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 PRODUCTION SHARING CONTRACT


ROVIBLOCK


KURDISTAN REGION











BETWEEN


THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ


AND








RELIANCE EXPLORATION AND PRODUCTION DMCC


 IABI 1 Ol' CONTENTS





PREAMBII





Article 1 Dl FINITIONS


Article 2 SCOPliOF THECONTRAC 1


Article 3 CONTRACT AREA


Article 4 (iOVI RNMENT PARTICIPATING INTEREST


Article 5 OPERATOR


Article 6 TERM OF THE CONTRACT


Article 7 RELINQUISHMENTS


Article K MANAGEMENT COMMII III


Article 9 GUARANTEES


Article 10 MINIMUM EXPLORATION W<)RK t »HI IGATIONS


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 ACCOUNTING AND AUDITS


Article 16 < OMRAtTORS RIGHTS AND OBLIGATIONS


Article 17 l s| OF LAND AND EXISTING INFRASTRUCTURE


Article 18 ASSISTANCE FROM THE GOVERNMENT


Article 19 EQUIPMENT AND MATERIALS


Article 20 Tim TO THE ASSETS


Article 21 USf OF THE ASSETS


* *6


Article 22 MIBCONTRACTING


Article 23 PERSONNEL AND TRAINING


Article 24 ROYALTY


Article 25 RECOVERY OF PI 1 ROI.EUM C< »s | s


Article 26 SHARING OF PROFI'I PE TROLEUM


Article 27 VALUATION AND METERING 01 CRUDI Oil AND NAIURAI. GAS


Article 28 DOMESTIC MARKET - SALE OF (iOVI RNMFNT SHARE


Article 29 FINANCIAL PROVISIONS


Ankle 30 CUSTOMS PROVISIONS


Article 31 TAX PROVISIONS


Article 32 BONUSES AND CONTRIBUTIONS


Article 33 PIPELINES


Article 34 UNI USA HON


Article 3 5 LIABILITY AND INSt RANCE


Article 36 INFORMATION AND CONFIDENTIALITY


ArtKle 37 ENVIRONMENTAL PROVISIONS


Article 3* DECOMMISSIONING


Article 39 ASSIGNMENT AND CHANGE OF C ONTROL


Article 40 FORCE MAJEURE


Article 41 WAIVER OF SOVEREIGN IMMUNITY


Article 42 ARBI IRA HON AND EX PER T DEI 1KMINA LION


Article 43 GOVERNING LAW. FISCAL STABILITY. AMENDMENTS AND


VALIDITY





Article U NOTICES


Article 45 TERMINATION


Article 4ft APPLICATION OF CORRUPTION LAWS


Article 47 GOVERNMENT REVIEW


Article 48 EFFECTIVE DATE








Annex A CONTRACT AREA MAP AND LIST < >1 COORDINATES


Annex B ACCOUNTING PROCEDIIRI


 PRODUCTION SHARING CONTRACT











BET WHEN:


The M RDISTAN REGIONAL GOVERNMENTOf I RAO thereafter referred lo a* the


GO\ i; RNMI'M" k JuK rrpirsrmed by (hr Manner ol Natural RwnmcH.





AMI





RELIANCE EXPLORATION & PRODICTION DMCC (heremafter referred to a*


“RELIANCE"!. a company established and exiting under (he laws of United Arab


Emirates. whose registered office is at 1-4. I si Floor. Al Ealasi Residence. Center Point


Apartment Building. P.O Box 125307. Dubai. United Arab Emirates, duly represented by


Mr. Alul Chandra.














WIIERI AS:








(A) I he GOVERNMENT wishes to develop the petroleum wealth ol the kuidisWn Region


(ns defined in this ( ontract) in a way that achieves the highest benefit to the people* of





the Kurdistan Region and all of Iraq, using the most advanced techniques of market


principles and encouraging investment consistent with Article 112 ot the Constitution of








|B) la accordance wah tv t >awm*hm of Iraq. tv presorting law of fcc kurdnian Region is


the Kurdistan Region Law (os defined m this Contract), octp with regard lo a matter








The GOV FRNME NT luv esUblished by the Act of the Kirfiamcnt ol the kurJistan


Region, a Ministry of Natural Resource* in the KurdisUn Region, with responsibility


for all natural resources except for waier. and forestry:





(D) 1 he GOVERNMENT intends to present lo ihe Parliament of the kurdivun Region


ihe Kurdistan Region Petroleum Act (a* defined in this Contract), to regulate


Petroleum Operations (as defined m this Contract), including production sharing










(i) with the financial capability and the technical knowledge and technical ability,





to carry out Petroleum Operations « the Contract Area (as defined ai this




















5


 (*ii> billing io cooperate with the GOVERNMENT h> entering into this Contract,


thereby assisting the GOVERNMENT lo develop the Kurdistan Region


petroleum industry, thereby promoting the economic development of the


Kurdistan Region and Iraq and the social welfare of its people;








NOW. 1 III RFFORF.. THE PAR fils HAVE AGREED Ah FOLLOWS:








AR I It LI I DEFINITIONS


Capitalised terms and expressions in this Contract shall have the lollowing meaning,


unless otherwise specified:


Ahcuml means outside of the Kurdistan Region and other parts of Iraq


ArroaaH w defined - Article I $ I.


Accounting Procedure means the Account mg Procedure attached to this Contract as Annex


B and constituting an integral part ol this Contract


Affiliated Company or Affiliate means, as regards any ol the companies or entities


constituting the C'ONTRAC FOR, a company or other legal entity which:


(at controls an entity constituting the CONTRACTOR; or


lb) i> controlled by an entity constituting the C'ONTRAC *1 < >K; or


(c» controls or is controlled by a company or entity which controls an emit) constituting


the CONTRACTOR


I or the purpose of this definition, "control' means direct or indirect ownership or control of


the maturity of the voting rights of the applicable entity at its shareholders' meetings or ihe-r


opmalere


Appraisal Arm means the area defined m Article 12-2 Appraisal Program is defined hi


Article 12 2 Appraisal Report .s defined-Article 12 4


Appraisal Well means a well drilled the purpose of csaUaim.- the commercial pixent ai


ol a geological feature oi a geological siiucturc in which Petroleum has been discovered.


AriiiVl.cngth Sales means sales of Petroleum in lively convcriiblc cunencies belwccn


willing sellers and buyers having no direct or indirect relationship or common interest


wlwtiMiwei with each other that could reasonably Influence the sales price. Such Arm's-


Length Sales shall exclude:


 (a) vale* between the CONTRACTOR und its Affiliates:


(h) sales involving the GOVERNMENT or the Government of Iraq;


(c) sales involving exchanges and any tianvaclions not relating to normal commercial


l*i.Klii es





except where it can be shown to the satisfaction of the GOVERNMENT that the sales were


on arms length basis and at prices which are competitive considering the quality, quantity


and geographical factors


Assets means all platforms, pipelines, plant, equipment, machinery. wells, facikies and all


other installations and structures and all Materials and Equipment.


Associated Nutural (ins 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 25.1.


Available Non-Associated Natural (.as is defined in Article 25 I


Available Petroleum is defined in Article 25.1.


Barrel means a quantity o( IwftyAwo (42) I!S gallons as a unit to measure liquids, at a


temperature of sixty degrees (60 > I ahrcnheit and pressure of fourteen point seven (14.7) psi.


Budgets means any budgets prepared by. or on behalf of. the CON TRACTOR pursuant to


this Contract and forming part of an I sploration Work Program and Budget ard or an


Appraisal Work Program and Budget and or a Gas Marketing Nkork Program and Budget


and or a Development Work Program and Budget and or a Production Wort Program and


Budget


Calendar \ ear means a period of twelve (12) consecutive Months, commencing I January


and ending on 31 December of the same year.


Commercial Discovery means a Discovers which, in the COMKACIOK'S analysis, is


potentially commercial when taking into account all technical, operational, commercial and


financial data collected when carrying out appraisai works or similar operations, including


hut not limited to: recoverable reserves of Petroleum, sustainable regular production levels


and other material technical, operational, commercial and financial parameters, all in


accordance with standard practices in the international petroleum industry


Commercial Production means the production of Petroleum from the Production Area in


accordance with annual Production Works Program and Budget





V


-


C na«tiiution of Iraq means ihc permanent constitution of Iraq approved b> the people of lr*j


in Ihc general referendum of 15 October 2005;


Contract means this production sharing contract, including in Annexes A and B lhal are an


integral part hereof, as well as an> extension, renewal, substitution or amendment of this


production sharing contract that mas he agreed in writing by the Parties in accordance with


Article 43.7 (except as provided in Article 47>.


('ontract Area means the area described and defined in Annex A attached to litis Contract.


»id am modifications nude to lhal Annex in accordance with the provisions of this Contract


Contract Year means a period of twelve

Effective Date or any anniversary of liter said Effective Dale


CONTRACTOR means, either jointly or individually. Kl I.IANCE. and/or any assignee of


all or part of the rights and obligations under this Contract in accordance with Article 39 of this


Contract and, for the avoidance of doubt, at any lime when there is only one entity


constituting the CONTRACTOR, any reference made in this Contract to "the entities


constituting the CONTRACTOR" or the "( ONI RAO OR entities" or similar reference,


shall be deemed to mean "the entity constituting the CONTRACTOR".


Corporalr Guarantee is defined in Artie lc 9 I


Crude Oil means all liquid hydrocarbons in their unprocessed state or obtained from Natural Gas


by condensation or any other means of extraction.


Decommissioning Costs means all the costs and expenditure incurred by the


CON TRACT OR when carrying out Decommissioning Operations, including but not limited


to those defined in the Accounting Procedure


Decommissioning Operations 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


Drcnaramsiufiiac Plan is defined m Article 38.7.


DccomnmsNMiiag Reserve Fond is defined in Article 38.1 and includes all contributions paid


into such fund and ail interest accumulated in such fund.


Delivery Point means the place after extraction, specified in the approved Development Plan for


a Petroleum field, at which the Crude Oil. Associated Natural Gas and'Or Non-Associaicd


Natural Gas iv metered for the purposes of Article 27.5. valued for die ptaposcs of Article 27 I


jmJ ready to be taken and disposed of. consistent with international practice, and at which a


Party may acquire title to its share of Petroleum under this Contract or such other pomt which


may he agreed by the Parties


Development Costs means all the costs and expenditure incurred by the CON I RACTOR


when carrying out Development Operations, including but not limited to those defined in the


Accounting Procedure.


Development Operations menus nil development operations or works conducted in


accordance with a Development Plan up to the Delivery Point with a view to developing a


Petroleum Field, includinie but not limited to: drilling or well*, primary and subsequent


recovery projects and pressure maintenance: survey, engineering, building and erecting or


laying of production plants and facilities (including but not limited to: separators;


compressors, generators; pumps and tankage; gathering line', pipelines and all facilities


requited to be installed for production, pressure maintenance, mid treatment, storage and


transportation of Petroleum); obtaining of such materials, equipment machinery, hems and


supplies as may be required or evpedient for the foregoing activities; and all auxiliary


operations and activities required or expedient for the production of Petroleum from the


Production Area


Development Period is defined in Anicle 6 of this Contract.


Development Plaa means a plan for development defined in ArtK W I? I of this Contract


Development Well means any well drilled after the date ol approval of the Development


Plan lor the purpose of producing Petroleum, increasing or accelerating production of


Petroleum, including injection wells and dry holes. Any well drilled within a Production Area


shall be deemed a Development Well.


Development Work Program and Budget means the development work program ard


budget prepared pursuant to Article 13.2.


Discovery means a discovery ol Petroleum within the limits of the Contract Area resulting


from Petroleum Operations carried out tinder this Contract, provided such Petroleum is


recoverable at the surface vsuh a measurable flow utilising techniques used in the


international petroleum industry.


Dollar (IJS$) means the legal ctmency (dollar) of the United Stales of America (USA).


Effective Dale means (he date on which the conditions referred to in Anicle 48 of this


Contract have been fulfilled.


Equipment and Materials is defined in Article I** I


Exploration Cost* means all the costs and expenditure incurred by the CONTRACTOR


when carrying out Exploration Operations, including but not limned to those defined in the


Accounting Procedure.


Exploration Operations means any and all operations conducted ssith a view to discovering


Petroleum, including but not limited to: any activities necessary to commence 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, coring, logging and equipping of Exploration Wells or


Appraisal Wells; priKuremcnt of such serv ices, material, equipment, machinery, items and


supplies as may be required or expedient for the foregoing activities; and all auxiliary


operations and activities required or expedient for the conduct of the foregoing activities.


Exploration Period is defined in Article 6 of this Contract.











')


 Exploration Well means any well drilled for the purpose of confirming a geological


structure or stratigraphic unit in which no Discovery has previously been made by the


CONTRACTOR





Exploration Work Program ami Budget mean*, the expli*rntion work program and budget


prepared pursuant to Article III


Export Crude Oil is defined in Article 24.2


Export Non-Asaoriated Nalurul (.as is defined in Article 24.2.


Export Petroleum o 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-


Associated Natural

the Development Plan without intermption fora minimum ol Ibity eight (48) hours


Force Majeure b defined hi Article 40.2.


Gas Marketing Costs means all costs and expenditure incurred h> the COM KACTOR when


carrying out Gas Marketing Operations, including but not limited to those defined in the


Accounting Procedure


Gas .Marketing Operations means any and all ol the activities and operations contemplated by


Article 14.6.


Gas Marketing Work Program and Budget means the marketing work program and budget


prepared pursuant to Article 14 J.


Government of Iraq means the f ederal Gosemmcnl of the Republic of Iraq, which holds


office under the Constitution of Iraq.


International Market Price is defined in Article 27.2 of this Contract


Joint Operating Agreement means any agreement executed by the entities constituting the


CONTRACTOR at any time for the purpose of rrgubtmg between such entities the terms


under which the Petroleum Operations will he conducted, which agreement shall be: (a)


consistent with international standards in the petroleum industry, (h) as between such


entities, supplementary to this Contract; and (c) consistent with the prosisions of the


Contract.


Kurdistan Region means the Kurdistan Region of Iraq recognised by the Constitution of Iraq


and having the Mime mewling as in (he Kurdistan Region Petroleum Act


Kurdistan Region Law means all statutes, decrees, edicts, codes, orders, rules, ordinances


and regulations of the GOVERNMENT or of any other local, municipal, territorial,


provincial, or any other duly constituted governmental authority or agency in the Kurdistan


Region.


\ its


to


Kurdistan Region Petroleum Act means the draft KurdiMan Region Petroleum Act. which is


currently under consideration hy the GOVTKNMENT or. when that Act enters into force


I .aw meant 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.


MIIOK means the London Inicr-Hnnk Offered Rate at which Dollar deposits for one (I»


Month are offered in the Inter-bank market in I ondon. as quoted in live financial limes of


I ondon lot the day in question. In the event that such tate is not published in the Financial


lime*, n shall mean the London Inter-bank Offered Rate at which Dollar deposits for one


Month are offered for the nearest day m quoted by National Westminster Bank pic.


Management Committee is defined in Article 8 of this Contract.


Minimum Exploration Obligations is defined in Article 10.1 of this Contract


Month means a calendar month according to the Gregorian calendar


Natural Gas means all gaseous Petroleum uikI inerts.


Non-Assoclated Natural (ins menus any Natural Gas which is not dissolved in Crude Oil


under reservoir conditions.


Operator means the entity designated by the CONTRAC TOR pursuant to Article 5 of this


Contract which, in the name and on behalf of the CONTRAC I OK. shall carry out all


Pctioleum Operations If ai any lime there exists more than one (II Operator under this


Contract, any reference herein to the term •Operator' shall be to each Operator web respect l*>


the pans of the Contract Area m which such Operator conducts Petroleum Operations


Party or Parties means the GOVERNMENT andor the CONTRACTOR


Permit* means all licences, permits, consents, authorisations or other permissions, as the


context requires.


Petroleum means-


la) any naturally occurring hydrocarbon in a gaseous or liquid stale.


|b) any mixture of naturally occurring hydrocarbons in a gaseous or liquid stale; or


(c) any Petroleum (as defined m paragraphs (a) and lb) above) that has been returned to a


Reservoir





Petroleum Costs means all costs ami expenditure incurred by the CONTRACTOR for the


Petroleum Operations, and which the CONTRACTOR is entitled to recover under this


t nniracl and us Accounting Procedure attached to this Contract as Annex B. including hut


not limited to Decommissioning Cost*. Development Costs. Exploration Costs. Gas


Marketing Costs and Production Coils.





II


Petroleum Field mean* j Reservoir or group of Reservoirs within a common geological


Joxiurc or m r at i graphic unit from which Petroleum ma> be produced and which has been


declared as a Commercial Discovers by the CONTRACTOR pursuant to Ankle 12.6 (a) or


Article 14.3(a).


Petroleum Operations means all Exploration Operations. Gas Marketing Operations.


Development Operations. Production Operations and Decommissioning Operatioiis, as well


as any other activities or operations directly or indirectly rclutcd or connected with the snld


operations (including hut not limited to health, safety and environmental operations and


activities) and authorised or contemplated by. or performed in accordance with, this Contract.


Production Area means such areas within the Contract Area designated as a production 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 which a


Commercial Discover) is located arc automatically included in the relevant Production Area.


Production I (onus means any bonus due pursuant to Article 32.3 or 32.4


Production Cwls means all the costs 3nd expenditure incurred by the CONTRACTOR in


carrying out the Production Operations, including but not limited to those defined in the


Accounting Procedure


Production Operations means any works, together with all related and auxiliary activities,


for the pioduction 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 wells, plants, equipment, pipelines,


terminals and any other installations and facilities, and any related operations and auxiliary


operations, and storage and transportation of Petroleum from the Production Area to the


Delivery Point.


Product ion Work Program and Budget shall mean the production work program and


budget prepared pursuant to Article 13.6.


Profit C rude Oil is defined in Article 26.1


Profit Natural Gas is defined in Article 26 I


Profit Petroleum is defined m Article 26.1.


Public < ompany means a public company regulated by the GOVERNMENT under the


Kurdistan Region Petroleum Act.


Public Officer means a civil servant, including a member or employee of a public entity, a


member ol the Parliament or a member of the Government.


Quarter means a period of three (3) consecutive Months starting on the first day of January.


April. Ally or Ctetober respectively


Republic of Iraq Oil and Gas Law means the Republic of Iraq Oil and G>>s I aw being


negotiated at the Effective Date, when that Law enters into force.


* *Cc


12


Krvnoir means a subsurface rock k-rmaior containing an usjixdujl and separaJc natural


accumulation of producible Petroleum characterised b> a single natural presume system


"R" factor ,s defined m Article 264


Royalty is defined ai Article 24.


Second Exploration Well is defined in Article fOJ (b>.


Semester means a period of six (6) consecutive \1<»mhs starting from the first day of January


or July respectively.


Suliconlraclnr meant any entity of any contracting tier providing services and/or


undertaking worts relating to the Petroleum Operations under the overall supervision by, and


on behalf of, the CONTRACTOR.


Sub-Period and Suli-Perimls are defined in Article 6.2.


Work Program means any work program prepared by. or on behalf of. the


CONTRACTOR pursuant to this Contract and forming part of an I xpkiraiion Work


Program and Budget and'or an Appraisal Work Program and Budget and or a Gas Marketing


Wort Program and Budget and or a Development Wort Program and Budget and'or a


Production Work Program and Budgel.





>



























































13


 ARTICLE 2 - SCOPI Ol I III C ONTRACT





2.1 This Conlracl is a pioduciion-sharing arrangement with respect to the Contract Area,


whereby the GOVERNMENT has the light, pursuant to the Constitution of 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


Parties and the terms and conditions under which the CONTRACTOR shall carry


out all the Petroleum Operations.


By entering into this Contract, the GO' ERNMENT giants the CONTRACTOR


the exclusive right and authority to conduct all Petroleum Operations in the Contract


Area as detailed in Article 3 below.


2.2 Upon the CONTRACTOR'S request, the GOVERNMENT dull provide all required


Permits relating to the Petroleum Operations required by the CONTRACTOR to


fulfil its obligations under this Contract, including those relating to any extension and


renewal periods and including those required by the Government of liaq. The


GOVERNMENT (i) represents and warrants to the CONTRAC TOR that it has not


done and has not omitted to do anything that would cause the cancellation or


suspension of this Contract or any Permit granted pursuant to this ('ontract; and (iii


covenants th.it 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


I I he CONTR ACTOR shall conduct all Petroleum Operations within the Contract


Area at its sole cost, risk and peril on behalf of the GOVERN MEN J, pursuant to this


Contract including but net limited to trie M km mg operations





(a) Technical Voices


Implementation of all technical, human and material resources reasonably


required for execution of the Petroleum Operations, in accordance with


standard practices prevailing in the micnMlionil petioicuin industry


(b) Financial Services





The responsibility for funding the I. xplorariun Operations and. in the event of


a Commercial Discovery. Dcvck*pmcnt. Production and Decommissioning


Operations, pursuant to this Contract.


For the funding of Petroleum Operations, each entity constituting the


CONTRACTOR shall be entitled to have recourse to external financing front


either its Affiliated Companies or from any third pontes





|c> 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








14


2 4 During ihe term of this Contract, the CONTRACTOR shall be responsible to the


GOVERNMENT for the conduct of Petroleum Operations within the Contract Area


pursuant to the terms of this Contract.


2.5. Natural resources other than Petroleum shall he excluded from the scope of this


Contract, even if the 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 Crude Oil and/or Profit Natural Gas produced


from Petroleum * Iperutions shall be shared between the Patties in uccoidance with the


provisions of Article 26 of this Contract.


2.8 lor the execution of Petroleum Operations under this Contract, the CONTRACTOR


dull luxe il»o light to:


(a) freely access and operate witlun the Contract Area . us well as any facilities


associated with the Petroleum Operations, wherever they may he located;


freely use access loads locuted within the Contract Area and outside the


Contract Area for the construction, installation, maintenance and removal of


pipelines and oilier facilities required for the Petroleum Operations;




inside or outside the Contract Area fot the Petroleum Operations.


(ill use any qualified foreign and local personnel and dr Subcontractors required


for the conduct of Petroleum Operations in accordance with Articles 22 and 23


of this Contract Any foreign personnel working in the RurJistan Region shall


require prior authorisation of the GOVERNMENT (such authorisation not to


he unreasonably delayed or withheld) and the GOVERNMENT shall obtain


any authorisation required by the Government of Iraq;





(c) import any goods, materials, equipment and or serv ices required for ihe


Petroleum Operations in accordance with Articles Id. 22 and 30. and


(0 freely use land or property belonging to the Kurdistan Region





ley























15


 AR IIC I KJ.CONTRACT AREA








I he initial Contract Area coven the Rovi Block and extends over an area ol I ive


hundred sixteen point six square kilometres (516 6 km I. as detailed and indisated on





the map attached in Annex A and is delimited hy the following coordinates:





Point Latitude longitude X(mE) Y(mN>




A Ift 4ft 45 43 40 44 382100 4070900


M 36 4-1 23 43 53 04 400395 4«>e.r, W»:


C 36 40 42 43 51 12 (975}6 4059522


1) 36 38 3‘> 43 46 13 mtKior, 4055827


F. 36 33 28 43 44 49 387850 4046250


36 31 23 43 43 35 385977 4042422


bed 36 32 14 43 29 51 1 365500 4044300





The GOVERNMENT, by execution of this Contract, hereby validates and approves


the foregoing co-ordinates of the Contract Area.


The total area of the Contract Area may he reduced only in accordance with ihe provisions





of this Contract.





Kf





 ARTICFF 4 - (.ON f KNMENT PAR I l< IPA1ING IN I FRI ST





4 1 I he GOVERNMENT 'hull through a Public Company duly authorised by the


GOVERNMENT hove the option of participating in this Contract, in respect of the


entire Contract Area, at a < ONTRACTOR entity, with an undivided interest in the


Petroleum Operations and all the other rights, duties, obligations and liabilities of the


CONTRACTOR, under this Contract in ivspcct of the Contract Area, of twenty-live


per cent (25%) (the "Government Interest"), such option being referred to herein


as the "Option to Participate". The Public Company shall he 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 I ffcciivc Hate 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 refetred to herein as the "First Commercial Declaration Date") If


the Public Company does not notify the CONTRACTOR 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 whatsoever in respect of any such


participation.


4.2 If the Public Company exercises the Option to Participate in accordance with Article


4.1:


(a) the effective dale of such participation shall be ihe date of the notice by which


the Public Company exercises its Option to Participate or the l irst


Commercial Declaration Dale, whichever is the earlier;


(b) the Public Company shall participate as j ( ONI R ACTOR entity under this


Contract from such effective date, with all its rights, duties, obligations and


liabilities under this Contract, sase as provided in and subject to the


prov isions of this Article 4;


(c) the Public Company shall not have any liability to the other CONTRACTOR


entities to contribute its Government Intcrcvi share of all Petroleum Costs


incurred before the first Commercial Declaration Dale and its Government


Interest share of such Petroleum Costs shall be ihe 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:


(dl if. pursuant to the terms of the Joint Operating Agreement, the Public


Company participates in the development of the Commercial Discovery, it


shall be liable to the other CONTRAC TOR entities to contribute its


Government I merest share of all Petroleum Costs incurred on or after the I irsl


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 accordance with Article 25. including the Petroleum Costs which il


has reimbursed pursuant to Article 4.2 (c);


(e) if such Option to Participate is exercised on or after the First Commercial


N KJ


 Declaration Date, the Public Company shall, within thill) (30) days of the


date of so noticing the CONTRACTOR of us 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 I irst Commercial Declaration Date


hm prior to and including the date of the notice pursuant to which it exercises


its option to Participate. From the dale of such notice, tin* Public Company


shall pay the Government Interest shore of such Petroleum Costs directly;


(0 for the purposes of Article 39 of the Kurdistan Region Petroleum Act. the


Government Intciest so assigned shall deemed to he held by the


GOVERNMENT and in accordance with lire principle in Article 16.13. the


Public Company will he individually and separately liable (and not jointly and


severally liable with the other CONTRACTOR entities) to the


GOVERNMENT for its obligations, duties and liabilities under this Contract


as a CONTRACTOR entity and the provisions of Article 4 4 shall apply.





The Public Company may. at its discretion, assign part or all ol ns Government


Intciest to a third parly or parties which is another Public t ompiny duly authorised


by the GOVERNMENT, provided that m the event of a transfer ol part of ti*c


Government Interest .uch Government Interest will not be less than live per cent








In the event of such an assignment to another Public Company, for the purposes ot


Article 39 of the Kurdistan Region Petroleum Act. the Government Interest so


ned shall be deemed to be held by the GOVERNMENT and m accordance


with the principle in Article 16 13. the Public Company to which such


Government Interest is transferred will be individually and separately liable (and not


Jointly and severally liable with the other CONTRACTOR MM») to the


GOVERNMENT for its obligations, duties and liabilities nder tin Contract as a


(CONTRACTOR entity and the provisions ol Article 4 4 shall apply


Any failure by the a Public Company to perform any of its obligations or to satisfy


any of its duties or liabilities under this Contract as a CONTRACTOR entity slutil


not be considered as u default of the other CONTRACTOR cnlilici und shall in no


inse be invoked by the GOVERNMENT t« tcmiinale this ( nniriu t


fhe capacity of a Public Company as a CONTRACTOR entity, us it may arise


pursuant to the provisions of this Contract, shall in no event cancel or alTcct the rights


of the other CONTRACTOR entities to seek to settle a dispute or to refer such


dispute to arbitration or expert determination m accordance with the provisions of


Article 42.


A Public Company may assign pan or all ol its < iovernment Interest to a third party


or parties (not being u Public Company), subject lo the provisions ol Article 4.6 (and


for the avoidance of doubt the provisions of Articles 39.1. 39.2 and 39.3 shall not


apply).


