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 PRODUCTION SHARING AGREEMENT





BETWEEN














(1) THE KURDISTAN REGIONAL GOVERNMENT


AND


(2) DNO ASA








DATED


25 JUNE 2004














DIHOK AREA


PART OF DIHOK GOVERNORATE


 table ok-ontknts





Preamble I


Article 1


I


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








LONfll:«94T«*


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






























































LON9M9479.6 ii


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".





WITNESSETH:


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


Area;


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:





ARTICLE 1


DEFINITIONS


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"


hereto.








LOV0l:4947«.« I


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


sea level.


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


Natural Gas.


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


Contractor.


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


established.





UKW1:«9«».S 3


1.31 or “Development Wort, and


any activities or for


to render for


to:





<•> 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


Parties.





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


discovered.





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.











toNoinwn* 4


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


Contractor.


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


Annex C.


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


natural stale.


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


conditions.














LOtiT«*rM 5


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


Program.


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


feasible.








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


Agreement;


(d) a reference to a Party includes that Party's successors in title and permitted


assigns.





(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





non-transitory form.





ARTICLE 2





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


Agreement.





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.





7


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


Calendar Year.


ARTICLE 3


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


period


(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











ION01:49479a


 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.


ARTICLE 4


AGREEMENT TERM


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


such date.


(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


thin Agreement.


(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.








UiaiNQUlSHNJENT.S


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


Development Areas;


(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.


ARJlCLLi


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





IO»«l:«M*M 10


 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;








II


(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


Exploration period.


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


approval.


(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.














LONoiswro* 12


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.


ARTICLE 7





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


Operations:





(b) to conduct (implement) the Work Programs and Budgets approved by the Co¬


ordination Committee;


(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.











13


 (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


7.3


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


Parties.





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.























14


 ARTICLE 8





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


statements:





(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


Study Area.

















■ 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


applied accordingly.


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








10*1 16


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¬


ordination Committee.


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


Accounting Procedure.





ARTICLE 9











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


confirmation.


(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


expenditures.


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.


ARTICLE 10


^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


below.











icr*i 18


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:














19


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


Quarter.


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.


ARI.ic.LjLU


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








IONftl:4«N1»ft 21


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


determined.


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


Article 10.














22


•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.

















LONM:««W4 23


 ABUSLE11





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


to:


(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


Region;


(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


Petroleum Operations.





ARTICLE 14





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.











24


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


Petroleum industry.


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).


ARTICLE 15


NATURAL CMS





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











25


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


Parties.


(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


Development


(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


Operation Expenses.














2b


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.


AUTIC'I.K 16


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


percent (5%).


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


 ARTICLE 17





.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


Agreement.


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.


AKUCIt 1?


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











imiMMNt 28


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


Kurdistan Region


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.


ARTICLE 19


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


or imposts.











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.


ARTICLE 20


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


Committee.


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


Article 20.2.


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).


ARTICI.UI


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








LO**l:«*rt** 30


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


Petroleum Operations.


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.


ARTICLE 22


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


Operations;


(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


Recovery Petroleum.








31


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


reservoir.


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











IO\«IM<79A 32


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.








33


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.


ARTICLE 19


PERSONNEL


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


formalities.











LON*li494TM 34


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


ARTICLE 24


FORCE MAJECRE


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.




















LO>«It«M?9* 35


 ARILC.IE 25





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


and void.


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.


ARTICLE 26





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








inwiWi 37


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








LON»l:4947^.6 38


 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


Hopsncveien 127


N-5232 Paradis Bergen


Norway


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


Irbil. Kurdistan


Iraq











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.


ARTICLE 29


TERMINATION ANDBREACH


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.


.ARTICLE 29


DISPUTE RESOLUTION


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


enforcement.


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.


ARTICLE 30


TEXT


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


Government


ARTICLE 31


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.





























































































































LONOI:49479A 42


 ANNEX A





AGREEMENT AREA








f e









































Agreement Area;





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














LON01:494?9.6 43


 ANNEX B


ACCOUNTING PROCEDURE


I. GENERAL PROVISIONS


1.1 Purpose


To classify expenditures, define recoverable Costs and Expenses, and prescribe the


manner in which the Contractor's accounts shall be prepared and approved.


U Definitions


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.


IJ Inconsistrnc)


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


shall prevail


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


times.


(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


as shown:


(i) Production Statement (as indicated in Clause 6 of this Annex).


(li) Value of Production and Pricing Statement (as indicated in Clause 7 of


this Annex).


(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


books accounts.








45


(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


made promptly.


(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.


1.7 Payments


(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.





46


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


Agreement.


(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


Parties.


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


Contractor.


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.


























47


2. CLASSIFICATION, DEFINITION AND ALLOCATION OF COSTS AND


EXPENSES





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


Expenditures).


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








LOMIriHIM 49


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


Overhead").


Parent Company Overhead will be deemed to cover the actual cost (being


salaries, wages and labour burden, employee benefits, travel, hotel and other


normally reimbursable expenses paid by the 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


the following:


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%)














50


The foregoing percentages may be reviewed but not more often that annually,


and any approved appropriate adjustment shall be made, if necessary,


prospectively.


(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


CONTRACTOR


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


Agreement.











(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


specified.


(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


3.1(bXii) above


(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.











52


 (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





(c)





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


base.


(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.


Communications


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


Operations.


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





equipment.


(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;














IOVII:lW*» 55


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)


method;


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


market.


(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


“B" material.


(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


agents.










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


other cause.


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








IO>«l:M4?9A 57


 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.


(I) Claims





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


Agreement.





<") 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.





(o)





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.





(P)





All Finance Costs incurred by the Contractor Parties in connection with


Petroleum Operations.





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


Agreement.


(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;











LON*l:4*47»6 59


(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


Procedure; and


(c) tines and penalties imposed under Current Legislation.


5. REC ORDS AND VALUATION OK ASSETS


5.1 Records


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.


5.2 Inventories


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


question.


(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


each Quarter.


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


any.


(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


8.1(c) above).


(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


Production Statrmruts


(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


Agreement


(b) Final quarterly Cost Recovery Petroleum and cumulative production


statements shall be submitted w ithin thirty (30) days of the end of the Quarter


in question.


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


cumulative production.














LONM INtt 62


9. STATEMENT OF COSTS AND EXPENSES AND RECEIPTS FROM COST


RECOVERY PETROLEUM


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


thereof.


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


Quarter.


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


Year


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.





63


 ANNEX C





MINIMUM WORK COMMITMENT


WORK PROGRAMME. AND BUDGET EOR


‘AGREEMENT AREA’





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


are:





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


Financial





First 48 S8.0 mill


Second 36 S4.0raiU


Third i 36 S2.0 mill


Total $14.0 mill.




















IUN«I:«M7*A 64