NOTICE: The text below was created automatically and may contain errors and differences from the contract's original PDF file. Learn more here PRODUCTION SHARING AGREEMENT
(1) THE KURDISTAN REGIONAL GOVERNMENT
(2) DNO ASA
25 JUNE 2004
PART OF DIHOK GOVERNORATE
Article 2 Scope of Agreement and General Provisions..-------------------------------7
Article 3 Agreement Area. .......... 8
Article 4 Agreement Term...............................................................................9
Article 5 Relinquishments.........................................................10
Article 6 Co-ordination Committee_______________________________________ ...10
Article 7 Contractor Responsibility_________________________________________________ ...13
Article 8 Procedure for Determination of Commcrcialitv and Approval of
Article 9 DCV(|0|M)Q)l 15
Annual Wort Programs and Budgets...................................... 17
Article 10 Allocation of Production. Recovery of Costs and Expenses.
Production Sharing, and Right of Export------------------ ... -18
Article 11 Crude Oil Valuation-------------- ----21
Article 12 Ancillary Rights of the Contractor and Operator.....-.................. ........22
Article 13 Assistance Providod by the Government ..................................... ........24
Article 14 Measurement. Quality und Valuation of Petroleum........................ ........25
Article 15 Natural (las......................................................................................
Article 16 Tax/Fiscal Regime.......................................................................... ........27
Article 17 Accounting. Financial Reporting and Audit................................... ........28
Article 18 Currency, Payments ........28
Article 19 Import and Export... ........29
Article 20 Export of Hydrocarbons. Transfer of Ownership, and Regulations
for Disposal ....................................................................-........................~....30
Article 21 Ownership of Assets ................................................................-...............30
Article 22 Insurance. Environment. Health, Safety And Liability...................................31
Article 2.1 Personnel.........................................................................................................34
Article 24 Force Majeure.....................................................................................................35
Article 25 Alii oilmen ts and Guarantees ................................... .......................................36
Article 26 Agreement Enforcement and Stabilisation, and Representations and warranties...........................................................................................................................37
Article 27 Notices and Confidentiality................................................................................ 18
Article 28 Termination and Breach............................................. .......................................40
Article 29 Dispute Resolution.............................................................................................40
Article 30 Text... .................................................................................................................41
Article 31 Approval and Effective Date...............................................................................41
ANNEX A AGREEMENT AREA ......... Total (1) pages
ANNEX B ACCOUNTING PROCEDURE..................................................Total (21) pages
ANNEX C MINIMUM WORK COMMITMENT...........................................Total (1) page
This Agreement is made and entered into on 25 June 2004 by and between:
(1) The Kurdistan Regional Government (hereinafter referred to as "the Government“) as
the party of the first part;
(2) as party of the second part. DNO ASA. a company incorporated and existing under
the laws of Norway (hereinafter referred to as •‘the Contractor").
The Government and the Contractor may sometimes be referred to as “Party" and collectively
as the “Parties".
WHEREAS, the people of the Kurdistan Region of Iraq (hereinafter referred to as “the
Kurdistan Region”) have chosen a Regional Assembly through democratic elections;
WHEREAS, the Kurdistan Assembly lias formed a Government for the Kurdistan Region,
and has enacted law s that govern the Kurdistan Region,
WHEREAS, the people of the Kurdistan Region own the natural resources of the Kurdistan
Region, and the Government of the Kurdistan Region therefore has the power to exploit those
resources for the benefit of the people of the Kurdistan Region;
WHEREAS, the Government enters into this Agreement wishing to promote the
development of the Agreement Area and the Contractor desires to join and assist in the
exploration, development and production of the potential resources within the Agreement
WHEREAS, the Contractor has the requisite technical, managerial and financial capabilities
and experience to cany out Petroleum Operations stipulated in this Agreement and desires to
co-operate with the Government for the exploration and exploitation of Petroleum reserves
within the Agreement Area;
WHEREAS, certain parties had concluded an agreement on March 2'"’ 2003 to promote the
dev elopment of hydrocarbon resources in the Kurdistan Region, and to promote international
investment in the Kurdistan Region.
NOW'. THEREFORE, in consideration of the promises and the mutual covenants and
conditions herein contained, it is hereby agreed as follows:
The following words and terms used in this Agreement shall unless otherwise expressly
specified m this Agreement have the following respective meanings
1.1 “Accounting Procedure” means the accounting procedure set out in Annex “B"
1.2 Ail "Affiliated Company” or "Affiliate” means with respect to a Contractor Party, a
company, corporation, partnership or other legal entity:
(a) in which a Contractor Party owns directly or indirectly at least fifty percent
(50%) of the shares, voting rights or otherwise has the right to establish
management policy; or
(b) in which at least fifty percent (50%) of the shares or voting rights arc owned
directly or indirectly by a company or other legal entity, which owns directly
or indirectly at least fifty percent (50%) of the sliares, voting rights or
otherwise has the right to establish management policy of a Contractor Party;
1.3 "Agreement" or "PSA" means this Production Sharing Agreement together with all
attached Annexes and any variation, extension or modification hereto which may be
agreed in writing by all the Parties.
1.4 “Agreement Area" means the area specified and delineated in Annex A, as reduced or
enlarged from time to time in accordance with the provisions of this Agreement.
1.5 “Agreement Year” means a period of twelve (12) consecutive months from the
Effective Date within the term of the Agreement.
1.6 “Annex" or "Annexes" means each or both of the Annexes "A" and "B” attached to
this Agreement and made a part hereof. In the even! of a conflict between the
provisions of an Annex and a term in the main body of this Agreement, the provisions
of the latter shall prevail.
1.7 “Appraisal" means all works carried out by Contractor to evaluate and delineate the
commercial character of a Discovery of Petroleum in the Agreement Area.
1-8 “Associated Natural Gas" means all gaseous hydrocarbons produced in association
with Crude Oil and remaining after the Crude Oil has been separated therefrom.
1.9 “Authority” means any authorised body of the Government.
1.10 “Available Crude Oil" means Crude Oil produced and saved from a Development
Area and not used in Petroleum Operations in accordance with Article 10.2.
1.11 “Available Natural Gas" means Natural Gas produced and saved from the Agreement
Area and not used in Petroleum Operations in accordance w ith Article 10.2.
1.12 “Available Petroleum" is defined as set forth in Article 10.3.
1.13 “Band" means a quantity consisting of forty-two (42) United Stales gallons liquid
measure, corrected to a temperature of sixty degrees (60*) Fahrenheit with pressure at
1.14 “Budget" means the estimate of the expenditures, listed catcgory-by-category, relating
to Petroleum Operations and contained in any Work Program proposed by Contractor.
1.15 “Calendar Quarter" or "Quarter" means a period of three (3) consecutive months
beginning on January 1st, April 1st July 1st and October 1st of each Calendar Year.
1.16 “Calendar Year" or "Year" means a period of twelve (12) consecutive months
beginning on January 1st and ending on December 31st in the same year, according to
the Ciregonan Calendar.
1.17 "Commercial Discovery" means a Discovery that the Contractor in its sole discretion
in accordance with the provisions of Article 8 commits itself to develop and produce
under the terms of the Agreement.
1.18 "Commercial Production" means regular and continuous production of Petroleum
from a Development Area in such quantities (taking into account any other relevant
factors) as arc worthy of commercial development.
1.19 "Contractor Party” means each company or legal entity comprising Contractor and
which is a Party, being at the date hereof DNO ASA. having a participating interest
of one hundred per cent (100%).
I 20 "Co-ordination Committee" means the committee composed of representatives of the
Contractor and the Government constituted in accordance with Article 6.
1.21 "Cost Recovery Petroleum" means Cost Recovery Crude Oil and Cost Recovery
1.22 "Cost Recovery Crode Oil” is defined as set forth in Article 10.5.
1.23 “Cost Recovery Natural Gas” is defined as set forth in Article 10.5.
1 24 “Costs ami Expenses" compose all costs, expenses and expenditures incurred in
connection with Exploration, Development and Production including Operation
Expenses together with Finance Costs whether directly or indirectly incurred by
1 25 “Crude Oil" means crude mineral oil, asphalt, ozokerite and all kinds of hydrocarbons
whether in a solid, liquid or mixed state at the wellhead or separator or which is
obtained from Natural Gas through condensation or extraction.
1.26 “Current Legislation" means subject to Article 31.2, laws, legislative acts, and
normative documents that arc effective on the Effective Date in the Kurdistan Region
1.27 “Customs Duties" means all import (or export) tariffs and duties and other mandatory
payments as stipulated by applicable law s, regulations or other legal measures of the
Kurdistan Region with respect to the import or export of materials, equipment, goods
and any other similar items.
1.28 “Daily Production" means the production of Crude Oil starting from the midnight of
any day until the first following midnight.
1.29 “Dev elopment Area" means all or any pan of the Agreement Area specified in an
approved Development Plan.
I 30 "Development Plan” means the plan to be produced by the Contractor in accordance
with Article 8.6. following a declaration that Commercial Production may be
1.31 or “Development Wort, and
any activities or for
to render for
<•> all the operations and activities undo the Agreement with respect to the
drilling of wells, other than Exploration wells, the deepening, reworking,
plugging hack, completing and equipping of such wells, together with the
design, construction and installation of such equipment, pipeline or gathering
lines, installations, production units and all other systems relating to such
wells and related operations in connection with production and operation of
such wells as may be necessary in conformity with sound oil field practices in
the international Petroleum industry;
all operations and activities relating to the servicing and maintenance of
pipelines, gathering lines, installations, production unit* and all related
activities for the production and management of wells including the
undertaking of re-pressurising, recycling and other operations aimed at
I production and oil recovery rate
1.32 “Discovery" the Petroleum encountered by drilling a
recoverable at the in a flow
1.33 “Dollar" or the currency of the United States of America.
1.34 “Double Tax Treaty" means any international treaty or convention for th
of double taxation of income and'or capital w hich is applicable or will be applicable
in the future, in the Kurdistan Region.
1.35 "Effective Dute" means the date on which this Agreement has been signed by the
1.36 "Excess Associated Natural Gas" is defined as set forth in Article 15.1(h).
1.37 "Exploration" or "Exploration Operations" means operations conducted under this
Agreement in connection with the exploration for previously undiscovered Petroleum,
or the evaluation or Appraisal of discovered reserves which shall include geological,
geochemical, geophysical, aerial nnd (other survey) activities and uny interpretation of
data relating thereto and the drilling of such shot holes, core hole*, stratigraphic tests,
Exploratory Wells. Appraisal wells and other related operations as may be contained
in Exploration Work Programs and Budgets
1.38 "Exploratory Well" means any well dnllcd forming part of Exploration Operations
with the objective of confirming a structure or geologic trap in which Petroleum
capable of Commercial Production in significant quantities ha* not been previously
1.39 “Field" means a Petroleum reservoir or group of reservoirs within a common
geological structure or feature. "Field" may be an “Oil Field" or a "Natural Gas
Field" as designated by Contractor.
1.40 “Finance Costs” or "Interest Costs" shall include all amounts of interest, fees and
charges paid in respect of any debt incurred in carrying out the Petroleum Operations
and any refinancing of such debts providing that, in the case of Affiliate debt, it shall
include interest only to the extent that it does not exceed a rate which would have
been agreed upon between independent panics in similar circumstances and such
interest is not limited by which assets or services arc purchased by the loan principal.
1.41 “Force Majeure" is defined as set forth in Article 24.2.
1.42 “Foreign Employee" is defined as set forth in Article 16.7.
I <45 “Foreign Exchange" means U.S.S and/or other freely convertible foreign currency
generally accepted in the international banking community.
1.44 “Foreign Subcontractors" means Subcontractors which are organised outside of the
Kurdistan Region and under Current Legislation are not obliged to establish
permanent representative offices in the Kurdistan Region.
1.45 “Gas Sales Agreement" is any agreement to be entered into for the sale of Non-
associatcd Natural Gas ami Associated Natural Gas in accordance with the provisions
of Article 15.1 or 15.2.
1.46 "Joint Operating Agreement" or “JOA" means the agreement to be concluded
between the Parties comprising the Contractor, which shall be supplementary to and
consistent with the provisions of this Agreement and which shall regulate the terms
under which Petroleum Operations will be conducted by the Operator on behalf of the
1.47 “Measurement Point" means the location specified in Article 14.2 as identified in an
approved Development Plan, where the Petroleum is metered and delivered to the
Parties or such other location as the Parties may agree from time to time prior to the
submission of a Development Plan as the circumstances may require.
1.48 “Minimum Financial Commitment" means the amount to be paid by the Contractor
pursuant to Article 3.2(b) under each phase of the Exploration period as set out in
1.49 “Minimum Work Commitment" means the minimum work to be earned out by the
Contractor under this Agreement under each phase of the Exploration period as set
out in Annex C.
1.50 “Month" or "Calendar Month" means a calendar month.
1.51 "Natural Gas" means Non-associated Natural Gas and Associated Natural Gas in their
1.52 "Natural Gas Field" means a field from which more than fifty (50) percent of the
estimated reserves on an energy equivalency basis are Natural Gas at surface
1.53 "Non-associated Natural Gas" means all gaseous hydrocarbons produced from gas
wells, and includes wet gas. dry gas and residue gas remaining after the extraction of
liquid hydrocarbons from wet gas.
1.54 “Oil Field” means a field from which more than fifty (50) percent of the estimated
reserves compnsc Crude Oil.
1.55 "Operation Expenses" means those costs incurred m day-to-day Petroleum
Operations, whether directly or indirectly incurred including but not limited to all
costs, expenses and expenditures associated with the Production, processing and
transportation to the Measurement Point of Peintlcum, training, administration,
service, payments for abandonment and site restoration in accordance with Article
8.8, insurance costs in accordance with Article 22.2. and related expenses.
1.56 "Operator” means a person appointed as such pursuant to Article 7.1.
1.57 "Party” or "Parties" means the parties whose authorised representatives have affixed
their signatures hereto.
1.58 "Petroleum" means Crude Oil and Natural Gas.
1.59 "Petroleum Operations" means the Exploration Operations, the Development
Operations, Production Operations (which shall include transportation to the
Measurement Point) and other activities related thereto carried out pursuant to this
Agreement and the JOA.
1.60 "Petroleum Operations Account" shall mean the Statement of Costs and Expenses and
Receipts in paragraph 9 of the Accounting Procedure.
1.61 “Production" or “Production Operations" means operations and all related activities
carried out for Petroleum production after the commencement of Commercial
Production, including without limitation extraction, injection, stimulation, treatment,
transportation, storage, lifting, and associated operations, but does not include any
storage or transportation beyond the Measurement Point.
1.62 "Profit Natural Gas" is defined as set forth in Article 10.8.
1.63 "Profit Oil" is defined as set forth in Article 10.8.
1.64 “Profit Petroleum" is defined as set forth in Article 10.8.
1.65 “Royalty" means the percentage of Crude Oil produced and saved from the
Agreement Area allocated for the Government or any authority as determined by the
Government as determined in Article 10.14.
1.66 "Study Area" means the part of the Agreement Area, which w ill be defined in a Study
1.67 “Study Program" means the program to be produced and earned out by the Contractor
in accordance with Article 8 following the conclusion that Commercial Production is
inx*l 4*4?Tk 6
1.68 “Subcontractor” means any natural person or juridical entity other than the Operator,
agreed directly or indirectly by or on behalf of Contractor to supply goods, worts or
services related to this Agreement.
1.69 'Taxes" means all levies, duties, payments, fees, taxes (including but not limited to
VAT, profit tax, dividend tax. transfer tax. customs duties! or contributions payable to
or imposed by the Government, the Federal Government of Iraq, agencies,
subdivisions or municipal or local authorities within the Kurdistan Region.
1.70 Third Party" or “Third Parties" means one or more of a natural person or juridical
entity other than a Party and any Affiliate of a Party.
1.71 "Work Program" and “Work Program and Budget" means any work program and
work program and Budget to Ik* submitted to the Co-ordination Committee by the
Contractor in accordance with the provisions of Article 9 and which shall set out the
proposed Petroleum Operations to he carried out in the Agreement Area during any
Calendar Year together with the associated Budget its the case may be.
1.72 In this Agreement:
(a) headings arc for convenience only and shall not affect the interpretation or
construction of this Agreement;
(b) an expression which denotes any gender includes the other genders, a natural
person includes an artificial person and vice versa, and the singular includes
the plural and vice versa;
(c) references to an Article or Annex are to an article of or an annex to this
(d) a reference to a Party includes that Party's successors in title and permitted
(c) the word "including" shall be construed without limitation;
(0 if a period of time is specified and dates from or to a given day or the day of
an act or ev ent, it shall be calculated exclusive of the later day, and
(g) references to writing shall include any modes of reproducing in a legible and
SCOPE OF AGREEMENT AND
2.1 Subject to the terms and conditions of this Agreement, the Government hereby in
accordance with Current Legislation grants to the Contractor the exclusive nghts to
conduct Petroleum Operations in the Agreement Area during the term of this
2.2 The Contractor shall be responsible to the Government for the execution of such
Petroleum Operations in accordance w ith the provisions of this Agreement.
