NOTICE: The text below was created automatically and may contain errors and differences from the contract's original PDF file. Learn more here

 PRODUCTION SHARING AGREEMENT





BETWEEN

















(1) THE KURDISTAN REGIONAL GOVERNMENT


AND


(2) DNO ASA








DATED


25 JUNE 2004

















ERBIL AREA


PAR I OF ERBIL GOVERNORATE


 TABIl Ot CONTENT*





Preamble .1


Article I


l Vtimf if >ta .......... ---..........................1


Ankle 2 A ■rAmvnnt niwl C'swv..r a! Prnncinnt 7


VI vvuivui aiiu wiiviw • iviwwwmi---.......................................--- '


Ankle 3 A rrj ............... S





Ankle 4 ___9


Ankle 5 ____10


Ankle 6


Co-ordination CpfTUJiittCC...............---......-................. __________10


Article 7 Contractor Responsibility-------------------------- --- 13


Ankle 8 Procedure for of Commcrculity and Approval of


Development « »««»«» m m ........ mmmmmmm mm twwMi ......... 1 5


Ankle 9 Annual Wort Programs and Budgets....... .17


Artkle 10 Allocation of Production. Recovery of Coat* and Expenses,





Production Sharing, and Right of Export ----------------------------------------------------18


Article 11


Crude 0.1 V; -----------21


Article 12 Ancillary Rights of the Contractor and Operator--------22


Article 13 Assistance Provided by the Government........................................................24





Article 14 Measurement, Quality and Valuation of Petroleum........................................24


Article 15 Natural Gas............................................................................. .....25


Article 16 Tax/Fiscal Regime.................................................................... .....27





Article 17 Accounting. Financial Reporting and Audit................................... .....28


Article 18 Currency, Payments niul Excluuige Control.................................... .....28


Article 19 Import and Export.................................................................... .....29





Article 20 Export of Hydrocarbons. Transfer of Ownership, and Regulations .....30


for Disposal..................................................................................


Article 21 Ownership of Asset*........................................................................ .....30


Article 22 Insurance. Environment. Health, Safety And [.lability.................... .....31


Article 23 Personnel... .....34








L0NSII4MIT.I


Article 24 Force Majeurc........................ ....35


Article 25 Assignments and Guarantees .36


Article 26 Agreement Enforcement and Stabilisation, and Representations ....37


and Warranties..............................................................................





Article 27 Notices and Confidentiality.............................................................................38


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) page


ANNEX B ACCOUNTING PROCEDURE...............................................Total (21) pages


ANNEX C MINIMUM WORK COMMITMENT..........................................Total (1) page






























































t0Ntt:499)7.l ii


Thu Agreement is made and entered into on 25 Jane 2004 by and between


(1) The Kurdistan Regional Government (hereinafter referred to as “the Government-) as


the party of the first part;


(2) at 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


at the "Parties-.





ttinFSSETH:


WHEREAS, the people of the Kurdistan Repon of Iraq (hereinafter refereed to as “the


Kurdistan Region”) have chosen a Regional Assembly through democratic elections;


WHEREAS, the Kurdistan Assembly has formed a Government for the Kurdistan Region,


and has enacted laws that govern the Kurdutan 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 pow er 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, dev elopment and production of the potential resources within the Agreement


Area;


WHEREAS, the Contractor has the requisite technical, managerial and financial capabilities


and cx|>cricncc to carry 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"'1 2003 to promote the


development 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 in this Agreement have the following respective meanings:


I I "Accounting Procedure" means the accounting procedure set out in Annex "B”


hcreto.








IONOI .49M7.I 1


1.2 An "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 right! are owned


directly or indirectly by a company or other legal entity, winch owns directly


or indirectly at least fifty percent (50%) of the shares, voting rights or


otherwise has tlic right to establish management policy of a Contractor Purty;


1.3 "Agreement" or "PSA" means this Production Sharing Agreement together with nil


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.


I 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 Itcrcof. In the event of a conflict between the


provisions of an Annex and a tain 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.


18 “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.


110 “Available Crude Oil" means Crude Oil produced and saved from a Development


Area and not used in Petroleum Operations in accordance with Annie 102.


1.11 “Available Natural Gas" means Natural Gas produced and saved from the Agreement


Area and not used in Petroleum Operations in accordance with Article 10.2.


1.12 “Available Petroleum" is defined as set forth in Article 10.3.


1.13 "Barrel" means a quantity consisting of forty-two (42) United States 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 ealegory-by-ealegory. relating


to Petroleum Operations and contained m any Work Program proposed by Contractor


1.15 "Calendar Quarter" or “Quarter" means a period of three (3) consecutive months


beginning or January 1st. April 1st. July 1st and October 1st of each Calendar Year





tonsi 2


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 >ear. according to


the Gregorian Calendar.


1.17 “Commercial Discovery" means a Discovery that the Contractor in iu 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 mid continuous production of Petroleum


from a Development Area in such quantities (taking into account uiiy 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%).


1.20 “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 Rocovcry


Natural Gas.


1.22 “Cost Recovery Crude Oil" is defined ns set forth in Article 10.5.


1.23 "Cost Rocovcry- Natural Gas" is defined as set forth in Article 10.5.


1.24 “Costs and Expenses" comprise all costs, expenses and expenditures incurred in


connection with Exploration. Development and Production including Operation


Expenses together with Finance Costs whether directly or indirectly incurred by


1.25 “Crude Of means erode mineral oil. asphalt, u/okerne and all kinds of hydrocarbons


whether in a solid, liquid or mixed stale 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 are effective on the Effective Date in the Kurdistan Region


1.27 "Customs Duties” means all import (or export) lands and duties and other mandatory


payments as stipulated by applicable laws, 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 “Development Area" means all or any part of the Agreement Area specified in an


approved Development Plan.


I 30 “Dev elopment 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





umi mjt. 3


1.31 "Development” or "Development Operations” or “Development Work” means and


includes any activities or operations associated with work to develop Petroleum for


production and subsequently to produce and render Petroleum marketable for


commercial sale and shall include, but not limited to:





(a) all the operations and activities under the Agreement with respect to the


drilling of wells, other than Exploration wells, the deepening, reworking,


plugging back, completing and equipping of such wells, together with tire


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;





(b) all operations and activities relating to the servicing and maintenance of


pipelines, gathering lines, installations, production units and all related


activities for the production and management of wells including the


undertaking of re-pressurising, recycling and other operations aimed at


intensified recovery, enhanced production and oil recovery rate.





1.32 “Discovery” means the Petroleum encountered by drilling a structure which is


recoverable at the surface in a flow measured by conventional petroleum industry


testing methods.


1 33 "Dollar" or "U.S.S” means the cuncncy of the United States of America.


1 34 “Double Tax Treaty” means any international treaty or convention for the avoidance


of double taxation of income andor capital which is applicable or will be applicable


in the future, in the Kurdistan Region.


135 “Effective Date” 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(b).


137 “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 and (other survey) activities and any interpretation of


data relating thereto and the drilling of such shot boles, core holes, stratigraphic tests,


Exploratory Wells, Appraisal wells and other related operations as may be contained


in Exploration Work Programs and Budgets.


1.3S "Exploratory Well" means any well drilled forming pail of Exploration Operations


with the objective of confirming a structure or geologic trap in which Petroleum


capable of Commercial Production in significant quantities lias not been previously


discovered.


