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 PRODUCTION SHARING CONTRACT


SANGAW NORTH BLOCK


KURDISTAN REGION











BETWEEN


THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ


AND








STERLING ENERGY (INTERNATIONAL) LIMITED


 TABLF. OF CONTENTS





PREAMBLE





Article 1 DRF1NII IONS


Article 2 SCOPE OF IIIIC CONTKAC1


Article 3 CONTRACT AREA


Article 4 OKI IONS OF GOVERNMENT PARTICPATION AND THIRD PARTY


PARTICIPATION


Article 5 OPERATOR


Article ft TERM 01 Till-CONTRA!'‘1


Article 7 RELINQUISHMENTS


Article 8 MANAGEMENT COMMIT! I t


Article 9 GUARANTEES


Article 10 MINIMUM EXPLORATION WORK OBI IGATIONS


Article 11 EXPLORATION WORK PROGRAMS AND BUDGETS


Article 12 DISCOVERY AND DEVELOPMENT


Article 13 DEVELOPMENT AND PRODUCITON WORK PROGRAMS AND


BUDGETS


Article 14 NATURAL GAS


Article 15 ACCOUNTING AND AUDI TS


Article 16 CON TRACTOR’S RIGHTS AND OBLIGATIONS


Article 17 USE OF LAND AND EXISTING INFRASTRUCTURE


Article 18 ASSISTANCE FROM DIE GOVERNMENT


Article 19 EQUIPMENT 1 AND MATERIALS


Article 20 TITLE! TO THE ASSETS


Article 21 liSt OF THE ASSETS


Article 22 SUBCONTRACTING


Article 23 PI RSONNEL TRAINING AND IKCIINOI OGICAI. ASSISTANCE


Article 24 ROYALTY


Article 25 RECOVERY OF PETROLEUM COSTS


Article 26 SHARING Ol PROFI1 PE 1ROI.LUM


Article 27 VALUATION AND ME 1 THING OF CRUDE OIL AND NATURAL GAS


Article 2K DOMESTIC MARKi: 1 SALI Ol GOVERNMENT SHARE


Article 29 FINANCIAL PROVISIONS


Article 30 CUSTOMS PROVISIONS


Article 31 TAX PROVISIONS


Article 32 BONUSES


Article 33 PIPELINES


Article 34 UNI TISATION


Article 35 LIABILITY AND INSURANCE


Article 36 INFORMATION AND CONFIDENTIAU1Y


Article 37 ENVIRONMENTAL PROVISIONS


Article 31 DECOMMISSIONING


Article 39 ASSIGNMENT AND CHANGE OF CONTROL


Article 40 FORCE MAJEURE


Article 41 WAIVER OF SOVEREIGN IMMl INI 1Y


Article 42 ARBITRATION AND EXPERT l>l 1ERMINATION


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


VI20


Annex A CON 1RACT AREA MAP AND LIST OF COORDINATES


Annex B ACCOUNTING PROCEDURE
































































































































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 PRODUCTION SHARING CONTRACT





BETWEEN


I he KURDISTAN REGIONAL COVER'S MEM' OF IRAQ (hereafter referred lo as the


"GOVERNMENT"), duly represented by the Minister of Natural Resources;


AM)


STERLING ENERGY (INTERNATIONAL) LIMITED, a company established and





existing under the law s of England, whose registered office is at 5 Chancery Lane, London,


WC2A 1 LO, United Kingdom, duly represented by its Exploration and Technical Director.


Andrew J. (misse.











WHEREAS


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


Region tas detined in this Contract) in a way that achieves the highest benefit to the


people of the Kurdistan Region and all of Iraq. using the most advanced techniques of


market principles and encouraging investment, consistent with the Constitution of


Iraq including Article 112 thereof;


(B) Jn ucconlancc with the Constitution of Iraq, the prevailing law of the Kurdistan


Region is the Kurd.Man Region Law (as defined in this Contract), except with regard


lo a matter wholly within the exclusive jurisdiction of the Government of Iraq;


(O The Natiim.il Assembly of the Kurdistan Region approved the Oil and Gas Law oflhc


Kurdistan Region - Iraq (Law No. 22 of 2007) which law regulates Petroleum


Operations, including production sharing contracts;


• 1 >) The GOVERNMENT intends » present to the National Assembly of the Kurdistan


Reg on a law to authorise the GOVERNMENT, by contract or other authonsatwa.


(i) to exempt investors n long term protects relating to the conduct of petroleum


operations in the Kurdistan Region from Kurdistan Region taxation andor lo


indemnity Mich holders against liability to pay such taxation, and (ii) to guarantee the


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









ability, lo carry out Petroleum Operations in the Contract Area (a» defined in


this Contract) under the terms of this Contract;


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


citizenship; and





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I


/


 (iii) willing to cooperate with the GOVERN.VIEN I' by entering into (hi* Contract,


thereby ussisting the GOVERNMENT to develop the Kurdistan Region


petroleum industry, thereby promoting the economic development of the


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








NOW, THEREFORE, I IIE P ARTIES HAVE AGREED AS FOLLOWS








ARTICLE 1 - DEFINITIONS


1.1 Capitalized terms and expressions in this Contract shall have iIk? following meaning,


unless otherwise specified:


Abroad mean* outside oftlte Kurdistan Region and other parts of Iraq


Access Authorisation is defined in Article 17.9.





Account* 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 ir Ansk 34.1


Adjustment Date is defined in Ankle 27.6.





Affiliated C ompans of Affiliate means, as regard* an> of the companies or entities


constituting the C ON TRACTOR, a company of other legal entity which:


(a) controls u CONTRACTOR Entity; or


(b) is controlled by a CONTRACTOR Entk>; or


(c) controls or ra controlled by a company or entity which controls a CONTRACTOR


Entity,


bin shall not include the GOVERNMENT in respect of the Public Company. For the


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


majority of the voting nghts of the applicable entity at its shareholders' meetings or their


equivalent.





Agrml Term* is defined in Article 14.10(a)


Apprarial Area mean* the area defined in Art:clc 12.2


Appraisal Work Program and Budget is defined in Article 12.2.








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L.


Appraisal Report is defined in Article 12.4,


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


of a geological feature or u geological structure in which Petroleum has been discovered


Arm'*-Length Salt* means sales of Petroleum in freely convertible currencies between


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


with each other that could reasonably inllucncc the sales price. Such Arm's- Length Sales


shall exclude:


(a) sales between or among any of the CONTRACTOR Entitle* and their respective


Affiliates;


(b) rules involving the GOVERNMENT or the Government of Iraq; und


(c) sales involving exchanges ami 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 all Materials and Equipment.


Associated Natural Gas means (i) any Nutural Gas dissolved in Crude Oil under reservoir


conditions and (ii) any residue gas remaining after the extraction of Cnide Oil from a


reservoir.


Audit Request Period is defined in Article 15 %(■)


Available Associated Natural Gas is defined in Article 2S.I.


Asailahle C rude Oil is defined in Article 25 1.


\s ailabk Nod- \«soeialrd Natural C.a» is defined in Article 25.1


Available Petroleum i* 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 (6©:) Fahrenheit and pressure of fourteen point seven (14 7) psi


Budgets means ary budgets prepared by. or on behulf of. the CONTRACTOR pursuant to


this Contract and forming part of ar. Exploration Work Program and Budget and or an


Appraisal Work Program and Budget and/or n Gas Marketing Work Program and Budget


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


Budget.


Calendar Year means u period of twelve (12) consecutive Months, commencing I January


and ending on 31 December of the same year


Chairman is defined in Article 8.1.





Commercial Discovery means n Discovery which is potentially commercial when taking


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into account all technical, operational, commercial and financial data collected when earning


out appear! works or similar operations, including recoverable reserves of Petroleum,


sustainable regular production levels and other material 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 Area in


accordance with annual Production Work Program and Budget


Constitution of Iraq means the permanent constitution 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 hereof as well as any extension, renewal, substitution or amendment of th«


production \harir* contract that ma> be agreed in writing by the Parties n accordance with


Article 43.7.


Contract Area moans the area described und defined in Annex A attached lo this Contract


and constituting un integral part of dm Contract, nnd any modifications made to that Annex


in accordance with the provisions of this Contract, through amendments, sunender.


withdrawal, extension or otherwise.


Contract Year means u period of twelve (12) consecutive Months starting IVom the Effective


Date oi tiny anniversary of the said Effective Date.


CONTRACTOR includes and co.npr.io each ami all CONTRACTOR Entitle*. together


with any Public Company or Third Party Participant nominated by the GOVERNMENT and


participating m this Contract pursuant to Article 4.


CONTRACTOR l atity means any Person which s U* the time being a component of the


CONTRACTOR, and or any assignee of all or purl of the right* and obligations of such


Person under this Contract in .accordance with Articles 4 and or 39.


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


Gas by condensation or any other means of extraction





< an: defined in Article 31.1





Decommissioning CimIn means nil the costs and expenditures incurred by the


CONTRACTOR when carrying out Decommissioning Operations, including those defined


in the Accounting Procedure.


Decommissioning Operations means any works, together with nil 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.





DccomiiiUsioning Plan is defined in Article 38.7.


Decominfamloninc Reserve Fund is defined in Article 38 ! and includes all contributions


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paid into such fund and al! interest accumulated such fund.


Dcilurlllilc Amount is defined in Article 15.12


Delivery Point means the point after extraction, specified in the approved Dev elopment Plan


for n Production Area, at which the Crude Oil, Associated Natural Gas and/or Non-


Assocmicd Natural Gas is metered for tho puiposcs of Article 27 5, valued for the purposes of


Article 27.1 and ready to be tuken and disposed of. consistent with prudent international


petroleum industry practice, and at which a Party ina> acquire title to its share of Petroleum


under this Contract or such other point which may be agreed by the Parties.


Development Costs means nil the costs und expenditures incurred by the CONTRACTOR


when canying out Development Operation*. including those defined in the Accounting


Pmccdurc.


Development Operations means .ill development operations or works conducted in


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


Production Area, including: drilling of wells, primary and subsequent recovery projects and


pressure maintenance; survey, cngiikviing. building und erecting or laying of production


plants ;uid 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 and transportation of Pctiolcum); obtaining of such


materials, equipment, machinery, item* and supplies as may be required or expedient lor the


foregoing activities; and all auxiliary operations and .*ctivitics required or expedient lor the


production of Petroleum from the I’reduction Area.


Development Period is defineJ in Article 6.


Development Plan means a plan for development defined in Article 12 8


Development Well means any well dnllcd after the date of approval of the Development


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


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


shall he deemed a Development WelL


Development Work Program und Budget means the development work program and


budget prepared pursuant to Article 13.2


Diveiivery means a discovery of Petroleum within the limits of the Contract Area resultirg


from Petroleum Operations earned out under this Contract, provided such Petroleum is


recovcrahk ai the surface with a measurable flow utilising techniques used m prudent


international petroleum industry practice.


Dispute is defined in Article 42.1


llollar (I S$) mean* the legal currency (dollar) of the 1/n.ted Suae* of .America (USA).


effective l>ate means the dale on which the conditions referred to in Article 47 have been


fulfilled.








9 120


F.nx ironnum Fund is defined in Article 23.9.





Equipment and MatciiaU is defined in Article 19.1.


Exploration CnIi means all the costs and expenditure incurred by the CONI RACTOK


when carrying out Exploration Operations. including those defined in the Accoutring





Exploration Operations means any and dll operations conducted with a view to discovering


Petiole am. including any activities accessary to commence operations: any topographical,


hydrographical. geological. geophysical, aenal and other surveys and activities (including


.ntcrprciatitKis. analyses and related studies) to investigate the subsurface for the location of


Petroleum drilling of shot boles, core holes and stratigraphic test holes, spud, drilling,


testing, coring, logging and equipping ol 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 requited or


expedient for the conduct of the foregoing activities.


Exploration Period is defined in Article 6.


Exploration Kriilal is defined in Article 6.3.


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


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


CONTRACTOR


h lploration Work Program and Budget means the cxpfcwat

prepared pursuant lo .Article I I.I.


I sport < rude Oil is defined in Article 24.2.


Export Nun-Associated Natural C.a» is defined in Article 24.2


Export Petroleum isdclincxl in Article 24.2


First Commercial Declaration Date is defined in Article 4 1


First Production means the inomert when Commercial Production of Crude Oil or Non-


Associ.ricd Namral Gas (as the ease may be) first commerces, by flowing al the rate f«-recast


in the Dcxelopmcnt Plan without interruption for a minimum of forty eight (48) hours


Forte Majeure is defined in Article 402.


lias Do clop men I is defined in Article 14.10.


(las Marketing Coita means all costs and expenditure incurred by the < ONTR ACTOR


when causing out (ms Maikcting Operations, including those defined in the Accounting


Procedure.





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 Gaft Marketing Operation* means any *xl all of the activities -nd operations contemplated


by Article 14.6.





(.as Marketing Work Program and Budget means the marketing work program and


budget prepared pursuant to Article 14.8.


Government Interest is defined in Article 4 I


Government of Iraq means die Federal Government of the Republic of Iraq, which hold.'


office under the Constitution of Iraq and any minister, ministry, department, sub-division.


authority, council, committee, oi Other constituent element thereof and shall.


limitation, include any corporation owned and or controlled by the 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 Agreement means any agreement executed by the CONTRACTOR


Knbtics at any time for the purpose of regulating between such entities the terms under which


the Petroleum Operations will be cotvJucicd. which agreement shall be (a) consistent with


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


to this CootnKt, and (c) consistent w ith the provisions of the Contract


Kurdistan Region me.ms the I edcr.l Region of Kurdistan recognised by ihe C.n*n JOOn of


Iraq and having the same meaning as in the Kurdistan Region Oil and ( .i» I aw


Kurdistan Region l.uw means all staintos. decrees, edicts, codes, orders, rules, ordinances


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


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


Region.


Kurdistan Region Oil and Cm Law means the Oil nnd

Iraq (law No 22 of 2007) aa the same may he amended


l.aw means all applicable laws including the following: constitutional law, civil law.


common law. international law. equity, treaties, statutes, decrees, edicts, codes, orders,


judgements, rules, ordinances and regulations of any local, municipal, territorial, provincial,


federated, national or any other duly constituted governmental authority or agency.


I XT A is defined in Article 42. 1(b).


LIBOR means the London Inter Bank Offered Rate at which Dollar deposits for one (I)


month arc offered in the inter-hank market in London, as quoted in the Financial l imes of


London for the tiny m question. In the event that such rate is not published in the Financial


Times, it shall mean the London Inter-bunk Offered Rate at which Dollar deposits for one


nx«h are ottered for the nearest day aa quoted by National Westminster Bank pie


Management Committee is dcCricd in Article 8.





Maxima- Ffficieat Rate (“MLR“» a defined ia Article 16 12


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Minimum Exploration Obligation* is defined in Article 10.1.


Minimum l-inuncliil Commitment means:


(a) in reaped of the First Sub-Penod, the total of the amounts set out in Articles


10.2(d) ami 10.2(c); and


(b) in respect of this Second Sub-I’eriod, the amount act out in Article 10.1(b).


Month means a calendar month according to (Ik Gregorian calendar.


Natural Gas means all gaseous Petroleum and inerts.


Non-Associated Natural Gas means any Natural Gas which is not any Associated Natural


Gas.


Notice of Dispute is defined in Article 42 I


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


in the name and on behalf of the COM M AC TOR. shall carry out all Petroleum Operations.


If at any time there exists more than one (I) Operator under this Contract, any reference


herein to the term 'Operator' shall be to each Operator with respect to the parts of the Contract


Area in which such Operator conducts Petroleum Operations.


Option of Government Participation is defined in .Article 4.1.


Option of I bird Party Participation n defined in Article 4 8.


Parts or Parties means the GOVERNMENT and or each CONTRACTOR Entity and or


the CONTRACTOR


Permits means all licence*. permits, consents, authorisations or other permissions, as the


ami ext requires.


Person shall include natural and juristic persons (including corporations nnd 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 slate; or


(c) any Petroleum (us defined in paragraphs (a) and (b) above) that has been returned to a


Reservoir.


Petroleum Costs means till costs and expenditure incurred by the C ON I R ACTOR for the


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


Contract and its Accounting Procedure, including Decommissioning Costs, Development


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


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Petroleum Md means u Reserve u or group of Reservoirs within ■ common geological


structure or stratigraphic unit, which may become pan of a Production Area pursuant lo a


Development Plan


Petroleum Operations means all Exploration Operations, Gas Marketing Operations.


Development Operation*. Production Operations and Decommissioning Opcrat.ons. as well


as any other activities or operations directly or indircctl> rebled or connected with the said


operations (including health, safct> and em.ronmcnul operations and activities) and


authorised or contemplated by. or pci formed in accordance with, this Contract


Pipeline Costs is defined in Article 33.5.


Production Area means such areas within the Contract Area designated as .1 production am


in an approved Development Plan prepared pursuant to Article 12. For the avoidance of


doubt, all superjacent or subjacent strata of the Reservoir in which a Commercial Discover)


is located arc automatically included in the relevant Production Area.


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


Production < outs means all the costs and expenditure incurred by the CONTRACTOR in


carrying out the Production Operations, including those defined in the Accounting Procedure.


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


lor the production of Petroleum from the start of Commercial Production. mchaSng


extraction, injection, stimulation, pumping, treatment. Stonge, engineering, operating,


servicing, repairing, and maintaining any well*, pbru. equipment, pipe; ne*» terminal* and


any other installations and facilities, aid any rrlrfcd operatic** and auxiliary operations, and


storage and transportation of Petroleum from the Production Area to the Delivery Point.


Pruduction Rental is defined in Article 13.10.


Production Work Program and Budget shall mean the production w«wk program sod


budget prepared pursuant to Article 13.6


Profit C rude Oil b defined in Ankle 26 I.


Profit Natural (in 1* defined in .Article 26.1.


Profit Petroleum is defined in Article 26.1.


Proposed Contract M defined in Article 14.10(a)


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


Region and regulated by the GOVERNMENT under the Kurdistan Region Oil and Ga® Law.


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


member of the Kurdistan National Assembly or u member of the GOVERNMENT.


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


April, July or October respectively.


1V120


Risersoir means a subsurface rock formation containing an individual and separate nuiural


accumulation of producible Petroleum characterised by a single natural pressure system


"R" Parlor is defined in Article 26.4.


Royally is defined in Article 24.


Semester means n period of six (6) consccutisc Months sturting from the firm day of January


or July respectively.


Senior Rcprvscntallse* is defined in Article 42 1(a)


Subcontractor means any entity of any connacting tier providing services nnd/oi


undertaking works relating to the Petroleum Operations directly or indirectly on behalf of. the


CONTRACTOR or any CONTRACTOR Polity


Sub-Period and Sub-Periods arc defined in Article 6.2.


Tax or Taxes mentis all current or future levies, duties. pnymcnLs, charges, impositions,


imposts, withholdings, fees, taxes (including value added lax or other .sales or transaction


based tax. corporation tax, income lax. capital gains tax. stamp duty, land tax. registration


tax. capital and wealth tax. profit lux. dividend lux or withholdings, transfer tax. customs


duties, brunch or permanent establishment lux oi withholding', tax on income from movable


capital and fixed tux on transfers) or contributions payable to or imposed by the


GOVERNMENT.


Third Parts Interest is defined in Article 4.8


I bird Parts Participant ts defined in .Article 4.9.


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


CONI RAC TOR pursuant to this Contract and forming part of an Exploration Work


Program and Budget and/or an Appraisal Work lYogram und Budget and or a (ias Marketing


Work Program and Budget and or a Development Work Program and Budget and'or a


Production Work Program and Budget


Vice-( hairaian is defined in Article 8.1.


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


stated:


(n) headings are to be ignored;


(b) '‘including" and similar words do not imply any limitations;


(c) singular includes plural and vice versa, and


reference to an "Article" is to an article of this Contract ami to u 'Paragraph"


is to a paragraph in the Accounting Procedure.





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 AH I K l,E 2 - S< OPE OF TOE COMRA< I





2.1 This Contract is a production sluiring arrangement with respect to the Contract Area,


whereby the GOVERNMENT has the right, pursuant to the Constitution of Iraq, to


regulate and oversee Petroleum Operations within the Contract Area


I he purpose of this Contract is to define the respective rights nnd obligations of tlic


Parties and the terms and conditions under which the C OM KACTOR shall carry


out all the Petroleum Operations.


By entering into this Contract, tlic GOVERNMENT grants the CONTRACTOR the


exclusive right and authority to conduct all Petroleum OperationH in the Contract Area


as detailed in Article 3.


2.2 Upon the CONTRACTOR , request, the GOVERNMENT shall provide and'or


procure all Permits relating to the Petroleum Operations required by the


COM RACTOK to fulfil its obligations under this Contract, including those relating


to any extension ami renewal periods and including those required by tlic Government


of Iraq. The GOVERNMENT (I) represents nnd warrants to the C ON TRACTOR


that it has not done and has not omitted to do unythmg that would cause the


cancellation or suspension of this Contract or any Permit granted pursuant to this


Contract; and covenants that it will not do, oi omit to do, anything thut would


cause the cancellation or suspension of this ('ontmct or any Permit granted pursuant


to this Contract. For the avoidance of doubt. nothing in this Article shall affect the


rights and obligation* of the Parties pursuant u> Article 43.


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


Area at its sole cost, risk and peril on hchalf of the GOV ERNMENT. pursuant to this


Contract, including the following operations


(a) I ethnical 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 Exploration Operations and. in the event of


a Commercial Discovery, Development. Production and Decommissioning


Operations, pursuant to this Contract


For the funding of Petroleum Operations, each CONTRACTOR Entity shall


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


Companies or from any third parties.


(cl \dminivtrathe Sen icrv








15 120


Implementation of all appropriate management and administration techniques


for execution ol 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 resp.*nsiNe to the


GOVERNMENT for the conduct of Petroleum Operation* 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 COMRACTOR discovers any such resources when executing


its obligations pursuant to this Contract.


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


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


Costs shall occur within the limits provided under Article 25


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


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


provisions of Article 26.


2.8 Por the execution of Petroleum Operations under this Contract, the t,'OMRACI’OR


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 Coctract Area and outside the


Contract .Area toe the cub vtruction, installation, maintenance. operation and


removal of pipelines and other facilities required for the Petroleum


Operations;


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


inside or outside the Contract Area for the Petroleum Operations.


(d) use any qualified foreign and local peraoend and or Subcontractor* required


for the conduct of Petroleum Operations in accordance with Article* 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;




Petroleum Operation* in accordance w ith Articles 19, 22 and )0; anJ


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


GOVERNMENT will assist the CONTRACTOR with facilitating the use by


the CONTRACTOR of any private property in the Kurdistan Region








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 AR l l< I K .3 - CONTRACT AREA





The initial Contract Area covers ihc San North Block and extends over an arc a of four


hundred and ninety two square kilometres (492 km*’), as detailed and indicated on the map


attached in Annex A and is delimited by the following coordinates











Point ' Latitude (dee min tee) Longitude (deg min see) \ (niK) 3 miN»


1 ' 35® 23,25“N '44°52T8"E «8R 339 3916 318


2 35° 28'05" N 45- r 504 636 3924 948 |


3 35' 25' 02" N 45’ 06' 17' E 509 4% 3919 304


4 35° 18' 22" N 45° 12' I9"i; 519 410 3907 007 1


S 35° 09' 49’ N 45° 07' 2IT 511 145 3891 192 J





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


foregoing co-ordinates of the Contract Area.


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


thus Contract.

















ARTICI I 4 OPTIONS OF GOVERNMENT PARTICIPATION AND THIRD


PARTY PARTIC1PATION














4.1 ll»c GOVERNMENT dull have the option of participating through a Public


Company in this Contract, in respect of the entire Contract Arc*, ax a


CON TRACTOR Entity. with an undivided interest in the Petroleum Operations


ai; the other rights, duties, obligation* and liabilities of the CONTRACTOR (save as


provided in znc subject to this Article 4) urvlcr this Contract in respect of the Contract


Area, of up to twenty-five per cent (25%). and not less than five per cent (5%) (the


Government InUresl"), such option being referred to herein a>» the “Option of


Government Participation Ihc GO\ KRNMEN T shall be entitled to exercise the


Option of Government Participaiioa by notifying the CONTRACTOR in writing of


such election and the of the Government Interest.


4.2 Ihc GOVERNMENT may exercise the Option of Government ParticipstioD or any





lime in the period commencing on the Effective Date and ending one hundred and


eighty (180) days after the date on which CONTRACTOR declares the fire*


Commercial Discovery (which date of declaration is referred to herein os ihc "First


< «mincrn*l Declaration Date~L by mem inking '.a the CONTRACTOR, in writing,


a Public Company. If the GOVERNMENT docs not notify ihc CONTRACTOR of








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 such election within such period, the Option of Government Participation shall be


deemed to liavc been waived.