For the avoidance of doubt, following any assignment by a Public Company of all or


part or all of a Government Interest to a third pany which is not a Public Company, m


accordance w ith the provisions of this Article 4. the provisions ol Articles 39.1, 39.2


'a 18 Ks


and 39.3 shall apply 10 any subsequent assignment of such interest.





Where a Joint Operating Agreement has been executed by the CONTRACTOR


entities prior to any exercise of the Option to Participate pursuant to this Article 4, the


Public Company authorised as mentioned in Article 4.1 shall become a party to such


agreement, with any amendments necessary to be consistent with the principles of


this Article I Where a Joint Operating Agreement is not in place prior to the


exercise of the Option to Participate pursuant to this Article 4. the Public Company


and the other CONTR ACTOR entities shall, within a reasonable period of time,


negotiate in go.nl faith and enter into a Joint Operating Agreement and shall during


the period betssccn the exercising of the Option to Participate and the execution of Un-


Joint Operating Agreement, comply with paragraphs (a) and (h) inclusive of Article


4.7 as if they were provisions of this Contract.


Any Joint Operating Agreement entered into in relation to this Contract shall be


consistent with the principles of this Article I and shall provide as follows:


(a) all decisions of any operating committee established under such Joint


Operating Agreement shall require the affirmative vole of an agreed


percentage ol participating interests held thereunder, wh.ch m any event dull


not be more than seventy five percent (75**».


(b| in the event ol a pioposed transfer h> any CONTR \< I OR entity of part ofa


participating interest under such Joint operating Agreement, including hut not


limited to any (iovcmnient Intereu


(i) the interest to be transferred will me be levs than five per cent (5%f.





(ii) the proposed third party assignee demonstrates to the reasonable


satisfaction of each of the entities constituting the < ON I RACTOR that


it has the financial capability to perform its pay menl obligations under the


Contract and under the Joint Operating Agreement; and


(iii) the proposed third party assignee shall enter into an instrument





reasonably satisfactory to each of the entities constituting the


CONTR AC TOR to perform the obligations of the transferor.





I or the avoidance ol doubt, there shall be no right of assignment in respect of the


Option to Participate.



































to


 \KTICI I 5 -OPERATOR





The C OM K \< TOR n hcrebv designated lo act as the Operator for the execution


ol the Petroleum Operations. Any change in Operator shall require the prior approval


ot the GOVERNMENT.


The CONTRACTOR shall submit lo the GOVERNMENT for comment am


agreement regarding or regulating the Operator's appointment and Ht conduct of


Petroleum Operations on behalf of the C ON TRACTOR pwsuanl to this Contract pne*


lo execution of such agreement


In the cxent of the occurrence of any ol the following, the GOVERNMENT may


require the CONTRACTOR to appoint another entity as Operator n\ soon as is


reasonable practicable


(a) if an order has been passed in court declaring the bankruptcy, liquidation. or


dissolution of the Opera or.


lb) if the Operator terminates its activities under this Contract or a material


proportion thereof, and. as a result CONTRACTOR fails lo fulfil its


obligations under the Contract







































































:o


 ART in E t. - TERM OF HIE CONTRACT





h I This Contract comprises an Exploration Period and a Development Period, as defined


below:


I M>Wa»H.a Penod


62 The Exploration Period shill be for an initial term of five <5» Contract Years,


extendable on a yearly basis (as provided in Articles 6.5 and 6.6> up to a maximum


period of seven (7) Contract Years, starting from the Effective Date. Tire initial term


ol five (5) years shall be subdivided in two |2) sub-periods as follows:


(al an initial sub-period of three (3) Contract Years ("First Sub-Period");


(bl a second strfvpenod of two (2) C ontract Years ("Second Sub-PemxT).


each a "SubPcnod" »vj colleetivdy *S«b-Periods".


It is understood that the right of the CON TRACTOR to accede to the next Sub-


Period shall be subject to fulfilment of the Minimum Fxploralion Obligations


applicable to the presious Sub-Period


M During the Exploration Penod the CONTRACTOR did pay k> the GOVERNMENT,


in arrears, an annual surface rental (or the Contract Area, as may he reduced by


fdlnquishmcnt liom time to tune pursuant to Article 7. of ten Dollars (CSS 10) per


iqtltra kilomdre per Contract Year ("Exploration Rental'> Sadi I vploration Rental


shall Ik considered as a Petroleum Cost and dull be recovered b> the CONTRACTOR


in accordance will* the pros isions of .Ankles I and 25.


6.4 If the CONTRACTOR decides not to enter into the Second Sub-Penod. it shall


norify the GOVERNMENT a: least thirty (30) days prior to the exp.ry of the first


Sub-Period and. pros ided that the data freen the Test Exploration Well demonstrates that


there is no reasonable technical case for drilling the Second I vploration Wdl in the


Contract Area, the I vploration Penod shall expire at the end of the I irst Sub-Period,


unless the First Sub-Period has been extended pursuant to Artklc 6 5 and or Article 6.6


*5 If the CONTRACTOR has fulfilled its Minimum Exploration Obligations fix a Sub-


Period of the Exploration Period but considers that addeional wort is required prior


la) to deciding to submit an Appraisal Program as presided under Article 12.2 of


this Contract m respect of a Discovery, or


(b) to deciding to declare a Discovery av a Commercial Discovery in accordance


with Article 12.6 (a) or 14 5 (al. which additional work may include the


preparation and or execution of an Appraisal Program as provided under


Article 12.2 of this Contract Jnd or Cm Marketing Operations.





V





:i


(he CONTRACTOR will automatically he cmiilcd to extensions, each of one ill


Coniraci Year, of ihe ihen current Sub-Period, up lo the end of the maximum


Exploration Period of seven (7> Contract Years, (as provided in Article 6.2) The


CONTRACTOR S notification ot such extension and its duration shall be submitted


in writing to the GOVERNMENT at least thirty (30) days prior to the end of the then


current Sub-Period or the end of the then current extension (as the case may bet.


6.6 Without prejudice to Article 6.5, upon expiry of the initial lernt of the Exploration


Period, if it considers it has not completed its exploration evaluation of the Contract


Area, the CONTRACTOR shall he entitled to an extension of the Second Sub-


Period. provided it so requests the GOVERNMENT in writing at least thirty (30)


days prior to the end of such Sub-Period, together with a proposal for a minimum


work obligation for such extension. Any such extension shall not exceed one (I)


Contract Year. Upon the expiry of such extension, if it considers it has still not


completed its evaluation of the Contract Area, the CONTRACTOR shall he entitled


lo a further extension of one 111 Contract Year provided that it so requests the


GOVERNMENT in writing at least thirty (30) days prior to the end of the original


extension..


6.7 Subject to Article 6.4. at any time during the Exploration Period, upon thiity (30)


days prior notice to the GOVERNMENT, the CONTRACTOR shall have the right


to withdraw from this Contract provided that the outstanding Minimum Exploration


Obligations relating to the then current Sub-Period have been completed in


accordance with the Contract, or it has paid lo Ihe GOVERNMENT the amounts


specified in Article 10.2 or Article 10.3 of this Contract, whichever

then current Sub-Period.


6.8 If no Commercial Discovery bus been made within the ( ontract Area at the end of the


I xploration Period (including any extensions thereof) this < ontract shall terminate


6.9 If a Discovery is made within the maximum Exploration Period ol seven (7) Contract


Years (as provided m Article 6 2). and if the CONTRACTOR considers it has not


had tune to complete suffice"! Gas Marketing Operation' lo declare the Discovery a


Commercial Discovery purxuant to Article 12.6 (a) or 14 5 (a), the CONTRACTOR


shall be entitled lo request an extension of the Exploration Period (notwithstanding


the maximum period provided m Article 6.2). provided it so requests the


GOVERNMENT in writing at least thirty (30) days poor lo the end of the maximum


I xploration Period, together with a proposal for Gas Marketing Operations to be


undertaken during such extension. If granted by the GOVERNMENT, any such


extension shall not exceed two (2) Contract Years. I ’pon the expiry of such extension,


if it considers it has still not completed its Gas Marketing Operations relating to such


Discovery, the CONTRACTOR shall be entitled to request a further extension of


two(2)Contract Years provided that it so requests the GOVERNMENT in writing at


least thirty (30) days prior lo the end of the original extension, together with a


proposal for Gas Marketing Operations lo be undertaken during such extension


IH~s clop men I Period


6 10 If the CONTRACTOR considers that a Discovery of Crude Oil and any Associated


Natural Gas is a Commercial Discovery, the CONTRACTOR shall have the


exclusive right to develop and produce such Commercial Discovery, pursuant to the


terms of this Contract. The Development Period for a Commercial Discovery of Crude


Oil and any Associated Natural Gas shall he twenty (20) years commenting on the


declaration'of such Commercial Discovery by CONTRACTOR, in accordance with


Article 126 (a) of tin Contract, with an auomatic nght to a five (5) year extension.


6.11 If the CONTRACTOR considers that a Discovery of Non-Associated Natural Gas is


a Com mere ini Discovery, 'he CONTRACTOR shall have the exclusive right u>


develop and produce such Commercial Discovery, pursuant to the terms of this


Contract I he Development Period for a Commercial Discovery of Non-Associated


Natural Gas shall he twenty (20) years, commencing on the declaration of such


Commercial Discovery by CONTRACTOR, in accordance with Article 12 6 ta) or


Article 14.5 (a) of this Contract, with an automatic right to a live (5) year extension.


6.12 If Commercial Production from a Production Area is still possible at the end of its


Development Period as defined in \tlklcs 6 10 or 6 11 above then, upon its request


ihe CONTRACTOR shall be entitled to an extension of such Development Period


under the same terms as those provrded in this Contract Such request shall he made m


writing by the CONTRACTOR at least six (6) Months before the end of the said








The term of any such extension of the IX-vetopmenl Period shall be:


(a) five (5) Years for Crude Oil and any Associated Natural Gas. and or


(b) five (5) Years for Non-Associated Natural Gas.





6.13 The CON I KA< I OR shall have the right to terminate Production Operations for any


Production Area at any time during the term of this Contract, subject to giving


notice to the GOVERNMENT of at least ninety (VO) days. This Contract shall


terminate on the expiry date of the Iasi Production Area or when Production


Operations for all Production Areas have terminated



























































23


 ARTICLE 7 RELINQUISHMENTS





7.1 Subject lo the provisions of Articles 7.2 und 7.3. ihc CON I RAC I OR shall surrender


portions of ihc Contract Area us follows


la) twenty live percent (25%) of the initial Contract Area, excluding any Production


Areas, at the end of the initial term of the Exploration Period referred lo in


Article 6.2. and




excluding any Production Areas, remaining ai the end of each extension period


entered into under this Contract or at the end of the initial term of the


Evploration Period referred to in Article 6 2.


72 For the application of Article 7.1:


(a) any areas already relinquished pursuant lo Article 7.4 below shall he deducted


from areas to he surrendered: and


(h) ihc CONTRAC TOR shall huve the right to determine the urea, shape and


location of the Contract Area lo be kept, provided that the portions of the


Contract Area surrendered shall he contiguous.


7J If the relinquishment referred lo in Article 7.1 can only be achieved by including part of


the area of a Discovery, these percentages shall be reduced to exclude the Discovery


area


7.4 During the Exploration Period, ihc CONTRACTOR may at the end of each ( ontract


Year ‘surrender all or any pan of the Contract Area by written notice sent to the


GOVERNMENT at least thirty (30) days m advance of the proposed date of surrender,


subject to the provisions of this Article 7 4 Such voluntary surrenders during the


I vploration Period shall he deemed equal to the obligatory relinquishments referred lo


under Article 7.1. This Contra:! shall terminate in the event of total surrender of the


Contract Area.


7.5 No surrender provided under Article 7.4 shall exempt the CONTRACTOR from its


outstanding obligations under this Contract. In the event the CONTRACTOR elects to


surrender the entire Contract Area without having fulfilled the Minimum Exploration


Obligations relating to the then current Sub-Pet Hid as prov idrd m Article 10 2 or Article


10 3. the CONTRACTOR shall pay to ihc GOVERNMENT the relevant outstanding


amovmt as detailed in Article 102 or Ankle 10 3. as die case may be


7.6 The boundaries of the portion of the Contract Area lo be relinquished by the


CON | RACTOR shall he communicated lo the GOVERNMENT by written make at


least thirty (30) days in advance of the relevant date for relinquishment, pursuant to


Article 7 I


 ARTICLE H - MANACR.MENI C OMMITTEE





SI A Management Committee shall be establishcd withm ihirty (30) days following ihc


Effective l»3ie for the purpose of providing orderly direction of all matter, pertaining


to the Petroleum Operations and Work Program


Ihc Management Committee shall comprise an equal number of members designated


b> each Party: two (2) members designate! by the GOVERNMENT and two (2)


members designated by the CONTRACTOR.


I'pon ten (10) days notice, each Pans ma> substitute any of its members of the


Management Committee Die chairman of the Management Committee shall be one


of the members designated b> the GOVERNMENT (the "t hairmaa"). The vice-


chairman of Ihc Management Committee shall he one ol the members designated by


the CONTRACTOR (the "Viee-C hairman”). In the absence of the Chairman, the


Vnc-< hairman shall chair the meeting.


Each Party shall have the right to invite a reasonable number of observers as deemed


nctcssJty to attend the meetings of Ihc Management Committee in a non-voting


capacfcy.


*2 The Management Committee shall review, deliberate, decide and give adskc.


suggestions and recommendations to the Parties regarding the following subject


matters:


(a) Work Programs and Budgets;


(h) the CONTRACTOR'S activity reports:


(c) production levels submitted by the CONTRAC TOR. based on generally


accepted practice in the intenuticna' petroleum industry.


(cl) accounts of Petroleum Costs:


(c) procurement procedures for potential St£conlractors, with an estimated sub


contract value in excess of one million Dollars ($1,000,000).


submitted by the CONTRACTOR m accordance with Article 19 3.


(ft Development Plan and Budget for each Petroleum fielj.


(g) any matter having a material adverse affect on Petroleum Operations;


(h) any other subject matter of a material nature that the Parties are willing to


consider.


X 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


? »

 The Miuiuneincnl Comnuiicv .hall attempt io reach unanimous agreement on any subject


matter being submilted In the event the Management Committee cannot reach


unanimous agreement, a second meeting shall be held within fourteen 114) days to


and attempt to reach a unanimous decision





Except as provided for m Article 14 and Ankle 8.5. in the esent that no agreement is


reached at the second meeting, the Chairman shall hasc the tic-breaking sole








8 4 In the event that, during the Exploration Period, no agreement is reached at the second


meeting of the Management Committee, as provided for in Article 8.3. or unanimous


approval is not obtained, av required pursuant to Article 8.5. the proposal made hy the


CONTRACTOR shall be deemed adopted by the Management Committee.





85 Notwithstanding the provisions of Artkle 8 3. unanimous approval of the Management


Committee shall be required fvt





(a) approval of. and any material revision to. any Exploration Work Program and


Budget prepared after the first Commercial Discovery in the Production Area


relating to such Commercial Discovery (unless such Exploration Work Pnsgram


Slid Budget has been dMflMd approved by the Management Committee in


accordance with Article 11.4);


(h) approval of. and any material revision to. the Development Plan, the production


schedule, lilting schedule and Development and Production Work Programs and


Budgets;





(c) cstabli shment of rules of procedure for the Management ( ommiltee:





(

and/or services, submitted by the CONTRACTOR m accordance with Ankle


19.3 (unless such procedures have been deemed approved by the Management


Comminee in accixdaxc with Article 19J);





(e) approval of. and any material revision to. any proposed pipeline project,


submined by COM RAC TOR m accordance wnh Article 33 3;


(0 approval of a first rate bank in which to place the I»ccommissioniiig Reserve





Fund, in accordance w ith Article 38 I





(g) approval of. and any material revision to. any proposed Decommissioning Plan


submitted pursuant to Article 38 7;





(h) any terms of reference which arc required to be prepared and agreed for the


purposes of expert determination, pursuant to Artkle 42 3. and





(i) any matter having a material adverse affect on Petroleum Operations





8.6 Ordinary meetings of the Management Committee shall take place in the Kurdistan


Region, alternately at the offices of the GOVERNMENT and those of the


CON I RACTOR. or at any other location agreed between Parlies, .it least twice a


Contract Year prior to the date of the first Commercial Discovery and three times a


Contract Year thereafter.


* 26 «s


8 7 Either Party may call an extraordinary meeting of the Management Committee to


discus* important issues or developments related to Petroleum Operations, subject to


giving reasonable prior notice, specifying the matters to be discussed at tlic meeting,


to the other Parly. I lie Management Committee may from time to lime make


decisions by correspondence provided all the members have indicated their approval


of such decisions in such correspondence.


8.8 Unless at least one 11) member or its deputy of each Party is present, the Management


Committee shall he adjourned for a period not to exceed eight (8) days. The Party


being present shall then notify the other Party of the ness dale, lime and location for


the meeting


8.9 I lie agenda for meetings of the Management Committee shall he prepared by the


Operator In accordance with instructions ol the Chairman and communicated to the


Parties at least fifteen (15) days prior to the dale of the meeting I he agenda shall


include any subject matter proposed h> either Party I he Operator shall he


responsible for preparing and keeping minutes of the meetings and decisions. Copies


of such minutes shall he tons arded to each Party tor a-sicss and approval. I ach Party


shall review and approve such minutes within len (10) days of receipt of the dtaft


minutes. A Party who fails to notify in writing its approval or disapproval of such


minutes within such len (10) days shall be deemed to have approved lhe minutes.


8.10 If required, the Management Committee may request the creation of a technical sub


committee or any other sub-committee to assist it. Any such sub-committee shall be


composed of a reasonable number of experts from the GOVERNMENT and the


CONTRACTOR. Alter each meeting, the technical sub-committee or any oilier sub


committee shall deliver a written report to tlie Management Committee.


8.11 Any costs and expenditure incurred hy the CONTRAC IOR lor meetings of the


Management Committee or any technical sob-committee or any other sub-committee


shall be considered as Petroleum Costs and shall be recovered by the


CON TRACTOR m accordance with the provisions of Articles I and 25.


V icj















































27


 ARTIC I I 9 GUHAMILS





9.1 Each entity constituting the CONTRACTOR shall preside the GOVERNMENT, if


so requited b> the latter pursuant to written notice received by the COM RAC TOR


emits w ith.n thirty (JO) day* of the I ffcclive Date, w ith a corporate guarantee CC orponar


Guarantee*I in a form as shall he agreed in good faUl between theGOVERNMI NT and


each CONTRACTOR entity net later than nmets t*»0> days after the Effective Itate.


provided that such Corpora Gturantec dull be given only m respect of the Minimum


Expfonamn Obligations for the I irvl Sub-Penod up to the total anount of the mmenum


financial commitment for the Minimum Exploration Obligations for the I irvl Nub-Period


(as such details are provided in Article 10.2). and the Corporate Guarantee dull expire


automatically upon completion of the perfotnuncc of such Minimum Exploration


Obligations or expenditure of such minimum financial commitment, whichever is the


earlier.


92 Not later than sixty (60) days after the commencement of the Second Sub-Period, each


entity constituting the COM RACTOR shall pros.de the GOVERNMI M. if so


required by the latter pursuant to svrmen notice rest ved by the CON IR M I OR ernes


within thirty (30) days of such commencement date, with a Corporate Guarantee in


the form subtiUinlially agreed between the GOVERNMENT and each


CONTKAC I OK entity lor the Inst Sub-Period, MtyM to making the changes


necessary in order lor the Corporate Guarantee to apply only to the Second


Period Minimum Exploration Obligations up to the total amount of the minimum


financial commitment for the Minimum Exploration Obligations for the Second


Sub-Period (as such details arc provided in Article 10.3). and presided that such


Corporate Guarantee shall expire automatic.illy upon completion of the


pcifoiimmic of such Minimum Exploration Obliv >r expenditure <>| such


minimum financial commitment, whichever is the earlier


93 In the event of an assignment by a CONTRACTOR entity m accordance with Article


59. the relevant thed party assignee shall preside the GOVERNMENT, if so required by


the latter pursuant to written notice given to such assignee within thirty (30) days of the


effective elite of such assignment, with a Corporate Guarantee in the form agreed


pursuant to Article 9.1 or 9,2. as applicable to the then current Sub-Period or. in the


absence of any such agreed form of Corporate Guarantee, in a form as shall be


agreed in good lauh between the GOVERNMENT and such assignee not later than


ninety (90) day* after the effective date of the assignment, presided that such


Corporate Guarantee shall be given only in respect of the Mmm Exploration


Obbtflbons for the then current Sub-Period up to the total amount of the minimum


financial commitment for the Minimum Exploration Obligations for such Sub-


Pen od (as such details are presided in Article 10.2 or Article


10.3. as the case may be), and shall expire automatically upon completion of the


performance of such Minimum Exploration Obligations or expenditure of such minimum


financial commitment, whichever is the earlier.


Presided that, with reference to this Article 9. each Contractor entity shall preside


< orprar < .uarantce for an amocml equal to such Contractor entity s panic •|\iting interest


under the Joint Operating Agreement, pros ided that such Corporate Guarantee shall IM be


or amount to a bank guarantee.


> » <5


 ARTICLE 10 • MINIMUM EXPLORATION WORK OBI It.AIIONS





m The CONTRACTOR Utall start Exploration Operations within thirty (JO) days of


Management Committee approval of the Exploration Wort Program and (lodge! in


accordance u. th Article 8 of this Contract. TheCONTRAC TOR 'hall perform


geological. geophysical and/or drilling work> a> provided iu*dei Articles 10 2 to 10.3


below (the "Minimum Exploration Obligation'")- If applicable the 'aid Minimum


Exploration Obligations 'hall be performed during each Sub-Period in accordance with


good and prudent international oilfield practice.


102 During the t\rv Suh-Period. the CONTRACTOR dull:





(a) cany out geological and geophysical Mudics. comprising the following


(i) the compilation of a technical database;





tii) the performance of a remote sensing study:





(iii) ■ field visit to verify initial geological and geophysical work and remote


tensing results and plan for two dimensional seismic acquisition, and


||>) cart) out a data search for existing data specific to this Contract Area,


comprising the following:


0) well data, if available, lor example, electric logs;


(li) seismic data and gravity data, if available; and


(iii) reprocess seismic data, if available,








(d> acquire, process and interpret two hundred fifty (250) line kilometres of two





dimensional seismic data, committing for this purpose a minimum financial


amount of three point seven five million Dollars (USJJ.750.000); and


(C) drill one II) Exploration Well upto a depth of three thousand five hundred


meters or up to lower cretaceous formation, whichever is earlier (the “First


Exploration Well"), committing lor this purpose a minimum financial amount


of seven million five hundred thousand Dollars (USJ 7.500.000)





I0J During the Second Sub-Period, live CONTRACTOR shall:





(a) acquire. process and interpret one hundred line kilometers of two


dimensional seismic dau if the CONTRACTOR considers that the results


from the First Exploration Well justify the acquisition of further seismic





fisc million Dollars (USt 1.500.000). and





lb) drill one (I) Exploration Well upio a depth of three thousarsj meters or upto


main objective whichever is earlier (the "Second Fsplorslioa Wed")


committing for this purpose a minimum financial amount of six million fXilIjis


(US$6,000,000). unless the data from the First Exploration Well


demonstrates that there is not a reasonable technical ease for drilling


 the Second Exploration Well in the Contract Area





10.4 Notwithstanding the provisions in Articles 10.2 to 10 3 above, for the execution of the


Minimum Exploration Obligations under Articles 10 2 to 10.3 above, it 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 it will not enter into the Second Sub-Period, m accordance with and subject to


Article 6.4.


(b) Subject to Article 10.4 (a), the CONTRACTOR shall be required to meet its


Minimum Exploration Obligations for the applicable Sub-Penod. even if this


entails exceeding the minimum financial amount for such Sub-Period. If the


CONTRACTOR has satisfied its Minimum Exploration Obligations without


having spent the total minimum financial amount lor such Sub-Period, it shall


be deemed to have satisfied its Minimum Exploration Obligations for such


Sub-Period and Shall he under no farther spending obligation


Each Exploration Well shall be drilled to the depth agreed by the Management


Committee unless:





the formation is encountered at a lesser depth than originally


anticipated;


< ii > basement is encountered ut a lesser depth than originally anticipalcd:


(iii) in the CONTRACTOR’S sole opinion continued dulling of the





relevant Exploration Well prevents a hazard due to the presence of


abnormal or unforeseen conditions.





(K) rock formations are encountered rendermg n impractical to continue


•killing with standard equipment.


(v) petroleum formations are encountered whose penetration requires


laying protective casing that does not enable the depth agreed by the


Management Committee to he reached


If drilling iv vtopped for any of the foregoing reasons, the Exploration Well


Shall be deemed to have been drilled to the depth agreed by the Management


Committee and the < ONTHACTOR shall be deemed to have satisfied us


Minimum I xploration Obligations in respect of the Exploration Well


(ill Any geological or geophysical work curried out or any seismic dam acquired,


processed or interpreted or any Exploration Well drilled or any oilier 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, dull be carried forward to the next Sub-Period and shall he taken


into account to satisfy the Minimum Exploration Obligation* and or the total


of dm*. « me event that the CONTRACTOR fa.K to satisfy the Mm.mum





Work Obligation spec died for any Sub-Period the COVTRACTOR shall pay to


the GOVERNMENT the difference between the minimum financial am.«nt


* * tc5





specified under Ankle 102 or 103 (as applkaMe) and «he anwunis »ualt>


spent by Ihe (X >N IK ACTOR during such Sub-Period minus the amounts spent


in excess (if any) of ihe minimum financial amount in any previous Sub-


PctkkKs).





For the avoidance of doubt, if: (i) in the First Sub-Period. CONTRACTOR


performs .mv of the Minimum Exploration Obligation! prescribe,I lor the


Second Sub-Period in Article 10 3; and (ii) CONI RAC'TOK has not elected


to notify the GOVERNMENT that it will not enter into the Second Snh-Peri,Hl


tin accordance with and subject to Article f*4», the performance of such


Minimum I xploration Obligations shall be deemed to satisfy the same


Minimum Exploration Obligations for the Second Sub-Period


 ARTIC LE II - EXPLORATION WORK PROGRAMS AND BI'DGETN





II I Within forty-five (45) days following the Effective Date, the CONTRACTOR shall


submit to the Management Committee a proposed wort program and budget relating


to Exploration Operations (the ""Exploration Work Program and Budget") for the


remainder of the Calendar Year Thereafter, no later than 1“ day of October in each


Calendar Year, the CONTRACTOR shall submit a proposed Exploration Work


Program and Budget to the Management Committee for the following Calendar Yea.-.


112 Each Exploration Work Program and Budget shall include details of. hut not he


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 panics


and/or Affiliated Companies of any entity constituting CONTRACTOR;




Accounting Procedure.


11.3 The Management Committee shall meet w ithin sixty (60) day s follow ing its receipt of


CONTRACTOR'S proposal to examine and. unless already deemed approved


pursuant to the provisions of Article 11.4 be/ow. approve the Exploration Work


Program and Budget


II 4 Any modification to the Exploration Work Program and Budget requested by the


GOVERNMENT shall be submitted to the CQNTRACIOR within thirty (30) days


following receipt of the proposed Exploration Work Program and Budget by the


Management Committee, accompanied by all the documents justifying such request.