139 "Fiekr 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.








4


1.40 “Finance Co**" Of "Interest Coats" shall include all amounts of interest, fees and


charges paid in respect of any debt incurred in carrying out ihc Petroleum Operations


and any refinancing of such debts prov iding that, in the case of Affiliate debt it shall


include interest only to the extent thai it docs not exceed a rare which would have


been agreed upon between independent parlies 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 Aniclc 24.2.


1.42 “Foreign Employee" is defined as set forth in Article 16.7.


1.43 “Foreign Exchange" means US.S and or other freely convertible foreign currency


generally accepted in the unemotional 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 and 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 composing 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.


I 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 locution as the Parties may agroo from time to lime 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 canicd out by the


Contractor under this Agreement under each phase of the Exploration period as act


out in Annex C.


1.50 “Month" or "Calendar Month” means a calendar month.


1.51 "Natural Gan" means Non-associated Natural Gas and Associated Natural Gas in their


natural stutc.


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.














I.ONOI :«9«J7.I 5


1.53 "Non-ossociated 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 comprise Crude Oil.


1.55 "Operation Expenses” means those costs incurred in 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 Petroleum, 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 Gus.


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 (hereto 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 operarions and all related activities


carried out for Petroleum production after the commencement of Commercial


Production, including without limitation extraction, injection, simulation, treatment,


transportation, storage, lifting, und associated operations, but does not include any


storage or transportation beyond the Measurement Point.


1.62 "Profit Natural Gils" 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 ('rude 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” meuns the part of the Agreement Area, which will be defined in a Study


Program.


I 67 "Study Program" means the program to be produced and carried out by the Contractor


in accordance with Article 8 following the conclusion that Commercial Production is


feasible.











IONl>l:49l|)7. 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, works 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 tux, 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 "Thud Parties" meant 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 be submitted to the Co-ordinanon Committee by the


Contractor in accordance with the provisions of Article 9 and which shall set out the


proposed Petroleum Operations to be earned out in the Agreement Area during uny


Calendar Year together with the associated Budget us the case may be.


1.72 In this Agreement:


(a) headings are for convenience only and shall not ufficct 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 Out


Agreement;


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


assigns;





(e) 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





m act or event, it shall be calculated exclusive of the later day. and


(g) references to writing shall include any inodes of reproducing in a legible and


non-transitory form.





ARTICLE Z





;me,\t a:





2.1 Subject to the terms and conditions of this Agreement, the Government hereby in


accordance with Cuncm Legislation grams to the Contractor the exclusive rights to


conduct Petroleum Operations in the Agreement Area during the term of





12 The Contractor shall be responsible to the Government for the execution of such


Petroleum Operations in accordance with the provisions of this Agreement.








ionsi «r 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 Coot Recover) 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 Area 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 methods for the Exploration. Development,


Production, and shar ing 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 1$ of this Agreement.


2.7 Hie Government shall have the nght to appoint an expert to act as coordinator


between the Government and the Contractor and to advise the Government in relation


to Petroleum Operations The costs of such expert shall be payable by the Contractor


and form part of the Costs and Expenses, provided that such costs shall not exceed


Dollars three hundred thousand ($300,000) in a Calendar Year prorated for part of a


Calendar Year





ARTICLE 3





AGKLtMUttARf A and MINIMUM "PKKLPMH llulAj


*





3.1 Except for rights and authorisations necessary for the implementation of the


provisions of this Agreement, and except as otherw ise provided herein, no right is


granted to the Contractor, or to any other entity, to use or dispose of any natural or


manmade resource*, including aquatic resources save for aquatic resources used


directly in Petroleum Operations in accordance with relevant permits which have been


obtained through the Government





n (a) In respect of each Exploration period as set out in Article 4. the Contractor


shall be required to carry out the Minimum Work Commitment for such


penod


(b) If the Contractor fails to carry out the Minimum Work Commitmert m respect


of any Exploration penod, the Contractor shall be liable to pay to the


Government within sixty (60) days of the end of the applicable Exploration


period m amount equal to the Minimum Financial Commitment in respect of











uwsizmri 8


 such pcnod leu all CoaU and Expenses incurred in such period and forming


pan of such Minimum Wort Commitment


(c) If dunng any Exploration pcnod the Contractor dnlls any Exploratory wells m


excess of the Minimum Wort Commitment for that Exploration pcnod. the


Contractor shall be entitled to credit any such Exploratory well or wells


against the Minimum Work Commitment for the next succeeding Exploration


pcnod or periods





ARTICLE 4





A^KKKJVjFNT TERM


4.1 (a) Subject to Articles 4.1(b) and (c) the initial term of this Agreement will be


from the dale 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 pcnod and. if applicable, the succeeding third three (3) year


Exploration period in each ease by the Contractor fixing notice to the


Government prior to expiry of the fin* or second Exploration period


(b) Notwithaanding Article 4 1(a) if. at the tune of the expiry of an Exploration


period an Exploratory Well is being drilled, such Exploration period shall


automatically continue until a dale thirty (30) days after the completion,


suspension or abandonment of such Exploratory Well and 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) if. at the time of the expiry of an Exploration


pcnod an Appraisal well is being drilled, such Exploration period shall


automatically continue for such tune to permit the Contractor to comply with


its obligations under Article 8 including, if applicable, the submission and


approv al of a Development Plan, and the Exploraion period shall terminate on


the first to occur of (i) a decision by the Contractor that the Study Area is


non-commercial, (ri) the non-approval of the Development Plan or (m) the


approval of the Dev elopment Plan and the continuation of this Agreement in


respect of the Dev elopment Area designated in such Development Plan


42 Upon expiry of the Exploration periods the term of this Agreement shall continue


thereafter in respect of each Development Area for a total of twenty-five (25)


consecutive Agreement Years from the dale 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


in Article 4.2. the Contractor, after giving nonce to the Government at least ooc (1)


year prior to the end of any such pcnod. and after obtainx.g approval by the Co¬


ordination Committee of a revised Development Plan shall be enutled to have an


extension of the term of this Agreement with respect to such Development Area for an


additional term of five (5) yean or the producing life of the Development Area,








UINSI'MII | 9


whichever is lesser, subject to the approval of the Government, and such approval


shall not he unreasonably withheld.


4.4 The term of this Agreement shall be divided into three Exploration periods as follows:


(a) The first Exploration period shall be a period of four (4) years from the date of


this Agreement;


(b) lire second Exploration period shall be a further period of three (3) years


commencing immediately after the end of the first Exploration period; and


(c) Tire third Exploration period shall be a further period of three (3) years


commencing immediately after die end of the second Exploration period.


ARTICLE 5


RELINQUISHMENTS


5.1 The Contractor may at any time relinquish voluntarily all or any pail of the


Agreement Area without any further liability. Such voluntary relinquishment will he


deducted from the Contractor’s mandatory relinquishment obligation. The orcu


designated under this Article 5 for relinquishment shall consist as far us practicable of


rcctangulur 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.


