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 PRODUCTION SHARING CONTRACT


SARSANG BLOCK


KURDISTAN REGION








BETWEEN


THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ


AND








HKN ENERGY LTD.


TABLE OF CONTENTS





PREAMBLE





Article 1 DEFINITIONS


Article 2 SCOPE OF THE CONTRACT


Article 3 CONTRACT ARK A


Article 4 OPTIONS OF GOVERNMENT PARTICIPATION AND THIRD PARTY


PARTICIPATION


Article 5 OPERATOR


.Article 6 TERM OF THE CONTRACT


Article 7 RELINQUISHMENTS


Article 8 MANAGEMENT COMMITTEE


Article 9 GUARANTEES


Article 10 MINIMUM EXPLORATION WORK OBLIGATIONS


Article 11 EXPLORATION WORK PRtXiRAMS AND BUDGETS


Ankle 12 DISCOVERY AND DEVELOPMENT


Article IS DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND


BUDGETS


Article 14 NATURAL GAS


Article IS ACCOUNTING AND AUDITS


Article 16 CONTRACTOR’S RIGHTS AND OBLIGATIONS


Article 17 USE OF LAND AND EXISTING INFRASTRUCTURE


Article 18 ASSISTANCE FROM THE GOVERNMENT


Article 19 EQUIPMENT AND MATERIALS


Article 20 TITLE TO THE ASSETS


Article 21 USE OP T HE ASSETS


Article 22 SUBCONTRACTING


Article 23 PERSONNEL TRAINING AND TECHNOLOGICAL ASSISTANCE


Article 24 ROYALTY





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Article 25 RECOVERY OF PETROLEUM COSTS


Article 26 SHARING OF PROFIT PETROLEUM


.Ankle 27 VALUATION AND METERING OF CRUDE OIL AND NATURAL GAS


Ankle 2* DOMESTIC MARKET - SALK OF GOVERNMENT SHARE


Article 2? FINANCIAL PROVISIONS


Article 30 CUSTOMS PROVISIONS


Artklc 31 TAX PROVISIONS


Ankle 32 BONUSES


Ankle 33 PIPELINES


Article 34 UNIT1SATION


Article 35 LIABILITY AND INSURANCE


Article 36 INFORMATION AND CONFIDENTIALITY


Article 37 ENVIRONMENTAL PROVISIONS


Article 38 DECOMMISSIONING


Article 39 ASSIGNMENT AND CHANGE OF CONTROL


Article 40 FORCE MAJEURE


Article 41 WAIVER OF SOVEREIGN IMMUNITY


Article 42 ARBITRATION AND EXPERT DETERMINATION


Article 4.3 GOVERNING LAW, FISCAL STABILITY, AMENDMENTS AND


VALIDITY


Article 44 NOTICES


Article 45 TERMINATION


Article 46 APPLICATION OF CORRUP I ION LAWS


Article 47 EFFECTIVE DATE


.Annex A CONTRACT AREA MAP AND LIST OF COORDINATES


Annex B ACCOUNTING PROCEDURE











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 PRODUCTION SHARING CONTRACT





BETWEEN


The- KURDISTAN REGIONAL GOVERNMENT OF IRAQ (hereafter rcfOTcd to as the


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


AND


IIKN ENERGY LTI»., a comport)- established and existing under the laws of tlic Cayman


Islands, whose registered office is til Ugland House. South Church Street. George Town,


Grand Cayitmn, Cayman Islands, u Hill-wood International Energy company, duly represented


by its duly authorised Director. A I. (Trentl Smith:


(hercaller referred to as the “CONTRAC' It>R")


WIIE REAS


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


Region (us defined 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) In accordance with the Constitution of Iraq, the prevailing law of the Kurdistan


Region is the Kurdistan Re poo Law (as defined in this Contract), except with regard


to a matter wholly within the <■ vclusi\e jurisdiction of the Government of Iraq;


(C) The \ atonal Assembly of the Kurdistan Region approved the Oil and Gas Law of the


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


Operations, including production sharing contracts:


ID) The GOVERNMENT intends U» present to the National Assembly of the Kurdistan


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


authorisation, to exempt investors in kmg tom projects relating to the conduct of


petroleum operations in tlx* Kurdistan Region from Kurdistan Region taxation, to


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


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




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


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


this Contract) under the terms of this Contract:


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


citizenship: aod


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


thereby assisting t»< GOVERNMENT lo develop the Kurdistan Region








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petroleum industry, thereby promoting the economic development of the


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


NOW, THEREFORE, THE PARTIES HAVE AGREED AS FOl.UiWS


ARTICLE I - DEFINITIONS


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


unless otherwise specified:


Abroad means oulsidc of the Kurdistan Region and other parts of Iraq.


Authorisation is defined in Article I 7.9.


Accounts is defined in Article 15.1.


Accounting Procedure means the Accounting Procedure attached to this Contract as


Annex B and constituting an integral part of this Contract.


Adjacent Contract Area is defined in Article 34.1.


Adjustment l>a«c is defined in Article 27.6.


Affiliated Company or Affiliate mews. as regards any of the companies or entities


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


(a) controls a CONTRACTOR Entity; or


(b) is controlled by a CONTRACTOR Entity; or


(C) controls or i? controlled by a company or entity which controls a


CONTRACTOR Entity .


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


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


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


or tbeir equivalent.


Agreed Terms is defined in Article 14.10(a).


Appraual Area means the area defined in Article \22.


Appraisal Work Program and Budget is defined in Article 122.


Appraisal Report is defined in Article 12.4.


Appraisal W«fl means 9 well drilled for the purpose of evaluating the commercial


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


d.vovcrcd





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Arm's-Length Sale* means sales of Petroleum in freely convertible cuncncies


between sellers and buyers having no direel or indirect relationship or common


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


Such Arm's- Length Sales shall exclude:


(u) sales- between or among any of the COPS I RACTOR Entities and their


respective Affiliates;


(b) tales involving the GOVERNMENT or the Government of Iraq; and




commercial practices.


Aaieli means all land, platforms, pipelines, plant, equipment, machincr)', wells,


facilities und all other instullutitm: and structures and all Materials and Equipment


Aim)elated Natural Gas means (i) ;uiy Natural Gas dissolved in Crude Oi] under


reservoir conditions and (ii) any residue gas remaining after the extraction of Crude


Oil Irom a reservoir.


Audit Request Period is dclined in Article 15.3(a).


Available Associated Natural Gas is defined in Article 25.1.


Available Crude Oil is defined in Article 25.1.


Available NonAMOcUtwi PUtmlGas is defined in Ankle 25.1.


Available Petroleum is defined in Article 25.1.


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


temperature of sixty degrees (60°) Fahrenheit and pressure of f«»urtccn point seven


(14.7) psi.


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


pursuant to this Contract and forming purl of nn Exploration Work Program and


Budget and/or an Appraisal Work Program and Budget and/or a Gas Marketing W ork


Program and Budget andor a Development Work Program and Budget and/or ■


Production Work Program and Budget


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


January and ending on 31 December of the same year.


C hair-man is defined in Article 8.1.


Commercial Discovery means a Discovery which u> potentially commercial "lien


taking into account all technical, operational, commercial and financial data collected


"ten carrying out appraisal 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.





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Commercial Production means the production of Petroleum from the Production


Area in accordance with annual Production Wort 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 part hereof as well as any extension, renewal, tuhflitution or


amendment of this production sharing contract that may be agreed in writing by the


Parties in accordance with Article 43.7.


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


Contract and constituting an integral part of this Contract and any modification';


made to that Annex in accordance with the provisions of this Contract through


amendments, surrender, withdrawal, extension or otherwi *.


Contract Y'ear means a period of twelve (12) consecutive Vtouths starting from the


EfTwlivc Dale or any anniversary of the said EfTreUve Date.


CONTRACTOR includes and comprises each and all CONTRACTOR Entities,


including any Public Company or Third Party Participant nominated by the


GOVERNMENT pursuant to Article 4, and/or any assignee of all or part of the rights


and obligations under this Contract in accordance with Article 39.


CONTRACTOR Entity ancons my Person which is for the time being a component


of the CONTRACTOR, and/or any assignee of all or part of the rights and


obligations of such Person under this Contract in accordance with Article 39


Crude Oil means all liquid hydrocarbons in their unprocessed stale or obtained from


Nutural Gas by condensation in any other means of extraction.


Decommissioning Coals means ull the costa and expenditures incurred by the


CONTRACTOR when carrying out I>eoonmiissioning Operations, including those


defined in the Accounting Procedure.


Drenm missioning Operations means any works, together with all related uiul


auxiliary activities, lor decommissioning and/or removal and/or abandonment und


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


relation to any Production Aren.


Decommissioning Plan is defined in Article 38.7.


Dremum rationing Reserve Fuad U defined in Article 38.1 und includes all


contributions paid into such fund and -ill interest accumulated such fund.


Deductible Amount is defined in Article 35.12,


Delivery Point means the point after extraction, specified In the approved


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


Gas and/or Non-A-ssocialcd Nutural (ins is metered for the purposes of Article 27.5.


valued for the purposes of Article 27.1 und ready to be taken and disposed of.





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consistent witli prudent international petroleum industry practice. and ut which ti Party


may acquire title to its share of Petroleum under litis Contract or such other point


which may he agreed by the Parties,


Devrinpmrnt Costs means nil the costs and expenditures incurred by the


CONTRACTOR when currying out Development Operations, including those


defined in the Accounting Procedure,


Development Operation* means all development operations ot works conducted in


accordance with a Development Plnn up to the Delivery Point with it view to


developing u Production Area, including: drilling of-wells; primary unci subsequent


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


erecting or laying of production plants and i'ucilitictt (including; separators;


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


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


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


machinery, items and suppLics as may Ik: required or expedient for the foregoing


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


production of Petroleum from the Production Area.


Development Period is defined in Article 6.





Development Plan meant* u plan for development defined in Article 12.8.





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


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


production of Petroleum, including injection wells and dry bolca. Any well drilled


within a Production Area shall be deemed u Development Well.


Development Work Program and Budget means the development work program


and budget prepared pursuant to Article 13.2.





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


resulting from Petroleum Operations carried out under this Contract provided such


Petroleum is recoverable at the surface with a measurable (low utilising techniques


used in prudent international petroleum industry practice.





Dispate is defied in Ankle 42.1.


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


(USA).





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


been fulfilled.


Environment Fund is defined in Ankle 23.9.


Equipment and Materials is defined in Ankle 19.1.





Fapforation Costs means ail the costs and expenditure incurred by the


CONTRACTOR when carry ing out Exploration Operations, including those defined


in the Accounting Procedure.





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Exploration Operations m*ans uny and all opwalions conducted with » view to


discovering Petroleum, including: any activities ncccsf-Tiry to commence operalaons;


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


and activities {including interpreunions, analyses and related studies) to investigate


the subsurface for the locution of Petroleum; drilling of shot boles, core holes and


stratigraphic tesi holes; spud, drilling, testing, coring, logging and equipping of


Exploration Wells or Appraisal Wells; procurement of such services, material,


equipment, machinery, items and supplies as may be required or expedient for the


foregoing activities; and all auxiliary o|»cratloras and activities required or expedient


for the conduct of the foregoing acti vitics.


Exploration Period is defined in Article 6.


Exploration Rental 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 lias previously been mode by the


CDMKACTOR


Exploration Work Program and Butlxrl mains the exploration work program and


budget prepared pursuant to Article I l.l.


Export Crude Oil is defined in Article 24.2.


Export Non-Axaociated Natural Gas is defined in Article 24.2.


Export Petroleum is defined in Artie k 24.2.


First ( 'oimnrrcul Declaration Dale is defined in Article 4.1.


First Explorutioa Well is defined in Article 10.2 (e).


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


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


rate forecast in the Development Plan without interruption foe a minimum of forty


right (48) hours


Force Majean is defined in Article 40.1


Cas Development is defined in Article 14.10.


Gas Marketing Costa means ail costs and expenditure incurred by the


CONTRACTOR when carrying out Gas Marketing Operations, including those


defined in the Accounting Procedure.


Cu Marketing Operations means any and all of the activities and operations


contemplated by Article 14.6.


Gas Marketing Work Program and Budget means the marketing work program


and budget prepared pursuant to Article 14.8.


Goverrnneat Interest is defined in Article 4.1.





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


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


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


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


by any of the foregoing.


International Market Price is defined in Article 27X


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


Joint Operating Agreement means any agreement executed by the


CONTRACTOR Entities at any time few the purpose of regulating between such


entities the terms under which the Petroleum Operations will be conducted, which


agreement shall be; (a) consisent with prudent international petroleum industry


practice; (b) as between such entities, supplementary to this Contract; and (c)


consistent with the provisions of the Contract.


Kurdistan Region means the Federal Region of Kurdistan recognised by the


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


Region Oil and Gas Law.


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


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


territorial, provincial or any other duly constituted governmental authority or agency


in the Kurdistan Region


Kurdistan Region Oil and Gas Law means the Oil and

Region - Iraq (Law No. 22 of 2007) a> the same may be amended.


Law means all applicable law-, including the following: conviim!'.or..il law. civil law.


common law. international law. equity, treaties, salutes, decrees, edicts, codes,


orders, judgements, rulcv ordinances and regulations of an> local, municipal,


territorial, provincial, federated, national or any- other duly constituted govcmmcnul


authority or agency.


LCLA is defined in Article 42.1(b).


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


(1) month arc offered m the inter bank market in I .on don. as quoted in the Financial


Times of London for the day in question. In ihe event that such rate is not published in


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


Dollar deposits for one month are offered for the nearest day as quoted by National


Westminster Bank pic.





Management Committee is defined in Article 8.





Maximum Efficient Rale (*\MER~) is defined in Article 16.12.


Minimum Eipkirutiun Oblicatioos bdefined in Article 10.1.











I0/I1S


Minimum Financial Commitment moms:


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


10.2(d> and 10.2(e); and







Month means a calendar month according to the (Jrefiorian calendar.


Natural Ciax means all gaseous Petroleum and inert*.


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


Natural Gas.





Notice of Dispute is defined in Article 42.1.


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


which, in the name and on behalf of the CONTRACTOR, shall cam out all


Petroleum Operations If ai 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 puts of the Contract .Area in which such Operator conducts


Petroleum Operations.


Option of Goveniacnt Partkipit ion is defined in Article 4.1.


Option of Third Party Participation is defined in Article 4.8.


Party or Parties means the GOVERNM ENT and/or each CONTRACTOR Entity


and/or the CONTRACTOR.


Permits means all licences. permits, consents, authorisations or oilier permissions, as


the context requires.


I'enton shall Include natural and juristic persons (including corporations and


governmental agencies).


Petroleum means:


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


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


or


(c) any Petroleum (as tic lined in paragraphs (u> and (b) above) that lias been


returned to- a Reservoir.


Petroleum Costs means all costs and expenditure incurred by the CONTRACT OR


for ihc Petroleum Operations, und which the CONTRACTOR is entitled to recover


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


Development Costs. Exploration Cost*. Gas Marketing Costs and Production Costs.








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Petroleum Held means a Reservoir or group of Reservoirs within M common


geological structure or stratigraphic unit, wfuch may become pan of a Production


Area pursuant to a Development Plan


Petroleum Operation* means all Exploration Operations. Gas Marketing Operations.


Development Operation*, Production Ope ratio as and Decommissioning Operations,


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


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


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


Contract


Pipeline Coala is defined in Article 33.5.


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


production urea in iui approved Development Plan prepared pursuant to Article 12.


For the avoidance of doubt, flll superjacent or subjacent strain of the Reservoir in


which 4i Commercial Discovery is located arc automatically included in the relevant


Production Arcu.


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


Production Costs means all the costs and expenditure incurred by the


CONTRACTOR in currying out the Production Operations, including those delved


in the Accounting Procedure.


Production Operation* means any works, together with nil related and auxiliary


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


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


operating, servicing, repairing, and maintaining any wells, plants, equipment.


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


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


the Production Area to the Delivery Point.


Production Rental is defined in Article 13.10.


Production V\ork Program and Budget doII mean the production work program


and budget prepared pursuant to Article 13.6


Profit Crude Oil is defined in Article 26.1.


Profit Natural Gas is defined in Article 26.1


Profit Petroleum is defined in Arrkk 26.1.


Proposed Contract is defined in Article 14.10(a).


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


Kurdistan Region and regulated by the GOVERNMENT under the Kurdistan Region


Oil and Gas Law.











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Public Officer mean* a civil servant including a member or employee of a public


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


GOVERNMENT.


Quarter means a period of three (3) consecutive Months starting on the find da> of


January, ApriL July or October respectiv dy.


Reservoir means a subsurface rock formation containing an individual and separate


natural accumulation of producible Petroleum characterised by a angle natural


pressure system.


“R" Factor is defined in Article 26.4.


Royalty is defined in Article 24.


Second Exploration Wdb is defined in Article 10.3 (b).


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


January or July respectively.


Senior Representatives is defined in Article 42.1(a).


Subcontractor mean* any entity of any contracting tkr providing services acd'or


undertuking works relating to llic Petroleum Operations directly or indirectly on


behalf of, tiw CONTRACTOR or any CONTRACTOR Entity


Sub-Period and Sub-Period* arc defined in Article 6.2


Tat or Tate* means all current or future levies, duties, payments, charges,


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


Mies or transaction hased tax. corporation tax. income tax. capital gains tax. stamp


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


withholdings, transfer tax. customs duties, branch Of permanent establishment tax Of


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


contributions payable to or imposed by the GOVERN MENT.


Third Party Interest is defined in Article 4.8.


Third Party Partleipaat is defined in Article 4.9.


Work Program mean* any work program prepared by. Of OT behalf of. the


CONTRACTOR pursuant to ihis Contract and forming port of an Exploration Work


Program and Budge* and/or an Appraisal Work Program and Budget and/or a Gas


Marketing Work Program and Budget and/or a Development Work Program ami


Budget and/or a Production Work Program and Budget.


Vice-Chairman is defined in Article 8.1.


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


stated:










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(c) angular include* plural and vice versa; and


(

is «o a paragraph in the Accounting Procedure.


AK T1CLC 2 - SCOPE OF THE CONTRACT


2.1 I his Contract is a production-shnring arrangement with respect to the Contract Area,


whereby the GOVERNMENT ha* the right, pursuant to the Constitution of Iraq, to


regulate und oversee Petroleum Operation* within the Contract Area.


I he purpose of this Contract is to define the respective rights nml obligations til the


Putties und the terms and conditions under which Ute ( ONTKAC1 ()R shall carry out


all the Petroleum Operations.


By entering into (Ms Contract, die GOVERNMENT grant* the CONTRACTOR the


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


as detailed in Article 3.


12 Upon the CONTRACTOR * request the GOVERNMENT stall provide indor


peucure all Permits relating lo the Petroleum Operations required by the


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


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


of Iraq. The GOVERNMENT (if represent and warrants to the CONTRACTOR


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


cancellation or suspension of this Contract or any Permit granted under this Article


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


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


Permit granted under this Article 2.2 or pursuant to this Contract. For the uvoidance


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


pursuant to Article 43.


2.3 The CONTRACTOR shall conduct till Petroleum Operations within the Contract


Area at its sole cost, risk and peril on behulf of the GOVERNMENT, pursuant to this


Contract, including the following operations:


(a) Technical Services


Implementation of all technical, human and material resources reasonably


required for execution of the Petroleum Operation*, in accordance with


prudent international petroleum industry practice.


(b) Financial Service*


Ihc responsibility fur funding the Exploration Operations and. in the event of


a Commercial Discovery, Development Production and Decommissioning


Operation*, pursuant to thiH Contract








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 For the funding of Petroleum Operations, each CONTRACTOR lintity shall


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


Companies or from any third parties.





(c) Administrative Services


Implementation of all appropriate management and administration technique


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


with prudent international petroleum industry practice.


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


GOVERNMENT for Che conduct of Petroleum Operations within the Contract Area


pursuant to the terms of this Contract.


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


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


its obligations pursuant to this Contract.


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


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


Costs .shall occur within the limits provided under Article 2i.


2.7 During, the term of this Contract, Profit Crude Oil and/or Profit Natural (ms produced


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


provisions of Article 26.


2.8 for the execution of Petroleum Operation* under this Contract the CONTRACTOR


shall have the right to;




associated with the Petroleum Operation*, wherever they may be located;


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


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


removal of pipelines and other facilities required for the Petroleum


Operations;


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


inside or outside the Contract Area for the Petroleum Operations:


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


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


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


authorisation of the GOVERNMENT (such authorisation not to he


unreasonably delayed or withheld) and the GOVERNMENT shall obtain any


authorisation required by the Government oflraq:


(c) import any goods, material**, equipment and/or services required for the





Petroleum Operations in accordance with Articles 19. 22 and 30; and











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GOVERNMENT wiU assist the CONTRACTOR with facilitating the use by


the CONTRACTOR of any private property in the Kurdistan Region.








ARTICLE 3 - CONTRACT AREA


IIk initial Contract Area covets the Sarsang block -and extends ovci «u area of 1220 square


kilometres Cl226 km2), as detailed and indicated on the map attached in Annex A and is





delimited by the following coordinates;








Point l.itlfudcltlrg min we) Longitude (den min sec) X(tnFI) Y (niN)


A 37 05 41 42 57 01 317 832 4107 347


B 37 0548 43 03 28 327 342 4107 347


C 37 05 48 43 17 38 340 326 4100 959


l> 37 02 13 43 38 49 379673 4099 827


K 37 00 10 43 38 18 378 852 4096 047


t 36 56 16 43 43 59 387 178 4088 720


C 35 56 21 43 46 4fl 391 368 4088 631


It 36 5t 02 43 44 56 388 468 4070 015


I 36 SI 58 43 40 49 382 370 4080 837


J 36 53 56 43 20 19 351 977 4084 954


K 36 58 03 43 03 31 327 174 4093 034


L 37 01 46 42 57 10 317 911 4100 106








Ihc GOVERNMENT, by execution of this Contract hereby validates and approve the


foregoing coord males of the Contract Area.


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





this Contract.








ARTl( 'LL 4 -OPTIONS OK GOVERNMENT PARTICIPATION AND THIRD


party participation





Vyvyrnmcnt Interest





4.1 l"hc GOVERNMENT ahull huve the option of participating through □ Public


Company in litis Contract, in respect of the entire Contract Area, as n


CONTRACTOR Entity, with nn undivided interest in the Petroleum Operations and


all the other rights, duties. i»bl igaliona mid liabilil ics of the CONTRACTOR (auve us


provided in and .subject to this Article 4) under this Contract in respect of the Contract


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





‘‘Government Interest'). such option being referred U) herein as the "Option of


Government Participation" The GOVERNMENT shall he entitled to exercise the


Option of Government Participation by notifying the CONTRACTOR in writing of


such election and the size of the Government Interest.











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t


42 The GOVERNMENT may cxerciv the Option of Government Participation at any


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


eighty (180) days after the date do which CONTRACTOR declares the first


Commercial Discovery (which dale of declaration is referred to herein as the “First


Commercial Declaration Date"), by nominating to the CONTRACTOR, in writing,


a Public Company. If the GOVERNMENT docs not notify the CONTRACT OR of


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


deemed to have been waived, save for in relation to any pre-emption rights to


participate that may be granted pursuant to Article 39.2.


4.3 |f the GOVERNMENT exercises the Option or Government Participation in


accordance with Articles 4.1 and 4.2:


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


the GOVERNMENT exercises its Option of Government Participation or the


First Commercial Declaration Date, whichever is the earlier.


(b) the Public Company shall participate as a CONTRACTOR Entity under this


Comma from such effective date, with uU its rights, duties, obligation* and


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


of this Article 4;


(c) the Public Company shall not have any liability to the other CON I RAOTOU


Entities to contribute its Government Interest share of all Petroleum Costs


incurred before the Firs* Commercial Declaration Date and its Government


Interest share of such Petroleum Costs shall be the responsibility of the other


CONTRACTOR Entities, provided always that such other CONTRACTOR


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


Petroleum Costs in accordance with .Article 25;


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


Company participates in the development of the Commercial Discovery, it


shall be liable to the other CONTRACTOR Entities to contribute its


Government Interest share of all Petroleum Costs incurred cm or after the First


Commercial Declaration Dote, with the exception of the Production Bonuses


referred to in Article 32. and shall be entitled (through the CONTRACTOR)


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


the Petroleum Costs which it has reimbursed pursuant to Article 43 (e);


(e) if such Option of Government Participation is exercised on or after the First


Commercial Declaration Dote, the Public Company dull, within thirty (30)


days of the date un which the GOVERNMENT notified the


CONTRACTOR of it* election, rcimbunic the other CONTRACTOR


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


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


after the First Commercial Declaration Date but prior to and including the


date of the notice pursuant to which the GOVERN M ENT exercises its Option


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


Company Shall pay the Government Interest shore of such Petroleum Costs


directly; and








17/115


(0 for the purposes of Article 37 of the Kurdistan Region Oil untl Gas Law, the


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


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


Public Company will be individually and separately liable

severally liable will) the other CONTRACTOR Entities) to the


GOVERNMENT lor its obligations, duties and liabilities under this Contract


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





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


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


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


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


purticiptiting interest





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


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


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


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


transferred will be individually and separately liable (and not jointly and severally


liable with the other CONTRACTOR Entities) to the GOVERNMENT for its


obligations, duties mid liabilities under this Contract as a CONTRACTOR lintity smil


the provisions of Article 4.5 shall apply.


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


of itsdutksor liabilities under this Contract as a CONTRACTOR fcntity shall not be


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


invoked by the GOVERNMENT to terminate this Contract or exercise any other


rights or remedies in respect of such default that may be available to it.





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


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


of the other CONTRACTOR Entities to seek to settle a dispute tx to refer such


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


Article 41


4.6 A Public Company may assign part or all of us Government Interest to a third party or


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


Articles 39.1, 39.2 and 39.3 shall not apply Any uich assignee shall be jointly and


severally liable with the other CONTRACTOR Entitle*.


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


part or all of a Government Interest to a third party which is not a Public Company, in


accordance with the provisions of this Article 4, the provisions of Articles 39.1,39.2


and 39.3 shall apply to any subsequent assignment of such in teres*.


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 consistent with the


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


to the exercise of the Option of Government Participation pursuant to this Article 4.





imi 5


l he Public Company and I lit' other CONTRACTOR I Entities shall, within a


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


Agreement and sTuiil during the period between the -exercising of the Option of


Government Participation and the execution of the Joint Operating Agreement,


comply with Article 14(a) and

Ililrtf htilv


4.X I The (GOVERNMENT shall have the option of nominating u third party, in respect of


the Contract Area, as a CONTRACTOR Entity, with an undivided interest in the


Petroleum Operations in respect of tin' entire Contract Area and all the other rights,


duties, obligations and liabilities of the CONTRAC TOR (save as provided in and


subject to this Article 4), under this Contract* of up to twenty-five |>*r cent (25%) and


not less than five per cent (5%) (the “Third Party Intamt”). such option being


referred to herein as the “Option of Third Party Participation ".


4.9 The GOVERNMENT may exercise the Option of Third Party Participation ut any


time prior to the date twelve (12) months following, the Effective Date by nominating


(a the CONTRACTOR, in writing, the size of the Third Party Interest and a


nominated company which has adequate resources and capacity U» discharge the


obligations of a CONTRACTOR Entity under thit C ontract and a Joint Operating


Agreement in respect thereof.


Before the expiry of a period of eight (8) months (such period commencing upon the


Effective Date) the Panics shall have cawed to have commenced, and prior to the


expiry of the twelve (12) month period following the Effective Date, base fully


completed, an investigation carried out into such nominated company in respect of.


and accordance with, the standards and requirements of the United States Federal Law-


Foreign Corrupt Practices Act of 1977 (as may be amended from time to time), and


the Parties, acting reasonably, shall be fully satisfied with the results of such


investigation. In the event that the Parties arc so satisfied, the nominated company


shul I he deemed the Third Party Participant


I or the avoidance of doubt, tho- (GOVERNMENT may only everciv the Option of


Third Party Participation once, and after such exercise the resulting Third Party


Interest may not be increased under this Article 4. However, in the event tlaat the


nominated company does not fulfil the criteria set out in this Article 4,9, the


GOVERNMENT shall:


(o) have the option, upon the formal rejection of a nomination, to nominate a


second company (such company not to be an Affiliate of any previously


nominated company) und the criteria set out in this Article 4.9 shall be applied


to such second company, provided that the twelve (12) month period set out in


this Article 4.9 shall continue to run from the Effective Dale and shall not be


postponed, re-started or in any other way altered; and


(h) in the event that such second company :lnll not. in the opinion of the Parties


(acting reasonably) fulfil the criteria set out in this Article 4.9, nominate, and


the CONTRACTOR shall accept, a Public Company as the Third Party


Participant.








