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January 20, 2004


Preamble ................................... 4

Article I Definitions.............................................................................. 5

Article 2 Scope of Agreement and General Provisions............................. 11

Article 3 Agreement Area........................................................................12

Article 4 Agreement Term.......................................................................13

Article 5 Relinquishments........................................................................ 13

Article 6 Co-ordination Committee ..................................................... 13

Article 7 Contractor Responsibility........................................ 16

Article 8 Procedure tor Determination of Commercialny and

Approval of Development Plans............................................ 17

Article 9

Annual Work Programs and Budgets...................................20

Article 10 Allocation of Production. Recovery of Costs and Expenses,

Production Sharing and Right of Export ...........................22

Article 11

Crude Oil Valuation................ 24

Article 12 Ancillary Rights of the Contractor and Operator....................... 25

Article 13 Assistance Provided by the Govcmorate ..........................27

Article 14 Measurement, Quality- and Valuation of Petroleum ........28

Article 15 Natural Gas...............................................................................29

Article 16 Tax/Fiscal Regime...................................... 32

Article 17 Accounting. Financial Reporting and Audit............... 33

Article 18 Currency. Payments and Exchange Control.............................33

Article 19 Import and Export.....................................................................35

Article 20 Export of Hydrocarbons. Transfer of Ownership

Article 21 and Regulations for Disposal...............................................35

Ownership of Assets.................................................................36

Article 22 Insurance. Environment. Health, Safety oral Liability................36

Article 23 Peisonncl............................ 40

Article 24 Force Majcure...........................................................................41

Article 25 Assignments and Guarantees................... ......................41

Article 26 Agreement Enforcement and Stabilisation and Representations

and Warranties 44

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Unuiv 31. !»W

Article 27 Notices and Confidentiality.................................................45

Article 28 Tcxmination and Breach............................................... 47

Article 29 Dispute Resolution.................................................................47

Article 30 Text ............. . ^^

Article 31 Approval and Effective Date.....................................................48

ANNEX A AGREEMENT AREA................................ Total < I) page

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

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Thu Agreement is made and entered into on January 19. 20IM by and between

• I > The Kurdistan Regional Government (hcreirufte* referred to as "the

G*v (mmcnl'l as The party- of the first pan.

|2) a» part) of the second pan. God Eociji A S (hereinafter rctvrred to as “the


Tlie Government and the Contractor may sometimes be relencd to .is "Party" and

collectively as the "Panics".


WHEREAS, live people of the Kurdistan Region of Iraq (hereinafter referred to as

"«)W Kuiiliitaii Region") have chosen a Regional Assembly through democratic


WHIRIAS. the Kurdistan Assembly has formed u Government fra the Ktndistan

Region, ami has uncled laws that govern ihc Kurdistan Region.

WHEREAS. the jieople of the Kurdistan Region own ilk- natural icsources of the

Kurdistan Region, and the Government of the Kutdistan Region therefore has the

power to exploit those resources for the benefit of the people of the Kurdistan Region.

WHEREAS. Patriotic I'ninn of Kurdistan and Kutdistan Democrat.. Party together

with the Department of Male of the I msed Stales of America entered into the Final

statement on September 17. 1998 in Washington DC (hereinafter referred 10 as

“Final Statement").

WHEREAS, the Final Statement is determining the administration «*l the Northern

Iraq as well as the governmental rights.

WHEREAS, the Government, m the context of its commitment to Iraq's tomlnrial

integrity, enters into this Agreement wishing to promote the development of the

Agreement Area and Ihc Contractor desires to join and assist in the exploration

development and production of the potential resources withm the Agreement Area.

WHEREAS, the Contractor hat the requisite technical, managerwil and financial

capabilities and experience to cany out Petroleum Operations uipu ated in this

Agreement and desires to cooperate with the Government for the exploration and

exploitation of Petroleum mcoe> within the Agreement Area, jrv!

WHEREAS, the Parties have agreed that in order to promote the tWvelopnienl of

hydrocarbon resources in the Kurdistan Region and to promote international

investment in the Kurdistan Region. Petroleum Operations should l*c earned out

pursuant to the terms of this Agreement.

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NOW. THEREFORE. in consideration ol the promises and tlw mutiwl covenants and

conditions herein contained, it is hereby agreed as follows:

M<1 ><■ !.»: i

The following words and terms used in this Agreement shall unless otherwise

expressly specified in this Agreement have the following respective meanings

I I ••Accounting Procedure” means the accounting procedure set mu in Annex

"B" hereto.

I 2 An “Affiliated Company" or "Affiliate" means

with respect lo a Contractor Party: a company, corporation, partnership or

other legal entity

i> in which a Contractor Pally owns directly or indirectly more than fifty

percent (50%) of the share*, voting rights or otherwise has live light to

establish management policy; or

ii) m which at least fifty percent (50%) of the shares or voting rights arc

owned directly oi indirectly by a company or other legal entity, which

owns directly or indirectly more than fifty percent (50* -)of the vhaics.

voting lights ot otherwise has the nght to establish management policy

of a Contractor Parly;

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

w ith all attached Annexes and any variation, extension or modification hereto

w hich may be agreed in writing by all the Parties.

I 4 "Agreement Area" means the aica specified in Article 3 hereof and delineated

in Annex A. as reduced or enlarged from lime to time in accordance with the

provisions of this Agreement

I.5 "Agreement Year" means a period of twelve (12) consecutive months from the

Effective Date wiihin the term of the Agreement

16. "Annex- or “Annexes" means each or both of the Annexes “A" and "B"

attached to this Agreement and made a part hereof In the event of a conflict

between the provisions of an Annex and a icrm in the mam body of this

Agreement, the provisions of the latter shall prevail

1.7 "Appraisal" means all works carried out by Contractor to evaluate and

delineate the commercial character of a Discovery of Petroleum in the

Agreement Area

I X “Appraisal I \penscs” mean* all CoSt and Expenses incurred for Appraisal


I 10 “Associated Natural Gas” means all gaseous hydrocarbons produced in

association with Crude Oil. which Crude Oil itself can be commercially

produced ami separated thereftom

III “Authority" means any ouiHoHmhI bo<1y of the Government

I 12 “Available ( rude Oil” means Crude Oil produced and saved from the

Agreement Area and not used m Petroleum Operations in airtdince with

Article 10.2

I 13 “Available Natural Gas” means Natural Gas produced ami saved from the

Agreement Area and not used in Petroleum Operations in accordance with

Article 10 2

1.14 “Barrel" means a quantity consisting of forty-two (42) United Stales gallons

liquid measure, corrected to a temperature of sixty degrees t<«0**> Fahrenheit

w ith pressure at sea level.

I 15 ’•Budget" mi'nns the estimate of the expenditures, hated cotegoiy-by-cutcgnry.

relating to Petroleum Operations and contained ill any Work Program

proposed by ( omractor

brgiMung on January lit. April Id. My 1« and October I si of each Calendar

117 “Calendar Year" or “Year” means a penod of twelve (12) consecutive months

beginning on January 1st and ending on December 31 si in the same year.

I 19 “Commercial Discovery” means a dneovery of Petroleum that the Contractor

in its sole discretion in accordance with the ptovniom of Article 8 commits

any other relevant factors) as are worthy of commercial development.

1 21 “Co-ordiiMiion < ommittee” means the committee composed ol representatives

of the Contractor and the Government constituted in accordance with Article


Recovery Natural <>as 0.1 and Com

“Cost Recovery Crude Oil” is defined as set fonh in Article 10 4

1.24 “Cost Recovery Manual < inn" is tie filial as set forth in Article 10.4

1.25 •‘Costs and expenses" comprise the exploration Expenditures. Appraisal

Expenses. Development Expenditures, Operation Expenses and Drilling Costs

together with Finance C osts whethri directly or indirectly inclined by


1.26. “Crude Oil" means crude mineral oil, asphalt ozokerite and all kinds or

hydrocarbons whether in a solid, liquid or mixed state at the wellhead or

separator or which is obtained from Natural Gas through condensation or


1.27 “Cumulative Production" menus the cumulative total crude oil production

from the Agreement Aren commencing from the date ol the Effective Date nl

this Agreement.

I 28 “Current Legislation" menus Inw*. legislative nets, and normative documents

that are effective on the Effective !>nlc in the Kurdistan Region.

I 29 "Customs Duties" means nil import (oi export) tariffs and duties and olhei

mandatory payments us stipulated by applicable laws, regulations or other

legal measures of the Kurdistan Region with icspcct to the import or export of

materials, equipment, goods and any other similar items.

1.30 “Daily Production" means the production of Crude Oil smiting from the

midnight of any day until the first following midnight

1.31 “Development Area" means all or any part of the Agreement Area specified m

an approved Development Plan.

1.32 "Development Expenditures" means all Costs and Expenses lor |>cvclopmcnl

Operations with the exception of Operation Expenses and Drilling Costs

whether directly or indirectly meuned. including but not limited to training,

administration, service, Finance Costs and related expenses

1.33 "Development Plan" means the plan to he produced by the Contractor m

accordance with Article 8 6 following a declaration that Commercial

Production may he established.

1.34 “Development" or "Development Operations- or ••Dcselopmcnt Work" means

and includes any activities or operations associated with work ro develop

Petroleum for production and subsequently to produce and lender Petroleum

marketable for commercial sale and shall include, but nor limited to:

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

the drilling of welb. ocher than Exploration •HR the deepening,

reworking, plugging back, completing and equipping of such wells,

together with the design, construction and installation of such

equipment, pipeline or gathering lines, installations, production units

and all other systems relating to such wells and related operations in

connection with production and operation of such wells as may be

necessity in conformity with sound oil field practices in the

international 1'eiroleum industry.

b) oil operation* and activities relating to the servicing and maintenance

of pi|)cliiics. gathering lines, installations, production units and all

iclatcd activities for the pnxluclion and management of wells including

the undertaking of re-pressurising, iccycling and other operations

aimed at intensified recovery, enhanced production and oil recovciy


1-35 '•Discovery" means the Petroleum encountered by drilling a structure which is

recoverable at tiie surface in a How measured by conventional petroleum

indusny testing methods.

1.36 "Dollar" or "U.S.S" means the currency of the I nited States ot America.

1.37 "Double Tax Treaty" means any international ireaty or convention (of the

avoidance of double taxaiion of income anchor capital which is applicable or

will be applicable in the future, in the Kurdistan Region

I 3X "Drilling Costs" means all expenditures whether directly or indirectly inclined

during Exploration, Appraisal and Development for well drilling, compicimr

and reworking operations including, but not limited to. labour, geological

design, engineering and other Subcontractors, (including all lees, tariffs and

charges payable to any such Subcontractors), material and equipment

consumed or lost, perforation, formation testing, cementing, well-logging anv


I ‘9 "Effective Dale" means the date on which this Agreement has hem signed b\

all Pollies ami the requirements of Attic Ic ‘1 hue been saiisl* 1

I JO “Excess Associated Natural Gan" is defined ns set tor: n Aim «• I ‘ I h

1.41 "Exploration” oi "Exploration Operations" means operations conducted under

this Agreement in connection with the Appraisal Program, exploration fot

previously undiscovered Petroleum, or the evaluation ol disc ovcied reserves

which shall include geological, geophysical, aerial and tofhei survey)

activities and any intciprctalion of data relating thereto as may he contained in

Exploration Work Programs and Budgets, and the drilling of such shot holes,

cote holes, stratigraphic tests. Exploratory Wells lot the discovery of

Petroleum, Appraisal wells and other related operations

1.42 "I xplorution Area" means any part of the Agreement Aren which is delineated

as the subject of an Exploration work prog rum and budget in accordance with

Article 5.

