NOTICE: The text below was created automatically and may contain errors and differences from the contract's original PDF file. Learn more here
/Vo.A» iwii S/taring CWnN* - S<4m
Execution Copy
PRODUCTION SHARING CONTRACT
BETWEEN
THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ
AND
MARATHON PETROLEUM KDV B.V.
(Safen Block)
TABLE OF CONTENTS
PREAMBLE
Article 1 DEFINITIONS
Article 2 SCOPE OF THE CONTRACT
Article 3 CONTRACT AREA
Article 4 GOVERNMENT PARTICIPATION
Article 5 OPERATOR
Article 6 TERM OF THE CONTRACT
Article 7 RELINQUISHMENTS
Article 8 MANAGEMENT COMMITTEE
Article 9 CiUARANTFES
Article 10 MINIMUM EXPLORATION WORK OBLIGATIONS
Article 11 EXPLORATION WORK PROGRAMS AND BUDGETS
Article 12 DISCOVERY AND DEVELOPMENT
Article 13 DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND
BUDGETS
Article 14 NATURAL OAS
Article 15 ACCOUNTING AND AUDITS
Article 16 CONTRACTOR’S RIGHTS AND OBLIGATIONS
Article 17 USE OF LAND AND EXISTING INFRASTRUCTURE
Article 18 ASSISTANCE FROM THE GOVERNMENT
Article 19 EQUIPMENT AND VIA 1 TRIM S
Article 20 TITLE TO THE ASSETS
Article 21 USE OF THE ASSETS
Article 22 SUBCONTRACTING
Article 23 PERSONNEL TRAINING AND TECHNOLOGICAL ASSISTANCE
Cc**H-Safe*
Article 24 ROYALTY
Article 25 KHOOVERY OF PETROLEUM COSTS
Article 26 SHARING OF PROFIT PETROLEUM
Article 27 VALUATION AND METERING OF CRUDE OIL AND NATURAL GAS
Article 2K SALE OF GOVERNMENT SHARE
Article 29 FINANCIAL PROVISIONS
Article 30 CUSTOMS PROVISIONS
Article 31 TAX PROVISIONS
Artick 32 CAPACITY BUILDING PAYMENTS : PRODUCTION BONUSES
Artick 33 PIPELINES
Artick 34 UNmSATION
Artick 35 LIABILITY AND INSURANCE
Artick 36 INFORMATION AND CONFIDENTIALITY
Article 37 ENVIRONMENTAL PROVISIONS
Article 38 DECOMMISSIONING
Article 39 ASSIGNMENT AND CHANGE OF CON I ROL
Article 40 FORCE MAJEURE
Article 41 WAIVER OF SOVEREIGN IMMUNIT Y
Article 42 ARBITRATION AND EXPERT DETERMINATION
Article 43 GOVERNING LAW, FISCAL STABILITY, AMENDMENTS AND
VALIDITY
Article 44 NOTICES
Article 45 TERMINATION
Article 46 COUNTERPARTS; EFFECTIVE DATE
Annexes:
Annex A CONTRACT AREA MAP AND LIST OF COORDINATES
Annex B ACCOUNTING PROCEDURE
Annexe FORM OF GUARANTEE
PRODUCTION SHARING CONTRACT
BETWEEN
The KURDISTAN REGIONAL GOVERNMENT OF IRAQ (the "GOVERNMENT");
ANI)
MARATHON PKTROI.EUM KDV B.V.. a company established and existing under the
laws of The Netherlands, whose registered office is at da Equity Corporate Services. Equity
Tmst Co. N.V., Strnwirwkylaan 3105, Atrium 7th Floor 1077 ZX Amsterdam, The Netherlands.
("Marathon")
WHEREAS
(A) The GOVERNMENT wishes to develop the petroleum wealth of the Kurdistan
Region (as defined in this Contract) in a way that achieves the highest benefit to the
people of the Kurdistan Region and all of Iraq, using the most advanced techniques of
market principles and encouraging investment, consistent with the Constitution ot
lrm| including Article 112 thereof;
(B) In accordance with the Constitution of Iraq, the prevailing law of the Kurdistan
Region is the Kurdistan Region Law (as defined in this Contract), except with regard
to a matter wliolly within the exclusive jurisdiction of the Government of Iraq.
(O The Parties affirm their ongoing commitment and adherence to the Principles and
Criteria of the Extractive Industries Transparency Initiative (lilTT)
(D) The CONTRACTOR, together wilh it* parent and ultimate parent, has
(i) the financial capability, and the technical knowledge and technical ability, to
cany out Petroleum Operations in the Contract Area (as defined in this
Contract) under the terms of this Contract;
(ii) a record of compliance w ith the principles of good corporate citizenship: and
(lii) a willingness to cooperate wilh the GOVERNMENT by entering into this
Contract, thereby assisting the GOVERNMENT to develop the Kurdistan
Region petroleum industry, thereby promoting the economic development of
the Kurdistan Region and Iraq and the social welfare of it* people.
(F.) Marathon and Marathon Oil Corporation have provided the GOVERNMENT with a
Letter of Representations and Warranties dated concurrently herewith (the “Letter of
Representations ) as an inducement for the GOVERNMENT to cater mto this
Contract, and which the GOVERNMENT is relying upon in entering into this
Contract
(F) Concurrently with the signing of this Contract. Marathon Oil Corporation has
delivered a guarantee in favour of the GOVERNMENT at required by this C ontract
PnuhKIkm Sharing Contratt - Safvn
NOW THEREFORE. THE PARTIES HAVE AGREED AS FOLLOWS
ARTICLE 1 - DEFINITIONS
LI Capitalised terms and expressions in this Contract shall have the following meaning,
units'! otherwise specified:
Abroad means outside of the Kurdistan Region and other parts of Iraq.
Accounts is defined in Article 15.1.
Accounting Procedure means the Accounting Procedure attached to this Contract as
Annex B and constituting an integral part of this Contract.
Act of Insolvency means, in respect of any Person, its insolvency, winding-up,
dissolution, administration or liquidation, the making by it of any arrangement or
composition with its creditors or the taking of possession by an encumbrancer of, or
the appointment of a receiver or administrative receiver over, the whole or any
substantial part of its property or assets or its ceasing or threatening to cease to carry
on business and any equivalent or analogous procedures by whatsoever name known
and in whatsoever jurisdiction. The "winding-up" of n Person also includes the
amalgamation, reconstruction, reorganisation (by way of voluntary arrangement,
scheme of arrangement or otherwise), administration, dissolution, liquidation, merger
or consolidation of that person and any equivalent or analogous procedure under the
law of any jurisdiction in which that Person is incorporated, domiciled, or resident or
carries on business or has assets.
Adjacent Contract Area is defined in Article U.
Adjustment Date is defined in Article 27.6.
Affiliated Company or Affiliate meant, at regards any of the companies or entities
constituting the CONTRACTOR, a company or other legal entity which:
(a) controls a CONTRACTOR Entity; or
(b) is controlled by a CONTR ACTOR Entity; or
(c) controls or is controlled by a company or entity which controls a
CONTRACTOR Entity.
but shall not include ihc GOVERN ME NT in respect of a Public Company For the
purpose of this definition, “control means direct or indirect ow nership or control of
the majority of the voting rights of the applicable entity at it* shareholders’ meetings
or their equivalent
Agreed Terms is defined in Article 14.10(a).
2
Production Sharing CW.rrl V
Applicable l aw means, as of any lime of delerminulion. Ihe laws of the Kurdistan
Region of Iraq and federal laws of Iraq recognised by the Government as applicable in
ihc Kurdistan Region
Appraisal Area means the area defined in Article 12 2.
Appraisal Work Program and Budget is defined ui Article 122.
Appraisal Report is defined in Article 12 4
Appraisal Well means a well drilled for the purpose of evaluating the commercial
potential of a geological feature or a geological slruciure in which Petroleum has been
discovered.
Arm’s-Length Sales means sales ol Petroleum in freely convertible currencies
between sellers and buycis liaviug no direct or indirect relationship or common
interest whatsoever with each other that could reasonably influence the sales price.
Such Ann’s- Length Sales shall exclude:
(a) sales between or among any of Ihe CONTRACTOR Entities and their
respective Affiliates;
(b) sales involving the GOVERNMKNT oi Ihe Government of Iraq: and
(c) sides involving exchanges and any transactions not relating to normal
commercial practices.
Assets means all land, platforms, pipelines, plant, equipment, machinery, wells,
facilities and all ocher installations and structures and all Materials and l-quipmcnt
Associated Natural Gas means (i) any Natural Gas dissolved in Crude Oil under
romoir conditions and (ii) any residue gas remaining after the extraction of Crude
Oil from a reservoir.
Audit Request Period is defined in Article 15.3(a)
Available Associated Natural Gas is defined in Article 25.1.
Available Crude OU is defined in Article 25.1.
Available Non-Associated Natural Gas is defined in Article 25.1
Available Petroleum b defined in Article 25.1-
Barrel means a quantity of forty-two (42) US gallons as a unit to measure liquids, at a
temperature of sixty degrees (60e) Fahrenheit and pressure of fourteen point seven
(|4.7)psi.
BOE means six thousand (6.000) standard cubic feet of Natural Gas to one Barrel ol
(‘rude Oil.
Budgets means any budgets prepared by. or on behalf of. the CONTRACTOR
pursuant to this Contract and forming pan of an Exploration Work Program and
Budget and/or an Appraisal Work Program and Budget and/or a Oat Marketing Work
Program and Budget and/or a Development Work Program and Budget and/or a
Production Work Program and Budget.
Calendar Year means a period of twelve (12) consecutive Months, commencing I
January and ending on .11 December of the same year.
Capacity Building Account means a segregated bank account with a reputable bank
in the name of. and maintained by, the GOVERNMENT, the sole purpose of which
is to support and finance infrastructure and capacity building projects in the Kurdistan
Region to be identified by the GOVERNMENT in its sole discretion.
Capacity Building Payment is defined in Article 32.1.
Chairman is defined in Article 8.1.
Change of Control is defined in Article 39.9.
Commercial Discovery means a Discovery which is potentially commercial when
taking into account all technical, operational, commercial and financial data collected
when carrying out appraisal works or similar operations, including recoverable
reserves of Petroleum, sustainable regular production levels and other material
technical, operational, commercial and financial parameters, all in accordance with
pmdenl international pclrolcum industry practice
Commercial Production means the production of Petroleum from the Production
Area in accordance w ith an annual Production Work Program and Budget.
Constitution of Iraq means the permanent constitution of Iraq approved by the
people of Iraq in the general referendum of 15 October 2005
Contract means this production sharing contract, including its Annexes A. B and C
that are an integral part hereof, as well as any extension. renewal, substitution or
amendment of this production sharing contract that may be agreed in writing by the
Parties in accordance with Article 43.7.
C ontract Area means the ana described and defined in Annex A attached to this
Contract and constituting an integral part of this Contract, and any modifications
made to that Annex in accordance with the provisions of this Contract, through
amendments, surrender, withdrawal, extension or otherwise.
Contract Year means a period of twelve (12) consecutive Months starting from the
Effective Date or any anniversary of the said Effective Date
CONTRACTOR means, individually and jointly, each CON I RACTOR Entity.
CONI RACTOR Entity means, as at any time of determination, a Party other than
■he GOVERNMENT and each holder of all or pari of the Government Interest (only
4
to the extent it is a holder of all or part of the (iovemment Interest). At any time when
there is only one Party constituting the CONTRACTOR, any reference to “the
entities constituting the CONTRACTOR" or the “CONTRACTOR Entities" or
similar reference, shall be construed as "the entity constituting the CONTRACTOR".
Corrupt Practices Laws means, as applicable
(a) the Laws of the Kurdistan Region and of Iraq in respect of bribery, kickbacks,
and corrupt business practices:
lb) the Foreign Corrupt Practices Act of 1977 of the United States of America
(Pub. L. No. 95-213 §§ 101-104 ««*). as amended.
(c) the OECD Convention on Combating Bribery of Foreign Public OfTiciaU in
International Business Transactions, signed in Paris on 17 December 1997.
which entered into force on 15 February 1999. and the Convention's
Commentaries;
(d) the Bribery Act 2010: and
(c) any other Law of general applicability relating to bribery, kickbacks, and
corrupt business practices.
Crude Oil means all liquid hydrocarbons in their unprocessed slate or obtained from
Natural (ius by condensation or any other means of extraction.
Cumulative Costs is defined in Article 26 4
Cumulative Revenues is defined in Article 26 4.
Decommissioning Costs means all the costs and expenditures incurred by the
CONTRACTOR when carrying out Decommissioning Operations, including those
defined in the Accounting Procedure.
Decommissioning Operations means any works, together with all related and
auxiliary activities, for decommissioning and ex removal and or abandonment and
making safe all of the Assets and site restoration and remediation related thereto in
relation to any Production Area.
Decommissioning Plan is defined in Article 38.7
Decommissioning Reserve Fund is defined in Article 38.1 and includes all
contributions paid into such tund and all interest accumulated in such fund.
Deductible Amount is defined in Article 35.11
Delivery Point means the point after extraction, specified in the approved
Development Plan for a Production Area, at which the Crude Oil. .Associated Natural
Gas and or Son-Associated Natural (ias is metered for the purposes of Article 27.5.
valued for the purposes of Article 27.1 and ready to be taken and disposed of.
consistent with prudent international petroleum industry practice, and 3t which a Party
5
I'khU lum Sharing (Viiftm / Sofiai
may acquire title to iLs share of Petroleum under this Contrucl or such other point
which may be agreed by the Parties.
Development Costs means all the costs and expenditures incurred by the
CONTRACTOR when carrying out Development Operations, including those
defined in the Accounting Procedure.
Development Plan Tranche is defined in Article .12.3.
Development Operations means all development operations or works conducted in
accordance with a Development Plan up to the Delivery Point with a view to
developing a Production Area, including: drilling of wells: primary and subsequent
recovery projects and pressure maintenance: survey, engineering, building and
erecting or laying of production plants and facilities (including: separator*.,
compressors: generators; pumps and tankage; gathering Imcs; pipeline' and all
facilities required to be installed for production, pressure maintenance, and treatment,
storage and transportation of Petroleum); obtaining of such materials, equipment,
machinery, items and supplies as may be required or expedient for the foregoing
activities: and all auxiliary operations and activities required or expedient for the
production of Petroleum from the Production Area.
Development Period is defined in Article 6
Development Plan means a plan for development defined in Article 12.8.
Development "HI means any well drilled after the date of approval of the
Development Plan for the purpose of producing Petroleum, increasing or accelerating
production of Petroleum, including injection well' and dry holes. Any well drilled
within a Production Area shall he deemed n Development Well.
Development Work Program and Budget moans the development work program
and budget prepared pursuant to Article 13.2.
Discovery means a discovery of Petroleum within the limits of the Contract Area
resulting from Petroleum Operations earned out under this Contract, provided such
Petroleum is recoverable at the surface with a measurable flow utilising techniques
used in prudent international petroleum industry practice.
Dispute is defined in Article 42.1
Dollar (US$) means the legal currency (dollar) of the United States of America
(USA).
Kffcctlv# Date is defined in Article 4<> I
Environment Fund is defined in Article 23.9.
Equipment and Materials is defined in Article 19 1.
r>
PraducitaH Sharing < omi-mv • Suftn
Exploration Costs incans all the costs and expenditure incurred by the
CONTRACTOR when carrying out Exploration Operations, including those defined
in the Accounting Procedure
Kiploration Operations means any and all operations conducted with a view to
discovering Petroleum, including: any activities necessary to commence operations;
any topographical, hydrographical, geological, geophysical, aerial and other surveys
and activities (including interpretations, analyses and related studies) to investigate
the subsurface for the location of Petroleum; drilling of shot holes, core holes and
stratigraphic test holes; spud, drilling, testing, coring, logging and equipping of
Exploration Wells or Appraisal Wells; procurement of such services, material,
equipment machinery , items and supplies as may be required or expedient for the
foregoing activities; and all auxiliary operations and activities required or expedient
for the conduct of the foregoing activities.
Exploration Period is defined in Article 6
Exploration Rental is defined in Article 6.3.
Exploration Well means any well drilled for the purpose of confirming a geological
structure or stratigraphic unit in which no Discovery has previously been made by the
CONTRACTOR.
Exploration Work Program and Budget means the exploration work program and
budget prepared pursuant to Article 11.1.
Export Crude (Ml is defined in Article 24 2.
Export Non-AssocUlcd Natural Gas is defined in Article 24.2.
Export Petroleum is defined in Article 24.2.
First Exploration Well is defined in Article 10.2(d).
First Production means the moment when Commercial Production of Crude Oil or
Non-Associated Natural Gas (as the ease may be) first commences, by flowing at the
rate forecast in the Development Plan without intemiption for a minimum of forty
eight (48) hours
First Sub-Period is defined in Article 6.2(a).
Force Majeure is defined in Article 40.2.
Gas Development is defined in Article 14.10.
Gas Marketing Costs means all costs and expenditure incurred by the
CONTRACTOR when carrying out Gas Marketing Operations, including those
defined in the Accounting Procedure.
Gas Marketing Operations means any and all of the activities and operations
contemplated by Article 14.6.
'
Protiu no’iS'xuiiin Omr/iii < &>•
Gas Marketing Work Program and Budget means ihc marketing work program
and budget prepared pursuant lo Article 14.8.
Government Interest is defined in Article 4.1.
Government of Iraq means the Federal Government of the Republic of Iruq, which
holds office under Ihc Constitution of Iraq and any minister, ministry, department,
sub division, agency, authority, council, committee, or other constituent element
thereof and shall. without limitation, include any corporation owned and or controlled
by any of the foregoing.
International Market Price is defined in Article 27.2.
Iraq means the entirety of the Republic of Iraq, including the Kurdistan Region
Joint Operating Agreement means the agreement executed by the CONTRACTOR
Lntitics for the purpose of regulating between such entities the terms under which the
Petroleum Operations will be conducted, which agreement shall be (a) consistent
with prudent international petroleum industry practice; (b) as between such entities,
supplementary lo this Contract; and (c) consistent with the provisions of the Contract
Kurdistan Region means the Federal Region of Kurdistan recognised by the
Constitution of Iraq and having the same meaning as 'Region’ in the Kurdistan
Region Oil and Gas Law.
Kurdistan Region Law means all statutes, decreet, edicts, codes, orders rules
ordinances and regulations of the GOVERNMENT or of any other local, municipal,
territorial, ptuvincinl, or any other duly constituted governmental authority or agency
in the Kurdistan Region.
Kurdistan Region Oil and Gas Law means the Oil and Gas Law of the Kurdistan
Region - Iraq (l aw No. 22 of 2007) as the same may be amended.
Law means any statutes, rules, codes, regulations, decisions, proclamations, notices,
directives, constitutions, instruments, rules of court, guidance, or any other instrument
of any governmental, intergovernmental, or supranational body, agency, department
or of any regulatory, sell-regulatory or other authority or organisation having the
force and effect of a law (including Corrupt Practices Laws).
LCIA it defined in Article 42.1(b)
LIBOR meant the London Inter-Hank Offered Rate at which Dollar dcpotits fo* one
(I) Month are offered in the inter bank market in London, as quoted in the Financial
Timet of London for the day in question In the event that such rate is not published in
the Financial Times, it shall mean the I ondon Inter bank Offered Rale at which
Dollar deposits for one (I) Month are offered for the nearest day as quoted by
National Westminster Hank pic
Management Committer is defined in Article 8.
Marathon is defined in the preamble.
X
Marathon Exploration Tranche is defined in Article 32-2.
Maximum Efficient Rale (“MUR") is defined in Article 16.12.
Minimum Exploration Obligation* is defined in Article 10.1.
Minimum Financial Commitmenl means:
(ii) in respect of the l irsl Sub-Period, the nmount set out in Article 10.2(d); and
(b) in respect of the Second Sub-Period, the amount set out in Article 10.3(b).
Month means a calendar month according to the Gregorian calendar.
Natural fins means all gaseous Pcitolcum and inerts.
Non~A**ocluted Natural Gas means any Natural Gas which is not Associated
Natural (ias.
Notice of Dispute is defined in Article 42.1.
Operator means the entity designated by the CON TRACTOR pursuant to Article 5,
which, in the name and on behalf of the CONTRACTOR, shall carry out all
Petroleum Operations. If at any time there exists more than one (I) Operator under
this Contract, any reference herein to the term 'Operator' shall be to each Operator
with respect to the parts of the Contract Area in which such Operator conducts
Petroleum (Iperutions.
Parties means the GOVERNMENT and each CONTRACTOR Entity. and Party*
any of the Parties.
Permits means all licences, permits, consents, authorisation* or other permission*, as
the context requires.
Person shall include natural and juristic persons (including corporations and
governmental agencies).
Petroleum means:
(a) any naturally occurring hydrocarbon in a gaseous or liquid state:
(b) any mixture of naturally occurring hydrocarbons in a gaseous or liquid state;
Of
(c) any Petroleum (as defined in paragraphs (a) and (b> above) that has been
returned to a Reservoir .
Petroleum Costs means all costs and expenditure incurred by the CONTRACTOR
for the Petroleum Operations, and which the CONTRACTOR is entitled to recover
under this Contract and its Accounting Procedure, including l>ccommissk>ning Costs.
Development Costs. Exploration Costs. Gas Marketing Costs and Production Costs.
9
Petroleum Field means a Reservoir or group of Reservoir* within a common
geological structure or stratigraphic unit, which may become part of a Production
Area pursuant 10 a Development Plan
Petroleum Operations means all Exploration Operations. (>as Marketing Operations.
Development Operations. Production Operations and Decommissioning Operations,
as well as any other activities or operations directly or indirectly related or connected
with the said operations (including health, safety and environmental operations and
activities) and authorised or contemplated by. or performed in accordance with, this
Contract.
I'ipHInc Costs is defined in Article 33.5.
Prescribed Person means (i) any public official of any public authority in the Region
or Iraq (/.«•., any person holding a legislative, administrative or judicial office,
including any person employed by or acting on behalf of the Government or any
public authority in Iraq, including any legislative body); (ii) any political party or
political parly official or candidate for office; and (iii) any Person acting on behalf of
or for the honefil any of the foregoing.
Production Aren means such areas within the Contract Area designated as a
production area in an approved Development Plan prepared pursuant to Article 12.
For the avoidance of doubt, all superjacent or subjacent strata of the Reservoir in
which a Commercial Discovery is located arc automatically included in the relevant
Production Area.
Production Bonus means any bonus due purvuant to Article 32.8 or 32.9.
Production Costs means all the costs and expenditure incurred by the
CONTRACTOR tn carrying out the Production Operations, including those defined
in the Accounting Procedure.
Production Operations means any works, together with all related and auxiliary
activities, for the production of Petroleum from the start of Commercial Production,
including: extraction, injection, stimulation, pumping, treatment, storage, engineering,
operating, servicing, repairing, and maintaining any wells, plants, equipment,
pipelines, terminals and any other installations and facilities, and any related
operations and auxiliary operations, and storage and transportation of Petroleum from
the Production Area to the Delivery Point.
Production Rental is defined in Article 13.10.
Production Tranche is defined in Article 32.4
Production Work Program and Budget shall mean the production work program
and budget prepared pursuant to Article 13.6.
Profit Crude Oil is defined in Article 26.1.
Profit Natural Gas is defined in Article 26.1.
10
Puifll Petroleum is defined in Article 26.1.
Prohibited Act means, in respect of any Person, any of the following
(a) the making, offering, or authorisation (including acquiescence) for the making
or offering any payment, revenue or profit partwipaliati, gift, promo-eor other
benefit of anv Prescribed Person in violation of the Law \ of the Kurdistan
Region or the standards and principles of any Corrupt (Taction l aws other
(b) either knowingly, or without conducting reasonable due diligence, entering
into any contract with a Prescribed Person in connection with or related lo this
Contract or Petroleum Operations;
(c) defrauding sit attempting to defraud or conspiring to defraud the
GOVERNMENT in connection with or iclated to this Contract or Petroleum
Operations; or
(d) failing to notify the GOVERNMENT reasonably promptly when a Prescribed
Person solicits any direct or indirect contract or other benefit from the
CONTRACTOR or a CONTRACTOR Entity in connection with or related
to this Contract or Petroleum Operations.
Proposed Contract is defined in Article 14 10(a)
Public Company means: (i) anv entity created by the Kurdistan Region Oil and Gas
Law. including the Kurd.Man Exploration and Production Company :
established by Applicable Law as a separate entity, whether or not fully autonomous
and whether or not having independent sources of revenue, to undertake commercial
activities on behalf of the GOVERNMENT, which legal entity cannot be declared
bankrupt under Applicable Law; and (iii) any separate and autonomous company
organised under Applicable Law which is controlled, directly Of indirectly through a
wholly GOVERNMENT -owned and controlled entity, by the GOVERNMENT, the
Parliament or which is under the guidance of the GOVERNMENT or the Parliament
(whether or not in any such case partially or fully funded hy the GOVERNMENT or
the Parliament). A department, division, or agency of the GOVERNMENT, whether
or not operating under a separate name, is not a Public Company
Quarter means a penod of three (3) consecutive Months starting on the first day of
January. April. July or October respectively.
Revenues iv defined in Article 26.4.
-K- kaet.r » defined m Article 26.4.
Rayaltv is defined in Article 24 I.
II
Second Sub-Period in defined in Article 6.2(b).
Semester means a period of six (6) consecutive Months starting from the first day of
January or July respectively.
Senior Representatives is defined in Article 42.1(a)
Subcontractor means any entity of any contracting tier providing services and/or
undertaking works relating to the Petroleum Operations directly or indirectly on
behalf of. the CONTRACTOR or any CONTRACTOR Entity.
Sub-Period and Sub-Periods are defined in Article 6 2.
Tax or Taxes means all current or future levies, duties, payments, charges,
impositions, imposts, withholdings, fees, taxes (including value added tax or other
sales or transaction based tax. corporation tax. income tax. capital gains tax. stamp
duty, land tax. registration tax. capital and wealth tax. profit tax, dividend tax or
withholdings, transfer tax. customs duties, branch or permanent establishment tax or
withholdings, tax on income from movable capital und fixed tax on transfers) or
contributions payable to or imposed by the GOVERNMENT or any governmental
agencies, authorities or bodies, district, sub-district, or other political subdivisions of
or in the Kurdistan Region.
Second Exploration Well is defined in Article 10.3(b)
Work Program means any work program prepared by, or on behalf of, the
CONTRACTOR pursuant to this Contract and forming pan of an Exploration Work
Program and Budget a odor an Appraisal Work Program and Budget and/or a Gas
Marketing Work Program and Budget and/or a Development Work Program and
Budget and or a Production Work Program and Budget.
Vice-Chairman is defined in Article 8.1.
1.2 Unless the context others* isc requires or is specifically otherwise staled
(a) headings arc to be ignored;
(b) "including*' and similar words do not imply any limitations:
(c) singular includes plural and vice versa
1.3 a Person has "knowledge" or acts "knowingly" if a the relevant information is
actually known or should have been known by an officer, director, manager, site
operations manager, or other person with a supervisory or management function.
12
luenon Sharing Conrract - Sir/**
1.4 Reference lo:
(a) an "Article" is lo an article of this Contract and lo a “Paragraph" is lo a
paragraph in the Accounting Procedure;
(b) “gross negligence" and “grossly negligent" means, in the case of the
CONTRACTOR or any CONTRACTOR Entity, a marked and flagrant
departure from the standard of conduct of a reasonable and prudent person
■cling in the circumstances at the time of the purported misconduct, or such
wanton and reckless conduct or omissions as constitutes in effect an utter
disregard for harmful, foreseeable, and avoidable consequences
15 It is the intent of the Parties that ambiguities be resolved with reference lo principles
and practices generally accepted in petroleum producing countries and in the
international petroleum industry.
ARTICLE 2-SCOPE OF THE CONI KACT
2.1 This Contract is a production-sharing arrangement with reaped to the Contract Area,
whereby the GOVERNMENT has the right, pursuant to the Constitution of Iraq, to
regulate and oversee Petroleum Operations within the ( Ontract Area.
The purpose of this Contract is to define the respective rights and obligations of the
Parties and the terms and conditions under which the CONTRACTOR shall carry out
all the Petroleum Operations.
By entering into this Contract, the GOVERNMENT grants ihc CONTRACTOR the
exclusive right and authority to conduct all Petroleum Operations in the Contract Area
as detailed in Article 3. The obligations of the CONTR ACTOR constitute joint and
several obligations of the CONTRACTOR Entities, except where specifically
provided otherwise.
As of the Effective Date. Marathon is the only CONTRACTOR Entity, owns an
eighty percent (80%) undivided interest in the Petroleum Operations in respect of the
entire Contract Area, and is the CONTRACTOR.
2.2 Upon the CONTRACTOR S request, the GOVERNMENT shall provide and or
procure all Permits relating to the Petroleum Operations required by the
CONTRACTOR to fulfil its obligations under this Contract, including those relating
to any extension and renewal periods and including those required by the Government
of Iraq The GOVERNMENT (i) represents and warrants to the CONTRACTOR
that, as of the Effective Date, it has not done and has not omitted to do anyth mg that
would cause the cancellation or suspension of this Contract or any Permit granted
under this .Article 2.2 or pursuant to this Contract; and shall not do, or omit to do.
anything that would cause the cancellation or suspension of this Contract or any
Permit granted under this Ankle 22 or pursuant to this Contract, except in
accordance with this Contract For the avoidance of doubt, nothing in this Article
'hall affect the rights and obligations of the Parties pursuant to Article 43
13
Productw" SHartxg Cuntratt Sg/rn
2.3 The CONTRACTOR Khali conduct all Petroleum Operations within the Contract
Area at its sole cost, risk and peril on behalf of the GOVERNMENT’, pursuant to this
Contract, including the following.
(a) Technical Services
The CONTRACTOR shall implement all technical, human and material
resources reasonably required for execution of the Petroleum Operations in
accordance with prudent international petroleum industry practice.
(b) financial Services
The CONTRACTOR shall be solely responsible for funding Exploration
Operations and, in the event of a Commercial Discovery, Development,
Production and Decommissioning Operations, pursuant to this Contract.
For the funding of Petroleum Operations, the CONTRACTOR shall be
entitled to have recourse to third party financing.
(c) Administrative Services
I he CONTRACTOR shall implement all appropriate management urnl
administration techniques for execution of the Petroleum Operations under
this Contract in accordance with prudent international petroleum industry
practice.
2.4 The CONTRACTOR shall be responsible to the QOI» KN'D NT for the conduct
of Petroleum Operations within the Contract Area pw---nt to the terms of this
Contract.
2.5 Natural resources other than Petroleum arc excluded from the "cope of thi» Contract,
even it the < (i.MHAt I OR discovers any such resources when executing its
obligations pursuant to this C ontract.
2.6 The CONTRACTOR shall only be entitled to recover Petroleum Costs incurred
under this Contract in the event of a Commercial Discovery. Recovery of Petroleum
Costs shall occur within the limits provided under Article 25.
2.7 During the term of this Contract. Profit Crude Oil and Profit Natural (ins produced
from Petroleum Operations shull be shared between the Parties in accordance with the
provisions of Article 26.
2.8 For the execution of Petroleum Operations under this Contract, the CONTRACTOR
shall have the right to:
(a) freely access and operate within the Contract Area, as well as any facilities
associated with the Petroleum Operations, wherever they may be located,
(b) freely use access roods located within the Contract Area and outside the
Contract Area for the construction, installation, maintenance, operation and
14
removal of pipelines facilities required for the
efcrtncrty and ■"> other **w»\ resources located
for the cooducl of Petroleum Operation* m accordance with Articles 22 and
23. Any foreign personnel working in the Kurdistan Region shall require prior
authorisation of the GOVERNMENT (such authunsalum not to be
unreasonably delayed or withheld) and the GOVERNMENT shall obum any
authorisation required by the Government of Iraq.
(c) import any goods, materials, equipment and or services required for the
Petroleum Operations in accordance vs ith Article* 19. 22 and 30. and
(0 freely use land or property belonging to the Kurdistan Region, and the
GOVERNMENT will assist the COVTRAC I OR with facilitating the use by
the CONTRACTOR of any private property in the Kurdistan Region
ART 1C I E 3- CONTRACT AREA
The mitsal C oatract Area cosen the Safer Block and extends over an area of four hundred
and twenty four square kilometres |424 km\ as detailed and cheated on foe map anached
in Annex A and u delimited by foe foforenng coordinates
C ode Easting Northing URR*
A Pi36 930 4032 054 44 17 47 36 25 54
B 444 709 4027 627 44 23 01 36 23 32
C 47ft 180 4000 454 44 44 07 36 08 55
1) 474 803 3997 295 44 43 12 36 07 12
~ V. ” 463 692 W7 443 44 35 4X 3607 16
1 454 088 4008 427 44 29 21 36 1 3 11
G~~ 441 059 4019 967 44 20 36 36 19 23
H 431 780 4028 102 44 14 21“ 36 23 44
■ r 436 930 4032 054 44 17 47 36 25 54
j 444 709 4027 627 44 23 01 36 23 32
K 176 180 4000 454 44 44 07 36 08 55
_______
15
L 474 803 3997 29J 4443 12 3607 12
M 463 692 3997 443 44 35 48 36 07 16
N~ 454 088 4008 427 44 29 21 36 13 II
1 ■---------
O 441 059 4019 967_ 44 20 36 36 19 23
The GOVERNMENT, by execution of this Contract. hereby validates and approves ihc
foregoing co-ordinates of the Contract Are*.
The total area of Ihc Coniraci Area may be reduced only in accordance with the provisions of
this Contract.
ARTICLE 4 - GOVERNMENT INTEREST; JOINT OPERATING AGREEMENT
4.1 The GOVERNMENT has a carried interest of twenty per cent (20%) (ihc
"Government Interest ') in the CONTRACTOR’* entitlement to Profit Petroleum
•1.2 The GOVERNMENT or any other holder of all or any pan of the Government
Interest is not, in such capacity, a CONTRACTOR Entity The GOVERNMENT or
any other holder of the Government Interest, whether in whole or in pari, in such
capacity has no obligation or liability to the CONTRACTOR to contribute any share
of Petroleum Costs or any other liability or obligation of a CONTRACTOR Entity or
to the CON TRACTOR or any CO NTH MTOR Entity.
4.3 Subject to Article 4.4, a holder of all or any part of the Government Interest ■' not. if
that is its only capacity under this Contract, entitled to any notices under this Contract
or entitled to provide any consents, except as specifically provided otherwise, but has
lights and obligations under Article 42
4.4 Any term of this Contract may be waived or amended without the consent of a holder
of a Government Interest (in such capacity), unless such svaiver or amendment would
change any right or obligation of a holder of a Government Interest.
