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 PRODUCTION SHARING CONTRACT


SANGAW SOUTH BLOCK


KURDISTAN REGION


BETWEEN


THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ


AND


KOREA NATIONAL OIL CORPORATION


 TABLE OF CONTENTS





PREAMBLE





Article 1 DEFINITIONS


Article 2 SCOPE OF THE CONTRACT


Article 3 CONTRACT AREA


Article 4 GOVERNMENT PARTICIPATION AND THIRD PARTY


PARTICIPATION


Article 5 OPERATOR


Article 6 TERM OF THE CONTRACT


Article 7 RELINQUISHMENTS


Article H MANAGEMENT COMMITTEE


Article 9 GUARANTEES


Article 10 MINIMUM EXPLORATION WORK OBLIGATIONS


Article 11 EXP LORA 1 ION 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 CONTRACTOR S RIGHTS AND OBLIGATIONS


Article 17 USE OF LAND AND EXISTING INFRASTRUCTURE


Article 18 ASSISTANCE FROM THE GOVERNMENT


Article 19 EQUIPMENT AND MATERIALS


Article 20 TITLE TO THE ASSETS


Article 21 USE OF THE ASSETS


Article 22 SUBCONTRACTING


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 Article 23 PERSONNEL TRAINING .AND TECHNOLOGICAL .ASSISTANCE


Article 24 ROYALTY


Article 25 RECOVERY OF PETROLEUM COSTS


Article 26 SHARING OF PROFIT PETROLEUM


Article 27 VALUATION AND METERING OF CRUDE OIL AND NATURAL GAS


Article 28 DOMESTIC MARKET - SALE OF GOVERNMENT SHARE


Article 29 FINANCIAL PROVISIONS


.Article 30 CUSTOMS PROVISIONS


Article 31 TAX PROVISIONS


Article 32 BONUSES


Article 33 PIPELINES


Article 34 UNTTISATION


Article 35 LIABILITY AND INSURANCE


Article. 36 INFORMATION AND CONFIDENTIALITY


Article 37 ENVIRONMENTAL PROVISIONS


Article 38 DECOMMISSIONING


Article 39 ASSIGNMENT AND CHANGE OF CONTROL


Article 40 FORCE MAJEURE


Article 41 WAIVER OF SOVEREIGN IMMUNITY


Article 42 .ARBI TKA HON AND EXPERT DETERMINATION


Article 43 GOVERNING LAW, FISCAL STABILITY, AMENDMENTS AND


VALIDITY


Article 44 NOTICES


Article 45 TERMINATION


Article 46 APPLICATION OF CORRUPTION LAWS


Article 47 EFFECTIVE DATE


Annex A CONTRACT AREA MAP AND LIST OF COORDINATES


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Annex B ACCOUNTING PROCEDURE


 PRODUCTION SHARING CONTRACT





BETWEEN


Ihe KURDISTAN REGIONAL GOVERNMENT OK IRAQ (hereafter referred lo as the


•GOVURNMKN P’). duly represented by the Minister of Natural Resources;


ANI)


KOREA NATIONAL OIL CORPORATION, a company established and existing under


the laws of the Republic of Korea, whose registered office is at 1588-14, Gwanyang-dong.


Dongon gu. Anyang, Gyeonggi-do, 431-711. Republic of Korea, duly represented by its


Executive Vice President. Dr. Seong-Hoon Kim;





(hcreulter referred to as the "CONTRACTOR").


WHEREAS


(A) The GOVERNMENT wishes to develop the petroleum wealth of the Kurdistan


Region (as defined in this Contract) in a way dust 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 the Constitution of


Iraq including Article 112 thereof;


(B) In accordance with the Consntution of Iraq, the prevailing law of the Kuidi«an


Region is the Kurdistan Region Law (as defined in this C ontract), except with regard


to a miner wholly within the exclusive jurisdiction of the Gov ernment of Iraq.


(C) Hie GOVERNMENT intends to present to the Nafiooal Assembly of the Kurdistan


Region a law or laws to authorise the GOVERNMENT, by contract or other


authorisation, to exempt investors in long term projects relating to the conduct of


petroleum operations in the Kurdistan Region from Kurdistan Region taxation, to


indemnify such holders against liability to pay such taxation, and/or to guarantee the


stability of the applicable legal, fiscal and economic conditions of such projects, and


(D) The CONTRACTOR is a company.


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


ability, to cany out Petroleum Operations in the Contract Area (as defined in


this Contract) under the terms of this Contract.


(ii) having a record of compliance with the principles of good corporate


citizenship, and


(iii) willing to cooperate with the GOVERNMENT hy entering into this Contract,


thereby assisting the GOVERNMENT to develop the Kurdistan Region


petroleum industry, thereby promoting the economic development of the


Kurdistan Region ami Iraq and the social welfare of its people, and











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(h) the CONTRACTOR, in recognition of the needs of the people of the Kurdistan


Region of Iraq, has entered into an agreement with the GOVERNMENT to


implement certain infrastructure and capacity building projects in the Capacity


Building Support Agreement (as defined in this Contract);








NOW. THEREFORE. THE PARTIES HAVE AGREED AS FOITOWS


ARTICLE I - DEFINITIONS


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


unless otherwise specified:


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


Access Authorisation is defined in Article 17.9.


Accounts is defined in .Article 15.1


Accounting Procedure means the Accounting Procedure attached to this Contract as


Annex B and constituting an integral part of this Contract


Adjacent Contract .Area is defined in Article 34.1.


Adjustment Date is defined in Article 27.fi.


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


constituting the CONTRACTOR, a company or other legal entity which;


(a) controls a CONTRACTOR Entity; or


is controlled by a CONTRACTOR Entity; or


(c) controls or is controlled by a company or entity which controls a


CONTRACTOR Entity,


but shall not include the GOVERNMENT in respect of the Public Company Foe the


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


the majority of the voting rights of the applicable entity at its shareholders' meetings


or theu equivalent


Agreed Terms is defined in Article 14.10(a).


Appraisal Area means the area defined in Article 12.2.


Appraisal Work Program and Budget is defined in Article IZ2.


Appraisal Report is defined ui Article 12 4











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Appraisal Well means a well drilled for the purpose of evaluating tbc commercial


potential of a geological feature or a geological structure in which Petroleum has been


discovered.





Arm's-Length Sales means sales of Petroleum in freely convertible currencies


between seller* und buyers having no direct or indirect relationship or common


interest whatsoever with each other that could reasonably influence the sales price.


Such Ann's. Length Sales shall exclude:


(a) sales between or among any of the CONTRACTOR Entities and their


respective Affiliates;


(b) sales involving the GOVERNMEN I' or the Government of Iraq; and


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


commercial practices.


Assets means all land, platforms, pipelines, plant, equipment, machinery, wells,


facilities and all other installations and structures and nil Materials and Equipment.


Associated Natural Gas means (i) any Natural

reservoir conditions ami (ti) any residue gas remaining after the extraction of Crude


Oil from a reservoir.


Audi! Request Period i* defined in Article 15.1(a)


Available Associated Natural Gas is defined m Article 25.1


Available Crude Oil is defined in Article 25 1


Available Non-Associated Natural Gas is defined in Article 25.1.


Available Petroleum is defined in Article 25.1.


Barrel means a quantity of forty-two (42) US gallons as a unit to measure liquids, at a


temperature of sixty degrees (60°) Fahrenheit and pressure of fourteen point seven


(14.7) psi.


Budgets means any budgets prepared by. or on behalf oC the CONTRACTOR


pursuant to this Contract and forming part of an Exploration Work Program and


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


Program and Budget andor a Development Work Program and Budget andor a


Production Work Program and Budget.


Calendar Year means a period of twelve (12) consecutive Months, commencing 1


January and ending on 31 December of the same year


Capacity Building Support Agreement means the agreement entered into on 21


June 2008 between the GOV ERNMENT and the CONTRACTOR for infrastructure


and capacity budding in tbc Kurdistan Region








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 « IS











when carrying out appraisal works or similar operations, including recoverable


reserves of Petroleum, sustainable regular production levels and other muterial


technical, operational, commercial and financial parameters, all in accordance with


prudent international petroleum industry practice.


Commercial Production means the production of Petroleum from the Production





Are* m accordance with annual Production Work Program and Budget.


Constitution of Iraq means the permanent cunstitutioa of Iraq approved by the





people of Iraq in the general referendum of 15 October 2005





Contract means this production sharing contract, including its Annexes A and B that


are an integral part hereof, us well as any extension, renewal, substitution or


amendment of (his production sharing contract Ihul may be agreed in writing by the


Parties in accordance with Article 43.7, and the Capacity Building Support


Agreement.


Contract Area means the area described and defined in Annex A attached to this





Contract and constituting an integral pari of this Contract, and any modifications


made to that .Annex m accordance with the provisions of this Contract, through


amendments, surrender, withdrawal, extension or otherwise











CONTRACTOR includes and comprises each and all CONTRACTOR hnMMO.


including any Third Party Participant nominated by the GOVERNMENT pursuant to


Article 4, and'or any assignee of all or part of the rights and obligations of a


CONT RACTOR Entity under this Contract in accordance with Article 39. but not














obligations of such Person under this Contract m accordance with Article 39. but not


including any bolder of the Government Interest For the avoidance of doubt, at any


time when there is only one entity constituting the CONTRACTOR, any reference


nude in this Contract to "the entities constituting the CONTRACTOR" or the


"CONTRACTOR entities" or similar reference, shall be deemed to mean "the entity


constituting the CONTRACTOR". KOREA NATIONAL OIL CORPORATION


and the GOVERNMENT (the GOVERNMENT owning the Third Party Interest


until a whole or partial assignment of such Ihud Party Interest pursuant to Article 4>.


os the CONTRACTOR Entity as at the Effective Date, owns an undivided interest in


the Petroleum Operations in respect of the entire Contract Area in the following


percentage at the Effective Date














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A


KORKA NATIONAL OIL CORPORATION 60%


GOVERNMENT (Third Party interest) 20%





rhc balance of the interest in Petroleum Operations in rcvpcct of the entire Contract


Are*, ban* twenty per cent (20%), is the Government Interest as defined in Article


4.1.


C rude Oil means all liquid hydrocarbons m their unprocessed state or obtained from


Natural Gas by condensation or any other means of extraction


Decommissioning C osts means all the costs and expenditure* incurred by the


CONTRACTOR when carrying out Decommissioning Operations, including those


defined in the Accounting Procedure.


Decommissioning Operations means any works, together with all related and


auxiliary activities, for decommissioning and/or removal and'or abandonment and


making safe all of the Assets and site restoration and remediation related thereto in


relation to any Production Area.


Decommissioning Plan is defined in Article 38.7


Decommissioning Kcserse Fund is defined in Article 38 I and includes all


contributions paid into such fund and all interest accumulated such fund


Deductible Amount is defined in Article 35.12.


Deliver) Point means the point after extraction, specified in the approved


Development Plan for a Production Area, at which the Crude Oil. Associated Natural


(ins and/or Non-Associated Natural Gas is metered for the purposes of Article 27.5.


valued lor the purpose* of Article 27.1 and ready to be taken and disposed of


consistent with prudent international petroleum industry practice, and at which a Party-


may acquire titlo to its share of Petroleum under this Contract or such other point


which may he agreed by the Parties.


Development Costs means all the costs ami expenditure' inclined by the


CONTRACTOR when canying out Development Operations, including those


defined in the Accounting Procedure.


Development Operations means all development operation* or works conducted in


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


developing a Production Alta, including: drilling of wells, primary and subsequent


recovery projects and pressure maintenance; survey, engineering, building and


erecting or laying of production plants and facilities (including separators,


compressors, generators, pumps and tankage, gathering lines; pipelines and all


facilities required to be installed for production, pressure maintenance, and treatment,


storage aid transportation of Petroleum); obtaining of such materials, equipment,


machinery, items aid supplies as may be required or expedient for the foregoing


activities; and all auxiliary operations and activities required or expedient for the


production of Petroleum from the Production Area











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Development Period is defined in Article 6.


Development Plan means a plan for development defined in Article 12.8.





Development Wefl means any well drilled after the date of approval of the


Development Plan for the purpose of producing Petroleum, increasing or accelerating


production of Petroleum, including injection wells and dry holes. Any well dnllcd


within a Production Area shall be deemed a Development Well.


Development Work Program and Budget means the development work program


and budget prepared pursuant to Article 13.2.


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


resulting from Petroleum Operations carried out under this Contract, provided such


Petroleum is recoverable at the surface with a measurable flow utilising techniques


used in prudent international petroleum industry practice.


Dispute is defined in Article 42.1.





Dollar (USS) means the legai currency (dollar) of the United States of America


(USA).


Effective Date means the date on which the conditions referred to in Article 47 have


been fulfilled.





Environment Fund is defined in Article 2 1.9.


Equipment and Materials is defined in Article 19.1.


Exploration Costs means all the costs and expenditure incurred by the


CONTRACTOR when carrying out Exploration Operations, including those defined


in the Accounting Procedure.


Exploration Operations means any and all operations conducted with a view to


discovering Petroleum, including: any activities necessary to commence operations,


any topographical, hydrographical, geological, geophysical, aenal and other surveys


ami 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 boles, spud, drilling, testing, coring, logging and equipping of


Exploration Wells or Appraisal Wells: procurement of such services, 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 deftned in Article 6.


Exploration Rental is defined in Article 6.3.


Exploration W eD 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.


 the exploration work program and


budget prepared pursuant lo Article III.


Export Crude Oil is defined in Article 24 2


Export Non-Associated Natural Gas is defined in Article 24 2


Export Petroleum is defined in Article 24.2


First Commercial Declaration Date is defined in Article 4.1.


First Exploration Well is defined in Article 10 2 (e).


First Production means the moment when Commercial Production of Crude Oil or


Son-Associated Natural Gas (as the case may be) first commences, by flowing at the


eight (48) boms. * ,mmUm >


Force Majeure is defined in Article 40.2.


Gas Development is defined in Article 14.10.


Gas Marketing Costs means all costs and expenditure incurred by the


CONTRACTOR when canying out Gas Marketing Operations, including those


defined in the Accounting Procedure.


Ga* Marketing Operations means any and all o! the activities and operations


contemplated by Article 14.6.


Gas Marketing Work Program and Hudget means, the marketing work program


and budget prepared pursuant to Article 14.8


Government Interest is defined in Article 4.1.


Government of Iraq means the Federal Government of the Republic of Iraq, which


holds office under the Constitution of Iraq and any minister, ministry, department,


sub-division, agency, authority, council, committee, or other constituent element


thereof and shall, without limitation, include any corporation owned and/or controlled


by any of the foregoing.


International Market Price is defined in Article 27.2.


Iraq means the entirety of the Republic of Iraq, including the Kurdistan Region.


Joint Operating Agree mint means the agreement executed by the CONTRACTOR


Entities (or the purpose of regulating between such entities the terms under which the


Petroleum Operations will be conducted, which agreement shall be: (a) consistent


with prudent international petroleum industry practice; (b) as between such entities


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











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KurdUtan Region mean* ihc Federal Region of Kurdistan recogmted by the


Constitution of Iraq and having the same meaning as 'Region' in the Kurdistan


Region Oil and Gas Law.


Kurdistan Region Law meant all statute*, decrees, edicts, codes, order*, rule*,


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 Rcgwo





Kurdistan Region Oil and Gas law the Oil and Gas Law of the Kurdistan


Region - Iraq (Law So 22 of 2007) as the same may be amended


I-aw means all applicable laws including the following: constitutional law. civil law.


orders, judgements, rules, ordinances and regulations of any local, municipal,


territorial, provincial, federated, national or any other duly constituted governmental


authority or agency.


LCIA is defined m Article 42 1(b).


LIBOR means the London Inter Bank Offered Rale at which Dollar deposits for one


(I) Month art offered in the mter-bank market in London, at quoted in the Financial


Times of I.ondan for die dav m question. In the evert that such rate is not published in


the Financial Tunes, it shall mean the London Inter bank Offered Rale at which


Dollar deposits for one (1) Month are offered for the nearest day as quoted by


National Westminster Bank pk


M 4 magi'in ml Committee is defined in Article 8.





Mailmum Efficient Kate ("MER") is defined in Article 16 12.


Minimum Eiploration Obligations is defined in Article 10.1.


Minimum Financial Commitment means:





(a) in respect of the First Sub-Period, the total of the amounts set out in Articles


10.2(d) and 10.2(e); and


(h) in respect of the Second Sub-l’criod, the amount set out in Article 10.3(b).


Month means a calendar month according to the Gregorian calendar.


Natural Gas means all gaseous Petroleum and inerts.





Non Associated Natural Gas means any Natural Gas which is out any Associated





Operator means the entity designated by the CONTRACTOR pursuant to Article 5





which, m the name and on behalf of the CONTRACTOR, shall cany out all





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Petroleum Operations. If at any time there exists more than one (1) Operator under


this Contract, any reference herein to the term ’Operator1 shall be to each Operate


with respect to the pans of the Contract Area in which such Operator conducts


Petroleum Operations


Option of Government Participation is defined in Article 4.1.


Option of Third Part) Participation is defined in Article 4.6.


Pam or Parties means the GOVERNMENT and/or each CONTRACTOR Entity


and or the CONTRACTOR


Permits means all licences, permits, consents, authorisations or other permissions, as


the context requires.


Person shall include natural and juristic persons (including corporations and


governmental agencies).


Petroleum means


(a) any naturally occurring hydrocarbon in a gaseous or liquid state:


(b) any mixture of naturally occurring hydrocarbons in a gaseous or liquid state;


or


(c) any Petroleum (as defined in paragraphs (a) and

returned to a Reservoir.


Petroleum Costs means all costs and expenditure incurred by the CONTRACTOR


for the Petroleum Operations, and which the CONTRACTOR is entitled to recover


under this Contract and its Accounting Procedure, including Decommissioning Costs.


Development Costs, Exploration Costs. Gas Marketing Costs and Production Costs.


Petroleum Field means a Reservoir or Rroup of Reservoirs within u common


geological structure or stratigraphic unit, which may become part of a Production


Area pursuant to a Development Plan.


Petroleum Operations means all Exploration Operations. Gas Marketing Operations,


Development Operations, Production Operations and Decommissioning Operations,


as well as any other activities or operations directly or indirectly related or connected


with the said operations (including health, safety and environmental operations and


activities) and authorised or contemplated hy, or performed in accordance with, this


Contract.


Pipeline Costs is defined in Article 33.5.


Production Aren means such areas within the Contract Area designated as a


production urea iu an approved Development Plan prepared pursuant to Article 12.


For the avoidance of doubt, all superjacent or subjacent strata of the Reservoir m


which a Commercial Discovery is located are automatically included in the relevant


Production Area.





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 Production Bonus means any bonus due pursuant to Article 32.3 or 32.4.


Production Costs means all the costs and expenditure incurred by the


CONTRACTOR id carrying out the Production Operations, including those defined


in the Accounting Procedure.


Production Operation* mentis any works, together with all related and auxiliary


activities, for the production of Petroleum from the start of Commercial Production,


including: extraction, injection, stimulation, pumping, treatment, storage, engineering,


operating, servicing, repairing, and maintaining «ny wells, plants, equipment,


pipelines, terminals and any other installations and facilities, and any related


operations and auxiliary operations, and storage and transportation of Petroleum from


the Production Area to the Delivery Point.


Production Rental is defined in Article 13.10.





Production Work Program and Budget shall mean the production work program


and budget prepared pursuant to Article 13.6.


Profit Crude Oil is defined in Article 26.1.


Profit Natural Gas is defined in Article 26.1.


Profit Petroleum is defined in Article 26 I





Proposed Contract is defined in Article 14 10(a)


Public Company means a public company duly registered and incorporated in the


Kurdistan Region and regulated by the GOVERNMENT under the Kurdistan Region


Oil and Gas Law


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


entity, a member of the Kurdistan National Assembly or a member of the


GOVERNMENT


Quarter means a period of three (3) consecutive Month* starting on the first day of


January, April. July or October respectively


Reservoir means a subsurface rock formation containing an individual and separate


natural accumulation of producible Petroleum characterised by a single narural


pressure system.


**R" Factor is defined in Article 26.4.





Royalty is defined in Article 24.


Second Exploration Wells is defined in Article 10.3 (b)


Semester means a penod of six (6) consecutive Months starting from the first day of


January or July respectively.








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A


Senior Representatives is defined in Aniclc 42.1(e)


Subcontractor means any entity of any contracting tier providing services and-or


undertaking works relating to the Petroleum Operation* directly or indirectly on


behalf of. the CONTRACTOR or any CONTRACTOR Entity.


Sub-Period and Sub-Periods are denned in Article 6.2


Tai or laics means all current or future Icviea. duties, payments, charge?,,


impositions, imposts, withholdings, fees, taxes (including value added tax or other


sale* or transaction based tax, corporation tax, income tax, capital gains tax. stamp


duty, land tax. registration tax, capital and wealth tax. profit lax, dividend tax or


withholding*, transfer tax. customs duties, branch or permanent establishment tax or


withholdings, tax on income from movable capital and fixed tax on transfers) or


contributions payable to or imposed by the GOVERNMENT


Third Parly Interest is defined in .Article 4.6.


Third Part) Participant means the holder of a Third Party Interest


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


CON I K ACTOR pursuant to this Contract and forming part of an Exploration Work


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


Marketing Work Program and Budget andor a Development Work Program and


Budget andor a Production Work Program and Budget.


Vice-Chairman is defined in Article 8.1.


1.2 In this Contract, unless the context otherwise requires or is specifically otherwise


staled:


(a) headings arc to be ignored;


(b) ’'including" and similar words do not imply any limitations.


Ie> .singular includes plural and vice versa; and


(d) reference to an “Article" is to an article of this Contract and to u "Paragraph"


i* to a paragraph in the Accounting Procedure.


ARTICLE 2 - SCOPE OF THE CONTRACT


2.1 Diis Contract is a production-sharing arrangement with respect to the Contract Area,


whereby the GOVERNMENT has the right, pursuant to the Condi tut urn 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 cany out


all the Petroleum Operations.








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By entering into this Contract, the (>OVERNMENT grants the exclusive right ud


authority to conduct all Petroleum Operations in the Contract Area as detailed m


Article 3.


22 Upon the CONTRACTOR S request, the GOVERNMENT shall provide and*


procure all Permits relating to the Petroleum Operations required by the


CONTRACTOR to fulfil its obligations under this Contract, including those relating


to any extension and renewal periods and including those required by the Government


of Iraq Ihc GOVERNMENT (i) represents and warrants to the CONTRACTOR


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 under this Article


2.2 or pursuant to this Contract, and (ii) covenants that it will not do. or omit to do.


anything that would cause the cancellation or suspension of this Contract or any


Permit granted under this Article 2 2 or pursuant to this Contract For the avoidance


of doubt nothing in this Article shall affect the rights and obligations of the Parties


pursuant to Article 43.


2 3 The CONTRACTOR shall conduct all Petroleum Operations within the Contract


Area at its sole coat, nsk and peril on behalf of the GOVERNMENT, pursuant to this


Contract including the follow ing operations:


(a) Technical Services


Implementation of all technical, human and material resources reasonably


required for execution of the Petroleum Operations, in accordance with


prudent international petroleum industry practice.


(b) Financial Services


The responsibility for funding the lixploration Operations and. in the event of


a Commercial Discovery. Development. Production and Decommi'Momng


Operations, pursuant to this Contract


For the funding of Petroleum Operation*, each CONTRACTOR Entity dull


be entitled to have recourse to external financing from either its Affiliated


Companies or from any third parties


(c) Administrative Services


Implementation of all appropriate management and administration techniques


for execution of the Petroleum Operations under this Contract, in accordance


with prudent international petroleum industry practice.


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


GOVERNMENT for the conduct ol Petroleum Operations within the Contract Area


pursuant to the terms of this Contract


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


Contract, even if the CONTRACTOR discovers any such resources when executing


its obligations pursuant to this Contract.











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2.6 The CONTRACTOR shall only be entitled to recover Perroleum Costs incurred


under this Contract in the event of a Commercial Discovery . Recovery of Petroleum


Costs shall occur within the limits provided under Article 25.


2.7 During the term of this Contract. Profit Crude Oil and/or Profit Natural Gas produced


from Petroleum Operations shall be shared between the Parties in accordance with the


provisions of Article 26.


2.8 For the execution of Petroleum Operations under this Contract the CONTRACTOR


shall have the right to:


(a) freely access and operate within the Contract Area, as well as any facilities


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


(b) freely use access roads located within the Contract Area and outside the


Contract Area for the construction, installation, maintenance, operation and


removal of pipelines and other facilities required for the Petroleum


Operations;


(c) freely use sand, water, electricity and any other natural resources located


inside or outside the Contract Area for the Petroleum Operations;


(d) use any qualified foreign and local personnel and/or Subcontractors required


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


23. Any foreign personnel working in the Kurdistan Region shall require prior


authorisation of the GOVERNMENT (such authorisation not to be


unreasonably delayed or withheld) and the GOVERNMENT shall obtain any


authorisation required by the Government of Iraq;


(c) import any goods, materials, equipment and or advices required foe the


Petroleum Operations in accordance with Articles 19.22 and 30; and


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


GOVERNMENT will assist the CONTRACTOR with facilitating the use by


the CONTRACTOR of any pnvate property in the Kurdistan Region


ART1CI.K 3 - CONTRACT AREA


The initial Contract Area covers the Sangaw South Block and extends over an area of extends


over an area of three hundred and fifty-four square kilometres (354 km;), as detailed and


indicated on the map attached in Annex A and is delimited by the following coordinates





Points X - Easting Y -Northing Longitude - E Latitude - N


A 519 410 3907 007 45 12 49 35 18 22


B 538 210 3883 689 45 25 09 35 05 43


C 532 347 3880 313 45 21 17 35 03 54


D 518 327 3883 273 45 12 04 35 05 32


E 511 145 3891 192 45 07 21 35 09 49











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


foregoing co-ordinates of the Contract Aren.





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


this Contract.





ARTICLE4-GOVERNMENT PARTICIPATION ANI>THIRD PARTY


PARTICIPATION





Government Interest


4.1 The GOVERNMENT shall participate in this Contract through a Public Company,


effective from the Effective Date in respect of the entire Contract Area with an


undivided interest in the Petroleum Operation# and all the other rights, duties,


obligations and liabilities of the CONTRACTOR (save us prov ided in and subject to


this Article 4) under this Contract in respect of the Contract Area, of twenty per cent


(20%) (the “Government Interest ").


4.2 The Public Company shall not have any liability to the CONTRACTOR to


contribute its Government Interest share of all Petroleum Costs, whenever those


Petroleum Costs may be incurred, and its Government Interest share of such


Petroleum Costs shall be the responsibility of KOREA NATIONAL OIL


CORPORATION for the duration of this Contract, provided always that KOREA


NATIONAL OIL CORPORATION shall be entitled (through the


CONTRACTOR) to recover all such Petroleum Costs in accordance with Article 25.