2.3 In performing Petroleum Operations, the Contractor shall provide all financial and
technical requirements, unless otherwise provided in this Agreement and shall
conduct all operations in accordance with the standards generally accepted in the
international Petroleum industry.
2.4 The Contractor shall be compensated for its services, not by way of reimbursement in
cash of its expenditures under this Agreement, but by receipt of its share of Petroleum
from the Agreement Area to which it may become entitled by way of cost recovery
out of Cost Recovery Petroleum described in Article 10 and Contractor's right to
Profit Petroleum as described in Article 10. If Petroleum produced from
Development Areas within the Agreement Arcu developed by Contractor, Cost
Recovery Petroleum under Article 10 and Profit Petroleum is insufficient to reimburse
Contractor for Costs and Expenses incurred by Contractor, Contractor shall bear its
own losses in respect of any shortfall.
2.5 This Agreement defines the Parties' rights and obligations, governs their mutual
relations and establishes the rules and met I tods for the Exploration, Development,
Production, and sharing of Petroleum between them.
2.6 During the period in which this Agreement is in force, all Available Crude Oil and
Available Natural Gas resulting from Petroleum Operations, will be shared between
the Government and the Contractor in accordance with the provisions of Article 10
and Article 15 of this Agreement.
2.7 The Government shall have the right to appoint an expert to act as co-ordinator
between the Government and the Contractor and to advise the Government in relation
to Petroleum Operations. The costs of such expert shall he payable by the Contractor
and form part of the Costs and Expenses, provided that such costs shall not exceed
Dollars three hundred thousand (S300.000) in a Calendar Year prorated for part of a
AGREEMENT AREA AM) MINIMUM WORK COM Ml I MENT
3.1 Except for rights and authorisations necessary' for the implementation of the
provisions of this Agreement, and except as otherwise provided herein, no nght is
granted to the Contractor, or to any other entity, to use or dispose of any natural or
manmade resources, including aquatic resources save for aquatic resources used
directly in Petroleum Operations in accordance with relevant permits which have been
obtained through the Government
3.2 (a) In respect of each Exploration period as set out in Article 4. the Contractor
shall be required to canv out the Minimum Work Commitment for such
(b) If the Contractor fails to cany out the Minimum Work Commitment in respect
of any Exploration period, the Contractor shall be liable to pay to the
Government within sixty (60) days of the end of the applicable Exploration
period an amount equal to the Minimum Financial Commitment in respect of
such period less all Costs and Expenses incurred in such period and forming
part of such Minimum Work Commitment.
(c) If during any Exploration period the Contractor drills any Exploratory wells in
excess of the Minimum Work Commitment for that Exploration period, the
Contractor shall be entitled to credit any such Exploratory well or wells
against the Minimum Work Commitment for the next succeeding Exploration
period or periods.
4.1 (a) Subject to Articles 4.1(b) and (c) the initial term of this Agreement will be
from the date hereof until the expiry of the first four (4) year Exploration
period unless extended by the Contractor into the succeeding second three (3)
year Exploration period and, if applicable, the succeeding third three (3) year
Exploration period in each case by the Contractor giving notice to the
Government prior to expiry of die first or second Exploration period.
(b) Notwithstanding Article 4.1(a) if, at the time of the expiry of an Exploration
period an Exploratory Well is being drilled, such Exploration period shall
automatically continue until a date thirty (30) days after the completion,
suspension or abandonment of such Exploratory Well ami the Contractor shall
have the right to extend the term of this Agreement into the succeeding
Exploration period by notice to the Government given at any time prior to
(c) Notwithstanding Article 4.1(a) ifi at the time of the expiry of an Exploration
period an Appraisal well is being drilled, such Exploration period shall
automatically continue for such time to permit the Contractor to comply with
its obligations under Article 8 including, if applicable, the submission and
approval of a Development Plan, and the Exploration period shall terminate on
the first to occur of (i) a decision by the Contractor that the Study Area is
non commercial, (ii) the non-approval of the Development Plan or (iii) the
approval of the Development Plan and the continuation of this Agreement in
respect of the Development Area designated in such Development Plan.
4.2 Upon expiry of tlic Exploration periods the terra of this Agreement shall continue
thereafter in respect of each Development Area for a total of twenty-five (25)
consccunvc Agreement Years from the date of approval of the Development Plan in
respect of such Development .Area, unless the Agreement is sooner terminated in
accordance with Article 28 of this Agreement.
4.3 If in respect of any Development Area, Commercial Production remains possible
beyond the initial period of twenty-five (25) consecutive Agreement Years specified
m Article 4.2. the Contractor, after giving notice to the Government at least one (I)
year prior to the end of any such period, and after obtaining approval by the Co¬
ordination Committee of a revised Development Plan shall be entitled to have an
extension of the term of this Agreement with respect to such Development Area for an
additional term of five (5) years or the producing life of the Development Area.
IQN«| :«*** 9
whichever is losier, subject to the approval of the Government, and such approval
•hall not be unreasonably withheld.
4.4 Ihc term of this Agreement shall be divided into three Exploruuon periods as follows:
(a) The first Exploration period shall be a period of four (4) years from the dale of
(b) The second Exploration period shall be a further period of three (3) years
commencing immediately after the end of the first Exploration period; and
(c) The third Exploration period shall be a further period of three (3) years
commencing immediately after the end of the second Exploration period.
5.1 The Contractor muy at any time relinquish voluntarily all or uny part of the
Agreement Area without uny further liability. Such voluntary relinquishment will be
deducted from the Contractor's mandatory relinquishment obligation. The area
designated uruler this Article 5 for relinquishment shall consist as far as practicable of
rectangular blocks bounded by lines running due north and south and due east and
west and shall not be less than five (5) square kilometres. The area designated for
relinquishment need not consist of one contiguous area.
52 The Contractor shall relinquish the following in accordance with Article 5.1;
(a) At the end of the first Exploration penod an area equal to twenty-five percent
(25%) of the Agreement Area remaining afteT excluding therefrom all
(b) At the end of the second Exploration penod. an area equal to twenty-five
percent (25%) of the Agreement Area remaining utter excluding therefrom all
Development Areas; and
(c) At the end of the third Exploration period, all of the Agreement Area other
than any Development Areas.
CO-ORDINATION COMMII I H
6 1 For the purpose of provHfcng the overall supervision and direction of and ensuring the
performance of the Petroleum Operations, the Government and the Contractor shall
establish a Co-ordinanoc Committee within forty-five (45) days of the Effective Date
6.2 The Co-ordination Committee shall comprise a maximum total of four (4) members
The Government shall appoint a total of two (2) representatives and Contractor shall
appoint two (2) representatives to form the Coordination Committee All the
aforesaid representatives shall have the right to attend and present their views at
meetings of the Coordination Committee. Each representative shall have the right to
appoint an alternate w ho shall be entitled to attend all meetings of the Co-ordination
Committee but w ho shall have no vote except in the absence of the representative for
whom he is the alternate.
6.3 The first Chairman of the Co-ordination Committee shall be one of the representatives
designated by the Government (or his alternate), and the first Vice Chairman shall be
the chief representative designed by the Contractor (or his alternate). The Chairman
and Vice Chairman shall be appointed for a term of two (2) years. The Chairman of
the Co-ordination Committee shall preside over meetings of the Co-ordination
Committee and in the absence of the Chairman (or his alternate); the Vice-Chairman
shall preside. Such Parties may designate a reasonable number of advisers, who may
attend, but shall not be entitled to vote aL Co-ordination Committee meetings.
6.4 A regular meeting of the Co-ordination Committee shall be held at least twice every
Calendar Year. The secretary to be designated pursuant to Article 6.9 shall be
responsible for calling such regular meetings of the Co-ordination Committee and
shall do so at the request of the Chairman by sending a notice to the Parties. Other
meetings, if necessary , may be held at any time at the request of either Party. In each
case the secretary shall give the Parties at least thirty (30) days notice (or such shorter
period as the Panics may agree) of tbc proposed meeting date, the time and location
of the meeting.
6.5 Tbc Parties hereby empower the Co-ordination Committee to:
(a) review and adopt a proposed Development Plan as set out in Article 8. and
review and examine any Development Work Program and Budge; proposed by
the Contractor and any amendment thereof;
(b) determine the commcrcinlity of each proposed Development Operation;
(c) review and adopt proposed Development Operations and Budgets;
(d) approve or confirm the following items of procurement and expenditures:
(i) approve procurement of any item w ithin the Budget with a unit price
exceeding Two Hundred and Fifty Thousand U.S.S (U.S.$250.000) or
any single purchase order of total monetary value exceeding One
Million U.S.S (U.S.S 1,000,000);
(ii) approve a lease of equipment, or an engineering sub agreement or a
service agreement within the Budget worth more than Five Hundred
Thousand U.S.S (U.S.S500.000) in total; and
(iii) approve excess expenditures pursuant to Article 9.4 and the
expenditures pursuant to Article 9.5;
(e) demarcate boundaries of u Development Area;
(0 review and approve the insurance program proposed by the Contractor and
emergency procedures on safety and environmental protection and all
programs and budgets which are in connection with environmental protection;
(g) review and approve personnel policies, selection and training programs for
Operator. Without prejudice to the foregoing, it is accepted that part of the
personnel policy of Operator shall be to give preference to local citizens,
provided that the conduct of Petroleum Operations shall not be affected;
(h) discuss, review, decide and approve other matters that have been proposed by
cither Party, Contractor or the Operator.
(i) review and discuss the development work and technological regimes proposed
by the Parties;
(j) appoint sub-committccs to meet from time to time to review any aspect of
Petroleum Operations, which the Co-ordination Committee thinks fit; and
(k) review and adopt proposed Exploration Work Programs and Budgets for each
6.6 The meeting quorum of the Co-ordination Committee shall require the presence of at
least one (1) representative from each Party. Decisions of the Co-ordination
Committee shall be made by unanimous decision of the representatives present and
entitled to vote. Each representative will have one (1) vote. All decisions made
unanimously shall be deemed as formal decisions and shall be conclusive and equally
binding upon the Parties.
6.7 (a) The Parties shall endeavour to reach agreement and unanimous decision on all
manors presented to the Co-ordination Committee. Where there is
disagreement between the Parties regarding any matter arising under Article
6.5. or regarding a proposed Development Plan, the Co-ordination Committee
shall endeavour to reach agreement within forty-five (45) days in die case of
an Exploration Work Program and Budget ami within sixty (60) days in the
ease of a Development Plan, in each ease from the date of submittal by the
Contractor of such Exploration Work Program and Development Plan for
(b) Subject to an Exploration Work Program and Budget covering any Minimum
Work Commitment for the applicable Exploration period if not approved by
the Co-ordination Committee within the said forty-five (45) days the
Exploration Work Program and Budget submitted by the Contractor shall be
deemed to be approved as provided in Article 9.2.
(c) In respect of a Development Plan which is not approved by the Co-ordination
Committee within the said sixty (60) days, the matter may be referred by
either Party to an internationally recognised independent expert appointed by
the Parties (or. where the Parties fail to appoint such expert within fifteen (15)
days, then as appointed by the President of the United Kingdom Energy
Institute), whose decision on the approval of the Development Plan shall be
final and binding. The costs of the expert shall he met by the Parties equally
and the Contractor’s costs shall not lie recoverable as Costs and Expenses, and
the expert shall be deemed to be acting as an expert and not as an arbitrator.
6.8 A matter, which requires urgent handling, may be decided by the Co-ordination
Committee without convening a meeting, with the Co-ordination Committee making
decisions through electronic means or the circulation of documents.
6.9 The Co-ordination Committee .shall nominate a secretary, to record minutes of the
meetings of the Co-ordination Committee. The secretary shall take a record of each
proposal voted on and the results of such vote at each meeting of the Co-ordination
Committee Each representative of the Parties shall sign and be provided with a copy
of such record at the end of such meeting. The secretary shall provide each Party with
a copy of the minutes of each meeting of the Co-ordination Committee within fifteen
(15) days uftcr the end of such meeting. Each Party shall thereafter have a period of
fifteen (15) days to give notice of any objections to the minutes to the secretary
Failure to give notice within the said fifteen (15) day period shall be deemed approval
of those minutes. In any event the record of proposals voted on to be provided at the
end of each meeting shall be conclusive and take precedence over the minutes.
6.10 All costs and expenses incurred with respect to the activities of the Co-ordination
Committee shall be paid or reimbursed by the Contractor and recoverable as Costs
and Expenses in accordance with the Accounting Procedure.
iOK TRACTOR RESPONSIBILITY
7.1 The Panics agree that DNO ASA, or its designee, shall act as the Operator for
Petroleum Operations within the Agreement Area in accordance with approved Work
Programs and Budgets unless and until the Contractor notifies the Government of the
appointment of a new Operator. Following the appointment of a new Operator, that
Operator shall act as the designated non-profit agent of the Contractor for the conduct
of Petroleum Operations in accordance with this Agreement and the JOA Under such
circumstance of an appointment of a new Operator, the Contractor's overall joint and
several liability for the acts and actions of the new Operator will continue.
7.2 The Contractor shall have the following obligations:
(a) to perform the Petroleum Operations in accordance with all applicable laws
and regulations and methods and practices customarily used and accepted in
the international Petroleum industry and any directions received from the Co¬
ordination Committee It is recognised that the Co-ordination Committee
through the Contractor will have operating control of all Petroleum
(b) to conduct (implement) the Work Programs and Budgets approved by the Co¬
(c) to be responsible for purchasing facilities, equipment and miscellaneous
material and enter into subcontracts and service contracts at Contractor's
instruction with service providers and vendors related to the Petroleum
Operations, in accordance with approved Work Programs and Budgets and
instniciions from Contractor.
(tl) lo prepare and submit for approval a personnel training program and an annual
budget and carry out the same as approved by the Co-ordination Committee;
(e) to establish and maintain complete and accurate accounting records regarding
its costs and expenditures for the Petroleum Operations in accordance with the
Accounting Procedure and this Agreement;
(0 to make necessary preparation for regular meetings of the Co-ordination
Committee, ami to submit to the Co-ordination Committee information related
to the matters reviewed and approved by the Co-ordination Committee;
(g) to assist the Contractor and the Government as requested in the provision of
reports to the Co-ordination Committee on Petroleum Operations conducted
under this Agreement.
The Contractor shall not he responsible for any activities (including Petroleum
activities) affecting the Agreement Area prior to the Effective Date and the Contractor
shall have no responsibility for making safe any existing wells and for the
abandonment and decommissioning of any existing wells, facilities and equipment not
used by the Contractor in Petroleum Operations.
7.4 The Contractor shall provide both Parties with copies of all relevant data and reports
pertaining to Petroleum Operations (including but not be limited to geophysical,
geological, technological, operational, accounting or other material) required by such
7.5 Die Contractor shall make good faith efforts to ensure that Third Panics have access
to the capacity in any pipeline exceeding its own notified or contracted requirements
available to third party users on reasonable commercial term* that do not discriminate
among third party users.
7.6 (a) If the Contractor is unable to commence the acquisition of the seismic andor
drill an exploration well in the first twelve (12) months of the first Exploration
period as provided in Annex C due to the inability of the Contractor to find a
contractor able to commence such seismic work or exploration well, the
Government shall have the right to enter into a contract with a seismic andor
drilling contractor on behalf of the Contractor and have such seismic work or
exploration well commenced provided that the Contractor shall pay all the
Costs and Expenses due to such contractor.
(b) If notwithstanding Article 7.6(a) the Government is unable to fiind a
contractor to commence the acquisition of the seismic and'or an exploration
well in the first twelve (12) months of the first Exploration penod. the
Contract shall be deemed to be in Force Majeure and the provisions of Article
24 shall apply.
PROCEDURE FOR l)K I KRMIN ATION OF COMMERCIAl 11V AM)
APPROVAL OF DEVELOPMENT PLANS
8.1 (a) Where, in the course of Petroleum Operations, the Contractor makes a
Discovery of Petroleum in the Agreement Area, the Contractor shall inform
the Co-ordination Committee immediately by notice in writing Within forty-
five (45) days of such notice the Contractor shall inform the Co-ordination
Committee whether, in the Contractors opinion, the Discovery is of potential
commercial interest and merits appraisal.
(b) If at any time the Contractor concludes that significant additional Commercial
Production is feasible from any Development Area within the Agreement Area
where Commercial Production has previously been established, the Contractor
shall notify the Co-ordination Committee within forty-five (45) days of
reaching such a conclusion,
8.2 Immediately following notification under Article 8.1(a) or 8.1(b), the Contractor shall
in the first instance present to the Co-ordination Committee a proposed Study
Program. The proposed Study Program shall specify in reasonable detail the
Appraisal work including seismic, drilling of wells and studies to be earned out and
the estimated time frame within which the Contractor shall commence and complete
the program and also appropriate budgets.
8.3 Thereafter the Contractor shall carry out the Study Program. After completion of
such Study Program, the Contractor shall submit to the Co-ordination Committee a
comprehensive evaluation report on the Study Program. Such evaluation report shall
include, but not be limited to: geological conditions, such as structural configuration;
physical properties and extent of reservoir rocks, pressure, volume and temperature
analysis of the reservoir fluid; fluid characteristics, including gravity of liquid
hydrocarbons, sulphur percentage, sediment and w ater percentage, and product yield
pattern. Natural Gas composition; production forecasts (per w ell and per Field); and
estimates of recoverable reserves.