4.5 Each Person, other than the GOVERNMENT or a Public Company, that is a holder
ol all oi |>art of the Government Interest is obligated to pay its proportionate share of
the Production Bonuses in accordance with Articles 32.8(b) and 32.9(b). If such a
holder of all or part of the Government Interest fails to pay all or any part of such
Production Bonuses: (i) Ihc failure will not constitute a default by the
CONTRACTOR, (ii) the GOVERNMENT will have no remedies against the
CONTRACTOR a* a consequence thereof, and Hu) the GOVERNMENT will not
be entitled k. terminate this Contract or any CONTRACTOR Entity's intent
16
PhhUmHox »iirm < mwci - Soft"
CONTRACTOR to seek lo settle a dispute or to refer such dispute to arbitration or
expen determination in accordance with the provisions of Article 42.
4.6 The provisions of Article 39 do not apply with respect to any assignment by any
holder of a Government Interest of all or any pan of its Government Interest The
assignment of the Government Interest is governed by this Article 4. A permitted
assignee of a holder of the Government Interest will have, in respect of the assigned
Government Interest, the same rights and obligations as the holder of the Government
Interest poor lo the assignment.
1.7 The GOVF.RNMENT may at any time designate a Public (Company as the holder of
all or any pari of the Government Interest without the consent of, or prior notice to.
any other Party. The Public Company will be deemed a Party to this Contract only in
respect of its Government Interest, but will not be required to sign any formal
assignment or accession agreement except as required by the GOVERNMENT The
GOVERN MEN! and the Public (ompany will provide the CONTRACTOR with u
notice notifying the CONTRACTOR of such designation by the GOVERNMENT
to a Public Company, and the Contractor shall be entitled to rely on such notice for all
purposes under this Contract.
4.8 Only for the purposes of Article 37 of the Kurdistan Region (Til and Gas Law.
whenever and to the extent the Government Interest is held by a Public Company, the
Government Interest shall Ik deemed held by the GOVERNMENT. The
GOVERNMENT incurs no liabilities or obligations (directly, indirectly, or
implicitly) to any other Party as a consequence of such deemed ownership. The
GOVERNMENT will not be deemed to guarantee any obligation of the Public
(ompany or any holder of all any part of the Government Interest
4.9 Subject lo Article 4.12. (be GOVERNMENT may al any lime assign all or pail of iu
Government Interest lo a Person that is nol a Public ( ompany without the consent of
any other Party. Such assignee will be deemed a Party lo this Contract only in respect
of its Government Interest but will not be required lo sign any formal assignment or
accession agreement unless otherwise required by the GOVERNMENT The
GOVERNMENT and the Public Company will provide the CONTRACTOR with
such a notice, jointly signed by each, notifying the CONTRACTOR of such
assignment by the GOVERNMENT, and the Contractor shall be entitled to rely on
such notice for all purposes under this Contract.
4.10 Subject to Article 4.12. a Public Company may assign part or all of its Government
Interest lo another Public Company, to the GOVERNMENT, or any other Person
without the consent of. or prior nonce »o. the CONTRACTOR or any
CONTRACTOR Entity, but may not make any assignments without the prior
consent of the GOVERNMENT and in accordance with any assignment and
novation or other agreements and conditions required by the GOVERNMENT. Any
assignment by a Public Company of ail or part of iu Government Interest to another
Public Company or any other Person without the prior consent of the
GOVERNMENT or in accordance with the rvquircincnu of the GOVERNMENT
will be void The Public Company or the GOVERNMENT shall promptly notify the
CON IRACTOR of any assignments of the Government Interest held by such Public
17
f^hatUoy Shi ring Contract ■ Safe*
Company. and the Contractor will be entitled to rely on such notice tor all purposes
under this Contract.
4.11 Subject to Article 4.12. a holder of all or part of the Government Interest, which is not
the GOVERNMENT ot a Public Company, may assign pan or all of ns Government
Interest to any other Person without the consent of. or prior notice to. the
< ONT RACTOR or any CON TRACTOR Entity Such holder of all or pan of the
consent of the GOVERNMENT and only in accordance with any assignment and
novation or other agreements and conditions required by the
assignment by such holder of all or part of the (iovernmert Interest without the prior
consent of the GOVERNMENT or in accordance with the requirements of the
GOVERNMENT will be void. The assignor and the assignee shall jointly and
promptly notify the CONTRACTOR of any Assignments of the Government Interest
pursuant to this Article 4.11. and the CONTRAC TOR will he entitled to rely on such
notice for ull purposes under this Contract.
4 12 Nothing under this Contract prohibits a CONTRACTOR Entity at any time from
offering to acquire and/or acquiring nil or any part of the Government Interest from
any Person that is a holder of all or any pan of the Government Interest. If at any time
any holder of all or any pan of the Government Interest (including the
GOVERNMENT and a Public Company) intends to offer to sell all or pan of its
Government Interest to any Person that is not a Public Company or the
GOVERNMENT, the applicable holder of ihc Government Interest shall timely
notify (he CONTRACTOR of the availability of the (iovemment Interest. No
CONTRACTOR Entity hat any preemption or similar priority rights in respect of the
Government Interest, and the holder is not required to sell and assign to a
CONTRACTOR Entity
4.13 The GOVERNMENT reserves the right tbut is not obligated to any Party with
respect thereto) either to cancel or terminate any assignment of all or part of the
GOVERNMENT Interest to any Person, if the GOVERNMENT at any time
determines that such transfer constitutes (i) a violation of any Corrupt Practices Laws
applicable lo the assignee of the (iovemment Interest, (ii) ;i violation of any Corrupt
Practices Laws applicable to the assignor of such (iovemment Interest, (iii) u
Prohibited Act, or (iv) would impair the ability of the CONTRACTOR or any
CONTRACTOR Entity to perform any of its material obligations under this Contract
as u consequence of the application of Laws applicable to such CONI RACTOR
Entity.
Upon any curette by the GOVERNMENT of its rights under th.» Article 4.13, the
Government Intern! w* automatically revert lo the GOV ERNMENT
The GOVERNMENT'S rights under this Article 4 13 are exclusive to the
GOVERNMENT, are not subject to a claim from any CONTRACTOR Entity, and
Ankles 41 and 42 do not apply with respect to this Article 4.13.
The GOVERNMENT expressly reserves all sovereign immunities in respect of any
Dispute arising out of or relating to this Article 4.13, and any Dispute with respect to
this Article 4 between the GOVERNMENT and any holder of a (iovemment Interest
18
Production Sharing Contract - Safen
may only be resolved in accordance with the Applicable Laws of the Kurdistan
Region.
JvliU Running Aummssi
4.14 The CONTRACTOR Entities. or any of them, shall not enter into any joint
operating agreement in respect of this Contract except if the terms of such Joint
Operating Agreement ha\e been approved by the GOVERNMENT, arc in
compliance with Applicable Laws of the Kurdistan Region as of the date of the
approval by the GOVERNMENT, and do not require the affirmative rote of more
than seventy-five per cent (75%) of the participating interests for any decision of any
operating committee established under such Joint Operating Agreement. A joint
operating agreement must provide for the termination and release of any and all
encumbrances, preemption rights, and similar claims on the participating interest of a
CONTRACTOR Entity in the event of any termination of a CONTRACTOR Entity
by the GOVERNMENT pursuant to this Contract.
In the event of a proposed transfer by any CONTRACTOR Entity of part of a
participating interest under such Joint Operating Agreement:
(a) no transfer may be made: (i) which would result in the transferor or
transferee holding less than a five per cent (5%) participating interest,
and (ii) without the consent of the GOVERNMENT in accordance
with this Contract;
(b) the proposed third party assignee must demonstrate to the reasonable
satisfaction of each of the extant CONTRACTOR Entities that it has
the financial capability to perform its payment obligations under the
Contract and under the Joint Operating Agreement; and
(c) the proposed lliiid party assignee shall enter into an instrument
satisfactory to each of the CONTRACTOR Entities and the
GOVERNMENT so us to assume and to perform the obligations of
the transferor.
19
Production Sharing Contract Safcn
ARTICLE 5 OPERATOR
5.1 The CONTRACTOR designates Marathon lo act as ihc Operator on behalf of the
CONTRACTOR for the execution of the Petroleum Operations. The
CONTRACTOR shall at any time have the right to appoint another entity as the
Operator, upon giving the GOVERNMENT not less than thirty (30) days prior
written notice of such appointment
5.2 The CONTRACTOR shall submit to Ihc GOVERNMENT for approval any
agreement to amend any Joint Operating Agreement regarding or regulating the
Operator's appointment and its conduct of Petroleum Operations on belnilf of the
CONTRACTOR pursuant to this Contract prior to execution of such agreement
5.3 Without limiting the GOVERNMENT’S rights under Article 45. if either of the
following occur und on not less than 30 days’ prior notice from the
GOVERNMENT, the CONTRACTOR shall appoint a replacement Operator as
soon as is reasonably practicable:
(a) an Act of Insolvency has occurred in respect of the Operator and. within such
30-day notice period, the CONTRACTOR has demonstrated to the
satisfaction of the GOVERNMENT that the Act of Insolvency (i) does not
apply or (ii) will not have any adverse effect on Petroleum Operations, and in
either case, the GOVERNMENT cancels its notice; or
(b) the CONTRACTOR is not fulfilling its obligations under this Contract as a
consequence of the aets or omissions of the Operator.
ARTICLE 6 - TERM OF THE CONTRACT
6.1 This Contract comprises an Exploration Period and a Development Period, as
provided in this Article 6.
6.2 The Exploration Period shall be for a base term of five (5) Contract Years from the
Effective Dale (the "Baw Exploration Term"). The Base Exploration Term is
extendable on a yearly basis m accordance with Article 6.5 up to a maximum term of
seven (7) Contract Years (the Base Exploration Term as so extended, the "Extended
Exploration Term") The Exploration Period is subject to further extension beyond
the Extended Exploration Term as provided in Articles 6.6 and 6.7 The Exploration
Period is subject to early termination as provided in Article 6.4.
The Exploration Pciiod consists of two (2) sub-periods, oach of which is extendable
pursuant to Articles 6.5 and 6.6, provided the Exploration Period nuiy not exceed the
Extended Exploration Term except as provided in Articles 6.6 and 6.7 (each such sub¬
period, as it may be extended, a ‘'Sub-Period"):
(a) a first Sub-Period of three (3) Contract Years ("First Sub-Period”); und
20
The CON TRACTOR will no* be entitled to an extension of a Sub-Penod under
Articles 6.5 and Article 6.6. as applicable, unless the CONTRACTOR ha* fulfilled:
(i) its Minimum Exploration Obligations applicable to such Sub-Period, or.(ii) in the
case of any further extensions of u Sub-Period pursuant to Article 6.6, its additional
minimum work obligations applicable to the preceding extension in accordance with
Article 6.6.
6.3 During the Exploration Period, the CONTRACTOR shall pay to the
GOVERNMENT an annual surface rental for the Contract Area, as the Contract
Area may be reduced by relinquishment pursuant to Article 7, of ten Dollar* (US$10)
per square kilometre per Contract Year t "Exploration Rental"). The Exploration
Rental is due and payable in arrears on or before each anniversary of the Effective
Date and on the last day of the Exploration Period or termination of this Contract
(whichever is earlier), and is prorated in any Contract Year during which there has
been a relinquishment or expiry of the Exploration Period, based on actual number of
days in such Contract Ycoi Exploration Rental shall be considered .r> a Petroleum
Cost and shall be recoverable by ihe CONTRACTOR in accordance with (lie
provisions of Articles I and 25.
6.4 The Exploration Period will expire nl the end of the First Sub-Period (as it may be
extended pursuant to Articles 6.5 nnd 6.6), and this Contract will automatically
terminate without further notice to the CONTRACTOR, unless any of the following
is applicable: (i) the CONTRACTOR has notified the GOVERNMENT at least
thirty (30) days prior to the expiry of the First Sub-Period of the CONTRACTOR'S
intention to enter into the Second Sub-Period, (ii) Article 6.7 is applicable, or (lii) the
Development Period has commenced.
The Exploration Period will terminate at the end of the Second Sub-Period (as it may
be extended pursuant to Articles 6.5 and 6.6). and this Contract will automatically
terminate without further notice to the CONTRACTOR, unless 00 Article 6.7 is
applicable, or (iii) tbe Development Period has commenced
The CONTRACTOR shall have the right to w ithdraw from this Contract at any time
during the Exploration Penod upon thirty (30) days prior notice to the
GOVERNMENT, provided either that 0) the CONTRACTOR has completed the
Minimum Exploration Obligations relating to the then current Sub-Penod, including
additional minimum work obligations in respect of any applicable extensions of the
applicable Sub-Period, or (ii) on or before the final day of such 30-day notice period,
tbe CONTRACTOR has paid to the GOVERNMENT the amounts specified in
Article 10.2 or Article 10.3. whichever is applicable, to the then current Sub-Period.
This Contract will terminate upon satisfaction of 0k withdrawal requirements in the
preceding paragraph
If no Commercial Discovery has been made at the end of the Exploration Period
(including any extension as provided in Articles 6 6 and 6.7). this Contract will
automatically terminate without further notice to the CONTRACTOR
The Exploration Penod and the Contract shall terminate if and as of the date the
CONTRACTOR surrenders the entire Contract Area in accordance with Article 7.4.
21
Production Sharing Contract - Haler>
6.5 If the CONTRACTOR has fulfilled its Minimum Exploration Obligations for a Sub-
Period. but considers that additional work is necessary before deciding whether to:
(a) submit an Appraisal Work Program and Budget as provided under Article 12.2
in respect of a Discovery, or
(b) declare a Discovery as a Commercial Discovery in accordance with Article
12.6
execution of an Appraisal Work Program and Budget, as provided under
Article 12.2 and/or Gas Marketing Operations;
then the CONTRACTOR will be entitled to extensions, each of no more than one (I)
Contract Year, of such Sub-Period. The Sub-Period plus the extensions provided in
accordance with this Article 6.5 may not exceed the Extended Exploration Term. To
exercise its right to an extension pursuant to this Article 6.5. the CONTRACTOR
must notify the GOVERNMENT of its intention to exercise such right of extension
and of the nccessury duration of such extension at least thirty (30) days before the end
of the Sub-Period or the relevant extension.
6.6 Except as provided in the last sentence of this Article 6.6. if the CONTRACTOR
considers it has not completed its exploration evaluation of the Contract Area, the
CONTRACTOR will be entitled to an extension of the Exploration Period beyond
the Extended Exploration Term, provided; (i) the CONTRACTOR lias notified the
GOVERNMENT, at least thirty (30) days prior to the end of the applicable Sub-
Period (ns it may have been extended pursuant to Article 6.5), of the
CONTRACTOR’S exercise of such entitlement and (ii) the CONTRACTOR s
proposal for a minimum work obligation is acceptable to the GOVERNMENT for
such extension.
Any such extension shall not exceed one (I) Contract Year. Upon the expiry of such
extension and except as provided in the last paragraph of this Article 6 6. if the
CONTRACTOR considers it has still not completed its evaluation of the Contract
Area, the CONTRACTOR will he entitled to a further extension of one (I) Contract
Year, provided: (i) that the CONTRACTOR has notified the GOVERNMENT
thereof ai least thirty (30) days prior to the end of the first extension, and (ii) the
CONTRACTOR'S proposal for a minimum work obligation is acceptable to the
GOVERNMENT for such extension
The right of the CON TRACTOR to receive each extension as provided in this
Article 6.6 will be subject to the GOVERNMENT’S determination that the
CONTRACTOR has satisfied its minimum work obligations with respect to the
preceding period and the GOVERNMENT’S approval of the proposed additional
minimum work obligation with respect thereto.
6.7 If a Discovery is made within the Exploration Period (including any extensions), and
if the CONTRACTOR considers it has not had time to complete sufficient Gas
Marketing Operations to declare the Discovery a Commercial Discovery pursuant to
Article 12.6(a) or 14.5(a). the CONTRACTOR will be entitled to request an
extension of the Exploration Period (including any extensions) beyond the
Exploration Term, provided, not less than thirty (30) days prior to the end of the
22
SKrm* G
Exploration Period (including any extension#), Uk CONTRACT OK (i) so notifies
the GOVERNMENT and(ii) provides a proposal tor Gas Marketing Operations to be
undertaken during such extension acceptable to the GOVERNMENT
Subject to approval of the Gas Marketing Operations by the GOVERNMENT, any
such extension shall not exceed two (2) Contract Years.
Upon the expiry of such extension, if the CONTRACTOR considers it has not
completed its Gas Marketing Operations, the CONTRACTOR wfll be entitled to
request a second extension of up to two (2) Contract Years, presided that not less
than thirty (30) days pnor to the end of the original extension, the CONTRACTOR:
so notifies the GOVERNMENT and (ii) provides a proposal for Gas Marketing
Operations to be undertaken during such extension which t* acceptable to the
GOVERNMENT.
Development rtTitfd
6.S II the CONTRACTOR considers that a Discovery of Crude Oil and any Associated
Natural Gas is n Commercial Discovery, the CONTRACTOR shall have the
exclusive right to develop and produce such Commercial Discovery, pursuant to the
terms of this Contract The Development Period for a Commercial Discovery of
Cmde Oil and any Associated Natural Gas shall be twenty (20) years commencing on
the declaration of such Commercial Discovery by CONTRACTOR, in accordance
with Article 12.6(a), with an automatic right to a five (5) year extension.
6.9 It the CONTRACTOR considers that a Discovery of Non-Associated Natural Gas is
a Commercial Discovery, the CONTRACTOR shall have the exclusive right to
develop and produce such Commercial Discovery, pursuant to the terms of this
Contract. The Development Period for a Commercial Discovery of Non-Associated
Natural Gas shall be twenty (20) year*, commencing on the declaration of such
Commercial Discovery by CONTRACTOR, in accordance with Article 12.6(a) or
Article 14.5(a). with an automatic right to a fixe (5) year extension.
6.10 If Commercial Production from a Production Area is still possible at the end of its
Development Period as defined in Articles 6.8 or 6.9 then, upon the request of the
CONTRACTOR, the CONTRACTOR shall be entitled to an extension of such
Development Period under the same terms as those provided in this Contract. Such
request shall be made in writing by the CONTRACTOR at least six (6) Months
before the end of the Development Period.
The term of any such extension of the Development Period shall be:
(a) five (5) Years for Crude Oil and any Associated Natural Gas. and
(b) five (5) Years for Non-Associated Natural Gas
6.11 The CONTRACTOR shall have the right to terminate Production Operations for any
Production Area at any time during the term of this Contract, subject to giving
notice to the GOVERNMENT of at least ninety (90) days. This Contract shall
23
terminate on the expiry date of the last Production Area or when Production
Operations for nil Production Areas have terminated.
ARTICLE 7 RELINQUISHMENTS
7.1 Subject to the provisions of Articles 7.2 and 7.3. the CONTRACTOR shall surrender
portions of the Contract Area as follows:
(a) ut the end of the Base Exploration Term (without any extensions), twenty live
per cent (25%) of the net urea determined by subtracting the Production Areas
from the initial Contract Aren;
(b) at the end of the lirst one-year extension to the Base Exploration Term granted
pursuant to Article 6.5 or Article 6.6. an additional twenty five per cent (25%)
of the net men determined by subtracting the Production Areas from the
remaining part of the Contract Area; and
(c) at the and of the Exploration Period (including all extensions thereof), ull of
the remaining area that is not in a Production Area.
7.2 For the application of Article 7.1:
(a) any areas already relinquished pursuant to Article 7.4 shall be deducted from
areas to be surrendered; and
(b) the CONTRACTOR shall have the right to determine the area, shape and
location of the Contract Area to be kept, provided that such surrendered
portions of the Contract Area shall be in contiguous blocks
7.3 If the relinquishment referred to in Article 7.1 can only be achieved by including pan
of an Appraisal .Area, then these percentages shall be reduced to exclude such
Appraisal Area.
7.4 During the Exploration Period, the CONTRACTOR may at the end of each Contract
Year surrender all or any pan of the Contract Area by written notice sent to the
GOVERNMENT at least thirty (30) days in advance of the proposed date of
surrender, subject to the provisions of this Article 7.4. Such voluntary surrenders
during the Exploration Period shall be deemed equal to the obligatory relinquishments
referred to under Article 7.1. This Contract shall terminate in the event of the
surrender of the entire Contract Area.
7.5 No surrender provided under Article 7.4 shall exempt the CONTRACTOR from its
outstanding obligations under this Contract In the event the CONTRACTOR elects
to surrender the entire Contract Area without having fulfilled the Minimum
Exploration Obligations relating to the then current Sub-Period as provided in Article
10.2 or Article 10.3. the CONTRACTOR shall pay to the GOVERNMENT the
relevant outstanding amount as detailed in Article 10.2 or Article 10.3. as the ease
maybe.
24
7.6 The CONTRACTOR shall notify the GOVERNMENT of the boundaries of the
portion of the Contract Area to be relinquished by the CONTRACTOR at least thirty
(30) days in advance of the relevant date for relinquishment pursuant to Article 7.1.
ARTICLE 8 - MANAGEMENT COMMITTEE
8.1 A Management Committee shall be established w ithin thirty (30) days following the
Effective Dale for the purpose of providing orderly direction of all matters pertaining
to the Petroleum Operations and the Work Programs. Within such period, each of the
GOV ERNMENT and the CONTRACTOR shall by written notice nominate its
respective members of the Management Committee and their deputies.
The Management Committee shall comprise two (2) members designated by the
GOVERNMENT and two (2) members des.gnated by the CONTR ACTOR
Upon ten (10) days notice, each of the GOVERNMENT and the CONTRACTOR
may substitute any of its members of the Management Committee. The chairman of
the Management Committee shall be one of the members designated by the
GOVERNMEN T (the “Chairman"). The vice-chairman of the Management
Committee shall be one of the members designated by the CONTRACTOR (the
"Vice-Chairman”). In the absence of the Chairman, the Vice-Chairman shall chair
the meeting.
Each Party shall have the right to invite a reasonable number of observers to attend
the meetings of the Management Committee in a non-voting capacity.
8.2 live Management Committee shall review, deliberate, decide and give advice,
suggestions and recommendations to the Parties regarding the following subject
matters:
(a) Work Programs and Budgets;
(b> the CONTRACTOR'S activity reports.
(c) production levels submitted by the CONTRACTOR, based on prudent
international petroleum industry practice;
(d> Accounts of Petroleum Costs;
(e) procurement procedures for potential Subcontractors, with an estimated sub¬
contract value in excess of one million Dollars ($1,000,000). submitted by the
CONTRACTOR in accordance with Article 19.3;
(0 Development Plan and Budget foe each Production Area;
(g) any matter having a material adverse a fleet on Petroleum Operations;
(h) any other subject matter of a material nature that the Parties arc willing to
consider.
25
Production Skating Contract Safe*
8.3 Each of the GOVERNMENT and the CONTRACTOR shall have one (1) vote in
the Management Committee. The Management Committee cannot validly deliberate
unless each of the GOVERNMENT and the CONTRACTOR is represented by at
least one(11 of its members or its deputy.
The Management Committee shall attempt to reach unanimous agreement on any
subject matter being submitted In the event the Management Committee cannot
reach unanimous agreement, u second meeting shall he held within fourteen (14) days
to discuss the same subject matter and attempt to reach a unanimous decision.
Except as provided for in Article 8.4 and Article 8.5. in the event that no agreement is
reached at the second meeting, the Chairman shall have the tie-breaking vote.
8.4 In the event that, during the Exploration Period, no agreement is reached at the second
meeting of the Management Committee, ns provided for in Article 8.3. or unanimous
approval is not obtained, as required pursuant to Article 8.5i then the proposal made
by the CONTRACTOR shall be deemed adopted by the Management Committee.
8.5 Notwithstanding the provisions of Article 8.3, and subject to Article 8.4. unanimous
approval of the Management Committee shall be required for:
(a) approval of. and any material revision to, any Exploration Work Program and
Budget prepared ntlcr the first Commercial Discovery in the Production Area
relating to such Commercial Discovery;
(b) approval of, and any material revision to, the Development Plan, the
production schedule, lifting schedule and Development and Production Work
Programs and Budgets;
(c) establishment of rules of procedure for the Management Committee;
(d) any insurance issues over which the Management Committee has authority;
(c) approval of. and any matcnal revision to. procurement procedures for goods
and or services, submitted by the CONTRACTOR in accordance with Article
19.3 (unless such procedures have been deemed approved by the Management
Committee in accordance with Article 19.3);
(0 approval of. and any material revision to. any proposed pipeline protect,
submitted by CONTRACTOR in accordance with Article 33.3;
Fund, in accordance with Article 38.1;
(h) approval of. and any matcnal revision to. any proposed Decommissioning
Plan submitted pursuant to Article 38.7 on any Decommissioning Work
Program and Budget or (ias Marketing Work Program and Budget.
(i) any Terms of Reference which arc required to be prepared and agreed for the
purposes of expert determination, pursuant to Article 42.2;
26
(j) approval of any costs in excess of ion per cent (10%) above any Hudget;
(k) any mailer ha\ mg a material adverse effect on Petroleum Operation*, and
0) approval of CONTRACTOR'* plans for Ihc recruitment, integration and
training of CONTRACTOR Entity and GOVERNMENT personnel, in
accordance with Article 23.6.
8.6 Ordinary meetings of the Management Committee shall take place in the Kurdistan
Region, alternately at the offices of the GOVERNMENT and those of the
CONTRACTOR, or at any other location agreed between Parlies, at least twice a
Contract Year prior to the date of the first Commercial Discovery and three limes a
Contract Year thereafter.
8.7 Either the GOVERNMENT or the CONTRACTOR may call an extraordinary
meeting of the Management Committee to discuss important issues or developments
related to Petroleum Operations, subject to giving reasonable prior notice, specifying
the mailers to be discussed at the meeting, to ihc other Party The Management
Committee may from time to time make decisions by correspondence provided all the
members have indicated their approval of such decisions in such correspondence
8.8 Unless at least one (I) member or its deputy of each of the GOVERNMENT and the
CON TRACTOR is present, the Management Committee shall be adjourned for a
period not to exceed eight (8) days The Party being present shall then notify- the other
Party of the new date, time and location for the meeting.
8.9 The agenda for meetings of the Management Committee shall be prepared by the
CONTRACTOR in accordance with instructions of the Chairman and communicated
to the Panics at least fifteen (15) days prior to the date of the meeting The agenda
shall include any subject matter proposed by either the GOVERNMENT Of the
CONTRACTOR. Decisions of the Management Committee will be made at the
meetings. The CONTRACTOR shall be responsible foe preparing and keeping
minutes of the decisions made at the meetings Copies of such minutes shall be
forwarded to each Party for review and approval Each Patty shall review and
approve such minutes within ten (10) days of receipt of the draft minutes. A Party
who fails to notify in wnting its approval or disapproval of such minutes w ithin such
ten (10) days shall be deemed to have approved the minutes.
8.10 If required, the Management Committee may request the creation of a technical sub¬
committee or any other sub-committee to assist it Any such sub-commitlec shall be
composed of a reasonable number of experts from the GOVERNMENT and the
CONTRACTOR. After each meeting, the technical sub-committcc or any other sub
committee shall deliver a written report to the Management Committee
8.11 Any costs and expenditure incurred by the CONTRACTOR for meetings of the
Management Committee or any technical sub-committee or any other sub-committcc
shall be considered as Petroleum Costs and shall be recoverable by the
CONTR ACTOR in accordance with the prov isions of Articles I and 25
27
Pradtunon («""* Sa/en
ARTICLE 9 - GUARANTEES
9.1 Concurrently with the signing of this Contract, Marathon shall deliver to the
GOVERNMENT a payment guarantee of a parent company or ultimate parent
company, in form and content acceptable to the GOVERNMENT, in respect ol
Marathon’s payment obligations with respect to the First Sub-Period pursuant to
Article 7.5 and the Marathon Exploration Tranche pursuant to Article 32.
9.2 Not later than sixty (60) days after the commencement of the Second Sub-Period, the
CONTRACTOR Entities shall provide the GOVERNMENT, if so required by the
GOVERNMENT pursuant to written notice received by each CONTRACTOR
Entity within thirty (30) days following commencement of the Second Sub-Period,
with a joint and several guarantee of such parent company or ultimate parent company
of each CONTRACTOR Entity in form and content acceptable to the
GOVERNMENT with respect to the obligations of the CONTRACTOR under
Article 7.5. Such guarantee shall be in die form and content us set forth in Annex C.
but only in respect of the stated payment obligations under Article 7.5.
9.3 In the event of an assignment by a CONTRACTOR Entity to a third paity in
accordance with Article 39, a parent company or ultimate parent company of such
third party assignee acceptable to the GOVERNMENT must accede to the applicable
guarantee, effective as of the effective date of the assignment, ns a condition
precedent to the approval of the assignment by the GOVERNMENT
ARTICLE 10 MINIMUM EXPLORATION WORK OBLIGATIONS
10.1 The CONTRACTOR shall start Exploration Operations within thirty (30) days of the
Management Committee’s approval of the Exploration Work Program and Budget in
accordance with Article 8. The COM RACTOR shall perform geological,
geophysical andor drilling works as provided under Articles 10-2 to 10.3 (the
“Minimum Exploration Obligations ’). Ihc Minimum Exploration Obliganons shall
be performed during each Sub-Penod in accordance with prudent international
petroleum industry practice.
10.2 During the First Sub-Period, the CONTRACTOR shall:
(a) cam out geological and geophysical studies, comprising the following:
(i) the compilation of a technical database.
(ii) the performance of a remote sensing study:
(iii) a Field visit to verify initial geological and geophysical work and
remote sensing results and plan for two dimensional seismic
acquisition; and
(b) perform field work composing structural, stratigraphic and lithologic mapping
(c) acquire, process and interpret one hundred and fifty (150) line kilometres of
two dimensional seismic data, or a three dimensional seismic data program by
agreement between the Parties
(i) committing for this purpose a minimum financial amount consistent
with prudent international petroleum industry practice and
commensurate with market conditions in the Kurdistan Region for
seismic services: and
(ii) subject to completion of the related geological survey works,
interpretation of any offset data and preparation for the tendering of the
seismic exploration activities, commencing seismic exploration
activities within six (6) months of the Effective Date or as soon as
practicable thereafter:
and
(d) drill one (I) Exploration Well (the “First Exploration Well"), including
testing and coring as appropriate, committing for this purpose a minimum
financial amount of ten million Dollar* (L’SSI 0.000,000) for such well
10.3 During the Second Sub-Period, the COM RACTOR shall:
(a) acquire, process nnd interpret further seismic data (being either two
dimensional or three dimensional), if the CONTRACTOR considers that the
results from the First Exploration Well justify the acquisition of further
seismic data; and
(b) drill one (1) Exploration Well (the -Second Exploration Well'), including
testing and coring as appropriate, committing for this purpose a minimum
financial amount of ten million Dollars (US$10,000,000). unless the data from
the First Exploration Well demonstrates that there is no reasonable technical
case for drilling the Second Exploration Well m the Contract Area.
10 4 Notwithstanding the provisions in Articles 10.2 to 10.3. for the execution of the
Minimum Exploration Obligations under Articles 10.2 to 10.3. it is agreed as follows:
(a) Minimum Exploration Obligations in the Second Sub-Period shall only apply
in the event the CONTRACTOR has elected to notify the GOVERNMENT
that it will enter into the Second Sub-Period, in accordance with Article 6 4
(b) Subject to Article 10.4(a), the CONTRACTOR shall be required to meet its
Minimum Exploration Obligations for the applicable Sub-Period, even if this
entails exceeding the Minimum Financial Commitment for such Sub-Penod.
If the CONTRACTOR has satisfied its Minimum Exploration Obligations
without having spent the total Minimum Financial Commitment lor such Sub-
Period. it shall be deemed to have satisfied its Minimum Exploration
Obligations for such Sub-Period.
(c) Each Exploration Well shall be drilled to the depth agreed by the Management
Committee unless:
29
PmlucttOf ftMw CWoc/ - Sn/evi
(i) the formation is encountered at a lesser depth than originally
anticipated;
(ii) basement is encountered at a lesser depth than originally anticipated;
(iii) in the CONTRACTOR’S sole opinion continued drilling of the
relevant Exploration Well presents a hazard due to the presence of
abnormal or unforeseen conditions;
(iv) insurmountable technical problems are encountered rendering it
impractical to continue drilling with standard equipment; or
(v) petroleum formations arc encountered whose penetration requires
laying protective casing that docs not enable the depth agreed by the
Management Committee to be reached.
If drilling is stopped for any of the foregoing reasons, the Exploration Well
shall he deemed to have been drilled to the depth agreed by the Management
Committee and the CONTRACTOR shall be deemed to have satisfied its
Minimum Exploration Obligations in respect of the Exploration Well.
(d) Any geological or geophysical work Carried out or any seismic data acquired,
processed or interpreted or any Exploration Well drilled or any other work
performed in excess of the Minimum Exploration Obligations and/or any
amounts spent in excess of the total Minimum Financial Commitment in any-
given Sub-Period, shall be carried forward to the next Sub-Period or any
extension period and shall be taken into account to satisfy the Minimum
Exploration Obligations and/or the total Minimum Financial Commitment for
such subsequent Sub-Period or extension period
(c) For the avoidance of doubt, ifi (i) in the First Sub-Period. the
CONTRACTOR performs any of the Minimum Exploration Obligations
prescribed for the Second Sub-Period in Article 10.3; and (ii) the
CONTRACTOR has elected to notify the GOVERNMENT that it will enter
into tbe Second Sub-Period (in accordance with and sub)cct to Article 6 4). the
performance of such Minimum Exploration Obligations shall be deemed to
satisfy the same Minimum Exploration Obligations for the Second Sub-Period.
ARTICLE II - EXPLORATION WORK PROGRAMS AND BUDGETS
II.I Within ninety (90) days following the Effective Date, the CONTRACTOR shall
prepare and submit to the Management Committee a proposed work program and
budget relating to Exploration Operations (the "Exploration Work Program and
Budget") for the remainder of the Calendar Year. Thereafter, no later than I October
in each Calendar Year, the CONTRACTOR shall submit a proposed Exploration
Work Program and Budget to the Management Committee for the following Calendar
Year.
30
Production Skating Contract - Safer.1
11 2 Each Exploration Work Program and Budget shall include details of, but not be
limited lo. the following:
(n) work to be undenaken;
(b) materials, goods and equipment to be acquired;
(c) cost estimate of sendees to be provided, including sendees by third parties
and/or Affiliated Companies of any CONTRACTOR Entity; and
(d) estimated expenditures, broken down by cost centre in accordance with the
Accounting Procedure.
11.3 The Management Committee shall meet within sixty (60) days following its receipt of
CONTRACTOR'S proposal to examine and approve the Exploration Work Program
and Budget.
11.4 If the GOVERNMENT requests any modification to the Exploration Work Program
and Budget, the Management Committee shall meet to discuss the Exploration Work
Program and Budget and proposed modifications thereto within the sixty (60) day
period referred to in Article 11.3. The CONTRACTOR shall communicate its
comments on any such requested modifications to the GOVERNMENT at the
meeting of the Management Committee or in writing prior to such meeting.