For the avoidance of doubt, the Public Company shall contribute its share of


Production Bonuses attributable to the Government I merest and payable pursuant to


Articles 32.3 and 32.4.


For the purposes of .Article 37 of the Kurdistan Region Oil and Gas Law, the


Government Interest shall be deemed to be held by the GOVERNMENT and in


accordance with the principle in Article 16.13, the Public Company will be


individually and separately liable (and not jointly and severally liable with the


CONTRACTOR Entities) to the GOVERNMENT for its obligations, duties and


liabilities under this Contract and the provisions of Article 4.5 shall apply.


4.3 The Public Company may. at its discretion, assign part or all of its Government


Interest to a third party or parties which is another Public Company duly authorised


by the GOVERNMENT, provided that in no event shall a transfer be made which


would result in the transferor or transferee holding less than a five per cent (5%)


participating interesL


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


.Article 37 of the Kurdistan Region Oil and Gas Law. the Government Interest so


assigned shall be deemed to be held by the GOVERNMENT and in accordance with


the principle in .Article 16.13. the Public Company to w hich such Government Interest


is transferred will be individually and separately I able (and not jointly and severally


liable with the CONTRACTOR Entities) to the GOVERNMENT for its obligations,


duties and liabilities under this Contract and the provisions of Article 4.4 shall apply


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


of its duties or liabilities under this Contract shall not be considered as a default of the


CONTRACTOR Entities and shall in no case be invoked by the GOVERNMENT


tn terminate this Contract or exercise any other rights or remedies in respect of such


default that may be available to it.


The capacity of a Public Company, as it may arise pursuant to the provisions of this





Contract, shall in no event cancel or affect the rights of the CONTRACTOR Entities


lo seek to settle a dispute or to refer such dispute to aifcitrafion or expert determination


in accoidance with the provisions of Article 42,


4 5 A Public Company may assign part or all of its Government Interest to a third party or


parties (not being a Public Company) ami for the avoidance of doubt the provisions of


Articles 39.1, 39.2 and 39.3 shall not apply. Any such assignee shall have the same


rights and responsibilities held by the Public Company prior to the assignment


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


.ill of « Government Interest to a third party which is not a Public Company, in


accordance with the provisions of this Article 4, the provisions of Articles 39 1, 39.2


und 39.3 shall apply to any subsequent assignment of such interest.





Thinl fifty iBliml





4.6 The GOVERNMENT shall have the option of assigning to a third party, or third


parties, in respect of the Contract Area, as a CONTRACTOR Entity or


CONTRACTOR Entities, an undivided interest in the Petroleum Operations m


respect of the entire Contract Area and which option, when exercises! shall assign and


novate all the other rights, dunes, obligations and liabilities of the CONTRACTOR


(save as provided m and subject to this Article 4). under this Contract, of an aggregate


of twenty per cent (20%) (the 'Third Party Interest"), such option being referred to


herein as the Option of Third Party Participation". Until the later of the exercise


of the Option of Third Party Participation or the assignment by the GOVERNMENT


of the Third Party' Interest (or part thereof) to a Public Company in accoidance with


Article 4.9. or the expiry of the eight (8) month penod contemplated by Article 4.7.


KOREA NATIONAL OIL CORPORATION shall undertake all necessary work


under this Contract, provided always that KOREA NATIONAL Oil.


CORPORATION shall be entitled (through the CONTKACTOR) to recover all


such Petroleum Costs in accordance with Article 25


4.7 The GOVERNMENT may exercise the Option of Third Party Participation at any


time pnor to the dare eight (8) months following the Effective Date by notifying the


CONTRACTOR Entities, in writing, of a company which has. or companies which


have, adequate resources and capacity to discharge the obligations of a


CON TRACTOR Entity under this Contract and a Joint Operating Agreement in


respect thereof


4 8 If tbc GOVERNMENT notifies the CONTRACTOR Entities of a Ihird Party


Participant in accordance with Articles 4.6 and 4.7. that Third Party Participant shall


have the Third Party Interest or such part of tbc Third Party Interest as the


GOVERNMENT may decide








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4.9 If





(a) the GOVERNMENT doc* no* nonfy the CONTRACTOR Entities of ■


Third Party Participant in accordance with Articles 4.6 and 4.7 for all or pan


of the Third Party Interest, and/or


(h) if the Third Party Participant does no* complete the exercise of the opuon as


contemplated m Article 4.10 within sixty (60) days following iU assignment


by the GOVERNMENT of a Third Party Interest;


then the Thud Party Interns* and or that part of the Third Party Interest do* assigned


by die GOVERNMENT m accordance with Articles 4.6 and 4.7 shall he held by a


Pubbe Company to be identified by the GOVERNMENT, which Public Company


•hall act as a Third Party Participant For the avoidance of doubt, for the purposes of


this Article 4.9. a Public Company shall be a wholly-owned endty of the


GOVERNMENT


4 10 If the Option of Third Party Participation is exercised in accordance with Articles 4.6


mid 4 /, or if the Public Company holds all or part of the Third Party IntercM under


Article 4.9:


(a) the effective date of such participation shall be the Effective Dale,


notwithstanding that the exercise of the Option of Third Party Participation


under Articles 4.6 and 4.7. or the date on which the Public Company acquires


the Third Party Interest under Article 4.9, occurs after such dale;


(b) a Third Party Participant, upon signature of a binding and enforceable


instrument of assignment and novation m respect of this Contract referred lo in


Article 39 3. and shall pay to the CONTRACTOR by way of cleared funds to


a hank account nominated by the CON TRACTOR, an amount equivalent to


the proportion of Petroleum Costs incurred by the CON IKAC I OK Entities


as at the date of such payment attubutable to the interest held by such Hurd


Party Participant (which Petroleum Costs, for the avoidance of doubt, shall not


include the Signature Honui or the Capacity Building Bonus payable or paid


(as the ease may be) under this Contract); and


(i) if the Option of Third Party Participation is exercised in accordance


with Articles 4.6 and 4.7. the CONTRACTOR Entitle* (excluding ±e


Third Pam Participant) shall, within fourteen (14) days of the


notification, propose lo the GOVERNMENT a statement of


Petroleum Costs Within thirty (30) days of the notification, the


GOVERNMENT shall present the Third Party Participant with a


statement, agreed as between the GOVERNMENT and the


CONTRACTOR Entities (excluding the Third Party Participant), of


Petroleum Costs. Within sixty (60) days of the notification, the


GOVERNMENT shall cause the Third Party Participant to pay the


full amount due in accordance with this Article 4.10(b);


(ii) if the Public Company holds all or part of the Third Party Interest


under Article 4.9. the GOVERNMENT shall cause the payment of the








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amount due in accordance with this Article 4.10(b) to be made by the


Public Company to the CON I RACTOR within sixty (60) day* of the


Public Company acquiring the Third Party Interest under Article 4.9;


(c) upon payment pursuant to and in accordance with Article 4.10(b) and the


execution of the instrument referred to in Article 4.10(b) a Third Party


Participant shall participate as a CONTRACTOR Entity (or. where a Third


Party Participant constitutes a group of companies, as CONTRACTOR


Entities) under this Contract as if it had been a CONTRACTOR Entity (or at


if they had been CONTRACTOR Entities) from the Effective Date, with all


the rights, duties, obligations and liabilities under this Contract, including the


obligation to pay the relevant pro rata share of any and all Production Bonuses


due at any time under the Contract, and a Third Party Participant shall not


become a CONTRACTOR Entity until payment pursuant to and in


accordance with Article 4 10(b) and the execution of the instrument rcfcired to


in Article 4.10(b) has been completed; and


(d) where a Joint Operating Agreement has been executed by the


CONTRACTOR r ntities prior to any exercise of the Option of Third Party


Participation pursuant to Articles 4.6 and 4.7. a Third Party Participant shall,


upon signature of the instrument referred to in .Article 4.10(b), become a party


or parties to such Joint Operating Agreement on the terms thereof.


4.11 If the Public Company shall hold all or part of the Third Party Interest under Article


4.9, and shall fail to make the payment referred to in Article 4.10 (b) by the due date


or payment, or if the GOVERNMENT and the Public C ompany have not completed


the assignment of all or part of the Third Party Interest under Article 4.9 within ninety


(90) davs of the expiry of the eight (8) Month penod contemplated by Article 4.7,


then upon the day following tha date the GOVERNMENT will with immediate


effect therefrom take all contractual and procedural measures (enforceable under


applicable law) to procure that:


(a) fifty per cent (50%) of the interest so held by the Public Company bolding


such Third Party Interest shall, notwithstanding any other Article in this


Contract, be automatically deemed to be assigned and he assigned by such


Public Company to the extant CONTRACTOR Entities; and


(b) fifty per cent (50%) of the interest so held by the Public Company holding


such Riird Party Interest shall, notwithstanding the provisions of Article 39.2


or any other Article in this Contract, he automatically deemed to be assigned


and be assigned to that Public Company which holds the Government Interest


pursuant to Article 4.1. and shall for the purposes of this Article 4 be part of


the Government Interest and shall be subject to the nghts and obligations of


Article 4 2 and the other provisions of this Contract relating to the


Government Interest


Joint Operating .Agreement Provisions


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


consistent with the principles of this Article 4 and shall provide as follows;








21/117


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


Operating Agreement shall require the affirmative vote of an agreed


percentage of participating interests held thereunder, which in any event shall


be not more than seventy five per cent (75%); and


(b) in the event of a proposed transfer by nay CONTRACTOR Entity of part of a


participating interest under such Joint Operating Agreement, including any


Third Party Interest


(i) no transfer may be made which would result in the transform or


transferee holding less than a five per cent (5%) participating intoiest;





(ii) the proposed third party assignee must demonstrate to the reasonable


satisfaction of each of the extant CONTRACTOR Entities that it has


the financial capability to perform its payment obligations under the


Contract and under the Joint Operating Agreement; and





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


satisfactory to each of the extant CONTRACTOR Entities so as to


assume and to perform the obligations of the transferor.











ARTICLES-OPERATOR


5.1 The CONTRACTOR hereby designates KOREA NATIONAL OIL


CORPORATION to act as the Operator on behalf of the CONTRACTOR for the


execution of tbe Petroleum Operations. The CONTRACTOR shall at any time have


the right to appoint another entity as tbe Operator, upon giving the GOVERNMENT


not less than thirty (30) days pnor written notice of such appointment


52 The CONTRACTOR shall submit to tbe GOVERNMENT for comment any


agreement to amend the Joint Operating Agreement regarding or regulating the


Operator's appomnnent and its conduct of Petroleum Operations on behalf of the


CONTRACTOR pursuant to this Contract prior to execution of such agreement


5.J In the event of the occurrence of either of the following, the GOVERN MEN l may


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


reasonably practicable


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


dissolution of the Operator, or


(b) if the Operator terminate* the activities under this Contract delegated to it by


the CONTRACTOR or a material proportion thereof, and. as a result the


CONTRACTOR fails to fulfil its obligations under the Contract.














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 ARTICLE 6 - TERM OF THE CONTRACT





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


below:


Eialamlaa Bated


6.2 The Exploration Period shall 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. The initial term of five (5) years shall be


subdivided in two (2) sub-periods as follows:


(a) an initial sub-period of three (3) Contract Years ("First Sub-Porlod"); and


(b) a second sub-period of two (2) Contract Years ("Second Sub-Period"),


each a "Sub-Period" and collectively "Sub-Periods”.


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


Period or any extension thereof pursuant to Article 6.6 shall be subject to fulfilment of


the Minimum Exploration Obligations or minimum work obligations applicable to the


previous Sub-Period or extension thereof pursuant to Article 6.6 (as the case may be).


6.3 During the Exploration Period, the CONTRACTOR shall pay to the


GOVERNMENT, in an ears, an annual surface rental for the Contract Area, as may


be reduced by relinquishment from time to time pursuant to Article 7, of ten Dollars


(USS10) per square kilometre p« Contract Year ( 'Exploration Rental") Such


Exploration Rental shall be considered as a Petroleum Cost and shall be recovered by


die CONTRACTOR in accordance with the provisions of Articles 1 and 25.


6 4 If the CONTRACTOR decides not to enter into the Second Sub-Pcnod. it shall


notify the GOVERNMENT at least thirty (30) days pnor to the expiry of the First


Sub Period and, provided that the data from the First Exploration Well demonstrates


that there is no reasonable technical case for drilling the Second Exploration Well in


the Contract Area, the Exploration Pcnod shall expire at the end of the hirst Sub-


Pcnod, unless the Fust Sub-Pcnod has been extended pursuant to Article 6.5 andor


Article 6.6


6 5 If the CONTRACTOR has fulfilled its Minimum LxploraUon Obligations for a Sub-


Period of the Exploration Pcnod but considers that additional work is required prior


(a) to deciding to submit an Appraisal Work Program and Budget as provided


under Article 12.2 in respect of a Discovery, or


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


with Article 12.6(a) or 14.5(a). which additional work may include the


preparation and or execution of an Appraisal Work Program and Budget as


provided under Article 12 2 and/or Gas Marketing (ipcrations,


the CONTRACTOR will automatically be entitled to extensions, each of one (1)


Contract Year, of the then current Sub-Pcnod, up to the end of the maximum





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


CONTRACTOR'S notification of its intention to exercise such extension and its


duration shall be submitted in writing to the GOVKRNMKNT 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 be).


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


Penod. if it considers it has not completed its exploration evaluation of the Contract


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


Period, provided it notifies the GOVERNMENT in writing at least Chirty (30) days


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


obligation lor such extension. Any such extension shull 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 shull be entitled to a ftirthcr


extension of one (I) Contract Year provided that it notifies the GOVERNMENT in


writing at least thirty (30) days prior to the end of the original extension. The right of


the C ONTRACTOR to accede to the further extension shall be subject to fulfilment


of the minimum work obligations applicable to the original extension


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


prior notice to the GOVERNMENT, the CONTRACTOR shull have the right to


withdraw from this Contract provided that the outstanding Minimum Exploration


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


accordance with the Contract, or it has paid to the GOVERN MV NT the amounts


specified in Article 10.2 or Article 10 3. whichever is applicable to the then current


Sub-Period


6.8 If no Commercial Discovery has been made at the end of the Exploration Period


(including any extensions thereof) this Contract shall terminate


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


Years (as provided in Article 6.2), and if the CONTRACTOR considers it has not


had time to complete sufficient Gas Marketing Operations to declare the IViscovcry a


Commercial Discovery pursuant to Article 126(a) or I4.5(a>. the CONTRACTOR


shall be entitled to request an extension of the Exploration Penod (notwithstanding


die maximum period provided in Article 6 2), provided it so requests the


GOVERNMENT in wnting at least thirty (30) days poor to the end of the maximum


Exploration Period, together with a proposal for Gaa Marketing Operations to be


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


extension shall not exceed two (2) Contract Years. Upon 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 poor to the end of the original extension, together with a


proposal for Gas Marketing Operations to be undertaken during such extension.





Dodo BM t Period





6.10 If the CONTRACTOR consider* that a Discovery of Crude Oil and any Associated


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


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


term* of this Contract Hie Development Period for a Commercial Discovery of


Crude Oil and any Associated Natural Gas shall be twenty (20) years commencing on


the dcclaiation of such Commercial Discovery by CONTRACTOR, in accordance


with Article 12.6(a), with an automatic right to a five (5) year extension


6.11 If the COM KACTOR consider* that a Discovery of Non-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. I he Development Period lor a Commercial Discovery of Non-Associated


Natural Gas slut 11 be twenty (20) years, commencing on the declaration of such


Commercial Discovery by CONTRACTOR, in accordance with Article 12.6(a) or


Article 14 5(a), with an automatic right to a five (5) year extension.


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


Development Period as defined in Articles 6.10 or 6.11 then, upon its request, the


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


the same terms us those provided in this Contract. Such request shull be made in


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


Development Pcnod.


The term of any such extension of the Development Period shall be


(a) five (5) Yean for Crude Oil and any Associated Natural (ias. and/or


(b) five (5) Yean for Non-Associated Natural Gas


6.13 The CONTRACTOR shall have the right to terminate Production Operations for any


Production Area at any time during the term of this C ontract subject to giving


notice to the GOV ERNMENT of at least ninety (90) day*. This Contract shall


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


Operations for all Production Areas have terminated.











ARTICLE 7 - RELINQUISHMENTS


7.1 Subject to the provisions of Articles 72 and 7 J. the CONTRACTOR shall surrender


portions of the Contract Area as follows


(a) at the end of the initial term of the Exploration Period referred to in Article


6 2, twenty five per cent (25%) of the net area determined by subtracting die


Production Areas from die initial Contract Area,


(b) at the end of the first extension pcnod entered into under this Contract after


the end of the mitral term of the Exploration Pcnod referred to in Article 6 2.


an additional twenty five per cent (25%) of the net area determined by


subtracting the Production .Areas from the remaining part of the Contract


Area, and








25/117


 (c) at the end of the Exploration Penod (including all thereoO. all of


the remaining area that is not in a Production Area.





12 hoc the application of Article 7.1:


(a) any areas already relinquished pursuant to Article 7.4 shall be deducted from


areas to be surrendered; and


(b) the CONTRACTOR shall have the ngbt to determine the area, shape and


location of the Contract Area to be kept, provided that such surrendered


portions of the Contract Area shall be in contiguous blocks.


7 ? If the relinquishment referred to in Article 7.1 can only be achieved by including part


of an Appraisal Area, then these percentages shall be reduced to exclude such


Appraisal Area.


7.4 During the Exploration Penod. the CONTRACTOR may at the end of each Contract


Year surrender ull or any part of the Contract Area by written notice sent to the


GOVERNMENT ut least thirty (30) days in advance of the proposed date of


surrender, subject to the provisions of this Article 7.4. Such voluntary surrenders


during the Exploration Period shall be deemed equal to the obligatory relinquishments


referred to under Article 7.1 I his Contract shall terminate in the ev ent of the


surrender of the entire 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 CON TRACTOR elects


to surrender the entire Contract Area without having fulfilled the Minimum


Exploration Obligations relating to the then current Sub-Period as provided in Article


10 2 or Article 103, the CONTRACTOR shall pay to the GOVERNMENT the


relevant outstanding amount as detailed in Article 10.2 or Article 10.3. as the case


maybe.


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


CONTRACTOR shall be communicated to the GOVERNMENT by written notice


at least thirty (30) days in adv ance of the relevant dale for relinquishment, pursuant to


Article 7.1.


ARTICLE 8 MANAGEMENT COMMITTEE


8 1 A Management Committee shall be established within thirty (30) days follow ing the


Effective Date for the purpose of providing orderly direction of all matters pertaining


to the Petroleum Operations and the Work Programs. Within such penod. each of the


GOVERNMENT and the CON TRACTOR shall by wnlten notice nominate its


respective members of the Management Committee and their deputies.


|bc Management Committee shall comprise two (2) members designated by the


GOVERNMENT and two (2) members designated by the CONTRACTOR


L'pon ten (10) days notice, each of the GOVERNMENT and the CONTRACTOR


may substitute any of its members of the Management Committee The chairman of








26/117


the Management Committee shall be one of the members designated by the


GOVERNMENT (the “Chairman"). The vice chairman of the Management


Committee shall be one of the members designated by the CONTRACTOR (the


"Vice-Chairman"In the absence of the Chairman, the Vice-Chairman shall chair


the meeting


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


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


capacity


82 The Management Committee shall review, deliberate, decide and give advice,


suggestion* and recommendations to the Parties regarding the following subject


matters:


(a) Work Programs and Budgets;


(b) the CONTRACTORS activity reports;


(c) production levels submitted by the CONTRACTOR, based on prudent


international petroleum industry practice;


(d) Accounts of Petroleum Costs;


(e) procurement procedures for potential Subcontractors. with an estimated sub¬


contract value in excess of one million Dollar* (SI.000.000). submitted by the


CONTRACTOR in accordance with Article 19J.


(f) Development Plan and Budget for each Production Area.


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


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


consider


8.3 Each of the GOVERNMENT and the CONTRACTOR shall have one (1) vote in


the Management Committee. The Management Committee cannot validly deliberate


unless each of the GOVERNMENT and the CONTRACTOR is represented by at


least one (1) of its members or its deputy.


The Management Committee shall attempt to reach unanimous agreement on any


subject matter being submitted. In the event the Management Committee cannot


teach unanimous agreement, a second meeting shall be held within fourteen (14) days


to discuss the same subject matter and attempt to reach a unanimous decision


Except as provided for in Article 8.4 and Article 8.5, in the event that no agreement is


reached at the second meeting, the Chairman shall have the tie breaking vote.


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


meeting of the Management Committee, as prov ided for in Article 8 3. o» unanimous


approval is not obtained, as required pursuant to Article 8.5; then the proposal made


by the CONTRACTOR shall be deemed adopted by the Management Committee.








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 Notwithstanding the provisions of Article 8.3. and subject to Article 8.4, unanimous


approval of the Management Committee shall be required fot





(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,




production schedule, lifting schedule and Development and Production Work


Programs and Budgets;


(c) establishment of rules of procedure for the Management Committee;





(d) any insurance issues over which the Management Committee hus authority;


(e) approval of. and any material revision to, procurement procedures lor goods





and/or services, submitted by the CONTRACTOK in accordance with Article


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


Committee in accordance with Article 19.3);


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


submitted by CONTRACTOR in accordance with Article 33.3;







Fund, in accordance with Article 38.1;


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


Plan submitted pursuant to Article 38 7 on any Decommissioning Work


Program and Budget or Gas Marketing Work Program and Budget;


(i) any Terms ol Reference which are required to be prepared and agreed for the








(j) approval of any costs in excess of ten per cent (10s.) above any Budget; and


(k) any manor havmR a material adverse effect on Petroleum Operations.


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


8.6


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


CONTRACTOR, or at any other location agreed between Parties, at least twice a


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


Contract Year thereafter.


Either the GOVERNMENT or the CONTRACTOR may call an extraordinary


8.7


meeting of the Management Committee to discuss important issues or developments


related to Petroleum Operations, subject to giving reasonable prior nonce, specifying


the matter* to be discussed at the meeting, to the other Party. The Management


Committee may from time to time make decisions by correspondence provided all the


members have indicated their approval of such decisions in such correspondence











28/ 117





A


8.8 Unless at least one (1) member or its deputy of each of the GOVERNMENT and llie


CONTRACTOR 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 new date, time and location for the meeting.


8.9 The agenda for meetings of the Management Committee shall be prepared by die


CON TRACTOR in accordance with instructions of the Chairman and communicated


to the Parties at least fifteen (15) days prior to the date of the meeting. The agenda


shall include any subject matter proposed by either the GOVERNMENT or the


CONTRACTOR. Decisions of the Management Committee will be made at the


meetings. The CONTRACTOR shall be responsible for preparing and keeping


minutes of the decisions made at the meetings. Copies of such minutes shall be


forwarded to each Party for review and approval. Each Party shall review and


approve such minutes within ten (10) days of receipt of the draft minutes. A Party


who fails to notify in writing its approval or disapproval of such minutes within such


ten (10) days shall be deemed to have approved the minutes


8.10 If required, tbc 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 After each meeting, the technical sub-committee or any other sub¬


committee shail delrier a written report to tbc Management Committee


8.11 Any costs and expenditure incurred by the CONTRACTOR for meetings of the


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


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


CONTRACTOR in accordance with the provisions of Articles I ami 25.


ARTICLE 9 - GUARANTEES


9.1 Each CONTRACTOR Entity shall provide the GOVERNMENT, if so required by


the Inner pursuant to written notice received by tbc CONTRACTOR Entity within


thirty (30) days of the Effective Date, with a corporate guarantee in a form as shall he


agreed in good faith between the GOVERNMENT and each CONTRACTOR


Entity not later than ninety (90) days after the Effective Dale, provided that such


corporate guarantee shall be given only in respect of the Minimum Financial


Commitment for the First Sub-Period and shall expire automatically upon completion


of the performance of the Minimum Exploration Obligations set out in Article 10.2(d)


and (c) or expenditure of such Minimum Financial Commitment, whichever is the


earlier.


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


ench CONTRACTOR Entity shall provide the GOVERNMENT, if so required by


the latter pursuant to written notice received by the CONTRACTOR Entity within


thirty (30) days of such commencement date, with a corporate guarantee in:


(a) the form substantially agreed between the GOVERNMENT and each


CONTRACTOR Entity for the First Sub-Period, if any, subject to making the











29/117


chiB|{ci necessary m order for the corporate guarantee to apply only to the


Sccood Sub-Penod. or




the GOVERNMENT and each CONTRACTOR Entity not later than ninety


(90) day’s after the GOVERNMENT’S notice.


and provided in each case that such corporate guarantee shall be given only in respect


of the Minimum Financial Commitment for the Second Sub-Penod and that such


corporate guarantee shall expire automatically upon completion of the performance of


the Minimum Exploration Obligations set out in Article 10.3 (b) or expenditure of


such Minimum Financial Commitment, whichever is the earlier


9 3 In the event of an assignment by a CONTRACTOR Entity a accordance with


Article 39. the relevant third party assignee shall provide the GOVERNMENT, if so


required by the latter pursuant to written notice given to such assignee within thirty


(30) days of the Effective Date, with a corporate guarantee in the form agreed


pursuant to Article 9.1 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 faith between the GOVERNMEN f and such assignee not later than ninety


(90) days after the effective date of the assignment, provided that such corporate


guarantee shall be given only in respect of the Minimum Financial Commitment for


the then current Sub Penod. and shall expire automatically upon completion of the


performance of the Minimum Exploration Obligations set out in Articles 10.2(d) and


(e) or Article 10 3(b). at the case may be. or expenditure of such Minimum Financial


Commitment, whichever is the earlier.











ARTICLE 10- MINIMUM EXPLORATION WORK OBLIGATIONS


10.1 Ihc CONTRACTOR shall start Exploration Operations within thirty (30) days of


Management Committee approval of the Exploration Work Program and Budget in


accordance with Article 8. The CONTRACTOR shall perform geological,


geophysical and/or drilling works as provided under Articles 10.2 to 10.3 (the


“Minimum Exploration Obligations ’)- If applicable, the said Minimum Exploration


Obligation' dull be performed during each Sub-Penod in accordance with pnident


international petroleum industry practice.


10.2 During the First Sub-Period, the CONTRACTOR shall:


(a) carry out geological and geophysical studies, compnsing the following:


(i) the compilation of a technical database;


(ii) the performance of a remote sensing study:


(ill) a field visit to verify initial geological and geophysical work and


remote sen*mg results and plan for two dimensional seismic


acquisition, and





30/117


(b) carry ou« a data search for existing dau specific to this Contract Area,


comprising the following:


(i) well data, if available, for example, electric logs;


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


lui) reprocess seismic data, if available;


(c) perform field work comprising structural. Stratigraphic and lithologic mapping


and sampling;


(d) acquire, process and interpret two hundred (200) line kilometres of two


dimensional seismic data, committing lor this purpose a minimum financial


amount of five million Dollars (lISS5,000.000). or or a three dimensional


seismic data program by agreement between the Parties, and


(c) drill one (I) Exploration Well (the "First Exploration Weil”), including


testing and coring ns appropriate, committing for this purpose a minimum


financial amount of ten million Dolliu* (USS10,000.000).