19/115


For the avoidance of doubt. for tbe purposes of dm Article 4.9. a Public C ompany


shall be a wholly-owned entity of the GOVERNMENT.


4.10 If the GOVERNMENT nominates a Hurd Purty Participant pursuant to and in


accordance with Articles 4.8 and 4.9. that Third Party Participant shall have the Third


Party Interest.


4.11 If the GOVERNMENT docs not nominate a Third Party 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 waivod-


4.12 If the Option of Third Party Participation is exercised in accordance with .Articles 4.8





and 4.9:


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


notwithstanding that the exercise of the Option of Third Party Participation


under Article 4.8 occurs after such dare:


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


instrument of assignment and novation in respect of this Contract referred to in


Article 39.3. p«y to the CONTRACTOR, by way of ckarcd funds to ft bank


account nominated by the CONTRACTOR, an amount equivalent to the


proportion of Petroleum Costs incurred by the CONTRACTOR until the date


of such payment attributable to the Ihird Party Interest (which Petroleum


Costs, for the avoidance of doubt, do not include bonuses payable under this


Contract);


(c) upon payment pursuant to and in accordance with Article 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 Entity under this Contract


as if it had been a CONTRACTOR Entity from the Effective Date, with all


its rights, duties, obligations and liabilities under this Contract; and


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


CONTRACTOR Entities prior 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 Opera! ing Agreement on the terms thereof.


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





exercising the Option of Third Party Participation, then the I hiul Parly


Participant and tire other CONTRACTOR Entities shall, within a reasonable


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


Agreement and ahull during tlic period between Lite exercising of the Option of


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


comply with Article 4.14(n I and (b) as if they were provisions of this Contract.


Order of Exercising Options


4.13 Notwithstanding Articles 4.8 to 4.12, if the GOVERNMENT exercises the Option of


Government Participation:





20*115 La.


(a) after the GOVERNMENT has exercised the Option of Third Party


Participation, die Government Interest shall be assigned under this Article 4 to


the Public Company by the CONTRACTOR Entities pro rata to their


respective pacticipati ms interests under this Contract; and


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


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


ns to put the other CONTRACTOR Entities (other titan the Person holding


the Government 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.


Join! Operating Agreement Provisions


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


consistent with the principles of this Article 4 and shal I provide as follows:


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


Operating Agreement shall require the affirmative vote of an agreed


ircrcenlagc of participating interests held tbereuDder, which in any event ‘full


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


(b) in the event of a proposed transfer by uiy CONTRACTOR Entity of port of a


participating interest under such Joint Operating Agreement, including any


Government Interest or Third Party Interest:


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


transferee holding less than a five percent (5%) participating interest:


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


satisfaction of cudi of the extant CONTRACTOR Entities that it has


the financial capability to perform its payment obligations under the


Contract and under the Joint Operating Agreement; and


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


satisfactory lo each of the extant CONTRACTOR Entities so as to


assume and to perform the obligat ions of the transferor.


ARTICLE 5 - OPERATOR


5.1 The CONTRACTOR hereby designates HKN Energy l imited to act as the Operator


on Ivchalf of the CONTRACTOR for the execution of the Petroleum Operation*.


I he CONTRACTOR shall al any time have the right to appoint another entity as the


Operator, upon giving the GOVERNMENT not less than thirty (JO) dnys prior


written notice of such appointment-


5.2 I he CONTRACTOR shall submit to the GOVERNMENT for comment any


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


Petroleum Operations on belialf of the CONTRACTOR pursuant to this Contract


prior to execution of such agreement.





21/115


5.3 In the cvcni of the occurrence of either of the following, the GOVERNMENT may


require the ((INTRACTOR to appoint another entity as Operator *s soon as is


reasonably practicable:


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


dissolution of the Operator, or


(b) if the Operator terminates the activities under this Contract delegated (o it by


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


(CONTRACTOR fails tn fulfil its obligation-; under the Contract.





ARTICLE 6 - TERM OK l UK COINTRACT





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


below:





M u hi • Utoti J’trrlod





6.2 The Exploration Period shall be for an initial term of five (5) Contract Years,


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


period o( seven. (7) Contract Years starting from the Effective Date. 'Ihc initial term


t>f five (5) years shall be subdivided in two (2) sub-periods as follows;





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





(b) a second stib-penod of two (2) Contract Years ("Second Sub-Period-).





each a “Sob-Period" and collectively "Sub-Pcriod*“.





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


Period or any extension thereof pursuant to Article 6 6 shall be subject to fulfilment of


the Minimum Exploration Obligations or minimum work obligations applicable to the


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


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


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


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


(US$10) per square kilometre pa Contract Year ("Kiplofstion Rental"). Such


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


ihe CONTRACTOR in accordance with the provisions of Articles I and 25.


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


noofy the GOVERNMENT at least thirty (30) duys prior to the expiry of the first


Sub-Period and. provided that the data from the first Exploration Well demonstrates


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


the Contract Area, the Exploration Period shall expire at the end of the First Sub-


Period. unless the First Sub-Period has been extended pursuant to Article 6.5 and/or


Article 6.6.





6.5 If the CONTRACTOR has fulfilled its Minimum Exploration Obligations for a Sub-


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





22/115


 (a) lo decidin'; lo submit un Appraisal Work Program and Budget as provided


under Article 12.2 in respect of a Discovery, or







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


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


provided under Article 12.2 and/or Gas Marketing Operations,





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


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


Exploration Period «>f 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 "riling to the GOVERNMENT at least thirty (30)


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


extension (as the case may be).





6.6 Without prejudice to Article 6.5. upon expiry of the initial term c»f 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 pf the Second Sub-


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


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


obligation for such extension. Any such extension shall not exceed one (1) Contract


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


evaluation of the Contract Area, the ('ONTRACTOK shall be entitled to a further


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


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


the CONTRACTOR to accede to the further extension shall he ■aihieet to fulfilment


of the minimum work obligations applicable to the original extension





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


prior notice to die GOVERNMENT, die CONTRACTOR shall base the right to


withdraw from this Contract provided that the outstanding Minimum Exploration


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


accordance with the Contract, or it has paid 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 has been made at the cud of the Exploration Period


(including any extensions thereof) this Contract shall termijiuie


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


Years (as provided in Article 6.2). and if the CONTRACTOR considers it hats not


had time to complete sufficient Gas Marketing Operation* to declare the Discovery a


Commercial Discovery pursuant to Article 12.6. die CONTRACTOR


slutlI be entitled to request an extension of the Exploration Period (notwithstanding


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


GOVERNMENT in writing at least thirty” (30) days prior to die end of the maximum


Exploration Period. ti>geihcr with ,i proposul for Gas Marketing Operations to be


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


extension shall not exceed two (2) Contract Years. Upon die expiry of such extension,


if it considers it has still not completed its Gas Marketing Operations relminy Ut such


23/115


 Discovery, the CONTRACTOR shall In: entitled la request u further extension of


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


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


proposal for Gas Marketing Operations to bo undertaken during siech extension.








6.10 It tltc CONTRACTOR considers that n I Jiacovcry of Crude Oil and any Associated


Natural (ins is a Commercial Discovery, the CONTRACTOR shall have the


exclusive right to develop mid 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 (las shall be 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 thnt n I Jiscovery off Non Associated Natural tins i s


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 u Commercial Discovery of Non-Associated


Natural Gas stud I be twenty (20) years, commencing on the declaration of such


Commercial Discovery by COM RAC TOR, in accordance with Article 12.6

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


6.12 If Commercial Production front a Production Area is still possible at die end of its


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


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


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


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


Development Period.


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


(a) five (5) Years for Crude Oil and any Associated Natural (ixv and/or


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


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


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


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


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


Operations for ail Production Areas have terminated


ARTICLE 7 - RELINQUISHMENTS


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


portions of the Contract Area as follows:


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


6.2, twenty live per cent (25%) of the net areu determined by subtracting the


Production Areas from the initial Contract Area:








24/IIS


(b) at the aid of ihc first extension period altered into under this Contract after


the end of the initial term of the Exploration Period referred to in Article 6.2,


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


subtracting the Production Areas from the remaining pari of the Contract


Area: and


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


the remaining area that is not in a Production Area.


7.2 For the application of Article 7.1:


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


areas to be surrendered: and


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


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


portions of the Contract .Area shall be in contiguous blocks.


7.3 If the relinquishment referred to in Article 7.1 can only be achieved by including port


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


Appraisal Area.


7.4 During the I xploration Period, the CONTRACTOR may at the end of each Contract


Year surrender all or any part of the Contract Area by wntten notice Sent to the


(.OVI'.RN IMKIN 1 .it least thirty (30) days in aJv.usce of the proposed date of


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


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


referred to under Article 7.1. Ibis Contract shall terminate in Ihc event of the


surrender of the entire Contract Aren.


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


Explontlion Obligations relating to the then current Sub-Period us provided in Article


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


relevant outstanding amount us detailed in Article 10.2 or Article 10.3, ns the cose


maybe.


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


CON IRA (.TOR shall he communicated to Ihc GOVERNMENT by written notice


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


Article 7.1.


ARTK I.K 8 - vi AN AC RMF.NT COMMITTEE


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


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


to the Petroleum Operations and the Work Program. Within such period each of the


GOVERNMENT nnd the CONTRACTOR shall by written notice nominate its


respective members of the Management Committee and their deputies.





25X115


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


GOVERNMENT and two «2) members designated by die < ONTRACTOR.


Upon

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


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


GOVERNMENT (the “Chairman"). Ihe viuc-chuirnuin of the Management


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


"Vkc-Clialmtan"). In the absence of the C hairman, the Vice-Chairman shall chair


the meet iny.


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


necessary »o attend die meetings of tirc Management Committee in a non-voting


capacity.


8.2 The Management Committee shall review, deliberate, decide sand give advice,


suggestions and rccommcndutiens to the Parties regarding the following subject


matters:





(u) Work Programs uikI b ud gets;


(b) the CONTRACTOR’s activity reports;


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


international petroleum industry practice:


(d) Accounts of Petroleum Costs;


(c) procurement procedures for potential Subcontractors, submitted by the


CONTRACTOR in accordance with Ankle 19.3;


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


(g) any mailer having a material adverse affect cm Petroleum Operation*


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


consider.


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


the Management Committee. The Management Committee cannot validly deliberate


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


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


The Management Committee shall attempt to reach unanimous agreement on any


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


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


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


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


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








26/115


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


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


approval is not obtained, as required pureuunt to Article 8.5: then the proposal made


by the C 'OINTRAC TOR ahull be doomed adopted by tlw Management Committee.


8.5 Notwihsunding the provisions of Article 8.3. and subject to Article 8.4. unanimous


approval of the Management Committee shall he required for:


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


Budget prepared after the first Commercial Discovery in the Production .Area


relating to such Commercial Discovery:


(b) approval of, and any material revision to, the Development Plan, the


production schedule, lifting schedule and Development and Production Work


Programs and Budgets:


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


(<3) any insurance issues over which the Management Committee has authority;


(c) approval of, and any material revision to, procurement procedures for goods


and/or services, submitted by the (X)NTRA

I ‘>.3 (unless such procedures have been deemed approved by the Management


Committee in accordance with Article I D.3);


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


submitted by CONTRACTOR in accordance with Article 33 3;


(g) approval of a lint rule tank in which to place the Decommissioning Reserve


Fund, in accordance with Article 3S.1;


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


Plan submitted pursuant to Article 38.7 on any Decommissioning Wot*


Program and Budget or Gas Marketing Work Program and Budget;


(i) any Terms of Reference which arc required to be prepared and agreed for the


purposes of expen determination, pursuant to .Article 42J;


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


(k) any matter havi ng a material adverse effect on Petroleum <3perations.


8.6 Ordinary meeting-, of the Management Committee shall take place in the Kurdistan


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


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


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


Contract Year thereafter.


8.7 hither the GOVERNMENT or the CONTRACTOR may call on extraordinary


meeting of the Management Committee to discuss important issues ox developments


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


the matters to be discussed at the meeting, to the other Pany. The Management





27/115


ft 8 Unless at teas* one (1) member or its deputy of each of the GOVERNMENT and the


CONTRACTOR is present, the Management Committee shall be adjourned fof U


period not to exceed eight (H| days. The Party being present shall then notify the oilier


Pnrty of the new dale, lime und location for the meeting.


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


CONTRACTOR in accordance with instructions of the Chairman and communicated


to the Parties at least filtccn (IS) days prior to the date of the meeting. The agendu


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


CONTRACTOR Dccioioos of the Management Committee will be made at the


meetings. The CONTRACTOR shall he ropoasMe for preparing and keeping


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


forwarded to each Party fur review and approval. Iiach Party shall review and


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


who fails to notify in writing ib approval or disapproval of such minuta within sucli


ten (10) days shall lie divined lo have approved the minutes.


X. 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 ami the


CONTRACTOR After each meeting, the Edncal Mtxomminec or ay ether wb>


1 11 Any costs and expenditure incurred b> the CONTRACTOR for meetings of the


Management Committee or any technical subcommittee «* any other subcommittee


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


CONTRACTOR in accordance with the provisions of Articles I and 23.


ARTICLE 9 - GUARANTEES


9 | l-ach CONTRACTOR Entity dull provide the GOVERNMENT, if » required by


the laser pursuant to written notice received by the CONTRACTOR Eaiiy within


thirty (30) days of the Hlectixc Dale, with a corporal* guarantee in a fcnc as shall be


agreed io good laith between the GOVERNMENT and each CONTRACTOR


Entity not later than ninety (90) days after the I Uective I kite, provided that such


corporate guarantee shall he given only in reaped of the Minimum financial


Commitment for the I irst Sub-Period and shidl expire automatically upon completion


of the performance of the Minimum Exploration Obligations set out in Article I0.2

and «c> or cxpcnditive of such Minimum financial Coranutmcnt whichever is the


tmmL


9.2 Not later than sixty (60) dayi after the commencement of (he Second Sub-Penod.


each CONTRACTOR Entity shall provide the GOVERNMENT, if*, required by


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


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











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


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


Change* necessary in order for the corporate guarantee to apply only to UM


Second Sub-Period, or


(b) it there it no agreed form. in a form as shall be agreed in good Tilth between


the GOVERNMENT and each CONTRACTOR I nnty not Inter than ninety


(90) days alter the GOVERNMENTs notice.


and provided in each caw that such corporate guarantee sluill be given only in respect


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


corporate guarantee shall expire automatically upon completion of the performance of


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


such Minimum I inancial Commitment, utiichever in the earlier.


9.3 In the event of on assignment by a CONTRACTOR Entity in accordance with


Article 19. die relevant third party assignee shall provide the GOVERNMENT, it'so


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


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


pursuant to Article 9.1 or 9.2, os applicable to the then current Sub-Period or. in the


absence of nny such agreed form of corporate guarantee, in a form os shall be agreed


in good faith between the GOVERNMENT and such assignee not taler than ninety


(90) day a alter the effective dale of the aa»ignn)pnt. provided that such corporate


guarantee sluill he given only in lopccl of the Minimum financial Commitment fut


die then current Sub-Period, and shall expire amoraatiofly upon c**mplmon of the


performance of the Minimum Exploration Obligation* set oat in Artie In 10.2(d) and


(«) or Article 10.3(b). as the cuse may be. or eapcnditure of such Minimum f irjncial


Commitment. whichever is the earlier.





ARTICLE 16- MINIMI M EXPLORATION WORK OBLIGAIIONN


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


Management Committer approval of the Exploration Wort Program and Budget m


accordance with .Article t. The CONTRACTOR stall perform geological,


geophysical and'or drilling worts as provided under Articles 10.2 to 103 (the


'Minimum Exploration Obligation*"). If applicable, ibe said Minimum Exploration


Obligations dull be performed during each Sub-Period in accordance with prudent


international petroleum industry practice.


10 2 During the firs SuMWwd. the CONTRACTOR dull:





ofa


00 the performance of a ing study (if appropriate I:





(in) a field visit to verify geological and geophysical wort


plan for two








29/115


(ti) carry uul a iUiu» south for existing data specific to this Contract Area,


compminy the following:


(i) well •lulu, if available, for example. «lociric logs;


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


(iii) replace* seismic data, if nvailaNc;


(C) perform flcltl work comprising structural, stratigraphic and lithologic mupping


and sampliny;


(d) acquitc. pmcow and interpret two hundred (200) line kilometres of two


dirocndonul aciwnic data within the Contract Area, committing for this


purpose • minimum financial amount of seven million five hundred thousand


Dolton (US$7,540,000>; and


(e) drill one (I) Exploration Well (the **Ffcrvt Exploration Well"), committing lor


this purpose n minimum financial amount of seven million live hundred


thouruind Dollnrs (US *7.501),).


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


lal acquire, process und interprvt further rename (tea (being either two


dimensional or three dimensional), if the COVIRACTOK coouden \hm the


results from the First Exploration W«B justify the acquisition of funher


seismic data: and


(b) drill one (I) Exploration Well (the "Second Exploration Well"! committing


for tllih purpose a minimum financial amount of seven million five hundr.d


thousand Dollar* (IISS7.500.000). unless the data from tire First Exploration


Well detnon\lrates that there is not a reasonable technical ease for drilling the


Second Exploration Well in the Contract Area.


10.4 Notwithslanding the provisions in Articles 10.2 to 10.3, for the execution of the


Miuimuiu Exploration Obligations under Articles 10.2 to 10.5, it is agreed as follows;


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


in the event the CONTRACTOR has not elected to notify the


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


accordance with and subject to Article 6.4.


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


Minimum l.xplorulion Obligations for the applicable Sub-Period, even if this


eMails exceeding the Minimum Financial Commitment for such Sub-Period.


If the CONTRACTOR hits satisfied its Minimum Exploration Obligations


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


Period, it shall he doomed to have satisfied its Minimum Exploration


Obliguliima lor such Sub-Period.


(c) Each I x plor.ition Well dud I he dri lied to the depth agreed by the Management


Committee unlees:





KVII5


 (i) the formation is encountered ill a lesser depth than originnlly


anticipated;


(ii) basement ii encountered at a lewer depth than originally anticipated;





fiii) in the CONTRACTOR'S sole opinion continued drilling of the


relevant exploration Well presents a hn/nrd due to the presence of


abnormal or unforeseen condition*;


(iv) insurmountable technical problem urv encountered rendering it


impractical to continue drilling with standard equipment; or





fv) petroleum formations arc encountered whose penetration requires


laying prorecti ve casing dial does i** enable the depth agreed by the


Management Committee to be reached.


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


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


Committee and the CONTRACTOR shall I* deemed to have -wtiificd ib


Minimum Exploration Obligations in respect of the Exploration Wdl.


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


pruceaed or interpreted or any Exploruuou Well drilled or any ocher v»ork


pofformed in excess ol the Minimum Exploration Obligations and or any


amount* spent in «xuas Af the total Minimum Financial Cornmitment in any


given Sub-Period, shall be carried forward to the next Sub-Period or am


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


Exploration Obligations and/or the total Minimum financial Commitment for


such subsequent Sub-Period or extension period.


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


CONTRACTOR performs any of die Minimum Exploration Obligations


prescribed for the Second Sub-Period in Article Id.3; and (ii) llie?


CONTRACTOR has not elected to notify the GOVERNMENT ili.it It will


not enter into the Second Sub-Penod (in accordance with uml subjoci to


Article 6.4). the performance of such Minimum 1 xpkntkxi Obligations shall


be deemed to satisfy the same Minimum Exploration Obligations for the


Second Sub-Period.








.ARTICLE II-EXPLORATION WORK PROG RAMS AND BUDGETS


11.1 Within forty-five (45) days folk)wing the Effective Date, the CONTRACTOR shall


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


budget relating to Exploration Operations (the ‘ Kiploralion Work Pro*rwn and


Budget") for the remainder of the Calendar Year. I hereafter, no later than I October


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


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


Year


11.2 Each Exploration Work Program and Budgcl diall include details of. but not be


limited to. the follow ing:


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(a) work lo be undertaken;


(b) material* goods and equiprneni 10 be acquired ;





(c) cost estimate t*f service?* lo be provided, including service* by third parties


lind'or Affiliated Companies of any CONTRACT* >R I In lily; and


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





Accounting Procedure.


I 1.3 I he .VluiuigciUCOt Committee shall meet within sixty (60) clays folio win# its receipt of


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


and Budget. unless already deemed approved pursuant to the provisions of Article


11.4.





1 1.4 If the GOVERNMENT requests any modification to the Exploration Work I’mgnun


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 ret erred to in .Article 11.3. Hie CONTRACTOR shall communicate its


comment* aa any such requested modification* to the GOVERNMENT at the


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





11.5 The CON IK ACTOR shall he authorised to nuke expenditures no* budgeted in an


npproved Exploration Wort Program and Budget provided that the aggregate amount


of such expenditures shall not exceed ten per ant (I OH) of the approved Exploration


Week Program and Budget in any Calendar Ye* and provided further that such


Management Committee- For the avoidance of doubt ail cxcca expend mars shall he


recovered by the CONTRACTOR n accordance with the provutona of Article I


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


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





116 lo eases of emergency, the CONTRACTOR may incur such additional expenditure*


at it deems ncecvsan lo prelect life, environment oi property Such additional


expenditure* dull be reported promptly to the Management Committee. For the


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


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


Articles I and 25.








ARTICLE 12 - DISCOVERY AND DEVELOPMENT


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


Aall notify the GOVERNMENT within forty-eight (4*) hours of completing tests


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


the C ONTRACTOR remonobly requires lo determine whether or not there is a


Discovery Within thirty (30) day* following notification of the said Discovery , the


CONTRACTOR shall peewit to the Management Comm race all technical data then


available together with ** opinion on the commercial potential ol the said Discovery


(tlK -Diacmcry Report . The CONTRACTOR shall provide m a tmtdy manner





32/115


 such other information relating *> the Discovery » the GOVERNMENT may


reasonaM) reque*.











12.2 If. puntaoi lo Article 111. the CONTRACTOR encoders lh.ii the Discovery bx


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


GOVERNMENT of ti)C Discovery. submit an appraisal program in respect of the


Discovery (the “Appraisal Work Program and Budget ) to the Management


Committee The Management Committee rfmll examine the Appraisal Wort Program


and Budget within tlurty (30) days of its recwpi If the GOVERNMENT request* any


modification to the Appraisal Wort Program aid Budget, the Management


Committee shall meet to discuss the Appraisal Wort 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 conununicaw it-'


comments on am such requested modifications to the (GOVERNMENT at the


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


Tb< Appraisal Work Program and Budget shall include the following:





(g) an appraisal works program and budget, in accordance with peudem


international petroleum industry practice;


(b) an estimated time-frame for conpktioa of appraisal worts: aid


(c) the delimitation of the area to he evaluated, the airfare of which shall not


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


appraised (the 'Appraisal Area ").


12.3 If. follow ing a Diicovcry. a rig acceptable lo the (X>NIKACTOK is available to drill


a well, the CONTRA(T()R may drill any additional I xplorulion Well or any


Appraisal Well deemed necessary hy the CONTRACTOR before or during the


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


with AlUvIe 12.1 or its review of the Appniiwil Work Program ami Budget.


The CONTRACTOR shnll be authorised to incur expenditures not budgeted in an


approved Appraisal Work Program and Budget provided that the aggregate amount of


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


Work Program and Budget in any Calendar Year mid provided further that «ch


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


Mumigemcnt Committee. I'or tire avoidance of doubt, all excess expenditures shall be


recovered by the CON TRACTOR in accordance willi llK' 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 approval of the Management Committee.


Appraisal Report


12.4- The CONTRACTOR dull submit a deluded report relating to the Discovery (the


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


following completion of the Appraisal Wort Program and Budget.


I2.S The Appraisal Report shall include the following:


33H15


 (a) geological conditions;


(b) phy sical properties of any liquids;





sulphur, sediment and valet content;


(d) type of ttbatancca obtained;





(e) Nutural

(ft production forecast per ««>•; und





(g) a ped iminary esti male of recoverable reserves.








12.6 Together with its Appraisal Report, the CONTRACTOR slut 11 submit u written


Statement IO the Management C ommittee specifying that:


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


Discovery;


(b) tho ('ONTK ACTOR hits determined thui the Discovery is not a Commercial


Diacovciy;


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


Discovery, which may become a Commercial Discovery subject to additional


exploration and or appraisal works within or outside of the Appraisal Ana; or


(d) the CXJNTRACTOR has determined that the Discovery is a significant


Discovery of Noo-Associated Natural G*S. which may become a C'ommeu j


Discovery subject to fins Marketing Operations, m accordance with


Article 14.5.


12.7 In case the statement of the CONTRACTOR corresponds to Article 12 6

CONTRACTOR shall submit a Work Program and Budget to the Management


("ommiticx within thirtv (30) das> following such statement Any well drilled to


evaluale the said significant Discovery dull he considered an ExplorabOfl Well








12.8 If the Discovery hus Kxn declared a Commercial Discovery by the CONTRACTOR


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


proposed Development Plan to the Management Committee within one hundred


eighty (ISO) days following such declaration The Development Plan shall be m


accordance with prudent mternationitl petroleum industry practice. Except with the


content of the (»OYT K.NMENT, auch Development Plun shall include details of the


following as applicable


(a) the delimitation of the Production Area, taking nan account the multi of the


Appraisal Report regarding the importance of the Petroleum Field within the


Appaisal Area;





34/113


(b) drilling and completion of Doelopcncm Wells;


(c) dnl ling ami completion of water at Natural lio* itgcctktt wlU;


(d> laying of gathering pipelines:


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


and injection facilities for the production;


(f) trcutmait and traBapuruticn of Petrotewn » the processing and storage


facilities onshore or ofTAorc;


(g) laying of export pipelines in side or outside the Contract Ana to the Morale


facility or Delivery Point;


to co««*ructi

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


(j) training commitment in accordance with Article 23;


(I) oil contracts and arrangements made or to be made by the CONTRACTOR


|yr the sale of Natural (ias;


Ira) to the extern available, all contract* and arrangements made or to be made by


I’enons in respect of that Natural (las downstream of the point at which it »to


bo sold by the CONTRACTOR and which ate relevant to the price at which


(and other terms on which) it i* to be sold by the CONTRACTOR or are


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


this Contratl, but not beyond llu? point lit which it is tarsi disposed of in an


Arm’s length Sale;


(n) each CONTRACTOR Ijitity's plans for financing lb interest. if any. and


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


necessary for Development Operations. Production Operations mid delivery of


Petroleum produced, in accordance with pvutlcnt international petroleum


industry’ prank*.


12.9 I he Management Committee shall use ita heat efforts to approve the Development


Plan within sixty (60)daysufler its receipt of'such plan. The Development Period for


each Commctciol Discovery within u Development Finn filial I be extended lor the


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


Management Committee to approve the Development Flan The Development Plan


shall be eoMNfcrad approved by the GOVERNMENT if the GOVERNMENT,


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


writing.


12.10 II UK- GOVERNMKNT request* any modifications to the Development Plan, then the


Management Committee ahull mevt within sixty (60> days of receipt by the





35/113


CONTRACTOR of the GOVERNMENT'* written notification of requested


modifications accompanied by all the documents jumifying such request, and itfetull


discuss such request. The CONTRACTt )K shall communicate its comments on uny


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


prior to such meeting. Ary modification upproved by the Management Committee nt


such meeting or -within u further period of llnrty (30) days from the date of such


meeting shall be incorporated into the Development I'lun which shall then he deemed


approved and adopted.


12.11 If the CON TRACTOR makes several Commercial Discoveries within the Contract


Area each such Commercial Discovery will have a aeparate Production Area. 'I he


CONTRACTOR shall be entitled to develop and to produce each Commercial


Discovery and the GOVERNMENT shall provide the appropriate Permits covering


each Production Area In ease the area covered by the Commercial Discovery extends


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


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


Region Oil and C!as Law) with a thirst party, the provisions of Article 34.2 sluill apply.