8.4 Together w ith the submission of the ev aluation report, the Contractor shall submit to
the Co-ordination Committee a written declaration including one of the following
(a) that the Commercial Production previously notified to the Government
pursuant to Article 8.1 is feasible;
(b) that such Commercial Production is not feasible (contrary to the notice
containing Contractor's initial expectations); or
(c) that Commercial Production will be conditional on the outcome of further
specified work that the Contractor commits to cany out under a further
Exploration or Study Program in specified areas within or outside the relevant
■ ON«l 15
8.5 In the event the Contractor makes a declaration under Article 8.4(c) above, the
Contractor shall be entitled to retain the relevant Study Area pending the completion
of the further work committed under that Article, at which time the Contractor shall
advise the Co-ordination Committee of its conclusion as to whether or not there is in
fact a new Commercial Discovery and the provisions of Article 8.4(a) or (b) shall be
8.6 If the Contractor declares pursuant to Article 8.4(a) that Commercial Production is
feasible, the Contractor shall submit to the Co-ordination Committee (i) a proposed
Development Plan in respect of the relevant Commercial Discovery' (containing the
matters specified in Articles 8.7 and S.S) and (ii) a proposed designation of the
Development Area, both of which shall be subject to the Co-ordination Committee’s
approval to be given in accordance with .Article 6.7.
8.7 The Contractor’s proposed Development Plan to be submitted pursuant to Article 8.6
shall detail the Contractor’s proposals for Development and operation of the
Development Aren. It will detail any facilities and infrastructure, which may be
required up to the Measurement Point, either inside or outside of the Development
Area. Any Development Plan shall set forth production parameters, number and
spacing of wells, the facilities and infrastructure (including proposed locations) to bo
installed for production, storage, transportation and loading of Petroleum, an estimate
of the overall cost of the Development, and estimates of the time required to complete
each phase of the Development Plan, a production forecast and any other factor that
would affect the economic or technical feasibility of the proposed Development.
8.8 Any Development Plan shall also include an abandonment and site restoration
program together with a funding procedure for such program. Each abandonment
plan shall describe removal and abandonment measures deemed necessary following
completion of Production from the relevant Development Area together with an
estimate of the costs thereof. The abandonment plan shall provide for the removal of
facilities and equipment used in Petroleum Operations or their in place abandonment,
if appropriate, in the Development Area and the return of used areas to a condition
that reasonably permits the use of such areas for purposes similar to those uses
existing prior to the commencement of Petroleum Operations hereunder. All
payments made to an abandonment fund by Contractor to meet expenditures incurred
in abandonment and site restoration shall be treated as Costs and Expenses and
recoverable from Cost Recovery Petroleum in accordance with Article 10 and the
Accounting Procedure. The start date for payments to an abandonment fund, and the
method of calculation for periodic instalments to be paid into the abandonment fund,
will be agreed in the Development Plan. The abandonment plan and budget shall be
regularly reviewed by the Co-ordination Committee. Surplus accumulation in the
abandonment fund will be credited to the cost recovery account. All funds collected
pursuant to the funding procedure shall be dedicated to site restoration and
abandonment and will be placed in a special interest bearing account by Contractor,
which shall be held in the joint names of the Government and the Contractor or their
nominees. The Contractor’s responsibilities for environmental degradation, site
rcstorarion and well abandonment obligations, and any other actual, contingent,
possible and potential activity associated with the environmental condition of the
Development Area shall be limited to the obligation to place the funds agreed to be
paid in accordance with the said funding procedure in the approved account in
accordance with generally accepted international Petroleum industry practice.
Deposits in approved accounts shall be made on a quarterly basis in arrears
commencing with the first Calendar Quarter in which there is Available Petroleum
All such pa>mcnts deposited by Contractor shall be treated as Costs and Expenses and
recoverable as Operation Expenses from Cost Recovery Petroleum in accordance with
Article 10 of this Agreement. No Taxes shall be imposed on any amounts paid into,
received or earned by or held in the special interest bearing account. The Contractor
shall be solely responsible for the implementation of the abandonment plan.
8.9 .Any significant changes to an approved Development Plan or proposals related to
extension of a Field or for enhanced recovery projects shall be submitted to the Co¬
8.10 Subject to the terms of this Agreement the Contractor shall carry out, at its own
expense and financial risk, all the necessary Petroleum Operations to implement an
approved or revised Development Plan.
8.11 Where there is a perceived need recognised by the Parties to improve the economic
effectiveness of the Petroleum Operations by constructing and operating certain
common facilities with other organisations (including for example roads, non-
imporb'non-export pipelines, compression and pumping stations and communication
lines) the Parties shall use their best efforts to reach agreement between themselves
and other appropriate enterprises as to the construction and operation of such facilities
with all costs, tariffs and investments made by the Contractor to be recoverable as
Operation Expenses in accordance with .Article 10 of this Agreement and the
9.1 lire Contractor shall prepare and submit the annual Work Programs and Budgets in
respect of each Exploration period and for Development, which in the ease of
Development shall be in conformity with the approved Development Plan. The
Contractor shall be responsible for the procurement of installations, equipment and
supplies and entering into contracts for the purchase of goods and services with
Subcontractors including Foreign Subcontractors and others arising out of Petroleum
Operations, all in accordance with approved Work Programs and Budgets. Operator
shall assist the Contractor when requested in respect of the matters set out in the
previous sentence, and shall implement domestic procurement operations as provided
in Article 7.2(c) in accordance with approved Work Programs and Budgets.
92 Before the 31st October of each Calendar Year, the Contractor shall prepare and
submit to the Co-ordination Committee for its review a proposed annual Work
Program and Budget for the next Calendar Year. If the Co-ordination Committee
agrees to modifications in an annual Work Program and/or Budget, the Contractor
shall promptly make such modifications to the Work Program and’or Budget and
resubmit die modified Work Program and Budget to the Co-ordination Committee.
The Co-ordination Committee shall approve each Work Program and Budget as
provided in Article 6.7.
LO^tl -.«*«** 17
9.3 In connection with the review and approval of the annual Work Program and Budget,
the Contractor and Operator shall submit to the Co-ordination Committee such
supporting data as reasonably requested by the Co-ordination Committee.
9.4 I he Contractor may, in accordance with the following provisions, incur costs and
expenditures in excess of the approved Budget or costs and expenditures outside the
approved Budget in currying out the approved Work Program and such costs and
expenditures will be recoverable us Costs and Expenses under Paragraph 3.1(o) of the
Accountancy Procedure, provided that the objectives in the approved Work Program
are not substantially changed:
(a) In carrying out an approved Budget, the Contractor may, if necessary, incur
excess costs and expenditures of no more than ten percent (10%) of die
approved Budget. The Contractor shall report quarterly the aggregate amount
of all such excess expenditures to the Co-ordination Committee for
(b) For the efficient and as required operative performance of Petroleum
Operations, the Contractor may, without approval, undertake certain
individual projects which are not included in the Work Program and Budget,
for a maximum expenditure of One Hundred Thousand U.S.S (U.S.S 100,000),
hut shall, within ten (10) days after such expenditures arc incurred, report to
the Co-ordination Committee for confirmation.
(c) Excess expenditures under this Article 9.4 shall not exceed ten percent (10%)
of the approved or modified total annual Budget for the Calendar Year. If the
aforesaid excess is expected to be in excess of said ten percent (10%) of the
total annual Budget, the Contractor shall present its reasons therefore to the
Co-ordination Committee and obtain its approval pnor to incurring such
9.5 In case of emergency (as in where there is an immediate threat to life or property), the
Contractor may incur emergency expenditures for the amount actually needed but
shall report such expenditures to the Co-ordination Committee as soon as they are
made The said emergency expenditures shall not be subject to Article 9.4 above.
9.6 Petroleum Operations will only be performed in accordance with the approved or
modified annual Work Program and Budget, otherwise they will not be deemed to be
Costs and Expenses and w ill not be treated as Cost Recoverable.
^XPE>SES^PROI)L^^^ON^SHAitlNC^ ^ANj/r|C 111 <‘)Wl^POin~
10.1 The Contractor shall provide or procure the provision of all funds required to conduct
Petroleum Operations under this Agreement, except as otherwise provided in this
Agreement, and the Contractor shall be entitled to recover its Costs and Expenses
from the proceeds of Petroleum produced from the Agreement Area as provided
102 The Contractor shall have the nght to use free of charge Petroleum produced and
saved from the Agreement Area to the extent required for Petroleum Operations under
the Agreement. The amount of Petroleum which the Contractor shall be entitled to
use for Petroleum Operations shall not exceed the amount which would be used by a
reasonable and prudent operator in accordance with international Petroleum industry
practice. For the avoidance of doubt, the use of such Petroleum shall only be for the
benefit of Petroleum Operations and not the personal gain of any Party or Contractor
Party. An appropriate record shall also be made of the use of such Petroleum.
10.3 Available Crude Oil and. subject to Articles 11.3 and 15. Available Natural Gafl
(hereinafter collectively referred to as “Available Petroleum**) shall be measured at
the Measurement Point and shall be sold by the Contractor, and in respect of the
Government’s share of Available Petroleum shall he sold by the Contractor on behalf
of the Government, and the revenue* determined in accordance with Article 11
generated from the sales of the Available Petroleum shall be distributed among the
Parties in accordance with the terms of this Article 10.
10.4 Royalty calculated Quarterly in accordance with Article* 10-13 and 10.14 shall first
be deducted from the Available Petroleum From the remaining Available Petroleum
the Contractor shall be entitled to recover all Costs and Expenses incurred in respect
of Petroleum Operations in a manner consistent with the Accounting Procedure.
Article 10.5 and Article 10.6.
10.5 Costs and Expenses shall be recovered from one hundred percent (100%) of
remaining Available Petroleum (hereinafter referred to as “Cost Recovery Crude Oil”
and "Cost Recovery Natural Gas” and collectively “Cost Recovery Petroleum" as
appropriate) following the recovery of Operation Expenses. Coat* and Expenses shall
be recovered in the Quarter in which such Costs and Expenses are incurred
10.6 To the extent that in a Quarter outstanding recoverable Costs and Flxpcnscs related to
the Agreement Area exceed the value of all Cost Recovery Crude Oil or Coat
Recovery Natural Gas from the Agreement Area for such Calendar Quarter, the
excess shall be carried forward for recovery in the next and each succeeding Calendar
Quarters until fully recovered, but in no ease after termination of this Agreement
10.7 To the extent that the value of Cost Recovery Petroleum received by the Contractor
from the Agreement Area durtng a Calendar Quarter is greater or lesser than the
Contractor was entitled to receive for that Calendar Quarter, an appropriate
adjustment shall be made in accordance with the Accounting Procedure.
10 X billowing the deduction of Royalty and recovery of Costs and Expenses from Cost
Recovery Petroleum in accordance with the provisions of this Article 10; the
remaining Petroleum in any Quarter including any portion of Cost Recovery
Petroleum not required for recovery of Cost and Expenses (hereinafter referred to as
“Profit Oil" or "Profit Natural Gas” ami collectively "Profit Petroleum") shall be
allocated between the Parties in each Quarter in the following proportions for each
and every Development Area;
The Profit Oil will be shared as follows:
Until the cumulative Available Crude Oil after deduction of the Royalty from any
Development Area reaches fifty million (50.000.000) Barrels the Government share
of the available crude oil from that Development Area will be sixty percent (60%) and
the Contractor share will be forty percent (40%);
Thereafter, until the cumulative Available Crude Oil after deduction of the Royalty
from any Development Area reaches three hundred million (300.000.000) Barrels the
Government share from that Development Area will be seventy percent (70%) and the
Contractor share will be thirty percent (30%);
Thereafter, until the cumulative Available Crude Oil after deduction of the Royalty
from any Development Area reaches one billion (1.000.000.000) Barrels the
Government share from that Development Area will be eighty percent (80%) and the
Contractor share will be twenty percent (20%) and;
Ihcrenftcr, Available Crude Oil after deduction of the Royalty exceeding one billion
(1.000.000.000) Barrels the Government share will be eighty-five percent (85%) and
the Contractor share will be fifteen percent (15%).
Any Available Natural Gas, whether Associated or Noil-Associated, which the
Contractor intends to produce and sell, shall be allocated between the Parties in each
Quarter in the following proportions: fifty percent (50%) for the Government and filly
percent (50%) for the Contractor.
10.9 The Contractor shall prepare and provide the Government not less than ninety (90)
days prior to the beginning of each Calendar Quarter a written forecast setting out the
total quantity of Petroleum that the Contractor estimates can be produced and saved
hereunder during each of the next four (4) Calendar Quarters in accordance with
accepted international Petroleum industry practices and the Wort Program established
in accordance with Article 9.
10.10 Title to their shares of Petroleum determined in accordance with this Article 10 shall
pass to the Parties at the Measurement Point. The Contractor shall account to the
Government for the Government's share of all proceeds (less a pro-rata share of all
costs. Taxes, duties and other charges incurred by the Contractor) incurred by the
Contractor and attributable to the Government's share of any Profit Petroleum sold by
the Contractor on behalf of the Government, and the nsk of loss or default of a Third
Party’ purchaser shall be borne by the Government
10.11 Notwithstanding Article 10.3 the Government may. by giving not less than ninety (90)
days notice in writing to the Contractor, elect to lift and take all or part of iu
entitlement to Profit Oil in kind during one (1) or more subsequent Quarters. In that
event the Parties shall agree on procedures for taking volumes of Crude Oil
corresponding to their respective entitlements on a regular basis and in a manner that
is appropriate having regard to the respective destinations and uses of the Crude Oil.
all in accordance with the provisions of this Agreement. If necessary the Parties will
enter into a lifting agreement setting out the agreed procedures for taking volumes of
Crude Oil. and such agreement shall comply with the principles of accepted
international Petroleum industry practice. The Government shall assume credit risk
and risk of loss from the Measurement Point in any pan of Profit Oil so taken in kind
1 <>V9I :*«?*.* 20
10.12 The Royally shall be paid by Contractor to the Government or to any authority as
designated by Government in Quarterly instalments in arrears. The first payment in
respect of production to date shall be made on the first day of the first Calendar
Quarter following the commencement of Commercial Production. The Royalty shall
be five percent (5%) of the value of the Available Crude Oil produced in the relevant
10.13 Royalty in respect of Available Natural Gas shall he determined by agreement made
in accordance with Article 15.
10.14 The Royalty payment shall be calculated from the value of Crude Oil at the
Measurement Point as determined in accordance with Article 11.
10.15 Any Royally Petroleum sold by the Contractor on behalf of the Government for the
purposes of Article 10.13 shall be deemed to be sold by the Contractor as agent for
the Government. The Contractor shall account to the Government for the proceeds
(less all costs. Taxes, duties and other charges incurred by the Contractor) incurred by
(lie Contractor and attributable to the Royalty Petroleum sold by the Contractor on
behalf of the Government, and the risk of loss or default of a Third Parly purchaser
shall be borne by the Government.
VALUATION OF CRUDE OH. A.M> NATURAL GAS
11.1 If the Contractor can demonstraw that Petroleum is being sold to a Third Party on an
arm's length basis, then the Crude Oil shall be valued as the actual revenues received
by the Contractor for sales of Crude Oil at the Measurement Point (adjusted if
necessary for transportation, storage and processing costs). If howev er such a Third
Party sale cannot be demonstrated then the Parties agree that the value of the Crude
Oil. if sold on international markets, shall be adjusted to the international market price
for Crude Oil from time to time. In this ease, for the purpose of determining the value
of the Petroleum taken and disposed of by the Parties and/or their assignees under this
Agreement during each Calendar Quarter, the Parties shall, prior to the
commencement of Commercial Production, agree upon the basket of Crude Oils
freely traded in international markets and referred to in Article 11.1(a) below and the
value of the Petroleum shall he adjusted to rcllcct the weighted average of daily f.o.b.
prices for similar term or spot sales for the same Calendar Quarter, it being
understood that the following principles will apply:
(a) Hie weighted average of the basket shall be such that the average quality of
the basket and the average quality of the types of Crude Oil produced under
this Agreement arc equal; and
(b) The prices for individual referenced crude oil markers used within the basket
shall be based upon the arithmetic average of a daily report of the actual price
for each referenced crude oil marker as published in agreed internationally
recognised publications; and
(c) Adjustment provisions will be incorporated into the basket formula to take
account of transportation costs involved in Crude Oil produced under this
Agreement arriving at a designated sales point (where die sales point is not the
Measurement Point) and to take account of quality variation beyond a pre¬
agreed range; and
(d) Unless agreed otherwise, the lust calculated weighted average basket price
shall sene us the provisional price for a Calendar Quarter until a new price is
11.2 In the event that the Parties arc unable to agree upon the basket of Crude Oil
envisaged in Article 11.1 nbovc, or the principles relating thereto, then either of the
Parties may refer the question for a final and binding determination by an independent
expert (who shall he deemed to be acting as an expert and not as an arbitrator)
designated by the President of the UK linergy Institute. Pending such determination,
the price shall be as determined in Article 11.1(d) above.