5.2 The Contractor shall relinquish the following in accordance with Article 5.1:


(a) At the end of the first Exploration period an area equal to twenty-five percent


(25%) of the Agreement Area remaining after excluding therefrom all


Development Areas;


(b) At the end of the second Exploration period, an area equal to twenty-five


percent (25%) of the Agreement Area remaining after 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


ARTICLE 6





CO-ORDINATION CC» lull! I £





6.1 For the purpose of providing the overall supervision and direction of and ensuring the


performance of the Petroleum Operations, the Government and the Contractor shall


establish a Co-ordination 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 Co-ordination Committee. All the


aforesaid representatives shall have the right to attend and present their views at


meetings of the Co-ordination Committee Each representative shall have the right to








io*wi w.i 10


 appoint an ullcniatc who shull be entitled to attend all meetings of the Co-ordination


Committee but who shall have no vote except in the absence of the representative for


whom he i« 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 rcprcvcnlativc designed by the Contractor (or his alternate). The Chairman


and Vice Chairman shall be appointed for a term of two (2) year* 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 at. 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 und


shall do so at the request of the Chairman by sending a notice to the Parties, Other


meetings, if nocossnry, may be held at any time at the request of either Party. In ciich


ease the secretary shall Rive the Parties at least thirty (30) days notice (or such shorter


period ns the Parties may agree) of the proposed meeting date, the time and location


of the meeting.


6.5 The Parties hereby empower the Co-ordination Committee to:


(a) review and adopt a proposed Development Plan as set out in Article 8. and


review ami examine any Development Work Program and Budget proposed by


the Contractor and any amendment thereof;


(b) determine the commerciahty 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 within the Budget with a unit price


exceeding Two Hundred and Fifty Thousand U.S $ (U.S.S250.000) or


any single purchase order of total monetary value exceeding One


Million U.S. $ (U.S S1.000.000);


(li) approve a lease of equipment, or an engineering sub agreement or a


service agreement within the Budget worth more than Five Hundred


Thousand USS (U.S5500.000) m total, and


(m) approve excess expenditures pursuant to Article 9.4 and the


expenditures pursuant to Article 9.3.


(e) demarcate boundaries of a Development Area.


(0 review and approve tbc insurance program proposed by the Contractor and


enter gene) procedures on safety and environmental protection and all


programs and budgets which are in connection with environmental protection;











i

(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


either Party. Contractor or the Operator.


(i) review and discuss the development work and technological regimes proposed


by the Parties;


(j) appoint subcommittees 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 sluill 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 he 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


mutters presented to the Co-ordination Committee. Where there is


disagreement between the Parties regarding any matter arising uodcT Article


6.5, or regarding a proposed Development Plan, the Co-ordination Committee


shall endeavour to reach agreement within forty-five (45) days in the case of


an Exploration Work Program and Budget and within sixty (60) days in the


ease of a Development Plan, in each case 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 submined 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 be met by the Parties equally


and the Contractor's costs shall not be recoverable as Costs and Expenses, and


the expert shall be deemed to be acting as an expert and not as an arbitrator.














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 mooting 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 alter 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 socrctury.


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 shnll be paid or reimbursed by the Contractor and recoverable as Costs


and Expenses in accordance with the Accounting Procedure.


ARTICLE 7


CONTRACTOR RESPONSIBILITY


7.1 The Parties 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 Oper ator, 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 he 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


instructions from Contractor;








10W|:«*3T| 13


(d) to 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;


(c) 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;


(I) to make necessary preparation for regular meetings of the Co-ordination


Committee, and 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 die provision of


reports to the Co-ordination Committee on Petroleum Operations conducted


under this Agreement.


7.3 The Contractor shall not be responsible for any activities (including Petroleum


activities) affecting the Agreement Area prior to the Effective Date and the Contractor


shall have no responsibility for making safe any existing wells and for the


abandonment and decommissioning of any existing wells, facilities and equipment not


used by the Contractor in Petroleum Operations.


7.4 The Contractor shall provide both Parties with copies of all relevant data and reports


pertaining to Petroleum Operations (including but not be limited to geophysical,


geological, technological, operational, accounting or other material) required by such


Parties.


7.5 The Contractor shall make good faith efforts to ensure that Third Parties have access


to the capacity in any pipeline exceeding its own notified or contracted requirements


available to third party users on reasonable commercial terms that do not discriminate


among third party users.


7.6 (a) If the Contractor is unable to commence the acquisition of the seismic and/or


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 liavc the right to enter into a contract with a seismic and/or


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 fund a


contractor to commence the acquisition of the seismic and/or an exploration


well in the first twelve (12) months of the first Exploration period, (lie


Contract shall be deemed to be in Force Majeure and die provisions of Article


24 shall apply.























I.ONtl :4S1H7.1 14


 ARTICLE 8





PROCEDjjtt-. H)R l)F IKRM1NA HON OF <^>NIM_FRCI AL|1 \ \M>


APPROVM OK DEVELOPMENT PLANS


81 (a) Where, in the course of Petroleum Operations, the Contractor makes a


Discover*- 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 Contractor's opinion, the Discovery is of potential


commercial interest and menu, 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 carried 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 water percentage, and product yield


pattern; Natural Gas composition; production forecasts (per well and per Field); and


estimates of recoverable reserves.





8 4 Together with the submission of the evaluation report, the Contractor shall submit to


the Co-ordination Committee a wntten 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.














lusoimr.i 15


8.5 In the e\ent 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 Aniclcs 8.7 and 8.8) 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 submined pursuant to Anick; 8.6


shall detail the Contractor's proposals for Development and operation of the


Development Area. 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 be


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 sliail 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 abandorunent 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 recover) account. AH 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


restoration 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











t'.wfli-Msn 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 payments 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 tbe 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 cany out, at its own


expense and financial risk, all die 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-


im port non -ex port 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.





AK f K I F. 9


AMUAUM>RK PROGRAMS _Afll>J?UPSEIS


9.1 The 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 he in conformity with tlic approved Development Plan. The


Contractor shall he 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.


9.2 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 anchor Budget, the Contractor


shall promptly make such modifications to the Work Program and/or Budget and


resubmit the modified Work Program and Budget to the Co-ordination Committee.


The Co-ordmation Committee shall approve each Work Program and Budget as


provided in Article 6.7.











I.ONflll4*B?.l 17


9 3 In connection with the review and approval of the annual Work Program and Budget


the Contractor and Operator shall submit to die Co-ordinal ion Committee such


supporting data as reasonably requested by the Co-ordination Committee.


9 4 The Contractor may, in accordance with die following provisions, incur costs and


expenditures in excess of the approved Budget or costs and expenditures outside the


approved Budget in carrying out the approved Work Program and such costs and


expenditures will be recoverable as Costs and Expenses under Paragraph 3. l(o) of the


Accountancy Procedure, provided dial the objectives in die approved Work Program


arc 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 the


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 arc not included in the Work Program and Budget,


for a maximum expenditure of One Hundred Thousand U.S.S (U.S.$ 100,000),


but shall, within ten (10) days after such expenditures are 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 inclining 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 us 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 deemod to be


Costs and Expenses and will not be treated as Cost Recoverable.


ARTICLE 10


ALLOCATION OF PRODUCTION. RECOV ERY Ol COSTS AM)


EXPENSES, PRODUCTION SHARING, AND RIGHT OF EXPORT


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.











K>Ml:49M?.l 18


10.2 The Contractor shall have the right 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 Gas


(hereinafter collectively referred to as “Available Petroleum'') shall be measured at


the Measurement Point and shall be sold bv the Contractor, and in respect of the


Government's share of Available Petroleum shall be told hy the Contractor on behalf


of the Government, and the revenues 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 Royally calculated Quarterly in accordance with Articles 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 Operatioas 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 Cost* 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 Expenses related to


the Agreement Area exceed the value of all Cost Recovery Crude Oil or Cost


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 during 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.