I 43 “Exploration Expenditures" means all Costs and Expenses lot Exploration

Operations other than Drilling Costs whcthci directly or indirectly incurred

inc luding but not limited to training, administration, service. I inuncc Costs

ami related expenses anil overhead and study costs.

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 I 44 I xplotaiory Well' mcnt any well drilled with ihr objective M confirming a

structure or fNio|K nap m which Pcliolcum capable -.1 Commrrcial

Production in significant quantities has nol been |hc\ k«ui!v docoicicd

and charges paid in respect of am debt incurred m carrying out the Pclc\»m

Ope l alum* and any refinancing of such debt*. up lo an aggregate amount of

tlnec million five hundred thousand (3 500 000) Dollars providing that in the

cjm of Militate debt, it shall include inicreil only to ll*e extent that u docs nol

exceed a calc which would have been agreed upon between independent

iwitiev in ximilar Circumstances and such imereti is not limned by which

axsi tx oi service* are purchased by the loan principal.

I 47 "I one Mljcurc" is defined ns set forth in Ank le 24.2

I 48 "I orcign I mployce" is defined as set forth in Anicle It.

! 49 I orcign Subcontractors” means Subcontractors which are organised outside of

the Kurdistan Region and undo ( uncut Legislation ore nut obliged lo

; offices in the Kurdistan Region

1.50 "

•mocrated Natural (*as and Associated Natural Gas m accordance with the

pmiumofARKlc 15 I or 15 2

la^TS aTrctIwic aTluriry ***

I 52 Handoset Due" Fcbnsarv 25. 2003

I 53 "Joint Operating Agreement" or “JOA" means the agreement to he concluded

if necessary between the Contractor and the third parties which shall be

supplementary K> and consistent with the precisions of ltn* Virement and

1 M "Measurement Point" means the location specified in Article 4 2 as identified

in an approved Dexelopmcnt Plan, where lire Petroleum is mcicrcd and

delivered to the Parties or such other local**! as the Parties may agree from

1 56 Natural (a*" means Noo-auocmrd Natural (.as and AuocuKd Natural Gas

in their natural slate

I 57 ••Natural Gas Field" means a field from which more than fifty (50) percent of

tlic estimated reserve* on an cnetgy equivalency ham ate Natural Gas at

1.58 surface conditions

"Non-associated Natural Gas" means all gaseous h>drocarhons produced front

gas wells, and includes wet gas. dry gas and residue gas remaining after ilie

1.59 extraction of liquid hydrocarbon* from wet gas

'•< loxemment" means the Government of the Kurdistan Region. Council of

Ministers and all political or other agencies or inxliumcntalilY or subdivisions

thereof including hut not limited to any local government or olhci

icpresemative. agency or authority, which has the authority to govern,

legislate, regulate, levy and collect taxes or duties, grant licences, permits,

1.60 approve or otherwise impact |whether financially oi olhciwiscl directly or

indirectly upon any of the Paines* rights, obligations oi activities under the

Agreement; the word “Governmental** shall he constnied accordingly

“Oil Field” means a field from which more than fifty (50) percent of the

estimated reserves compnse Cnidc Chi

1.61 “Operation Expenses" means those costs incurred in day-to^lay Petroleum

Operations, whether directly or induced) incurred including but not limited to

all costs, expense* and expenditure* associated with the Production,

processing and tiuns|)OrtaifOII to Ihc Measurement Point ->! Petroleum,

1.62 training, administration, service, pay menu foe abandonment and rite

restoration in accoidanec with Article K.8. insurance .< - ......with

Article 22.2 and related expenses.

■'Operator*' means a person appointed as such pursuant to Ankle ~

1.63 "Purty" or "Panic*” means the parties whose authorised icprcscntativcs have

.1 Mixed their signatures hereto

1.64 ••Petroleum' means Crude Oil and Naniral Gas.

1.65 "Pcirolrum Operations" means the Exploration Operations: the Development

(Operations. Production Operations, and transportation to the Measurement

Point and other activities related thereto earned out pursuant to this

1.66 Agreement and the JOA.

■■petroleum <>perations Account" shall have the meaning given to »l in

paragraph 1 4 of section I of the Accounting Procedure

1.67 "Production" or •■production Operations” means operations and all related

activities carried out for Petroleum production after iIk approval of any

Development Plan, including without limitation extinction, infection,

stimulation, treatment, transportation, storage, lifting, and associated

1.68 operations, hut doe* nor include any storage or transportation beyond the

Measurement Point

“Profit Natural Gas" is defined as set forth in Article 10.9


169 “Profit Oir is defined as set forth in Article 10 9

I 70 “Royalty- mean* the percentage of Crude Oil produced and saved Irwn the

Agreement Area allocaled lo« the Government or any authority as dele mimed

by the Government at determined in Article 10 14

I 7| “Study Area- meant the part of the Agreement Area, which will he defined in

a Study Program

I 72 "Study Program" meant the peograrr to be produced and earned out by ihc

Comraclor in accordance with Article 8 following the conclusion that

Commercial Production is feasible.

1.73 -Subcontractor- means any natural person or juridical entity other than llie

Operator, agreed directly or indirectly by or on behall ol Corn ratio* to supply

goods, works or sen ices related to this Agreement

I 74 “Third Party- or “Third Parties" means one or more ol a natural person <*

juridical entity other than a Party hereto and any Affiliate ol a Party

1.75 “Taxes- means all lose*, duties, payments, lees, taxes < including but not

limited to VAT. profit tax. dividend tax. transfer tax. customs dimes) or

contributions payable to or imposed by tkoemmcntal agencies. Governmental

subdivisions or republican, municipal or local authorities within the Kurdistan


I 76 "Transfci of Operation' means the Petroleum Operations the held are

transferred to the ( ontractoi

1.77 ''Transfer of Operation Date" means the dale the Handover ol Operations


1.78 "VAT" means value added tax applicable in the Kurdistan Region

1.79 "W ithholding Tax" is defined as set forth in Article 16.4

I 80 "Work Program" and "Work Program ami Budget means any work program

and work program and Budget to be submitted to the Co-ordination

Committee by the Conttoelot in accordance with the provisions of Article 9

and which shall set out the proposed Petroleum < Ipcrntions to Ik- earned out in

the Agreement Area dining any Calendar Year together with the associated

Budget as the case may Ik



.' I Subject to the terms and conditions of Ihc Agreement. I Ik- t no -inmcnt hereby

in accordance with ( uncut Legislation grunl.s lo Ihc Conlinctoi the exclusive

rights to conduct Petroleum Operations in the Agreement Area during the term

of this Agreement

 2 2 The Contractor shall be responsible lo ihc Govemnicnl lor the execution of

such Petroleum Operations in accordance with the- provisions of the


2 } In pcflonning I'cttokum Operations, the Contractor shall pros ide all financial

and technical requirement*, unless otherwise provided in this Agreement and

coikIuci all operations in accordance with the standards generally accepted in

the international Petroleum industry

2 •( The Contractor shall be compensated lor its services, not by wuy of

reimbursement in cash of its expenditures under the Agreement. but by receipt

of its share of Petroleum from the Agreement Area to which it may become

entitled by w ay of cost recovery’ out of Cost Recovery Petroleum described in

Article 10 If Petroleum produced from Development Areas within the

Agreement Area developed by Contractor. Cost Recover. Petroleum under

Article 10 and Profit Oil and Profit Natural Gas i> invurikieni to ieimt'oiv<

Contractor lor Costs and Expenses incurred by Contractor. Contractor i».i

bear its own losses in respect of any shortfall.

2.5 This Agreement defines the Panics' rights and obligations, governs their

mutual relations and establishes the rales and methods fb» the Exploration.

Development. Production, and sharing of Petroleum between them The enlire

interests, rights and obligations of each of the Panics under this Agreement

shall be solely governed by the provisions of this Agreement and Current


2 0 During the petiod in which this Agreement is in forte, all Available < rode Oil

and Available Natural Gas mulling from Petroleum t Iperatmns. will be

shared between the Government and the Contractor in accortlancc with the

provisions of Anicle 10 and Article 15 of this Agreement



VI Tlte Agreement Area is as set out by the geographic locotion and co-ordinates

described in Annex "A" attached hereto and delineated in the map. which

forms part iheteof The total area of the Agreement Area may hereafter he

reduced only hi uwordunce w ith ihe provisions of this Agreement

’ 2 Except for rights and authorisations necessary lot the implementation of the

provisions of this Agreement, and except as otherwise provided herein, no

right is granted to the Contiaclor. Of to any other entity, to use or dispose ol

any nalural or manmade resource*, including aquatic resources save for

aquatic resources used directly in Petroleum Operations in accordance with

relevant permits which have been obtained through the i iovernmeni


I '>**»*.--- *••---( *,!>•"» >1

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4 I The term of the Agreement shall Ik deemed to have begun on the Transfer of

Operations Date and shall continue foe a total of twenty-five (25) consecutive

Agreement Years, units, the Agreement - sooner terminated m accordance

w*h Article 28 of thu Agreement

4 2 If III respect of any Development Atca. Commercial Production remains

possible beyond the initial |ieriod of twenty-five (25) consecutive Agreement

Yeats specified in Article 4 |. the Contiacto*. after giving notice to the

Oovemmeot at least one (I) >ear poor to the end of any such period, and aftci

obtaining approval by iIk < o«*idinaUon Committee of a revised Development

Plan shall be entitled to have an extension of the term of this Agreement with

respect to such Development Atca few an additional term of five (5) veais or

the producing life of the Development Area, whichever is lesser, subject to tin

approval of the Government, and such approval shall not he unreasonably


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' I Ihc Contractor may at any lime relinquish voluntarily all or any pail ol the

Agreement Area without any lurlhei liability Such voluntary rcliiH|tii*limail

Will be deducted bom lh> ( ont'.u t"t's mandatory relinquishment obligation

rhe area designated under Article 5 for relinquishment shall consist as far as

piacticabk of rectangular blocks hounded hv lines running due north and

south and due cast and “t»t and shall not he less than five (5) square


a) That pan of the Agree met* Are*, if any. that the Contractor propose, to

designate at a Development Are*.

b) TTwt pan of the Agreement Area, if any. that the C ontractor proposes to

designate as an I xplorution Aren;

i) Hint pan of Ihc Agreement Aten, if any, that the ( onliactor proposes to


5 } With respect to tits hum in ( Imisc 5 2(b). the ( unlractoi »:ll ptepni. mul

submit a Development Plan, lit ..ccotdancc with Article 8. within three (.')