! 1.3 Natural Gas sold in arm's length transactions shall be valued at the actual revenues
received less transportation, storage, treatment, processing, marketing, distribution,
liquefaction and all other associated costs incurred by Contractor beyond the
Measurement Point in supplying Natural Gas to customers beyond the Measurement
Point. Natural Gas sold in other than arm’s length transactions shall be valued in
accordance with the terms of an agreement made under Article 15 which shall be
approved by the Government.
AKTK 1.1. 12
12 1 In addition to the rights to cany out Petroleum Operations within the Agreement Area
the Government shall provide or otherwise procure access by Contractor to all
existing facilities and infrastructure in the Agreement Area owned by the Government
for the purpose of carrying out its Petroleum Operations during the term of the
Agreement. Such access shall be on terms as regards access and tariffs no less
favourable than those offered to other persons or entities and. in addition, in any case
within the Current l egislation
12.2 Provided that the Government is furnished the information below, the Government
shall make available at no cost and the Contractor shall have the right to use, produce,
reprocess and export all existing (and as may be acquired by the Contractor!
geoscience, engineering, environmental and geodetic data (including magnetic tapes
and films) maps, surveys, reports, and studies it deems necessary to carry out
Petroleum Operations hereunder including, but not limited to: magnetic surveys,
seismic surveys, well logs and analysis, core analysis, well file*, geologic and
geophysical maps and reports, reservoir studies, reserve calculations, accurate
geodetic co-ordinates for the location of all wells and seismic lines and all other
pertinent data relative to the Agreement Area, which arc owned by the Government
In the event that any information is to be sold on a confidential basis to any Third
Party by the Parties (consent for which is required from the Parties) any profit made
on such sale shall be distributed in accordance with the share of Profit Oil under
•2.3 The Contractor shall have the right to conduct all geoscience, engineering,
environmental ami gcixlctic studies it deems necessary to carry' out Petroleum
Operations under the Work Program. Saul studies may include, but arc not limited to:
seismic surveys, magnetic surveys, global positioning surveys, aenal photography
(obtaining relevant permits), and collection of soil/water'oiL'rock samples for
scientific and environmental studies. The Contractor shall be granted access to and or
permission to fly subject to obtaining appropriate consents (which will not be
unreasonably withheld or delayed) over the Agreement Area to conduct said studies.
The Contractor shall have tire right to import equipment and supplies necessary to
conduct said studies as well as the right to export data, film and samples to
laboratories outside the Kurdistan Region to conduct such studies.
12.4 Subject to (i) prior approval by the Co-ordination Committee, and (ii) prior consent
and/or permit from any necessary local administration or Government body and
relevant landowners, the Contractor and/or Operator shall have the nght to clear the
land, to dig, pierce, drill, construct, erect, locate, supply, operate, manage and
maintain pits, tanks, wells, trenches, excavations, dams, canals, water pipes, factories,
reservoirs, basins, maritime storage facilities and such, primary distillation units,
separating units for first oil extraction, sulphur factories and other Petroleum
producing installations, as well as pipelines, pumping stations, generator units, power
plants, high voltage lines, telephone, telegraph, radio and other means of
communication (including satellite communication systems), plants, warehouses,
offices, shelters, personnel housing, hospitals, schools, premises, underwatcr piers and
other installations, roads, bridges, and other means of transportation, garages, hangars,
workshops, maintenance and repair shops and all the auxiliary services which are
necessary or useful to Petroleum Operations or related to than and. more generally,
everything that is or could become necessary or accessory to cany out the Petroleum
Operations in accordance with the Current Legislation
12.5 The agents, employees and personnel of the Contractor and Operator, or
Subcontractors, may enter or leave the Agreement Area and have free access, within
the scope of their functions, to all installations put in place by the Contractor or
Operator or otherwise utilised in Petroleum Operations.
12.6 Subject to prior consent of any appropriate local governmental bodies and the relev ant
landowners, the Contractor shall have the right to utilise the upper soil, mature timber,
clay, sand, lime, gypsum and stones other than precious stones, and any other similar
substances necessary for the performance of Petroleum Operations in accordance with
the Current Legislation. The Contractor may utilise the water necessary for
Petroleum Operations, on condition that reasonable efforts arc taken to minimise
potentially adverse effects on irrigation and navigation, and that land, houses and
watering places arc not adversely affected.
12.7 The Contractor shall have the right to use existing pipeline and terminal facilities
belonging to or under the control of the Government. The Government shall assist in
making these facilities available to the Contractor on terms with regard to access and
tariffs that arc no less favourable than those made available to others.
ASSISTANCE PROVIDED BY I HI, GOVERNMENT
13.1 To enable the Contractor to properly carry out the Petroleum Operations, the
Government shall have the obligation to assist the Contractor and produce all consents
and approvals required by the Contractor or its Foreign Stil>contiactors upon request
(a) provide the approvals or permits needed to conduct Petroleum Operations, to
carry out associated business activities and to open local and foreign bank
accounts (for both local and foreign currency) in the Kurdistan Region;
(b) arrange for Foreign Exchange to be converted in accordance with the
principles set out in Article 18.9 of this Agreement,
(c) use office space, office supplies, transportation and communication facilities
and make arrangements for accommodations as required;
(d) assist with any custom formalities;
(c) provide entry and exit visas and work permits for employees and their family
members of Operator, Contractor, their Affiliated companies and Foreign
Subcontractors, who arc not citi/cns of the Kurdistan Region and who come
to the Kurdistan Region to implement the Agreement and to provide assistance
for their transportation, travel and medical facilities whilst in the Kurdistan
(f) provide necessary permits to send abroad documents, data and samples for
analysis or processing during the Petroleum Operations;
(g) contact and instruct appropriate departments and mmistncs of the Government
and any other bodies controlled by the Government to do all things necessary
to expedite Petroleum Operations;
(h) provide permits. approvals, and land usage rights requested by the Contractor
and'or Operator for the construction of bases, facilities and installations for
use in conducting Petroleum Operations; and
(i) provide to the Contractor data and samples if such data and samples exist
concerning the Agreement .Area other than those produced as a result of
ME ASl RKME.NT, QUALITY AND VALUATION OF PETROLEUM
14.1 All Petroleum produced, saved and not used in the Petroleum Operations in
accordance with Article 10.3 shall be measured at the Measurement Point approved in
the Development Plan.
14.2 The Measurement Point shall be an outlet of the very final facility, among all
facilities, the cost of which is included as a Cost and Expense recoverable from Cost
Recover}- Petroleum under this Agreement-
14.3 All Petroleum shall be measured in accordance with standards generally acceptable in
the international Petroleum industry. All measurement equipment shall be installed,
maintained and operated by the Operator. The installed measurement equipment will
have certificates of standard from appropriate international organisations. The Parties
shall be entitled periodically to inspect the measuring equipment installed and all
charts and other measurement or test data at all reasonable tunes. The accuracy of
measuring equipment shall be verified by tests at regular intervals and upon request
by either Party, using means and methods generally accepted in the international
14.4 Should a meter malfunction occur, the Operator shall immediately have the meter
repaired, adjusted and corrected and following such repairs, adjustment or correction
shall have it tested or calibrated to establish its accuracy. Upon the discovery of a
metering error. Operator shall have the meter tested immediately and shall take the
necessary steps to correct any error that may be discovered and after each ease
approval of the Government on using the meter is necessary.
14.5 In the event a measuring error is discovered, the Parties shall use all reasonable efforts
to determine the correct production figures for the period during which there was a
measuring error and correct previously used readings. Contractor shall submit to the
Co-ordination Committee a report on the corrections carried out. In determining the
correction, Contractor shall use, where required, the information from other
measurements made inside or outside the Development Area. If it proves impossible
to determine w hen the measuring enor first occurred, the commencement of the error
shall be deemed to be the point m time halfway between the date of the previous test
and the date on which the existence of the measuring error was first discovered.
14.6 All measurements for all purposes in this Agreement shall be adjusted to standard
conditions of pressure at sea level and temperature at sixty degrees Fahrenheit (60*F).
15.1 Associated Natural Gas
(a) Associated Natural Gas produced within the Agreement Area shall be used
primarily for purposes related to the Production Operations and production
enhancement including, without limitation, oil treating, gas injection, gas
lifting and power generation.
(b) Based on the principle of full utilisation of the Associated Natural Gas and
with no impediment to normal production of the Crude Oil. any Dev elopment
Plan shall delude a plan of utilisation of Associated Natural Gas. If there is
any excess Associated Natural Gas remaining in any Oil Field after utilisation
pursuant to Article 15.1(a) above (hereafter referred to as “Excess Associated
Natural Gas"), the Contractor shall carry out a feasibility study regarding the
commercial utilisation of such Excess Associated Natural Gas.
(i) If the Parties agree that Excess Associated Natural Gas has no
commercial value, then Operator shall act under the plan approved by
Co-ordination Committee, so as not to interfere with normal oil
production. For the avoidance of doubt, both the plan and the
Operator’s activities under the plan shall exclude pollution and
correspond to relevant standards effective in Current Legislation.
(ii) If the Parties agree that F.xccss Associated Natural Gas has commercial
value, they will endeavour to enter into gas sales agrccmcnt(s) and/or
other commercial and/or technical anangements with Third Parlies
required to develop such Excess Associated Natural Gas, and shall
implement a new agreement regarding the Appraisal and possible
development and marketing of the Excess Associated Natural Gas in
the domestic anil international markets. Investments in the facilities
necessary for production, transportation and delivery of Excess
Associated Natural Gas shall be made by the Contractor. The
construction of facilities for such Production and utilisation of the
Excess Associated Natural Gas shall he carried out at the same time as
the Development Operations, or at any time as may be agreed to by the
(iii) If either Party considers that Excess Associated Natural Gas has
commercial value while the other considers that Excess Associated
Natural Gas has no commercial value, the one who considers Excess
Associated Natural Gas to have commercial value ma> utilise such
Excess Associated Natural Gas, at its own cost and expense and
without impeding the Production of Crude Oil or affecting the shares
of Crude Oil and Natural Gas otherwise to be allocated under the other
provisions of this Agreement. If such Excess Associated Natural Gas
is not so utilised at any time or from time to time, then such Excess
Associated Natural Gas shall be disposed of by the Operator in
accordance with Article 15. l(bX0-
(c) The price of Associated Natural Gas produced from the Agreement Area shall
be determined by the Panics based on general pricing principles taking into
consideration factors such as sales prices of internationally transported gas
delivered in Western Europe, quality and quantity of the Associated Natural
Gas (including the equivalent substitute energy value) and the economics of
(d) Investments made in conjunction with the utilisation of both Associated
Natural Gas and Excess Associated Natural Gas. together with investments
incurred after approval of a Development Plan in carrying out feasibility
studies on the utilisation of Excess Associated Natural Gas. shall be charged to
15.2 Non-ossociatcd Natural Gas
When any Non-associated Natural Gas is discovered within the Agreement Area, the
Parties shall implement a new agreement regarding the Appraisal and possible
development and marketing of the Non-associatcd Natural Gas in the domestic and
international markets. If the Parties cannot reach a new agreement within six (6)
months or any period mutually agreed upon, the Government will own and will or
cause to appraise, develop or produce such Non-associated Natural Gas. The
Government will take all necessary measures to avoid any effect, which may hamper
the Petroleum Operations of the Contractor while producing Crude Oil.
lAX/FjSC Al UIGIMi:
16.1 T his Article shall apply to each Contractor Party individually.
16.2 Each Contractor Party, Foreign Employee and Operator shall be entitled to full and
complete exemption from all Government Tuxes prior to or after the Effective Date of
this Agreement except us otherwise provided for in this Agreement. If any Tax is
levied on the Contractor Party, Foreign Employee or Operator within the territory of
Iraq, such Tax will be offset from the Government's share of Profit Petroleum.
16.3 This Agreement is entered into on the basis that the project shall be free from
Kurdistan Regional Government and Iraq Taxes.
16.4 It is acknowledged that Double Tax Treaties will have effect to give relief from Taxes
to, but not limited to. the Contractor, Contractor Parties, Foreign Subcontractors and
Foreign Employees in accordance with the provisions of such Double Tax Treaties,
but not otherwise.
16.5 The Contractor shall withhold Tax on payments to Subcontractors at a rate of five
16.6 Each Contractor Party shall maintain its tax books and records both in local currency
and in U.S.S
16.7 Employees of the Contractor. Contractor Parties, their Affiliates and Subcontractors,
and those employees assigned by the Contractor to the Operator who are not citizens
or residents of the Kurdistan Region or of Iraq (“Foreign Employees") shall not be
liable to the Kurdistan Region for personal income tax imposed by the Kurdistan
Regional Government in accordance with Tax legislator). However, w here Iraq has
entered into a Double Tax Treaty which has the effect of relieving a Foreign
Employee from personal income tax in their home nation, that Foreign Employee
shall be liable for personal income tax to the Kurdistan Region in accordance with
such Double Tax Treaty.
16.8 Foreign Employees who perform work in the Kurdistan Region and their employers
that would otherwise be covered by and subject to social insurance, pension fund
contributions and similar payments under the social security system of the Kurdistan
Regional Government will be exempt from those payments.
I.CKVfl :49*7*.* 27
.VCCOII^TINCm FINA|M( IAI. REPORTING AND AUDIT
17.1 The Contractor shall maintain book.s and accounts of Petroleum Operations in
accordance will* the Accounting Procedure attached hereto as Annex B. These shall
be maintained in Iraqi Dinars and in U.S.S in accordance with generally accepted
international Petroleum industry accounting principles, All books and accounts,
which arc made available to the authorities in accordance with the provisions of the
Accounting Procedure, shall be prepared in the English language
17.2 The Accounting Procedure specifics the procedure to be used to verify and establish
promptly and finally Contractor’s Costs and Expenses under Article 10 of this
17.3 Sales revenues, expenditures, financial results, tax liabilities, and loss carry-forwards
of each Contractor Party shall be determined in accordance with the rules, rights, and
obligations set forth in this Agreement in so far as such sales revenues, expenditures,
financial results, tax liabilities, and loss carry-forwards are related to Petroleum
Operations under this Agreement.
17.4 On an annual basis Contractor shall submit to the Government or other nominated
Governmental agency an internationally recognised auditor's report on Costs and
Expenses incurred, that under Article 10 should be compensated by Cost Rocovcry
Petroleum. The auditor’s report shall also include a profit calculation pursuant to the
provisions of Article 10 of this Agreement. The Government shall have the right to
audit the books anil accounts maintained by Contractor.
CIKRKNCY. PAYMENTS AND EXCHANGE CONTROL
18.1 The Contractor and each Contractor Party, and their Affiliates. Subcontractors and the
Operator shall have the right to open, maintain, and operate Foreign Exchange bank
accounts both in and outside of the Kurdistan Region and local currency bank
accounts inside the Kurdistan Region. Such operations performed in the Kurdistan
Region will comply with Current Legislation
18.2 The Contractor ami each Contractor Party, and their Affiliates shall have the right to
transfer all funds received in and convened to Foreign Exchange in the Kurdistan
Region without payment of Taxes, fees, duties or imposts to bank accounts outside
the Kurdistan Region in accordance with the Current Legislation
18.3 The Contractor and each Contractor Party, and their Affiliates and Foreign
Subcontractors shall liave the right to hold, receive and retain outside the Kurdistan
Region and freely use all funds received and derived from Petroleum Operations by
them outside the Kurdistan Region without any obligation to repatriate or return the
funds to the Kurdistan Region, including but not limited to all payments received
from export sales of the Contractor Parties' share of Petroleum and any sales proceeds
from an assignment of their interest in this Agreement
18.4 The Contractor and each Contractor Party, and their Affiliates, foreign
Subcontractors and the Operator shall have the right to import into the Kurdistan
Region funds required for Petroleum Operations under this Agreement in Foreign
Exchange and to export freely any funds held in the Kurdistan Region to bank
accounts outside Iraq.
18.5 Tltc Contractor and each Contractor Party, and their Affiliates and Foreign
Subcontractors shall have the right to pay outside of the Kurdistan Region for goods,
works and services of whatever nature in connection with the conduct of Petroleum
Operations under this Agreement without having first to transfer to the Kurdistan
Region the funds for such payments.
18.6 Whenever such a need arises the Contractor and each Contractor Party and their
Affiliates, Foreign Subcontractors and the Operator shnll lie entitled to purchase local
currency with Foreign Exchange and convert local currency into Foreign Exchange in
accordance with provisions stipulated in legislation.
18.7 The Contractor and each Contractor Party, and their Affiliates and Foreign
Subcontractors sluill have the right to pay outside the Kurdistan Region the principal
and interest on loans used for funding Petroleum Operations without having to first
transfer to the Kurdistan Region the funds for such payment.
18.8 The Contractor and each Contractor Party and their Affiliates, and the Operator shall
have the right to pay w ages, salaries, allowances and benefits of Foreign Employees
working in the Kurdistan Region in Foreign Exchange partly or wholly outside of the
18.9 Conversions of currency shall be recorded at the rale actually experienced in that
conversion. Expenditures and sales rev enues in currency other than the U.S.S shall be
translated to U.S.S at the rales officially published by the Central Bank of Iraq at the
close of business on the first business day of the current month.