4 3 If the GOVERNMENT exercises the Option of Government Participation in


accordance with Articles 4.1 and 4.2:


(at the effective date of such participation shall be the date of the notice by which


the GOVERNMENT exercises its Option of Government Participation or the


First Commercial Declaration Date, whichever is tlic earlier;


(h> live Public Company shall participate as a CONTRACTOR Entity under this


Conti act from such effective dale, with all its rights, duties, obligations and


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


or this Article 4;


(c) the Public Company shall not have any liability to the other CONTKACI’OR


Entities to contribute its Government Interest shave of all Petroleum Costs


incurred before the First Commercial Declaration Date and its Government


Interest share of such Petroleum Costs "lull be the responsibility of die other


CONTRACTOR Entities, provided always that such other CONTRACTOR


Entities shall be entitled (through the CONTRACTOR) to recover all such


Petroleum Costs in accordance with Article 25;


(d) if, pursuant to the terms of die Joint Operating Agreement, the Public


Company participates in the development of the Commercial Discovery, it


.shall he liable to the other CONTRACTOR Entities to contribute its


Government Interest share of all Petroleum Costs incurred on oi after the first


Commercial Declaration Daw. with the exception of the Production Uonwscs


referred to in Article 32. and shall be entitled (through the CON I RACTOR)


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


the Petroleum Costs which it has reimbursed pursuant to Article 4 3 (c);


(c) if such Option of Government PurtKipaiion is exercised on or after the First


Commercial Declaration l>ate. the Public Company shall, within thirty (30»


days of the date on which the GOVERNMENT notified the


CONTRACTOR of iu elect.<«. reimburse the other CONTRACTOR


Entities for all Petroleum Cow for which it is liable pursuant to Article 4. 3(d)


and which have been UKinred by such other CONTRACTOR Entities on or


after the First Commcreia IXxhi.it.*) Date but prior to and utoluJing the


date of the notice pursuant to which the GOVERNMENT exercises its Option


of Government Participation From the date of such notice, the Public


Company shall pay die Government Interest share of such Petroleum C osts


directly; and


(0 for the purposes of Article 37 of die Kurdistan Region Oil and tins Low. the


Government Interest so assigned shall be deemed to be held by the


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


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


severally liable with the other CONTRACTOR Entities) to the


GOVERNMENT for its obligations, duties and liabiliues under this Comma


as a CONTRACTOR Entity and the provisions of Article 4.5 shall apply.














IR'I20


4 4 Ihc Public Company may. at its discretion, assign pan or all of its Government


Interest to a third puny or panics 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 levs than a five per cent (5%)


participating interest





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


Article 37 of the Kurdistan Region Oil und Gan I aw. the Government Interest so


•'Mgncd shall deemed to bo held by the GOVERNMEN I' and in accordance with the


principle in Article 16.13, the Public Company to which such Government Interest is


Huns la icd will be individually and separately liable (and not jointly and severally


liable with the other CONTRACTOR I ntuits) to the GOVERNMENT for its


obligations, duties and liabilities under this Contract as a CONTR ACTOR Entity and


the provisions of Article 4 S dull upply.





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


of its duties or liabilities under this Contract as a < OV1RACT OR Entity shall not be


considered as a default of the other CONTRACTOR Entities and shall in no case be


invoked by the GOVERNMEN I to terminate this Contract or exercise any other


rights or remedies in respect of such default that muy he available to it


The capacity of a Public Company as a CONTRACTOR Entity, as it may arise


pursuant to die provisions of this Contract, shall in no event cancel o: affect the rights


of the other t ONTRACTOK Entities to seek to settle n dispute or to refer such


dispute to arbitration or expert determination in occoul.mcc with die provisions of


Article 42.








4.6 A Public Company may assign part or all of its Government Interest hi a third part) or


parties (not being a Public Company) and for the avoidance of doubt the provisom of


Articles 39.1. 39.2 and 39.3 dull not apply. Any such assignee shall be jointly and


severally liable with the other CONTRACTOR Entities.


For the avoidance of doubt, following any assignment by a Public Company ol a/) o:


part or all of a < lovomment Interest to a third party which is not a Public C iimpany, in


accordance with the provisions of this Article 4. tlic provisions of Articles 39.1, 39 2


and 39.3 shull upply to any subsequent assignment of such interest.


4 7 Where a Joint Operating Agreement has been executed by the CONTRACTOR


Entities prior to any exercise of the Option of Government Participation pursuant to


this Article 4, the Public Company nominated by the GOVERNMENT shall become


a party to such agreement, with any amendments necessary to be comi'tent with the


principles of this Article 4. Where a Joint Operating Agreement is not in place prioi


to the exercise of tlic Option of Government Participation pursuant to this Article 4,


the Public Company and the other CONTRACTOR Entities shall, within a


reasonable period of time, negotiate in good faith and enter into a Joint Operating


Agreement and shall during the period between the exercising of the Option of


Government Participation and the execution of the Joint Operating Agreement,


comply with .Article 4 14(a) and (b) as if they were provisions of this Contract





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TMr«l Party Interest





4.K I he GOVERNMENT shall have the option ot nominating a third party, in reaped ol


the entire Contract Area, as a CONTRACTOR limity, with an undivided intercut In


the Petroleum < >pcrations and nil the other rights, duties, obligations and liabilities of


the CON TRACTOR (save as provided in and subject to this Article 4), under this


Contract in reaped of the Contract Area, of up to twenty per cent (20%) and not less


than five per cent (5%) (the -Third Party Interest"), such option being referred to


herein as the "Option of Third Party Participation ’


4 9 the GOVERNMENT mas exercise the Of*ion ol third Parly Participation at any


time prior to the date eight (8) months following die Effective Date by nominating to


the CON I RAC TOR. in writing, the si/c of the Third Party IntercM and a company


which has adequate resources and capacity to discharge the obligations of a


CONTRACTOR Entity under this Contract and a Joint Operating Agreement in


reaped thereof (such a company to be the “Third Party Participant"). For the


avoidance of doubt, the GOVERNMENT may only exercise the Option ol Third


Party Participation once, in respect of one Third Party Participant, and after such


exercise the resulting Third Party Interest may not be increased under this Article 4.


4.10 If the GOVERNMENT nominates a Third Party Participant pursuant to and in


accordance with Articles 4.8 and 4.9. that Third Parly Partkipanl shall base the Third


Party Interest.


4.11 If the GOVERNMENT docs not nominate a Third Pam Participant pursuant to and


in accordance with Articles 4.8 and 4.9 then the Option of Third Party Participation


shall be deemed to have been waived.


4.12 If the Option of Third Party Participation is exercised in accordance with Ankles 4 8


and 4.9:


(a) the effective date of such participation shall be the Effective l>*c.


notwithstanding that the exercise of the Option of Third Party Participation


under .Article 4 8 occurs after such date.


(b) the Thud Pam Participant shall, upon rignature of a bitting and enforceable


instrument of assignment and no\ ation m respect of this Contract referred to


in Article 393. (i) pay to the CONTRACTOR, by way of clewed funds to a


bank occounl nominated by the CONTRAC T OR, an amount equivalent to the


proportion of Petroleum Costs incurred by the CONTRACTOR from the


Effective Date up until the date of such payment attributable to the I hird Party


Interest (for the avoidance of doubt, including Petroleum Costs referred to in


Article 4 2 (c), but excluding the Signature Bonus and the Capacity Building


Bonus payable under Ankles 32.1 and 312 respectively): and (ii) from such


dale, the Third Party Participant shall pay the Third Party Interest share of


such Petroleum Costs directly.








20ft 20


 (c) upon pavmcnt pursuant to and in accordance with Ankle 4.12(b) and the


execution of the instrument referred to in Article 4 12(b), the Third Party


Participant shall participate as a CONTRACTOR I raity under this Contract


as if it Had been a CONTR ACTOR Entity from the ElTcciivc Date, with all


its nghu. din es, obligations and liabilities under this Contract, and


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


CONTRAC TOR Entities pnor to any exercise of the Option of Third Party


Participation pursuant to Article 4.8 and 4.9. the Third Party Participant shall,


upon signature of the instrument referred to in Article 4 12(b), become a party


to such Joint Operaring Agreement on the terms thereof.


(e) If a Joint Operating Agreement is not in place prior to the COVERNMKN T





exercising the Option of Third Party Participation, then the Third Party


Participant and the other CONTRACTOR Entities shall, wiihm a reasonable


period of time, negotiate la good faith a=d enter into a Joint Operating


Agreement and shall during the period between the exercising of the Option of


Third Party Participation and the execution of the Joint Operating Agreement,


comply with Article 4 14(a) and (b) .i% if they were pros isions of this Contract








OidcrufKi





4 13 Notwithstanding Articles 4.8 lo4.12, il the GOVERNMENT cxerc .-s the Ofrion of


Government Participation:


(a) after the GOVERNMENT Inis exercised the «>ption ol Third Party


Participation, the Government Interest shall be assigned under this Artie'e '• t>'


the Public Company by the CONTRACTOR Entities pro rata to i

respective participating interests tuuler this Contract. anJ


(b) prior to the GOVERNMENT exercising the Option of Third Party


Participation, then the Third Party Interest shall be reduced by a percentage so


as to put the other COM RAC TOR Entities (other than the Person bidding


the Govcitunc.it Interest) and the Third Party Participant in the position they


would have been in had the Option of Third Party Participation been exercised


before the Option of Government Participation.














4 14 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:


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


Operaring Agreement shall require the affirmative vote of an agreed


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


be oot more than seven*) One per cent (75%); and


(b) in the event of a proposed transfer by any CONTRACTOR Entity of pan of a


part Kip* mg interest under such Joint Operaing Agreement, including any


Government Interest or Third Party Interest:


(i) no transfer may be made which would result in the transferor oi


transferee holding levs than a five per cent (5%) participating interest.





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 (ii) ihc proposed third part' assignee must demonstrate to the reasonable


satisfaction of each of the extant CONTRACTOR Entities that it has


the fmnitcial capability to perform its payment obligations under the


(.’ontract and under the Joint 0|>cr:itinu Agreement; und


(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





ARTICLE 5-OPERATOR


5.1 The CONTRACTOR hereby designates Sterling Energy (International) Limited





to act as tlic Operator on behalf of the CONTRACTOR for the execution of tire


Petroleum Operations. Ihc CONTRACTOR shall at any time have the right to


appoint another entity as the Operator, upon giving the GOVERNMENT not less


than thirty (30) days prior written notice of such appointment.


5.2 Ihc CONTRACTOR shall submit to the GOVERNMENT for comment any


agreement re guiding or rcgululing the Operator's appointment und its conduct ol


Petroleum Operations on behalf of the CON TRACTOR pursuant to this Contract


prior to execution of such agreement


5.3 In the event of Ihc occurrence of either of the following, the GOVERNMENT muy


require tlic CON TRACTOR to appoint another entity as Operator as soon as is


reasonably practicable:


i a> if an order has been passed in court declaring the bankrupts , liquidation, of


dissolution of the Operator, or







the


CONTRACT OK or a material proportion thereof, and. a' a result the


CONTRACTOR fails to fulfil its obligations under the Contract








ARTK LE 6 • T» RM Of THE CONTRACT


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


below


I »pk>r»li9B f»ffjgd


6 2 The Exploration Period shall he for an initial term of five (5) Contract Years,


extendable on a yearly had* (a. provided in Articles 6.5 and 6.6) up to n maximum


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


of five (5) years shall be subdivided in two (2) sub-periods as follow?


(at an initial sub-pcrxsl of three (3) Contract Years ("First Sub-Period"); and





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each a "Sub-Period and collectively "Sab-Petinds".





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


Period ot any extension thereof pursuant to \niclc 6.6 shall be subject to fulfilment of


tlic Mn man Exploration Obligations or minimum work obligations applicable t<> tl>c


prev ioui Sub-Period or extension thereof pursuant lo Article 6.6 (as the case may be).


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


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


be icduccd by relinquishment from time to time pursuant to Article 7. of ten Dollars


(I'SSIO) per square kilometre per Contract Year ("Exploration Rental"). Such


I xptonuion Rental shall be considered as a Petroleum Cos* and shall be recovered by


the ( ON I K \CTOR in accordance with the prov isaoos of Articles 1 and 25


64 If the CONTRACTOR decides not »o enter into the Second Sub-Period, it shall


notify the GOVERNMENT a: least thirty (30) days prior *o the expiry of the first


Sub-Penod and the Exploration Period shall expire at die end of the First Sub-Pcr»«d.


unless the First Sub-Period has been extended pursuant lo Article 6.5 and or Article


6.6.


6 5 If the CONTRACTOR ha> fulfilled its Minimum Exploration Obligations for a Sub


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


(a) to deciding to .submil nit Appraisal Work Program and Budget as provided


under Article 12.2 in respect of it Discovery, or


(b) to deciding to declare u Discovery us a Commercial Discovery in accordance


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


preparation andor execution of an Appraisal Work Program and Budget a*


provided under Article 12 2 und'or Gu< Marketing Operations.


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


Contract Year, of tlie then current Sub-Period, up ui the end of the maximum


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 GOVERNMENT at least thirty (30)


days prior to the end of the then current Sub-Period or the end of the then current


extension (as the ease may be).


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


Period, 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 ut least thirty (30) day*


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


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


Year. Upon the expiry of such extension, il it considers it has still not completed itv


evaluation of the Contract Area, the < OYI KACTOR xlull be entitled to a fuitlwr


extension of one (1) Contract Year provided that it notifies the GOVERNMENT in


23/120


writing at least thirty (30) day* prior to the end of the originul extension I he right of


the CONTRACTOR 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 I xploration Period, upon thirty (30) days


prior notice to the GOVERNMENT. the CONTRACTOR shall have the right to


withdraw from this Contract provided that the outstanding Minimum f xploration


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


accordance with the Contract, or it has paid to the GOVERNMENT the amounts


specified in Article 10.2 or Article 10.3. whichever is applicable to the then current


Sub-Period.


6.8 If no Commercial Discovery hua been made at the end of the 1 xploration Period


(including any extensions thereof) this Contract shall terminate.


6.9 If a Discovery is made within the maximum I .xploration Period of wen (7) Contract


Years (as provided in Article 6.2). and if the CON I KACTOR considers ii has not


had time to complete sufficient Cun Marketing Operations to declare the Discovery a


Commercial Discovery pursuant to Article 12.6 (a) or 14.5 (a), the CON I KM 'I OK


shall be entitled to request an extension of the I xploration Period (notwithstanding


the maximum period provided in Article 6.2), provided it so requests the


GOVKRNMKNT in writing at least thirty (30) day s prior to the end of the maximum


Exploration Period, together with a proposal for (las Marketing Operations to he


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


DtMOVWy. the CONTRACTOR shall he entitled to request a further extension of


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


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


proposal foe Gas Marketing Operations to be undertakes during such extension.








M0 If the CON TRACTOR consider* that a Discovery of Crude Oi; and any Associred


Natural Gas is a Commercial Discovery, the CONTRACTOR >ha]| have the


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


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


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


the declaration 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 CONTRACTOR considers that a Discovery of Kon-Associated Natural Gas is


a Commercial Discovery, the CONTRACTOR shall have the exclusive right to


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


Contract The Development Period for a Commercial Discovery of Non-A«ocuted


Natural Gas shall be twenty (20) years, commencing on the declaration of weh


Commercial Discovery by CONTRACTOR, in axonkmce with Article 12 6 (a) or


.Article 14.5 (a), with an automatic right lo a five (5) year extension.


6 12 If Commercial Production from a Production Area is sail possible at the end of it%





24/120


Development Period us defined in Articles 6.10 or 6.11 then, upon its icqueM. the


CONTRACTOR .«lull he entitled to on extension of such Development Period under


the same terms as those provided in this Contract. Such request shall he made in


writing by the COM RAC TOR at least six (6) Months before the end of the said


Development Period.


I lte term of any such extension of tin; Development Period shall lx::


(a) five (5) Years for ('rude Oil and any Associated Natural Gas. and/or


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


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


Production Area at ar.y time during the term of this Contruct, subject to giving


notice to the GOVERNMENT of at least ninety (90) days. This Contract shall


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


0|x*rmions for all Production Arcus have terminated.











ARTICLE 7 - RELINQUISHMENTS


7.1 Subject to the provisions of Articles 7.2 and 7.3. the CONTRAC TOR shall surrender


portions of the Contract Arcu a* follows


(a) at the end of ihe initial Sam of the Exploration Period referred to in Article'


twenty fixe per cent (25%) of the net area determined by subtracting ihe


Production Areas from the initial Contract Area;


(b) a the end of die first extension period cricred into under this Contract alter the


end of the initial term of the Exploration Period referred lo m .Article 6 2. an


additional twenty fhc per cent (25%) of the net area determined by subtracting


the Production Areas from the remaining part of the Contract Area, and


(c) at the end of the Exploration Period (including all extensions thereof), all of


the remaining area that is not in a PmdiKtion .Area.


72 For the application of Article 7.1:


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


areas to h: surrendered: and


(b) the COMHWTOR 'Hall .xoe the right lo determine the area, shape and


location of the Contract Area to be kept, provided that it dull be in contiguous


block


7.3 If the relinquishment referred to in Amok 7.1 can only be acmes cd by including part


of a Discovery area, or in the absence of any Discovery area, an Appraisal Area, then


•hesc percentages shal. be reduced to exclude such the Discovery urea or Appraisal


Area.





25 120


 7.4 Dunn*: the Exploration Period, ihc CONTRACTOR may, at the end of each Contract


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


GOVERNMENT at 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. This Contract shall terminate in the event 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 CONTRACTOR elects


to surrender the entire Contract Area without having fulfilled the Minimum


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


10.2 or Article 10.3. the CONTRACTOR shall pay to the GOVERNMENT the


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


may he.


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


CON I RAC1 OR shall be communicated to the GOVERNMENT by written notice


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


Article 7.1.























ARTIC LE 8 - M \NAGEMENT COMMIT! FT





8 1 A Management Committee shall lie established within thirty (30) days following the


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


to the Petroleum (►peratoes and the Work Programs. Within wih period, each of the


GOVERNMENT and the CONTRACTOR shall by wntten notice nominate its


respective member* of the Management Comp ittix and their deputies.


The Management Committee dial I comprise two (2) members designated by the





GOVERNMENT and mo (2) mcmlw designated by the CONTRACTOR


l puo ten (10) days notice, each of the GOVERNMENT the CONTRACT OR


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


the Managemert Committee shall be one of die 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 have the right to invite a reasonable number of observers as deemed


capacity.





26/120








t


X.2 llio Manugcmont Committee sluill review, deliberate, decide and give advice,


suggestions and recommendation to the Ponies regarding the following subject


nut ten:


(a) Work Program* and Budgets;


(b) the < ONTRAt'I < >K‘s 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 ten million Dollars <$ 10,000,000), submitted by


the CONTKACI Olt in accordance with Article 19.3;


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


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


(h) any other subject mutter of a matcii.d nature that the Parties arc willing to


consider.


X 1 Each ol the GOVERNMENT and the COVIRACTOK dial! have one (I) vote in the


Management Committee. The Management Commit nivii validly deliberate


unless each of the GOVERNMENT and the CONTK \C TOR ii represented by at


lead ooe (I) of its members or its deputy.


The Manugement Committee slial) attempt to reach unanimous ngrcemcni <>n any


subject matter being submitted In the event the Management Committee cannot


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


to discuss the same subject matter ami attempt to reach a unanimous decision.


Except as provided for in Article 8.4 and Article 8.5. in the event dial no agreement is


reached ot the second meeting, the Chairman shall have the tie-breaking vote


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


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


approval is not obtained, ns required pursuant to Article 8.5; then die proposal made


by the CON I It ACTOR shall be deemed adopted by the Management Committee.


8.5 Notwithstanding lire provisions of Article 8.3. and subject to Article 8.4. unanimous


approval of the Management Committee .'hull be required for.


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


Budget prepared alter the tiist Commercial Discovery in the Production Area


relating to such Commercial Discovery;





27/120


(b) approval of. and any rmficral revision *o. the Development Plan, the


proCKtxo schedule, lifting schedule and Development and Production Work


Programs and Budgets.


(c) cs^Wivhmera of nilct of procedure for the Management Committee;


(d) any insurance issues ov er which the Management Committee has authority.


(e) approval of. and any material revision in. procurement procedures for goods


and'or services, submitted by the CONTRACTOR in accordance with Ankle


I9_3 (unless such procedures have been deemed approved by the Manas email


Committee in accordance with Article 19.3);




submitted by CO.VI K ACTOR in accordance with Ankle 33.3;


(?) approval of a first rate bank in which to place the Decommiiuonmg Reserve


Fuad, in accordance with Article 1* I;


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


P’an submitted pursuant to Article 38 7;


(i) approval of, and an) material revision to. on any Decommit*toning Work


Program nnJ Budget or (las Marketing Work Program and Budget.


(j) any Terms of Reference which are required to be prepared and agreed for the


purposes of expert determination, pursuant to Article 42.2;


Ik) approval of any costs in excess often per cent (10%) above any Budget; and


(I) any matter hiving n material advene effect on Petroleum Operations.


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


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


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


Contract Year prior to the dale of the first Commercial Discovery and three limes o


Contract Year thereafter


8 7 Hither the GOVERNMENT or the CONTRACTOR may call an extraordinary


meeting ol the Management Committee to discuss important issues or developments


related to Petroleum Operation*, subject to giving reasonable prior notice, specifying


tire matters to Ik discussed at the meeting, to lire other Party. The Management


Committee may from time to lime make decisions by correspondence provided .ill the


members have indicated their approval of such decisions in such correspondence.


8.8 Unless ut least one (I) member or its deputy of each of the GOVKRNMEN T and the


CON I R ACTOR In present, the Management Committee shall Ik adjourned for a


period mu to exceed eight (K> days. The Party being present shall then notify the other


Party of the new date, time and location for the meeting.





28/120


8.9 The agenda for meetings of the Management Committee shall lx; prepared by the


CONTRACIX)R in accordance with instructions of the Chairman and


communicated to the Parties at least fifteen (15) days prior to tlte date of the meeting


The agenda shall include any subject matter proposed by either the GOVERN Ml N I


or the COM RACTOR Decisions of the Management Committee will be made at


the meetings. 11>c C ON TRACTOR shall be responsible lor 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 minute* 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 lie deemed to have approved the minute*.


8 10 If required, the Management Committee may request the creation of a technical sub¬


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


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


CONTRACTOR After each meeting, the technical sub-committcc or any other sub¬


committee shall deliver a written report to the Management Committee


X II Any costs and expenditure incurred by the CONTRACTOR for meetings of the


Management Committee or any technical sub-committcc or any other sub-commiucc


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


C OMR AC TOR in accordance with the provisions of Articles I and 25.




















ARTICLE f - Cl ARAM EES


91 Each CONTRACTOR Entity shall provide the GOV ERNMENT. if so required by


die hirer pursuant to writien notice received by the CONTRACTOR Entity within


thirty (30) day* of the Effective Dale, with a corporate guarantee in a lorm as dull be


agreed in good faith between the GOVERNMENT and each CONTRACTOR


Ratify


not later than ninety (90) days after the Effective Date, provided that such corporate


guarantee shall be given only b reaped of the Minimum financial Commitment for


the First Sub-Period anc shall expire automatically upon completion of the


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


(c) or expenJiture of such Minimum Financial Commitment, whichever is the earner


9.2 Not later than s:\ty (60) days a ft a the commencement of the Second Sub-Period,


each 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


CON I RACTOR Entity for the First Sub-Period, if any. subject to making the


changes necessary in order for the corporate guarantee to apply only to the


Second Sub-Period, or





29 120


(b) if there is no agreed form, in a form us shall he agreed in good faith between


the GOVERNMENI xnd each < OVIRACTOR Fntity not later than ninety


(90) days after the GOVERNMENT’S notice,


and presided in each ease that such corporate guarantee shall be given only in respect


of the Minimum Financial Commitmcct for the Second Sub-Period and that such


corporate guarantee shall expire automatically upon completion of the pcrfonnancc 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 Lotus in accordance with


Article 39. the relevant third parts asazr.ee shall provide the GOVERNMENT, if so


required by the latter pursuant to written nodes 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 laiih between the GOVERNMEN I and such assignee not laser than ninety


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


giraaniee shall be given only m respect of the Minimum Financial Commitment for


the then current Sub-Period, aad shall expire automatically upon completion of the


performance of the Minimum Exploration Obiignti^ns vet out in Articles 10.2(d) and


(e) or Article 10.3(b). as ihc case may he. or expenditure of such Minimum Financial


Commitment, whichever is the earlier.














ARTICLE ID - MINIMUM EXPLORATION WORK OBLIGATIONS


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


Management Committee approval of the Exploration Work Pn'gum and Budget in


accordance with Article * Ibe CONTRACTOR shall perform geological,


geophysical aoeFor drilling works as provided under Articles 10.2 to 10.3 (the


"Minimum Exploration Obligation*"). If applicable, the said Minimum Exploration


Obligation* 'hall be performed during each Sub-Period in accordance with prudent


international petroleum industry practice.


102 Dunn* the first Sub-Period, the CONTRACTOR shall:


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


(i) the compilation of a technical database;


(ii) the performance of a remote sensing study:


mi) a Field visit to venfy initial geological and geophysical work and remote


sensing results and plan for two dimensional seismic acquisrtion; and


(b) carry out a data search for existing data specific to this Conti act Area,


comprising the following:


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


(ii) seismic data and gravity data, if as ailablc; and


i:


 (iii) reprocess seismic data. if as mlablc;





(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 for this purpose a minimum financial


amount of five million Dollars (US$3,000,000).