10.3 During the Second Sub-Period, the CONTRACTOR shall:


(a) acquire, process and interpret further seismic dau (being either two


dimensional or three dimensional), if the CONTRACTOR considers that the


results from the First Exploration Well justify the acquisition of further


seismic data; and




testing and coring u appropriate, committing for this purpose a minimum


financial amount ot ten million Dollars (USS 10,000,000), unless the dau from


the First Exploration Well demonstrates that there is not a reasonable technical


case for drilling the Second Exploration Well in the Contract Area.


10 4 Notwithstanding the provisions in Articles 10.2 to 10 3. for the execution of the


Minimum Exploration Obligations unde* Articles 10 2 to 10.3. it is agreed as follows


(a) Minimum Exploration Obligations in the Second Sub-Period shall only apply


m the event the CONTRACTOR has oot elected to notify the


GOVERNMENT that it will oot enter .nto the Second Sub-Period, in


accordance with and subject to Article 6 4.


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


Minimum Exploration Obligations for the applicable Sub-Period, even il this


enuils exceeding the Minimum Financial Commitment for such Sub Period.


If the CONTRACTOR has satisfied its Minimum Exploration Obligations


without having spent the total Minimum Financial Commitment for such Sub-


Period, it shall be deemed to have satisfied its Minimum Exploration


Obligations for such Sub-Penod.











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 (C) Each Exploration Well shall he drilled to the depth agreed by the Management


Committee unless:





ft) the formation is encountered at a lesser depth than originally


anticipated;


(ii) basement is encountered at a lesser depth than originally ant* ipated.





(iii) in the CONTRACTOR'S sole opinion continued drilling of the


relevant Exploration Well presents a hazard due to the presence of


abnormal or unforeseen conditions:


(iv) insurmountable technical problems are encountered rendering it


unpractical to continue drilling with standard equipment; or


(v) petroleum formations arc encountered whose penetration requires


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





If drilling is stopped for any of the foregoing reasons, the Exploration Well


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


Committee and the CONTRACTOR shall be deemed to have satisfied it*


Minimum Exploration Obligations in respect of the Exploration Well


|d) Any geological or geophysical work earned out or any seism* data acquired,


processed or interpreted or any Exploration Well drilled or any other work


performed in excess of the Minimum Exploration Obliganons andor any


amount* spent in excess of the total Minimum Financial Commitment in any


gnen Sub-Pcnod. shall he earned forward to the next Sub-Penod or any


extension penod and shall be taken into account to satisfy the Minimum


Exploration Obligations and or the total Minimum Financial Commitment for


such subsequent Sub-Pcnod or extension penod


(e) For the avoidance of doubt, if: (i) in the Firs Sub-Pcnod. the


CONTRACTOR performs any of the Minimum Exploration Obligation*


prescribed for the Second Sub-Period in Article 10.3; and (u) the


CONTRACTOR has not elected to notify the GOVERNMENT that it will


not enter into the Second Sub-Pcnod (in accordance with and subject to


Article 6.4), the performance of such Minimum Exploration Obligations shall


be deemed to satisfy the same Minimum Exploration Obligation* for the


Second Sub-Period.








ARTICLE II EXPLORATION WORK PROGRAMS AND BUDGETS


III Within forty -five (45) day* following the Effective Date, the CONTRACTOR shall


prepare and submit to the Management Committee a proposed work program and


budget relating to Exploration Operations (the "Exploration Work Program and


Budget") for the remainder of the Calendar Year Thereafter, no later than 1 October


m each Calendar Year, the CONTRACTOR shall submit a proposed Exploration








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 Work Program and Budget to the Management Committee for the follow ing Calendar


Year





112 Each Exploration Work Program and Budget shall include details of. bet not be


limited to. the following


(a) work to be undertaken;


(b) materials, goods and equipment to he acquired;


(c> cost estimate of services to be provided, including service* by third parlies


and/or Affiliated Companies of any CONTRACTOR Entity; and


(d) estimated expenditures, broken down by cost centre in accordance with the


Accounting Procedure


11.3 rhe Management Committee shall meet within sixty (60) days following its receipt of


CONTRACTOR'S proposal to examine and approve the Exploration Work Program


and Budget.


11.4 If the GOVERNMENT requests any modification to the Exploration Work Program


and Budget, the Management Committee shall meet to discuss the Exploration Work


Program and Budget and proposed modifications thereto within the sixty (60) day


period referred to in Article 11.3. The CON TRACTOR shall communicate its


comments on any such requested modifications to the GOVERNMENT at the


meeting of the Management Committee or in wntmg prior to such meeting


11.5 The CONTRACTOR 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 nut exceed ten per cent (10%) of the approved Exploration


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


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


Management Committee For the avoidance of doubt all excess expenditures shall be


recovered by the CONTRACTOR in accordance with the proviswm of Articles 1


and 25. provided that any excess expenditures above the ten per cent (10%) limit shall


only be recov ered with the unanimous approval of the Management Committee


11.6 In eases of emergency, the CONTRACTOR may incur such additional expenditures


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


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


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


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


Articles I and 25.


ARTICLE 12 - DISCOVERY AND DEVELOPMENT


12 1 If the drilling of an Exploration Well results m a Discovery , the CONTRACTOR


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








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 confirming the presumed existence of such Discovery or within such longer period as


the 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"). ITie CONI RAC TOR shall provide in a timely manner


such other information relating to the Discovery as the GOVERNMENT may


reasonably request








12 2 If. pursuant to Article 12.1, the CON TRACTOR considers that the Discovery has


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


GOVERNMENT of the Discovery, submit an appraisal program in respect of the


Discovery (the "Appraisal Work Program and Budget”) to the Management


Committee The Management Committee shall examine the Appraisal Work Program


and Budget within thirty (30) days of its receipt. II the GOVERNMENT requests any


modification to the Appraisal Work Program and Budget, the Management


Committee shall meet to discuss the Appraisal Work Program and Budget and the


requested modifications thereto within sixty (60) days from its receipt of the proposed


Appraisal Work Program ond Budget. The CONTRACTOR shall communicate its


comments on any such requested modifications to the GOVERNMEN T at the


meeting of the Management Committee or in writing prior to such meeting.


ITic Appraisal Work Program and Budget shall include the following


(a) an appraisal works program and budget, in accordance with prudent


international petrol cum industry practice:


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


(c) the delimitation of the area to be evaluated, the surface of which shall not


exceed twice (2 x) the surface of the geological structure or prospect to be


appraised (the "Appraisal Area”).


12.3 If. following a Discovery, a ng acceptable to the CONTRACTOR is available to drill


a wdl. the CONTRACTOR may dnll any additional Exploration Well or any


Appraisal W ell deemed necessary by the CONTRACTOR before or dunng the


Management Comminee’s review of the Discovery Report provided in accordance


with Article 121 or its review of the Appraisal Work Program and Budget


The CONTRACTOR shall be authorised to incur expenditures not budgeted m an


approved Appraisal Work Program and Budget prov ided that the aggregate amount of


such expenditures shall not exceed ten per cent (10%) of the approved Appraisal


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


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


Management Committee. Kor the avoidance of doubt, all excess expenditures shall be


recovered by the CONTRACTOR in accordance with the provisions of Articles I


and 25. provided that any excess expenditures above tbc ten per cert 110%) limit shall


only be recovered with tbc unanimous approval of the Management Committee








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12.4 The CONTRACTOR shall submit a detailed report relating to the Discovery (the


“Appraisal Report") to the Management Committee within ninety (90) days


following completion of the Appraisal Work Program and Budget


12.5 The Appraisal Report shall include the following:


(a) geological conditions;


(b) physical properties of any liquids;


(c) sulphur, sediment and water content:


(d) type of substances obtained;


(e) Natural Gas composition;


(0 production forecast per well; and


(g) a preliminary estimate of recoverable reserve*.








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


statement to the Management Committee specifying that:


(a) the CONTRACTOR has determined that the Discovery' is a Commercial


Discovery;


(b) the CONTRACTOR has determined that the Discovery is not a Commercial


Discovery;


(c) the CONTRACTOR has determined that the Discovery is a significant


Discovery, which may become a Commercial Discovery subject to additional


exploration and'or appraisal works w ithin or outside of the Appraisal Area; or


(d) the CONTRACTOR hus determined that the Discovery is a significant


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


Discovery subject to Gas Marketing Operations, in accordance with


Article 14.5.


12.7 In ease the statement or the CONTRACTOR corresponds to Article 12.6(c), the


CONTRACTOR shall submit a Work Program and Budget to the Management


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


evaluate the said significant Discovery shall he considered an Exploration Well.


Pmlwuivm ri»n





12.8 If the Discovery hus been declared u Commercial Discovery by the CONTRACTOR


pursuant to Article 12.6(a) or Article 14.5(a). the CONTRACTOR shall submit a


proposed Development Plan to the Management Committee withm one hundred


eighty (180) days following such declaration The Development Plan shall be in


accordance with prudent international petroleum industry practice. Except with the


consent of the GOVERNMENT, such Development Plan shall include details of the


following as applicable:


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


Appraisal Report regarding the importance of the Petroleum Field within the


Appraisal Area;


(b) drilling and completion of Development Wells;


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


(d> laying of gathering pipelines;


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


and injection facilities for the production;


(f) 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 of storage facilities for Petroleum.


(i) plan for the utilisation of Associated Natural Gas;


(j) training commitment in accordance with Article 23;


(k) a preliminary decommissioning and site restoration plan;


(l) all contracts and arrangements made or to he made by the CONTRACTOR


for the sale of Natural Gas;


(m) U> the extent available, all contracts and arrangements made or to be made by


Persons in respect of that Natural Gas downstream of the point at w hich it is to


be sold by the CONTRACTOR and which arc relevant to the pnee at which


(and other terms on which) it is to be sold by the CONTRACTOR or arc


otherwise relevant to the determination of the value of it for the purposes of


this Contract, but not beyond the point at which it is first disposed of in an


Arm’s length Sale,


(n) each CONTRACTOR Entity’s plans for financing its interest, if any; and


(o) any other operations not expressly provided for in this Contract but reasonably


necessary for Development Operations, Production Operations and delivery of


Petroleum produced, in accordance with prudent international petroleum


industry practice








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12.9 Tbe Management Committee shall use its best efforts to approve the Development


Plan vidua sixty (60) days after its receipt of such plan The Development Penod for


each Commercial Discovery within a Development Plan shall be extended for the


number of days in excess of such sixty (60) day period that it takes for the


Management Committee to approve the Development Plan The Development Plan


shall be considered approved by tbe GOVERNMENT if the GOVERNMENT,


through its representatives on the Management Committee, indicates its approval in


writing


12.10 If the GOVERNMENT requests any modifications to the Development Plan, then the


Management Committee shall meet within sixty (60) days of receipt by tbe


CONTRACT OR of the GOVERNMENTS written notification of requested


modifications accompanied by all the documents justifying such request, and shall


discuss such request The CONTRACTOR shall communicate its comments on any


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


prior to such meeting Any modification approved by the Management Committee at


such meeting or within a further period of thirty (30) days from tbe date of such


meeting shall be incorporated into the Development Plan which shall then be deemed


approved and adopted


1211 If the CONTRACTOR makes several Commercial Discoveries within tbe Contract


Area each such Commercial Discovery will have a separate Production Area. The


CONTRACTOR shall be entitled to develop and to produce each Commercial


Discovery and the GOVERNMENT dull provide the appropriate Permits coming


each Production Area. In case the area covered by the Commercial Discovery extends


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


Contract Area is not the subject of a Petroleum Contract (as defined in the Kurdistan


Region Oil and Gas Law) with a third party , the provisions of Article 34.2 shall apply.


ARTICLE 13 - DEV ELOPMENT AND PRODUCTION WORK PROGRAMS AND


BUDGET


13.1 Upon the approval of the [>cvclopment Plan by the Management Committee, the


CONTRACTOR shall start tbe Development Operations for the Commercial


Discovery in accordance with the Development Plan and prudent international


petroleum industry practice.








13 2 Within ninety (90) days following approval of the Development Plan by the


Management Committee, the CONTRACTOR shall prepare and submit to the


Management Committee a proposed work program and budget for Development


Operations (the "Development Work Program and Budget") to be earned out in the


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


than I October in each Calendar Year, the CONTRACTOR shall 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 and Budget shall include details of the following











37/117


(a| works lo be carried out;


(b) material and equipment to be acquired by main categories:


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


Affiliated Companies of any CONTRACTOR Entity: and


(d) categories of general and administrative expenditure.


13.3 If any modification to the Development Work Program and Budget is requested by


the GOVERNMENT, the Management Committee shall meet to discuss the


Development Work Program and 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


Committee or in writing prior to such meeting.


13.4 The CONTRACTOR shall be authorised to incur expenditures not budgeted in an


approved Development Work Program and Budget provided that the aggregate


amount of such expenditures shall not exceed ten per cent (10%) of the approved


Development Work Program and Budget in any Calendar Year and provided further


that such excess expenditures shall be reported as soon as is reasonably practicable to


the Management Committee. For the avoidance of doubt, all excess expenditures


shall be recovered hy the CONTRACTOR in accordance with the provisions of


Articles 1 and 25. provided that any excess expenditures above the ten per cent (10%)


limit shall only be recovered with the unanimous approval of the Management


Committee.


13.5 In cases of emergency, the CONTRACTOR may incur such additional expenditures


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


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


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


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


Articles 1 and 25.








13.6 No later than 1 October of the Calendar Year preceding the estimated commencement


of production pursuant to an approved Development Plan and thereafter no later than


1 October in each Calendar Year, the CONTRACTOR shall prepare and submit to


the Management Committee a proposed work program and budget for Production


Operations (the “Production Work Program and Budget") fur the following


Calendar Year. To enable the Management Committee to forecast expenditures, the


Production Work Program and Budget shall include details of the following:





(a) works to be carried out


(b) material and equipment to be acquired by main categories;





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


Affiliated Companies of any CONTRACTOR Entity; and


(d) categories of general and administrative expenditure.





13.7 If any modification to the Production Work Program and Budget is requested by the


GOVERNMENT, the Management Committee shall meet to discuss the Production


Work Program and Budget and proposed modifications thereto within sixty (60) days


from its receipt of the proposed Production Work Program and Budget. The


CONTRACTOR shall communicate its comments on any such requested


modifications to the GOVERNMENT at the meeting of the Management Committee


or m writing prior to such meeting.


13.8 The CONTRACTOR shall be authorised to incur expenditures not budgeted in an





approved Production Work Program and Budget provided that the aggregate amount


of such expenditures shall not exceed ten per cent (10%) of the approved Production


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


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


Management Committee. For the avoidance of doubt, all excess expenditures shall be


recovered by the CONTRACTOR in accordance with the provisions of Articles I


and 25, provided that any excess expenditure above the ten per cent (10%) limit shall


only be recovered with the unanimous approval of the Management Committee.


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


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


expenditures shall be reported promptly to the Management Committee For tlie


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


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


Articles I and 25.





13.10 After the commencement of Commercial Production the CONTRACTOR shall pay


to the GOVERNMENT, in arrears, an annual surface rental for the Production Area,


of one hundred Dollars (IJSS100) per square kilometre per Contract Year


("Production Rental"). Such Production Rental shall be considered us a Petroleum


Cost and sliall be recovered by the CONTRACTOR in accordance with the


provisions of Articles 1 and 25.





ARTICLE 14 - NATURAL GAS





Use for the Petroleum Operations


14.1 To take account of specific conditions relating to Natural Gas and to promote its





development in the Kurdistan Region, the GOVERNMENT will grant specific


benefits to the CONTRACTOR on principles materially similar to those contained in


this Contract, including, consistent with the Kurdistan Region Oil and Gas Law, more


generous provisions in respect of the recovery of Petroleum Costs and the sharing of


Profit Petroleum than in respect of Crude Oil.











Kr


39/117





14.2 The CON TRACTOR may freely use any Natural Gas required for the Petroleum


Operations. If technically and economically justified, the CONTRACTOR shall in


pnonty use any Natural Gas for the purpose of enhancing recovery of Crude Oil in


accordance with prudent international petroleum industry practice as follows.


>nwr«lCu


14.3 Any excess Associated Natural Gas produced that is neither used in the Petroleum


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


GOVERNMENT'S written request, be transferred at the first practicable delivery


point as agreed between the Parties, free of charge to the GOVERNMENT In such


cue, the GOVERNMENT shall be solely responsible for collecting, treating,


compressing and transporting such Natural Gas from such agreed delivery point and


shall he solely liable for any additional direct and indirect costs associated therewith.


I he construction and operation of required facilities as well as the offtake of such


excess Associated Natural Gas by the GOVERNMENT shall occur in accordance


with prudent international petroleum industry practice and shall not interfere with the


production, lifting and transportation of the Crude Oil by the CONTRACTOR. For


the avoidance of doubt, all expenditure inclined by the CON I RAC TOR up to such


agreed delivery point shall be considered Petroleum Costs and shall be recovered by


the CON TRACTOR in accordance with the provisions of Article* 1 and 25


In the event the GOVERNMENT 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 Gat within ninety (90) day*


following notification thereof by the GOVERNMENT If the CONTRACTOR


elects to participate m supplying Associated Natural Gas to such market, ail


expenditures associated with any necessary facilities shall be paid for by the


CONTRACTOR For the avoidance of doubt, such expenditure incurred shall be


considered Petroleum Costs and shall be recovered by the CONTRACTOR in


accordance with the provisions of Articles I and 25.











14 4 Until an approved Natural Gas sales contract is executed in respect of all volumes of


Natural Gas expected to be produced, the CON TRACTOR shall be entitled during


the Exploration Period and the Development Period to cany out Gas Marketing


Operations.


14.5 If. pursuant to Article 12 6(d). the CONTRACTOR has determined that the


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


become a C ommercial Discovery subject to Gas Marketing Operations, it shall cany


out Gas Marketing Operations, at the end of which it shall submit a wntten 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.








40/117


 r.* the of this G


























14.7 All cost* «n

.icliviticH in relation to the Gas Marketing Operations shall he considered Petroleum


Costs.





14.8 No lalei limn 1 October of the Calendar Year preceding the ('nlendm Yem in which


any Gun Marketing Operations are due to occur, tire CONTRACTOR shall prepare


,md submil to Ihe Management Committee its Gris Marketing Work Program and


Budget lot the following Calendar Year. To enable the Management Committee to


forecast expenditures, the Gas Marketing Work Program and Budget shall include the


following


(a) works to be earned out;


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


Affiliated companies of any CONTRACTOR Lnuty. and











the GOVERNMENT, the Management Committee shall meet to discuss the Gai


Marketing Work Program tad 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 to the GOVERNMENT ai the meeting of the Management Committee


or in writing prior to such meeting.


14.9 The CONTRACTOR shall be authorised to incur expenditures not budgeted in an


approved Gas Marketing Work Program and Budget provided that the aggregate


amount of such expenditure shall not exceed ten per cent (10%) of the approved Gas


Marketing Work Program and Budget in any Calendar Yew and provided funhet that


such excess expenditures shall be reported as soon as reasonably practicable to the


Management Committee. For the avoidance of doubt, all excess expenditures shall he


recovered by the CONTRACTOR in accordance with the provisions of Articles 1


and 25. provided that any execs* expenditure above the ten per cent (10%) limit shall


only be recovered with the unanimous approval of the Management Committee


14 10 If any Non-Associated Natural Gas is discovered within the Contract Area, and the


C ONTRACTOR reasonably considers that the Non Associated Natural Gas


Discovery will only be a Commercial Discovery if certain terms of thn Contact are








41/117


The GOVERNMENT shall in good faith give reasonable consideration to the


CONTRACTOR'* proposed amendment and reasons and the Parties shall in good


kith attempt to agree on the necessary amendments to the Contract. If the Parties are


unable to agree on such amendments, and the Exploration Period expires without the


CONTRACTOR having declared such Discovery to be u Commercial Discovery in


accordance with Article 12.6(a) or Article 14.3(a), and subsequently within a period


of eight (8) years from the end of such Exploration Period, the GOVERNMENT


reaches agreement with any third party to develop such Discovery (the "Gas


Development”), then the following provisions shull apply:


(a) either before or upon agreement in relation to live (las Development having


been reached (and whether or not such agreement is recorded m a fully termed


production sharing and or operaring or other like agreement), but before such


agreement is signed (the Proposed Contract”) (subject only to the rights of


each CONTRACTOR Entity to pre-empt such Proposed Contract pursuant to


Article 14.10(h) and such conditions as may be applicable), the


GOVERN MEN I' shall, as soon as reasonably practicable after the occurrence


of such circumstances, serve on each of the CONTRACTOR Entities, a


notice to that effect and shull with such notice provide such information and


main terms of such agreement as the CONTRACTOR Entities may


reasonably request to determine if they will exercise their rights (the "Agreed


Term*”), including:


(i) the identity of such third party;


(ii) the effective date of the Proposed Contract.


(ui) the applicable commercial terms, including bonuses, royalties, cost


recovery, profit sharing, taxation and any other similar terms; and


(iv) all and any material conditions to which the Proposed Contract is


subject.


(b) Upon a request from any CONTRACTOR Entity, the GOVERNMENT will


provide all the CONTRACTOR Entities with such further infomwiioo and


terms as may be reasonably requested by any CONTRACTOR Entity.


Within ooe hundred and eighty days (180) days after receipt of a notice and


any further information under Article 14 10(a) in relation to a Proposed


Contract each of the CONTRACTOR Entities shall elect either


(i) to enter into the Proposed Contract on the same or substantially similar


terms to the Agreed Terms, with the nght to cost recover all Petroleum


Costs incurred under this Contract against all Petroleum revenues


received under the Proposed Contract, up to any cost recovery limits


set out therein; or


(ii) to waive the aforesaid nght of pre-emption in


relation to the Proposed


Ccotmct:


and shall serve notice accordingly upon the GOVERNMENT and all the


CONTRACTOR Entities and in default of receipt by the GOVERNMENT


of any such notice within such period of one hundred and eighty (180) days


such CONTRACTOR Entity shall be deemed conclusively to have served a


notice electing to waive its aforesaid right of pre-emption in relation to the


Proposed Contract.


(c) In the event that more than one of the CONTRACTOR Entities exercises its


rights under Article H.lOfljXO in relation to the Proposed Contract, then the


GOVERNMENT shall transfer or grant each such CONTRACTOR Entity


an interest in the Proposed Contract upon the Agreed Terms (in accordance


with Article 14. IO0>X»)) in ‘he proportions in which their respective


percentage interests hear to the aggregate of their respective percentage


interests under the relevant Joint Operating Agreement (as it applied at the end


of the Exploration Period) or in such other proportions as such


CONTRACTOR Entities shall agree between them.


(d) In the event that one of the CONTRACTOR Entities exercises its rights


under Article 14. IO(b)(i) in relation to the Proposed Contract then the


GOVERNMENT shall transfer or grant the whole of the interest in die


Proposed Contract upon the Agreed Terms (in accordance with 14.IO(b)(i)) to


such CONTRACTOR Entity.


(e) In the event that none of the CONTRACTOR Entities exercises its rights


under Article 14.10(b)(i) then the GOVERNMENT' may enter into the


Proposed Contract on terms no more favourable to its counterparty than the


Agreed Tenns and, in such case, the aforesaid rights of pre-emption shall


thereupon cease to apply in relation to die Proposed Contract


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


enters into the Proposed Contract with the third party concerned, the


GOVERNMENT will use its best endeavours to avoid any effect which may hamper


the Petroleum Operations of the CONTRACTOR while producing Petroleum.


Harlnc


14.12 Flaring of Natural Gas in the course of activities provided for under this Contract, is


prohibited except (i) short-term flaring up to twelve (12) Months necessary for testing


or other operational reasons in accordance with prudent international petroleum


industry practice (which shall include the flaring of Associated Natural Gas to the


extent the CONTRACTOR considers that re-injecting Associated Natural Gas is not


justified technically and economically and provided the GOVERNMENT decides


not to take such Associated Natural Gas), or (ii) with the prior authorisation of the


GOVERNMENT, such authorisation not to be unreasonably withheld or delayed.


The CONTRACTOR shall submit such request to the GOVERNMENT, w hich shall


include an evaluation of reasonable alternatives to flaring that have been considered


along with information on the amount and quality of Natural Gas involved and the


duration of the requested flaring.


KT


A 43/117








 ARTICLE 15 - ACCOUNTING AND AUDITS





15.1 The CONTRACTOR dull keep in its offices in the Kurdistan Region copies of all


hooks and accounts of all revenues relating lo the Petroleum Operations and all


Petroleum Costs (the "Accounts"), except during the Exploration Period, when the


CONTRACTOR shall be entitled to keep the Accounts at its headquarters Abroad.


The Accounts shall reflect in detail expenditure incurred as a function of the


quantities and value of Petroleum produced, and shall be kept for a period of five (5)


years. All Accounts which are made available to the GOVERNMENT in accordance


with the provisions of this Contract shall be prepured in the English language. The


Accounts shall be kept in accordance with prudent international petroleum industry


practice and in accordance with the provisions of the Accounting Procedure. The


Accounts shall he kept in Dollars, which shall be the reference currency for the


purposes of this Contract.


15 2 Within ninety (90) days following the end of each Calendar Year, the


< OM RAC TOR shall submit to the GOVERNMENT a summary statement of all


Petroleum Costs meuned during the said Calendar Year. Ihc summary statement


shall also include a profit calculation pursuant to the provisions of Article 26


15 J The GOVERNMENT shall have the nght:


la) 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 Calendar Year


(the “Audit Request Period '); and


(b) to retain an auditor of international standing familiar with international


petroleum industry accounting practice to undertake or assist the


GOVERNMENT to undertake the audit


Notwithstanding paragraph* (a) and (b) of this Article 15-3. tbc GOVERNMENT


shall have the nght to audit the Accounts with respect to each Calendar Year at any


time in the case of manifest error or fraud.


15.4 Tbc reasonable cost of retaining an auditor pursuant to Article 15.3 shall be borne by


the CONTRACTOR and treated as a Petroleum Cost for the purpose of cost recovery


under Articles 1 and 25.


15.5 Dunng the Audit Request Period for any Calendar Year but not thereafter, the


GOVERNMENT, acting reasonably and in accordance with prudent international


petroleum industry practice, may request in writing all reasonably available


information and justifications for its audit of Petroleum Costs.