 5 4. With respect lo ll»c area in QMH 5.2(b). the Coniiaclor will propose an

>rl been designated M a Dc\rk>f*i*etit Area at made the subject of an

ot a elation program The C urt/actor nu> retain the oOk. fifty

percent (50%) provided that the Coordination ComnnOec is 'Oiisficd that a

\HII« I I 6

6.1 For lhe purpoae of providing the overall supervision and direction of mill

ensuring the performance ol the Petroleum Operations, the Government ami

tin Contractor shall establish a Co-ordination Committee within I’orly-livi

(45) days of (lie lilfecllvc Dale

6 2 The Co-ordinalion Committee shall oomptisc a maximum total of (out (41

members. The Govcmmeni shall appoint a total ot two (2) representatives ami

Contractor shall appoint two (2) teptewntatixcs lo form the Co-ordination

Committee All the aforesaid representative* shall luxe the right lo atlrnd and

I be

of lhe CoKwdr Ct

0 * The first Chairman of the Co-ordination Committee shall one of the

icprcsenlathcs designated by the Government (or his alternate), and the liixt

Vice Chairman shall be the chief representative designed by the Contractor

(or his alternate) The Chauman and Vice Clumnan shall be appointed fot a

term of mo (2| years The Chairman of the Co ordination C ommittee shall

i (or his alternate) the Vicc-O

64 A of the Ci shall be held at

every The secretary to be to Annie 6.9 shall be

for calling such regular

and shall do so at the request of t by sending a notice to the

Other meetings, ift nay be held at am time at the requ* d of

Pam In each case the i shall give the Parties at least thirty (JO)

da vs nonce to* such i of I

of the

6 5 IV


 a) review and adopt a proposed Development Plan as set «wi in Article S.

and review and examine any Wort Program and Budget propiwed by

b| detemnne the Commercialiiy of each proposed Development


c) review and adopt proposed Development Operations and Budgets:

d| approve ot confirm the following items ol pi««mvmcnt and


approve procurement of any item within the Budget with “ unit

price exceeding Two Hundred and fifty IIioumukI U.S.S (U S.S

250,000) or any single purchase order of total monetary value

exceeding One Million U.S. $ (U.S.$I,(IO&000).

ii> approve a lease of equipment, or an engineering »ub Agreement

or a service Agreement within the Budget worth mote than Five

Hundred Thousand U.S. S (IJSS500.000) in Mai. and

■iil approve excess expenditures pursuant to Article 9 •! hereof and

the expenditures pursuant to Article 9.5 hereof.

e) demarcate boundaries of a Development Area

0 review and approve the insurance program proposed by the Contractor

and emergency procedures on safety and environmental protection, in

addition all programs and budgets which are in connection with

environmental protection.

g) rev ww and approve peisormel policies, selection and training programs

for Operator, Without prejudice to the foregoing, n «v accepted that

pan of the personnel policy of Operator shall be to give prclctence to

local citi/rns. provided that the conduct of Petroleum Operations shall

not be affected;

h) discuss, review, decide and approve other matters that have been

proposed by either Party. Contractor or the Operator.

0 review and discuss the development wort and technological regimes

proposed by the Parties.

oTpetrolcvim Oprratmna. which the Co-ocdn»bon O-nrorttcc dunks


k> review and adopt proposed exploration work programs and


. aO

iMU. > >W

I) review will approve (he Costs and Expenditures incurred between the

Handover Date and the Effective Date.

6 6 The meeting quorum of the Co-ordination Committee shall require the

presence of at least one (I) representative from each Party Decisions of tl*e

Co-ordination Committee shall be made by unanimous decision ot the

tcprescntstivcs present and entitled to vote Each repiescntmivc will have one

vote All decisions made unanimously shall be deemed as tormnl decisions

and shall he conclusive and equally binding upon the Parties.

ft.7 I he Parlies shall endeavour to reach agreement and unanimous decision on all

matters presented to the Co-ordination Committee. Where llicic is

disagreement between tlx- Panics regarding any matter arising under Article

6.5. or regarding a proposed Development Plan, the mallei " ill be referred to

an internationally recognised independent expert appointed by the Parties (or.

where the Parties fail to appoint such expert within fifteen < 151 days, then as

appointed by the United Kingdom petroleum institution Chaiimon). whose

decision on accepted international Petroleum Industry piaclice shall be final

and binding. Tire costs of the expert shall be met bv the Paines equally and

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

However, where there is disagreement regarding any matter relating to

investment, or any matter relating to a Cost and Expense- loi Petroleum

Operations under u Work Piogram and Budget consistent with the

Development Plan, or relating to un Exploration Worts Piogram or budget,

then the Comtuc lot's proposal shall prevail

ft 8 A mailer, which requires urgent handling, may be decided by the Co¬

ordination Committee without convening a meeting, with the Co-Oidinacion

Committee making decisions through ekcliinu means or the circulation of


6.9 The Co-ordination Committee shall nominate a secretary, to record minutes of

the meetings of the Co-ordination Conimniee. and may establish technical and

other advisory sub-committces. The solidary slull take a record of each

proposal voted on and the results of such vole at each meeting of llic Co¬

ordination Committee. Each representative of ihc Parties shall sign and be

prov ided u ith a copy of such record at the end of such meeting I lie secretary

shall piovidt each Party with a copy- of the minutes of each meeting of llic t o-

ordination Committee within fifteen (I ') days after the end of such meeting

Each Party shall thereafter have a period of fifteen 115) days to give notice ot

any objections to the minutes to the secretary, failure to give notice within

the said fifteen (15) day period shall be deemed approval of those- minutes In

.my event the record of proposals voted on to l>c provided at the end of each

meeting shall lx- conclusive and take precedence ovei the minutes.

6.10 Ml costs and expenses incurred with respect to ihc activities of the Co¬

ordination Committee shall be paid m reimbursed by the Coniiactoi ami

Charged to Operation Expenses in accordance with the Accounting Procedure

 AKT.H l>. ■

< <>>TRxrro.R.|l,,NS|“lj jt\

The Parties agree that Genel linerji AS. shall act as the Operator for

Petroleum Operations within the Agreement Area in accordance with

approved Work Programs and Budgets unless otherwise stipulated in this

Article 7. until the approval of lire appointment of a new Operator by the

Panics Following the appointment of a new Operator, that Operator shall act

as the destgnaied non-profit agent of the Contractor foe the conduct of

Petroleum Operations in accordance w ith this Agreement and any future JOA

to be entered inro Under such circumstance of an appointment ol a new

Operator, the Contractor's overall joint and several liability for the acts and

actions of the new Operator will continue

The Contractor shall have the following obligations:

a) to perform the Petroleum Operations reasonably, economically und

efficiently in accordance with directions received front rise Co-

oidination Committee li is recognised that the Co-ordination

Committee through the Contractor will have operating control of all

Petroleum Operations;

b) to conduct (implement) the Work Piograms and Budgets approved by

the Co-ordination Committee;

c) to be responsible for purchasing facilities, equipment and

miscellaneous material and enter into subcontracts and service

contracts at Contractor's instruction with service providers and vendors

related to the Petroleum Operations, in accordance with approved

Work Programs and Budgets and instructions from Contractor

Jl io prepare and submit for approval a personnel training program and its

annual budget and carry- out tlie same as ap|«o»t


e) to establish and maintain complete and accuiaie accounting records

regarding us costs and expenditures for the Petroleum Operations in

accordance with the Accounhng Procedure and this Agreement.

f) to make necessary prcparatior. for regular meetings of the Co¬

ordination Committee, and to submrr to the Co-otdm.iiion Committee

infnrmanon related to the matters reviewed and approved by the Co¬

ordination ( ommittcc:

g) ro assist the Contractor and the Ciovcmmem as rotnested in the

provision ol reports to rhe Co-ordination Committee on Petroleum

()pcralions conducted under this Agreement

....................... iUnrlBm ■

imi Sli»Mt AiiniiM*

jo. JMM

 7.3 Ihc Contractor and itt shareholder. shill not be responsible lot any activities

(including Petroleum activities) affecting the Agreement Area prior to the

Transfer or Operation Date

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

reports petto in mg to Petroleum Operations (including but not Ik- limited to

geophysical, geological, technological, operational, accounting or other

material) required by such Parties.

7.5 Tlie Contractor dull nuke good faith efforts to ensure that thud parties have

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

requirements available to third party users on reasonable commercial terms

that do not discriminate among third party users

7.<> live ConliactOI will lie liable to conduct the Minimum Work Program, os

proposed by the Contractor, to dull two (2) wells to u minimum depth to reach

the deepest production /one oi otherwise agreed by the Co-ordination

Committee, or, taking into consideration the export opportunities, more wells,

in the Agreement Area Tlie minimum expenditure in such Minimum Work

Program shall not be less than five million Dollars lS5.0

proposed Minimum Work Program shall be submitted >i\ (6) months

following the Effective Date, to cover the twelve (12) month period following

the Effective Date.

MMiq.i: H


approx AI tn m \ n qpmfniTLyV

8.1 (Ji Where, m the course of Petroleum Operations the » nofraclor makes a

Discovery of Petroleum m the Agreement Area the ( ontracwr shall

inform the Co-ordination Comminee immediately h> imkc in writing

Within forty-five (45) days of such notice the CoMraclor shall inform

the Co-ordination Committee whether, in the Contractor's opinion. the

Discovery is of poicntul commercul interest anti menu appraisal

(b) If at any time the Contractor concludes that additional

Commercul Production is feasible from any Development Aira within

(he Agreement Area where Commercial Production has pro mush

Committee within forty-five (45) days of reaching such a conclusion

8 2 Immediately following notification under S.l.(a) or 8 I (hi. ihc C ontractor

shall in the first instance present to the Co-ordination Committee lor approval

a proposed Study Program which shall be deemed approved it no written

objections aie raised by any member of the Co-ordination Committee within

thirty (30) days following receipt thereof The proposed Study Program shall

specify m reasonable detail the appraisal work including seiMiuc. drilling of

wells and studies to be earned out and the estimated lime frame within which


the (’ontraclor shall commence and complete the program anil also appropriate


8 3 Thereafter the Contractor shall early out the Study Program approved by the

Co-ordination Committee Within ninety (‘>0) days after completion of such

Study Program, the Contractor shall submit to the Co-ordination Committee a

i omprehensive evaluation teporl on the Study Program. Such evaluation

report shall include, but not be limited to. geological conditions, such as

structural configuration; physical properties and extent of reservoir rocks:

pressure, volume and temperature analysts of the reset voir fluid; fluid

characteristics, including gravity of liquid hydrocarbons, sulphur percentage,

sediment and watei percentage, and product yield pattern: Natural Gas

composition, production forecasts (per well and per Field); and estimates of

recoverable reserves.

8.4 Together with the submission of the evaluation report, the Contractor shall

submit to the Co-ordination Committee a written declaration including one of

the following statements:

a) that the Commercial Production previously notified to the

Government pursuant to Article S.l is feasible:

b> that such ( ommcri Production is not feasible (contrary to the notice

containing Contractor’s initial expectations): or

c) that Commercial Production will be conditional on the outcome of

further specified work that the Contractor commits to carry out undci j

further Exploration or Study Program in specified areas within or

outside the relevant Study Area

8.5 In rhe event the Contractor makes a declaration under Article 8.4.(cJ above,

the Contractor shall be entitled to retain the relevant Study Area pending llie

completion of the further w ork committed under that Article, at w hich time the

Contractor shall advise llie Co-ordination Commuter of its conclusion as to

whether or not there is in fact a new Commercial Discovery and the provisions

of Article 8.4 (a) or (b) shall he applied accordingly.