Hi. | During the Second Sub-Period, the CON I KACTOK shall:


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


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


results from the h irst Sub-Period justify the acquisition of further seismic data;


and


(b) drill one (1) Exploration Well committing for this purpose a minimum


financial amount of five million Dollars (USSS;000.000).








10.4 Notwithstanding tlie provisions in Articles 10.2 to 10.3. for the execution of the


Minimum I xploiation Obligations undei Articles 10.2 to 10.3, it is agreed as follows:


(a) Minimum Exploration Obligations in (he Second Sub-Period shall only .«rrl>


in the event the CONTRACTOR has not elected to notify the


GOVERNMENT that it will not enter into the Second Sub-Period, in


accordance with and subtext to Article 6 4


(b) Subject to Article 10.4 (■), the COM K ACTOK dull be required to meet its


Minimum Exploration Obligation* for the applicable Sub-Period, even if this


entails exceeding the Minimum financial Commitment for such Sub-Penod If


the CONTRACTOR has «tnficd its M nimura Exploration Obligations


without having spent the total Minimum I manual Commitment for such Sub-


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


Obligations for such Sub-Penod


(c> Each Exploration W ell shall he drilled to the depth agreed by tbc Management


C ommittee unless





0) the formation is encountered nt a lesser depth than originally


anticipated;


(ii) basement is encountered at a lesser depth than originally anticipated.


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


relevant hxpluration Well presents a hazard due to the presence of


abnormal or unforeseen conditions.


(iv) insurmountable icehmcal problems are encountered rendering t





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 (») petroleum formations arc OttXWmd whose penetration requires








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


Management Committee to be reached.


If drilling i» 'topped tor 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 he deemed to have satisfied its


Minimum. I xplotalien Obligations in respect of the Exploradon Well.


(d) Any geological or geophysical work earned call or any seismic data acquired,





processed or interpreted or any Exploration Well drilled or any other ws*k


performed in excess of the Minimum I xpioration Obligations and or any


amounts spent ,n excess of the toUil Minimum Financial Conunitment in any


gisen Sub-Period, shall be carried forward to the next Sub-Period or any


extension period and shall be taken into accou nt to sansfy the Minimum


Exploration Obligations andor the total Minimum Financial Commitment for


such subsequent Sub-Period or extension period.











For the avoidance of doubt, if: (i) :n the First Sub-Pcrxxl the


CONTRACTOR performs any of the Minimum I xpioration Obligations


prescribed for the Second Sub-Period in Ar.iclc 10.3; and (ii) the


CONTRACTOR has not elected to notify Ihc OOVKRNVIE.VT tbut it will


not enter into Ihc Second Sub-Period (in accordance with und subject to


Article 6 4). the performance of such Minimum Exploration Obligations shall


be deemed to satisfy the same Minimum Exploration Obligations for the


Second Sub-Period.











ARTICLE. 11 - EXPLORATION WORK PROGRAMS AND III l>(.I I S





III Within forty-five (45) days following the Effective Date, the CONTRACI OR .shall


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


budget relating to Exploration Operations (the "Exploration Work Prognim und


Budget" i for the remainder of the Calendar Year I hereafter. no later than I tht«»hcr


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


Work Program and Budget to the Management Committee for the following Calendar


Year.





11.2 Each Exploration Work Program and Budget shall include deuiils of, hut not be


limited to, the following:





(.0 work to be undertaken;


(h) materials, goods and equipment to be acquired.








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 (c) cost estimate of services to be provided, including serv ices by third parties


and/or Affiliated Com pomes of any CONTRACTOR Entity; and





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


Accounting Procedure.





Ill Ihc Management Committee shall meet within sixty (60) days following its receipt of


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


.11 id 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. rhe CONTRACTOR shall communicate its


comments on any such requested modifications to the GOVERNMENT at the


meeting of the Management < ’ommittcc or in writing prior to such meeting.


11.5 Ihc CONTRACTOR hull be authorised to make expenditures not budgeted in an


approved Exploration Work Program and Budget provided that tlvc aggregate amount


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


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


excess expenditures shall be reported as soon as is reasonably practicable to d c


Management Committee for the avoidance of doubt nil excess expenditures shall be


recovered by the CONTR ACTOR in accordance with the provisions of Article- I


and 25. provided that any excess expenditure' above the ten per cert (10%) limit dv t


only be rccov erod with the unanimous approval of the Management Committee


11.6 In eases of ctncigency. the CONTRACTOR may incur tucli additional expenditures


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


expenditures sliall be reported promptly to the Management Committee I or the


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


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


Articles I and 25.











ARTICLE 12 - DISCOVERY AND DEVFXOPMKNI


12.1 If the drilling of an Exploration Well results in a Discovery, the CONTRACTOR


shall notify the GOVERNMENT within forty-eight (4K) hours of completing test'


confirming the presumed existence o! such Discovery or within such longer period ns


CONTRACTOR reasonably requires to determine whether nr not there is a


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


( ONTRACTOR shall present to the Management Committee nil technical data then


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


(the "Discovery Report-). The CONTRACTOR shall provide in a timely manner


such other information relating to the Discovery as the GOVERNMENT may


reasonably request.








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12.2 If. pursuant to Article 12.1, the CONTRACTOR considers thul the Discovery has


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


GOVERNMENT of the Discovery, submit un appniisnl program in respect of the


Discovery (the ''Appraisal Work Pragma and Budget') io the Management


Committee The Management Committee shall examine anJ approve the Appraisal


Work Pn*gram and Budget within thirty (30) days of its receipt- If the


GOVERNMENT requests say nxxhficatior 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 and Budget The


CONTRACTOR shall communicate its comments on any such requested


modifications to the CONI RNMEN i at the meeting of the Management Committee


in in writing prior to such meeting.


The Appraisal Work Program and Budget shall include lire following:


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


international petroleum 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 Arcs").


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


a well, the CONTRACTOR may drill any additional Exploration Well or any


Appraisal Well deemed necessary by the CONTRACTOR before or daring the


Management Commit ice's review of the Discovery Report provided in accordance


with Article 12.1 or its review of the Appraisal Work Program and Budget


Ihe CONTRACTOR dull be authorised to incur expenditures not budgeted in on


approved Appraisal Work Program and Budget provided 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 he reported as soon as is reasonably practicable to the


Management Committee lor the avoidance of dont*. all excess expenditures shall be


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


and 25. provided that any excels expenditures above the ten per cent (10%) lim;l shall


only be recovered with the .jsantmous approval of the Management Comm.ttee


Appraisal Report


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


■Appraisal Report”) to the Managcmcnl Committee within ninety (90) days


following completion of the Appraisal Work Program and Budget.


12 5 fhe Appraisal Report shall mciuJe the following


34^120


 (a) geological conditions;


(b) physical properties of any liquids;





(c) sulphur, sediment and water content;


(d) t> |K? of substances obtained;










(f) production forecast per well; and







12£darat.ion <»f ( umnierdal_l»iM«ii.CQ





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; or


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


Discovery; or


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


Discovery, which may beconKr a Commercial Discovery subject to additional


exploration and/or appraisal works within or outside of the Appraisal Area; or


(d) tltc CONTRACTOR has determined that the Discovery is a significant


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


Discovery subject to Gas Marketing Operations, in accordance with Article


14.5,





In case the statement of the CONTRAC TOR 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














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


proposed Development Plan to the Management Committee within one hunt I red


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


accordance with prudent international petroleum industry practice. I xccpt with the


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


following as applicable:


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





35/120 m





 Appraisal Report regarding the importance of the Petroleum Field within the


Appraisal Area;





(b) drilling and completion of Development Wells;


(c) drilling and completion or w ater or Natural Gas injection wells;


(d) laying of gathering pipelines;





(c) installation of .separator. tanks, pumps and any other associated production


and injection facilities for the production;


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


facilities onshore or offshore;


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


facility or Delivery Point;


(h) construction of.storage facilities for Petroleum;





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


(j) training commitment in accordance with Article 23;







(l) all crnitracts and arrangements made or to be made hv the CONTRACTOR


for the sale of Natural Gas;


(m) all contracts and arrangements made or to be made by Persons in respect of


that Natural Gas downstream of tl>e point at which it is to he sold by die


CONTRACTOR and which are relevant to tlie price Jl which (and other


terms on which) it is to be sold by the CONTRACTOR or are 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


I ength Sale;


(n) each CONTRACTOR Entity's plans for financing its interest, if .my; and





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


necessary for Development Operations. Production Operations and delivery ol


Petroleum produced, in accordance with prudent international petroleum


industry practice.


12.9 11k- Management Committee shall use its best efforts to approve tlie Development


Plan within sixty (60) days after its receipt of such plan The Development Period 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 the GOVERNMENT if the GOVERNMEN T.


36/120


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


writing.





12.10 II the GOVERNMENT requests any modifications to the Development Finn, then


the


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


CONTRACTOR of the GOVERNMENT'S written notification of requested


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


discuss such request. The CON TRACTOR 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 the date of such


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


approved and adopted.


12.11 If the CONT RACTOR makes several Commercial Discoveries within the Contract


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


CONTRACTOR shall be entitled lo develop and to produce each Commercial


Discovery and the GOVERNMENT shall provide the appropriate Permits covering


each Production Area. In case the urea covered by the Commercial Discovery extend*


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


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


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











ART1CI.F. 13 - DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND


BUDGET


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


CON TRACT OR shall start the Development Operation* 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 budge! for Development


Operations (the 'Development \Vork Program and Budget') to be carried out in the


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


than 1 October :n each Calendar Year, the CONTRACTOR shall submit lo the


Management Committee updates in respect of its Development W ork Program and


Budget. To enable the Management Committee to forecast expenditures, each


Development Work Prcigram and Budget shall include details of the following





(a) works to be carried out;





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





37/120


 (c) type of services to bo provided, distinguishing between third panics and


Affiliated Companies of any CONTRACTOR Entity; and


(d) categories of general and administrative expenditure.





13.3.1 Tile Management Committee shall meet within sixty (60) days following its receipt of


CONTRACTOR'S proposal to examine and approve the Development Work


Program and Budget.





13.3.2 I f 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


the sixty (60) days referred to in Article 13.3.1. 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 he 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 percent (10%) of the approved


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


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 provisions of


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


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


Commit lee.


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 promptly to the Management Committee. For the


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


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


Articles I and 25.











13.6 No later titan I October of the Calendar Year preceding the estimated commencement


of production pursuant to an approved Development Plan and thereafter no Liter titan


1 October n 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") for the following


Calendar Year I o 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) materal and equipment to be acquired by main categories;





(c) type of services to he provided, distinguishing between third parlies and


Affiliated Companies of any CONTRACTOR Entity, and


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It





 (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 in 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 percent (10%) of the approved Production


Work Program and Budget in tiny 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 CON TRACTOR 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.


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


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


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


avoidance of doubt, such additional expenditure dial I 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 CON I RAC I OR shall pay


to the GOVERN MEN T. in arrears, an annual surface rental for the Production Area,


of ten Dollars (US$10) per square kilometre per Contract Year (-Production


Rental”). Such Production Rental siiall be considered as a Petroleum Cos', and shall


be recovered b> the CONTRACTOR in accordance with the pro\ isions of Articles I


and 25.





\R IICLE 14 - NATURAL GAS


Use for the Petroleum Operations


14.1 lb tnkc 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 CON TRAC TOR on principles materially similar to those contained in


this Contract, including, consistent with the Kurdistan Region Oil and Gas l.uw, more


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


Profit Petroleum.


14.2 I he CONTRACTOR may freely use any Natural Gas required for the Petroleum


Operations. If technically and economically justified, the C OYI RA< 'TOR shall in


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


39/120








accordance wilh pruccnt international petroleum industry practice as follows.


Associated NwlunilJiaa


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 deliver)1


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


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


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


shall be 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 incurred by the CONTRACTOR up to such


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


the CON TR AC TOR in accordance with the provisions of Articles I and 25.


In the event the GOVERNMENT finds a market for Associated Natural Gas. it shall


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


elect to participate in supplying such Associated Natural Gas within ninety (VO) days


following notification thereof by the GOVERNMENT. If live CONTRACTOR


elects to participate in supplying Associated Natural Gas to such market, all


expenditures associated with any necessary facilities shall be paid for by the


CONTRACTOR. For the avoidance of doubt, such expenditure incurred shall be


considered Petroleum Costs and shall be recovered by the CONTRACTOR in


accordance with the provisions of Articles 1 and 25.


Non Associated Natural Gas


14.4 Until an approved Natural Gas sales contract is executed in respect of ail volumes of


Natural Gas expected to He produced, the C OM KACTOR shall be entitled during


the Exploniiion Period and the Development Period to carry out Gas Marketing


Operations.


14.5 It 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 Commercial Discovery subject u» Gas Marketing Operations, it shall carry


out Gas Marketing Operations, it the end of which it shall submit a written statement


to the Management Committee specifying that:


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


Discovery; or


(b) the CONTRACTOR has determined that tlie Discovery is noC a Commerc :il


Discovery.


14.6 For the purpose of this Contract. "Gas Marketing Operations'* means any activity


relating to the marketing of Noo-Associated Natural Gas. including any evaluation to


40/120


find ii coimncrciHl market lor such Non-Associated Natural Gas and/or to find a


commercially viable* technical means of extraction of such Non-Associated Natural


(ias and may include activities related to evaluating the quantities of Non-Associated


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


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


of the Non-Associated Natural Gun from the Delivery Point to the relevant market.


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


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


Costs.


14.8 No later than I October of the Calendar Year preceding the Calendar Year in which


any (his Marketing Operations are due to occur, the* CONTRACTOR shall prepare


and submit to the Management Committee its Gas Marketing Work Program and


Budget for tic following Calendar Year. To cnublc the Management Committee to


forecast expenditures, the (las Marketing Work Program and Budget shall include the


following:








|a) works to be carried out;





(l>) type of services to lx* provided, distinguishing between third parties and


Affiliated companies of any CONTRACTOR Entity;


(c) categories of general and administrative expenditure.





If any modification to the Gas Marketing Work Program and Budget i' requested b>





the GOVERNMENT, the Management Committee shall meet to discuss the Oto


Marketing Work Program and Budget and proposed modifications thereto within


sixty (60) day« from its receipt of the proposed Gas Marketing Work Program and


Budget. ‘IT»c 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.





14 0 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 percent (10%) of the approved Gas


Marketing Work Program and budget in any Calendar Year and provided further th.il


Mich 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 b> the CONTRACTOR in accordance with the provisions of Articles :


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.





14 10 If any Non-Associated Natural Gas is discovered within the Contract Area, and the


CONTRACTOR reasonably considers that the Non-Associated Natural Gas


Discovers will only he a Commercial Discovery if certain terms of this Contract ire


amended, it shall be entitled to request amendments to this Contract, with its reasons.


I he GOVERNMENT shall in good fmth give reasonable consideration to the





41/120


CONTRACTOR'S proposed amendment and reasons und the Partin shall in good


faith atiempt 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


CONTRACI OR having declared such Discovery to be a Commercial Disco very in


accordance with Article 12.6 (a) or Article 14 5 (a), and subsequently within a period


of eight (8) years from the end of such I xplora'.ion Period, the GOV I UN Ml NT


reaches agreement with any tltird part) lo develop such Discovery (the "Gas


Development"), then the following provisions shall apply:


(a) either before or upon agreement in relation to the Gas Development having


been reached (and whether or not such agreement is recorded in a fully termed


production sharing and/or operating or other like agreement), but before such


agreement is signed (the "Proposed Contract”) (subject only to the rights of


each CONTRACTOR l.ntity to pre-empt such Proposed Contract pursuant to


Article 14.10(b) and such conditions as may be applicable), the


GOVERNMENT shall, as soon as reasomihly practicable after the occurrence


of such circumstances, serve on each of the CONTRACTOR Kathies, a


notice to that effect und shall with such notice provide such information and


main tomu of such agreement us the CONTRACTOR Entities may


reasonably request to determine if they will exercise their rights (the "Agreed


Terms"), including:


(i) the identity of such third party;


(ii) the effective date of the Proposed Contract;


(iii) the applicable commercial terms, including bonuses, royalties, cost


recovery, profit during, taxation and any other similar terms; and


(iv) all and any maten.il 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 information and


terms as may be reasonably requested by any CONTRACTOR Entity.


Within one 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 enier into the Proposed Contract on the same or substantially similar


terms to the Agreed I emu. with the right to cost recover all Petroleum


Costs incurred under this Contract against all Petroleum revenues


received under the Proposed Contract, up to any cost recovery limits


set out therein, or


(ii) to waive the aforesaid right of pre-emption in relation to the Proposed


Contract;


and shall serve notice accordingly upon the GOVERNMENT and nil the


( ONTKACTOR Entitle* and in delimit of receipt by the GOVERNMENT


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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 Entitles exercises its


rights under Article I4.l0(b)(i) in relation to the Proposed Contract, llien the


GOVERNMENT shall transfer or grant each such CONTRACTOR Entity


an interest in the Proposed Contract upon the Agreed Terms (in accordance


with Article 14.10(b)(i» in the proportions in which their respective


percentage interests bear to the aggregate of their respective percentage


interests under the relevant Joint Operating Agreement (us 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 14.10(b)(i) in relation to die Proposed Contract then the


GOVERNMENT shall transfer or grant the whole of the interest in the


Proposed Contract upon the Agreed Terms (in accordance with 14.10(b)(i)) to


such CONTRACTOR Entity.


(c) In the event that none of the CONTRACTOR Entities exercises its rights


undei Article M.IO(bXi) then the GOVERNMENT may enter into the


Proposed Contract on terms no more favourable to its counterparty than the


Agreed Terms and. in such case, the aforesaid rights of pre-emption sluril


thereupon cease to apply in relation to the Proposed Contract.


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


enters into the Proposed Contract with the third party concerned, the


GOVERNMENT will use its best endeavours to avoid any effect which may hamper


the Petroleum Operations of the CONTRACT OR while producing Petroleum.





















































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limine





14.12 Muring of Natural Gas in the course of activities provided for under this Contract, i»


prohibited except (i) short-term flaring up to twelve (12) Mouths necessary for testing


01 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.


Hie CONTRACTOR shall submit such request to the GOVERNMENT, which


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.











ARTICLE 15 - ACCOUNTING AND AUDITS


15.1 The CONTRACTOR shall keep in its offices in the Kurdistan Region copies of all


books and accounts of all revenues relating to tbc Petroleum Operations and .ill


Petroleum Costs (the "Account*"), 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 functior 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 (he GOVERNMENT in accordance


with tlic provisions of this Contract shall be prepared in the English language The


Accounts shall he kept in accordance with prudent international petroleum industry


practice and in accordance with the provisions of the Accounting Procedure. The


Accounts shall be 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


CONTRACTOR shall submit to the GOVERNMENT a summary statement of all


Petroleum Costs incurred during the said Calendar Year. The summary statement


shall also include a profit calculation pursuant to the provisions of Article 26.


15.3 I he GOVERNMENT shall have the right:


(a) to request an audit of the Accounts with respect to each Calendar Year within


a period of two (2) Calendar Years following the end of such Calendar Year


(the "Audit Request Period"); and


(1>) 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 paragraphs (n) and

shall have the right to audit the Accounts with respect to each Calendar Year at any


time in the ease of manifest error or fraud.





44/120


15.4 lire reasonable cost of retaining an auditor pursuant to Article 15.3 shall he home by


the CONTRACTOR and treated as a Petroleum Cost for the purpose of cost recovers


under Articles I and 25.


15.5 During 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 die GOVERNMENT consider, on the boa in of duto and information available,


that the CONTRACTOR made a material mistake or there is any irregularity in


respect of the Accounts and considers that any corrections, adjustments or


amendments should be made, the GOVERNMENT' shall make any audit exceptions


in writing and notified to the CONTRACTOR within six (6) Months of the date of


request referred to in Article 15.3.1, and failure to give such written exception within


Mich time shall be deemed to be an acknowledgement of the correctness of the


C< >N 1RACTOR 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 The GOVERNMENT shall within


thirty (30) days of the CONTRACTOR'* 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 in Article 15.2.


the CONTRACTOR shall provide the GOVERNMENT with such production


statements and reports, as required pursuant to Article 16.3.


15.9 Any dispute between the Parties under this .Article 15 that cannor be settled amicably





within sixty (60! days of the GOVERNMENT* final notice under Article 157, may


be submitted to an expert on the request of either the GOVERNMENT or the


CONTRACTOR in accordance with the provisions of Article 42.2. Notwithstanding


tbe provisions of Article 42. in this specific instance the decision of the expert shall


not nccessarJy be final and either Party may decide to submit tbe matter to arbitration


m accordance with the provisions of Article 42.1.








ARTICLE 16 - CON I RACTOR S RIGHT'S /AN1> OBL1GAI IONS





Permanent Repreaentathf


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 uny


correspondence addressed to such CONTRACTOR Entity.





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 ( imiliui of Petroleum Operations





16.2 I'hc (.'ONTRACTOR shall cairy out all Petroleum Operations in accordance with the


provisions of this Contract, prudent international petroleum industry practice and


applicable Kurdistan Region Law.


I he 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 foregoing. Tlic CONTRACTOR and all such


Poisons shall at all times have free access to the Contract Area and any Production


Areas for the purpose of carrying out Petroleum Operations.


Intin illation anil Reports


16.3 The CONTRACTOR sliall 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 i xplorution Operations, Development


Operations and Paxhiction Operations (as applicable) performed during the


Calendar Year, including any cuariiles of Petroleum produced and sold;


|b) data and information regarding any transportation facilities bait :tnd


operated by the CON I R \CTOR;


(c) a statement specifying the number of personnel, their title, their nationality


as well as a report on any medical services and equipment made available to


such personnel; and


(d) a descriptive statement of till capital assets acquired for the Petroleum


Operations, indicating the date and price or cost of their acquisition.


Requirement for Petroleum Operations


16.4 The CONTRACTOR may freely use any Petroleum produced within the Contract


Area for the Petroleum Operations


Supervision bv the GOV LKNMEM


16.5 The CONTRACTOR sliall nt nil 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 die


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 peiform such reviews


46/120


and verifications. The representatives of the GOVERNMENT shall at all times


comply with tiny safety regulations ini|x>sed 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 perfonnuneo of the Petroleum Operations, the CONTRACTOR, any A Hi I into


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 lice


access to the Contract Aren 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 die Petroleum Operations








16.7 Upon notice from the GOVERNMEN T, the ('ON TRACTOR shall make available


to a reasonable number of representatives of the GOVERNMENT those of the


CON TRACTOR'S facilities which are necessary to enable such representatives to


perform their tasks related to this Contract and the Kurdistan Region Oil and Gux I aw


including, in eusc of works to lie performed on work sites, transportation,


accommodation and board, under the same conditions as those provided by the


CONTRAC TOR for its own personnel.


Notwithstanding Article 16.8. the GOVERNMENT sliall indemnify and hold


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 u*c of the facilities by such representatives.


Loss or Damage


16.8 I he COM RAC I'OR 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 CON I R \< 'I OR shall respect any patents belonging


to third parties.


Litigation


16.10 The CONTRACTOR shall as soon as reasonably practicable inform the


GOVERNMENT of any material litigation relating to this Contract.

















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Safci*


1611 I he COM RACTOR shall implement a health, safety and environment program and


take necessary measures to ensure hygiene, health and safety of its personnel earn ;ng


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 wo* 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 lo


work.


(c) implementing a penm;-u>work procedure around hazardous equipment and


installations;


(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;


(0 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; und


ig) for the purpose of preventing any involuntary injection of fluids in petroleum


formations and production of ('rude Oil and Natural Gas at rates that do not


conform to prudent international petroleum industry practice.


Production Kates





16.12 Subject to Article 43.2. in the event the production rate of the individual wells und


Reservoir of n Petroleum Field is to be set below the Maximum Efficient Rate


("MUR") for the Reservoir as provided for in the Development Plan as a consequence


of u 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 Aren so affected for a reasonable period of time in order to produce the


Petroleum which would otherwise have already been produced, liad the MER lor 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 und


48/120


 die GOVERNMENT under this Contract lire to he understood us being sepurute and


individual and not joint mid 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 COM KACTOR 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 ugreement sluill include die


following:


(a) the obligation of the GOVERNMENT und each CONTRACTOR Entity to


lift, regularly throughout each Calendar Year, their share of Petroleum


produced from the Production Area;


(b) notification procedures by the Operator to the GOVERNMENT and each


CONTRACI OR Entity regarding entitlements and availability of Petroleum


for lifting by each Party during each lifting period and nominations by each


Party; and


(c) the right of the Parties to lift any Available Petroleum not scheduled for lifting


and/or not lilted by the other Party during each such lifting period.








16.15 The CONTRACTOR Entities shall sell and iransfer to the GOVERNMENT, upon


wntten request of the GOVERNMENT, any amounts ol Crude Oil that the


GOVERNMENT shall deem necessary to meet Kurdistan Region internal


consumption requirements The sales price of such Crude Oil 'hall be the International


Market Price. The GOVERNMENT sh.ll provide the CONTRACTOR 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 < OVI RAC1 OK 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 ihcir


respective production rates.


I he provisions of ihis Article 16.15 shall not apply to Non-Associated Natural Gas











AR I If T I 17 - USE OK LAND AND EXISTING INFRASTRUCTURE





17.1 [he GOVERNMENT shall make available to the CONTRACTOR any land or


property n the Kurdistan Region required for the Petroleum Operation*, provided.