IMPORT AND EXPORT
19.1 The Contractor, each Contractor Party and Affiliates and their agents and the Operator
shall have the right to import into, export and re-export from the Kurdistan Region in
accordance with the Current Legislation in force on the date this Agreement is signed
19.2 The Contractor, each Contractor Party and Affiliates and their agents shall have the
right to sell any materials or equipment or goods which were used in Petroleum
Operations provided that such items arc no longer needed for Petroleum Operations
and the costs of such items have not been and arc not intended to be included as Costs
and Expenses recoverable from Cost Recovery Petroleum.
19J The Contractor, each Contractor Party, their customers and their carriers shall have
the right to export from the Kurdistan Region all Petroleum to which the Contractor
becomes entitled under this Agreement free of all export duties, customs duties, levies
lO** I 29
19.4 Foreign Employees and family members of the Contractor and its Affiliates, its agents
and Foreign Subcontractors, shall have the right to imporl into and re-export from the
Kurdistan Region household goods and personal property at any lime free of any
import or export duty, customs duty, levy or impost.
19.5 The Contractor and any Foreign Subcontractors bringing equipment, facilities or
goods required for Petroleum Operations into the Kurdistan Region shall be exempt
from any import duties, customs duties, levies or imposts on such equipment,
facilities or goods and on the export thereof.
EXPORT OF HY DROCARBONS, TRANSFER OF
OWNERSHIP, AM) RKCULA nON,S I OR DISP<)SAl.
20.1 The Government shall make good faith efforts to ensure that the Contractor has access
to capacity in export facilities controlled by the Government on terms which are
equivalent to those which would lie available to a bona fide arm's length user. If any
production or export quotas arc at any time imposed by the Government, the
Government shall ensure that the Contractor shall have equal rights to produce and
export Petroleum produced under this Agreement as all other contractors holding
interests in production sharing agreements in the Kurdistan Region.
20.2 The transfer of title to each Contractor Party of its share of Petroleum shall be
effective upon the lifting of that share by such Party at the Measurement Point or. at
die Parties’ option, at some other point, as designated by the Co-ordination
20.3 The Parties shall each be entitled to designate (at their own cost) an employee,
independent company or consultant who shall check the lifting of Petroleum from the
Measurement Point or at such other point as may be designated in accordance with
20.4 if one of the Parties is unable to lift its share of Petroleum in due time, w ith the result
that Petroleum Operations may be interfered with or in any way disrupted, then after
giving such notice as is practical in the circumstances any other Party may dispose of
it, and subsequently give back to such Party an equivalent amount of Petroleum
(taking into account any costs incurred).
OWNERSHIP OF ASSETS
21.1 Ownership of any asset, whether fixed or moveable, acquired by or on behalf of the
Contractor in connection with Petroleum Operations hereunder shall vest in the
Government without consideration if (i) both the costs of such asset have been
recovered by the Contractor under this Agreement, and (ii) either this Agreement has
come to an end or, if earlier, when the asset is no longer required for Petroleum
Operations by the Contractor. The Contractor shall enjoy continued free, exclusive
and unrestricted use of all assets at no cost or loss of benefit to the Contractor until the
termination of this Agreement or if earlier until they arc no longer required for
Petroleum Operations. The Contractor shall bear the custody and maintenance of
such assets and all risks of accidental loss or damage thereto utile they are required
for Petroleum Operations, provided however that all costs necessary to operate,
maintain and repair such assets and to replace or repair any damage or loss shall be
recoverable as Operation Expenses from Cost Recovery Petroleum in accordance with
the provisions of Article 10.
21.2 whenever the Contractor relinquishes any pait of the Agreement Area, all moveable
property located within the portion of the Agreement Area so relinquished may be
removed to any part of the Agreement Area that has been retained for use in
21.3 The provisions of Article 21.1 and 21.2 shall not apply to materials or other property
that are rented or leased to the Contractor, its Affiliates or Operator or which belong
to employees of the Contractor, its Affiliates or Operator.
INSURANCE, ENVIRONMENT, HEALTH, SAITXY_ANP_L1AB1L1TY
22.1 The Contractor shall obtain and maintain such types and amounts of insurance for the
Petroleum Operations as are reasonable and such that they comply with the Current
Legislation and accepted international Petroleum industry practice and standards to
the extent such insurance coverage is available on reasonable commercial terms.
22.2 flic insurance which may be obtained, may cover:
(a) destruction and damage to any property held for use during Petroleum
Operations and classified as fixed capital and/or leased or rented property
and'or interests m pipelines operated by the Contractor.
(b) destruction of Crude Oil in storage,
(c) liability to Third Parties;
(d) liability for pollution and expenses for cleaning up in the course of Petroleum
(e) expenses for w ild well control;
(f) liability incurred by the Contractor in hiring land drilling rigs, vessels and
aircraft serv ing the Petroleum Operations, and
(g) losses and expenses incurred during the transportation and storage in transit of
goods shipped from areas outside the Agreement Area.
22.3 In any insurance agreements, the amount for which the Contractor itself is liable (the
“deductible amount”) shall be reasonably determined between the Contractor and the
insurer and such deductible amount shall in the event of any insurance claim be
considered as Costs and Expenses of Petroleum Operations recoverable from Cost
22.4 It is understood that, in order to meet their insurance obligations, insurance providers
used by Contractor may conclude reinsurance and co-insurance agreements with any
other insurance enterprises and organisations.
22.5 Notwithstanding the other provisions of this Agreement, the Contractor shall
indemnify and hold harmless the Government against all losses, damages and liability
arising under any claim, demand, action or proceeding brought or instituted against
the Government by any employee of the Contractor or any Subcontractor or
dependent thereof, for personal injuries, industrial illness, death or damage to personal
property sustained in connection with, related to or arising out of the performance or
non-pcrformancc of this Agreement regardless of the fault or negligence in whole or
in part of any entity or individual; provided, however, that such losses, damages ami
liabilities are not caused by or do not arise out of the performance or non-pcrformancc
of this Agreement by the Government and the Government shall indemnify and hold
the Contractor (including for this purpose any Affiliate, the Operator and all
Subcontractors) harmless against all such damage, losses and liabilities.
22.6 The Contractor (including for this purpose any Affiliate and the Operator) shall
indemnify the Government for all loss or damage suffered by the Government arising
out of the Contractor’s Petroleum Operations if such Petroleum Operations were not
in accordance with international Petroleum industry practices or applicable laws, rules
and regulations and, notwithstanding the foregoing, for any loss or damage to the
environment or any cultural or national monument arising out of conduct of the
Petroleum Operations; provided, however, that the Contractor (including for this
purpose any Affiliate, and the Operator) shall have no liability hereunder if and to the
extent any loss and damage is caused by or arises out of any breach of this Agreement
(and any other agreements that may be entered into by and between the Contractor
and the Government in respect of the Petroleum Operations) or breach of duty by the
Government Notwithstanding the foregoing, the Contractor (including for this
purpose any Affiliate and the Operator) shall not be liable to the Government for any
punitive or exemplary damages or any other indirect or consequential damages, or for
loss of production or hydrocarbon reserves, or for damage to any h>drocarbon
22.7 The Contractor shall not be responsible to the Government for. and shall bear no cost,
expense or liability of the Government for, any claim, damage or loss to the extent
such claim, damage or loss does not arise out of a failure to conduct Petroleum
Operations as provided in Article 22.6. In amplification of the foregoing, the
. Contractor shall not be responsible for any environmental condition or damage
existing in the Agreement Area prior to the date of this Agreement or caused by a
Force Majcuic event during the term of this Agreement Existing environmental
conditions will be evidenced by an independent Third Party environmental baseline
study of existing environmental conditions to be commissioned by the Contractor, at
its own cost and expense (which shall be included as Cost* and Expenses for the
purposes of determining Cost Recovery Petroleum, subject to prior approv al by the
Co-ordination Committee) and shall be completed prior to the commencement of the
relevant Petroleum Operations under an approved Development Program and Budget
and in accordance with international Petroleum industry practices and Current
Legislation related to the environmental issues. Such baseline study shall be
submined to the Government and shall be incorporated in the Environmental Impact
Assessment to he prepared by the Contractor in accordance with the environmental
laws for the purpose of obtaining a pennit for Petroleum Operations from the
authority, which permit and any other permits, authorisations and consents which are
or may be applicable under the Current Legislation, shall not be unreasonably
withheld. The Government agrees to provide Contractor with all authorisations,
permits, certificates and other documents necessary for Petroleum Operations. If in
the course of the Petroleum Operations, the Government provides other areas for the
Contractor’s activities, then new environmental baseline studies shall be include*! in
the Development Plan that includes these areas. The Government shall indemnify the
Contractor against any claim, damage or loss arising from such pre-existing
environmental condition or damage, subject however, to the Contractor having taken
reasonable and appropriate precautions m conducting Petroleum Operations, it being
understood that in pursuing Petroleum Operations the Contractor has assumed the risk
of working in the Agreement Area, and provided, further, that such indemnification
shall not extend to any natural pre-existing condition.
22.8 In conducting Petroleum Operations, the Contractor shall operate according to
international Petroleum industry practices and use best endeavours to minimise
potential disturbances to the environment, including the surface, subsurface, sea, air,
flora, fauna, other natural resources and property. The order of priority for actions
shall be protection of life, environment and property.
22.9 The Contractor shall take all necessary steps to respond to. and shall promptly notify
the Government of, all emergency and other events (including explosions, leaks and
spills), occurring in relation to the Petroleum Operations which arc causing or likely
to cause material environmental damage or material risk to health and safely. Such
notice shall include a summary description of the circumstances ami steps taken and
planned by the Contractor to control and remedy the situation. The Contractor shall
provide such additional reports to the Government as arc 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.
22.10 In the event of emergency situations as set forth in Article 22.9 above, at the request
of the Contractor, the Government, without prejudice and in addition to any
indemnification obligations the Government may have hereunder, shall assist the
Contractor, to the extent possible, in any emergency response, remedial or repair
effort by making available any labour, materials and equipment in reasonable
quantities requested by the Contractor which are not otherwise readily available to the
Contractor and by facilitating the measures taken by the Contractor to bring into the
Kurdistan Region personnel, materials and equipment to be used in any such
emergency response or remedial or repair effort. The Contractor shall reimburse the
Government’s reasonable and necessary costs incurred in such efforts, which
reimbursed amounts shall be considered Costs and Expenses
22.11 I hc Contractor shall not be liable to the Government or Third Parties for any damages
caused by contamination entering the Agreement Area as a result of Government, or
Third Party activities beyond or within the boundaries of the Agreement Area. The
Government shall be legally and financially responsible for any loss, damage and
liability, including remedy of environmental conditions, which may be required for
safe conduct of the Petroleum 0|>cralioiis, causal by the Government’s activities
beyond or within the Agreement Area.
22.12 The Contractor shall not be liable for any loss or damage, including but not limited to
spillugc, explosion, contamination or similar- environmental damage, in respect of any
storage facilities, pipelines or means of transportation which are not under the direct
possession and control of the Contractor or its Affiliates or its Subcontractors or the
Operator. In addition to the foregoing, the Contractor shall not Ik* liable for any
damage whatsoever in respect of the Government share of Petroleum, storage or
transportation thereof once the Government has taken custody of the Government
share of Petroleum.
22.13 The Government shall make best efforts to ensure the safety and security of the
Contractor's property and |>crsoruiel in the Kurdistan Region and to protect them from
loss, injury and damage resulting from war (declared or undeclared), civil conflict,
sabotage, blockade, riot, terrorism, unlawful commercial extortion, or organised
crime. Notwitlistandmg anything to the contrary- contained herein, the Contractor
acknowledges and agrees that the obligations undertaken by the Government in this
Article 22.13 arc no greater than the general obligations of the Government towards
citizens of die Kurdistan Region in respect to the perils named above. Furthermore,
the Contractor agrees that it shall have no claim for legal or equitable relief tor failure
of the Government to comply with the provisions of this Article 22.13, except as may
be permitted by law.
22.14 The Parties agree that, where the field equipment is dainugcd or destroyed by an act of
war or terrorism, and w-hcrc there was not wilful misconduct by the Contractor, the
loss of the Contractor will be indemnified by considering such loss as recoverable
Cost and Expenses.
22.15 Except as set forth in Article 28, it is understood and agreed that the Government
shall not seek or declare any cancellation or termination of this Agreement as a result
of the occurrence of any emergency ev ent desenbed in this Article 22.
22.16 Notwithstanding anything to the contrary contained herein, the Government
acknowledges that the Contractor shall in no circumstances be liable for a sum greater
than the value of the investment made by the Contractor in the Kurdistan Region at
the rime that the liability is incurred.
23.1 The Contractor shall be entitled to bring Foreign Employees into the Kurdistan
Region in connection with the performance of Petroleum Operations. The entry into
the Kurdistan Region of such personnel is hereby authorised, and the Government's
authorised body shall issue ai the Contractor's request the required documents, such
as entry and exit visas, work permits and residence cards. At the Contractor's request,
the Government shall facilitate all immigration formalities a: the points of exit and
entry into the Kurdistan Region for the employees and family members of the
Contractor, its Affiliates, Subcontractors. Operator, agents and brokers. The
Contractor (or Operator on its behalf) shall contact the appropriate offices of the
Government to secure the necessary documents, and to satisfy the required
23.2 The employees working within the scope of Petroleum Operations shall be placed
under the authority of the Contractor, its Affiliates, its Subcontractors, agents or
brokers or the Operator, each of which shall act individually in their capacity as
employers. The works, hours, wages, and all other conditions relating to their
employment shall be determined by the relevant employer of such employees. In
relation to employees who are citizens of the Kurdistan Region, their employment
shall be in accordance with the Current Legislation. To the extent that any expatnate
personnel arc engaged under an Agreement subject to the Current Legislation, that
Agreement shall comply with the provisions of the Curecnt Legislation. The
Contractor, its Affiliates, its Subcontractors, agents or brokers however, shall enjoy
full freedom in the selection and assignment of their employees
24.1 If as a result of Force Mrycure, a Parly is rendered unable, w holly or in part, to cany
out its obligations under this Agreement, other than the obligation to pay any amounts
due. then the obligations of such Party, so far as and to the extent that the obligations
arc affected by such Force Majcurc, shall be suspended during the continuance of any
inability so caused, and for such reasonable time therefore as may be necessary to
allow such Party to he in the same position as existed prior to such Force Majcurc
occurring. The affected Party shall notify the other Party of the Force Majcurc
situation within seven (7) days of becoming aware of the circumstances relied upon
and shall keep the other Party informed of all significant developments. Such notice
shall give reasonably full particulars of the said Force Majeure, and also estimate the
period of time which such Party will probably require to remedy the Force Majeure.
The affected Party shall use all reasonable diligence to remove or overcome the Force
Majeure situation as quickly as possible in an economic manner I he penod of any
such non-performance or delay, together with such period os may be necessary for the
restoration of any damage done during such delay, shall be added to the time given in
this Agreement for the performance of any obligation dependent thereon (and the
continuation of any right granted) and to the term of this Agreement.
24.2 For the purposes of this Agreement. "Force Majcurc'* shall mean a circumstance
which is irresistible or beyond the reasonable control of a Parly and which prevents,
hinders or impedes Petroleum Operations or the discharge of a Party's obligations
under this Agreement, and shall be in accordance with the principles of the
international Petroleum industry. Except for a declaration of war or the actions of
another government, for the purposes of this Agreement, an act or failure to act of the
Government shall not be treated as Force Majcurc and shall not excuse performance
by the Gov ernment of its obligations hereunder.
24.3 ITie Contractor, or any Contractor Party shall have the right to terminate this
Agreement if a Force Majeure continues for a period in excess of twenty-four (24)
months, at any time thereafter by thirty (30) days* notice to the Government in which
event the Contractor shall be released from all obligations and liabilities hereunder.
ASSIGNMENTS AND Gl'AKAM EES
25.1 DNO ASA may assign and transfer all of its rights and obligations as Contractor
under this Agreement to a newly incorporated company which is an Affiliate of DNO
ASA and which is incorporated for the sole purpose of such assignment and the
carrying out of all the obligations, and the exercise of all rights, of the Contractor.
25.2 No assignment, mortgage or charge or other encumbrance shall be made by the
Contrac tor or by a Contractor Party of its rights obligations and interests arising under
this Agreement oilier than in accordance with the provisions of this Article 25. Any
purported assignment made in breach of the provisions of this Article 25 shall be null
25.3 A Contractor Party may assign all or part of its rights, obligations and interests arising
from this Agreement to a Third Party provided that the Third Party :
(a) has the technical and financial ability to perform the obligations to he assumed
by it under this Agreement; and
(b) as to (lie interest assigned to it. accepts and assumes all of the terms and
conditions of this Agreement.