10.8 Following the deduction of Royally and recover)’ 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 ami Expenses (hereinafter referred to as


“Profit Oil" or "Profit Natural Gas" and 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:














ION0M985T.I 19


Until the cumulative Available Crude Oil after deduction of the Royalty from any


Development Area reaches fifty million (SO.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 Dev elopment 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%);


Thcieaftcr. until the cumulative Available (’rude Oil after deduction of the Royalty


from any Development Aren reaches one billion (1.000.000.000) Bands the


Government share from that Development Area will be eighty percent (80%) and the


Contractor share will be twenty percent (20%) and;


Thereafter, Available Crude Oil uftcr 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 Non-Associatcd, which the


Contractor intends to produce and sell, shall be allocated between the Panics in each


Quarter in the following proportions: fifty percent (50%) for the Government and fifty


percent (50%) for the Contractor.


10.9 llie 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 w-ith


accepted international Petroleum industry practices and the Work Program established


in accordance with .Article 9.


10 10 Title lo their shares of Petroleum determined in accordance with this Article 10 shall


paw 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


coau. Taxes, duties and other charges incurred by the Contractor) incurred by the


Contractor and anributabie to the Government s share of any Profit Petroleum told by


the Contractor cm behalf of the Gov ernment, and the nsk of loss or default of a Third


Party purchaser shall be borne by the Government


10.11 No tv* ithstanding Article 10.3 the Government may. by giving not less than ninety (90)


days nonce in writing to the Contractor, elect to lift and take all or part of its


entitlement to Profit Oil in kind dunng 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 ard uses of the Crude Oil,


all in accordance with the prov isions of this Agreement If necessary the Parties w-ill


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 nsk


and nsk of loss from the Measurement Point in any part of Profit Oil so taken in kind.











ionomwjt.i 20


10.12 The Royally thall 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 relev ant


Quarter.


10.13 Royalty in respect of Available Natural Gas shall be 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 Royalty 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


tin; Government The Contractor shall account to tlsc Government for the proceeds


(less all costs, Taxes, duties and other charges incurred by the Contractor) incurred by


live 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 T hird I’urty purchaser


shall be borne by the Government.


ARTICLE II





VAI.VAIION OF CRUDE





11.1 If the Contractor can demonstrate that Petroleum is being sold to a Third Party on an


ami'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 traraportation, storage and processing costs). If however 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 case, 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, poor 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 be adjusted to reflect the w eighted 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) The 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 are equal; and


(b) The pnccs for individual referenced crude oil markers used within the basket


shall be based upon the arithmetic av erage of a daily report of the actual price


for each referenced crude oil marker as published m agreed internationally


(c) Adjustment provisions will be incorporated into the basket formula to take


account of transportation costs involved in Crude Oil produced under this








UMimi' 21


Agreement amving at a designated sales point (where the sales point is not the


Measurement Point) and to lake account of quality variation beyond a pre¬


agreed range; and


(d) Unless agreed otherwise, the last calculated weighted average basket price


shall serve as 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 I l.l above, 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 be deemed to be acting as an expert and not as an arbitrator)


designated by the President of the UK Energy Institute. Pending such determination,


the price shall be as determined in Article 11.1(d) above.


11.3 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 IS which shall be


approved by the Government.





A-mm*: il


ANCILLARY Kiwi’s Qf JM*- contractor a,m> QfmviQR


12.1 In addition to the rights to carry 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


foe 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 Legislation.


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 files, 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, w hich are 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


12.3 The Contractor shall have the right to conduct all geoscience, engineering,


environmental and geodetic studies it deans necessary to cany 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) oxer the Agreement Area to conduct said studies.


The Contractor shall have the nght 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 right 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 homing, hospitals, schools, premises, underwater piers and


other installations, roads, bridges, and other moans of transportation, garages, hangars,


workshops, maintenance nnd repair shops and all the auxiliary services which arc


necessary or useful to Petroleum Operations or related to them 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 poor consent of say appropriate local governmental bodies and the rdev ant


landowners, the Contractor shall have the right to utilise the upper soil, mature timber,


clay. sand. lime, gypsum and stooes other than precious stones, and any other similar


suhsances 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 are 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 are no less favourable than those made available to others.




















lOMimrj 23


 AHTKLKii





AS$l$WCgfB<.>VH>>;P.B.YJHEi?OVKRNMKNT


13.1 To enable (he Contractor lo properly carry out the Petroleum Operations, the


Government shall have the obligation lo assist the Contractor and produce all consents


und approvals required by the Contractor or its Foreign Subcontractors upon request


to:


(a) provide the approvals or permits needed lo conduct Petroleum Operations, to


carry out associated business activities and lo open local ami foreign bank


accounts (for both local ami 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 ami work permits for employees and their family


members of Operator. Contractor, their Affiliated companies and Foreign


Subcontractors, who arc not citizens 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;


(0 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 ministries 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 (he 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





VAl. l AliQ.NQK 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.











lOM>l:4*«r 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


Recovery 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 times. The accuracy of


measuring equipment shall be verified by tests at regular intervals and upon request


by either Party, using means ami 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 ami after each case


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 cm»r and correct previously used readings- Contractor shall subnut 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 when the measuring error first occurred, the commencement of the error


shall be deemed to be the point in time halfway between the date of the previous lest


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 lev el and temperature at sixty degrees Fahrenheit (60*F).


ARTICLE IS


NATURAL GAS


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 pow er 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 Development


Plan shall include 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











LOMl:49U?.l 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 Excess Associated Natural Gas has commercial


value, they will endeavour to enter into gas sales agrccmcnt(g) and/or


other commercial and/or technical arrangements with Third Parties


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 ami 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 be 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 may 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 otherw ise to he 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 15.1(b)(i)-


(c) The price of Associated Natural Gas produced from the Agreement Area shall


be determined by the Parties based on general pricing principles taking into


consideration factors such as sales prices of internationally transported gas


delivered m 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.














IO**|-«1«t7. 26


15.2 Non-associatcd Natural Gas





When any Non-associatcd 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-associated 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 N'on-associaied Natural Gas. The


Government w ill lake all necessary measures to avoid any effect, which may hamper


the Petroleum Operations of the Contractor while producing Crude Oil.


ARTICLE 16


TAX/FISCAI. REGIME


16.1 This Article shall apply to each Contractor Party individually.


162 Euch Contractor Party, Foreign Employee and Operator shall be entitled to full and


complete exemption from ull Government Taxes prior to or after the Effective Dale of


this Agreement except as otherwise provided for in this Agreement. If any Tax is


levied on the Conlractoi 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 legislation However, where 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 w ith


such Double Tax Treaty.


16.8 Foreign Employees who perform work in the Kurdistan Region and their employers


that would otherwise be covered by am! 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.








19N

 AK1K.LL.I2





A

17.1 The Contractor shall maintain books and accounts of Petroleum Operations in


accordance with 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 lunguage.


17.2 The Accounting Procedure specifics the procedure to be used to verify and establish


promptly and finally Contractor's Costs mid Expenses under Article 10 of this


Agreement.