11.5 The CONTRACTOR shall be authorised to make expenditures not budgeted in an
approxcd Exploration Work Program and Budget provided that ihc aggregate amount
of such expenditures shall not exceed ten per cent (10%) of the approved Exploration
Work Program and Budget in any Calendar Year and provided further that such
excess expenditures shall be reported as soon as is reasonably practicable to the
Management Committee. For the avoidance of doubt all excess expenditures shall be
recoverable by the CONTRACTOR in accordance with the provisions of Articles I
and 25, provided that any excess expenditures above the ten per cent (10%) limit shall
only be recovered with the unanimous approval of the Management Committee
11.6 In eases of emergency, the CONTRACTOR may incur such additional expenditures
as it deems necessary lo protect life, environment or property. Such additional
expenditures shall be reported promptly to the Management Committee. For the
avoidance of doubt, such additional expenditure shall be considered Petroleum C osts
and shall be recoverable by the CONTRACTOR in accordance with the provisions
of Articles I and 25.
ARTICLE 12 - DISCOVERY AND DEVELOPMENT
12.1 If the drilling of an Exploration Well results in a Discovery, the CONTRACTOR
shall notify the GOVERNMENT within forty-eight (48) hours of completing tests
confirming the presumed existence of such Discovery or within such longer period as
the CONTRACTOR reasonably requires to determine whether or not there is a
Discovery. Within thirty (30) days following notification of the said Discovery, the
31
rnduatoH Omo •
CONTRACTOR shall present to ihc Management Committee all technical data then
available together with its opinion on the commercial potential of the said Discovery
(the "Discovery Report''). The CONTRACTOR shall provide in a timely manner
such other information relating to the Discovery as the GOVERNMENT may
reasonably request.
Auuiiihal Wurh rimain mid Duilmt
12 2 If. pursuant to Article 12.1, the CON TRACTOR considers that the Discovery has
commercial potential it shall, within ninety (90) days following notification to the
GOVERNMENT of the Discovery, submit an appraisal program in respect of the
Discovery (the “Appraisal Work Program and Budget") to the Management
Committee. The Management Committee shall examine the Appraisal Work Program
and Budget within thirty (30) days of its receipt. If the GOVERNMENT requests any
modification to the Appraisal Work Program and Budget, the Management
Committee shall meet to discuss the Appraisal Work Program and Budget and the
requested modifications thereto within sixty (60) days from its receipt of the proposed
Appraisal Woik Program and Budget. The CON I RACTOR shall communicate its
comments on any such requested modifications to the GOVERNMENT at the
meeting of the Management Committee or in writing prior to such meeting.
The Appraisal Work Program and Budget shall include the following:
(u) on appraisal works program and budget, in accordance with prudent
international petroleum industiy practice;
(b) an estimated time-frame for completion of appraisal works; and
(c) the delimitation of the area to be evaluated, the surface of which shall not
exceed twice (2 x) the surface of the geological structure or prospect to be
appraised (the "Appraisal Area").
12.3 If, following a Discovery, a rig acceptable to the CONTRACTOR > available to drill
a well, the CONTRACTOR may drill any additional Exploration Well or any
Appraisal Well deemed necessary by the CONTRACTOR before or duiing the
Management Committee’s review of the Discovery Report provided in accordance
with Article 12.1 or its review of the Appraisal Work Program and Budget
The CONTRACTOR shall be authorised to incur expenditures not budgeted in an
approved Appraisal Work Program and Budget provided that the aggregate amount of
such expenditures shall not exceed ten per cent (10%) of the approved Appraisal
Work Program and Budget in any Calendar Year and provided further that such
excess expenditures shall be reported as soon as is reasonably practicable to the
Management Committee. For the avoidance of doubt, all excess expenditures shall be
recoverable by the CONTRACTOR in accordance with the provisions of Articles I
and 25. provided that any excess expenditure above the ten per cent (10%) limit shall
only be recovered with the unanimous approval of the Management Committee.
In cases of emergency, the CONTRACTOR may incur such additional expenditures
as it deems necessary to protect life, environment or property. The CONTRACTOR
32
/VniAw-Mut Sharing COtHroa-
shall immediately report such additional expenditures to the Management Committee.
Such additional expenditure shall be considered Petroleum Costs and will be
recoverable by the CONTRACTOR in accordance with the provisions of Articles 1
and 25.
Apiirni?«l Report
12.4 The CONTRACTOR shall submit a detailed report relating to the Discovery (the
"Appraisal Report") to the Management Committee within ninety (90) days
following completion of the Appraisal Work Program and Budget
12.5 The Appraisal Report shall include the follow ing
(a) geological conditions;
(b) physical properties of any liquids;
(c) sulphur, sediment and walcr content;
(d) type of substances obtained.
(c) Natural Gas composition;
(0 production forecast per well, and
(g) a preliminary estimate of recoverable reserves
I2.(< Together with its Appraisal Report, the CONTRACTOR shall submit a written
statement to the Management Committee specifying that:
(a) tlw CON TRACTOR has determined that the Discovery is a Commercial
Discovery;
(b) the CONTRACTOR has determined that the Discovery is not a Commercial
Discovery;
(c) the CONTRACTOR has determined that the Discovery is a significant
Discovery, which may become a Commercial Discovery subject to additional
exploration nndfor uppiuisal works within or outside of the Appraisal Area; or
(d) the CONTRACTOR has determined that the Discovery is a significant
Discovery of Non-Associated Natural Gas. which may become a Commercial
Discovery subject to Gas Marketing Operations, in accordance with
Article 14 5.
12.7 In ease the statement of the CON TRACTOR corresponds to Article 12.6(c). the
CONTRACTOR shall submit a Work Program and Budget to the Management
Committee within thirty (.10) days following such statement. Any well drilled to
evaluate the said significant Discovery shall be considered an Exploration Well
33
LHvd9ement Plan
12.8 If ihe Discovery has been declared a Commercial Discovery by the CONTRACTOR
pursuant lo Article 12.6(a) or Article 14 5(a). the CONTRACTOR shall submit a
proposed Development Plan to the Management Committee within one hundred
eighty (180) days following such declaration. The Development Plan shall be in
accordance with prudent international petroleum industry' practice. Except with the
consent of the GOVERNMENT, such Development Plan shall include details of the
following as applicable:
(a) the delimitation of the Production Area, taking into account the results of the
Appraisal Report regarding the importance of the Petroleum Field within the
Appraisal Area:
(b) drilling and completion of Development Wells;
(c) drilling and completion of water or Natural Gas injection wells:
(d) laying of gathering pipelines;
(c) installation of separators, tanks, pumps and any other associated production
and injection facilities for the production:
(0 treatment and transportation of Petroleum to the processing and storage
facilities onshore or offshore.
(g) laying of export pipelines inside or outside the Contract Area to the storage
facility or Delivery Point;
(h) construction of storage facilities for Petroleum.
(i) plan for the utilisation of Associated Natural Gas;
(j) training commitment in accordance w ith Article 23;
(k) a preliminary decommissioning and site restoration plan;
(l) all contracts and arrangements made or to be made by the CONTRACTOR
for the sale of Natural Gas:
(m) to the extent available, all contracts and arrangements made or to be made by
Persons in respect of that Natural Gas downstream of the point at which it is to
be sold by the CONTRACTOR and which arc relevant to the price at which
(and other terms on which) it is lo be sold by the CONTRACTOR or arc
otherwise relevant to the determination of the value of it for the purposes of
this Contract, but not beyond the point at which it is first disposed of in an
Arm's Length Sale;
(n) each CONTRACTOR Entity's plans for financing its interest, if any. and
34
Production Sharing Contra.! Srtfen
(o) any oilier operations not expressly provided for in this Contract but reasonably
necessary for Development Operations, Production Derations and delivery of
Petroleum produced, in accordance with prudent international petroleum
industry practice.
12.9 The Management Committee shall use its best efforts to approve the Development
Plan within sixty (60) days after its receipt of such plan. The Development Period for
each Commercial Discovery within a Development Plan shall be extended for the
number of dnys in excess of such sixty (60) day period that it takes for the
Management Committee to approve the Development Plan. The Development Plan
shall Ik* considered approved by the GOVKUNVII.VI if the GOVERNMENT,
through its representatives on the Management Committee, indicates its approval in
writing.
12.10 If the GOVERNMENT requests any modifications to the Development Plan, then ihc
Management Committee shall meet within sixty (60) days of receipt by the
CONTRACTOR of the GOVERNMENT'S written notification of requested
modifications accompanied by all the documents justifying such request, and shall
discuss such request. The CONTRACTOR shall communicate Us comments on any
such requested modifications to the GOVERNMENT at such meeting or in writing
prior to such meeting. Any modification approved by the Management Committee at
such meeting or within a further period of thirty (30) days from the date of such
meeting shall he incoiporatcd into the Development Plan which shall then be deemed
approved and adopted.
12.11 If the CONTRACTOR makes several Commercial Discoveries within the Contract
Area each such Commercial Discovery will have a separate Production Area The
CONTRACTOR shall be entitled to develop and to produce each Commercial
Discovery and the GOVERNMENT shall provide the appropriate Permits covering
each Production Area..
AR I K l.l 13 - DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND
BUDGET
13.1 Upon the approval of the Development Plan by the Management Committee, the
CONTRACTOR shall start the Development Operations for the Commercial
Discovery in accordance with the Development Plan and prudent international
petroleum industry practice.
AJWfgvHL 9fPmlwmvm fregrem and Budget
1.3.2 Within ninety (90) days following approval of the Development Plan by the
Management Committee, the CONTRACTOR shall prepare and submit to the
Management Committee a proposed work program and budget for Development
Operations (the "Development Work Program and Budget ") to be carried out in the
Production Area tor the duration of the Development Operations. Thereafter, no Inter
than I October in each Calendar Year, the CONTRACTOR shall submit to the
Management Committee updates in respect of its Development Work Program and
ProJadioi Shinny Confratl .Vifcvi
Budget. To enable the Management Committee to forecast expenditures, each
Development Work Program and Budget shall include details of the following:
(a) works to be carried out;
(b) material and equipment to be acquired by main categories:
(c) type of services to Ik provided, distinguishing between third panics and
Affiliated Companies of any CONTRACTOR Entity; and
(d| categories of gcncrul and administrative expenditure.
13.3 If any modification to die Development Work Program and Budget is requested by
the GOVERNMENT, the Management Committee shall meet to discuss the
Development Work Program and Budget and proposed modifications thereto within
sixty (60) days from its receipt of the proposed Development Work Program and
Budget. The CONTRACTOR shall communicate its comments on any su«.h
requested modification* to the GOVERNMENT at the meeting of the Management
Committee or in writing prior to such meeting.
13.4 The CONTRACTOR shall be authorised to incur expenditures not budgeted in an
approved Development Work Program and Budget provided that the aggregate
amount of such expenditures shall not exceed ten per cent (10%) of the approved
Development Woik Program and Budget in any Calendar Year and provided further
that such excess expenditures shall be reported as soon as is reasonably practicable to
the Management Committee. For the avoidance of doubt, all excess expenditures
shall he recoverable by the CONTRACTOR in accordance with the provisions of
Articles I and 25, provided that any excess expenditure above the fen per cent (10*'.)
limit shall only be recovered with the unanimous approval of the Management
Committee.
13.5 In cases of emergency, the CONI RACTOK muy incur such additional expenditures
as it deems necessary to protect life, environment or property Such additional
expenditures shall be reported promptly to the Management Committee. For the
avoidance of doubt, such additional expenditure shall be considered Petroleum Costs
and shall be recoverable by the CONTRACTOR in accordance with the provisions
of Articles I and 25.
1.3.6 No Inter than I October of the Calendar Year preceding the estimated commencement
of production pursuant to an approved Development Plan and thereafter no Inter than
I October in each Calendar Year, the CONTRACTOR shall prepare and submit to
(he Management Committee a proposed work program and budget for Production
Operations (the “Production Work Program and Budget") for the following
Calendar Year. To enable the Management Committee to forecast expenditures, the
Production Work Program anil Budget shall include details of the following
(a) works to be carried out;
Production Sharing Contract ■ Safer
(b) inaicrial und oquipmont to be acquired by main categories;
(C) type of services «0 bo provided, distinguishing between third parties and
Affiliated Companies of any CONTRACTOR Entity; and
categories of general and administrative expenditure
13.7 If any modification to the Production Work Program and Budget is requested by the
GOVERNMENT, the Management Committee shall meet to discuss the Production
Work Program and Budget and proposed modifications thereto w ithin sixty (60) days
from its receipt ol the proposed Production Work Program and Budget The
CONTRACTOR shall communicate its comments on any such requested
modifications to the GOVERNMENT at the meeting of the Management Committee
or in writing prior to such meeting.
13.8 The CONTRACTOR shall be authorised to incur expenditures not budgeted in an
upproved Production Work Program and Budget provided that the aggregate amount
of such expenditures shall not exceed ten per cent (10%) of the approved Production
Work Program and Budget in any Calendar Year and provided further that such
excess expenditures shall be reported as soon as reasonably practicable to the
Management Committee. For the avoidance of doubt, all excess expenditures shall be
recoverable by the CONTRACTOR in accordance with the provisions of Articles I
and 25, provided that any excess expenditure above the ten per cent (10%) limit shall
only be recovered with the unanimous approval of the Management Committee.
13.9 In eases of emergency, the CONTRACTOR may incur such additional expenditure
as it deems necessary to protect life, environment or property. Such additional
expenditures shall be reported promptly to the Management Committee. For the
avoidance of doubt, such additional expenditure shall be considered Petroleum Costs
and shall be recoverable by the CONTRACTOR in accordance with the provisions
of Articles I and 25.
13.10 After the commencement of Commercial Production the CONTR ACTOR shall pay
to the GOVERNMENT, in arrears, an annual surface rental for the Production Area,
of one hundred Dollars (IJSSIOO) per square kilometre per Contract Year
( Production Rental") Such Production Rental shall be considered as a Petroleum
Cost and shall be recoverable by the CONTRACTOR in accordance with the
provisions of Articles I and 25.
ARTICLE 14 - NATI'RAI. GAS
14.1 To take account of specific conditions relating to Natural Gas and to promote its
development in the Kurdistan Region, ihc GOVERNMENT will grant specific
benefits to the CONTRACTOR on principles materially similar to those contained in
this Contract, including, consistent with the Kurdistan Region Oil and Gas Law. more
generous pros isions in respect of the recovery’ of Petroleum Costs and the sharing of
Profit Petroleum than in respect of Crude Oil-
37
ProM )I.-M Mi.r'l*g Contract - Sopcn
14.2 The CONTRACTOR may freely use uny Natural Gas required for the Petroleum
Operations. If technically anti economically justified and in line with international oil
ami kiin industry practice, the CONTRACTOR shall in priority use any Natural Gas
lor the purpose of enhancing recovery of Crude Oil in accordance with prudent
international petroleum industry practice us follows.
AsMiclaiyd Natural Gas
14..' Any excess Associated Natural Gas produced that is neither used in the Petroleum
Operations nor developed and sold by the CONTRACTOR shall, upon the
GOVERNMENT'S written request, he transferred at the first practicable delivery
point within the Contract Area ns ngreed between the Parties, free of charge to the
GOVERNMENT. In such ease, the GOVERNMENT shall he solely responsible for
collecting, treating, compressing and transporting such Nutural Gas from such agreed
delivery point and shall be solely liable for any additional direct and indirect costs
associated therewith. The construction and operation of required facilities as well as
the offtake of such excess Associated Natural Gas by the GOVERNMENT shall
occur in accordance with prudent international petroleum industry practice and shall
not interfere with the production, lilting and transportation of the Crude Oil by the
CONTRACTOR. For the avoidance of doubt, all expenditure incurred by the
CONTRACTOR up to such agreed delivery point shall be considered Petroleum
Costs and shall be recoverable by the CONTRACTOR in accordance with the
provisions of Articles I and 25.
In the event the GOVERNMENT finds a market for Associated Natural Gas. it shall
promptly give written notice to the CONTRACTOR, and the CON IRACTOR may
elect to participate in supplying such Associated Natural Gas within ninety (90) days
following notification thereof by the GOVERNMENT. If the CONTRACT OK
elects to participate in supplying Associated Natural Gas to such market, all
expenditures associated with any necessary facilities shall be paid for by the
CONTRACTOR. For the avoidance of doubt, such expenditure incurred shall be
considered Petroleum Costs and shall be recoverable by the CONTRACTOR in
accordance with the provisions of Articles 1 and 25.
14.4 Until an approved Natural Gas sales contract is executed in respect of all volumes of
Natural Gas expected to be produced, the CONTRACTOR shall be entitled during
the F.xploration Period and the Development Period to carry out Gas Marketing
Operations, which may be conducted in stages
14.5 If. pursuant to Article I2.6(d>. the CONTRACTOR has determined that the
Discos cry' is a significant Discovery of Non-Associated Natural Gas. which may
become a Commercial Discovery subject to Gas Marketing Operations, it shall cany
mil Gas Marketing Operations, at the end of which it shall submit a written statement
to the Management Committee specifying that:
(u) the CONTRACTOR has determined that the Discovery is a Commercial
Discovery; or
38
(b) the CONTRACTOR has determined that the Discovery is not a Commercial
Discovery.
14 6 For the purpose of this Contract. "Cat Marketing Operations ' means any activity
under this Contract relating to the marketing of Non-Associated Natural Gas.
including any evaluation to find a commercial market for such Non-Associated
Natural Gas ami or to find a commercially viable technical means of extraction of
such Xon-Associatcd Natural Gas and may include activities related to evaluating the
quantities of Non-Associated Natural Gas to be sold, its quality, the geographic
location of potential markets to be supplied as well as evaluating the costs of
production, transportation and distribution of the Non-Associalcd Natural Gas from
the Delivery Point to the relevant market.
14.7 All costs and expenditure incurred by the CONTRACTOR in the performance of the
activities in relation to the Gas Marketing Operations shall be considered Petroleum
Costs
|4 X No later than I October of the Calendar Year preceding the Calendar Year in which
any Gas Marketing Operations arc due to occur, the CONTRACTOR shall prepare
and submit to the Management Committee its Gas Marketing Work Program and
Budget for the following Calendar Year. To enable the Management Committee to
forecast expenditures, the Gas Marketing Work Program and Budget shall include the
following:
(a) works to be carried out;
(b) type of services to be provided, distinguishing between third parties and
Affiliated companies ofuny CONI RACTOR Entity; und
(c) categories of general and administrative expenditure
If any modification to the (ins Marketing Work Program and Budget is requested by
the GOVERNMENT, the Munugement Committee shall meet to discuss the Gas
Marketing Work Program und Budget and proposed modifications thereto within sixty
(60) days from its receipt of the proposed Gas Marketing Work Program and Budget.
The CONTRACTOR shall communicate its comments on any such requested
modifications to the GOVERNMENT ut the meeting of the Management Committee
or in writing prior to such meeting.
14.0 The CONTRACTOR shall be authorised to incur expenditures not budgeted in an
approved Gas Marketing Work Program and Budget provided that the aggregate
amount of such expenditure shall not exceed ten per cent (10%) of the approved Gas
Marketing Work Program and Budget in any Calendar Year and provided further ihat
such excess expenditures shall lie reported as soon as reasonably pructicublo to the
Management Committee, lor the avoidance of doubt, all excess expenditures shall be
recoverable by the CONTRACTOR in accordance with the provisions of Articles I
and 25. provided that any excess expenditure above the ten per cent (10%) limit shall
only be recoverable with the unanimous approval of the Management Committee.
.19
14 10 If »» Non Associated Natural Gas n discovered within the Contract An*, and the
CONTRACTOR reasonably considers that the W Associated Natural Gat
Discovery will only be a Commercial Discovery if certain terms of this Contract arc
The GOVERNMENT shall in^d faith grve rcasooabk^^^t^B^TAc
CONTRACTOR • proposed amendment and reasons and the Panes shall m good
forth attempt to agree on the necessary amendments to the Contract If the Parties are
uniiblc to agree on such amendments, und the Exploration Period expires without the
('ONTRAC'TOR having declared such Discovery to be a Commercial Discovery in
accordance with Article 12.6(a) or Article 14.5(a), and subsequently within a period
of eight (S) years from the end of such exploration Period, the GOVERNMENT
reaches agreement with any third party to develop such Discovery (the "Gas
Development”), then the following provisions shall apply:
(a) either before or upon agreement in relation to the tins Development having
been reached (and whether or not such agreement is recorded in a fully termed
production sharing und/or operating or other like agreement), but before such
agreement is signed (the "Proposed Contract") (subject only to the rights ol
each CONTRA! I OR Entity to pre empt such Proposed Contract puiMinnt to
Article 14.10(b) and such conditions as may be applicable), the
GOVERNMENT shall, as soon as reasonably practicable alter the occurrence
of such circumstances, serve on each of the CONTRACTOR Entities, a
notice u» that effect and shall with such notice provide such information and
mam terim of such agreement as the CONT RACTOR Entities may
reasonably request to determine if they will exercise their rights (the ‘Agreed
(i) the identity of such third party.
(ii) the effective dale of the Proposed Contract.
recovery' profit sharing, taxation and any other similar terms; and
(iv) all and any material conditions to which the Proposed Contract is
(b) Upon b request from any CONTRACTOR Entity, the GOVERNMENT will
provide all the CONTRACTOR Entities with such further information and
terms as may be reasonably requested by any CONTRACTOR Entity.
Within one hundred and eighty days (180) days after receipt of a notice and
any further information under Article 14.10(a) in relation to n Proposed
Contract each of the CONTRACTOR Entities shall elect either
(i) to enter into the Proposed Contract on the same or substantially similar
terms to the Agreed Terms, with the right to cost recover all Petroleum
Costs incurred under this Contract against all Petroleum revenues
received under the Proposed Contract, up to any cost recovery limits
set out therein; or
40
(ii) to waive the aforesaid right of pre-emption in relation to the Proposed
Contract.
and shall sene notice accordingly upon the GOVERNMENT and all the
CONTRACTOR Entities and in default of receipt by the GOVERNMENT
of any such notice within such period of one hundred and eighty (180) days
such CONTRACTOR Entity shall be deemed conclusively to have seised a
notice electing to waive its aforesaid right of pre-emption in relation to the
Proposed Contract.
(c) In the event that more than one of the CONTRACTOR Entities exercises its
rights under Article 14 IO(bXQ in relation to the Proposed Contract, then the
GOVERNMENT shall transfer or grant each such CONTRACTOR Entity
an interest in the Proposed Contract upon the Agreed Terms (in accordance
with Article I4.l0(b)(i» in the proportions in which their respective
percentage interests bear to the aggregate of their respective percentage
interests under the relevant Joint Operating Agreement (as it applied at the end
of the Exploration Period) or in such other proportions as such
CONTRACTOR Entities shall agree between them.
(d) In the event that one of the CONTRACTOR Entities exercises its rights
under Article l4.IO(bXi> in relation to the Proposed Contract then the
GOVERNMENT shall transfer or grant the whole of the interest in ihe
Proposed Contract upon the Agreed Terms (in accordance with 14.l(HbMi)) to
such CONTRACTOR Entity.
(c) In the event that none of the CONTRACTOR Emilies exercises its rights
under Article I4.l0(b)(i) then the GOVERNMENT may enter into the
Proposed Contract on Icons no more fovouniblc to it* counterparty than the
Agreed Terms and, in such ease, the aforesaid rights ol pre-emption shall
thereupon cease to apply in relation to the Proposed Contract.
14.11 If the pre-emption lights in Article 14 10 me not exercised und the GOVERNMENT
enters into the Proposed Contract with the third parly concerned, the
GOVERNMENT will use its Ik*s( endeavours to avoid any effect which may hamper
the Petroleum Operations of the CONTRACTOR while producing Petroleum.
14.12 Flaring of Natural Gas in the course of activities provided for under this Contract, is
prohibited except (i) short-term liming up to twelve (12) Months necessary for testing
or other operational reasons in accordance with pnident international petroleum
industry practice (which shall include the flaring of Associated Natural Gas to the
extent the CONTRACTOR considers that re-injecting Associated Natural Gas is not
justified technically and economically and provided the GOVERNMENT decides
not to take such Associated Natural Gas), or (ii) with the prior authorisation of the
GOVERNMENT, such uuthorisution not to he unreasonably withheld or delayed
The CONTRACTOR shall submit such request to the GOVERNMENT, which shall
include an evaluation Of reasonable alternatives lo flaring that have been considered
41
along with information on the amount and quality of Natural Ga* invoked and the
duration of the requested Haring
ARTICLE 15- ACCOUNTING AND AUDITS
15.1 The CONTRACTOR shall keep in Us offices in Ihc Kurdistan Region copies of all
books and accounts of all revenues relating to the Petroleum Operations and all
Petroleum Costs (the “Accounts"), except during the Exploration Period, when the
CONTRACTOR shall be entitled to keep the Accounts at its headquarters Abroad.
The Accounts shall reflect in detail expenditure incurred as a function of the
quantities and value of Petroleum produced, and skill be kept for a period of five (5)
years All Accounts which are made available to the GOVERNMENT in accordance
with the provisions of this Contract shall be prepared in the English language Pie
Accounts shall be kept in accordance with prudent international petroleum industry
practice and in accordance with the provisions of the Accounting Procedure The
Accounts shall be kept in Dollars, which shall be the reference currency for the
purposes of this Contract
15.2 Within ninety (90) days following the end of each Calendar Year, the
CONTRACTOR shall submit to the GOVERNMENT a summary statement of all
Petroleum Costs incurred during the said Calendar Year. The summary statement
shall also include a profit calculation pursuant to the provisions of Article 26.
15 3 The GOVERNMENT shall have the right
(a) to request an audit of the Accounts with respect to each Calendar Year within
a period of five (5) Calendar Years following the end of such Calendar Year
(the “Audit Request Period”); and
(b) to retain an auditor of international standing familiar with international
petroleum industry accounting practice to undertake or 3"ist the
GOVERNMENT to undertake the audit
Notwithstanding paragraphs (a) and (b) of this Article 15 3. die GOVERNMENT
shall have the right to audit the Accounts with respect to each Calendar Year at any¬
time in the ease of manifest error or fraud.
15.4 The reasonable cost of retaining an auditor pursuant to .Article 15 3 shall he home by
the CONTRACTOR and treated a» a Petroleum Cost for the purpose of cost recovery
under Articles I and 25.
15.5 During the Audit Request Period for any Calendar Year but not thereafter, the
GOVERNMENT, acting reasonably and in accordance with prudent international
petroleum industry practice, may rcxpicsl in writing all reasonably available
information and justifications for its audit of Petroleum Costs
15.6 Should the GOVERNMENT consider, on the basis of data and information available,
that the CONTRACTOR made a material mistake or there is any irregularity in
respect of the Accounts and considers that any corrections, adjustments or
42
Production Shoring l o*nwt • Soft*
amendments should be made, the GOVERNMENT shall make any audit exceptions
in writing and notified to the CONTRACTOR within six (6) Months of the date of
request refened to in Ankle 15J. and failure to give such written exception within
such time shall be deemed to be an acknowledgement of the correctness of the
CONTRACTOR'* Accounts.
15.7 In respect of any audit exception made by the GOVERNMENT in accordance with
Article 15.6. the CONTRACTOR shall then have sixty (60) days to make necessary
corrections, adjustments or amendments or to present Us comments in writing or
request a meeting with the GOVERNMENT. The GOVERNMENT shall within
thirty (30) days of the CONTRACTOR’S response, notify the CONTRACTOR in
writing of ils position on the corrections, adjustments, amendments or comments. If
thereafter there .still exists a disagreement between the GOVERNMENT and the
CON I KACTOR, the dispute will be settled in accordance with Article 15.9.
15.X In addition to the annual statements of Petroleum Costs as provided in Article 15.2,
the CONTRACTOR shall provide the GOVERNMENT with such production
statements and reports, as required pursuant to Article 16.3.
15.9 Any dispute between the Parties under this Article 15 that cannot be settled amicably
within sixty (60) days of the GOVERNMENT’S final notice under Article 15.7, may
be submitted to an expert on the request of either the GOVERNMENT or the
CONTRACTOR in accordance with the provisions of Article 42.2. Notwithstanding
the provisions of Article 42, in this specific instance the decision of the expert shall
not necessarily be final and either Party may decide to submit the matter to arbitration
in accordance with the provisions of Article 42.1.
ARTICLE 16 CONTRACTOR’S RIGHTS AND OBLIGATIONS
Permanent Representative
16.1 If not done already , within ninety (90) day* following the Effective Date, each
CON I RAO OK Entity shall open an office and appoint a permanent representative
in the Kurdistan Region, who may be contacted by the GOVERNMENT with regard
to any matter relating to this Contract and will be entitled to receive any
correspondence addressed to Mich CONTRACTOR Entity.
16.2 The CONTRACTOR shall carry out all Petroleum Operation* in accordance with the
provisions of tins Contract, prudent international petroleum industry practice and
applicable Kurdistan Region I aw.
The CONTRACTOR shall be responsible for the conduct, management, control ami
administration of Petroleum Operations and shall be entitled to conduct Petroleum
Operations in accordance with the provisions of this Contract In conducting its
Petroleum Operations, the CONTRACTOR shall have the right to use any Affiliate
of each CONTRACTOR Entity, its and their Subcontractors, and the employees,
consultants, and agents of cadi of the foregoing. The CON I K ACTOR and all such
43
PtodUTtHm $kdrtn& < iWlfruCf -
Persons shall at all limes have free access to the Contract Area and any Production
Areas for the purpose of carrying out Petroleum Operations.
16.3 The CONTRACTOR shall provide the GOVERNMENT with periodic data and
activity reports relating to Petroleum Operations. Said reports shall include details of
the following:
(a) information and data regarding all Exploration Operations. Development
Operations and Production Operations (as applicable) performed during the
Calendar Year, including any quantities of Petroleum produced and sold;
(b) data and information regarding any transportation facilities built and operated
by the CONTRACTOR;
(C) a statement specifying the number of personnel their title, their nationality as
well as a report on any medical services and equipment made available to such
personnel: and
(d) a descriptive statement of all capital assets acquired for the Petroleum
Operations, indicating the date and price or cost of their acquisition.
16.4 The CONTRACTOR nuy freely use any Petroleum produced within the C ontract
Area for the Petroleum Operations
Sin»yiTiMon.hv_ihc(;;ovT;K.N.vii::.Ni
16 5 The CONTRACTOR shall at all limes provide reasonable assistance as may
reasonably be requested by the GOVERNMENT during its review and verification
of records and of any other information relating to Petroleum Operations at the
offices, worksites or any other facilities of the CONTRACTOR
Upon giving reasonable prior notice lo the CONTRAC I OK. the GOVERN Ml NT
may send a reasonable number of representatives to the work-sites or any oilier
facilities of the CONTRACTOR in the Kurdistan Region to perform such reviews
and verifications. The representatives of the GOVERNMENT shall at all times
comply with any safety regulations imposed by the CONTRACTOR and such
reviews and verifications shall not hinder the smooth progress of the Petroleum
Operations.
A«t» igfaaiitip
16 6 For the performance of the Petroleum Operations, the CONTRACTOR, any Affiliate
of each CONTRACTOR Entity, its 3nd their Subcontractors and the employees,
consultants and agents of each of the foregoing shall at all tiroes be granted free
access to the Contract Area and lo any facilities for the Petroleum Operations located
44
/VoiAwrtiui SJuiring Ccnmtci ■ Sitftn
within or outside of the Contract Area or within or outside the Production Area, for
the purpose of carrying out the Petroleum Operations
Us, of
16.7 Upon notice from the GOVERNMENT, the CONTRACTOR shall make available
to a reasonable number of representatives of the GOVERNMENT those of the
CONTRACTOR'S facilities which arc necessary- to enable such representatives to
perform their tasks related to this Contract and the Kurdistan Region Oil and Gas Law
including, in case of works to be performed on work sites, transportation,
accommodation and board, under the same conditions as those provided by the
CONTRACTOR for its own personnel.
Notwithstanding Article 16.8. the GOVERNMENT shall indemnify and hold
harmless each CONTRACTOR Entity against all losses, damages and liability
wising under any claim, demand, action or proceeding brought or initiated against any
CONTRACTOR Entity by any representative of the GOVERNMENT in connection
with the access to or use of the facilities by such representatives.
L»smrl>nmimg
16.8 I'hc CONTRACTOR shall lie responsible for tiny loss or damage caused to third
parties by its or its Subcontractors personnel solely and directly resulting from their
negligence, errors or omissions in accordance with applicable Kurdistan Region Law.
.!»ivllvv
16.9 In its Petroleum Operations, the CONTRACTOR shall respect any intellectual
property rights belonging to third parties.
Litigation
16.10 The CONTRACTOR shall as soon as reasonably practicable inform the
GOVERN MKVT of any material litigation relating to this Contract
Saf£«i
16.11 The CONTRACTOR shall implement a health, safety and environment program and
take necessary measures to ensure hygiene, health and safety of its personnel carry ing
out Petroleum Operations in accordance with prudent international petroleum industry
practice.
Said measures shall include the following
(a) supplying first aid and safety equipment for each work area and maintaining a
healthy environment for personnel.
(b) reporting to the GOVERNMENT within seventy-two (72) hours of such
accident, any accident where personnel has been injured while engaged in
Petroleum Operations and resulting in such personnel being unable to return to
work;
45
Production Sharing Cd-mw Safen
implementing a pcrmil-to-work procedure around hazardous equipment and
installations;
(d) providing safe storage areas for explosives, detonator' and any other
dangerous products used in the operations;
(c) supplying fire-extinguishing equipment in each work area;
(0 for the purpose of taking control of any blow out or fire which could damage
the environment or Petroleum Field, in accordance with prudent international
petroleum industry practice; and
(g) for the purpose of prev enting any involuntary injection of fluids in petroleum
formations and production of Crude Oil and Natural Gas at rates that do not
conform to prudent international petroleum industry practice.
Production Ratos
16.12 Subject to Article 43.2. in the event the production rate of the individual wells and
Reservoir of a Petroleum Field is to be set below the Maximum Efficient Rate
("MER") for the Reservoir, as provided for in the Development Plan, as a
consequence of a decision by the GOVERNMENT or any federal or international
regulatory body, the GOVERNMENT undertakes to allocate any such reduction
fairly and equitably among the various operators (including the GOVERNMENT)
then producing in the Kurdistan Region, pro rata their respective production rate' In
such event, the GOVERNMENT shall grant an extension of the Development Period
of any Production Area so affected for a reasonable period of time in order to produce
the Petroleum which would otherwise have already been produced, had the MER for
the individual w ells and Reservoir of the Petroleum Field been maintained.
Legal Status
16.13 The respective rights, duties, obligations and liabilities of the CONTRACTOR and
the GOVERNMENT under this Contract arc to be understood as being separate and
individual and not joint and several. The Parties agree that this Contract shall not
create and shall not be deemed to have created a partnership or other form of
association between them
Lifting
16.14 The GOVERNMENT and each CONTRACTOR Entity shall have the right and the
obligation to take in kind and separately sell or otherwise dispose of their respective
shares of Petroleum in accordance with Articles 25. 26 and 27. L’pon approval of the
Development Plan, the Parties shall meet as soon as practicable to reach a detailed
agreement governing the lifting of Petroleum by each such CONTRACTOR Entity.