Any such assignment shall be subject to the prior written consent of the Government,
which consent shall not be unreasonably withheld or delayed. By way of
clarification. and not in limitation of the foregoing provisions of this Article 25 J. the
Government shall not be considered to be acting unreasonably in declining to consent
to any sudi assignment if the assignment to such proposed assignee is deemed
contrary to the Government's interests, as evidenced in writing to that effect signed by
the representative of the Government
If within thirty (30) days following notification of an intended assignment,
accompanied by a copy of the proposed deed of assignment and related
documentation with respect to the proposed assignee, including certified financial
statements and other evidence to the Government's reasonable satisfaction of the
nutters set forth in this .Article 25.3 and such documentation, which shall include
ev idence of the identity of owners of the assignee, provided in the case of a company
the stock of which is registered on a recognised stock exchange, a copy of the
documents identifying the significant owners, as such concept is defined or used in
the applicable laws pursuant to which such company registered its stock, will satisfy
the foregoing requirements, and its direct and indirect parent companies, including the
identity of the owners of the ultimate parent, subject to the foregoing proviso, as may
be reasonably’ necessary for the Government, and as requeued by the Government, to
make a determinabon of the Government's interests as described above, the
Gov emment has not given ns wiinen decision concerning such assignment, then it
shall be deemed dial the Government has declined to gjv* such consent; provided tha:
thereafter if upon the further written request of the Contractor for a wntten decision,
the Government has not given a written response of any kind within fifteen (15) days
after such further request, then the assignment shall be deemed approved and the
Contractor Party shall execute an assignment, in a form acceptable to the
IOMI IMUt 3<>
Government, accepting such assignment. This second request from the Contractor
shall cite the provisions of this paragraph and the Contractor shall obtain confirmation
from the Government that the request has been received. In the event of the transfer
of rights and obligations under this Agreement to a Third Party, Contractor shall pay
all costs associated with such transfer and any tax or charge due on such transfer
under the Current legislation.
25.4 (a) In addition to the rights of DNO ASA under Article 25.1. a Contractor Party
may nssign all or part of its rights, obligations and interests arising from this
Agreement to another Contractor Party or Affiliate, without prior consent of
the Government, provided that any such Affiliate:
(i) has the technical and financial ability to perform the obligations to be
assumed by it under this Agreement; and
(11) as to the interest assigned to it, accepts and assumes all of the terms
and conditions of this Agreement; or
(b) A Contractor Party may freely mortgage, pledge or otherwise encumber its
interests in the Agreement or any property in or outside the Agreement Area
which is used for Petroleum Operations in connection with funding its share of
the Costs and Expenses, provided that any such mortgage, pledge or other
encumbrance shall be made expressly subject to the tenns of this Agreement.
25.5 Each reference in this Agreement to the Contractor shall be treated as including each
assignee to which an assignment has been made pursuant to this Article 25.
25.6 Subject to the approval of the Government in the event of there being any proposed
assignment in accordance with the terms of this Article 25 then to the extent of the
interest assigned the assignor shall be released from all further obligations and
liabilities arising under this Agreement after the effective date of the assignment. The
assignee shall thereafter be liable for the obligations arising from such interest in this
Agreement except to the extent provided in this Agreement.
AGREEMENT FNFORC KM.KM AM> ST.ABH IS A l\JJ\ AND
26.1 In the course of performing the Petroleum Operations, the Operator and the Parties
shall be subject to all applicable laws, decrees, rules and regulations.
26.2 The Government agrees and commits to Contractor, for the duration of this
Agreement, to exercise its best efforts to maintain the stability of the fiscal conditions
of this Agreement.
26.3 The Parties agree to co-operate in every possible way in order to achieve the
objectives of this Agreement. The Government and its subdivisions shall facilitate the
exercise of the Contractor's activities by granting it all decrees, permits, resolutions,
licenses and access rights and making available to it all appropriate existing facilities
and services under the control of live Government so that the Parties may derive the
greatest benefit from Petroleum Operations for their own benefit and for the benefit of
the Kurdistan Region.
26.4 If at any time after this Agreement has been signed there is a change in the applicable
Kurdistan Regional Government laws, regulations or other provisions of effective
Current legislation or enactment of new laws, other than changes in laws relating to
the environment, health and safety, which adversely affect the economic benefits of
the Contractor or any Contractor Party hereunder, the Government shall exercise its
best efforts to exempt or indemnify the Contractor or Contractor Party to the extent of
the adverse effect and/or shall make necessary revisions and adjust menu to the
relevant provisions of this Agreement to restore and maintain the original economic
benefits to the Contractor Party.
26.5 If the Contractor believes that its economic position has been adversely affected under
Article 26.4. it may give notice to the Government describing how its position has
been so affected and the nature of an appropriate exemption and the extent of an
appropriate indemnify. If matters have not been resolved within ninety (90) days or
as otherwise agreed the matter may be referred to arbitration by any Party in
accordance with the prov isions of Article 29.
26.6 Ihe Contractor Parties represent and warrant that:
26.6 I The Contractor possesses the technical expertise and financial resources to
fulfil the obligations of Contractor under this Agreement;
26.6 2 The execution, delivery and performance by Contractor of this Agreement
arc within the corporate powers of the Contractor.
26.6.3 The Contractor has obtained all corporate consents, approvals, authorizations
anil resolutions in accordance with its corporate statutes and the applicable
laws to empower the Contractor, to execute this Agreement, to undertake all
of the obligations of the Contractor hereunder.
AU I ICI.K 27
B.QI1CE.S AMP CQflFIPENTlAUTY
27.1 Except as otherwise specifically provided, all notices authorised or required between
the Parties by any of the provisions of this Agreement, shall be in writing in English
and delivered in person or by registered mail or by courier service or by any
electronic means of transmitting written communications which provides
confirmation of complete transmission, and addressed to such Parties os designated
below. The originating notice given under any provision of this Agreement shall be
deemed delivered only when received by the Party to whom such notice is directed,
and the time for such Parly to deliver any notice in response to such originating notice
shall run from the date the originating notice is received. The second or any
responsive notice shall be deemed delivered when received. "Received" for purposes
of this Article 27 with respect to written notice delivered pursuant to this Agreement
shall be actual delivery of the notice to the address of the Party to be notified,
specified in accordance with this Article. Each Party shall have the right to change its
address at any time and/or designate that copies of all such notices be directed to
another person at another address, by giving written notice thereof to all other Parties.
The addresses for service of notices on each of the parlies ore as follows:
Contractor: DNO ASA
N-5232 Paradis Bergen
Attn: Hclgc tide
Td: 0047 55 22 47 00
Fax: 00 47 55 22 47 01
Govern mot: Pnmc Minister's Office
Kurdistan National Assembly
27.2 Subject to the provisions of the Agreement, the Parties agree that all information and
data acquired or obtained by any Party in respect of Petroleum Operations shall be
considered confidential and shall be kept confidential and not be disclosed dunng the
term of the Agreement to any person or entity not a Party to this Agreement, except
(a) To an Affiliate, provided such Affiliate maintains confidentiality' as provided
(b) To a governmental agency or other entity w hen required by this Agreement.
(c) To the extent such data and information is required to be furnished in
compliance with any applicable laws or regulations, or pursuant to any legal
proceedings or because of any order of any court binding upon a Party.
(d) To prospective or actual contractors, consultants and attorneys employed by
any Party where disclosure of such data or information is essential to such
contractor's, consultant’s or attorney's work;
(e) To a bona fide prospective transferee of a Contractor Party's participating
interest (including an eerily with whom a Contractor Party or its Affiliates are
conducting bona fide negotiations directed toward a merger, consolidation or
(f) To a bank, financial insdtuooo or any other person prowling funding to a
Contractor Party to the extent disclosure is required in connection with
securing and arranging for funding of a Contractor Party's obligations;
l o\»i 39
(g) To ihc cxieni that any data o* information which, through no fault of a Party,
becomes a pan of the public domain
27.3 Disclosure pursuant to Article 27.2(d). (c). and (0 shall not be made unless poor to
\uch disclosure the disclosing Party has obtained a written undertaking from the
recipient party to keep the dutu and information strictly confidential for at least three
(3) years and not to use or disclose the data and information except for the express
purpose for which disclosure is to he made.
28.1 At any time, if in the opinion of the Contractor, circumstances do not warrant
continuation of the Petroleum Operations, the Contractor may, by giving written
notice to that effect to the Government relinquish its rights and be relieved of its
obligations pursuant to this Agreement except for the Contractor’s obligations to
complete the Minimum Work Commitment, and except such rights and obligations as
related to the period prior to such relinquishment. Neither this Agreement nor any of
the rights granted hereunder nor the Operator’s right may be terminated as a result of
any act or omission of the Operator save in the ease where the Operator has carried
out an act or omitted to do something at the specific request of the Contractor and the
Operator has previously advised the Contractor prior to carrying out the act or
omitting to do something that to carry out that act or to omit to do the relevant thing
may result in this Agreement being terminated.
28.2 The Government is entitled to terminate this Agreement by giving ninety (90) days'
advuncc written notice thereof to all Parties, when the Contractor commits a material
breach in relation to its obligations indicated in this Agreement or if the Contractor
has not accomplished its warranties according to Article 26.6. all as specified in such
notice, and in either ease the Contractor has not remedied such breach (to die extent it
is capable of being remedied) prior to the expiry of such ninety (90) days. Any
termination notice will only be effective at the end of the arbitration procedure in the
case that the claim of materia! breach is referred to arbitration as stipulated in Article
29 and an award confirming such breach is made.
29.1 The construction, validity' and performance of this Agreement shall be governed by
the law's applicable to the Kurdistan Region and principles of international law
29.2 All disputes betw een the Parties arising in out of or relating to this Agreement, or to
the breach, termination or validity thereof, which the Parties arc unable to resolve
amicably, shall be referred by either Party to arbitration in accordance with the
Arbitration Rules of the United Nations Commission on International Trade Law
(UNCI l RAL) m force on ihc date when this Agreement was signed
29.3 A Party need not exhaust administrative or judicial remedies prior to commencement
of arbitral proceedings.
I I IS* I 4*4'•-k 40
2V.4 For the purpose of an arbitration under the UNCfTRAI. Rules:
(a) the appointing authority shall be the International Court of Arbitration of the
International Chamber of Commerce:
(b) there shall be a single aibitrator appointed in accordance with said Rules;
(c) the scat and venue of the arbitration will be London, United Kingdom and it
will be conducted in the English language; ami
(d) the law of the arbitration shall be the laws of England and Wales.
29.5 This clause shall survive the termination of this Agreement until all rights and
obligations amongst the Parties in connection with this Agreement have ceased.
29.6 The award of the arbitration tribunal shall be reduced to writing and shall be final and
binding upon the Parties,
29.7 The award shall be made and promptly paid in U.S.S, free of any deductions or
offsets; and any costs and fees incidental to enforcing the award shall, to the
maximum extent permitted, be charged to the Party or Panics resisting such
29.8 Judgement on the award may be entered in any court having jurisdiction over the
person or assets of any Party owing the judgement, or application may be made to
such court for a judicial acceptance of the award and an order of enforcement, as the
case may be.
29.9 The Parties shall not be liable to each other in respect of and the arbitrator shall not
have the power to award any punitive damages or exemplary damages, and each Party
hereby irrevocably waives any right to recover such damages with respect to any
dispute resolved by arbitration.
This Agreement shall be executed in three (3) originals in the English language,
which will be duly certified by a competent authorised body selected by the
APPROVAL AND EFFECTIVE DATE
31.1 The Parties acknowledge that this Agreement, together with its .Annexes (and any
documents to be entered into by any Party pursuant to this Agreement), constitutes the
totality of the agreement between the Parties, and supersedes and replaces any
previous agreement or contract. This Agreement may only be varied by a document
signed by both Parties, and a waiver of any term, provision or condition of, or consent
granted under, this Agreement shall be effective only if given in writing and signed by
I <«■*) :•***» 41
the waiving or consenting Party and then only in the instance and for the purpose for
which it is given
31.2 The Parties acknowledge that this Agreement is subject to applicable Iraqi law,
regulations of the Coalition Provisional Authority, and relevant United Nations
Security Council resolutions.
Area: 3,250 km2 (approx.)
X: 352,560 Y: 4,068,880
X: 358,525 Y: 4,068,880
X: 358,525 Y: 4,092,270
X: 327,370 Y; 4,092.270
X: 327,370 Y: 4,119,613
Line f-g: Border line Kurdistan/Turkey
Line a-g: “Green-Line* between Kurdistan and Iraq
I. GENERAL PROVISIONS
To classify expenditures, define recoverable Costs and Expenses, and prescribe the
manner in which the Contractor's accounts shall be prepared and approved.
Words and phrases to which a meaning has been assigned in Article I of the
Agreement shall have the same meaning when used in this Annex.
In the event of any inconsistency or conflict betw een tlw provisions of this Annex and
the other provisions of the Agreement, then the other provisions of the Agreement
1.4 Accounting Records and Reports
(a) The Contractor shall maintain at the Contractor’s office in Kurdistan Region
or in the Company’s head office complete accounts, books and records of all
revenues, Costs and Expenses relating to all Petroleum Operations hereunder
in accordance with generally accepted accounting procedures and standards in
the international petroleum industry and in accordance with the chans of
accounts agreed under Paragraph (b) below. Contractor shall keep a certified
copy of said accounts books and records at its office in Kurdistan Region at all
(b) Within sixty (60) days of the Effective Date, the Contractor shall submit to
and discuss with the Government a proposed outline of charts of accounts,
books, records and reports, which outline shall be in accordance with
generally accepted standards and recognised accounting systems and
consistent with normal petroleum industry practice and procedures. Within
ninety (90) days of receiving the above submission, the Government shall
cither provide written notification of its approval of the proposal or request in
writing revisions to the proposal Within one hundred and eighty (180) days
after the Effective Date, the Contractor and the Government shall agree on the
outline of charts of accounts, books and records and reports which shall
describe the basis of the accounting system and procedures to be developed
and used under this Agreement. Follow ing such agreement, the Contractor
shall expeditiously prepare and provide the Government with formal copies of
the comprehensive charts of accounts and manuals related to the accounting,
recording and reporting functions, and procedures which are. and shall be,
observed under the Agreement.
MISai «*4-*4 44
(c) Notwithstanding the generality of the foregoing, the Contractor shall make
regular Statements relating to the Petroleum Operations. These Statements are
(i) Production Statement (as indicated in Clause 6 of this Annex).
(li) Value of Production and Pricing Statement (as indicated in Clause 7 of
(iii) Cost Recovery and Share Account Statement (as indicated in Clause 8
of this Annex).
(iv) Statement of Costs and Expenses and Receipts (as indicated in Clause
') of this Annex).
(v) Final End-o f-Year Statement (as indicated in Clause 10 of this Annex).
(vi) Budget Statement (as indicated in Clause 11 of this Annex).
(d) All reports and statements shall be prepared in accordance with the
Agreement, Current Legislation and where there are no relevant provisions of
either of these, in accordance with generally accepted practices in the
international petroleum industry.
1.5 Language and Units of Account
All accounts, records, books and reports shall be maintained and prepared in the
English language and shall be recorded in Dollars. Where necessary for clarification,
the Contractor may also maintain accounts and records in other currencies.
1.6 Audit and Inspection Rights of the Republic
(a) The Government shall have the right
(i) to audit the Contractor's accounts and records maintained under the
Agreement with respect to each Calendar Year within two Years from
the end off each such Year.
(ii) to retain an auditor of international standing familiar with international
petroleum industry accounting practice to undertake or assist the
Government to undertake the audit.
(b) The cost of retaining an auditor pursuant to Clause 1.6(a) shall be borne by the
Contractor and treated as Operation Expenses for the purpose of Cost
Recovery- under Article 10 of the Agreement.
(c) Any audit exceptions shall be made in wnting and notified to the Contractor
within one hundred and eighty (180) days, follow ing completion of the audit
in question, and failure to give such written exception within such time shall
be deemed to be an acknowledgement of the correctness of the Contractor's
(d) For purposes of auditing, the Government may examine and verify, at
reasonable times upon prior notice to the Contractor, all charges and credits
relating to the Petroleum Operations, such as books of account, accounting
entries, material records and inventories, vouchers, payrolls, invoices and any
other documents, correspondence and records including electronic records
considered necessary by the Government to audit and verify the charges and
credits. Furthermore, the auditors shall have the right in connection with such
audit, to visit and inspect at reasonable times, all sites, plants, facilities,
warehouses and offices of the Contractor directly or indirectly serving the
Petroleum Operations and to question personnel associated with those
Operations. Where the Government requires verification of charges made by
an Affiliated Company of the Contractor, the Government shall have the right
to obtain an audit certificate from an internationally recognised ft mi of public
accountants acceptable to both the Government and the Contractor, which may
be the Contractor's statutory auditor.
(e) The Contractor shall answer any notice of exception under Clause 1.6(c)
within one hundred and eighty (180) days of receipt of such notice. Where the
Contractor has, after the said one hundred and eighty (180) days, failed to
answer a notice of exception the exception shall prevail.