49/120


however, ihe CONTRACTOR shall nol request to use any such land unless there is a


real need for it. Ihe 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 CONTRACTOR shall


notify the GOVKRNMKNT. On receipt of such notification:


(a) the GOVKRNMKNT 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 he long lasting


or makes it henceforth impossible to resume original usage of «uch land or


property. Any property rights shall be acquired by and recorded n the name


of the GOVERNMENT, hut the CONTRACTOR shall be entitled free u-j


of the land or property for the Petroleum Operations for the entire duration of


this Contract.


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 take


into account die rights of the owner and any effective use of the land or property by


its owner at the time of occupation by the CONTRACTOR. All reasonable costs,


expenditures and fair and reasonable compensation (a* required pursuant tv Article 29


of the Kurdistan Region Oil and Gas Law) 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 lie considered


Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with


the provisions of Articles 1 and 25.


17.3 For its Petroleum Operations, the CONTRACTOR shall have the right in the


Kurdistan Region to use, subject to applicable Law, any railway, tramway, road,


airport, landing field, cnnal, river, bridge or waterway, any telecommunications


network and any existing pipelines or transportation infrastructure, on Units no less


favourable than those offered to other entities and, unless generally in force, to be


mutually agreed.


17.4 Under national emergencies due to environmental catastrophe or disaster, or internal


or external war, the GOVERNMENT shall have the right to request to use uny


transportation and communication facilities installed by the CONTRACTOR. In


such cases, the request shall originate from the Minister of Natural Resources. For the


avoidance of doubt, such costs, expenses or liabilities inclined by the


CONTRACTOR hereunder shall lx- considered Petroleum Costs and sliall 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





50/120


 Ui*ag

units, separation units, sulphur plants unJ any .*thcr facilities or mstallatkaa* lor the


Petroleum Operations. in addition to pipelines, pumping stations, general.**. power


plants, high voltage lines, telephone, radio .uul any oilier telecommunications


system*, a* well as w.irchousev offices, sheds, houses for personnel, hospitals,


schools, premises, dikes, vehicles, mil ways, roods, badges, 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 Tire


COM IkvriOH shall hove the right to select the location for thexe facilities





176

















The COM RAC I OK shall have the nght m die Kurdtstan Region to take or use my


existing irrigation or navigation system* and that land. houses or ssatenng point*





belonging to tliird parties arc not deprived of their use.





17 7 llic COVh RNVIKNT shall have l ho right in the Kuidi*tun Region to build* OfM


and maitiunn roads, railways. aitporU, landing snips. canals, bridges, protection dams,


police stations, military installations, pipelines and Iclccominunicatious network*

Ihc Coilwet Area, provided this d«»es not increase the coots, or compromise or have


results m mrnwd ml or expense for the C ON TRACTOR then, for the avo^ncc





of doubt, such cost and expense shall he considered Petroleum Costs and shall he


recovered hy the CONTRACTOR m accordance with the provision* of Articles I


and 25.





17 X Cpon request of the ( OMkU'IOK. the 00\ IIKNMENT shall prohibit the


construction of residential or commercial buildings in the vicinity ot facilities used lor


tl« IV.rolcum Open rions Pint may he dec In red dangerous due to the Petroleum


Operations and to prohibit any interference with the use of any facilities required for


the Petroleum Operations.


179


























5I'I20


 The GOVERNMENT sliall give ihe CONTRACTOR adequate advance notice of


any Access Authorisation in respect of the Contract 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 tliat there :s undue


interference with or hindrance of the rights and activities of the CONTRACTOR.








ARTICLE 18 - ASSISTANCE FROM THE GOVERNMENT


18.1 To tile extent allowed by Kurdistan Region Law and Iraqi law and at the specific


request of the CONTRACTOR, the 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 matters of customs or import/export;


(c) securing entry and exit visas, work and residence permits as well as any other


administrative Permits for each CONTRACTOR Entity's, its Affiliate's and


its Subcontractors' foreign personnel (including their family members)


working in the Kurdistan Region and any other part of Iraq during the


implementation of this Contract;


Id) securing any necessary Permits to send AWi>ad documents, dj'.a or simple*


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;


(ft 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 anc information, including data and information


relating to the Contract Area held by previous operators or contractors; and


(i) providing all necessary security for Petroleum (iporjlions


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 lie


charged to the CONTRACTOR and shall be considered Petroleum Costs and shall


be recovered by the CONTRACTOR as Petroleum Costs in accordance with the


pnn isions of Articles 1 and 25.











52120


 aim ICLK iy - i:gi ipmknt and materials





19.1 Hit* ('ONTRACTOR shall supply, 1*1 procure the supply of, all material*, equipment,


machinery, spare parts uud any other items or gixids required for the Petroleum


Operations ("Equipment and Materials").


19.2 Said Equipment and Materials shall he provided by the CONTRACTOR in


accordunoc with the relevant Work Programs and Budgets.


19.3 As soon ns possible after the Effective Date, live < ONTRACTOR 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 (o), including the criteria for tender evaluation, which


procedures and criteria shall he in accordance with prudent international petroleum


industry practice. If the Management Committee does not request any modifications


to the procurement procedures within thirty (30) days after receiving such procedures,


the procedures shall be deemed approved by the Management Committee.


19.4 I lie CONTRACTOR shall give priority to Equipment and Materials that are readily


available in the Kurdistan Region and other parts of Iraq to the extent their price,


grade, quality, quantity, specifications, purchase, delivery and other commercial and


technical terms are comparable in all material respects with those generally available


m the international petroleum industry.











ARTICLE 20 - TITLE TO ASSETS


20.1 During the Exploration Period, any Assets acquired by the CONTRACTOR for the


Petroleum Operations sliall remain tire property of the CONTRACTOR, the


CONTRACTOR Entities, their Affiliates or their Subcontractor*, as the ease may


be.


20.2 During the Development Period, subject to Article 21. all Assets, acquired by the


CONTRACTOR for the Petroleum Operations shall become the property of the


GOVERNMENT upon the completion ol the recovery of the coals of J1 such assets


by the CONTRACTOR, or die end of the Contract, whichever is the earlier.


20.3 The provisions of Article 20.2 shall not apply to any Assets leased by the


CONTRACTOR or belonging to an Affiliated Company ol a CONTRACTOR


Entity or belonging to its or their Subcontractors or its or their employees.


























53/120


 ARTICI .1 21 - USE Ol-THE ASSETS





21.1 Bach CONTRACTOR Entity .shall lave the exclusive right to use. free of any


charge, all Assets described in Article 20, both before and after recovery of the cost of


the same, lot the Petroleum Operations, as well as for any petroleum operations under


other agreements in the Kurdistan Region to which it or tiny 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


( ONTKA<.'TOR'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 I he CONTRACTOR slutll ensure that any Subcontractors it engages have all the


requisite experience and qualifications.


22.2 Hie 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 oilier commercial terms arc. in the CONTRACTOR'S sole opinion, comparable


ir. all material respects with th<«e 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 indirectly, and must


have all necessary resources and capacity.


22.3 Selection of Subcontractor* dull 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.


22.4 The CONTRACTOR shall provide the GOVERNMENT with copies of agreements


entered into with Subcontractors, where their amount exceeds the limit set by the


Management Committee from time to lime.











ARTICLE 23 - PERSONNEL, 1 RAINING, AND TECHNOLOGICAL 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 Reg oa and other


parts of Iraq to the extent such personnel hare the technical capability , qualifications,


competence and experience required to perform the wx»rk








54/120


23.2 Tic* CONTRACTOR Entities shall give due consideration to the secondment of


GOVERNMENT personnel to the CONTRACTOR Entities' personnel to the


GOVERNMENT during the various phases of the Petroleum Operations. Terms and


conditions lor such secondment shall be mutually agreed by the Parties and any costs


associated therewith shall be considered Petroleum Costs and shall be recovered by


(hr CONTRACTOR in accordance with the provisions of Articles I and 25.


23.3 bach 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 and/or a member of their family engage in activities or


commit acts which breach Kurdistan Region Law. the CONTRACTOR shall, at the


request of the Management Committee, take the necessary steps to repatriate such


individunl(a).


23.4 I or the first (wo (2) Contract Years, the CONTRACTOR shall provide up to one


hundred thousand Dollars ($100,000) per Contract Year less the cost to be incurred by


the CONTRACTOR during the forthcoming Contract Year in respect of any


secondment under Article 23.2, 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 sliall be at the discretion of the Minister of Natural


Resources. Such costs shall be considered as Petroleum Costs and shall be recovered


in accordance with the provisions of Articles I and 25.


I mining


23 5 In a planned way, in accordance with the provisions of this Article 23.5 and Article


23.6 and 23.7, die CON I RAC TOR shall train 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 Emilies 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


and appropriate technology in die Petroleum Operations, to the extent permitted by


applicable Law anil agreement.' with third parties, and subject to appropriate


confidentiality agreements


25.6 In addition to the requirements of Article 23.1, the recruitment, integration and


training of the CON TRACTOR Entities’ personnel from the Kurdistan Region and


other parts of Iraq shall be planned, which plans shall be submitted to the


Management Committee for its approval. The training plan shall take into


consideration the requirements of Article 23.5 and may include training for the


GOVERNMENT’S personnel. depenJmg on the extent to which the amount allocated


to the training plan, as prescribed by Article 23.7, is available after taking into


consideration the training of the CON TRACTOR Entities Kurdistan Region and


other Iraqi personnel.





55/120


Witfcin nine!>' (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, do 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.


217 Ihe training plan referred to in Article 23.6 shall provide for the allocation of the


amount of one hundred and fifty thousand Dollars (USS150,000) for each Contract


Year during the Exploration Period and three hundred thousand Dollars (DSS100.000)


for each Contract Year during the Development Period.


218 I .ich CONTRACTOR shall be responsible for the training costs which it may incur


in respect of the personnel it employs from the Kurdistan Region and other parts of


Iraq. All such costs incurred pursuant to the training plan referred to in Article 23.5


and all other reasonable costs shall be considered as Petroleum Costs and 'lull be


recovered in accordance with the provisions of .Articles 1 and 25. Costs incurred b>


Owe CONTRACTOR for training programs for the GOVERN MEN I'% personnel


shall be borne by the CONTRACTOR only to the extent that they are 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 other training programs for the


GOVERNMENT'S personnel shall be the GO\ ERNMEYTs responsibility


The Environment Fund


23.9 From the dale of I it'l Production from the Contract Ami. the ( ONTRAfTOR shall


contribute the amount of one hundred thousand Dollars (UBS 100,000) each Contract


Year during the Exploration Period and two hundred thousand Dollars (LSS200.000)


for each Contract Year during the Development Period into the environment fund


established by the GOVERNMEN T 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 3nd


shall be recovered in accordance with Articles I and 25.


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 I and


25.








23.11 Before the end of the first Contract Year, die CONTRACTOR shall provide to the








GOVERNMENT in kind technological and logistical assistance to the Kurd is tan


Region petroleum sector, including geological computing hardware and software and


such other equipment as the Minister of Natural Resources may require, up to the


value of five hundred thousand Dollars (USS500.000). The form of such assistance


shall be mutually agreed by the Parties and any costs associated therewith shall be


considered Petroleum Costs and shall be recovered by the C.'ONTK\(TOK in


accordance with the provisions of Articles I and 25.





56.120


 ARTICLE 24 - ROY ALTY





24 I I lie CONTRACTOR shall pay lo the GOVERNMENT a portion of Petroleum


produced aiul saved from the Contract Area, as provided in this Article 24 (the


"Royally").


24.2 I he Royalty shall be applied on all Petroleum produced and saved from the Contract


Area which is Crude Oil or Non-Associalcd Natural Gas. except for Petroleum used


in Petroleum Operations, re-injected in a Petroleum Field, lost, llarcd or for Petroleum


that cannot be used or sold and such Crude Oil and Non-Associatcd 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-Associatcd


Natural Gas".


24.3 I f payable in cash, the amount of the Royalty calculated by applying the Royalty rates


provided under Article 24.4 shall be paid by the CONTRACTOR as directed by the


GOVERNMENT, in accordance with Article 24.7.


If payable in kind, the quantity of Export Petroleum corresponding to the Royalty and


calculated by applying the Royalty rates provided under Article 24.4 shall be


delivered in kind by the CONTRACTOR to the GOVERNMENT at the Delivery


Point. Title und risk of loss of the Royalty paid in kind shall be translate*, at the


Delivery Point


Unless the GOVERNMENT requires the Royalty to he paid in kind, by giving the


CONTRACTOR not less than ninety (90) days prior written notice prior lo tin:


commencement of the relevant Quarter, the GOVERNMENT shall be deemed to


have elected to receive the Royalty in full and in cash ior the relevant Quarter.


24 4 I he Royalty due on any Export Petroleum produced and saved in the Contract Area


shall he determined daily by applying the following relevant Royalty rate, to the


Export Crude Oil or to the Export Non-Associatcd Natural Gas (as the ease may be)


produced and saved on that day:











(a) For Export Crude Oil:


the Royalty rate for Export Crude Oil shall be ten percent (10 %). which, for


the avoidance of doubt, shall apply regardless of the guv ity of tlx oil; and


(b) For Export Non-Associated Natural Gas:


the Royally 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 front any Royalty


57/120


 24.6 If. pursuant to Article 243. the GOVERNMENT receives the Royalty in kind, and


pursuant to Article 28. the GOVERNMENT requests assistance loc the sale of all or


port of the Royalty received in kind, each CONTRACTOR Entity shall assist the


GOVERNMENT in selling all or part of such Royalty received in kind (belonging to


the GOVERNMENT) in consideration of a commission per Darrel payable to such


CON I RACTOR Entity, in accordance with Article 28.


24.7 If. pursuant to Article 243. the GOVERNMENT receives the Royalty in cash





(a) any lx port 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-Associaied Natural Gas shall be valued at the actual price


obtained at the Delivery Point under an approved contract, as provided m


Article 27.3;


(c) the CONTRACTOR shall pay such Royalty each Quarter, in unvars. 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


(d) the CONTRACTOR Entities shall be entitled to export freely the volume of


Export Petroleum eoticsponding to the Royalty determined in accordance


with Article 24.4 for the purpose of paying the Royalty in cash.








ARTICLE 25 - RECOVERY OF PI. I KOI I l M COSTS


25.1 All Export Crude Oil produced and saved from the Contract Area shall, after


deduction of any quantities of Export Crude Oil due for Royalty pursuant to Article


24. he considered as 'AvailableCrude OiT


All Associated Natural Gas produced and saved from the Contract Area, except lor


Associated Natural Gas which is used in Petroleum Operations, re-injected in a


Petroleum Field, lost, flared or cannot be used or sold, shall be considered as


"Available Associated Natural Gas'.


All Export Non-Associatcd Natural Gas produced and saved from the Contract Area


shall, after deduction of any quantities of Export Non-Assacinted Natural Gas due for


Royalty pursuant to Article 24, be considered as 'Available Non-Associatcd Natural


Gas'.


"Available Petroleum" means Available Crude Oil. Available Associated Natural


Gas and Available Non-Associatcd Natural Gas.


25.2 For the purpose of this Article 25:





58 120


(a) uny Available Crude Oil shall be valued at the International Market Price


obtained at the Delivery Point, as defined in Article 27.2; and


(h) uny Available Associated Natural Gas and any Available Non-Av-viaicd


Natural (las shall be valued at tlw actual price ob:,lined at the Delivery Point


under an approved contract, as provided in Article 27.3.


25.3 Subject to the provisions ot 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 percent (40%) of Available Crude


0:1 (w hich, for the avoidance of doubt, shall apply regardlcvs of llie gravity of the oil)


and Available Associated Natural Gas. produced and saved within any Calendar Year.


Available Crude Oil above this percentage or otherwise not used for the recovery ol


Petroleum Costs shall be Profit Crude Oil.


25.4 Subject to the provisions of this Contract, from First Production in the Contract Area,


the COM R ACTOR shall at all times be entitled to recover all Petroleum Costs


incurred undcT this Contract of up to fifty three percent (53%) of Available Non-


.Associated N.itur.il Gas produced and saved within any Calendar Year. Available


Non-


Associutcd Sutural

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 m accordance with the provisions detailed in the


Accounting Procedure. Recovery of Petroleum Costs shall occur- in the following


order:


(u) Production Costs;


(b) Exploration Costs (including appraisal costs and further exploration within the


Contract Area);


(c) Gas Marketing Costs;


(d) Development Costs; and


(e) Decommissioning Contributions.


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-


Associated Natural Gas do not allow the CONTRACTOR to recover all its


Petroleum Costs pursuant to this Article 25, the amount of un-rccovercd Petroleum


Costs in such Calendar Year shall be canicd forward indefinitely to the subsequent


Calendar Years until all Petroleum Costs art* fully recovered, but. save ns provided in


Articles 14.10 and 38.4. in no other case after the termination of the Contract.











59/120


 25.7 The provisions of Articles 27.5 ami 27.6 shall be applied to determine the quantities


of Available Crude Oil and/or Available Non-Associated Nulurul 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 tlie


CONTRACTOR at the Delivery Point. Title and risk of loss of such Available


Petroleum shall be transferred at the Delivery Point.


25.9 liach CONTRAC T OR Entity shall Ire 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 with the provisions of this Contract and to retain Abroad any


proceeds from the sale of all such Available Petroleum. Development Costs and


Production Costs incurred in each Production Area shall be recovered from Available


Petroleum from that Production Area.


25.10 Subject to Article IX.4. for the avoidance of doubt, Petroleum Costs under this


Contract are not recoverable against other contract areas held by the


CONTRACTOR.








ART 1CI.K 26 - SHAKING OF PROFIT PETROLEUM


26.1 lJnder 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 Production Area, after


the recovery of Petroleum Costs, in accordance with Articles I and 25. and


(c) "Profit Natural Cas" means the quantities of Available Non-Associated


Natural Gas produced from the Production Area, after the recovery of


Petroleum Costs in accordance with Articles I 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 ol Profit Crude Oil


and/or Profit Natural Gas, in consideration for its investment in the Petroleum


Operations, which percentage share shall be determined in accordance with Article


26.5.


26.3 To determine the percentage share of Profit Crude Oil aodor Profit Natural Gas to


which the CONTRACTOR is entitled, the "R" Factor shall he calculated in


accordance with .Article 26.4 and shall be applied separately to each Production Area.


26.4 Ihc “R" Factor shall be calculated as follows:











60/120


 R-X/Y





where:


X is equal to Cumulative Revenues actually received by the CON TRACTOR;


Y: is equal to Cumulative Costs actually incurred by the CONTRACTOR,


from the date of the signature of this Contract,


for the purpose of this Article 26.4:


"Cumulative Revenues" means total Revenues, as defined below, received by the


CONTRACTOR until the end of the relevant Semester, determined in accordance


with Article 26.7.


Revenues means the total amount actually received by the CONTRACTOR for


recovery of its Petroleum Costs and its share of Profit Petroleum in the Production


Area.


"Cumulative Costs" means all Exploration Costs and Oas Marketing Costs in the


Contract Area and all Petroleum Costs in the Production Area, actually incurred by


the CONTRACTOR until the end of the relevant Semester, determined in


accordance with Article 26.7.


Notwithstanding the foregoing provisions of this Article 26 A for the period from


hirst Production until the end of the Calendar Year in which First Production occur*,


the "1C h'nctor shall be deemed to he loss than one (1).


26.5 I hc share of Profit Petroleum to which the CONTRACTOR shall be entitled from


hirst Production is:


(a) lor 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 Crude Oil within the Production Area at the


corresponding Delivery Point:


"It" Factor CONTRACTORS % Share of Profit Crude Oil


R

R> I and

R>2 15%





and





(b) for Profit Natural Oas. equal to the quantities of Non-Associated Natural ('ms


resulting from the application of the relevant percentage »s indicated below to


the daily volume of production of Profit Natural Oas within tlse Production


 Area at the corresponding Delivery Point:





"R" Factor CONTRACTOR'S % Share of Profil Natural Gas








R < or - 1 40%


R > 1 and < or = 2.75 40 - J ( 40 - 20) • ( R - I ) / < 2.75 -1)1%


R > 2.75 20%


26.6 The CONTRACTOR'S accounting shall account separately for all components for


the calculation of "X" and "Y" values in the formula provided in Aiticle 26.4.


26.7 For each Semester, starting from the 1" of January of tin1 Calendar Year following the


Calendar Year in which Firsi 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 sltall be


that determined by applying the Cumulative Revenues actually received and the


Cumulative Casts actually incurred up to and including the last day of the preceding


Semester.


If the CONTRACTOR is unable to calculate the "R" Factor for the relevant Semester


before an allocation of Profit Petroleum lor such Semester must be made, then the


allocation of Profit Petroleum for the previous Semester sliall be used for the relevant


Semester Upon the calculation of the "R" Factor for the relevant Semester


(•) 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 the two Semesters is different. then


the CONTRACTOR shall make any adjustments to the Parties' respective


shares of Profil Petroleum to restore them to the position that they would have


been (on a Bands basis) in had the "R* Factor for the relevant Semester been


available from the start of such Semester.


26.8 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 aikl'or 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 Irom 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 error was


recognised However, each lifting of Petroleum relating to such error by the Party


receiving the surplus shall not exceed twenty-five per cent (25%) of the dure of


Profit Petroleum to which such surrendering Party is entitled. For the 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.











62M20


26.9 The quantities of Profit Petroleum due to the CONTRACTOR shall be delivered to


the CONTRACTOR Entities at the Delivery Point Title and risk of loss of such


Profit Petroleum shall be transferred to the C ONTRACTOK Entities at the Delivery


Point.


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 an>


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 GO'I KYMf NI


on behalf of each such entity representing the CONTRACTOR to the appropriate tax


authorities in accordance with .Article 312. The GOVERNMENT shall provide the


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 .it the Delivery Point. Title and risk of loss of such Profit


Petroleum shall he transferred at the Delivery Point.


26.12 At least twenty -one (21) days prior to CONTRACTOR’S estimated date of First


Production and. subsequently, thirty (50) days prior to the beginning of each


Semester, the CONTRACTOR shall prepare and deliver k» the GOVF.RNMKN I


production program comprising the production forecast for the next Semester and the


forecast of the quantities of Crude OH and Natural Oas to which each Party shall Ik*


entitled during the said Semester.


26.13 Within ninety (90) days following the end of ouch Colcndur Year, the


CONTRACTOR shall prepare and delivci an annual production report to the


GOVERNMENT, stating the quantities of Crude Oil and Natural Gas to which each


Party is entitled, the quantities of Grade Oil and Natural Gas lifted by each Parly 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 sliare 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.


























63/120


 ARTICLE 27 - VALUATION AM) METERING OF 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 ut the end of each Quarter at the Delivery Point bused on the International


Market Price, as defined in Article 27.2.


27.2 The "International Market Price" referred to in Article 27 I shall he the weighted


average price per Darrel, expressed in Dollars, obtained by the CONTRACTOR at


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 referral 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


Ann's Length Sule then the GOVERNMENT has the right to refer the matter to an


expert pursuunt to Article 42.2.


In the event that there is no lifting of Crude Oil in the relevant Quarter or no Arm’s


I cnglh Sales, the applicable ’’International Market Price" for such Quarter shall be


the weighted average price per Barrel obtained during that Quarter from Arm's Length


Sales of t rude Oil of the same or similar gmvity and quality from other production


arcus sold in markets competing with Crude Oil produced from the Comract Area,


taking into account gravity and quality and transportation and other post Delivery


Point costs.


To determine such price, the Parties shall, pnor to the commencement of Production,


agree on a basket of Crude Oil comparable to those produced in the C on tract Area ..nd


sold in the international market Prices obtained shall be adjusted to account foe any


variations such as quality, specific gravity, sulphur content, transportation costs,


product yield, seasonal variations in price and demand, general market trends mi


oilier terms of sale.


27.3 I he price of Natural Gas shall be the actual pr.ee obtained at the Delivery Pomi.


(which may take into account quantities to be sold, quality, geographic location of


markets to !>e supplied as well as costs of production, transportation and distribution


of Natural Gas from the Delivery Point to the relevant market, in accordance with


standard international petroleum industry practice). The GOVERNMENT shall have


the right to review and approve Natural Gas sales contracts.





Accounting Stutcmcnl


27.4 In uocorduncc with this Article 27.4, the C.OVKRNMKNT 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 hy the <'ONTRAC TOR Entitles during the


preceding Month constituting Ann's Length Soles together with corresponding


64/120


 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 at the beginning and


at the end of the Month; and


(d) quantities of Namral Gas sold by the CONTRACTOR Entities and the


GOVERNMENT together with sale prices realised


Metering


27.5 All Export Petroleum shall be metered at the Delivery Point in accordance with


pruden: international penoleum industry practice and such meters shall be to fiscal


meter standards. All metering equipment shall be installed and operated b> 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 prudent international petroleum industry practice.


27.6 11 any metering equipment is defective, the CO.NTR \CTOR shall use ail reasonable


endeavours to repair it within fifteen (15) days or. if deemed necessary by the


CONTRACTOR, replace it as soon ns reasonably practicable from the date the


defect became known. I he "Adjustment Date" shall l>e the last date that the


metering equipment was known to huve been measuring correctly. The results


from the defective equipment shall l>c disregarded for the period from the Adjustment


Date until the date the defective equipment is repuirod 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 in 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 vail be settled by expert determination in


accordance with the provisions of Article 42.2.