I7.J Sales revenues, expenditures, financial results, tax liabilities, and loss cany-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


(iovcmmcnia! agency an internationally recognised auditor's report on Costs and


Expenses incurred, that under Article 10 sliould be compensated by Cost Recovery


Petroleum. The auditor's report shall also include a profit calculation pursuant to the


provisions of Article 10 of this Agreement, I'he Government shall have the right to


audit the books ami accounts maintained by Contractor.





ART1C|.F 18











18 1 The Contractor and each Contractor Party, and their Affiliates. Subcontractors and the


Operator shall have the nghl 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 and each Contractor Party, and their Affiliates shall have the nght to





transfer all funds recaved in and converted to Foreign Exchange in the Kurdistan


Region without payment of Taxes, fees, dufies 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 have the nght 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 m thu Agreement











tcMi-mm 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 The 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 shall be entitled to purchase local


currency with Foreign Exchange and convert local currency into Foreign Exchange in


accordance with provisions stipulated in legislation.


18.7 Tlic Contractor und each Contractor Party, and their Affiliates and Foreign


Subcontractors shall 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 wages, salaries, allowances and benefits of Foreign Employees


working in the Kuuiistan Region in Foreign Exchange partly or wholly outside of the


Kurdistun Region.


18.9 Conversions of currency shall be recorded at the rate actually experienced in that


conversion. Expenditures and sales revenues in currency other than the U.S.S shall be


translated to U.S.S at the rate* officially published by the Central Bank of Iraq at the


close of business on the first business day of the current month.


ARTK l.E 19


LHreKI A>P fcAf 9RT


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 Parly 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.


19.3 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.











IOSai:4W?. 29


19.4 Foreign Employees and family members of the Contractor and its Affiliates, its agents


and Foreign Subcontractors, shall have the right to import into and re-export from the


Kurdistan Region household goods and personal property at any rime 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.


,vr;i;iCH7 3»





EXPORT W HYDROCARBONS, TRANSFER OF


OWNERSHIP, ANDRKCVj.ATIONS FOR I.HSPOSAL





20.1 The Government shall niukc 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 be available to u botui 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 unil


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


the 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, with 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


ft. and subsequently give back to such Party an equivalent amount of Petroleum


(taking into account any costs incurred).


ARTICT.K 21





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 (u) 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








(ONOI '4*117 30


Petroleum Operations, live Contractor shall bear the custody and maintenance of


such assets and all risks of accidental loss or damage thereto while they’ arc 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.


212 Whenever the Contractor relinquishes any part of the Agreement Area, all moveable


property located w ithin 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.


213 The provisions of Article 21.1 and 213 shall not apply to materials or other property


that arc rented or leased to the Contractor, its Affiliates or Operator or which belong


to employees of the Contractor, its Affiliates or Operator.


AflTIClE-22


INSURANC E, ENVIRONMENT, HEALTH. SAFETY AND LIABILITY


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 The insurance w hich 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 in 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 wild well control;


(f) liability incurred by the Contractor in hiring land drilling rigs, vessels and


aircraft serving the Petroleum Operations; and


(g) losses and expenses incurred dunng 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








L0’*l:««)7.l 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-performance 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 and


liabilities arc not caused by or do not arise out of the performance or non-performance


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 tlie Operator) shall have no liability hereunder if and to the


extent any loss and damage is caused by or arise* out of any breach of this Agreement


(and any other agreements that may be entered into by and betw een 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 damage* or any other indirect or consequential damage*, or for


loss of production or hydrocarbon reserves, or for damage to any hydrocarbon


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 Majeure 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 Costs and Expenses for the


purposes of determining Cost Recovery Petroleum, subject to prior approval 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 am! Current


legislation related to the environmental issues. Such baseline study shall be


submitted to the Government and shall be incorporated in the Environmental Impact











tON0t'4«t|1 1 32


Assessment to be prepared by the Contractor in accordance with the environmental


laws for the purpose of obtaining a permit for Petroleum Operations from the


authonty. 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 included 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 in 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.H 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 are causing or likely


to cause material environmental damage or material risk to health and safety. Such


notice shall include a summary description of the circumstances and steps taken and


planned by the Contractor to control and remedy the situation. Hie Contractor shall


provide such additional reports to the Government as are necessary in respect of the


effects of such events and die 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 The 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 Operations, caused by the Government’s activities


beyond or w ithin the Agreement Area.








UNIM9J 33


22 12 The Contractor shall not be liable for any loss or damage, including but not limited lo


spillage, 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 be liable for tiny


damage whatsoever in respect of the Government share of Petroleum, storage or


transportation thereof once the Government hies 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 personnel 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. Notwithstanding 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


citi/cns of the Kurdistan Region in respect to the perils named above. Furthermore,


the Contractor agrees that it shall have no claim for legal or equitable relief for 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 damaged or destroyed by an act of


war or terrorism, and where 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 event described in this .Article 22.


22.16 Notwithstanding anything to the contrary contained herein, the Government


acknow ledges 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 time that the liability is incurred.


ARTICLE 23











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 at 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 at 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.








IONOI:4WJ7.I 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 he dctcmiincd by the relevant employer of such employees. In


relation to employees who arc citizens of the Kurdistan Region, their employment


shall l>e in accordance with the Current legislation. To the extent that any expatriate


personnel arc engaged under an Agreement subject to the Current Legislation, that


Agreement shall comply with the provisions of the Current Legislation. The


Contractor, its Affiliates, its Subcontractors, agents or brokers however, shall enjoy


full freedom in the selection and assignment of their employees.











FORCE MAJKURK


24.1 If as a result of Force Majeure, a Party is rendered unable, wholly or in part, to carry


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 Majeure, shall be suspended during the continuance of any


inability so causal, and for such reasonable time therefore as may be necessary to


allow such Party to be in the same position as existed prior to such Force Majeure


occurring. The affected Party shall notify' the other Party of the Force Majeure


situation within seven (7) days of becoming aware of the circumstances relied upon


and shall kocp 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 Purty 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. The period of any


such non-pcrformancc or delay, together with such period as 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 Majeure" shall mean a circumstance


which is irresistible or beyond the reasonable control of a Party 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 Majeure and shall not excuse performance


by the Government of its obligations hereunder.


24.3 The Contractor, or any Contractor Party shall have the tight to terminate this


Agreement if a Force Majeure continues for a period in excess of twenty-four (24)


months, ut any time thereafter by thirty (30) days’ notice to the Government in which


event the Contractor shall he released from all obligations and liabilities hereunder.




















i.oNoimvri 35


 ARTICLE 25





ALIGNMENTS AND GUARANTIES


25.1 DNO ASA may assign and transfer all of its rights and obligations as Contractor


under this Agreement to n 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


Contractor or by a Contractor Party of its rights obligations and interests arising under


this Agreement other 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 be assumed


by it under this Agreement; and


(b) as to the 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 25.3. the


Government shull not be considered to be acting unreasonably in declining to consent


to any such 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


matters set forth in this Article 25.3 and such documentation, which shall include


evidence 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


he reasonably necessary lor the Government, and as requested by the Government, to


make a determination of the Government's interests as described above, the


Government has not given its written decision concerning such assignment, then it


shall be deemed that the Government has declined to give such consent; provided that


thereafter if upon the further written request of the Contractor for a written 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





LOWIiMMTI 36


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 assign all or part of its rights, obligations and interests ansing from this


Agreement to another Contractor Party or Affiliate, without pnor 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


(ii) 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 terms 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 extern of the


interest assigned the assignor shall be released from all further obligations and


liabilities arising under this Agreement alter the effective date of the assignment. The


assignee shall thereafier be liable for the obligations arising from such interest in this


Agreement except to the extent provided in this Agreement.