(0 All agreed adjustments resulting from an audit and all adjustments required by
prevailing exceptions shall be promptly made in the Contractor’s accounts and
any consequential adjustments to payments due to the Government shall be
(g) If the Contractor and the Government are unable to reach final agreement on
proposed audit adjustments they may, by mutual agreement refer their dispute
for binding and final resolution by an internationally recognised firm of public
accountants acceptable to both of them. Such firm shall be deemed to be
acting as experts and not as arbitrators. Such referral if agreed shall be in
place of Arbitration under Article 29 of the Agreement- When issues are
outstanding with respect to an audit, the Contractor shall maintain the relevant
documents and permit inspection thereof until the issue is resolved.
(a) All payments between the Parties shall, unless otherwise agreed, be in Dollars
and be made through a bank designated by each receiving party. Unless
otherwise specified all sums due under the Agreement shall be paid in
accordance with the terms of the Agreement.
(b) All sums due by one party to the other under the Agreement shall, for each day
such sums are overdue, bear interest compounded daily at the London
Interbank Offered Rate for three month deposits in Dollars (“LIBOR") plus
two and half per cent (25%).
1.8 Currency Exchange Rates
(a) It is the intent of litis Accounting Procedure that neither the Government no*
the Contractor should experience an exchange gain or loss at the expense of.
or to the benefit of. the other. However, should there be any gain or loss from
exchange of currency, it will be credited or charged to the accounts under the
(b) Amounts received and Costs and Expenses made in Dollars or in other
currencies which arc in excess of ten thousand (10,000) Dollars, or the
equivalent in other currencies, shall be converted from other currencies into
Dollars on the basis of the average of the buying and selling exchange rates
between the currencies in question, as published by the Central Bank of Iraq,
prevailing on the date upon which such amounts are received and Costs and
Expenses are paid.
(c) Amounts received and Costs and Expenses made in Dollars or in other
currencies which do not exceed ten thousand (10,000) Dollars, or the
equivalent in other currencies, shall Ik converted from other currencies into
Dollars on the basis of the average of the buying and selling exchange rates
between the currencies in question, as published by the Central Bank of Iraq,
prevailing on the last business day of the month preceding tire month in which
such amounts arc received and Costs and Expenses are made.
1.9 Revision of the Accounting Procedure
By mutual agreement between tire Government and the Contractor this Accounting
Procedure may be revised from time to time by a document in writing signed by the
1.10 Accrual Basis. Cash How Basis and Reports
All books and accounts shall be prepared on an accrual basis. Revenues shall be
attributed to the accounting period in which they arc earned, and Costs and Expenses
to the accounting period in which they are incurred, without the need to distinguish
whether cash is recovered or disbursed in connection with a particular transaction.
Costs and Expenses shall be deemed to have been incurred when paid by the
1.11 Values and Treatments
Values and treatments piojxwcd by (lie Contractor relating to all Costs and Expenses
shall be subject to challenge by the Government in the course of audit to ensure that
they arc in accordance witlt the provisions of this Accounting Procedure. Upon
request by the Government or its representative, the Contractor shall present all
records and original documents supporting such Costs or Expenses, such ns invoices,
cash vouchers, debit notes, price lists or similar documentation verifying the values
and treatment proposed.
2. CLASSIFICATION, DEFINITION AND ALLOCATION OF COSTS AND
2.1 Segregation of Costs and Expenses
Costs and Expenses shall be segregated in accordance with the purposes for which
such Costs and Expenses are made. The purposes which shall qualify are those which
have been included in the approved Work Programme and Budget for the year in
which the Costs and Expenditures are made and other items which have been agreed
by the Parties from time to time. All Costs and Expenditures recoverable under
Clause 3 relating to Petroleum Operations shall be classified, defined and allocated as
set out below.
2.2 Exploration Expenses
Exploration Expenses are all direct and allocated indirect expenditures incurred in the
search for Petroleum in an area which is, or was at the time when such Costs and
Expenses were incurred, part of the Agreement Area including:
(a) Aerial, geophysical, geochemical, paleontological, geological, topographical
and seismic survey* and studies and their interpretation.
(b) Stratigraphic test hole drilling and water well drilling.
(c) Labour, materials, supplies, and services used in drilling wells with the object
of finding Petroleum or Appraisal wells excluding any costs of the subsequent
completion of such wells as producing wells.
(d) Facilities used solely in support of the purposes described in Clauses 2.2(a).
(b) and (c) above, including access roads and purchased geological and
geophysical information, all separately identified.
(c) Thai portion of all Service Expenditures and that portion of all General and
Administrative Expenditures allocated to Exploration Expenses as determined
by tlie proportionate share of total Petroleum Operations Expenditures
(excluding General and Administrative Expenditures and Service
Expenditures) represented by all other Exploration Expenses.
(0 Any other Costs and Expenses incurred in the search for an appraisal of
Petroleum after the Effective Date.
2.3 Development Costs and Expenses
Development Costs and Expenses shall consist of all Costs and Expenses incurred in:
(a) Drilling wells which arc completed as producing wells .uid drilling wdls for
purposes of producing from a Petroleum reserv oir, w hether these wells arc dry
or producing and drilling wells for the injection of water or gas to enhance
recovery of Petroleum.
(b) Completing wells by way of installation of casing or equipment or otherwise
after a well has been drilled for the purpose of bringing the well into use as a
I ONHMNTM 48
producing well or os a well for the injection of water or gas to enhance
recovery of Petroleum.
(c) The costs of Petroleum production, transport and storage facilities such ns
pipelines, flow lines, production and treatment units, wellhead equipment,
subsurface equipment, enhanced recovery systems, Petroleum storage
facilities, and access roads for production activities.
(d) Engineering and design studies foi the wells and facilities referred to in
Clauses 2.3(a), (b) and (c).
(c) That portion of all Service Expenditures and that portion of all General and
Administrative Expenditures allocated to Development as determined by the
proportionate share of total Costs and Expenses for Petroleum Operations
(excluding General and Administrative Expenditures and Sendee
2.4 Operation Expenses
Operation Expenses arc all Costs and Expenses incurred in Petroleum Operations
after the commencement of Commercial Production which arc other than Costs and
Expenses for Development and General and Administrative Expenditures and Service
Expenditures The balance of General and Administrative Expenditures and Service
Expenditures not allocated to the Exploration or Development Costs and Expenses
shall be allocated to Operation Expenses.
2.5 Service Expenditures
Service Expenditures arc costs and expenditures in support of Petroleum Operations
including warehouses, vehicles, motorised rolling equipment, aircraft, fire and
security stations, workshops, water and sewerage plants, power plants, housing,
community and recreational facilities and furniture, tools and equipment used in these
activities. Service Expenditures in any Calendar Yeai shall include the costs incurred
in such year to purchase and/or construct the said facilities ns well as the annual costs
of maintaining and operating the same. All Service Expenditures shall be regularly
allocated as specified in Clauses 2.2(e), 2.3(e) and 2.4 to Exploration and
Development and Operation Expenses and shall be separately shown under each of
these categories. Where Service Expenditures are made in respect of shared facilities
the basis of allocation of costs to Petroleum Operations hereunder shall be specified.
2.6 General and Administrative Expenditures
General and Administrative Expenditures arc:
(a) All main office, field office and general administrative expenditures in the
Kurdistan Region including but not limited to supervisory, accounting and
employee relations services.
(b) Where the Operator is a Foreign Contractor, an annual overhead charge for
services rendered (excluding the direct expenditures as referred in Clause
3.1(b)(ii) below) by the Operator or its parent company or an Affiliate of the
parent company outside the Kurdistan Region to support and manage
Petroleum Operations under the Agreement, or where the Operator, not being
a Foreign Contractor, draws upon the services of its parent company or an
AfTiIiate of the parent company within the Kurdistan Region, an annual
overhead charge for services rendered by such company to support and
manage Petroleum Operations under the Agreement (“Parent Company
Parent Company Overhead will be deemed to cover the actual cost (being
salaries, wages and labour burden, employee benefits, travel, hotel and other
normally reimbursable expenses paid by the Operator or its parent company or
an Affiliate of the parent company in accordance with its standard personnel
policy in force in the relevant period, provision of office accommodation and
provision of services reasonably necessary for operation and maintaining such
staff offices) incurred for services rendered by those functions of Operator or
its parent company, such as. but not limited to, international production
headquarters, international exploration headquarters, treasury, payroll,
taxation, insurance, legal, communications, computer services, controllers,
personnel, cxocutivc administrative management, research and development,
central engineering and process engineering which:
(i) cannot be charged under any other section of this Annex; and
(ii) arc properly allocable to Petroleum Operations imder the Agreement.
It is understood, however, that services performed by the departments
listed above and other corporate departments which directly benefit
Petroleum Operations under the Agreement shall be charged as direct
costs in accordance with Clause 3 of this Annex.
In respect of the costs of the Operator or Parent Company Overhead, as
described above, the Contractor shall charge monthly to Petroleum Operations
an amount equal to the total of the following:
(1) Exploration Ov erhead
The Contractor shall be entitled to an annual charge based cm a sliding
scale percentage and charged monthly to Petroleum Operations. The
basis for applying this percentage shall be the total of Exploration
Costs and F.xpcnses during each Calendar Year or fraction thereof less
expenditures which have been subjected to the five (5) pa cent fee.
referced to in Clause 3.1(hMii) The sliding scale percentage shall be
For the first five million ($.000,000) Dollars five per cent (5%)
For the next five million (5,000,000) Dollars four per cent (4%)
Over [ten] million (10,000.000) Dollars three per cent (3%)
The foregoing percentages may be reviewed but not more often that annually,
and any approved appropriate adjustment shall be made, if necessary,
(2) Development and Production Operations Overhead
The overhead rates applicable to Development and Production
Operations shall be agreed between the Parties in due course but shall
in any event be not less than 1.5% of Costs and Expenses and shall
incorporate the following guidelines:
(A) The Contractor's charges must be charged as direct charges
whenever possible. Ov erhead charges exist only to compensate
the Contractor’s Affiliates for costs which sue properly
allocable to Petroleum Operations under the Agreement but
which cannot, [without unreasonable effort and/or release of
confidential data proprietary to the Contractor’s Affiliates), be
charged under any other section. Overhead costs arc billed
monthly. Overhead must be commensurate with services
rendered and basal on actual cost studies but may not exceed
an amount calculated as a percentage of certain annual
expenditures excluding Exploration Expenses. That percentage
as well as the types of expenditures, which affect overhead and
those, which do not. shall be agreed among the Parties.
(B) The maximum percentage rates may be revised by mutual
agreement not more often that annually. The initial maximum
percentage rates and the types of expenditures to which they
apply shall be agreed as soon as the Parties possess reasonably
reliable cost estimates for the relevant Development Area.
(C) Overhead charges are not subject to audit by Government
(D) The Contractor must budget for overhead charges.
(c) All General and Administrative Expenditures shall be regularly allocated as
specified in Clauses 2.2(e), 2.3(e) and 2.4 to Exploration Expenses,
Development Expenditures and Operation Expenses respectively.
COSTS, EXPENSES, EXPENDITURES AND CREDITS OK THE
Costs Recoverable Without Further Approval of the Government
Costs and Expenses incurred by the Contractor pursuant to the Agreement as
classified under the headings referred to in Clause 2 shall Ik recoverable for the
puipose of Article 10 of the Agreement (except to the extent provided in Clause 4 or
elsewhere in this Annex), subject to audit as provided for herein
(a) Surface Rights
All direct costs necessary for tbc acquisition, renewal or relinquishment of
surface rights acquired and maintained in force for the purposes of the
(i) 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
Agreement in the Kurdistan Region. Such costs shall include the costs
of employee benefits and Government benefits for employees and
levies imposed on the Contractor as an employer, transportation and
relocation costs within the Kurdistan Region of the employee and such
members of the employee’s family (limited to spouse and dependent
children) as required by law or customary practice in the Kurdistan
Region. If such employees arc engaged in other activities in the
Kurdistan Region, in addition to Petroleum Operations, the cost of
such employees shall he apportioned on a lime sheet basis according to
sound and acceptable accounting principles.
(li) 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 Agreement, whether temporarily or
permanently assigned, irrespective of the location of such employees,
it being understood that in tbc case of those personnel only a portion of
whose time is wholly dedicated to Petroleum Operations under the
Agreement, only that pro-rata portion of applicable salaries, wages,
and other costs as delineated in Clauses 3.1(b)(iii), (iv). (v), (vi) and
(vii). shall be charged and the basis of such pro-rata allocation shall be
(iii) The Contractor's costs regarding holiday, vacation, sickness and
disability benefits and living and housing and other customary
allowances applicable to the salaries and wages chargeable under
Clause 3.1(b)(ii) above.
(iv) Expenses or contributions made pursuant to assessments or obligations
imposed under Current Legislation which arc applicable to the
Contractor's cost of salaries and wages chargeable under Clause
(v) The Contractor's cost of established plans for employees’ group life
insurance, hospitalisation, pension, stock purchases, savings, bonus,
and other benefit plans of a like nature customarily granted to the
Contractor's employees, provided however that such costs are in
accordance with generally accepted standards in the international
petroleum industry, applicable to salaries and wages chargeable to
Petroleum Operations under Clause 3.I(bXii) above.
(V.) Actual transportation and travel expense* of employees of Contractor,
including those made for travel and relocation of the expatriate
employees, including their families and personal effects, assigned to
the Kurdistan Region whose salaries and wage* arc chargeable to
Petroleum Operations under Clause .Vl(b)(ii) above.
Actual transportation expenses of expatriate personnel transferred to
Petroleum Operations from their country of origin shall be charged to
the Petroleum Operations. Transportation expenses of personnel
transferred from Petroleum Operations to a country other than the
country of their origin shall not he charged to the Petroleum
Operations. Transportation cost as used in this section shall mean the
coat of freight and passenger service, meals, hotels, insurance and
other expenditures related to vacation and transfer travel and
authorised under the Contractor’s 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.
(vii) Reasonable personal expenses of personnel whose salaries and wages
are chargeable to Petroleum Operations under Clause 3.!(b)(ii) above
and for which expenses such personnel are reimbursed under the
Contractor's standard personnel policies. In the event such expenses
arc not wholly attributable to Petroleum Operations, the Petroleum
Operations shall be charged with only the applicable portion thereof,
which shall be determined on an equitable basis
The cost of transportation of employees, equipment, materials and supplies
other than as provided in Clause 3.1(bXvi) necessary for the conduct for the
Petroleum Operations under the Agreement along with other related costs such
as, but not limited to. import duties, customs fees, unloading charges, dock
fees, and inland and ocean freight charges.
(d) Charge* for Services
(i) Third Panics
(I > The actual costs of contract services, services of professional
consultants, utilities, and other services necessary for the
conduct of the Petroleum Operations under the Agreement
performed by Third Parties other than an Affiliate of the
(ii) Affiliates of Ike Contractor
(1) Professional and Administrative Services Expenses: cost of
professional and administrative services provided by any
Affiliates of the Contractor for the direct benefit of Petroleum
Operations, including but not limited to services provided by
lOMI IKV. 53
(he Production. Exploration. legal, Financial. Insurance.
Accounting and Computer Services Divisions other than those
covered by Clause 3.1(dXiiX2). 3.1(f) and 3.l(hXii) which
Contractor may use in lieu of having its own employees
Charges shall reflect the cost of providing their services and
shall not include any element of profit and shall be no less
favourable than similar charges for other operations cumcd on
by the Contractor and its Affiliates. The chargeoul rate shall
include all costs incidental to the employment of such
personnel. Where the work is performed outside the home
office base of such personnel, the daily rote shall be charged
from the date on such personnel leave the home office base
where they usually work up to their return thereto, including
days which are not working days in the location where the
work is performed, excluding any holiday entitlements derived
by such personnel from their employment at their home office
(2) Scientific or Technical Personnel: cost of acicntifie or technical
personnel services provided by any Affiliate of the Contractor
for the direct benefit of Petroleum Operations, which cost shall
be charged on a cost of service basis and shall not include any
element of profit. Unless the work to be done by such
personnel is covered by an approved Work Programme and
Budget, the Contractor shall not authonsc work by such
personnel without approval of the Government.
(3) Equipment and facilities: use of equipment and facilities owned
and furnished by the Contractor's Affiliates, at rates
commensurate with the cost of ownership and operation,
provided, however, that such rates shall not exceed those
currently prevailing for the supply of like equipment and
facilities on comparable terms in the area where the Petroleum
Operations are being conducted.
Cost of acquiring, leasing, installing, operating, repairing and maintaining
communication svstems including radio and microwave facilities between the
Contract Area and the Contractor's nearest base facility.
Net cost to Contractor of establishing, maintaining and operating any office,
sub-office, warehouse, housing or other facility directly serving the Petroleum
If any such facility services a contract area, other than the Agreement Area, the
net costs thereof shall be allocated on an equitable basis.
Of) uJTTITWi i
(i) Costs incurred in the Agreement Area as a result of legislation for
archaeological and geophysical surveys relating to identification and
protection of cultural sites or resources;
(ii) Costs incurred in environmental or ecological surveys required by
regulatory authorities, including an environmental impact Statement
commissioned pursuant to Article 22.7 of the Agreement;
(iii) Costs to provide or have available pollution containment and removal
(iv) Costs of actual control and cleanup of oil spills and of such further
responsibilities resulting therefrom as may be required by applicable
laws and regulations, unless such oil spills result directly from the
negligence or wilful misconduct of the Contractor;
(v) Costs of restoration of the operating environment incurred pursuant to
an approved scheme prepared in accordance with the Agreement.