ARTICLE 13- DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND


BUDGET


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


CONTRACTOR shall sun the Development Operations for the Commercial


petroleum indurtiy practice








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


Management Committee, the CONTRACTOR shall prepare and submit to the


Management Committee a proposed work program and budget for Development


Operations I the Doriopweat Work Program and Bod*et~) to be carried out in the


Pruluctxjn Area for the dimkm of the Development Operations. Thereafter, no later


than I October m each Calendar Year, the CONTRACTOR <*wll submit to the


Management C ommittee updates in respect of its Development W ork Program and


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


Devdopment W'«k Program and Budget shall include details of the following


(a) works to be carried out;


(h) material and equipment to be acquired by mam allegories,


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


Affiliated Companies of any CONTRACTOR Efltity: and


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


the GOVERNMENT, the Management Committee shall meet to discus, the


Development Work Program and Budget and proposed modiftcaiium thereto within


uxtv (60) days from its receipt of the proposed Development Wort Program and


36/115


Budget He CONTRACTOR shall communicate its comment* on any auch


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 lin


approved Development Work Program and Budget provided that the Aggregate


amount Of such expenditures shall not exceed ten per cent (I0%) ol* the approved


Development Work Program and Dud gen in any Calendar Ycur and provided Anther


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


the Management Committee I'or the nvoidiftOe of doubt, nil excess expenditures


shall he recovered by the CONTRACTOR in nccordance with the proviwons ot


Article* 1 and 25, provided tliat any excess expenditures above the ten per cent (IOH)


limit .dialI only be recovered with the unnnirtuHif. approval of the Management


Committee.


13.5 In caae« of emergency, the CONTRACTOR may incur such additional exjwnditurcr


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


expenditures shall be reported promptly to the Management Committee, l or the


avoidance of doubt, such additional expenditure shall he considered Petroleum Coat*


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


Article* I and 25.











13.6 No later than I October or the Calendar Year preceding the estimated commencement


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


I October m each Calendar Year, the CONTRACTOR shall prepare and submit to


the Management Committer a proposed work program and budget for Production


Operations (the -Prwlaetioa Work I'rofram and BadgrTi for the following


Calendar Y«r To enable the Man^-etnert Committee to forc^expcni.rur^ the


(a) works to be carkd out;


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


(e) type of services to he provided, distinguishing between third parties and


Affiliated Companies of any CONTRA

(d) categories of general and administrative expenditure.


15.7 If anv modification to the Production Work Program and Budget is requested by the


GOVERNMENT, the Management Committee shall meet to discuss the Production


Work Program tod Budget and pm posed modifications thereto within sixty (60> da>*


from its receipt of the proposed Production Wort Program *ftd Budget The


CONTRACTOR shall canmumcalc its comment* on any such requested


modifications to the GOVERN VIKNT at the meeting of the Management CommitW


or in writing prior to such meeting


131 rhe CONTRACTOR dull he outhunsed to incur expenditures not budgeted m an


approved Production Work Program «d Budget prowled that the aggregate amount





37/115


of such expenditures shall no< exceed ten per cent (10%) of the approved Production


Wort Program and Budget in ary 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


recov ered by die CONTRACTOR in accordance with the provisions of Articles I


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


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


13.9 In eases of emergency. the C OYIRACTOR may incur such additional expenditure


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


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


rowhocc Of doubt, such additional expenditure shall be considered Petroleum Coats


and shall be recovered by the CONTRACTOR m acceptance with the provisions of


Articles 1 and 25.


13.10 After the commencement of Commercial Production the CONTRACTOR shall pay


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


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


("Production Rental”). Such Production RetUltl thull be coruidered as a Petroleum


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


provisions of Articles I and 25.








ARTICLE 14 - NATURAL GAS











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


development in the Kurditun Region, the GOVERNMENT will grant specific


benefits to the CON TRACTOR on principles materially similar to those contained in


this Contract, including, ©onviitcnt with the Kurdistan Region Oil and Gas Law. more


generous provisions in rcxpcct of the recovery of Petroleum Cost* and the sharing of


Profit Petroleum than in reaped of Crude Oil.


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


Operations. If icctocalty Mid economically justified, the CONTRACTOR dull in


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


accordance with prudent intcmtoonal petroleum industry practice as follow*.





VvMMialcd Natural «■<>


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


Operation? nor developed and sold by the CONTRACTOR shall, upon the


GOVERNMENT * written request, be tfMMfened nt the first practicable delivery


point as agreed between the Parties, free of charge to the GOVF.RNMEN T. In such


case, (be 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 coals asoocittd therewith.


The construction and operation of required facilities as well as ihc 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





3K/1I3


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


the avoidance of doubt, all expenditure incurred by the CONTRACTOR up to such


agreed delivery point dull he conskknd Petroleum Costs and shall be recovered by


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


In the event the GOVKRNMKNT finds u market for Associated Natural Gas. it shall


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


elect to participate in nupplving such Assoc tilled Natural tius within ninety (90) days


following notification thereof hy the GOVERNMENT. If the CONTRACTOR


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


expenditures associated vrith any accessary facilities dioll be paid for by the


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


consdcred Petroleum f«D and .shall be recovered by the CONTRACTOR m


accordance with the provisions of Articles I and 25








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


Natural Gas expected to be produced, the CON TRACTOR shall be entitled during


the Exploration Period and the Development Period to cany out Gas Marketing


14.5 1C pursuant lo Article I2.6(dk the CONTRACTOR has drtrrmmt*) that the


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


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


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


to the Management Committee specifying that;





(a) the CONTRACTOR hM ttotormined that the Discovery is a Commercial


Discovery; or


(l>) the CONTRA! TOR tins determined tlinl llu- Discovery is not a Commercial


Discovery.





14 6 For the purpose of this Contract. Tin Marketing Operations" means any activity


under this Contract relating to the marketing of Non-Associated Natural Gax


including any evaluation to find a commercial market for such Non-Associated


Natural Gas und/ur to find a commercially viable technical means of extraction of


such Nun-Associated Natural Gas and may include activities related to evaluating the


quantities of Non-Asweioted Natural Gas lo be sold, its quality, the gcographie


locatioo of potential ruirketn to he supplied as well is evaluating the costs of


production, tramportotion and distribution of the Non-Associated Natural Gas from


the Delivery Point lo the rele\onl market.


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


activities in rclatxai to the

Chi





141 No later than I October of the Calendar Year preceding the Calendar Year to which


any Gas Marketing Operation, arc due to occur, the CONTRACTOR shall prepare


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





59/115


 Budget for the following Calendar Year. To enable the Management Committee 10


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


following:


(a) works to be carried out;





(b) type of services 10 I’C provided, distinguishing between third parties und


Affiliated companies of any CONTRACTOR I iltltyj and


(c) categories of general and administrative expenditure





If any modification to die Gas Marketing Work lYognun and Budget is requested h\


the GOVERNMENT, the Management Commit lev shall meet to discuss the Gas


Marketing Wort Program and Budget and proposed modi locations thereto within sixty


(60) days from its receipt of the proposed Gas Marketing Work Program and Budget


The CONTRACTOR shall communicate its comments tin any such requested


modifications to the GOVERNMENT at the meeting of the Management Committee


or in writing prior to such meeting.





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


approved Gas Marketing Work Program and Bud gel provided that the aggregate


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


Marketing Wort Program and Budget in any Calendar Year and provided further that


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


Management Commute* Foe the avoidance of doubt, all excess expenditures shall be


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


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


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


14.10 If tiny Non-Associated Natural (ias is discovered within the Contract Area, and the


CONTRACTOR reasonably considers that the Non-Aaaociuled Natural Gas


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


amended, it shall b« entitled to request amendment# to thi# Contract, with its rauona.


I he GOVERNMENT shall in good faith give rcasunuhle consideration to the


CONTRACTOR’S proposed amendment and reason* and the Parties shall in good


faith attempt to agree on the ncccmary amendments to the Contract If the Parties arc


unable to agree on such amendments, and the Exploration Period expires without the


CONTRACTOR having declared such Discovery to be a Commercial Discovery in


accordance with Article 12.6(a) or Article 14.5(a). and subsequently within u period


of eight (K) yean from the etui of such Exploration Panel, the GOVERN Ml. IN I


reaches agreement with any third party to develop such Discovery (the “Gaa


Development”), then the following, provisions shall apply:


(a) cither before or upon agreement rn relation to the (ins Development having


been reached (and whether or not such agreement i* recorded in a fully termed


production during and/or operating or ocher like agreement), but before such


agreement is signed (the "Proposed Contract") (subject only to the rights of


each C ON I HACTOR Entity to pre-empt such Proposed Contract pursuant to


Article 14.10(b) and such conditions os may be applicable), the


GOVERNM ENT shall, as soon as reasonably practicable after the occurrence


of such circumstances, serve on each of the CONTRACTOR Entities, u





40/115


 main tcmu of wrh agreement a? (be CONTRACTOR Entities may


rrasnetiNy request In determine if they Mill < serene their ngtas I the “Agreed


Term •O. including:





(i> the identity of such third party;


(ii) the effective date of tbe Proposed Contract.





(iii) the applicable commercial terms, including boou scs, royalties cvsi


recovery. profit sharing, taxation and any other «mi





C«v> to which the Proposed Contract is








(b) Upon a request from any CONTRACTOR Entity, the GOVERNMENT will


provide all the CONTRACTOR Entities with such further information and


terms as may he reasonably requested by any CONTRACTOR Entity.


Within one hundred and eighty days (ISO) days idler reccif* of 3 notice and


any further information under Article 14.10(a) in relation to a Proposed


Contract each of the C ONTRACTOR Entities shall elect either








(i) 10 entv into the Proposed Contract on the same or:


terrm to the Agreed Terms, with the right to am recover ail Petrokum


Coats incurred under this Contract against till Petroleum revenue*


received under the Proposed Contract, up to any cost recovery limits


set out therein; or


(ii) to wiuve the ul'oresaid right of pre-emption in rtlation to the Proponed





Contract;





und shall serve notice accordingly upon the GOVERNMENT and all the


CONTRACTOR Entities and in default of receipt by I lie GOVERNMENT


of any such notice within such period of one hundred and eighty (180) duy*


such CONTRACTOR Entity shall be deemed coadusivoly to have served a


notice electing to waive its aforesaid right of pre-emption in relation to the


Proposed Contract.


In the event that more thun one of the COM RAfTOM Entities exercises its


(c)


rights under Article l4.IO(bMi) in relation to the Proponed Contract, then the


GOVERNMENT nluilI transfer or grant each such CONTRACTOR Entity


an interest in (tie Proposed Contract upon the Agreed Terms (in accordance


with Article I4.l()tl>)(i» in the proportions In which their respective


percentage iniere*l» bear to the aggregate of their respective percentage


imcrcNts under the relevant Joint Operating Agreement (as it applied at the end


of the Exploration Period) or in such other proportions as such


CONTRACT OR Entities daU agree between them


In the cwtt that ooc of the CONTRACTOR Entities exercises its rights





under Article 14. lOfbRi) in relation to the Pmpoacd Contract then tbe


CO\TRNMTNT shall transfer a pm the whole of the in the





41/115


Proposed Contract upon the Agreed I enro (in accordance with 14.10(b)(1)) m


such CONTRACTOR Entity.


(e) In the event that none of the (ON I MAC TOR Hntities exercises its tights


under Article 14.10(bXi) thoi lIk- GOVERNMENT may enter into the


Proposed Contract on terms no more favourable to its counterparty than the


Agreed Terns and, in such case. the aforesaid rights of pre-emption shall


thereupon cease to apply in relation lo (he Proposed Contract.


14.11 If the pre-emption rights in Article 14.10 are not exercised and the GOY'ERNYlh.NT


enters into the Proposed Contract with the third party concerned, the


GOV ERNMENT will use its best cndcuvoui* to avoid any effect which may hamper


the Petroleum Operations ofthc CONTRAC TOR while producing Petroleum.


Muring


14.12 Haring of Natural Gas in the course of activities provided lor under this Conmicl, is


prohibited except (i) short-term flnrmg up to twelve (121 Months nccesssuy for testing


or other operational reasons in accordance with prudent internalioruil petroleum


industry practice (which shall include the flaring of Associated Natural (ius tea the


extent the CONTRACTOR consider* that re-injecting Associated Natural Gas is not


justified technically and economically and provided (he GOVERNMENT decides


nol to take such Associated Natural (ias). or (ii) with the prior authorisation of the


GOVERNMENT, such authorisation no* to be unreasonably -ithhcld Of delayed


The C ONTRACTOR dull submit such requrat to the GOVTRNMENT. which shall


along with information on the anounl und quility of Natural Gas invoNcd and the


duration of the requested liar tog








ARTICLE 15 - ACCOUNTING AND Al WITS


15.1 The CONTRACTOR shall keep in it* office* in the Kurdistan Region copies of all


books and accounts of all revenues relating to the Petroleum Operations and all


Petroleum Costs (the -Accounts"), except during the Exploration Period, when (he


CONTRACTOR shall he entitled lo keep the Accounts at its headquarters Abroad.


The Accounts shall reflect in detail expenditure incurred as a function of Ihe


quantities and value of Petroleum produced, and shall be kept for a period of five (5)


yen. All Accounts which arc made available to the GO VERMONT in accordance


with Hie proviso)* of thu Contrart ahull be prepared in the English language. The


Accounts shall be kept in acconhncc with prulaM international petroleum industry


practice and in accordance with the provisions of the Accounting Procedure. Hr


Accounts shall be kept in Dodoes, wtuch shall be the reference currency for the


purposes of this Contract





15.2 Within ninety <9Q» days folk-wing the end of each Calendar Year, the


CONTRACTOR shall submit to the GOVERNMENT a summary statement of aU


Petroleum Costs incurred during the said Calendar Year. The summary Ratement


shall also include a profit calculation pursuant to the provisions of Article 2ft.


15.3 The GOVERNMENT shad have the right:





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 (a) 10 request on audit of the Acwvni* with respect to each Calendar Year within


■ period of two (2) Calendar Years following the end of such Calendar Year


I the ~A adit Request Period ); and


(hi to retain an audiler of international standing familkir with international





jwtroleum industry accounting practice to undertake or assist the


GOVERNMENT to undertake tlw audit


Notwithstanding paragraphs (a) and (It) of lltir* Article 15.3, the GOVERNMENT


•ihiill have the right to audit the Account* with respect to each Calendar Year at any


tune in the ease of manifest error or fraud.





15.4 The reasonable cost of retaining an auditor pursuant to Article 15.3 shall he home by


the i ONTRACTOR and treated ns n Petroleum Cost for the purpose of cos* recovery


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 accordant* uith prudent international


petroleum industry practice, may request in writing all reasonably available


information and justifications tor ita audit of Petroleum Costs.


15.6 Should the GOVERNMENT consider, oil UK basis of data and information available


that the CONTRACTOR made a material mistake or there is any irregularity in


respect of the Accounts and considers that any corrections, adjustments or


amendments ihould be made, the GOVERNMENT shall make any audit exceptions


in writing and notified to the CONTRACTOR wit hin nix (6) Months of the dale of


request referred to in Article 15.3, and failure to give such written exception within


such time shall be deemed to be an acknowledgement of the correctness of the


( 4>N I R ACTOR'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 amendment* or to present its comment* in writing or


request a meeting with Hie GOVERNMENT. I be GOVERNMENT shall within


thirty (30) days of the CONTRACTOR * response, notify the CONTRACTOR in


writing of its position on the correction*, adjustments, amendments or comments If


thereafter there still exists a disagreement between the GOVERNMENT and the


CONTRACTOR, the dispute will be nettled in accordance with Article I 5.d.


15 X In addition tu the annual statement* of Petroleum Costs a.* 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 Panic* under thi* Article IS that cannot be settled amiCIthly


within sixty (60) days of the GOVERNMENT'S final notice under Article 15.7. may


be submitted to an expert on (he request of either the GOVERNMENT or the


CONTRACTOR in accordance with the provisions of Article 42.2. Notwithstanding


trie provisions of Article 42. in thi* specific iaxtance the decision of the expert shall


nor necessarily be final and either I'nity may decide to submit the matter to arbitration


in accordance with the provisions of Article 42.1.








43/11 5


 ARTICLE 16- CONTRACTOR'S KK.llIn ANDOBLIGATIONS











16.1 If not done Already, with* ninety (90) days following the Effective Dale, each


CONTRACTOR Emily shall open an office and appoint a permanent representative


in the Kurdistan Region, who may he contacted hy the GOVERNMENT with n> >id


to any mailer relating lo this Contract and will he entitled to receive any


cxirTc^oodcnce addrrad to such CONTRACTOR Entity.











16.2 The CONTRACTOR dull cany out all Petroleum Operation* in accordance with the


pcovreaons of this Contract, prudent inter national petroleum indicln practice and





applicable Kurdistan Region I-aw.


The CONTRACTOR shall be responsible for ihe cooduct management, control and





administration of Petroleum Operations and shall he 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. it» aod «he«r Subcontractors, and the employee*,


consultants, and agents of each of the foregoing. The CONTRACTOR and all such


PtnoM shall ul all limes have free access to the Contract Area and am Product**


Areas for the purpose of carrying out Petroleum Operation*.








Inlormativn and





16.3 The CONTRACTOR shall provide the GOVERNMENT with periodic data and


activity reports relating to Petroleum Operations. Said reports shall Include detail* of


*hc following:





<■> information am I data regarding all Exploration Operations. Develop men!


Operation* uml Production Operations (as tipplicnblc) performed during ihe


Calendar Year, including any quantities of Petroleum produced and sold;





data and information regarding any transportation facilities huh and operated




by the CONTRACTOR:


(«)


a Statement specifying the of personnel.


well as a report on any xr>k« available to such


personnel; and





(d) a deaenptive of all capital assets acquired for the Petroleum


1 price or cost of their acquisition.











164 Tbc CONTRACTOR may freely use «t> Pwrokun produced wuhin the Contract


Area for the Petroleum Operation*











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SMKPtoiw b> It* WYKKHMEHI





16.5 The CONTRACTOR shall at all limes provide reasonable assistance as may


reasonably be requested by the (GOVERNMENT during its review and verification


of records an*! of any other information relating to Petroleum Operations at the


offices, worksites or any other facilities of the CONTRACTOR.





Upon giving reasonable prior notice to the CONTRACTOR, the GOVERNMENT


may send a reasonable number of representatives to the work-sites or any other


facilities of the CONTRACTOR in the Kurdistan Region to perform such reviews


nnd verifications, flic rcpresentntivcs of the (GOVERNMENT shall at all times


comply with any safely regulations imposed by the CONTRACTOR and such


reviews and verifications shall not hinder the smooth progress of the Petroleum


Operations.











16.6 Ear the performance of the Petroleum Operations, the CONTRACTOR, any Affiliate


of each CONTRACTOR Entity, its and their Subcontractors and the employees


consultants and agents of each of the foregoing shall at all times be granted free


access Co the Contract Area and to tiny facilities for the Petroleum Operations located


within or outside of the Contract Area or within or outside the Production Are*, lor


the purpose of carrying out the Petroleum Operations.


Use nt facilities


16.7 Upon notice from the GOVERNMENT, the CONTRACTOR shall make available


lo a reasonable number of representatives of the GOVERNMENT those of die


CONTRACTOR'S facilities which arc necessary to enable stub rtrprcvmotives to


perform their tasks related to this Contract and the Kurdistan Region Oil and (ras Law


including. in case of works to be performed on work sites, transportation,


accommodation and board, under the same conditions ns those provided by the


CONTRACTOR for its own personnel.


Notwithstanding Article 16.8, the GOVERNMENT shall indemnify and hold


harmless each CONTRACTOR Entity against nil losses, damages and liability


arising under any claim, demand, action or proceeding brought <>r initiated against any


CONTRA< TOR Entity by any representative of the GOVERNMENT in connection


with the ncccss to or use of the facilities by such representatives.


I.«m or Ifamagc


16.X The CONTRACTOR shall be responsible for tiny lots or damage caused lo 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.











16.9 In it.i Petroleum Operations, the CONTRACTOR .slull respect any patents belonging


to third parties.








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16.10 I he CONTRACTOR shall as soon as reasonably practicable inform the


GOVERNMENT of any material litigation relating to this Contract





Safety


16.11 The CONTRACTOR shall implement a health, safety and environment program and


take necessary measures to ensure hy giene, health and safety of its personnel carry ing


out Petroleum Operations in accordance with prudent international petroleum industry


practice.


Said measures shall include the following:


(a) supplying first aid nnd safety equipment for each work area and maintaining a


healthy environment for personnel;


(b» reporting to the GOVERNMENT within seventy-two (72) hours of such


accident any accident where personnel has been injured while encaged in


Petroleum Operations and resulting in such personnel being unable to return to


work;


(c) implementing a pcrmit-lo-wvri procedure wound hazardous equipment and


installations;


Id) providing safe storage areas for explosives. dchwiatofN «nd any otltcr


dangerous products used in the operations;


(e) supplying fire-extinguishing equipment in each work area;


(1) for the purpose of taking control of any blow out or fire which could damage


the environment or Petroleum Field, in accordance witli prudent international


petroleum industry practice; and


(g) for the purpose of preventing any involuntary injection ot fluids in petroleum


formations and production of Crude Oil and Natural Gun at rates that do not


conform to prudent international petroleum industry practice.



































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Production Rales





16.12 Subject to Article 43.2, in the event the production rate of the individual wells and


Reservoir of a Petroleum I icld is to be set below the Maximum Efficient Rate


(“MER") for the Reservoir, us provided for in the Development I’lnn. ns a


consequence of a decision by the GOVERNMENT or any federal or international


regulatory body, the GOVERNMENT undertakes to allocate any such reduction


fairly and equitably among the various operators (including llw GOVERNMENT)


then producing; in the Kurdistan Region, pro rata their respective production rntes. In


such event, the GOVERNMENT shall grunt un extension of the Development Period


of any Production Aral no affected for a reasonable period of time in order to produce


the Petroleum which would otherwise have ulrcudy been produced, hud the MLR for


the individual wells and Reservoir of the Petroleum Kidd been maintained.


Legal Status


16.13 The respective rights, duties, obligations and liabilities uf the CONTRACTOR and


the GOVERN M ENT under this Contract urc to be understood as being separate and


individual and not joint and several. The Parties agree that this Contract shall not


create and shall not be deemed to have created a partnership or other form of


association between them.





Lifting


16.14 The GOVERNMENT and each CONTRACTOR Entity shall have the right and the


obligation to taka in kind and separately sell or otherwise dispose of their respective


shares of Petroleum. Upon approval of the Development Plan, the Parties shall meet


us soon as practicable to reach a detailed agreement governing the lilting of Petroleum


by each such CONTRACTOR Entity. Such lilting agreement shall include the


following:


(a) the Obligation of the GOVERNMENT and each CONTRACTOR Entity u>


lift, regularly throughout caeh Calendar Year, then slurc of Petroleum


produced from the Production Area:


(b) notification procedures by the Operator to the GOVERNMENT nnd each


CONTRACTOR Entity regarding entitlements .uul uva liability uf Petroleum


for lilting by each Party during each lilting period and nominations by inch


Party; and


(c) the right of the Parties to lift any Avtii lable 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 transfer to the GOVERNMENT, upon


written request of the GOVERNMENT, any amounts of Crude Oil that the


GOVERNMENT shall deem necessary to meet Kurdistan Region internal


consumption requirements. Ihe sales price of such Crude Oil sliall be the


International Market Price. The GOVERNMENT shall provide the








47/1 IS


 CONTRACTOR Hnlilica with nni less than six (ft) Months' advance written notice of


its intention to buy Mich Crude Oil.





Payments shall be mode in Dollars and otherwise on terms consistent with prudent


international petroleum industry practice, lire CONTRACTOR entities' obligation


to sell Crude Oil to the GOVERNMENT’ shall be, with the other operators (including


the GOVERNMENT) then producing in the Kurdistan Region, pro rata to their


respective production rates.





I he provisions of this Article 16.15 shall not apply to Non-Associated Natural Gas.





ARTICLE 17- USE OK LAND AND EXISTING INFRASTRUCTURE


17.1 The GOVERNMENT shall make available to the CONTRACTOR any land or


property in the Kurdistan Region required for the Petroleum Operations; provided,


however, the C ONTRACTOR dial I not request to use ;uiy such land unless there is a


real need for it. The CONTRACTOR shall have the right to build and maintain,


nbovc anil 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


«u»y luud or property in the Kurdisluu Region belonging to third parties, the


CONTRACTOR shall endeavour lo reach amicable agreement with the owners of


•aich Innd. If such nmicnhlc agreement cannot be reached, the CONTRACTOR shall


notify the GOVERNMENT. On receipt of such notification


(a) the GOVERNMENT shall determine the amount of compensation to be paid


by the CONTRACTOR to the owner, if occupation will be for a short


duration; or


lb) the GOVERNMENT shall expropriate the Innd or property in accordance


with applicable Kurdistan Region Law. if such occupation will be long lasting


or makes it henceforth impossible lo resume original usage of such land or


property. Any property rights shall he acquired by and recorded in the name


of the GOVERNMENT, but the C ONTRACTOR shall be entitled free use


of the land or property for the Petroleum Operations for the entire duration of


this Contract.


The amount of Ihc compensation in Article 17.2(a) shall be fair and reasonable, in


accordance with Article 29 of the Kurdistan Region Oil and Gas Law, and shall lake


into account the rights of the owner arxl 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 (as required pursuant to .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 be considered


Petroleum Costs and shall be recovered by the CON TRACTOR in accordance with


the provisions of Articles 1 and 25.


17.3 for its Petroleum Operations, the CONTRACTOR shall have the right ill the


Kurdistan Region to use, subject to applicable Law. any railway, tramway, road.





48/1 IS


 airport. landing field, canal, rivet, bridge or waterway, any telecommunication*


network and any existing pipeline* or Iran m*-nation infrastructure, on terms no lew


favourable than those offered to other entitle* and. unless generally m force, to be


mutually agreed.


1 7.4 Under national emergencies due 10 environmental caUistrophe or disaster, or internal


or cxtcmul war. the GOVERNMENT shall have the right to request to use any


transportation and communication facilities installed by the CONTRACTOR. In


such cases, the request shall originate from ilw Minister of Natural Resources, For the


avoidance of doubt, Mich costs, expemes or liabilities incurred by the


CONTRACTOR hereunder shnll be considered Petroleum Costs und dial I be


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


and 25.





17.5 For its Petroleum Operation, the CONTRACTOR shall have the right in the


Kurdistan Region to clear land, excavate, drill, bore, construct, erect, place, procure,


operate. emit and discharge, manage and maintain ditches, tanks, wells, trenches,


access roads, excavations, dams, canals, water mains, plants, reservoirs, basins,


storage and disposal facilities, primary distillation units, extraction and processing


unit*, separation units, sulphur plants and any other facilities or installations for the


Petroleum Operations, in addition to pipelines, pumping stations, generator!. power


plant*, high voltngc line*, telephone, radio and any other telecommunications systems,


as well ns wurchtiu:%c*. office*, sheds, houses for personnel. hospital', school*,


premise*, dikes, vehicles, ruilway*, road*, bridges, airlines, airport* and any other


transportation facilities, garages, hangars, workshops, foundries, repair shop* and any


other auxiliary facilities for the Petroleum Operations and. generally, everything


which is required for its performance of the Petroleum Operations. Ihe


('ONTRaCTOR shall have the right to select Ihe location for these facilities.


17.6 For its Petroleum Operations, the CONTRACTOR shall have the right in the


Kurdistan Region, subject to compliance with applicable Kurdistan Region Law. to


remove and use the topsoil, fully-grown timber, clay. sand, lime, gypsum, apnea


(other than precious stones) and other similar substances as required for its Petroleum


Operations.


I he CONTRACTOR shall have the right in the Kurdistan Region to take or use any


water necessary for the Petroleum Operations provided it docs not damage any


existing irrigation or navigation systems and that land, houses or watering points


belonging to third parties arc not deprived of their uw.


17.7 The GOVKRNMKNT shall have the right in the Kurdistan Region to build, operate


and maintain roads, railways, airports, lundmg strips, canals, bridges, protection dam*,


police stations, military installations, pipelines and telecommunications net wort* in


the Contract Area, provided this does not increase the costs, or compromise or have a


material advene effect on the performance of the Petroleum Operations. If the


construction, operation and maintcnuncc of such facilities by the GOVERNMENT


result* in increased cost or expense lor the CONTRACTOR then, for the avoidance


of doubt, such cost and expense shall he considered Pcuvlcum Costs and dull be


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


and 25.





49/115


17.8 Upon request of the (TONTRACTOR. the GOVERNMENT shall prohibit the


construction of residential or commercial buildings in the vicinity of facilities used for


the Petroleum Operation* Hut may be declared dangerous due to the Petroleum


Operations and to prohibit any interference with the use of any facilities required for


the Petroleum Operations.





17.9 Access to the Contract Aren may be granted pursuant to an Access Authorisation, as


shall be defined in. and consistent with, the Kurdistan Region Oil ;uiil Gas Laiy. to


authorised third parties on reasonable terms and conditions (including coordination),


including Persons authorised to construct, install and operate structures, facilities and


installations, and to carry out other works, provided tluit nothing in the Access


Authorisation ot in tins Article 17.9 authorises the holder to drill a Well or to perform


.my Petroleum Operat ions in Contract Area.