ARTKT.F. 26





AGREEMENT ENFORCEMENT AM) STABILISATION, AND


KFPRFSFNTAHONS





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 the Government so that the Parties may derive the








LOMI:49B.17.l 37


greatest benefit from Petroleum Operations for their own benefit and for the benefit of


the Kurdistan Region-


264 If at any ume after this Agreement has been signed there is a change in the applicable


Kurdistan Regional Gov ernment 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 adv ene effect and'or shall make necessary revisions and adjustments to the


relev ant 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 iu position has


been to affected and the nature of an appropriate exemption and the extent of an


appropriate indemnity. If matters have not been resolved within ninety (90) days or


ns otherwise agreed the matter may be referred to aibitration by any Party in


accordance with the provisions of Article 29.


26 6 Ilie Contractor Parties represent and warrant that:


26.6.1 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


and resolutions in accordance with its corporate statute* and the applicable


laws to empower the Contractor, to execute this Agreement, to undertake all


of the obligations of the Contractor hereunder.


ARTICLE 27





ALITY





27.1 Except as otherwise specifically provided, all nonces authorised or required between


the Parties by any of the provisions of this Agreement, shall be in writing in English


and delivered m 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 as designated


below Tbe originating notice given under any provision of this Agreement shall be


deemed delivered only when received by the Part> to whom such notice is directed,


and the time for such Party to deliver any notice in response to such onginating notice


shall run from the date the onginating notice is received The second or any


responsive notice shall be deemed delivered when received. "Received"' for purposes


of thu 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 ami'or designate that copies of all such notices be directed to








I own :«WT. 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 parties arc as follows:


Contractor: DNO ASA


Hopsneveien 127


N-5232 Paradis Bergen


Norway


Attn: ilclgc Hide


Tel: 00 47 55 22 47 00


Fax: 00 47 55 22 47 01











Government: Prime Minister’s Office


Kurdistan National Assembly


Ixbil, Kurdistan


Iraq


Attn:














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 during 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


herein;


(b) To a governmental agency or other entity when 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 entity with whom a Contractor Party or its Affiliates ore


conducting bona fide negotiations directed toward a merger, consolidation or


the sale of a majority of its or an Affiliate’s shares),


(0 To a hank, financial institution or any other person providing Amding to a


Contractor Party to the extent disclosure is required in connection with


securing and arranging for funding of a Contractor Party's obligations;











10\«l:«W7J 39


(g) To the extent that any data or information which, through no fault of a Party,


becomes a part of the public domain.


27.3 Disclosure pursuant to Article 27.2(d). (c). and (0 shall not be made unless prior to


such disclosure the disclosing Party has obtained a written undertaking from the


recipient party to keep the data 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.


AKIICl.iijg


IJiRMiNAHW AM) BREACH


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 clTcct to the Government relinquish its rights and Ik 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 he 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 ionic tiling 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 cntitlod to terminate this Agreement by giving ninety- (90) day’s*


advance 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 case the Contractor has not remedied such breach (to the 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 material 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 laws applicable to the Kurdistan Region and principles of international law.


29.2 All disputes betw een the Parties arising m out of or relating to this Agreement, or to


the breach, termination or validity thereof, which the Parties are 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


(UNCITRAL) in force on the date when this Agreement was signed


29.3 A Party need not exhaust administrative or judicial remedies prior to commencement


of arbitral proceedings.








LONOI:49UT. 40


29.4 For the purpose of an arbitration under the UNCURAL Rules:





(a) the appointing authority shall be the intern anon*! Court of Arbitration of the


international Chamber of Commerce,


(b) there shall be a single arbitrator 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; and


(d) the law of the arbitration shall be the laws of England and Wales.


29.5 Tills clause shall survive the termination of this Agreement until nil 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 ami 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 Parties resisting such


enforcement.


29.8 Judgement on the award may he 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 die


ease may be


29.9 The Parties shall not be liable to each other ui 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 AM>|





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











|('N«|:4W?.l 4!


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.
































































































































LON01r4«J7. 42


 ANNEX A











AGREEMENT AREA







































































































































































LON*l:4983?.l 43


 ANNEXB


ACCOUNTING PROCEDURE





I. GENERAL PROVISIONS


1.1 Purpose


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


manner in which the Contractor's accounts shall he prepared iuhI approved.


1.2 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.


1.3 Inconsistency


In the event of any inconsistency or conflict between the 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 charts 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 ai all


times.


(b) Within sixty- (60) days of the Effective Dale, the Contractor shall submit to


and discuss with the Government a proposed outline of charts of accounts,


books, reconis 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, hooks and records and reports w-hich shall


describe the basis of the accounting system and procedures to be developed


and used under this Agreement. Following such agreement, the Contractor


shall expeditiously prepare and provide the Government with formal copies of


the comprehensiv e charts of accounts and manuals related to the accounting,


recording and reporting functions, and procedures which arc. and shall be.


observed under the Agreement

















ION«l:«W|7.


 Notwithstanding the generality of the foregoing, the Contractor shall make


regular Statements relating to the Petroleum Operations These Statements are







(ii) Value of Production and Pncuig Statement (as indicated in Clause 7 of


this Annex».


(in) Cost Recovery and Share Account Statement (as indicated in Clause 8


of this Annex*.


(iv) Statement of Costa and Expenses and Receipts (as indicutcd in Clause


9 of this Annex).


(v) Final End-of-Ycar Statement (as indicated in Clause 10 of tills Annex)





(vi) Budget Statement (as indicated in Clause 11 of this Annex).





<«!> All reports and shall be prepared in with the


Current there are no of


of in the





1.5 l anguage and Cults of Account


All account*, records, books and report* 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.


|.6 Audit aud Inspection Rights of the Republic





fa) Hie 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 ofT each such Year.


(n) 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 coat 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 exception9 shall be made in writing and notified to the Contractor


within one hundred and eighty (190) day*, following completion of the audit


in question, and failure to give such written exception within such time AjII


be deemed to be an ackmrw lodgement of the correctness of the Contractor s


books and accounts








vomt>emrr.i 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


jui Affiliated Company of the Contractor, the Government sliall have the right


to obtain an audit certificate from an internationally recognised finn of public


accountants acceptable to both the Government and the Contractor, which may


he 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.


(I) 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 Govenunent arc unable to Teach final agreement on


proposed audit adjustments they may, by mutual agreement refer tbeir 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 imerest compounded daily at the London


Interbank Offered Rate for three month deposits in Dollars ("LIBOR") plus


two und half per cent (2.5%).


1.8 Currency Exchange Rates


(a) It is the intent of this Accounting Procedure that neither the Govenunent nor


the Contractor should experience an exchange gain or loss at the expense of,








LUNOMW?.! 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 Bxpcnses made in Dollars or in other


currencies which are in excess of ten thousand (10,000) Dollars, or tire


equivalent in other currencies, shall !>e converted from other currencies into


Dollars on the basis of the average of the buying and selling exchange rates


between the currencies in question, us published by the Central Bank of Iraq,


prevailing on the date upon which such amounts are received and Costs and


Expenses arc 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 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 last business day of the month preceding the month in which


such amounts arc received and Costs and Expenses are made.