Such lifting agreement shall include the following:
(a) the obligation of ihc GOVERNMENT and each CONTRACTOR Entity to
lift, regularly throughout each Calendar Year, their share of Petroleum
produced from the Production Area.
46
(b) notification procedures by the Operator to the GOVERNMENT and each
CONTRACTOR Entity regarding entitlements and availability of Petroleum
for lifting by each Party during each lifting period and nominations by each
Party, and
(c) the right of the Parties to lilt any Available Petroleum not scheduled for lifting
und'or not lilted by the other Party during each such lifting period
16.15 The CONTRACTOR Entities shall sell and transfer to the GOVERNMENT, upon
written request of the GOVERNMENT, any amounts of Crude Oil that the
GOVERNMENT shall deem necessary to meet Kurdistan Region internal
consumption requirements. The sales price of such Crude Oil shall he the
International Market Price. The GOVERNMENT shall provide the
CONTRACTOR Entities with not less than six (6) Months' advance written notice of
its intention to buy such Crodc Oil.
Payments shall he made in Dollars and otherwise on terms consistent with prudent
international petroleum industry practice. The CONTRACTOR Entities' obligation
to sell Crude Oil to the GOVERNMENT shall be, with the other operators (including
the GOVERNMENT) then producing in the Kurdistan Region, pro rata to their
respective production rales
ARTICLE 17-USE OF I.ANI) AND EXISTING INIKASTRVC Tl RE
17.1 The GOVERNMENT shall make available to the CONTRACTOR any land or
property in the Kurdistan Region required for the Petroleum Operations provided,
however, the CONTRACTOR shall not request to use any such land unless there is a
real need for it. The CONTRACTOR shall have the right to build and maintain,
above and below ground, any facilities required tor the Petroleum Operations
17.2 If it becomes necessary for conduct of the Petroleum Operations to occupy and use
any land or property in the Kurdistan Region belonging to third parties, the
CONTRACTOR shall endeavour to reach amicable agreement with the owners of
such land If such amicable agreement cannot be reached, the CONTRACTOR shall
notify the GOVERNMENT. On receipt of such notification:
(a) the GOVERNMENT shall determine the amount of compensation to be paid
by” the CONTRACTOR to the owner, if occupation will be for a short
duration, or
(b) the GOVERNMENT shall expropriate the land or property in accordance
with applicable Kurdistan Region Law. if such occupation will be long lasting
or makes it henceforth impossible to resume original usage of such land or
property. Any property rights shall be acquired by and recorded in the name
of the GOVERNMENT, but the CONTRACTOR shall be entitled free use
of the land or property for the Petroleum Operations for the entire duration of
this Contract
47
/WiK-fKi- Sharing Omttmt S,tfen
The nmounl of the compensation in Article 17.2(u) shall be lair and reasonable, in
accordance with Article 29 of the Kurdistan Region Oil and Gas Law. and shall take
into account the rights of the owner and any ctlcctivc use of the land or property by
its owner at the time of occupation by the CONTRACTOR. All reasonable costs,
expenditures and fair and reasonable compensation (as required pursuant to Article 29
of the Kurdistan Region Oil and Gas Law) which results from such expropriation
shall he borne by the CONTRACTOR. For the avoidance of doubt, such costs,
expenses and compensation incurred by the CONI RAC FOR shall be considered
Petroleum Costs and shall be recoverable by the CONI RAC TOR in accordance with
the provisions of Articles I and 25.
17.3 For its Petroleum Operations, the CONTRACTOR shall have the right in the
Kurdistan Region to use, subject to Applicable Law. any railway, tramway, road,
aiiport. landing field, canal, river, bridge or waterway, any telecommunications
network and any existing pipelines or transportation infrastructure, on terms no less
favourable than those offered to other entities and. unless generally in force, to be
mutually agreed.
17.4 Under national emergencies due to environmental catastrophe or disaster, or internal
or external war, the GOVERNMENT shall have the right to request to use any
transportation and communication facilities installed by the CONTRACTOR. In
such cases, the request shall originate from tlic Minister of Natural Resources. For the
avoidance of doubt, such costs, expenses or liabilities incurred by the
CONTRACTOR hereunder shall be considered Petroleum Costs and shall be
recoverable by the CONTRACTOR in accordance with the provisions of Articles I
and 25.
17.5 For its Petroleum Operations, the CONTRACTOR shall have the right in the
Kurdistan Region to clear land, excavate, drill, bore, construct, end. place, procure,
operate, emit and discharge, manage and maintain ditches, tanks, wells, trenches,
access roads, excaw lions, dams, canals, water mains, plants, reservoirs, basins,
storage and disposal facilities, primary distillation units, extraction and processing
units, separation units, sulphur plants and any other facilities or installations for the
Petroleum Operations, in addition to pipelines, pumping stations, generators, power
plants, high voltage lines, telephone, radio and any other telecommunications systems,
as well as warehouses, offices, sheds, houses for personnel, hospitals, schools,
premises, dikes, vehicles, railways, roads, bridges, airlines, airports and any other
transportation facilities, garages, hangars, workshops, foundries, repair shops and any
other auxiliary facilities for the Petroleum Operations and. generally, everything
which is required for its performance of the Petroleum Operations The
CONTRACTOR shall ha\e the right to select the location for these facilities.
17.6 For its Petroleum Operations, the CONTRACTOR shall have the right in the
Kurdistan Region, subject to compliance with applicable Kurdistan Region Law, to
remove and use the topsoil. fuJtv-grown timber, clay. sand. lime, gypsum, stones
(other than precious stones) and other similar substances as required for its Petroleum
Operations
The CONTRACTOR shall have the right in the Kurdistan Region lo take or use any
water necessary for the Petroleum Operations provided it docs not damage any
48
RratktcTian Sharing Comraa - Safin
existing irrigation or navigation systems and that land, houses or watering points
belonging to third parties ore not deprived of their use.
17.7 | he GOVERNMENT shall have the right in the Kurdistan Region to build, operate
and maintain roads, railways, airports, landing strips, canals, bridges, protection dams,
police stations, military installations, pipelines and telecommunications networks in
the Contract Area, provided this does not increase the costs, or compromise or have a
mutcriul adverse effect on the performance of the Petroleum Operations. If the
construction, operation and maintenance of such facilities by the GOVERNMENT
results in increased cost or expense for the CONTRACTOR then, for the avoidance
of doubt, such cost and expense shall be considered Petroleum Costs and shall he
recoverable by the CONTRACTOR in accordance with the provisions of Articles I
and 25.
17.8 Upon request of the CONTRACTOR, the GOVERNMENT shall prohibit the
construction of residential or commercial buildings in the vicinity of facilities used for
the Petroleum Operations that may be declared dangerous due to the Petroleum
Operations and to prohibit any interference with the use of any facilities required for
the Petroleum Operations.
17.9 Access to the Contract Area may he granted pursuant to an access authorisation, as
shull be defined in. and consistent with, the Kurdistan Region Oil and Gas Law to
authorised third panics on reasonable terms and conditions (including coordination),
including Persons authorised to construct, install and operate structures, facilities and
installations, and to carry out other works, provided dial nothing in such access
authorisarion or in this Article 17.9 authorises the holder of an access authorisation to
drill a Well or to perform any Petroleum Operations in Contract Area.
The GOVERNMENT shall give the CONTRACTOR adequate advance notice of
any access authorisation in respect of the Contract Area and shall not grant any access
authorisation in respect of the Contract Area until it has taken into account any
submissions made by the CONTRACTOR nor in such a way that there is undue
interference with or hindrance of the rights and adiv ilics of the CONTRACTOR.
ART 1CLE 18 - ASSISTANCE FROM THE GOVERNMENT
18.1 To the extent allowed by Kurdistan Region Law and Iraqi law and at the specific
request of the CONTRACTOR, the GOVERNMENT shall take all necessary step*
to assist the CONTRACTOR Entities in. but not limited to. the following areas:
(a) securing any necessary Permits for the use and installation of means of
transportation and communications;
(b) securing regulatory Permits in matters of customs or import export
(c) securing entry and exit visas, work and residence permits as well as any other
administrative Permits foe each CONTRACTOR Entity's, its Affiliate's and
its Subcontractors* foreign personnel (including their family members)
49
working in the Kurdiltan Region anil any other |>urt of Iraq during the
implementation of this Contract;
(d> securing any necessury Permits to send Abroad documents, data or samples fot
analysis or processing Ibr the Petroleum Operations;
(c) relations with federal anil local authorities and administrations, including for
the puiposes of the remainder of this Article IK. I;
(t) securing any necessary environmental Permits;
(g) obtaining any other Permits requested by any CONTRACTOR Hntity for the
Petroleum Operations,
(h| access to any existing data and information, including data and information
relating to the Contract Area held by picvious operators or contractors; and
(i) providing all necessary security foi Petroleum Operations.
18.2 Within the scope of services to be provided under this Article 18, reasonable and duly
justified expenses incurred by the GOVERNMENT or paid to third parties shall be
charged to the CONTRACTOR and shall be considered Petroleum Costs and shall be
recoverable by the CONTRACTOR as Petroleum Costs in accordance with the
provisions of Articles I and 25.
ARTICLE 19 EQU IPMENT AND MATERIALS
19 I The CONTRACTOR shall supply, or procure the supply of. all materials, equipment,
machinery, tools, spare parts and any other items or goods required for the Petroleum
Operations (“Equipment and Materials").
19.2 Said Equipment and Materials shall be provided by the CONTRACTOR in
accordance with the relevant Work Programs and Budgets.
19.3 As soon as possible alter the Effective Dale, the CONTRACTOR shall provide the
Management Committee with a copy of its procedures for procurement of Equipment
and Materials and'or services for the Petroleum Operations as required by the
provisions of Article 8.2 (c). including the criteria for tender evaluation, which
procedures and criteria shall provide for fair and transparent tender evaluation and be
in accordance with prudent international petroleum industry practice. Applicable Law.
and to assure no such contract will constitute a Prohibited Act. If the Management
Committee does not request any modifications to the procurement procedures within
thirty' (30) days after receiving such procedures, the procedures shall be deemed
approved by the Management Committee.
19.4 The CONTRACTOR shall give priority to Equipment and Materials that are readily
available in the Kurdistan Region and other parts of Iraq to the extent their price,
grade, quality, quantity, specifications, purchase, delivery and other commercial and
technical terms are comparable in all material respects with those generally available
in the international petroleum industry and to the extent that the procurement of such
50
c«
Equipment and Materials will not cause any CONTRACTOR Entity or its Affiliates
to violate any Law applicable to it or constitute a Prohibited Act.
ARTICLE 20 - TITLE TO ASSETS
’0.1 During the Exploration Period, any Assets acquired by the CONTRACTOR for the
Petroleum Operations shall remain the property of the CONTRACTOR, the
CONTRACTOR Entities, their Affiliates or their Subcontractors, as the ease may be
20.2 During the Development Period, subject to Article 21. all Assets acquired by the
CONTRACTOR for the Petroleum Operations shall become the property of the
GOVERNMENT upon the completion of the recovery of the costs of all such assets
by the CON'I KA< TOR. or the end of the Contract, whichever is the earlier.
20.3 The provisions of Article 20.2 shall not apply to any Assets leased by the
CONTRACTOR or belonging to an Affiliated Company of a CONTRACTOR
E.ntity or belonging to its or their Subcontractors or its or their employees.
ARTICLE 21 - USE OK THE ASSETS
21.1 The CON I RAC FOR shall have the exclusive right to use. free of any chnrgo, all
Assets described in Article 20, both before and affer recovery of the cost of the same,
for the Petroleum Operations, as well as for any petroleum operations under other
agreements in the Kurdistan Region to which it or any of its Affiliates is a party,
provided that the Petroleum Operations take priority. The GOVERNMENT agrees
not to transfer or otherwise dispose of any of such Assets without the
CONTRACTOR'S prior written approval
21.2 Ore CONTRACTOR may freely move to the Contract Area any Assets from any
relinquished portion of the Contract Area, or from any other area in the Kurdistan
Region
ARTICLE 22 - SUBCONTRACTING
22.1 The CONTRACTOR shall ensure that any Subcontractors it engages base all the
requnite experience and qualifications.
222 The CONTRACTOR shall give priority to Subcontractors from the Kurdistan
Region and other parts of Iraq to the extent their competence, rates, experience,
reputation, qualifications, specialties, credit rating and terms of availability, delivery
and other commercial terms arc. in the CON I KACTOR s sole opinion, comparable
in all matcnal respects with those provided by foreign companies operating in the
international petroleum industry, and will not cause any CONTRACTOR Entity or
its Affiliates to violate any Law applicable to it. including Conupt Practices Iavs, or
constitute a Prohibited Act. Such Subcontractors must be bona fide Kurdistan Region
companies (i.e.. organised and in good standing under Applicable Law. domiciled in
the Kurdistan Region, and majority-owned and controlled by citizens of the Kurdistan
Region or Iraq) and having all necessary resources and capacity
51
/Vwkrtio-
22.3 Selection of Subcontractors shall take place in accordance with the procurement
procedures submitted by the CONTRACTOR to the Management Committee in
accordance with Article 19.3 and approved by the Management Committee. Such
procurement procedures will include the requirement that contracts with
Subcontractors include a provision which obligates such Subcontractors to comply
with applicable Corrupt Practices Laws in connection with such contracts.
22.4 The CONTRACTOR shall provide the GOVERNMENT with copies of agreements
entered into with Subcontractors, where their amount exceeds the limit set by the
Management Committee from time to time.
22.5 If the CONTRACTOR is determined pursuant to Article 42 to have knowingly
entered into n contract with a Prescribed Person (whether a Subcontractor or
otherwise) in connection with this Contract or Petroleum Operations without
following the procurement procedures adopted pursuant to the Contract or obtaining
the approval of the Management Committee, the GOVERNMENT may require the
CONTRACTOR to cancel the contract and, if the GOVERNMENT requires such
cancellation, the value of the contract will be deducted from Petroleum Costs.
22.6 II a CONTRACTOR Entity is determined pursuant to Article 42 to have knowingly
entered into u contract with a Prescribed Person other than in connection with this
Contract or Petroleum Operations without following procurement procedures
substantially the same ns those adopted pursuant to the Contract or obtaining the
approval of the Minister of Natural Resources (such approval shall be deemed
rejected unless approved within thirty (30) days), ihe GOVERNMENT may require
such CONTRACTOR Entity to cancel the contract and. if the GOVERNMENT
requires such cancellation, the value of the contract will be deducted from such
CONTRACTOR Entity’s share of Petroleum Costs and such CONTRACTOR
Entity's share of Available Petroleum will be reduced accordingly However, the
reduction in Petroleum Costs of a CONTRACTOR Entity pursuant to the preceding
sentence may only be made with respect to one production sharing contract in which
such CONTRACTOR Entity is involved, as selected by the GOVERNMENT.
ARTICLE 23 - PERSONNEL, TRAINING, AND TECHNOLOGICAL ASSISTANCE
23.1 For the Petroleum Operations, the CONTRACTOR shall give, and shall require its
Subcontractors to give, preference to citizens ot the Kurdistan Region and other parts
of Iraq to the extent such citizens have the technical capability, qualifications,
competence and experience required to perform the work, arc available at competitive
compensation rates, and their employment would not cause any CONTRACTOR
Entity, any of its Affiliates, or any of its Subcontractors lo violate any Law applicable
to it
232 The CONTRACTOR shall give due consideration to the secondment of
GOVERNMENT personnel to the CONTRACTOR and of Ihe CONTRACTOR'S
52
personnel to the GOVERNMENT during the vinous phases of the Petroleum
Operations Terms and conditions for such secondment shall be mutually agreed by
the Parties, and any costs associated therewith shall be considered Petroleum Costs
and shall be recoverable by the CONTRACTOR m accordance with the provisions
of Articles | and 25.
23.3 Each CONTRACTOR Entity and its Affiliates and Subcontractors shall have the
right to hire foreign personnel whenever the personnel from the Kurdistan Region and
other parts of Iraq do not have the requisite technical capability, qualifications or
experience for positions to be filled as required pursuant to Article 23.1. In the ev ent
any such foreign personnel and Or a member of their family engage in activities or
commit acts which breach Kurdistan Region Law, the CONTRACTOR shall, at the
request of the Management Committee, take the necessary steps to repatriate such
individiialfs).
23.4 For the first five (5) Contract Years, the CONTRACTOR shall pay to the
GOVERNMENT two hundred and fifty thousand Dollars (USS250.000) in advance
each Contract Year for the recruitment or secondment of personnel, whether from the
Kurdistan Region other parts of Iraq or Abroad, to the Ministry of Natural Resources.
The selection of such personnel shall be at the discretion of the Minister of Natural
Resources. Such casts shall be considered as Petroleum Costs and shall be recoverable in
accordance with the provisions of Aiticles I and 25.
Training
23.5 In a planned way, in accordance with the provisions of this Article 23 5 and Articles
23.6 and 23.7, the CONTRACTOR dull train all its personnel from the Kurdistan
Region and other parts of Iraq directly or indirectly involved in the Petroleum
Operations for the purpose of improving their knowledge and professional
qualifications in order that such personnel gradually reach the level of knowledge and
professional qualification held by the CONTRACTOR Entities' foreign workers with
an equivalent rcSumC Such training shall also include the transfer of knowledge of
petroleum technology and the necessary management experience so as to enable the
personnel from the Kurdistan Region and other parts of Iraq to apply advanced and
appropriate technology in the Petroleum Operations, to the extent permitted by
Applicable law and agreements with third parties, and subject to appropriate
confidentiality agreements.
23.6 In addition to the requirements of Article 23 I, the recruitment, integration and
training of ihe CONTRACTOR Entities' personnel from the Kurdistan Region and
other parts of Iraq shall be planned, which plans shall be submitted to the
Management Committee for its approval. The training plan shall take into
consideration the requirements of Article 23.5 and may include training for the
GOVERNMENT'S personnel, depending on the extent to which the amount
allocated to the training plan, as prescribed by Article 23.7. is available after taking
into consideration the training of the CONTRACTOR Entities' Kurdistan Region
and ocher Iraqi personnel.
Within ninety (90) days of the Effective Date, the CONTRACTOR shall submit to
the Management Committee a proposed training plan for the remainder of the
53
Calendar Year. Thereafter, no later than I October in each Calendar Year, the
CONTRACTOR »hall submit a proposed training plan to the Management
Committee for the following Calendar Year.
23.7 The training plan referred to in Article 23.6 dull provide for the allocation to the
GOVERNMENT of the amount of one hundred and fifty thousand Dollars
(US$150.000) in advance for each Contract Year during the Exploration Period and three
hundred thousand Dollars (USS300.000) in advance for each Contract Year during the
Development Period To the extent any amount allocated for a Contract Year is not
utilised in such Contract Year, ihc unutilised allocation shall be carried forward and
added to the allocation for the following Contract Year indefinitely
23.X Each CONTRACTOR Entity shall be responsible for the training costs which such
CONTRACTOR Entity may incur in respect of the personnel it employs from the
Kurdistan Region and other parts of Iraq. AH such reasonable costs shall be
considered as Petroleum Costs and shall be recoverable in accordance with the
provisions of Articles I and 25. Coats incurred by the CONTRACTOR for training
programs for the GOVERNMENT'S personnel shall be borne by the
C ONTRACTOR only to the extent that they arc included in the CONTRACTOR S
training plan, pursuant to Article 23.6 and shall also be considered as Petroleum Cost*
and shall be recoverable in accordance with the provisions of Articles I and 25. The
cost of all other training programs for the GOVERNMENT'S personnel shall be the
GOVERNMENT, responsibility.
23.9 The CONTRACTOR dall pay to the GOVERNMENT the amount of oik hundred and
fifty thousand Dollars (US$150,000) in advance each Contract Year during the
Exploration Penod and three hundred thousand Dollars (US$300,000) in advance for
each Contract Year during the Development Period solely for application by the
GOVERNMENT to the environment fund to be established by the GOVERNMENT
for the benefit of the natural environment of the Kurdistan Region, pursuant to the
Kurdistan Region Oil and Gas l aw (the “Environment Fund") Such payments by
the CONTRACTOR shall be deemed to be Petroleum Costs and shall be recoverable in
accordance with Articles I and 25.
23.10 Payments by the CONTRACTOR under this Article 23 shall be considered
Petroleum Costs and shall be recoverable in accordance with Articles I and 25
23.11 Before the end of the first Contract Year, the CONTRACTOR shall provide to the
GOVERNMENT technological and logistical assistance to the Kurdistan Region
petroleum sector, including geological computing hardware and software and such
other equipment as the Minister of Natural Resources may require, up to the value of
one million Dollars (USS 1.000.000). The form of such assistance shall be mutually
agreed by the Parties, and any costs of the CONTRACTOR associated therewith
shall be considered Petroleum Costs and shall be recoverable by the CONTRACTOR
in accordance with the provisions of Articles I and 25
54
ARTICLE 24 ROYALTY
24.1 The CONTRACTOR shall pay to the GOVERNMENT a portion of Petroleum
produced and saved from the Contract Area, as provided in this Article 24 (the
"Royalty”).
24 2 The Royalty shall be applied on all Petroleum produced and saved from the Contract
Area which is Crude Oil or Non-Assoeiated Natural Gas. except for Petroleum used in
Petroleum Operations, rc-injcctcd in a Petroleum Field, lost, flared or for Petroleum
that cannot be used or sold and such Crude Oil and Non-Associalcd Natural Gas
(excluding the excepted Petroleum) shall be referred to collectively as "Export
Petroleum and separately and respectively as “Export Crude Oil” and “Export
Non-Assoeiated Natural Gas”.
24 3 If payable in cash, the amount of the Roy alty calculated by applying the Royalty rates
provided under Article 24.4 shall be paid by the CONTRACTOR as directed by the
GOVERNMENT, in accordance with Article 24.7.
If payable in kind, the quantity of Export Petroleum corresponding to the Royalty and
calculated by applying the Royalty rates provided under Article 24.4 shall be
delivered in kind by the CONTRACTOR to the GOVERNMENT at the Delivery
Point. Title and risk of loss of Royally paid in kind will transfer to the
GOVERNMENT at the Delivery Point
Unices I lie GOVERNMENT requires the Royalty to be paid in kind, by giving the
CONTRACTOR not less than ninety (90) days prior written notice prior to the
commencement of the relevant Quarter, the GOVERNMENT shall be deemed to
have elected to receive the Royalty in full and in cash for the relevant Quartet.
24.4 The Royalty due on any Export Petroleum produced and saved in the Contract Area
shall be determined daily by applying the following relevant Royalty rate to the
F.xport Crude Oil or to the Export Non-Assoeiated Natural Gas (as the case may be)
produced and saved on that day:
(a) For Export Crude Oil:
the Royalty rate for Export Crude Oil shall be ten per cent (lO'Vo). which, for
the avoidance of doubt, shall apply regardless of the gravity of the oil; and
the Royally rate for Export Non-Assoeiated Natural Gas shall be ten |»er cent
[10%).
24.5 Associated Natural Gas and any other Petroleum shall be exempt from any Royalty.
24.6 If. pursuant to Article 24.3, the GOVERNMENT receives the Royalty in kind, and
putsuant to Article 28. the GOVERNMENT requests assistance for the sale of all or
part of the Royalty received in kind, each CONTRACTOR Entity shall assist the
GOVERNMENT in selling all or part of such Royalty received in kind (belonging to
55
Pnnlmtum SbarUvi Ctmtmrt Safe*
tin- GOVERNMENT) in consideralion of a commission per Barrel payable lo such
CONTRACTOR Entity, in accordance with Article 28.
24.7 If, pursuant to Article 24.3. the GOVERNMENT receives the Royalty in cash
(a) any Export Crude Oil shall be valued at the International Market Price
obtained at the Delivery Point, as defined in Article 27.2;
(b) any Export Non-Associated Natural Gas shall be valued at the actual price
obtained at the Delivery Point under an approved contract, as provided in
Article 27.3;
(c) the CONTRACTOR shall pay such Royalty each Quarter, in arrears, within
thirty (30) days of the end of each Quarter, and shall calculate the payment
due for the relevant Quarter by reference to the price for the Export Petroleum
at the Deliver)' Point, determined in accordance with paragraphs (a) and (b)
above, and the Royalty due on the Export Petroleum, determined in
accordance with Article 24.4, for the said Quarter; and
(d) the CONTRACTOR Entities shall be entitled to export freely the volume of
Export Petroleum corresponding to the Royalty determined in accordance with
Article 24.4 for the purpose of paying the Royalty in cash.
ARTICLE 25 - RECOVERY OF PETROLEUM COSTS
25.1 All Export Crude Oil produced and saved from the Contract Area shall, after
deduction of any quantities of Export Crude Oil due for Royally pursuant to Article
24. be considered as “Available Crude Oil*.
All Associated Natural Gas produced and saved from the Contract Area, except for
Associated Natural Gas which is used in Petroleum Operations, re-injected in a
Petroleum Field, lost, flared or cannot be used or sold, shall be considered as
"Available Associated Natural Gas".
All Export Non-Associated Natural Gas produced and saved from the Contract Area
shall, after deduction of any quantities of Export Non-Associated Natural Gas due for
Royalty pursuant to Article 24. be considered as “Available Non-Associated Natural
Gas”
“Available Petroleum" means Available Crude Oil. Available Associated Natural
Gas and Available Non-Assoc rated Natural Cias.
25.2 For the purpose of this Article 25:
(a) any Available Crude Oil shall be valued at the International Market Price
obtained at the Delivery Point, as defined in Article 27.2; and
(b) any Available Associated Natural Gas and any Available Non-Assoc rated
Natural Gas shall be valued at the actual price obtained at the Delivery Point
under an approved contract, as provided in Article 27.3.
56
25.3 Subject to the provisions of this Contract, from the f irst Production m the Contract
Area, the CONTRACTOR shall at all times be entitled to recover all Petroleum
Costs incurred under this Contract of up to forty per cent (40%) of Available Crude
Oil (which will apply regardless of the gravity of the oil) and Available Associated
Natural Gas. in each ease produced and saved within any Calendar Year Available
Crude Oil above forty per cent (40%) and Available Associated Natural Gas above
forty per cent (40%) otherwise not used for the recovery of Petroleum Costs shall be
Profit Crude Oil.
25.4 Subject to the provisions of this Contract from First Production in the Contract Area,
the CONTRACTOR shall at all times be entitled to recover all Petroleum Costs
incurred under this Contract of up to fifty per cent (50%) of Available Non-
Asvociatcd Natural Gas produced and saved within any Calendar Year. Available
Non-Associatcd Natural Gas above this percentage or otherwise not used for the
recovery of Petroleum Costs shall be Profit Natural Gas.
25.5 For the application of Article 25.3 and 25.4, the CONTRACTOR shall keep a
detailed account of Petroleum Costs in accordance with the provisions detailed in the
Accounting Procedure Recovery of Petroleum Costs shall occur in the follow ing
order.
(1) Production Costs;
(2) F.sploration Costs (including appraisal costs and further exploration within the
Contract Area);
(3) Gas Marketing Costs;
(4) Development Costs; and lastly
(5) Decommissioning Costs.
25.6 Total recovery of Petroleum Costs during any Calendar Year, expressed in quantities
of Petroleum, shall not exceed the relevant percentages indicated in Articles 25.) and
25.4. If in any Calendar Year, the Available Crude Oil und/or Available Non-
Associated Natural (ius do not allow the CONTRACTOR to recover all its
Petroleum Costs pursuant to this Article 25. the amount of un-rccovcrcd Petroleum
Costs in such Calendar Year shall be carried forward indefinitely to the subsequent
Calendar Years until all Petroleum Costs arc fully recovered, but. save as provided in
Articles 14 10 and 38,4, in no other ease after the termination of the Contract.
25.7 The provisions of Articles 27.5 and 27.6 shall be applied to determine the quantities
of Available Crude Oil and/or Available Non-Associated Natural Gas due to the
CONTRACTOR for the recovery of its Petroleum Costs.
25.8 The quantities of Petroleum corresponding to the share of Available Petroleum due to
the CONTRACTOR for the recovery of its Petroleum Costs shall be delivered to the
CONTRACTOR at the Delivery Point. Title and risk of loss of such Available
Petroleum shall bo transferred at the Delivery Point.
57
259 Each CONTRACTOR Monty shall be entitled to nxo e. lake m kind and to export
freely all Available Petroleum to which it is cnotled for recovery of iU Petroleum
Cons m accordance with the provisions of this Con trad and lo retain Abroad any
proceeds from the sale of all web Available Petroleum. Pctrolcvan Costs in each
Production Area shall be recoverable &om Available Petroleum from the Contract
Area.
25 10 Subject to Article 38.4. for the avoidance of doubt. Petroleum Costs under ibis
Contract are not recoverable against other contract areas held by the
CONTRACTOR.
ARTICl.i; 2*- SHARING OF PROFIT PH KOI FI M
2ft. I Under tins Contract.
(.0 “Profit Petroleum" moans Profit Crude Oil and Profit Natural (ias:
Available Associated Nntuml Gas produced from the ( ontr.K t Area, after the
recovery of Petroleum Costs, in accordance with Articles I and 25: and
(C) "Profit Natural Gas" means the quantities of Available Nofr Associated
Natural Gas produced from the Contract Area, after the recovery of Petroleum
Costs in accordance with Articles 1 and 25
26-2 From First Production and as and when Petroleum is berng produced, the
CONTRACTOR shall be entitled to take a percentage share of Profit Crude Oil
and or Profit Natural Gas. in consideration for its investment in the Petroleum
Operations, which percentage share shall be determined in accordance with Article
26 3 To determine the percentage share of Profit C rude Oil and'or Profit Natural Cias lo
which the CONTRACTOR is entitled, the “R" Factor shall be calculated in
acconiancc with Article 26.4 and shall be applied to the Contract Area.
26.4 The "R“ Factor shall he calculated as follow's:
R-X/Y
where
X: is equal to Cumulative Revenues actually received by the CONTRACTOR;
Y is equal to Cumulative Costs actually incurred by the CONTRACTOR
For the purpose of tbit Article 26 4:
58
Production Sharing Coni' m l Satrn
"Cumulative Revenues" means total Revenues, as defined below, received by the
CONTRACTOR until the end of the relevant Semester, determined in accordance
with Article 26.7.
"Revenues' means the total amount actually received by the CONTRACTOR for
recovery of it* Petroleum Costs and its share of Profit Petroleum in the Contract Area
“Cumulative Costs means all Petroleum Costs actually incurred pursuant to this
Contract by the CONTRACTOR until the cod of the relevant Semester, determined
in accordance with Article 26.7.
Notwithstanding the foregoing provisions of this Article 26.4, for the period from
first Production until the end of the Calendar Year in which Firet Production occurs,
the "R" Factor shall be deemed to be less than one < I)
26.5 The share of Profit Petroleum to which the CONTRACTOR shall he entitled from
F irst Production is:
(a) for Profit Crude Oil. equal to the quantities of Petroleum resulting from the
application of the relevant percentage as indicated below to the daily volume
of production of Profit Crude Oil within the Contract Area at the
corresponding Delivery Point:
**R” Factor CONTRACTOR’S % Share of Profit Crude Oil
R
I < R
R > 2 25 16%
and
(b) for Profit Natural Gas. equal to the quantities of Non Associated Natural Gas
resulting from the application of the relevant percentage as indicated below to
the daily volume of production of Profit Natural Gas within the Contract Area
at the corresponding Delivery Point:
“R- Factor CONTRACTOR’S % Share of Profit Natural Gas
R < or = I 38%
I < R< or - 2.75 38 |(38 - I9)x(R-iy(2.75-l»%
R >2.75 19%
26.6 The CONTRACTOR'S accounting shall account separately for all components for
the calculation of “X" and “Y" values in the formula provided in Article 26 4
59
267 For each Semester. starting from tbe l" of January of the Calendar Year following the
Calendar Year in which First Production occurs, the CONTRACTOR shall calculate
the -R” Factor applicable to the relevant Semester within thirty (30) days of the
beginning of such Semester The “R” Factor to be applied during a Semester shall be
that determined by applyi^^Cumul^e ^ac^^^rcOTs^and^the
If the CONTRACTOR is unable to calculate the ~R~ Factor for the relevant
Semester before an allocation of Profit Petroleum for such Semester must be made,
then the allocation of Profit Petroleum for the previous Semester shall be used for the
relevant Semester. Upon the calculation of the “R" Factor for the relevant Semester.
(a) it the allocation of Profit Petroleum in the previous Semester and the relevant
Semester is the same, then no adjustment shall Ik- made; and
(b) if the allocation of the Profit Petroleum in the two Semesters is different, then
the CONTRACTOR shall make any adjustments to the Parties’ respective
shares ol Profit Petroleum to restore them to the position that they would have
been in had the "R" I actor for the relevant Semester been available from the
start of such Semester.
26 8 If at any lime an cm*r occurs in the calculation of the "R" Factor, resulting in a
change in the CONTRACTOR'S percentage share of Profit Crude Oil and or Profit
Natural (ins. Ihc necessary correction shall be made and any adjustments shall apply
from tire Semester in which the cttot occuncd The Party having benefited from a
surplus of Profit Petroleum shall surrender such surplus to the other Party, beginning
from the first day of tbe Semester following Ihc Semester in which the error was
recognised. However, each lifting of Petrol cum relating to such error by the Party
receiving the surplus shall not exceed twenty-five per cent (25%) of the vhare of Profit
Petroleum to which such surrendering Party n entitled For the avoidance of doubt, if
at any lime an error occurs in the calculation of the “R“ Factor, which docs not result
in a change in the CONTRACTOR'S percentage share of Profit Crude Oil and or
Profit Natural Gas. no correction shall be made
26.9 The quantities of Profit Petroleum due to the CONTRACTOR shall lie delivered to
the CONTRACTOR Entities at the Delivery Pomi Title and risk of loss of such
Profit Petroleum shall be transferred to the CONTRACTOR Entities at the Delivery
Point.
I ach CONTRACTOR Entity shall be entitled to receive, take in kind and to export
freely its share of Profit Petroleum in accordance with the provisions of this Contract
and to retain Abroad any proceeds from the sale of all such Profit Petroleum
26 10 The share of the Profit Petroleum to which the GOVERNMENT is entitled in any
Calendar Ye* in accordance with Article 26 5 shall be deemed to include a portion
representing the corporate income tax unposed upon and due by each
CONTRACTOR Fmtity. and which will be paid directly by the GOVERNMENT on
behalf of each such entity representing the CONTRACTOR to the appropriate tax
authorities m accordance with Article 312. The GOVERN MINT shall provide the
60
CONTRACTOR EMiliM with all written documentation and evidence reasonably
required by the CONTRACTOR Entities to confirm that such corporate income tax
has been paid by the GOVERNMENT
26.11 The quantities of Profit Petroleum due to the GOVERNMENT shall be delivered to
the GOVERNMENT at the Delivery Point. Title and risk of k»s of such Profit
Petroleum shall be transferred at the Delivery Point
26.12 At least twenty-one (21) days poor to CONTRACTOR'S estimated date of First
Production and. subsequently, thirty (30) days prior to the beginning of each
Semester, the CONTRACTOR shall prepare and deliver to the GOVERNMENT a
production program comprising the production forecast for the next Semester and the
forecast of the quantities of Crude Oil and Natural Gas to which each Party shall be
entitled during the said Semester.
