffic coordination services. Charges to the
Petroleum Operations Account for the provision of these purchasing services
shall be based on the Affiliate’s standard purchasing fee currently set at 6% on
the amount of each purchase order.
The fee shall be reviewed periodically by Operator's Affiliates and future
changes shall be made upward or downward as indicated by the Affiliate’s
cost experience for the provision of these purchasing service* Any changes
affecting the charges to the Petroleum Operations Account shall be subject to
notification by Operator and approval by the Co-ordination Committee. Such
charges shall be in lieu of any charges for the same 01 similar services
provided herein
2.6 Exclusively Owned Equipment and Facilities of Operator and Affiliates
Charges for exclusively owned equipment, facilities, and utilities of Operator and its
Affiliates at talcs not to exceed the average commercial late* of non affiliated third
panics then pievailing for like equipment, facilities, anc utilities foi use m the area
where the same are used hereunder On request Operator shall furnish Son-
Operators a list of rates and the basis of application Such rates shall be revised from
time to time if found to be cither excessive or insufficient, but not more than once
every six months
Drilling tools and other equipment lost in the hole or damaged beyond repair may be
charged at replacement cos: less depreciation plus transport at Kin costs to deliver like
equipment to the location where used
2.7 Services
2.7.1 The cost of services provided by third parties including Affiliates of Operator
other than those services covered by Section 2 7 2 Such charges for services
by Operator s Affiliates shall not exceed those currently prevailing if
performed by non-affiliated third parlies, considering qualus and availability
of services
2.7.2 The cost of services performed by Operator s Affiliates technical and
professional staffs not located within the Country of Operation
2.7.3 The charges for such services shall not exceed those currently prevailing if
performed by non-affiliated third panics, considering the quality and
availability of such services
Examples of such services include, but arc not limited to. the following
¥
46f 6
Geologic Studies and Interpretation
Seismic Data Processing
Well Log Analysis Correlation and Interpretation
Laboratory Services
Well Site Geology
Project Engineering
Source Rock Analysis
Petrophysical Analysis
Geochemical Analysis
Drilling Supervision
Development evaluation
Accounting and Professional Services
Otlici Data Processing
Costs shall include salaries and wages of such technical and professional personnel,
lost time, governmental assessments, employee benefits, and reasonable expenses
Costs shall also include all support costs necessary for such technical and professional
personnel to perform such services, such as. but not limited to. rent, utilities, support
staff, drafting, telephone and other communications expenses, computer support,
supplies, and depreciation
2.* Insurance Premiums paid few insurance required by law or lire Agreement to be
carried for the benefit of the Petroleum Operations
2.9 to Property.
2.9.1 All costs or expenditures necessary to replace or repair damages or losses
incurred by fire, flood, storm, theft', accident, or an\ other cause Operator
shall furnish Non-Operators written notice of damages or losses incurred in
excess of Twenty Five thousand US dollars (US S 25.000) as soon as practical
after report of the same has been received by Operator All losses in excess of
ten thousand US dollars (US S 10.000) shall be listed separately in the
monthly statement of costs and expenditures
2.9.2 Credits for settlements received from insurance earned for the benefit of
Petroleum Operations and from others tor losses or damages to Joint Property
or Materials Each Party shall be credited with its Participating Interest share
thereof except where such receipts are derived from insurance purchased by
Operator for less than all Parties in which event such proceeds shall be
w
7 cm A
ciedited lo those Parties for whom the insurance was purchased in the
proportion of then respective contributions toward the insurance coverage
2.9.3 F.xpenditures incurred in the settlement of all losses, claims, damages,
judgments, and other expenses for the account of Petroleum Operations.