It the GOVERNMENT does not request any modifications to the Exploration Work


Program and Budget within the above set timeframe, the Exploration Work Program


and Budget shall be deemed approved by the Management Committee II the


GOVERNMENT does request any modifications to the Exploration Work Program


and Budget, the CONTRACTOR shall communicate its comments on any such


requested modifications lo the GOVERNMENT at the meeting of the Management


Committee or in writing prior to such meeting.


11.5 The CON I RAC I OR shall be authorised to make expenditures not budgeted in an


approved Exploration Work Program and Budget provided that the aggregate amount


of such expenditures shall not exceed ten percent (10%) of the approved Exploration


Work Program and Budget in any Calendar Year and provided further that such


excess expenditures shall he reported as soon as is reasonably practicable to the


Management ( ommittcc. I'or the avoidance of doubt, such excess expenditures shall


ic considered Petroleum t osts and shall be recovered by the CONTRACTOR in


accordance with the provisions <>l Articles I and 25.











32


11.6 In cases of emergence the CONTRACTOR may invur such additional expenditures


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 lx* considered Petroleum Costs


and shall be recovered by the CONTRACTOR in accordance with the provisions of


Articles I and 25.


 ARTICLE 12 - DISCOVERY ANI) DEVELOPMENT





111 If flic drilling «>f an Exploration Well results in a Discovery, the CONTRACTOR


shall notify the GOVERNMENT within forty-eight (48) houiv of completing tests


confirming the presumed existence ol such Discovery or within such longer period us


CONTRACTOR reasonably requires to determine whether or not there is a


Discovery. Within thirty (30) days following notification of the said Discovery, the


CONTRACTOR shall present to the Management Committee all technical data then


available together with its opinion on the commercial potential of the said Discovery


(the "Discovery Report"). The CONI R ACTOR si tall provide in n timely munnci such


olltci information relating to the Discovery ns the GOVERNMENT mny reaionitbly


request.


Aitnraival Program


112 If. pursuant to Article 111 above, the CONTRACTOR considers that the Discovery


has commercial potential it shall, within ninety (90) days following nonlkaiion to the


GOVERNMENT of the Discovery, submit an appiaisal 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 of its receipt. The Appraisal Program shall he deemed approved by the


Management Committee if it has not provided the CONTRAC TOR 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 i.s made, the Management Committee shall meet In discuss the


Appraisal Program and such objections thereto within sixty (60) days from its


receipt of the proposed Appraisal Program The CONTRACTOR shall


communicate its comments on any such objections to the GOVERNMENT at


the meeting of the Management Committee or in writing poor to such meeting


The Appraisal Pnvgram shall include but not he limned to the following:


(a) an appraisal works program and budget;


(b) an estimated time-frame for completion of appraisal works;


(c) ihc 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 he


appraised (the "Appraisal Am")





113 If. following a Discovery - * rig acceptable to CONTRACTOR 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


Management Committee's review of the Discovery Report provided in accordance


with Article 12 I or its review of the Appraisal Program.


Agpripd Report








124 lire CONTRACTOR shall submit a detailed report relating to the Discovery ((be


"Appraisal Report") «o the Management Committee within ninety (*») days


 following completion of the Appraisal Program


125 The Appraisal Report shall iixIuJc but not be limited to die following:


(a) geological conditions;





(b) physical properties of any liquids;


(C) sulphur, sediment and water content:







K) Natural Gas composition;


(0 production forecast per well; and





(g> a preliminary estimate of recoverable reserv es








12.6 Together with its Appraisal Report, the CONTRACTOR shall submit a written


statement to the Management Committee specifying that:


(a) the C ONTRACTOR has determined that the Discovery is a Commercial


Discovery: or




Discovery, or




Discovery , which may become a Commercial Discovery subject to additional


exploration and or appraisal woris within or outside of the Appraisal Area, or


Id) the CONTRACTOR has determined that the Discovery is a significant


Discovery of Non-Associated Natural Gas. which may become a Commercial


Discovery subject to tias Marketing Operations, in accordance with Article


14.5.





12.7 In case the statement of the CONTRACTOR corresponds to Article 12.6(c). the


CONTRACTOR shall submit a Work Program and Budget lo the Management


Committee within thirty (30) days following suck statement Any well drilled to


evaluate the said significant Discovery shall be considered an I xpkmilion Well.





l>gclopmtn Plan


128 If the Discovery has been declared a Commercial Discovery by the CON TRAC TOR


putsuant to Article 12.6 (a) or Article 14.5 (ah the CONTRA! FOR shall submit a


proposed Development Plan to the Management Committee within one hundred


eighty (180) days following the said declaration I'xcept with the consent of (lie


St





 GOVERNMENT, such Development Plan shall include details of. hut not he limited


to. the following:








(a) the delimitation of the Production Area, taking into account the results of the


Appraisal Report icgmding the importance of the Petroleum Field to he


developed within the Appraisal Area;


(hi drilling and completion of Development Wells;


(c) drilling and completion of water or Natural Gas injection wells;





(d) laving of gathering pipelines;


(e) installation of separators, tanks, pomps and any other associated production


and injection facilities lor the production;


(I) treatment and transportation of Petroleum to the processing and storage


facilities onshore or offshore;


(g) laying of export pipelines inside or outside the Contract Area to the storage


facility or Delivery Point;





(h) construction ol storage facilities for Petroleum:


(i) plan for the utilisation of Associated Natural Gas


0> training commitment in accordance w ith Article 2) of this Contract:





(I) all contracts aid arrangements made or so be made bv *sc < OVT R\C I OK for





the sale of Natural Qk





(m| all contracts and arrangements made or to be made by persons in respect or that


Natural Cias downstream of the point at which it is 10 he sold h> the


< ON I KA< TOR and which arc relevant to the price at which (and other terms


on which) it is to he wild by the < ONTRACTOR or ire otherwise relevant to


the determination of the value of it for the purposes of this Contract, hut ism


hevond the point at which it is first disposed of in an Arm’s l ength Sale; and














The Development Plan dull he deemed apposed bv the Management Committee if


the GOVERNMENT, through its representatives on the Management Committee


indicates its approval in wrung


12 10 If the GOVERNMENT request* any modifications to the Development Plan, then


the Parties shall meet within sixty (60) days ol receipt by the C ON I RACIOR of llsc


GOVERNMENT'S writTen notification of requested modifications accompanied by


all the documents justifying such request, and shall discuss such request The


(OMKACTOR shall communicate n% comments Ofl any such requested


modifications to the GOVERNMENT at such meeting or in writing prior to such


meeting Any modification approved hy the Management Committee at such meeting


or within a further period of thirty (*0) days from the date of such meeting shall be


incorporated into the Development Plan which shall then be deemed approved and


adopted


12.11 If the CONTRACTOR makes scveial Commctcnil Discoveries within the Coittimt


Aren each such Commercial Discover) will have i separate Production Amt. I lie


CONT RACTOR shall be entitled to develop and to produce each Commercial


Discovery and the GOVERNMENT shall provide the appropriate Permits coverinj:


the Production Area. In case the men covered by the Commercial Discovery extends


beyond the boundaries of the Contract Area, and to the extent such urea outside the


Contract Area is nor the subject of.» Petroleum Contrast (as defined in the Kurdistan


Region Petroleum Act) with a third party, the provision* of Article 342 shall apply


st


 ARTICI » U





DEVELOP Ml'NT AND PRODICTION WORK PROGRAMS AND Bl Dt.I I


111 Upon the approval of the Development Plan by the Management Committee, the


CONTRACTOR shall start the Development Operations for the Commercial


Discovery in accordance with the Development Plan and the practices generally


accepted in the international petroleum industry.











112 Within ninety (90) days following approval of the Development Plan by the


Management Committee, the CONTR ACTOR shall prepare and submit to the


Management Committee a proposed work ptogram and budget for Development


Operations (the "Development Work Program and Budget’*) to be carried out in the


Production Area for the duration of the Development Operations. I hereafter, no later


than I'1 day of October in each Calendar Year, the CONTRACTOR hall


submit to the Management Committee updates in respect of its Development Work


Program and Budget. To enable the Management Committee to forecast


expenditures, each Development Work Program und 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 mam categories.


(c) type of services to be provided, distinguishing between third parties and


Affiliated t ompumes of any entity constituting CONTRACTOR: and


(d) categories of general und administrative expenditure.


133 It the GOVERNMENT has not requested any modifications to the Development


WOffc Program und Budget through its representatives in the Management Committee


within thirty (30) days from receipt of such proposal, the Development Work


Program ami Budget shall be deemed approved by the Management Comnvttec


Any modification to the Development Work Program and Budget requested by the


GOVERNMENT Nhall be submitted to the CONTRACTOR within thirty (30) days


following receipt of the proposed Development Work Program and Budget by the


Management Committee, accompanied by all the documents justifying such request


If any such modification is requested, the Management Committee shall meet to


discuw the Development Work Program ami Budget and proposed modifications


thereto within sixty (60) days from its receipt of the proposed Development Work


Program and Budget The CONTRACTOR shall communicate its comments on any


such requested modifications to the GOVERNMENT at the meeting of the


Management C ommittee or in writing prior to such meeting





v »• KS


 13.4 Tin CO\ I RACTOR shall k- authorised lt> «H6«M expenditures not budgeted m .in


approved Development Work Program and Budget provided that the aggregate


amount of Mich expenditures shall not exceed ten percent (10%) ol the approved


Development Work Program and Budget and provided further that such excess


expenditures 'hall be reported as soon as r**w-vaM> pwcikabfe to the Manage • ol


l ommniee For the avoidance of doxiN such (u» expendkurc shall be

PcindrwOT Co«s and shall be recovered hx the < ON TRACTOR in accordance »«k


die provivaons of Articles I and 25 lor the ax,-dance of doubt where such excess


cost* exceed en percent (:

Budgvl such excess over ten per cent (|0*-l dull he considered Petroleum Costs ceils


with I he approval of the Management Committee (as it would approve an> material


res ixmiii to anv Development Work Progiam and Budget under Article 8.5 (b)).


13 5 In cases of emergency, the CONTRAC TOR ma> incur such additional expendituu-





ax it deems necessary to protect life, environment or property. Such addition.il


expenditures shall be reported promptl) to the Management Committee, l or the


jx.Hd.incr ot .fcxiht. such additional cxpcn.tm.n- shall K considered Petroleum l osts


ami xliall he recovered bv the CONTRAC I OR in accordance with the provisions ol


Article* I and 25.





Ma?£* a mi Ann





136 No later th.m the I- day of October of the ( aknd.tr Year preceding the estimated


commencement of production pursuant to an approved Development Plan and


thertaller no later than 1st day of October in each Calendar Year, the


CONTRACTOR shall submit to the Management Committee a proposed work


program and budget for Production Operations (the "Production Work Program


unit Budget") for the following CnkiHl.it Year lo enable the Management


( ommitlec lo forecast expenditures, the Production Work Program and Budget shall


include details of. but not be limited to. the following:





ij> wofhs to be carrkd ou.





tc) type of services to be provided, distinguishing between third parties and








AtTiliaied t ompamev of anv entnv CH.si.iutmg CONTRACTOR: and


(dl categories of general and administrative expenditure.








13.7 II the (JOVKRNMKNT has not requested any mmlilictitions to the Production Work


Program and Budget through its representatives in the Management Comniillce


within thirty <301 days fiom receipt of such proposal, the Production Work Piogmni


and Budget shall he deemed approved by the Management Committee.


Anv modification to the Production Work Program and Budget requested by the




following revcip* of dte proposed ProJucUon Work Program ar*J BoJget by the


Vtanagemcm Conunmee. accompanied by all foe dovmncmv justifying such revueM


%


*~S


*


If any such modification is proposed, the Management Committee shall meet to


dot mm the Produstum Work Program and Budget and proposed mnd.licat.ons thereto


withm >ixl) (60) da>» from its receipt of the proposed Production Work Program and


Budget The CONTRACTOR shall communicate its comments on any such


requested mod.fnat.ou* to the GOVERNMENT at the meet.ng of the Management


Committee or in scra.ng prior to such meet.ng


13 8 The CONTRAC TOR shall be authorised to incur expenditures not budgeted in an


approxcd Production Work Program and Budget provided that the aggregate amount


of such expenditures slull not exceed ten percent (10*.) of the approved Production


Work Program and Budget in any Calendar Year and provided further that such


excess expenditures shall he reported as soon as reasonably practicable to the


Management Committee I or the avoidance of doubt, such excess expenditure shall


he considered Petroleum Costs and shall he recovered by the CONTRACTOR in


accordance with the provisions of Articles I and 25


13.9 In cases of emergency, the CONTRACTOR may incur such additional expenditure


as it deems necessary to protect life, environment or properly. Such additional


expenditures shall be reported promptly to the Management Committee. For the


avoidance of doubt, such additional expenditure shall be considered Petroleum Coses


nnd shall be recovered by the CONTRACTOR in accordance with the provisions of


Articles I and 25


13.10 A llei the commencement of Commercial Production the CON I RAC TOR shall pay


In the GOVI RNMI NT, in arrears, an annual surface rental for the Production Area,


of ten Dollars (I sJIO) per square kilometre per Contract Year ("Production


Hcatal"). Such Production Rental shall be considered as a Petroleum Cost and shall


he recovered by tbc CONTRACTOR m accordance with the provismna of Articles I


and 25.


'V


 ARTICLE 14 - NATURAL CAS





1 »e for the Petroleum OiK-ratumx


14.1 To lake account of specific conditions relating to Namriil (ins and to promote its


development in the Kurdistan Region, the GOVERNM1 Ml 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 recovery of Petroleum C osts and the sharing of


Profit Petroleum.





14’ The CONTRACTOR may freely use any Natural Gas required for the Petroleum


Operations. If technically and economically justified, the < ON I R ACTOR 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.





Asm’ll led Natural (, h >





143 Any excess Associated Natural Cias produced that is neither used in the Petroleum


perations nor developed and sold by the CONTRACTOR shall, upon the


CiOVI RNMEN I’S written request, be transferred 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 Irom such agreed delivery point and shall he solely


liable Ibi any additional direct and indirect costs associated therewith The


construction and operation ol‘required facilities as well as the ofll.ike 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 delivers


point shall be considered Petroleum Costs and shall be recovered by the


CONTRACTOR in accordance with the provisions of Article* I and 25.





In the event the GOVERN MEN l finds a market for Associated Natural Gas. it shall


promptly give written notice to the CONTRACTOR, and the CONTRACTOR may


elect to participate in supplying such Associated Natural (».iv within ninety (90) day*


following notification thereof by the GOVERNMENT. If the CONTRACTOR


elects to participate in supplying Associated Natural <»av to such market, all


expenditures associated w*h any necessary fccilities dull 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 m


accordance with the provisions of Articles I and 25.











The CONTRACTOR shall be entitled at any time during Hie I xphealion Period and tlr


Development Period to carry out Gas Marketing Operation'








at


14.5 If. pursuant to Article 12.6

Discovery is a significant Discovery of Non-Associated Natural Gas. which may


become a Commercial Discovery subject to Gas Marketing Operations, it shall carry


out (us Marketing Operations, at live end of which it shall submit a written statement


to the Management Committee specifying that:


(a) 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.


146 l or lIk purpose of this Contract. "Gas Marketing Operations" means any activity


re he mg to the marketing of Non-Associated Natural Gas. including hut not limited to any


evaluation to find a commercial market for such Non-Associated Natural Gas 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 ol Non-Associated


Natural Gas to be sold, its quality, the geographic locution of potential markets to be


supplied as well as evaluating the costs of production, transportation and distribution


ol the Non-Associated Natural Gas from the Delivery Point to the relevant market


14.7 All costs and expenditure incurred by the CONTRACTOR in the performance or the


activities in relation to the Gas Marketing Operations shall be considered Petroleum


Costs


14.8 No laid than 1st day of October of the Calendar Year preceding the Calendar Yeai


in which any Gas Marketing Operations are due to occur, the CON I RACTOR shall


submit to the Management Committee its Gas Marketing Work Program and


Budget for the following Calendar Year lo enable the Management


Committee to forecast expenditure', the lias Marketing Work Program and Budget


shall include but not be limited lo the following:


(a) works to be earned out.


lb) type of serv ices to be provided, distinguishing between third parties and


Affiliated companies of any entity constituting COM RACTOR;


(c) categories of general and administratis* expenditure


II the GOVERNMENT has not requested any modifications to the Gas Marketing


Work Program and Budget through its representatives in llie .Management Committee


within thirty (30) days from receipt of such proposal, the Gas Marketing Work


Program and Budget shall he deemed approved by the Management Committee.


Anv modification to the Gas Marketing Work Program and Budget requested by the


GOVERNMENT shall be mbmiocd to the CONTRACTOR withm thirty (30) days


following receipt of the proposed Gas Marketing Work Program and Budget b> the


Management Committee, accompanied by .ill the documents justifying such request.


If any such modification is proposed, the Management Committee shall meet to


discuss the Gas Marketing Work Program und Budget and proposed modifications


thereto within sixty (60) days from its receipt of the proposed Gas Marketing Work


Program and Budget. The CONTRACTOR shall communicate its comments on any


such requested modifications lo the GOVERNMENT at the meeting of ihc


Management Commuter or in anting prior to wh meeting


14*) The CONTRACTOR shall he authorised to incur expenditures not budgeted ia an


approved Gas Marketing Work Program and Budget provided that the aggregate


amount of such expenditure ''•all not exceed ten percent (lO*.) of the approved


Budget in any Calendar Year and provided furtlici that such excess expenditures shall


he reported as soon as reasonably practicable to the Management Committee, l or the


avoidance of doubt, such excess expenditure shall he considered Petroleum Costs and


shall be recovered by the CON I RACTOR in accordance with the provisions of


Articles I and 25.


14 10 II any N'on-Associatcd Natural Gas is discovered within the ( ontract Area, and iIk-


CONTRACTOR reasonably considers that the No»>Aa0OClllltd Natural Om


Discovery will only be a Commercial Discovery if certain tcfim of this Contract arc


amended, it shall be entitled to icquesl an amendment lo this Contract, with its


reasons. The GOVERNMENT shall in good faith give reasonable consideration to


the CONTRACTOR’S proposed amendment and reasons Subject always to Article


(>'), If the GOVERNMENT rejects such request, und the I xplorntion Period expires


without the CONTRACTOR having 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 often (10) years from the end of such E xploration Period, tire


GOVERNMENT reaches agreement with any thud party lo develop such


Discovery, (the "Gas Development") then the following provisions shall apply


(a) either before or upon agreement having been readied (and whether or nr4 such


agreement is recorded in a fully termed production sharing and/or operating or


other like agreement) in relation to the Gas Development (the "Proposed


Contract") (subject only to the rights ol the CONTRACTOR entities to pie


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 cireumoanccs. serve on each


of the CONTRACTOR entities. a nocice to that effect and shall with such


notice provide such information and main terms of such agreement (the


" Agreed Terms") and including:


(i) the identity of vuch third party; and


(ii) the effective dare of the Proposed Contract; and


(iii) the applicable commercial terms, including but not limited to bonuses


royalties, cost recovery, profit sharing, taxation and any other similar


terms: and




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 other:


to enter into the Proposed Contract on the same or substantially similar








4) «^f





 terms lo the Agreed Terms, with Ok* right to cost rev user all Petroleum Costs


incurred under this Contract against *11 Petroleum revenues received under


the Proposed Contract, up to any cost recovery limits set out therein; or





(ii) lo waive the aforesaid right 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


( ON TRACTOR entity shall be deemed conclusiscly lo have served a notice


electing lo waive us aforesaid right of pre-emption in relation to the Proposed


Contract.


(c) In the event that more titan one of the CONTRA! TOR entities exercises its





tights under Article 14.10 (b> (i) in relation to the Proposed Contract, then the


GOVERNMENT shall transfer the relevant interest upon the Agreed Terms


(in accordance with 14.10 (b) I i>) to each of such (ONI KACTOK entities so


exercising their rights, in the proportions in which their respective percentage


interests bear to the aggregate of their respective percentage interests under


the relevant Joint Operoling Agreement (as it applied at the end of the


Exploration Period) or in Mich other proportions as such CONTRACTOR


entities shall agree between them.


(d) In the event that one ol the CONI K AC TOR entities exercises its rights under





Article 14.1(1 (h) (i) in relation lo the Proposed Contract then the


GOVERNMK.VI shall transfer (he whole of the relevant interest upon the


Agreed Terms (in accordance with 14.10 (b) (i)> to such CONTRACTOR


entity







under Article 14.10 (b) (i) then the aforesaid rights of pre-emption shall


thereupon cease to apply in relat ion to the Proposed Contract


(0 The provisions of this Ankle 14.10 shall survive any termination of this


Contract.





14.11 If the pre-emption rights in Article 14.10 are not exercised and the GOVERNMENT


enters into the Proposed Contract with the third party concerned #M GOVERNMENT


will use its best endeavour, lo avoid any effect which may hamper the Petroleum


Operations of the CON IK ACT OR w hi le producing Pcliokuin








14 12 In the course of activities provided for under this Contract. fWmg of Natural Gas. except


shornerm flaring up to twelve Months necessary for teMmg or other operational reasons


in accordance with practice generally accepted in the mtcmationnl petroleum industry


(which shall include the during of Associated Natural Cins 10 the extent the


C ON'I RAC TOR considers that re-injecting Associated Natural Gas is not justified


technically and economically and provided the GOVERNMENT decides not to take


Midi Associated Natural Gas), is prohibited, except on prior authorisation of the


GOVERNMENT, such authorisation noc to V unreasonably withheld or delayed TV


CONTRACTOR shall submit such request to the GOVERNMENT, which shall


include an evaluation of reasonable alternatives to Haring that have been considered


along with information on the amount and quality of Natural Gas involved and the


duration of the requested flaring





KT















































































































































45


 ARTICLE 15- ACCOUNTING AN|> At 1)1 I N





15.1 The CONTRACTOR shall keep in ils offices in the Kurdistan Region copies of all


hooks and accounts of all revenues relating to the I'elroleum Operations and all


Petroleum Costs (the "Accounts"), except during the I xploration Period, when the


< OMR ACTOR shall he entitled to keep the Accounts m its headquarter Abroad I he


Accounts shall reflect in detail expenditure incurred in function of the quantities and


value of Petroleum produced, and shall he kept for a period of five (5) years All


Accounts which arc made available to the GOVERN Ml N l in accordance with the


provisions ol this Contract shall he prepared in the English language The Accounts shull


he kept in accordance with generally accepted practice and procedures in the


international petroleum industry and in accordance vsith the provisions of the


Accounting Procedure. The Accounts shall be kept in Dollars, which shall he the


relcrencc currency for the purposes of Articles 24. 25. 26. 27 and 31 of this Contract.


15.2 Willi in ninety (90) days following the end of each Calendar Year, the


CONTRACT OR shall submit to the GOVERNMENT a summary statement of all


Petroleum Costs incurred during the said Calendar Year. The summitry statement shall


also include a profit calculation pursuant to the provisions of Article 26 of this Contract.


15.3.1 The GOVERNMENT shall have the right:


(a) to request an audit of the Accounts with respect to each Calendar Year within


a period of two (2) Calendar Years following the end of such C alendar Year


(live "Audit Request Period"); and




petroleum industry accounting practice to undciukc or assist Ihe


GOVERNMENT to undertime the audit


Notwithstanding Article 15.3.1. the GOVERNMENT shall have the right to audrt the


Accounts with respect to each Calendar Year at any time in the case of manifest error


or fraud.


15.3.2 The reasonable cost of retaining an auditor pursuant to Article 15 3.1 shall be Kane


b> the CONTRACTOR and treated as a Petroleum Cost for the purpose of cost


recovery under Articles I and 25.


153.3 Subject to the Audit Request Period referred to in Article 15.3.1. Ihe


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.


15.34 Should the GOVERNMENT consider, on the basis of data nnd information


available, that the CONTRACTOR made u material mistake or there is any


irregularity and considers that any corrections, adjustments or amendments should he


made, any audit exceptions shall he made by Ihe GOVERNMENT in writing and


notified to the CONTRACTOR within six months of the date of request referred to


in Article 15.3.1. and failure to give such written exception within such time shall be


deemed to he an acknowledgement of the correctness of the CONTRACTOR’S


* *


 Accounts





15.3.5 In respect of any audit exception made by the GOVERNMENT in accordance with


Article 15.3.4. the CONTRACTOR shall then have sixty (60) days to make


necessary corrections, adjustments or amendments or to present its comments in


wiling or request a meeting with the GOVERNMENT. The GOVERNMENT shall


within thirty (30) days of CONTRA ( TOR’S response, notify the CONTRACTOR


in writing of US position on the corrections, adjustments, amendments or comments


If thereafter there still exists a disagicement between the GOVERNMENT and the


CONTRACTOR, the dispute will be settled in accordance with Article 15.5 of thi


Contract


15.4 In addition to the annual statements of Petroleum Costs as provided in Article 15 2


above, the CONTRACTOR shall provide the GOVERNMENT with vush


production statements and reports, as required pursuant to Article 16.3.


15 5 Any dispute between the Parties under this Article 15 that cannot be settled amicably


may be submitted to an expert in accordance with the provisions of Article 4- 2 of


this Contract Notwithstanding the provisions of .Article 42, in this specific instance


the decision of the expert shall not necessarily be final and either Party may decide to


submit the matter to arbitration in accordance with the provisions of Article 42 I of


this Contract


*



















































































4?


 ARTICLE U • CONTRACTOR'SRIGHTS AM)OHI K.ATIONS





16 I Permanent Representative


If not done already. within ninet> (90) days following ihc Effective Dale, the


CONTRACTOR shall open iin office and appollil a (X-miimcrtf representative in il*c


Kindistan Region. wlto may hr contacted by (he COVE RNMKNT wilh regard lo any


mailer relating to this Contract and will he entitled lo receive any correspondence


addressed to the CONTRACTOR.


The CONTRACTOR 'hall tarry oui 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 he responsible for ihc conduct, management, control and


administration of Petroleum Operations and shall be entitled to conduct Petroleum


Operations in accordance with the provisions <*f this Contract. In conducting its


Petroleum Operations, the CONI RACTOR shall have the right to use any AI'liHate


of each entity constituting CONTRACTOR, its and their Subcontractors, and the


employees, consultants, and agents of each of the foregoing. I hc CONTRACTOR


and all such persons shall ut all times have free access to the Contract Area and any


Production Areas for lire purpose ol carrying out Petroleum Operations





16 J





The CONTRACTOR shall provide the GOVERN Ml M with periodic data and


activity reports relating to Petroleum Operations Said reports shall include details of.


hut not he limited to. the following:


(a) 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;


(b) data and information regarding any transportation facilities built and


operated by the CONTRACTOR:


(c) a statement specify ing the number ot personnel, their title, their nationality


as well as a report on any medical services and equipment made available lo


such personnel: and


(d) a descriptive statement of nil capital assets acquired for the Petroleum


Operations, indicating the dale and price or cost of their acquisition





164


 The CONTRACTOR may frccl> use any Petroleum produced within the Contract


Area for ihc Petroleum Operation*.


Ifti Supervision l» the■c;o\jNiVMI-M





The CONTRACTOR shall at all times provide reasonable assistance a* 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 oilier facilities of the CONTRACTOR.