8 6 If the Contractor dcclatcv puiMiant to Article 8.4(a) that Commercial

Production is feasible, the Contractor shall submit to the Co ordination

Committee (i) a proposed Development Plan m respect of the relevant

Commercial Discovery (containing the matters specified in Article 8.7 and

8.8) and

shall be subject to the Co-ordination Committee's approval Such approval

will not be unreasonably withheld oi delayed, provided thai each shall be

deemed approved as submitted if no written objections arc presented thereto

by any member of tire Co-ordination Commincc within forty-five i4S) days of

leccipt Upon approval being granted or deemed as provided under this

Article 8 6. the Contractor, with any requested assistance from the Operator,

shall proceed promptly and diligently to implement the Development Plan in


 accordance * ith good Petroleum inducin' practices. 10 install all

facilities and

8.7 The Cc Plan to be

Amclc 8 6 shall detail the Cc S proposals for Development anJ

operation of the Development Area It will detail any facilities and

infrastructure, which may be required i o to the Measurement Point, cithei

inside or outside of the Development Area Any Development Plan shall set

forth production parameters, number and spacing of wells, the facilities and

infrastructure I including proposed locations | to be installed lor production,

storage, transportation and leading of Petroleum, an estimate of the overall

cost of the Development and estimates of the time required to complete each

phase of the Development Plan, a production forecast and am other factor that

would affect the economic or technical feasibility of the

8 8 Any Development Plan shall also include an abandonment and site rest*'* a non

program together with a funding procedure for such program Each

abandonment plan shall describe removal and abandonment measures deemed

necessary follow ing completion of Production from the relevant Development

Area together w ith an estimate of the costs thereof. The abandonment plan

shall provide for the removal of facilities and equipment used in Petroleum

Operations or their in place abandonment, if appropriate, in the Development

Area and the return of used areas to a condition that reasonably permits the use

of such areas for purposes similar to those uses existing prior to the

commerxcment of Petroleum Operation hereunder All expenditures incurred

in abandonment and utc restoration shall be treated as Costs and Expenses and

recoverable from < iwi Recovery Petroleum in accordance with Article 10 and

the Accounting Procedure The start date for payments to an abandonment

tund. and the method of calculation for periodic instalments to be paid into the

abandonment hmtl, will lie agreed in tin- Development Plan The abandonment

plan and budget shall hr regularly rev iewed by the Co-ordination CommiBOC

Surplus accumulation m the ihatidommmf fund will be credited IO the COM

recovery' account All fundi collected pursuant to the funding procedure shall

be dedicated to site restoration and abandonment and will he placed in a

special interest beamy account by < ontracK*. which shall he held in the joint

names of the Ctovcmment and the Contractor or then nominees The

Contractor s responsibilities for environmental degradation, Mte restoration

and well abandonment obligations, and any other actual, contingent, possible

and potential activity associated with the environmental condition of the

Development Area shall be limited to the obligation to place the funds agreed

to be paid in accordance with the said funding procedure «n the approved

account in accordance with generally accepted inlemaiiivrul Prtiolrum

industry practice. Deposits m approved accounts shall be made on a quarterly

basis in arrears commencing with the first Calcndat Quarter in which there is

Available Petroleum All such payments deposited by Contractor shall be

treated as Costs and Expenses and recoverable as Oprratmn I xpemes trom

Cos Recovery Petroleum m accordance with Article 10 of rtw. Agreement No

Taxes shall be imposed on any amounts paid mto. received earned by or


 held in the special mtcicM Iwaring account The Contractor shall be solely

responsible fix the implementation of the abandonment phn.

8.9 Any significant changes

(dated to extension of a Field Of lor enhanced recovery project* shall be

submitted to the Coordination Committee.

8.10 Subject to the terms of tins Agreement ilic Contractor shall carry out. at its

own expense ami financial nsk, all the necessary Petroleum Operation* to

implement an approved oi icvised Development Plan.

8 11 Where there is a perceived need recognised by the Parties to improve the

rcoiiomic effeclivenes.' ol the IVlioleiini Operations by constructing and

operating certain common facilities with other organisations (including foi

example roads, iion-inipoirnoncxpoil pipelines, compression and pumping

stations and communication lines) the Parlies shall use their best efforts to

reach agreement between themselves and other appropriate enterprises as to

the construction and operation of Mich facilities with all costs, uuifl' and

investments made by the Contractor to lie recoverable as Operation Expenses

in accordance with Article 10 ot the Agreement and Accounting Procedure


AVM’AI. "1»I<_KmWM* NM?.m OC.FTS

9.1 I lie Coiilnictoi shall prepare and submit the Annual Work Progiamf and

Hudgels m contdirnity with rhe approved Development Plan The ( OfWmcior

shall be responsible for ihc procurement of installations, equipment and

supplies and entering into contracts for the purchase of goods and services

with Subcontractors including Foreign Subcontractors and otters arising out

of Petroleum Operations, all in accordance w ith approved Work Programs and

budgets Operator shall assist the Contractor when requeued in respect of the

matters set out in the previous sentence, and shall implement domestK

procurement operations as provided in Clause ~.2.(c) in accordance with

approved Work Programs and budgets For the avoidance ot doubt,

exploration work programs and budgets will be prepared, approved and

implemented in accordance with the provisions of this Article.

9.2 Before the '1st October of each Colcndm Year, the Contractor shall prepare

and submit to the Co-ordination Committee lor its review n proposed nnnuul

Work Program and budget for the next Calendar Year, li the Co-otdinntion

Committee agrees to modifications in an annual Work Program and/or budget,

the Contractor shall promptly make such modifications to the Work Program

.rod or Budget and resubmit the modified Work Program and budget to the

Co-ordinal ion Committee The Co-ordination Committee shall approve coch

W ork Program and Budget within forty five (45) days after receipt of it If the

Co-ordination Committee lads to notify the Contractor of its approval or

disapproval of the Work Program and Budget within said forty-five (45) days

nfiet its receipt, the annual Work Program and Budget proposed by the

h mIhDii HvyttMl uotvmrwttt .|«m( | ««t|t

, .....

 Contractu! together with am mod ilk a lions timely rcxjuctlrd by the Co¬

ordination Committee, shall he deemed to have been apptoved by the Co*

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

Budget, the Contractor and Operator ihall submit to ilw Co-ordinal ion

Committee such supporting data as reasonably requested b> 11k- ( o-otdinalion


') 4 I'ltc Contractor may, in accotdancc with tlsc following provisions, mem

\pc*luliturcs iii excess of tlic approved Budget m cxpendituics outside the

approved Budget in canving out the approved Work Progtuin, ptovided that

the objectives in the appioved Work I'togram aie not substantially changed

a) In canymg out an apptoved Budget, the ( onliactoi max. if necessary,

incut excess expendituics of no mote than ten pm cm t 10%) of the

appioxed Budget in any specified iHHlgrtaiy category fhc ( ontractor

shall report quarterly the aggregate amount of all such excess

expenditures to the Co-ordination Committee for conliimcmon

h) For the efTicient and as required operatise pcrliumjixc of Petroleum

Operations, the Contractor may. without approval, undertake certain

individual projects which ate not included in the Work Piogram and

Budget, for a maximum expendituit of One llurvfced thousand l' S S

(U S $100,000). b*.t shall, within ten (10) day* after such expenditure*

are incurred, report to the Co-ordination Committee for confirmation

Cl F sees* expenditures under this Article 9.4 shall not exceed live peuent

(3%) of the approved or modified total annual Budget lor the ( alendat

Yeat If the aforesaid excess b expected to be in excess of said five

approval prior to incurring such expenditures

9 3 In case of emergency (as in w here there is an immediate threat to life or

property I. the Contractor may incur emergency expenditures tor the amount

actually needed but shall report such expenditures to the t o-ordmation

Committee as soon as they are made The said emergency expenditure* shall

not be subject to Article 9 4 above.

9.6 Petroleum Operations will only be performed in accotdancc w uh the apptoved

or modified annual Work Program and Budget, otherwise they will not be

deemed to be Costs and Kxpcmcs and will not be treated as Coal Recoverable




10.1 Ihe Contractor shall provide or procure Ihc provision of all funds required to

conduct Petroleum Opri.itions under this Agreement, except us otherwise

provided in this Agreement, and the Contractor shall he entitled to recover its

10 2 t osts and Expenses front the proceeds ol Petroleum produced from the

Agreement Area as provided below.

I lie Contractor shall have the right to use lice of charge Petroleum produced

and saved from the Afreement Area to llie extent required tor Petroleum

Operations under the Agreement. The amount of Petroleum which the

Contractor shall be entitled to use for Petroleum Operations amll not exceed

the amount which would lie used by u reasonable and |midcnl operator in

10.3 accordance with international Petroleum iiuhisliy practice I ui the avoidance

of doubt, the use of such Petroleum shall only be lot the tenet it of Petroleum

Operations and not the personal gain of any Party. An appreciate record shall

also be made of the use of such Petroleum

Available Crude Oil and. subject to Article 15. Available Natural Gas

(hereinafter referred to ns “Available Petroleum") shall be measured at Ihe

Measurement Point and shall be sold by llie Contractor and the revenues

determined in accordance with Article 11 generated from the sales of Ihc

10.4 Available Petroleum shall be distributed among the Parties m a tent dance with

the terms of this Article 10.

Royalty calculated Quarterly in accordance with Article 10.13 and 10.14 shall

first lx- deducted from the Available Petroleum Front the renui ony Available

Petroleum the Contractoi shall be entitled to recover all Co*ls .md Expenses

105 •r* uned in respect of Petroleum Operations in a manner coosiueni with the

Accounting Procedure (Annex HI. Article 10 * and Article 10 h

Operation Expensev incurred afttT the Handover Hole will fi.»t he recovered

from the Available Petroleum after deduvium ol Royalty and then shall be

recoverable in ihc Quarter in which such Operation Expenses arc incurred


Capital Expenditure* shall be recovcicd fiom eighty percent (80%) of

remaining Available Petroleum thereinafter referred to as “< ovl Recovery

Crude Oil- and fort Recovery Natural (.as and Cofecavriy fort Recovery

Petroleum- as appropriate) following the recovery of Operation Expenses

10.7 Capiul Expenditures shall be recovered m the Quarter in which such

Expenditures arc incurred

To the extent thai in a Quartet outstanding recoverable < .< « and Expenses,

including Capiul Expenditures accumulated alter the Handout [>»ie. related

to the Agreement Area exceed the value of all Cost Recovery- ( rode Oil or

Com Recovery Natural Gas from the Agreement Area lor Calendar

Quarter, the excess shall be carried forward for recovery m the next

succeeding Calendar Quarters until fully recovered, but in no case after

termination of the Agreement

To the extent that the value of Cent Recovery Petroleum received by the

Contractor from the Agreement Area during a Calendar Qua.let is prater or


 10 9 Effective fiom the Handover l>atc. following lhe tkdurtion nl Royalty

recovery of fo»l» and l-.xpcn.vcs from Coal Recovery Petroleum in

with tin 111*iv i'ii

including any portion of ( out Recovery Petroleum not icanned lor recovery of

Com and l.cpciises (hereinafter referred to as “Profit Oil" 01 Profit Natuial

Gas" ami collectively -profit Petroleum-) shall hr atb*<

I he Ptuftt Oil -ill be

(..Mil I he cumulative Available Crude Oil after deduct**! of the Royalty

reaches fifty million <30 000 000) Kernels the Govcinmem »hurr -ill be eighty

percent and the Conlravtut shite -ill be twenty percent 12«r ->.