The GOVERNMENT shall give the CONTRACTOR ndequntc advance notice of


any Access Authorisation in respect of the Contract Arcu and shall not grant any


Access Authorisation in respect of the Contract Area until it has taken into account


uny submissions mode by the CONTRACTOR nor in such a way that there is undue


interference with or hindnince of The rights and activities of the ( ONTRA.CTOR.





ARTICLE 18-ASSISTANCE FROM THE GOVERNMENT


To the extent allowed by Kurdistan Region Law and Iraqi law and at the specific


request of the CONTRACTOR, the GOVERNMENT shall take all necessary-----


to assist the CONTRACTOR Entities in, but not limited to, the following areas:


(a) securing any necessary Pctmits for the use and installation of means of


transportation and communications;





(b) securing regulatory Permits in mutters of customs or import/export:


(c) securing entry and exit visas, work and residence permits us well as any other


administrative Permits for each CONTRACTOR Emily’s, its Affiliate's and


its Subcontractors’ foreign personnel (including iltcir family members)


working in the Kurdistan Region itnd any other part of Iraq during the


implementation of this Contract;





(d) securing any necessary' Permits to send Abroad documents, dula or samples for


analysis or processing t or the Pctroloum Operations;


(e) relations with federal and local authorities and admuuRru lions. including for


the purposes of the remainder of this Aitkk 18.1;


(0 securing any necessary environmental Permits;





(g) obtaining any other Permits requested by any CON I RAfTOR Entity for the


Petroleum Operations,


(h) access to any existing duUt and information, including data mid information


relating to the Contract Aren held by previous operators or contractors; and





50/115


(i> providing ull nccctwuiy security for Petroleum Operations,


18.2 Within the scope of services to he.* provided under this Article IH. reasonable and duly


justified expenses incurred by the GOVERNMENT or paid to- third parties shall be


charged W> the CONTRACTOR and sluill be considered Petroleum Costs and shall be


recovered by the CONTRACTOR us Petroleum Coots in accordance with the


provisions of Articles 1 and 25.


ARTICLE 19- EQUIPMENT AND MATERIALS


19.1 The CONTRACTOR shall supply, ot procure the supply of. ull materials, equipment,


machinery, tools, spare parts and any other items or goods required for the Petroleum


Operations ("Equipment anil MnteriiiltO.


19.2 Said Equipment uikI Materials ahull be provided by the CONTRACTOR in


accordance with the relevant Work Programs and Budgets.


19.3 As soon us possible after the HITcctive Date, the CONTRACTOR shall provide the


Management Committee with u copy of its procedures for procurement of Equipment


and Materials und/or services for the Petroleum Opemtions ns required by the


provisions of Article 8,2 (c), including the criteria for tender evaluation, which


procedures and criteria shall be in accordance with prudent international petroleum


industry practice, II the Management Committee does not request any modifications


to the procurement procedure within thirty (30) days after receiving such procedure*,


the procedures shall be deemed approved by the Management Committee.


19.4 The CONTRACTOR shall give priority to Equipment and Materials that are readily


available in the Kurdistan Region and other pans of Iraq to the extern tbeir price,


grade, quality, quantity, specifications, purchase, delivery and other commercial and


technical terms arc comparable in all material respects with those generally available


ira the international petroleum industry.


ARTICLE 20 - TITLE TO ASSETS


20,1 During the Exploration Period, any Axxts acquired by the CONTRACTOR for the


Petroleum Operations shall remain the property of the CONTRACTOR, the


CONTRACTOR Entities, Iheir Affiliates or their Subcontractors, as the case may be.


During the Development Period, subject to Article 21. all Assets acquired by the


CONTRACTOR for the Petroleum Operations shill become the property of the


GOVERN M ENT upon the completion of the recovery of the costs of all such as*t>


by the CONTRACTOR, or the end of lbe Contract, whichever is the earlier,


20.3 The provisions of Article 20.2 sluill not apply to any Assets leased by the


CONTRACTOR or belonging to on Affiliated Company of a CONTRAC .TOR


Entity or belonging to its or their Subcontractors <« its or their employees.











51/115


 ARnCLE 21 - USE Of TIIF. ASSETS





21.1 Each CONTRACTOR Entity shall hme the exclusive right to use. free of any


charge. all Asads described in Article 20. both before and after recovery of the cost of


the *on»c. for the Petroleum Operations, as well as for any petroleum operations under


oilier agreement* in the Kurdistan Region to which it or any of its Affiliates is a parly,


provided (luit the Petroleum Operations take priority. The GOVERNMENT agrees


IKK to transfer or otherwise dispose of any of such Assets without the


CONTHACTOR’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 urea in the Kurdistan


Region.


ARTICLE 22 - SUBCONTRAC TING


22.1 IllC CONTRACTOR diall ensure that any Subcontractors it engages have all the


requisite experience and qualifications.


22.2 *ll*c CONI'KACTOH shall give priority to Subcontractors from the Kurdistan


Region and other porta of Iraq to the extent their compelling. rates, experience,


reputation, qualifications, specialties, credit rating and terms or availability, delivery


and other commercial terms are, in the CONTRACTOR'S, sole opinion, comparable


in all material respects with those provided by foreign companies operating in the


international petroleum industry. Such Subcontractors must be bona fide Kurdistan


Region companies not related to any Public Officer, directly or indirectly, and must


have all necessary resources and capacity.


22.3 Selection of Subcontractors shall Lake 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 Tbe CONTRACTOR shall provide the GOVERNMENT with copies of agreements


entered into with Subcontractors, where their anount exceeds the limit set by the


Management Committee from time to time.


ARTICLE 23 - PERSONNEL, TRAINING, AND TECHNOLOGICAL ASSISTANCE











23.1 For the Petroleum Operations, tbe CONTRACTOR shall give, and shall require its


Subcontractors to give, preference to personnel from tbe Kurdistan Region and other


parts of Iraq to the extent such personnel have the technical capability, qualifications,


competence and experience required In perform the work.


23.2 The CONTRACTOR Entities shall give due consideration to the secondment of


GOVERNMENT personnel to tbe CONTRACTOR Entities and of the


CONTRACTOR Entities' personnel to the GOVERNMENT during the various


phases of the Petroleum Operations. Terms and conditions for such secondment shall


be mutually agreed by the Parties and any costs associated therewith shall be





52/1 IS


 considered Petroleum Costs and shall be recovered by the CONTRACTOR in


accordance with the provisions of Articles I :iml 25.





23.3 Each CONTRACTOR Entity and its Affiliates and Subcontractors ahull have the


right to hire foreign personnel whenever live personnel from the Kurdistan Region und


other parts of Iraq do not have the requisite technicul capability, qualifications or


experience for positions to be lilted 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 l.mv, iltc CONTRACTOR shall, at the


request of the Management Committee, take the necessary steps to repatriate such


individuals).


23.4 Fur the first three (3) Contract Years, the CONTRA!:TOR shall provide up to two


hundred and fifty thousand Dollars (US$250,000) in advance each Contract Year to


the GOVERNMENT for the recruitment «u secondment of personnel, whether from


the Kurdistan Region other ports of Iraq or Abroad, to the Ministry of Natural


Resources. The selection of such personnel shall he lit the discretion of the Minister


of Natural Resources. Such costs shall be considered us Petroleum Costs and shall be


recovered in accordance with the provisions of Articles I and 25.


Training


23.5 In a planned way, in accordance with the provisions of thin Article 23.5 and Articles


23.6 and 23.7. the CONTRACTOR shall train all its personnel from the Kurdistan


Region ami other purls of Iraq directly or indirectly involved in the Petroleum


Operations for the purpose of improving their knowledge and professional


qualifications in order ihat such personnel gradually reach the level of knowledge and


professional qualification held by the CONTRACTOR Entities" foreign workers


with an equivalent resume. Such training shall also include the transfer of knowledge


of petroleum technology and the necessary management experience so as to enable


the personnel from the Kurdistan Region and other parts of Iraq to apply advanced


and appropriate technology in the Petroleum Operations, to the extent permitted by


applicable Law and agreements with third parlies, and subject to appropriate


confidentiality agreements.


23.6 In addition to the requirements of Article 23.1, the recruitment, integration and


training of the CONTRACTOR Entities* personnel from the Kurdiaan 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 lake into


consideration the requirements of Article 23.5 and may include training for the


GOVERNMENT’S personnel, depending on the extent to which the amount


allocated to the training plan, as prescribed by Article 23.7, is avaihblc alter Liking


into consideration the training of the CONTRACTOR Entities' Kurdistan Region


and other Iraqi personnel.


Within ninety (90) days of the Effective Date, the CONTRACTOR shall submit to


the Management Committee a proposed training plan for the remainder of the


Calendar Year. Thereafter, no later than 1 October Ln each Calendar Year, the


CONTRACTOR shall submit a proposed training plan to the Management


Committee for the following Calendar Year.





53/115


23-7 The training plan referred to in Article 23.6 shall provide for the allocation of the


amount of one hundred, and fifty thousand Dollars (US5150,000) for each Contract


Year during the Exploration Period and thiee hundred thousand Dollars (USS300.000)


tor each Contract Year during the Development Period.


23.8 Each CONTRACTOR Entity shrill be responsible for the training costs which it may


incur in respect of the personnel it employs from the Kurdistan Region and other ports,


of Iraq. All such reasonable costa shall lx* considered as Petroleum Costs and shall be


recovered in accordance with the provisions of Articles I and 25. Costs incurred by


the CONTRACTOR for training programs for the GOVERNMENT'S personnel


shall be borne by the CONTRACTOR only to the extent that they arc included in the


CONTRACTOR'S training plan, pursuant to Article 23.6 and shrill also be


considered as Petroleum Costs and shall be recovered in accordance with the


provisions of Articles I and 25. ITic cost of nil other training programs for the


GOVERNMENT’S personnel shall be the GOVERNMENT’S responsibility.





Thy I'.nviropiuyp! fmL





23-9 from die dine of First Production from the Contract Area, the CONTRACTOR shall


contribute the amount of one hundred and fill)' thousand Dollars (US$150,000) each


Contract Year during the Exploration Period and three hundred thousand Dollars




environment fund established by the GOVERNMENT lor the benefit of the natural


environment of the Kurdistan Region, pursuant to the Kurdistan Region Oil and Gas


Law (the “Environment Fund ). Such amount* ahull be deemed to be Petroleum


Costs and shall be recovered in accordance with Articles 1 and 25.


23.10 Any expenditure incurred by the CONTRACTOR under this Article 23 shall be


considered Petroleum Costs and shall be recovered in accordance with Articles 1 and


25.











23.11 Before the end of tic fust Contract Year, the CONTRACTOR shall provide to the


GOVERNMENT in kind technological and logistical assistance to the Kurdistan


Region petroleum sector, including geological computing hardware and software and


such other equipment as the Minister of Nutund Resources may require, up to the


value of one million Dollar* (USS 1.000.000). Tbc form of such assistance shall be


mutually agreed by the Parties and any costs associated therewith shall he considered


Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with


the provisions of .Articles I and 25.








ARTICLE 24 - ROYALTY


24.1 The CONTRACTOR shall pay lo the GOVERNMENT a portion of Petroleum


produced and saved from the Contract Area, as provided in this Article 24 (the


“Royalty-).


242 The Royalty shall be applied on all Petroleum produced and saved ftO« the Contract


Area which is Crude Oil or Non- Associated Natural Gas. except for Petroleum used in





54/115


Petroleum Operations, re-injected in a Petroleum Field, lost, flared or for Petroleum


Ihiat cannot be used or sold and such Crude Oil and Non-Associated Natural Gas


(excluding the excepted Petroleum) shall be referred to collectively as 'Export


Petroleum” and separately and respectively as "Export Crude Oir and "Export


INon-AvtocLated Natural Gag*.


24.3 If payable in cash, the amount of the Royalty calculated by applying the Royalty rates


provided under Article 24.4 shall be paid by the CONTRACTOR as directed by the


GOVERNMENT, in accordance with Article 24.7.


If payable in kind, tlx- quantity of Export Petroleum corresponding to the Royally and


calculated by applying the Royalty rales provided under Article 24.4 shall be


delivered in kind by the CONTRACTOR to the GOVERNMENT at the Delivery


Point. Title and risk of loss of the Royalty paid in kind shall be transferred at the


Delivery Point.


Unless the GOVERNMENT requires the Royalty to be paid in kind, by giving the


CONTRACTOR not less than ninety (90) days prior written notice prior to the


■commencement of the relevant Quarter, the GOVERNMENT shall be deemed to


have elected to receive the Royally in full und in casb for the relevant Quarter.


24.4 The Royalty due on any Export Petroleum produced and saved in the Contract Aieu


shall be determined daily by applying the following relevant Royalty rate, to the


Export Crude Oil or to the Export Non-Assoemted Natural Gag (ms the ease may he)


produced und saved on that day:


(a) For Export Crodc Oil:


the Royalty rate for Export Crude Oil shall be ten per cent (10%). which, for


the avoidance of doubt, shall apply rcgunilcto of thi gravity of the oil: and


(b) For Export Non-Associated Natural Gas;


the Rovalty rate for Export Noo-Associalcd Natural Gas shall be ten per cent


(10%).


24.5 Associated Natural (»*. and any other Petroleum shall be exempt from any Royalty.


24.6 If. pursuant to Article 24.3. the GOVERNMENT receives the Royalty in kind, and


pursuant to Article 28. the GOVERNMENT requests assistance for the sale of all or


part of the Royalty received in kind, each CONTRACTOR Entity shall assist the


GOVERNMENT in telling all or pan of such Royalty received in kind (belonging to


the GOVERNMENT) in consideration of a commission per Barrel payable to such


CONTRACTOR Entity. in accordance with Article 28.


24.7 If. pursuant to Article 24.3, the GOVERNMENT receives the Royalty in cash;


(a) any Export ('rude Oil shall be valued at the International Market Price


obtained at the Delivety Point, as defined in Article 272;











55/115


Jli) any Export Non-Associated Natural (ins shall Ik valued at the actual price


obtained at the Delivery Point uruler on approved contract, as provided in


Article 27. 3;


(c> the CONTRACTOR shall pay such Royalty each Quarter, in arrears, within


thirty (30) days of the end of each Quarter, and shall calculate the payment


due for the relevant Quarter by reference t«> the price for the Export Petroleum


at the Delivery Point, determined an accordance with paragraphs (a) and

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 Ik- ent itled to export freely the volume of


Export Petroleum corresponding to the Royalty determined in accordance with


Article 24.4 for the purpose of paying the Royalty in cash.


ARTICLE 25 - RECOVERY OF PETROLEUM COSTS


25.1 All Export Crude Oil produced and saved from the Contract Area shall, after


deduction of tiny quantities of Export Crude Oil due for Royalty pursuant to Article


24. he considered as '•Available Crude Oil".


All Associated Natural Gas produced and saved from the Contract Area, except for


Associated Natural Gas which is used in Petroleum Operations, re-injected m a


Petroleum Field. k>-4. flared or cannot be used or sold, shall be considered as


“Available Associated Natural Cm".


All Export Non-Asstxiatcd Natural Gas produced and saved from the Contract Area


shall, after deduction of any quantities of Export Non-Associated Naniral Gas due for


Royalty pursuant to Article 24. be considered as" Avail* bk Non-Associated Natural


Gas”.





“Available Petroleum" means Available Crude Oil. Available Associated Natural


Gas and Available Non-Associated Natural Gas,


252 For the purpose of this Article 23:


(a) any Available Crude Oil shall he valued at the International Market Price


obtained at the Delivery Point, as defined in Article 27i and


(b) any Available Associated Natural Gas and any Available Non-Associated


Natural Gas shall be valued at the actual price obtained rt tbe Deli-very Point


under an approved contract, as provided in Article 27.3.


25.3 Subject to the provisions of this Contract, from the first Production in the Contract


Area, the CONTRACTOR shall a! all times be entitled to recover all Petroleum


Costs incurred under this Contract, of up to forty-three per cent (43%) of Available


Crude Oil («hich. for die avoidance of doubt, shall apply regardless of the gravity of


the oil) and Available Associated Natural Gas. produced and saved within any


Calendar Year. Available Crude Oil above this percentage or otherwise not used for


the recovery of Petroleum Costs shall be Profit Crude Oil





56/115


25.4 Subject to the provisions of this Contract, from First Production in the Contract Area,


the CONTRACTOR shall at all limes be entitled to recover all Petroleum Costs


incurred under thin Contract of up to fifty-three per cent ($3%) of Available Non-


Associuted NuHu.il (ins produced and saved within any Calendar Year. Available


Non-Assoclated Natural Gas above this percentage or otherwise not used far the


recovery of Petroleum Costs shall be Profit Natural Gas.


25.5 For the application of Article 25J and 25.4. the CONTRACTOR shall keep a


detailed account of Petroleum Costs in accordance with the provisions detailed in the


Accounting Procedure. Recovery of Petroleum Costs shall occur in the following


■order:




(b) Exploration Costs (including appraisal costs and further exploration within the


Contract Arcu);


(c) Cuts Marketing Costs;


(d) Development Costs; und


(c) Decommissioning C081A


25.6 I otaI recovery of Petroleum Costs during any Calendar Year, expressed in quantities


Of Petroleum, shall not exceed the relevant percentage* indicated in Annies 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 U> recover all its


Petroleum Costs pursuant to this Article 25. the amount of un-rccovcrcd Petroleum


Costs in such Calendar Year .**011 be earned forward indefinitely to the subsequent


Calendar Years until all Petroleum Costs are fully recovered, but. save as provided in


Articles 14.10 and 38.4. in no other case after the termination of the Contract.


25.7 The provisions of Articles 27.5 and 27.6 shall be applied to determine the quantities


of Available Crude Oil andor Available Non-Asswiaurf Natural Gas due to the


CONTRACTOR for the recover) 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 Costa shall be delivered to the


CONTRACTOR at the Delivery Point. Title and risk of loss of such Available


Petroleum shall be transferred at the Delivery Point.


25.9 liach CONTRACTOR Entity shall be 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. Petroleum Costs in each


Production Area shall be recovered from Available Petroleum from that Production


Area.


25.10 Subject to Aitielc 38.4. for the avoidance of doubt, Petroleum Costs under this


Contract ore not recoverable ayainst other contract areas held by the


CONTRACTOR





57/LIS


 ARTK LE 26 - SHARING OF PROFIT PETROLEUM





26.1 Under this Contract.


fa) "Profit Petroleum” means Profit Crude Oil and Profit Natural Gas;


lb) ‘ Prune 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


(cl "Pn»ni Natural Gas' means the quantities of Available Non-Associated


Natural Gas produced from the Production Area, after the recovery ol


Petroleum (losts in accordance with Articles 1 and 25.


26-2 From First Production and as and when Petroleum is being produced, llic


CONTRACTOR shall he entitled to take a percentage share of Profit Crude Oil


and/or Profit Natural Oils, in consideration for its investment in the Petroleum


Operations, which percentage share shall be determined in accordance with Article


26.5.


26..1 To determine the percentage share of Profit Crude Oil and/or Profit Natural Gas to


which (he CONTRACTOR is entitled, the ”R" Factor shall be calculated in


uwordunuc with Article 26.4 and shall be applied separately to each Production Area.


26.4 The “R- Factor doll be calculated as follows:





R = X/Y


where:


X: is equal to Cumulative Revenues actually received by the CONTRACTOR;





Y: is equal to Cumulative Costs actually incurred by the CONTRACTOR, from


the date of the signature of this Contract


For the purpose of this Article 26.4:


"Cumulative Revenues" means total Revenue*, as defined below, received by the


CONTRACTOR until the cad 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.


"Cunularive Costs" means all Petroleum Costs in the Production Area actually


incurred by the CONTRACTOR until the end of the relevant Semester, determined


in accordance with Article 26.7.











5&1I5


Notwithstanding the foregoing provisions of Ibis Article 26.4. for the period from


First Production until the end of the Calendar Year in uhich First Production occurs.


the "R~ Factor shall be deemed to be less than one (I).


26.5 The share of Profit Petroleum to which the CONTRACTOR shall be entitled from


First Production is:


(a) for Profit Crude OiL equal to the quantities of Petroleum resulting from the


application of the relevant percentage an indicated below to the daily volume


of production of Profit Crude Oil within the Production Area at the


corresponding Delivery Point:


-K" Factor CONTRACT!)R’s % Share of Profit Crude Oil


R

1 < R< or - 2 (35 - (35-15) MR* l)/(2- 1))%


R> 2 15%


and


(b) for Profit Natural Gas, equal to the quantities of Non-Associated Natural Gas


resulting from the application of the relevant percentage as indicated below to


the daily volume of production of Profit Natural Gas within the Production


Area at the cotiwpoading Delivery Point:


*Rh Factor CONTRACTOR*! % Share of Profit Natural Cm


R < or = 1 40%


I < R< or - 2.7S (40 (40 - 20) * (R. - I) / (2.75 - I))%


R > 2.75 20%


26.6 The CONTRACTOR'S accounting shall account separately for all components for


the calculation of "X?r and "Y” values in the formula provided in Article 26.4.


26.7 For each Semester, sUirt mg from the l11 of January of the Calendar Year following the


Calendar Year in which First Production occurs, the CONTRACTOR shull calculate


the “R" factor applicable to the relevant Semester within thirty (30) days of the


beginning of such Semester. The "H" Factor to be applied during n Semester shall bc


thnt determined by applying the Cumulative Revenues actually received and the


Cumulative Costs actually incurred up to and including the lost day of the preceding


Semester.


If Die CONTRACTOR is tumble to calculate the “R" Factor for the relevant


Semester before an allocation of Profit Petroleum for such Semester must be made,


then the allocation of Profit Petroleum for the previous Semester shall be used for Ihe


relevant Semester. Upon fhe calculation of the “R” Factor for the relevant Semester:


(a) if the allocation of Prom Petroleum in the previous Semester and the relevant


.Semester i* the same, then no adjustment shall be made; and


(h) if the allocution of the Profit Petroleum in the l-wn Semesters is different, then


die CONTRACTOR shall make uny adjustments to the Parties' respective


shares of Profit Petroleum to restore them to the position that they would have


been in had the "h" Factor for the relevant Semester been available from the


start of such Semester.


26.8 If at uny time an error occurs in the calculation of the "k" Factor, resulting io a


change in the CONTRACTOR'S percentage sluire of Profit Crude Oil iukIAxt Profit


Natural Gas. the necessary correction shall bo matte and any adjustment* shall apply


from the Semester in which the error occurred The Party liaviog benefited from a


surplus of Profit Petroleum shall .surrender such surplus to the other Party, beginning


from the first day of the SemiMtr following the Semester in which the error was


recognised. However, each lifting of Petroleum relating to such error by the Party


reeciving the surplus shall not exceed twenty-five per cent (254/o) of the share of Profit


Petroleum to which such surrendering Ihuty is entitled. For live uvoidance of doubL if


lit any time an error occurs in the calculation of the “R" Factor, which docs nut result


in a change in the CONTRACTOR * percentage share ul Profit Crude Oil anchor


Profit Natural Gas, no correction shall he made.


26J) The quantities of Profit Petroleum due to the CONTRACTOR sludl be delivered to


the CONTRACTOR Entities at the Delivery Point. Title and risk of loss of such


Profit Petroleum shall be transferred to the CONTRACTOR Fntincx u the Delivery


Point


bach CONTRACTOR Entity shall be entitled to receive, take in kind and to export


frccK 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 »tucb die GOVERNMENT i' entitled in any


Calendar Year in accordance with Article 265 shall be deemed to include a portion


represeotino the corporate income tax imposed upon and due by each


CONTRACTOR Polity , and which will be paid directly by the GOVERNMENT on


behalf of each such entity representing the CONTRACTOR to the appropriate tax


authorities in accordance with Article 31.2. The GOVERNMENT shall provide the


CONTRACTOR Entities with all mitten documentation and evidence reasonably


required by the CONTRACTOR Entities to confirm that such corporate income tax


has been paid by the GOVERNMENT


26.11 The quantities of Profit Petroleum due to the GOVERNMENT shall be delivered to


the GOVERNMENT at the Delivery Point. Title and risk of loss of such Profit


Petroleum shall be transferred at the Delivery Point


26.12 At least twenty-one Cl) days pm* to CY>NTRACTOR s estimated date of Him


Production and. subsequently, thirty (»0) days prior to the beginning of each


Semester, the CONTRACTOR ahull prepare unil deliver to the GOVERNMENT a


production program comprising the production forecast for the next Semester and the


forecast of the quantities -of Crude Oil und Natural Gas to which each Party shall be


entitled during the said Semester.





60/IIS


26.13 Within ninety (90) days following the end of each Calendar Year, the


CONTRACTOR shall prepare and deliver an annual production report to the


GOVERNMENT, stating the quantities of Crude Oil and Natural Oaa to which each


Party is entitled, the quantities of Crude Oil and Natural (ins lifted by each Party .irad


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 Subcontractor* or


suppliers relating to the lifting of the GOVERNMENT'S share of Petroleum by the


CONTRACTOR shall not be considered Petroleum Costs and shall be charged to the


GOVERNMENT according to terms to be mutually agreed between the


CONTRACTOR and the GOVERNMENT.


ARTICLE 27 - VALUATION AND METERING OF CRUDE OIL AND NATURAL


GAS








27.1 For the purpose of this Contract, any Crude Oil produced in the Contract AlW stall be


valued a the end of each Quarter at the Delivery Point hosed on the International


Market Price, as defined in Article 27.2.


27.2 The "IiiternHiional Market Price" referred to in Article 27.1 shall be the weighted


average price per Darrel, expressed in Dollars obtained by the CONTRACTOR aX


the Delivery Point, by netback if necessary, during the Quarter ending on the dute of


valuation, far Arm's Length Sales of Crude Oil


The CONTRACTOR shall provide evidence to the GOVERNMENT that the sales


of Crude Oil referred to in Article 27.2 are Ann's length Sale* If the


GOVERNMENT consider tlul .ui> such sale of Crude Oil is not on the basis of an


Arm s Length Sale then the GOVERNMENT has the right to refer the matter to an


expert pursuant to Article 42.2.


In the event that there is no lifting of Crude Oil in the relevant Quarter or no Arm’s


Length Sales, the applicable Tnltrnalional Market Price for such Quarter shall be


the weighted average price per Barrel obtained during that Quarter from Arm's


Length Sales of Crude Oil of the same or similar parity and quality from other


production areas sold in markets competing with Crude Oil produced from the


Contract Area, taking into account gravity and quality differences and transportation


and other post Deliver) Point costs.


To determine such price, the Parties shall, prior to the commencement of Production,


agree on a bosket of Crude Oil comparable to those produced in the C ontract Area and


sold in the international market Prices obtained shall be adjusted to account foe any


variations such as quality, sfwcific gravity, sulphur content transportation cost*,


product yickL seasonal variations in price and demand, general market trends and


other terms of sale.


27.3 The price of Natural Gas shall bo the actual price obtained at the Delivery Point,


(which may take into account quantities to be sold, quality, geographic location of





61/115


 markets to be supplied as well as cosls 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 huve


the right to review and approve Natural Cuts sides contracts.





Accounting Statement


27.4 In accordance with this Article 27.4. the GOVKRNMENT and the CONTRACTOR


shall establish a statement showing calculations of the value of Petroleum produced


and sold from the Contract Area. Such statement shall include following information:


(a) quantities of Crude Oil sold by the CONTRACTOR Entities during the


preceding Month constituting Ami's Length Sales together with corresponding,


sale prices;


(b) quantities of Crude Oil sold by the CONTRACTOR Entities during the


preceding Month tha1 do not fall in the category referred to in paragraph

above, together with sale prices applied during such Month;


(c) inventory in storage belonging to the CONTRACTOR Entities at the





beginning and at the end of Utc Month; uiul


(d) quantities of Natural Gas sold by the CONTRACTOR Entities nnd the


GOVERNMENT together with sak prices realised.


Metering





27.5 All Export Petroleum shall be metered at the Delivery Point in accordance with


prudent international petroleum industry practice and such meters shall be to fiscal


meter standards. All metering equipment shall be installed and operated by the


CONTRAtTOR The GOVERNMENT shalL on receipt by the CONTRACTOR


of reasonable pnor written notice, have the right to inspect any such metering


equipment installed by the CONTRACTOR- as well as all relevant document* and


supporting information reasonably neccssasy to validate the accuracy S>f 6Wh


metering. All metering equipment shall be subject to periodic technical inspections in


accordance with prudent international petroleum industry practice.