Upon giving reasonable prior notice to the CONTRACTOR, the GOVERNMENT


may send a reasonable number ol representatives to the work sites or any other


facilities of the CONTRACTOR in the Kurdistan Region to perform such teviews


and verifications. Ihc representatives of the GOVI RNMI NT shall at all times


comply with any safety regulations imposed by the < OM It ACTOR and such


reviews and verifications shall not hinder the smooth progress of the Petroleum


Operations.











lor Ihc performance of the Petroleum Operations, the < ONI It ACTOR, any Affiliate


of each entity constituting the CONTRACTOR, its and their Subcontractors and the


employees, consultants and agents if each of the loregoing shall at all times he


granted lice access to the Contract Area and to any facilities for the Petroleum


Operations located within or outside ol the Contrail Aten m within or outside the


Production Area, for the purpose of carrying out the Petroleum Operations





167 I »< of f ik ill tics





The CONTRACTOR shall make available to representatives of the


GOVERNMENT those facilities which mt necessary to enable them to perform then


CONTRACTOR for kT^n P"*»ded














The CONTRACTOR shall be responsible for any loss or damage caused to thi.d


panics by its or its Subcontractors personnel solely and directly resulting from their


negligence, errors or omissions in accordance w uh applicable Kurdraan Region Law











In its Petroleum Operations, the CONTR ACTOR shall respect any patents belonging


to third panics





16 10





Ihc < ON I R.ACTOR as reasonably practicable inform the


GOVERNMENT of any mam


 I lie CONTRACTOR shall implement a health, safety and environment program and


lake necessary measures to ensure hygiene, health and safety of its personnel carrying


out Petroleum Operations m accordance with generally accepted practice in the


international petroleum industry.


SaiJ measures shali include but not be limned lo the folding:





(a) supplying first aid and safety equipment for each work area and maintaining a


healthy environment for personnel;


(b) reporting to the GOVERNMENT within seventy-two i^2» 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-lo-work procedure around hazardous equipment and


installations;





Id) 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;


(0 for the purpose of taking control of any blow out or lire which could damage





the environment or Petroleum Field, in accordance with generally accepted


practice in the international petroleum industry;





|g) for the purpose of preventing any involuntary injection of fluids in petroleum


formations and production of Crude Oil and Natural Gas at rales that do not


conform to generally accepted practice m the international petroleum industry





lb.12 Prudxfmw Rates


Subject to Article 43.2 of this Contract, in the event the production rale of the


•(dividual wells and Reservoir of a Petroleum I icld is to be set below the Maximum


I tliocni Rate (ME R) tor the Reservoir at provided for m the Development Plan as a


consequence of a decision by the GOVERNMENT or any federal or iniernatK-xal


regulatory body, the GOVERNMENT undertakes to allocate any such reduction


fairly and equitably among the various operators (including the GOVERNMENT)


then producing in ihe Kurdistan Region, pro rata their respective production rites In


such event the GOVERNMENT shall grant an extension of the Development Period


of any Production Area so aflected for a reasonable period of time in order lo produce


Ihe Petroleum which would otherwise have already been produced, had the Ml R for


the individual wells and Reservoir of the Petroleum Field been maintained








16.13 l-cual Status





The respective rights, duties, obligations and liabilities of the CONTRACTOR and


the GOVERNMENT under this Contract arc to he understood as being separate and


iiidividu.il and not joint and several. The Patties agree that this Contract shall not


cicjic and shall not In- deemed to have created a partnership or other form of


association between them.


16.14 The GOVERNMi:NT and each entity constituting the CONTRA! TOR slu.ll have the


right and the obligation to take in kind and separately sell or oiltcrwlse dispose of their


respective shares of Petroleum. Upon approval of the Development Plan, the Parties


shall meet as uhw as practicable to reach a detailed agreement governing the lifting of


Petroleum by c*lH such entity constituting the CONTRA( FOR, Such lilting


agreement shall include, inter ala. the following


(a) the obligation of the GOVERNMENT and each entity constituting the


CONTRA! I OR to lift, regularly throughout each Calendar Year, their share


of Petroleum produced from the Production Area.


(b) notification procedures by ihc Operator to the GOVERNMENT and each


entity constituting the CONTRACTOR regarding entitlements and


asjikibilil) of Peuolcum for lifting by each Party during each lifting period








(c) the right of the Panics to lift any available Petroleum not scheduled for lifting


and or not lifted by the othei Patty during each such lilting period





16.15





Ihc CONTRACTOR shall sell and transfer to the GOVERNMI NI. upon written


request of the Ministry, any amounts of Crude Oil that the GOVERNMENT shall


deem necessary to meet Kurdistan Region internal consumption requirements The


sales price of such Crude Oil shall be the International Market Price. The


GOVERNMENT shall provide the CONTRA! TOR with not le.s than >.v (6)


months' advance written notice of its intention to buy suck Crude Oil





Pay menu shall be mode m US Dollars and otherwise on terms consistent wall


international standards in the petroleum industry. Ihc CONTRACTOR'S obligation


to sell Crude Oil to the GOVERNMENI shall be ik> greater than the obligation that


applies to anotlicr contractor, or other contractors in the Kurdistan Region


I he prov isions of this Article 16.15 shall not apply to Nan-AssocialeJ Natural Gas.


 ARTICLE 17- I SE OF 1 AND AM) EXISTING INKR ASTR1







171 I he GOVERNMENT shall make available to «hc CONTRACTOR any land of


property in ihc Kurdistan Region required lor the Petroleum Operations provided,


however, the CONTRACTOR shall not request to use any such land unless there is a


real need lor it. The CONTRACTOR shall have the right to build and maintain,


above and below ground, any facilities required for the Petroleum Operations.





172 If it becomes necessary foe conduct of the Petroleum Operations 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 he reached, the CONTRACTOR dull


notify the GOVERNMENT; on receipt of such notification the GOVERNMf N I


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 property in accordance with applicable Kurdistan Region I .iw


if such occupation will be long lasting or makes it henceforth impossible to resume


original usage of such land or property The amount of such compensation shall be


fair and reasonable, m accordance with Article 37. Section I (a) (Hi) of the Kurdistan


Region Petroleum Act'" and shill lake into acc.*unt the rights of the owner and any


effective use of the land or property by ns owner at the lime of occupation by the


CONTRACTOR. Any property rights shall be acquired by and recorded in the name


of the GOVERNMENT but the C ON IR ACTOR .all be entitled free use of the


land or property for the Petroleum Operations for the entire duration of tins Contrac t


All reasonable costs, expenditure and fair 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 jnd shall be recovered by Ok


C ONTRACTOR in accordance with the provisions of Articles I and 25.








17.3 For its Petroleum Operations, the CONTRACTOR shall have the right in Iraq to use.


subject to applicable I aw, any railway, tramway, road, airport, landing field, canal,


river, bridge or waterway, any telecommunications network and any existing


pipelines or transportation infrastructure, on terms no less favourable than those offered





to other entities and. unless generally in force, to be mutually agreed.





17.4 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 eases, the request dial! originate from the Minister for Natural Resources For the


avoiduncc 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.








52


175 For its Petroleum Operation*, the CONTRACTOR shall have the right in the


Kurdistan Region to clear Und. excavate, drill, bore, construct, erect, place, procure,


operate, manage and mamta.n ditches, tanks, wcllv trenches, access roads,


excavations, dams, canah water mams, plants, reservoirs hawns. storage facilities,


primary distillation unitv. extraction and processing unit* separation units, sulphur


plants and any other facilities or installations for the Petroleum Operations. :n


addition to pipelines, pumping stations, generators, power plants, high voltage lines,


telephone, radio and anv other telecommunications systems. as well as warehouses,


offices, sheds, houses for personnel, hospitals, schools, premises, dikes, schicles,


railways, roads, bridges, airlines, airports and any other transportation facilities,


garages, hangars, workshops, foundries, repair shops and an> other auxiliary facilities


for the Petroleum Operations and. generally, everything which is required for its


performance of the Petroleum Operations. The CONTR ACTOR shall have the right


to select the location for these facilities.


I' '* For us Petroleum Operations, the CONTRACTOR shall hasc the right in the


Kurdistan Region, subject to compliance with applicaNe Kurdistan Region l*w. to


remove and use the topsoil, fully-grown timber, clay. sand. lime, gypsum, stones


(ocher than precious stones) and other similar substances as required for its Petroleum


Operations


The CONTR ACTOR shall have the right in the Kurdistan Region to take or use any


water necessary for the Petroleum Operations provided it docs not damage any


existing irrigation or navigation systems and that land, houses Of watering points


belonging to third parties are not deprived of their use


17.7 The GOVERNMENT shall fuse the right in the Kurdistan Region lo build, operate


and maintain roads, railways, airports, landing strips, canals, bridges, protection


dams, police stations, mililflry installations, pipelines and telecommumcations


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 increased cost or expense lot the CONTRACTOR then,


for the avoidance of doubt, such cost and expense shall be considered Petroleum


Costs and shall be recovered by the CONTRACTOR in accordance with the


provisions of Articles I and 25.


178 Upon request of the CONI RACTOR. the GOVI KNMENT shall prohibit the


construction of residential or commercial buildings in the vicinity of facilities used


for the Petroleum Operations lh.it 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





17,9 Access to the Contract Area may be granted puisuant lo an Access Authorisation, as


defined m. and consistent with, the Kurdistan Region Petroleum Acl, to authorised third


parties on reasonable terms und conditions (including coordination), including persons


authorised to construct, install and operate structures, facilities and installations, and to


carry out other works, provided that nothing in the Access Authorisation or in this Article


17 9 authorises the holder to drill a Well or lo perform uny Petroleum Operations in


Contract Area.


*





The GOVERNMENT shall not gram an Access Authorisation in respcci of ihc Contract


Area until it Inis taken into account any submissions made by the CONTRACTOR in


such a way dun there is no undue Interference with the rights of CONI R At I ()R.


 ARTICLE 18 • ASSISTANCE IMOM fHE GOVERNMENT





IX I lo lhe extent allowed by Kurdistan Region I aw and Iraqi law and at the specific


request ol the CONTRACTOR, the (i()VI-RNMt NT shall take all necessary steps


to assist the CON TRACTOR in, hut not limited to. the following areas:


(a) securing any necessary Permits lor the use and installation of means of


transportation and communications;


(b) securing regulatory Permits m matters of customs or import export;


(c) securing entry and exit \isas. work and residence permits as well as any other


administrative Permits for CON IR ACTOR'S and its Subcontractors' foreign


personnel (including their family members) working in the Kurdistan Region


and any other pari of Iraq during the implementation of this Contract;


(d) 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 administrations, including for


the purposes of the remainder of this Article 18 1:


(0 securing any necessary environmental Permits;


(g) obtaining any other Permits requested by the CONTRAC TOR tor the


Petroleum Operations:


(h) access to any existing data and information, including data and information


relating to the Contract Area held bv pres urns operators or contraclois and


(•) providing all reasonably necessary security for Petroleum Operations


18.2 Within the scope of services to be provided under this Amdc 18. reasonable and duty


justified expenses incurred bv the GOM RNMI VT or paid to third part«s shall he


charged to the CONTRACTOR and shall he considered Petroleum Costs and shall


be recovered by the CO.NTRAC'IOK as Petroleum Coots m accordance with the


provisions of Articles I and 25.


























55


 ARTICLE I*-EQUIPMENT AND 'I ATE RIALS





19.1 The CONTRACTOR shall supply, or procure ihe supply of. all materials,


equipment machinery, kids, spare parts and any other items or goods required for the


Petroleum Operations (’Equipment and Materials*!





19.2 Said Equipment and Materials shall he provided by the CONTRACTOR in


accordance with the relevant W orl Proprams and Budgets





193 As soon as possible after the Effective Date, the CONTRACTOR shall provide the


Management Committee with a copy of its peuceAires for procurement of Equipment


and Materials and'or services for the Petroleum Operations as required by Ihe


provisions of Article 8.2 (cl. 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 docs not request


any modifications lo the procurement procedures within thirty (30) days, the


procedures shall he 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 parts of Iraq to the extent their price,


grade, quality, quantity, specifications, purchase, delivery and other commercial and


technical terms art comparable in ail material respects with those generally available m


petroleum industry



















































































*>


 AH 11< I F 20 - TITLE TO ASSETS


20 I During ihe I xploralion Period, any Assets acquired b> the CONTRACTOR for the


Petroleum Operations shall remain the property of the CONTR ACTOR 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 carlici


20.3 The provisions of this Article 20.2 shall not apply to any Assets leased by the


CONTRACTOR or belonging to an Affiliated Company of a CONTRACTOR


entity or belonging to its or their Subcontractors or its or their employees.


V ^




































































57


 ARTICLE 21 - USE OF THE ASSETS





21.1 Each entity constituting the CONTRACTOR shall have the exclusive right to use.


free 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


take priority. The GOVERNMENT agrees not to transfer or otherwise dispose of


any of such Assets without the CONTRACTOR'S prior 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 Kurdistan


Region.











































































































58


 \K 11C LE 22 - SUBCONTRACTING





22.1 The CONTRACTOR shall ensure lhai any Subcontractors it engages base all ihe


requisite experience and qualifications.


222 The CONTRACTOR 'dull give prmnry to Subcontractors from the Kurdistan Region


and other parts of Iraq to the extent their competence, rate*, experience, reputation,


qualifications, specialties, credit rating and terms of availability deliver* and other


commercial terms are. in the CONTRACTOR’S tole opinion, comparable in ell


material respects with those provided b> foreign companies operating m the


international petroleum industry Subcontractors must he bona fide Kurdistan


companies not related to any Public Officer, directly or indirectly, and must have all


necessary resources ami capacity


22..! Selection ol Subcontractor* shall lake place in accordance with the procurement


procedures submitted by the CONTRACTOR to the Mmingcmcnl Committee in


accordance with Article 19 ! and approved by the Management < ommittec.


22.4 The CON I RA( TOR shall provide the GOVERNMENT with copies of agreements


entered into with Subcontractors, where their amount exceeds the limit set by the


Management ( ommittec from lime to lime.

































































59


 ARTICLE 23 - PERSONNEL AND TRAINING











23.1 lor lhe Petroleum Operations. the CONTRACTOR shall ghc. and shall require its


Subcontractors to give. preference to personnel hum the Kurdistan Region and other


pans of Iraq to the extent such personnel have, in the sole opinion of the


CONTRACTOR or the Subcontractor (as the case ma> he), the technical capability,


qualifications. competence and experience required to perform the noth.








23.2 The CONTRACTOR shall give due consideration to the secondment of


GOVERNMENT personnel to the CONTRACTOR and of CONTRAC TOR


personnel to the GOVERNMENT during the various phases of the Petroleum


Operations. Terms and conditions for such secondment shall he mutually agreed by


the Panics and any costs associated therewith shall be considered Petroleum Costs


and shall be recovered by the CONTRACTOR in accordance with the provisions of


Articles I and 25


23J The CONTRACTOR and its Subcontractors shall have the right to hire foreign


personnel whenever the personnel from the Kurdistan Region and other pans of Iraq


do not have the requisite technical capability, qualifications or experience for


positions to be filled as required pursuant to Article 23.1. In the event any such


foreign personnel and/or a member of their family engage in activities or commit acts


which breach Kurdistan Region Law. the CONTRACTOR shall, at the request of the


MANAGEMENT COMMITTEE, take the necessary steps to repatriate such


individual(s).





Training





In a planned way. in accordance with the provisions of this Ankle 23.4 and Articles 23 J


and 23.6. the CONTRACTOR shall train all its personnel from the Kurdistan Region


and other parts of li.iq directly or indirectly involved in the Petroleum Operations for the


purpose of improving their knowledge and professional qualifications in order that such


personnel gradually reach tlie level of knowledge and professional qualification held by


the CONTRACTOR’S foreign workers with an equivalent resume Such training shall


also include the transfer of know ledge of petroleum technology and the necessary


management experience so as to enable the personnel from the Kurdistan Region and


odicT parts of Iraq to apply advanced aixi appropriate technology in use in the Petroleum


Operations, to the extent permitted by applicable l aw and agreements with third parlies,


and subject to appropriate confidentiality agreements.





23.5 In addition to the requirements of Article 23. I. the rccnatmert. mtegratam ami training of


the CONTRACTORS personnel from the Kunfc*an Region and other parts oflr*j dial


be planned, which plans shall he submitted to the Management C ommittee for its


approval TV training plan shall lake «Uo consideration die requwements ot Article 2? 4


and may mclude training for \ ERNMEKT personnel, depending on the extent to


which the amount allocated to the training plan, as prescribed by Article 23 6. n available


.•Her taking into consideration the training of the CONTR ACTOR'S KutdiMan and oilier





> “





 Iraqi personnel





Within ninety (‘X)) days of the I llective Date, the CON I RA( TOR 'lull submit to the


Management Committee a proposed training plan for the remainder of the Calendar Year


Ft*rentier, no Inter than I" day of October in each Colcndnr Year, the CONTRACTOR


shall submit a pmposed training plan to the Management Committee bn the following


Calendar Year.


23.6 The training plan rclcrresl to in Article 23.5 shall provide tin the allocation of the


amount or seventy five thousand Dollars (LSS75.000) lor each Contract Year during


the Exploration Period and one hundred and lifts thousand iXdlnrs (lSSI50. 000) for


each Contract Year during the Production Period.


23.7 The CONTRACTOR 'lull he responsible for llte training costs which


CONTRACTOR may incur in respect of the personnel it employs from the Kurdistan


Region and other pails of Iraq All such costs shall he considered as Petroleum Costs and


shall he recovered in nccordnnce with the provisions ol Articles I and 25. Costs incurred


by the CONTRACTOR lor training programs tor GOVERNMENT personnel shall he


home by CONTRAt I OR only to the extent that they arc 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 lor GOVERNMENT personnel shall he


the GOVERNMENT'S responsibility.


I hr Environment EutnJ


23.8 The CONTRACTOR shall, within 60 days of the sun of each Contract Year,


contribute the an amount of scsenty five thousand Dollars (LSS 75.000) each Cmiracl


Year during the Exploration Period and one hundred and fitly thousand DoJbrs


(US$150.000) lor each Contract Year during the Production Ptr*.«d mo the Envuonmcnt


bund established by the GOVERNMENT for the benefit of the iwrural environment of


the Kurdistan Region, pursuant to the Kurdistan Region Petroleum Act Such amount


shall he deemed to Ik a Petroleum Cost and shall be recovered m accsmlancc with Articles


I and 25.


23.9 Any expenditure incurred by the CONTRACTOR under this Article 23 shall be


considered Petroleum t osts and shall be recovered in accordance with Ankle' I and 25








































61


 ARTICLE 24 ROYALTY





24.1 The CON TRACTOR shall pay lo Ihe GOVERNMENT a ponion <»( Petroleum produced


and saved Horn ihc Contract Area, as provided in this Ankle 24 (the "Royalty").


242 The Royalty shall be applied on all Petroleum produced and saved from the Contract


Area which is ('rude Oil or Non-Associaied Nniurnl Gas. except lor Petroleum used in


Petroleum Operations, re-injected in the Petroleum Field. lost, dared or for Petroleum that


cannot be used or sold and such Crude Oil and Non-Associated Natural Gas (excluding


the excepted Petroleum) shall be referred to collectively as "Export Petroleum" and


separately and respectively as "Export Crude Oil" and "Export Noil-Associated


Natural Gas"


24.3 If payable in cash, the amount of the Royalty calculated by applying the Royalty rates


provided under Article 24.4 shall he paid by the CON I RACTOR as directed by the


GOVI RNMENT, 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 provided under Article 24.4 below, shall be


delivered in kind by the COM RA< TOR lo the GOVERNMENT at the Delivery Point.


Title and risk ofloss of the Royalty paid in kind shall be transferred at the Delivery Point.


Unless the GOVERNMENT requires Ihc Royalty to be paid in kind, by giving the


CONTRACTOR not less than ninety (90) days prior written notice prior to the


commencement of the relevant Quarter, the GOVERNMENT shall be deemed us have


elected to receive the Royalty in lull and in cash for- the relevant Quarter


24.4 The Royalty due on any Export Petroleum produced and saved in the Contract Area


shall be determined daily by applying the following relevant Royally talc, lo the E xport


Crude Oil or lo the Export Non-Associated Natural Gas (as the case may be) produced anJ


saved on that day:


(a) For Export Crude Oil:





The Royalty rate for Export Crude Oil shall be ten percent (I OS), which, for


the avoidance of doubt, dull apply regardless of the aav it> of the oil.


(b) For Export Non-Associated Natural Gas


The Royalty late for Export Non-Associated Natural Gas shall be ten percent


(10%)








245 Associated Natural Gas and any other Petroleum shall be exempt from any Royalty.


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 ol'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


(:ONTRA(.TOR. 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 International Market Price obtained


at the Delivery Point, as defined in Article 27.2;


|b) any Export Non-Associnicd Natural Gas shall be valued at the actual price


obtained at the Delivery Point, us provided in Ankle 27.3;


(c) lire CONTRACTOR dull pay such Royalty each Quarter, in arrears within


thirty (30) days of the end of each Quarter, and shall calculate the payment


due for the relevant Quarter, by reference to the price for the Export


Petroleum at the Delivery Point, determined in accordance with paragraphs


(a) and (b) above, and the Royalty due on the Export Petroleum, determined


in accordance with Article 24.4. for the said Quarter, and




the Export Petroleum determined in accordance with Article 24.4 for the


purpose of paying the Royalty in cadi.


y Kf


 ARTICLE 25 RECOVERY OF PETROLEUM COSTS





25.1 All Export Crude Oil produced and saved from the Contract Area shall. after


deduction of any quantities of Export Crude Oil due for Royalty pursuant lo Ankle 24


of this Contract, be considered as "Available Crude Oil".


All Associated Natural Gas produced and saved from the Contract Area, except for





Associated Natural Gas which is used in Petroleum Operations, rc-rnjcctcd m the


Petroleum Field. lost. dared or cannot hr used or sold, shall be considered ax "AxadaMr


Associated Natural Gas”


All Export Non-Associated Natural Gas produced and saved from the Contract Area


shall, after deduction of any quantities of Export Non-Associated Natural Ga> due for


Royalty pursuant to Article 24 of this Contract, be considered as “Available Non-


Associated Natural Gas”


"Available Petroleum” means Available Crude Oil. Available Associated Natural Gas


and Available Non-Awxiatcd Natural Gas.








25.2 For the purpose of this Article 25:


(a) any Available Crude Oil shall be valued at the International Market Price


obtained at the Delivery Point as defined m Ankle 27 2; and


(bl any Available Associated Natural Gas and any Available Non-Associated





Natural Gev dull be valued at the xtual price obtained at the Delivery Point,


as prov *dcd in Artklc 27.3.





253 Subject to the provisions of this Contract, from the First Production m the Contract


Area, the CONTRACTOR shall at all times be entitled to recover all Petroleum


Costs incurred under this Contract of up lo forty five percent (45%) of Available


Crude Oil (which, for the avoidance of doubt, shall apply regardless of the gravity of


the oil) and Available Associated Natural Gas. produced and saved whhhlany Calendar


Year.


25.4 Subject to the provisions of this Contract from Fust Production in the Contract Area, tlie


CONTRACTOR shall at all times be entitled to recover all Petroleum Costs incurred


under this Contract of up to fifty five percent (55%) of Available Non-asaociatcd


Natural Gas produced and saved within any Calendar Year


25.5 For the application of Article 253 and 25.4 of this 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 8. Recovery


of Petroleum Costs shall occur in the following order


(a) Production Costs:


(b) Exploration Costs (including appraisal costs and further exploration within the


Contract Area):


(c) (las Muikcting Costs;


(d) Development Costs;


(c) Decommissioning Cost*.


il being agreed that priority within each category listed above will be given to capital


assets in the order of their acquisition (‘first in. first out ).


25.6 Total recovery of Petroleum Costs during any Calendar Year, expressed m quantities


of Petroleum, shall not exceed the relevant percentages indicated in Articles 25 3 and


25 4. If in any Calendar Year, the Available Crude Oil and/or Available Non-


Associated Natural Gas do not allow the CONTRACTOR to recover all its


Petroleum Costs pursuant to this Article 25. the amount of un-recovered Petroleum


Costs in such Calendar Year shall he carried forward indefinitely to the subsequent


Calendar Years until all Petroleum Costs tire fully recovered, but. save as provided In


A uiclc 14.10. in no other case after the termination of the Contract


25 7 I he provisions of Articles 27.5 and 27.6 shall be applied to determine the quantities of


Available Crude Oil and/or Available Non-Associated Natural (ins due to the


CONTRACTOR lor the recovery of its Petroleum Costs.


25 8 IIie quantities of Petroleum corresponding to the share of Available Petroleum due lo


the CON TRAC TOR for the recovery of Us Petroleum Costs shall be delivered lo the


CONTRACTOR at the Delivery Point. litle and risk of loss of such Available


Petroleum shall be transferred at the Delivery Point.





25.9 The CONTRACTOR shall be entitled to receive, lake in kind jnJ to export freely all


Available Petroleum to which it is entitled for recovery of its Petroleum Costs in


accordance with the provisions of this Contract and lo retain Abroad my proceeds


from the vale of all such Available Petroleum Petroleum Costs in each Production


Area shall he recovered only from Available Petroleum from that Production Area


25.10 For the avoidance of doubt. Petroleum Costs under this Contract are not recoverable


against other contract areas held by the CONTRACTOR.









































6?


 ARTIC’I.K 26-SHARING OF PROFIT PETROLEUM





26.1 Uiuler this Contract.


(a) "Profit Petroleum" means Profil 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 Production 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 Production Area, after the recovery of


Petroleum Costs in accordance w ith Articles I and 25.





26.2. From First Production and as and when Petroleum is being produced, the


CONTRACTOR shall be entitled to lake a percentage share of Prolit 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 Crude Oil and/or Profit Natural Gas to


which the CONTRACTOR is entitled, the "R" Factor shall be calculated in


accordance with Article 26.4 and shall be applied separately to each Production 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;


Y: is equal to Cumulative Costs actually incurred by the CONTR ACTOR,





from the date of the signature of this Contract.


For Che purpose of this Article 26.4:





Cumulative Revenues means total Revenues. 3S defined below, received by the


CONTRACTOR until the end of the relevant Semester, 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 Production


Aren.


Cumulative Costs means all Petroleum Costs in the Production Area, actually


incurred by the CONTRACTOR until the end of the relevant Semester, determined


in accordance with Article 26.7.


66


 Notwithstanding the foregoing provisions of this Article 26.4. for the period from


I irM Production until the end of the Calendar Year in which I Irst Production occurs,


the "R" factor shall he deemed to be less than one (I)


26-5 The share of Profit Petroleum to which the CONTRACTOR shall he entitled from


First Production is:


(a) for Profit Crude Oil. equal to the quantities of Petroleum resulting from the


application of the relevant percentage as indicated helms to the daily volume


of production of Profit Crude Oil within the Production Area at the


corresponding Delivery Point:


"R" Factor < OMR ACTOR'S % Share of Profit C rude Oil


K < I 35 %





I < R <2 35-1 (3 5 -16)4 ( R • I )/(2-l)|


R > 2 16%





and


(b> lor Profit Natural Gas. equal to the quantities ol Non-Associated


Natural Gas resulting from the application of the relevant percentage as


indicated below to the daily volume of production ol Profit Natural Gas


within lire Production Area at the corresponding Delivery Point:


"R" Factor CONTRACTORS % Share of Profit Natural Gas








R < I 45%


I < R < 3 45-1 (4 5 -17) • ( R - I )/<)-!>)








R >3 17%





26.6 The COM RACTOR'S accounting shall account separately for all components for the


calculation of "X" and “Y“ values in the formula pros kh*d in Article 26.4 above


26.7 For each Semester, starting from the 1° of January of the Calendar Year following the





Calendar Year in which First Production occurs, the CONTRACTOR shall calculate


the “R" factor applicable to the relevant Semester within thirty (30) days of the


beginning of such Semester. The ’R' Factor to be applied during a Semester shall be


that determined by applying the Cumulative Revenues actually received and the


Cumulative Costs actually incurred up to and including the last day of the preceding


Semester





26 8 If at any lime an error occurs in the calculation of the *R" (actor, resulting in a


in the CONTR ACTOR'S percentage share of Profit Crude Oil and or Profit Natural


Gas. the necessary correction shall be made and any adjustments shall apply fn>m the


Semester in which the error occurred The Party having benefited from a surplus of


67


 Profit Petroleum shall surrender such surplus to the other Party, beginning from the


first day of the Semester following the Semester in which the error was recognised.