1.9 Revision of the Accounting Procedure


By mutual agreement between the Government and tin: Contractor this Accounting


Procedure may be revised from time to tunc by n 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 are earned, and Costs and Expenses


to the accounting penod in which they are inclined. 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 proposed by the Contractor relating to all Costs and Expenses


shall be subject to challenge by the Government in the course of audit to ensure that


they are in accordance with 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 as invoices,


cash vouchers, debit notes, price lists or similar documentation verifying the values


and treatment proposed.


























i i\sm tlM.17.1 47


2. CLASSIFIC ATION, 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 C.’osts 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 arc 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 surveys 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 22(a),


(b) and (c) above, including access roads and purchased geological and


geophysical information, all separately identified.


(c) That portion of all Service Expenditures and that portion of all General and


Administrative Expenditures allocated to Exploration Expenses as determined


by the proportionate share of total Petroleum Operations Expenditures


(excluding General and Administrative Expenditures and Service


Expenditures) represented by all other Exploration Expenses.


(f) 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 w hich arc completed as producing well* and drilling wells for


purposes of producing from a Petroleum reservoir, whether these wells are dry


or producing and drilling wells for the injection of water or gas to enhance


recovery of Petroleum


(b) Completing wells by w ay 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








U*«l Mt

producing well or as u well for the injection of water or gas to enhance


recovery of Petroleum.


(c) The costs of Petroleum production, transport and storage facilities such as


pipelines, How lines, production and treatment units, wellhead equipment,


subsurface equipment, enhanced recovery systems, Petroleum storage


facilities, and access roads for production activities.


(d) Engineering and design studies for the wells and facilities referred to in


Clauses 2.3(a), (b) and (c).


(e) 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 totul Costs and Expenses for Petroleum Operations


(excluding General and Administrative Expenditures and Service


Expenditures).


2.4 Operation Expense#


Operation Expenses are all Costs and Expenses incurred in Petroleum Operations


after the commencement of Commercial Production which are 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 he 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 plant*, housing,


community and recreational facilities and furniture, tools and equipment used in these


activities. Service Expenditures in any Calendar Year shall include the costs incurred


in such year to purchase and'or construct the said facilities as well as the annual costs


of maintaining and operating the same. All Service Expenditures shall be regularly


allocated as specified in Clauses 22(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 arc 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 serv ices


(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(bXii) below) by the Operator or its parent company or an Affiliate of the








UMlrtPl 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


Affiliate of the parent company within the Kurdistan Region, mi 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


stuff 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, executive administrative management, research and development,


central engineering and process engineering which:


(i) cannot be charged under any other section of this Annex; and





(ii) are properly allocable to Petroleum Operations under 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:








(I) Exploration Overhead





The Contractor shall be entitled to an annual charge based on a sliding


scale percentage and charged monthly to Petroleum Operations The


basis for applying this percentage shall be the total of Exploration


Costs and Expenses during each Calendar Year or fraction thereof less


expenditures which have been subjected to the five (5) per cent fee,


referred to in Clause 3.1(h)(ii)- The sliding scale percentage shall be


the following:





For the first five million (5. ) 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%)




















LON*l :«**!’• 50


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


and any approved appropnatc 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. Overhead charges exist only to compensate


the Contractor's Affiliates for costs which arc 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. Ovciiicad costs arc billed


monthly. Overhead must be commensurate with services


rendered and based on actual cost studies but may not exceed


an amount calculated as a percentage of certain annual


expenditures excluding Exploration Expenses. Thai 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.


3. COSTS. EXPENSES, EXPENDITURES AND CREDITS OF THE


CONTRACTOR


3.1 Costs Recoverable Without Further Approval of the Gov ernment


Costs and Expenses incurred by the Contractor pursuant to the Agreement as


classified under the headings referred to in Clause 2 shall be recoverable for the


purpose 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.

















LCIVOl :4WJ7 J 51


 (a) Surface Rights





All direct costs necessary for the acquisition, renewal or relinquishment of


surface rights acquired and maintained in force for the purposes of the


Agreement.





(b)





(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 ami Government benefits for employees and


levies imposed on the Contractor as an employer, transportation and


relocation costs within the Kurdistan Region of the employee anil 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 are engaged in other activities in the


Kurdistan Region, in addition to Petroleum Operations, the cost of


such employees shall be apportioned on u time sheet basis according to


sound and acceptable accounting principles,





(ii> 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 the 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(bXiii), (iv), (v),

(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. l(bKii) above


(iv) Expenses or contributions made pursuant to assessments or obligations





imposed under Current legislation which arc applicable to the


Contractor's cost of salurics 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 customnrily granted to the


Contractor's employees, provided however that such costs are in


accordance with generally accepied standards in the international


petroleum industry, applicable to salaries and wages chargeable to


Petroleum Operations under Clause 3.1(bX») above.











Il»*l 52


 (vi) Actual transportation and travel expenses 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 wages arc chargeable to


Petroleum Operations under Clause 3.1(bXii) 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 be charged to the Petroleum


Operations Transportation cost as used in this section shall mean the


cost 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 urc 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. l(b>(ii> above


and for which expenses such personnel are reimbursed under the


Contractor’s standard personnel policies, hi the event such expenses


arc not wholly attributable to Petroleum Operations, the Petroleum


Operations shall lie charged with only the applicable portion thereof,


which shall be determined on an equitable basis.





(c> Mid





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.











(i) Third Parlies


(I) The actual costs of contract sendees, services of professional


consultants, utilities, and other sen-ices necessary for the


conduct of the Petroleum Operations under the Agreement


performed by Third Parties other than an Affiliate of the


Contractor.


(ii) Affiliates of the Contractor





(I) Professional and Administratis c Sen ices 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 sendees provided by











l0Nrt:«wr-l 53


 the Production, Exploration. Legal, Financial, Insurance,


Accounting and Computer Services Divisions other than those


covered by Clause 3.1(d)(iiX2). 3.1(0 and 3.1(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 oilier operations earned on


by the Contractor and its Affiliates. The chargeout rate shall


include all costs incidental to the employment of such


personnel. Where the work is performed outside the homo


office base of such personnel, the daily rate shall be charged


from the date on such personnel leave the home office base


where tliey usually work up to their return thereto, including


days which arc not working days in the location where the


work is performed, excluding any holiday entitlements derived


by such personnel from their employment at their home office


base.


(2) Scientific or Technical Personnel: cost of scientific or technical





personnel services provided by any Affiliate of the Contractor


for the direct benefit of Petroleum Operations, which cost shall


be charged on a cost of service busis 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 authorise work by such


personnel without approval of the Government.


(3) Equipment and facilities: use of equipment and facilities owned


and fUmished by the Contractor’s Affiliates, at rates


commensurate with the cost of ownership and operation,


provided, however, that such rates shall not exceed those


currently prevailing for the supply of like equipment and


facilities on comparable terms in the area where the Petroleum


Operations arc being conducted.


(e) Communications





Cost of acquiring, leasing, installing, operating, repairing and maintaining


communication systems including radio and microwave facilities between the


Contract Area and the Contractor's nearest base facility.


(0 Pffo? aid MisreUflMaw. Facilities





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.














IQWliWftl 54


 (i) Costs incurred in the Agreement Area an a result of legislation for


(n) archaeological and geophysical survey* relating to identification and


protection of cultural sites or resource*.