Costs of materials and supplies, equipment, machines, tools and any other
goods of a similar nature used or consumed in Petroleum Operations subject
to the following:
(t) Acquisition • the Contractor shall only supply or purchase materials for
use in Petroleum Operations that may be used in the foreseeable future,
together with a reasonable level of spare materials. The accumulation
of surplus stocks and inventory shall be avoided so far as is reasonably
practical and consistent with eflicienl and economical operations.
Inventory levels shall, however, take into account the time lag for
replacement, emergency needs, weather conditions affecting operations
and similar considerations.
(ri) Components of costs, arm’s length transactions - except as otherwise
provided in Clause 3.1(hXiv) below, material purchased by the
Contractor in arm's length transactions in the open market for use in
the Petroleum Operations under the Agreement shall be valued to
include invoice price less trade and cash discounts (if any), purchase
and procurement fees plus freight and forwarding charges between
point of supply and point of shipment, freight to port of destination,
insurance, taxes, customs duties, consular fees, excise taxes, other
items chargeable against imported materials and, where applicable,
handling and transportation expenses from point of importation to
warehouse or operating site. Where an Affiliate of the Contractor has
arranged the purchase, coordinated the forwarding and expediting
effort, its costs should not exceed those currently prevailing in normal
aim’s length transactions on the open market and in any ease shall no;
exceed a fee equal lo five per cent (5%) of the value of the materials
added to the cost of the materials purchased.
Accounting - such material costs shall be charged to the accounting
records and books in accordance with the "First in. First Out” (FIFO)
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 Agreement shall be valued and charged or
credited at the prices specified in Clause 3.1(h)(ivX!). 3.l(hXivX2)
and 3. l(hXivX3) hereof:
(1) New material, including used new material moved from
inventory (Condition “A"), shall be valued at the current
international net price which shall not exceed the price
prevailing in normal arm's length transactions in the open
(2) Used material (Conditions “B”, “C" and "D");
(A) Material which is in sound and serviceable condition
and is suitable for re-use without reconditioning shall be
classified as Condition "B” and priced at seventy five
per cent (75%) of the current price of new material
defined in Clause 3.1(h)(ivKl);
(B) Material which cannot be classified as Condition "B"
but which after reconditioning will be further
serviceable for its original function shall be classified as
Condition “C and priced at not more than fifty per cent
(50%) of the current price of new material as defined in
3.1(hXivXl) above. The cost of reconditioning shall be
charged to the reconditioned material provided that the
value of Condition "C* material plus the cost of
reconditioning do not exceed the value of Condition
(O Material which cannot be classified as Condition “B" or
Condition 'XT) shall be classified as Condition “D" and
priced at a value commensurate with its use by
Contractor. If material is not fit for use by the
Contractor if shall be disposed of as junk.
(3) Materia! involving erection of costs shall be charged at the
applicable condition percentage of the current knockcd-down
price of new material as defined m Clause 3.l(hXivXl) above.
(4) When the use of material is temporary and its service to the
Petroleum Operations under the Agreement docs not justify the
reduction in price as provided for in Clause 3 l(h)(ivX2XB)
hereof, such material shall be priced on a basis that will result
in a net charge to the accounts under the Agreement consistent
with the value of the service rendered.
(5) 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 Operations
for the required material at the Contractor's actual cost
incurred in providing such material, in making it suitable for
use. and in moving it to the Contract Area; provided notice in
writing is furnished to the Government of the proposed charge
prior to charging Petroleum Operations for such material and
Use Government shall have the right to challenge the
transaction on audit.
(6) Warranty of material furnished by die Contractor - the
Contractor docs not warrant the material furnished. In case of
defective material, credit shall not be passed to Petroleum
Operations until adjustment has been received by the
Contractor from the manufacturers of the material or their
All rentals, taxes, levies, charges, fees, contributions and any other
assessments and charges of every kind and nature levied by any governmental
or taxing authority in connection with the Contractor’s activities under the
Agreement and paid directly by the Contractor (save where the contrary is
expressly provided in the Agreement) with the exception of taxes upon the
income or profits of the Contractor or any Contractor Party, and payments
made under Article 10.
Insurance premiums and costs incurred for insurance provided that such
insurance is customary, affords prudent protection against risk and is at a
premium no higher than that charged on a competitive basis by insurance
companies w hich arc not Affiliated Companies of the Contractor. Except in
cases of failure to insure where insurance coverage is required pursuant to the
Agreement, actual costs and losses incurred shall be recoverable to the extent
not made good by insurance unless such losses result solely from an act of
wilful misconduct by the Contractor. Such costs may include, but arc not
limited to, repair and replacement of property in the Agreement Area resulting
from damages or losses incurred by fire, flood, storm, theft, accident or such
00 Lc-ual Expenses
All reasonable costs and expenses resulting from the handling, investigating,
asserting, defending, or settling of any claim or legal action necessary or
expedient for the procuring, perfecting, retention and protection of the
Agreement Area, and in defending or prosecuting lawsuits involving the
Agreement Area or any Third Party claim arising out of the Petroleum
Operations under the Agreement, or sums paid in respect of legal services
necessary for the protection of the joint interest of the Government and the
Contractor shall be recoverable. Such expenditures shall include, without
limitation, attorney’s fees, court costs, costs of investigation, and procurement
of evidence and amounts paid in settlement or satisfaction of any such
litigation and claims provided such costs are not covered elsewhere in the
Annex. Where legal services arc rendered in such matters by salaried or
regularly retained lawyers of the Contractor or mi Affiliated Company of the
Contractor, such compensation shall be included instead under Clause 3.1(b)
or 3.1 (d)(ii) above as applicable.
Expenditures made in the settlement or satisfaction of any loss, claim, damage,
judgment or other expense arising out of or relating to Petroleum Operations,
except as may otherwise be covered elsewhere in the Annex.
(m) Training. CgEh;
All costs and expenses incurred by the Contractor in tire training of its
Kurdistan Regional employees engaged in Petroleum Operations under the
<") G WIviE hlptLA'I'iiiiiislriilivc Costs
Tlie costs described in Clause 2.6(a) and the charge described in Clause 2.6(b)
of this Annex.
Other reasonable expenditures not covered or dealt with in the foregoing
provisions of Clause 3 herein which arc necessarily incurred by the Contractor
for the proper, economical and efficient conduct of Petroleum Operations.
All Finance Costs incurred by the Contractor Parties in connection with
3.2 Credit fader the Agreement
The proceeds, other than the proceeds from the sale of Petroleum, received from
Petroleum Operations under the Agreement, including but not limited to the items
listed below shall he credited to the accounts under the Agreement for the purposes of
Article 11 of the Agreement:
(a) The proceeds of any insurance or claim or judicial awards in connection w ith
the Petroleum Operations under the Agreement or any assets charged to the
accounts under the Agreement where such operations or assets have been
insured and the premia charged to the accounts under the Agreement
fb) Legal costs charged to the accounts under Paragraph 3.1(k) of this Annex and
subsequently recovered by the Contractor.
(c) Revenue received from Third Parties for the use of property or assets the cost
of which has been charged to the accounts under the Agreement.
fd) Any adjustment received by the (Contractor from the supplicrs/manufacturers
or their agents in connection with a defective material the cost of which was
previously charged by the Contractor to the accounts under the Agreement.
(c) Rentals, refunds, including refunds of taxes paid, or other credits received by
the Contractor which apply to any charge which has been made to the
accounts under the Agreement, hut excluding any award granted to the
Contractor under arbitration or sole expert proceedings referred to in the
(0 Prices originully charged to the accounts under the Agreement for materials
subsequently exported from the Kurdistan Region without being used in
Petroleum Operations under the Agreement.
(g> Proceeds from the sale or exchange by the Contractor of plant or facilities
used in Petroleum Operations the acquisition costs of which have been
charged to the accounts under the Agreement.
(h) Proceeds derived from the sale or license of any intellectual property the
development costs of which were incurred pursuant to the Agreement.
(i) Proceeds derived from the sale, exchange, lease, hire, transfer or disposal in
any manner whatsoever of any other item the costs of which have been
charged to Petroleum Operations.
3J 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 Agreement.
4. COSTS AND EXPENSES NOT TO BE TREATED AS RECOVERABLE
The following costs and expenditures shall not be included in the Costs and Expenses
recoverable under Article 10:
(a) taxes on income or profit paid to any governmental authority,
(b) any payment made to the Government by reason of the failure of the
Contractor to fulfil its minimum Costs and Expenses under the Agreement.
(c) the cost of any letter of guarantee, if any. required under the Agreement;
(d) attorney's fees and other costs of proceedings in connection with arbitration
under Article 29 of the Agreement or internationally recognised independent
expert determination as provided in the Agreement or this Accounting
(c) tines and penalties imposed under Current Legislation.
5. REC ORDS AND VALUATION OK ASSETS
The Contractor shall maintain detailed records of property in use for Petroleum
Operations under the Agreement in accordance with normal practice in exploration
and production activities of the international petroleum industry.
Inventories of property in use in Petroleum Operations shall lie taken at reasonable
intervals but at least once a year with respect to movable assets and once very 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. The Contractor shall clearly inform Government the principles
upon which valuation of the inventory has been based. The Contractor shall make
every effort to provide 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
Agreement takes place the Contractor may, at the request of the assignee, take a
special inventory provided that the costs of such inventory arc borne by the assignee.
6. PRODUCTION STATEMENT
6.1 Production Information
From the date of Commencement of Commercial Production from the Agreement
Area the Contractor shall submit a monthly production statement to the Government
showing the following information separately for each producing Development Area
and in aggregate for the Agreement Area.
(a) The quantity of Crude Oil produced and saved.
(b) The quality characteristics of such Crude Oil produced and saved.
(c) The quantity of Natural Gas produced and saved.
(d) I he quality characteristics of such Natural Gas produced and saved.
(c) The quantities of Crude Oil and Natural Gas used for the purposes of carrying
on drilling and production operations and pumping to field storage.
(0 The quantities of Crude Oil and Natural Gas unavoidably lost.
(g) The quantities of Natural Gas flared and vented.
lOM! :***.* 60
(h) The size of Petroleum stocks held at the beginning of the calendar month in
(i) The si/.c of Petroleum stocks held at the end of the calendar month in question.
(j) The quantities of Natural Gas reinjected into the petroleum reservoir.
(k) In respect of the Agreement Area as a whole, the quantities of Petroleum
transferred at the Measurement Point. All quantities shown in this .Statement
shall lie expressed in both volumetric terms (barrels of oil and cubic meters of
gas) and in weight (metric tonnes).
6.2 Submission or Production Statement
The Production Statement for each calendar month shall l>c submitted to the
Government no later than ten (10) days after the end of such calendar month.
7. VALUE OF PRODUCTION AND PRICING STATEMENT
7.1 Value of Production and Pricing Statement Information
The Contractor shall, for the purposes of Article 11 of the Agreement, prepare a
statement providing calculations of the value of Crude Oil produced and saved during
This Statement shall contain the following information:
(a) The quantities and prices realised therefore by the Contractor in respect of
sales of Natural Gas and Crude Oil delivered to Third Parties made during the
Quarter in question.
(b) The quantities and prices realised therefore by the Contractor in respect of
sales of Natural Gas and Crude Oil delivered during the Quarter in question,
other than to Third Parties.
12 Submission of Value of Production and Pricing Statement
The Value of Production and Pricing Statement for each Quarter shall be submitted to
tbe Government not later than twenty-one (21) days after the end of such Quarter.
8. COSTS RECOVERY .AND SHARE ACCOUNT STATEMENT
8.1 Cost Recovery Statement
The Contractor shall prepare with respect of each Quarter a Cost Recovery Petroleum
statement containing the following information:
(a) Recoverable Costs and Expenses carried forward from the previous Quarter, if
(b) Recoverable Costs and Expenses for the Quancr in question.
(c) Credits under the Agreement for the Quarter in question.
I.OYH : 494 79.6 61
(d) Total Recoverable Costs and Expenses for the Quarter in question
(subparagraph 8.1(a) plus subparagraph 8.1(b) above, net of subparagaph
(a) Quantity and value of Cost Recovery Petroleum taken by the Contractor for
the Quarter in question.
(0 Amount of recoverable Costs and Expenses to be earned forward into the next
Quarter (subparagraph 8.1(d) net of subparagraph 8.1(c) above).
8.2 Cumulative Production Statement
The Contractor shall prepare with respect to each Quarter a cumulative production
statement containing the following information:
(a) The cumulative production position at the end of the Quarter preceding the
Quarter in question.
(h) Production of Crude Oil for the Quarter in question.
(c) I he cumulative production position at the end of the Quarter in question.
(d) I he amount of Profit Oil taken by the Government and by the Contractor,
respectively, during the Quarter in question.
(e) lhe share of Profit Oil due to the Government and to the Contractor,
respectively, for the next succeeding Quarter.
8J Preparation and Sahamvioa of Cost Recovery Petroleum and Cumulative
(a) Provisional Cost Recovery Petroleum and cumulative production statements
containing estimated information where necessary, shall he submitted by the
Contractor on the last day of each Quarter for the purpose* of Article 10 of the
(b) Final quarterly Cost Recovery Petroleum and cumulative production
statements shall be submitted w ithin thirty (30) days of the end of the Quarter
8.4 Aaaual Statement
For the purposes of Article 10 of the Agreement, an annual Coal Recovery Petroleum
and cumulative production statement shall be submitted within ninety (90) days of the
end of each Year The Annual Statement shall contain the categories of information
listed m subparagraphs 8.1 and 8.2 for the Year in question, separated into the
Quarters of the Year in question and showing the cumulative positions at the end of
the Year in question with respect to cumulative unrecovered Costs and Expenses and
LONM INtt 62
9. STATEMENT OF COSTS AND EXPENSES AND RECEIPTS FROM COST
9.1 The Contractor shall prepare with respect to each Calendar Quarter a Statement of
Costs and Expenses and Receipts from sales of Cast Recovery Petroleum (“Receipts")
under the Agreement. The Statement will distinguish between Exploration.
Development and Production Costs and Expenses and Operation Expenses and will
identify major items of expenditures within these categones. The Statement will
show the following:
(a) Actual Costs and Expenses and Receipts for the Quarter in question.
(b) Cumulative Costs and Expenses and Receipts for the budget Year in question.
(c) Latest forecast cumulative Costs and Expenses at the Year end
(d) Variations between budget forecast and latest forecast and explanations
9.2 The Statement of Costs and Expenses and Receipts of each Calendar Quarter shall be
submitted to the Government no Inter than fifteen (15) days after the end of such
10. FINAL END-OK-YKAR STATEMENT
The Contractor will prepare a Final End-of-Ycnr Statement. The Statement will
contain information as provided in the Production Statement. Value of Production and
Pricing Statement. Cost Recovery Petroleum and cumulative production statements
and statement of Costs and Expenses and Receipts but will be based on actual
quantities of Petroleum produced and expenses incurred This Statement will be used
to make any adjustments that are necessary to the payments made by the Contractor
under the Agreement. The Final End-of-Year Statement of each Calendar Year shall
be submitted to the Government within ninety (90) days of the end of such Calendar
11. ANNUAL WORK PROGRAMME BUDGET
11.1 In accordance with Article 6 of the Agreement, the Contractor shall prepare an
.Annual Work Programme Budget. This will distinguish between budgeted
Exploration and Development Costs and Expenses and Operation Expenses and will
show the following:
(a) Forecast Costs and Expenses for the budget Year in question including a
quarterly classification of such expenditures.
(b) Cumulative Costs and Expenses to the end of said budget Year.
(c) A schedule showing the most important individual items of Development
Costs and Expenses for said budget Year.
11.2 The Annual Work Programme Budget shall be submitted to the Government with
respect to each budget Year no less than thirty (30) days before the start of such year.
MINIMUM WORK COMMITMENT
WORK PROGRAMME. AND BUDGET EOR
I. Work Programme (Minimum Work Cumniitmcut)
The Agreement Area has three Exploration periods. There will be a 25%
relinquishment after Exploration period I, a 25% relinquishment after Exploration
period 2 and a 100% relinquishment after Exploration Period 3, unless a Development
Area is defined.
Work programme (Minimum Work Commitment) for each of the Agreement Areas
First Exploration Period (48 months)
First 6 months 100km of 2D seismic
Second 6 months drill one exploration well
Remaining 36 months 100km of 2D seismic
drill one exploration well
Second Exploration Period (36 months) - 100km of 2D seismic
drill one exploration well
Third Exploration Period (36 months) drill one exploration well
2. Expenditures Budget
Unit rate assumptions:
• Seismic-2D: S20.
• Exploration well: S2.0mill (exclusive of testing)
Summary of Minimum Financial Commitments for the Agreement Area:
tiploration Period Months
First 48 S8.0 mill
Second 36 S4.0raiU
Third i 36 S2.0 mill
Total $14.0 mill.