However, each filling of Petroleum relating to such error shall not exceed twenty-five


percent (25%) of the share ol Profit Petroleum to which such surrendering Party is


entitled lor the avoidance of doubt, if at any time an error occurs in the calculation


of the "R" factor, which does not result in a change in the CONTRACTOR'S


percentage share of Profit Crude Oil and/or Profit Natural Gas. no correction shall be


made.


26.«) The quantities of Profit Petroleum due to the CONTRACTOR shall be delivered 'o





the CONTRACT OR at the Delivery Point. Title and risk of loss of such Profit


petroleum shall he transferred to the CON I R ACTOR at the Delivery Point


The CONTRACTOR shall be entitled to receive, take in kind and to export freely its


share of Profit Petroleum in accordance with the provisions of this Contract and to


retain Abroad any proceeds lium the sale of all such Profit Petroleum.


26.10 The share of the Profit Petroleum to which the GOVERNMENT is entitled in any


Calendar Year in accordance with Article 26.5 of this Contract shall, be deemed to


include a portion representing the corporate income tax imposed upon and due by


each entity constituting the CONTRACT OR. and which will be paid directly by the


GOVERNMENT on behalf of each such entity representing the CONTRACTOR to


the appropriate tax authorities in accordance with Article 31.2 of this Contract The


GOVERNMENT shall provide the CONTRACTOR with all written documentation


and evidence reasonably required by the CONTRACTOR to confirm that such


corporate income tax has been paid by the GOVERNMENT.


26.11 The quantities of Profit Petroleum due to the GOVERNMENT 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) davs prior to the beginning of each


Semester, the CONTRACTOR shall prepare and'deliver to the GOVERNMENT a


production program comprising the production forecast tor the next Semester and die


forecast of llic quantities of Crude Oil and Natural Gas to which each Party shall be


entitled during die said Semester.





26 13 Within ninety (<»0) days following the end of each Calendar Year, the


CONTRACTOR shall deliver an annual production report to the GOVERNMENT,


slating the quantities of Crude Oil aid Natural Gas to which each Party is entitled, the


quantities of Crude Oil and Natural Gas lifted by each Pans 3ixl the resulting over-lift


or under-lift position of each Pam. pursuant to the lifting agreement entered into


pursuant to Article 16.14.





26.14 Any costs or expenditure incurred by the CONTRACTOR, its Subcontractors or


suppliers relating to the lifting of the GOVERNMENTS share of Petroleum by the


CONTRACTOR shall not be considered Petroleum Costs and shall he charged to die


GOVERNMENT according to terms to be mutually agreed between the


CONTRACTOR and the GOVERNMENT.


&


 ARTICLE 27 - VALIDATION AM) METERING OK CRl'DE OIL





AND NATURAL GAS





Valuation


27.1 I or the purpose of (his Contract, any Crude Oil produced in the Contract Area shall be


valued ill ihc end of each Qmirler at ihc Delivery Point based on (he Inicmalional


Market Price, as defined in Article 27.2.





27.2 The "Inicmalional Market Price" referred 10 in Article 27.1 shall be the average FOB


price per barrel, expressed in Dollars, obtained by the CONTRACTOR ai the


Delivery Point during the Quarter ending on the dote of valuation for Arm’s Length


Sales of Crude Oil.


The CONTRACTOR shall provide evidence to the (iOVFRNMI.N I that the Sales ol





Crude Oil referred to In Article 27.2 are Arm s Length Sales. If the GOVERNMENT


considers that any such sale of Crude Oil is not on the basis of an Arm's Length Sale


then the GOVERNMI N’T has the right to refer the matter to an expert pursuant to


Article 42.2.


In ihc event that there is no lifting of Crude Oil or Ann's length Sales of Crude Oil in





the relevant Quarter, the applicable "International Market Price" for such Quarter shall


he ilk* average FOB price per barrel obtained during that Quarter from Arm’s Length


Sales of Crude 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 dull, prior to the commencement of Production,





agree on a basket of Crude Oil comparable to those produced in the Contract Arc3 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 price and demand, general market trends and oilier terms of


sale In the event that the Panics fail to reach an agreement on an matter relating to the selection


of the basket of Code oil referred to above within thirty (30) days, or such longer period as may


be mutually agreed between the Parties, from the commcncemeni of Production, any Party nuv


refer the matter or manors in issue fee expert determination in accordance with the provisions of


Article 42^ of this Contract








27J The price of Natural Gas shall be the actual price obtained at the Delivery Point,


(which may lake into account quantities to be sold, quality, geographic location of


markets to be supplied a\ well as costs of production. transportation and distribution


Of Natural Gas from the Delivery Point to the relevant market, in accordance with


standard practice m the international gas industry). The GOVERN MEN I shall have


the right to review and approve Natural Gas sales contracts.











Account me Statement


69








 27.4 In accordance will, this Article 27.4. the GOVERNMENT and tl>e CONTRACTOR


'hull establish a Niiilcnieni .showing calculations of the value of ( rude Oil produced


und sold from the Conn act 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


prices;





(b) quantities of ( rude Oil sold by the CONTRACTOR during the Preceding


Month that do not fall in the category referred to in paragraph (a) above,


together with vile puces applied during such Month.


(c) inventory in storage belonging to the CONTRACTOR at the beginning and


at the end of the Month; and





(d) quantities of Natural Gas sold by the CONTRACTOR and the


GOVERNMENT together with sale prices realised.





My«yrii»K





27.5 All I xport Petroleum shall he metered at the Delivery Point in accordance with


generally accepted practice in the international petroleum industry and such meters


shull he lo fiscal meter standards. All metering equipment shall he installed and


operated b> the CON I RAC TOR- The GOVERNMENT shall, on receipt by live


CONTRACTOR of reasonable prior written notice, have the right lo inspect any


such metering equipment installed by the CONTRACTOR, as well as all relevant


documents und supporting information reasonably necessary lo validate the accuracy


of such metering. All metering equipment shall he subject to periodic technical


inspections in accordance with standard practice in the international petroleum


industry


27.6 If any metering equipment is defective, the CONTRACTOR shall use all 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 lo have occurred in the middle of


the period between last calibration of the equipment that led lo normal results and the


calibration ev ideticing the defect.


27.7 Any disputes arising under this Ankle 27 shall be settled by expert determination in


accordance with the provisions of Article 422 of this Contract.


 ARTICLE 28 - DOMESTIC MARKET - SALE OF GOVERNMENT SHARE








Upon ihe GOVERNMENT'S prior written notice of at least ninety (90) days, the


CONTRACTOR shall provide all reasonably necessary assistance to the GOVERNMENT


for the sale of all or part of the quantities of Crude Oil to which the GOVERNMENT is


entitled, in consideration of a sales commission per barrel to be established w ith reference to


standard practice in the international petroleum business and to be mutually agreed upon


between the Parties.


 ARTIC I F. 29 - FINANCIAL PRO\ ISIONS





29.1 Payments under this Contract shall be made as follows:


29.1.1 Any payment to be made by the CONTRACTOR to the GOVERNMENT pursuant


to this Contract shall be in Dollars and paid into tiie bank account duly designated by


the GOVERNMENT in writing and shall be paid within thirty (30> days of the due


date, after which interest compounded monthly at the rate of I I BOR plus two (2)


percentage points shall be applied.


29 1.2 I he GOVERNMENT may. at its sole discretion, direct the CONTRACTOR to pay:


(a> any Royalty in cash due to the GOVERNMENT pursuant to the prov isions


of Article 24; and/or


(b) any proceeds from the sale undertaken by the CONTRACTOR on behalf of


the GOVERNMENT pursuant to Article 28 of any Profit Oil to which the


GOVERNMENT is entitled pursuant to Ankle 25; and'or


(c) any Pr.Hluction Bonus.


to a fund for revenue sharing between the Government of Iraq and other regions


[including the Kurdistan Region) and governorates of Iraq. Nothing in this Article


29.1.2 shall be understood as implying any contractual relationship or other


relationship between the CONTRACTOR and the Government of Iraq and'or tl»e


regions of Iraq (other than the Kurdistan Region) and/or and governorates of Iraq


29.1.3 Any payment due by the GOVERNMENT to the CONTRACTOR shall be paid in


Dollars to the bank account designated by the CONTRACTOR in writing and shall


be paid within thirty (30) days of the date of invoice, alter which interest uni pounded


monthly at the rate of I ll»< )R plu 2 > percentage points shall be applied.


29.2 Any currency conversion to be made under this Contract shall be al the exchange rate


of the Central Hank of Iraq, provided such exchange rate applied to the


CON TRACTOR shall not be less favourable than the rate offered by other private,


commercial or industrial banks in the international market. 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 rale, any currency conversion to he made under this Contract


shall be at the exchange rate of a reputable commercial Kink carrying on business in


the international market and approved by the Parties.


29.3 The CONTRACTOR shall not realise any gain or loss due to exchange rate


fluctuations and. consequently, any gain or loss resulting from the exchange of


currency dull be either considered as revenue and credited to tire Accounts or shall be


considered as a Petroleum Com and shall be recovered by the CONTRACTOR in


accordance with Articles I and 25. as the case may be.


29.4 The CONTRACTOR shall at all limes 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 rale


72 ^ r


 shall he as provided under Article 29.2.





29.5 The CON I RAC I OK 'hall have the right to he paid receive, keep, transfer and use


Abroad, without any reslrictionv .ill proceeds ot ts ■•lure of Petroleum.


29.6 The CONTRACTOR and its Subcontractors shall have the right to freely open and


maintain bank accounts for Petr oleum 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 these


currencies to Iraqi dinars in any hank in tlic Kurdistan Region or other parts of Iraq, at


the same exchange rate as provided under Article 29.2.


298 The CONTRACTOR shall have the right, without any restrictions, to freely


repatriate Abroad and to freely dispose of:


(a) any proceeds received in the Kurdistan Region or other parts of Iraq from the


sale of Petroleum,


(b) any proceeds received from other operations and activities carried out under


this Contract in the Kurdistan Region or other parts of Iraq


29.9 The CONTRACTOR shall have the right to pay in any foreign currency its


Subcontractors and its expatriate personnel, either in tlic Kurdistan Region, other parls


of Iraq, or Abroad. Said Subcontractors and expatriate personnel shall he 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 The CONTRACTOR'S Subcontractors and their personnel shall equally benefit from


the same rights as the CONTRA* I OR and its personnel as regards this Article 29.


29.11 I or 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.


 AR HOLE 30 - CUSTOMS PROVISIONS





30-1 All services. material, equipment- goods, consumables 3nd products imported into the


Kurdistan Region and other pans ot Iraq b> the CONTRACTOR or its Subcontractors


for use or consumption in the Petroleum Operations shall be admitted free and


exempt from any and all customs or oilier duties, import taxes and any other charges


or impositions on import. The CONTRACTOR and its Subcontractors shall haxc the


tight to re-export from the Kurdistan Region and other parts of Iraq free from all


export taxes, customs or other duties or any other charges or impositions on export


any material, equipment, goods, consumables and products th3t are no longer required


for the Petroleum Operations, except where title has passed to the GOVERNMENT


in accordance with Article 20. in which case re-export shall be approved by the


Management Committee.


302 The CONTRACTOR and its Subcontractors and their personnel shall have the right


to freely import into the Kurdistan Region and other parts of Iraq and re-export from


the Kurdistan Region arxl other parts 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. I he sale in the Kurdistan Region and oilier


parts of Iraq of personal belongings and furniture of expatriate personnel shall comply


with Kurdistan Region Law.


303 Each 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 duties


and other impositions or charges whatsoever, any Petroleum to which it is entitled


pursuant to the provisions of this Contract.


30.4 Tl*e GOVERNMENT dull indemnify the CONTRACTOR foe any customs duties


referred to in Articles 30.1. 30.2 or 30.3 that may be levied by tlie Kurdistan Region or


Government of Iraq or any other government body or court with jurisdiction in any part


of Iraq.


>


















































?4


 ARTICLE 31 - TAX PROVISIONS








31.1 Except ns expressly provided in this Article 31, and without prejudice to the


exemptions expressly provided lor in Article 30 and in this Article 31. each entity


constituting the CONTRACTOR and any Subcontractor shall, for the entire duration


of this Contract, he exempt from all other taxes, duties, levies, charges, withholdings


and impositions generally applicable in the Kurdistan Region, as a result of its activities


under this Contract, including but not limited to any taxes on income from movable


capital, any taxes on capital gains, any fixed taxes on transfers as well ns nil other


current or future taxes duties, levies, charges, withholdings and impositions based or


assessed on income of any kind. The GOVERNMENT shall indemnify each entity


constituting CONTRACTOR upon demand against any liability to pay any taxes, duties,


levies, charges, impositions or withholdings assessed or imposed upon such entity which


relate to any of the exemptions granted by the GOVERNMENT under this Article 31.1,


and under Articles 31.4.31.5. 31.6 aixi 31.7.


31.2 Each entity constituting the CONTRACTOR shall Ik subject to corporate income tax as


provided in Article 31.3 below, which shall be deemed to be inclusive and in full and total


discharge of any corporate income tax of each such entity. Payment of (be said corporate


income tax shall be made for the entire duration of this Contract directly to the


appropriate Kurdistan Region tax authorities by the GOVERNMENT, for the


account of each entity constituting tire CONTRACTOR, from the


GOVI RNMI NT'S share of the Profit Petroleum received pursuant to Article 26.


Each entity constituting CONTRACTOR shall, within sixty (60) days after the end


of each tax year, provide a statement to the appropriate Kurdistan Region rax


authorities of the profits of the CONTRACTOR which .ire subject to corporate


income tax. together with lire amount of corporate income tax due on those profits.


The GOVERNMENT shall, within ninety (90) days after the end of each tax year,


provide the appropriate tax receipts from ihc appropriate Kurdistan Region tax


authorities to each entity constituting the CONTRACTOR certifying the payment of


its corporate income tax. as determined in the said statement, and that such entity has


met all its fiscal obligations in the preceding tax year.


?IJ For the purposes of Article 31.2:





(a) The rate of corporate income rax to be applied to each entity constituting die


CONTRACTOR shall be die applicable rale proscribed in the Law of Taxation.


Law No. 4 of 1999. passed by the parliament of the Kurdistan Region, as may be


amended from time to time or substituted in respect of Petroleum Operations (as


defined under the Kurdistan Region Petroleum Act) by a Petroleum Operations


Taxation Act (as defined under the Kurdistan Region Petroleum Act).





(b) The GOVERNMENT and ihc CONTRACTOR agree thar corporate


income tax shall be calculated for each entity constituting the


CONTRACTOR on its net taxable profits under tire Contract, as calculated in


accordance with the provisions relating thereto in the Accounting Procedure.








~5


1.11.4 l udi entity constituting the CONTRACTOR as well as any Subcontractors shall he


exempt from any withholding tax applicable on any payments made to them ot by


them to or from Affiliates ot third parties, whether inside 01 outside the Kurdistan


Region and/or Iraq, lor the entire duration of this Contract


31.5 Each entity constituting the CONTRACTOR shall be exempt from Additional Profits


Tax. as referred to in Article 44 of the Kurdistan Region Petroleum Act.


31.6 Each entity constituting the CON TRACTOR shall be exempt from Surface Tax. as


referred to in Ankle 44 of the Kurdistan Region Petroleum Act


31.7 Each entity constituting the CON I R AC TOR shall be exempt from Windfall Profits


Taxes, as referred to in Article 44 of the Kurdistan Region Petroleum Act


31.9 Each entity constituting the CONTRACTOR and any Subcontractor dull be subject to the


payment of the personal income tux and social security contributions for which such entity


or Subcontractor is liable to pay in respect of its employees, pursuant to the Low of


Taxation, I aw No. 4 of 1999. passed by the parliament of the Kurdistan Region, in the


same manner us generally applied to all oilier industries.


31.9 It is acknowledged that Double l ux Treaties will have effect to give relief from taxes to.


hut not limited to. the CONTRACTOR, contractoi panics, foreign subcontractors and


expatriate employees in accordance with the provisions of such Double fax Treaties, but


shall not impose an additional burden oftaxation.


31.10 Any value added lax ("VAT) shall be rcimlxavcd by the

CONTRACTOR.





31.11 Notwithstanding any othci provision to the contrary in this Contract the Parties


acknowledge and agree that the provisions of this Article 31 shall apply individually and


separately to ail t»« entities commuting the CONTRACTOR under this Conrad and dot


there shall be no joint and several liahUy in respect of any liability. Any or obligation


referred to in this Artkle 31.















































T6


 ARTICLE 32-BONUSES AND CONTRIBUTIONS








Signature Bonus


32.1 A signature bonus of five million Dollars

shall be payable to the GOVERNMENT by the CONTRACTOR within thirty


(30) days of the Effective Date.


< apacitv Building Contribution


32.2 A capacity building bonus of seventeen million five hundred thousand Dollars


(US$17,500,000) ("Capacity Building Contribution") shall be payable to the


GOVERNMENT by the CONTRACTOR within thirty (30) days of the Effective


Date.


I'nuluclion Bonuses


12.3 111 the event of a Crude Oil ( ommcrei.il Discovery, the CONTRACTOR shall pay the


following relevant Crude Oil production bonus to 0k GOVERNMENT within thirty (30)


days of the following relevant occurrence


a) Two million live hundred thousand Dollars (US S2. 500. 000) when i if*


Production of Crude Oil from the Contract Area commences.


(b) Five million Dollars (US S5. 000. 000) when production of Crude Oil from


the Contract Area reaches a cumulative amount of ten million barrels of Crude


Oil (10 mmbo);


and


i«) Ten million Dollars (US SI0. 000.000) when production of Crude Oil from the


Contract Area reaches a cumulative amount of Twenty five million barrels of


Crude Oil (25 mmbo).


32.4 In tire event of a Non-Associated Natural Gas Commercial Discovery, the


CONTRACTOR shall pay the following relevant Non-Associated Natural Gas product**)


bonus to the GOVERNMENT within thirty (30) days of the following relevant


occurrence:


(n) one million Dollars (US $1.000, 000) w hen First Production of Non-Associated


Natural Gas from the Contract Area commences;


(b) Two million five hundred thousand Dollars (US S2, 500. 000) when production


of Non-Associated Natural Gas from the Contract Area ranches a cumulative


amount equivalent to ten million barrels ol (rude Oil (10 mmbo);





77


(c) l ive million Dollars (US S3, 000. 000) when production of Non-Associaied


Natural Gas from the Contract Area reaches a cumulative amount equivalent to


Twenty live million barrels of Crude Oil (23 mmbo).


315 For the purposes of this Article 32. a Commercial Discovery shall be declared by the


CONTRACTOR to be cither a Crude Oil Commercial Discovery or a Non-Associatcd


Gas Commercial Discovery and under no circumstances shall a production bonus be due


in respect of both C rude Oil and Non-Associatcd Natural Gas for the same Commercial


Discovery


32.6 No bonus due pursuant to this Article 32 shall be deemed to be a Petroleum Cost


 ARTICLE 33-I'l PKI. INKS





33.1 The GOVERNMENT shall obtain any required Permits for the transportation of


Petroleum in the Kurdistan Region and in Iraq, as well as any necessary Permits and


casement rights foi the construction of any pipelines and related facilities required for the


Petroleum Operations, as pros isles! in Article 33 T


3.1.2 The GOVERNMENT undertakes to trtnsfer to the CONTRACTOR its rights for


transportation of Petroleum by pipeline The CON IRACTOR shail have the right to


design, construct, operate and maintain pipelines and any related facilities for the


transportation of Petroleum produced under this Contract


33J Prior to the construction of any pipeline and related facilities as provided in Article


33.2. the CONTR ACTOR shall submit following information to the Management


Committee:


(a) proposed pipeline route and related facilities.


(b) forecasted pipeline How rate and capacity-


id estimate of financial investment and operating costs of the pipeline and related





facilities:


(d) proposed financing schedule;


(e) construction schedule;


(I) general technical description of the pipeline and related facilities:





(g) construction plans and tests:


(Id preventive measures lor damage to the environment and third panics; and





(i) any other information relating to the pipeline project


I he Management Committee shall examine all the above information and shall within


ninety (90) days, approve the proposed pipeline project in accordance with the


provisions of Article 8.5 of this Contract.


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 tins Article 33 on terms to


be agreed between the CONTRACTOR and such third party (hose terms shall he


reasonable commercial terms and shall not discriminate among third party users. I he


CONTRACTOR shall always have priority of access to such pipelines.


33.5 To the extent that they are incurred upstream of the Delivery Point, any costs


associated with the design, construction, operation and maintenance of the pipelines


 and related fact.lies by CONTRACTOR under dm Ankle 33 J"Pipclinc Cents")


shall he considered Petroleum Costs and shall be recovered by the CON TRACTOR


m accordance with the provisions of Ankles I and 25








33.6 The CONTRACTOR shall have the absolute right, without any exceptions and lor


the entire duration of this Contract, to use. free of charge, any pipeline and related


facilities constructed by CONTRACTOR under this Article 33 and to transport


Petroleum produced from any Production Are3 and to operate and maintain any


pipeline and its related facilities, freely and without any additional costs.


33.7 Any tariffs received from third parties for use of any pipeline and related facilities by


CONTRACTOR under this Article 33 shall be applied to the recovery ol'Petroleum


Costs until all Pipeline Costs have been fully recovered by the CONTRACTOR


pursuant to the provisions of Articles I and 25 of this Contract The


GOVERNMENT shall be entitled to receive any tariffs from third parties for their


use of such pipeline and related facilities when the said Pipeline Costs have hern lull)


) 9 recovend b> 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 25





33.8 Upon recovery by the CONTRACTOR of all the Pipeline Costs, the operating and


maintenance costs of any pipeline and its related facilities shall he borne by the


CONTRACTOR and shall he considered Petroleum Costs and skill he recovered by


the CONTRACTOR in accordance with the provisions of Articles I -nd 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 3.3 for the transportation ol the share of Petroleum to which the


GOVERNMENT is entitled under this Contract, provided that where the


GOVERNMENT is participating in its capacity as a CONTRACTOR entity pursuant


to Article 4. it shall he liable lot its share of Petroleum Costs





33.10 I he CONTRACTOR shall hcai the custody and maintenance of any pipeline and related


facilities constructed by CONTRACTOR under this Article 33 and all risks of


accidental loss or damage to such pipeline and related facilities while they are ixx|iiircd


lor Petroleum Operations.





>





 ARTICLE 34-UNITISATION





341 In die event a Reservoir extends beyond the Contract Area into an adjacent area


which is the subject of another Petroleum Contract (as denned by the Kurdistan


Region Petroleum Act) (an "Adjuccnt Contract Area"), 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 Kuidistan Region Petroleum Act shall apply and the


GOVERNMENT shall require the CONTRACTOR and the Contractor of the


Adjacent Contract Area to agree upon a schedule for reaching agreement of the terms


of the unitisation of the Reservoir, which terms shall lie based on reliable technical,


operational and economical parameters, all in accordance with standard practice in


the international petroleum industry. In the event that the Minister decides the


unitisation pursuant to Article 58, Section 3 (b) ol the Kurdistan Petroleum Act. and if


the CONTRACTOR does not agree with the Minister's decision, the


CONTRACTOR shall be entitled to arbitration pursuant to the provisions of Article


42.1.


34.2 In the event that a Reservoir extends beyond the boundiries of the Contract \rc.i into


adjacent an area which is not the subject of another Petroleum Contract (as deCmed by


the Kurdistan Region Petroleum Act), the GOVERNMENT shall, upon the


CONTRACTOR’S request, take the necessary step' to extend the boundaries of


Contract Area so as to include the entire Reservoir within the Contrad Area, provided


that the CONTRACTOR can offer the GOVERNMENT a competitive minimum


work program for such adjacent area


 ARTICLE 35 - LIABILITY' AM) INSURANCE





Liability





35.1 Subject lo ihe other provisions of this Contract, the CONTRACTOR, in its capacity as


the entity responsible for the execution of the Petroleum Operations within the Contract


Area, shall he liable to third 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, indemnify and hold harmless the GOVERNMENT with respect to all


claims for such loss or damage.


35.2 I he CONTRACTOR shall not Kr liable lo the GOVERNMENT for any damage or loss





or claims of any kind resulting from its conduct of the Petroleum operations


unless such damage or loss is the direct result of wilful misconduct


or gross negligence ol the COMPACTOR in its conduct of the 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 CONTRACTOR in the exercise of the powers and


authorisations conferred upon the CONTRACTOR 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 . including without limitation any loss, damages, costs, expenses or


liabilities caused (directly or indirectly) by any of the following arising out of.


relating to. or connected with this Contract or the Petroleum Operations carried out


under this Contract: (it resetvoit or formation damage: (iit inability to produce, use or


dispose of Petroleum, (iii) loss or deferment of income: (iv) special or punitive


damages: or (v) otlier indirect damages or losses whether or not similar lo the


foregoing.





353 The CONTRACTOR dull indemnify and hold harmless the GOVERNMENT against


all losses, damages and liability arising under any claim, demand, action or proceeding


brought or instituted against the GOVERNMENT by any employee of the


CONTRACTOR or of any Subcontractor or by any dependent thereof, lor personal


injuries, industrial illness, death or damage lo personal property sustained in connection


with, related lo or arising out of the pcrfinmancc or non-pcrformancc of this Contract


regardless of the fault or negligence in whole or in party of any entity or individual.





35.4 Notwithstanding Article 35.1. the GOVERNMENT shall indemnify and hold harmless


the CONTRACTOR against .ill losses, damages anJ 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 lo personal property sustained in connection wide related to or


arising out of the performance or non-performance of this ( ontract regardless of the fault


or negligence in whole or in party of any entity or indiv dual.





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!, occulting in relation io the Peiroleum Operations which


are causing or likely to cause material environmental damage or material risk to


health and sale!) Such notice shall include a summary description of live


circumstances and steps taken and planned by the CONTRACTOR to control and


remedy the situation. I lie CONTRACTOR shall provide such additional report' to


the GOVF.RNMEN1 as arc necessary in respect of the effects of such events and the


course of all actions taken to prevent further loss and u> mitigate deleterious cll'ccts.


35.6 In the event of emergency situations as set out in Article 35.4 above, at the request of the





CONTRACTOR, the GOVERNMENT, without prejudice and in addition to any


indemnification obligations the GOVERNMENT may have, shall assist the


CONTRAC I’OR, 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 CON TRACTOR and by facilitating the measures taken by the CONTRACTOR to


bring into the Kurdistan Region personnel, materials and equipment to be used in any


such emergency response or remedial or repair effort. The CONTRACTOR shall


reimburse the GOVERNMENT'S reasonable and necessary costs incurred in such


efforts, which reimbursed amounts shall be considered Petroleum Costs and shall Ire


recovered by the CONTRACTOR in accotdattcc with the provisions of Articles I and 25


of this Contract.





Insurance





35.7 In accordance with standard practice in the international petroleum industry, the


COM R \CTOR shall maintain any insurance required by applicable Kurdistan Region


I aw. as well as any insurance approved by the 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 parties and risks of pollution a"'K uted with


Petroleum Operations lor reasonable amounts, within the limits approved by the


Management Committee








35.8 Any insurance policy relating to this Contract shall name the GOVERN Ml NT ,i. an


additional insured party and shall include n waiver of subrogation protecting the


GOVERNMENT against any claim, loss and damage resulting from any Pctiolcum


Operation conducted by or on behalf of the CONTRACTOR under this Contract, to the


extent that the CONTRACTOR is liable for such claim, loss or damage under this


Contract, lire CONTRACTOR shall not Ire 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 its or their subcontractors or of


any personnel of any of the foregoing


35.9 Upon its written request, the GOVERNMENT shall be provided with insurance





certificates, including necessary details. Ibr tiny insurance policy maintained by the


CONTRACTOR which 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 lo this Contract. Any


premiums :nid payments relating to such insurance policies sh ill he considered Petroleum


Costs and shall be recovered by the CONTRACTOR n accordance with the piovisnex


of Articles I and 25.