Thereafter, until die cumulative Available C rude Oil alter deduction of the

Royalty reaches live hundied million 0| Baucis die Government

share will lie eighty five percent and lire C ontracioi vlunc - ill be fificcn

pet cent l island.

Thnrabn. A.ubMr C rude Oil a Act deduction of the Ron ah- exceeding five

hundred nullum (300 000 000) Barrel* the Government stare -41 he nmety

petceni and the ( ontractor chare «ill be ten percent t H*~*l

Any available Natural Gat. whether Associated or Non-Avucia»ed. -hich the

Contractor intends to produce and sell, shall be tN subject ot llie profit sharing

provisions of the new agreements referred to in Annie I 3

IO 10 I lie Contractor shall prepare and provide the Government not le«* than nmety

190) days pnot to the beginning of each Calendar Qoartri a written forecast

setting out the total quantity of Petroleum that the < ontractor -iimate* can be

produced and saved hereunder during each ol the next font (4t Calendar

Quarters in accordance with accepted international IVtniktMl industry

practices and the Wo-fc Program rstahlished .n accordance - uh Article 9

10 shall pass to the Parties at the Measurement Point, provided that m rhe case

of any sale of Petroleum m accordance with Article IO * beyond the

Measurement Point the C ontractor shall assume credit nail and rnk of lot* in

the respective entitlements of the Government, which -ill In- assigned to Third

Partie s m accordance with appropriate contructa, and iIm ( onlructor to Cost

Rec overy Oil and Piofit Oil until the proceeds oi disposal of the < iovcrnmenl's

en 11 tie merits valued at the Measurement Point are received by the


10 ) the

take all or


pan of ns entnlcmcnt to Profit Oil in kind during one <1) or more subsequent

Quarters. In that event the Panics shall agree on procedure* foi taking

volumes of Crude Oil corresponding lo then respective entitlements on a

regular h3sis and in a manner that is appropriate having regard lo the

respective destinations and uses of the Cnidc Oil. all in accordance with the

provisions of this Agreement. If necessary the Parties will enter into a lifting

agreement selling out the agreed procedure.' for taking volumes of Crude Oil.

and such agreement shall comply with the principles of accepted international

Petroleum industry practice. The Government shall assume credit risk and risk

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

10.13 The Royalty shall be calculated on the production of A» u-blc Crude Oil as

defined below and paid by Contractor to the Government or any authority

as designated by Government in Quarterly instalments ill .meats. The first

payment in respect of production to date shall be made on tin Inst day of the

first Calendar Quarter following the commencement ol Commercial

Production. The Royalty shall be calculated ns tlu following percentages of

Available Crude Oil produced in the relevant Quartet

Four percent <4%) until the Daily Production is twenty thousand 120 000)

Barrels; and

Five percent (5%) the Daily Production exceeding twenty thousand

(20.000) Barrels up to fifty thousand (50.000) Baucis.

Six percent (6%) ihc Daily Production exceeding fifty thousand (50 000)

Baucis up to one hundred thousand (100.000) Barrels;

Seven percent (7®.) the Daily Production exceeding on- Hundred thousand

(1000001 Bartels up to one hundred fifty thousand (150.00OI Barrels:

Eight percent (8%) the Daily Production exceeding one hundred fifty

thousand (150 000) Barrels up to two hundred thousand 1200.000) Barrels;

Nine percent (9%) the Daily Production exceeding two hundred thousand

(200 000) Barrels up lo iwo hundred fifty thousand (250 •«■») Bands.

Ten percent (10%) the Daily Production exceeding two hundred fitly

thousand (250000) Barrels up to three hundred !hmi*and (300 0001


Eleven percent (11%) the Daily Production exceeding three hundred

thousand (300 000) Barrels up to three hundred fifty thousand (350 0001

Barrels: and

Twelve percent (12*4) Ihc Daily Production exceeding three hundred fifty

thousand (350.000) Barrels:

of ihc Available Crude Oil.

In each case ihe daily rale of production shall be measured as the average daily

rate of production during Ihc relevant Quarter Royally in respect of Available

Natural Gas shall be determined by agreement made in accordance with

Article 15.

10.14 The Royalty payment shall be calculated ftom the value of Crude Oil at the

Measurement Point as determined in Accordance with Article 11

■ lllilM.1 KlVMflU >.<>. I Ml|l

Mjnry Atrcotnl

)••••*' 2».



(Rl 1)1 CHIN Ml XII...N

III If the C ontractor can demonstrate that Petroleum is being sold to an

independent thud pany on an aims length ham. then the ( rude Oil shall be

valued as the actual revenues received by the Contractor tor sales of Crude Oil

at the Measurement Point (adjusted if necessary for transportation, storage and

processing costs). If however such an independent third party sale cannot be

demonstrated then the Parties agree that the value of the Crode Oil. if sold on

International Markets, shall be adjusted to the international market price for

C rude Oil from nme to time In this case, for the purpose ot determining the

value of the Petroleum taken and disposed of by ihc Panics anJ ot then

assignees under this Agreement during each Calendar Quartet. The Parties

shall, prior to the commencement of Commercial Production, agree upon the

harket of Crude Oik freely traded in international markets and rrtened to m

subparagraph a) below and the value of the Petroleum shall be adjusted to

reflect the weighted average of daily f ob prices for Agreement term of sales

Calendar Quarter of such backet of crude oil. it being understood that the

following principles will apply

a) The weighted average of ihc basket 'hall be such that the average

gravity of the basket and the average gravity of the < ’rude Oil produced

under lh» Agreement arc equal, and

l>) Ihc prices for individual referenced crude oil markers used wilhfn iIn-

basket shall be based upon the arithmetic average of a daily repon o!

the actual price for each referenced crude oil marker as published in

agreed internationally recognised publications: and

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

take account of transportation costs involved in Crude Oil produced

under this Agreement arriving at a designated sales point (where the

sales point is not the Measurement Point) ami to uikc account of

gravity variation beyond a pre-agived range, and

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

price shall serve as the provisional price for u Calendar Quarter until a

new price is determined.

! 1.2. Ill the event that the Parties aie unable to agree upon the basket of Crude Oil

envisaged in Article 11 1 above, or the principles ivlutmg thereto, then either

of tin- Panics may icfci the question for a final, nott-revisjible dcicrnttnation

by an independent expert designated by ihc UK Institute ol Petroleum.

Pending such determination, the price shall he as determined in Article

11.1 (d) above.

A iaM«» geywal (^rnwa l~a«t fur.


 II 3. Natural Gas sold in arm’s length transactions shall be valued at the actual

revenues received leu tramporiation. sioragc. treatment processing, marketing,

distribution, liquefaction and all other associated costs incurred by Contractor

beyond the Measurement Point in supplying Natural Gas to customer* beyond

iltc Measurement Point Natural Gas sold in other than arm's length transactions

'hall be valued in accotdance with the leims of an agreement made under

Article 15.


12.1 In addition to the rights to carry oat Petroleum Operations within the

Agreement Atea the Government shall provide or otherwise procure access by

(ontracior to all earning facilities and inframuctare m the Agreement Area

owned by the Government for the purpose of carrying out its Petroleum

Operations during the term of the Agree mem Such access shall be on terms

as regards access and utifTs no less favourable than those ottered to other

persons or entities, in addition, m any case «* ithin the ( urreni Legislation The

( ontiactor will rcmibuise the value dcleinnned. foi the supporting facilities

unlived by the operation personnel levs hiding Petroleum ProdiK'tion

AcilltlM) lecided to be U' such determination w ill be

made w ithin two (2) months follow mg the I llevtive Dale of this Agreement .

by the Co-ordination Committee and ihc iranbursement k> be mode within one

(11 year in equal instalments

12 2 Provided that the Government is furnished ihe information below, the

Contractor shall have the right to use. produce, reprocess .md export all

existing geoscience, engineering, environmental and geodetic data (including

magnetic tapes and films) maps, surveys, reports, and studies it deems

necessary to carry out Petroleum Operations hereunder including, but not

limited to- magnetic surveys, seismic surveys, well logs and .uvalysas. core

analysis, well files, geologic and geophysical maps and reports. reservoir

studies, reserve calculations, accurate geodetic co-ordinates lor the location of

all «dk and seismic lines and all other pertinent data relative to the

Agreement Area, which are owned by- the Government. In the event that any

information is to be sold on confidential basis to any third parly by ihc Parties

(consent on which is required from the Parties) piofit shall he distnbuted in

accordance w ith the share of Profit Oil undet tht Ankle 10

12 3 The Contracior shall have the right to conduct all geoscrerve. engineering,

cm nonmental and geodetic studies it deems necessary to carry out Petroleum

Operations under the Work Program Said studies may im lude but arc nor

limited to: seismic surveys, magnetic surveys, global positioning surveys,

aetial photography (obtaining relevant permits). lOlleclktn o|

»>il water-oil rock -ample* for scientific and environmental 'indies The

Contractor shall be granted access to nmVot permission to tK subject to

obtaining appropriate consents (which will ra>t be unreasonably withheld or

delayed) over the Agreement Area to conduct said studies I Ik* ( ontracior

shall have the right to impuit equipment ami supplies necessary to conduct

said studies as well as ihc right to cxpoit data. film and sample- in laboralonev

outside the Kurdistan Region to conduct such studies

12 4 Subject to (it poor approval by tlic Co-oidinatkm Committee: and tii) prior

consent and 01 permit with any necessary local administration or Government

body and relevant landowners, the COMnclH and ut Operator shall have the

right to clear the land, to dig. pierce. drill, construct, erect, locate, supply,

operate, manage ami maintain pus. tanks, wells, Ucnches. excavations, dams,

canals, water pipes, factories, reservoirs, basins, maritime storage facilities and

such, primary distillation units, separating units for first oil extraction, sulphur

factories and other Petroleum producing installations, as well as pipelines,

pumping stations, generator units, power plants, high voltage line*, telephone,

telegraph, radio and other means of cnmmunicitlion (including satellite

communication systems), plants, warehouses, offices, shelters, personnel

housing, hospitals, schools, premises, underwater pins and other installations,

means of transportation, roads, bridges, and other means of transportation,

garages, hangers, workshops, maintenance and repair sl»op> and all the

auxiliary services which are necessary or useful to Petroleum Operations or

related in them and. more generally, cvciything that is or could become

necessary or accessory to cany out the I'clrolnim Operations hit for the

avoidance of any douH in accordant with the C urrmi Legislation

12.5 The agents, employees and personnel of both the Contractor amt Operator, ot

of Subcontractors, may enter oi lease the Agreement Area and have free

access, within the scope of theu functions, to all installation* pul in place by

relevant landowners, the Contractor shall base the ngh to utilise the upper

soil, mature Umbel, clay. sand. lime, gypsum and stones other than precious

stones, and any other similar suhstances. necessary for the performance ot

Petroleum Operations oah m accordance with the Cuirrm Legislation fhr

Contractor may utilise the water necessary for Petroleum Operation* on

condition lhai reasonable efforts ate taken to minimise potentially adveice

effects on irrigation and navigation. and that land, houses .md the watering

places arc not adversely affected


XVSIM tv l rKQ\n»LL»m T.rn miwk>mlm

131 To enable the Compete* to property cam out the Petroleum t ipetnuon*. the

Government shall have the obligation to assist the Contractor u|>>n request to

a| provide the approval* ot permit* needed to conduct Petroleum

Operations and to cam out associated business activities ami to open

local and foreign bank accounts (lor both local and Imvign cunencyl

in the Kutdistan Region;

b) arrange foe Foreign Exchange to be comcrled in acombnce with the

pnncipies set out in Article 18.9 ol this Agreement.