65 120


 ARTICLE 28 - SALE OF GOVERNMENT 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 pari of the quantities of Crude Oil to which the


GOVERNMENT is entitled, in consideration of a sales commission per Barrel to be


established with reference to pnident international petroleum practice and to be mutually


agreed upon between the Parties.




















































































































66/120


 ARTICLE 2') - FINANCIAL PROVISIONS





29 I Any payment to be made by u CONTRACTOR Entity to the GOVERNMENT


pursuant to this Contract shall lx* in Dollars and shall be offset against any


outstanding payments due by the GOVERNMENT to the CONTRACTOR Entity,


nr 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 ot’LIBOR plus two (2) percentage points shall be applied.


29.2 (he GOVERNMENT may, at its sole discretion, direct the CONTRACTOR


Entities to pay:


(a) any Royalty in cash due to the GOVERNMENT pursuant to the provisions


of Article 24; and/or


(b) nny proceeds from the sale unduitaken by the CONTRACTOR Entity on


behalf of the GOVERN MEN I' pursuant to Article 2X of nny Crude Oil to


which the GOVERNMENT is entitled pursuant to Article 25; and/or


(c) any Production Bonus,


to n fund for revenue sharing, which may in due course be established by legislation


consistent with the Constitution of Iraq, between the Government ol Iraq and other


regions (including the Kurdistan Region) and governonites of Iraq. Nothing in this


Article 29,2 shall be understood as implying any contra, luai relationship or other


relationship between the CON TRACTOR andor any CONTRACTOR Entity end


the Government of Iraq and/or the regions of Iraq (other than the Kurdistan Region)


and or and governor!fes of Iraq


29.3 Any payment due by the GOVERNMENT to a CONTRACTOR Entity shall be


offset against future payments due by such CONTRACTOR Entity to the


GOVERNMENT, or paid in IXillars to the bank account designated by


theCON TRACTOR Entity in writing and shall be paid within thirty (30) days of the


date of invoice, after which interest compounded monthly at tlx* rale of LIBOR plus


two (2) percentage points shall be applied


29.4 .Any currency conversion to be nude under tins Contract shall be at the exchange rale


of :hc Central Bank of Iraq, provided such exchange rate applied to the


CONTR ACTOR 1 ntitics shall not be less favourable than die 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 evenl lh.4 the Central Bank of Iraq is unable to


pros *de the relevant exchange rate, any currency conversion to be made under this


Contract shall be at the exchange rale of a reputable commcrc .al bank earn ing on


business in the Internationa! market and approved by rise Panics.


29 5 The CONTRACTOR shall not realise any gain or loss due to exchange rate


fluctuations and. consequently, any gain or loss resulting from the exchange of


currency 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 i and 25. as liter case may be.





67/120


29.6 Each CONTRACTOR Entity slnill at all times be entitled to freely convert into


Dollars or any other foreign currency any Iraqi dinars received in the framework of


the Petroleum Operations and to freely transfer the same Abroad. I'he 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 uny restrictions, all proceeds of its share of Petroleum.


29.8 Each CONTRACTOR Entity and its Subcontractors shall have the right to freely


open and maintuin 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 die Petroleum Operations and to convert


these currencies to Iraqi dinnis in any bank in lire 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 right, without any restrictions, to freely


repatriate Abroad and to freely dispose of:


(a) any proceeds received in the Kurdistan Region or other parts of Iraq from the


sale of Petroleum;


(b» any proceeds received from other operations and activities carried out under


tins Contract in the Kurdistan Region or other pans of Iraq.


29.11 Each CONTRACTOR Entity shall have the right to pay in any foreign currency its


Subcontractors and its expatriate personnel, either in 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 hast the right to repatriate die 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 m\c


the right to have recourse to external financing from third parties or front its Affi i.itcd


Companies on an arm's length basis


























(.8/120


 ARTICLE M• CUSTOMS PROVISIONS





V) I All services, material,equipment. dv consumable* ;«.nd products imported into the


Kurdisun Reg too and other parts of Iraq by the CONTRACTOR. .my


COM RACTOR Entity. its Affiliates. any Subcontractor or uny agent of uny of the


foregoing, for use or consumption in the Petroleum Operations shall be admitted free


nml exempt from any mid nil Tuxes oil import. The CONTRACTOR, uny


CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of tiny of the


foregoing .shall have the light to iv-exporl from the Kurdistan Region and other pints


of Iraq free from all Taxes on export any material, equipment, goods, consumables


and products that arc no longer required lor 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 Pie CONTRACTOR, any CONTRACTOR Fotity. its Affiliate*, any


Subcontractor


or any agent of any of the foregoing, and their personnel (including their lamily


members) shall have the right to freely import into the Kurdistan Region rnd other


I'.irix of Iraq and re-export from the Kurdistan Region and other parts of Iraq nny


personal belongings and furniture free and exempt from nny Taxes on import or


export. The sale in the Kurdistan Region and other parts of Iraq of pers«>nal


belongings and fiimiture of expatriate personnel shall comply with Kurdistan Region


law.


30.3 l och CONTRACTOR Kality and its Affiliate* dial! be entitled to freely export from


tbc Kurdistan Region and other part* of Iraq, free of any Taxes, any Petroleum to


which it is entitled pursuant to the provisions of this Contract.


304 The GOVERNMENT shall mdemmfy the CONTRACTOR, any COVIK AC TOR


Kathy, its Affiliates, any Subconti actor or any agent of any of the foregoing, and


their personnel (including their family members) for any rmport or export run


referred to in Articles 30 1.30.2 or 30.3.











AH I K LI. 31 - I AX PROVISIONS


31.1 Except as expressly provided in this Article 31, and without prejudice to the


exemptions expressly provided for in Article 30 and in 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 dus Contract Ihc GOVERNMENT 'hull indemnify each


CONTRACTOR Entity upon demand again* any liability to pay any laxes


a"essed or imposed upon such entity wh eh relate to any of the exemptions granted


by the GOVERNMENT under this Article 31 I. and under -Article* 31 4 ic 31.11.











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31.2 Eucli CONTRACTOR Entity shall be subject to corporate income tax on its income


from


Petroleum Operations as provided in Article 31.3, which shall Ixr deemed to be


inclusive and in full and total discharge of any lax 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 CONTR AC TOR Entity, from the


(GOVERNMENTS share of the Profit Petroleum received pursuant to Article 26.


Each CONTRACTOR Entity shall, within sixty <6<)| days utter the end of each tax


year, provide a statement to the appropriate Kurdistan Region tux authorities of its


profits which arc subject to corporate income tax. together with n calculation of the


amount of corporate income tax due on those profits.


The (GOVERNMENT shall, within ninety (90) days after the end of each tax year,


provide to each CONTRACTOR Entity (i) the appropriate official tax receipts from


the appropriate Kurdistan Region tax authorities or other relevant authority certifying


the puyment of its corporate income tax. as determined in the said statement, und th.:t


such entity has met all its Tax obligations in the preceding tux year, and

any return or other filing made by the GOVERNMENT in respect of its payment of


corporate income tax on behalf of such CONTRACTOR Entity.


31.3 For the purposes of Article 31.2


(a) The rate of corporate income tax to be applied to each ( ON I R AG I OR


Entity’ shall be the applicable rate prescribed in the Law of Taxation (I aw No.


5 of 1999), passed by the National Assembly of the Kurdistan Region, a' n ay


be amended from time to time or substituted in respect of Petroleum


Operations (as defined under the Kurdistan Region Oil and (ias Law) by a


petroleum operations taxation law for lire Kurdistan Region, but in no event :n


excess of forty per cent (40%). The Parties acknowledge and agree that at the


Effective Date of this Contract, the corporate income tax rate is forty per cent


(40%) for all net taxable profits in excess of nine million Iraqi dinar.


(b) The GOVERNMENT and the ( ON TRAC TOR agree that corporate income


tax shall be calculated for each CONTRACTOR Entity on its net taxable


profits under the Contract, as calculated :n accordance with the provisions


relating thereto in the Accounting Procedure.


31 4 Each CONTRAC TOR Entity, its Affiliates as well us 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











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31.5 Each CONTRACTOR Ratify and Rs AfiilLites shall be exempt from Additional


Profits I ax. as referred to in Article 40 of the Kurdistan Region Oil and Gas Law or


any successor Tax


31.6 Each CON fRACTOR h mils and its Affiliates shall be exempt from Surface Tax. as


referred to in Article 40 of the Kurdistan Region Oil and Gas Uw or any successor


Tax


31.7 lincli CONTRACTOR Entity und its Alfiliates shall he exempt from Windfall


Profits luxes, as referred to in Article 40 of the Kurdistan Region Oil ar.d Gas Law or


any


successor lax.


31 .K Each CONTRACTOR Entity and any Subcontractor shall be subject to the payment


or withholding of the personal income lax and social security contributions for which


such entity or Subcontractor is liable to pay or withhold in respect of its employees


who


urc Iraqi nationals, pursuant to the Law of Taxation (Law No. 4 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,


except that a CONTRACTOR Entity or Subcontractor shall not I* liable for such


taxes or contributions with respect to employees of another Person.


31.9 It is acknowledged that double tax treaties will have effect to give relief from taxes to.


Ini! not limited to, the CONTRACTOR, CON I R \< TOR 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


31.10 Any value added lax (“VAT'I. 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


31.11 The CONTRACTOR, each CONTRACTOR Entity, their Affiliates and any


Subcontractor shall he exempt with credit from VA T or any other transfer Tax in


respect of Petroleum Operations


31.12 Notwithstanding any other provision to the contrary in this Contract, the Parties


acknowledge and agree that the provisions of this Article 31 shall apply individually


and separately to all CONTRACTOR Entities under this Contract and that there


shall be no joint and several lability n respect of any liability, duty or obligation


referred to in this Article 11


























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 ARTICLE 32 - BONUSES





Signature Bonus


32.1 A signature bonus of ten million Dollars (US$ 10,000,000) (“Signature Bonus")


shall be payable to the GOVERNMENT by the CONTRACTOR within thirty (30)


•lays of the Effective Date.





Capacity Building Bonus


32.2


(a) A capacity building bonus of fifteen million Dollars (US$ 15,000,000) ("Capacity


Building Bonus") shall he payable to the GOVERNMENT by the CONTRACTOR


within thirty (30) days of the Effective Date.


(b) Notwithstanding the provisions of Article 32.2 (a), the GOVERNMENT


acknowledges the work performed by CONTRACTOR prior to the Effective Date of


this Agreement and accordingly agrees that the Capacity Building Honus shall be


reduced by five million Dollars (US$ 5,000,000).





Production Bonuses


32.3 In the event of a Crede Oil Commercial Discovery, the CONTRACTOR shall pay


the following relevant Crude Oil Production Honus to the GOVERNMENT within


thirty (30) days ot the following relevant occurrence:


(a) Twu million IX.IIars (US S2,000,000) when First Production of Crude Oil


from the Contract Area commences;


(b) Five million Dollars (US S5,000,000) when production of Crude Oil from the


Contract Area reaches a cumulative amount of ten million barrels of Crude Oil


(lOmmbo);


(c) Ten million Dollars (US Sl0.000.000) when production of Crude Oil from the


Contract Area reaches a cumulative amount of twenty five million barrels of


Crude Oil (25 nimbo); and


id) Twenty million Dollars (US S20.000.000) when production of Crude Oil from


tl*e Contract Area reaches a cumulative amount of fifty million barrels of


Crude Oil (50 tnmho).


32.4 In the event of a Non-Associated Natural Gas Commercial Discovery, the


CONTRACTOR shall pay the following relcsunt Noo-Associated Natural Gas


Production Bonus to the GOVERNMENT within thirty (30) Jays of the following


relevant occurrence:





(a) two million Dollars (US S2.000.000) when first Production of Non*


Associated Natural Gas from the Contract Area commences;


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(b) five million Dollurc (US $5,000,000) when production of Non-Associated


Natural (ias from (he Contract Area reaches a cumulative amount of ten


million barrels of oil equivalent (10 mmboc);


(c) ten million Dollars (US $10,000,000) when production of Non Associated


Natural (ias from the Contract Area reaches a cumulative amount of twenty


five million barrels of oil equivalent (25 mmboc); and


(d) twenty million Dollars (US $20,000,000) when production of Non-Associated


Natural (ias from the Contract Area reaches a cumulative amount of fifty


million barrels of oil equivalent (50 mmboc).


32.5 For the purposes of this Ar ticle 32, a Commercial Discovery shall be declared by the


CONTRACTOR to Ik either a Crude Oil Commercial Discovery or a Non-


Associated (ias Commercial Discovery 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.


32,(> No bonus due pursuant to this Article 32 shall be deemed to be a Petroleum Cost.











ARTICLE 33 • PIPELINES


33.1 The GOVERNMENT shall obtain any required Permits for the transportation of


Petroleum in the Kurdistan Region and in Iraq, ns well as any necessary Permits and


easement tights for the construction of any pipelines and related facilities required for


(he Petroleum Operations, as provided in Ankle 33.2.


33.2 The GOVERNMENT undertakes to transfer to the CONTRACTOR its rights for


transportation of Petroleum by pipeline. The CONTR ACTOR shall have the right to


design, construct, operate and maintain pipelines and any related facilities for the


transportation of Petroleum produced under this Contract


33J Prior to the construction of any pipeline and related facilities as provided in Article


33.2. the C ONTRACTOR shall submit following information to the Management


Committee


(a) proposed pipeline route and related facilities;


(b) forecasted pipeline How rate and capacity;


(c) estimate of financial investment and operating costs of the pipeline and related


facilities;


(d) proposed financing schedule;


(c) constntction schedule;


(f) general technical description of the pipeline and related facilities;





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(g) construction plans und tests;




(i) any other information relating to the pipeline project.


The Management Committee shall examine all the above information ar.d shall within


ninety (90) days, approve the proposed pipeline project in accordance with the


provisions of Article 8.5.


33.4 Subject to spare capacity being available und to their Petroleum being compatible,


third parties shall be entitled to transport tlicii Petroleum through any pipeline


constructed by the CONTRACTOR in accordance with this Article 33 on terms to lie


agreed between the CONTRACTOR and such third party. Those terms shall he


reasonable commercial terms mid shall not discriminate among third party users. The


CONTRACTOR shall always have priority of access to such pipelines.


33 5 To the extent that they are incurred upstream of the Delivery Point, any costs


associated with the design, construction, operation and maintenance of the pipelines


und related facilities by CONTRACTOR under this Article 33 ("Pipeline Costs”)


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


in accordance with the provisions of Articles I and 25.


33.6 I he 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 it* 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 panics for use of any pipeline and related facilities by


CONTRACTOR under this Article 33 shall be applied to the recovery o! Petroleum


Costs until all Pipeline Costs have beer, fully recovered by the CONTRACTOR


pursuant to the provisions of Articles 1 and 25 and shall not be included in income for


corporate income tux purposes. The GOVERNMENT shall be entitled to receive any


such tariffs from third parties for their use of such pipeline and related icilities when


the said Pipeline Com* have been fully recovered by the CONTRACTOR The costs


associated with providing such transportation services for thud parties up to the


Delivery Point shall he 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 C OM RAC TOR of all the Pipeline Costs, the operating and


maintenance costs of any pipeline and its rciaied facilities shall he home by the


( ONTO ACTOR ami shall be considered Petroleum Costs und shall be recovered by


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


33.9 The (JOVKKNMEN'I shall have the same rights as the CON TRACTOR for use,


free ol charge, of any pipeline und related facilities constructed by CONTRACTOR


under this Article 33 for the transportation of the share of Petroleum to which the


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GOVERNMEN I is entitled under this Contract up to the Delivery Point, provided


that where the GOVERNMENT is participating in its capacity as a CON I RACTOR


Entity pursuant to Article 4. h shall he liable for its share of Petroleum Costs.


3J.I0 The CONTRACTOR shall bear the cost of operation and maintenance of any


pipeline mid related facilities constructed by CONTRACTOR under this Article 33


and all risks of accidental loss or damage to such pipeline and related facilities while


they are required lor Petroleum Operations.











ARTICLE 34 UNITISATION


34.1 In the event a Reservoir extends beyond the Contract Area into an adjacent area


which is the subject of another Petroleum Contract (as defined by the Kurdistan


Region Oil and Gus l aw) (an "Adjacent Contract Area"), 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 tile GOVERNMENT shall require the CON TRACTOR and the contractor ol


the Adjaeent Contract Area to agree upon a schedule for reaching agreement of the


terms of the unitisation of the Reservoir, which terms shall be based on reliable


technical, operational and economical parameters, all in accordance with prudent


international petroleum industry practice. In the event that the Minister of Natural


Resources decides the unitisation pursuant to Article 47, Paragraph Third of the


Kurdistan Region Oil and Gas Law. and if the CONTRACTOR docs not agree with


the Minister of Natural Resource's decision, 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 ol


another Petroleum Contract (as defined by the Kurdistan Region Oil and Gas Law),


the GOVERNMENT shall, upor. 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 AMHYSl RANGE





35.1 Subject to the other provisions of this Contract, the CON IR ACTOR, in its capacity





as the entity responsible for the execution of the Petroleum Operations within the


Contract Area, shall be liable to third parties to the extent pmvkled under applicable


Law for any losses and damage it may cause to them in conducting the Petmleum


Operations, and shall defend, indemnify and hold harmless the GOVERNMENT


with respect to all claims for such less or damage.





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352 Notwrthstmding the other provisions of this Contract, the COMRACTOR and the


CONTRACTOR Entities shall not be Imhlc to tbr GOVERNMENT o» the Public


Company or .*her government agencies, aulhurities or bodies, courts or political


subdivisions lor any damage or loss or claims of any kind resulting from its conduct


of the Petroleum Operations unless such damage or loss is the result of wilful


misconduct or a material failure to conduct Petroleum Operations in accordance with


the terms of tins Contract; prusidcd. however, that such liability cannot result in the


event of any omissions, errors or mistakes committed in good fuith by the


CONTRACTOR in the exercise of the powers and ardiormiions conferred upon the


CONTRACTOR by virtue of this Contract, and further provided ihnl in no event


shall the COINTRACTOR and the CONTRACTOR Entities he liable for an>


indirect or consequential loss or damage whatsoever or any loss, damages, cost*,


expenses or liabilities caused (directly or indirectly) by any of the following arising


out of. relating to. or connected with this Contract or the Petroleum Operation* earned


out under this Contract: (i) reservoir or formation damage; (ii) inability to produce,


use or dispose of Petroleum; (iii) loss or deferment of income; (iv) special or punitive


damages; 01 (v) oilier indirect damages or losses whether or not similar to the


foregoing.


35.3 Hie CONTRACTOR shall indemnify and hold harmless the GOVERNMENT


against all losses, damages and liability arising under any claim, demand, action or


proceeding brought or Instituted aguin.st the GOVERNMENT by any employee of


the CONI RACTOR 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-performance of


ihw Contract regardless of the faul* or nr^l gcnce in whole or m party ol any entity or








35.4 Notwithstanding Article 35 1. the GOVERNMENT shall indemnify and hold


harmless the CONTRACTOR and the < O NT RACTOR Entities against all losses,


damages and liability arising under any claim, demand, action or proceeding brought


or nstituted against the CONTRACTOR or any CONTRACTOR Entity by any


employee of the GOVERNMENT or of any Public Company or of any subcontractor


of the loregoing 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 nuo-petformancc of this Contract


regardless of the fault or negligence in whole or in pan of any entity or individual.


35 5 I he CONTRACTOR shall take all necessary steps to respond to. and shall promptly


notify the GOVERNMENT of. all emergency and other events (including


explosion*, leaks and Spills), occurring in relation to the Petroleum Operations which


arc causing or likely to cause material environmental damage or malcral nsk to


health and safely. Such notice shall include a summary description ol the


circumstances and step* taken and planned by the CONTRACTOR to control and


remedy the situation The CONTRACTOR shall provide such additional reports to


the GOVERNMENT as are reasonably necessary in respect of the efTed* of »uch


events and the course of all action* taken to prevent further loss and to mitigate


deleterious effects





35.6 as set out in Article 35 4. at the





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< ONTRACTOR, the GOVERNMENT. without prejudice and in additioa » an}


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 i:i reasonable


quantities requested by the CONTRACTOR which arc not otherwise readily


available to the CONTRACTOR and by facilitating the measures taken by the


CONTRACTOR to bring into the Kurdistan Region personnel, materials and


equipment to be used in any such emergency response or remedial or repair effort.


I’he CONTRACTOR shall reimburse the GOVERNMENT'S reasonable and


necessary costs incurred in such efforts, which reimbursed amounts shall be


considered Petroleum Costs and shall be recovered by the CONTRACTOR in


accordance w ith the previsions of Articles 1 and 25.


35.7 The GOVERNMENT shall indemnify and hold harmless the CONTRACTOR and


each CONTRACTOR Entity 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.


Insuranee


35.8 In accordance with prudent international petroleum industry practice,


each CONTRACTOR Entity shall maintain any insurance rcquirc

Kurdistan Region Law. as well as any insurance approved by the Management


Committee.


Such insurance policies may cover:


(a) loss of and damage to materia] and equipment used in the Petroleum


Operations; and


(b) personal injury, damage to third parties 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


GOVERNMENT against any claim, loss and damage resulting from any Petroleum


Operation conducted by or on behalf of the CONTR ACTOR under this Contract, to


the extent that the CONTRACTOR is liable for such claim, loss or damage under


this Contract. The CONTRACTOR shall not be liable for and shall not purchase


insurance cover for any claims arising from negligence or wilful misconduct of the


GOVERNMENT or of any Public Company or of any of its or their subcontractors


or of any personnel of any of the foregoing.


35.10 Upon its written request, the GOVERNMENT shall lx- provided with insurance


certificates, including necessary details, for any insurance policy maintained by the


CONTRACTOR which relates to this Contract








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 35.11 Each CONTRACTOR Entity shall be responsible for ihe filing of all claims made


under any insurance policy maintained by such CONTRACTOR Entity which


relates to this Contract Any premiums and payments relating to such insurance


policies s,|all be considered Petroleum Costs and shall be recovered by the


('ON TRACTOR in accoidance with the provisions of Articles I and 25.


35.12 In any insurance policy maintained by a CONTRACTOR Entity which relates to





this C ontract, the amount for which the CONTRACTOR itself is liable (the


"Deductible Amount") shall be reasonably determined between the


CONTRACTOR Entity and the insurer and such Deductible Amount shall in the


event of any insurance claim be considered a Petroleum Cost and dull be recovered


by the CONTRACTOR in accordance with the provisions of Articles 1 and 25








ARTICLE 36 - INFORMATION AND CONFIDENT! M l I Y


3i'.l The CONTRACTOR shall keep all records, data and information relating to the


Petroleum Operanons in accordance with the Kurdistan Region Oil and Cias Ian and


prudent international petroleum industry practice. In addition, it shall provide the


GOVERNMENT with such information and data us it is obliged to provide i.oder


this Contract.


36.2 Upon the GOVERNMENTS written request, the CON TRACTOR shall provide the


GOVERNMENT with samples of any rocks or any other items extracted durmg the


Petroleum 0|xiiulionx.


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.


36.5 Any representatives authorised by the GOVERNMENT and notified to the


CON TRACTOR 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 slutll ensure it does not unduly interfere with or


hinder the CONTRAt TOR's rights and activities.


36.6 The CONTRACTOR shall provide the GOVERNMENT upon die


GOVERNMENT'S written request any analysis information, reports, tapes or other


data (geological, geophysical, logs, interpretations, drilling reports, etc.) related to the


Petroleum Operations in the possession of the CONTRACTOR. All available


originals of such data shall be transferred to the GOVERNMENT at the end of this


Contract.





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Apart from the exceptions stated in this Ankle 36. the Parties undertake to keep al!


data and information relating to this Contract and the Petroleum Operations


confidential during the entire term of this Contract and not to divulge or disclose such


data or information to third parties without the specific consent of the other Parties,


such consent not to be unreasonably withheld or delayed. The foregoing


confidentiality obligation shall not apply to information or data which


(a) is or, through no fault of any Party, becomes part of the public domain;


(b) i> known to the recipient at the date of doe losure; or


(c) is required to be furnished in compliance with any applicable Law. by a


government agency having jurisdiction over a CONTRACTOR Katity, by a


court order or any other legal proceedings; or


id) is required (o be disclosed pursuant to the rules or regulations of any


government or recognised slock exchange having jurisdiction over a


CONTRACTOR Entity.





Notwithstanding the foregoing in Article 36.7, in accordance with prudent


international petroleum industry practice, such data and information may be disclosed


to:


(a) Affiliates of each CONTRACTOR Entity;


0>) employees, officers and director* of each CONTRACTOR Entity ,md their


respective Affiliated Companies for the purpose of the Petroleum Operations,


subject to each such entity taking customary precautions to ensure such


information is kept confidential;


(c) consultants or agents retained by any CONTRAC TOR Entity or its Affiliates


for the purpose of analysing or evaluating information or data;


(d) banks or financial institutions retained by any CON TRACTOR Entity or its


Affiliates with a view to financing Petroleum Operations, including any


professional consultants retained by such Kink or financial institution;


(C) bona fide prospective assignees of a participating interest under this Contract


(including any entity with whom a CONTRACTOR Entity and/or its


Affiliates are conducting bona fide negotiations directed towards a merger,


consolidation or the sale of a material portion of its or an Affiliates shares);


(I) prospective or actual Subcontractors and suppliers engaged by a Party where


disclosure of such information is essential to such Subcontractor's or supplier's


work for such Party; and


(g) any other Person or entity, upon the prior written approval of the non¬


disclosing Parties,


provided that disclosure shall not be made pursuant to paragraphs (c), (d), (c) and (t).