35.11 In any insurance policy maintained h> the CONTRACTOR which relates to this


Contract, the amount for which the CONTRACTOR itself is liable (the "Deductible


Amount") shall be reasonably determined between the CONTRACTOR and the insurer


and such Deductible Amount shall in the event of any insurance claim be


considered a Petroleum Cost and shall be recovered by the CONTRACTOR in


accordance with the provisions of Articles I and 25.


 ARTICLE 36 - INFORMATION AND CONFIDENTIALITY





36.1 The CONTRACTOR shall keep all records, daia and information relating to the


Petroleum Operations in accordance with the Kurdistan Region Petroleum Act and


standard practice in the international |>etroleuin industry. In addition, it shall provide


the GOVERNMENT with such information and data as it is obliged to provide under


this Contract.








36.2 Upon the GOVERNMENT'S written request, tin.* CONTRACTOR shall provide the


GOVERNMENT with samples of any rocks oi any Oliver items extracted during the


Petroleum Operations.





36.3 live GOVF.RNMENI shall have title to till data and information, whether raw. derived,


processed, interpreted or analysed, obtained pursuant to this Contract.





36.4 The CONTRACTOR shall have the right, without any limitation, to send Abroad copies


of all reports and technical data, magnetic tapes and other data relating to the Petroleum


Operations. Magnetic tapes or other data, the original of which must he analysed and


processed Abroad, may lie transported out of the Kurdistan Region


36.5 Any representatives authorised by the GOVERNMENT and notified to the


CONTRACTOR shall, upon reasonable prior written notice, have reasonable access


to tiny information and data relating to the Contract Area in the possession of the


CONTRACTOR which the CONTRACTOR is obliged to provide to the


GOVERNMENT pursuant to this Contract It is understood that, when exercising


such right, the GOVERNMENT shall ensure it docs not unduly interfere with or


hinder CONTRACTOR'S activities.


36.6 The CONTRACTOR shall provide the GOVERNMENT upon the


GOVERNMENT'S written request with copies of analysis information, reports, tapes


cm other data (geological, geophysical, logs, interpretations, drilling reports, etc.) related


to the Petroleum Operations All available originals shall be transferred to


the GOVERNMENT at the end of this Contract


36.7 A pan from the exceptions stated in this Article 36. the Panics undertake to keep all


data and information relating to this Contract and the Petroleum Operations


confidential during the entire term of this Contract and not to divulge or disclose such


data or information to third parties without the specific consent of the other Party,


such consent not to he unreasonably withheld or delayed. The foregoing


confidentiality obligation shall not apply to inlormationordata 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


> 15


 government jgency having jurisdiction over the entity constituting the


CONTR \CTOR, by a court order or any other legal proceedings or





Id) is required to be disclosed pursuant to the rules or regulations of any


government or recognised stock exchange having jurisdiction over the entity


constituting the CONTRACTOR.


36.8 Notwithstanding the foregoing in Article 36.7. in accordance with standard practice in


the international petroleum industry, such data and information may be disclosed to:


la) Allilulcsofeach entity constituting CONTR \CTOR;


|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 agent' retained by any entity constituting the CONTRACTOR


or ns Affiliate for the purpose of analysing «*r evaluating information or data;


Id) hanks or financial institutions retained by any entity constituting the


CONTRACTOR with a view to financing Petroleum Operations, including


any professional consultants retained by such bank or financial institution.


|e) honafide prospective assignees of a participating interest under this Contract


(including any entity with whom an entity constituting CONTRACTOR and >i


its Affiliates are conducting bonajide negotiations directed towards .1 merger


consolidation or the sale of a majority of its or an Affiliates shares)


(I) 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 Patty; and


(g) any other person or entity, upon the prior written approval of the non¬


disc losing Pany.


presided that disclosure shall not be made pursuant to paragraphs (c). (d). (e) and (f).


unless such third parly has entered into a confidentiality undertaking.


36.*> 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 fin any purpose, in particular for the purpose of promoting


said areas. The CONTRACTOR shall be entitled to keep copies of such data and


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 without 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


 ART ICI.E 37 - ENVIRONMENTAL PROVISIONS





.37.1 During (lie performance of (lie Petroleum Operations. (lie CONTRACTOR shall lake


necessary measures lo ensure dial it. the Operator, its Subcontractors and agents


attend 10 the protection of the environment and prevention of pollution, in accordance


with standard practice in the international petroleum industry and any applicable


Kurdistan Region I mv.


Prior to surrendering a portion of the Contract Area, the CONTRACTOR shall take


37.2


reasonable measures to clean the urea to lie surrendered in accordance with standard


practice in the international petroleum industry. Such measures shall include, inter


> • a/iii. removal of facilities, material and equipment together with reasonable measures


necessary for the preservation ol fauna, flora and ecosystems, all in accordance with


generally accepted practice in the international petroleum industry. I he


CONTRACTOR shall only he responsible for site restoration or environmental


damage to the extent the same pertains solely and directly to Petroleum Operaiions


pursuant to this Conlmct. l or the avoidance of doubt, the CON I RACTOR shall not he


liable and shall not bear any cost or expense for any liabilities, claims or obligations


related to any environmental pollution or other environmental damage which it did not


dirccily cause, including any condition in existence prior to the Effective Date.





37.3 The CONTRAC TOR 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 oilier natural


resources when carrying out Petroleum < >pcraiions.


37.4 The CONTRACTOR shall respect the preservation of property, agricultural areas,





and fislieries. when carrying out Petroleum Operations





37.5 Before Marling Exploration Operations within the Contract Area, die


>0 CONTR ACTOR shall conduct and submit an env ironment.il impact assessment.





National Parks and Nature Reserve Areas





37.6 The CONTRACTOR shall take all reasonable measures to minimise any adverse


material impact on national parks and nature reserves which may arise directly as a


result of the Petroleum Operations, in accordance with generally accepted


environmental practices in the international petroleum industry.





37.7 The CON ERVMENT; (i) represents and warrants that, on the I lleetive Dale, 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 of this


Contract will not designate or create or permit the creation of any national park*,


nature reserves or other protected areas, located in whole or in part within the


Contract Area, where the CONTRACTOR is entitled to carry out Petroleum


Operations.


'V


 KxixMuIHures





37.8 Any reasonable expenditure incurred by the CONTRACTOR in relation with this


Article 37 shall be deemed Petroleum Costs and shall be recovered by the


CONTRACTOR in accordance with the provisions of Articles I and 25.


y *5-


 AK 11( LE 38 - DECOMMISSION! N(i





38.1 To enable the CONTRACTOR lo recover the coils associated with fulure Pelrolcum


Field decommissioning and site restoration and any other similar expenditure lo be


home by ihc CONTRACTOR under this Contract Hie CONTRACTOR shall have


ihe right to establish a reserve fund for fulure decommissioning and site restoration ( a


"Decommissioning Reserve Fund"). lire Decommissioning Reserve Fund mas be


established at any lime during the linal len < 10) Calendar Years of the icrm of the


Production Operations of a Pelrolcum Field but upon the reasonable request by the


CONTRACTOR, the GOVERNMENT shall allow the CONTRACTOR to


establish such fund over a longer perioJ. Once established, ihc CONTRACTOR


dial I make regular contributions to the Decommissioning Reserve Fund based upon


estimated Petroleum Field decommissioning nml site restoration costs in accordance


with standard principles and technical norms generally accepted in the international


petroleum industry. Any contributions hy the CONTRACTOR to the


Decommissioning Reserve I und shall he mode in Dollars and shall be deemed


Petroleum Costs 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 be 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 in the Petroleum Field:


(i) the GOVERNMENT shall become liable for its future decommissioning





and site restoration.


(li) the contributions and any interest accumulated in the Decommissioning


Reserve Fund, to the extent that such contributions have been rccoscrcd 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.


383 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 lo the CONTRACI OK and shall be


used for Ihc Petroleum Field Decommissioning Operations. The CONTRACTOR


shall undertake any such Decommissioning Operations m accordance with standard


practice in the international petroleum industry.


38.4 If the Decommissioning Reserve Fund 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 oilier area which is the subject of another Pelrolcum Contract (as


defined by the Kurdistan Region Petroleum Act) of the CONTRACTOR or any of


 IIS Affiliates an>where in the Kurdistan Region and. to the extent the balance is not


reenterable as aforesaid, sudi remaining balance dull be paid by the







38.5 If the Decommissioning Romv I and exceeds all Decommissioning Costs for the


Petroleum f ield, the balance shall be allocated as follows.


(a) to the extent that it has been ivcovcred as Petroleum Costs, that amount shall


be transferred to the (iOVf.RNMENT; and


(b) to the extent that it has not been recovered as Petroleum Costs, that amount


shall he tv-paid to the CONTRACTOR.


38.6 Any expenditure incurred by the CONTRACTOR in relation with this Article 38.


including but not limited to any contributions to the Decommissioning Reserve Fund,


shall he deemed Petroleum Costs and shall be recovered by the CON TRACTOR in


accordance with the provisions of Articles I and 25.


38.7 The CONTRACTOR shall submit the Management Committee for approval in


accordance with Article 8.5 a detailed plan for decommissioning the Production Area


facilities and site restoration (the "Decommissioning Plan"), such Decommissioning


Plan to he submitted no later than twenty four (24) Months prior to the date estimated


by the C'ONTRAC I OK for the end of commercial production from the Production


Area.


>


 AIM K l i: 39 - ASSIGNMENT ami C HANCE OF (CONTROL





Alignment |« Affiliates


39.1 Each cniily constituting ihc CON I KACTOR shall he free to sell a-sign. trawler or


otherwise dispose of all or pari of ils rights, obligations and interests under lhi\


Con tract to an Affiliated Company or to another entity constituting the


COMntM Ink with the prior cement of GOVERNMENT, which content shall not


be unreasonably delated or withheld. Such consent shall he deemed to hate been


received if. after thirty (30) days from the date of such request, the GOVERNMENT


has not made any objections in venting.


AsMfmewt to I hird_l*irtles


> 39 2 bach entity constituting the CONTRACTOR shall have the right to sell, assign,


transfer or otherwise dispose of all or part of its rights and interests under this


Contract to any third parly (not being an Affiliated Company or another entity


constituting CONTRA* I OR) with the prior consent o! GOVERNMENT, which


consent shall not he unreasonably delayed or withheld Any entity constituting


CONTRACTOR proposing to sell, assign, transfer or otherwise dispose of all or pan


of its rights and interests under this ( ontract to any such third parly shall request such


consent in writing, which request shall be accompanied by reasonable evidence of the


technical and financial capability of the proposed third pailv assignee Such consent


shall he deemed to have been tcccivcd if. after thirty (30) days from the dale of such


request the GOVERNMENT has not made any objections in writing.


393 To be effective, any deed of sale, assignment, transfer or other disposal as prov ided


under Articles 39.1 or 39.2. the Panics shall enter into a deed of assignment, which


shall include an undertaking by such third party to fulfil any obligations under this


Contract


39.4 In the event an cniily constituting the CONTRACTOR assigns or in any other way


transfers its rights and interests under this Contract, whether in whole or in part, such


assignment or transfer shall not give rise to any lax. imposition or payment


whatsoever in the Kurdistan Region, whether currently existing or which may become


applicable in future.


39.3 The GOVERNMENT may not at any time transfer ils rights and obligations


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 it'


Government Share (upon exercise of its Option to Participate) in accordance with Article


4.


Lha^eofCoutrot


396 "Change of Control" for the purpose of this Article 39.6 means any direct or indirect


change of Control of an entity constituting CONTRACTOR (whether through


91


merger, sale of shares or of oilier equity interests, or otherwise) through a single


transaction or series of transactions. from ore o* more transferors to one or more


transferees, in which the marker salue of such entity’s participating interest in this


C ontract (which shall he as Specified in the Joint Operating Agreement relating to this


Contract, or where there is only one entity constituting CONTRACTOR, one


hundred (100%) percent) represents more than seventy five percent (75%) of the


aggregate market value of the assets of such 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 nl 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 un unit’s length transaction.


Fitch entity constituting the CONTRACTOR which is subject to a Change in Control


other than to an Affiliated Company or an entity constituting CONTRACTOR must


obtain the prior consent of GOVERNMENT, which consent shall not he


unreasonably delayed or withheld. Such consent shall he deemed to have been


received if. alter 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 whatsoever


in the Kurdistan Region, whether currently existing or which may become applicable


in future.


 ARTICI V 40 FORCE MAJKl'KF





40 I No delay, default. breach or omwion of the CONTRACTOR m 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


to a case of Foice Majeure. In such event the CONTRACTOR shall promptly notify


the GOVERNMENT in willing 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 ol such obligations, increased by


the time necessary to repair any damage resulting from or occurred during such delay


or curtailment, shall be added to any time period provided under this Contract


(including without limitation the I xplorntion Period and any extension thereto, any Sub*


Period and any extension thereto and any Development Period and any extension


thereto). I'lte Parties shall meet ns soon as possible aflci the notification of force


Majeure with a view to using reasonable endeavours to mitigate the effects thereof.


4(12 I oi 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 Us "control, which prevents


execution of all or part of its obligations under this Contract. Such events shall


mchiJc but not he limhed to follow mg.


war. whether declared or not. civil war. insurrection, riots, civil commotion,


terrorism, any other hostile acts, whether internal or external;


(bt strikes or other labour conflicts:


(c) accidents or blowouts;


(d> quarantine restrictions or epidemics;


(e) any act. event, happening or occurrence due to natural causes, in particular


floods. storms, cyclones, fires, lightning, or earthquake'.


(0 environmental restrictions, which the GOV ERNMENT has not notified to the


CONTRACTOR;


(g) any changes in Law.


(h) sanctions; and




of any court older, law, statute, ordinance, rule, regulation or directive or any executive nets


of any GOVERNMENT authority.


Provided lhal changes in law. sanctions, in ts or orders ol the Government occurring nllct the


date of this Agreement, including die issuance or promulgation of any coun order, law,


statute, ordinance, rule, regulation or directive and any executive acts of any Government


authority shall not claimed as a Force Majeure event by the Government under this


Agreement.


The intention of the Parties is that Force Majeurc shall receive the interpretation that


complies most with general principles and practice prevailing in the international


petroleum industry. Force Majcure affecting an Affiliated Company of an entity


constituting the CONTRACTOR shall he deemed Force Majcure affecting such


entity constituting the CONTRACTOR if the consequence of such Force Majcure


prevents the performance of any of CONTRACTOR'S obligations under this


Contract.















































































































































•>■1


 ARTICLE 41 - WAIVER OF SOVEREIGN IMMUNITY





The GOVERNMENT and un> Public Company which may be an entity constituting


CONTRACTOR at any time hereby fully and irrevocably waives any claim to immunity for


itself of any of its asw'ts


This waiver includes any claim to immunity from





la) any expert determination, 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


V ^


 ARTICLE 42 ARBITRATION ANI) EXPERT l>l I I .RMINATION





Mc

42.1 For the purpose of this Article 42.1, "Dispute” shall mean any dispute, controversy or


claim (of any and every kind or type, whether based on contract, tort, statute,


regulation or otherwise) arising out of, relating to. or connected with this Contract or


the operations carried out under this Contract, including without limitation any


dispute as the construction, existence, validity, interpretation, enforceability, breach


or termination of this Contract, which arises between the Parties (or between any one


or more entities constituting the CONTRAC TOR and the GOVERNMENT)


In the event of a Dispute, the parlies to the Dispute shall use their reasonable


endeavours to negotiate promptly in good faith a mutually acceptable resolution of


such Dispute


Subject to the provisions of Article 42.2 of this Contract, ii Party who desires to


submit a Dispute for resolution which has not been promptly resolved as aforesaid


shall commence the dispute resolution process by providing the other parties to the


Dispute written notice ol the Dispute ("Notice of Dispute"). T he Notice of Dispute


shall identify the parties to the Dispute, shall contain a brief statement of the nature of


the Dispute and the relief requested and shall request negotiations among Senior


Representatives.


(a) In the event that any Notice of Dispute is given in accordance with this Article


42.1, 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


pony to the Dispute, which for the GOVERNMENT shall mean the Minister of


Natural Resources, uhin thirty (30) days after the date of the receipt by each


party to the Dispute of the Notice of Dispute, tire Senior Representatives


representing the purties to the Dispute shall meet at a mutuall> 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 be accompanied at the meeting by a legal


adviser.


(b) If the Dispute cannot be resolved by negotiation in accordance with Article 42.1


(a) w ithin sixty (60) days alter the date of the receipt by each party to the Dispute


of the Notice of Dispute or such further period as the parties to the Dispute


may agree in writing, any pans to the Dispute may seek settlement of the dispute


by mediation in accordance with the I ondon Court of International Arbitration


(LCIA) Mediation Procedure, which Procedure shall be deemed to be


incorporated by relerence into this Article, and the parties to such Dispute


shall submit to such mediation procedure.


(c) If the Dispute is not settled by mediation in accordance w ith Article 42.1 (b)


«*


 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 the Dispute may refer the Dispute to, and seek final resolution by. arbitration


under the I C l A Kulcs. w hich Rules shall be deemed to be incorporated by


reference into tills Article.





Any arbitration shall be conducted by three 13) arbitrators.


(ii) If the parties to the Dispute are the GOVERNMENT and all the entities





constituting the CONTRACTOR, the GOVERNMENT and the


CONTRACTOR shall each appoint one 11) arbitrator. If the parties to the


Dispute are the GOVERNMENT and mote than one. but not all the entities


constituting the CONTRACTOR, the GOVERNMENT shall appoint one


(I) arbitrator and such CONTRACTOR entities shall appoint one (I)


Arbitrator. If the parties to the Dispute are the GOVERNMENT and one


entity constituting the CONTRACTOR, the GOVERNMENT and


such CONTRACTOR entity shall each appoint one (I) arbitrator.





(iii) In any event, the two arbitrators so appointed shall, in good faith, use all


reasonable endeavours to agree on the appointment of the third arbitrator, who


will chair the arbitral tribunal In case of failure to appoint an arbitrator or to


agree on the appointment of the third arbitrator. Rules of the LCIA shall


apply.


(vi) Arbitration shall take place in London. Lnglund. The language to he used





in any prior negotiation, mediation and in the arbitration shall he English.


During the arbitration procedure and until the arbitral decision, no Party


or < ONTRACTOK entity shall act in a manner thill may affect the rights of


the other Parts or other CONTRACTOR entities under this Contract I lie


arbitral award may be enforced by any court of competent jurisdiction,


including the Kurdistan Region. Any award shall be expressed in Dollars





tv) file Parties agree that the arbitral assard shall be final and not subject to any


appeal





f inert Iteterminalion





42.2 Any disagreement between the Parties relating to Articles 15.5. 27.2 and 27 0 of this


Contract, as well as any disagreement the Parties agree to refer to an expert shall be


submitted to an expert I he Management Committee shall prepare and agree


appropriate terms of reference relating to the disagreement to be submitted to the


expert, in accordance with Article 8.5 ('Terms of Reference").





I he disagreement shall be submitted to an expert appointed by mutual


agreement of the Parties within thirty (30| days follow mg the date of


preparation and agreement of the Terms of Reference by the Management


C ommittee. If the Parties cannot agree on the choice of the expert within such


thirty (30) day period, at the request of cither Party, the expert shall be


appointed by the President of the Energy Institute in London. Lngland- Any


expert appointed must have the necessary qualifications for reviewing and


deciding on the subject matter of the disagreement.


97


 (I’) The duties of the expert shall he stated in the Terms of Reference prepared


and agreed by the Management Committee. The Management Committee


shall promptly provide the expert with the agreed terms of reference relating


to the disagreement. Each Party shall have the right to give to the expert in


writing any information which it considers useful. The expert shall have the





light to review and verify any information lie deems useful to assist him in his


review of the disagreement.








(cl I he expert shall render his decision w ithin forty-five (45) days of his receipt


of the Terms of Reference and the information referred to in Article 42.2.


Subject to the provisions of Article 15.5 of this Contract, any decision of the


expert shall he final and shall not be subject to any appeal, except in the case


of manifest error, fraud or malpractice. Any costs and expenses associated


with the expert determination shall be shared equally between the Parties





(•cncml





>


!42.3 No negotiation, mediation, arbitration or expert determination procedure under this


Article 42 shall exempt the Parties from fulfilling their respective legal and/or


contractual obligations.


 ARTICLE 43 - GOVERNING LAW, FISCAL STABILITY AM) AMENDMENTS





Govemljm.Lag


43.1 This Coni rad. including any dispute arising therefrom, (hereunder nr in relation


I hereto, shall be governed by English law (except any rule o! English law which


would refer the mailer 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.


Fiscal stability





43.2 I he obligations of the CONTRACTOR resulting from this Contract shall not be


aggravated by the GOVERNMENT and the general and overall equilibrium between


the Parlies under this Contract shall not be affected in a substantial and lasting


manner.





43.3 The GOVERNMENT guarantees to the CONTRACTOR, 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 ol signature of this Contract. The CONTRACTOR


has entered into this Contract on the basis of tl*c legal, fi'oi and economic framework


prevailing at the Effective Dale. If, at any lime after the I ffccth* Date, there b ms


change in the legal, fiscal and/or economic framework under the Kurdistan Region


Law or other Law applicable in the Kurdistan Region which detrimentally atlccts tl»e


CONTRACTOR, the terms and conditions of the Contract shall be altered m> 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 that its economic position has peer detrimentally


a I fee ted 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 Contract with a view to re-establishing the economic


equilibrium between the Parties and restoring the CONTRACTOR to Ihc position it


was m prior to the occurrence of the change having such detrimental effect. Should


the Parties be unable to agree on the merit of amending this Contract and/or on any


amendments to be made to this Contract within ninety (90) days of CONTRAC I’OR's


request (or such other period as may be agreed by the Parlies), the CONTRACTOR


may refer the matter in dispute to arbitration as provided in Article 42.1.








43.5 Without prejudice to the generality of the foregoing, the CON TRACTOR shall be


entitled to request the benefit of any future changes to the petroleum legislation or


any other legislation complementing, amending or replacing it,


43.6 flic Parties agree to cooperate in all possible ways with a view to fully achieving the


 objectives of this Contract I he GOVERNMENT shall Incilitnio the performance of


the Petroleum Operations In promptly granting to the CONTRACTOR any


necessary authorisation. permit, licence or access right and making available any


existing facilities and services with 3 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 he 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 supeisedes any and


all prior understandings or agreements in respect of the subject matter of this


(onlmcl.


43.9 Unless otherwise expressly stated elsewhere in this ( outran, no failure or delay of


any Party to exercise any right, power or remedy under this Contract shall operate as


a waiver thereof; nor shall any single or partial exercise of any such right, power or


remedy preclude any other or future exercise (hereof or the exercise of any otllCf


right, power or remedy


43.10 As signatory to this Contract for and on behalf of the GOV I-RN ME NT. the Ministry of


Natural Resources in the Kurdistan Region hereby represents that it approves tins


Contract for the purposes of the Kurdistan Region Petroleum Act. when u emen. into


force.


>


















































too


 \RTICLE 44-NOTICES





44 I To be valid, my correspondence. written communication or notice between the Parlies


shall 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 acknowledged or


otherwise agreed by (he 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: Dr. Ashti Hawraini


Vddrrss: Council of Ministers.


Erbil. Kurdistan. Iraq


Email: ashti haw rami










For the CONTRACTOR:


Attention: Mr. Ashish Kumar





Address: Petroleum House. 6* Floor. II Nk ing.


DAKC. Thane Belapot Road.


Koparkhaime. Navimumbai 400710


India.


I’M! * *'l 22 072 71745


Kinull: ashish ci.kuman^ril.com





>14.2 I he above address and/or designated representative of any of the Parties may be


changed on giving ten (10) days prior notice to the other Party.





















































101


 ARTICLE 45 • TERMINATION





45.1 Subject to the provisions of Ankle 45.5. the GOVERNMENT shall hasc 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) with no cause or justification acceptable in accordance with this Cert fact


(excluding Force Majeure) during the first Sub-Period does not earn out


drilling and seismic acquisition, as detailed in Ankle 10.2 or, during the Second


Sub-Period (or earlier), does not cam out dolling and seismic acquisition, as


detailed in Article 10.3; or


* (c) interrupts Production for a period of more than ninety (90) consecutive days with


no cause or justification acceptable in accordance with this Contract (excluding


Force Majeure) or under normal international petroleum industry practice, or


(d) intentionally extracts or produces any mineral which is not cohered by the


object of this Contract, unless such extraction or production is expressly


authorised or unasoidable as a result of operations carried out in accordance


with accepted international petroleum industry practice; «*


(c) if the CONTRA* TOR comprises solely one entity, is declared bankrupt m


accordance with applicable Law; or


(0 wilfully refuses to abide by negotiation, mediation, arbitration or expert decision


under Article 42 of this (ontr.nl


45.2 The GOVERNMENT ntny also terminate the Contract only in respect of one


CONTRACTOR entity if such entity is subject to a Change of Control which h;.' been


completed without having obtained the prior required authorisation from the


GOVERNMENT (deemed or oiltctwisc) in uccoidancc with Article 39.6.


45.3 At any time prior to the I kvelopmenl Period, the CONTRACTOR shall have the right


to terminate this Contract by surrendering the entire Contract Area in accordance with the


provisions of Article 7 of this ( online!.


45.4 During the Development Period, the CONTRACTOR shall have the right to


terminate this Contract at any time by surrendering all Production Areas, provided its


then current obligations have been satisfied in accordance with this Contract


45.5 If the GOVERNMENT intends to exorcise its right to terminate this Contract


pursuant to Article 45.1. it shall lii'i comply with the following provisions;


(a) The GOV ERNMENT shall notify the CONTRACTOR of its intention to


 terminate llus Conlrnci staling the reasons for such termination and requesting


the latter:





(i) to remedy the default within three (3) months; or








(ii) to propose acceptable compensation





(!>) If. by then end of the said three (3) month period referred to in Article 45.4


(a), the GOVERNMENT is not satisfied, it shall notify the CONTACTOR


in writing that the Contract shall be terminated from the termination date


detailed in such notice I Ins Contract shall terminate on such termination date


unless the CONTRACTOR issues a notice of dispute as provided under


Article 41 of (his Contract, in which case this Contract slrall remain in


forccunlil a final settlement ol the dispute has been reached in accordance with





lire dispute resolution provisions of Article 41 of this Contract.





I he foregoing provisions of this Article 45.4 arc subject to the proviso that, in ease of


a dispute where there has been breach of this Contract which has been submitted to


arbitration pursuant to Article 41 of this Contract, the CiOVKRNMENT shall not he


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 tire provisions of Articles


45.1 and 45.5. the CONTRACTOR shall lose all its rights and interests under this





Contract.






















































































101


 ARTICLE 46 - APPLICATION OF CORRUPTION LAWS





46.1 If this Contract is reasonably proven to have been obtained in violation of Kurdistan


Region Law concerning corruption, this Contract is void ab initio


46.1 If the CONTRACTOR is at any time reasonably proven to be in breach of Kurdistan


Region Law concerning corruption, the CONTRACTOR may lose this Contract or part


of the Contract.





vsrr


 ARTICLE 47 - GOVERNMENT REVIEW





47.1 This Conduct may Ik- reviewed by the GOVERNMENT and amended by the


GOVERNMENT to the extent necessary to ensure that, with respect to the criteria of


probity mill the criteria of commercinlily which the Republic of Iraq Oil and Gas Law


expressly requires shall apply to all petroleum contracts in all ports of Iraq outside the


Kurdistan Region:


Oil there is no material inconsistency between this Contract and such criteria of


probity; and


(h) there is no overall material inconsistency between this Contract and such


criteria ol commercial tty.