C) use office space. office Mipplrcs. transportation and communication

facilities and nuke arrangements for accommodations .1* required.

d) assist with any custom formalities.

e) provide entry and exit visas and work permits lor employees and then

family members of Opeialor, ( untractor. their Aflih.iicd companies

and foreign Subcontractors, who ate nor citizens ol the Kurdistan

Region and who come to tlie Kurdistan Region to implement the

Agreement and to provide assistance for their tuinsport.ition, travel and

medical facilities whilst in the Kurdistan Region;

I) provide necessary' permits to semi abroad documents, data and samples

for analysis or processing during the Petroleum Operations.

g| contact and instruct appropriate departments and mumiiies of the

Gosrmment and any ocher bodies controlled by the « »seminent to do

all things necessary to expedite Petroleum Operations

h| provide permits, approval*, ami land usage rights requested by the

Contractor and or Opera** 101 the construction of base*, fac ilities and

installations for »K in conducting Petroleum Operations, and

exist concerning the Agreement Area other than those produced as a

result of Petroleum Operations


fxm hi mim^*

14 I All Petroleum produced, saved and not used in the Petroleum Operations m

accordance with Article 10.3 shad be mcawited at the Measurement

14 2 n*c Measurement Point shall be outlet of rhe very final locility. among all

facilities, rite cost of which is included as a Cost and Ex|>ciisc recoverable

from Com Recovery Petroleum under the Agreement


equipment shall be installed. maintained and operated by the Operator The

installed measurement equipment will have certificates of standards of

international organisation rhe Parties shall be entitled periodically to inspect

the measuring equipment installed und .ill chans and other measurement or

lest data at all reasonable times The accuracy of measuring equipment shall

l*e verified by tests at tegular intervals and upon request by oilier parly, the

Patties, using means and methods generally accepted in the international

Petroleum industry

I-I -t Should a meter mnlfunction omir. the Operator shull immediately have the

meter repaired. adjusted and counted and following such icpuii*. adjustment

..t correct Km shall luvr it tested or calibrated to establish its nccuiacy. Upon

llsc discovery of metering emu. Operator shill haw the mclet tested

immediately and shall ukc the nrcevxary steps to correct any error that may be

discovered and alter each case approval of the Government on using the meict

is necessary.

14 5 In the event a measuring error is discovered, the Panics shall use all

reasonable efforts to determine the correct production figures lor the period

during which there was a measuring error and correct previously used

readings Contractor shall submit to the Co-ordination Committee u report on

ilie corrections enrriod out In determining the correction v »nli.utoi dull

use. where required, live information tiom *»th«-.• im .ointments nu.Ir iimd.

outside the Development Area. If it proves impossible to determine when the

and the due on which the existence of the measuring error was first

15 1 Associated Natural Gas

a) Associated Natural lias produced within the Agreement Area shall be

used primarily for purposes related to tile I’toiluition Opnalionit and

production enhancement including, w ithout limitation. oil Healing, gas

injection, gas lifting and power generation

b) Based on the principle of full util nation of the Assocutcd Natural (us

and with no impediment to normal production of the Crude Oil. any

Development Plan shill include a plan of utilisation o! Associated

Natuial On. If there is any excess Associated Natural (las remaining

in any Oil Field after utilisation pursuant to Article 15.1.a) above

(heiratm referred to as “Excess Associated Natural Gas">. the

Contractor shall cam out a feasibility study retarding the commercial

utilisation of such Excess Associated Naiural Gas

i) II ihe Parties agree itui Excess As>- lural Gss has no

commercial value, then Operator shall net under the plan

approved by Co-oulmution Committee. that nor to interfere

with normal oil production Besides. m older to avoid any

doubt, both the plan and rise Operator s acto mes undet the plan

shall exclude pollution nod correspond to relevant standards

effective in Current Legislation

ii) If the Panics agree that Excess AsitOi mini Natural Gas h.iv

commercial value, iltey will cndcavom lo cum into gas uk*

agrecmcntis) and or other commercial undue technical

arrangements with Ihird Parlies icquired h develop such

Natural Gas, and shell implement a new agreement tcgaiding

Ihe Appraisal ami possible development and nuikcting ol the

\ Miniated (tax in the domestic ami muimnonal

maikcis. Investment' m the facilities necessity for production,

transportation and delivery of Fxcevs Associated Natural Gas

shall be n»3c by the Cotraclor The construction of facilities

for sssch Production and uiihsanon of the Excess Associated

Natural Gas shall he earned out at the same tune as the

Development Operations, or at any time as may he agreed to hy

the Parties

nil If either Party considers that Excess Associated Natural <»as

Associated Natural Gas has no commercial value, the one who

considers Excess Associated Natural Gas to have commercial

value may utilise such Excess Associated Natural t.av. at its

own cost and expense and without impeding the Production ol

Crude Oil and without affecting the shates ol ( rude Oil and

Natural Gas otherwise to be allocated under thr other

provisions of dus Agreement, but if such Excess Associated

Natural Gas is nor so utilised at any time or irons time to time,

then such Excess Associated Natural Gas 'hall Ik d»'p.»rd ol

by llie Operator in accordance w ith Atliclc 15 I M i>

Ihe price of Associated Natural Gas produced from the Agreement

Area shall be detenumed by the Parises based on general pneing

principles taking into consideration such facton m sales prices of

internal tonally transported gas delivered in Western Europe, quality

and quantity of the Associated Natural Gas (including the equivalent

substitute energy value! and the economies ol Development

dl Investments made in conjunction with the utilisation of both

Associated Natural Gi» and Ixcess Associated Gas. togethei

with investments meuned aflct approval oi a Development Plan in

carrying out feasibility studies on lire utilisation of Excess Associated

Natural (ms. shall be charged 10Operation Expenses

15 2 Non-associalcd Natural Gas

When any Non-ascociated Natural Ga*. ix discovered within the Agreement

Area, the Parties shall implement a new agreement regarding the Appraisal

and possible development and marketing of the Nc*i-aw*c rated Natural Gas in

the domestic and international markets If the Parties cannot reach a new

agreement within six <6» months or any period mutually agicrd upon, the

Government will o*n and will or cause to appraise, develop or produce such

Non-assoc rated Natural Gas The Government will take all necessary measures

to avoid any effect, which may hampri the Petroleum Operations of the

Contractor while producing Crude (hi

15-3. The Parties will agree on the shares of the Government and ihe ( ontractor for

the revenues generated from the sale of Associated and Non-associated

Natural Gas after deduction of recoverable Costs and Expenses Such sharing

of ihe Profit Natuial Ga> w ill deprnd on the feasibility ot the .levelopment of

the Natuial Gas

ta\mm.AL HL'A'IL

16.1 I his Article shall apply to each Contractoc Party indiv iduallv

16 2 Subject to Current Legislation each Contractor Party. Foreign I mployre and

Operator shall he entitled lo full and complete exemption from .ill Govemmrn'

Taxes prior to or after the Effective Date of this Agreement except as

otherwise provided for in this Agreement.

16 « I his Agreement is entered into on the hum that the pmicct shall K- free fiom

Kurdisian Regional Government and Iroq uses

16 4 It is acknowledged that Double lax Treaties will have cited to give icliet

from Taxes to. Nil not limited lo. the Contractor. Conti*!.* Parties. Foreign

Subcontractors and Foreign Employees m accordance with the provisions of

such Double fax 1 rentes, but not otherwise

16.5 The Conti* toi shall withhold lax on payments to Subcontractors* at a talc of

five percent (5%).


16 6. Each Contractor Party shall maintain it* tax book* and records boch in local

currency ami in U S-S.

16.7. Employee* of ihc Contractor. Contractor Parties. their AlfliMH and

Subcontractor*. and those employee* assigned by ihc Contractor »o the

Operaww who are not citi/rns or res idem* of the Kurdistan Region or ol Iraq

(“Foreign Employee*”) dull nor be liable lo the Kurdistan Region for personal

income ux imposed by tlie Kurdistan Regional Government in accotdaiKc

with Tax legislation However, where Itaq ha* entered into j Double Tax

Treats wh»ch ha* the effect of relieving a f oreign Emplosev I'rom personal

income ux rn theu home nation, that Foreign Employee shall be liable for

personal income tax to the Kurdistan Region m accordance w nh such IXiuWe

Tax Treaty.

16 8 Foreign Employee* who perform work in the Kurdistan Region and then

employers that would otherwise be cohered by and subject to '-vial insurance.

periston fund contribution* and similai payment* under ihe wx:i*l security

system of the Kurdistan Regional Government will he exempt from ihwc




17.) The CoiHiacior shall moininin books and accounts of Pctroli uni Opciati.nv in

accordance w ith ihe Accounting Procedure attached herein .■* Annex B there

'hall be maintained in Iraqi Dinars and ui L’ S S in accordance w nh generally

accepted inrcrnatienal petroleum mdastry accounting prwvrptr. All book* and

account*, which are made available ro the authorities in acvontonce with the

provisions of the Accounting Proccduic. dull be prepared in the English


17 2 Ihe Accounting Procedure specifies the procedure to be ured to verify and

establish promptly and finally Contractor » Cost* and Expense* under Artvle

10 of this Agreement

17.3 Sales rev ernes, expenditure*, financial ituill*. ux liabilnv . and kw* carry¬

forwards of each Contractor Party shall he determined in accordance with the

rules, rights, and obligation* ret forth in this Agreement in mi tar at tuck sale*

revenue*, expenditure*. financial result* ux lubililv*. and loss carry¬

forward* are rebted to Petroleum Operation* under thi* Agicervent

17 4. Chi an annual basis Contractor shall submit Hi the Governmental agency an

internationally recognised auditor's report on Cosli and Expense* trvuned.