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unless such third party has entered into a confidentiality undertaking.


36.9 Any data and information relating to relinquished or surrendered areas under this


Contnid shall become the exclusive property of the GOVERNMENT, who shall


have the right to use same for any purpose, in particular for the purpose of promoting


said areas. Each CONTRACTOR 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


benefit the Petroleum Operations.











ARTICLE .37 - ENVIRONMENTAL PROVISIONS


37 I Du ring the performance of the Petroleum Operations, the CON! K ACTOR shall take


reasonable measures to ensure that it, the Operator, its Subcontractors and agents


attend to the protection of the environment and prevention of pollution, in accordance


with prudent international petroleum industry practice in similar physical and


ecological environments and any then applicable Kurdistan Regain I.aw


37.2 Prior to surrendering a portion of the Contract Area, the CONTRACTOR shall take


reasonable measures to abandon the area to be surrendered in accordance with


prudent international petroleum industry practice in similar physical and


ecological environments Such measures shall include removal or closure in place of


facilities, material and equipment together with reasonable measures necessary for the


preservation of fauna. It ora and ecosystems, all in accordance with prudent


international petroleum industry practice in similar physical and ecological


environments. The CONTRACTOR shall only be responsible for site restoration or


environmental damage to the extent the vjmc pertains solely and directly to Petroleum


Operations conducted pursuant to this Contract.


37.3 Hie CONTRACTOR shall take reasonable precautions and measures in accordance


with prudent international petroleum industry practice in similar physical and


ecological environments to prevent uny pollution which muy 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 prodent international petroleum


industry practice in similar physical and ecological environments, respect the


preservation of properly, agricultural areas, and fisheries, when carrying out


Petroleum Operations.


37.5 The CONTRACTOR shall conduct and submit an environmental impact assessment


ro the GOVERNMENT within six (6) months after the Effective Date








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W...... l>i»lks Mlld Nature Res>,rv,‘ Areas


37.<> The CONTRACTOR shall lake reasonable measures lo minimise any nJvcrsc


material impact on national parks and nature reserves which may arise directly as j


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 die filleclive Date, lliere


arc no national parks, nature reserves or other protected areas located in whole or in


part within the Contract Area where the CONTRACTOR shall not be entitled to


carry out Petroleum Operations and (ii) covenants that during the term of this


Contract will not designate or create or permit the creation of any national parks,


nature reserves or other protected areas, located in whole or in part within the


Contract Area.


37.8 Any reasonable expenditure incurred by the CONTRACTOR in relation with this


Article 37 shall be deemed Petroleum Costs ami shall be recovered by the


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





Conditions


37 9 The CONTRACTOR is not responsible for any pre-existing environmental


conditions or any acts of unrelated third parties.











ARTICLE 38 - DECOMMISSIONING


38 I To enable the CONTRACTOR to recover the costs associated with future Contract


Area Decommissioning Operations under thus Contract, the CONTRACTOR shall


have the right to establish a reserve fund for future decommissioning and site


restoration (a "Decommissioning Reserve I und"). Ihc 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 shall allow the


CONTRACTOR to establish such fund over a longer period. Once established, the


CONTRACTOR shall nuke regular contributions to the Decommissioning Reserve


Fund based upon estimated Petroleum Field decommissioning and site restoration


costs in accordance with prudent intem.ittonal petroleum industry practice, and taking


into account interest received and future interest expected to be earned on iIk


Decommissioning Reserve Fund ('Decommissioning Contributions"). Any


Decommissioning 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. Decommissioning Contributions


lo the Decommissioning Reserve Fund shall be placed with a first rate bank approved


by the Management Committee in accordance with Article 8.5.





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38.2 If. at ihc end of the term of the Producooo Operations ol the Production Area, the


GOVERNMK NT deckles to take overproduction operation* in the Production Area:


Lhc GOVERNMENT shill become luke frit its future Decommissioning


Operations:




Reserve Fund, to the extent that such contributions have been recovered as


Petroleum Costs, shall be paid to the GOVERNMENT; and


(iit) the GOVERNMENT shall release the CONTRACTOR and the


CONTRACTOR Entities from any obligations relating to Decommissioning


Operations and shall indemnify the CONTRACTOR and the


CONTRACTOR Entities lor any costs, liabilities, expenses, claims or


obligation' associated therewith.


38.3 If ihc CONTRACTOR undertakes the Petroleum Area Decommissioning


Opetntions. the contributions and any interest accumulated in the Decommissioning


Reserve Fund slull be paid to the CONTRACTOR and shall be used for the


Decommissioning Operations. The CONTRACTOR shall undertake any such


Decommissioning Operations in accordance with prudent intcraationa] petroleum


industry practice in similar physical and ecological environments.


38.4 If the Decommissioning Reserve Fund is paid to Ihc CONTRACTOR and the


Decommissioning Reserve Fund is not sufficient to cover nil I Xxommissiomng Costs


for the Production Area, the bailee shall be paid by the CONTR \CTOR a»J may


be recovered as Petroleum Costs from any other Production Aren* or. if applicable, by


the CONTRACTOR Entities or any of their Affiliates from any other area which i>


the subject of another Petroleum Contract (as defined by the Kurdistan Region Oil


and Cias I-aw) anywhere in the Kurdndan Region and. to the extent the balance is not


recoverable as aforesaid, such remaning balance shall be paid by the


GOVERNMENT to the CONTRACTOR


38.5 If Ihc Decommissioning Reserve Fund is paid to the CONTRACTOR and the


Decommissioning Reserve Fund exceeds all Decommissioning Costs for the Contract


Area, the balance sludl be trarofcmd to the GOV t KNMEYT.


38.6 Any expenditure incurred by the CONTRACTOR in relation with this Article 38.


including any contributions to the Decommissioning Reserve I und. shall be deemed


Petroleum Costs and shall be recovered by the CON IRACTOR in accordance with


the provisions of Articles I und 25.


38.7 The CONTRAC FOR shall submit to the Management Committee for approval in


accordance with Article 8.5 a detailed plan for decommissioning the Production Area


facilities and site restoration (the "Decommissioning Plan"), such Decommissioning


Plan to be submitted no later than twenty four (24) Months prior to the date estimated


by the CONTRACTOR for the end of Commercial Production from the Production


Aren Die Management Committee shall provide comments, if any. on the


Decommissioning Plan within ninety (90) days alter receipt. The CONTRACTOR'"


completion of the Decommissioning Operations in accordance, in all material


 respectv with ’.he Decommissioning Plan Tor a Production Area approved b> the


Marjgcmcni Committor shall satisfy all of the CONTRACTOR’, obligation* win


respect to the performance of Decommissioning Operation* for such Production Area.


In the event the CON ERNMEN I' docs not agree that Decommissioning Operations


for a Production Area were corned out in accordance with the approved


Decommission,ng Plan, it men advise the CONTRACTOR within sit (6) month, of


CON IK AC TOR*, completion of such operations.











ART1C IT J9 • ASSIC.NMFN I AND CHANGE Of CON I KOI.





AsiimpieiU to Afnilwlf.


39.1 Each CONTRACTOR Entity shall be free to sell assign, transfer or otherwise





dispose of nil 01 pmi ol its rights, obligations and interests under this Contract to an


Affiliated Company 01 to nnolhci CONTRACTOR Entity will) the prior consent ol


the GOVERN MEN!. which consent shall not be unreasonably delayed or withheld.











39.2 Each CONTRACTOR Entity .lull have the right to veil, assign, transfer or


otherwise dispose of all or pail of its rights and interests under this Conuact to any


third party (not being an Affiliated C om|»n> or another CONTRACTOR Entity)


with the prior consent of GOVERNMENT. which coasent shall not be unreasonably


delavcd ur withheld Any C ONTRACTOR Entity prop.-.'* to seif awga. transfer


Of otherwise Aspnse of all or part of its rig*, and waett«s wsicr dn* Contract to any


such third patty sh.fi re^uesi sadt consent to wTmnr^whKh ryt dvaH^hc


proposed third put) assignee.








39 3 In order lot any deed of sale. assignment. transfer or ocher du^wsaJ a* provided imdcr


Article* 3V I or 39.2 to he effective, the Parties and the relevant third party, if any,


■lull enter into a binding and enforceable instrument of assignment and novation,


which dial I include an undertaking by the transferee or assignee to fulfil the


obligations under thu Contract which conv't'-av.l to live interest transferred or


assigned





39.4 ||y way of clarification, and not in limitation of the foregoing provisions of this


Article 19. the GOVERNMENT shall not be considered to he acting unreasonably in


withholding consent to any such assignment if tlte assignment to such proposed third


patty assignee is dev mod contrary to the GOVE RNMRNTi interests, as evidenced


In wnting to that ellccl signed by the duly authorised representative of the


GOVERNMENT below





39.5 In the event a COM R \C TOR Entity assigns or in any other way transfers its nghts


and interests under thu Contract, mchaiing through the esercise of the Option of


Government Participation or the Optioc of Hurd Party Participation, whether in


whofc or in put. web assignment or transfer shall am give iw to my I ax. mci odmg


on thr consideration poid or received or cm ibe income or gam there fun


1 83/120








39.6 I he GOVERNMENT may not at any time transfer my or ail iu rights aifci


obligate i**Jct this Contract to any Person, including lo a PuN* Company or an>


other company or entity, except in accordance with Article 4














39.7 "( hangc of Control" for the purpose of this .Article 39.7 mama any direct or indirect


change of the identity to the Person who Control* a CONTRACTOR Entity


(whether through merger, sale of shares or of other equity interests, or otherwise)


tluough a single transaction or scries of transaction*. from one oi more transferors to


one or more transferees, in which the market value of such entity’s participating


interest (which shall he a» specified in the Joint Operating Agreement relating to rha


Contract, or where there isoohooc CONTRACTOR Entity one hindred (100NI


per cent) in dm C ontract represents more than seventy five per cert (75%) of the


aggregate market value of the assets of *uch entity and Ha Affiliates that are subject to


the C hange >n Control For the purpose of this definition -Control" mom the direct


or indirect ownership or condo! of the majority of the voting rights of the applicable


entity at its shareholders meetings ot then equivalent. and "market value" shall be


(Icletmiitcd based ii|h»ii (lie amount in cash a willing buyer would pay a willing seller


in on Ann's Length transaction.


Each CONTRACTOR I nliiy which is or anticipates with a reasonable degree ol


certainty that it will Ik* subject in a Change in Control, other than to nn Affiliated


Compunv or a CONTRACTOR Entity, shall notify the GOVERNMENT as soon as


practicable after it becomes aware of the Clucgc .a Control or ---wipated Change in


Control and request the creiscd of GOA ERNMFNT. which consent shall not Ik


unremoaibly delayed or withheld.





A Change m Control shall mo* give rue lo aay lax including on the comodcretion paid


or received or on the income or gain therefrom.











ARTfCl.R 40 - FORCE MA IM RF


40 I No delay. default, breach or omission of the CON TRACTOR in the cxecuuon of any


of its obligations under this Contract shall be considered a failure lo perform this


Contract or he the subject ol a dispute if such delay, default, breach or omission is due


to a case of l;orcc Vlujcurc In such event the CON I K ACTOR dull promptly notify


the GOVERNMENT in writing and take all reasonably appropriate measures lo


perform its obiigallons under this Contract to the extent possible Hie time resulting


from tiny such delay or curtailment in the execution of such obligations, increased by


the time necessary lo repair ntty damage resulting from m occurred during such delay


or curtailment, shall he added to any lime period provided under this Contract


(including the Exploration Period and any extension thereto, any Sub-Period and any


extension thereto and any Development Period and any extension thereto). The


Parties shall meet a< soon as possible utter the notification of Force Majeure with u


view to using reasonable endeavours to mitigate the effects thereof.





84/120


 40J For the purpose of this Contract "Fare* Majrarr" means any event ihai n





CONTRACTOR but due to cAWMnn beyond ** control. wh«h prevents or


impedo cxccutk*) of all or of its obfiajbnni under th«s Contract Such or*


dull inebdr the follow**:


(a| war. whether declared or not. civil war. insurrection, riot*, civil commotion,





terrorism, any other hostile acts, whether internal or external;






















• <) my act. event, happening or occurrence due to natural cause*, in particular,


but without limitation, floods, storms, cyclones, Arcs, lightning, or


earthquakes;


(0 environmental restrictions, which the (JOVERNMEM lues not notified to tlie


CONTRACTOR; and





(g) any acts or orders of GOVERNMENT.





(b) any acts or orders of am other government claiming or aliening jurisdiction


the vnfapxt naar of this ( c





element thereof; or any corporation owned and'or controlled by any ol the


foregoing.





40 3 I he mention of the Panics is &ai Force Mujeure ‘hall receive the interprctaii.-r that


complies most with pmder*. international petroleum industry practice. Force Moprurc


affecting a CONTRACTOR ! m«> or on Affiliated Company of a CONTRA* 10H


Kniity shall he deemed Force Mtyeiite affecting the CONTRACTOR il the


consequence of such Force Mujeure prevents the performance of tiny ol the


C’OM R ACI OR'h obligation* under this Contract











ARTIf I F 41 - WAIN I R OF SON I Kl It.N IMMI MIN





is! 1 JON F RNMENT and any Public C be a CONTRACTOR l atiry


me hereby fully and irrevocably waive* any or any of r








vaiver includes any claim to immunity fWun:





(.i) any expert determination, mediation, or arbitration proceedings commenced


pursuant to Article 42;





15 120


 (b) any judicial, administrative or other proceeding! u> »id the expert


determination, mediation, or arbitration proceeding* 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 augment (uxlixi ng pre-


judgment attachment) that results from an expert determination, mediation,


arbitration or an) judicial, administrative ot other proceedings commenced


pursuant to this Contract











ARTICLE 42 -ARBITRATION AND EXPERI DITERMINATION











42.1 l or the purpose of this Article 42.1. "Dispute" shall mean any dispute, controversy


or claim (of any and every Lind or type, whether based on contract, l<*n. statute,


regulation or oihciwi.se) arising out of. relating to. or connected with this Contract or


the operations carried out under this Contract, including any dispute ns the


construction, existence, validity, interpretation, enforceability, breach or termination


of tint Contract, which arise* between the Parties (or between any one or more


entities constituting the CONTRACTOR and the GOVERNMENT).


In the event of u Dispute, the partita 10 the Dispute shall use their reasonable


endeavours to negotiate promptly in good faith a mutually acceptable resolution of


such Dispute.


Subject to the provisions of Article 42 2. a Party who desires to submit a Dispute foe


resolution which has nut been promptly revolved as aforesaid dull commence the


dispute resolution process by providing the other parties to the Dispute written notice


of the Dispel* ("Notice of Dispute”). Ihc Notice of Dispute shall identity the parties


to the Dispute, shall contain a brief statement of the nature of the Dispute ai*l 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 vha'l first seek settlement of the dbptoe by


negotiation between Senior Representatives "Senior Representative" means


.my individual who hav authority to negotiate the settlement of the Dispute for


a party to the Dispute, which for toe GOVERNMENT shall mean the


Minister of Natural Resources. Within thirty (30) days after the dale of


delivery of the Notice o! Dispute, the Senior Representatives representing the


parties to the Dispute dull meet at a mutually acceptable date, time and place


to exchange relevant information in an attempt to resolve the Dispute. If a


Senior Representative intends to be accompanied at the mecung by a legal


adviser, each other party dial! be given written notice of such intention and its


Senior Representative may also be accompanied at Ihc meeting hy a legal


adviser.








86/120


(b) II the Dispute ennnot be resolved by negotiation in accordance with Article


•42.1 (a) within sixty (60) days alter the date of the receipt by each party to the


Dispute of the Notice of Dispute or such further period as the parties to the


Dispute may agree in writing, any party to the Dispute may seek settlement of


the dispute by mediation in accordance with the London Court of lntcn»atk*nal


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


Artrclc 42.1 (b). und (B) one hundred and twenty (120) days after the delivery


of the Dispute Notice, any party to the Dispute may refer the Dispute to, and


seek final resolution by, arbitrotion uihIci the LCIA Rules, which Rules shall


he deemed to Ik- incorporated by reference Into this Article.


(i) Any arbilnihon shall he conducted by three (3) arbitrators.


(ii) If the parties to the Dispute are the GOVERNMENT and all the


CONTRACTOR Entitles, the GOVERNMENT and the


CONTRAC I < >l< shall each appoint one (1) arbitrator. If the parties to


the Dispute arc the GOVERNMEN I' and more than one, but not all


the CONTRACTOR Entities, the GOVERNMENT shall appoint


one (1) arbitrator and such CONTRACTOR Entities shall appoint


one (I) arbitrator. If the parties lo the Dispute are the


GOVERNMENT und occ CONTRACTOR hnlity. the


GOVERNMENT and such CONTRACTOR Entity shall **h


appoint one < 1) arbitrator.


(iii) In any event, the two arbitrauxs so appointed shall, in good faith, use


all reasonable endeavours to agree on the appointment of the third


arbitrator, who will chair the arbitral tribunal In case of failure to


appoint an arbitrator or to agree on the appointment of the third


arbitrator. Rules of the LCIA shall apply.


(vi) Arbitration shall take place in London, England. Ihc language to be


used in any prior negotiation. mcdiXioti and in the arbitration shall be


English. During the arbitratton procedure and until the arbitral


decision, the Parties shall continue to perform that obligaikws and


take no actions that would impam the Contract The arbitral award may


be enforced by any court of competent jurisdiction, including in the


Kurdistan Region Any award shall be expressed in Dollars


(v) rhe Parties agree that 'die arbitral award shall be final and not subject


to «iy appeal, including to the Courts of England on kvici of l aw.


(vt) Vk ith respect to any mancr 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.





87 120


F.xncrt Determination





42.2 Any disagreement between the Parlies relating to Articles 15.9,27.2 mid 27.9, as well


as any disagreement the Parties agree lo refer to an expert, shall be submittal to an


expert. The Management Committee shall prepare and agree appropriate terms of


reference relating to the disagreement to be submitted to the expert, in accordance


with Article 8.5 (Terns or Krfcrence").


(a) The disagreement shall be submitted lo an expert appointed by mutual


agreement of the Parties within thirty 00) days following the date of


preparation and agreement of the 1 emus of Reference by the Management


Committee. If the Pnrtics cannot agree on the choice of the expert within such


thirty (30) day period, at the request of either Party, the expert shall be


appointed by the President of the Energy Institute in London, l-nglond. Any


expert appointed must haw the necessary qualifications for reviewing and


deciding on the subject matter of the disagreement


(b) I he duties of the expert shall be stated in the Terms of Reference prepnred and


agreed by the Management Committee. The Management Committee shall


promptly provide the expert with the agreed Terms of Reference relating to


the disagreement Each Party shall have the right h> give to the expert in


writing any information which it consider useful, provided it docs so within


forty-five (45) days after the expert's appointment. Such information shall be


provided to the othci Party at the same time and such other Party shall be


entitled to provide comments on such information to the lint Putty and the


expert within thirty (30) days after receiving such information I he expert


shall haw the right to review and verify any information he deems useful lo


assist him ir his review of the disagreement


(c) The expert shall render hi% decision within forty-five (45) days of he receqx


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 anc shall not be .subject lo any appeal, except in the case ol manifest


error, fraud or malpractice Any costs and expenses associated with ihc expert


determination shall be shared equally between the Parties.





Geacral


413 No negotiation, mediation, arbitration or expert determination procedure under





this Article 42 shall exempt the Parties from fulfilling their respective legal


and'or contractual obligations.





























81120


 ARTICLE 4.3 - GOVERNING LAW, FISCAL STABILN V AND AMENDMENTS











43.1 Th it Contract, including am dispute arising there from, thereunder or in refanen


thereto and the agreement to arbitrate m Article 42. shall be governed b> English hw


(except any rule of English law which would refer the matter to another jurisdiction),


together with an> relevant nxics. 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.


I i\cal Stability


43 2 The obligations of the CONTRACTOR in respect of this Contract shall no! be


changed by the GOVERN MIN r and the general and overall equilibrium between


the Parties under this Contract dull not be affected in a substantial and lasting











43 3 The GOVERNMENT guarantees to the CONI KACTOR. lor the enure duration of


this Contract, that it will maintain the stability of the legal, fiscal and economic


conditions of this Contract, as they result from this Contract and as they remit from


the laws and regulations in ft tee on the date of signature ol this Contract The


( (>\TRACTOR flM entered into this Contract on the basis of (he legal, fiscal and


economic framework prevailing at the Effective Date If. .it any time utter the


Effective Date, there is any change in the legal, fiscal and/or economic framework


under the Kurdistan Region Law or other Law applicable tn or to the Kurdistan


Region which detrimentally affects the CONTRACTOR. Use CONTRACTOR


Entities or tiny other Person entitled to benefits under this Contract, the terms and


conditions of the Contract sltall be altered so as to restore the CONTRACTOR, the


CONTRACTOR Entitles and any other Person entitled to benefits under this


Contract to the some overall economic position (taking into account home country*


taxes) as that which such Person would ha\e been in, had no such change in the legal,


fiscal and/or economic framework occurred.








43.4 rf the CONTRA* fOK believes that its economic position, or the economic position


of a C'ONTRAC I OK Entity or any other Person entitled to benefits under this


Contract, has been detrimentally affected as provided in Article 43.3. upon the


CON I KACTOR'* written request, the Parties shall meet to agree on any necessary


measures or making any nppmpriate amendments to the terms of this Contract to re¬


establishing the equilibrium between the Parties and restoring the CONTRACTOR,


the CONTRA* TOR Entitles or any other Person entitled to benefits under this


Contract to the position it was in prior to the occurrence of the change having such


detrimental effect. Should the Parties be unable to agree on the merit of amending this


Contract and/or on any amendments to be made to this Contract within ninety (90)


days of the CONTRACTOR'S request (or such other period as may be agreed by the


Parties), the CONTRACTOR may refer the matter in dispute to arbitration as


provided in Ankle 42.1, without the necessity of first referring the matter to


negotiation and mediation.





89-120


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 complcmeniing. ameoding 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 fact hate the performance of


the Petroleum Operations by promptly granting to the CONTRACTOR any


necessary authorisation, permit, licence or access light 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 right and


authority to waive the application of the provisions of this Contract on a


case-by-c use basis without having to fulfil the conditions of validity of this Contract.


43.8 This Contract constitutes the entire agreement of the Parties and supersedes any and


all prior understanding! or agreements in respect of the subject matter of tins


Contract.


43.9 Unless otherwise expressly stated elsewhere in this Contract no failure or delay of


any Party to exercise any light, power or remedy under this Contract shall operate a-> t


waiver thereof; nor shall any single or partial exercise of any such nghL power or


remedy preclude any other or filture exercise thereof or the exercise of any other right


power or remedy.





Validity


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 (ias 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 - NOTICES


44.1 All notices, demands, instructions, waivers, consents or other communications to he


provided pursuant to this Contract sKdl he in writing in English, shall be effective


upon receipt, and shall be sent by receipted hand delivery tv by email (followed b>


delivery by reputable micmatwnai air courier empany with an establishment in Eibil


in the Kurdistan Region) to the foil.-wing *khexve»:














90/120


 To the GOVERNMENT:





Allcanon:


His Excellency the Mincer of Natural Resources





\ddmi:


Ministry of Natural Resources


Kurdistan Regional Government


Erbil, Kurdistan


Email: mnr@krgoiI.com








To the CONTRACTOR: Sterling Energy (





Allention: Exploration & Technical Director


Address:





5 Chancery l.ane. London,


WC2A I LG.


United Kingdom





Email: agrossc@sterlingcncrgyuk io n





A notice delivered by email (followed by an courier) shall, vivc tor manifest error, he


deemed to liave been dcliscrcd upon its transmission by email.


44 2 Ihe above address and or designated representative of an> of the Parties may be





changed on giving ten (10) days prior notice to the other Parties delivered pursui t to


Article 44 |.











ARTICLE 45 - TERMINATION


45.1 Subject lo the provisions of Article 45.5. the GOVERNMENT shall have the right U>


•emunale this Contract in the event the CONTRACTOR:


(a) fails to meet a material financial obligation expressly stated in this Contract;


or


(b) during *J»e I irst Sub-Pcn«xl docs not carry out drilling and seismic acquisition,





as detailed in Article 10.2 or. during the Second Sub-Period (or earlier), does


not carry out drilling anJ seismic acquisition as detailed m Article 10J; or







with


no cause or justification acceptable in accordance with this Contract or under


prudent internal:oral petroleum industry practice, it being recognised that


L. 91/120








 Force Mai on re is an acceptable justification for such interruptions; or





(d) intentionally extracts or produces any mineral which is n.n covered by the


object of tins Contract, unless such extraction or production is expressly


authorised or unavoidable us a result of operations carried out in accordance


with prudent international petroleum industry practice; or


(c) if the CONTRACTOR comprises solely one entity, is declined bankrupt in


accordance with applicable Law; or


(0 wilfully refuses to abide by negotiation, mediation, arbitration or expert


decision under Article 42.