27.6 If any metering equipment is defective, the CONTRACTOR skill use all reasonable


endeavours to repair it within fifteen (15) days or, if deemed necessary by the


CONTRACTOR, replace it as soon as reasonably practicable from the date the


defect became known. The "Adjustment Date" sluill be live last date that live


metering equipment was known or agreed to have been measuring correctly, or if not


known Of agreed, the date that is midway between the date the defect was discovered


and the last date the equipment was known to have measured correctly. The results


from the defective equipment shall be disregarded for the period from the Adjustment


Date until the dale the defective equipment is repaired or replaced and the


measurement for such period shall be estimated:


(a) if check measuring equipment is installed and registering accurately, then by


using the measurements recorded by such check measuring equipment;








62/115 J »


(b) if check measuring equipment is not installed or not registering accurately,


then by correcting the error if the percentage of error is ascertainable by


verification, calibration or mathematical calculation, or


(cl if neither method is feasible, then by estimating the volume and or quantity


delivered based on deliveries during the preceding comparable period of time


when the metering equipment was registered accurately.


27.7 Any disputes arising under this Article 27 shall be sealed by expert determination in


accordance with the provisions of Article 42.2


ARTICLE 28 - SALE OF GOVERNMENT SHAKE


Upon the GOVERNMENTS prior written notice of at least ninety (90) days, each


CONTRACTOR Hntity shall provide all reasonably necessary assistance to the


GOVERNMENT for the sale of all or part of the quantities of Crude Oil to which the


GOVERNMENT is entitled, in consideration of a sales commission per Barrel to be


established with reference to prudent international petroleum practice and to be mutually


agreed upon between the Paries.





ARTICLE 29 - FINANCIAL PROVISIONS


29.1 Any payment to be nude by a CONTRACTOR Entity to the GOVERNMENT


pursuant to this Contract shall be in Dollars and shall be offset against any


outstanding payments due by the GOVERNMENT to the CONTRACTOR Entity.


or paid into the bunk account duly designated by the GOVERNMENT in writing and


shall be paid within thirty (VO) days of the due date, after which interest compounded


monthly at the rate of LIBOR plus two (2) percentage points shall be applied.


29.2 The GOVERNMENT may. at its sole discretion, direct the CONTRACTOR


Entities to pay:


(B) any Royulty in cash due to the GOVERNMENT pursuant to the provisions of


Article 24; and/or


(b) any proceeds front the sale undertaken by the CONTRACTOR Lntity on


behalf of the GOVERNMENT pursuant to Article 2K of any Crude Oil to


which the GOVERNMENT Is entitled pursuant tu Article 25; and/or


(c) any Production Bonus,


to a fund for revenue sharing, which nmy in due course lie established by legislation


consistent with the Constitution of Iraq, between the Government of Iraq and other


regions (including the Kurdislnn Region) and govumorutes of Iraq. Nothing in this


Article 23.2 shiill be understood as implying any contractual relationship or other


relationship between the CONTRACTOR and/or any CONTRACTOR Entity and


the Government of Iraq and/or the regions of Iraq (other than the Kurdistan Region)


and/or utid goventorutes of Iraq.








63/115


29.3 Any payment due by the GOVERNMENT to <1 C ONTRACTOR Entity shall be


olftei .against future payments due by such CONTRACTOR Entity to the


GOVERNMENT, or paid in Dollars to the hank account designated by the


CONTRACTOR Entity in writing and shall be paid within thirty (30) days of the


date of invoice, after which interest compounded monthly at the rate of LIBOR plus


two (2) percentage points shall bo applied


29.4 Any currency conversion to be made under this Contract shall be at the exchange rate


of the Central Hank of Iraq, provided such exchange rate applied to the


CONTRACTOR Entities shall not he less favourable than (he rate offered by other


private, commercial or industrial banks in the international market. In the absence of


the Central Dank of Iraq -or in the event that die Central Hunk of Iraq is unable to


provide the relevant exchange rate, any currency conversion to he made under this


Contract shall be at the exchange rate of a reputable commercial bunk currying on


business i n the international market and approved by the Parties.


29.5 Ihc CONTRACTOR shall not realise any gain or loss due to exchange rule


fluctuations und: 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 the ease may be.


29.6 Fuch CONTRACTOR Entity shall at all times I* entitled to freely convert into


Dollars or any other foreign currency any Iraqi dinars received in the framework of


the Petroleum Operatioto uod to lively transfer the same Abroad. Ihc conversion rate


shall be as provided under Article 29.4.


29.7 Each CONTRACTOR I rmly shall have the right to be prnd. receive, keep, transfer


and use Abroad, without any restrictions, all proceeds of its share of Petroleum.


29.8 Each CONTRACTOR Entity and its Subcontractors shall have the right to freely


open and maintain bank accounts for Petroleum Operations within or outside the


Kurdistan Region and other parts of Iraq.


29.9 Each CONTRACTOR Entity shall have the right to pay in any freely convertible


currency all its financial requirements for the Petroleum Operations and to convert


these currencies U> Iraqi dinars in any bonk in the Kurdistan Region or other parts of


Iraq, a the same exchange rate os provided under Artic le 29.4.


29.10 Each CONTRACTOR Entity shall have the right, without any restrictions, to &edy


repatriate Abroad and to freely dispose of:


(a) any proceeds received in the Kurdistan Region or other pans of Iraq from the


sale of Petrok-um;


(b) any proceeds received from other operations and activities carried out under


this Contract in the K urditfar Region or other parts of Iraq.


29.11 Each CONTRACTOR Entity shall have the right to pay in any foreign currency its


Subcontractors and il> expatriate personnel, either in the Kurdistan Region, other parts


of Iraq, or Abroad. Said Subcontractors and expatriate personnel shall be obliged to





64/115


 transfer to the Kurdistan Region the amount of foreign currency required for their


local needs and they shall have the right to repatriate the proceeds of the ale of their


belongings in accordance with the regulations in force in ihc KurdiNtan Region.





29.12 Each CONTRACTOR Entity's AfliliatCN. Subcontractors and their personnel shall


equally benefit from the same rights as such CONTRACTOR Entity and its


personnel as regards this Article 29.





29.13 For the financing of Petroleum Operations, each CONTRACTOR Entity shall have


the right to have recourse to external financing from third panic* or from its A fill latcd


»‘s length





.ARTICLE 30 - CUSTOMS PROVISIONS


30.1 All services, material, equipment, goods, consumables and products imported into ft*


Kurdistan Region and other parts of Iraq by the (X )NTRACTOR. any


CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of any of the


foregoing, for use or consumption in the Petroleum Operation' 'Ml be admitted free


and exempt from any und all Taxes «>n import. Ihc CONTRACTOR. «ny


CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of any of the


foregoing shall have the right to re-export from the Kurdistan Region and other ports


Of Iraq free from all Taxes on export any material, equipment, goods, consumables


and products that are no longer required for the Petroleum Operations, except where


title has passed to the GOVERNMENT in accordance with Article 20. in which case


re-export shall be approved by the Management Cotnmitwe.


30.2 The CONTKAt TOR. any CONT RACTOR Entity, it* Affiliarcs. any Subcontractor


or any agent of any of the foregoing, and their personnel (including their family


members) shall have the right to freely import into the Kurdistan Rcgkm and other


parts of Iraq nnd re-export from the Kurdistan Region and other parts of Iraq any


personal belongings and furniture free and exempt from any T«CJ 00 import

export The sale in the Ktrdistan Region and other parts of Iraq of personal


belongings and furniture of expatriate personnel dull comply with Kurdistan Region


Law.





30.3 Each CONTRACTOR Entity and its Affiliate* shall be entitled to freely export from


the Kurdisnin Region and other parts of Iraq, free of any Taxes, any Petroleum to


which it is entitled pursuant lo the provisions of this Contract.


30.4 The GOVERNMENT shall indemnify the CONTRACTOR, any CONTRACTOR


Entity, its Affiliates, uny Subcontractor or any agent of any of the foregoing, and their


personnel (including their family members) for any import or export Taxes referred to


in Articles 30.1. 30.2 or 30.3.























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 ARTICLE31 - TAX PROVISIONS





31.1 Except ils ■expressly provided in this Article 31. end without prejudice to the


exemptions expressly provided for in Article 30 .md in this Article 31. each


CONTRACTOR Entity, it* Affiliates and any Subcontractor shall, tor the entire


duration of this Contract, be exempt from all Taxes as a result of its income, assets


itixl activities under this Contract. The GOVERNMENT shall indemnity each


CONTRACTOR Cntity upon demand against any liability to pay uny Taxes assessed


or imposed upon such entity which relate to any of the exemptions granted by the


GOVERNMENT under this Article 31.1. and under Articles 31.4 to 31.11.


31.2 Each CONTRACTOR Entity shall be subject to corporate income tax on its income


front Petroleum Operations as provided in Article 31.3. which shall be deemed to be


inclusive and in Tull and total discharge of any 'lax oil income, receipts, revenues,


gains or profits of each such entity. Payment of the said corporate income tux shall be


made for the entire duration of this Contract directly to the oiTicml Kurdistan Region


tax authorities, by the GOVERNMENT, for the account of each CONTRACTOR


Entity, from the GOVERNMENT'S share of the Profit Petroleum received pursuant


to Article 20.


Each CONTRACTOR Entity shall, within sixty (60) days after the end of each tax


year, provide a statement to tile appropriate Kurdistan Region tax authorities of its


profits which are subject to corporate income lax, together with a calculation of the


amount ofoorporuW income tax due on those profits.





lhc GOVERNMENT shall, within ninety (90) days alia 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 payment of its corporate income lax. as determined in the said statement, and that


•uch entity met all its Tax obligations in the preceding tax yen, and (ii) a copy of


any return or other filing made by the GOVERNMENT in respect of its payment of


corporate income uu on behalf of such CONTRACTOR Entity.





313 For the purposes of Article 31-2:


(a) The rate of corporate income tax to be applied to each C ONTRACTOR





Entity shall be the generally applicable rale prescribed in the Law of fixation


(Law No. 5 of 1999), passed by the National Assembly of the Kurdistan


Region, as may be amended from time to time or substituted m respect of


Petroleum Operations (as defined under the Kurdistan Region Oil and Gas


Law) by a petroleum operations taxation law- for the Kurdistan Region, but in


no event in excess of forty per cent (40%). The Parties acknowledge and agree


dun at the Effective Dae 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.




tax shall be calculated for each CONTRACTOR Entity on its net taxable


profits under the Contract, ax calculated in accordance with the provisions


relating thereto in the Accounting Procedure








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\\A Ilacli CONTRACTOR EnCily, its Affiliates as well as any Subcontract is 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 und/or Iraq, l or the entire duration of this Contract.


31.5 Each CONTRACTOR Entity and its Affiliates shall be exempt from Additional


Profits lax. as referred to in Article 40 of the Kurdistan Region Oil ami Gas Law or


any successor Tax.


31 .6 Each C'(>NTRA( "II )M Entity and its Affiliates shall be exempt from Surface fax. as


referred to in Article 40 of the Kurdistan Region Oil and (ins Euw or any successor


Tax.


31.7 I act) CONTRACTOR Kniity and its Affiliates shall In; exempt from Wind full Profits


I axes, as referrod to in Article 40 of the Kurdistan Region Oil and (ins I .aw or any


successor Tax.


3l.lt Each CONTRACTOR Entity and any Subcontractor shall he subject to the payment


or withholding

such entity or Subcontractor is liable to pay or withhold in respect of its employees


who arc lrm|i nationals, pursuant to the Law of Taxation (Law Nit 5 of 1999) passed


by the National Assembly of the Kurdistan Region, us may be amended from time to


time, in the same munner as the same shall be generally applied U» all other industries,


except that n CONTRACTOR Entity or Subcontractor shall < >»i K li.IT t..r such


taxes or contributions with respect to employees of anotlver Person.


31.9 It is acknowledged that double tux treaties will have effect to give relief from taxes to.


but not limited to. the CONTRACTOR. CONTRACTOR Entities. Subcontractors


and employees and other Persons in accordance with the provisions of such double


tax treaties, but shall not impose an additional burden of taxation


31.10 Any value added tax (TAT) shall be considered as a Petroleum Cost and shall he


cos recovered in accordance with the pro vis Kits of Articles I and 25.


31.11 Any value added tax (“VAT"), not otherwise recoverable by the CONTRACTOR


under VAT law. shall be considered as a Petroleum (’ust and shall be cost recovered


in accordance with the provisions of Articles I and 25.


31.12 Notwithstanding any other provision to the contrary in this Contract, the Parties


acknowledge and agj« that the provisions of this Article 31 shall apply individually


and separately to all CO NT RAC TOR Entities under this Contract and that there shall


be no joint and several liability in respect of any liability, duty or obligation referred


u* in this Article 31.








AKTK1.EJ2 BONUSES





SlffiSurc





32.1 A signature bonus of One Million Dollars (I iS51.000.000) (“Signature Boom") shall


be payable to the GOVERNMENT by the CONTRACTOR within thirty (30) days


of the Effective Dree





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32.2 A o|K30 building boo us of Twcnly-Fow Million IXH1an (US i24.000.000)


CT-pacity Budding Hoea*") toall hr payable m Iw Milboo Doll* (US


S 2.000.000) installrneiaa every iferty (30) day* fon. the Effective DM to the


GOVERNMENT by 0* CONTRACTOR, such p^nnu to c«* when the


GOWRNMBfT and the provider of the corporate guarantee referred to in Article


91 (the “Guarantor^. or an affiliate of the Guarantor automated by the


CONTRACTOR, agree upon a project to he completed by the Guarantor or


nominated affiliate, with a value not to* than the unpaid balance. Both pomes aprw


lo negotiate in good faith.


|»eduction Booimci


32J In the evert of a Crude Oil Commercial Dboreay, the CONT1KAC TOR shall pu>


the follow** relevant Crude (>l Product** Bonus to the COVUNMBfT nidun


thirty (30) days of the follow!,* relev** occurrence


(a) Two Million Five Hundred Tiff* D°U*s (US S2.500.000) when Fint


Production of Cruk Oil from the Contract Area commcnuca.


(b) Free Million Dollars (US S5.000.000) when production of Crude Oil from the


Contract Area reaches a cumulative amount of ten million Barrels of Crude


Oil (10 mmbo);


(C) Ten Million Dollars (US S 10,000.000) when production of C rude Oil from the


Contract Area reaches a cumulative amount of twenty five million Barrels of


< rude Oil (25 mmbo) ;und


(d) 'I warty Million Dollars (US $20,000,000) when production of Crude Oil from


the Conlracl Area reaches a cumulative amount of fifty million Barrels of


Crude Oil (50 mmbo).


32.4 In the event of a Noo-Associated Natural (ias Commcreiul Discovery. the


CONTRACTOR shall pay the following relevant Non-Associated Natural (mu


Production Bonus to the GOVERNMENT within thirty (30) days or the following


relevant occurrence:


(a) Two Million Five Hundred 1'houMnd Dollars (US $2,500,000) when Mm


Production of Non-Associnlcd NiUural (ins from the Contract Aren


commences;




Natural Gas from the Conlracl Aren roaches a cumulative niiiouni of ten


million barrels of oil equivalent (10 mm hoc);


(c) Ten Million Dollars (US S 10.000.000) whim production of Non-Awociatcd


Natural Gas from the Contract Area reaches a cumulative amount of twenty


five million barrels of oil equivalent (25 mmhoe): and


(d) Twenty Million Dollars (US $20,000,000) when production of Noo-


Assoeiated Natural Gas from tha Contract Area reaches a cumulative amount


of fifty million barrels of oil equivalent (50 minboe).


32.5 For the purposes of this Article 32. u Commercial Discovery shall be declared by the


CONTRACTOR to be either a Crude Oil Commercial Discovery Of 0 Non-








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Boms be due in reaped of both Oak Oil and Non-Aasociaicd Neural <»«.% for the


same Commercial Discovery.


Bobu* c«l rmvtn aid payment


316 No bonus due pursuant to ibis Ankle 32 shall be deemed to be a Petroleum CoaL


>2 7 Payment by the CONTRACTOR of any bonus due pwrsu** to th.s Article 32 ahull


be made in Dollars by wire iramfex to a specified bonk account of the


GOVERNMENT or by banler's draft and on receipt thereof the GOVERNMENT


shall forthwith baue a written receipt to the CONTRACTOR duly executed by the


Minister of Natural Resources of the GOVERNMENT or such other olTicer of the


GOVERNMENT who shall be duly authorised to issue such receipt under Kurdistan


Rffcioo La*


ARTICLE >3 - PIPELINES


33.1 The GOVERNMENT shall obtain any required Permits for the transportation of


Petroleum in the Kurdistan Region and in Iraq, as well as any necessary* Permits and


ctuctncnt rights for the construction of any pipelines and related facilities required for


the Petroleum Operations, as provided in Article 332.


33.2 Ihc GOVERNMENT undertakes » Mufcr lo the CONTRACTOR its ngbb for


transportation of Petroleum by pipeline. The CONTRACTOR shall ha»r the nghl 10


design, construct, operate and maintain pipelines und any related facilities for the


trunsporUMiim of Petroleum produced under this Contract.


3>.3 Prior to Ihc consiruclion of any pipeline und related facilities »u provided in Article


33.2, the CONTRACTOR shall submit following, information lo the Management


Committee:





(a) propoard pipeline route and rebted facilities;


(b) forecasted pipeline flow rate and cupueity;


(c) estimate of flniUKial investment and operating cost* of the pipeline und related


facilities;


(d) proponed financing schedule;





(e) construction schedule;


(1) gene rut technical description of the pipeline and related facilities;


(g) construction plans and testa;





(h) preventive measures for damage lo the environment and third parties, und


(i) any other information rdarinp to the pipeline project








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I he Management Committee shall examine all the above information and shall within


ninety (W) days, approve the proposed pipeline project in nccoTdnnce with the


pro visions of Article 8.5.





33.4 Subject to spire capacity being available and to their Petroleum being compatible,


third parties shall be entitled to transport their Petroleum through any pipeline


constructed by Hie CONTRACTOR in accordance with this Article 33 on icnrn to be


agreed between the CONTRACTOR and such third party. Those terms shall be


reasonable commercial terms and shall not discriminate among third party users. The


CONTRACTOR shall always have priority of access to such pipelines.


33.5 To the extent that they arc incurred upstream of the Delivery Point, any cysts





usswiuicd with the design, construction, operation ruitl maintenance of the pipelines


and related facilities by CONTRACTOR under this Article 33 ("Pipeline Cost*' )


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


in accordance with the provisions of Articles 1 and 25.





33.6 Tire 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


pipcl inc and its related facilities, freely and without any additional costs.





33.7 To the extent related to transportation upstream of the Delivery Point, any tariffs


received from third parties for u»c ol any pipeline and related facilities by


CONTRACTOR under this Article 33 shall be applied to the recovery of Petroleum


Costs until all Pipeline Costs hove been fully recovered by the COMKACIOK


pursuant to the provisions of Articles I and 25 and shall not be included in income for


corporate income tax purpose*. The GOVERNMENT shall be entitled to receive


any such tariffs Iro-m third parties Tor their use of such pipeline and related foftlilK


when the -suid Pipeline Costa have been fully recovered by the CONTRACTOR. I'hc


costs associated with providing such transportation services for third parties up to the


Delivery Point shall be considered Pipeline Costa and therefore Petroleum Costs and


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


Article* 1 and 25.


33.8 Upon recovery by the CONTRACTOR of nil the Pipeline Costs, the operating and


maintenance costs of any pipeline oral its related facilities shall be borne by the


CONTRACTOR and shall be considered Petroleum Costs nnd shall be recovered by


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


33.0 The GOVERNMENT shall have the some rights as the CONTRACTOR for use.


free of charge, of any pipeline and related facilities constructed by CONTRACTOR


under this Article 33 for the transportation or the share of Petroleum to which the


GOVERNMENT is entitled under this Contract up to the Delivery Point, provided


Hull where the GOVERNMKNT is participating in its capacity as n CONTRACTOR


Entity pursuant to .Article 4, it shall he liable for its share of Petroleum Costs.


33.10 flic CONTRACTOR shalL bear the cost of operation and maintenance of any


pipeline and related facilities constructed by CONTRACTOR under this Article 33








7(VI15 S/3


and all risks of accidental loss or damage to such pipeline and related facilities while


the) are required for 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 Regj^ii Oil


anil

Adjacent Contract Area extends into the Contract Area, the provisions of Article 47.


I’lkrngrnph Second of the Kurdistan Region Oil and Gas Law shall apply and the


GOVERNMENT shall require the CONTRACTOR and the contractor of the


Adjacent Contract Area to agree upon a schedule for reaching agreement of the terms


■of the unitisaiioa 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 die CONTRACTOR does not agree with the


decision of the Minister of Natural Resources, the CONT RACTOR stall be entitled


to uihitmtion pursuant to the provisions of Article 42.1.


34.2 l or clarification and the avoidance of doubt and notwithstanding Article 47 of the


Kurdistan Region Oil and Gas Law. in die event that a Reservoir extends beyond the


boundaries of the Contract Area into an adjacent area which is not the subject of


another Petroleum Contract (as defined by the Kurdistan Region Oil and Gas law),


ill*- GOVERNMENT shall, upon the CONTRACTOR'S request, lake the necessary


steps to extend the boundaries of Contract Area so as to include the entire Reservoir


within the Contract Are*, provided that the CONTRACTOR car offer the


GOVERNMENT a competitive minimum work program for such adjacent area.





ARTICLE 35 - LIABILITY AND INSURANCE





Liability


35.1 Subject to the other provisoes of this Coatract. the CONTRACTOR, in its capacity


as the entity responsible for the execution of the Petroleum Operations within the


Contract Area, shall be liable to third parties to the extent provided under applicable


law for any losses and damage it may cause to them in conducting the Petroleum


Operations." and shall defend, indemnify and bold harmless tbe GOVERNMENT


with respect to all claims for such loss or damage.


3C2 Notwithstanding the other provisions of this Contract, the CONTRACTOR and the


CONTRACTOR Entities shall not be liable to the GOVERNMENT or the Public


Company or other government agencies, authorities or bodies, courts or political


subdivisions for any damage or loss or claims of any kind resulting from its conduct


of the Petroleum Operations unless such damage or loss is the result of wilful


misconduct or a material failure to conduct Petroleum Operations in accordance with


the terms of this Contract: provided, however, that such liability cannot result in the


event of any omissions, errors or mistakes committed in good faith by the


CONTRACTOR in the exercise of the powers and authorisations conferred upon the





71/115


CONTRACTOR by virtue of this Contract, and further provided lhat in no event


shall the CONTRACTOR and the CONTRACTOR Entities be liable for ary


indirect or consequential loss or damage whatsoever or any Eoss. damages, costs,


expenses or liabilities caused (directly or indirectly) by any of the following arising


out of, rcUiti ng t(», or connected with this Contract or the Petroleum Operations carried


out under this Contract: (i) reservoir or formation damage; (ii) inability to produce,


use or dispose of Petroleum; (iii) loss or deferment of income; (iv) special or punitive


damages; or (v) other indirect dsimuges or losses whether or not similar to the


foregoing.


.15.3 The CONTRACTOR shalL indemnify and hold harmless the GOVERNMENT


against all losses, damages and liability arising under auy claim, demand, action or


proceeding brought or instituted against the GOVERNMENT by any employee of


the CONTRACTOR or of any Subcontractor or by any dependent thereof, for


personal injuries, industrial illness, death or damage to personal property sustained in


connection with, related to or arising out of the performance or non-performance of


this Contract regardless of the fault or negligence in whole or in party of any entity or


individual.


35.4 Notwithstanding Article 35.1, the GOVERNMENT shall indemnify and hold


harm lets the CONTRACTOR and the CONTRACTOR Entities against all losses,


damages and liability arising under any claim, demand, action or proceeding brought


or instituted against the CONTRACTOR or any CONTRACTOR Entity by any


employee of the GOVERNMENT ?r pf «ny FuMic Company or or any subcontractor


of the foregoing or by any dependent of any such employ ee, for personal injuries,


industrial illness, death or damage to personal property sustained in connection uith.


related to or arising out of the performance or Don-performance of this Contnict


regardless of Ok fault or negligence in whole or in part of any entity or individual.


35.5 The CONTRACTOR shall take all necessary steps to respond to. and shall promptly


notify Ihc GOVERNMENT of, all emergency and other events (including


explosions, leaks and spills), occurring in relation to the Petroleum Operations which


are causing or likely to cause material environmental damage or material ri*L to


health and safety. Such notice shall include a summary description of the


circumstances and steps taken and planned by the CONTRACTOR to control and


remedy the stuatioo. The CONTRACTOR shall provide such additional reports to


the GOVERNMENT as are reasonably necessary in respect of the effects of such


events and the course of all actions taken to prevent further loss and to mitigate


deleterious effects.


35.6 In the event of emergency situations as set out in Article 35.4 . at the request of the


CONTRACTOR, dre GOVERNMENT, without prejudice and in addition to any


indemnification obligations the GOVERNMENT may hast, shall assist the


CONTRACTOR to the extent possible, in any emergency response, remedial or


repair effort by maLirg available any labour, materials and equipment in reasonable


quantities requested by toe CONTRACTOR which are not otherwise readily


available to the CONTRACTOR and by facilitating toe measures taken by the


CONTRACTOR to bring into toe Kurdistan Region personnel, matenals and


equipment to be used in any such emergency response or remedial or repur effort.


Ihc CONTRACTOR shall reimburse the GOVERNMENTS reasonable and


necessary costs incurred in sucb efforts, which reimbursed amounts shall be





72/115


considered Petroleum Costs and shall be recovered by the CONTRACTOR in


iiceordancc with the provisions of Articles 1 and 25.





35.7 The GOVERNMENT shall indemnify and hold harmless the CONTRACTOR and


rath CONTRACTOR Entity from and against all costs (including legal costs)


expenses, losses, damages and liability which such Person m«y Miller 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.





lnnwrnnve


35.8 In accordance with prudent international petroleum industry practice, each


CONTRACTOR Entity shall maintain any insurmcc required by applicable


Kurdistan Region Law, as well as any insurance approved by the Munugcmenl


Committee.





Such insurance policies may cover





loss of and damage to material and equipment used in the Petroleum


Operations: and







Petroleum Operations for reasonable amounts, within the limits approved by


live Management Committee.


35.9 Any insurance policy relating U> 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 Petr oleum


Operation conducted by or on behalf of the C ON TRACTOR 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 Of of any of its or their subcontractors


or of any personnel of uny of the foregoing.


35.10 Upon its written request, the GOVERNMENT stall be provided with insurance





certificates, including necessary details, for any insurance policy maintained by the


CONTRACTOR which relates to this Cootruct-


35.11 Each CONTRACTOR Entity -JudI he rcsp«*nsible for the filing of all claum made





under any insurance policy maintained by such CONTRACTOR Entity which relates


to this Contract. Any premiums and payments relating to such insurance policies shall


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


accordance with the provisions of Articles I and 25.





35.12 In any insurance policy maintained by a CONTRACTOR Entity which relates to this


Contract, the amount for which the CONTRACTOR itself is I .able

Amount") shall be reasonably determined between the CO.VTKACIOK Entity and


the insurer and such Deductible Amount shall in the event of any insurance claim be


considered a Petroleum Cost and shall be recovered by the CONTRACTOR in


accordance with the provisions of Articles I and 25.





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 ARTICLE 36-INFORMATION AND CONFIDENTIALITY





36.1 Hie CONTRACTOR shall keep all records, data and information relating to the


Petroleum Operations in accordance with the Kurdistan Region Oil and Gas Law and


prudent international petroleum industry practice. In addition, it shall provide the


GOVERNMENT -with such information and data as it is obliged to provide under


ihia Contract


36.2 1 !|K)ii tlie GOVERNMENT'S written request, the CONTRACTOR shall provide the





GOVERNMENT with samples of any rocks or any other Items extracted during the


Petroleum Operations.





36.3 t he GOVERNMENT shall have title to all data and information, whether raw,


derived, processed. interpreted -or analysed, obtained pursuant to this Contract.


36.4 Each CONTRACTOR Entity shall have the right, without any limitation, to send


Abroad copies of all reports and technical data, magnetic tapes and other data relating


to tl>e Petroleum Operations. Magnetic tapes or other data, the original of which must


he unulyscd nod processed Abroad, may he transported out of the Kurdistan Region.