26.13 Within ninety' (90) days following the end of each Calendar Year, the
CONTRACTOR shall prepare and deliver an annual production report to the
GOV ERNMENT, stating the quantities of Crude Oil and Natural Gas to which each
Party is entitled, the quantities of Crude Oil and Natural Gas lifted by each Party and
the resulting over-lift or under-lift position of each Party, pursuant to the lifting
agreement entered into pursuant to Article 16.14.
26.14 Any costs or expenditure incurred by the CONTRACTOR, its Subcontractors or
suppliers relating to the lifting of the GOVERNMENT'S share of Petroleum by the
( OMR ACTOR shall not be considered Petroleum Costs and shall be charged to the
GOVERNMENT according to icrms to be mutually agreed between the
CONTRACTOR and the GOVERNMENT
ARTICLE 27 - VALUATION AND METERING OF CRUDE OIL AND
NATURAL GAS
Valuation
27.1 Foi the purpose of this Contract, any Crude Oil produced in the Contract Area shall be
valued at the end of each Quarter at the Delivery Point based on the International
Market Price, as defined in Article 27.2.
27.2 The 'intornullonal Market Price" referred to in Article 27.1 shall be the weighted
average price pet Barrel, expressed in Dollars, obtained by the CONTRACTOR at
the Delivery Point, by netback if necessary, during the Quarter ending on the date of
valuation for Ann's Length Sales of Crude Oil.
The CONTRACT OR shall provide evidence to the GOVERNMENT that the sales
of Crude Oil referred to in Article 27.2 arc Arm's Length Sales. If the
GOVERNMENT considers that any such sale of Crude Oil is not on the basis of an
Arm’s Length Sale then the GOVERNMENT has the right to refer the matter to an
cx|>ert pursuant to Article 42.2.
61
Productia1 SAarUag ( M>al -
In ihc event that there is no lifting of Crude Oil in the relevant Quarter or no Arm s
Length Sales, the applicable "International Market Price" for such Quarter shall be
the weighted average pnee per llarrel obtained during that Quarter from Aim-*
Length Sales of Crude Oil of the same or similar gravity and quality from other
production areas sold in markets competing with Crude Oil produced from the
Contract Area, taking into account gravity and quality difference and transportation
and other post Delivery Point costs.
To determine such price, the Parties shall, prior to the commencement of Production,
agree on a basket of Crude Oil comparable to those produced in the Contract Area and
sold in the international market Prices obtained shall be adjusted to account for any
variations such as quality, specific gravity, sulphur content, transportation costs,
product yield, seasonal variations in pnee and demand, general market trends and
ocher terms of sale.
273 The price of Natural Gas shall be the actual price obtained at the Delivery Point,
(which may lake into account quantities to be sold, quality, geographic location of
markets to be supplied as well as costs of production, transportation and distribution
of Natural Gas from the Delivery Point to the relevant market, in accordance with
standard international petroleum industry practice). The GOVERNMENT shall have
the right to review and approve Natural Gas sales contracts.
Accounting Statement
27 4 In accordance with this Article 27.4, the GOVERNMENT and the CONTRACTOR
shall establish a statement showing calculations of the value of Petroleum produced
and sold from the Contract Area Such statement shall include the following
information:
(it) quantities of Crude Oil sold by the CONTRACTOR Entities during the
preceding Month constituting Arm’s Length Sales together with corresponding
sale prices;
(b) quantities of Crude Oil sold by the CONTRAC TOR Entities during Ihc
preceding Month that do not lull in the category referred to in paragraph (n)
above, together with sale prices applied during such Month;
(c> inventory in storage belonging to the CONTRACTOR Entities at the
beginning and at the end of the Month; und
(d) quantities of Natural (las sold by the CONTRACTOR Entities and the
GOVERNMENT together with sale prices realised.
Mffrflng
27.5 All Export Petroleum shall be metered at the Delivery Point in accordance with
pnident international petroleum industry practice and such meters shall he to fiscal
meter standards. All metering equipment shall be installed and operated by the
CONTRACTOR. ITic GOVERNMENT shull. on receipt by the CONTRACTOR
of reasonable prior written notice, huve the right to inspect any such metering
62
Pnhtii'tom Sharing Contract 5qftn
equipment initialled by the CONTRACTOR, as well as all relevant documents and
supporting information reasonably necessary to validate the accuracy of such
metering All metering equipment shall be subject to periodic technical inspections in
accordance with prudent international petroleum industry practice
27.6 If any metering equipment is defective, the CONTRACTOR shall me all reasonable
endeavour* to repair it within fifteen (15) days or. if deemed necessary by the
CONTRACTOR, replace it as soon as reasonably practicable from the dale tbe
metering equipment was known or agreed to have been measuring correctly, or if not
known or agreed, the dale that is midway between the dale the defect was discovered
and the last dale the equipment was known to have measured correctly The results
from the defective equipment shall be disregarded for the period from the Adjustment
Dute until the dale the defective equipment is repaired or replaced and the
measurement I'm such period shall be estimated:
(a) 11 check measuring equipment is installed uikI registering iiccuratcly, then by
using the measurements recorded by such check measuring equipment;
(b) if check measuring equipment is not installed or not registering accurately,
tlscti by correcting the error if the percentage of error is ascertainable by
verification, calibration or mathematical calculation; or
(c) if neither method is feasible, then by estimating the volume and'or quantity
delivered based on deliveries during the preceding comparable period of ume
when the metering equipment was regnlered accurately
27.7 Any disposes arising under dm Article 27 shall be settled by expert detenmnatioo in
accordance with the provisions of Article 42.2.
ARTICLE 28 - SALE OF GOVERNMENT SHARE
Upon the GOVERNMENT'S poor written notice of at least ninety (90) days, each
CONTRACTOR Entity shall provide all reasonably necessary assistance to the
GOVERNMENT for the sale of all or part of the quantities of Crude Oil to which the
GOVERNMENT is entitled, in consideration of a sale* commission per Band to be
established with reference to prudent international petroleum practice and to be mutually
agreed upon between the Parties.
ARTICLE 24- FINANCIAL PROVISIONS
29.1 Each Party nuking a payment lo the GOVERNMENT: shall (I) shall make such
^c^Lc'w rth wire instructions provided by the GOVERNMENT, on tbe date
when due. and (u) not offset against such payment any outstanding and undisputed
payments due from the GOVERNMENT to such Party, except with the prior wrioen
consent of the GOVERNMENT.
If ■ Party faib to make any payment to the GOVERNMENT when due. such Party
shall pay micro! or. such unpakl amount compounded monthly, at the rale of LIBOR
(determined » of the first day oo or following the due date with respect to which
LIBOR can first be determined) plus two (2) percentage pomts
292 The GOVERNMENT may. at its sole discretion, direct the CONTRACTOR
l-iililm inrav-
(a) any Royalty in cash due to the GOVERNMENT pursuant to the provisions of
Article 24; and or
(b) any proceeds from the sale undertaken by a CONTRACTOR Polity on behalf
of the GOVERNMENT pursuant to .Article 28 of any Crude Oil to which the
GOVERNMENT is entitled pursuant to Article 25; and
(c) any Production Bonus.
lo a lund for revenue sharing, which may in due course be established by legislation
consistent with the Constitution of Iraq, between the Government of Iraq and other
regions (including the Kurdistan Region) and govemorates of Iraq. Nothing in this
Article 29.2 shall be understood as implying any contractual relationship or other
relationship between the CONTRACTOR and or any CONTR ACTOR Fruity and
the Government of Iraq and or the regions of Iraq (other than the Kurdistan Region)
ami or and gov emorates of lt»q
29.3 The GOVERNMENT: (i) shall make any payment to the CONTRACTOR m
Dollars in cleared funds by wire transfer from a reputable ^nk in accordance with
wire instructions provided by the CONTRACTOR; and (ii) may w .ih » lice to and
the prior written consent the CONTRACTOR, offset again.! %uch payn .it any
outstanding payments due by the CONTRACTOR to the GOV I RN ME NT.
If the GOVERNMENT fails to make any payment to the CONTRACTOR when
due, the GOVERNMENT shall pay interest on such unpaid amount, compounded
monthly, ut the rale of LIBOR (determined as of the first day on or following the due
date with respect to which LIBOR can first be determined) plus two (2) percentage
points.
29.4 Any currency conversion to be made under this Contract shall Ik at the ext
of the Central Bank of Iraq, provided such exchange rate applied to the
CON I K \CTOR Entities shall not be less favourable than the rate offered by other
private, commercial or industrial banks in the international market In the absence of
the Central Bank of Iraq or in the event that the Central Bank of Iraq i' unable to
provide the relevant exchange rate, any currency conversion to be
Contract shall be ai the exchange rate of a
29 5 The CONTRACTOR shall not realise any gaia or lens due to exchange rate
currency shall be other considered as revenue and credited to the Account* or shall be
64
considered at a Petroleum Coal and shall be recoverable by the CONTRACTOR to
accordance * ith Articles 1 and 25. as the case may be
Each COM RAC TOR Entity shall at all times be entitled to freely con ten .bio
296
Dollar* or any other foreign currency any Iraqi dinar* received imbibe framework of
•hall be a* pros idcd under Article 29.4.
29 7 Each CONTRACTOR Entity shall have the right to be paid, receive, keep, transfer
and use Abroad, without any restrictions, all proceeds of its share of Petroleum
29 k Each CONTRACTOR Entity and its Subcontractors shall have the nght to freely
open and maintain bank accounts for Petroleum Operation* within or outside the
KurdivUn Region and other parts of Iraq.
29.9 Each CONTRACTOR Entity shall have the nght to pay in any freely convertible
currency nil its financial requirements for the Petroleum Operation* and to convert
those currencies to Iraqi dinars in any bank in the Kurdistan Region or other parts of
Iraq, at the same exchange rate as provided under .Article 29 4.
29.10 Each CONTRACTOR Entity shall have the right, without any rcslnction*. to freely
repatriate Abroad and to freely dispose of:
(a) any proceed* received in the Kurdistan Region or other parts of Iraq from the
sale of Petroleum:
(b) any proceeds received from other operation* and activine* earned out under
this Contract m the Kurdistan Region or other parts of Iraq
29.11 Each CONTRACTOR Entity shall have the nght to pay m any foreign currency it*
of Iraq, or Abroad. Said Subcontractors and expo in ale personnel dull be obliged to
transfer to the Kurdistan Region the amount of foreign currency required for their
local needs and they shall have the right to repatrulc the proceeds of the sale of ihcir
belongings in accordance with the regulations in force in the Kurdman Region
29.12 Each CONTRACTOR Entity's Affiliates. Subcontractor* and their personnel shall
equally benefit from the same rights as such CONTRACTOR Entity and its
personnel as regards this Article 29.
29.13 for the financing of Petroleum Operations, each CONTRACTOR Entity shall have
the nght to have recourse to external financing from third parties or from it* Affiliated
Companies on an arm's length basis
29.14 Each Party receiving a payment from another Party under
this C
with a notice of receipt of such payment.
65
<
ARTICLE JO CUSTOMS PROVISIONS
30 I All services, materials. equipment. goods, machinery. vehicle*. wob. spare parts,
consumables. products, and other items imported into the Kurdistan Region by the
CONTRACTOR, any CONTRACTOR Entity. Ms Affiliate*. any Subcontractor or
any agent of any of the foregoing, for use or consumption m the Petroleum Operations
shall be admitted free and exempt from any and all Taxes oo import The
CONTRACTOR, any CONTRACTOR Entity. Ms Affiliate*, any Subcontractor or
any agent of any of the foregoing shall have the nght to re-export from the Kurdistan
Region free from all Taxes on export any materials, equipment, goods, machinery,
vehicle*, tools, spare parts, consumables, products, and other items that are no longer
required for the Petroleum Operations, except where title has passed to the
GOVERNMENT in accordance with Article 20. in which ease re-export shall be
approved by the Management Committee
30.2 The CONTRACTOR, any CONTRACTOR Entity, its Affiliates, uny Subcontractor
or any agent of any of the foregoing, and their personnel (including their family
members) shall have the nght to freely import into the Kurdistan Region and other
parts of Iraq and re-export from the Kurdistan Region and other parts of Iraq any
personal belongings and furniture free and exempt from any Taxes on import or
export The sale in the Kurdistan Region and other parts of Iraq of personal
belongings and furniture of expatriate personnel shall comply with Kurdistan Region
Law.
30 3 Each C ONTRACTOR Entity and its Affiliates shall be entitled to freely export from
the Kurdistan Region and other pare of Iraq, free of any Taxes, any Petroleum to
which M » entitled pursuant to the provisions of thn Contract
30 4 The GOVERNMENT shall indemnify the CONTRACTOR, any CONTRACTOR
Entity, its Affiliates, any Subcontractor or any agent of any of the foregoing, and then
personnel (including their family members) for any import or export Taxes referred to
in Article* 30 I. 30 2 or 30 3
ARTICLE 31 - TAX PROVISIONS
31.1 Except as expressly presided in this Article 31. and without prejudice to the
exemptions expressly provided for in Ankle 30 and in this Article 31. each
CONTRACTOR Entity. iu Affiliates and any Subcontractor shall, for the entire
duration of this Contract, be exempt from all Taxes as a result of its income, assets
and activities under this Contract The GOVERNMENT shall indemnify each
CONTR AC TOR Entity upon demand against any liability to pay any Taxes assessed
or imputed upon aurh entity which relate to any of the exemptions granted by the
GOVERNMENT under this' Article 31.1 and under Articles 314 to 31 10
31.2 Each CON I R ACTOR Fntity shall be subject to corporate income tax on Ms income
from Petroleum Operations as provided in .Article 31.3. which shall be deemed to be
inclusive and m full and total discharge of any Tax oo income, receipt*, revenues,
gams or profits of each such entity. Payment of such corporate income tax shall be
made for the entire duration of this Contract directly to the official Kurdistan Regain
66
■S+n
lax authorities by the GOVERNMENT, for the account of each CONTRACTOR
Entity, from the GOVERNMENT'S share of the Profit Petroleum received pursuant
to Ankle 26.
Each CONTRACTOR Entity shall, within sixty (60) days after the end of each tax
year, provide a statement to the appropriate Kurdistan Region tax authorities of it*
profits which are subject to corporate income tax. together with a calculation of the
amount of corporate income tax due on those profits.
The GOVERNMENT shall, within ninety (90) days after the end of each tax year,
provide to each CONTRACTOR Entity (i) the appropriate official tax receipts from
the appropriate Kurdistan Region tax authorities or other relevant authority certify ing
the payment of its corporate income tax, as determined in the said statement, and that
such entity has met all its Tax obligations in the preceding tax year, and (ii) a copy of
any return or other filing made by the GOVERNMENT in respect of its payment of
corporate income tax on behalf of such CONTRACTOR Entity.
31.3 For the purposes of Article 31.2:
(a) rhe rate of corporate income tax to be applied to each CONTRACTOR
Entity shall Ik* the generally applicable rate prescribed in the Law of Taxation
(Low No. 5 of 1999), passed by the National Assembly of the Kurdistan
Region, ns has been amended by Law No, 26 of 2007, and as may be amended
from time to time or substituted in respect of Petroleum Operations (as defined
under the Kurdistan Region Oil and Gas Law) by a petroleum operations
taxation law for the Kurdistan Region but in no event in excess of forty per
cent (40%). The Parties acknowledge and agree that at the Effective Date of
this Contract, the corporate income tax rate i* fifteen per cent (15%) for all net
taxable profits.
(b) The GOVERNMENT and the CONTRACTOR agree that corporate income
tax shall be calculated for each CONTRACTOR Entity on its net taxable
profits under the Contract, as calculated in accordance with the provisions
relating thereto in the Accounting Procedure
31.4 Each CONTRACTOR Entity, its Affiliates and any Subcontractors shall be exempt
from any w ithholding tax applkablc on any payments made to them or by them to or
from Affiliates or third parties, whether inside or out>idc the Kurdistan Region and or
Iraq, for the entire duration of this Contract.
31.5 Each CONTRACTOR Entity and its Affiliates shall be exempt from Additional
Profits Tax, as referred to in Ankle 40 of the Kurdistan Region Oil and Gas Law or
any successor Tax.
31.6 Each CONTRACTOR Entity and its Affiliates shall be exempt from Surface Tax. as
referred to in Article 40 of the Kurdistan Region Oil and Gas Law or any successor
Tax
67
317 Each CONTRACTOR Emily and its Affiliate* shaU be exempt front Windfall Profits
Taxes, as referral to in .Article 40 of the Kurdistan Region Oil and Cm Law or any
successor Tax.
31.8 I jeh CONTRACTOR Entity and any Subcontractor shall be subject to the payment
or withholding of the personal income tax and social security contribution* for which
such entity or Subcontractor is liable lo pay or withhold in respect of its employees
who are Iraqi national*, pursuant to the Lam of Taxation (Law No 5 of 1999) passed
by the National Assembly of the Kurdistan Region, as may be amended from time lo
time, in the same manner as the same shall be generally applied lo all other industries,
except that a CONTRACTOR Entity or Subcontractor shall not be liable for such
taxes or contributions with respect to employ ees of another Person
319 It is acknowledged that double tax treaties will have effect to give relief from taxes to.
but not limited to. the CONTRACTOR CONTRACTOR Entitle*. Subcontractors
and employees and other Persons in accordance with the provisions of «*ch double
tax treaties, bat shall not impose an additional burden of taxation
11 10 Any Tax that is a value added, or similar type of Tax (“VAT”) shall be considered as
a Petroleum Cost and shall be cost recoverable, if not otherwise recovered under
Applicable Law. in accordance w ith the provisions of Articles I and 25.
31.11 Notwithstanding any other provision to the contrary in this Contract the Parties
acknowledge and agree that die provisions of this Article 31 shall apply individually
and separately to all CONTRAf TOR Entitle* under this Contrail and that there shall
he no joint and several liability in respect of any liability, duty or obligation referred
to in this Article 31.
ARTICLE 32
CAPACITY BUILDING PAYMENTS; PRODUCTION BONUSES
32.1 Marathon and the CONTRACTOR shall pay to the GOVERNMENT capacity
building payments (each such payment a “Capacity Building Payment" and
collectively, the "Capacity Building Payments") as provided in Articles 32.2
through 32. 7.
32.2 Marathon shall pay (the following collectively constituting the "Marathon
Exploration Tranche”) sixty million Dollars (USS60.000.000) in three instalment*:
(1) thirty million Dollars (US$30,000,000) within thirty (30) days of the Effective
Date;
(2) fifteen million Dollars (USS15.000.000) on or before 31 December 2011; and
(3) fifteen million Dollars (US$1 $.000,000) within 30 days alter completion of
site preparation for the first well
68
M-
32 3 The C ONTRACTOR shall pay twenty, five million Dollars (LSS25.000.000) (such
payment, thr Development Man Tranche") to the GOVERNMENT w.tlun thirty
(30) days of the approai of the Development Plan by the Management Comrmuee.
32 4 The CONTRACTOR shall pay seventeen milium Dollars (USS17.000.000) (the
tollowing constituting the Prodnctlon Tranche") to the GOVERNMENT within
30 days alter production of ( rode Oil aad Natural Gas reaches a cumulative amount
of ten million barrels of Crude Oil and Natural Gas BOF. and multiples of ten million
(10.000.000) thereof, so that, for the duration of this Contract, the CONTRACTOR
is obliged to p3y to the GOV) RNMF.VT seventeen million Dollars (USS17.000.000)
within thirty (30) days of the day on which production of Crude Oil and Natural Gas
from the Contract Area equals a cumulative amount of:
(a) ten million (10.000.000) Barrels of Crude Oil and Natural Gas BOE;
(b) twenty million (20.000.000i Barrels of Crude Oil and Natural Gas BOE.
(c) thirty million (30.000.000) Barrels of Crude Oil and Natural Gas BOE,
and so on.
for purposes of calculating the Production Tranche pursuant to this Article 32 4.
Natural Gas BOF. shall not include Natural Gas used for Petroleum Operations
(including re-injection) or. to the extent permitted by this Contract the Laws of the
Kurdistan Region, and authorised by the Management Committee, for flaring
32.5 To the extent permitted by l aws of the Kurdistan Region or as otherw ise agreed with
the Government of Iraq, the GOVERNMENT will:
(a) open and maintain the Capacity Building Account;
(b) instruct Marathon and the CONTRACTOR to make all Capacity Building
Payments to the Capacity Building Account (in accordance with wire
instructions provided by the GOVERNMENT to Marathon and the
CONTRACTOR, as applicable;
(c) apply funds from the Capacity Building Account as set forth in the definition
of Capacity Building Account; and
(d) periodically publish reports of the GOVERNMENT’! application of funds
front the Capacity Building Account in sufficient detail to Identify the projects
to which the GOVERNMENT hits applied the Cupaeity Building Payments
32.6 The obligation of Marathon and the CONTRACTOR, as applicable, to pay the
Capacity Building Payments is. except as specifically provided otherwise in Articles
32.2 through 32.4, absolute and unconditional No Capacity Building Payment will be
refundable to Marathon or the CONTRACTOR, whether in whole or in part, under
any circumstance, including if the Contract is terminated pursuant to Article 45
(>•)
rroAxtKm S**r~t Com0<*t
32.7 Marathon and the COM RACTOR each acknowledge and accept that a fundamental
principle of Aiticlci 32.1 through 32.6 is that, except as specifically provided in
Articles 32.2 through 32 4. Marathon ami the CONTRACTOR, as applicable, must
absolutely und unconditionally make the Capacity Building Payments required by
Articles 32.1 through 32.6. Accordingly, in respect of their respective obligations under
Articles 32.1 through 32.6, ami notwithstanding any provision in the Contract to the
contrary. Marathon (on behalf of itself and each of its successors and assigns) and the
CONTRACTOR each waives any right to raise by way of set oil or invoke us a
defence to its obligations to make any of the payments required by Articles 32.1
through 32.6. whether in law or equity, any failure by the GOVERNMENT or uny
CONTRACTOR Entity to pay amounts due and owing under the Contract or any
alleged claim that Marathon (or its successors and assigns) or the CONTRACTOR
may have against the GOVERNMENT, any other CONTRACTOR Entity, or any
other Person, whether such claim arises under or relates to this Contract or other* me.
production Bonuses
32 # 1° (hc event of a Crude Oil Commercial Discovery:
(a) the CONTRACTOR shall pay the following relevant Crude Oil Production
Bonus to the GOVERNMENT within thirty (30) days of the following
relevant occurrence:
(I) two million five hundred ihufand Dollars (USS2.300.000) when First
Production of Crude Oil from the Contract Area commences;
(2) five million Dollars (liSS5.000.000) when production of Crude Oil and
Natural Gas from the Contract Area reaches a cumulative amount of
i (10.000.000) Bands of Crude Oil and Natural Gas BOE;
<3) (USS10.000.000) of Crude Oil
Contract Area reaches a of twenty five
Barrels of Crude Oil ami Natural Gas BOE and
(4) twenty million Dollars (LSS20.000.000) of Crude OU
the Contract Area of fifty
(50,000.000) Barrels of Crude Oil and Natural Gas BOE.
For purposes of calculating the Production Bonus pursuant to this Article
32 8(a). Natural Gas BOE shall not include Natural Gas used for Petroleum
Operations (including rc-injcction) or. to the extent permitted by this Contract,
the Laws of the Kurdistan Region, and authorised by the Management
Committee, for Hating
(b) each bolder of a Government Interest, other than the GOVERNMENT or a
Public Company, shall pay. pro rau the percentage of the Government Interest
such holder to the the total Government Interest held by Persons other
the GOVERNMENT or a Public Company, the folio*mg Crude OU
70
•S**n
Production Bonuses to the GOVERNMENT within thirty (30) days of the
following relevant occurrences:
(|) five hundred thousand Dollars (USS500.000) when First Production of
Crude Oil from the Contract Area commences.
(2) one million Dollars (USS1.000.000) when production of Crude Oil and
Natural Gas from the Contract Area reaches a cumulative amount of
ten million (10,000,000) Barrels of Crude Oil and Natural Gas BOE;
(3) two million Dollars (USS2.000.000) when production of Crude Oil
from the Contract Area readies a cumulative amount of twenty five
million (25,000,000) Barrels of Crude Oil and Natural Gas BOE; and
(4) four million Dollars (USS4.000.000) when production of Crude Oil
from the Contract Area reaches a cumulative amount of fifty million
(50.000.000) Barrels of Crude Oil and Natural Cias BOB. For purposes
of calculating the Production Bonus pursuant to this Article 32.8(b),
Natural Gas BOE shall not include Natural Gas used for Petroleum
Operations (including re-injection) or. to the extent permuted by this
Contract, the Laws of the Kuidiaan Region, and authorised by the
Management Committee, for Haring
32.9 In the event of a Non-Associated Natural Gas Commercial Discovery
(a) the CONTRACTOR shall pay the following Non-Associatcd Natural Gas
Production Bonuses to the GOVERNMENT within thirty (30) days of the
following occurrences:
(1) two million five hundred thousand Dollars (USS2,500.000) when First
Production of Non-Associatcd Natural Gas from the Contract Area
commences;
(2) five million Dollars (USS5,000.000) when production of Non-
Associatcd Natural Gas from the Contract Area reaches a cumulative
amount of ten million (10,000.000) Natural Gas BOE;
(3) ten million Dollars (USS10.000,000) when production of Non-
Associuted Natural Gas from the Contract Area reaches a cumulative
amount of twenty live million (20.000.000) Natural Gas BOE; and
(4) twenty million Dollars (USS20.000.000) when production of Non-
Associatcd Natural Gas from the Contract Aren reaches a cumulative
amount of fifty million (50.000,000) Natural Gas BOE; For purposes
of calculating the Production Bonus pursuant to this Article 32.9(a),
Natural Gas BOE shall not include Natural Gus used for Petroleum
Operations (including re injection) or. to the extent permitted by this
Contract, the Laws of the Kurdistan Region, and authorised by the
Management Committee, for Haring.
71
ProfanaiftwCMOBf-S#"
(b) Each holdcT of a Government Interest, other than the GOVERNMENT or a
Public Company, shall pay. pro rata the percentage of the Government Interest
held such holder to the the total Government Interest held by Persons other
than the GOVERNMENT or a Public Company, the following Natural Gas
Production Bonuses to the GOVERNMENT within thirty* (30) days of the
following relevant occurrence:
(1) five hundred thousand Dollars (USS500.000) when First Production of
Non-Associated Natural Gas from the Contract Area commences;
(2) one million Dollars (USS1,000.000) when production of Non-
Associatcd Natural Gas from the Contract Area reaches a cumulative
amount of ten million (10.000.000) Natural Gas BOE;
(3) two million Dollais (USS2.000.000) when production of Crude Oil
from the Contract Area reaches a cumulative amount of twenty five
million (25,000,000) Natural Gas BOE; and
(4) four million Dollars (USS4.000.000) when production of Crude Oil
from the Contract Area reaches a cumulative amount of fifty million
(50.000,000) Natural Gas BOE.
For purposes of calculating the Production Bonus pursuant to this Article
32.9(b). Natural Gas BOE shall not include Natural Gas used for Petroleum
Operations (including re injection) or. to the extent permitted by this Contract,
the Laws of the Kurdistan Region, and authorised by the Management
Committee, for flaring.
32.10 The CONTRACTOR shall declare a Commercial Discovery to be either a Crude Oil
Commercial Discovery or a Non-Associated Gas Commercial Discovery. Under no
circumstances shall a Production Bonus be due in respect of both Crude Oil and Non-
Associated Natural Gas for the same Commercial Discovery.
32.11 No bonus or Capacity Building Payment due pursuant to this Article 32 shall be
deemed to be a Petroleum Cost.
ARTICLE 33-PIPELINES
33.1 The GOVERNMENT shall obtain any required Permits for the transportation of
Petroleum in the Kurd)sun Region and in Iraq, as well as any necessary Permits and
easement rights for the construction of any pipelines and related facilities required for
the Petroleum Operations, as provided in Article 332.
33 2 The GOVERNMENT undertakes to transfer to the CONTRACTOR its rights for
transportation of Petroleum by pipeline The CONTRACTOR shall have the right to
design, construct, operate and mainum pipelines and any related facilities for the
transportation of Petroleum produced under this Contract.
72
33.3 Prior lo the construct ton of any pipeline and related facilities as provided in Article
33.2. the CONTRACTOR shall submit following information to the Management
Committee:
(a) proposed pipeline route and related facilities.
(b) forecasted pipeline How rate and capacity;
(c) estimate of financial investment and operating costs of the pipeline and related
facilities;
(d) proposed financing schedule;
(e) construction schedule;
(f) general technical description of the pipeline and related facilities;
(g) construction plans and tests:
(h) preventive measures for damage to the environment and third parties; and
(i) any other information relating to the pipeline project.
The Management Committee shall examine all the above information and 'hall within
ninety (90) days, approve the proposed pipeline project in accordance with the
provisions of Article 8.5.
33.-1 Subject to spore capacity bang available and to their Petroleum being compatible,
third parties shall be entitled to transport then Petroleum through any pipeline
constructed by the CONTRACTOR in accordance with this Article 33 on terms to be
agreed between the CONTRACTOR and such third party. Those terms shall be
reasonable commercial terms and shall not discriminate among third party users. The
CONTRACTOR shall always have priority of access to such pipelines.
33.5 To the extent that they arc incurred upstream of the Delivery Point, any costs
associated with the design, construction, operation and maintenance of the pipelines
and related facilities by CONTRACTOR under this Article 33 ( Pipeline Costs )
shall be considered Petroleum Costs and shall be recoverable by the
CONTRACTOR in accordance with the provisions of Articles I and 25.
33.6 The CONTRACTOR shall have the absolute right, without any exceptions and for
the entire duration of this Contract, to use. free of charge, any pipeline and related
facilities constructed by CONTRACTOR under this Article 33 and to transport
Petroleum produced from any Production Area and to operate and maintain any
pipeline and its related facilities, freely and without any additional costs.
33.7 To the extent related lo transportation upstream of the Delivery Point, any tariffs
received from third parties for use of any pipeline and related facilities by
CONTRACTOR under this Article 33 shall be applied to the recovery of Petroleum
Costs until all Pipeline Costs have been fully recovered by the CONTRACTOR
pursuant to the provisions of Articles I and 25 and shall nor be included in income for
73
corporate income to purposes Ike GOVERNMENT shall be entitled io receive
when'll said Pipeline CostTTsve been fullynreovcred b>*Uto CONTACTOR The
costs associated with providing such transportation services for third parties up to the
Delivery Point shall be considered Pipeline Costs and therefore Petroleum Coos and
shall be recoverable by the CONTRACTOR in accordance with the provisions of
Articles I and 25.
33.8 Upon recovery by the CONTRACTOR of all (he Pipeline Costs, the operating and
maintenance costs of any pipeline and its related facilities shall be borne by the
CONTRACTOR and shall be considered Petroleum Costs and shall be recoverable
by the CONTRACTOR in accordance mth the provisions of Articles I and 25.
33.9 The GOVERNMENT shall have the same nghts as the CONTRACTOR for use.
free of charge, of any pipeline and related facilities constructed by CONTRACTOR
under this Article 33 for the transportation of the share of Petroleum to which die
GOVERNMENT is entitled under this Contract up to the Delivery
33 10 The CONTRACTOR shall bear the cost of operation and maintenance of any
pipeline and related facilities constructed by CONTRACT OR under this Article 33
and all risks of accidental loss or damage to such pipeline and related facilities while
they are required for Petroleum Operations.
ARTICLE 34 - UNTTISATION
In the event a Reservoir extends beyond the Contract Area into an adjacent area uhich is the
subject of another Petroleum Contract (as defined by the Kurdistan Region Oil and Gtt l aw)
(an "Adjacent Contract Area"), or in the event a Reservoir of an Adjacent Contract Area
ex lends into the Contract Area, the provisions of Article 47. Paragraph Second of the
Kurdistan Region Oil and Gas Law shall apply and the GOVERNMENT shall require the
CONTRACTOR and the contractor of the Adjacent Contract Area to agree upon a schedule
for reaching agreement of the terms of the un-tivition of the Reservoir, which terms shall be
based on reliable technical, operational and economical parameters, all in accordance with
prudent international petroleum industry practice In the event that the Minister of Natural
Resources decides the unilisaUoo pursuant to Article 47. Paragraph Third of the Kurdistan
Region Oil and Gas Law. and if the CON IRACTOR docs not agree with the decision of the
Minister of Natural Resources, the CON I RACTOR shall be entitled to arbitration pursuant
to the provisions of Article 42.1.
ART 1C LE 33 LIABILITY AND INSURANCE
Liability
35.1 Subject to the other provisions of this Contract, the COM RACTOR. in its capacity
as foe entity responsible for the execution of the Petroleum Operations within foe
Contract .Area, shall be liable to third panics to foe extent provided under Applicable
74
r>«wfcir»*vi Sharing Contract - .tyr»
Law fo» any losses and damage il may cause lo them in conducting the Petroleum
Operations
35.2 Notwithstanding the other provisions of this Contract, the CONTRACTOR will not
be liable to the GOVERNMENT or the Public Company or other government
agencies, authorities or bodies, courts or political subdivisions for any damage or low
or claims of any kind resulting from the CONTRACTOR’, conduct of the Petroleum
Operations (other than personal injuries, industrial illness, or death), unless such
damage or loss is the result of wilful misconduct or a material failure to conduct
Petroleum Operations in accordance with the terms of this Contract
35.3 The CONTRACTOR shall indemnity the GOVERNMENT against nil losses,
damages uml liability arising under any claim, demnnd. action or proceeding brought
or instituted against the GOVERNMENT by any:
(i) employee of the CONTRACTOR or of any Subcontractor or by any
dependent thereof, for personal injuries, industrial illness, death or damage to
personal property sustained in connection with, rclutcd to or arising out ol the
performance or non-performance of this Contract regardless of the fault or
negligence in whole or in part of any entity or individual other than the
GOVERNMENT; and
(it) a with respect to all claims for loss or damage made by third parties arising out
of or related to Petroleum Operations
The GOVERNMENT will retain control ova the defence o«. and any rootuiwn or
settlement relating to. such km or damage Tlie CONTRACTOR stall cooperate with
the GOVERNMENT and provide reasonable assistance m defending any claims
against the GOVERNMENT The CONTRACTOR may participate in such defence
at its cost and expense and will be entitled to be consul ted poor to any settlement A
claim set forth m a notice from the GOVERNMENT to the CONTRACTOR will be
conclusively deemed an indemnifiable loss, damage, or expense if (i) the
CONTRACTOR consents thereto, or (it) the CONTRACTOR fails to depute the
GOVERNMENT’S liability, m whole or in part, by the end of a thirty (30) day period
follow mg receipt of the notice from the GOVERNMENT the CONTRACTOR shall
promptly pay the deemed loss or expense on demand
35 4 The CONTRACTOR shall take all necessary steps lo respond to. and shall promptly
notify the GOVERNMENT of. all emergency and other cvcntt (including personal
injuries, explosions, leaks and spills), occurring in relation to the Petroleum
Operations which arc causing or likely to cause material environmental damage or
material risk to health and safety. Such notice shall include » summitry description of
the circumstances and steps taken und planned by the CONTRACTOR to control and
remedy the situation The CON I RACTOR shall provide such additional reports to
the GOVERNMENT as arc reasonably necessary in reaped of the effects of such
events and the course of all actions taken to prevent further loss and lo mitigate
deleterious effects.