2.10 Litigation wtnl l.rmil Lxncnxcs The costs and expenses of litigation and legal
services necessary for the protection of the Petroleum Operations under this
Agreement as follows
2.10.1 l^gal set vices necessary or expedient foi the protection of the Petroleum
Operations, and all costs and expenses of litigation, arbitration or oilier
alternative dispute resolution procedure, including reasonable attorneys’ fees
and expenses, together with all judgments obtained against the Parties or ary
of them arising from the Petroleum Operations
2.10.2 If the Parties hereunder shall so agree, actions or claims affecting the
Petroleum Operations heieunder may hr handled by the legal staff of one or
any of the Parties hereto, and a charge commensurate with the reasonable
costs of providing and furnishing such services rendered may be made by the
Party providing such service to Operator for the Petroleum Operations
Account, hut no such charges shall be made until approved by the Parties
2.11 faxes and Duties All taxes, duties assessments and governmental charges, of every
kind and nature, assessed or levied upon or in connection with the Petroleum
Operations, other than any that are measured by or based upon the revenues, income
and net worth of a Party
If Operator or an Affiliate it subject to income or withholding tax as a result of
services performed at cost for the operations under the Agreement, its charges for
such services may be increased by the amount of such taxes incurred (grossed up)
2.12 Other Expenditures Any other costs and expenditures incurred by Operator for the
necessary and proper conduct of the Petroleum Operations in accordance with
approved Work Programs and Budgets and not coveted m this Section II or in Section
III
SECTION III
INDIRECT CHARGES
3.1 Purpose Operator shall charge the Petroleum Operations Account monthly for the
cost of mdiiect services and related office costs of Operator and its Affiliates not
otherwise provided in this Accounting Procedure Indirect costs chargeable under this
Section III represent the cost of general counselling and support services provided lo
Operator by it* Affiliate These costs arc such that it is not practical to identify or
associate them with specific projects but are for services which provide Operator with
needed and necessary resources which Operator requires and provide a real benefit to
Petroleum Operations No cost or expenditure included under Section II V
included or duplicated under this Section III
I AL
(pfM
Amount The charge for the period beginning with the Calendar N ear through the
end of the period covered by Operator's invoice (“Ycar-to-Date") under Section 3 I
above shall be a percentage of the Year-to-Datc expenditures, calculated on the
following scale (US Dollars)
Annual Expenditures
SO to SI.000.000 of expenditures 1%
Next S5.000.000 of expenditures ■ 3 *•
Excess above S 5.000.000 of expenditures 2
Exclusionv The expenditures used to calculate the monthly indirect charge shall not
include the indirect charge (calculated either as a percentage of expenditures or as a
minimum monthly charge), rentals on surface rights acquired and maintained for the
Petroleum Operations Account, guarantee deposits, pipeline tariffs concession
acquisition costs and Taxes paid under the Agreement expenditures associated with
major consliuction protects for which a separate indirect charge is established
hereunder, pavmcnts to third parties in settlement of claims, and other similar items
Credits arising from any government subsidy payments, disposition of Material, and
receipts from third parties for settlement of claims shall not be deducted from total
expenditures in determining such indirect charge
Indirect Charge for Projects As to major construction projects tsuch as ;ut not
limited to, pipelines, gas reprocessing and processing plants, and final loading and
tcrminalling facilities) when the estimated cost of each project amounts to more than
US S 15.000.000. a separate indirect charge for such project shall be set by the
Co-ordination Committee at the time of approval of the project
SECTION IV
ACQUISITION OF MATERIAL
Acquisitions Materials purchased for the Petroleum Operations Account shall be
charged at net cost paid by the Operator The price of Materials purchased shall
include, but shall not l>c limited to export broker's fees, insurance, transportation
charges, loading and unloading fees, import duties, license fees, and demurrage
(retention charges) associated with the procurement of Materials, and applicable
taxes, less all discounts taken
Materials Furnished by Operator Materials required for operations shall be
purchased for direct charge to the Petroleum Operations Account whenever
practicable, except the Operator may furnish such Materials from its stock under the
following conditions
4.2.1 New Materials (Condition "I") New Materials transferred from the
warehouse or other properties of Operator shall be priced at net cost
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y
determined in accordance with Section 4 I above, as if Operator had
purchased such new Material just prior to nv transfer
Such net costs shall in no event exceed the then current market poce
4.2.2 Ised
4.2.2.1 Material which is in sound and serviceable condition and vnuhlc
for use without repair or reconditioning sliall be classed as
Condition ~2“ and priced at seventy-five percent (75%) of such
new purchase net cost at the tunc of ttansfer
4.2.2.2 Materials not meeting the requirements of Section 4 2 2 1 above,
but which can be made suitable for use after being repaired or
reconditioned, shall be cl.i"
percent (50%) of such new purchase net cost at the time of transfer
The cost of reconditioning shall also be charged to the Petroleum
Operations Account provided the Condition “3“ price, plus cost of
reconditioning, does no: exceed the Condition ~2~ price and
provided that Material so classified meet the requirements foi
Condition “2“ Material upon being repaired or reconditioned
4.2.2.3 Material which cannot be classified as Condition “2** ot
Condition “3". shall he priced at a value commensurate with its
use
4.2.2.4 Tanks, derricks, buildings, and Other items of Material involving
erection costs, if transferred in Icnocked-down condition, shall be
graded as to condition as provided in this Section 4 2 2 of Section
IV
4.2.2.5 Material including drill pipe, casing and tubing, which is no longer
use-able for its original purpose but is useable for some other
purpose, sliall lie graded as to condition as provided in this Section
4.2.2 of Section IV Such Material shall be priced on (he basis of
the current price of items normally used for such other purpose if
sold to third parties
4,3 Premium Prices. Whenever Material is not readily obtainable at prices specified in
Sections 4.1 ami 4.2 of this Section IV because of national emergencies, strikes ot
other unusual causes over which Operator has no control. Operator may charge the
Petroleum Opctations Account foi the required Material at Operator s actual cost
incurred procuring such Material, in making it suitable for use. and moving it to the
Agreement Area.,provided that notice in writing, including a detailed description of
the Matcnal required and the requited delivery date, is turnished to Non-Operators of
the proposed charge at least 15 Days (or such shorter period as may be specified by
Operator) before the Material in projected to lie needed for operations and prior to
billing Non-Operators for such Material the cost of which exceeds One Hundred
thousand US dollars (US S 100,000) Kach Non-Operator shall have the right, by so *° /
electing and notifying Operator within 10 Days (ot such shorter period as may
specified by Operator) after receiving notice from Operator, to furnish in kind all ”\
10
part of his share of such Material per the terms of the notice which is suitable for use
and acceptable to Operatoi both as to quality and time of delivery Such acceptance
by Operator shall not be unreasonably withheld. If Material furnished is deemed
unsuitable for use by Operator, all costs incurred in disposing of such Material or
returning Material to owner shall be borne by the Non-Operator furnishing the same
unless otherwise agreed by the Parties If a Non-Operator fails to properly submit an
election notification within the designated period. Operator s not required to accept
Material furnished in kind by that Non-Operator If Operator fails to submit proper
notification prior to billing Non-Operators for such Material. Operatoi shall only
charge the Petroleum Operations Account on the basis of the price allowed during a
“normal" pricing period in effect at time of movement.