15.6 Should the GOVERNMENT consider, oo the basis of data and information available,


that the CONTRACTOR made a material mistake or there is any irregularity in


respect of the Accounts and considers that any correct ions, adjustments or


amendments should be made, the GOVERNMENT shall make any audit exceptions


m writing and notified to the CONTRACTOR within six (6) Months of the dale of


request referred to in Article 15.3. and failure to give such written exception within











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such lime shall be deemed lo be an acknowledgement of the correctness of the


CONTRACTOR'S Accounts.


15.7 In respect of any audit exception made by the GOVERNMENT in accordance with


Article 15.6, the CONTRACTOR shall then have sixty (60) days to make necessary


corrections, adjustments or amendments or to present its comments in writing or


request a meeting with the GOVERNMENT Ihe GOVERNMENT shall within


thirty (30) days of the CONTRACTOR'S response, notify the CONTRACTOR in


writing of its position on the corrections, adjustments, amendments or comments. If


thereafter there still exists a disagreement between the GOVERNMENT and the


CONTRACTOR, the dispute will be settled in accordance with Article 15.9.


15.8 In addition to the annual statements of Petroleum Costs as provided m Article 15.2.


the CONTRACTOR shall provide the GOVERNMENT with such producooo


statements and reports, as required pursuant to Article 16.3.


15.9 Any dispute between the Parties under this Article 15 that cannot be settled amicably


within sixty (60) days of the GOVERNMENT * final notice under Article 15.7, may


be submitted to an expert on the request of cither the GOVERNMENT or the


CONTRACTOR in accordance with the provision* of Article 42.2 Notwithstanding


the provision* 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 pro* lsmns of Article 42.1.


ARTICLE 16 - CONTRACTOR’S RIGH fS AND OBLIGATIONS








16.1 If not done already, within ninety (90) days following the Effective Date, each


CONTRACTOR Entity shall open an office and appoint a permanent representative


in the Kurdistan Region, who may be contacted by the GOVERNMENT with regard


to any matter relating to this Contract and will be entitled to receive any


correspondence addressed to such CONTRACTOR Entity.








16.2 Ihe CONTRACTOR shall carry out all Petroleum Operations in accordance with the


provisions of this Contract, prudent international petroleum industry practice and


applicable Kurdistan Region Law.


The CONTRACTOR shall be responsible for the conduct, management, control and


administration of Petroleum Operations and shall be entitled to conduct Petroleum


Operations in accordance with the provisions of this Contract. In conducting its


Petroleum Operations, the CONTRACTOR shall have the right to use any Affiliate


of each CONTRACTOR Entity, its and their Subcontractors, and the employees,


consultants, and agents of each of the foregomg. rhe CONTRACTOR and all such


Persons shall at all times have free access to the Contract Area and any Production


Areas for the purpose of carrying out Petroleum (iperntions.











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Information and Reports





16.3 The CONTRACTOR shall provide the GOVERNMENT with periodic data and


activity reports relating to Petroleum Operations. Said reports shall include details of


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 specifying the number of personnel, their title, their nationality as


well us a report on any medical sendees and equipment made available to such


personnel; and


(d) a descriptive statement of all capital assets acquired for the Petroleum


Operations, indicating the date and price or cost of their acquisition.





Requirement for Prtr0.k.mP-R£. I





I () 4 The CON TRACTOR may freely use any Petroleum produced within the Contract


Aren for the Petroleum Operations.





16 5 The CONTRACTOR shall at all times provide reasonable assistance as may


reasonably be requested by the GOVERNMENT during its review and verification


of records and of any other information relating to Petroleum Operations at the


offices, worksites or any other facilities of the CONTRACTOR.


Upon giving reasonable prior notice to the CONTRACTOR, the GOVERNMENT


may send a reasonable number of representatives to the work-sites or any other


facilities of the CONTRACTOR in the Kurdistan Region to perform such reviews


and verifications. The representatives of the GOVERNMENT shall at all times


comply with any safety regulations imposed by the CONTRACTOR and such


reviews and verifications shall not hinder the smooth progress of the Petroleum


Operations.


Access to Facilities


16.6 For the performance of the Petroleum Operations, the CONTRACTOR any Affiliate


of each CONTRACTOR Entity, its and their Subcontractors and the employees,


consultants and agents of each of the foregoing shall at all times be granted free


access to the Contract Area and to any facilities for the Petroleum Operations located


within or outside of the Contract Area or within or outside the Production Area, for


the purpose of carrying out Ac Petroleum Operations.





Use of Facilities


16.7 Upon notice from the GOVERNMENT, the CONTRACTOR shall make available


to a reasonable number of representatives of the GOVERNMENT those of the


CONTRACTOR * facilities which arc necessary to enable such representatives to


perform their tasks related to this Contract and the Kurdistan Region Oil and Gas Law


including, in case of works to be performed on work sites, transportation,


accommodation and board, under the same conditions as those provided by the


CONTRACTOR for its own personnel.


Notwithstanding Article 16.8, the GOVERNMENT shall indemnify and bold


harmless each CONTRACTOR Entity against all losses, damages and liability


arising under any claim, demand, action or proceeding brought or initiated against any


CONTRACTOR Entity by any representative of the GOVERNMENT in connection


with the access to or use of the facilities by such representatives.


Loss or Damage


16.8 The CONTRACTOR shall be responsible for any loss or damage caused to third


parties by its or its Subcontractors personnel solely and directly resulting from their


negligence, errors or omissions in accordance with applicable Kurdistan Region Law.





Intellectual Property Rights


16.9 In its Petroleum Operations, the CONTRACTOR shall respect any patents belonging


to thud parties.


Litigation


16.10 The CON TRACTOR shall as soon as reasonably practicable inform the


GOVERNMENT of any material litigation relating to this Contract.





Safety


16.11 The CONTRACTOR shall implement a health, safety and environment program and


take necessary measures to ensure hygiene, health and safety of its personnel carrying


out Petroleum Operations in accordance with prudent international petroleum industry


practice.


Said measures shall include the following:


(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 (72) hours of such


accident, any accident where personnel has been injured while engaged in


Petroleum Operations and resulting in such personnel being unable to return to


work,


(c) implementing a permit-to-work procedure around hazardous equipment and


installations.











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(d) providing safe storage areas for explosives, detonators and any other


dangerous products used in the operations;


(c) supplying fire-extinguishing equipment in each work area;


(f) for the purpose of taking control of any blow out or fire which could damage


the environment or Petroleum Field, in accordance with prudent international


petroleum industry practice; and


(g) for the purpose of preventing any involuntary injection of fluids in petroleum


formations and production of Crude Oil and Natural Gas at rates that do not


conform to prudent international petroleum industry practice.


PrvtiHvlivfl Bam


16.12 Subject to Article 43.2, in the event the production rate of the individual wells and


Reservoir of a Petroleum Field is to be set hclow the Maximum Efficient Rate


(“MER") for the Reservoir, as provided for in the Development Plan, as a


consequence of a decision by the GOVERNMENT or any federal or international


regulatory body, the GOVERNMENT undertakes to allocate any such reduction


fairly and equitably among the various operators (including the GOVERNMENT)


then producing in the Kurdistan Region, pro rata their respective production rates. In


such event, the GOVERNMENT shall grant an extension of the Development Period


of any Production Area so affected for a reasonable period of tune in order to produce


the Petroleum which would otherwise have already been produced, had the MER for


the individual wells and Reservoir of the Petroleum Field been maintained


Legal Status


16.13 The respective rights, duties, obligations and liabilities of the CONTRACTOR and


the GOVERNMENT under this Contract are to be understood as being separate and


individual and not joint and several. The Parties agree that this Contract shall not


create and shall not be deemed to have created a partnership or other form of


association between them.





lifting


16.14 The GOVERNMENT and each CONTRACTOR Entity shall have the right and the


obligation to take in kind and separately’ sell or otherwise dispose of their respective


shares of Petroleum. Upon approval of the Development Plan, the Parties shall meet


as soon as practicable to reach a detailed agreement governing the lifting of Petroleum


by each such CONTRACTOR Entity. Such lifting agreement shall include the


following:





(a) the obligation of the GOVERNMENT and each CONTRACTOR Entity to


lift regularly throughout each Calendar Year, then share of Petroleum


produced from the Production Area;


(b) notification procedures by the Operator to the GOVERNMENT and each





CONTRACTOR Entity regarding entitlements and availability of Petroleum








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 for lifting by each Party during each lifting period and nominations by each


Party, and


ihe right of the Parties to lift any Available Petroleum not scheduled for lifting





and'or not lifted by the other Party during each such lifting period.











16.15 The CONTRACTOR Entities shall sell and trunsfer to the GOVERNMENT, upon


written lequest of the GOVERNMENT, 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


CON TRACTOR Entities with not less than six (6) Months' advance written notice of


its intention to buy such Crude Oil.


Payments shall be made in Dollars and otherwise on terms consistent with prudent


international petroleum industry practice. The CONTRACTOR Entities' obligation


to sell Crude Oil to the GOVERNMENT shall be. with the other operators (including


the GOVERNMENT) then producing in the Kurdistan Region, pro rata to their


respective production rates.


The provisions of this Article 16.15 shall not apply to Non-Associated Natural Gas.








ARTICLE 17-USE OF LAND AND EXISTING INFRASTRUCTURE


17.1 The GOVERNMENT shall make available to the CONTRACTOR any land or


property in the Kurdistan Region required for the Petroleum Operations; provided,


however, the CON TRACTOR shall not request to use any such land unless there is a


real need for it The CONTRACTOR shall have the right to build and maintain,


above and below ground, any facilities required for the Petroleum Operations


17.2 If it becomes necessary for conduct of the Petroleum 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 be reached, the CON TRACTOR shall


notify the GOVERNMENT. On receipt of such notification;


(a) the GOVERNMENT shall determine the amount of compensation to be paid





by the CONTRACTOR to the owner, if occupation will be for a short


duration: or





(b) the GOVERNMENT shall expropriate the land or property in accordance


with applicable Kurdistan Region Law, if such occupation will be long lasting


or makes it henceforth impossible to resume original usage of such land or


property. Any property nghts shall be acquired by and recorded in the name


of the GOVERNMENT, but the CONTRACTOR shall be entitled free use


of the land or property for the Petroleum Operations for the entire duration of


this Contract.





Kf


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The amount of the compensation in Article 17.2(a) shall be fair and reasonable, in


accordance with Article 29 of the Kurdistan Region Oil and Gas Law, and shall lake


into account the rights of the owner and uny effective use of the land or property by


its owner at the time of occupation by the CONTRACTOR.. All reasonable costs,


expenditures and fan and reasonable compensation (as required pursuant to Article 29


of the Kurdistan Region Oil and Gas |.»w) which results from such expropriation


shall be borne by the CONTRACTOR For the avoidance of doubt such costs,


expenses and compensation incurred by the CONTRACTOR shall be considered


Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with


the provisions of Articles I and 25.


17.3 For its Petroleum Operations, the CONTRACTOR shall have the right in the


Kurdistan Region to use, subject to applicable I aw, any railway, tramway, road,


airport, landing field, canal, river, bridge or waterway, any telecommunications


network and uny existing pipelines or transportation infrastructure, on terms no less


favourable than those offered to other entities and. unless generally in force, to lie


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 cases, the request shall originate ftuin the Minister of Natural Resources. For the


avoidance of doubt, such costs, expenses or liabilities incurred by the


CONTRACTOR hereunder shall lie considered Petroleum Costs and shall be


recovered by the CONTRACTOR in accordance with the provisions of Articles 1


and 25.


17.5 For its Petroleum Operations, the CONTRACTOR shall have the right in the


Kurdistan Region to clear land, excavate, drill, bore, construct, erect, place, procure,


operate, emit and discharge, manage and maintain ditches, ranks, wells, trenches,


access roads, excavations, dams, canals, water mains, plants, reservoirs, basins,


storage and disposal facilities, primary distillation units, extraction and processing


units, separation units, sulphur plants and any other facilities or installations for the


Petroleum Operations, in addition to pipelines, pumping stations, generators, power


plants, high voltage lines, telephone, radio and any other telecommunications systems,


as well as warehouses, offices, sheds, houses for personnel, hospitals, schools,


premises, dikes, vehicles, railways, roads, bridges, airlines, airports and any other


transportation facilities, garages, hangars, workshops, foundries, repair shops and any


other auxiliary facilities for the Petroleum Operations and, generally, everything


which is required for its performance of the Petroleum Operations The


CONTRACTOR shall have the nght to select the location for these facilities.


17.6 For iis Petroleum Operations, the CONTRACTOR shall have the nght in the


Kurdistan Region, subject to compliance with applicable Kurdistan Region Law. to


remove and use the topsoil, fully-grown timber, clay, sand. lime, gypsum, stones


(other than precious stones) and other similar substances as required for its Petroleum


Operations.


The CONTRACTOR 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








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existing irrigation or navigation systems ami that land, houses or watering points


belonging to third parties arc not deprived of tlwu use.


177 The GOVERNMENT shall have the right in the Kurdistan Region to build, operate


and maintain roads, railways, uirports, landing strips, canals, bridges, protection dams,


police stations, military installations, pipelines and telecommunications networks in


the Contract Area, provided this does not increase the costs, or compromise or have a


material adverse 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 for the CONTRACTOR then, for the avoidance


of doubt, such cost ami expense shall be considered Petroleum Costs and shall be


recovered by the CONTRACTOR in accordance with the provisions of Articles I


and 25.


17.8 Upon request of the CONTRACTOR, the GOVERNMENT shall prohibit the


construction of residential or commercial buildings in the vicinity of facilities used for


the Petroleum Operations that may be declared dangerous due to the Petroleum


Operations and to prohibit any interference with the use of any facilities required for


the Petroleum Operations.


17.9 Access to the Contract Area may be granted pursuant to an Access Authorisation, as


shall be defined in. and consistent with, the Kurdistan Region Oil and Gas Law, to


authorised third parties on reasonable terms and conditions (including coordination),


including Persons authorised to construct, install and operate structures, facilities and


installations, and to carry out other works, provided that nothing in the Access


Authorisation or in this Article 17.9 authorises the holder to dnll a Well or to perform


any Petroleum Operations in Contract Area.


The GOVERNMENT shall give the CONTRACTOR adequate advance notice of


any Access Authorisation in respect of the C ontract Area and shall not grant any


Access Authorisation in respect of the Contract Area until it has taken into account


any submissions made by the CONTRACTOR nor in such a way that there is undue


interference w ith or hindrance of the rights and activities of the CONTRACTOR


ARTICLE 18- ASSISTANCE FROM THE GOVERNMENT


18.1 To the extent allowed by Kurdistan Region Law and Iraqi law and at the specific


request of the CONTRACTOR, die GOVERNMENT shall take all necessary steps


to assist the CONTRACTOR Entities in, but not limited to, the following areas:


(a) securing any necessary Permits for the use and installation of means of


transportation and communications;


(b) securing regulatory Permits in mntters of customs or import/cxpoH;


(c) securing entry and exit visas, work and residence permits as well as uny other


administrative Permits for each CONTRACTOR Entity's, its Affiliate’s and


its Subcontractors’ foreign personnel (including their family members)











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working in the Kurdistan Region and any other part of Iraq during the


implementation of this C on tract


(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;


(f) securing any necessary environmental Permits;


(g) obtaining any other Permits requested by any CONTRACTOR Entity for the


Petroleum Operations.


(h) access to any existing data and information, including data and information


relating to the Contract Area held by previous operators or contractors; and


(i) providing all necessary security for Petroleum Operations.


18 2 Within the scope of services to be provided under this Article 18, reasonable and duly


justified expenses incurred by the GOVERNMENT or paid to third parties shall be


charged to the CONTRACTOR and shall be considered Petroleum Costs and shall be


recovered by the CONTRACTOR as Petroleum Costs in accordance with the


provisions of Articles I and 25.


ARTICLE 19 - EQUIPMENT AND MATERIALS


19.1 The CONTRACTOR shall supply, or procure the supply of, all materials, equipment,


machinery, tools, spare parts and any other items or goods required for the Petroleum


Operations (“Equipment and Materials").


19.2 Said Equipment and Materials shall be provided by the CONTRACTOR in


accordance with the relevant Work Programs and Budgets.


19.3 As soon as possible after the Effective Date, the CON TRACTOR shall provide the


Management Committee with a copy of its procedures for procurement of Equipment


and Materials and/or services for the Petroleum Operations as required by the


provisions of .Article 8.2 (c), including the criteria for tender evaluation, which


procedures and criteria shall be in accordance with prudent international petroleum


industry practice. If the Management Committee docs not request any modifications


to the procurement procedures within thirty (30) .lays after receiving such procedures,


the procedures shall be deemed approved by the Management Committee.


19.4 The CONTRACTOR shall give priority to Equipment and Materials that are readily


available in the Kurdistan Region and other pails of Iraq to the extent their price,


grade, quality, quantity, specifications, purchase, delivery and other commercial and


technical terms are comparable in all material respects with those generally available


in the international petroleum industry.











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 ARTICLE 20 - TITLE TO ASSETS





20.1 During the Exploration Period any Assets acquired by tbe CONTRACTOR for the


Petroleum Operations shall remain the property of tbe CONT RACTOR, the


CONTRACTOR Entities, their Affiliates or their Subcontractors, as the case may be


20.2 During the Development Period subject to Article 21, all Assets acquired by the


CONTR ACTOR for the Petroleum Operations shall become the property of the


GOVERNMENT upon the completion of the recovery of the costs of all such assets


by the CONTR ACTOR, or the end of the Contract, w hichev er is the earlier.


20 3 Tbe provisions of 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.


ARTICLE 21 USE OK THE ASSETS


21 1 Each CONTRACTOR Entity shall have the exclusive nght to use. free of any


charge, all Assets described in Article 20. both before and after recovery of the cost of


the same, 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


CONT RACTOR'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


ARTICLE 22 - SUBCONTRACTING


22.1 The CONTRACTOR shall ensure that any Subcontractors it engages have all the


requisite experience and qualifications.


22.2 The CONTRACTOR shall give priority to Subcontractors from the Kurdistan


Region and other parts of Iraq to the extent their competence, rates, experience,


reputation, qualifications, specialties, credit rating and terms of availability, delivery


and other commercial terms are. in the CONTRACTOR’S sole opinion, comparable


m all material respects with those provided by foreign companies operating in the


international petroleum industry. Such Subcontractors must be bona fide Kurdistan


Region companies not related to any Public Officer, directly or mdirectly. and must


have all necessary resources and capacity.


22.3 Selection of Subcontractors shall take place in accordance with the procurement


procedures submitted by the CONTRACTOR to the Management Committee in


accordance with Article 19.3 and approved by the Management Committee














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22 4 Tbc CONTRACTOR sbaU provide the GOVERNMENT with copies of agreements


entered into with Subcontractors, where their amount exceeds the limit set by the


Management Committee from time to time








ARTICLE 23 - PERSONNEL*TRAINING. AND IECHNOLOGICAL ASSISTANCE


Personnel


23.1 For the Petroleum Operations, the CONTRACTOR shall give, and shall require its


Subcontractors to give, preference to personnel from the Kurdistan Region and other


parts of Iraq to the extent such personnel have the technical capability, qualifications,


competence and experience required to perform the work.


23.2 The CONTRACTOR Entities shall give due consideration to the secondment of


GOVERNMENT personnel to die CONTRACTOR Entities and of the


CONTRACTOR Entities* personnel to the GOVERNMENT durinR the various


phuscs of the Petroleum Operations. Terms and conditions for such secondment shall


be mutually agreed by the Parties 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.


23.3 Each CONTRACTOR Entity and its Affiliates and Subcontractors shall have the


right to hire foreign personnel whenever the personnel from the Kurdistan Region and


other parts 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 under 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).


23.4 For the first five (5) Contract Years, the CONTRACTOR shall provide two hundred


and fifty thousand Dollars (CSS250,000) in advance each Contract Year to the


GOVERNMENT for the recruitment or secondment of personnel, whether from the


Kurdistan Region other parts of Iraq or Abroad, to the Ministry of Natural Resources


The selection of such personnel shall be at the discretion of the Minuter of Natural


Resources. Such costs shall he considered as Petroleum Costs and shall be recovered in


accordance with die provisions of Articles I and 25.


Training


23.5 In a planned wav, in accordance with the provisions of this Article 23.5 and Articles


23.6 and 23.7, the CONTRACTOR shall tram all its personnel from the Kurdistan


Region and other parts of Iraq 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 the level of knowledge and


professional qualification held by the CONTRACTOR Entities' foreign workers


with an equivalent resume. Such training shall also include the transfer of knowledge


of petroleum technology and the necessary management experience so as to enable


the personnel from the Kurdistan Region and other parts of Iraq to apply advanced








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and appropriate technology in the Petroleum Operations, to the extent permitted by


applicable Law and agreements with third parties, and subject to appropriate


confidentiality agreements.


23.6 lu addition to the requirements of Article 23.1, the recruitment, integration and


training of the CONTRACTOR Entities’ personnel from the Kurdistan Region and


other pails of Iraq shall be planned, which plans shall be submitted to the


Management Committee for its approval, fhe training plan shall take into


consideration the requirements of Article 23.5 and may include training for the


GOVERNMENT’S personnel, depending on the extent to which the amount


allocated to the training plan, as proscribed by Article 23.7, is available after taking


into consideration the training of the CONTRACTOR Entities’ Kurdistan Region


and other Iraqi personnel.


Within ninety <90) days of the Effective Date, the CONTRACTOR shall submit to


the Management Committee a proposed training plan for the remainder of the


Calendar Year. Thereafter, no later than 1 October in each Calendar Year, the


CONTRACTOR shall submit a proposed training plan to the Management


Committee for the following Calendar Year.


23.7 The training plan referred to in Article 23.6 shall provide for the allocation to the


GOVERNMENT of the amount of one hundred and fifty thousand Dollar!


(US$150,000) in advance for each Contract Year during the Exploration Penod and three


hundred thousand Dollars (USS300.000) in advance for each Contract Year during the


Development Period


23.8 Each CONTRACTOR Entity shall be responsible for the training costs which it may


incur in respect of the personnel it employs from the Kurdistan Region and other pans


of Iraq. All such reasonable costs shall be considered as Petroleum Costs and shall be


recovered in accordance with the provisions of Articles 1 and 25. Costs incurred by


the CONTRACTOR for training programs for the GOVERNMENT’S personnel


shall be borne by the CONTRACTOR only to the extent that they arc included in the


CONTRACTOR'S training plan, pursuant to Article 23.6 and shall also be


considered as Petroleum Costs and shall be recovered in accordance with the


provisions of Articles 1 and 25. The cost of all oilier training programs for the


GOVERNMENT'S personnel shall be the GOVERNMENT'S responsibility


The Environment Fund


23.9 The CONTRACTOR shall contribute the amount of ooc hundred and fifty Dollars


(L SSI 50.000) in advance each Contract Year dunng the Exploration Period and three


hundred thousand Dollars (USS300.000) in advance for each Contract Year during tte


Development Period into the environment fund established by the GOVERNMENT


for the benefit of the natural environment of the Kurdistan Region, pursuant to the


Kurdistan Region Oil and Gas Law (the "Environment Fund ’) Such amounts shall


be deemed to be Petroleum Costs and shall be recovered m accordance with Articles l and


25.

















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23.10 Any expenditure incurred by the CONTRACTOR under this Article 23 shall he


considered Petroleum Costs and shall be recovered in accordance with Articles 1 and


25.








23.11 Before the end of tlvc first Contract Year, the CONTRACTOR shall provide to the


GOVERNMENT technological and logistical assistance to the Kurdistan Region


petroleum sector, including geological computing hardware and software and such


other equipment as the Minister of Natural Resources may require, up to die value of


two million Dollars (US$2,000,000) The form of such assistance shall be mutually


agreed by the Parties and any costs associated therewith shall he considered


Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with


the provisions of Articles 1 and 25,








ARTICLE 24 - ROYALTY


24.1 The CONTRACTOR shall pay to the GOVERNMENT a portion of Petroleum


produced and saved from the Contract Area, as provided in this Article 24 (the


“Royalty”).


24.2 The Royalty shall be applied on all Petroleum produced and saved from the Contract


Area which is Crude Oil or Non-Associated Natural Gas. except for Petroleum used in


Petroleum Operations, rc-mjcctcd in a Petroleum Field, lost, flared 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


Non-Assnelated Natural Gas".


24.3 If payable in cash, the amount of the Royalty calculated by upplying the Royalty- rates


provided under Article 24.4 shall be paid by the CONTRACTOR as directed by the


GOVERNMENT, in accordance with Article 24.7.


If payable in kind, the quantity of Export Petroleum corresponding to the Royalty and


calculated by applying the Royalty rates provided under Article 24.4 shall he


delivered in kind by the CONTRACTOR to the GOVERNMENT at the Delivery


Point. I dle and risk of loss of the Royalty paid in kind shall be transferred at the


Delivery Point.


Unless the GOVERNMENT requires the Royally 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 to


have elected to receive the Royalty in full 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 Royalty rate, to the


Export Crude Oil or to the Export Non-Associated Natural Gas (as the case may be)


produced and saved on that day:


 (a) For Export Crude Oil:


the Royalty rate for Export Crude Oil shall be ten per cent (10%). which, for


the avoidance of doubt, shall apply regardless of the gravity of the oil. and





(b) For Export Non-Associated Natural Gas:


the Royalty rate for Export Non-Associated Natural Gas shall be ten per cent





(10%).





24.5 Associated Natural Gas and any other Petroleum shall be exempt from any Royalty


246 If. pursuant to Article 24 3, the GOVERNMENT receives the Royalty in kind, and


pursuant to Article 28, the GOVERNMENT requests assistance for the sale of all or


part of the Royalty received in kind, each CON 1RACTOR Entity shall assist the


GOVERNMENT in selling all or part of such Royalty received in kind (belonging to





CONTRACTOR Entity, in accordance with Article 28.


If. pursuant to Article 24.3. the GOVERNMENT receives the Royalty in cash:


24.7


(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-Associated Natural Gas shall be valued at the actual price





obtained at the Delivery Point under an approved contract, as provided in


Article 27.3;


(c) the CONTRACTOR shall 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


Id) the CONTRACTOR Entities shall be entitled to export freely the volume of


Export Petroleum corresponding to the Royalty determined in accordance with


Article 24.4 lor the purpose of paying the Royalty in cash.


ARTICLE 25 RECOVERY OF PETROLEUM COSTS





All Export Crude Oil produced and saved from the Contract Area shall, after


25.1


deduction of any quantities of Export ('rude Oil due for Royalty pursuant to Article


24, 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-injccted in a


Petroleum Field, lost, flared or cannot be used or sold, shall be considered as


Available Associated Natural Gm".








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A


 All Export Non-Associated Natural Gas produced and saved from the Contract Area


dull, after deduction of any quantities of Export Non-Associated Natural Gas due for


Royalty pursuant to Article 24. be considered as "Available Non-A*soclated Natural


Gas”





‘Available Petroleum” means Available Crude Oil. Available Associated Natural


Gas and Available Non-Associated 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 in Article 27.2; and


(b) any Available Associated Natural Gas and any Available Son-Associated


Natural Gas shall be valued at the actual price obtained at the Delivery Point


under an approved contract, as provided in Article 27.3.