36.5 Any representatives aullwrised by the GOVERNMENT and notified to the


CONTRACTOR shadl. upon reasonable prior written notice, have reasonable access


to imv informntion and data relating to the Contract Area in the possession of the


CONTRACTOR which the CONTRACTOR is obliged to prov.de to the


GOVERNMENT pursuant to this Contract It is understood that, uhen exercising


such right, the GOVERNMENT shall ensure it does not unduly interfere with or


hinder the CONTRACTORS rights and activities





36.6 The CONTRACTOR shall provide the GOVERNMENT upon the


GOVERNMENT'S written request any analysis information, reports, tapes or other


data (geological, geophysical, logs, interpretations, drilling reports, etc.) related to the


Petroleum Operations in the possession of the CONTRACTOR. All available


originals of such data shall be transferred to the GOVERNMENT ut the end of this


Contract


36.7 Apart from the exceptions stated in this Article 36. the Parties undertake to keep all


data and information relating to this Contract and the Petroleum Operations


confidential during the entire term of this Contract and not to divulge or disc lose 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 do fault of any Party, becomes part of the public domain:







(c) is required to be furnished in compliance with any applicable La", by a


government agency having jurisdiction over a CONTRACTOR Entity, by a


court order or any other logo I proceedings; or











74/115


* E L


(d) is required lc» be disclosed pUTSUoni to the rules or regulations of any


government or recognised stock exchange having jurisdiction over a


CONTRACTOR Entity.


.16.8 Notwithstanding the foregoing in Article 36.7, in accordance with pnident


international petroleum industry practice, such data and information may be disclosed


to:


Ca> Affiliates of each CONTRACTOR Entity;


{b| employees, officers and directors (if each CONTRACTOR Entity and their


respective Affiliated Companies for the purpose of ihe Petroleum Operations,


subject to each such entity taking customary precautions to ensure such


information is kept confidential;


(c) consultants or agents retained by any CON IKACTOR Entity or ib Affiliates


for the purpose of analysing or evaluating information or data:


I’d) hanks or financial institutions retained by any CONTRACI'OR Entity or its


Affiliates with a view to financing Petroleum Operations, including anv


profc&sioual consultants retained by such bank or financiul Institution;




(including any entity with whom a CONTRACTOR Entity' and or its


Affiliates are conducting bona fide negotiations directed tow-.ird' a merger,


consolidation or the sale of a material portion of its or an Affiliates d vires).




disclosure of such information is essential to such Subcontractor's or


supplier s wort for such Pity: and


(g) any other Person or entity’, upon the prior written approval of the non-


disclosing Parties.


provided (but disclosure shall not be made pursuant to paragraphs (c), (d), (c) and <0.


unions mirh third party has entered into a confidentiality mknaking.


36.9 Any data and information relating to relinquished or surrendered areas under this


Contract shall become the exclusive property of the GOVERNMENT, who shall


have (he right to use sane for any purpose, in particular for the purpose of promoting


said areas. Each CONTRACTOR Entity dull I be entitled to keep copies of such datu


and Information and to ux such datu and information for any purpose.


36.10 Subject to the provisions of this Article 36, the CON TRACTOR may not sell nor


exchange any data related to the Petroleum Operations without Ihe approval of the


GOVERNMENT, which approval shull not be unreasonably withheld or delayed


where, in tlic CONTRACTOR'S reasonable opinion, such sale or exchange would


benefit the Tcirolcum Operations,














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 ARTICLE 37 ENVIRONMENTAL PROVISIONS





37.1 Daring the performance of the Petroleum Operation*, the (ON IK ACTOR shall take


reasonable measures to ensure tlmi it, the Operator, its Subcontractors and agents


attend to the protection -of the environment ami prevonlion of pollution, in accordance


with prudent international petroleum industry practice in similar physical and


ecological environments and any then applicable Kurdistan Region Law.


37.2 Prior to surrendering u portion of U* Contract Area, the CONTRACTOR shall take


reasonable measures to nhiuidon the area to be surrendered in accordance with prudent


international petroleum industry practice in similar physical and ecological


environment*. Such measures shall include return»1 or closure in place of facilities,


material and equipment together with reasonable monam neccwvy for the


preservation of fauna. Horn and ecosystems, all in accordance with prudent


international petroleum industry practice in similar physical and ccutogicii


env ironments The CONTRACTOR shall only he irapoamble for tile restoration or


environmental damage to the extent the same pertains aolcly and directly to Petroleum


Operations conducted pursuant to this Contract.


17.3 The CONTRACTOR sluill lake icotonabfc prcuni and measures u» acwrdaiKc


with prudent international petroleum io&Hlr) practice tn similar physical imd


ecological environments to prevent any pollution which may arise directly m a result


of the Petroleum (>perution.M and to protect the casiruontml (fauna and flora*, water


SOUKW nod any other natural resources when carry u;^ out Petroleum Operation.


37.4 I he CONTRACTOR shall, in accordant* with prudent international petroleum


indutfry practice in similar physical and ecological environments, respect the


preservation of property, agricultural areas, and fisheries, when earning out


Petroleum Operations.


37.5 Ihc COM R At TOR shull conduct and submit tin environmental impact i-oesMiunt


In the GOVERNMENT within nix (6| months alter the Effective Date











37.6 The CONTUAC’fOR shall take reasonable measures to minimi?* any adverse


material impact on national parks and nature reserves which may arise directly OS a


result of the Petroleum Operations, in accordance with prudent international


petroleum industry pracucc in sunilor physical and ecological environments.





37.7 The GOVERN M KNT: (i) represents and warrants that, on the Effective Date, there


are no notional purkx. nature reserves or other protected areas located in whole or in


part within the Contract Ansi where the CONTRACTOR shall not he 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 nutionul parks,


nature reserves or other protected ureas, located in whole or in part within the


Contract Area

















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Eaaalluia


37.8 Any reasonable expenditure incurred by the CONTRACTOR in relation with this


Article 37 shall be deemed Petroleum Cost* and shall be recovered by the


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


Prc-citsling Conditions


37.9 The CONTRACTOR is not responsible for any pre-existing environmental





conditions or any acts of unrelated third parties.


ARTICLE 38 - DECOMMISSIONING








38.1 lo enable the CONTRACTOR to recover the costs associated with future Contract


Area Decommissioning Operations under this Contract, the CONTRACTOR shall


have the right to establish a reserve fund lor future decommissioning anti site


restoration (a “DeeomaifegtoiiiBg Reserve Fund'*). 'Ihc Decommissioning Reserve


Fund may be established at any time during the final ten (10) Calendar Years <»f the


term of the Production Operations of a Production Area but. upon the reasonable


request by Ihc CONTRACTOR, die GOVERNMENT shall allow the


CONTRACTOR to establish such fund over u longer period. Once established, the


CONTRACTOR shall make regular contributions to the Decommissioning Revive


Fund baaed upon estimated Petroleum Field decomrni«M>oing and site restoration


casts in accordance with prudent international petroleum industry practice, and taking


into account interest received and future interest expected to be earned on the


Decommissioning Reserve Fund. Any contributions by the CONTRACTOR to the


Decommissioning Reserve Fund shall be made in Dollars and shall be deemed


Petroleum Costs when paid into the reserve fund, and shall he recovered by the


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


Contributions to the Dccommiwiomng Reserve Fund shall be placed with a first rale


bank approved by the Management Committee in accordance with Article 8.5.


382 If. al the end of the term of the Production Operations of the Production Area, the


GOVERNMF.YT decides to take over production operations in the Production Area:


(a) the GOVERNMENT shall become liable for its future Decommissioning


Operations;


(b) the contributions and any interest accumulated in the Decommissioning


Reserve Fund, to the extent that such contributions have been recovered aa


Petroleum Costs, shall be paid to the GOV ERNMENT; and


(c) the GOVERNMENT shall release the CONTRACTOR and the


CON I RaCTOR Entities from any obligations relating to Decommissioning


Operations and shall indemnify the CONTRACTOR and the


CONTRACTOR families for any costv liabilities, expenses, claims ox


obligations associated therewith.


38.3 If the CONTRACTOR undertakes the Production Area Decommissioning


Operations, the contributions und uny interest accumulated in the Decommissioning


Reserve Fund shall be paid to the CONTRACTOR unit shut I be used for the


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Decommissioning Operations. Ihc CONTRACTOR shall undertake any such


Decommissioning Operations in accordance with prudent international petroleum


industry practice in similar physical and ecological environments.


38.4 If the Decommissioning Reserve Fund is paid to the CONTRACTOR and the


Decommissioning Reserve Fund is not sufficient to cover all Decommissioning Costs


Tor lire Contract Area, the balance shall be paid by the CONTRACTOR and may be


recovered, if applicable, by the CONTRACTOR Entities or any of their Affiliates


from nny other wen which is the subject of another Petroleum Contract (as defined by


the Kurdistan Region Oil lincl Ona I-uw) anywhere in the Kurdistan Region and. to the


extent the balance is not recoverable as aforesaid, such remaining balance shall be


paid by the GOVERNMENT to the CONTRACTOR


38.5 If the Decommissioning Reserve Fund Is paid to the CONTRACTOR and the


Decommissioning Reserve Fund exceeds all Decommissioning Costs for the Contract


Area, the balance shall be transferred to the GOVERNMENT.


38.6 Any expenditure incurred by rhe CONTRACTOR in relation with this Article 38.


including any contributions to the Decommissioning Reserve Fund, shall be deemed


Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with


the provisions of Articles I and 25.


38.7 The CONTRACTOR shall submit to the Management Committee for approval in


accordance with /Article 8.5 a detailed plan for decommissioning ihc Contract .Area


facilities and site restoration (the "Decommissioning Plan**), such Dccoramavoning


Plan to be submitted no later tlun twenty four (24) Months prior to die date esuni ded


by the CONTRACTOR for the end of Commercial Production from the Contract


Area. Ihc Management Committee shall provide comments, if any. on the


Decommissioning Plan within ninety |'M)) days idler receipt. The CONTRACTOR’*


completion of the Decommissioning Operations in accordance, in all material


respects, with the Decommissioning Plan for u Production Aren approved by the


Management Committee shall satisfy nil nfthc CONTRACTOR’S obligations with


respect to the performance of I Jccommiwiioniiig Operations for such Production Area


In the event the GOVERNMENT does not agree that Decommissioning Operations


for a Production Area were curried out in accordance with the approved


Decommissioning Plan, it mutt advise the CONTRACTOR within six (6) months of


CONTRACTOR’S completion of such operations.





A RTICLK 39 - ASSIGNMENT AN I) (HANG E OF CON I KOL





1? Affiliates


39.1 IUu.ii CONTRACTOR Entity ahull be free to sell, assign, transfer or otherwise


dispose of all or part of ils right*., obligations sind interests under this Contract to an


Affiliated Company or to another CONTRACTOR Entity with the prior consent of


the GOVERNMENT, -which consent shall not be unreasonably delayed i»r withheld.


39.2 Each CONTRACTOR Entity shall have tbc right lo sell assign, transfer or otherwise


dispose of all or part of its rights and interests under this Contract to 4By third party


(not being an Affiliated Company or another CONTRACTOR Entity) with the prior


consent oi GOVERNMENT, and each other CONTRACTOR Entity (if any) which


consent shall not be unreasonably delayed or withheld. Any CONTRACTOR Entity


proposing to sell assign, transfer or otherwise dispose of all or pan of its rights and


interests under this Contract to any such third party shall request such consent in


writing. which request shall be accompanied by reasonable evidence of the technical


and financial capability of tbc proposed third party assignee. In the event that the


Ihird Party Participant with a Third Party Interest subject to Article 4.8 proposes to


*11. assign, transfer or otherwise dispose of all or pan of such Third Party Interest to a


Person that is not an Affiliate, such Third Pam Participant shall first offer to both the


Other CONTRACTOR Entity (or. if applicable. CONTRACTOR Entities) and to


the GOVERNMENT pre-emption rights in relation to such Third Party Interest, or


part thereof. Such pre-emption rights shall be offered on terra* that arc at least as


favourable u the terms upon Much the Third Pam Interest (or port thereof) has been


offered u> the interested Person. Any option by the GOVERNMENT to utilise such


pre-emption rights shall be subject to the maximum partieipanon limit impowd upon


u Government Interest by Article 4.1. Furthermore, any sale, assignment, transfer or


Ollier disposal by the rhird Pam Participant shall be subject to the minimum


purticiplilion requirements imposed upon the Third Party Participant by Article 4.8.


unless such sale, assignment, transfer or other disposal is of the enure Ihud Party


Interest taken pursuant to Article 4 8


19.3 In order for any deed of Silo, assignment, transfer or other disposal as prO* wfed under


Articles 39.1 or 39.2 to be effective, the Parties tuxl the relevant third party, if any.


shall enter into a binding and enforceable instrument of assignment and novation,


which shall include an undertaking by the transferee or assignee to fulfil tbc


obligations undo this Contract which correspond to the interest transferred or


assigned.


39.4 By way of clarification, and not in limitation of the foregoing provision.* of this


Article 39. the GOVERNMENT shall not be considered to be acting unreasonably in


withholding consent to any such assignment if the assignment to such proposed


assignee is deemed contrary to the GOVERNMENT*s interests, w evidenced in


writing to that effect signed by the duly authorised representative of the


GOVERNMENT below.


39.5 In the event a CONTRACTOR Entity ussigm or in any other way transfers it* rights


and interests under tbis Contract, including through the exercise of the Option of


Government Participation or the Option of Third Party Participation, whether in


whole or in part, such assignment or transfer dull not give rise to any Tax including


on the consideration paid Of received or on the income or gain therefrom.


39.6 live GOVERNMENT may not at any time transfer any or all its rights and


obligations under this Contract to any Person, including to a Public Company or any


other company or entity, except in accordance with Article 4.








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Change of Control





39.7 "Change of Contror* for the purpose of this Article 39.7 means any direct or indirect


change of the identity to the Person who Controls a CONTRACTOR Entity (whether


through merger, sale of shares or of other equity interests, or otherwise) through a


single transaction or series of transactions, from one or more transferors to one or


more transferees, in which the market value of such entity's participating interest


(which shall be as specified in the Joint Operating Agreement relating to this


Contract or where there is only one CONTRACTOR Entity, one hundred per cent


(100%) in this Contract represents more than seventy five per cent (75%) of the


aggregate market value of the assets of such entity and its Affiliates that arc subject to


the Change in Control- For the purpose of this definition: “Coatrol" means the direct


or indirect ownership or control of the majority of the voting rights of the applicable


entity at its shareholders' meetings or their equivalent: and "market value" shall be


determined based upon the amount in cash a willing buy er would pay a willing seller


in an Arm's Length transaction.


Each C ONTRACTOR Entity which is or anticipates with a reasonable degree of


certainty that it will be subject to a Change in Control, other than to an Affiliated


Company or a CONTRACTOR Entity, shall notify the GOVERNMENT ns soon as


practicable after it becomes aware of the Change in Control or anticlpmed Change in


Control and request the consent of GOVERNMENT, which consent shall not be


unreasonably delayed or withheld.


A Change in Control shall not give ri»c to any Tax including on the consideration paid


or received or on the income or gain therefrom


ARTICLE 40 - FORCE MAJEURK


4(1.1 No delay, default, breach or omission of the CONTRACT! >H i» the execution of any


of its obligations under this Contract shall be considered .i failure to perform this


Contract or be the subject of* dispute if such delay, default, breach or omission is due


torn ease of Force Mnjcurc. In such event the CONTRACTOR shall promptly notify


the GOVERNMENT in writing and take all reasonably appropriate measures to


perform its obligations under this Contract to the extent possible. The time resulting


from uny such delay or curtailment in the execution of such obligations, increased by


the time necessary to repair uny damugc resulting from or occurred during such delay


or curtailment, shall he added to uny 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 anti uny extension thereto). The Parties


shall meet as soon us possible after live notification of Force Mnjcurc with a view to


using reasonable endeavours to iniligute the ell eels thereof.


40,2 For tile purpose of litis Contract, "Force M-jeure" means any event that is


unforeseeable, insurmountable and irresistible, not due to any error or omission by the


CONTRACTOR but due to circumstances beyond its control, which prevents or


impedes execution of oil or part of its obligations under this Contract. Such event s


shall include the following:











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 (i> war. whether declared or not civil war. irewnrction. riot, civil wmdoUoo.


terrorism. any other hostile tew. whether tntemil or external;


|h> striker or other labour conflicts;





(c) accident or blowouts;





(J) quarantine restrictions or epidemics.


(c| any act, event, happening or occurrence due to natural CMC*, in particular,


but without limitation, floods, storms, cyclones, fires, lightning, or


earthquakes;







CONTRACTOR;





except in respect of the (GOVERNMENT and/or any Public Company which


may be n CONTRACTOR Entity, any acts or orders of the


GOVERNMENT, any minister, ministry, department, sub-division, u^-ncy.


uuthority, council, committee, or other constituent element there**), any


corporation owned and/or controlled by the any of lltc foregoing; and


(h) any acts or orders of any other government claiming or avwiing jurisdiction


over the subject matter of this Contract, any minister, ministry, department,


sub-division, yry authority, council, committee, or other Mnaltwt


foregoing.








40.3 Hie intention of the Parries is that Force Ma we shall receive the interpretation that


complies most with prudent intrereitional petroleum industry practice. Force Mii|curc


affecting a CONTRACTOR Entity or an Affiliated Company of a CONTRACTOR


Entity shall be deemed Force Majeure affecting t»K CONTRACTOR if the


consequence of such Force Majeure prevents the performance of any of the


CONTRACTOR'S obligations under this t tmlracl








ARTICLE 41 - WAIVER OK SOVEREIGN IMMUNITY


The GOVERNMENT and any l*ub!ic Company which may be a CONTRACTOR Entity at


Miy time hereby fully and irrevocably waives any claim to immunity for itself or any of its





Hus waiver includes any claim to immunity from


(a) any expert determination, mediation, or arbitrillion proceedings commenced pursuant


to Article 42;


(h) any judicial, administrative or other proceedings to aid the expert determination,


mediation, or arbitration proceeding commenced pwaunni <«»Article 42; and


(c) any of Tort to confirm, enforce or execute any decision, jelilcmcnl, award, judgment,


service of ixikcmi. execution order or attachment (including pre-judgmeni attachment)





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 th»l results from an expert determination, mediation, arbitration or any judicial,


administrative or other proceedings commenced pursuant to this Contract.








ARTICLE 42 - ARBITRATION ANI> KXPKRT DRTKRMINATION


Negotiation, Msdj|«|ion m\ Art, if nit ion


42.1 For tbe purpose of Cilia Article 42.1, "Dispute" ahull mean any dispute, controversy or


claim (of any and every kind or type, whether baaed on contract, tort, statute,


regulation or otherwise) arising out of, relating to. or connected with this Contract or


the operations curried out under this Contract, including any dispute as the


construction, existence, validity, interpretation, enforceability, brcuch or termination


of this Contract, which arises between the Parties (or between any one or more


entities constituting the CONTRACTOR and the GOVERNMENT).


In the event of u Dispute. the parties, to the Dispute shall use their reasonable


endeavours to negotiate promptly in go»*d I'nilh a muluully acceptable resolution of


such Dispute.


Subject to iIm* provisions of Article 42.2, a Part y who desires to .submit a Dispute for


resolution which has not been promptly resolved as aforesaid shall commence the


dispute resolution process by providing the other parties to the Dispute written notice


of the Dispute ("Notice or Dispute’'). The Notice of Dispute shall identify tK- parties


to the Dispute, shall contain a brief statement of the nature of the Dispute and the


(a) In the event that any Notice of Dispute is given in accordance with this Article


42.1. the parties to the Dispute shall first seek settlement of tbe dispute by


negotiation between Senior Representatives. “Senior Representative" means


any individual who has authority to negotiate the settlement of the l>isputc for


a patty to the Dispute, which few the GOVERNMENT shall mean the


Minister of Natural Resources. Within thirty (30) days after the date of


delivery of the Nolice of Dispute, tbe Senior Representatives representing the


parties to the Dispute shall meet at a mutually acceptable date, time and place


to exchange relevant information in an attempt to resohe the Dispute. If •


Senior Representative intends to be accompanied at the meeting by a legal


adviser, each other party shall be given written notice of such intention and its


.Senior Representative may also be accompanied at the meeting by a legal


adviser.


(b) If the Dispute cannot be resolved by negotiation m accordance with Article


42.1 (a) within sixty (60) days after the dale of the receipt by each party to the


Dispute of the Notice of Dispute or such further period as the parries 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 I ntemat ional


.Arbitration (“LCIA") Mediation Procedure, which Procedure shall he deemed


to be incorporated by reference into this Article, and the parties to such


Dispute shall submit to such mediation procedure.











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 (c) II the Dispute is not settled within the earlier of (A) sixty (60) days of the


appointment of the mediator, or such further period as the parties to the


Dispute may otherwise agree in writing under the mediation procedure under


Article 42.1 fl»). and (B) one hundred and twenty (120) days after ihc delivery


of the Dispute Notice, any party to the Dispute may refer the Dispute to, and


seek final resolution by. arbitration under the LCIA Rules, which Rules shall


he deemed to he incorporated hy reference into this Article.


(i) Any arbitration shall be conducted hy three (.1) arbitrators.







CONTRACTOR Entities, the GOVERNMENT and the


CONTRACTOR shall each appoint one (I) arbitrator, If the parties to


the Dispute arc the GOVERNMENT und more than one. but not oil


the CONTRACTOR Entities, the GOVERNMENT shall appoint


ooe(l) arbitrator and such CONTRAC TOR Entities shall appoint one


(I) arbitrator. If the panics c» the Dispute arc the GOVERNMENT


and one CONTRACTOR Entity, the GOVERNMENT and such


CON I KA< TOR Entity shall each appoint one (l) arbitrator.







all reasonable endeavours to agree on the appointment of the third


arbitrator, who will chair the arbitral tribunal. In case of failure to


appoint mi arbitrator or to agree on the appointment of the third


arbitrator. Rules of the LCIA stall apply,





(vi) Arbitration shall take place in London. England. Ihc language to be


used in any prior negotiation, mediation and in the arbitration shall he


English. Dunnp the arbitration procedure and until the arbitral


decision, the Parties shall continue to perform their obligations and


take no actions that would impair the Contract 11k arbitral a*ard may


be enforced by any court of competent jurisdiction, including in the


Kurdistan Region. Any award shall be expressed in Dollars.


(v) The Parties agree that the arbitral award shall be final and not subject





to any appeal, including to the Courts of England on issues of law.


(Vi) With respect to any manor referred to arbitration under Article 45.4,


the arbitral tribunal shall hate the authority to amend tins Contract to


restore the economic position referred to in Article 43,3.








41L2 Any disagreement between the Parties relating to Articles I $.*>. 27.2 and 27.7. as well


as any disagreement the Parties agree to refer to an expert, shall be submitted to an


expert. The Management Committee dull prepare and agree appropriate terms of


reference relating to the disagreement to be submitted to the expert, in accordance


with Article 8.5 (“Ternas of RefmneO. as soon as possible after the Effective Date.




agreement of the Parties within thirty (50) days following the date of





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 preparation and agreement of the Terms of Reference by the Management


Committee. If the Parties cannot agree on the choice of the expert within such


thirty (30) -day period, at the request of either Party, the expert shall be


appointed by the President of the Energy Institute in London, England. Any


expert appointed must have the necessary qualifications for reviewing and


deciding on the subject matter of the disagreement.


(b) The duties of t lie expert shall Ik stated in the Terms of Reference prepared and





agreed by the Management Committee, llte Management Committee shall


promptly provide the expert with the agreed Terms of Reference relating to the


disagreement. Loch I’nrty shall have the right to give to the expert in writing


«ny information which it considers useful, provided it does so within forty-five


(45) days tiller the expend appointment. Such information ahull he provided


to the oilier Party at the satire time and such other I'arty ahull be entitled to


provide comments on such information to live first Party and the expert Within


thirty (30) days after receiving such information. Tile expert shall have the


riflht to review and verify any information he deems useful to assist him in his


review of the disagreement.


(c) I he expert shall render his decision within forty-five (45) days of his receipt


of the Terms of Reference nnd the information referred to in Article 42.2.


Subject to the provisions of Article I 5.9. any decision of the expert shall be


liruil and stmt I not be subject to any appeal, except in the ease of manifest


error, fraud Of malpractice. Any costs and expenses associated with the expert


determination shall be shared equally between the Panics.








42.3 No negotiation, mediation, arbitration or expert determinatron procedure under this


Article 42 shall exempt the Parties from fulfilling their respective legal and/or


contractual obligations





ARTICLE 43 - GOVERNING I-AW, FISCAL STABILITY ANI> AMENDMENTS











43.1 This Contract, including any dispute arising therefrom, thereunder or in relation


thereto and the agreement to arbitrate in Article 42, shall be governed by English law


(except any rule of English law which would refer the matter to another jurisdiction),


together with any relevant rules. customs and practices of international law. as well as


by principles nnd practice generally accepted in petroleum producing countries and in


the international petroleum industry.





Fiscal Stability


432 The obligations of the CONTRACTOR in respect of this Contract shall not be





changed by the GOVERNMENT and the general and overall equilibrium between


the Parties under this Contract shall not be affected in a substantial and lasting


manner.








M/I 15 in


43.3 The (GOVERNMENT guarantees to the CONTRACTOR, for the entire duration of


this Contract, that it will maintain the stability of tlte legal, fiscal and economic


conditions of this Contract. as they result front this Contract nnd as they result from


the laws and regulations in force on the date of nignatun: of this Contract. The


CONTRACTOR has entered into this Contract on the basis of die legal, fiscal and


economic framework prevailing M the Effective Date, If, at any tinre after the


Infective Date, there is any change in the legal, fiscal and/or economic framework


under the Kurdistan Region Ijtw or other Law applicable in or to the Kurdistan


Region which detrimentally nITccts the CONTRACTOR, the CONTRACTOR


entities or any other Person entitled to benefits under this Contract, the terms and


conditions of the Contract shall be altered so as to restore the CONTRACTOR* the


CONTRACTOR Entities and uny other Person entitled to benefits under this


Contract to the same overall economic position (taking into account home country


tuxes) ns that which such Person would have been in. hnd no such change in the legal,


fiscal and/or economic framework, occurred.


43.4 If the CONTRACTOR believes that its economic position, or the economic position


of a CONTRACTOR Entity or uny other Person entitled to benefits under this


Contract, has been deliinternally hfleeted as provided in Article 43.3, upon the


CONTRACTOR'S written request, the Patties shall meet to agree on any necessary


measures or making any appropriate amendments to tlic terms of this Contract to re¬


establishing the equilibrium between the Parties and restoring the CONTRACTOR,


the CONTRACTOR Entities of tiny other Person entitled » benefit under this


Contract to the petition (taking into account home country taxes) it was in prior to the


occurrence of the change having such detrimental effect Should the Parties be unable


to agree On the merit of amending this Contract andJoe on any amendments to be


made io this Contract within ninety (90) days of the CONTRACTOR * request (or


such other period os may be speed by the Parties), the CONTRACTOR may refer


the matter in dispute to arbitration as presided in Article 42.1. without the necessity of


first referring the matter to negotiation and mediation.


43.5 Without prejudice to the generality of the foregoing, the CONTRACTOR shall be


entitled to the benefit of any future changes to the petroleum legislation or any other


legislation complementing, amending or replacing it





43.6 The Parties agree to cooperate in all possible way# with a vie" to fully achieving the


objectives of this Contract. The GOVERNMENT shall facilitate the performance of


the Petroleum Operations by promptly granting to the CONTRACTOR any


necessary author) sution. permit, licence or access right and making available any


existing facilities and serv ices with a view to the Parties obtaining maximum mutual


benefit from the Contract.











43.7 Any amendment to this Contract shall he the subject of a formal amendment duly


approved in writing by the Parties and subject to the same conditions of validity as


this Contract Notwithstanding the foregoing, the GOVERNMENT has the right and


authority to waive the application of the provisions of this Contract on a case-by-case


basis without having to ful fil the conditions of validity of this Contract


43.8 Ibis Contract constitutes the entire screen sent of the Parties and supersedes any and








15/115 f/1


 all prior understandings or agreements in respect of the subject matter of this


Contract.





43.9 Unless otherwise expressly stated elsewhere in this Contract, no fuilurc or delay of


any Puny to exercise any right, power or remedy under this Contract shall operate as a


waiver thereof; nor shall any single or partial exercise of any such right, power or


remedy preclude any other or future exercise thereof or the exercise of any other right,


power or remedy.





Validity


43.10 As venalories to this Contract for and 00 behalf of the GOVERNMENT,


lift


Ministry of Natural Resources in the Kurdistan Region and the Regional Counci


the Oil and Gas AfTairs of the Kurdistan Region - Iraq hereby represent that


agree and approve this Contract for the purposes of the Kurdistan Region Oil and


I.aw.