) O (the "Purpose")





47.2 Within sixty (60) days of the entry into force of the Republic of Iraq Oil and Gas


I aw. the GOVERNMENT may notify the C ONTRACTOR in writing of any


amendments that the GOVERNMENT considers necessary for the Purpose,


accompanied by the reasons lor its decision and the proposed form of such


amendment. If the CONTRACTOR receives no such notification within such


period, the GOVERNMENT shall Ik- deemed to have reviewed this Contract and


required no amendments and the provisions of Article 43.7 shall apply without iIk-


exception referred to thetvin in respect of this Article 47.


The CONTRACTOR may. within thirty (30) days of receiving Mich a notification,





respond to the proposed amendments in writing. The GOVERNMENT shall


consider any such response and shall, within sixty (60) days of the notification,


further notify the CONTRACTOR in writing of any decision to amend the Contract


or decision not to amend, accompanied by the reasons for ils deciMOit 3nd. if different


from the original proposed form of amendment, its revised proposed form of such


amendment. If the GOVERNMENTS decision notified to CONTRACTOR is not


to amend, the GOVERN.MEN T 'hall he deemed to hase reviewed this Contract and


required no amendments and the provisions of Article 43.7 shall apply without the


exception referred to therein in respect of this Article 47.





47.4 If the GOVERNMENTS decision notified to CONTRACTOR pursuant to Article


47.3 is to amend and the CONTRACTOR agrees with the GOVERNMENT'S


decision, the GOVERNMENTT and the CONTRACTOR shall use their reasonable


endeavours to agree in good faith the form of. and approve in wining such


amendment within thirty (30) days. In the ab'cmc of such approval within such


period, the provisions of 47.5 shall apply





47.5 II the GOVERNMENTS decision notified to CONTRACTOR pursuant to Article


47.3 is to amend and the CONTRACTOR docs not agree with the


GOVERNMENT'S decision, this Contract shall be deemed to have been so amended


on the date of notification of the GOVERNMENTS decision to amend the Contract


by the form ol amendment accompanying such notice. The effectivc dale will he


deemed to be the date of notification of the GOVERNMENT'S decision to amend the


Contract.


 ARTICLE 48 - EFFECTIVE DA l>





This Contract shall become effective and be binding on the Panics when both of the


following conditions have been satisfied:








(a) the signature of the Contract by the duly authorised representatives of the


GOVI' RNMEN r and the CONTRACTOR, as provided below: and





the ratification of the Contract by the Prime Minister of the Kurdistan Region, which


shall be given by notice in writing to the CONTRACTOR and shall be effective


upon the date of such notice.


Entered into in four (4) originals in London, the l mted Kingdom on the Twenty Second (22)





day of December' 2006.





For the KURDISTAN REGION AL GO\ ERNMKNT














Dr. Ashti Hawrami


Minister of Natural Resources





In the Presence of; Klh A L,CD

















For RELIANCE EXPLORATION AND PRODUCTION DMCC











Anil Chandra


Director











In the presence of: \^j fc>vf D


ANNEX A


Map showing coordinates of ROVI Block comer points








Point X(mE) Y(mN)


Latitude Longitude


(deg mm sec) (deg min sec)


A 36 46 45 43 40 44 382100 4070900


B 36 44 23 43 53 04 400395 4066 !()2


C 36 40 42 43 51 12 397536 4059522





D 36 38 39 43 46 13 390066 4055827


E 36 33 28 43 44 49 387850 4046250





F 36 31 23 43 43 35 385977 4042422


G 36 32 14 43 29 51 365500 4044300

































































































































































108


 ANNEX B ACCOUNTING PROCEDURE





PARAGRAPH I


GENERAL PROVISIONS


1.1 Purpose


To classify expenditures, define further Petroleum Costs (in addition to those defined as such


in the Articles of the Contract), and prescribe the manner in which the CONTRACTOR'S


Accounts shall be prepared and approved.


1.2 Definitions


Words and phrases to which a meaning has been assigned in Article I or other Articles of the


Contract shall have the same meaning when used in this Annex


1.3 Inconsistency


In the event of any inconsistency or conflict between the provisions of this Annex and the


other provisions of the Contract, then the other provisions of the Contract shall prevail.


1.4 Accounting Records and Reports


1.4.1 I lie Contractor shall maintain the Accounts in accordance with Article 15.1 and in


accordance with this Accounting Procedure, including in accordance with the charts


of accounts agreed under Paragraph 1.4.2 below.


1.4.2 Within sixty (60) days of the I fTcctive Date, the CONTRACTOR shall submit to


and discuss with the GOVERNMENT a proposed outline of charts of Accounts,


which outline shall he in accordance with generally accepted standards and


recognized accounting systems and consistent with normal petroleum industry


practice and procedures. Within ninety (90) days of receiving the above submission,


the GOVERNMENT skill either provide written notification of its approval of the


proposal or request in writing revisions to the proposal. Within one hundred and


eighty (180) days after the Effective Date, the CONTRACTOR and tlic


GOVERNMENT shall agree on the outline of charts of Accounts which shall


describe the basis of the accounting system and procedures to be developed and


lived under this Contract- Following such agreement, the CONTRACTOR shall


expeditiously prepare and provide the GOVERNMENT with formal copies of the


comprehensive charts of Accounts and manuals related to the accounting, recording


and reporting functions, and procedures which arc. and shall be. observed under the


Contract.


I 4.3 Notwithstanding the generality of the foregoing, the CONTRACTOR shall make


regular Statements relating to the Petroleum Opeiations these Statements arc as


shown:





a) Production Statement (as indicated in Paragraph 6 of this Annex).


b) Value of Production and Pricing Statement (as indicated in Paragraph 7 of this


Annex).


c) Cost Recovery and Share Account Statement




this Annex t.


d)


Statement of Expenditures and Receipts (as indicated in Paragraph 9 of this


Annex).


109


Si


 e) Final F-nd-of-Year Statement las indicated in Paragraph 10 of this Annex).


0 Budget Statement (as indicated in Paragraph 11 of this Annex).





1.4.4 All repons and statements shall he prepared in accordance with the Contract.


Kurdistan Region Law. and where there are no relevant provisions of either of these,


in accordance with generally accepted practices in the international petroleum


industry.


1.5 language and Units of Account


All Accounts shall be maintained and prepared in the English language and shall be recorded


in Dollars Where necessary for clarification, the CONTRACTOR may also maintain


Accounts m other currencies.


1.6 Audit and Inspection Rights of the GOVERNMENT


In addition to the provisions of Article 15 3 and 15.5. the following provisions shall apply to


any audit carried out in accordance with Article 153


1.6.1: For purposes of auditing, the GOVERNMENT, acting reasonably and in accordance


with generally accepted international petroleum industry practice, may examine and


verify, at reasonable times upon reasonable prior written notice to the


C ONTR ACTOR, all charges and credits relating to the Petroleum Operations, such


as hooks of account, accounting entries, material records and inventories, vouchers,


payrolls, invoices and any other documents, correspondence and records including


electronic records reasonably considered necessary by the GOVERNMENT to audit


and verify the charges and credits, values and treatments


1.6.2 Furthermore, the auditors shall have the right in connection with such audit, to visit


and inspect at reasonable times, all sites, plants, facilities, warehouses and offices of


the CONTRACTOR directly or indirectly versing the Petroleum Operations and to


question pci.somtcl associated with those Petroleum Operations.


1.6.3 Where the GOVERNMENT requires verification of charges made by an Affiliated


Company of the CONTRACTOR, the GOV ERNMENT shall have the right to


obtain an audit certificate from an internationally recognized firm of public


accountants acceptable to both the GOVERNMENT and the CONTRACTOR,


which may be the CONTRACTOR'S statutory audit,*.


1.6.4 All agreed adjustments resulting from an audit dull be promptly m3dc in the


CONTRACTOR'S Accounts and any consequential adjustments to payments due to


the CONTRACTOR or to the GOVERNMENT, is the case may be. shall be made


promptly.


1.6.4 When issues are outstanding with respect to an audit, the CONTRACTOR shall


maintain the relevant documents and permit inspection thereof until the issue is


resolved.


1.7 Payments


Unless as otherwise provided in Article 24. Article 29 or other Articles of the Contract:








1.7.1 All payments between the Parties shall, unless otherwise agreed, be in Dollars and be


MO


*





 innde through n hunk designated in Writing by each itcdvijg party; and all Mims due


unde! I he Contract shall be paid within thins <30) days following the end of the month


in which ilie obligation to make such payment occurred





1.72 All sums due by one party to the other under the Contract shall, for each day such


sums arc overdue, bear interest compounded monthly at I IHUR plus two percent





12%)


IJt Currency Exchange Rates








In addition to the provisions of Article 29. the following provisions shall apply to any


exchanges of currency carried out in accordance with Article 29:





18 1 Amounts received and Petroleum Costs incurred, shall be converted from other


currencies into Dollars in accordance with the CONTRACTOR'S usual accounting


procedures which shall reflect generally accepted accounting practices in the


international petroleum industry, and with reference to exchange rates obtained in


accordance with Article 29.





Accrual Basis. Cash Flow Basis and Reports








All hooks and accounts shall be prepared on an accrual basis. Revenues shall he attributed to


the accounting period in which they are earned, and Petroleum Costs shall be attributed to tlic


accounting period in which they are incurred, without the need to distinguish whether cash is


recovered or disbursed in connection with a particular transaction Petroleum Costs shall he


deemed to have been incurred, m the cave of physical items, m the accounting period when


title thereto passes to the CONTRACTOR, and in the case of services in the accounting


period when such serv ices aic performed





I.KI Values and Treatments





Values and treatments proposed by the CONTRACTOR relating to all Petroleum Costs


shall be subject to challenge by the GOVERNMENT in the course of audit lo ensure that


they axe in accordance with the provisions of this Accounting Procedure.








PARAGRAPH 2


CLASSIFICATION. DEFINITION AND ALLOC AI ION Ok


COSTS AND EXPENSES








2.1 Segregation of Costs and Expenses


Petroleum Costs shall be segregated in accordance with the purposes for which such





Petroleum ('osts arc made. The purposes which shall qualify are:





(a) those which have been included in the approved Work Program and Budget


for the year in which the Costs and Expenditures are made.


(b> expenditures incurred in cases of emergency as set out in Articles 11 6. 13.5.


13.9 35.5.35.6 and any other Articles of the Contract:


(c) any other purposes agreed in the Articles of the Contract; and


(d) other items which have been agreed by the Parties from lime to time.





All Petroleum Costs recoverable under Paragraph 3 relating to Petroleum Operations shall he





*





 c I ass i lied, defined and allocated as sei mil below


2.2. Exploration Costs








Exploration Costs are all direct and allocated indirect costs and expenditures incurred in


carrying out the Exploration Operations, including but not limited to all direct and allocated


indirect costs and expenditures incurred in the search for Petroleum in an area which is. or


was at the time when such costs and expenses were incurred, part of the Contract Area


including:


2.2.1 Aerial, geophysical, geochemical, paleontological, geological, topographical and


seismic surveys and studies and their interpretation.


2.2.2 Stratigraphic test hole drilling and water well drilling.


2.2.3 Labour, materials, supplies, and services used in drilling wells with the object of


finding Petroleum or Appraisal wells excluding any costs of the subsequent


completion of such wells as producing wells.


2.2.4 Facilities to the extent used in support of the purposes described in Paragraphs 2.2.1,


2.2.2 and 2.2.3 above, including access roads and purchased geological and


geophysical information, all separately Identified


2.2.3 That portion of all Service Expenditures and that portion of all General and


Administrative Expenditures directly attributable to Exploration Costs or allocated


thereto on a consistent and equitable basis.


2.2.6 Any other expenditures inclined in the search lor and appraisal of Petroleum altei the


Effective Date and not otherw ise covered under Paragraph 2.2


23 Gas Marketing C mts


Gas Marketing Costs arc all direct and allocated indirect costs and expenditures incurred in


carrying out G3s Marketing Operations and include that portion of all Sen ice Expenditures


and that portion of all General and Administrative Expenditures directly attributable to Gas


Marketing Costs or allocated thereto on a consistent and equitable basis.


2.4 Develop---ft Cort*


Development Costs are all direct and allocated indirect costs and expenditures incurred in


carrying out Development Operations including but not limited to all direct and allocated


indirect costs and expenditures incurred in.


2 4.1 Drilling wells which arc completed as producing wells and drilling wells lor purposes


of producing from a Petroleum reservoir, whether these wells are dry or producing


and drilling wells for the injection of water or gas to enhance recovery of Petroleum.


2.4_2 Completing wells by way of installation of casing or equipment or otherwise after a


well has been drilled for the purpose of bringing the well into u'tf as a producing well


or asa well for the injection of water or gas to enhance recovery of Petroleum.


‘V


112


2.4.3 The cosis of Petroleum production, transport and storage facilities such as pipelines,


flow lines, production and treatment units, wellhead equipment, subsurface


equipment, enhanced recovery systems. Petroleum storage facilities, and access roads


for production activities.





2.4.4 Engineering and design studies for the wells and facilities referred to in Paragraphs


2.4.1.2.4.2 and 2.4.3.





Ami including that portion of all Service Expcndilurcs and that portion of all General and


Administrative Expenditures directly attributable to Development Costs or allocated thereto


on a consistent and equitable basis: and any other expenditure incurred in the Development


Operations and not otherwise covered under Paragraph 2-3-


2.5 Production Costs





Production Costs are all direct and allocated indirect costs and expenditures incurred in


carrying out Production Operations, including bill not limited to all direct and allocated


indirect costs and expenses incurred in Petroleum Operations after f irst Production which are


other than Exploration Costs. Gas Marketing Costs. Development Costs and


Decommissioning Contributions. Production Costs include that portion of all Service


Expenditures and that portion of all General and Administrative Expenditures directly


attributable to Production Costs oi allocated thereto on a consistent and equitable basis.





2.6 Decommissioning Costs


Decommissioning Costs are all direct and allocated indirect costs and expenditures incurred in


carrying out Decommissioning Operations ami include that portion of all Service


Expenditures and that portion of all General and Administrative Expenditures directly


attributable to Decommissioning Costs or allocated thereto on a consistent and equitable


basis, and the Decommissioning Reserve Fund shall be determined on such basis, in advance


of incurring such costs, as provided in Article 38 and. for the purposes of cost recovery, the


contributions to the Decommissioning Reserve Fund shall be recovered in accordance with


Article 38.





2." Service Expenditures


Service Expenditures arc expenditures in support of Petroleum Operations including


warehouses, vehicles, motorized rolling equipment, aircraft, fire and security stations,


workshops, water and sewerage plants, power plants, housing, community and recreational


facilities and furniture, tools and equipment used in these activities. Service Expenditures in


any Calendar Year shall include the costs incurred in such year to purchase and or construct


the said facilities as well 3S the annual costs of maintaining 3nd operating the same All


Service Expenditures shall be regularly allocated as specified in Paragraphs 2.2.5. 2.3. 2.4.


2.5 and 2.6 to Exploration Costs. Gas Marketing Costs. Development Costs. Production


Costs and Decommissioning Costs respectively and shall be separately shown under each of


these categories. NNhcre Service Expenditures arc made in respect of shared facilities, the


basis of allocation of costs to Petroleum Operations shall be consistent and equitable and


shall be specified.


Z-S











113


 2.X General and Administrative Expenditures


General and Administrative Expenditures arc:








2.8.1 All main office, field office and general administrative expenditures in the Kurdistan


Region including hut not limned to supers isory. accounting and employee relations


services.


2.8.2 Where the CONTRACTOR is an Affiliate of a group of companies whose





headquarters is Abroad (u "Foreign CONTRACTOR"), un annual overhead charge


shall be made for services rendered (excluding the direct expenditures as referred in


Paragraph 3.1.2. below) by any Affiliate of the Foreign CONTRACTOR outside


the Kurdistan Region to support and manage Petroleum Operations under the


Contract, or where the CONTRACTOR, not being a f oreign CONTRACTOR


draws upon the services of an Affiliate within the Kurdistan Region, an annual


ovethead charge shall he made for services rendered (excluding the direct


expenditures as referred in Paragraphs 3.l.2.(a) and (h) below) by such Affiliate to


suppon and manage Petroleum Operations under the Contract ("Parent


Company Overhead").


Parent Company Overhead will be deemed to cover the actual cost (being salaries, wages and


labour burden, employee benefits, travel, hotel and other normally reimbursable expenses


paid by the Affiliate of a CONTRACTOR in accordance with its standard personnel policy


in force In the relevant period, provision of office accommodation and provision of services


reasonably necessary for operation and maintaining such staff offices) incurred lor services


rendered by those functions of CONTRACTOR'S Affiliate, such as, hut not limited to.


international production headquarters, international exploration headquarters, treasury,


payroll, taxation, insurance, legal, communication', computer services, controller',


personnel, executive administrative management, research and development, central


engineering and process engineering which:


a) cannot, without unreasonable effort and'or expenditure or without the release


of confidential data proprietary to any of the CONTRACTOR'S Affiliates, be


charged under any other section of this Annex: and


h) are properly allocable to Petroleum Operations under the Contract. It is


understood, however, that services performed by the departments listed above


jnd other corporate departments which directly benefit Petroleum Operations


under the Contract shall be charged as direct costs in accordance with


Paragraph 3 of this Annex.


In respect of the costs of the CONTRACTOR'S Parent Company Overhead, as described


above, the CONTRACTOR shall charge monthly to Petroleum Operations an amount equal


to die total of the following:


2.8 21 Exploration Overhead


I be CONTRACTOR shall be entitled to an unnual charge based on a sliding scale


percentage and charged monthly to Petroleum Operations. I he basis for applying this


percentage shall be the total of Exploration Costs and Gas Marketing Costs during each


Calendar Year (exclusive of this Exploration Overhead) or fraction thereof less expciulimrcs


which have been subjected to the two (2) percent Ice. icleered to in Paragraph 3.1 8(b). The


^ 114 C5


 sliding scale perccniogc shall he the following


I or the first four million (4.000.000) Dollars lour percent (4%)


for the next four million (4.000.000) Dollars three percent (3%)


Over eight million (8.000.000) Dollars two percent (2%)


The foregoing percentages may be reviewed hut not more often than annually, and any


approved appropriate adjustment shall he made, if necessary, prospectively.


2.8.2.2 Development. Production and Decommissioning Operations Overhead








The overhead rates applicable to Development, Production and Decommissioning Operations


shall be agreed between the Parties in due course and shall incorporate the following


guidelines:


a) The CONTRACTOR'S charges must be charged as direct charges whenever


possible. Overhead charges exist only to compensate the CONTRACTOR'S


Affiliates for costs which are properly allocable to Petroleum Operations


under the Contract but which cannot, without unreasonable effort and/or


release of confidential data proprietary to the CONTRACTOR'S Affiliates,


be charged under any other section. Overhead costs are billed monthly.


Overhead must be commensurate with services rendered and based on actual


cost studies Inn may not exceed an amount calculated as a percentage of


certain annual expenditures excluding Exploration Costs and Gas Marketing


Costs. That percentage as well as the types of expenditures, which affect


overhead and those, which do not. shall be agreed among live Parties.


b) l ive maximum percentage rates mas be revised by mutual agreement not more


often than annually The initial maximum percentage rates and the types of


expenditures to which they apply shall be agreed as soon as the Parties


possess reasonably reliable cost estimates for the relevant Production Area.


c) Overhead charges arc not subject to audit by GOVERNMENT.


d) The CONTRACTOR shall upon request furnish at the end of each relevant


Calendar Year to the GOVERNMENT a confirmation by its statutory auditor


that the overhead costs actually charged do not duplicate any other charges


and lh3t the method used in allocating overhead to Petroleum Operations


hereunder as opposed to other activities is reasonable and in accordance with


generally accepted accounting practices


c) The CONTRACTOR must budget for overhead charges.


2.8.3 All General and Administrative Expenditures shall be regularly allocated as specified


in Paragraphs 2.2 5. 2 3. 2.4. 2 5 and 2.6 to Exploration Costs. Gas Marketing Costs,


Development Costs. Production Costs and Decommissioning Costs respectively and


shall be separately shown under each of these categories.


V <5











115


 PARAGRAPH 3


COSTS, EXPENSES, EXPENDITURES AND CREDITS


OF THE CONTRACTOR


3.1 Costs Recoverable Without Further Approval of the GOVERNMENT


Petroleum C osts Incurred hy the CONTRACTOR pursuant to the Contract us classified


under the headings referred to in Paragraph 2 shall be recoverable for the purpose of Article


25 of the Contract (except to the extent provided in Paragraph 4 or elsewhere in this Annex),


subject to audit as provided for in Article 15 and in Paragraph 1.6.


3.1.1 Surface Rights


All dirccl costs necessary for the acquisition renewal or relinquishment of surface rights


acquired and maintained in force for the purposes of the Contract.


3.1.2 Labour mid Awy;aed l.ahoyr Costs


a) The CONTRACTOR'S locally recruited employees based in the Kurdistan


Region Costs of all CONTRACTOR'S locally recruited employees who are


directly engaged in the conduct of Petroleum Operations under (he Contract in


live Kurdistan Region Such costs shall include the costs of employee benefits


and GOVERNMENT benefits for employees and lesies imposed on the


CONTRACTOR as an employer, transportation and relocation costs within


the Kurdistan Region of the employee and such members of the employee's


family (limited to spouse and dependent children) as required by law or


customary practice in the Kurdistan Region. If such employees arc engaged in


other activities in the Kurdistan Region, in addition to Petroleum Operations,


the cost of such employees shall be apportioned on a time sheet basis


according to sound and acceptable accounting principles.


b) Assigned Personnel Costs of salaries and wages including bonuses of the


CONTRACTOR'S employees directly engaged in the conduct of the


Petroleum Operations under the Contract, whether temporarily or permanently


assigned, irrespective of the location of such employees, it being understood


that in the case of those personnel only a portion of whose time is wholly


dedicated to Petroleum Operations under the Contract, only that pro-rata


portion of applicable salaries, wages, and other costs as delineated in


Paragraphs 3.1.2(c), (d), (e), (I) and (g). shall be charged and the basis of such


pro-rata allocation shall be specified.


c) The CONTRACTOR’S costs regarding holiday, vacation, sickness and


disability benefits and living and housing and other customary allowances


applicable to the salaries and wages chargeable under Paragraph 3.l.2.(b)


above.


d) Expenses or contributions made pursuant to assessments or obligations


imposed under Law which are applicable to the CONTRACTOR'S cost of


salaries and wages chargeable under Paragraph 3.1,2.(b) above.


c) The CONTRACTOR'S cost of established plans for employees' group life


insurance, hospitalization, pension, stock purchases, savings, bonus, and other


benefit plans of a like nature customarily granted to the CONTRACTOR'S


employees, provided however that such costs arc in accordance with generally


Cs "6


 accepted standards in ihe international petroleum industry. applicable to


sularies and wages chargeable to Petroleum Operations under Paragraph


3.1.2.(b>above.


0 Actual transportation and travel expenses of employees of CONTRACTOR,


including those made for travel and relocation of the expatriate employees,


including their families and personal effects, assigned to the Kurdistan Region


whose salaries and wages are chargeable to Petroleum Operations under


Paragraph 3.1.2.(b) above.





Actual transportation expenses of expatriate personnel transferred to


Petroleum Operations from their country of origin shall he charged to the


Petroleum Operations. Transportation expenses of personnel transferred from


Petroleum Operations to a country other than the country of their origin shall


not he charged to the Petroleum Operations. Transportation cost us used in this


section shall mean the cost of freight and passenger service, meals, hotels,


insurance and other expenditures related to vacation and transfer travel and


authorized under the CONTRACTOR'S standard personnel policies. The


CONTRAC I OR shall ensure that all expenditures related to transportation


costs are equitably allocated to the activities, which have benefited from the


personnel concerned.





g| Reasonable personal expenses of personnel whose salaries and wages arc


chargeable to Petroleum Operations under Paragraph 3.1.2(b) above and for


which expenses such personnel arc reimbursed under the CONTRACTOR'S


standard personnel policies. In the event such expenses arc not wholly


attributable to Petroleum Operations, the Petroleum Ope rain his 'hall be


charged with only the applicable portion thereof, which shall be determined











The cost of transportation of employees, equipment, materials and supplies other than as


provided in Paragraph 3.1 2.(0 necessary for the conduct of the Petroleum Operations under


the Contract along with other related costs such as. but not limited to. import duties, customs


fees, unloading charges, dock fees, and inland and ocean freight charges








a) Third Panics


The actual costs of contract services, services of pmfcsvional consultants,


utilities. 3nd other services necessary lor the conduct of the Petroleum


Operations under the Contract performed by third parties other than an


Affiliate of the CONTRACTOR.


b) AffiiiaUs alike CONTKACTO*








i) Professional and Admi antra live Services hiprasrs: cost of


professional and administrative services provided by any Affiliates of


the CONTRACTOR for the direct benefit of Petroleum Operations,


including but not limited to services provided by the Production.


Exploration, l egal. Procurement. Financial. Invurancc. Accounting and


ll?


Computer Services Divisions other than those covered by paragraphs


3.1.4 (b) which CONTKA

lieu of having its own employees. Such charges shall reflect the cost of


providing their services Such charges shall not include any element of


profit and shall be no more or less favourable than similar charges for


other operations carried on by the CONTRACTOR and its Affiliates.


The chargcout rate shall include all costs incurred by Affiliates


incidental to the employment of such personnel including all Labour


and Associated Labour Costs and the cost of maintaining and


operating offices and providing all support services for such personnel.


Costs of travel ol such personnel in respect of Petroleum Operations


will be directly charged. I he charges for such services shall not exceed


those prevailing if performed by non-Afliliatod third parties, taking


into account the quality and availability of such services. Where tin:


woik is performed outside the home office base of such personnel, the


daily rate shall he charged from the date such personnel leave the


home office base where they usually work up to their return thereto,


including days which arc not working days in the location where the


work is performed, excluding any holiday entitlements derived by such


personnel from Ihcir employment at tl*cir home office base.


Scientific or Technical Personnel: cost of scientific or technical


personnel services provided by any Affiliate of the CONTRACTOR


for the direct benefit of Petroleum Operations, which cost shall be


charged on a cost of service basis and shall not include any element of


profit. The chargcout rale shall include all cosis incurred by Affiliates


incidental to the employment of such personnel including all Labour


and Associated Labour Costs and the toM of maintaining and Operating


offices and providing all suppon serv ices for such personnel Costs of


travel of such personnel in respect of Petroleum Operations will be


directly charged. The charges for such services shall not exceed those


prevailing if performed by non-affiliated third parties, taking into


account the quality and availability of such services. Unless the work


to be done by such personnel is covered by an approved Work Program


and Budget, the CONTRACTOR 'hall no< authorize work by such


personnel without approval of the GOVERNMENT.