35 5 In the event of emergency situations as set out in Article 35.4, at the request of the
CONTRACTOR, the GOVERNMENT, without prejudice and in addition to any
75
Sluirtilt < ‘mirtu-i - Saf>m
indemnification obligations the GOVERNMENT may have, shall assist the
CONTRACTOR, to the extent possible, in any emergency response, remedial or
repair effort by making available any labour, materials and equipment 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 Petroleum Costs and shall be recoverable by the C ONTKACTOR in
accordance with the provisions of Articles I and 25.
35.6 Except as expressly provided in the Contract, neither Putty shall Ik liable to the other
Party under the Contract for or in respect of any indirect, incidental, consequential or
exemplary loss or damages, including without limitation and with respect to the
< ON IK ACTOR, any liability or damages with respect to actual or alleged damage
to any Petroleum reservoir falling within the Contract Area (and uny extension of
such reservoir outside of the Contract Area), and uny associated loss of Petroleum
production from such reservoir by the CONTRAC TOR, unless caused by the wilful
misconduct or gross negligence of the CONTRACTOR
liiMiraim;
35.7 In accordance with prudent international petroleum industry practice, the
CON TRACTOR shall obtain and maintain any insurance required by applicable
Kurdistan Region l aw. as well as any insurance approved by the Management
Committee.
Such insurance policies may cover
(a) loss of and damage to material and equipment used in the Petroleum
Operation*; and
(b) personal injury, damage to third parties and risks of pollution associated with
Petroleum Opo*tion> for reasonable amounts, within the limits approved by
the Management Committee.
35.8 Any insurance policy relating to this C ootract shall name the GOVERNMENT as an
additional insured party and shall include a waiver of subrogation protecting the
GOVERNMENT against any claim, loss and damage resulting from any Petroleum
Operation conducted by or on behalf of the CONTRACTOR under this Contract, to
the extent that the CONTRACTOR is liable for such claim, loss or damage under
this Contract. The CONTRACTOR shall not be liable for and shall not purchase
insurance cover for any claims arising from negligence or wilful misconduct of the
GOVERNMENT or of any Public Company or of any of their respective
subcontractors or personnel
35.9 Upon its written request, the GOVERNMENT shall be provided with insurance
certificates, including necessary details, for any insurance policy maintained by the
CONTRACTOR which relates to this Contract
76
PimbirUm .Vni'iHg Contrarl-S>\frti
35.10 Each CONTRACTOR Entity shall be responsible for the tiling of all claims made
under any insurance policy maintained by such CONTRACTOR Entity which relates
to this Contract Any premiums and payments relating to such insurance policies
(other than political risk insurance) shall be considered Petroleum Costs and shall Ik
recoverable by the CONTRACTOR in accordance with the provisions of Articles I
and 25.
35.11 In any insurance policy maintained by a CONTRACTOR Entity which relates to this
Contract, the amount lor which the CONTRACTOR itself is liable (the “Deductible
Amount") shall be reasonably determined between the CONTRACTOR Entity and
the insurer and such Deductible Amount shall in the event of any insurance claim be
considered a Petroleum Cost and shall be recoverable by the CONTRACTOR in
accordance with the provisions of Articles I and 25.
ARTICLE 36 INFORMATION AND CONFIDENTIALITY
36.1 The CONTRACTOR shall keep all records, data and information relating to the
Petroleum Operations in accordance with the Kurdistan Region Oil and Gas I aw and
prudent international petroleum industry practice. In addition, it shall provide the
GOVERNMENT with such information and data as it is obliged to provide under
(his Contract.
36.2 Upon the GOVERNMENT'* written request, the CONTRACTOR ball pros uic the
GOVERNMENT with samples of any rocks or any other items extracted during the
Petroleum Operations.
36.3 The GOVERNMENT shall have title to all data and information, whether raw.
derived, processed, interpreted or analysed, obtained pursuant to this Contract
36.4 Each CONTRACTOR Entity shall have the right, without any limitation, to send
Abroad Copies of all reports and technical data, magnetic tapes and other data relating
to the Petroleum Operations. Magnetic tapes or other data, the original of which must
be analysed and processed Abroad, may Ik transported out of the Kurdistan Region.
36.5 Any representatives authorised by the GOVERNMENT and notified to the
CONTRACTOR shall, upon reasonable prior written notice, have reasonable access
to any information and data relating to the Contract Area in the possession of the
CONTRACTOR which the CONTRACTOR is obliged to provide to the
GOVERNMENT pursuant to this Contract It is understood that, when exercising
such right, the GOVERNMENT shall ensure it docs not unduly interfere with or
hinder the CONTRACTOR'S rights and activities.
36.6 The CONTRACTOR shall provide the GOVERNMENT upon the
GOVERNMENT'S written request any analysis information, reports, tapes or other
data (geological, geophysical, logs, interpretations, drilling reports, etc.) related to the
Petroleum Operations in the possession of the CONTRACTOR All available
originals of such data shall be transferred to the GOVERNMEN T at the end of this
Contract
77
36.7 A pan from the exceptions stated in this Article 36. the Parties undertake to keep all
data and information relating to this Contract and the Petroleum Operations
confidential during the entire term of this Contract and not to divulge or disclose such
data or information to third parlies without the specific consent of the other Parties,
such consent not to be unreasonably withheld or delayed. Hk foregoing
confidentiality obligation shall not apply to information or data which
(a) is or. through no fault of any Party, becomes part of the public domain;
(b) is known to the recipient at the dale of disclosure.
(c) is required to be famished in compliance with any Law applicable to it, by a
government agency having jurisdiction over such Party or its Affiliates, by a
court order or any other legal proceedings with jurisdiction over such Party or
its Affiliates, or
(d) is required to be disclosed pursuant to the rales or regulations of any
government or recognised stock exchange having jurisdiction over a
CONTRACTOR Entity or its Affiliates.
36.8 Notwithstanding the foregoing in Article 36.7, in accordance with prudent
international petroleum industry practice, such data and information may be disclosed
to;
(a) Affiliates of each CONTRACTOR Entity;
(b) employees, officers and directors of each CONTR ACTOR Entity and their
respective Affiliated Companies for the purpose of the Petroleum Operations,
subject to each such entity taking customary precautions to ensure such
information is kept confidential;
(c) consultants or agents retained by any CON I RACTOR Entity or its Affiliates
for the purpose of analysing or evaluating information or data;
(d) banks or financial institutions retained by any CONTRACTOR Entity or its
Affiliates with a view to financing Petroleum Operations, including any
professional consultants retained by such bonk or financial institution;
(c) bona fide prospective assignees of a participating interest under this Contract
(including any entity with whom a CONTRACTOR Entity and'or its
Affiliates are conducting bona fide negotiations directed towards a merger,
consolidation or the sale of a material portion of its or an Affiliates shares);
(0 prospective or actual Subcontractors and suppliers engaged by a Party where
disclosure of such information is essential to such Subcontractor's or
supplier's work for such Party- and
(g) any other Person or entity, upon the prior written approval of the non-
disclosing Parties.
78
provided that disclosure shall not be made pursuant to paragraphs (c). (d». (e) and (f).
unless such third party lias entered into a confidentiality undertaking.
36.9 Any dutu and information relating to relinquished or surrendered areas under this
Control shall hccomc the exclusive property of the GOVERNMENT, who shall
have the right to use same for any puiposc, in particular for the purpose of promoting
said areas Each CONTRACTOR Entity shall be entitled to keep copies of such data
and information and to use such data and information for any purpose.
36.10 Subject to the provisions of this Article 36. the CONTRACTOR may not sell nor
exchange any data related to the Petroleum Operations without the approval of the
GOVERNMENT, which approval shall not be unreasonably withheld or delayed
where, in the CONTRACTOR’S reasonable opinion, such sale or exchange would
benefit the Petroleum Operations.
ARTICLE 37 - ENVIRONMENTAL PROVISIONS
37.1 During the performance of the Petroleum Operations, the CONTRAXTOR shall take
reasonable measures to ensure that it. the Operator, its Subcontractors and agents
attend to tin: protection of the environment and prevention of pollution, in accordance
with prudent international petroleum industry practice in similar physical and
ecological environments and any then applicable Kurdistan Region I .aw.
37.2 Prior to surrendering a portion of the Contract Area, the COVER ACTOR shall lake
reasonable measures to abandon the area to be surrendered in accordance w ith prudent
international petroleum industry practice in similai physical and ecological
environments. Such measures shall include removal o* closure in place of facilities,
material and equipment together with reasonable measures necessary for the
preservation of fauna, flora and ecosystems, all in accordance with prudent
international petroleum industry practice in similar physical and ecological
environments. The CONTRACTOR shall only be responsible for site restoration or
environmental damage to the extent the same pertains solely and directly to Petroleum
Operations conducted pursuant to this Contract.
37J The CONTRACTOR shall take reasonable precautions and measures in accordance
with prudent international petroleum industry practice in similar physical and
ecological environments to prevent any pollution which may arise directly as a result
of the Petroleum Operations and to protect the environment (fauna and flora), water
sources and any other natural resources when carrying out Petroleum Operations
37 4 The CONTRACTOR 'hall, in accordance with prudent international petroleum
industry practice in similar physical and ecological environment*, respect the
preservation of property, agricultural areas, and fisheries, when carrying out
Petroleum Operations.
J7.5 The CONTRACTOR shall conduct and submit an environmental impact assessment
to the GOVERNMENT within twelve (12) months after the Effective Date
79
Sharing Contract ■ Safai
yrt\m\l rnrka Hl«d Na>urc Reserve AK«S
37.6 I'hc CONTRACTOR shall lake reasonable measures lo minimise any adverse
material impact on national parks and nature reserves which may arise directly as a
result of the Petroleum Operations, in accordance with prudent international
petroleum industry practice in similar physical and ecological environments.
37.7 The GOVERNMENT: (i) represents and warrants that, on the Effective Date, there
arc no national parks, nature reserves or other protected arcus located in whole or in
part within the Contract Area where the CONTRACTOR shall not be entitled to
carry out Petroleum Operations and (it) covenants that during the term of this
Contract will not designate or create or permit the creation of any national parks,
nature reserves or other protected areas, located in whole or in purl within the
Contract Area.
F*l/VIHllHim
37.8 Any reasonable expenditure incurred by the CONTRACTOR in relation with this
Article 37 shall be deemed Petroleum Costs and shall be recoverable by the
CON TRACTOR in accordance with the provisions of Articles I and 25
i!re-exi5tlm? Conditions
37 9 The CONTRACTOR is not responsible for any pre-existing environmental
conditions or any acts of unrelated third panics
ARTICLE 38 - DECOMMISSIONING
38.1 To enable the CONTRACTOR to recover the costs associated with tuturc Contract
Area Decommissioning Operations under this Contract, the CONTRACTOR shall
have the right to establish a reserve fund for future decommissioning and site
restoration (a "Decommissioning Reserve Fund"). The Decommissioning Reserve
Fund may be established at any time during the final ten (10) Calendar Years of the
term of the Production Operations of a Production Area hut, upon the reasonable
request by the CONTRACTOR, the GOVERNMENT shall allow the
CONTRACTOR to establish such fund over a longer period. Once established, the
CONTRACTOR shall make regular contributions to the Decommissioning Reserve
Fund bused upon estimated Petroleum Field decommissioning and site restoration
costs in accordance with prudent international petroleum industry practice, and taking
into account interest received and future interest expected lo be earned on the
Decommissioning Reserve Fund. Any contributions by the CONTRACTOR to the
Decommissioning Reserve Fund shall be made in Dollars and shall be deemed
Petroleum Costs when paid into the reserve fund, and shall be recoverable by the
CONTRACTOR in accordance with the provisions of Articles I and 25.
Contributions to the Decommissioning Reserve Fund shall be placed with a first rate
bunk approved by the Management Committee in accordance with Article 8,5.
80
Prothctu* Owing Contract • Sa/m
38.2 If. at the etui ol the term of the Production Operations of the Production Area, the
GOVERNMENT decides to take over production operations in the Production Area:
(n) the GOVERNMENT shall become liable for its future Decommissioning
Operation*;
(b) the contributions and any interest accumulated in the Decommissioning
Reserve l und. to the extent that such contributions have been recovered us
Petroleum Costs, shall be paid to the GOVERNMENT; and
(C) the GOVERNMENT shall release the CONTRACTOR and the
CONTRACTOR Entities from any obligations relating to Decommissioning
Operations and shall indemnify the CONTRACTOR und the
CONTRACTOR Entities for any costs, liabilities, expenses, claims or
obligations associated therewith.
38.3 If the CONTRACTOR undertakes the Production Area Decommissioning
Operations, the contributions and any interest accumulated in the Decommissioning
Reserve Fund shall be paid to the CONTRACTOR and shall be used for the
Decommissioning Operations The CONTRACTOR shall undertake any such
Decommissioning Operations in accordance with prudent international petroleum
industry practice in similar physical and ecological environments.
38.4 If the Decommissioning Reserve Fund is paid to the CONTRACTOR and the
Decommissioning Reserve Fund is not sufficient to cover all Decommissioning Costs
for the Contract Area, the balance shall be paid by the CONTRACTOR and ma> be
recovered, if applicable, by the CONTRACTOR Entities or any of their Affiliates
from any other area which is the subject of another Petroleum Contract (as defined by
the Kurdistan Region Oil and Gas Law) anywhere in the Kurdistan Region and. to the
extent the balance is not recoverable as aforesaid, such remaining balance shall be
paid by the GOVERNMENT to the CONTRACTOR
38 5 If the Decommissioning Reserve Fund is paid to the CONTRACTOR and the
Decommissioning Reserve Fund exceeds all Decommissioning Costs for the Contract
Area, the balance shall be transferred to the GOVERNMENT.
38.6 Any expenditure inclined by the CONTRACTOR in relation with this Article 38.
including any contributions to the Decommissioning Reserve Fund, shall be deemed
Petroleum Costs and shall be recoverable by the CONTRACTOR in accordance with
the provisions of Articles I and 25.
38.7 The CONTRACTOR shall submit to the Management Committee for approval in
accordance with Article 8 5 a detailed plan for decommissioning the Contract Area
facilities and site restoration (the "Decommissioning Plan"), such Decommissioning
Plan to be submitted no later than twenty four (24) Months prior to the date estimated
by the CONTRACTOR for the end of Commercial Production from the Contract
Area. The Management Committee shall provide comments, if any. on the
Decommissioning Plan within ninety (90) days after receipt. The C ON I RACTOR's
completion of the Decommissioning Operations in accordance, in all material
respects, with the Decommissioning Plan for a Production Aren approved by the
81
Management Committee shall satisfy all of the CONTRACTOR'S obligations with
respect to the performance of Decommissioning Operations for such Production Area.
In the event the GOVERNMENT docs not agree that Decommissioning Operations
for a Production Area were carried out in accordance with the approved
Decommissioning Plan, it must advise the CONTRACTOR within six (6) months of
CONTRACTOR'S completion of such operations.
ARTICLE 39 - ASSIGNMENT AND CHANGE OF CONTROL
Assignment to Affiliates
39.1 Each CONTRACTOR Entity shall be free to sell assign, transfer or otherwise
dispose of all or part of its rights, obligations and interests under this Contract to an
Affiliated Company or to another CONTRACTOR Entity with the prior consent of
the GOVERN\1 F.NT. which consent shall not be unreasonably delayed or w ithhcld
Assignments by CON TRACTOR Entities
39.2 Articles 39 2 through 39.6 do not apply to holders of the Government Interest in
respect of the Government Interest. The consent of any bolder of the Government
Interest, in its capacity as bolder of all or pan of the Government Interest is not
required for any sale, assignment transfer, or other disposal of all or part of its rights
and interests under this Contract
39.3 Without prejudice to Article 39.1, each CONTRACTOR Entity shall have the right
to sell, assign, transfer or otheiwisc dispose of all or p.iri of it' rights and interests
under this Contract (directly or indirectly) to any Person which is not an Affiliated
Company (an "assignee") only with the prior consent of GOVERN VIEN'I and each
Other CONTRACTOR Entity. The GOVERNMENT and the other Contractor
Entities shall not unreasonably delay or refuse to provide such consent. The
GOVERNMENT consents to any transfers (direct or indirect) by Marathon to any
wholly owned (directly or indirectly) subsidiary of the ultimate parent company of
Marathon, subject to the signing of applicable assignment and novation
documentation.
39.4 No CONTRACTOR Entity is entitled to sell, assign, transfer or otherwise dispose of
all or part of its rights and interests under this Contract (directly or indirectly) if such
assignment will, to such Contractor Entity's knowledge based on reasonable due
diligence, constitute or he a part of a Prohibited Act
39.5 Any CONTRAC TOR Entity proposing to sell, assign, transfer or otherwise dispose
of all or part of its rights and interests under this Contract shall request consent from
the GOVERNMENT and. together with such request for a consent, provide the
GOVERNMENT with:
(a) evidence of the technical and financial capability of the proposed assignee and
its controlling (directly or indirectly) shareholders;
and cooler* wxvpobk to the GOV I RNMENT: and
(c) a letter of representation from the assignor m form and content satisfactory to
tbe Government, including a representation that the proposed assignment will
not (i) to the knowledge of tuck CONTRACTOR Entity after reasonably
diligent investigation, constitute or be a part of a Prohibited Act or (ii) violate
any Comipl Practices I iws applK-able to the CONTRACTOR Entity
An assignee of any CONTRACTOR Entity will have the rights, obligations, and
liabilities of the CONTRACTOR under, and be subject to. this Contract.
39.6 In order for any deed of sale, direct alignment, direct transfer or other direct disposal
as provided undo Articles 39.1 of 39.3 to be effective, the Panics and the relevant
third parry, if any. shall enter into a binding and enforceable instrument of assignment
and novation, which shall include an undertaking by the transferee or assignee to fulfil
the obligations imfcr this Contract which correspond to tbe interest transferred or
39.7 In the event a CONTRACTOR I ntity amigos or in am other way transfers its rights
and interests under this Contract whether in whole or m pan. such assignment or
transfer shall trot give rise to any Tax. including on the consideration paid or received
or on the income or gam therefrom
39,K Except as provided in Article 'I in respect of the Government Interest, the
GOVERNMENT may not m any time transfer any or all of its rights and obligations
under this Contract to any Person, including to a Public Company or any other
company or entity.
( hatiitc of Control
39.9 "Change of Control" means any direct or indirect change of the identity to the
Person who Controls a CONTRACTOR Entity (whether through merger, sale of
shares or of other equity interests, or otherwise) through 3 single transaction or series
of transactions, from one or more transferors to one or more transferees, in which the
market value of such CONTRA( TOR Entity's participating interest (which shall be
as specified in the Joint Operating Agreement relating to this Contract) or where there
is only one CONTRACTOR Entity, one hundred percent (100%) in this Contract
represents more than seventy five percent (75%) of the aggregate market value of the
assets of such entity and its Affiliates that arc subject to the Change in Control. For
(he purpose of this definition: "Control" means the direct or indirect ownership or
control of the majority of the voting rights of the applicable entity at its shurcholdent’
meetings or their equivalent; and "markcl value” shall be determined based upon the
amount in cash a willing buyer would pay a willing seller in an Arm's Length
transaction.
Each CONTRACTOR Entity which is or anticipates with a reasonable degree of
certainty that it will be subject to u Change in Control, other than to an Affiliated
(«-*(• S<*n
Company or ■ CONTRACTOR Entity. shall notify the GOVERNMENT as *oon as
practicable after it become* aware of the Change in Control or anticipated Change in
Control and rexpicst the consent of GOVERNMENT, which content shall not be
unreasonably delayed or withheld
A Change in Control shall not give rise to any Tax including on the consideration
ARTICLE 40-FORCE MAJEI RE
40 I No delay, default, breach or omisswn of the CONTRACTOR in the execution of any
of its obligations under this Contract shall be considered a failure to perform this
('online! <>i he the subject of a dispute if such delay, dcl.iuli. breach or omission is due
to ii mse of l orce Majcuit. In such event the C ON7RAC I OR hall promptly notify
the GOVERNMENT in writing and take all reasonably appropriate measures to
perform its obligations under this Contract to the extent possible. The time resulting
from any such delay or curtailment in the execution of such obligations, increased by
the time necessary to repair any damage resulting from or occurred during such delay
01 curtailment, shall be added to any time period provided under this Contract
(including the Exploration Period und any extension thereto, any Sub-Period and any
extension thereto and any Development Period and any extension thereto). I he Parties
shall meet as soon as possible after the notification of Force Majeuro with a view to
using reasonable endeavours to mitigate the effects thereof.
40 2 For the purpose of this Contract. “Force Majeare means any event that is
CONTR ACTOR but due to circumstance* beyond its control, which prevent* or
impedes execution of all o* part of its obligations under this Contract Such events
shall include the folkmmg
(a) war. whether declared or not. civil war. insurrection, not*, civil commotion,
terrorism, any other hostile acts, whether internal or external;
(b) stnkcs or other labour conflicts;
(c) accidents or blowouts;
(d) quarantine restriction* or epidemics;
(e) any act. event, happening or occurrence due to natural cauacx. in particular,
but without limitation, floods, storms, cyclones, fires, lightning, canhquakcv
(0 environmental restriction*. w hicfa the GOVERNMENT has not notified to the
CONTRACTOR;
(g) except in respect of the GOVERNMENT and any Public Company, any acts
or orders of the GOVERNMENT, ony minister, ministry, department, sub-
84
Ptvducthn Sharing Contract - $qfm
division, agcncy. aulbonly. council, committee, of other constituent element
thereof, or any corporation controlled by the any of the foregoing; and
(h) any acts or orders of any other government claiming or asserting jurisdiction
over the subject matter of this Contract, any minister, ministry , department,
subdivision, agency, authority, council, committee, or other constituent
element thereof, or any corporation controlled by any of the foregoing
JOJ The intention of the I’artics is that Force Majeure shall receive the mtciprclntion that
complies most with prudent international petroleum industry practice. Force Mujeure
affecting 11 CONTRACTOR Entity or an Affiliated Company of a CONTRACTOR
Entity shall be deemed Force Majeurc affecting the CONTRACTOR it the
consequence of such Force Majeure prevents the performance of any of the
CONTRA! I OK's obligations under this Contract. The application or potential
application of any l.aw applicable to a CONTRACTOR Entity or any of its
Affiliates, other than Laws of the Kurdistan Region or other Laws of the Republic of
Iraq, which could result in a criminal or civil penalty 01 sanction is not Force Majeure.
Alt I ICI.E 41 - WAIVER OF SOVEREIGN IMMUNITY
Except in respect of any Dispute (i) arising out of or related to Article 4.11 or (ii) with respect
to Article 4 between the GOVERNMENT and any holder of a Government Interest, the
GOVERNMENT hereby fully and irrevocably waives any claim to immunity for itself or
any of its assets
This waiver includes any claim to immunity from:
(a) any expert determination, mediation, or arbitration proceedings commenced pursuant
to Article 42;
(b) any judicial administrative or other proceedings to aid the expert determination,
mediation, or arbitration proceedings commenced pursuant to Article 42; and
(c) any effort to confirm, enforce or execute any decision, settlement, award, judgment
service of process, execution order or attachment (excluding pre-judgment
attachment) that results from an expert determination, mediation, arbitration or any
judicial, administrative or other proceedings commenced pursuant to this Contract.
ARTICLE 42 - ARBITRATION AND EXPERT DETERMINATION
42.1 For ihe purpose of this Article 42.1, "Dispute" shall mean any dispute, controversy or
claim (of any and every kind or type, whether based on contract, tort, statute,
regulation or otherwise) arising out of, relating to. or connected with this Contract or
the operations carried out under this Contract, including any dispute us the
construction, existence, validity, interpretation, enforceability, breach or termination
K5
of this Contract, which arises between any of the Parties (or between any one or more
Parties and the GOVERNMENT).
In the event of a Dispute, the parties to the Dispute shall use their reasonable
endeavour' to negotiate promptly in good faith a mutually acceptable resolution ot
such Dispute
Subject to the provisions of Article 42.2, a Party who desires to submit a Dispute for
resolution which has not been promptly resolved as aforesaid shall commence the
dispute resolution process by providing each other Party that is a party to the Dispute
with a written notice of the Dispute (a “Notice of Dispute"). The Notice of Depute
shall identify the parties to the Dispute, contain a bnef statement of the nature of the
Dispute and the relief requested and request negotiations among the Senior
Representatives of the parties to the Dispute
(a) In the event that any Notice of Dispute is given in accordance with this Article
42.1. the parties to the Dispute shall first seek settlement of the dispute by
negotiation between Senior Representatives. "Senior Representative" means
any individual who has authority to negotiate the settlement of the Dispute for
a party to the Dispute, which for the GOVERNMENT shall mean the
Minister of Natural Resources. Within thirty (30) days after the date of
delivery of the Notice of Dispute, the Senior Representatives representing the
parties to the Dispute shall meet at a mutually acceptable date, tune and place
lo exchange relev ant information in an attempt to resolve the Dispute. If a
Senior Representative intends to be accompanied at the meeting by a legal
adviser, each other party shall be given written notice of such intention and its
Senior Representative may also be accompanied at the meeting by a legal
adviser.
(b| If the Dispute cannot be resolved by negotiation in accordance with Article
42.1 (a) within sixty (60) days after the date of the receipt by each party to the
Dispute of the Notice of Dispute or such further period as the parties to the
Dispute may agree in writing, any party to the Dispute may seek settlement of
ilie dispute by mediation in accordance with the London Court of International
Arbitration ("LC'IA") Mediation Procedure, which Procedure shall be deemed
to bo incorporated by reference into this Article, and the parties to such
Dispute shall submit to such mediation procedure.
(c) If the Dispute is not settled within the earlier of (A) sixty (60) days of the
appointment of the mediator, or such further period as the parties to the
Dispute may otherwise agree in writing under the mediation procedure under
Article 42.1 (b), and (II) one hundred and twenty (120) days after the delivery-
of the Notice ol Dispute, any party to the Dispute may refer the Dispute to.
and seek final resolution by. arbitration under the LC1A Rules, which Rules
shall be deemed to be incorporated by reference into this Article.
(i) Any arbitration shall be conducted by three (3) arbitrators.
(ii) If the parties to the Dispute are the GOVERNMENT and all the
CONTRACTOR F.ntitics. the GOVERNMENT and the
86
Production Sharing Contract Saftn
CONTRACTOR shall each appoint one (1) arbitrator. If the parties to
the Dispute are the GOVERNMENT and more than one. but not all
the CONTRACTOR Entities, the GOVERNMENT shall appoint one
(I) arbitrator and such CONTRACTOR Entities shall appoint one (1)
arbitrator. If the parties to the Dispute arc the GOVERNMENT and
one CONTRACTOR Entity, the GOVERNMENT and such
CON TRACTOR Entity shall each appoint one <1) arbitrator.
(iii) In uny event, the two arbitrators so appointed shall, in good faith, use
all reasonable endeavours to agree on the appointment of the third
arbitrator, who will chair the arbitral tribunal. In ease of failure to
appoint .in arbitrator or to agree on the appointment of the third
arbitrator. Rules of the LCIA shall apply.
(iv) The seat, or legal place, of arbitration shall be London, England. The
language to be used in any prior negotiation, mediation and in the
arbitration shall be English. During the arbitration procedure and until
the arbitral decision, the Parties shall continue to perform their
obligations and take no actions that would impair the Contract. The
arbitral award may be enforced by any court of competent jurisdiction,
including in the Kurdistan Region. Any award shall be expressed in
Dollars.
(v) The Parties agree that the arbitral award shall be final and not subject to
any appeal, including to the Courts of England on issue* of I aw.
Fu»n Deter mination
42.2 Any disagreement between the Parties relating to Articles 15.9. 27.2 and 27.7. as well
as any disagreement the Parties agree to refer to an expert, shall be submitted to an
expert. The Management Committee shall prepare and agree appropriate terms of
reference relating to a disagreement to be submitted to the expert, in accordance with
Article 8.5 (“Terms of Reference"), as soon as povablc after the Effective Date
(it) The disagreement shall be submitted to an expert appointed by mutual
agreement of the Parties within thirty (30) days following the date of
preparation and agreement of the Terms of Reference by the Management
Committee. If the Parties cannot agree on the choice of the expert w ithin such
thirty (30) day period, at the request of either Party, the expert shall be
appointed by the President of the Energy Institute in London. England Any
expert appointed must have the nccc"-iry qualifications for reviewing and
deciding on the subject matter of the disagreement
,b> The duties of the expert shall be stated in the Terms of Reference prepared and
agreed by the Management Committee. The Management Committee shall
promptly provide the expert with the agreed Terms of Reference relating to the
disagreement. Each Party shall have the light to give to the expert in writing
any information which it considers useful, provided it docs so within forty-live
(45) days after the expert’s appointment. Such information shall be provided
to the other Party at the same time and such other Party shall be entitled to
87
provide ihc first Party and th
item (30) da>» after receiving The expert
nght to review and verify any Itoa in his
(c> The expert shall render his decision wiihm forty-five (45) days of his receipt
of the Terms of Reference and the information referred to m Attack 42.2.
Subject to the provisions of Article 15 9. any decision of the expert shall be
final and shall not be subject to any appeal, except in the case of manifest
error, fraud or malpractice Any costs and expenses associated with the expert
determination shall be shared equally betw een the Panics.
42 3 No or expert determination procedure
Article 42 shall the Parties from fulfilling
ARTICLE 43-GOVERNING LAW,FISCAL STABILITY. AMENDMENTS AND
VALIDITY
43.1 This Contract, including any dispute arising therefrom, thereunder or in relation
thereto and the agreement to arbitrate in Article 42. shall be governed by English law.
Limi-Stability
43.2 The obligations of the CT>NTR ACTOR in respect of this Contract shall not be
changed by the GOVERNMENT and the general and overall equilibrium between
Ihc Parties under this Contract shall not be affected n a substantial and lasting
43 J The GOVERNMENT guarantee* to the CONTRACTOR, for the entire iteration of
this Contract, that it wUI maintain the stability of the legal, fiscal and economic
conditions of this Contract, as they result from this Contract and as they result from
the Lows of the Kurdistan Region in force on the date of signature of this Contact
The C ONTRACTOR has entered into this Contract on the bast* of the legal, fiscal
and economic framework prevailing at the Effective Dale If. at any time after the
Effective Date, there is any change m the legal, fiscal and or economic framework
under the l aws of the Kunkslan Region or other Law* of the Republic of Iraq
applicable in or to the Kurdistan Region which detrimentally allccts the
CONTRACTOR, the CONTRACTOR Entities or any other Person entitled to
benefits under this Contract. Ihc terms and conditions of the Contract shall be altered
so as to restore the CONTRACTOR, the CONTRACTOR Entities and any other
Person entitled to benefits under this Contract to the some overall economic position
(taking into account home country taxes) as that which such Person would have bean
in. had no such change m the legal, fiscal and or economic framework occurred
88
SV'iiAiHifrui ('omraci - Safer*
43.4 If the CON TRAC* I OR believes that its economic position, or the economic position
of a CONTRACTOR Entity or any other Person entitled to benefit* under this
Contract, has been detrimentally affected as provided in Article 43 3. upon the
CONTRACTOR’S written request, the Parties shall meet to agree on any necessary
measures or making any appropriate amendments to the terms of this Contract to re¬
establishing the equilibrium between the Parties and restoring the CONTRACTOR,
the CONTRACTOR Entities or any other Person entitled to benefits under this
Contract to the position (taking into account home country taxes) it was in prior to the
occurrence of the change having such detrimental effect should live Parties be unable
to agree on the merit of amending this Contract and/or on any amendments to be
made to this Contract within ninety («X>) days of the CONTRACTOR’S request (or
such other period as may he agreed by the Parties), the CONTRACTOR may refer
the matter in dispute to arbitration as provided in Article 42.1, without the necessity of
first referring the mailer to negotiation and mediation.
43.5 Without pn|uduc to the generality of the foregoing, the CONTRACTOR shall be
entitled to the benefit of any future changes to the petroleum legislation or any other
legislation complementing, amending or replacing it.
43 6 I lie ParlicH agree to cooperate in all possible ways with u view to fully achieving the
objective* of this Contract. The GOVERNMENT shall facilitate the performance of
the Petroleum Operation* by promptly granting to the CONTRACTOR, on
application lUu loi in accordance with Applicable Law and within the scope of
A|>plicnhlc I iw. .my necessary authorisation, permit, licence or access right and
making available any existing facilities and services with a view to the Parties
obtaining maximum mutual benefit from the Contract
43.7 The GOVERNMENT and the CONTRACTOR may amend this Contract only by an
agreement of the GOVERNMENT and the CONTRACTOR that identifies itself as
an amendment to this Contract. A bolder of a Government Interest is not entitled to be a
patty to any agreement amending this Contract, unless the terms of such amendment
affect any right or obligation of such Party as a holder of all or part of the Government
Interest. The GOVERNMENT shall notify holders of the GOVERNMENT Interest of
any proposed amendments and signed amendments, and the CON TRACTOR will
have no obligation to notify holders of the GOVERNMtN I Interest of any proposed
amendments and signed amendments.
43 8 A Party may waive any condition or obligation of such Party in this Contract only by
a writing executed by such Party. A waiver made in writing on one occasion will be
effective only m that instance arid only for the purpose stated. A waiver once given is
not to be construed as a waiver era any future occasion. No waiver or amendment in
or contract, except at expressly set forth in such waiver or amendment.
No failure or delay by a Party in exercising any right hereunder, or rn requiring the
dealing between the Parties (or any other them), will operate as a waiver or estoppel
of any right or condition or any provision, right, or condition of this Contract.
Any single or partial exercise of a*y nght. power or remedy by a Party will not
preclude any other or future exercise thereof by such Party or the exercise by such
Party of any other right, pow er or remedy
Validity
4.1.9 As signatories to this Contract for and on behalf of the GOVERNMENT. iff?
Ministry of Natural Resources in the Kurdi'tan Region and the Regional Council
the Oil and Gas Affairs of the Kurdistan Region • Iraq represent that this Contrac
jpprmcd for the purposes of the Kurdistan Region Oil and Gas Law .