ARTICLE 44 - NOTICES








44 I All notices, demands, instructions, waivers, consents or other communications to be


provided pursuant to thi* Contract shall be in writing in English, shall be effective


upon receipt and shall he vent by receipted hand delivery ot by email (followed by


delivery by repulalde international air courier company with an establishment in Eltal


in the Kurdistan





To the GOVERNMENT:





Attention: His Excellency the Minister of Natural Rcsou; 10


Addrru: Ministry of Natural Resources





Kurdistan Regional Government


Eibtl Kurdistan


Email: nffM fcrymlrem











To the CONTRACTOR:





Attention A.T. (Tiem) Smith


Address: HKN Energy Limited


13600 Hen tape Park wav. Suite 200


Fort Worth. Texas 76177 USA


Pbooe: *1-817-224-6039





Fm: *1-817-224-6062

















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 Kmatl trcmjanithu hillw.ied.coin





A notice delivered by email (foiled by air courier) shall, save for manifest error, he


deemed to have been delivered upon its transmission by email.


44,2 Tbs above address and/or designated representin'c of any of the Parties may bo


changed on giving ten (10) days prior notice lo the other Party delivered pursuant to


Article 44.1.








ARTICLE 45 - TERMINATION


45.1 Subject to the provisions of Article 45.5, the GOVERNMENT shall have the right lo


terminate this Contract in the event the CONTRACTOR.





(a) faiIs to meet a material financial obligation *M 1.1* sly staled in this Contract; or





(b) during the First Sub-Period does not earn out drilling and wismic acquisition,


as detailed in Article 10.2 Of. during the Second Sub-Period

not carry out drilling and seismic aexjuismon. as detailed in Article 10.3; or


(c) interrupts Production for a period of more than ninety (90) consecutive day*





with do cause or justification acceptable in accordance with this Contract or


under prudent intemafionaJ petroleum industry practice, it being recognised


that Force Mujeure is an acceptable justification for such interruptions; or





(d) intentionally extracts or produces any mineral which is not covered by the


object of this Contract, unless such extraction or production is expressly


authorised nr unavoidable as a result of operations curried out in accordance


with prudent internal tonal petroleum industry' practice; or


(e) if the CONTRACTOR comprises solely one entity, is declared bnnknipl in


accordance with applicable f.aw; or


(|) wilfully refuses to abide by negotiation, mediation, arbitration or expert





decision under Article 42,





45.2 The GOVERNMENT may also terminate the Contract only in respect of one


CONTRACTOR Entity if such entity is subject to a Change of Control for which the


GOVERNMENT has not given its authorisation in accordance with Article T>.7.





45.3 At any time prior to the Development Period, tlie CONTRACTOR shall have die


right to terminate this Contract by surrendering the entire Contract Area in accordance


with the provisions: of Article 7.





45.4 During the Development Period, the CONTRACTOR shall have the right to


terminate this Contract at any time by surrendering all Production Areas, provided its


(hen current obligations have been satisfied In accordance with this Contract





45.5 If the GOVERNMENT intends to exercise its right to terminate this Contract


pursuant to Article 45.1. if shall first comply with tire following provisions:





87/Ll 5 AH


(a) 11»c GOVERNMENT dvtll notify the CONTRACTOR of its intention to


terminate this Contract stating the reasons for such taminabon and requesting


the Intter:


(i) lo remedy the default; or










(b) If. within throe |3) Months alter the notice referred to m Article 45.5. the


<*f)NTKAC.TOK has not remedied the situation complained of by the


GOVERNMENT to its satisfaction or offered compensation acceptable to the


GOVERNMENT in each ease acting reasonably. the GOVERNMENT shall


notify the CONTACTOR in writing that the Contract shall be terminated


from the termination date detailed in such notice, tins Contract shrill terminate


on such termination date unless the CONTRACTOR issues a notice of


dispute as provided under Article 42. in which case this Contract shall remain


In force until n linul settlement of the dispute has been reached in accordance


with the dispute resolution provisions of Article 42.


llJC foregoing provisions of this Article 45.5 are subject lo the proviso that, in ease of


a dispute where Uierc has been breach of this Contract which has been submitted to


dispute revolution pursuant lo Article 42. Ibe GOVERNMENT shall not be entitled


to exercise its right to terminate this Contract prior to a final determination under


Article 42 m favour of the GOVERNMENT.


45.6 If the GOVERNMENT icmunac. das Contract pursuant lo the provisions of


Articles 45.1 aid 45 5. the CONTRACTOR shall kne ail iu ngfata and interests


under this Contract Notwithstanding the foregoing, the provisions of Articles 14.10.


16.7. 30. 31.35.1. 35.3. 35.4. 35.7. 36. 31.2(e). 41. 42. 43.1 lo 43.6 shall survive the


termination or expiry of this Contract.


45.7 If a CONTRACTOR Entity breaches Article 46.1 oc 46.2 the GOVERNMENT or


another CONTRACTOR Untity may terminate this Contract in respect of the first


CONTRACTOR Entity.





45.8 If the Contract is terminated under Article 452 or 45 7. the mtcrru of the relevant


CONTRACTOR Entity shall be transferred to the other CONTRACTOR EflttiM in


the proportions in which their respective percentage intern** bear lo the aggregate of


icaUgc interests under the relevant Jo,m Operating


- proportions as such CONTRACTOR franks kali agree


far the market value thereof (as such term is defined in Article 39.7).


> any Tax including the coftoderation paid or recent*) or on the








ARTICLE 46 - APPLICATION OE CORK! PTION LAWS


46.1 If this Contract is reasonably proven to have boat obtained in rotation of Kurdistan


Region l-*u concerning corruption, this Contract is void ub Ipuiio


A61 Each CONTRACTt >K l intity agrees that if it is. at any time, reasonably proven to be


in breach of Kurdi*an Region Law concerning coemption the provisions of Article


88/115 IZ


 45.7 apply.








ARTICLE 47 - EFFECTIVE DATE


This Contract shall become effective and be binding on the Parties, upon the signature of the


Contract by 'be duly authorised representatives of the GOVERNMENT and the


CONTRACTOR as provided below.











































































































&9/115


Knlered into in four (4) originals in Eibil, the KunluUn Region oo Tuesday 6 November


2007.


For Ac KURDISTAN REGIONAL GOVERNMENT


























Qn behalf of the Regional Council O* behalf of Ac Ministry of Nalrnl


for the Oil and (fas Affairs of Resource in the Kurdwtan Regain


the Kurdisuw Region • Iraq








FOX the CONTRACTOR and each CONTRACTOR KalRy





IIKN ENERGY LTD.














c1 efts,





By;


A. T. (Trem) Smith


Director






























































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c 61-8E £!• U38 660P


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 ANNEXB


ACCQL3IL>













PARAGRAPH 1 --- GENERAL PROVISIONS





1.1 Purpose


To classify cxpcndinircs. define iuitlter Petroleum CoOs |in addition lo thine defim.1


as such in the Articles of Ihe Contract), and prescribe the manner in which the


C ONTRACTOR’S Accounts shall he prepared and approved.


1.2 Dcfiartioos


Words and phrases to which a meaning has been assigned m Article I or other











In the event of any inconsistency or contlict between the provisions of thin Annex anJ


the other provisions of the Contract, then the other provisions of the Contract dial I


prcvnil.


1.4 Accounting Kword* and Report*


1.4.1 'Ihc CONTRACTOR shall maintain the Account* in accordance with Article 15.1


and in accordance with this Accounting Procedure, including in accordance with Ihc


charts of Accounts agreed under Paragraph 1.4.2.


1.4.2 Within aijily (60) days of the Effective Date, the CONTRACTOR shall submit toand


discus with the GOVERNMENT a proposed outline of thurts of Accounts, which


outline shall he in accordance with generally accepted standard* and recognized


accounting systems and consistent with normal petroleum industry practice and


procedures. Wilhin ninety (90) days of receiving the above submission, the


GOVERNMENT shall either provide written notification of ils approval of the


proposal or request in writ in*t revisions to tl»c proposul. Within one hundred »ukJ


eighty (180) days uRet the Effective Dale, the CONTRACTOR am* the


GOVERNMENT shall ngrcc on Use outline of chans of Accounts which shall


describe the basis of the accounting system and procedures to be developed and used


under this Contract, following such agreement, the

expeditiously prepare and provide the GOVERNMENT with lormul copies of the


eomprelKmsive charts of Accounts and manuals related to the accounting, recording


and reporting functions, and procedures which arc. and shall be. observed under the


Contract.





1.4.J Notwithstanding the generality of the foregoing, the CONTRACTOR shall make


regular Statements relating to the Petroleum Operations- These Statements arc as


shown:


(a) Production Statement (as indjcuicd in Paragraph 6).


(b) Value of Production and Pricing Stalcmcni (an indicated in Paragraph 7>.


(c) Cost Recovery and Share Account Statement (as indicated in Paragraph %).


(d) Suucmcnt of Expenditures and Receipts (as indicated in Paragraph 9).


(c) Final li-nil-of-Year Statement (as indicated in Paragraph 10).


(0 Hudget Statement (as indicated in Purograph 12).


1.4.4 All reports and statements shall be prepared in accordance with the Contract,


Kurdistan Region Law. and where there are no relevant provision** of either of these,


in accordance with prudent international petroleum industry practice.


1.5 l.aaguuge and Units of Account


All Accounts shall be maintained and prepared in tbe English language and shall be


recorded in Dollars. Where necessary for clarification, the CONTRACTOR may


ulso maintain Accounts m other cumffiCHX


1.6 Audit and I aspect ioa Rights of tbe GOVERNMENT


In addition U> the provisions of Articles 15J to 15.7 and 15.9. the following


provisions dull apply to aoy audit tamed out in nwocdmcc with Articles 15 J io


15.7:


1.6.1 For purposes of auditing, the GOVERNMENT, act mg reasonably and in accordance


with prudent international petroleum industry practice. may examine and verify, ai


reasonable times upon reasonable prior written notice to the 4‘ONTRAfTOR. all


charges unil credits re luting to liar Petroleum Operations, such a* hooka of account,


accounting entries, material records and inventories, vouchers, payrolls, Invoices and


any other documents, correspondence and records including electronic records


nuaonubly considered ncccssury by the GOVERNMENT to audit uml verily the


charges mid credit*, values and treatments.


1.6.2 Furthermore, the auditors shall have the right in connection with such audit, to visit


and inspect hi reasonable limes, all rites, plants, facilities, warehouses and offices of


the CONINACTOR directly or indirectly serving the Petroleum Operations and to


question personnel atouciuled with those Petroleum Operation*.


1.6.3 Where the

Company of the CONTRACTOR, the GOVERNMENT dull have the right to


obtain an audit certificate for such changes from an internationally recognised firm of


public accountants acceptable to both the GOVERNMENT and the


CONTRACTOR, which may be the CONTRACTOR’S statutory auditor


1.6.4 All agreed adjustment* resulting from an audit shall be promptly made in the


COM K At TOR’s Accounts and any consequential adjustments to payments due to


the CONI KACTOR nr to the GOVERNMENT, os the ease may be, shall be made


promptly.





Ot/l IS


1.6.4 When issues arc outstanding wilh respect to un audit. the CONTRACTOR shall


maintain the relevant documents and permit inspection thereof until the issue is


resolved.





l.T I’aymcnts


Unless as Otherwise provided in Article 24, Article 29 or other Articles of' the


Contract;


1.7.1 AlI payments between the Parties shall, unless otherwise agreed, be in IJollars and be


made through a hunk designated in writing by each receiving party; and all sums due


under the Contract skill be paid within thirty (10) days following the end of the


Month in which ihc obligation to nuikc such payment occurred.


1.7.2 All sums due by one party to the other under the Contract shall, lor each duy rach


sums arc overdue, bear interest compounded monthly at LIBOR plus two per cent


<2%).


1.8 Currency Exchange Hales


In addition to the provisions of Article 29. the following provisions shall apply to any


cxchuugcs of currency carried out in accordance with Article 29;


1.8.1 Amount* received and Petroleum Costs incurred, shall he converted from other


currencies into Dollars tn accordance with the CONTRACTOR’S usual accounting


procedure-* which shall reflect generally accepted accounting practices in the


internaliooal petroleum industry, and with reference to exchange rales obtained in


accordance with Article 29.


1.9 Accrual Basi*. Cl* Flow Basb and Reports


All books and Accounts shall be prepared on in accrual basis in accordance with


generally accepted accounting principle* used in the international petroleum industry.


1.10 Values apd Trntawh


Values and treatments proposed by the CON I KAC’TOR relating to all Petroleum


Costs shall be subject to challenge by the GOVERNMENT in the course of audit to


ensure that they are in accordance with the provision* of this Accounting Procedure.








PARAGRAPH 2 - CLASSIHOaTION. DEFINITION AND -ALLOCATION OF


COSTS AND EXPENSES





2.1 Segregation of Costa and Kipcascs


Petroleum Costs shall be segregated in accordance w ith the purposes for which such


Petroleum Costs are made. The purpose which shall qualify- are:


(a) those which have been included in the approved Work Program and Budget


for the year in which the Costa and Hxpenditurcs arc made;


(b) expenditures incurred in ones of aravmcy as set out in Articles 11.7.13.5.


13.9 35.5. 35.6 and any Other Articles of the Contract:


(c) nny «Mhcr purposes agreed in the Articles of the Contract: and


(d) Other items which have been agreed by Uk Parties from time to time.


All Petroleum Costs recoverable under Paragraph 3 relating to Petroleum Operation*


xluill he classified, defined mid nllocnlod os set out below.


2.2 Kiptonalbon Coats


Exploration Costs are all direct and allocated indirect costs and expenditures incurred


in carrying out the Exploration Operation*, including all direct and allocated indirect


coats und expenditwes incurred in the search for Petroleum in on area which is. or wn*


at the time when such costs and expanses wav incurred, part of the Contract Area


including:


2.2.1 Acrml, geophysical, geochemical, paleontological. geological, topographical and


iciunic survey! and studies and their interpretation and purchased geological and


geophysical information.


2.2.2 Slialigruphic ten hole drilling and water well drilling.


2.2.3 Labour, materials, supplier and lerviert uxed in drilling and formation toting of


well* with the object of finding Petroleum or Appraisal Wells excluding any raws of


the subsequent completion of such wells as producing wells.


2.2.4 Facilities to the extent used in support of the purpose* described in Paragraph* 2.2.1.


2.Z2 and 2.2.3. including axes roods.


22$ Thn portion of all service expenditures aid that pottioo of ail general and


xiministrabvc expenditures directly attributable to HxpioraboQ Coos or allocated





2.2.6 Am other expenditure* incurred in the search for and appraisal of Petroleum after the


Effective Date and not otherwise ttnemi under this Paragraph 22.





13 Gas Marketing Costs


(ins Marketing Costs tire nil direct nnd allocated indirect costs iuhI expenditures


incurred in currying out Gas Marketing Operations and include thul portion of nil


service expenditures and that port Lon of nil general and administrative expenditures


directly attributable to Uus Marketutg Goats or allocated thereto on a consistent und


equitable basis.


2.4 Development Costs


Development Costs arc all direct and allocated indirect cotfs and expenditure*





incurred in carrying out Development Operations including all direct and allocated


indirect costs and expenditures incurred m:


2.4.1 Drilling, wells which are completed as producing wcl Is and tin lling wells for purposes


of producing from n Petroleum reservoir, whether the* wells are dry or producing


and drilling wells lor the injection of water or gas to enhance recovery of Petroleum.





2.4.2 Completing wells by way of installation of caving or equipment or otherwise after a


well lias been drilled for the purpose of bringing the well into use us a producing well


or as a well for the injection of water or gas to enkince recovery of Petroleum.


2.4.3 Hhc costs of Petroleum production, transport and storage facilities such as pipelines.


How lines, production and treatment units, wellhead equipment, subsurface


equipment, enhanced recovery systems, Petroleum storage facilities, and access roads


for production activities.


2.4.4 IlinginccrinR ojk! design studies for the wells and facilities referred to in Paragraphs


2.4.1.2.4.2 and 2.4.3.


And including that portion of nil service expenditures and that portion of all gcr.cral


and administrative expenditures directly attributable to Development Costs or


allocated thereto on a consistent and equitable basis; and any other expenditure


incurred in the Development Operations und not otherwise covered under


Paragraph 2.3.


2.5 Production Costs


Production Costs are all direct and allocated indirect cost' and expenditure* incurred


in currying out Production Operations, including ail direct and allocated indirect costs


and expenses incurred in Petroleum Operations alter fira Production which are other


than lixpk nation Costs. Gas Marketing Costs. Development Costs and


Decommissioning Costs. Production Costs include that portion of all service


expenditures and that portion of all general and administrative expenditures directly


ditributablc to Production Costs or allocated thereto on a consistent and equitable


basis.


2.6 Decommissioning Costa


Decommissioning Costs arc all direct and allocated indirect costs and expenditures


incurred in carrying out Decommissioning Operations and include that portion of all


service expenditure* and that portion of all general and administrative expenditures


directly attributable to Decommissioning Costs or allocated thereto on a consistent


and equitable tows, and the Decommissioning Reserve Fund shall be determined on


such basis, in advance of incurring such costs, as provided in Article 38 and. for the


purposes of cost recovery, the contributions to the Decommissioning Reserve Fund


shall be recovered in accordance with Article 3ft.


2.7 Service Kipraditurvs


Service expenditures are expenditures in support of Petroleum Operations including


warehouses, vehicles, moton/cd rolling equipment, aircraft, fire and security stations,


workshops, water and sewerage plants, power plans, housing, community and


recreational facilities and furniture, tools and equipment used in these activities.


Service expenditures in any Calendar Year shall include the costs incurred in such


year 10 purchase and/or construct the said facililica ns well as tin; annual costs of


maininining und operating the same. All service expenditures shall he regularly


allocated IIS specified in Pniajirnphs 2.2.5. 2.3. 2.4. 2.S and 2.6 to I-vplorsiti-on Costs.


Cius Marketing Costs. Development Costs, Production Costs und Dvcomniissioning


Costa respectively and shall be separately shown under each of these categories.


Where service expenditures me mode in respect of shared facilities, the basis of


allocution of costs to Petroleum Operations shall be consistent and equitable and shall


be specified.


2.8 General and Administrative Expenditures


General and administrative expenditures are:


2.8-.I Al l main office, field office

Region including supervisory, accounting, procurement and employee relations


services.


2.8.2 Where the CONTRACTOR is un Affiliate of a group of companies whose


headquarters is Abroad (a “Foreign CONTRACTOR'), an annual overhead charge


ahull be made for services rendered (excluding the direct expenditure* as referred in


Paragraph 3.1.1(b)) by any Affiliate of tbc Foreign CONTRACTOR outside the


Kurdistan Region to support and manage Petroleum Operation* under tlic Contract or


where the CONTRA (TOR. not being a Foreign CONTRACTOR draws upon the


services of un Affiliate within the Kurdistan Region, an annual overhead charge shall


be made for services rendered (excluding the direct expenditures as referred in


Paragraphs 3.1.2.(a) and (b)) by such Affiliate to Nippon and manage Petroleum


Operations under the Contract (“Pinal 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


rcimhursable expenses paid by the Affiliate of a CONTRACTOR in accordance with


its stamUrd personnel policy in force in the relevant period, provision of office


accommodation and provision of services reasonably necessary for operation and


maintaining; such staff offices) incurred for services rendered by those functions of


CONTRACTOR'S Affiliate, such, as, but not limited to. international production


headquarters, international exploration headquarters, treasury, payroll, taxation,


insurance, legal, communications, computer services, controllers, personnel,


executive administrative management, research and development, central engineering


und process engineering which:


(u) cannot, without unreasonable effort iuid/o< expenditure or without the release


of confidential data proprietary to any of the CONTRACTOR'S Affiliates, be


charged under any other section of this Annex; and


(b) urc properly allocable to Petroleum Operations under the Contract. It i*


understood, however, that services performed by the ck'|«rtmcnLs listed above


and other corporate departments which directly benefit Petroleum Operations


under the Contract shall be charged as direct costs in accordance with


Paragraph 3.


Id respect of the costs of the CONTRACTOR * Parent Company Overhead. as


described above. the CONTRACTOR shall charge monthly to Petroleum Operations


an amount equal to the total of the following:


2.8.2.1 Exploration Overhead





The CONTRACTOR shall be entitled K> an annual charge baaed on a sliding scale


percentage and charged monthly to Petroicuni Operations. I he basis for flying this


percentage shall be the total of Fxpioranoo Coos and Gas Marinin* Costs during


each Calendar Year (exclusive of this Exploration Overhead) or fraction thereof less


expenditures which have been subjected to the two (2) per cent fee. referred to in


Paragraph 3.1.8(b). The siding scale percentage shall he the following


For the first Tour million l>»llan (IJSKOQO.OQQ) lour per vent (4%)





For (he next four million Dollars (USS4.000.000) three per cent (3%)


Over eight million Dollars (U&M.OOO.OOO) two per cent (2H)





The foregoing percentage* may be reviewed but not more often than annually, and








2-ti2 Dcrekgancnl. Production and DecocnmnBoning Operations Overhead


I he overhead rules applicable to Development. Pruduebun ad Dfcwnmnooning


Operations shall be agreed between the Parties in due couree and shall incorporate the


folio wi ng guidcl incs:




possible. Overhead charges exist only to compensate the CONTRACTOR'S


Affiliates for costs which are properly allocable to Petroleum Operations


under the Contract hut which cannot, without unreasonable effort and/or


rclcawe of confidential data proprietary to the CONT R ACTOR'S Alfiliatcs,


be charged under any other section. Overhead costs are billed monthly.


Overhead must be commensurate with services rendered and based on actual


cost studies but may not exceed an amount calculutcd as u percentage of


certnin annual expenditures excluding Exploration Costs and


(b) That percentage as well as the types of expenditures, which affect overhead


and those, which do not. shall be agreed among the Parties.


(C) The maximum percentage niter may be revised by mutual agreement not more


often than annually. The initial maximum percentage rales and the types of


expenditures lo which they apply shall he agreed as soon as the Parties possess


reasonably reliable cost estimate* for the relevant Production Area.


(d) Overhead charges arc not subject to audit by GOVERNMENT.


(e) The CONTRACTOR shall upon request furnish at the end of each relevant


Calendar Year to the GOVERNMENT a confirmation by ila statutory auditor


that the overhead costs actually charged do not duplicate any other charges


and that (he method used in allocating overhead to Petroleum Operations


 hereunder as opposed to other activities is reawmoblc and in accordance with


generally accepted accounting practice





(0 The CONTRACTOR must budget for overhe*! charge*,


2.8 J All general and administrative expenditures shall be regularly allocauxl as specified in


Paragraph! 2.2.5, 2.3, 2.4, 2.5 and 2-6 to Exploration Costs, Gas Marketing Costs,


Development C osts, Production Coats and Decommissioning Costs respectively and


shall he separately shown under each of these categories.








PARAGRAPH 3 - COSTS, EXPENSES, EXPEN DVTURES AND CREDITS OF THE


CONTRACTOR


3.1 Cost! Recoverable Without f artlKr Approval of the GOVERNMENT





Petroleum Costs incurred by the CO>TRA

classified under the headings referred to in Paragraph 2 shall be recoverable for the


purpose of Article 25 of the Contract (except to the extent provided in Paragraph 4 or


elsewhere in this Annex), subject to audit as provided for in Article 1$ and in


Paragraph 1.6.





3.1.1 Surface Rights


All direct costs necessary fur the acquisition, renewal or rcliaqtmhmcnl of surface





rights acquired and maintained in force tor the purposes uf the Contract.








(a) The CONTRACTOR’S locally recruited employees based in the Kurdistan


Region: Costs of all CONTRACTOR’S locally recruited employees who are


directly engaged in the conduct of Petroleum Operations under the Contract in


the Kurdistan Region. Such costs shall include the costs of salaries, wages,


bonuses, overtime, employee benefits and GOVERNMENT benefits tor


employees and levies imposed on the CONTRACTOR as an employer,


transportation and relocation costs within the Kurdistan Region of the


employee and such member! of the employee's family (limited to spouse and


dependent children) os required by law or customary practice in the Kurdistan


Region. If such employees are engaged in other activities in the Kurdistan





be apportioned on a time sheet basis according to sound and acceptable


accounting principles.


(b) Assigned Personnel: Costs of salaries and wages including bonuses of the





CONTRACTOR’S employees directly engaged in the conduct of the


Petroleum Operations under the Contract, whether temporarily or permanently


assigned, irrespective of the location of such employees, it being understood


that in the ease of theme personnel only « portion of whose time is wholly


dedicated to Petroleum Operations under the Contract, only that pro-rata


portion or applicable salaries, wages, and other costs as delineated in


Paragraphs; 3.1.2(c). (d). (e>. (0 and (g)„ shall be charged and the basis of such


pro-rata allocation shall be specified.


 (c) The CONTRACTOR'S cotfi regarding holiday, vocation, sicknctvi and


disability benefits and living auid housing and other customary allowances


applicable to the ularie* and wage* chargeable under Paragraph 3.1.2(b).


Id) Expenses of contributions made pursuant to assessments or obligations


imposed unde* I .aw which arc applicable to the CONTRACTOR** cost of


salaries and wages chargeable under Paragraph 3.1.2(b).


(e) The CONTRACTOR'* cost «»f established plans for employees* group life





insurance, hospitalization, pension, stock purchases, savings, bonus, and other


benefit plans of a like iwrturc customarily granted to the CONTRACTOR’*


employees, provided however ihut auc-h costs are in accordance -with generally


accepted standards in die international petroleum industry, applicuble to


salaries and wages chargeable to Petroleum Operations under


Paragraph 3.1.2(b).


(0 Actual transportation and travel expenses of employees of CONTRACTOR,





including those made for travel and relocation of the expatriate employees,


including then liunilio uiid personal elfcets, assigned to the Kurdistan Region


whose salaries and wages are chargeable to Petroleum Operations under


Paragraph 3.1.2(b).





Actual transportation cxpetMc* of expatriate personnel transferred to Petroleum


Operations from their country of origin shall be charged to the Petroleum Operations.


Inuttportation expenses of personnel «rar>fcrrcO from Petroleum Opera! i in a


country other than the country of their origin =---oil not be charged »o the Petroleum


Operations. Transportation cost as usrd in this section stall mean the coal of frrtihl


and passenger service, meals, hotels, insurance and other expenditures misled to


vacation and transfer travel and authorized under the CONTRACTOR’* standard


personnel policies. The CONTRACTOR shall ensure that all expenditures related to


transportation costs arc equitably allocated to the activities, which have benefited


from the personnel concerned





(g) Reasonable personal expenses of salaries and wage* arc


chargeable to Petroleum Operatic* under Paragraph 3.1.2(b) and for which


expenses such personnel the CONTRACTOR'*


Standard personnel policies. In not wholly


attributable to Petroleum be


charged with oily the applicable portion thereof.








3.1.3





as provided in Paragraph 3.1.2(1) necessary for the conduct of the Petroleum


(ipmtioitf under the Contract along with other related costs such ax. but not limited


to. import duties, customs fees, unloading charges, dock fees, and inland and ocean


freight cl targes.


3.1.4 Charges for Service*


(a) Third Parlies








The aoinad cost* of contrite I services, services of professional consultants,


utilities, and oilier services necessary for the conduct of the Petroleum


Operations under the Contract performed by third parlies olbcr than an


Affiliate of the CONTRACTOR.





(b) Affiliates of the CONTRACTOR





(i) Profcitsloiiiil and Administrative Services Expenses: cost of


professional an.I administrative services provided by any Affiliates of


the CONTRACTOR for the direct benefit of Petroleum Operations,


including ncrvices provided by Ihc production, exploration, legal,


procurement, financial, insurance, accounting and computer services


divisions other lluin those covered by paragraphs 3.L.4 (b) (ii), 3.1.6


and 3.1.8 (b) which CONTRACTOR may use in lieu of having its


own employee?. Such charges shall reflect Ihc oost of providing their


services. Such charges shall not include any element of pro fit and shall


lie no more or less favourable than similar charges for «her operations


carried on by the CONTRACTOR and its Affiliates. The chargeoui


rate shall include all costs incurred by Affiliates incidental to the


employment of such personnel including all Labour and Associated


Labour Costs and the cost of maintaining and operating offices and


providing all support service?, for such personnel. Costs of travel ol


such personnel in respect of Petroleum Operations will be directly


cliarged. The charges for such services shall not exceed those


prevailing if performed by noo-Affiliated third parties, taking into


account the quality and availability of Mich service-. Where the work is


performed outside the home office base of such personnel, the daily


rate shall be charged from die date such personnel leave the home


office base whew they usually work up to their return thereto,


including days whidi arc not working duys in the location where- the


work is performed, excluding any holiduy entitlements derived by such


personnel from their employment ut their home office base.