that under Article 10 should he compensated by Coil Recover' Petroleum, the

report shall also include a profit calcubt»«i pursuant to pto»i*iom ol Artvle

16 of thr* Agreement The Government shall hive the right to audit the books

and account* maintained by Contractor


< I l M >,rNVMtV»S AM)t\« HNM.I < OMM

18.1 The Contractor and each Contractor Party, and then Affiliates. Subcontractors

Exchange Kink account* both in and outside of the Kurdistan Region and local

currency bank account* inside the Kurtfuem Region. Such operations

performed in the Kurdistan Region will comply with Current Legislation

The Contractor mwl each ( ontractor Party, uixl their Affiliate* dull Have the


light to tiansfei all fund* received in ami convened to Foreign I:'change in

the Kurdistan Region without payment of Taxes, lees dune* or imposts to

bank account* outside the Kurdistan Region in accordance w ith the Current


The Contracts and each ( ontractor Party, and then Affiliate* mid Foreign


Subcontractor* shall hove the right to hold, receive and retain outside the

Kurdistan Region and freely use all funds received and derived front

Petroleum Operations by them outside the Kuidisian Region without any

obligation to icpatrialc or return the fund* to the Kurdistan Region, including

hut not limited to all payments received from expon sales ol the < oniracmr

Parties' share of Petroleum and any sale* proceeds Irom an assignment ot their

interest in this Agreement

Ihc Contractor and each Contractor Parts, and their Affiliate* Foreign


Subcontractors and the Operator have the nght to import min the Kurdistan

Region funds required for Petroleum Operations under this Agreement m

Foreign Exchange

The Contractor and each Contractor Pam. and their Affiliate* and Foreign


Subcontractors shall have the nght to pay outside of the Kurdistan Region for

goods, works and services of whatever nature m connection w uh the conduct

of Petroleum Operation* undo this Agreement w ithoul having lirsl to transfer

lo thr Kurdistan Region the funds for such payments

W henever such a need arises the Contract*'* and each Contractor Party ami

18 6

their Affiliates. Foreign Subcontractors and the Operator shall be entitled to

purchase local currency with Foreign Exchange and convert local currency

into Foreign Exchange in accordance with prov isiom stipulated in legislation

Thr < ontractor and each Contractor Party, and iheir Affiliate* and Foreign


Subcontractors shall have the nght to pay outside the KurdMan Region the

principal and interest on loam used for fuiwlmg Petroleum Operations withcui

having to first transfer lo the Kurdistan Region the lund* lor *uch payment

Ihc Contractor and each Contractor Party and then Affiliates, and the


Operator dull have the right to pay. wages, valance, allowance* and benefits

 of theu foreign personnel working in thr Kurdistan Regsm in Foreign

Exchange partly or wholly outside of the Kurdistan Region

18 9 Con\crsk>n» of currency shall be recorded at the rale actually experienced in

that conversion Expenditure! and rales revenues in currency other than the

U-SS shall he translated to U S S at the rates officially published by the

Central Bank of Iraq at the close of business on the first business day of the



19-1 The Coni factor, each Contractor Party and Affiliate* and then agents and the

Operator shall have the nghi to import mto. export and re «*pnrt from the

date this Agreement is signed

19.2 The C nntiaclor. each Contractor Party and Affiliates ami then agents shall

ha\e the tight to sell any malctials or equipment or goods which were used in

Petrolrum Operations ptosrdcd that such Hems aie no longer needed for

Petroleum Operations and the costs of such items have not heen and arc not

intended K> he included as Costs and Expenses rccoveatok fiom Cost

Recovery Petroleum.

19 3 The Coniiaclor. each Contractor Party, tlicit customers jikI then carriers shall

have the right to export the shaic of Petroleum on behalf of the Contractor or

each Contractor Party in accordance with Current Legislation in force on the

Jate this Agreement is signed

19.4 Foieign Employees and family members of the Contractor nnd ns Affiliates,

its agents and Foieign Subcontiactors, shall have the right to import into and

le-expon from the Kurdistan Region household goods and pcr-mal property at

any time in accordance with the ( unent I cgislatkm.

ARlllM; 20

I \ PORT OF HVI>K(.>«.AUI»>NS. TKANS|| |< I ll


20.1 The Government shall make good faith efforts to cnsuie that the ( ontiactor

has access to capacity in export facilities conrrollcd by the (iovemment on

terms which arc equivalent to those which would be availabli to a bona tide

arm's length user.

20.2. The transfer of title to each Coniiaclor Parly of its share of IVimh um shall Ik*

effective upon the lifting of that share by such Party at the Measurement Point

 b> *> c

20 3 I he Tames shall each he entitled to designate (at their own cnM) an employee,

independent company ot tonttiHant who shnll cheek the lifting v*t Petroleum

Horn the Measurement Point or at such other point as may lw designated in

acioidance with Aiticlc 20 2

20 4 If one of the Panics u imaMe to lift its share of Petroleum in due time, w ith

the result that Petroleum Operations may he interfered wnh nr m any way


21 I Ownership of any asset, whether fixed or moveable, acquired l*y or on behalf

ol the Contractor in connection with Petroleum Operations hcirundct shall

vest in the Government w ithout consideration if (i) both the cost* of such asset

have been lecovcrcd by the Contractor under this Agreement, and In) either

the Agreement has come to an end or. it earlier, when the asset is no longer

icqnitcd for Petroleum Operations by the Contractor. The CnnltiKloi shall

enjoy continued free, exclusive and unrestricted use of all assets at no cost or

loss of benefit to the CcnOactot until the letmmaiw. of thrs Agreement or if

cailiet until thev are no lonpei required for Pctiolcum Operations The

Contractor shall brar the custody and mamienance of such Marts and all

of accidental loss or damage thereto while they are requited lot

of Ail«k 10

21 2 Whenever the Contractor relinquishes any pan of the Agreement Area, all

moveable property located within the portion of the Agreement Area so

relinquished may be removed to any pan of the Agreement Area that has been

21 ) I he of Article 21 I and 21 2

to employees of t

■\w i u it \\ IILMFE.U AN*

j) destruction and damage to any property held for use during Petroleum

Operations and classified us fixed capital and/or leased or rented

property and/or intciesis in pipelines operated by tin-Contractor.

1*1 destruction of Crude < >il in storage.

c> liability to third Paines.

d| liability for pollution and expenses foi cleaning up m the cotnsc of

Petroleum Operations.

c) expenses for w ild well control;

0 liability incurred by Use Contractor in hiring land drilling tigs, vessels

and aircraft serving the Petroleum Operations; and

g) losses and expenses incurred during the iransponation and storage in

transit of goods shipped lion* areas outside the Agreement Area

22.3 In any insurance agreements, the anram for which the (oniractor itself is

liable (the "deductible amount') shall he rramnably determined between thr

Contractor and the insurer and such deductible amount shall in the event of

an> insurance claim be considered as C uslt and I-«prases of Petroleum

Operations recoverable from Cost Recovery Petroleum

22 3 the other pros mom of this Agreement, thr < ontractoe shall

mdrmnfv and hold hremlrui the Government all louo. damages and

liability anting under any claim, demand, action or proceeding brought or

instituted jgainu the Government by any employee of the Contractor or any

Subcontractor or dependent thereof, for personal injuries, industrial illness

death or damage to personal property sustained in connection with, irlatcd to

oi arising out of the performance or non-performance of ibis Agreement

rcgatdlcM of the fault « negligence in whole or in part of any entity ot


 22 0. The Contractor (including foi this purpose any Affiliate, the Operating

Company and all Subcontractors) shall indemnify the Government foi all Ion

oi damage suffered by the Government arising o*it ol iltc Contractor'!

Petroleum Operations if such Petroleum Operations were not in accordance

with international Petroleum industry practices or applicable laws, rules and

regulations and. notwithstanding the foregoing, for any loss or damage to the

emiionmcnl or any cultural or national monumcni arising out of conduct of

ilie Petroleum Operations, provided, however, that the Contractor (including

for this purpose any Afniiate. the Operating Company and all Subcontractors)

shall have no liability hereunder if ami to the extent any loss and damage is

caused by or arises out of any Ineucli ol this Agreement (and any othci

agreements that may hr entered into by and between the Contractor and the

Government in respect of the Petroleum Operations) oi breach ol duty by the

Government. Notwithstanding tin- foregoing, the Contractor (including for this

purpose any Affiliate, the Operator and all Subcontractors) dull not he liable

for any

22.7. The Contractor shall not he responsible to the Government for. and 'hall bcai

no cost, expense or liability of the Government for. any claim, damage or loss

to the extent such claim, damage or loss does not arise out o! u fuilme to

conduct Petroleum Operations ns provided in Article 22 6. In .impliOcaiion of

the foregoing, the Contractoi shall not hr responsible toi any environmental

condition o* damage existing m the Agreement Area prtor to lire

commencement of Petrokum Operations of caused by a Force \(ajeure event

during the term of this Agreement I-.titling cmitonmcnul conditions will he

evidenced by an independent Ihird Party environmenul baseline study of

existing env iionmcnul conditions lo be commissioned by the « onlracior. at its

own coal and expense (winch shall be included as Costs ami l.xprmes tor the

Assessment to be prepared by the Contractor in accordance wuh the

environmental laws for the purpose of obtaining a permit for Petroleum

Operations from the authority, which pcimii and any oilier permit*,

authorisations and consents which arc or may be applicable under the Current

Legislation, shall not be unreasonably withheld. The Government agrees to

 ()|H'i.iiioru the Counselor lux assumed iIk- risk of working in the Agreement

Aren. and provided, further, that Mich indemnification shall not extend lo any

natural pre-existing condition

22 * In conducting’ Fcuoleum Operaliom. the Contractor shall operate according to

international Petroleum industry princes and use best endeavomt lo

22 9 The Contractor shall take all necessary steps to respond to. and shall pr.*nptly

notify the (iovemment of, nil cmeigcncy uml other events (including

explosions, Iciiks and spills), occulting 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 a summary

description of the circumstances and steps taken and planned !»>• the

Contractor to conlinl and rrmrdy tlie situation The Contractor shall prov ide

such additional reports to the Government as arc necessary in respect of the

effects of such events and the com sc of all actions taken to present further loss

and to mitigate deleterious effects

22 10 In the event of emergency situations ns vi forth in 22.9. above, at the request

of the Comractoe. ilsc Government, without prejudice and in addition lo am

(nnemment may have hereunder, shall assist

by me O

readily available lo the Contractor and by facilitating the measures taken by

the Contractor to bring into the Kurdistan Region personnel materials and

equipment lo be used in am such emergency icsponse or remedial or repair

effort The Contractor shall reraburw the (-ncrmcitt s .easoruNe and

efforts which reimbursed aooaau shall he

22.11. The Contractor shall not be liable to the Government or Thud Panics for am

damages caused by contamination entering the Agreement Area a* a result of

Government, or Thud Party activities beyond or within tlsc boundaries ol the

f glliMrm Area I he Government stall he legally and linancatly responsible

22 12 The Contractor shall nut be hable for any foist or damage, mcluhag but mm

limited to spillage, explosion, xunuinmatfon o* 'imilai crntronmenial damage.

it respect of any storage facilities, pipelines .* means of transportation which

are not under the direct possession and control ol the Contracl.n oi its

Affiliates or its Subcontractors or the Operating < nmpany. In addonm lo the

22 13 I he Govtmmrm dull nuke hrti rlhwi* to emure the safety and security of

ihr Contractor'* property and personnel m Iraq and to protect them from loss,

injury and danupr resulting from war (declared or undeclared). civil conflict

valmtage. blockade. not. H'miiiMii. unlawful commercial extortion, or

organised crime, Notwithstanding anything 'he contrary contained herein

tin- Contractor ar knowledges and ai|*rrcv iltat the obligations inufeiiakcn In tlu