25.3 Subject to the provisions of this Contract, from the First Production in the Contract


Area, the CONTRACTOR shall at all times be entitled to recover all Petroleum


Costs incurred under this Contract, of up to forty per cent (40%) 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 within any Calendar Year.


Available ( rude Oil above this percentage or otherwise not used for the recovery of


Petroleum Costs shall be Profit Crude Oil


25 4 Subject to the provisions of this Contract, from First Production in the Contract Area,


the CONTRACTOR shall at all times be entitled to recover all Petroleum Costs


incurred under this Contract of up to fifty per cent (50%) of Available Non-


Associatcd Natural Gas produced and saved within any Calendar Year. Available


Non-Assoeiatcd Natural Gas above this percentage or otherwise not used for the


recovery of Petroleum Costs shall be Profit Natural Gas.


25.5 For the application of Article 25.3 and 25.4, the CONTRACTOR shall keep a


detailed account of Petroleum Costs in accordance with the provisions detailed in the


Accounting Procedure. 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) Gas Marketing Costs;


(d) Development Costs; and


(c) Decommissioning Costs.


25.6 Total recovery of Petroleum Costs during any Calendar Year, expressed in 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-








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Associated Natural Gas do not allow the CONTRACTOR to recover ail its


Petroleum Costs pursuant to this Article 25. the amount of un-recovered Petroleum


Costs in such Calendar Year shall be carried forward indefinitely to the subsequent


Calendar Years until all Petroleum Costs are fully recovered, but. save as provided in


Articles 14.10 and 38.4. in do other case after the termination of the Contract


25.7 The 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 Gas due to the


CONTRACTOR for the recovery of its Petroleum Costs.


25.8 The quantities of Petroleum corresponding to the share of Available Petroleum due to


the CONTRACTOR for the recovery of its Petroleum Costs shall be delivered to the


CONTRACTOR at the Delivery Point Title and risk of loss of such Available


Petroleum shall be transferred at the Delivery Point.


25.9 Each CONTRACTOR Entity shall he entitled to receive, take in kind and to export


freely all Available Petroleum to which it is entitled for recovery of its Petroleum


Costs in accordance w ith the provisions of this Contract and to retain Abroad any


proceeds from the sale of all such Available Petroleum. Petroleum Costs in each


Production /Area shall be recovered from Available Petroleum from the Contract .-Area.


25.10 Subject to Article 38.4. for the avoidance of doubt. Petroleum Costs under this


Contract arc not recoverable against other contract areas held by the


CONTRACTOR.








ARTICLE 26 - SHARING OF PROFIT PETROLEUM


26.1 Under this Contract.


(a) "Profit Petroleum" means Profit Crude Oil and Profit Natural Gas;


(b) ‘‘Profit Crude Oil means the quantities of Available Crude Oil and


Available Associated Natural Gas produced from the Contract Area, after the


recovery of Petroleum Costs, in accordance with Articles I and 25; and


(c) "Profit Natural Gas" means the quantities of Available Non-Associated


Natural Gas produced from the Contract Area, after the recovery of Petroleum


Costs in accordance with Articles l and 25.


26.2 From First Production and as and when Petroleum is being produced, the


CONTRACTOR shall be entitled to take a percentage share of Profit Crude Oil


andor 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 andor 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 to the Contract Area.








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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 C umulative Costs actually incurred by the CONTRACTOR


For the purpose of this Article 26.4:


"Cumulative Revenues” means total Revenues, as defined below, received by the


CONTRACTOR until the end of the relevant Semester, determined in accordance


with Article 26.7.


"Revenues" means the total amount Hcluiilly received by the CONTRACTOR for


recovery of its Petroleum Costs and its share of Profit Petroleum in the Contract Area.


"Cumulative Costs" means all Petroleum Costs actually incurred pursuant to this


Contract by the CONTRACTOR until the end of the relevant Semester, determined


in accordance with Article 26.7.


Notwithstanding the foregoing provisions of this Article 26.4, for the period from


First Production until the end of the Calendar Year in which First Production occurs,


the "R” Factor shall be deemed to be less than one (l).


26.5 live share of Profit Petroleum to which the CONTRACTOR shall be 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 below to the daily volume


of production of Profit ('rude Oil within the Contract Area at the


corresponding Delivery Point:


~R” F actor CONTRACTOR * % Share of Profit < rude OU


R < or = 1 30%


1 < R< or = 2 30% - (30% • 15%) x (R-l)


R > 2 15%


and


(b) for Profit Natural Gas. equal to the quantities of Non-Associated Natural Gas


resulting from the application of the relevant percentage as indicated below to


the daily volume of production of Profit Natural Gas within the Contract Area


at the corresponding Delivery Point











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 R" Factor CONTRACTOR’* % Share of Profit Natural Gas





R < or - I 40%


1 < R< or = 2 40% - (40% - 20%) x (R-1.0000)


R >2 20%





26.6 The CONTRACTOR’S accounting shall account separately for all components for


the calculation of “X" and “Y” values in die formula provided in Article 26.4.


26.7 For each Semester, starting from the 111 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 ami including the last day of the preceding


Semester.


If the CONT RACTOR is unable to calculate the “R” Factor for the relevant


Semester before an allocation of Profit Petroleum for such Semester must be made,


then the allocation of Profit Petroleum for the previous Semester shall he used for the


relevant Semester. Upon the calculation of the "R” Factor for the relevant Semester:


(a) if the allocation of Profit Petroleum in the previous Semester and the relevant


Semester is the same, then no adjustment shall be made; and


(b) if the allocation of the Profit Petroleum in tbc two Semesters is difFcrcnt. then


the CONTRACTOR shall make any adjustments to the Parties' respective


shares of Profit Petroleum to restore them to tbc position that they would have


been m had the “R" Factor for the relevant Semester been available from the


start of such Semester.


26.X If at any time an error occurs in the calculation of the “R" Factor, resulting in a


change in the CONTRACTOR’S percentage share of Profit Crude Oil andor Profit


Natural Gas. the necessary correction shall be made and any adjustments shall apply


from the Semester in which the error occurred. The Party having benefited from a


surplus of Profit Petroleum shall surrender such surplus to the other Party, beginning


from the first day of the Semester following the Semester in which the cnor was


recognised. However, each bfting of Petroleum relating to such cnor by the Party


receiving the surplus shall not exceed twenty-five per cent (25%) of the share of Profit


Petroleum to which such surrendering Party’ is entitled. For tbc avoidance of doubt, if


at any time an error occurs in the calculation of the “R” Factor, which docs 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.


26.9 The quantities of Profit Petroleum due to the CONTRACTOR shall be delivered to


tbc CONTRACTOR Entities at the Delivery Point. Title and risk of loss of such


Profit Petroleum shall be transferred to the CONTRACTOR Entities at the Delivery-


Point.








Kf


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>


Each CONTRACTOR Entity 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 from the sale of all such Profit Petroleum.


26.10 The share of the Profit Petroleum to which the GOVERNMENT is entitled in any


Calendar Year in accordance with Article 26.5 shall be deemed to include a portion


representing the corporate income tax imposed upon and due by each


CONTRACTOR Entity, and which will be paid directly by the GOVERNMEN T on


behalf of each such entity representing the CON TRACTOR to the appropriate tax


authorities in accordance with Article 31.2. The GOVERNMENT shall provide (he


CONTRACTOR Entities with all written documentation and evidence reasonably


required by the CONTRACTOR Entities 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 die Delivery Point. Title and risk of loss of such Profit


Petroleum shall be transferred at die Delivery Point.


26.12 At least twenty-one (21) days prior to CONTRACTOR’S estimated date of First


Production and, subsequently, thirty (30) days prior to the beginning of each


Semester, the CONTRACTOR shall prepare and deliver to the GOVERNMENT a


production program comprising the production forecast for the next Semester and the


forecast of the quantities of Cmdc Oil and Natural Gas to which each Party shall be


entitled during the said Semester.


26.13 Within ninety (90) days following the end of each Calendar Year, the


CONTRACTOR shall prepare and deliver an annual production report to the


GOVERNMENT, stating the quantities of Crude Oil and Natural Gas to w hich each


Party is entitled, the quantities of Crude Oil and Natural Gas lifted by each Party and


the resulting over-lift or under-lift position of each Party, pursuant to the lifting


agreement entered into pursuant to Article 16.14.


26.14 Any costs or expenditure incurred by the CONTRACTOR, its Subcontractors or


suppliers relating to the lifting of the GOVERNMENT’S share of Petroleum by the


CONTRACTOR shall not be considered Petroleum Costs and shall be charged to the


GOVERNMENT according to terms to be mutually agreed between the


CONTRACTOR and the GOVERNMENT








ARTICLE 27 - VALUATION AM) METERING OK CRUDE OIL AND NATURAL


GAS





Valuation





27.1 For the purpose of this Contract, any Crude Oil produced in the Contract Area shall be


valued at the end of each Quarter at the Delivery Point based on the International


Market Price, as defined in Article 27.2.


27.2 The "International Market Price" referred to in Article 27.1 shall be the weighted


average price per Barrel, expressed in Dollars, obtained by the CONTRACTOR at











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 the Delivery Point, by netback if necessary, during the Quarter ending on the date of


valuation for Arm’s Length Sales of Crude Oil





The CONTRACTOR shall provide evidence to the GOVERNMENT that the sales


of 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 GOVERNMENT has the right to refer the matter to an


expert pursuant to Article 42.2.


In the event that there is no lifting of Crude Oil in the relevant Quarter or no Ann's


Length Sales, the applicable "International Market Price" for such Quarter shall be


the weighted average pnee per Barrel obtained during that Quarter from Arm’s


Length Sales of Crude Oil of the same or similar gravity and quality from other


production areas sold in markets competing with Crude Oil produced from the


Contract Area, taking into account gravity and quality differences and transportation


and other post Delivery Point costs.


To determine such pnee. the Parries shall, pnor to the commencement of Production,


agree on a hackel of Crude Oil comparable to those produced in the Contract Area and


sold in the international market. Prices obtained shall be adjusted to account for any


vinalions such as quality, specific gravity, sulphur content, transportation costs,


product yield, seasonal variations in price and demand, general market trends and


other terms of sale.


27.3 The pnee of Natural Gas shall be the actual pnee obtained at the Delivery Point,


(which may take into account quantifies to be Mild, quality, geographic location of


markets to be supplied us well as costs of production, transportation and distribution


of Natural Gas from the Delivery Point to the relevant market, in accordance with


standard international petroleum industry practice). The GOVERNMENT shall have


the right to review and approve Natural Gas sales contracts.


Accounting Statement


27.4 In accordance with tins Article 27.4, the GOVERNMENT and the CONTRACTOR


shall establish a statement showing calculations of the value of Petroleum produced


and sold from the Contract Area. Such statement shall include following information:


(a) quantities of Crude Oil sold by the CONTRACTOR Entities during the


preceding Month constituting Arm's Length Sales together with corresponding


sale prices;


(b) quantities of Crude Oil sold by the CONTRACTOR Entities during the


preceding Month that do not fall in the category referred to in paragraph (a)


above, together with sale prices applied during such Month,


(c) inventory in storage belonging to the CONTRACTOR Entities at the


beginning and at the end of the Month; and


(d) quantities of Natural (ins sold by the CONTRACTOR Entities and the


GOVERNMENT together with sale prices realised.








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Metering





27.5 All Export Petroleum shall be metered at the Delivery Point in accordance with


prudent international petroleum industry practice and such meters shall be to fiscal


meter standards. All metering equipment shall be installed and operated by the


CONTRACTOR. The GOVERNMENT shall, on receipt by the CONTRACTOR


of reasonable prior written notice, have the right to inspect any such metering


equipment installed by the CONTRACTOR, as well as all relevant documents and


supporting information reasonably necessary to validate the accuracy of such


metering. All metering equipment shall be subject to periodic technical inspections in


accordance with pnident international petroleum industry practice.


27.6 If any metering equipment is defective, the CONTRACTOR shall use all reasonable


endeavours to repair it within fifteen (15) day* or, if deemed necessary by the


CONTRACTOR, replace it as soon as reasonably practicable from the date the


defect became known Hie “Adjustment Date" shall be die last date that the


metering equipment was known or agreed to have been measuring correctly, or if not


known or agreed, the date that is midway between the date the defect was discovered


and the last date the equipment wus known to have measured correctly The results


from the defective equipment shall be disregarded for the period from the Adjustment


Dute until the date the defective equipment is repaired or replaced and the


measurement for such period shall be estimated:


(a) if check measuring equipment is installed and registering accurately, then by


using the measurements recorded by such check measuring equipment;


(b) if check measuring equipment is not installed or not registering accurately,


then by correcting the error if the percentage of error is ascertainable by


verification, calibration or mathematical calculation; or


(c) if neither method is feasible, then by estimating the volume and or quantity


delivered based on deliveries during the preceding comparable period of time


when the metering equipment was registered accurately.


27.7 Any disputes arising under this Article 27 shall be settled by expert detemunanon in


accordance with the provisions of Article 42.2.


ARI1CLE 28 - SALE OF GOV ERNMENT SHARE


Upon the GOVERNMENT’S prior written notice of at least ninety (90) days, each


CONTRACTOR Entity 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 Band to be


established with reference to prudent international petroleum practice and to be mutually


agreed upon between the Parties.

















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 ARTICLE 29 - FINANCIAL PROVISIONS





29.1 Any payment to be made by a CONTRACTOR Entity to the GOVERNMENT


pursuant to this Contract shall be in Dollars and shall be offset against any


outstanding payments due by the GOVERNMENT to the CONTRACTOR Entity,


or paid into the 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 LIBOR plus two (2) percentage points shall be applied.


29.2 The GOVERNMENT may. at its sole discretion, direct die CONTRACTOR


Entities to pay:


(a) any Royalty in cash due to the GOVERNMENT pursuant to the provisions of


Article 24; and/or


(b) any proceeds from the sale undertaken by the CONTRACTOR Entity on


behalf of die GOVERNMENT pursuant to Article 28 of any Crude Oil to


which the GOVERNMEN T is entitled pursuant to Article 25; and/or


(c) any Production Bonus,


to a fund for revenue sharing, which may in due course be established by legislation


consistent with the Constitution of Iraq, between the Government of Iraq and other


regions (including the Kurdistan Region) and govemorates of Iraq. Nothing in this


Article 29.2 shall be understood as implying any contractual relationship or other


relationship between the CONTRACTOR and'or any CONTRACTOR Entity and


the Government of Iraq and'or the regions of Iraq (other than the Kurdistan Region)


indor and govemorates of Iraq


29.3 Any payment due by the GOVERNMENT to a CONTRACTOR Entity shall be


offset against furure payments due by such CONTRACTOR Entity to the


GOVERNMENT, or paid in Dollars to the bank account designated by the


CONTRACTOR Entity m WTiting and shall be paid within thirty (30) days of the


date of invoice, after which interest compounded monthly at the rate of LIBOR plus


two (2) percentage points shall be applied.


29.4 Any currency' conversion to be made under this Contract shall be at the exchange rate


of the Central Bank of Iraq, provided such exchange rate applied to the


CONTRACTOR Entities shall Dot 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 rate, any currency conversion to be made under this


Contract shall be at the exchange rate of a reputable commercial hank carrying on


business in the international market and approved by the Parties.


29.5 The CONTRACT OR shall not realise any gain or loss due to exchange rate


fluctuations and. consequently, any gain or loss resulting from the exchange of


currency shall be either considered as revenue and credited to the Accounts or shall be


considered as a Petroleum Cost and shall be recovered by the CONTRACTOR in


accordance with Articles 1 and 25, as the case may be.








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29 6 Each CONTRACTOR Entity shall at all tiroes be entitled to freely convert into


Oillars or any other foreign currency any Iraqi dinars received in the framework of


the Petroleum Operations and to freely transfer the same Abroad The conversion rate


shall be as provided under Article 29.4.


29 7 Each CONTRACTOR Entity shall have the right to be paid, receive, keep, transfer


and use Abroad, without any restrictions, all proceeds of its share of Petroleum


298 Each CONTRACTOR homy and its Subconsactors shall have the right to freely


open and maintain hank accounts for Petroleum Operations within or outside the


Kurdistan Region and other parts of Iraq.


29.9 Each CONTRACTOR Entity 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 bank in the Kurdistan Region or other parts of


Iraq, at the same exchange rate as provided under Article 29.4.


29.10 Each CONTRACTOR Entity shall have the nght. w ithout any restrictions, to freely


repatriate Abroad and to freely dispose of:


(m) any proceeds received a the Kurdistan Region or other parts of Iraq from the


tale of Petroleum,


lb) any proceeds received from other operations and activities earned out under


this Contract in the Kurdistan Region or other parts of Iraq


29:11 Each CONTRACTOR Entity shall have the nght to pay in any foreign currency its


Subcontractors and its expatriate personnel, either m the Kurdistan Region, other parts


of Iraq, or Abroad. Said Subcontractors and expatriate personnel shall be obliged to


transfer to the Kurdistan Region the amount of foreign currency required for their


local needs and they shall have the right to repatriate the proceeds of the sale of their


belongings in accordance with the regulations in force in the Kurdistan Region.


29 12 Each CONTRACTOR Entity's Affiliates. Subcontractors and their personnel shall


equally benefit from the same rights as such CONTRACTOR Entity and its


personnel as regards this Article 29.


29.13 For the financing of Petroleum Operations, each CONTRACTOR Entity shall have


the right to have recourse to external financing from third panic or from its Affiliated


Companies on an arm's length basis


ARTICLE 38 - CUSTOMS PROVISIONS


30.1 All services, material, eqiupment. goods, consumables and product* imported into the


Kurdistan Region and ocher parts of Iraq by the CONTRACTOR, any


CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of any of the


foregoing, for use or consumption in the Petroleum Operations shall he admitted free


and exempt from any and all Taxes on import The CONTRACTOR, any


CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of any of the


foregoing shall have the nght to re export from the Kurdistan Region and other parts








66 M 17


of Iraq free from all Taxes on export any material, equipment, goods, consumables


and products that arc 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.


30.2 The CONTRACTOR, any CONTRACTOR Entity, its Affiliates, any Subcontractor


or any agent of any of the foregoing, and their personnel (including their family


members) shall have the right to freely import into the Kurdistan Region and other


parts of Iraq and re-export from the Kurdistan Region and other pails of Iraq any


personal belongings and furniture free and exempt from any Taxes on import or


export. The sale in the Kurdistan Region and other parts of Iraq of personal


belongings and furniture of expatriate personnel shall comply with Kurdistan Region


Law.


30 3 Each CONTRACTOR Entity and its Affiliates shall be entitled to freely export from


the Kurdistan Region and other parts of Iraq, free of any Taxes, any Petroleum to


which it is entitled pursuant to the provisions of this Contract.


30 4 rhe GOVERNMENT shall indemnify the CONTRACTOR, any CONTRACTOR


Entity, its Affiliates, any Subcontractor or any agent of any of the foregoing, and their


personnel (including their family members) for any import or export Taxes refereed to


in Articles 30.1. 30.2 or 30.3.


ARTICLE 31 - TAX PROVISIONS


31.1 Except as expressly provided in this Article 31, nnd without prejudice to the


exemptions expressly provided for in Article 30 and m this Article 31, each


CONTRACTOR Entity, its Affiliates and any Subcontractor shall, for the entire


duration of this Contract, be exempt from all Taxes as a result of its income, assets


and activities under this Contract. The GOVERNMENT shall indemnify each


CONTRACTOR Entity upon demand against any liability to pay any Taxes 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 to 31.11.


31.2 Each CONTRACTOR Entity shall be subject to corporate income tax on its income


from Petroleum Operations as provided in Article 31.3, which shall be deemed to be


inclusive and in full und total discharge of any Tax on income, receipts, revenues,


gains or profits of each such entity. Payment of the said corporate income tax shall be


made for the entire duration of this Contract directly to the official Kurdistan Region


lax authorities by the GOVERNMENT, for the account of each CONTRACTOR


Entity, from the GOVERNMENT'S share of the Profit Petroleum received pursuant


to Article 26.


Each CONTRACTOR Entity shall, within sixty (60) days after the end of each tax


year, provide a statement to the appropriate Kurdistan Region tax authorities of its


profits which are subject to corporate income tax, together with a calculation of the


amount of corporate income tax due on those profits.











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The GOVERNMENT shall, within ninety (90) days after the end of each tax year,


provide to each CONTRACTOR Entity (i) die appropriate official tax receipts from


the appropriate Kurdistan Region tax authorities or other relevant authority certifying


the payment of its corporate income tax, as determined in the said statement- and that


such entity has met all its Tax obligations in the preceding tax year, and (ii) a copy of


any return or other filing made by the GOVERNMENT in respect of its payment of


corporate income tax on behalf of such CONTRACTOR Entity.


313 For the purposes of Article 31.2:


(a) The rate of corporate income tax to be applied to each CONTRACTOR


Entity shall be the generally applicable rate prescribed in the Law of Taxation


(Ijiw No. 5 of 1999), passed by the National Assembly of the Kurdistan


Region, as has been amended by Law No. 26 of 2007, and as may be amended


from time to time or substituted in respect of Petroleum Operations (as defined


under the Kurdistan Region Oil and Gas Law) by a petroleum operations


taxation law for the Kurdistan Region, but in no event in excess of forty per


cent (-10%). The Parties acknowledge and agree that at the Effective Date of


this Contract, the corporate income tax rate is fifteen per cent (15%) for all net


taxable profits.


(b) The GOVERNMENT and the CONTRACTOR agree that corporate income


tax shall be calculated for each CONTRACTOR Entity on its net taxable


profits under the Contract, as calculated in accordance widi the provisions


relating thereto in the Accounting Procedure.


31.4 I ach CONTRACTOR Entity, its Affiliates as well as any Subcontractors shall be


exempt from any withholding tax applicable on any payments made to them or by


them to or from Affiliates or third parties, whether inside or outside the Kurdistan


Region and or Iraq, for the entire duration of this Contract


31.5 Each CONTRACTOR Entity and its Affiliates shall be exempt from Additional


Profits Tax. as referred to in Article 40 of the Kurdistan Region Oil and Gas Law or


anv successor Tax.





31.6 Each CONTRACTOR Entity and its Affiliates shall be exempt from Surface Tax. as


referred to in Article 40 of the Kurdistan Region Oil and Gas Law or any successor


Tax.


31.7 Each CONTRACTOR Entity and its Affiliates shall be exempt from Windfall Profits


Taxes, as referred to in .Article 40 of the Kurdistan Region Oil and Gas Law or any


successor Tax.


31.8 Each CONTRACTOR Entity and any Subcontractor shall be subject to the payment


or withholding of the personal income tax and social security contributions for which


such entity' or Subcontractor is liable to pay or withhold in respect of its employees


who are Iraqi nationals, pursuant to the Law of Taxation (Law No. 5 of 1999) passed


by the National Assembly of the Kurdistan Region, as may be amended from time to


time, in the same manner as the same shall be generally applied to all other industries,








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except that a CONTRACTOR Entity or Subcontractor shall not be liable for such


taxes or contributions with respect to employees of another Person.





$1.9 It is acknowledged that double tax treaties will have effect to give relief from taxes to,


but not limited to, the CONTRACTOR CONTRACTOR Entities, Subcontractors


and employees and other Persons in accordance with the provisions of such double


tax treaties, but shall not impose an additional burden of taxation.





11 10 Any value added tax (“VAT”) shall be considered as a Petroleum Cost and shall be


cost recovered in accordance with the provisions of Articles I and 25.


3111 Any value added tax ("VAT*), not otherwise recoverable by the CONTRACTOR


under VAT law, shall be considered as a Petroleum Cost and shall be cost recovered


in accordance with the provisions of Articles 1 and 25.


3112 Notwithstanding any other provision to the contrary m this Contract, the Parties


acknowledge and agree that the provisions of this Article 31 shall apply individually


and separately to all CONTRACTOR Entities under this Contract and that there shall


be no joint and several liability in respect of any liability, duty or obligation referred


to in this Article 31.











ARIICLE 32 BONUSES





Sanaa flmuu


32.1 A signature bonus of five million Dollars (US$5,000,000) ("Signature Bonus") shall


he payable to the GOVERNMENT by KOREA NATIONAL OIL


CORPORATION on or before the Effective Dale


< apacltv Building Bonus





32.2 A capacity building bonus of forty-five million Dollars (USS45.000.000) ("Capacity


Building Bonus") shall be payable to the GOVERNMENT by KOREA


NATIONAL OIL CORPORATION on or before the Effective Dale








Production Bonuses


32 3 In the event of a Crude Oil Commercial Discovery, the CONTRACTOR and the


bolder of the Government Interest shall pay, pro rau the relevant percentage


participation interest in the Contract, the following relevant Crude Oil Production


Bonus to the GOVERNMENT within thirty (30) days of the following relevant





(a) two million five hundred thousand Dollars (US S2.500.000) when First


Production of Crude Oil from the Contract Area commences.





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 (b> five million Dollar. (US $5.000,(XX)) when production of Crude Oil front the





Oil (10 inmbo);


(c) ten million Dollars (l,’S S10,(XX).000) when production of Crude Oil &um the


Contract Area reaches a cumulative amount of twenty five million Barrels of


Crude OU (25 mmho); and


(d) twenty million Dollars (US $20,000,(KX)) when production of Crude Oil from





the Contract Area reaches a cumulative amount of fifty million Barrels of


Crude Oil (50 mmho),





32.4 In the event of a Non-AMociatcd Nutural Gas Commercial Discovery, the


CONTRACTOR and the holder of the Government Interest shall pay, pro rata the


relevant percentage participation interest in the Contract, the following relevant Non-


Avsociatcd Natural Gas Production Bonus to the GOVERNMENT within thirty’ (30)


days of the following relevant occurrence


(a) two million five hundred thousand Dollars (US $2,500,000) when First


Production of Non-Auociated Natural Gas from the Contract Area


commences;


(b) five million Dollars (US $5,000,000) when production of Non-Associated


Natural Gas from the Contract Area reaches a cumulative amount of ten


million barrels of oil equivalent (10 mmboe);


(c) ten million Dollars (US $10,000,000) aha production of Noo-Associated


Natural Gas from the Contract Area reaches a cumulative amount of twenty


five million barrels of oil equivalent (25 mmboe); and


(d) twenty million Dollars (US $20,000,000) when production of Non-Associated


Natural Gas from the Contract Area reaches a cumulative amount of fifty


million barrels of oil equivalent (50 mmboe).


32.5 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-


Associated Gas Commercial Discov ery and under no circumstances shall a Production


Bonus be due in respect of both Crude Oil and Non-Associated Natural Gas for the


same Commercial Discovery.