ARTICLE 44-NOTICES
44.1 All notices, demands, instructions, waivers, consents or other communications to be
provided pursuant to this Contract shall he in writing in English, shall be effective
upon receipt, and shall be sent by receipted hand delivery or by email (followed by
delivery by reputable international air courier company with an establishment in Elbtl
in the Kurdistan Region) to the following .iddrcsscN
To the GOVERNMENT:
Attention:
Mis Excellency the Minister ot Natural Resources
Address:
Ministry of Natural Resources
Kurdistan Regional Government
l.tbil, Kurdistan, Iraq
Email: mnrWkrgoil.com
To each CONTRACTOR Entity:
MARAT IION PETROLEUM KDV BA .
Attention Team Manager Legal
Address:
c/o Equity Coiporate Services
Equity Twit Co. N.V.
Stmwinskyluan 3105
Atrium 7th Moor 1077 ZX Amsterdam
The Netherlands
90
E
Marathon Oil Company
5555 San fetipe Road
Houston. Texas 77056. USA
Attention: Senior Vice President, World*tdc Exploration
Email: arbay'amarathuno.l com
and
spguidiy'
44.2 The above address and designated representative of any of the Parties may be changed
on giving ten (10) days poor notice to the other Party delivered pursuant to Article
44.1.
ARTICLE 45 - TERMINATION
45.1 The GOVERNM ENT undertakes to exercise its termination rights under this Article
of the triggering act or event the identity of the Person at fault, and the relative
significance of any adverse consequences to the CONTRACTOR or a
CONTRACTOR Entity that may arise from the GOVERNMENT • exercise of Ms
rights under this Article 45.
45.2 In any notice of termination given by the GOVERN ME NT under this Article 45. the
GOVERNMENT must specify the grounds for exercising the tcrmmatimi right and
the date on which the Contract or the rights and micro'' of a CON I AC l‘t>K Entity,
as applicable, will terminate.
45.3 If a competent authority has reasonably determined (in a proceeding applying Aie
process) that this Contract has been obtained by the CON I R At TOR. or any Person
acting on behalf of the CONTRACTOR, in violation ol ( ooupt Practices Laws,
then, on not less than thirty (30) days’ prior notice lo (he CONTRACTOR, the
GOVERNMENT may terminate this Contract Any (Inal dcscmunaiion. judgment
sanction, or conviction (not subject to further appeal on the i»»uc). including under a
consent order in which there is a finding or admission of guilt, of a judicial or
regulatory authority in the United States of America. England, or The Netherlands
with jurisdiction over a CONTRACTOR Entity or an At filiate of such
CONTRACTOR Entity, will be conclusively drtcnmnative If mich determination
has been made by an authority within Iraq, and the CONTRACTOR disputes such
determination by referring such Dispute to artntration within the 30-day notice period
(without regard to anv negotiation period in Article 42). the termination will be
suspended until there a an award under Article 42 m favour of the GOVERNMENT
91
Muffin* ' - -W™
Practices Laws. Unless the GOVERNMENT ha* cancelled a notice of termination
or. in Ihe ease of Ihc preceding sentence, a Dispute has been referred to arbitration in
accordance with Article 12, this Contract will be terminated as of the end of such
thirty (30) day notice period.
45.4 ir a competent authority has reasonably determined (in a proceeding applying due
process) that a permit, approval, consent or waiver in connection with this Contract or
Petroleum Operations has been obtained by the CONTRACTOR, or any Person
acting on behalf of the CONTRACTOR, in violation of Corrupt Practices Laws,
then, on not less than thirty (30) days' prior notice to the CONTRACTOR, the
GOVERNMENT may terminate the permit, approval, consent or waiver Any final
determination, judgment, sanction, or conviction (not subject to further appeal on the
issue), including under a consent order in which there is a finding or admission of
guilt, of n judicial or regulatory authority in the United state* of America. England, or
The Netherlands with jurisdiction over a CONTRACTOR Entity or an Affiliate of
such CONTRACTOR Entity, will be conclusively determinative
45.5
45.5.1 The GOVERNMENT may terminate this Contract, on not less than ninety
(90) days' prior notice, if tin; CONTR AC I OR
(a)
(b) during the First Sub-Period does not carry
acquisition, as detailed in Article 10.2 or. during the Second Sub-
Penod (or earlier), docs not carry out drilling and seismic acquisition,
as detailed m Article 10.3:
(c) Production for a period of i
days with no cause or.
Contract or under prudent international petroleum industry practice, it
being recognised that Force Majeure is an acceptable justification for
(d) unless such extraction or production is expressly authorised or
unavoidable as a result of operations earned out in accordance with
prudent international petroleum industry practice, extracts or produces
any mineral or object which is not covered by this Contract and docs
so wilfully or in a manner that constitutes gross negligence or
persistently after receiving notice thereof; or
(e) refuses to abide by any negotiation, mediation, arbitration or expert
decision under Article 42.
45 5 2 If. within the ninety (90Htoy nonce penod. the CONTRACTOR has either
remedied the default identified m such notice to the satisfaction of the
GOVERNMENT, or the GOVERNMENT has agreed another remedy with
the CONTRACTOR including compensation, the GOVERNMENT shall
92
ProdltClkm < 'imlrnrl - Sa/en
45.5.3 If. within such ninety (90)-duy notice period, the condition* set forth in Article
45.5.2 110vc not been sulisiicd, the GOVERNMENT may, on not less than
thirty (30) days' notice, terminate the Contract, and. unless such notice is
cancelled by the GOVERNMENT before the end of such thirty (30)-duy
period, this Contract will be terminated ns of the termination date set forth in
the notice from the GOVERNMENT.
45.6 Where the CONTRACTOR comprises only one CONTRACTOR Entity, the
GOVERNMENT may terminate the Contract on not less than forty five (45) days’
notice to such CONTRACTOR Entity following the occurrence of an Act of
Insolvency, unless, within such forty-five (45>
GOVERNMENT cancels its notice or the CONTRACTOR Entity has notified the
GOVERNMENT that the CONTRACTOR Entity has cured relevant Act of
Insolvency.
45.7 The rights and interests of an individual CONTRACTOR Entity will be
automatically terminated, without prior notice from the GOVERNMENT, if such
CONTRACTOR Entity:
(i) is subject to a Change of Control for which the GOVERNMEN T has not
given its authorisation in accordance with Article 39.9; or
(ii) has made an assignment of all or part of its interests hereunder without the
prior consent of the GOVERNMENT in accordance with Article 39
(including under any provision of a joint operating agreement).
45 X This Contract will terminate as provided in Article 6 and Ankle 7.
45.9 Upon termination or expiration of this Contract
(a) the CONTRACTOR (and each CONTRACTOR Entity) will no longer have,
as of the effective date of such termination, any further rights and interests
under this Contract.
(b) all accrued rights and liabilities of the CONTRACTOR and of each
CONTRACTOR Entity will survive.
(c) the provisions of Articles 14.10. 16.7, 30. 31. 35 I. 35.3, 35.4. 35.7. 36.
38.2(c). 41. 42. 43.1 to 43.6 will survive the termination or expiry of this
Contract
45.10 If the GOVERNMENT terminates the undivided interests or a CONTRACTOR
Entity, but not the Contract, and there arc remaining CONTRACTOR Entities:
(a) such terminated CONTRACTOR Entity will no longer have, as of the
effective date of such termination, any further rights and interests under this
Contract;
(b) all accrued rights and liabilities of such terminated CONTRACTOR Entity
will survive.
(c) a» to and ■ respect of such terminated CONTRACTOR Entry, the
provisions of Articles 14.10. 16.7. 30. 31. 35.1. 35J. 35 4. 35.7. 36. 38 2.
41.42.43 I to 43 6 will survive the termination or expiry of this (. cam
45.11 If the undivided interests of a CONTRACTOR Entity (or of CONTRACTOR
Entities) arc terminated, but the Contract is not terminated and there are remaining
CONTRACTOR Entities, the GOVERNMENT may oiler, on not less than 15 days’
pnor notice from the GOVERNMENT to the other CONTRACTOR Entities, to
assign and novate such terminated CONTRACTOR Entity’s participating mterst. or
anv part thereof, to the remaining CONTRACTOR Entities on such terms and in
such amounts as the GOVERNMENT may determine The GOVERNMENT has no
obligation to make such allocation and may retain the terminated interest, provided
that the GOVERNMENT will use reasonable endeavours to find a new buyer lor
such interests
45.12 No assignment, novation, transfer, or other diapoation of a terminated
CON I RACTOR Entity’s undivided interests to another CONTRACTOR Entity
pursuant lo this Article 45 will be a taxable event under Applicable Law ns to the
CONTRACTOR Entity receiving the undivided interests of a temiinatcd
CONTRACTOR Entity.
45 13 Neither the GOVERNMENT nor any CONTRACTOR Entity will assume any
liabilitcs. obligations, or duties of a terminated COM RAC TOR Entity in respect of
the terminated CONTRACTOR Entity’s undivided interest anting or accrued poor
lo the latter of (i) the effective date of the termination of such CONTRACTOR
CONTRACTOR Entities, the effective <£*!**he realignment and redistribution of
the terminated CONTRACTOR Entity * uwertsts to another CONTRACTOR
Entity The GOVERNMENT will in no circumstances assume accrued liabilitcs.
obligations, or duties ol a terminated CONTRACTOR Entity in respect of the
terminated CONTRACTOR Entity’s undivided interest, whenever arising or
accrued. All accrued liabilities will remain the sole obligation of the terminated
CONTRACTOR Entity
45.14 Nothing in this Article 45 limits or m*»in a Party’s nghts under English Law m
ARTICLE 44 - COUNTERPARTS; ENI IRE AGREEMENT
46.1 The Parties may execute this Contract in counterpart*, each of which constitutes an
original, and all of which, collectively, constitute only one agreement The signatures
of all of the Parties need not appear on the same counterpart, and delivery *>f an
executed counterpart signature page by facsimile or electronic scan is as effective as
executing and delivering this Contract in the presence of the other Parties This
Contract is effective as of the date set forth on the signature page (the "Effective
Date-) In proving this Contract, a Party must produce or account only for the
executed counterpart of the Party to be charged
46 2 This Contract and the Letter of Representations and Warranties constitutes the final,
complete and exclusive expression of the Parties' agreement on the matters contained
in this Contract. All prior and contemporaneous negotiations and agreements between
the Panics on the matters contained in this Contract are expressly merged into and
superseded by this Contract. The provisions of this Contract may not bo explained,
supplemented or qualified through evidence of trade usage or a poor course of
dealings In entering into this Contract neither Party has relied upon any statement,
representation, warranty or agreement of the other party
for thine expressly contained in this Contract, and in the Letter of Representations and
an antics and the Guarantee. There is no coodit ion precedent to the effectiveness of
th.> Contract (except for signature and delivery by the Panics) and there are no
representations or warranties, m each case other than those expressly staled in this
(ZKmttHrrpagr/Mlon.J
95
Effective Date 2fL October. 2010
For the M RDISTAN REGIONAL GOVERNMENT
-
-TVKJt-
Minisicr of Natural Resources
Kurdistan Regional Goscramcnl Kurdistan Regional Government
On behalf of the Regional Council On behalf of the Ministry of Natural
for the Oil and Gas AfTairs of Resources in the Kurdistan Region
the Kurdistan Region • Iraq
For each COVTR ACTOR Entity
under a power of attorney dated 14 October 2010
I Signature page tv Production Sharing Contract - Safenj
PrwhKitOH Sharing Contract - Safi/n
ANNEX A
Map showing coordinates of the Safcn Contract Area corner points
yu
97
#“»*<** 1km Sharing C«»»m ' • W-"
ANNEX B
ACCOUNTING PROCEDURE
PARAGRAPH I - GENERAL PROVISIONS
1.1 Purpose
To classify expenditures, define further Petroleum Costs (in addition to those defined
us such ill the Articles of the Contract), and prescribe the manner in which the
CONI KACTOR’s Accounts shall be prepared and approved.
1.2 Definitions
Words and phrases to which a meaning has been assigned in Article I or other
Artiolca of the Contract xlmll have the same meaning when used in this Annex.
1.3 Inconsistency
In the event or any inconsistency or conflict between the provisions of this Annex and
the other provisions of the Contract then the other provisions of the Contract shall
prevail.
1.4 Accounting Records and Reports
1.4.1 The CONTRACTOR shall maintain the Acc«*u in accordance with Article 15 I
and in accordance with this Accounting Procedure, including in accordance with the
charts of Accounts agreed under Paragraph I 4 2.
I 4 2 Within sixty (60) day* of the Effector Date, the CONTRACTOR dull submit to and
discuss with the GOVERNMENT a proposed outline of charts of Accounts, which
outline shall be in accordance with generally accepted standards and recognized
accounting systems and consistent with normal petroleum industry practice muun
procedures. Within ninety (90) days of receiving the above submission.
GOVERNMENT shall cither provide written notification of n» approval oi
proposal or request in writing revisions to the proposal Within one hundred
eighty (180) days after the Effective Date, the CONTRACTOR and
GOVERNMENT shall agree on the outline of charts of Accounts which
describe the basis of the accounting system and procedures to be developed and
under this Contract. Following such agreement, the CONTRACTOR
expeditiously prepare and provide the GOVERNMENT with formal copies o
comprehensive charts of Accounts and manuals related to the accounting, recording
and reporting functions, and procedures winch arc. and shall be. observed under the
Contract
14 3 Notwithstanding the generality of the foregoing, the CONTRACTOR shall make
shown
I
(a) Frixluclion Suicmcnl (as indicated in Paragraph 6).
(b) Value of Production and Pricing Statement (a» indicated in Paragraph 7).
(c) Cost Recovery and Shore Account Statement (oh indicated in Paragraph 8).
(d) Statement of Expenditures and Receipts (ns indicated in Paragraph 9).
(c) Final End-of-Ycar Statement (as indicated in Paragraph 10).
(0 Budget Statement (at indicated in Paragraph 12).
1.4.4 All reports and statements shall be prepared in accordance with the Contract.
Kurdistan Region l aw. and where there are no relevant provisions of either of these,
in accordance with prudent international petroleum industry practice.
1.5 Language and Units of Account
All Accounts shall be maintained mid prepared hi the English language and shall he
recorded in Dollars. Whore necessary for clarification, the CONTRACTOR may
also maintain Accounts in other currencies.
1.6 Audit and Inspection Rights of lb* GOVERNMENT
In addition to the provisions of Articles 15.3 to 15.7 and 15.9. the following
provisions shall apply to any audit earned out in accordance wrth .Articles 15.3 lo
15.7:
1.6.1 For purposes of auditing, the GOVERNMENT, acting reasonably and in accordance
with prudent mtcmotional petroleum industry practice, may examine and verify, at
reasonable time* upon reasonable prior written notice to the CONTRACTOR, all
charges and credits relating to the Petroleum Operation*, such as books of account,
accounting entries, material records and inventories, vouchers, payrolls, invoice! and
any other document*, correspondence and records including electronic records
reasonably considered necessary by the GOVERNMENT lo audit and verify the
charges and credit*, values and treatments
I 62 Furthermore, the auditors shall have the nght to connection with such audit, to visit
and inspect at reasonable times, all sites, plants, tacil.no.. warehouses and office* of
the CONTRACTOR directly or indirectly serving the Petroleum Operation* and to
question personnel associated with those Petroleum Operation*.
163 Where the GOVERNMENT requires verification ot charge* made by an Affiliated
Company of the CONTRACTOR, the GOVERNMENT shall have the right to
obtain an audit certificate for such changes from an internationally recognized firm of
public accountant* acceptable to both the GOVERNMENT and the
CONTRACTOR which may be the CONTRACTOR * statutory auditor
1.6.4 All agreed adjustments resulting from an audit dull be promptly made m the
CONTRACTOR 'S Accounts and am consequential adjustments to payments due to
:
Production Storing (V«i» m t Siifrn
(he CONTRACTOR or to the GOVERNMENT, us tho case may be, shall be made
promptly.
1.6.4 When issues are outstanding with respect U> an audit, the CONTRACTOR shall
maintain the relevant documents and permit inspection thereof until the issue is
resolved.
1.7 Payments
Unless as otherwise provided in Article 24, Article 29 or other Articles of the
Contract:
1.7.1 All payments between the Parties shall, unless otherwise agreed, be in Dollars and be
made through a bank designated in writing by each receiving party; and nil sums due
under the Contract shall be paid within thirty (30) days following the end of the
Month in which the obligation to make such payment occurred.
1.7.2 All sums due by one party to the other under the Contract shall, for each day such
sums are overdue, bear interest compounded monthly at LIBOR plus two per cent
(2%).
1.8 Currency Exchange Rates
In addition to the provisions of Article 29, die following provisions shall apply to any
exchanges of currency carried out in accordance with Article 29:
1.8.1 Amounts received and Petroleum Costs incurred, shall be converted from other
currencies into Dollars in accordance with ihe CONTRACTOR'S usual accounting
procedures which shall relied generally ucccptcd accounting practices in the
international petroleum industry, and With reference to exchange rales obuined in
accordance with Article 29.
1.9 Accrual Basis. Cash Flow Basis and Reports
All books and Accounts shall be prepared on an accrual basis m accordance wuh
generally accepted accounting principles used in the international petroleum industry
1.10 Values and Treatments
Values and treatments proposed by the CONTRACTOR relating to all Petroleum
Costs shall be subject to challenge by the GOVERNMENT in the course of audit to
ensure that they are in accordance with the provisions of this Accounting Procedure.
PARAGRAPH 2 CLASSIFICATION, DEFINITION AND ALLOCATION OF
COSTS AND EXPENSES
2.1 Segregation of Costs and Expenses
Petroleum Costs shall be segregated in accordance with the purposes lor which such
Petroleum Costs are made. The purposes which shall qualify are:
3
ProJ*i*m i
(a) those which have been included in Ihc approved Work Program and Hudget
for Ihc year in which ihc Coni* and Expenditures arc made;
(b) expenditures incurred in CMOS of emergency as set out in Article* 11.7, 13.5.
13.9 35.5, 35.6 und any other Articles of the Contract;
(c) any other purposes agreed in the Articles of the Contract; and
(d) other items which have been agreed by the Parlies from time to time.
All Petroleum Costs recoverable under Paragraph 3 relating to Petroleum Operations
shall be classified, defined and allocated a* vet out below.
2.2 Exploration Costs
f xploration Costs arc all direct ami allocated indirect costs and expenditures incurred
in car tying out the Exploration Operations, including all direct and allocated indirect
costs mid expenditures incurred in (he search lor Petroleum in an area which m, or was
at the time when such costs and expenses were incurred, part of the Contract Area
including:
2.2.1 Acnal, geophysical, geocliomicol, paleontological, geological, topographical and
seismic surveys and studies and their interpretation and purchased geological and
geophysical information
2.2.2 Stratigraphic test hole drilling and water well drilling
wells with the object of finding Petroleum or Appraisal Wells excluding any costa of
the subsequent completion of such w db as producing »dlv
2.2.4 facilities to the extent used in support of the purposes described in Paragraph* 2.2 I.
2.2.2 and 2.2.3. including access roads.
2.2.5 That portion of all service expenditures and that portion of all general and
administrative expenditures directly attributable to Exploration Coats or allocated
thereto on a consistent and equitable basis.
22.6 Any other expenditures incurred in the search for and appraisal of Petroleum after the
Effective Date and not otherwise covered under this Paragraph 22
2J Cm Marketing Costs
Gas Marketing Costs arc all direct and allocated mdirecl cost, and cxpenchtures
incurred in earning out Gas Marketing Operations and include that portion of all
service expenditures and that portion of all general and administrative expenditures
directly attributable to Gas Marketing Costs or allocated thereto on a consistent and
equitable basis
4
Development Costs are all direct and allocated indirect costs and expenditures
incurred in carrying out Development Operations including all direct and allocated
indirect costs and expenditures incurred in:
2.4.1 Drilling wells which arc completed as producing wells 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
2.4.2 Completing wells by way of installation of casing or equipment or otherwise after a
well has been drilled for the purpose of bringing the well into use as a producing well
or as a well for the injection of water or gas to enhance recovery of Petroleum
.’ 4.3 The costs of Petroleum production, transport and storage facilities such as pipelines.
How lines, production and treatment units, wellhead equipment, suhsuitace
equipment, enhanced recovery systems, Petroleum storage fncllllios, and access roads
for production activities.
2.4.4 rngincering and design studies for the wells and facilities referred to in Paragraphs
2.4.1.2.4.2 and 2.4.3.
And including that portion of all service expenditures and that portion of all general
and administrative expenditures directly attributable to Development Costs or
allocated thereto on a consistent and equitable basis; and any other expenditure
incurred in the l>cvdopment Operations and no* otherwise covered under
Paragraph 2J.
2-5 Production Casts
Production Costs are all direct and allocated indirect costs and expenditures incurred
in canying out Production Operations, including all direct and allocated indirect costs
and expenses incurred in Petroleum Operations after First Production which are other
i K»w F.x pi oral ton Costs. Gas Marketing Costs, Development Costs and
Decommissioning Costs. Production Costs include that portion of all service
expenditures and that portion of all general and administrative expenditures directly
attributable to Production Costs or allocated thereto on a consistent and equitable
basis
2.6 Dreoramissioaing Costs
Decommissioning Costs are all direct and allocated indirect costs and expenditures
incurred in carry ing out Dccommmiooing Operations and include that portion of all
directly aanbuUwT to Decompiling Costs or allocated thereto on a consistent
Mid equitable basis Mid the Dcccnvntsstaeing Reserve Fund shall be determined on
such basis, ta adsancc of meaning such costs, as presided m Article 31 and. for the
purposes of coal recovery, the contributions to the Decommissioning Reserve Fund
shall be recoverable m accordance with Article 38.
5
2.7 Service Expenditures
Sen ice expenditures are expenditures in support of Petroleum Operations including
warehouses, vehicles, motorized rolling equipment, aircraft, lire and security stations,
workshops, water and sewerage plants, power plant*, housing, community and
recreational facilities and furniture, took and cqupmcnl used in these activities.
Service expenditures m any Calendar Year shall include the costs incurred in such
year to purchase andor construct the said facilities as well as the annual costs of
allocated as specified in Paragraphs 13-5. 2 J. 2 4. 2 5 and 2.6 to Exploration Coats.
Gas Marketing Costs. Development Costs. Protection Costs and Decommissioning
Costs respectively and shall be separately shown under each of these categories
Where service expenditures are made in respect ol shared facilities, the basis of
allocation of costs to Petroleum Operations dull be consistent and equitable and shall
be specified.
2.8 General and Administrative Fxpenditnres
General
18.1 All mam office, field office and general administrative expenditures in the Kurdistan
services
2.8.2 Where the CONTRACTOR is an Affiliate of a group of companies whose
headquarters is Abroad (a ‘'Foreign CONTRACTOR’*), an annual oveihcad charge
shall be mode lor services rendered (excluding the direct expenditures as referred in
Paragraph 3.l.2. by any Affiliate of the Foreign i ONTO ACTOR outside the
Kurdistan Region to support and manage Petroleum Operations under the Contract, or
where the CON I RACTOR. not being u Foreign CONTRACTOR draws upon the
services of an Atliliatc within the Kurdistan Region, an annual overhead charge shall
be made for service* rendered (excluding the direct expenditures as referred in
Paragraphs 3.1.2 (a) and (b» by such Affiliate to support and manage Petroleum
Operation* under the Contract ( Parent Company Overhead").
Parent Company Overhead will be deemed to cover the actual cost (being salaries,
wages and labour burden, employee benefits, travel, hotel and other normally
reimbursable expenses paid by the Affiliate of a CONTRACTOR in accordance wills
it* standard personnel policy in force in the relevant period, provision of office
accommodation ami provision of services reasonably necessary for operation and
maintaining such staff offices) incurred for services rendered by those functions of
CONTRACTOR’S Affiliate, such as. but not limited to. international production
headquarter*, international exploration headquarters, treasury, payroll taxation,
insurance, legal, communication*, computer services, controllers, personnel,
executive administrative management, research and development, central engineering
and process engineering w hich:
(a) cannot, without unreasonable effort and/or expenditure or without the release
of confidential data proprietory to any of the CONTRACTOR’S Affiliates, bo
charged under any other .section of this Annex; and
6
(b) arc properly allocable lo Petroleum Operations under the Contract It is
understood, however, that services performed by the departments listed above
and other corporate departments which directly benefit Petroleum Operations
under the Contract shall he charged as direct costs in accordance with
Paragraph 3.
In respect of the costs of the CONTRACTOR'S Parent Company Overhead, as
described ubove, the CONTRACTOR shall charge monthly to Petroleum Operations
an amount equal to the total of the following:
2.H.2.I F.xploration Overhead
Ihe 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 Gas Marketing Costs during
each Calendar Year (exclusive of this Exploration Overhead) or traction thereof less
expenditures which have been subjected to the two (2) per cent fee, referred to in
Paragraph 3 I «b). The sliding scale percentage shall be the following:
For the first four million Dollars (US S4.000.000) four per cent (4%)
For the next four million Dollars (US $4,000,000) three per cent (3%)
Over eight million Dollars (US $8,000,000) two per cent (2%)
The foregoing percentages may be reviewed but not more often than annually, anil
any approved appropriate adjustment shall be made, if necessary , prospectively
2 8 2 2 Development. Production and Decommissioning Operations Overhead
The overhead rates applicable lo Development. Production and Decommissioning
(a) The CONTRACTOR’! charge* must be charged as direct charge* whenever
possible. Overhead charge* exist only to compensate the CONTRACTOR s
Affiliates for costs which are properly allocable to Petroleum Operations
under the Contract but which cannot, without unreasonable effort and or
release of confidential data proprietary lo the CONTRACTOR'* Affiliates,
be charged under any other section Overhead 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 expenditure* excluding F.xploration Costs and
(b) That percentage as well as the types of expenditures, which affect overhead
and those, which do not. shall be agreed among the Parties
(c) The maximum percentage rate* may be revised by mutual agreement not more
often than annually The initial maximum percentage rales and the type* of
(cl) Overhead charges arc not subject to audit by GOVERNMENT.
(c) The CON I RACTOR shall upon request furnish at the end of each relevant
Calendar Year to the GOVERNMENT a confirmation by its statutory auditor
that the overhead costs actually charged do not duplicate any other charges
und that the method used in allocating overhead to Petroleum Operations
hereunder as opposed to other activities is reasonable and in accordance with
generally accepted accounting practices
(0 The COST K ACT OR must budget foe overhead charges,
2.8.3 All general and administrative expenditures shall be regularly allocated as specified in
Paragraphs 2.2.5, 2 3. 2.4, 2.5 and 2.6 to Exploration Costs. Gas Marketing Costs,
Development Com*. Production Costs and Decommissioning Costs respectively and
shall be separately shown under each of these categories.
PARAGRAPH 3 COSTS, EXPENSES, EXPENDITURES AND CREDITS OF THE
CONTRACTOR
3.1 Costs Recoverable Without Further Approval of the GOVERNMENT
The following Petroleum Costs incuncd by the CONTRACTOR pursuant to the
Contract as classified under the headings referred to in Paragraph 2 shall be
recoverable for the purpose of Article 25 of the Contract (except lo the extent
provided in Paragraph 4 or elsewhere in this Annex) without the requirement foe
obtaining any further approval of the GOVERNMENT, subject to audit as provided
for in Article 15 and in Paragraph 1.6.
of surface
of the C
(a) The CONTRACTOR'S locally recntiSed employeet hosed m the Kurdistan
Region: Costs of all CONTRACTOR'S locally rccniitcd employees who arc
directly engaged in the conduct of Petroleum Operations under the Contract in
the Kurdistan Region Such costs shall include the costs of salaries, wages,
bonuses, overtime, employee benefits and GOVERNMENT benefits for
employees and levies mposed on the CONTRACTOR as an employer,
transportation and relocation costs within the Kurdistan Region of the
employee and such members of the employees family (limited to spouse and
dependent children) as required by law or cuatormry practice in the Kurdistan
Region. If such employees arc engaged in Other activities in the Kurdistan
Region, in addition to Petroleum Operations, the cost of such employees shall
be apportioned on a time sheet basis according to sound and acceptable
accounting principles.
*
(b) Auigmrd Prrurmet Costs of silanes and wages including bonuses of the
CONTRACTOR s employees directly engaged m the conduct of the
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 Contract, only that pro-rata
portion of applicable salaries, wages, and other costs as delineated in
Paragraphs 1.1.2(c). (d). (c). (0 and (g). shall be charged and the basis of such
pro-ruta allocation shall be specified.
(c) The CONTRACTOR’S costs regarding holiday, vacation, sickness and
disability benefits and living and housing and other customary allowances
applicable to the salaries and wages chargcublc under Paragraph 3.1.2(b).
(d) Expenses 01 contributions made pursuant to assessments or obligations
Imposed under Law which are applicable to the CONTRACTOR'S cost of
valiino and wages chargeable under Paragraph 3.1.2(b)
(e) The C TINTRACTOR's cost of established plans lor employees' group life
insurance, hospitalization, pension, stock purchases, savings, bonus, und other
benefit plans of a like nature customarily granted to the CONTRACTOR’S
employees, provided however that such costs arc in accordance with generally
accepted standards in the international petroleum industry, applicable to
salaries and wages chargeable to Petroleum Operations under
Paragraph 3.1.2(b).
(0 Actual transportation and travel expenses of employees of C ONTRACTOR,
including those made for travel and relocation of the expatriate employees,
including their families and personal effects, assigned to the Kurdistan Regie*
whose salaries and wages arc chargeable to Petroleum Operations under
Paragraph 3.1.2(b).
Actual transportation expenses of expatriate personnel transferred to Petroleum
Operations from their country of origin shall be charged to the Petroleum Operations
I ransportation 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 authorized under the CONTRACTOR'S standard
personnel policies The CONTRACTOR shall ensure that all expenditures related to
transportation costs are equitably allocated to the activities, which have benefited
from the personnel concerned.
chargeable to Petroleum Operations under Paragraph 3.1.2(b) and for which
expenses such personnel are reimbursed under the CONTRACTOR s
I he cost of transportation of employees, equipment, maicnab and supplies other than
as provided in Paragraph 3.1.2(f) necessary for the conduct of the Petroleum
Operations under the Contract 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
(a) Third Parries
The actual costs of contract services, services of professional consultants,
utilities, and other services necessary for the conduct of the Petroleum
Operations under the Contract performed by third parties other than an
Affiliate of the CONTRACTOR
(b) Affiliates of the CONTRACTOR
(i) Professional and Administrative Services Expenses cost of
professional and administrative services provided by any Affiliates of
the CONTRACTOR for the direct benefit of Petroleum Operations,
including services provided by the production, exploration, legal,
procurement, financial, insurance, accounting and computer services
divisions other than those covered by paragraphs 3.1.4 (b)
and 3.1.8 (b> which CONTRACTOR may use in lieu of having its
own employees, Such charges shall reflect the cost of providing their
services Such charges 'hall not include any element of profit and shall
he no more or less favourable than similar charges for other operations
carried on by the CONTRACTOR and its Affiliates, The chargeout
rate shall include all costs incurred by Affiliates incidental to the
employment of such personnel including all Labour and Associated
I ubour Costs and the exist of maintaining and operating offices and
providing all support services for such personnel. Costs of travel of
such personnel in respect of Petroleum Operations will be directly
charged The charges for such services shall not exceed those
prevailing if performed by non-Affiliated third parties, taking into
account the quality and availability of such services. Where the work is
performed outside the home office base of such personnel, the daily
rule shall be charged from the date such personnel leave the home
office base where they usually work up to their return thereto,
including days which are not working days in the location where the
work is performed, excluding any holiday entitlements derived by such
personnel from their employment at their home office base.
(ii) 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 basis and shall not include any element of
profit. The chargcout rate shall include all costs incurred by Affiliates
10
incidental lo the employment of such personnel including all Labour
and Associated Labour Coats and the cost of maintaining and operating
offices and providing all support services for such personnel costs of
travel of such personnel in respect of Petroleum Operations will be
directly charged The charges for such services shall not exceed those
prevailing if performed by non-affiliatcd third parties, taking into
account the quality and availability of such services Unless the work
to be done by such personnel is covered by an approv ed Work Program
and Budget, the CONTRACTOR shall not authorize work by suck
personnel without approval of the GOVERNMENT
SntX UK COMRACrORSU - rate* comment
with the cost of ownership and operation, prov ided. however, that such
rales 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 and shall be on an amt’s
length basis. On the request of the GOVERNMENT, the
CONTRACTOR shall provide the GOVERNMENT with evidence
of such rates being on an arm’s length basis (If the GOVERNMENT
considers that any such rale is not on an ami's length basis then the
GOVERNMENT has the right to refer the matter to an expert
pursuant lo Article 42 2 of the Contract). The equipment and facilities
referred to herein shall exclude major investment items such as (but
facilities and other major facilities, rales for which shall be subject to
separate agreement with the GOVERNMENT
3.1.5 Communications
Cost of acquiring, leasing, installing, operating. repairing and maintaining
communication systems including radio and microwave facilities within and between
the Contract Area and the CONTRACTOR’S nearest base facility.
Net to the CONTRACTOR of any
directly the
If an i the net
shall be
(a) Coats incurred in the Contract Area as a result of legislation for archaeological
ami geophysical surveys relating to identification and protection of cultural
site* or resources;
II
(b) Of ecological survey* required by regulatory
(O Coat* lo provide have
responsibilities resulting therefrom as may be required by applicable law* and
Cost* of restoration of the operating environment incurred pursuant to an
approved achane prepared in accordance with Article 38 of the Contract;
(0 Any costs incurred for the decommissioning of facilities and vile restoration,
including any related activity required by the GOVERNMENT or other
<*> competent authority or by the Contract, and
Any contributions made by the CONTRACTOR to the Decommissioning
Reverse Fund in accordance with Article 38. w hen such contributions arc
Cost* of materials and supplies, equipment, machines, tools and any other goods of a
similar nature used or consumed in Petroleum Operation* subject to the following
(a) Acquisition - the CONTRACTOR shall only supply or purchase material*
for use in Petroleum Operations that may be used in the foreseeable future
The accumulation of surplus stocks and inventory shall be avoided so far as is
reasonably practical and consistent with efficient ami economical operations.
Inventory levels shall, hosvever, take into account the time lag for
replacement, emergency needs, weather conditions affecting operations and
similar considerations
(b) Component* of cost*, arm's length transaction* - except ns otherwise
provided in paragraph 3.1.8(d), material purchased by the CONTRACTOR
in arm's length transactions in the open market for use in the Petroleum
Operations under the Contract shall be valued to include invoice price lesi
trade and cash discounts (if any), licence fees, ptuebiiM’ and procurement fees
plu* freight and lonvurding charges between point of supply and point of
shipment, freight to port of destination, insurance, taxes, customs duties,
consular fees, excise taxes, other item* chargeable again*! imported material*
and. where applicable, handling and transportation expense* from point of
importation to warehouse or operating sue Where an Affiliate of the
CONTRACTOR has arranged the purchase, coordinated the forwarding and
expediting effort, it* coils should not exceed those currently prevailing in
normal arm'* length transactions on the open market and in any ease shall not
12
Production Sharing Comiaci - Safin
exceed a fee equal lo (wo per cent (2%) of the value of (he materials added lo
(he cost of (he material* purchased
(c) Accounting - such material costs shall be charged (o (ho accounting records
and books in accordance with the "First in. First Out" (FIFO) method;
(d) Material purchased from or sold to Affiliates of the CONTRACTOR or
transferred from other activities of the CONTRACTOR to or Horn Petroleum
Operations under tins Con true I shall be valued and charged or credited at the
prices specified in Paragraphs 3.1 X(dM0. 3.l.8(dXii) and 3.I.X(d)(iii):
(i> 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 .inn's length
transactions in the open market.