(ii) Sclent ilk or Technical Personnel: cost of scientific or technical





personnel services provided by any Affiliate of the CONTRACTOR


for the direct benefit of Petroleum Operations, which cos* shall be


charged on u coat of service basis nnd shall no* include imy element oi'


profit. The cliargeoul rate shall include aU costs incurred by Affiliates


incidental to Ihc employment of mil personnel including all Labour


and Awjsciuted I .abour Costs and the cost of maintaining and operating


offices and providing nil support services for such personnel costs of


travel of such personnel in respect of Petroleum Operations will be


directly charged. I hc charges for Mich services shall not exceed those


prevailing if performed by non-ulfiliuted lluid puriies, taking into


account the quality imd availability of such sen ices. Unless the work


to be done by such personnel is covered by nn approved Work Program


mid Budget, the CONTRACTOR shall not authorize work by such


personnel without Hpprovul of the GOV URN M ENT.




furnished by the CONTRACTOR’S Affiliates, at rates commensurate


with the cost of ownership and operation; provided, however, that such


rules shall not exceed those currently prevailing for the supply of like


equipment and facilities on comparable terms in Lhe area where the


Petroleum Operations are being conducted and shall be on an aim's


length hisk On the request of the GOVERNMENT, the


CONTRACTOR shall provide the GOVERNMENT with evidence


of such lutes being on on arm's length basis. (If the GOVERNMENT


consider! that any such rate 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 investment items such as (but


not limited to) drilling rigs, producing platforms, oil treating facilities,


oil and gits loading and transportation systems, storage and terminal


facilities and other major facilities, rates for which shall be subject to


separate ngrccnvciit with the GOVERNMENT.


3.1.5 Communication!


Cost of acquiring, leasing, installing, operating, repairing and maintaining


communication systems including radio and microwave facilities within and between


the Contract Area and the CONTRACTOR’S nearest base facility.











Net cost to the CONTRACTOR of establishing, maintaining and operating, any


office, sub-office, warehouse, bousing or other facility directly serving the Petroleum


Operations. If any such facility services more than one contract area the net costs


thereof shall be allocated on an equitable basis in accordance with prudent


international petroleum industry practice.











(a) Costs incurred in the Contract Area as a resuli of legislation for archaeological


and geophysical surveys relating to idenufi cation 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 and any other costs incurred in


complying with the requirements of Article 37;


(c) Costs to provide or have available pollution containment and removal





equipment:


(d) Costs of actual control and cleanup of oil spills, and of such further


responsibilities resulting therefrom m may be required by applicable lam and


regulations;


(c) Cows of restoration of the operating environment incurred pursuant to an





approved scheme prepared in accordance with Article 38 of the Contract;


(fi Any costs incurred for the decommissioning of facilities and site restoration,


including any related activity required hy the COVER^MEVT or other


competent authority or hy the (.'ontract; and





(g) Any contributions made hy the CONTRACTOR to the Decommissioning


Reserve Fund in accordance with Article 38. when such contributions are


made.








Costs of materials and supplies, equipment, machines, tools and any Other goods of &


similar nature used or consumed in Petroleum Operations subject to the following:





(0| Acquisition - the CONTRACTOR shall only supply or purchase materials


for use in Petroleum Operation* that may be used in the foreseeable future.


The accumulation of surplus stocks nnd inventory shall be avoided so far as is


reasonably practical and consistent with efficient and economical operations.


Inventory levels shull, however, take into account the time lag for


replacement, emergency needs, weather conditions affecting operations and


.similar considerations.


(b) CowpoBcnti of coats, arm's length tra road tons • except ns otherwise





provided in paragraph 3.1.11(d). material purchased by the CONTRACTOR


in arm's length transactions in the open market for use in the Petroleum


Operations under the Contract shall he valued to include invoice price less


trade and dish discounts (if uny>, licence fees, purchase and procurement fees


plus freight und forwarding charges between point of supply umJ point of


shipment, freight to port of destination, insurance, taxes, customs duties,


consular foes, excise taxes, other items chargeable against imported materials


and. where applicable, handling aiul transportation expenses from point of


importation «o warehouse or operating site. Where an Affiliate of die


CONTRACTOR has arranged the purchase, coordinated the forwarding and


expediting effort, its costs should ran exceed those currently prevailing in


normal arm's length transactions on the open market and in nny case shall not


exceed a fee equal to two per cent (2%) o f the value of the materials added to


the cost of the materials purchased.





(c) Accounting - such material 008*3 Shall lie charged to the accounting records


and books in accordance with the •'First in, First Out” (F1TO) method;





(d> Material purchased from or sold to Affiliates of the CONTRACTOR or


transferred from other activities of the CONTRACTOR to or from Petroleum


Operations under this Contract shall be valued and charged or credited at the


prices specified in Paragraphs 3.1.K(dxi),3.I.S(d)(il)and3.l.8(d)







1 ran m | c Li




(A) Material which is in sound anvl serviceable condition and is


suitable for re-use without reconditioning shall be classified os


Condition "B” and priced at seventy five per ecnf (75%) of Ihe


current price of new mntcrinl defined in Paragraph VI .8(d)fi);





(B) Material which cannot Ik* classified as ( ondition "!**' but which


after reconditioning will be further serviceable for its original


function dull be classified a» Condition “C” and priced at not


more than fifty per cent (50%) of the current price of new


material as defined in Paragraph 3.1-•fdKO- The of


reconditioning shall be charged to the reconditioned material


provided that UK value of Condition “C* material plus the cost


of reconditioning do not exceed the value of Condition “IT


material;


(C) Material which cannot be classified ils Condition ’it” or


Condition “C” sluill be classified us Condition “D" and priced


at a value commensurate with its use by the CONIRACTOR


If material u out fit for use by the CONTRACTOR shall be


disposed of as junk.


(iii) Material mvolvmg erection costs shall be charged at the applicable


condition percentage of the current knoded-down price of new


m*erial « defused m faragnph 3.1.8(d)(i).


(iv) When the uae of mnenai i* temporary »■* ie service to the Petroleum


Operations undo the ( attract docs not justify the ratetim in price a


provided foe in paragraph VI.MdMiiXb). such material shall be priced


on a basis that will result in a net charge to the accounts under the


Contract consistent with the value of the service rendered.


(V) Premium prices • whenever material is not readily obtainable at


published or listed prices because of national emergencies, strikes or


other unusual causes over which the CONTRACTOR has no control,


the CONTRACTOR may charge Petroleum Operation* for the


required material at the CONTRACTOR’S actual cost incurred in


to the Contract Area, provided notice in wrong is furnished to the


GOVTBNMENI of the proposed charge prior »o charging Petrotem


Operation* for such material and the GOVERNMENT shall have the


right So challenge the transaction on audit.


(vi) Warranty of mote rial furnished by the CONTRACTOR - the


CONTRACTOR doca not warrant ibc material furnished In ease of





to


|“«'1 ■«


defective material, credit shall not be passed to Petroleum Operations


until adjustment lias been received by the CONTRACTOR from the


manufacturers of the material or their agents.


(vai) Adjustments arising from material inventories conducted in accordance


with Paragraph 5.2.


(e) Equipment of the CONTRACTOR charged at rales not 10 exceed the average


commercial rates of iion-affiliated third panics for equipment, facilities,


infillllations nnd utilities for use in the area where the same are used. On


request, the CONTRACTOR shall furnish a list of rules and the basis of


application. Such rates shall be revised when found to be either excessive or


insullietout. but not more than once ever)’ six (6) Monti®.


Drill intt tools and other equipment lost in the hole or damaged beyond repair


may he charged at replacement cost less depreciation plus transportation costs


to deliver like equipment to the location where used.


•(I) Use of leased or hired machinery and/or equipment in the Petroleum


Operations shall be charged at full cost to the CONTRACTOR This may


include mobilisation and de-mobilisation charges, lease and hire fees, as well


ns other contractual costs.


3.1.9 Rent Ills and Taxes


All rentals of every kind ami nature levied by any GOVERNMENT and all Taxes


imposed in connection -with the < X>NTRA< "IX)R*x assets, income or activities under


the Contract nnd paid directly by die CONTRACTOR or any CONTRACTOR


Entity (save where the contrary is expressly provided in the Contract) with the


exception of Taxes described in Article 31.2) nnd bonus payments made under Article


32.


If the CONTRACTOR, miy CONTRACTOR Entity or any of its Affiliated


Companies is subject to income or withholding tax as a result of services performed ut


cost for the Petroleum Operations under the Contract, its charges for such services


may be increased hy the nmount required to cover such taxes (grossed up) including


taxes on such gross up.


3.M0 law-iamyasd


Insurance premiums and costs incurred for insurance carried for the benefit of the


Petroleum Operations provided Haul such insurance is customary, affords prudent


protection against risk nnd is nt n premium no higher than ilutl charged on it


competitive basis by insurance companies which are not Affiliated Companies of the


CONTRACTOR. Except in eases of failure to insure where insurance coverage is


required pursuant to the Contract, actual costs and losses incurred shall be recoverable


to the extent not made good by insurance unless such losses result solely from iui act


of wilful misconduct by live CONTRACTOR Such costs may include repair and


replacement of property in tho Contract Area resulting from damages nr losses


incurred by fire, flood, storm. theft, accident or such other cause .


3.1.13 K&IU3J&2COK2





All reasonable costs and expenses resulting from the handling, investigating,


asserting, defending, or settli ng of uny claim or legal action necessary or expedient lor


the procuring, perfecting, retention and protection of the Contract Area, and in


defending or prosecuting lawsuits involving the Contruct Area or any third party


claim arising out of the Petroleum Operations uniter the Contract, or sums paid in


respect of legal services necessary for the protection of the joint interest of the


GOVERNMENT and the CONTRACTOR shall he recoverable. Such expenditures


shall include attorney's fees, court costs, arbitration costs, costs of investigation, and


|>rocurcnKii» of evidence urul amounts paid in settlement or satisfaction of any such


litigation and claims provided such costs arc not covered elsewhere in die Annex.


"Where legal services ore rendered in such nuittcis by salaried or regularly retained


lawyers of the CONTRACTOR or an Allilijitod Company of the CONTRACTOR.


such compensation shall be included instead under Paragraph 3.1.2 or 3.1.4(b) as


applicable.


3.1.12 Claims


Expenditures made in the settlement or satisfaction of any loss, claim, damage,


judgement or oilier expense rinsing out of or relating to Petroleum Operations, cxccpi


as may otherwise be covered elsewhere in the Annex.


3.1.13 lrain|ng. Costs


All costs and expenses incurred by the CONTRACTOR in the training of iN


cm ploy co engaged in Petroleum Operations under the Contract





3.1.14





The costs described in Paragraph 18.1 and the charge described in Paragraph 2.8.1








Charges and fees by the banks for money transfers, payments and foreign exchange


transactions, as well as currency exchange losses incurred by the CONTRACTOR in


connection with the Petroleum Operations.





Ocher reasonable expenditures not covered or dealt with in the foregoing provi rions of


Paragraph 3 which arc necessarily incurred by the CONTRACTOR for the proper,


economical and efficient conduct of Petroleum Operations.


3.2 Credit Under the Cob tract


The proceeds, other than the proceeds from the sale of Petroleum received from


Petroleum Operations under the Con tract, including the items listed below shall be


credited to the Accounts under the Contract for the purposes of Article 25 of the


Contract:


3.2.1 The proceed* ol any insurance or claim or judicial awards in connection with


Petroleum Operations, under the Contract or any assets charged to the Accounts under


the Contract where such operations or assets have been insured and the premia


charged to the Accounts under the Contract .


3.2.2 Legal costs charged to the accounts under Paragraph 3.Ml and subsequentI)’


recovered by the CONTRACTOR


3.2.3 Revenue received from thi rd parties for I he use of properly or assets the cost of whieh


has been charged to the Accounts under the Contract.


3.2.4 Any adjustment received by the CONTRACTOR from the suppliers'manufacturcrs


nr their agents in connection with a defective mutcrial the cos* of which watt-


previously charged by die CONTRACTOR to the Accounts under the Contract.


3.2.5 Rentals, refunds, including refunds of taxes paid, or other credits received by the


CON TRACTOR which ripply to any charge which has been made to the Accounts


under the Contract, but excluding any uward granted to the CONTRAC TOR under


arbitration or expert proceedings.


3.2.6 Costs originally charged to the Accounts under the Contract for materials


subsequently exported from the Kurdistan Region or transferred to another Contract


Area within the Kurdistan Region.


.3.2.7 Proceeds from the sale or exchange by the CONTRACTOR of plant or facilities used


in Petroleum Operations the acquisition costs of which have been charged u* the


Accounts under the Contract.


3.2.8 Proceeds derived from the sadc or license of any inte llectual properly the development


costs of which were incurred pursuant to and are recoverable under the Contract


3.2.9 Proceeds derived From the sale, exchange, lease. 3>irc. transfer or disposal in any


manner whatsoever of any oilier item the costa of which have been charged to


Petroleum Operations.


33 Duplication of Charges and Credits


Notwithstanding any provision to the contrary in this Accounting Procedure, there


shall be no duplication of charges or credits to the Accounts under the Contract.


PARAGRAPH 4 COSTS AND EXPENSES NOT TO UK TREATED AS


RECOVERABLE


'Ihc following cow* and expenditures shall rad he included in the Petroleum Costs


recoverable under Article 25:


4.1 Taxes on income or profit paid to any GOVERNMENT authority except taxes and


duties that may be included in the costs of material and -equipment purchased fur die


Petroleum Operations;


*.2. Amy payment made to the GOVERNMENT by reason of the failure of the


CONTRACTOR to fulfil its Minimum Exploration Obligations, in respect of the


rclcvunt Sub-Period under the Contract.





4.3 The cost of any letter of guarantee, if any, rci|iiirc«l under the Contract;


4.4 ’llic bonuses set out in Article 32 of the Contract;





4.5 Costs of marketing or transportation of Petroleum beyond tlie Delivery Point


(excluding Gas Marketing Costs);


4.6 Attorney's fees and other costs of proceedings in connection with arbitration under


Article 42 of the Contract or internationally rooognised independent expert


determination as provided in the Contract or this Accounting Procedure;


4.7 Any interests, fees, costs and expenses paid by the CONTRACTOR fen loans und


any other form of financing or advances for the financing of the Petroleum Costs


entered into by the CONTRAf ’TOR with third parti-CS or Affiliated Companies


4.8 Any accounting, provision for depreciation and/or amortisation, excluding any


udjuatmenU in value pursuant to Paragraph 3.1.8;


4.4 Dividends, repayment of equity or repayment of intercompany loans


4. L0 bines aivd penalties imposed undo Law.





PARAGRAPH 5- RECORDS AND VALUATION OP ASSETS





5.1 Records


The CONTRACTOR stall maintain detailed records of property in use for


Petroleum Operations under the Contract in accordance with prudent international


petroleum industry practice for exploration and production acti\ ities.


5-2 Inventories


Inventories of property in use in Petroleum Operations shall be taken at reasonable


imenab but at least once a year with respect to movable assets and once every three


(3) years with respect to immovable assets. The CONTRACTOR shall give the


GOVERNMENT at least thirty (30) days written notice of its intention to take such


inventory and the GOVERNMENT shall have the right to he represented when such


inventory is taken.


Failure of the GOVERNMENT to be represented at an inventory shall bind the


GOVERNMENT to accept the inventory taken by the CONTRACTOR





The CONTRACTOR shall clearly inform GOVERNMENT about the principles


upon which valuation of the inventory has been based. I he CONTRACTOR shall


make every effort to provide to the GOVERNMENT a full report on such inventory


within thirty (30) days of the taking of the inventory . When an assignment of rights


under the Contract takes place the CONTRACTOR may. “ *c request of the





/y


toot 1 g


assign*, lake a special inventory provided that the costs of such inventor) arc borne


by the assignee.


PARAGRAPH 6 - PRODUCTION STATEMENT


6.1 Production Information


Without prejudice to the rights and obligations of the Parties under Article 16 of the


Contract, from the dale of Fust Production from the Contract Area the


CONTRACTOR shall submit a monthly production siatcincfii to the


GOVERNMENT showing the following information separately for each producing


Development Area and in aggregate for the Contract Area:


6.1.! The quantity of Crude Oil produced and saved.


6 12 The quality characteristics of such Crude Oil produced and mvcd.


6.1.3 The quantity of Natural Gas produced and saved.


6.1A Tl»e quality characteristics of such Natural Gas produced and saved.


■6.1.5 The quantities of Crude Oil and Natural Gas used for the purposes of currying on


drilling and production operations and pumping to field storage


6.1.6 The quuntil ica of Crude Oil und Natural Gas unavoidably lost.


6.1.7 The quantit ict of Nat urnl < i.is Hared and vetted.


6.1.8 The si/c of Petroleum slocks held at the begmnmg of the calendar Month tn question


6.1.9 The size of Petroleum stocks held at the end of the calendar Month inquestion


6-1-10 The quantities of Natural Gas reinjected into the Reservoir.


6.1.11 In respect of the Contract Area as a whole, the quantities of Petroleum tiuralcrrcd at


the Measurement Point. All quantities shown in this Statement shall be expressed in


both volumetric term* (Barrels of oil and cubic meter; of gas) and in weight (metric





6,2 Submission of Production Statement


The Production Statement for each calendar Month shall be submitted to the


GOVERNMENT no later than ten (10) day s after the end of such calendar Month.


PARAGRAPH 7---VALUE OF PRODUCTION AND PRICING STATEVIKN I


7.1 Value of Product ion and Pricing Statement Information


The CONTRACTOR shall, for the purposes of Article 25 of the Contract, prepare a


statement proriding calculations of the value of Crude Oil produced and *a>cd during


ea± Quarter


 Ho “Value of Production aral Phone SuumenT shall folk^ine








7.1.1 Ihc quantities aid pnees realised therefor by the CO NT RAC TOR m rrqwt of


win of Natural Cias aid Crude Oil delivered to third parties made during the Quarter


in question.


7.1.2 I he quantities and prices realized therefor by the CONTRACTOR in respect of sales


of Natural Gas and Crude Oil delivered during the Quarter in question. othcT than to


llurd Parties.


7.2 Submission of Value of Production uud Pricing Statement


The Value of Production and Pricing Statement for each Quarter dull he »b titled to


the GOVERNMENT not later dun t>vcnt>-onc (21) days after the end of such


Quarter.


PARAGRAPH 8 - COST RECOVERY AND SHARE ACCOUNT STATEMENT


N.l Cost Recovery Statement


Ibc CONTRACTOR shall prepare with respect to each Quarter a Cost Recovery


Statement containing the following inlornuuicn:-


8.1.1 Recoverable Petroleum Cofls earned forward from the previous Quarter, if any


8.1.2 Recoverable Petroleum Costs for the Quarter to qu'<3ion.


*1.3 Cradita under the Contract for the Quarter in qurMtoo.


11.4 TuUl R«OstriMc Petroleum Co*, for the Quarter ui question (Paragraph 11.1 plus


Paragraph 8 1.2. net of Paragraph 8 1.3).


11.5 Quantity aid value of Petroleum applied to curt recov ery ptrsiaa to Article 25 Uicr


by the CONTRACTOR for the Quarter in queftMA.


8.1.6 Amount of recoverable Petroleum Costs to be carried forward into the next Quarto


(Paragraph 11.4 net of Paragraph B.I.5)


12. < urnuIs live Production Statement


The CONTRACTOR shall prepare with respect to each Quarter a Cumulative


1.2.1 rhectaiiulahse production position at the end ofthe Quarter preceding the Quarter in


8.2.2 Production of Expert Petroleum for ihc Quarter in question.


8.2.4 The cumulative production puntaw at the end of the Quartet in question.


8.23 The amount of Petrokum applied lo Royalty pursuant lo Article 24. cost recovery


pursuant to Article 25 and Profit Petroleum pursuant to Article 26 taken by the


GOVERNMENT and by the CONTRACTOR respectively, during the Quarter in


question.


8.2.6 The forecast of production and the share of Petroleum applied to Royalty pursuant to


Article 24. cost recovery pursuant to Article 25 and Profit Oil pursuant to Article 26


doe to the GOVERNMENT and to the CONTRACTOR respectively, for the next


succeeding Quarter.





83 and of Cost Recovery and Cumulative Production


Statements





8.3.1 Provisional Cost Recovery and Cumulative Production Statements, containing


estimated information where necessary , shall be submitted by the CONTRACTOR


on the last day of each Quarter for the purposes of Article 25 of the Contract.


833 Final quarterly Cost Recovery and Cumulative Production Statements shall be


submitted within thirty (30) day s of the end of the Quarter in question.


8.4 Annual Statement





For the purposes of Article 25 of the Contract, an Annual Cost recovery and


Cumulative Production Statement shall be submitted within ninety (90) day’s of the


end of each Year. The Annual Statement shall contain die categories of information


listed in Paragraphs 8.1 and 8.2 for the Year in question, separated into the Quarter.


Of the Year in question and showing the cumulative positions at the end of the Year in


question with respect lo cumulative unrecovered Petroleum Costs and Cumulative


Production.





PARAGRAPH 9 - STATEMENT OF EXPENDITURE AND RECEIPTS





9.1 The CONTRACTOR shall prepare with respect to each Quarter a Statement of


expenditure and Receipts under the Contract. The Statement will distinguish between


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


Decommissioning Costs and will identify major items of expenditures within these


categories. Hie Statement will show the following:





9.1.1 Actual expenditures and receipts for the Quarter in question.


9.1.2 Cumulative expenditure and receipts for the budget Calendar Year in q nest ion.





9.1.3 Latest forecast cumulative expenditures at the Caleodar Year end.


9.1.4 Variations between budget forecast and lutes! forecast and explanations thereof.








9.2 The Statement of Expenditure and Receipts of each Quarter nIuiII be submitted to the


GOVERNMENT no later tlian thirty (30) day* alter the end of such Quarter.


 PARAGRAPH It- FINALEND-OF-YEAR STATEMENT


The CONTRAfTOR will prepare a Final End-of-Year Statement. The Statement will


contain information as provided in the Production Statement Value of Production and


Pricing Statement. Cost Recovery and Cumulative Production Statements and Statement of


Expenditures and Receipts but will be based on actual quantities of Petroleum produced and


expenses incurred. I his Statement will be teed lo make any adjustments that are necessary 10


the payments made by the CONTRACTOR under the Contract The Final Eodof-Year


Statement of each Calendar Year shall be submitted to the GOVERNMENT within ninety


(90) days of the end of such Calendar Year.





PARAGRAPH 11-AUDITS


Each such report and Mmoment provided for in Paragraph 6 Through 10 shall te considered


inic and correct, unless the GOVERNMENT raises an exception thereto within the


timeframe und under the process sot out in Article 15 of the Contract.





PARAGRAPH 12-annual work PROGRAM AM) budget


11.1 Each uiimi.ll Work. Program and Budget to be prepared in accordance with Articles


11, 12 and 14 of the Contract, in respect of Exploration Coats, tins Marketing Costs.


Development Costs and Production Costs respectively will show the following:


11.1.1 Forecast expenditures for the budget Calendar Year in question including a quarterly


classification of such expenditures.


11.1.2 Cumulative expenditures to the end of said budget Calendar Year.


11.1.3 A schedule showing the most important individual items of Development Costs (if


applicable) for said budget Year.


PARAGRAPH 13-CONTRACTOR ENTITY INCOME TAX COMPUTATION


13.1 For the purpose of Article 31.3(b) of the Contract, the net taxable profits of each


CONTRACTOR Entity from all the Petroleum Operations carried out under this


Contract, shall be calculated in accordance with this Paragraph.


132 Each CONTRACTOR Entity shall maintain for each Calendar Year separate


Accounts with respect lo the Petroleum Operations which shall be used, inter aha. to


establish a profit and loss account and a balance sheet which will show the results of


the Petroleum Operations carried out in such Calendar Year as well as the assets and


liabilities aligned or directly related thereto. The profit and loss account will be


maintained under the accrual method of accounting.


13.3 For purposes of determining the net taxable profits of each CONTRACTOR Entity


for corporate income tax purposes:





13.3.1 the profit and loss account of such CONTRACTOR Entity shall be credited with the


following;


(a) if ihc Royalty is paid in cash pursuant to Article 24. revenues arising from the


disposal of Royalty volumes as recorded in such entity's Accounts and


determined in accordance with the provisions of Article 24;


(b) revenues arising from the disposal of any Available Petroleum to which such


entity is entitled for recovery of its Petroleum Costs as recorded in its


Accounts and determined in accordance with the provisions of Article 25;


(c) revenues from the disposal of any Profit Petroleum to which such entity is


entitled under Article 26 as is recorded in its Accounts and determined in


accordance with the provisions of Article 26;


(d) any other revenues or proceeds directly connected to the Petroleum Operations


including those arising from the disposal of related Petroleum suhstanccs, or


from the treatment, storage and transportation of products for third parties;




connection with the Petroleum Operations;


13.3.2 the profit and loss account for such CONTRACTOR Entity shall be debited with all


charges incurred for the purposes of the Petroleum Operations whether incurred inside


or outside the Kurdistan Region, which charges shall include the following:


(a) in addition to- the charges specifically set forth below in this Paragraph, all


other Petroleum Costs, including ihc cods of supplies, personnel and


manpower expenses, und the cost of services provided to the


CONTRACTOR ia connection with the Petroleum Costs;


(b) if the Royalty is poid in cash pursuant to Article 24. Royalty payments nude


and as recorded in such entity’s Accounts and determined in accordance with


the provision* of Article 24;


(c) General and ndministrutivc expenditure* related to the Petroleum Operations


performed under this Contract;


(d) depreciation of capital expenditure in accordance with the following


provisions.


(i) capital expenditures incurred by the CONTRACTOR for the purposes


of the Petroleum Operations shall be depreciated on a reducing balance


bam;


(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 resets corresponding to said capital


expenditures are put into normal service, whichever is later, for the


firs* Calendar Year in question and for each subsequent Calendar Year,


arc as follows:


 fSaiart of the capital asset to he depreciated Annual deprec»t.o« Kale








Permanent buildings 10.0%


Temporary buildings 20.0%





Office and borne furniture and fixtures 20.0%


Productive wells 20.0%





Production and delivery equipment 20.0%





DriKoc equips* 20.0%


Pipelines 20.0%





Automotive equiptnent 20.0%


Marine and aviation equipment 20.0%





All other capital asaets 20 0%













expenditures) dull he deductible on a reducing, balance basis at the rate of


20% per annum.


(f) interest and tecs paid to creditors of the C ONTKACTOR. for their uctiuil


amount;


(g) losses of Akm-Is resulting from destruction or damage, usnets which are


renounced or abandoned during die year, which arc transferred under


Artick 20.2, had debts, indemnities paid to llurd panics as compensation for


damage;


(h) any other costs. expenses, losses or charge* directly related to the Petroleum


Operations, including exchange losses realised in connection with the


Petroleum Operations us well as the bonuses provided in Article 32, the


Exploration Rental provided in Article 6.3, (lie Production Rental provided in


Article 13.10, tin? allocation to training, provided in Article 23.7 and the


allocation to the Environment I'und provided in Article 23.9. the cost),


specified in Articles 23.11. 38.1 and 3R.6 and tmnsportntion and marketing


costs beyond the Delivery Point;


(i) (be amount of non-ofTset losses relating to the previous Calendar Years, which


shall be canted forward for an indefinite penod until full settlement of said


losses ai term motion of this Contract.


13.3.3. Ibe net profit of such CONTRACTOR Emily shall be equal jo the difference


between all the amounts credited and all the amounts debited in the profit and lox\


account: and


(a) if this amount is negative, it shall constitute a loss.


fl>) if the amount is positive, it sluill bo groaned up to take account of the fact that


such entity's corporate income lax is being settled out of the


GOVERNMENT'S Blutre oI the Profit Petroleum in accordance with Article


31.2, by applying the following formula in order to provide such entity's net


taxable profits for corporate income tax purposes:





Net Taxable Net Profits;


Profits-








13.4 For purpose's of determining each CONTRACTOR Entity's liability to corporate


income tax for a tax ycair in respect of the Petroleum < Ipcrations carried out under this


Contract, ilie net taxable profits (if any) for such tax year shall He multiplied Hy llu*


applicable rule of corporate income tax, a* provided in Article* 3l.3