Bonus cost recovery and pay ment





32.6 No bonus due pursuant to this Article 32 shall be deemed to be a Petroleum Cost


32.7 Payment by the CONTRACTOR (and. where applicable, the bolder of the


Government Interest) of any bonus (hie pursuant to this Article 32 shall be made in


Dollars by wire transfer to a specified bank account of the GOVERNMENT or by


banker s draft and on receipt thereof the GOVERNMENT shall forthwith issue a


written receipt to the CONTRACTOR duly executed by the Munster of Natural











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A





 Resources of the GOVERNMENT or such other ollicer of the GOVERNMENT


who shall be duly authorised to issue such receipt under Kurdistan Region Law





ARTICLE 33 - PIPELINES


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


easement rights for the construction of any pipelines and related facilities required for


the Petroleum Operations, as provided in Article 33.2


33 2 The GOVERNMENT undertakes to transfer to the CONTRACTOR its nght* for


transportation of Petroleum by pipeline rhe CONTRACTOR shall have the nght to


design, construct, operate and maintain pipelines and any related facilities for the


transportation of Petroleum produced under this CootracL


33.3 Pnor to the construction of any pipeline and related facilities as provided in Article


33.2. the CONTRACTOR shall submit following information to the Management


Committee:


(a) proposed pipeline route and related facilities;


(b) forecasted pipeline flow rate and capacity.


(C) estimate of financial investment and operating costs of the pipeline and related


facilities:


(d) proposed financing schedule.


(e) construction schedule.


<0 genera! technical description of the pipeline and related facilities.


(g) construction plans and tests;


(h) preventive measures for damage to the environment and third parties, and


(i) any other information relating to the pipeline project


The Management Committee shall examine all the above information and shall within


ninety (90) days, approve the proposed pipeline project m accordance with the


provisions of Article 8.5


33.4 Subject to spare capacity being available and to their Petroleum being compatible,


third parties shall be entitled to transport their Petroleum through any pipeline


constructed by the CONTRACTOR in accordance with this Article 33 on terms to be


agreed between the CONTRACTOR and such third party. Those terms shall be


reasonable commercial terms and shall not discriminate among third party users The


CONTRACTOR shall always have priority of access to such pipelines











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33.5 To the extent that they arc incurred upstream of the Delivery Point, any costs


associated with the design, construction, operation and maintenance of the pipelines


and related facilities by CONTRACTOR under tins Article 33 (“Pipeline Costs")


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


in accordance with the provisions of Articles 1 mid 25.


33.6 The CONTRACTOR shall have the absolute right, without any exceptions and for


the entire duration of this Contract, to use, free of charge, any pipeline and related


facilities constructed by CONTRACTOR under this Article 33 and to transport


Petroleum produced from any Production Area and to operate and maintain any


pipeline and its related facilities, freely and without any additional costs.


33.7 To the extent related to transportation upstream of the Delivery Point, any tariffs


received from third parties for use of any pipeline and related facilities by


CONTRACTOR under this Article 33 shall be applied to the recovery of Petroleum


Costs until all Pipeline Costs have been fully recovered by the CONTRACTOR


pursuant to the provisions of .Articles I and 25 and shall not be included in income for


corporate income tax purposes. The GOVERNMENT shall be entitled to receive


any such tariffs from third parties for their use of such pipeline and related facilities


when the said Pipeline Costs have been frilly recovered by the CONTRACTOR. The


costs associated with providing such transportation services for third parties up to the


Deliver)’ Point 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 be borne by the


CONTRACTOR and shall be considered Petroleum Costs and shall be recovered by


the CONTRACTOR in accordance with the provisions of Articles 1 and 25.


33.9 The GOVERNMENT shall have the same rights as the CONTRACTOR for use.


free of charge, of any pipeline and related facilities constructed by CONTRACTOR


under this Article 33 for the transportation of the share of Petroleum to which the


GOVERNMENT is entitled under this Contract up to the Delivery Point, provided


that where the GOVERNMENT is participating in its capacity as a CONTRACTOR


Entity pursuant to Article 4. it shall be liable for its share of Petroleum Costs.


33.10 The CONTRACTOR shall bear the cost of operaUon 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 arc required for Petroleum Operations.


ARTICLE 34 - UNIT IS All ON


34.1 In the e\ ent a Reservoir extends beyond the Contract Area into an adjacent area which


is the subject of another Petroleum Contract (as defined by the Kurdistan Region Od


and Gas Law) (an "Adjacent Contract Area 'X or in the event a Reservoir of an


Adjacent Contract Area extends into the Contract Area, the provisions of Article 47.


Paragraph Second of the Kurdistan Region Oil and Gas Law shall apply and the





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CfOVERNMfcNT shall require the CONTRACTOR and the contractor of the


of the unitisation of the Reservoir. which terms shall be baaed on reliable technical,


operational and economical parameters, all in accordance with prudent international


petroleum industry practice In the event that the Minister of Natural Resources


decides the uniusation pursuant to Article 47, Paragraph Third of the Kurdistan


Region Oil and Gas Law. and if the CONTRACTOR docs not agree with the


decision of the Minister or Natural Resources, the CONTRACTOR shall be entitled


to arbitration pursuant to the provisions of Article 42.1.


34.2 For clarification and the avoidance of doubt and notwithstanding Article 47 of the


Kurdistan Region Oil and Gas Law, in the event that a Reservoir extends beyond the


boundaries of the Contract Area into an adjacent area which is not the subject of


another Petroleum Contract (as defined by the Kurdistan Region Oil and Cius Law),


the GOVERNMENT shall, upon the CONTRACTOR’S request, take the necessary


steps to extend the boundaries of Contract Area so as to include the entire Reservoir


within the Contract Area, provided that the CONTRACTOR can offer the


GOVERNMENT a competitive minimum work program for such adjacent area








ARTICLE 35 - LIABILITY AND INSURANCE





Liability


35.1 Subject to the other provisions of this Contract, the C ON TRACTOR, in iU capacity


as the cuuty responsible foe the execution of the Petroleum Operations within the


Contract Area, shall be liable to third parties to the extent provided under applicable


law foe any losses and damage it may cause to them in cuoductmg the Petroleum


Operations, and defend, indemnify and hold harmless the GOVERNMENT


with respect to all claims for such loss or damage.


35.2 Notwithstanding the other provision* of this Contract, the CONTRACTOR and the


CONTRACTOR Entities shall not be liable to the GOVERNMENT or the Public


Company or other government agencies, authorities or bodies, courts or political


subdivisions for any damage or loss or claims of any kind resulting from its conduct


of the Petroleum Operation* unless such damage or loss is the result of wilful


misconduct or a material failure to conduct Petroleum Operations in accordance with


the tains of this Contract; provided, however, that such liability cannot result in the


event of any omissions, errors or mistakes committed in gmxl fmth by the


CONTRACTOR in the exercise of the powers and authorisation* con fen cd upon the


CONTRACTOR by virtue of this Contract, and further provided that in no event


*h.ill the CONTRACTOR and the CONTRACTOR Entities be liable for any


indirect or consequential loss or damage whatsoever or any loss, damages, costs,


expenses or liabilities caused (directly or indirectly) by any of the following ansing


out of. relating to. or connected wnth this Contract or the Petroleum Operations earned


out under this Contract (i) reservoir or formation damage; 00 inability to produce,


use or dispose of Petroleum, (m) loss or deferment of income; (iv) special or punitive


damages, or (v) ocher indirect damages or losses whether or not similar to the














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'5 3 The CONTRACTOR shall indemnify and hold harmless the GOVERNMENT


against all losses, damages and liability insing 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, for


personal injuries, industrial illness, death or damage to personal property sustained in


connection with, related to or arising out of the performance or non-pcrformancc of


this Contract regardless of the fault or negligence in whole or in party of any entity oi


individual.


35.4 Notwithstanding Article 35.1. the GOVERNMENT shall indemnify and hold


harmless the CONTRACTOR and the CONTRACTOR Entities against all losses,


damages and liability arising under any claim, demand, action or proceeding brought


or instituted against the CONTRACTOR or any CONTRACTOR Entity by any


employee of the GOVERNMENT or of any Public Company or of any subcontractor


of the foregoing or by any dependent of any such employee, for personal injuries,


industrial illness, death or damage to personal property sustained in connection with,


related to or arising out of the performance or non-performance of this Contract


regardless of the fault or negligence in whole or in part of any entity or individual


35.5 The CONTRACTOR shall take all necessary steps to respond to. and shall promptly





notify the GOVERNMENT of. all emergency and other events (including


explosions, leaks and spills), occurring in relation to the Petroleum Operations which


arc causing or likely to cause material environmental damage or material risk to


health and safety. Such notice shall include a summary description of the


circumstances and steps taken and planned by the CONTRACTOR to control and


remedy the situation. The CON IK ACT OK shall provide such additional reports to


the GOVERNMENT as are reasonably necessary in respect of the effects of such


events and the course of all actions taken to prevent further loss and to mitigate


deleterious effects.


35 6 In the event of emergency situations as set out in Article 35.4 . at the request of the





CONTRACTOR, the GOVERNMENT, without prejudice and in addition to any


indemnification obligations the GOVERNMENT may have, shall assist the


CONTRACTOR, to the extent possible, in any emergency response, remedial or


repair effort by making available any labour, materials and equipment in reasonable


quantities requested by the CONTRACTOR which are not otherwise readily


available to the CONTRACTOR and by facilitating the measures taken by the


CONTRACTOR to bong 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 GOVERNMENTS reasonable and


necessary costs incurred in such efforts, which reimbursed amount* shall be


considered Petroleum Costs and shall be recovered by the CONTRACTOR in


accordance with the provisions of Articles I and 25.


35.7 The GOVERNMENT shall indemnify and hold harmless the CONTRACTOR and





each CONTRACTOR fnoty from and against all costs (including legal costs)


expenses, losses, damages and liability which such Person may suffer or incur, or


may result from such Person being denied, hindered or prevented from fully


exercising its rights or taking the full benefit of Articles 29.4. and 29 6 to 29.11








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Insurance





35 8 In accordance with prudent international petroleum industry practice, each


CONTRACTOR Entity shall maintain any insurance required by applicable


Kurdistan Region Law, as well aa any insurance approved by the Management


Committee.


Such insurance policies may cover:


(a) loss of mid damage to material and equipment used in the Petroleum


Operations; and





(b) personal injury, damage to third parlies and risks of pollution associated with


Petroleum Operations for reasonable amounts, within the limits approved by


the Management Committee





35.9 Any insurance policy relating to this Contract shall name the GOVERNMENT as an


additional insured party and shall include a waiver of subrogation protecting the


GOVERNMKNI against any claim, loss and damage resulting from any Petroleum


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. The CONTRACTOR shall not be liable for and shall not purchase


insurance cover for any claims arising from negligence or wilful misconduct of die


GOVERNMENT or of any Public Company or of any of its or their subcontractors


or of any personnel of any of the foregoing


35.10 Upon its written request, the GOV ERNMENT shall be provided with insurance


certificates, including necessary details, for any insurance policy maintained by the


CONTRACTOR which relates to this Contract


35 11 Each CON I KACTOR Entity shall be responsible for the filing of all claims nude


under any insurance policy maintained by such CONTRACTOR Entity which relates


to this Contract Any premiums and payments relating to such insurance policies shall


be considered Petroleum Costs and shall be recovered by the CONTRACTOR m








35.12 In any insurance policy maintained by a CONTRACTOR Entity which relates to this


Contract the amount for which the CONTRACTOR itself is liable (the Deductible


Amount") shall be reasonably determined between the CONTRACTOR Entity and


(he insurer and .such Deductible Amount shall in the event ol tiny insurance claim he


considered a Petroleum Cost and shall be recovered by the CONTRACTOR in


accordance with the prov isions of Articles I and 25.








ARTICLE 36 - LNFORV1A I ION .AND CONFIDENTI Al II V





36.1 The CONTRACTOR shall keep all records, data and information relating to the


Petroleum Operations in accordance with the Kurdistan Region Oil and Gas Law and


prudent international petroleum industry practice. In addition, it shall provide the











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 GOVERNMKVI with such information and dau as it is obliged to provide undci


tin;. Contract.





3b 2 l poo tbc GOVEKNMt NT's written request. the CONTRACTOR shall provide the


GOVERNMENT with samples of any rocks or any other items extracted during the


Petroleum Operations


36 3 The GOVERNMENT shall have title to all data and information, whether raw.


derived, processed, interpreted or analysed, obtained pursuant to this Contract.


36 4 Each CONTRACTOR Entity shall have the right, without any limitation, to send


Abroad copies 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


be analysed and processed Abroad, may be transported out of the Kurdistan Region


365 Any representatives authorised by the GOVERNMENT and notified to the


CONTRACTOR shall, upon reasonable prior written notice, have reasonable access


to any information and data relating to the Contract Area in the possession of the


CONTRACTOR which the CONTRACTOR is obliged to provide to the


GOVERNMENT pursuant to this Contract. It is understood that, when exercising


such right, the GOVERNMENT shall ensure it docs not unduly interfere with or


hinder the CONTRACTOR'S rights and activities


36.6 The CONTRACTOR shall provide the GOVERNMENT upon the


GOVERNMENT’S written request any analysis information, reports, tapes or other


dam (geological, geophysical, logs, interpretations, drilling reports, etc.) related to the


Petroleum Operations in the possession of the CONTRACTOR All available


originals of such data shall be transferred to the GOVERNMENT at the end of this


Contract


36.7 Apart from the exceptions slated in this Article 36. the Parties undertake to keep all





dau and information relating to this Contract and the Petroleum Operations


confidential dunng tbc entire term of this Contract and not to divulge or disclose such


dau or information to third parties without the specific consent of tbc other Parties,


such consent not to be unreasonably withheld or delayed. The foregoing


confidentiality obligation shall not apply to information or dau which:


(a) is or. through no fault of any Party, becomes part of the public domain.





(b) is known to tbc recipient at the date of disclosure;


(c) is required lo be furnished in compliance with any applicable Law. by a


government agency having jurisdiction over a CONTRACTOR Entity, by a


court order or any other legal proceedings; or


(d) is required to be disclosed pursuant to the rules or regulations of any


government or recognised stock exchange having jurisdiction over a


C ONTRACTOR Entity











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 36.8 Notwithstanding the foregoing in Article 36.7, in accordance with prudent


international petroleum industry practice, such data and information may he disclosed


to:


(•) Affiliates of each CONTRACTOR Entity;





employees, officers and directors of each CONTRACTOR Entity and their


respective Affiliated Companies for the purpose of the Petroleum Operations,


subject to each such entity taking customary precautions hi ensure such


information is kept confidential;


(c) consultants or agents retained by any CONTRACTOR Entity or its Affiliates


for the purpose of analysing or evaluating information or data.







Affiliates with n view to financing Petroleum Operations, including any


professional consultants retained by such bank or liiinncial institution;


(c) hona fide, prospective assignees of a participating interest under ibis Contract





(including any entity with whom a CONTRACTOR Entity and/or its


Affiliates arc conducting bona fide negotiations directed towards a merger,


consolidation or the sale of a material portion of its or an Affiliates shares);


(0 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 Party; and


(g) any other Person or entity, upon the prior written approval of the non-


disclosing Parties.


prov ided that disclosure shall not be made pursuant to paragraphs (c). (d), (c) and (0.


unless such third party has entered into a confidentiality undertaking.





369 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 nght to use same for any purpose, in particular for the purpose of promoting


said areas. Each COM RACTOR Entity 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 the CONTRACTOR'S reasonable opinion, such sale or exchange would


benefil the Petroleum Operations.


ARTICLE 37 - ENVIRONMENTAL PROVISIONS





37.1 During the performance of the Petroleum Operations, the CONTRACTOR shall lake


reasonable measures to ensure that it. the Operator, its Subcontractors and agents


attend to the protection of the environment and prevention of pollution, m acconfancc








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A


with prudent international petroleum industry practice in similar physical and


ecological environments and any then applicable Kurdistan Region Law.


37.2 Prior to surrendering a portion of the Contract Area, the CONTRACTOR shall lake





reasonable measures to abandon the ares to be surrendered in accordance with prudent


international petroleum industry practice in similar physical and ecological


environments. Such measures shall include removal or closure in place of facilities,


material and equipment together with reasonable measures necessary for the


preservation of fauna, flora and ecosystems, all in accordance with prudent


international petroleum industry practice in similar physical and ecological


environments. Ihc CONTRACTOR shall only be responsible for site restoration or


environmental damage to the extent the same pertains solely and directly to Petroleum


Operations conducted pursuant to this Contract


37.3 The CONTRACTOR shall take reasonable precautions and measures in accordance


with prudent international petroleum industry practice in similar physical and


ecological environments to prevent any pollution which may arise directly as a result


of the Petroleum Operations and to protect the environment (fauna and flora), water


sources and any other natural resources when carrying out Petroleum Operations.


37.4 The CONTRACTOR shall, in accordance with prudent international petroleum





industry practice in similar physical and ecological environments, respect the


preservation of property, agricultural areas, and fisheries, when carrying out


Petroleum Operations.


37.5 The CONTRACTOR shall conduct and submit an environmental impact assessment


to the GOVERNMKN I within six (6) months after the Effective Date.








376 The CONTRACTOR shall take 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 prudent international


petroleum industry practice in similar physical and ecological environments


37.7 The GOVERNMENT: (i) represents and warrants that, on the Effective Date, there





are no national parks, nature reserves or other protected areas located in whole or in


pan within the Contract Area where the CONTRACTOR shall not be entitled to


cany 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 parks,


nature reserves or other protected areas, located m wrhok or in part within the


Contract Area.











37 8 Any reasonable expenditure incurred by the CONTRACTOR m 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.











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37.9 The CONTRACTOR is not responsible for any pre-existing environmental


conditions or any acts of unrelated third parties





ARTICLE 38-DECOMMISSIONING





38 1 To enable the CONTRACTOR to recover the costs associated with future Contract


Area Decommissioning Operations under this Contract, the CONTRACTOR shall


have the right to establish a reserve fund for future decommissioning and site


restoration (a “Decommissioning Reserve fund > The Decommissioning Reserve


Fund may be established at any time during the final ten (10) Calendar Years of the


term of the Production Operations of a Production Area but. upon the reasonable


request by the CONTRACTOR, the GOVERNMENT *hall allow the


CONTRACTOR to establish such fund over a longer period. Once established, the


CONTRACTOR shall make regular contributions to the Decommissioning Reserve


Fund based upon estimated Petroleum Field decommissioning und site restoration


costs in accordance with prudent international petroleum industry practice, and taking


into account interest received and future interest expected to be earned on the


Decommissioning Reserve Fund Any contributions by the CONTRACTOR to the


Decommissioning Reserve Fund shall be made 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 Production Area, the


GOVERNMENT decides to take over production operations in the Production Area


(a) the GOVERNMENT shall become liable for its future Decommissioning


Operations;


(b) the contributions and any interest accumulated in the Decommissioning


Reserve Fund to the extent that such contributions have been recovered as


Petroleum Costs, shall be paid to the GOVERNMENT; and


(c) the GOVERNMENT shall release the CONTRACTOR and the


CONTRACTOR fntities from any obligations relating to Decommisswoing


Operations and shall indemnify the CONTRACTOR and the


CONTRACTOR Entities for any costs, liabilities, expenses, claims or


obligations associated therewith


38.3 If the CONTRACTOR undertakes the Production Area Decommissioning


Operations, the contributions and any interest accumulated in the Decommissioning


Reserve Fund shall be paid to the CONTRACTOR and shall be used for the


Decommissioning Operations. Ihc CONTRACTOR shall undertake any such


Decommissioning Operations in accordance with prudent international petroleum


industry practice in similar physical and ecological environments.











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38.4 If the Decommissioning Reserve Fund is paid to the CONTRACTOR and the


Decommissioning Reserve Fund is not sufficient to cover all Decommissioning Costs


for the Contract Area, the balance shall be paid by the CONTRACTOR and may be


recovered, if applicable, by the CONTRACTOR Entities or any of their Affiliates


from any other area which is the subject of another Petroleum Contract (as defined by


the kuuhstan Region Oil and Gas Law) anywhere in the Kurdistan Region and. to the


extent the balance is not recoverable as aforesaid, such remaining balance shall be


paid by the GOVERNMENT to the CONTRACTOR.


38.5 If the Decommissioning Reserve Fund is paid to the CONTRACTOR and the


Decommissioning Reserve Fund exceeds all Decommissioning Costs for the Contract


Area, the balance shall be transferred to the GOVERNMENT


38.6 Any expenditure incurred by the CONTRACTOR in relation with this Article 38,


including any contributions to the Decommissioning Reserve Fund, shall he deemed


Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with


the provisions of Articles I and 25.


38.7 The CONTRACTOR shall submit to the Management Committee for approval in


accordance with Article 8.5 a detailed plan for decommissioning the Contract Area


facilities and site restoration (the "Decommissioning Plan”), such Decommissioning


Plan to he submitted no Inter than twenty four (24) Months prior to the date estimated


by the CONTRACTOR for the end of Commercial Production from the Contract


Area The Management Committee shall provide comments, it' any. on the


Decommissioning Plan within ninety (90) days after receipt The CONTRACTOR'S


completion of the Decommissioning Operations in accordance, in all material


respects, with the DccomnusMonmg Plan foe a Production Area approved by the


Management Committee shall satisfy all of the CONTRACTOR’S obligations with


respect to the performance of Decommissioning Operations for such Production Area


In the event the GOVERNMENT does not agree that Decommissioning Operation!


for a Production Area were carried out in accordance with the approved


Decommissioning Plan, it must advise the CONTRACTOR within six (6) months of


CONTRACTOR * completion of such operations


ARTICLE 39 - ASSIGNMENT AND CHANGE OF C ON I ROL


Assignment to Affiliates


39.1 Each CONTRACTOR Entity shall be free to sell, assign, transfer or otherwise


dispose of ail or part of its rights, obligations and interests under this Contract » an


Affiliated Company or to another CONTRACTOR Entity with the prior consent of


the GOVERNMENT, which consent shall not be unreasonably delayed or withheld








39 2 Each CON IRACTOR Entity shaft have the nght to sell, assign, transfer or otherwise


dispose of all or part of its rights and interests under this Contract to any third party


(not being an Affiliated Company or another CONTRACTOR Entity) with the poor


consent of GOVERNMENT, and each other CONTRACTOR Entity (if any) which








80/117


content shall not be unreasonably delayed or withheld. Any CONTRACTOR Entity


proposing to sell. assign, transfer or otherwise dispute of all or port of its rights and


interests under this Contract to any such third party shall request such consent in


writing, which request shall be accompanied by reasonable evidence of the technical


and financial capability of the proposed third party assignee In the event that the


Third Party Participant with a Third Party- Interest subject to Article 4ft proposes to


sell, assign, transfer or otherwise dispose of all or part of such Third Party Interest to a


Person that is not an Affiliate, such Third Party Participant shall fust offer to both the


other CONTRACTOR Entity (or. if applicable. CONTRACTOR Entities) and to


the GOVERNMENT pre-emption rights in relation »o such Thud Party Interest, or


part thereof. Such pre-emption rights shall be offered on term* that arc at least us


favourable us the terms upon which the Third Party Interval (or part thereof) has been


offered to the interested Person. Any option by the GOVERNMENT to utilise such


pre-emption rights shall be subject to the maximum participation limit imposed upon


a Government Interest by Article 4 I.


39 1 In order for any deed of sale, assignment, transfer or other disposal as provided under


Articles 39.1 or 39 2 to be effective, the Parties and the relevant third party, if any.


shall enter into u binding and enforceable instrument of assignment and novation,


which shall include an undertaking by the transferee or assignee to fulfil the


obligations under this Contract which correspond to the interest transferred or


assigned.


39.4 By way of clarification, and not in limitation of the foregoing provisions of this


Article 39. the GOVERNMENT shall not be considered to be acting unreasonably ui


withholding consent to any such assignment if the assignment to such proposed


assignee u deemed contrary to the GOVERNMENT* interests, as evidenced in


writing to that effect signed by the duly authorised representative of the


GOVERNMENT below.


39.5 In the event a CONTRACTOR Entity assigns or in any other way transfers its rights


and interests under this Contract, including through the exercise of the Option of


Government Participation or the Option of Thud Party Participation, whether in


whole or in part, such assignment or transfer shall not give rue to any Tax, me hiding


on the consideration paid or received or on the income or gain therefrom.


39 6 The GOVERNMENT may not at any time transfer any or all its nghtx and


obligations under thu Contract to any Person, including to Public Company or any


other company or entity, except in accordance with Article 4











39.7 Change of Control'' for the purpose of this Article 39.7 mean* any direct or indirect


change of the identity to the Person who Controls a CON TRACTOR Entity (whether


through merger, sale of shares or of other equity interests, or otherwise) through a


single transaction or senes of transactions, from one or more transferor* to one or


more transferees, in which the market value of such entity’s participating interest


(which shall be as specified in the Joint Operating Agreement relating to thu


Contract or where there is only ooe CONTRACTOR Entity , one hundred percent


(100%) m this Contract represents more than seventy five per cent (75%) of the





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 aggregate market value of the assets of such cnuty and it* Affiliates that arc subject to


the Change in Control. For the purpose of this definition: "Control- means the direct


or indirect ownership or control of the majority of the voting rights of the applicable


entity at its shareholders' meetings or their equivalent, and "market value" shall be


determined based upon the amount in cash a willing buyer would pay a willing seller


in an Arm's l ength transaction





Each CONTRACTOR Emily which is or anticipates with a reasonable degree of


certainty that it will be subject to a Change in Control, other than to an Affiliated


Company or a CONTRACTOR Entity, shall notify the GOVERNMENT as toon as


practicable after it becomes aware of the Change in Control or anticipated Change in


Control and request tlic consent of GOVERNMENT, which consent shall not be


unreasonably delayed or withheld


A Change in Control shall not give rise to any Tax including on the consideration paid


or received or on the income or gain therefrom.








ARTICLE 40 - FORCE MAJEURE





40.1 No delay, default, breach or omission of the CONTRACTOR in the execution of any


of its obligations under this Contract shall be considered a failure to perform this


Contract ot be the subject of a dispute if such delay, default, breach or omission is due


to a case of Force Mnjeure In such event the CONTRACTOR shall promptly notify


the GOVERN MEN I m writing and take all reasonably appropriate measures to


perforin its obligations under this Contract to the extent possible. The time resulting


from any such delay or curtailment in the execution of such obligations, increased by


the time necessary to repair any damage resulting from or occurred during >uch delay


or curtailment, shall be added to any time period provided under this Contract


(including the Exploration Penod and any extension thereto, any Sub-Penod and any


extension thereto and any Development Period and any extension thereto). The Parties





using reasonable endeavours to mitigate the effects thereof


40 2 For the purpose of this Contract. "Force Majeure" means any event that it


unforeseeable, insurmountable and irresistible. Dot due to any error or omission by the


CONTRACTOR but due to circumstances beyond its control, which prevail* or


impedes execution of ill or part of its obligations under this Contract. Such events


shall include the following


(a) war, whether declared or not, civil war. insurrection, riots, civil commotion,


terrorism, any other hostile acts, whether internal or external.