45.2 rhe GOVERNMENT may also terminate the Contract only in respect of one


CON TRACTOR Entity if such entity is subject to a Change of Control for which


the GOVERNMENT has not given its authorisation in accordance with Article 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 hi accordance


w ith the provisions of Article 7.


45.4 During the Development Period, the CONTRACTOR shall have the right to


terminate tins Contract at any time by surrendering nil Production Areas, provided its


then current obligations have been satisfied in accordance with this Contract


45.5 If the GOVERNMENT ixatis lo exercise .?s right to terminate this Contract


pursuant to Article 45.1. it shall first comply with the following provisions


(a) The GOVERNMENT shall notify the CON TRACTOR ol ns intention to


terminate this Contract dating the reasons lor such termination and requesting


the latter:





l i) to remedy the default, or





(ii) to propose acceptable compensation





(b) If. within three (3> Months alter the notice referred lo in Article 45.5(a), the


CONTRACTOR has not remedied the situation complained of by the


GO\ I KVMEYT to its utoiactioa or offered compensation acceptable to


the


GOVERNMENT m each case acting reasonably, the GOV ERNMKVT shall


notify the CONTACTOR in writing that the Contract shall be terminated


from the termination date detailed in such notice Ihis C'oninwi dull tcunimie


on such termination dale unless the CONTRACTOR issues a notice of


dispute as provided under Article 42. in which ease this Contract shall remain


in force unri! a final settlement of the dispute has been reached in accordance


w ith the dispute resolution provisions of Article 42.





The foregoing provisions of this Article 45.5 are subject to the proviso that, in care of


a dispute where there has been breach of this ('ontruct which h.is Kvii \ ibmittcd to


92/120


 dispute resolution pummnl lo Article 42, iIk GOVERNMENT shall no! tv entitled


to exorcise its right lo terminate this Contract prior to a final determination under


Article 42 in favour or the GOVERNMENT.


45.6 If the GOVERNMENT terminates this Contract pursuant to the provisions of Articles


45.1 iukl 45.5, the C ONTRACTOR shall lose all its rights and interests under this


Contract Notwithstanding the foregoing, the provisions of Articles 14.10, 16.7. 30.


31. 35 1. 35.2. 35 3, 35 4. 35.7. 38.2, 41. 42. and 43.1 to 43.6 shall survive the


termination or expiry of this Contract.


45.7 If a CONTRACTOR Entity breaches Article 46.1 or 46.2 the


GOVERNMENT or another C ONTRACTOR Entity may terminate this Contract in


respect ..I tIk first CONTRACTOR Entity.


45 8 If the Contract is terminated under Article 45.2 or 45.7 in respect of a





COVTR \CTOR Emily, the .meres: of the relevant CONTRACTOR Entity shall


be trainfeued to the other COM RACTOR Entities in the proportions in which thei-


respective percentage ntcrcsts 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 vt^h icnn is defined in Article 39.7k Such transfer shall not give rise lo


ary Tax including or the consideration paid or received or oo the income or gain














AR rIt I E 40 - APPLICATION OF ((IRRUPTION LAWS


46.1 If this Contract U reasonably proven to have been obtained in violation of Kurdistan


Region law concerning corruption, this. Contract is void ob initio


46.2 Bach CONTRACTOR Entity agrees that if it is, ut any time, reasonably proven to be





in breach of Kurdistan Region Law concerning corruption the provisions of Article


45.7 apply.








ARTICLE 47 - EFFECT IVE DATE


I his Contract shall become effective and be binding on the Parties upon ihc signature of the


Contract by the duly authorised representative* of the GOVERNMENT and the


CON TRACTOR, as provided below.














Entered into in four (4) originals in Erbii. the Kurdistan Region on'O November. 2007.











iL 93/120





 I or the Kl R 1)1 STAN REGIONAL GOVERNMENT








By:





Ash'd liawrurni


Prime Minister Minister of Natural Resources Kurdistan


Kurdistan Regional Government Regional Government


On behalf of the Regional Council On behalf of the Ministry of Natural


tor the Oil and Gas Affairs of the Resources in the Kurdistan Region


Kurdistan Region Iraq




















I or each CONTRACTOR Entity


STERLING ENERGY (IN I KRNAIIONAL) LIMN ED








Andrew J. Grosse











Exploration and Technical Director















































94/120


 ANNEX A





Map showing coordinates of Sanguw North Block corner points








































































































Point Latitude (deg min sec) Longitude (deg min seel X (rat) V «n\) ~\


|1 1 35° 23’ 25- N___ 44" 52' 18" E 488 339 3916 338


j

| - jj io u} n *f? UJ IN tl jy^*f T*t©


3_ 35° 25’ 02" N 45“ 06' 17" E 509 4% 3919 304


4 35° 18' 22" N _ 45" 12' 49"E 519 410 3907 007 |


5 35* 09' 49" N 45® 07 21"E 511 145 3891 192



























































95/120


 ANNEX H


\< <.LH.MIMi pkck uh kk








PARAGRAPH I-GENERAL PROVISIONS


1.1 Purpose


To classify expcndinm-.N, define further Petroleum Costs (in addition to those defined


ns micIi in the Articles of the Contract), and prescribe the manner in which the


CONTRACTOR'S Accounts shall he prepared and approved.


1.2 Definitions





Words and phrases to which u meaning lues been assigned in Article i or other


Articles of the Contract shall have the same meaning when used in tilts Annex.





13 Inconsistencv


In the event of any inconsistency or conflict between the provisions of this Annex and


the other provisions of the Contract, th.cn the other provisions of the Contract shall


prevail.





1.4 Accounting Records and Reports





1.4.1 Ihc CON IK ACTOR shall maintain the Account* tn accordance with Article 15 1


and m accordance with this Accounting Procedure, including in accordance with the


charts of Accounts agreed under Paragraph 1.4.2





1.42 Withm sixty (60) days of the Effective Dale, the CONTRACTOR shall submit to and


diMuts with the GOV ERNMENT a proposed out ne of chart* of Accounts, which


outline shall be in accordance with generally accepted standards and recognized


accounting systems and consistent with normal petroleum industry practice and


procedures Within ninety (90) days of receiving the above submission, the


GOVERNMENI shall either provide written notification of its approval of the


proposal or request n writing revisions to the proposal U ilhin one hundred and


eighty (ISO) days after the Effective Date, the COM KACTOR and the


GOVERNMENT shall agree on the outline of charts of Accounts which shall


describe the basis of the accounting system and procedmcs to he developed and used


under this Contract Following such agreement, the CONTRACTOR shall


expeditiously prepare and provide the GO\ ERNMI NT with formal copies of the


comprehensive charts of Accounts and manual* related to the accounting, recording


and reporting functions, and procedures which are. and dull be. observed under the


Contract


1.4.3 Notwithstanding the generality of Ihc foregoing, the CONTRACTOR shall male


regular Statements relating to the Petroleum Operations These Statement* are a*


shown:








96/120 $





ii) Production Statement (as indicated in Paragraph 6).


h) Value of Production and Pricing Statement (as indicated in Paragraph 7)


c) Cos* Recovery and Share Account Statement (as indicated in Paragraph 8).


d> Statement of Expenditures and Receipts (as indicated in Paragraph'/).


e) Final End-of-Ycar Statement (as Indicated in Paragraph 10).


f) Budget Statement (us indicated in Paragraph 12)


1.4.4 All icpints and statements shall he prepared in accordance with the Contract.


Kurdistan Region Law, and where there are no relevant provisions of either of these,


in accordance with prudent International petroleum industry practice.


1.5 Language and Uaits of Account


All Accounts shall be maintained ami prepared in the English language and shall be


recorded in Dollars. Wheic necessary lor clarification, the CONTRACTOR may


also maintain Accounts m other currencies.


1.6 Audit and Inspection Rights «f the GOVERNMENT


In addition to the provisions of Article 15.3 (o 15.7 and 15.9. the following provisions shall


apply to any audit carried out in accordance with Articles 15 1 to 15.7:


1.6.1 For pu.T*>*cs of audnng. the GOV ERNMI'VT, acting fc*v*rjhly ard in accordance


with prudent micm.itlonal petroleum industry practice, may examine and verily, at


reasonable time' upon reasonable prior wrinen notkv to the C OM RAC'I OR. all


charges and credits relating to the Petroleum Operations, such as hooks of account,


accounting entries, material records and inventories, vouchers, payrolls, invoices and


any other documents, correspondence and records including electronic records


reasonably considered necessary by the GOVERNMENT to audit and wriiy the


charges and credits, values and treatments


1.62 Furthermore, the auditors shall base the right in connection with such audit, to visit


and inspect at reasonable limes, all sites, plants, facilities, warehouses aird offices of


the CONTRACTOR directly or indirectly serving the Petroleum Operations and to


question personnel associated with th»wc Petroleum Operations


1.6J Where the GOVERNMENT requro verification of charges made by an Affiliated


Company of the < OMRACTOR. the GOVERN Ml NT shall have the right to


obtain an audit certificate for such changes from an internationally recognized (inn of


public accountant.* acceptable to both the GOVERNMENT and the


CON I RACIOR which may be the CONTRACTOR'S statutory auditor.


1.6.4 All agreed adjustments resulting from an such shall he promptly made in the


C OVI K V< I OR\ Accounts and anv consequential adjustments to payments due to


the COM R ACTOR nr to the GOVERNMENT, as the case may be. shall be made


promptly.





97/120


I 6 5 When bmn are outstanding with respect to an audit, the CONTRACTOR dull


nuir-tiin the relevant documents ami permn inspection thereof until the issue is


resolved.


1.7 Payment*


tales as otherwise provided in Article 24. Article 29 oc other Articles of the


Contract:


1.7.1 All payments between the Parties shall, unless otherwise ugracd, bo in Dollars and be


made through a bonk designated in writing by each receiving parly; 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 olhu under the Contract shall, for each day such


sums are overdue, bear interest compounded monthly ut UBOk plus two per cent


(2%).


1.8 Currency Exchange Kates


In addition to the provisions of Article 2'>. the following provisions dull apply to any


exchanges of currency earned out in accordance with Article 29


1.8.1 Amounts received and Petroleum Costs incurred, shall Ik converted from othei


currencies into Dollars In accordance with the CONTRACTOR’S usu.il accounting


procedures which shall reflect generally accepted accounting practice* in the


inieirehonal petroleum industry. and with reference to exchange rates obtained in


accordance with Article 29


1.9 Accrual Bsvia, Cavh How Hash and Reports


All books and Accoonts shall be prepared on ai accrual basis in accordance with


generally mccptcd accounting principles used in the international petroleum industry.


1.10 Values and Treatment*


Values and treatments proposed b) the CONTRACTOR relating to all Petroleum


Costs shall be subject to challenge by the GOVERNMENT in the course of audit to


ensure thut they arc in accordance with the provisions of this Accounting Procedure.


























9S/I20


 PARAGRAPH 2 - CLASS1KICAI ION, DKFINI NON AM) ALLOCATION OF


COSTS AND EXPENSES





2.1 Segregation of Costs and Expenses


Petroleum Costs shall he segregated in accordance with the purposes for which such


Petroleum Costs are made. The purposes which shall qualify are


(a) those which have been included in the approved Wort. Program and Budget


for the year in which the C osts und I xpenditures arc made;


(h) expenditures incurred in ease* of emergency ns set out in Articles 11.7, 13.5,


1.1.9 35.5.35.6 and any other Articles of Cite 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 he


classified, defined ami n I located as set out below





2.2. Exploration ( hxts


Exploration Costs are all direct ami allocated indirect costs tuid expenditures incurred


in carrying out tltc Exploration Operations, including all direct and all

costs and expenditures incurred in the search foe Petroleum in an area whxh is. or was


at the time when such costs and expenses were incurred, pan of the Contract Area


including:


22 I Aerial, geophysical, geochemical. pakuntoiogx'aJ. geological, topographical and


seismic surveys and studies ami their mcrprctaioo and purchased geological and


geophysical information.


2.2.2 Stratigraphic test hole drilling and **«cr well drilling


223 labour, materials, supplies and services used m drilling wells with the object of


finding Petroleum or .Appraisal Wells excluding any costs of die 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 I.


2.2 2 and 2.2.3. including access road'


2.2.5 Thai portion of all Service Expenditures and that portion of all General and


Administrative Expenditures directly attributable to Exploration Costs or allocated


tlicreU) on a consistent and equitable basis


2 2 6 Any other expenditures incurred in the search for and appraisal of Petroleum after the


Effective Date and not otherwise covered under this Paragraph 22.








9W120


2J (»■* Markrtiog Carts


G» Marketing Costs arc all dtreel and allocated indirect costs and expenditures


incurred in carrying out Gas Marketing Operations and include lint portion of all


Service Expenditure* and that purtion of all General and Administrative Expenditures


directly attributable to (ias Marketing Costs or allocated thereto on a consistent and


equitable ham


2.4 Development ( osts


Development Costs nre all direct and allocated indirect costs and expenditures


incurred in carrying out Development Operations including all direct ar.d tdlocatcd


indirect costs and expenditures incurred in:


2.4.1 Drilling well* which arc completed ns producing wells and drilling wells foi purposes


of producing from a Petroleum reservoir, whdltci llicxc wells me dry or producing


and drilling wells for the in jection of water or gas to enhance recovuiy of Petroleum.


2.4.2 Completing wells by way of installation of casing oi equipment or otherwise after a


well hi»x heen drilled for the purpose of bringing the well into use as a producing well


or as a well for the injection of water or gas to enhance recovery of Petroleum


2.4.3 The com* ol Petroleum production, transport and storage facilities such as pipelines,


flow line*, production and treatment units, wellhead equipment, subsurface


equipment, enhanced recovery systems. Petroleum s^yra^c facilities. »nd accevv roads





244 Eagincenog wd design snxhcs fcr the weUs and be line* referred to ■ Paragraph.


141.142wd2.4J.





And including that portion of all Service Expend, tares and that portion of all General


and Administrative Expenditures directly attributable In Development Costs or


allocated thereto on u consistent and equitable basis; and any other expenditure


incurred in the Development Operations and not otherwise covered under Paragraph


2J





15 Pn-duciirti C uts








in cunying out Production Operations, including all direct mid allocated Indirect costs


;uid expenses incurred m Petroleum Operations aftci I irvt Production which are other


than Exploration Cosu. Gas Marketing Costs. Development Costs and


portion ol all Service


I xpcndiiurcv and that portion of all General and Administrative Expenditure* directly


attributable to Production Costs or allocated thereto on a consistent and cquhabk


basis.














100*120


2.6 Ikcoinmi'Moninj: f«U


Decommissioning Co* are all direct and J located indirect costs and expenditures


incurred in carrying out Decommissioning Operations and include that portion of all


Service Expenditures and that portion ol all General and Administrative I xpenditnres


directly attributable to Decommissioning Costs or allocated theicio on a consistent


and equitable basis, and the Decommissioning Reserve Fund shall be determined on


such basis, in advance of incurring such com*, as provided in Article 3* and. for the


purposes of cost recovery , the contributions to the Decommi'sioning Reserve Find


dial he recovered in accordance with Article 31.


2.7 Service Expenditures


Service Expenditures are expenditures in support of Petroleum Operations including


warehouses, vehicles, nolonroi 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 F..\penditurcs ir. any Calendar Year shall include the costs 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 Paragraph* 22 5. 2 3, 2.4. 25 and 2.6 to Exploration Costs,


Gas Marketing Cc*ti. Development C orns. Production Costs and Decotrr . z oning


Costs respectively and shall be separately shown under c*h of these emegooes.


Whcrc Serv ice Expenditures arc made in rasped of shared facilities, the basis of


allocation of costs to Petroleum Operations shall be consistent and equitable and sha


be specified.


2.8 General and Administrative Expenditures


General and Administrative Expenditures ore:


2.8.1 All mtiin office, field office and general administrative expenditures in the Kuidisian


Region including supervisory, accounting and employee relations services


2.8.2 Where the CONTRACTOR is an Affiliate of a group of companies whose


headquarters is Abroad (a "I oreiga C OM RACTOR"), an annual overhead charge


shall be made for services rendered (excluding the direct expenditure* av referred in


Paragraph 3 1.2.(b» by any Affiliate of the Foreign CONTRACTOR outside the


Kurdistan Region to support and manage Petroleum Operations under the Contract, or


where the CONTRACTOR, not being a Foreign CONTRACTOR draws upon the


services of an Affiliate within the Kurdistan Region, an annual overhead charge shall


he made for service* rendered (excluding the direct expenditures a* 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 CONTR AC TOR in acowdancv with


its standard personnel policy ia force in the relevant period, provision of office








101/120


 accommodation and provision of services reasonably necessary for operation and





CONTRACTOR’S Alllliatc. such as. hut not limited to, international pioduction


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 uml'or expenditure or without the release


of confidenti.il data proprietary to any of the CONTRACTOR’S Affiliate*. he


charged under any other section of this Annex; and


b) are properly allocable to Petroleum Operations under the Contract. It is


understood, however, that services performed by the departments listed above


and other corporate department* which directly benefit Petroleum Operations


under tike Contract shall he 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


on amount equal to the total of the follow ing:


2.K.2.1 Exploration Overhead


Ihe CONTRACTOR shall he entitled to an uiiiiuul charge based on a sliding seals


percentage and charged monthly to Petroleum Operations I he basis for applying this


percentage shall he the total of Exploration Costs and Cu> Marketing < .- . during


each Calendar Year (exclusive of this Exploration Overhead) or fraction tbeicof less


expenditures which base been subjected to the two (2) per cent fee. refereed to in


Paragraph 3.1.8(b) The sluing scale percentage shall be the following:


For the first lour million Dollars (USS4.000.000) four per cent (4S) For the


next four million Dollar. (USS4.000.000) three per cent (3%)Ov ct eight


million Dollars (l.SS*.000.000) twx> per cent (2%)


Ihe foregoing percentages mas be resiewed but not more often than annually, and


any approved appropriate adjustment shall be made, if necessary, prospectively


2.8.2.2 Development. Production and Decommissioning Operations Overhead


Ihe overhead rales applicable to IX-velopment. Production and Dccommiuioninc


Operations shall be agreed between the Parties x due counc aid shall incorporate the


following guidelines


(a) The CONTRACT OK’s charges must be charged as direct charges whenever


possible. Overhead charges exist only to compensate the CONTRACTOR s


AITi hates for costs which arc properly allocable to Petroleum Operation*


under the Contract but which cannot, without unreasonable efTort andor


release of confidential dn proprietary io the CONTRACTOR’S Affiliates be


charged under any other see ike Overhead costs are billed monthly.


Overhead must be commensurate with services rendered and hosed on actual





102/120


cost studies but may not exceed an amount calculated as a percentage of


certain annual expenditure* excluding Txploratioa Costs and


(b) That percentage as weii as the types of expenditures, which affect overhead


and those, which do not. shall be agreed among the Panics.


(c) I lie maximum percentage rates may be revised by mutual agreement not more


often than annually. The initial maximum percentage rates and the types of


expend;tuics to which they apply shall be agreed as soon as the Panics possess


reasonably reliable cost estimates lor the relevant Production Area


(d) Overhead charges are not subject to uudil by (GOVERNMENT


(c) The CONI RACTOR 'hall upon request fumilh at the end of each relevant


Calendar Year to the GOVERNMENT a confirmation by its statutory auditor


dun the overhead costs actually charged do not duplicate any other charges


and that the method used in allocating overhead to Petroleum Operations


hereunder us opposed to other activities is reasonable und in accordance with


generally accepted accounting practices.


(f) The CON TRACTOR 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 und


sliail Ik separately shown under each of these categories,





y NR NGR M il 3 - COS rs. EXPENSES. EXPENDITURES AND ( REDIIS Of Mil


CONTRACTOR





3.1 Costs Recoverable \Vithout farther Approval of the GOVERN MEN T


Petroleum Costs incurved 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 Conirar. (except lo the extent provided b Paragraph 4 or


elsewhere in dm Annex), subject to audit as provided for m Article 15 and in


Paragraph 1.6.








All direst coals necessary for the acquisition, renewal or relinquishment of surface


right' acquired and maintained in force for the purpose* of the Contract


5 ; 2 Lagtu: arid Associated UivxCggS





a) The CONTRACTOR'S locally re cruised employees based in the Kiudistan


Rex*m Co»u» of al! CONTRACTORS locally recroitcd employees who are


directly engaged in the conduct ot Petroleum Operations under die Contract in


the Kurdistan Region Such costs shall include the cost' of salaries wages,


bonuses, overtime, employee benefit* and GOVERNMENT benefits for








103/120


emplujiia and Icvw imposed on ihc CONTRACTOR as an empk


trampi station and relocation cost' within the Kurdistan Region of the


employee and such member, of the employee's family (limited to spouse and


dependent children) as required by law or customary practice in the Kurdistan


Region. If such empUnccs are engaged in other activities in the Kurdistan


Regain, in addition to Petroleum Operations, the cost of such employees shall


be app.Kti.mcd on a time sheet bns:» according to sound and acceptable


accounting principles.


b) Aisif’neJ Ptrumnei. 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 employ ees, it being understood


that m 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 saUr.es. 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-raia allocation shall be specified.


c) The CONTRACTOR’S costs regarding holiday, vacation, sickness and


disability benefits and living and housing and other customary allowances


applicable to the salaries and wages chargeable irdcr Paragraph V1 2(b).


d) Fxpenses or contributions made pursue* to asaownents or obligation*


imposed under Law which are applicable to the < ONTRACTOR’s cost ol


salaries and wages chargeable under Paragraph 1 I 2(b).


e) Ihc CONTRACTOR i cv t of oaahlrshed plans for employees’ group life


insurance. h'pi’a.izaaon, pension, slock purchases, savings, bonus, and other


benefit plans of u like nature customarily granted to the CONTRACTOR'


employees, provided however that such costs are in accordance with generally


accepted Standards in the international petroleum industry, applicable to


salaries anJ wages chargeable to Petroleum Operations under Paragraph


3.12(b)





f) Actual transportation and travel expenses of employees of CON TR \CTOR


including those made for travel and relocation of the expatriate employee*,


including their families and personal effects, assigned to the Kurdistan Region


whose salaries and wages are chargeable to Petroleum Operations under


Paragraph 3.1.2(b).





Actual transportation expense* of expatriate personnel transferred to Petroleum


Operations from their country of origin shall he charged in the Petroleum Operations


Transportation expense* of personnel transferred frxmi Petroleum Opcrutions to a


country other than the country of their origin shall not be charged to the Petroleum


Operations. I ranxpofiat.cn cost ax used in this section shall mean the cost of freight


and pavent’er service, meals, hotels, insurance and other expenditures related to


vacation and transfer travel and authorized under the i OM’RACTOR’s standard


personnel policies Ihe C'ONTRACTOR shall ensure that all expenditure' related to


transportation costs are equitably allocated to the activities, which luxe benefited


from the personnel concerned.





104,120


 g) Returnable personal expenses of personnel whose salaries and wages are


chargeable lo Petroleum Operations under Paragraph 3.1.2(b) and for which


expense* such pentane! ore reimbursed under the CONTRACTOR'S





an equitable basil.














The coil of transportation of employees, equipment, materials and supplies other than


as provided in Paragraph 3.1.2.(1) necessary for the conduct of the Petroleum


Operations under the Contract along with other related costs such as, hut not limited


to, import ditties, customs fees, unloading charges, dock lees, and inland and ocean


freight charges


3.1.4 Charges for Services





a) Third Parties





The actual costs ol contract services, services of professional consultants,


utilities, and other services necessary for the conduct of the Petroleum


Operations under the Contract perforated by third parties other than an


Affiliate ol da < OVTRACTOR


b) Affiliates of the < 'ONTRACTOR





Profi'twul isd Admiantrame Srnin* liprntn cost of





(ONTRACTOR lor the direct benefit of Petroleum Operabons.


including sen ices provided by the production. exploration. legal,


procurement, financi.il. insurance, accounting and computer services


divitioiM other than those covered by paragraphs 3.1 4 (b) (ii). 3.1.6


and 3 I * (b) which CONTRACTOR nuy u< in lieu of having in


own employees. Such charges shall retkxt the cost of providing their


services. Such charges dull not include any element of profit and shall


be no more or kss favourable than similar charges foi other operations


earned on by die CON I K \(TOK and its Affiliates. The chargeout


rate shall include all costs incurred by Affiliates incidental to tlic


employ mem of such personnel including all 1 abour and Associated


Labour Costs and the cost ol maintaining and operating offices and


providing all support services for such personnel Com* of travel of


such personnel in respect «»f Petroleum Operations will be directly


charged I he charge' for such services shall not exceed those


prevailing if performed by noo-Affiliated third parties. taking into


account the qualkv md afrnhMIfey of »*h vervvee* Where the work n


performed ouewe the home ofT« hue of such personnel. foe laity


rale shall be charged from foe date such personnel leave foe home


office base where they tniulfy work up to their return thereto, including


days which are not working days in the location where the work is








105/120


 perform*!, excluding any holiday cntillcmenls derived by such


personnel from their employment at their home office bone.


ii) Sclent!fk nr Technical Personnel cost of scientific or technical personnel


Kokc' provided by any Affiliate of the CONTRACTOR for the direct


benefit of Petroleum Operations which cost shall be charged on a cost of


service basis and dull not mclude any element of profit The chargcout rate


shall include all costs incurred by Affiliates incidental to the employment of


such personnel including all l-abour and Associated Labour Coats and the cost


of maintaining and operating offices and providing all support services for


such personnel coil* of travel of such personnel in respect of Petroleum


Operations will be directly charged. The charges foe such service* dull not


exceed those prevailing it performed by noo-affiUated third patties, taking into


account the quality and availability of such services. Unless the work to be


done by such personnel is covered by an approved Work Program and Budget,


tlie CONTRACTOR shall not authorize work by such personnel without


approval .if the GOVERNMENT.


iii) Equipment and facilities: use of equipment and facilities owned and





funmhed by the CON IR ACT OK's Affiliates, at rates commensurate with the


cost of ownership and operation; provided, however, that such rules shall nol


exceed those currently prevailing for the supply of like equipment and


facilities on computable terms in the area where the Petroleum Operations are


being conducted and shall be on an arm's length basis. On the request of the


(JOVERNMI NT. the CONTRACTOR shall provide the GOVERNMENT


with evidence of such rates being on an aim’s length basis. (If the


GOV ERNMENT considers that any such rale is not on an arm's length basis


then the GOVERNMENT has the right to refer the matter to an expert pursuant


to Article 42 .2 of the Contract). The equipment and facilities referred to herein


shall exclude major inwsunent items such as (but not limited lo) drilling rigs,


producing platforms, oil treating facilities, oil and gav loading and


transpo nation systems, storage and terminal facilities and other major


facilities, rates for which shall be subject to separate agreement with the


GOVERNMENT.