Equipment and facilities: use of equipment and facilities


owned and furnished by- the CONTRACTOR’S Affiliates, at rates


commensurate with the cost of ownership and operation, provided,


however, that such rates shall nol exceed those currently prevailing for


the supply of like equipment and facilities on comparable terms in the


area where the Petroleum Operations arc being conducted and shall be


on an arm's length basis. On the request of the Government, the


CONTRACTOR shall provide the GOVERNMENT with evidence


of such rates being on an arm’s length basis. < If the


GOVERNMENT considers that any such rale is not on an arm's length


basis then the GOVERN MEN f has the right to refer the matter to an


expen pursuant to Article 42 2 of the Contract). The equipment and


facilities referred to herein shall exclude major investment items such as


(but not limited to) drilling rigs, producing platforms, oil treating





118


 facilities, oil and gas loading and transportation systems, storage


and terminal facilities and other major facilities, rates for which


shall be subject to separate agreement with the GOVERNMENf





3.1.5 Communications


Cost of acquiring, leasing, installing, operating, repairing and maintaining communication





systems including radio and microwave facilities between the Contract Area and the


CONTRACTOR S nearest base facility


3.1 .6 Office and Miscellaneous Facilities





Net cost to CONTRACTOR of establishing, maintaining and operating any office, sub-


offlice. warehouse, housing or other facility directly serv ing the Petroleum Operations. If any


such facility services more than one contract area the net costs thereof shall he allocated on


an equitable basis in accordance with generally accepted practice and procedures in the


international petroleum industry.


3.1.7 Ecological and Environment


a) C*»sts incurred in live Contract Area as a result of legislation for archaeological


and geophysical surveys relating to identification and protection of cultural


sites or resources;


l>| Costs incurred in environmental or ecological surveys required by regulatory


authorities, including an environmental impact assessment commissioned


pursuant to Article 37.5 of the Contract and any other costs incurred in


complying with the requirements of Article 37;


c> Costs to provide or have available pollution containment and removal


equipment;


d) Costs of actual control and cleanup of oil spills, and of such further


responsibilities resulting therefrom as may be required by applicable laws and


regulations:


e) Costs of restoration of the operating environment incurred pursuant to an


approved scheme prepared in accordance with Article 38 of the Contract; and


I) Any costs incurred for the decommissioning of facilities and site restoration,


including any related activity required by GOVERNMENT or other


competent authority or by the Contract;


g) any contributions made by the CONTRACTOR to the Decommissioning


Reserve Fund in accordance with Ankle 38. when such contributions a'c


made








Costs of materials and supplies, equipment, machines, tools and any other goods of a similar


nature used or consumed in Petroleum Operations subject to the following:


'> 119 ^





Acquisition - the CONTRACTOR shall only supply or purchase materials


for use in Petroleum Operations that may he used in the foreseeable future.


The accumulation of surplus stocks and inventory shall be avoided so fcr as is


reasonably practical and consistent with efficient and economical operations.


Inventory levels shall, however, take into account the time lag for


replacement, emergency needs, weather conditions affecting operations and


similar considerations.


Components of costs, arm's length transactions - except as otherwise


provided in paragraph 3.1.8(d) below. material purchased by the


CONTRACTOR in arm's length transactions in the open market for use in


the Petroleum Operations under the Contract shall he valued to include invoice


price less trade and cash discounts (if anv). licence fees, purchase and


procurement fees plus freight and forwarding charges between point of supply


and point of shipment, freight to port of destination, insurance, taxes, customs


duties, consular fees, excise taxes, other items chargeable against imported


materials and. where applicable, handling and transportation expenses from


point of impoitation to warehouse or operating site Where an Affiliate of the


CONTRACTOR has arranged the purchase, coordinated the forwarding and


expediting effort, its costs should not exceed those currently prevailing in


normal arm's length transactions on the open market and in any case shall not


exceed a fee equal to two percent (2%) of the value of the materials added to


the cost of the materials purchased.


Accounting - such material costs shall he charged to the accounting records


and books in accordance w ith the "First in. First Out" (FIFO) method;


Material purchased from or sold to Affiliates of the CONTRAC I OK or


transferred from other activities of the CONTRACTOR to or from Petroleum


Operations under this Contract shall be valued and charged or credited at the


prices specified in Paragraphs 3.1 8.(d).(i), 3.1.8.(d).(li) and 3.1 8.(d).(iii>


hereof:


i) New material, including used new material moved from inventory (Condition


"A*), shall be valued at the current international not price which shall not


exceed the price prevailing in normal arm's length transactions in the open


market.


i i) Used material (Conditions TV. "C" and "D";





n) Material which is in sound and serviceable condition and is


suitable for re-use without reconditioning shall Ik classified as


Condition "B" and priced at seventy live percent (75%) of the


current price of new material defined in Paragraph 3.1 8(d).(i):





b) Material which cannot be classified ns Condition "B" but which


after reconditioning will be further serviceable for its original


function shall be classified as Condition "C" and priced at not


more than fifty percent (50%) of the current price of new


material as defined in 3.l.8(d).(i) above, The cost of


reconditioning shall be charged to the reconditioned material


provided that the value of Condition "C” material plus the cost of








120


reconditioning do nor exceed the value of Condi lion ’B* material:


c) Material which cannot he classified as Condition "B" or


Condition "C“ shall be classified as C ondition *D‘ and priced at a value


commensurate with its use by CON TRACTOR. If material is not lit


for use b> the CONTRACTOR it shall be disposed of os junk


iii) Material involving erection costs shall be charged at the applicable


condition percentage of the current knockcd-doun price of new material


as defined in Paragraph 3.1.8.(d).

iv) When the use of material is temporary and its service to the Petroleum


Operations under the Contract docs not Justify the reduction in price as


provided lor in paragraph 3.l.8.(d).(ii).(b) hereof, such material shall be


priced on a basis that will result in a net charge to the accounts under the


Contract consistent w ith the value of the service rendered.


v) Premium prices • whenever material is not readily obtainable at


published or listed prices because of national emergencies, strikes or other


unusual causes over which the CONTRACTOR has no control, the


CONTRACTOR nitty charge Petroleum Operations for the required


material at the CONTRACTOR'S actual cost incurred in providing such


material, in making it suitable lor use, and in moving it to the Contract Area:


provided notice In writing is furnished to the GOVERNMENT of the


proposed charge prior to charging Petroleum Operations lor such material


and the GOVERNMENT shall have the right to challenge the transaction on


audit,


vi) Warranty of material furnished by the CONTRACTOR - the


CONTRACTOR docs not warrant the material furnished. In case of defective


material, credit shall not he passed to Petroleum Operations until adjustment


has been received by the CONTRACTOR from the manufacturers of the


material or their agents.


vii) Adjustments arising from material inventories conducted in accordance with


Paragraph 5.2.


Equipment of the CONTRACTOR charged at rates not to exceed the average


commercial rates of non-affiliated third parties for equipment, facilities,


installations and utilities for use in the area where the same are used On


request, the CONTRACTOR shall furnish a list of rates and the basis of


application. Such rates shall be revised when found to be either excessive or


insufficient, but not more than once every six (6) months. Drilling tools and Oliver


equipment lost in the hole or damaged beyond repair may be charged at replacement


cost less depreciation plus transportation costs to deliver like equipment to the


location where used.


Use of leased oi hired machinery and/or equipment in the Petroleum


Operations shall be charged at lull cost to the CONTRACTOR. This may include,


but is not limited to mobilisation and de-mobilisation charges, lease and hire fees, as


well ns other contractual costs.


*


121


 • I *> Rentals, l>un«jndi>4Kr-A»c5n*cm5





All rentals. taxes levies, duties, chjuges. lees, contributions and any other assessments and


charges of ever) kind and nature levied by any GOVERNMENT or taxing authority in


connexion with the CONIRACTOR $ activities unde, the Contract and paid directly by the


l'ONI RACTOR (save where the contrary is expressly provided in the Contract) with the


exception of taxes upon the income or piofits of lire CONTRACIOR or any


CON IR ACTOR Pany. and bonus payments rnaJe under Anicle 32- If the CONTRACTOR


ix any of its Affiliated Companies is subject to income or withholding tax as a revolt of


services performed at cost for the Petroleum Operations under the Contract, its charges tor


such serv ices may he increased by the amount reared to cover such taxes (grossed up)








Insurance premiums and costs incurred lor insurance carried for the benefit of the Petroleum


Operations provided that such insurance is customary, affords prudent protection against risk


and is at a premium no higher than that charged on a competitive basts by insurance


companies which arc not Affiliated Companies of the CONTRACTOR. Except in cases of


I failure lo insure where insurance coverage is required pursuant to the Contract, actual costs


and losses incurred shall be recoverable to tlx extent not made good by insurance unless such


losses result solely from an act of wilful misconduct by the CONTRACTOR. Such costs


may include, hit arc not limited to. repair and replacement of property in the Contract Area


resulting from damages or losses incurred by lire, flood, storm, theft. accident or such oilier


cause


3.1.11 Legal Expen;c§


All reasonable costs and expenses resulting from the handling, investigating, asserting,


defending, or settling of any claim or legal action necessary or expedient for the procuring,


perfecting, retention and protection of the Contract Area, and in defending or prosecuting


lawsuits involving the Contract Area or any third party claim arising out of the Petroleum


Operations under the Contract, or sums paid in respect of legal services necessary lor lire


protection of the joint interest of the GOVrRNMI NT and the CONTRACTOR shall he


recoverable. Such expenditures shall include, without limitation, attorney's fees, court costs,


arbitration costs, costs of investigation, and procurement of evidence and amounts paid in


settlement or satisfaction of any such litigation and claims provided such costs are not


covered elsewhere in the Annex, tthere legal services arc rendered in such nutters by


salaried or regularly retained lawyers of the CONTRACTOR or an Affiliated Company of


the CONTRAl TOR. such compensation shall be included instead under Paragraph 3.1 2 or


3.1 -4(b) ahove as applicable.


3.1.12 Claims


Expenditures nude in the settlement or satisfaction of any loss, claim, damage, judgement or


other expense arising out of or relating to Petroleum Operations, except as may otherwise be


covered elsewhere in the Annex.


3.1 13 Training Costs





All costs and expenses incurred by the CONTRACTOR in the training of its Kurdistan


Regional employees engaged in Petroleum Operations under llic Contract.


122








 The costs described in Paragraph 2 6 1 and the charge described in Paragraph 2 6 2 of this











Charges and fees by the KinU for money transfers pa>menis and fieeign exchange


transactions as well is currency exchange losses incurred h> the CONTRACTOR m


connection with the Petroleum Operations.





3.1.16 Other f \





Other reasonable expenditures not covered or dealt with in the foregoing provisions of


Paragraph 3 herein which arc necessarily incurred by the CONTRACTOR for tl»c ptoper,


economical and efficient conduct of Petroleum Operations.


3.2 Credit Under the Contract


The proceeds, other than the proceeds from the sale of Petroleum received from Petroleum


Operations undet the Contract, including but not limited to the items listed below shall be


credits'll to the Accounts under the Contract for the purposes of Artic le 25 of the Contract:


3.2.1 I he proceeds of any insurance or claim or judicial awards in connection with


Petroleum Operations under the Contract or any assets charged to the accounts under


the Contract where such operations or assets have been insured and the premia charged


to the Accounts under the Contract.


3.2.2 legal costs charged to the accounts under Paragraph 3 I II of this Annex and


subsequently recovered hy the CONTRACTOR.


3.2.5 Revenue received from third panics for the use of property or assets the Cost of which


has been charged to the Accounts under the Ccmtract.


3 2.4 Any adjustment received by the CONTRACTOR from the supplier manufacturers


or their agents in connection with a defective material the cost of which wav


previously charged by the CONTRACTOR to the Accounts under the Contract


j.2.5 Rentals, refunds, including refunds of taxes paid, or other credits received hy the


( ONTR ACTOR which apply to any charge which has been made to the Accounts


under the Contract, but excluding any award granted to the CONTRACTOR under


arbitral ion or expert proceedings.


3.2-6 Prices originally charged to the Accounts under the Contract for materials


subsequently exported from the KurdoJan Region or transferred to amHhcr Contract


Area within the Kurdistan Region.


32.7 Proceeds from the sale or exchange by the CONTRACTOR of plant or facilities


used in Petroleum Operations the acquisition costs of which have been charged to the


accounts under the Contract.


3.2.8 Proceeds derived from the sale or license of any intellectual properly the development


^ 123





 COM* of which were incurred pursuant to the Contract.





3.2.9 Proceeds derived from the sale, exchange, lease, hire, transfer or disposal in any


manner whatsoever of an> other item the costs of which have been charged to


Petroleum Operations


3.3 Duplication of Charges and Credits





Notwithstanding any provision to the contrary in this Accounting Procedure, there shall be no


duplication of charges or credits to die accounts under the Contract





PARAGRAPH 4 COSI5ANDEXPF?t*> NOT IO BE TREATED AS RECOVERABLE


The following costs and expenditures shall not he included in the Petroleum Costs


recoverable under Article 25:-


4.1. Taxes on income or profit paid to any GOVERNMENT authority except taxes and


duties that may be included in the costs of material and equipment purchased for the


Petroleum Operations;


4 2. Any payment made to the GOVERNMENT by reason of the failure of the


CONTRACTOR to fulfill its Minimum Exploration Obligations m respect of the


relevant Sub-Period under the Contract.


4.3. The cost of any letter of guarantee, if tiny, required under the Contract;


4 4 The bonuses set out in Article .12 of live Contract;


4.5. Costs of marketing or transportation of Petroleum beyond the Delivery Point


(excluding (ias Marketing Costs);


4.6. Attorney’s fees and other costs of proceedings m connection with arbitration under


Article 42 of the Contract or internationally recognised independent expert


determination as prov ided in the Contract or this Accounting Procedure;


4.7 Any interests. Tees, costs and agios paid by tlie CONTRACTOR for loans and any


other form of financing or advances for the financing of the Petroleum Costs entered


into by the CONTRACTOR with third parties or Affiliated Companies;


4.8 Any accounting provision for depreciation and'or amortisation, excluding any


adjustments in value pursuant to Paragraph 3.1.8.


4.9 Div idends. repayment of equity or repayment of intercompany loans;


4.10 Fines and penalties imposed under Law.





PARAGRAPH 5 RECORDS AND VALUATION


OFASVTS


5.1 Records





The CONTRACTOR shall maintain detailed records of property in u* for Petroleum


124




 Operations under the Contract in accordance with normal practice in exploration and


production activities of the international petroleum industry.


5.2 Inventories





Inventories ol property in use in Petroleum Operations shall he taken at reasonable intervals


hm at least once a year with respect to movable assets and once every three (3) years with


respect to immovable assets. The CONTRACTOR shall give the GOVERNMENT at least


thirty (30) days written notice of its intention to take such inventory and the


GOVERNMENT shall have the right to be represented when such inventory is taken.


Failure of the GOVERNMENT to be represented at an inventory shall bind the


GOVERNMENT to accept the inventory taken by the CONTRACTOR. The


CONTRACTOR shall clearly inform GOVERNMENT the principles upon which valuation


of the inventory has been based. The CONTRACTOR shall make every effort to provide '.o


the GOVERNMENT a full report on such inventory4 w ithin thirty (30) days of the taking of


the inventory. When an assignment of rights under the Contract takes place the


CONTRACTOR may, at the request of the assignee, take a special inventory provided that


the costs of such inventory are borne by the assignee.


PARAGRAPH 6


PRODUCTION STATEMENT


6.1 Production Information


Without prejudice to the rights and obligations of the Parlies under Article 16 of the Contract,


fmm the date ol f irst Production from the Contract Area the CON TRACTOR shall submit a


monthly production statement to the GOVERNMENT showing the following information


separately lor end) producing Development Area and in aggregate for the Contract Area:


6.1.1 The quantity of Crude Oil produced and vivcd


6.1.2 The quality characteristics of such Crude Oil produced and saved


6.13 The quantity ofNatural Gas produced jxkI saved


6.1.4 The quality characterivtics of such Natural Gas produced and saved


6.13 The quantities of Crude Oil and N3tur.1l Gas used for the purposes of carrying on


drilling and production operations and pumping to field storage.


6.1.6 The quantities of Crude Oil and Natural Gas unavoidably lost.


6.1.7 The quantities of Natural Gas flared and vented


6.1.8 The size of Petroleum stocks held at the beginning of the calendar month in question.


6.1.9 The size of Petroleum stocks held at the end of the calendar mo’ih in question.


6.1.10 I he quantities of Natural Gas reinjected into the Petroleum Reservoir.


6.1.11 In respect of the Contract Area as a whole, the quantities of Petroleum transferred at


the Measurement Point. All quantities shown in this Statement shall be expressed in both


 volumetric terms (barrels of oil and cubic meters of gas) and in weight (metric tonnes).





6.2 Submission of Production Statement


The Production Statement for each calendar month shall he submitted to the


GOVERNMENT no later than ten (10) days after the end of such calendar month.


PARAGRAPH 7 VALUE OF PRODUCTION AND PRICING


STATEMENT


7.1 Value of Production and Pricing Statement Information


The CONTRACTOR shall, for the purposes of Article 25 of the Contract, prepare a


statement providing calculations of the value of Crude Oil produced and saved during each


Quarter.


This "Value of Production and Pricing Statement” shall contain the following information:


7.1.1 The quantities and prices realized therefor by the CONTRACTOR in respect of


sales of Natural Gas and Crude Oil delivered to Third Parties made during the Quarter


in question


7.1.2 The quantities and prices realized therefor by the C'ONTR \CTOR in respect of sales


of Natural Gas and Crude Oil delivered during the Quarter in question, other Ilian 10


Third Parties.


7.2 Submission of Value of Production and Pricing Statement


I he Value of Production and Pricing Statement for each Quarter shall be submitted to the


GOVERNMENT not later than twenty-one (21) days after the end of such Quarter.


PARAGRAPf 18 COS I RECOVERY AND SI I ARE ACCOUNT


STATEMENT





8.1 C ost Recovery Statement


The CONTRACTOR shall prepare with respect io each Quarter a Cost Recovery Statement


containing the following information:-


8.1.1 Recoverable Petroleum Costs carried forward from the previous Quarter, if any.





8.1.2 Recoverable Petroleum Costs for the Quarter in question.


8.1.3 Credits under the Contract for the Quarter in question


8.1.4 Total Recoverable Petroleum Costs for tire Quarter in question (Subparagraph 8 I I


plus Subparagraph 8 1.2 above, net of Subparagraph X I 3 above).


8.1.5 Quantity and value of Petroleum applied to cost recovery pursuant to Article 25 taken


by the CONTRACTOR for the Quarter in question.


8.1.6 Amount of recoverable Petroleum Costs to be carried forward into the next Quarter


(Subparagraph 8 1.4 net of Subparagraph 8.1.5 above)


v

126


 H.2. Cumulative Production Statement





I he ( ONTRACTOK shall prepare with respect u> each Quarter a Cumulative Production


Statement containing the follow ing information:-


82.1 I he cumulative production position at the end of the Quarter preceding the Quarter in


question.


8.2.2 Production of I'xport Crude Oil for the Quarter In question.





8.2.4 The cumulative production position at the end of the Quarter in question.


8.2.5 The amount of Petroleum applied to Royally pursuant to Article 24. cost recovery





pursuant to Article 25 and Profit Oil pursuant to Article 26 taken by the


GOVERNMENT and by the CONTRACTOR, respectively, during the Quarter in


question.


5.2.6 The forecast of production and the share of Petroleum applied to Royalty pursuant to


Article 24, cost recovery pursuant to Article 25 and Profit Oil pursuant to Article 26


due to the GOVERNMENT and to the CONTRACTOR, respectively. Ibr the next


succeeding Quarter.


8.3 Preparation and Submission of Cost Recovery and Cumulative Production


Statements


8 .1.1 Provisional Cost Recovery and Cumulative Production Statements containing


estimated information where necessary, shall lie submitted by die CONTRACTOR


on the last day of each Quarter for the purposes of Article 25 of the Contract


8.3.2 Final quarterly Cost Recovery and Cumulative Production Sratcmems shall be


submitted within thirty (30) days of the end of the Quarter in question





8.4 Annual Statement


For the purposes of Article 25 of the Contract, an Annual Cost recovery and Cumulative


Production Statement shall he submitted within ninety (90) days of the end of each Year The


Annual Statement shall contain the categories of infomiation listed in Subparagraphs 8 1 and


8.2 for the Year in question, separated into the Quarters of the Year in question and 'how mg


tile cumulative positions at the end of the Year in question with respect to cumulative


unrecovered Petroleum Costs ami Cumulative Production.





PARAGRAPH 9 STATEMENT OF EXPENDITURE AND


RFX EIPTS


9.1 The CONTRACTOR shall prepare with respect to each Calendar Quarter a


Statement of Expenditure and Receipt.' under the Contract. The Statement will distinguish


between Exploration Costs. Gas Marketing Costs. Development Costs Production Costs and





Decommissioning Costs and will identify major items of expenditures within these


categories. I he Statement will show the following:





* 12?


9.1.1 Actual expenditures and receipts for the Quarter in question.


9.1.2 Cumulative expenditure and receipts for the budget Year in question


9.1.3 l atest forecast cumulative expenditures at the Year end


9.1.4 Variations between budget forecast and latest forecast and explanations thereof


92 The Statement of Expenditure and Receipts of each Calendar Quarter shall be


submitted to the GOVERNMENT no later than thirty (30> days aflet the end of such


Quarter.





PARAGRAPH 10 FINAL END-OF-


VF.AR STATEMENT


The CONTRACTOR will prepare a Final End-of-Year Statement. The Statement will


contain information as provided in the Production Statement. Value of Production and


Pricing Statement. Cost Recovery and Cumulative Production Statements and Statement of


Expenditures and Receipts but will be based on actual quantities of Petroleum produced and


expenses incurred. This Statement will he used to make any adjustments that arc necessary to


the payments made by the CONTRACTOR under the Contract The Final End-of-Ycar


Statement of each Calendar Year shall he submitted to the GOVERNMENT within ninety


(•HI) days of the end of such Calendar Year.








PARAGRAPH II


AUDITS


Each such report and statement provided for in Paragraph 6 through 10 shall he considered


true and correct, unless the GOVERNMENT raises an exception thereto within the


timeframe and under the process set «>ut m Article 15 of the Contract.








PARV Jum 12 ANM'AI. \\ ORK


PRtXiRAM Bl'DGET


12.1 Each annual Work Program Budget to be prepared in accordance with Articles 11.12


and 14 of the Contract, in respect of Exploration Costs. Gas Marketing Costs.


Development Costs and Production Costs respectively will show the follow mg


12.1.1 Forecast expenditures for live budget Year in question including a quarterly


classification of such expenditures


12.1.2 Cumulative expenditures to the end of said budget Year.


12.1.3 A schedule showing the most important individual items of Development Cost' (H


applicable) for said budget Year


 PARAGRAPH 13 CONTRACTOR INCOME TAX


COMPUTATION





13.1 For the purpose of Aniclc 31.3 (b) of ihe C'oniroci, the net taxable profits of each


entity constituting the CONTRACTOR from all the Petroleum Operations carried out in the


Kurdistan Region under this Contract, shall be calculated in accordance with this Paragraph.


13.2 l-ach entity constituting the CONTRACTOR shall maintain for each Calendar Year


separate accounts with respect to the Petroleum Operations which shall be used, inter alio, to


establish a profit and loss account and a balance sheet which will show the results of the


Petroleum Operations carried out in such Calendar Year as well as the assets and liabilities


assigned or directly related thereto.


I3J l or purposes of determining the net taxable profits of each CONTRACTOR entity


for corporate income tux purposes,


13.3.1 the profit and loss account of such CON I RAC'TOR entity shall be credited with the


following:


a) if the Royalty is paid in cash pursuant to Article 24. revenues arising from the


disposal of Royalty volumes as recorded in such entity’s accounts and determined


in accordance with the provisions of Article 24,


b) revenues arising from the disposal of any Available Petroleum to which such


entity is entitled for recovery of its Petroleum Costs ns recorded in its accounts


and determined in accordance with the provisions of Article 25:


c) revenues from live disposal of any Profit Petroleum to which such entity is entitled


under Article 26 as is recorded in its accounts and determined in accordance with


ihe provisions of Article 26:


d) any other revenues or proceeds directly connected to the Petroleum Operations


including, inter olio, those arising from the disposal of related Petroleum


substances, or from the treatment, storage and transportation of products for third


parties:


e) any exchange gains realised or other financial income earned by such entity in


connection with the Petroleum Operations:


13.3.2. the profit and loss account for such CONTRACTOR entity shall be debited with all


charges necessarily incurred for live putposes of the Petroleum Operations with respect to


the Calendar Year concerned and determined in accordance with the Accounting


Procedure, which charges shall include, inter alia, the following:


a) in addition to the charges specifically set forth below in this Paragraph, all other


Petroleum Costs, including the costs of supplies, personnel and manpower


expenses, and the cost of services provided to the CONTRACTOR in connection


with the Petroleum Costs;


b) if the Royalty is paid in cash pursuant to Article 24. Royalty payments made and


as recorded in such entity’s accounts and determined in accordance with the


'V l2'’


 provisions of Article 24;





c) General and Administrative Expenditures related to the Petroleum Operations


performed under this Contract;


d) depreciation of capital expenditure in accordance with the following provisions





(i) Capital expenditures incurred by the CONTRACTOR and necessary for the


Petroleum Operations shall be depreciated on a reducing balance basis, (ii) The


depreciation rates, which shall be applicable from the Calendar Year during which


such capital expenditures are incurred, or from the Calendar Year during which


the assets corresponding to said capital expenditures are put into normal service,


w hichever is later, pro rata temporls for the first Calendar Year in question, are ns


follows:





Nature of the capital asset to Annual depreciation


be depreciated Rate





Permanent buildings 10.0%


Temporary buildings 20.0%


Office and home furniture and fixtures 20.0%


Productive wells 20.0%


Production and delivery equipment 20.0%


Drilling equipment 20.0%


Pipelines 20.0%


Automotive equipment 20.0%


Marine and aviation equipment 20.0%


All other capital assets 20.0%





e) Exploration Costs (which for the avoidance of doubt include appraisal


expenditures) shall he deductible on a reducing balance basis at the rale of 20%





per annum.





0 interest and fees paid to creditors of the CONTRACTOR, for their actual


amount, subject to the limits specified in the Accounting Procedure;





g) losses of Assets resulting from destruction or damage, assets which are renounced


or abandoned during the sear, bad debts, indemnities paid to third parties as


compensation for damage;





It) any other losses or charges directly related to the Petroleum Operations,


including exchange losses realised in connection with the Petroleum Operations


as well as the bonuses provided in Article 32. the Exploration Rental provided in


Article 6.3. the Production Rental provided in Article 13.10. the allocation to


training, provided in Article 23.6 and .the allocation to the Environment Fund


provided in Article 23.8;


i) the amount of non-offset losses relating to the previous Calendar Years, until





full settlement of said losses or termination of this Contract








13.3 3. the net profit of such CONTRACTOR entity shall be equal to the difference between


all the amounts credited and all the amounts debited in the profit and loss account; and


^ ■»

 ii) if this amount is negative, it shall constitute a loss.








h» jf the amount is positive, it shall be grossed up to take account of the fact that


such entity's corporate income tax is being settled out of the GOVERNMENT’S


share of the Profit Petroleum in accordance with Article 31.2. by applying the


following formula in order to provide such entity's net taxable profits for


corporate income tax purposes:











Net Taxable Profits - Net Profits / (100 - Applicable Kate <>l C perorate Income l ax l








100








13.4 For purposes of determining each CONTRACTOR entity* s liability to corporate


income tax for a tax year in respect of the Petroleum Operations carried out under this


Contract, the net taxable profits (if any) for such tax year sliall be multiplied by the


applicable rale of corporate income lax. as provided in Article 31.3 (a) I he Parties


acknowledge and agree that at the Effective Date of this Contract, this is forty percent


(40*a)for all net taxable profits in excess of nine million lrav|i Dinar.