(b) strikes or other labour conflicts;


(c) accidents or blowouts;




















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(e) any act. event, happening or occurrence due to natural causes, in particular,


hut without limitation, floods, storms, cyclones, fires, lightning, or


earthquakes;


(f) environmental restrictions, which the GOVERNMENT has not notified to the


CONTRACTOR;


(g) except in respect of the GOVERNMENT anti'or any Public Company which


may be a CONTRACTOR Entity, any acts or orders of the


GOVERNMENT, any minister, ministry, department, sub division, agency,


authority, council, committee, or other constituent element thereof, any


corporation owned and/or controlled by the any of the foregoing; and


(h) any acts or orders of any other government claiming or asserting jurisdiction


over the subject matter of this Contract, any minister, ministry, department,


sub-division, agency, authority, council, committee, or other constituent


element thereof, or any corporation owned and'or controlled by any of the


foregoing


40 t The intention of the Parties is that Force Majeure shall receive the interpretation that


complies most with prudent international petroleum industry practice. Force Majeure


affecting u CONTRACTOR Entity or an Affiliated (’ompnny ol a CONTRAC TOR


Entity shall be deemed Force Majeure affecting the CONTRACTOR if the


consequence of such Force Majeure prevents the performance of any of the


CONTRAC TOR’* obligations under this Contract.


ARTICI.E 41 - WAIVER OF SOVEREIGN IMMUNITY


The GOVERNMENT and any Public Company which may be a CONTRACTOR Entity at


any time hereby fully and irrevocably waives any claim to immunity for itself or any of its





This waiver includes any claim to immunity from:


(a) any expert determination, mediation, or arbitration proceedings commenced pursuant


to Article 42;


(b) any judicial, administrative or other proceedings to aid the expert determination,


mediation, or arbitration proceedings commenced pursuant to Article 42; and


(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.




















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 ARTICLE 42 - ARBITRATION AND EXPERT DETERMINATION'











42.1 Foe tbc purpose of (ha Article 42.1. ’Dispute" shall mean any dispute, controversy or


claim (of any and every kind or type, whether based on contract, tort, staanc.


regulation or otherwise) arising out of. relating to. or connected with this Contract or


the operations earned out under this Contract, including any dispute as the


construction, existence, validity, interpretation, enforceability, breach or termination


of this Contract, which antes between the Parties (or between any one or more


entities constituting tbc CONTRACTOR and the GOVERNMENT).


In the event of a Dispute, the parties to the Dispute shall use theu reasonable


endeavours to negotiate promptly in good faith a mutually acceptable resolution of


such Dispute.


Subject to the provisions of Article 42.2. a Party who desires to submit a Dispute for


resolution which has not been promptly resolved as aforesaid shall commence the


dispute resolution process by providing the ocher parlies to the Dispute written notice


of the Dispute (“Notice of Dispute 1. The Notice of Dispute shall identify the parties


to the Dispute, shall contain a bncf sutement 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 Vawr Representative" means


any individual who has authority to negotiate the settlement of the Dispute for


a party to the Dispute, which for the GOVERNMENT shall mean the


Minister ol Natural Resources. Within thirty (30) days after the date of


delivery of the Notice of Dispute, the Senior Representatives representing the


parties to the Dispute shall meet at a mutually acceptable date, time and place


to exchange relevant information in an attempt to resolve the Dispute. If a


Senior Representative intends to he 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) within sixty (60) days after the date of the receipt by each party- to the


Dispute of the Notice ol Dispute or such further penod as the parties to the


Dispute may agree in writing, any party to the Dispute may seek settlement of


the dispute by mediation in accordance with the London Court of International


Arbitration (“LCIA”) Mediation Procedure, which Procedure shall be deemed


to be incorporated by reference into this Article, and the parties to such


Dispute shall submit to such mediation procedure.


(c) If the Dispute is not settled within the earlier of (A) sixty (60) days of the


appointment of the mediator, or such further period as the parties to the


Dispute may otherwise agree in writing under the mediation procedure under


Article 42.1 (b). and (B) one hundred and twenty (120) days after the delivery








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 of the Dispute Notice, any party to the Dispute may refer the Dispute to. and


seek final resolution hy. arbitration under the LCIA Rules, which Rules shall


be deemed to be incorporated by reference into this Article


(») Any arbitration shall be conducted by three (3) arbitrators





(u) If the parties to the Dispute are the GOVERNMENT and all the


CONTRACTOR Entities, the GOVERNMENT and the


CONTRAC TOR shall each appoint one (1) arbitrator. If the parties to


the Dispute are the GOVERNMENT and more than ooe. but not all


the CONTRACTOR Entities, the GOV ERN.MENT shall appoint


ooe (1) arbitrator and such CON TRACTOR Entities shall appoint ooe


(1) arbitrator If the parties to the Dispute are the GOVERNMENT


and one CONTRACTOR Entity, the GOVERNMENT and such


CONTRACTOR Entity shall each appoint one (I) arbitrator


(iit) 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 ease of failure to


appoint an arbitrator or to agree on the appointment of the third


arbitrator. Rules of the I Cl A shall apply.







used in any poor negotiation, mediation and in the arbitration shall be


English. During the arbitration procedure and until the arbitral


decision, the Parties shall continue to perform their oWigmons and


take no actions that would impair the Contract The arbitral aw ard may


be enforced by any’ court of competent jurisdiction, including in the


Kurdistan Region Any award shall be expressed in Dollars.


(v) The Parties agree that the arbitral award shall be final and not subject





to any appeal, including to the C ourt* of England on issues of Law.


(vi) With respect to any matter referred to arbitration under Article 43.4.


the arbitral tribunal shall have the authority to amend this Contract to


restore the economic position referred to in Article 43.3.








422 Any disagreement between the Parties relating to Articles 15.9, 27.2 and 27.7, as well


as am disagreement the Parties agree to refer to an expert, shall be submitted lo an


expert. The Management Committee shall prepare and agree appropriate term* of


reference relating to a disagreement to be submitted to the expert, in accordance with


Article 8.5 (“Terms of Reference '), as soon as possible after the Effective Date.


(a) The disagreement shall be submined to an expert appointed by mutual


agreement of the Parties within thirty (30) days following the dale of


preparation and agreement of the Terms of Reference by the Management


Committee. If the Parties cannot agree on the choice of the expert within such


thirty (30) day period, at the request of either Party, the expert shall he








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 appointed by the President of the Energy Institute in London. England. Any


expert appointed must have the necessary qualifications for reviewing and


deciding on the subject matter of the disagreement.


(b) Tbc duties of the expert shall be stated m the Terms of Reference prepared and


agreed by tbc Management Committee The Management Committee shall


promptly provide the expert with the agreed Terms of Reference rclaang to the


disagreement Each Party shall have the right to give to tbc expert in writing


any information which it considers useful, provided it docs so within forty-five


(45) days after the expert1* appointment. Such information shall be provided


to the other Party at the same time and such other Party shall be entitled to


provide comments on such information to the first Party and the expert within


thirty (V)) days after receiving such informal km The expert shall have the


right to review and verify any mlonnation he deem* useful to assist him in his


review of the disagreement.





(c) The expert shall render his decision within forty-five (45) days of his receipt


of the Terms of Reference and the information referred to in Article 42.2.


Subject to the provisions of Article 15.9. any decision of the expert shall be


final and shall not be subject to any appeal, except in the case of manifest


error, fraud or malpractice Any cosls and expenses associated with the expert


determination shall be shared equally between the Parties.





General





42 3 No negotiation, mediation, arbitration or expert determination procedure under this


Article 42 shall exempt the Parties from fulfilling their respective legal andbr


contractual obligations





ARTICLE 43 - GOVERNING LAW. FISCAL STABILII V AND AMENDMENTS











43.1 This Contract, including any dispute arising therefrom, thereunder or in relation


thereto and tbc agreement to arbitrate in Article 42. shall be governed by English law


(except any rule of English law which would refer the matter 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











43J The obligations of the CONTRACTOR in respect of this Contract shall not be


changed by the GOVERNMENT and the general and overall equilibrium between


the Parties under this Contract shall not be affected in a substantial and lasting


43.3 The GOVE RN.MENT guarantees to the CONTRACTOR, for the entire duration of





this Contract that it will maintain the stability of the legal, fiscal und economic








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condition* of this Contract, as they result from this Contract and as they result from


the laws and regulations in force on the date of signature of this Contract The


CONTRACTOR has entered into this Contract on the basis of the legal, fiscal and


economic framework prevailing at the Effective Date If. at any time after the


Effective Date, there is any change in the legal fiscal and or economic framework


under the Kurdistan Regioo Law or other law applicable m or to the Kurdistan


Region Which detrimentally affects the CONTRACTOR, the CONTRACTOR


Entities or any other Person entitled to benefits under -Jus Contract, the terms and


conditions of the Contract shall be altered so as to restore the CONTRACTOR the


CONTRACTOR Entities and any other Person entitled to benefits under this


Contract to the same overall economic position (taking into account home country


taxes) as that which such Person would have been in, had no such change in the legal,


fiscal and/or economic framework occurred.


43.4 ir the CONTRACTOR believes that its economic position, or the economic position


of a CONTRACTOR Entity or any other Person entitled to benefits under this


Contract, has been detrimentally affected as provided in Amdc 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 to re¬


establishing the equilibrium between the Parties and restoring the CONTRACTOR,


the CONTRACTOR Entities or any other Person entitled to benefits under this


Contract to the position (taking into account home country taxes) it was in prior to the


occurrence of the change having such detrimental effect. Should the Parties be unable


to agree on the ment of amending this Contract and’or on any amendments to he


made to this Contract within ninety (90) days of the CONTRACTOR’S request (or


such other period as may be agreed by the Parties), the CONTRACTOR may refer


the matter in diqnnc to arbitration as provided in Article 42 I. without the necessity of


first referring the matter to negotiation and mediation


43.5 Without prejudice to the generality of the foregoing, the CONTRACTOR shall be


entitled to the benefit of any future changes to the petroleum legislation or any other


legislation complementing, amending or replacing it





43.6 The Parties agree to cooperate in all possible ways with a view to fully achieving the


objectives of this Contract. The GOVERNMENT shall facilitate the performance of


the Petroleum Operations by promptly granting to the CONTRACTOR any


necessary authorisation, permit, licence or access nght and making available any


existing facilities and services with a view to the Parties obtaining maximum mutual


benefit from the Contract.











43 7 Any amendment to this Contract shall be the subject of a formal amendment, duly


approved in writing by the Parties and subject to the same conditions of validity as


this Contract Notwithstanding the foregoing, the GOVERNMENT has the nght and


authority lo waive the application of the provision* of this Contract on a case-by case


basis without having to fulfil the conditions of validity of this Contract, should


CONTRACTOR so request.


43.8 This Contract constitutes the entire agreement of the Parties and supersedes any and





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 ■II pnof understanding or agreements in respect of the subject matter of this


Contract, including the Original Contract





43.9 Unless otherwise expressly stated elsewhere in this Contract, no failure or delay of


any Pan> 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 ngbi. power or


remedy preclude any other or future exercise thereof or the exercise of any other right,


power or remedy.








43.10 As signatories to this Contract for and on behalf of the GOVERNMENT, the


Ministry of Natural Resources in the Kurdistan Region and the Regional Council for


the Oil and Gas Affairs of the Kurdistan Region - Iraq hereby represent that they


agree and approve this Contract for the purposes of the Kurdistan Region Oil and Gas


Law.








ARTICLE 44-NOTIC ES


44.1 AU notices, demands, instructions, waivers, consents or other communications to be





provided pursuant to this Contract shall be in writing in English, shall be effective


upon receipt, and shall he sent by receipted hand delivery or by email (followed by


delivery by reputable international air courier company with an establishment in Fitol


in the Kurdistan Region) to the following addresses





To the GOVERNMENT:


Attention:





His Excellency the Minister of Natural Resources





Address:





Ministry of Natural Resources


Kurdistan Regional Government


Erbil. Kurdistan, Iraq


Email: mnrCtikrgoil.com









































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 To the CONTRACTOR


KOREA NATIONAL Oil. CORPORATION


Attention: Managing Director, Exploration Department





Address: 1588-14. Gwanyang-dong,


Dongan-gu. Anyang, Gyeonggi do, 431-711,


Republic of Korea








Email copy to ikcbo@.knoc.co kr>








A notice delivered by entail (followed by air courier) shall, save for manifest error, be


deemed to have been delivered upon its transmission by email


44 2 The above address and'oc designated representative of any of the Parties may be


changed on giving ten (10) day* prior notice to the other Party delivered pursuant to


Article 44.1.


AK riCLE 45 - TERMINATION


45.1 Subject to the provisions of Aroclc 45.5. the GOVERNMENT shall have the nght to


terminate this Contract m the cv ent the CONI R ACTOR


(a) fails to meet a material financial obligation expressly vtated m this Contract, or


(b) during the First Sub Period docs not carry out drilling mid seismic acquisition,


as detailed in Article 10.2 or, during the Second Sub-Period (or earlier), docs


not carry out drilling and seismic acquisition, as detailed in Article 10J; 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 or


under prudent international petroleum industry practice, it being recognised


that Force Majeure is un acceptable justification for such interruptions; or


(d) intentionally extracts or produces any mineral which is not covered by the


object of this Contract, unless such extraction or production is expressly


authorised or unavoidable as a result of operations earned out in accordance


with prudent international petroleum industry practice;


(e) if the CONT RACTOR comprises solely one entity, is declared bankrupt in


accordance with applicable Law;


(f) wilfully refuses to abide by negotiation, mediation, arbitration or expert


decision under Ailiclc 42; or


(g) bleaches the Capacity Building Support Agreement.








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 45.2 The GOVERNMENT may also icrnunalc the Contract only in respect of one


CONTRACTOR Entity if such entity is subject to a Change of Control foi which the


GOVERNMENT has not given its authorisation in accordance with Arliclc 39.7.


45 3 At any time prior to the Development 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.


45.4 During the Development Period, the CONTRACTOR shall have the right to


tennmate this Contract at any time by surrendering all Production Areas, prov ided its


then current obligations have been satisfied in accordance with this Contract.


45 5 If the GOVERNMENT intends to exercise its right to terminate this Contract


pursuant to Article 45.1. it shall first comply with the following provisions:





(a) The GOVERNMENT shall notify the CONTRACTOR of its intention to


terminate this Contract stating the reasons for such termination and requesting


the latter:





< i) to remedy the default; or


(it) to propose acceptable compensation


(b) If, within three (3) Months after the notice referred to in Article 45.5(a), the





CONTRACTOR has not remedied the situation complained of by five


GOVERNMENT lo its satisfaction or ottered compensation acceptable to the


GOVERNMENT in each case acting reasonably, the GOVERNMENT shall


notify the CONTACTOR in writing that the Contract shall be terminated


from the termination dale detailed in such nonce. This Contract shall tennmate


oo such termination dale unless the CONTRACTOR issues a noace of


dispute as provided under Article 42. in which case this Contract shall remain


in force until a final settlement of the dispute has been reached in accordance


with the dispute resolution provisions of Article 42.


The foregoing provisions of this Article 45 5 arc subject to the proviso that, in case of


a dispute where there ha* been breach of this Contract which has been submined to


dispute resohmoo pursuant to Article 42. the GOVERNMENT shall not be entitled


to exercise its right to temunatc this Cootnet poor to a final determination under


Article 42 m favour of the GOVERNMENT


45.6 If the GOVERNMENT terminates this Contract pursuant to the provisions of


Articles 45.1 and 45.5. the CONTRACTOR shall lose all its right* and interests


under this Contract Notwithstanding the foregoing, the provisions of Articles 14 10.


16.7, 30. 31. 35.1. 35 3. 35 4. 35 7. 36. 38.2(c). 41. 42. 43.1 to 43 6 shall survive the





45.7 If a CONTRACTOR tnuty breaches Article 46 I or 46 2 the GOVERNMENT or





another CONTRACTOR Entity may terminate thu Contract in respect of the first


CONTRACTOR Entity











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45.8 If the Contract is terminated under Article 45.2 or 45.7, the interest of the relevant


C ONTRACTOR Entity shall be transferred to the other CONTRACTOR Entities in


the proportions in which their respective percentage interests bear to the aggregate of


their respective percentage interests under the relevant Joint Operating Agreement or


in such other proportions as such CONTRACTOR Entities shall agree between them


for the market value thereof (as such term is defined in Article 39.7). Such transfer


shall not give rise to any Tax including on the consideration paid or received or on the


income or gain therefrom.


ARTICLE 46 - APPLICATION OK CORRUPTION LAWS


46.1 II this Contract is reasonably proven to have been obtained in violation of Kurdistan


Region Law concerning corruption, this Contract it void ob Initio.


46.2 Each CONTRACTOR Entity agrees that if it is, at any lime, reasonably proven to be


in breach of Kurdistan Region Law concerning corruption the provisions of Article


45.7 apply.








ARTICLE 47 - EFFECTIVE DATE


This Contract shall become effective and be binding on the Parties when both of the


following conditions have been mtisficd:


(a) the duly authorised representatives of the GOVERN MEN land the


CONTRACTOR have signed the Contract as provided below ; and


(b) the Capacity Huilding Support Agreement Commencement Date (as the term


'Commencement Date* is defined in that Agreement) has occurred


















































91/117


Entered into in three (3) originals in Erbil, the Kurdistan Region on 21 June 2008





For the KURDISTAN REGIONAL GOVERNMENT











Necliirvnn Barzani Ashti Hawrami


Prime Minister Minister of Natural Resources


Kurdistan Regional Government Kurdistan Regional Government


On behalf of the Regional Council On behalf of the Ministry of Natural


for the Oil and Gas Affairs of Resources in the Kurdistan Region


the Kurdistan Region - Iraq











For each CONTRACTOR Entity


KOREA NATIONAL OIL CORPORATION





Bv 7lMj








Dr. Scong-Hoon Kim


Executive Vice President


New Ventures & Exploration


Korea National Oil Corporation




































































92/117


 ANNEXA


Map showing coordinate!! of Sangaw South Contract Area corner points


































































































93/117


 ATOH£J











PARAGRAPH 1 - GENERAL PROVISIONS





1.1 Purpose


I'o classify expenditures, define further Petroleum Costs (in addition to those defined


as such in the Articles of the Contract), nnd prescribe the manner in which the


CONTRACTOR'S Accounts shall be prepared and approved.


1.2 Definitions


Words ami phrase* to which a meaning has been assigned in Article 1 or other


Articles of the Contract shall have the same meaning when used in this Annex


1.3 Inconsistency


In the event ol 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 The CONTRACTOR shall maintain the Accounts in accordance with Article 15.1


and m accordance with this Accounting Procedure, including in accordance with the


charts of Accounts agreed under Paragraph I 4 2-


1.4.2 Within sixty (60) days of the Effective Date, the CONTRACTOR shall submit to and


discuss with the GOVERNMENT a proposed outline of charts of Account*, which


outline shall be in accordance with generally accepted standards and recognized


accounting systems and consistent with normal petroleum industry practice and


procedures Within ninety (90) day* of receiving the above submission, the


GOVERNMENT shall 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 bflcctivc Date, the CONTRACTOR and the


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 used


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 are. and shall be. observed under the


Contract.


1.43 Notwithstanding the generality of the foregoing, the CONTRACTOR shall make


regular Statements relating to the Petroleum Operations These Statements arc as


shown











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 (a) Production Statement (as indicated in Paragraph 6)


(b) Value of Production and Pricing Statement (m indicated in Paragraph 7).


(c) Cost Recovery and Share Account Statement (as indicated in Paragraph 8).





(d) Statement of Expenditures and Receipts (as indicated in Paragraph 9).


(c) Final lind-of-Ycar Statement (as indicated in Paragraph 10).





(0 Hudget Statement (as indicated in Paragraph 12).


1.4.4 All reports and statements shall be prepared in accordance with the Contract.


Kurdistan Region Law. and where there arc no relevant provisions of either of these,


in accordance with prudent international petroleum industry practice.


1.5 Language und 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 in other currencies.


1.6 Audit and Inspection Rights of the GOVERNMENT





In addition to the provisions of Articles 15.3 to 15.7 and 15.9, the following


provisions shall apply to any audit carried out in accordance with Articles 15.3 to


15.7:


1.6.1 For purposes of auditing, the GOV ERN MENT. acting reasonably and in accordance





with prudent international petroleum industry practice, may examine and verify, at


reasonable times upon reasonable pnor written notice to the CONTRACTOR, all


charges and credits relating to the Petroleum Operations, such as books 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 serving the Petroleum Operations and to


question personnel associated with those Petroleum Operations.


1 6 3 Where the GOVERNMENT requires verification of charges made by an Affiliated


Company of the CONTRACTOR, the GOVERNMENT shall have the nght to


obtain an audit certificate for such changes from an internationally recognized firm of


public accountants acceptable to both the GOVERNMENT and the


CONTRACTOR, which may be the CONTRACTOR’S statutory auditor


1 6.4 All agreed adjustments resulting from an audit shall be promptly made m the


CONTRACTOR'S Account* and any consequential adjustments to payments due to








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 the CONTRACTOR or lo ihc GOVERNMENT, as the ease may be, shnll be made


promptly.





1.6.4 When issues are outstanding with respect to an audit, the CONTRACTOR shall


uuunlain the relevant documents and permit inspection thereof until the Issue is


resolved.


1.7 Pa>ments





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


made through a bank designated in writing by each receiving party, and all sums due


under the Contract shall be paid within thirty (30) days following the end of the


Month in which the obligation to make such payment occurred.


1.7.2 All sums due by one party to the other under the Contract shall, for each day such


sums are overdue, bent interest compounded monthly at LIBOR plus (wo per cent


(2%).


1.H Currency Fschangc Rain


In addition to the provisions of Article 29. the following provisions shall apply to any





exchanges of currency carried out in accotdancc with Article 29:


1.8.1 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.


1.9 Accraal Basis, Cash Flow Bash and Reports


All books and Accounts shall be prepared on an accrual basis ui accordance with


generally accepted accounting principles used in the international petroleum industry


1.10 Values and Treatments





Values and treatments proposed by the CONTRACT OR relating lo all Petroleum


Costs shall be subject to challenge by the GOVERNMENT m the course of audit to


ensure that they are in accordance with the provisions of this Accounting Procedure.





PARAGRAPH 2 - CLASSIFICATION, DKFINI1 ION AND ALLOCATION OF


COSTS AND EXPENSES


2.1 Segregation of Costs and Kipcase*





Petroleum Costs shall be segregated in accordance with the purpose* for which such


Petroleum Costs are made The purposes which shall qualify are:








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A


(a) those which have been included in the approved Work Program and Dudget


for the year in which the Costs and Expenditures arc made;


(b) expenditures incurred in cases of emergency as set out in Articles 11.7, 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 time to time.


All Petroleum Costs recoverable under Paragraph 3 relating to Petroleum Operations


shall be classified, defined and allocated as set out below.


2.2 Exploration Costs


Exploration Costs are all direct and allocated indirect costs and expenditures incurred


in carrying out the Exploration Operations, including 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 oosts 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 rheir interpretation and purchased geological and


geophysical information.


2.2.2 Stratigraphic test hole drilling and water well drilling.


2.2.3 Labour, materials, supplies, and services used in drilling and formation testing of


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 2.23. including access roads.


2.15 Hiat 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 incurred m the search for and appraisal of Petroleum after 14


January 2005 and not otherwise covered under this Paragraph 2 2. and including any


and all coos inclined in the search for and appraisal of Petroleum at the area known


as the Pulkhana area pursuant to the Original Contract


23 Gat Marketing Costs


Gas Marketing Costs are all direct and allocated indirect costs and expenditures


incurred in canying out Gas Marketing Operations and include that port** of all


service expenditures and that portion of all general and administrative expenditures


directly attributable to Gas Marketing Costs or allocated thereto an a consistent and


equitable basis








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2.4 Development Co*t*





Development Costs are all direct and allocated indirect costs and expenditures


incurred in carrying out Development Operations including all direct and allocated


indirect costs and expenditure* incurred in:


24.1 Drilling wells which are completed as producing wells and drilling wells for purposes


of producing from a Petroleum reservoir, whether these wells arc 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 use as, a producing well


or at a well for the injection of water or gas to enhance recovery of Petroleum.


2 4.3 The costs of Petroleum production, transport and storage facilities such is pipelines.


How lines, production and treatment units, wellhead equipment, subsurface


equipment, enhanced recovery systems. Petroleum storage facilities, and access roads


lor production activities.


2 4.4 Kngmeering and design studies for the wells and facilities referred to in Paragraphs


2.4.1,2.4.2 and 2.4.3.


And including that portion of all service expenditures and that portion of nil 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 Cost*


Production Costs are all direct and allocated indirect costs and expenditures incurred


in canying out Production Operations, including all direct and allocated indirect cost*


and expenses incurred in Petroleum Operations after hirst Production which arc other


than F.xploration Costs. Gas Marketing Costs. Development Costs and


bccommi'Monmg Costs. Production Costs include that portion of all service


expenditures and that portion of all general and administrative expenditures directly


attributable to Production Costs or allocated thereto on a consistent and equitable


basis


2.6 Decommissioning Costs


Decommissioning Costs are all direct and allocated indirect costs and expenditures


incuned in carrying out Decommissioning Operations and 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.


2.7 Service Expenditures





Service expenditures are 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 cost* incurred in such


year to purchase and/or construct the said facilities as well as the annual costs of


maintaining and 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 Fxploration Costs,


(its Marketing Costs, Development Costs. Production Costs and Decommissioning


Costs respectively and shall be separately shown under each of these categories.


Where service expenditures are made in respect of shared facilities, the basis of


allocation of costs to Petroleum Operations shall be consistent und equitable and shall


be specified.


2.H General und Administrative Expenditures


General und administrative expenditures are:


2.8 1 All mum office, field office and general administrative expenditures in the Kurdistan


Region including supervisory, accounting, procurement ,uvd employee relations


service*.


2.8.2 Where the CONTRACTOR is an Affiliate of a group of companies whose


headquarters is Abroad (a Foreign CONTRACTOR"), an annual overhead charge


shall be made for service* rendered (excluding the direct expenditures as referred in


paragraph 3 1 2 (h)) by any Affiliate of the Foreign CONTRACTOR outside the


Kurdistan Region lo support and manage Petroleum Operations under the Contract, or


where the CONTRACTOR, not being a Foreign CONTRACTOR draws upon the


services of an Affiliate w ithin the Kurdistan Region, an annual overhead charge shall


be made for service* rendered (excluding the direct expenditures as referred in


Paragraphs 3.1.2 (a) and (b)) by such Affiliate to support 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 for services rendered by those functions of


CONTRACTOR * Affiliate, such as. but not limited to, international production


headquarters, international exploration headquarters, treasury, payroll, taxation,


insurance, legal, communications, computer services, controllers, 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








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understood, however, that service* performed by the departments listed above


and other corporate departments which directly benefit Petroleum Operation*


under the Contract shall be charged as direct costs in accordance with


Paragraph 3.