Costs incurred in environmental or ecological surveys required by


regulatory authorities, including an


(i»i) : lo Article 22.7 of the





Costs to provide or have available pollution and removal








(iv) Costs of actual control and cleanup of oil spills and of such further


responsibilities resulting therefrom a* 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





(h) Material Costs





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:


(i) Acquisition - the Contractor shall only supply or purchase material* far





use in Petroleum Operations that may be used in the foreseeable future,


together with a reasonable level of spare materials. Ihe accumulation


of surplus stocks and inventory shall be avoided so far as is reasonably


practical and consistent with efficient and economical operations.


Inventory levels shall, however, tukc into account the time lug for


replacement, emergency needs, weather conditions affecting operations


and similar considerations.


(ii) Components of costs, aim's length transactions - except us otherwise





provided in Clause 3.l(hK'(ii) * * v) 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 expense* from point of importation to


warehouse or operating site. Where an Affiliate of the Contractor has


arranged the purcha>c. coordinated the forwarding and expediting


effort, its costs should not exceed those currently prevailing in normal


arm’s length transactions on the open market and in any case shall not














55


exceed a fee equal to five pee cent (5%) of the value of the materials


added to the cost of the material* purchased.


(til) Accounting - such material coos shall be charged to the arronating


records and books in accordance with the “First in. hirst Out" (FIFO)


method.


(iv) 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.l(hK*v)(I). 3.l(hHivX2)


and 3.1(hX«vX3) 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 ami’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 ament pnee of new material


defined in Clause 3.1(hXivXU;


(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 pnee of new material as defined in


3.l(hXivXI) 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 aa Condition “B" or


Condition “C~) 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) Material involving erection of costs shall be charged at the


applicable condition percentage of the current knockcd-down


pnee of new material as defined in Clause 3.l(hXivXt) above.


(4) When the use of material is temporary and its service to the


Petroleum Operations under the Agreement docs not justify the


reduction m pnee as provided for in Clause 3 l(hMivX2)»B)


 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 serv ice 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


the Government shall have the right to challenge the


transaction on audit.


(6) Wan only of material furnished by tbc 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.





(i) Rentals. Duties and Other Assessments


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.





(j) lnsurance_and_LQsses


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 which are 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


ft) Legal Expenses








All reasonable costs and expenses resulting from the handling, investigating,


asserting, defending, or settling of any claim or legal action necessary or











Urol msi 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 die joint interest of the Government and die


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 are rendered in such matters by salaried or


regularly retained lawyers of the Contractor or ail Affiliated Company of the


Contractor, such compensation shall be included instead under Clause 3.1(b)


or 3.1 (d)(ii) above as applicable.





(l) Claims


Expenditures made in die 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 Costs


All costs and expenses incurred by the Contractor in the training of its


Kurdistan Regional employees engaged in Petroleum Operations under the


Agreement.





(») live Costs





The costs described in Clause 2.6(a) and the charge described in Clause 2.6(b)


of this Annex.





(o) Other Expenditure*


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) Finance Costs


All Finance Costs incurred by the Contractor Parties in connection with


Petroleum Operations





3.2 Credit Under 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 be 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 with


the Petroleum Operations under the Agreement or any assets charged to the








U»t|:4«.T7,| 58


accounts under the Agreement where such operations or assets have been


insured and the premia charged to the accounts under the Agreement


(b) Legal costs charged to the accounts under Paragraph 3.l(k) of thu Annex and


subsequently recovered by the Contractor.


(c) Revenue received from Third Parties for the use of properly or assets the cost


of which has been charged to the accounts under the Agreement


(d) Any adjustment received by the Contractor from the supplicrs/manufacturon


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.


(e) Rentals, refunds, including refunds of taxes paid, or other credits received by


the Contractor which apply to any charge which hus been made to the


accounts under the Agreement, but excluding any award granted to the


Contractor under arbitration or sole expert proceedings referred to in the


Agreement.


(0 Price* originally 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


ft) 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. C OSTS AND EXPANSES NOT TO BF. 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.











louiisri 59


(d) attorney’s lees 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) fines and penalties imposed under Current Legislation.


5. RECORDS AND VALUATION OF 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 be 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 be 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, a! 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 Prodactioo Id formation


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 Dev elopment 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) The quality characteristics of such Natural Gas produced and saved.


(e) The quantities of Crude Oil and Natural Gas used for the purposes of earning


on drilling and production operations and pumping to Geld storage.


(0 The quantities of Crude Oil and Natural Gas unavoidably lost


(g) The quantities of Natural Gas flared and vented.








io\«i:«*n.i 60


(h) The size of Petroleum stocks held at the beginning of the calendar month in


question.


(i) The size of Petroleum slocks 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 be expressed in both volumetric terms (barrels of oil and cubic meters of


gas) and in weight (metric tonnes).


6.2 Submission of Production Statement


The Production Statement for each calendar month shall be submitted to the


Government no later than ten (10) days after the end of such calendar month.


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 C rude 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.


7.2 Submhslon of Value of Production and Pricing Statement


The Value of Production and Pricing Statement for each Quarter shall be submitted to


the Government not Inter tluin 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 Quarter in question


(c) Credits under the Agreement for the Quarter in question.





LOVOI:49U7.I 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).


(e) Quantity and value of Cost Recovery Petroleum taken by the Contractor for


the Quarter in question.


(f) Amount of recoverable Costs and Expenses to be earned forward into the next


Quarter (subparagraph 8.1(d) net of subparagraph S.l(e) above).


8.2 Cumulative Production Statement


The Contractor shall prepare with respect to each Quarter a cumulative production


statement containing the follow mg information:


(a) Ibc cumulative production position at the end of the Quarter preceding the


Quarter in question.


(b) Production of Crude Oil for the Quarter in question


(c) The cumulative production position at the end of the Quarter in question


(d) The amount of Profit Oil taken by the Government and by the Contractor,


respectively, during the Quarter in question.


(c) The share of Profit Oil due to the Government and to the Contractor,


respectively, for the next succeeding Quarter.


Preparation and Submission of Cost Recovery Petroleum and Cumulative


Production Statements


(a) Provisional Cost Recovery Petroleum and cumulative production statements


containing estimated information where necessary, shall be submitted by the


Contractor on the last day of each Quarter for the purposes of Article 10 of the


Agreement.


(b) Final quarterly Cost Recovery Petroleum and cumulative production


statements shall be submined within thirty (30) days of the end of the Quarter


in question.


8.4 Annual Statement


For the purposes of Article 10 of the Agreement, an annual Cost 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 in 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.











IOM1:49t37. 62


9. STATEMENT OF COSTS AND EXPENSES AND RECEIPTS FROM COST


RECOVERY PETROLEUM


9.1 The Contractor shall prepare with raped to each Calendar Quarter a Statement of


Coat* and Expenses and Receipts from tales of Cost Recover)’ 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 categories. 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


(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 bier than fifteen (IS) days after the end of such


Quarter


10. FINAL END-OF-YEAR STATEMENT


The Contractor will prepare a Final End-o( Year 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 urc necessary to the payments made by the Contractor


under the Agreement. The Final End-of-Ycar Statement of each Calendar Year sliall


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 Expense* 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.





iomi mr 63


 ANNEXC





MINIMUM WORK COMMITMENT


WORK PROGRAMME AND BUDGET FOR


‘AGREEMENT AREA*
















































































































































































ION01: 49*17. 64