(li) Used material (Conditions “B". T and "D";
(A) Material which is in sound and serviceable condition and is
suitable lor re-use without reconditioning shall be classified as
Condition "H" and priced at seventy five per cent (75%) of the
current price of now material defined in Paragraph 3.l.8(d)(i);
(It) Material which cannot be classified as Condition “B" but which
after reconditioning will lie further serviceable for its origiiuil
function shall be classified as Condition ~C~ and priced at not
more than fifty per cent (50%) of the current price of new
material as defined in Paragraph 3.1 HidK0- The cost of
reconditioning shall be charged to the reconditioned material
prov ided that the value of Condition 'XT' material plus the cost
of reconditioning do not exceed the value of Condition "B"
material;
(Q Material which cannot be classified as Condition ~B“ or
Condition "C shall be classified as Condition “D" and priced
at a value commensurate with its use by the CONTRACTOR
If material is not fit for use by the CONTRACTOR it shall be
disposed of as junk
(iii) Material involving erection costs shall be charged at the applicable
condition percentage of ihc current knockcd-down pnee of new
material as defined in Paragraph 3.l.8(d)(i) -
(iv) When the use of material u. temporary and its service lo the Petroleum
Operations under the Contract docs not justify the reduction in pnee as
provided for in paragraph 3.l.8.(dNii)0>X such material shall be priced
on a basis that will result in a net charge to the accounts under the
Contract consistent w ith the value of the serv ice rendered
13
.Storing ConlracI • Saffw
(v) Premium prices - whenever material is not readily obtainable at
published or listed prices because of national emergencies, strikes or
other unusual causes over which the CONTRACTOR has no control,
the CONTRACTOR may charge Petroleum 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.
(vi) Warranty of material furnished by the CONTRACTOR the
CONTRACTOR docs not warrant the material funmhed. In ease of
defective material, credit shall not he passed to Petroleum Operations
until adjustment has been received by the CONTRACTOR from the
manufacturers of the material or their agents
(vii) Adjustments arising from material inventories conducted in accordantc
with Paragraph 5.2.
(c) Equipment of the CONTRACTOR charged at rates not to exceed the average
commercial rates of non-affiliated third parties for equipment, facilities,
installations and utilities for use in the area where the same are used On
request, the CONTRACTOR shall furnish a list of rates and the basis of
application. Such tales shall be revised when found to be either excessive or
insufficient, but not more than once every six (6) Months.
Drilling tool* and other equipment lost m the hole or damaged beyond repair
may be charged dl replacement cost less depreciation pluv transportation costs
to deliver like equipment to the location where used
(D Use of leased or hired machinery andfor equipment in the Petroleum
Operations shall be charged at full cost to the CONTRACTOR This may
include mobilisation and dc mobilisation charges, leave and hire fees, as well
as other contractual costs.
All rentals of every kind and nature levied by any GOVERNMENT and all Taxes
imposed in connection with the CONTRACTOR’» assets, income or activities under
the Contract and paid directly by the CONTRACTOR or any CONTRACTOR
Entity (save where the contrary is expressly provided in the Contract) with the
exception of Taxes (but only those Taxes described in Article 31 3), bonus payments
Capacity Building Payments, and any other payments made under Article 32.
If the CONTRACTOR, any CONTRACTOR Entity or any of its Affiliated
Companies is subject to income or withholding tax as a result of services performed at
cost for the Petroleum Operations under the Contract its charges for such serv ices
may be increased by the amount required to cover such taxes (grossed up) including
taxes on such gross up.
14
ProdHClhm iVAtiflw C'uiwn* '• Stiffit
Insurance premiums and costs incurred for insurance carried for the benefit of the
Petroleum operations provided that such insurance is customary. atTords pnKlcnt
protection against risk and is at a premium no higher than that charged on n
competitive basis hy insurance companies which arc not Affiliated Companies of the
CONTRACTOR l-xccpl in cases of failure to insure where insurance coverage is
required pursuant to the Contract, actunl costs and losses incurred shall he recoverable
to the extent not made goixl hy insurance unless such losses result solely from on act
of wilful misconduct by the CONTRACTOR. Such costs may include repuir und
replacement of properly in the Contract Area resulting from damages or losses
incurred hy fire, Hood, storm, theft, accident or such other cause.
3.1.11 Legal Expenses
All reasonable costs and expenses resulting from the handling, investigating,
.•'setting, defending, or settling of any claim or legal action necessary or expedient for
the procuring, perfecting, retention and protection of the Contract Area, and in
defending or prosecuting lawsuits involving the Contract Area or any third party
claim arising out of the Petroleum Operations under the Contract, or sums paid in
res|>cct ot legal services necessary” for the protection of the joint interest of the
GOVERNMENT and the CON I RACTOR shall be recoverable. Such expenditures
shall include attorney's tecs, court costs, arbitration costs, costs of investigation, and
procurement of evidence and amounts paid in settlement or satisfaction of any such
litigution and claims provided such costs arc not covered elsewhere in the Annex
Where legal services arc rendered in such matters by salaried or regularly retained
lawyers of the CONTRACTOR or an Affiliated Company of the CONTRACTOR
such compensation shall be included instead under Paragraph VI.2 or 3.1.4(b) as
applicable
) | 12 Claims
lodgement or other expense anting out of or relating to Petroleum Operations, except
as may otherwise be covered elsew here in the Annex.
All costs and expenses incurred by the CONTRACTOR in the training of its
employees engaged in Petroleum Operations under the Contract
3.1.14 General and Administrative C'OflS
T he costs described in Paragraph 2.8.1 and the charge described in Paragraph 2 8.2
15
3.1.16
Other reasonable expenditures not covered or dealt with in the foregoing provisions of
Paragraph 3 which arc necessarily incurred by the CONTRACTOR for the proper,
economical and efficient conduct of Petroleum Operations.
3.2 Credit Under the Contract
The proceeds, other than the proceeds from the sale of Petroleum received from
Petroleum Operations under the Contract, including the items listed below dull be
credited to the Account* under the C ontract for the purposes of Article 25 of the
3.2 I The proceeds of any insurance or claim or judicial awards in connection with
Petroleum Operations under the Contract or any assets charged to the Accounts under
(he Contract where such operations or assets have been insured ami the premia
charged to the Accounts under the Contract
3.2.2 l egal costs charged to the accounts under Paragraph 3 1.11 and subsequently
recoverable by the CONTRACTOR.
3.2.3 Revenue receiv ed from third panic* for the use of property or assets the cost of which
hat been charged to the Accounts under the Contract.
3.2.4 Any adjustment received by the CONTRACTOR from the supplier* manufacturers
or their agents in connection with a defective material the cost of winch was
previously charged by the CONTRACTOR tothe Accounts imiei the Contract
3.2.5 Rentals, refunds, including refunds of taxes paid, or other credits received by the
CONTRACTOR which apply to any charge winch has been made to the Accounts
under the Contract, but excluding any award granted to the CONTRACTOR under
arbitration or expert proceedings
3.2.6 Costs originally charged to the Accounts under the C ontract for materials
subsequently exported from the Kurdistan Region or transferred to another Contract
Area within the Kurdistan Region
3.2.7 Proceeds from the sale or exchange by the CONTRACTOR of plant or facilities used
m Petroleum Operations the acquisition costs of which have been charged to the
Accounts
3.2.8 Proceeds derived from the sale or license of any intellectual property the development
costs of which were incurred pursuant to and are recoverable under the Contract
Proceeds derived from the sale, exchange, lease, hire, transfer or disposal in any
3.2.9
manner whatsoever of any other item the costs of which have been charged to
Petroleum Operations
16
3.3 Duplication of Charge* and Credits
Notwithstanding any provision to the contrary in this Accounting Procedure, there
shall be no duplication of charges or credit* to the Account* un.ict the Contract
PARAGRAPH 4 - COSTS AND EXPENSES NOT TO HI. TREATED AS
RECOVERABLE
The following costs and expenditures shall not be mcliMlcd in the Petroleum Costs
recoverable under Article 25:
4.1 Taxes on income or profit paid to any GOVERNMENT authority except Taxes and
duties that may be included in the costs of mutarinl and equipment purchased for the
Petroleum Operations:
4.2 Any payment made to the GOVERNMENT by reason of the failure of the
CONTRACTOR to fulfil its Minimum Exploration Obligations in respect of the
relevant Sub-Period under the Contract.
4.3 The cost of any letter of guarantee, if any. required under the Contract;
4.4 The bonuses. Capacity Building Payments, or other payment* ret out in Article 32 of
the Contract;
4.5 Cost* of marketing or transportation of Petroleum beyond the Delivery Point
(excluding Gas Marketing Carts);
4.6 Attorney * fees and other carts of proceedings in connection with artMtnuoo under
Article 42 of the Contract or internationally recognised independent expert
determination as presided in the Contract or this Accounting Procedure
4.7 Any interests, fees, costs and expense* paid by the CONTRACTOR for loan* and
any other form of financing or advances for the financing of the Petroleum Costs
entered into by the CONTRACTOR with third panic* or Afiiliatcd Companies.
4 8 Any accounting provision for depreciation and or amortisation, excluding any
adjustments in value pursuant to Paragraph 3.1.8;
4.9 Dividends, repayment of equity or repayment of intercompany loans,
4.10 Fines and penalties imposed under Law.
PARAGRAPH 5 - RECORDS AND VALUATION OF ASSETS
5.1 Records
The CONTRACTOR shall
Petroleum Operations under
17
Sharing CM**v Safin
5.2 Inventories
Inventories of property in uw in Petroleum Operations shall he taken at reasonable
intervals hut at least once a year with respect to movable assets and once every three
(3) years with respect to immovable assets The CONTRACTOR shall give the
GOVERNMENT at least thirty (30) days written notice of its intention to take such
inventory and the GOVERNMENT shall have the right to be represented when such
inventory is taken.
failure of the GOVERNMENT to he represented at an inventory shall bind the
GOVERNMENT to ncoepl the inventory taken by the CONTRACTOR
The CONTRACTOR shall clearly inform GOVERNMENT about the principles
upon which valuation of the inventory has been based The CONTRACTOR shall
make every effon to provide u» the GOVERNMENT a full report on such inventory
within thirty (30) days of the takmg of the inventory . When an assignment of rights
under the Contract takes place the COM RACTOR may. at the request of the
assignee, take a special inventory provided that the costs of such inventory are home
by the assignee.
PARAGRAPH 6 PRODUCTION STATEMENT
0.1 Production Information
Without prejudice to the rights and obligations of the Parties under Article 16 ot the
Contract, from the date of First Production from the Contract Area the
CONTRACTOR shall submit a monthly production statement u> the
GOVERNMENT showing the following information separately for each prudmmg
Development Area and in aggregate for the Contract Area:
6.1.1 The quantity of Crude Oil produced and saved
I 2 I he quality characteristics of such Crude Oil produced and savod.
6.1.3 The quantity of Natural Gas produced and saved.
6.1 <1 Hie quality characteristics of such Nuturul Gas produced and saved.
h. I ' Fite quantities of Crude Oil anil Natural Gas used for the purposes of lurrying on
drilling and production operations and pumping to field storage.
6.1 6 rhe quantities of Crude Oil and Natural Gas unavoidably lost.
6 I 7 The quantities of Natural Gas Hared and vented.
6 I 8 11k sire of Petroleum stocks held at the beginning of the calendar Month in question.
6 I 9 The Si/c of Petroleum slocks held at the end of the calendar Month in question
18
6.1.10 The quantities of Natural Gas reinjected into the Reservoir.
6.1.11 In respect of the Contract Area as a whole, the quantities of Petroleum 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 submined to the
GOVERNMENT no later than ten (10) days after the end of such calendar Month
PARAGRAPH 7-VALUE OF PRODUCTION AND PRICING STATEMENT
7.1 Value of Production and Pricing Statement Information
The CONTRACTOR shall, for the purposes of Article 25 of the Contract, prepare a
statement providing calculations of the value of Crude Oil produced and saved during
each Quarter.
This “Value of Production and Pricing Statement" shall contain the following
information:
7.1.1 The quantities and prices realized therefor by the CONTR ACTOR in respect of sales
of Natural Gas and Crude Oil delivered to third parties made during the Quarter in
question.
7.1.2 The quantities nnd prices realized therefor by the CONI K ACTOR in respect of sales
of Natural (ins nnd Crude Oil delivered during the Quarter in question, other thun to
Third Parties,
7.2 Submission of Value of Production and Pricing Statement
The Value ol Production and Pricing Statement for each Quarter shall Ik submitted to
the GOVERNMENT not later than ten (10) days after the end of such Quarter.
PARAGRAPH 8 - COST RECOVERY AN!) SHARE ACCOUNT STATEMENT
H.l Cost Recovery Statement
The CONTRACTOR shall prepare with respect to each Quarter a Cost Recovery'
Statement containing the following information:-
K. I. I Recoverable Petroleum Costs carried forward from the previous Quarter, if any.
K 1.2 Recoverable Petroleum Costs for the Quarter in question
8.1.3 Credits under the Contract for the Quarter in question.
19
ft mAh mm Shmtg C. Stffm
8.1.4 Total Recoverable Petroleum Costs for the Quarter in question (Paragraph 8.1.1 plus
Paragraph 8.1.2. not Of Paragraph 8.1.3).
8.1.5 Quantity and value of Petroleum applied to cost recovery' pursuant to Article 25 taken
by the CONTRACTOR for the Quarter in question.
8.1.6 Amount of recoverable Petroleum Costs to be carried forward into the next Quarter
(Paragraph 8.1 4 net of Paragraph 8.1.5).
8.2. Cumulative Production Statement
The CONTRACTOR shall prepare with respect to each Quarter a Cumulative
Production Statement containing the following information:
8.2.1 The cumulative production position at the end of the Quarter preceding the Quarter
and Month in question.
8.2.2 Production of I sport Petroleum for the Quarter in question.
8.2.4 The cumulative production position at the end of the Quarter in question.
8.2.5 The amount of Petroleum applied to Royalty pursuant to Article 24, cost recovery
pursuant to Article 25 and Profit Petroleum pursuant to Article 26 taken by the
GOVERNMENT and by the CONTRACTOR, respectively, dunng the Quarter in
question.
8.2.6 The forecast of production and the share of Petroleum applied to Royalty pursuant to
Article 24. cost recovery pursuant to Article 25 and Profit Oil pursuant to Article 26
due to the GOVERNMENT and tothe CONTRACTOR, respectively, for the next
succeeding Quarter and Month.
8J Preparation and Submission of Cost Recovery and Cumulative Production
Statements
8.3.1 Provisional Cost Recovery and Cumulative Production Statements, containing
estimated information where necessary, shall be submitted by the CONTRACTOR
on the last day of each Quarter and Month for the purposes of Article 25 of the
Contract.
8.3.2 Final quarterly Cost Recovery and Cumulative Production Statements shall be
submitted within thirty (30) days of the end of the Quarter in question
8.4 Annual Statement
For the purposes of Article 25 of the Contract, an Annual Cost recovery and Cumulative
Production Statement shall be submitted within ninety (90) days of the end of each
Year. The Annual Statement shall contain the categories of information listed in
Paragraphs 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 unrccovcrcd Petroleum Costs and Cumulative
Production
20
PARAGRAPH*-STATEMENT Of EXPENDITURE! AND RECEIPTS
9.1 The CONTRACTOR shall prepare with respect to each Quarter a Statement of
Expenditure and Receipts under the Contract. The Statement w ill distinguish between
Exploration Costs. Gas Marketing Costs. Development Costs. Production Costs and
Decommissioning Costs and will identify major items of expenditures within these
categories The Statement will show the following
9.1.2 Cumulative expenditure and recedes far the budget Calendar Year m questun
9.1.3 I atest forecast cumulative expenditures at the Calendar Year end.
9.1.4 Variations between budget forecast and latest forecast and explanations thereof.
9 2 The Statement of Expenditure and Receipts of each Quarter shall be submitted to the
GOVERNMENT no Inter than thirty (30) days after the end of such Quarter
PARAGRAPH If-FINAL END-OF-YEAR STATEMENT
The CONTRACTOR will prepare a Final End-of-Year Statement The Statement will
contain information as provided in the Production Statement, Value of Production and
Pricing Statement. Cost Recovery and Cumulative Production Statements and Statement of
Expenditures and Receipts but will be based on actual quantities of Petroleum produced and
ST^ieots made by the CONTRACTOR under theComract The final End oTYcar
Statement of each Calendar Year shall be submitted to the GOVERNMENT within ninety
(90) days of the end of such Calendar Year.
PARAGRAPH II-AUDITS
Each such report and statement provided for m Paragraph 6 through 10 shall be considered
true and correct, unless the GOVERNMENT raises an exception thereto within the
timeframe and under the process set out in Article 15 of the Contract
21
/VuAnfiiui .Wuirtnir Co«t«* I ■ SOfrn
PARAGRAPH 12 - ANNUAL WORK PROGRAM AM) BUDGET
II. | Each annual Work Program and Budget lo be prepared in accordance with Ankle*
11. 12 and 14 of the Contract in respect of Exploration Cost*. Ga» Marketing Costs.
Development Costs and Production Costs respectively will show the following:
11 l .l Forecast expenditures for the budget Calendar Year in question including a quarterly
classification of such expenditures.
III, 2 t umululivc expenditures to the end of said budget Calendar Year.
11.1.3 A schedule showing the most important individual items of Development Costs (if
applicable) for said budget Year.
PARAGRAPH 13-CONTRACTOR ENTITY INCOME TAX COMPUTATION
13.1 For the purpose of Article 31.3(b) of the Contract, the net taxable profits of each
CONTRACTOR Entity from all the Petroleum Operations coined out under this
Contract, shall be calculated in accordance with this Paragraph
13.2 Each CONTRACTOR Entity shall maintain for each Calendar Year separale
Accounts with respect to the Petroleum Operations which shall be used, oner alia, to)
establish a profit and loss account and a balance sheet which will show the results of
liabilities assigned or directly related thereto. The profit and loss account will be
maintained under the accrual method of accounting
13.3 For purposes of determining the net taxable profits of each CONTRACTOR Entity
for corporate income tax purposes:
13.3.1 the profit and loss account of such CONTRACTOR Entity shall be credited w ith the
following:
(a) if the Royalty is paid in cash pursuant to Ankle 24. revenues arising from the
disposal of Royalty volumes as recorded in such entity's Accounts and
determined in accordance with the provisions of Aniclc 24;
(b) revenues arising from the disposal of uny Available Petroleum to which such
entity is entitled for recovery of its Petroleum Costs as recorded in its
Accounts and determined m accordance with the provisions of Aniclc 25;
(c) revenues from the disposal of any Profit Petroleum to which such entity is
entitled under Ankle 26 as is recorded in Us Accounts and determined in
accordance with the provisions of Article 26;
22
Pro4m1*m .Vituri-* ( »«*.*« - .V<«Am
(d) any other revenues or proceeds directly connected to the Petroleum Operations
including those arising from the disposal of related Petroleum substances, or
front the treatment, storage and transportation of products for third parties;
(c) any exchange gains realised or other financial income earned hy such entity in
connection with the Petroleum Operations;
13 3.2 the profit and loss account for such CONTRACTOR Entity shall be debited with all
charges incurred for the purposes of the Petroleum Operations whether incurred inside
or outside the Kurdistan Region, which charges shall include the following:
(a) in addition to the charges specifically set forth below in this Paragraph, all
other Petroleum C osts, including the costs of supplies, personnel and
manpower expenses, and the cost of services provider! to the
CONTRACTOR In connection with the Petroleum Costs;
(b) it the Royalty is paid in cash pursuant to Article 24, Royally payments made
and as recorded in such entity's Accounts and determined in accordance with
the provisions of Article 24;
(c) General and administrative expenditure* related to the Petroleum Operations
performed under this Contract;
(d) depreciation of capital expenditure in accordance with the following
provisions:
(i) capital expenditures incurred by the CONTRACTOR Jar the purpose*
of the Petroleum Operations shall be depreciated on a reducing balance
(n) the depreciation rates, which shall be applicable hum the Calendar
Year during which such capital expenditure* are incurred, or from the
Calendar Year during which the assets corresponding to said capital
expenditures are put into normal service, whichever it lalcr, for the
first Calendar Year m question and for each subsequent Calendar Year,
arc as follows:
Nature of the capital asset to be depreciated Annual depreciation Rate
Permanent buildings 10.0%
Temporary buildings 200%
Office and be me furniture and fixtures 20.0%
Productive w 200%
id delivery equipment 20.0%
23
Drilling equipment 20.0%
Pipelines 20.0%
Automotive equipment 20.0%
Marine and aviation equipment 20.0%
20.0%
All other capital assets
(c) Exploration Costs (which foe the avoidance of doubt include appraisal
expenditures) shall be deductible on a reducing balance basis at the rale of
20% per annum.
(0 interest and fees paid to creditors of the CONTRACTOR, for their actual
amount:
(g) losses of Assets resulting from destruction or damage, assets which are
renounced or abandoned during the year, assets which are transferred under
Article 20.2, bad debts, indemnities paid to third parties as compensation for
damage:
(h) any other costs, expenses, losses or charges directly related to the Petroleum
Operations, including exchange losses realised in connection with the
Petroleum Operations H* well as the bonuses. Capacity Building Payments, or
other payments provided in Article 32, the Exploration Rental provided in
Article 6.3, the Production Rental provided in Article 13.10, the allocation to
training, provided in Article 23.7, the allocation to the Environment Fund
provided in Article 23.9, the costs specified in Articles 23.11. 38 I and 38.6,
and transportation and marketing costs beyond the Delivery Point;
(i) the amount of non-offset losses relating to the previous Calendar Years, which
shall be carried forward tor an indefinite period until full settlement of said
losses oi termination of this Contract;
13.3.3. The net profit of such CONTRACTOR Entity shall be equal to the difference
between all the amounts credited and all the amounts debited in the profit and loss
account; and
(a) if this amount is negative, it shall constitute u loss.
(b) if the amount is positive, it shall be grossed up to lake account of the fact that
such entity’s corporate income tax is being settled out of the
GOVERNMENT'S share of the Profit Petroleum in accordance with Article
31.2. by applying the following formula in order to provide such entity’s net
taxable profits for corporate income tax purposes:
Net Taxable Net Profits/' (J00 • Applicable Rale of Coipoiatcincome.Tax )
Profit*^ 100
24
F'raducJton Sharing Contract - Safcn
13.4 For purposes of determining each CONTRACTOR Entity’s liability to corporate
income tax for a tax year in respect of the Petroleum Operations earned out under this
Contract, the net taxable profits (if any) for such tax year shall be multiplied by the
applicable rate of corporate income tax. as provided in Article 31.3(a).
25
Asst* <
fPKM vr.FE
Guarantee
BY
Marathon Oil Corporation
in r Avon or
The Kurdistan Regional Government of Iraq
(S*fen Bloch PSC)
I
-Sa*«
GUARANTEE
THIS GUARANTEE, dated is bv:
(1) Marathon On CORrORATlON. a rorporatMn incorporated under the laws of the State ot
Delaware. United States ol America (the "Guarantor")
in favor of
(2) The Kurdistan Regional Government op Iraq (the "Beneficiary').
The Beneficiary has entered into a I’roductlon sharing Contract (the “PSC”) dated l_|
October 2010 with Marathon Petroleum KDV It V. (the PSC «ompany"), an indirect
subsidiary of tiie Guarantor. In respect of the Safeu block In the Kurdistan Region ol Iraq
The delivery of the Guarantee it a requirement of. and Is delivered pursuant to, the PSC
1. Definitions; Interpretation
1.1 Definitions
1.1.1 Unless defined In thtt Guarantee, term* defined In the PSC have the name moaning
in this Guarantee.
1.12 As used In this Guarantee:
"Beneficiary” it defined In the preamble.
" Huai nest Day" means a day on which banks are open for general btutlncw In
Londoa England and New York City, United Scales of America.
'Demand rs defined m clause 22.
'Guaranteed Obligations' is defined in clause 21.
'person* means any individual company, corporation, firm, partnership, joint
venture, association, organisation, state or agency of a stale or other entity, whether
or not having separate legal personality.
"PSC* bdefined in the Recital
"PSC Company" is defined in the Recital
1.2 Construction and Interpretation
1.2.1 Any reference to a clause oc annex rs. unless otherw ise stated, to a ciauu* nr
annex of this Guarantee
1.2 2 Any reference to an " Artide" is to an "Article" of the PSC.
1.2.3 Headings and sub-headings are for ease of reference only.
2. Guarantee
2.1 Guaranteed Obligations
The Guarantor guarantees, to the Beneficiary, the due and punctual payment and in the
manner and currency prescribed by the PSC for payments by the PSC Company, within 5
Business Days after receipt of written demand for payment as provided in clause 2.2
(IVmand) of all sums payable by the PSC Company pursuant to Article 7.5 of the PSC
2
22
the Guarantor has reeric rdi» nllen drmand for payment (the
Guarantor shall make payment to the Ifenetmary by wire
within 5 Business Days after mnpt of a Drmand A Demand
(a) make specific reference to th» Guarantee.
(b) state the amount that « demanded and which components of the Guaranteed
Obligations are the Mibpct of the Drmand:
(C) State that the h*» not received payment of the
and
fd) » wire untrucluns for the pay mere cd the Demand.
1. Nature of Guarantee
XI Th* Guaranty - an atwofcato. uncomlmunal and .rrevocabie guarantor of paymmt
when due and no* of oflestkex and whether by accrferaram or otfwwwe.
3.2 The Bcnrfidary It not nrt(ulred to evrcltr any right assert any daun or drmand. or
enforce any remedy what*»v*r again* the P5C Company or any other person before, or
im a condition to, cxcrclnlng any of the right*, powers, or retnedw conferred upon the
Bcncfictuy by Him Guanntoo or by applKable law. Without limiting the fpwrahfy of the
foregoing. the Beneficiary will not be required to (i) tike any a.ti «n t» «*>um ru.lgn-m in
any court against the PSC Company, or (it) to make or file any claim or pn.rf In a
winding up or dissolution of 'he PSC Company
33 Eccep* as provided In clause 22 (O-raooA the Guarantor hrrct>y oprmdy waive*
(b) wgl not be cuvudered vatWicd by any mlrrmedialr payment of the PSC
(c) will conbnue m full force and eflecl unt.l the Guaranteed Obligation* have been
paid in full to, and received by, the Government m accordance wMh tlw PSC.
granted to the PSC Company in respect of any of thr Guaranteed QNgatinwc
3
ProilMKon Sharing Contract - Soft*
(c) any change in the time, manner, nr place ot payment of, or any other term of, all or
any of the Guaranteed Obligation*, or any other cxlcnnlon or, compromise of the
PSC Company, provided that none of the foregoing increases the amount of the
Guaranteed Obligations;
(d) any reduction, limitation, impairment, or termination of any part of the
Guaranteed Obligations for any reason. Including any claim of waiver, release,
surrender, alteration, or compromise.
(e) any increase in the amount payable In imped of any Guaranteed Obligation,
provided that the Guarantor has provided its prior written consent to any such
increase which expressly states Guarantors intention that this Guarantee will
apply to such increased amount;
(0 the termination of the PSC or termination ot tin- PSC Company'll rights under the
PSC, or any withdrawal or abandonment by the PSC Company of its interests
under the PSC;
(g) any direct or indirect change in the ownership of the PSt (imi|Mny, Including by
merger, amalgamation, by law, or otherwise,
(h) any transfer all of any part of the PSC Company's interest* under or in reaped of
the PSC;
(i) any dispute or claim the PSC Company may have against the Beneficiary,
(i) the Insolvency or bankruptcy of, or similar event affecting, the INC' c innpany;
or
(j) any other circumstance or combination of circumstances which might odwrvre*
constitute a defer** available to. or a legal or equitable discharge of. the PSC
Company
36 The Guarantor waive* any right to or daim of any drtm* or ictoff. countodaim,
recoupment or termination by rr**on of (0 «hc invalid**, illegality, non-genuuienesv
irregularity, compromise, uncnhxcc ability of. or any other event or occurrence affecting,
any Guaranteed Obligation. (■) any claims vt.ufy or liabtlitir* of the PSC Company to
the i ,uarantur or the Beneficiary; (ill) any claim*. wt-ofh, or liabihUn of die Guarantor in
respect of the Benrhctary; (tv) or any othrr reason whatsoever.
3 7 This Guarantee will continue to be ifh.li woe br rcttwloaod. a. too ca«e may be. if at any
time any payment (in whole or in part) ol any of the Guaranteed Obligations is rescinded
or must otherwise be restored by the Beneficiary upon the insolvency, bankruptcy, or
reorganization of the PSC Company or othcrwi*c, all a* though such payment had not
been made Any settlement ot di*chirgo between tlie (.uarantor anil the Beneficiary will
be condition.il upon no payment by the PSC Company, or any other pernon, to die
Beneficiary on the PSC Company'll behalf being avoided or reduced by virtue of any laws
relating to bankruptcy, Insolvency, liquidation, or similar laws.
4. Taxes
•I I The Guarantor shall make .ill payments to the Beneficiary in accordance with the PSC
and free and clear of, and without deduction for. any present or future lax.-*,
withholding or other charges of any nature whatsoever imposed by any taxing
authority.
4
PnMhcHim Shunnv l'«m( •
42 If any withholdlnc or deduction from any payment lo be slack- by (Ik- Guarantor n
required in respect of any boo, then lla- Guarantor shalL
(a) pay directly lo the relevant authority die full amount retired to be so withheld or
deducted;
(b) promptly forward lo the Beneficiary an official receipt or other documentation
MtidiHtory to tin* Beneficiary evidencing such payment to such authority; and
(c) pay to the Boiuiflclary such additional amount or amounts as is necessary to ensure
that the ncl amount actually received by the Beneficiary will equal the lull amount
the Beneficiary would have received had no such withholding or deduction been
required
4.1 If any taxes are directly averted against the Beneficiary with respect to any payment
received by the Beneficiary from the Guarantor pursuant to this Guarantee, thru
(a) the Beneficiary may pay such taxes; and
(b) the- Guarantor dull Indemnify the Beneficiary against any claim, demand, .noon,
liability, damages. cost. lews, or expert*? (including legal fee- and any apptk able
value .tddrxl tax) which the Beneficiary incurs as a result or arising out of or In
relation to any failure to pay or delay in paying any of any such tax, and promptly
pay such additional amounts (including, if incurred as a result of Guarantor’s or
the PSC Company's action, omission or dday, any penalties, interest or expenses)
as necessary so that the net amount received by the Beneficiary, after the payment
of such l.nc* (including any taxes on such additional amount), will equal the
amount the Beneficiary would have received had such taxes not been asserted.
5. Benefit; Assignment
S I The Guarantee enures to the berw-tit ot ttv* Beneficiary and its (and
successors and each of which shall be mulled to enforce this Guarantee against
12 The an or any of u» rights. I
allot any of its rights and
6. Severability
unenforceable in any respect under the Ians of any (uiNdklton. neither (I) the legally. valhluy or
enforceability of the remaning provision* herexif nor (ii) the legality, validity or enforxxrabdlty of
«u»h provision under the laws of any other ru rixUiion will in any such case, in any way be
allotted or impaired thereby.
7. Notices
71 Address for notices to Guarantor
I hr Beneficiary shall:
(a) make any Demand or provide any nolle? and other communication to the
Guarantor in respect of this Guarantee in writing;
(b) address such Demand, not**-, or Other communication as provided in daUM-7.1(cX*
and
5
(c) use m of the follow ing method* (o deliver »uch Demand ex other nobcc or
communication, each of which, for purposes of thb agreement. o a venting. (0
personal detiveiy; (n> email (followed by delivery of the Demand, notice or
communication by an counerh or (in) a reputable, Internationally recogn^d air
couner. with all fees prepaid, and sent to the Guarantor
Marathon Oil Corporation
Attention: Treasurer
Address:
5555 San Felipe Road
Houston, Texas 77056
United States of America
(Telephone for air courier • I (71.1) 296*1959)
Email: PCRctnboH&'MdialhoiiOilcom
7.2 Effectiveness as to Guarantor
72.1 A Demand, notice or other communication will be effective as to the Guarantor
only if (i) the Bem-fi. iary hn« complied with this clause 7 and (ii) the Guarantor has
received the Demand, notice, or oilier communication.
72.2 If a Demand, notice or other communication Is delivered in person, it will bo
deemed received by the Guarantor by the date set forth In the signed receipt
73.3 If the Beneficiary sends a I Vnuind, notin', or other communication by a reputable,
internationally recognised alt courier In accordance' with clause 71, the Demand,
notice, or other communication will be deemed received by thr Guarantor by the
dale set forth m the signed receipt.
724 If Bencfmary wndsa Demand, notice,othercommumcation by email and the
email trarwnivion b followed by delivery of the Demand, notice, or other
communication by air courier in accordance with riauw 7.1, the Demand, notice, or
other communication shall be denned to have been delivered to the Guarantor
when the email is received by the Guarantor.
7^ Notices to Beneficiary
The Guarantor shall give all notoce* or other communications to the Beneficiary in
connection with thb Guarantee in the same manner as prescribrd in the P5C fur kMki-v
to the Beneficiary
7.4 Change of Addre*.
The Guarantor or the Beneficiary may change its address as set forth in dame 7 by a
notice to the other In accordance with this clause 7.
8. Term
Thb Guarantee b effective as of I . Subject to dau* 3.7. this Guarantee shall
cease to be effective upon discharge of all of the'
9. Representatlons and Warranties
The Guarantor represents and warrants:
6
This
11_3 No (allure or delay in ecCKUing any right or remedy, or in requiring the satisfaction of
by the Guarantor or tlte Bererficiary. and no act
of dealing between the Beneficiary and the Guarantor, will operate as
a waiver or estoppel of any right, remedy, or condition.
12. Governing Law
Hii* Guarantee and all matters arising from or connected with it are governed by English law
ISignaturepagepUows.l
Received and accepted for and on behalf of the Gov ms mi m O* no Kurdistan Region Of
IRAQ
Br..........................................
On bchall of the RICION Ai COUNCI I
ior mi on and Gas AnAiRsor me Kurdistan Region - Iraq
Br.....................-...................
On bchall of the Ministry of Natural Resources in thi
Kurdistan Region
I Signature page At Guarantee of Marathon Oil Corporation in favor of the Government of the KurJntan
Regain (Safen) I
9