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 cquol to the total of the following:


2.8.2.1 Exploration Overhead





The COM RACTOR shall he entitled to an annual charge based on a sliding scale


percentage and charged monthly to Petroleum Operations. The basis for applying this


percentage shall be the lota) of Exploration Costs and Gas Marketing Costs during


each Calendar Year (exclusive of this Exploration Overhead) or fraction thereof less


expenditures which have been subjected to the two (2) per cent fee. referred to in


Paragraph 3.1 X(b). flic sliding scale percentage shall he the following:


For the first four million Dollars (US$4.000.000) four percent (4%)





For the next four million Dollars (US$4,0,000) three per cent (3%)


Over eight million Dollars (US$8,000,000) two per cent (2%)





The foregoing percentages may be reviewed but not more often than annually, and


any approved appropriate adjustment shall be made, if necessary, prospectively.


2 822 Development. Production and Decommissioning Operations Overhead





The overhead rates applicable to Development, Production and Decommissioning


Operations shall be agiccd 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'*


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 CONTR ACTOR s Affiliates,


be charged under any other section. Overhead cost* arc billed monthly


Overhead must be commensurate with services rendered and based on actual


cost studies but may not exceed an amount calculated a* a percentage of


certain annual expenditures excluding Exploration Costs and


(b) I hat percentage as well as the types of expenditures, which affect overhead





and those, which do not, shall be agreed among the Parties


(c) The maximum percentage rates may be revised by mutual agreement not more


often than annually. The initial maximum percentage rates and the type* of


expenditure* to which they apply shall be agreed a* soon as the Parties possess


reasonably reliable cost estimates foe the relevant Production Area








100-TI7





A


(d) Overhead charges are do* subject to audit by GOVERNMENT


(e) The CONTRACTOR dull upon request Anush at the end of each relevant


Calendar Year to the GOVERNMENT a confirmation by its statutory auditor


that the overhead coats actually charged do not duplicate any ocher charges


and that the method used in allocating overhead to Petroleum Operations


hereunder as oppuaod to other activities is reasonable and in accordance with


generally accepted accounang practices.


tO 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.





PARAGRAPH 3 - COSTS. EXPENSES. EXPENDITURES AND CREDITS OF THE


CONTRACTOR


3.1 Costs Recoverable Without Further Approval of the GOVERNMENT


The following Petroleum Costs incurred by the CONTRACTOR pursuant to the


Contract as 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) without the requirement for


obtaining any further approval of the GOVERNMENT, subject to audit as provided


for in Article 15 and in Paragraph 1.6





3.1.1 Surface Rights





All direct costs necessary for the acquisition, renewal or relinquishment of surface


rights acquired and maintained in force for the purposes of the Contract


31.2 Lubour and Associated Labour Lote





In) The CONTRACTOR'S locally recruited employees based in the Kurdistan


Region Costs of all CONTRACTOR’S locally recruited employees who arc


directly engaged in the conduct of Petroleum Operations under the Contract in


the Kurdistan Region. Such costs shall include the costs of salaries, wages,


bonuses, overtime, employee benefits and GOVERNMENT benefits for


employees and levies imposed on the CONTRACTOR as an employer,


transportation and relocation costs within tbc 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














101 / 117


(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 ease 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), (c), (0 and (g), shall be charged and the basis of such


pro-rata allocation shall be specified.




disability benefits and living and housing and other customary allowances


applicable to the salaries and wages chargeable under Paragraph ^ I 2(b)


(d) Expenses or contributions made pursuant to assessments or obligations


imposed under Law which arc applicable to the CONTRACTOR’S cost of


salaries and wages chargeable under Paragraph 3.1.2(b).


(e) 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


accepted standards in the international petroleum industry, applicable to


salaries and wages chargeable to Petroleum Operations under


Paragraph 3.1.2(b).


(f) Actual transportation and travel expenses of employees of CONTRACTOR,


including those made for travel and relocation of the expatriate employees,


including thetr families and personal effects, assigned to the Kurdistan Region


whose salaries and wngcs arc chargeable to Petroleum Operations under


Paragraph 3.1.2(b).


Actual transportation expenses of expatriate personnel transferred to Petroleum


Operations from their country of origin shall be 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 be charged to the Petroleum


Operations Transportation cost as used m 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’* standard


personnel policies. The CONTRACTOR 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 are


chargeable to Petroleum Operations under Paragraph 3.1 2(b) and for which


expenses such personnel arc reimbursed under the CONTRACTOR’S


standard personnel policies. In the event such expenses are not wholly


attributable to Petroleum Operations, the Petroleum Operations shall be


charged with only the applicable portion thereof, which shall be determined on


an equitable basis.








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3.1.3 Transportation and Employee Relocation Costs





The cost of transportation of employees, equipment, materials and supplies other than


as provided in Paragraph 3.1.2(f) 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.


3.1.4 Charges for Services


(a) Third Parties


Ihe actual costs of contract services, services of professional consultants,


utilities, and other services necessary for the conduct of the Petroleum


Operations under the Contract performed by third parties other than an


Affiliate of the CONTRACTOR.


(b) Affiliates of the CONTRACTOR


(i) Professional and Administrative Services Kxpemes: cost of


professional and administrative services provided by any Affiliates of


the CONTRACTOR for the direct benefit of Petroleum Operations,


including services provided by the production, exploration, legal,


procurement, financial, insurance, accounting and computer services


divisions other than those covered by paragraphs 3.1.4 (b) (ii), 3.1.6


and 3.1.8

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


earned on by the CONTRACTOR and its Affiliates. The chargeout


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 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. Where the w ork is


performed outside the home office base of such personnel, the daily


rate shall be 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 their employment at their home office base.


(ii) Scientific or Technical Personnel: cost of scientific or technical


personnel services provided by any Affiliate of the CONTRACT OR


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 chargeout rate shall include all costs incurred by Affiliates








103/117


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 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 sen-ices. Unless the work


to be done by such personnel is covered by an approved Work Program


and Budget, the CONTRACTOR shall not authorize work by such


personnel without approval of llic GOVERNMENT.


(lii) Equipment and facilities use of equipment and facilities owned and


famished by the CONTRACTOR'S Affiliates, at rates commensurate


with the cost of ownership and operation; provided, however, that such


rates shall not 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 ami'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 rule is not on an arm’s length basis then the


GOVERNMENT has the right to icfer the matter to an expert


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 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 GOVERNMENT.


3.1.5 Communications


Cost of acquiring, leasing, installing, operating, repairing and maintaining


communication systems including radio and microwave facilities within and between


the Contract Area and the CONTRACTOR'S nearest base facility.


3.1.6 QffictaoLMisccllancouiFacilitiw


Net cost to the CONTRACTOR of establishing, maintaining and operating any


office, sub-office, warehouse, housing or other facility directly serving the Petroleum


Operations. If any such facility services more than one contract area the net costs


thereof shall be allocated on an equitable basis in accordance with prudent


international petroleum industry practice.








(a) Costs incurred in the Contract Area as a result of legislation for archaeological


and geophysical surveys relating to identification and protection of cultural


sites or resources:














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(h) Costs incune«i in environment*! 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 ol such Anther


responsibilities resulting therefrom as may be required by applicable laws and


regulations;


(c) Costs of restoration of the operating environment incurred pursuant to un


approved scheme prepared in accordance with Article 38 of the Contract;


(0 Any costs incurred for the decommissioning of facilities and site restoration,


including any related activity required by the GOVERNMENT or other


competent authority or by the Contract; and


(g) Any contributions made by the CONTRACTOR to the Decommissioning


Reserve Fund in accordance with Article 38. when such contributions are


made.


3.1.8 Maicrial.aod-Uuipm«H Cuala


Costs of materials and supplies, equipment, machines, tools and any oilier goods of a


similar nature used or consumed in Petroleum Operations subject to the following


(a) Acquisition - the CONTRACTOR shall only supply or purchase materials


for use in Petroleum Operations that may be used in the foreseeable future


The accumulation of surplus stocks and inventory shall be avoided so far as is


reasonably practical and consistent with efficient and economical operations


Inventory levels shall, however, take mto account the time lag for


replacement, emergency needs, weather conditions affecting operations and


(b) Components of costs, arm’s length transactions • except as otherwise


provided in paragraph 3.1 8(d). material purchased by the CONTRACTOR


m arm’s length transactions in the open market for use in the Petroleum


Operations under the Contract shall be valued to include invoice pnee less


trade and cash discounts (if any), licence fees, purchase and procurement fees


plus freight and forwarding charges between point of supply and point of


shipment, freight to port of destination, insurance, taxes, customs duties,


consular fees, excise taxes, other items chargeable against imported materials


and. where applicable, handling and transportation expenses from point of


importation 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 ease shall not











105/117


exceed a fee equal to two pa cent (2%) of the value of the materials added to


the cost of the materials purchased


(c) Accounting - such material costs shall be charged to the accounting records


and books in accordance with the “First In, First Out" (FIFO) method,


(d) Material purchased from or sold to Affiliates of the CONTRACTOR 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.l.8(dXi), 31 8

(i) New material, including used new material moved from inventory


(Condition "A"), shall be valued at the current international net price


which shall not exceed the price prevailing in normal arm's length


transactions in the open market.


(ii) Used material (Conditions "B", “C” and "D'\


(A) Material which is in sound and serviceable condition and is


suitable for re-use without reconditioning shall be classified as


Condition "H" and priced at seventy five per cent (75%) of the


current price of new material defined in Paragraph 3.1.8(dX i);


(B) Material which cannot he classified as Condition but which


after recondiiioniiig will be further serviceable for its original


function shall be classified as Condition “C" and priced at not


more than fifty pcs cent (50%) of the current pnee of new


material as defined in Paragraph 3.1 MXri The cost of


reconditioning shall be charged to the reconditioned material


provided that the value of Condition **C material plus the cost


of reconditioning do not exceed the value of Condition “IT


material;


(C) Material which cannot be classified as Condition “B“ or


Condition “C" shall be classified aa Condition ~D“ and poccd


at a value commensurate with its u%c by the CONTRACTOR


If material is not fit for use by the CONTR ACTOR it shall be


disposed of as junk.


(in) Material involving erection costs shall be charged at the applicable


condition percentage of the current knocked-down price of new-


material as defined in Paragraph 3.1.8(dXi)


Civ) When the use of material is temporary and iU service to the Petroleum


Operations under the Contract docs not justify the reduction in pnee as


provided for in paragraph 3.1.8.(dXiiXb). *ucb matcnal shall be priced


on a basis that will result m a net charge to the accounts under the


Contract consistent with the value of the service rendered.














106/117


(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 may churge Petroleum Operations for the


required material at the CONTRACTOR’S actual cost incurred in


providing such material, in making it suitable for use, and in moving it


to the Contract Area; provided notice in writing is famished 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 does not warrant the material furnished. In ease of


defective material, credit shall not be 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.


(c) Equipment of the CONTRACTOR charged at rales 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 arc used. On


request, the CONTRACTOR shall famish 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 other 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 w here used.


(0 Use of leased or hired machinery and/or equipment in the Petroleum


Operations shall be charged at full cost to the CONTRACTOR This may


include mobilisation and de-mobilisation charges, lease and hire fees, as well


as other contractual costs.


Rentals and Tuxes


All rentals of every kind and nature levied by any GOVERNMENT and all Taxes


imposed in connection with the CONTRACTOR'S assets, income or activities under


ihc Contract and paid directly by the CONTRACTOR or any COM RACTOR


Entity (save where the contrary is expressly provided in the Contract) with the


exception of Taxes described in Article 31.2) and bonus payments made under Article


32.


If the CONTRACTOR, any CONTRACTOR Entity or any of its Affiliated


Companies is subject to income or withholding tax as a result of services performed at


cost for the Petroleum Operations under the Contract, its charges for such services


may be increased by the amount required to cover such taxes (grossed up) including


taxes on such gross up.


3.1.10 Insurance anil Losses





Insurance premiums and costs incurred for insurance carried for the benefit of the


Petroleum Operations provided that such insurance is customary1, affords prudent


protection against risk and is at a premium no higher than that charged on a


competitive basis by insurance companies which arc not Affiliated Companies of the


CONTRACTOR. Except in cases of failure to insure where insurance coverage is


required pursuant to the Contract, actual costs and losses incurred shall be recoverable


to the extent not made good by insurance unless such losses result solely from an act


of wilful misconduct by the CONTRACTOR. Such costs may include repair and


replacement of property in the Contract Area resulting from damages or losses


incurred by fire, flood, storm, theft, accident or such other cause.


3.1.11 Legal Expenses


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 for the protection of the joint interest of the


GOVERNMENT and die CONTRACTOR shall be recoverable. Such expenditures


shall include 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.


Where legal services arc rendered in such matters by salaried or regularly retained


lawyers of the CONTRACTOR or an Affiliated Company of the CONTRACTOR,


such compensation shall be included instead under Paragraph 3.1.2 or 3.1.4(b) as


applicable.


3.1.12 Claims


Expenditures made in the settlement or satisfaction of any loss, claim, damage,


judgement or other expense aming out of or relating to Petroleum Operations, except


as may otherwise be covered elsewhere in the Annex





3.1.13





All costs and expenses incurred by the CONTRACTOR in the training of its


employees engaged in Petroleum Operations under the Contract.


3.1.14 General and Administrative Coste


The costs described in Paragraph 2.8.1 and the charge described in Paragraph 2.8J2.





3.1.15





Charges and fees by the banks for money transfers, payments and foreign exchange


transactions, as well as currency exchange losses incurred by the CONTRACTOR in


connection with the Petroleum Operations.








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3.1.16 Other Expenditures





Other reasonable expenditures not covered or dealt with in die foregoing provisions of


Paragraph 3 which are necessarily incurred by the CONTRACTOR for the proper,


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 under the Contract, including the items listed below shall be


credited to the Accounts under the Contract for the purposes of Article 25 of the


Contract:


3.2.1 I'hc 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 3.1.11 and subsequently


recovered by the CONTRACTOR.


3.2.3 Revenue received from third parties for the use of property or assets the cost of which


has been charged to the Accounts under the Contract.


3.2.4 Any adjustment received by the CONTRACTOR from the supplicrs/mnnufncturcrs


or their agents in connection with a defective material the cost of which was


previously charged by the CONTRACTOR to the Accounts under the Contract.


3.2.5 Rentals. refunds, including refunds of taxes paid, or other credits received by die


CONTRACTOR which apply to any charge which has been made to the Accounts


under the Contract, but excluding any award granted to the CONTRACTOR under


arbitration or expert proceedings.


3 2.6 Costs originally charged to the Accounts under the Contract for materials


subsequently exported from the Kurdistan Region or transferred to another Contract


.Area within the Kurdistan Region.


3.2.7 Proceeds from the sale or exchange by the CONTRACTOR of plant or facilities used


in Petroleum Operations the acquisition costs of which have been charged to the


Accounts under the Contract.


3.2.8 Proceeds derived from the sale or license of any intellectual property the development


costs of which were incurred pursuant to and arc recoverable under the Contract.


3.2.9 Proceeds derived from the sale, exchange, lease, hire, transfer or disposal in any


manner whatsoever of any other item the costs of which have been charged to


Petroleum Operations.


3 J Duplication of Charges and Credits











109/117


 Notwithstanding any provision to the contrary in this Accounting Procedure, there


shall be no duplication of charges or credits to the Accounts under the Contract.








PARAGRAPH 4 - COSTS AND EXPENSES NOT TO BE TREATED AS


RECOVERABLE


The following costs and expenditures shall not be 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 mode to the GOVERNMENT by reason of the failure of die


CONTRACTOR to fulfil its Minimum Exploration Obligations in respect of the


relevant Sub-Period under the Contract.


4.3 The cost of any letter of guarantee, if any, required under the Contract;


4.4 The bonuses set out in Article 32 of the Contract;


4.5 Costs of marketing or transportation of Petroleum beyond the Delivery Point


(excluding Gas Marketing Costs);


4.6 Attorney’s fees and other cost* of proceedings in connection with arbitration under


Article 42 of the Contract or internationally recognised independent expert


determination as provided in the Contract or this Accounting Procedure


4.7 Any interests, fees, costs and expenses paid by the CON TRACTOR 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 Dividends, repayment of equity or repayment of intercompany loans;


4.10 Fine# and penalties imposed under Law.


PARAGRAPH 5 - RECORDS AND VALUATION OF ASSETS


5.1 Record#


The CONTRACTOR shall maintain detailed records of property in use lor


Petroleum Operations under the Contract in accordance with prudent international


petroleum industry practice for exploration and production activities.


5.2 Inventories


 Inventories of property in use in Petroleum Operations shall be taken at reasonable


intervals but at least once a year with respect to movable assets and once every three


(3) years with respect to immovable assets. The CONTRACTOR shall give the


GOVERNMENT at least thirty (30) days written notice of its intention to take such


inventory and the GOVERNMENT shall 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 about the principles


upon which valuation of the inventory has been based. The CONTRACTOR shall


make every effort to provide to the GOVERNMENT a full report on such inventory


within thirty (30) days of the taking of the inventory. When an assignment of rights


under the Contract tukes place the CONTRACTOR may, at the request of the


assignee, take a special inventory provided that the costs of such inventory arc borne


by the assignee.





PARAGRAPH 6 PRODUCTION STATEMENT


6.1 Production Information


Without prejudice to the rights and obligations of the Parties under Article 16 of the


Contract, from the date of First Production from the Contract Area the


CONTRACTOR shall submit n monthly production statement to the


GOVERNMENT showing the following information separately for each producing


Development Area and in aggregate for the Contract Area:


6 1.1 The quantity of Crude Oil produced and saved.


6 1.2 Ihc quality characteristics of such Crude Oil produced and saved.


6.1.3 The quantity of Natural Gas produced and saved.


6.1 4 The quality characteristics of such Natural Gas produced and saved.


6.1.5 The quantities of Crude Oil and Natural Gas used for the purposes of canying on


drilling and production operations and pumping to field storage.


6.1.6 rhe 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 Month in question


6.1.10 The quantities of Natural Gas reinjected into the Reserv oir.











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 6.1.11 In respect of the Contract Area at a "hole, the quantities of Petroleum transferred at


the Measurement Poinl All quantities slum® in this Sttttmcnt shall be expressed in


both volumetric terms (Barrels of od and cubic meters of gas) and tn weight (metric





6J Submission of Production Statement


fbc Production Statement for each calendar Month shall be submitted to the


GOVERNMENT no later than ten (10) days after the end of such calendar Month.


PARAGRAPH 7-VALUE OF PRODUCTION ANI) PRICING STATEMENT


7.1 Value of Production and Pricing Statement Information





I he 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 I The quantities and prices realized therefor by the CONTRACTOR in respect of


sales of Natural Gas and Crude Oil delivered to thud parties made during the Quarter


in question.


7.1.2 I'hc quantities and prices realized therefor by the CONTRACTOR in respect of vales


ol' Natural Gas and Crude Oil delivered during the Quarter in question, other than to


Third Parties.


7.2 Submission of Value of Production and Pricing Statement


rhe 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


PARAGRAPH 8 - COST RECOVERY AND SHARE ACCOUNT STATEMENT


8.1 Cost Recovery Statement





The CONTRACTOR shall prepare with respect to each Quarter a Cost Recovery


Statement containing the follow ing information -


8.1.1 Recoverable Petroleum Costs earned 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 the Quarter in question (Paragraph 8.1.1 plus


Paragraph 8.1.2. net of Paragraph 8.1.3 ).





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;k


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 earned forward into the next Quarter


(Paragraph 8.1.4 net of Paragraph 8.1.5),


8.2. Cumulative Production Statement


The CONTRACTOR shall prepare with respect to each Quarter a Cumulative


Production Statement containing the following information:


8.2.1 llic cumulative production position at the end of the Quarter preceding the Quarter in


question.


8.2.2 Production of Export Petroleum for the Quarter in question.


8.2.4 Hie cumulative production position at the end of the Quarter in question.


8.2.5 The amount of Petroleum applied to Royalty pursuant to Article 24. cost recovery-


pursuant to Article 25 and Profit Petroleum pursuant to Article 26 taken by the


GOVERNMENT and by the CONTRACTOR, respectively, during the Quarter in


question.


8.2.6 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, for the next


succeeding Quarter.


8.3 Preparation and Submission of Cost Recovers and Cumulative Production


Statements


8.3.1 Provisional Cost Recovery and Cumulanve Production Statements, eontaining


estimated information where necessary, shall be submined by the 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 Statements shall be


submined within thirty (30) days of the end of the Quarter m question.


8.4 Annual Statement


For the purposes of Article 25 of the Contract, an Annual Cost recovery and


Cumulative Production Statement shali be submitted within ninety (90) days of the


end of each Year. The Annual Statement shall contain the categoncs of information


listed in Paragraphs 8.1 and 8.2 for the Year in question, separated into the Quarters


of the Year in question and show ing the cumulative positions at the end of the Year in


question with respect to cumulative unrecovcrcd Petroleum Costs and Cumulative


Production





PARAGRAPH 9-STATEMENTOF EXPENDITURE AND RECEIPTS








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9.1 The CONTRACTOR shall prepare with respect to each Quarter a Statement of


Expenditure and Receipts 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 The Statement will show the following


9.1.1 Actual expenditures and receipts for the Quarter in question.


9.1.2 Cumulative expenditure and receipts for the budget Calendar Year in question


9.1.3 latest forecast cumulative expenditures at the Calendar Year end.


9.1 4 Variations between budget forecast and latest forecast and explanations thereof.


9.2 The Statement of Expenditure and Receipts of each Quarter shall be submitted to the


GOVERNMENT no later thutt thirty (30) days after the end of such Quarter.


PARAGRAPH 10 FINAL END-OF-YEAR STATEMENT


The CONTRACTOR will prepare a Final End-of-Yeur 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 hut will be based on actual quantities of Petroleum produced and


expenses incurred. This Statement will be used to make any adjustments that are necessary to


the payments made by the CONTRACTOR under the Contract. The Final End-of-Year


Statement of each Calendar Year shall be submitted to the GOVERNMENT within ninety


(90) days of the end of such Calendar Year


PARAGRAPH 11 - AUDITS


Each such report and statement provided for in Paragraph 6 through 10 shall be considered


true and correct, unless the GOVERNMENT raises an exception thereto within the


timeframe and under the process set out in Article 15 of the Contract.


PARAGRAPH 12 - ANNUAL WORK PROGRAM AND BUDGET


11 1 Each annual Work Program and Budget to be prepared in accordance with Articles


II. 12 and 14 of the Contract, in respect of Exploration Costs, Gas Marketing Costs.


Development Costs and Production Costs respectively will show the following:


I 111 Forecast expenditures for the budget Calendar Year in question including a quarterly


classification of such expenditures


11-1.2 Cumulative expenditures to the end of said budget Calendar Year.


11.1.3 A schedule showing the most important individual items of Development Costs (if


applicable) for said budget Year.








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 PARAGRAPH 13 - CONTRACTOR ENTITY INCOME TAX COMPUTATION





13.1 For the purpose of Article 31.3(b) of the Contract, the net taxable profits of each


CONTRACTOR Entity from all the Petroleum Operations earned out under this


Contract, shall be calculated in accordance with this Paragraph.


13.2 Each CONTRACTOR Entity shall maintain for each Calendar Year sepurutc


Accounts with respect to the Petroleum Operations which shad be used, inter alia, to


establish a profit and loss account and a balance sheet which will show the results of


the Petroleum Operations carried out in six* Calendar Year as well as the assets and


liabilities assigned or directly related thereto. The profit and loss account will be


maintained under the accrual method of accounting


13.3 For purposes of determining tbc net taxable profits of each CONTRACTOR Entity


fix corporate income tax purposes


13.3.1 the profit and loss account of such CON TRACTOR 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 as recorded in its


Accounts and determined in accordance with the provisions of Article 25.


(c) revenues from the disposal of any Profit Petroleum to which such entity is


entitled under Article 26 as is recorded in its Accounts and determined in


accordance with the provisions of Article 26;


(d) any other revenues or proceeds directly connected to the Petroleum Operations


including those arising from the disposal of 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 meurred for the purpose* of the Petroleum Operations whether incurred inside


or outside the Kurdistan Region, which charges shall include 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 m cash pursuant to Article 24. Royalty payments made


and as recorded in such entity's Accounts and determined in accordance with


the provisions of Article 24;








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General and administrative expenditures related to the Petroleum Operation*


performed under this Contract;


depreciation of capital expenditure in accordance with the following


provisions:


(i) capital expenditures incurred by the CONTRACTOR for the purposes


of the Petroleum Operations shall be depreciated on a reducing balance


basis;


(ii) the ilcprcciation 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 arc put into normal service, whichever is later, for the


first Calendar Year in question and for each subsequent Calendar Year,


are as follows:


Nature of the capital asset to be depreciated Annual depredation Rate








Permanent buildings 10 0%





1 emporary building* 20.0%


Office and home furniture and fixtures 20.0%





Productive wells 200%


Production and delivery equipment 20 0%





Drilling equipment 20 0%


Pipelines 200%





Automotive equipment 20.0%





Marine and aviation equipment 20.0%


All other capital assets 20.0%











Kxpknbon Costs (which for (he avotdancc of doubt include appraisal


expenditures) shall be deductible on a reducing balance basis at the rate of


20% per annum


interest and fees paid to creditors of the CONTRACTOR, for their actual








losses of Assets resulting from destruction or damage,


renounced or abandoned during the year, assets which arc under


Article 20.2, bad debts, indemnities paid to third parties as compensation for


damage;


(h) any other costs, expenses, losses of charges directly related to the Petroleum


Operations, including exchange losses realised in connection with the


Petroleum Operations as well ns the bonuses provided in Article 32, the


Exploration Rental provided in Article 6.3, the Production Rental provided in


Article 13.10. the allocation to training, provided in Article 23.7 and the


allocation to the Environment Fund provided in Article 23.9, the costs


specified in Articles 23.11, 18.1 and 38.6 and transportation and marketing


costs beyond the Delivery Point;


(i) the amount of non-offset losses relating lo die previous Calendar Years, which


shall be carried forward for an indefinite penod until full settlemeni 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





(a) if this amount is negative, it shall constitute a loss.


(b) if the amount is positive, it shall be grossed up to take account of the fact that


such entity's corporate income tax is bemg settled out of the


GOVERNMENT'* 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 Net Profits/ tc Income Tax >


Profits -








13 4 For purposes of determining each CONTRACTOR Entity's liability to corporate


income tax for h tax year in respect of the Petroleum Operations earned out under this


Contract, the net taxable profits (if any) for such tax year shall he multiplied by the


applicable rale of corporate income tax. as provided in Article 31.3(a).












































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