V1.5 Communication*


Cost of acquiring, leasing. installing. operating, repairing and maintaining


commjmcaTion systems including radio anJ microwave facilities within and between


the Contract Area and the CONTRACTOR S nearest base facility


3 1.6 Office -ind Miscellaneous Facilities


Net 0.11 to the CONTRAt TOR of establishing, maintaining and operating any


office, sub-office, warehouse, homing or other facility directly serving the Petroleum


Operations If any such facility service more than one contract area the net cost'


thereof shall be allocated on an equitable basis :n accordance with prudent


international petroleum indu-try practice.








IOb-120


 3.1.7 Ecological and Environment





a) Costs incurred in the Contract Area as a result of legislation lor archaeological


and geophysical surveys reluting to identification and protection of cultural


sites or resources,


b) Costs incurred in environmental or ecological surveys required by regulatory


authorities, including an environmental impact assessment commissioned


pursuant to Article .37.5 of the Contract ami any other costs incurred in


complying with the requirements of Article 37;


c) Costs to provide or have available pollution containment und removal


equipment;


d> Costs of actual control and cleanup of oil spills, and of sixh funber


responsibilities resulting therefrom as may be required by applicable laws and


regulations;


e) Costs of restoration of the operating environment incurred pursuant to an


approved scheme prepared in accordance with Article 38 of the Contract;


0 Any cost* incurred for the decommissioning of facilities and site rest oral ion.


including any related activity required by the GOVERN MINI of 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 arc


made


3.1.8 Mfttcri.il and Equipment Cvtls


Costs of materials and supplies, equipment, machines, tools and any other goods of a


similm nature used or consumed in Petroleum Operations subject to the following;


a| Acquisition • tlic <'()N I RACTOR shall only su;»ply or purchase materials for


use in Petroleum Operations that may be used in the foreseeable future Ihc


accumulation of surplus stocks and inventory 'hall be avoided so far as is


reasonably practical anJ consistent with efficient ami economical operations.


Inventory levels shall, however, take into account the time lag for replacement,


emergency needs, weather conditions affecting oporutions and similar


considerations.


b) Components of costs, arm’s length transactions - except as otherwise


provided in paragraph 3.1 8(d) . material purchased by the CONTRACTOR


in arm's length transactions in (he open market for u*c 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


plua 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








107/120


 and. where applicable, handling and transportation expenses Irom point of


importation to warehouse or operating site. Where an Affiliate of the


CONTRACTOR lw arranged the purchase, coordinated the forwarding and


expediting effort, its co-ts should not exceed those currently prevailing in


normal arm’s length transaction* on the open market and in any case shall ac*


exceed a fee equal to two percent (2%) of the value of the malemls added to


the cost of the material* purchased





c) Accountin'* - such m.ncnal 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 C OVJRACTOR to or from Petroleum


Operations under this Contract shall be valued and charged or credited at the


prices specified in Paragraphs 3-18(dHi) 3.1 *

I) New material, including uw:d new material moved from inventory





(Condition V). shall be valued ut tl»c current international net price


which shall not exceed the price prevailing in norma! arm' lengtii


transactions in the open market





ii) l fsed material (Conditions ’B'. "C" and "D";


u) Material which is in sound and serviceable condition and is


suitable for re-use without reconditioning shull be classified ax


Condition "B" and priced ut seventy five percent (75%) o: the


current price Ol new material defined in Paragraph 3 I 8

b) Material which cannot be classified as Condition ‘B* bet which





after reconditioning will be further serviceable for its original


function shall be classified as Condition 'C‘ and pneed at rot


more than fifty percent (50%) of the current price of new


material a* defined n 3 I 8

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 ’B’ material.


c) Material which cannot be classified as Condition “B" or


Condition "C* shall be classified as Condition ’D* and priced at


a value commensurate with u* use by the CONTRACTOR If


material is not fit foi use by the CONTRACTOR it shall be


disposed of as junk.


iu) Material involving erection costs shall be charged ax the applicable


condition percentage of the current knocked-down pnee of new


material as defined ir. Paragraph 3 1 m J*i).


iv) When the use of material is temporary and its service to the Petroleum





Operations under the Contract does not justify the reduction in price as


provided for in paragraph 3.1.8 (dXiiXb). such material shall be priced








$


108.120





 On a basis that will result in u net charge to the accounts undei the


Contract consistent with the value ol the service rendered.


v) Premium prices - whenever mulcrUI is not readily obtainable at


published or listed prices because o! national emergencies, strikes 01


other unusual causes over which Ihc CONTRACTOR has no control,


the CONTRACTOR may charge Petroleum Operations for the


required material at the CONTRACTOR'S actual cost incurred in


providing such material, in making it suitable lor use, and in moving it


to the Contract Area; provided notice in writing is furnished to the


GOVERNMENT of the proposed charge prior to charging Petroleum


Operations for such material ami the GOVERNMENT shali have the


right to challenge the transaction on audit.


vi) Warranty of material Airmailed by the CONTRACTOR - the


CONTRACTOR docs not wunuiil the material furnished. In ease of


defective material, credit shall not be passed to Petroleum Operations


until adjustment hits been received by the CONTRACTOR from tlx


manufacturers of the material or their agents.


vii) Adjustments arising from material inventories conducted in accordance





with Paragraph 5.2.


e) I Equipment of the CONTRACTOR charged at rales not to exceed ihc average


commercial rates of non affiliated third parties for equipment, facilities,


installations and utilities lor use in the area where the same are used On


request, the CONTRACTOR shall finish a list of met and the basis of


affixation Such rales diall be revised when found to he other excessive


orinsufficicni, bui not more than once every six (6) Months


Drilling tools and other equipment lost tn the hole or damaged beyond repair


ma> he charged at replacement cost less depreciation plus tramponation costs


to deliver like equipment to the locaion where wed


0 fse of leased or hired machinery and or equipment in the Petroleum


Operations shall he charged at Ail! cost to the CONTRACTOR. This may


include mobilisation and de-mobilisation charges, lease and hire tees, as well


as other contractual costs.





3.1.9 Rentals and Taxes





All rental, of every kind and nature levied by any GOVERN MEN I and all Taxes


imposed in connection with the CONTRACTOR', assets, income or activities under


the Contract and pa.d directly by the CONTRACTOR or any CONTRACTOR


Entity (save where the contrary is expressly provided in the Contract) with the


exception ofTaxes 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 us a result of services performed at


cost for the Petroleum Operations under the Contract, its charges for such services








109/120


 may be iik teased by the amount required to cover such taxes (grossed up) including


taxes on such gross up





3.1.101 psucspcc ffld l«ie


Insurance premiums and cost* incurred for insurance carried for the benefit of the


Petroleum Operations provided that such insurance is customary, affords prudent


protection against risk jikI iv ut a premium no higher than that charged on a


competitive basis by insurance companies which are not Affiliated Companies of the


('ONI RAC I OK. Ixccpt in cases of failure to insure where insurance coverage i'


required pursuant to the Contract, actual costs and losses incurred shall Ik 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 danuges or losses


incurred by fire, flood, storm, theft, accident or such other cause


3.1 II LegalExpenses


All reasonable costs and expenses resulting from the handling, investigating,


asserting, defending, or settling of any claim or legal action necessary or expedient lor


the procuring, perfecting, retention and protection of the Contract Area, .uid in


defending or prosecuting lawsuits involving the Contract Area or any third party


claim wising out of the Petroleum Operations under the Contract, or sums paid in


respect ot legal services necessary for the protection of the joint interest of the


GOVERNMENT ami the < ONTRACTOR shall lie recoverable. Such expenditures


dull include attorney's fees, court costs, arbitration costs, costs of investigation, and


procurement of evidence and an* Hints pa.d in settlement or satisfaction of any such


litigation and claims provided such costs arc not covered elsewhere m the Annex.


Where legal services arc rendered in such matter* 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 Cla inis


Expenditures made in the settlement or satisfaction of any loss, claim, damage,


judgement or other expense arising oat of or rtbiing to Petroleum Operations, except


as may otherwise be covered ebrwhere m the Annex











.All costs and expenses incurred by the CONTRACTOR in the training of its


employee* engaged in Petroleum Operations under the Coo tract


3.1 U (jy pcral and Administrative Costs


Die costs described in Paragraph 2 8.1 and the charge described in Paragraph 2 * 2














’.10420


 3.1 15





Charges and fees hy the banks for money transfers, payments and foreign exchange


transactions, as well us currency exchange losses incurred by the CONTRACTOR in


connection with the Petroleum Operations.





1 I 16 ()\he r Expenditures


Other reasonable expenditures not covered or dealt with in ihc foregoing provisions of


Paragraph 3 which arc necessarily incurred by the CONTRACTOR lor die 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 Mow shall be


credited to the Accounts under the Contract for the purpose* of Article 25 of the


Contract:


3.2.1 The proceed* of any insurance or claim or judicial awards in connection with


Petroleum Operations under the Contract or any assets cluugcd to Ihc Accounts under


the Contract where such operations or assets have been insured are: the prem;;


charged to the Accounts under the Contract


12.2 Legal cost* 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 u-v.cr the ( onlract.


3 2.4 Any adjustment received by the CON I K \C"IOR fnwn the suppliers manufacturers


or their agents in connection with a defective material the cost of which was


previously charged hy the CON I RAC'TOR in the Account* under the Contract


3 2 5 Rentals, refunds. including refunds of taxes paid, or other credit* received by the


CONTRACTOR which apply to any charge which has been made to the Accounts


under the Contract, hut excluding any award grunted to the CONTRACTOR under


arbitration or expert proceedings.


3.2.6 Costs originally charged to the Accounts under die 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 b\ the < OMRACTOR 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 die development


casts of which were incurred pursuant to and are recoverable under the Contract








m/120


3.2.9 Proceed* derived from the sale, exchange, lease, bin:, transfer or disposal in any


manner whatsoever of uny other item the costs of which have been charged to


Petroleum Operations.


3.3 Diiplicnrioii of ( hui g*\ anil Credits


Notwithstanding any provision to the contrary in this Accounting Procedure, there


shall he no duplication of charges or credits to the Accounts under the Contract





PARAGRAPH 4-COSTS AND EXPENSES NOT TO III I HP A I El) AS


RECOVERABLE


Iltc following costs and expenditures shall not be included in the Petroleum Costs


recoverable under Article 23:


4.1. Taxes on income or profit paid to any GOVERNMENT authority except taxes and


duties that may be included in the costs of material and equipment purchased for the


Petroleum Operations;


4.2. Any payment made to the GOVERNMENT by reason of the failure of the


CONTRACTOR to fulfil its Minimum Exploration Obligations in respect ol the


relevant Sub-Period under the Contract.


4.3. The cost of any letter of guarantee, if any, required under the Contrast;


4 4 The bonuses set out in Article 52 of the C ontract.


4.5. Costs of marketing or transportation of Petroleum beyond the Delivery Point


(excluding Cias Marketing Costs);


4.6. Attorney’s fees and other costs 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 CONTRACTOR for loans and


any other form of financing or advances for the financing of the Petroleum Costs


entered into by ihc CONTRACTOR with thud parties or Affiliated Companies.


4.8 Any accounting provision for depreciation and'or amortisation, excluding any


adjustments in value pursuant to Paragraph 3.1.*;


4.9 Dividends, repayment of equity cr repayment of intercompany loins.


4 10 t tncs and penalties imposed under I^w

















112!2t)


 PARAGRAPH 5-RECORDS ANI) VALUATION OF ASSETS


5.1 Records





I he CONTRACTOR shall maintain detailed records of property in use for


Petroleum Operations under the Contract in accordance with prudent international


petroleum industry practice lor exploration and production activities.


5.2 Inventories


Inventories of property in use in Petroleum Operations shall be taken at reasonable


intervals hut at least once n year with respect to movable assets and once every three


(3) years with respect to immovable assets The CONTRACTOR shall give the


GOVERNMKPf I at least thirty (30) days written notice of it* intention to take such


inventory and the GOVKKNMKN f shall have the right to he represented wl*cn »t*h


inventory is taken.


Failure of the GOVERNMENT to he represented at an inventory ’‘hall bind the


GOVEKNMKNI to accept the inventory taken by the CONTRACTOR


Hie CONTRACTOR shall clearly inform GOVERNMENT about the principles


upon which valuation of the inventory has been based.


Hie CONTRACTOR shall make every cllbrt to provide to the GOVERNMENT a


full report on sueh inventory within thirty (30) days of the taking of the inventory.


When an assignment of rights under the Contract takes place the CONTR AC TOR


may. at the request of the assignee, ukc a special inventory pros . Jed that the cosh of


such inventory arc home by the ajs.gnce.








PARAGRAPH 6- PROD1CTION M Aik Ml NT


6 1 Production Information


Without prejudice to the right' 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 a monthly production »uiem*nt to the


GOVERN'!! NT the following i (.fruition separatels for each pn- King


Dev ei opine nt Area and in aggregate for die Contract Area


6.1 I The quantity of Crude Oil produced and saved.


6.1.2 The quality characteristics of such Crude Oil produced and saved





6 1.3 1 he quantity of Natural Gas produced and saved.


6-1.4 1 he quality characteristics of such Natural Gas produced and saved





615 The quantities of Crude Oil and Natural tms used for the purposes of carrying on


drilling and production operations and pumping to field storage





L- 113 120





6.1.6 1 he quantities of Crude Oil and Natural Cos unavoidably lost.


6.1.7 The quantities of Natural Gas flared and vented.


6.1 K The si/e of Petroleum stocks held at the (vanning of the calendar Month in question.


6.1.9 I he size of Petroleum stocks held at the end of the calendar Month in question


6 1.10 Ihe quantities of Natural Gas reinjected into die Reservoir.


6 1.11 In respect of the Contract Area us a whole, the quantities of Petroleum transferred at


the Measurement Point. All quantities shown in this Statement shall he expressed in


both volumetric terms (Panels of oil imtl cubic meters of gas) and in weight (metric


tonnes).


6.2 Submission of Production Statement


The Production Statement foi each calendar Month shall he submitted to the


GOVERNMI N f no later than ten (10) days after the end of such calendar Month.








PARAGRAPH 7 - V AM f OK PRODUCTION' AND PRICING STATEMENT





7.1 Value of Production and Pricing Statement Information


The CONTRACTOR ‘hall, for the purposes of Article 25 of the Contract prepare a


statement providing calculations of 'die value of Crude Oil produced and saved during


each Quarter





This "Value of Production and Pricing Statement* shall contain the following


information





7 |.l The quantities ami prices realized therefor by the CONTRACTOR in respect of


sales of Natural Gas and Crude (hi delivered to third panic* made during the (porter





7.12 The quantities und prices realized therefor by the CONTRACTOR in respect of sales


of Natural Gas and Crude Oil delivered during the Quarter in question, other than to


Iliird Parties





7.2 Submission of \ aluc of Prodaction and Pricing Statement


The Value of Production and Pricing Statement for each Quartet shall be sabnutted to


the GOVERNMENT not later than twenty-one (21) days offer the end of such


Quarter

















i mao


 PARAGRAPH N ( OST RECOVERV AM) SHARK A( COI M STATEMKNi





X.l Cant Recovery Statement


I he CONTRACTOR shall prepare with respect to each Quarter a Cost Recovery Statement


containing the following information:*


8.1! Recoverable Petroleum Costs curried 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 .1)


8.1.5 Quantity and value of Petroleum applied to cost recovery pursuant u> Article 25 taken


by the CONTRACTOR for the Quarter in question


8.1. ft Amount of recoverable Petroleum Costs to be carried forward into tlx- next Quarter


(Paragraph 8.1.4 net of Paragraph 8 1.5).


8.2. Cumulative Pml action Statement


The CONTRACTOR shall prepare writ respect to each Quarter a Cumulative


Production Statement containing the following information:*


8 2 ; The cumulative production position «t the end of the Quarter preceding the Quarter in


question.


8 2 2 Production of I xport Petroleum for the Quarter in question.


8 2 4 I he cumulative production position at the end of the Quarter in question.


8.2.5 Ilie 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 «nd by the CONTRACTOR, respectively, during the Quarter in


question.


82.6 The forecast of production and the share of Petroleum applied to Royalty pursuant to


Article 24, cost recovery pursuant lo Article 25 and Profit Oil pursuant to Article 26


due to the GOVERNMENT and to tire CONTRACTOR, respectively, for the next


succeeding Quarter.











$1


115/120





8J rrrparatioB and Subnotion of Gnf Recovery and < umul.liu Production


Statement*





8.3.1 Provisional Cost Rreovery and Cumulative Production Statements. containing


otimatcJ Lrionnatioo where nccexvirv. shall be submittal by the COM KAfTOR


on the l.iit day of each Quarter for the purposes of Article 25 of the Contract


8.3.2 Final quarterly Cost Recovery and Cumulative Production Statements ahull be


Mibmillcd within thirty (30) days of the end of the Quarter in question.


M Annual statement


For the purpose* of Article 25 of the Contract, an Annual Cost recovery and Cumulative


Production Statement shall he submitted within ninety (‘MM days of the end of each Year


The Annual Statement shall contain the categories ol information listed in Paragraphs X.l and


8.2 for the Year in question, separated into the Quarters ol the Yeur in question and showing


the cumulative positions at the end of the Year in question with respect to cumulative


unrecovered Petroleum Costs and Cumulative Production.








PARAGRAPH 9-STACEMENT OF EXPEND!WRK AND RET HPIS


*> 1 The CON I RAC I OR dull prejurc with respect to c*h Quarter a Statement of


Expenditure and Receipts under the Contract. The Statement will distinguish between


Exploration Costs. Gas Marketing Costs l>exekipmcnt Costs, Production Costs and


Decommissioning Costs and will identify major items of expenditures within these


categories. Ihc State mail will show the following:


9.1.1 Actual expenditures and receipt* for the <>*rter m question.


9.12 Cunvj’ative expenditure and receipts for the budget Calendar Year in question


9.1.3 Latest forecast cumulative expenditure* ai the Calendar Year end.


9.1.4 VarubuRs between budget forecast and latest forecast and explanations thereof.


9.2 The Statement of Expenditure and Receipts of each Quarter shall he submitted to the


GOVERNMENT no later than thirty (30) days aria the end of such Quarter.




















116/120


 PARAGRAPH 10 - FINAL END-OK-YEAR STATEMEN I





The CONTRACTOR will prepare a Final fct>d-of-Ycar Statement. I he Stalcmcni will


coniuin mlbrmauon us provided in (he Production Statement, Value of Production and


Pricing Statement, Cost Recovery anil Cumulative Production Statements and Statement of


Expenditures and Receipts hut will he based on actual quantities of Petroleum produced and


expenses incurred This Statement will be used to make any adjustments dial 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


(00) days of the end of such Calendar Year.








PARAGRAPH II - A1 D1TS


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 BE DO Tl


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 mil show the Idlfowing -


1 l.l.l F orcca\t expenditures for the budget Calendar Year in question including a quarterly


clavsitk at ion of such expenditures


1112 Cuntulativ c expenditures to the end of said budget Calendar Year


11.1.3 A schedule showing the most important individual items of lYcvelopmcnl Costs (if


applicable) for vaid budget Year.





PAR\(.KAPII 13 - CONTRACTOR ENTITY INCOME TAX COMPI F \TION


Dl For the purpose of Article 31.3 (b) of the Contract, the net taxable profit* of each


CONTRACTOR Entity from all the Petroleum Operabon* earned out under this


Contract, shall he calculated in accordance with this Paragraph


13.2 Each CONTRACTOR Entity shall maintain for each Calendar Year separate


Accounts with respect to the Petroleum Operations which shall he used, inter id hi. to


establish a profit and km account and a balance sheet which will show the results of


the Petroleum Operation* carried out in such 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.











117/120


13.3 For purposes of determining the net taxable profits of each CONTRACTOR Entity


for corporate income tax purposes,


13.3.1 the profit and loss account of such CONTRACTOR Entity shall be credited with the


following:


a I it the Royalty is paid in cash pursuant to Article 24. revenues arising from the


disposal of Royally volumes ns recorded in such entity's Accounts and


•letcrmined in accordance with the provisions of Article 24:


h) revenues arising from the disposal of any Available Petroleum to which such


entity is entitled tor recovery of its Petroleum Costs as recorded in its


Accounts and determined in accoidnncc 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,


c) 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 shi’.! bo d.b u-.lih ail


charges incurred for the purposes of the Petroleum Operations whether inclined 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 ofer


Petroleum Costs, including Ur- costs of supplies, personnel and manpower


expenses, and the cost of services provided to the CONTRACTOR in


connection with the Petroleum Costs;


b) if the Royalty is paid in cash pursuant to .Article 24. Royally payment* made


and as recorded in such entity’s Accounts and drxrmined in accordance with the


provisions of Article 24;


c) General and Administrative Expenditures related to the Petroleum Operations


performed under the Contract:


d) depreciation of capita! expenditure in accordance with the following provisions:


(i) capital expenditure-, incurred by the CONTRACT OK lor the purposes of rhe


Petroleum Operations shall be depreciated on a reducing balance basis;.





(ii) the depreciation rates, which shall be applicable from the Calendar Year


during which such capital expenditures are incurred, or from the Calendar


Year during which the assets corresponding to said capital expenditures arc





11*120


 pul into noima! service, whichever is bier, for the fir* Calender Year in


question and for each subsequent Calendar Year, are as follows:





Nature of the capital Annual depreciation Kale








Permanent buildings 10.0%





1 emporary buildings 20 0%





Office and home furniture and 20.0%


fixtures


Productive wells 20.0%





Production and delivery equipment 20.0%





Drilling equipment 20.0%





Pipelines 20.0%


Automotive equipment 20.0%





Marine and aviation equipment 20.0%





All other capita! assets 20.0%








e) Exploration Costs (which for the avoidance of doubt include appraisal


expenditures) shall be deductible on it reducing balance basis at the rate of 20%


per annum.


ft interest and fees paid lo creditors of the CONTRACTOR, for their actual


amount;





K> losses o! Assets resulting fioni destruction or damage, assets which are renounced


or abandoned during the year, assets which are transferred under Article 20 2,


bad debts, indemnities paid to third parties as compensation for damage;


any other costs, expenses, losses ot charges directly related to the Petroleum


h>


Operations, including cxi i igc losses realised n connecrion with the Petroleum


Operations as well as the bonuses provided in Article 32. the Explontioa Rental


provided in Article 6.3, die Production Rental provided in Article 13 10. the


allocation to training, provided in Article 23.7 and the allocation to the


Environment Kurd provided in Article 23.9, the costs specified in Articles 23.1!.


38.1 and 38.6 and transportation and marketing costs beyond the Delivery P.iint;





tbc amount of noo-offset losses relating to the previous Calendar Yean, which


shall he earned forward for an indefinite period until full settlement of said losses


or termination of this Contract.








119/120


13.3J. the net profit of such CONTRACTOR Entity shall he equal to the difference


between all the amounts credited and all the amounts debited in tl»c profit and loss


account; and


a) if this amount n negative, it shall constitute a hiss


h) if the amount ih positive, it shall be grossed up to take account of the fact that


such entity's corporate income tax is being settled out of the


GOVERNMENT* 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 lor corporate income tax purposes:


Net 1 stable Net Profit* / (UNI • Applicable Rate of Corporate Income Tat )


Profits- 100


13.4 For purposes of determining each CONTRACTOR Entity’s liability to corporate


income tax for a tax year in respect of tin- Petroleum Operations carried out under this


Contract, the net taxable profits (if uny) for such tax year shall he multiplied by the


applicable rate of corporate income tax, as provided in Article 31.3(a).










































































120/120