Warranty of Material Furnished by Operator. Operatoi does not wairant the
Material furnished In case of defective Material, credit shall not he passed to the
Petroleum Operations Account until adjustment has been received bv Operator from
the manufacturers or their agents
SECTION V
DISPOSAL OF MATERIALS
Disposal Operator shall be under no obligation to purchase the merest of Nor-
Operators in new or used surplus Materials Operator shall have the right to dispose
of Materials but shall advise and secure prior agreement of the Co-ordination
Committee of any proposed disposition of Materials having an original cost to the
Petroleum Operations Account either individually or in the aggregate of One Hundred
Thousand US Dollars (US SIOO.OOO) or more W hen Petroleum Operations arc
relieved of Material charged to the Petroleum Operations Account Operator shall
advise each Non-Operator of the original cost of vuch Material to the Petroleum
Operations Account so that the Parties may eliminate such costs from their asset
records Credits for Material sold by Operator shall be made to the Petroleum
Operations Account in the month in which payment is received for t!*c Material Any
Material sold or disposed of under this Section shall be on an “as is. w here is" basis
without guarantees or warranties of any kind or nature Costs and expenditures
incurred by Operator in the disposition of Materials shall be charged to the Petroleum
Operations Account.
Mnlrrinl Purchased by a Party or Affiliate Material purchased from the Joint
Property by a Party or an Affiliate thereof shall be credited by Operator to the
Petroleum Operations Account, with new Material valued in the same manner as new
Material under Section 4 2 I and used Material valued in the same manner as used
Material under Section 4 2 2, unless otherwise agreed by the Co-ordination
Committee
Division In Kind Division of Material in kind, if made between the Parties, shall be
in proportion to their respective interests in such Material. Ivach Partv will thereupon
be charged individually with the value (determined in accordance
set forth in Section 5 2) of the Material received or receivable by it
II
Sales lo Third Parties Material purchased from the Joint Property by third parties
shall be credited by Operator to the Petroleum Operations Account at the net amount
collected by Operator from the buyer If the sales price is less than that determined in
accordance with the procedure set forth in Section 5 2. then approval by the Co¬
ordination Committee shall be required prior to flic sale Any claims by the buyer for
defective materials or otherwise shall be changed back to the Petroleum Operations
Account if and when paid by Operator
SECTION VI
INVENTORIES
Periodic Inventories - Notice and Representation At reasonable intervals, but at
least annually, inventories shall be taken by Operator of all Material on which detailed
accounting records are normally maintained The expense of conducting periodic
inventories shall be charged to the Petroleum Operations Account Operator shall
give Non Operators written nonce at least thins Das s (30) in advance of its intention
to take inventory, and Non-Operators, at their sole cost and expense, shall each be
entitled to hase a representative present The failure of any Non-Operator to be
represented at such inventory shall bind such Non-Operator to accept the inventory
taken by Operator who shall in that event furnish each Non-Operator with a
reconciliation of overages and shortages Inventory adjustments to the Petroleum
Operations Account shall be made for overages and shortages Any adjustment
equivalent to Filly Thousand US Dollars (USS 50,000) or more shall be brought to the
attention of the Co-ordination Committee
Special Inventories Whenever theie is a sale or change of interest in the Agreement,
a special inventory may be taken by the Operator provided the seller and/or purchaser
of such interest agrees to bear all of the expense thereof In such cases, both the seller
and the purchaser shall be entitled to be represented and shall be governed by the
inventory so taken
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SECTION VII
NON-RECOVERABI.E COSTS
7 Non-Rrcosrrable costs. Except as specifically provided in the Agreement. the
following costs shall nor be recoverable by the Contractor as Petroleum Costs
7.1 I Inter cm
7 1 2 Depreciation and amortisation
7 I 3 Dividends, repayment of equity or repayment of intcr-compam loans
7 I 4 Dccormssioning costs actually paid in excess of decommissioning fund
balance
7 1 5 l.'nless spcxificall> provided in an approsed Hud vet or otherwise specifically
approved by the Government, costs relating to leasing and hiring of structure' or facilities
A
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