(imcmmrnl in this Article 22 Ii arc no greater than the general obligation* ol

llic Government toward* citl/rm ol the Kurdistan Region in r«p«l to lt»c

perils named above Furthermore. the Contractor agrees that it shall have no

claim for legal or equitable reliel lor failure of the Government to comply w nh

||»C provisions of thi* Article 22 Iexcept as may he permitted by law

22 14 I he Parties agree that, where the field equipment is damaged or destroyed by

act of war or lerrorum. and where there was not wilful misconduct by Die

Contractor, the loss of the Contractor will he indemnified by considering such

loss as recoverable Cost and Expenses

22.14 Except as set forth in Article 2X hereof, it is undci stood and agreed tin

Government shall not seek or decline any cancellation or termination of this

Agreement and <>i the License a* a icmiIi of the occnnrnec ol any emeigroc*

event described m this Article 22

AH I If LI. 2-3


2? I The Con**.** shall be entitled to bong Foreign Employers .mo the Kuntota*

Repoa m conwction with the performance of IVtrolemn t tperatwen The

carfc^A^the^Contnscio^a'request. 'the t^ernmcnTdLlI facilitaar aU

its behalf! shall cnmacTibc^appropnate offices of the Government io secure

the necessary documents, and to satisfy the irquncd formalities

23 2 The employees wotking within the scope of Petroleum Operations shall be

placed under the authority of the ( ont rector. it* Affiliates, ns Subcontractors,

agents or broken or the Operator, each of which shall act indnidiially in their

capacity as employers The works, hours, wages, and all other conditions

relating to then employment 'hall be determined by the relevant employer of

such employees In relation to employees who ate citizens ol the Kuulialan

Region, their employment shall hr in accordance w ith the Cunenl I cgnlalUHi

 To the extent that .my expatriate permit nc I aio engaged nmlct an Agreement

subject to the Current Legislation, that Agieemcnt aha 11 comply with the

provisions of the Cunent Legislation The Contractor, its Affiliates, in

Subcontractors, agents 01 broker* however, shall enjoy lull freedom hi the

selection and alignment of their employees



24 I If as a result of Force Majcure. the Contractor is tendered unable, wholly or in

part, to carry out its obligations under this Agreement, other than the

obligation to pay any amounts due, then the obligation* of Contractor, mi far

as and to the extent that the obligations arc affected by Mu h I orcc Majeurc.

shall be suspended during the continuance of any inability so caused, but for

no longer period The Contractor shall notify the Fames ol the Force Majcuie

situation within seven (7) days of becoming await of (lie i ireumstanccs relied

upon and shall keep the Government mfonned of all significant devclopnx-nts

Such notice shall give reasonably full parnculjis of the said Force Majcuie.

and also estimate the period of time, which llic Contractor will probably

require to remedy the Force Majeurc I he Contractor shall use all reasonable

diligence to remove or overcome the I one Majcuie situation as quickly as

possible in an economic manner I he period of any such non-performance 01

delay, together w ith such period as may be necessary for the restoration of any

damage done dunng such delay, shall be added to the time gnen m this

Agreement for the performance of any obhganon dependent thereon land the

continuation of any right granted j and to the term ol this Agreement

24 2 For the purposes of this Agreement "Force Majeurc 'lull mean a

circumstance which is irresistible or beyond the reasonable control of the

Contractor, and shall be in accordance with the pnncqde* of the international

^ \KH< | E 25

\ss|<;n\|Fnjs \M>

25 1 No assignment, mortgage or charge or ocher encumbrance dull be nude by

the Contractor or by a Contractor Party of ns rights obligations and interest*

arising under thi» Agreement o#Kf than m accordance with the provision* of

this Ankle 23 Any purported assignment made in breach of the pros is mo* ol

this Article 25 shall be null and void

25 2 Save in the care of any assignment made puisuant to the provisions of Articles

25.4 the follow mg shall apply An, ( ontracior Party w idling »o assign all or

pan of its rights and interests hereunder or in any cacumstaiKcs w here there n

deemed to be an assignment, the Party wishing »o make the assignment shall

first give written notice to the other Parties specifying the proposed termv and

condition* of the assignment

h Md.-#t.M*v..adK-ivenw#fd' «M»i I <•»*

Following receq* of thme lerrm and condition*. for a period of thirty (30)

days each Party shall have the preferential right to match the term* and

conditions of the proposed alignment or deemed assignment. Thu right may

be exercised by any Party giving written notice of its intention to match the

relevant terms and condition* (the "Acceptance ’) and thereafter the relevant

Parties shall negotiate all necessary documentation in good faith If within a

further period ol ninety (90) days from receipt of the Acceptance the relevant

parties have not reached final agreement the Pam seeking to assign may

within a further period of thirty (30) days complete an alignment to a Ihird

Patty on the same terms and conditions For the avxndancc o( doubt am

assignment to a Ihird Party shall be subject to the assigning Party and the

Ihird Party complymg with the provisions ol this Article 25

25 3 A Contractor Party may assign all or part of its nghu. obligations and interests

arising from this Agreement to a Third Party provided that the Third Party

a) has the technical and financial ability to perform the oMigal on* to be

assumed by’ it under the Agreement; and

b) as to the miriest assigned to it. accqus and assumes all of tlie leiins

and condition* of the Agreement

Any such assignment shall be subject to the priot written consent ol the

Government, which consent shall not be unreasonably withlield or delayed

By way of clarification, and not in limitation of the foregoing provisions of

this Article 25.3. (be Government shall ttol be considered to be acting

unreasonably in declining to consent u> any such assignment it the assignment

to such proposed assignee is deemed contrary to the Government's merest*,

as evidenced by a writing to that cfFect signed by the representative of the

If withm thirty (30) Days following notification of an imended assignment

accompanied by a copy of the proposed deed of avvgnmcrr and related

documentation with respect to the proposed assignee, inckiding certified

financial statement* and other evidence to the Government’s reasonable

satisfaction of the matter* set forth in Article 25 3 and such documentation,

which shall include evidence of the identity of owners of tlic assignee,

provided m the care of a company the Mock of which is registered on a

recognised stock exchange, a copy of the documents identifying the significant

owners, as such concept » defined or used in the applicable law* pursuant to

which such company registered its slock, will satisfy the foregoing

identity of the owners of the .himate pirent suh*e^ to the loregoing pro* iso.

as may be reasonably necessary for the Government, and as requested by the

Government, to make a determination of the Governments interests as

described above, the Government has not given it* written decision concerning

such assignment, then it shall be deemed that ihe Government lias declined to

give such consent; provided that thereafter if upon the further written request

of the Contractor for a written decision the Government has not given a

written response of any kind within fifteen (15) Days alter such further


request, then the assignment 'hall U deemed approved and the C onn actor

Parts shall execute an alignment, in a form acceptable to the (-»uinnx-m.

accepting such assignment Hits second icqucir from the Contractor dull cite

the provisions of this paragraph and ihe Contractor shall obtain confirmation

from the Government that tin- ie«|tieM lux Itccn teccived. In the event of the

transfer of rights and obligation* under the Agreement to ,i Thud Party,

Contractor shall pay all cottn aM-u uilcd with such transfei incurred In tlu-

Agency and any lax or vTlillgc dm- on such tiunsfer under the Cmunt

I .cgislation.

• .1 \ Contractor F’arty may assign all in pan <>l it' tights, obligations and inUivMs

arising from this Agreement to another < ontraclor Party or Affiliate, wilhoni

prior consent of (he Goventoralc. |-iovided that any such Affiliate

a) has ihe technical ami financial ahiliiv to perform the obligations 10 l»e

assumed by it under the Agreement. and

and conditions of the Agreement

2?.5 loch reference in this Agreement to the Contractor shall he treated a.

including each assignee to which an alignment has been made pursuant to

tin* Article 25.

2.' <> Subject to the approval of live Government m the event ol there being any

proposed assignment in accoidance w ith the terms of this Article 25 then to

the extent of the interest awigncd tire assignor shall be released tu»m all

further obligations and lial-ilit*' arising under the Asccmrnt alter the

effective date of the assignment Ihe avvignee shall thereafter he liable for the

provided m the Agreement

Kl.fRLMN F ^U1»M A>P " *WK %M H ^

26 1 Panics shall be subject to all applicable laws. decree v. rules and regulations

26.2 The Government agree* ami commits to Contractor, lor the duration ol this

Agreement to maintain the viability of the fiscal conditions of this Agreement

:»• } The Parties agree to co-operate in every possible wav in order to achieve the

objectives of tins Agreement Ihe Government and its subdivisions shall

oflhcC. » activities b> grant mg « all decree.

 Government so that the Parties may derive the greatest benefit from Petroleum

Operations for their own benefit and for the benefit of the Kurdistan Region

26.4 If at any time after this Agreement lias been signed there is a change in the

applicable Kurdistan Regional Government laws, regulations or other

provisions of effective Current Legislation related to fiscal matters, which to a

material degree adversely affect the economic position of the Contractor or

position as that which the Contractor would have been in. had this Agreement

been given full force and effect without amendment

26 5 If the Conrractor believes that its economic position has heen adversely

affected, under Article 26 4 it may give notice to the Government describing

how iis position has been so affected and the Patties shall thereafter promptly

meet a view to reach** speerne* on the remedial actum to be taken If

matters have nor hem resolved w.thm nuxti t*>» days or as agreed

provisions of Article 29

26.7 | It possesses the technical expertise and financial resources to fulfil liar

obligations of Contractor under this Agreement:

26.7.2 The cvci ufwin, delivery and performai* e by ( .cih-I f m-rji A S ol Ihi*.

Agreement ore within the corporate power* of Gene! frurji A S;

26 7.2 Gene I liner) i A S . have obtained all corporate cmiK-nis. approval*,

authoti/atiocu and resolutions in accordance with us corporate flatutea

and the applicable laws to empower Gcncl Enciji A S . to execute ihi*

ARTlf 11 r

Mflli ts AMtro>Ml)tMIMin

2 I I xccpt as otherwise *pccifkally provided, all nonces authorised or required

hetween tile Patties l»y any of the provisions of this Agreement, shall he In

whtmg in English and delivered in person or by registered mail or by cornier

service oi bv any electronic mean* of transmitting written communications

which provides confirmation of complete transmission, and addressed to such

Parties as designated below The originating notice given under any provision

of this Agreement shall be deemed delivered only wlien received by the Party

to whom such notice is directed, and the tone for such Pan> to deliver any

notice in response to such originating notice shall run from the dale the

otipnanng notice is received The second at am responsive notice shall he

deemed delivered w hen received •Received” for purposes ot this Article w nh

delivery of thr notice to the address of the Pam to be notified, specified in

 accordance with this Article. Each Pam shall have the tight to change its

Mldicss at any time and or designate that copies of all inch nonces be directed

oilier Patties. Tlic addresses for service of notices on each «'i iIk- jvifiic- .re a.

follows: -

Contractor: Georl Lnctji A S

Address Turan fcmcksu Sok Park Snesi NO VI5Kavafcbdm ASkARA

Pbooe -90)12 427 4W

Facsimile • SO) 12 427 4066


Address: Sulainiaiiyoh. Rrgan Boulevard. Prime Minuter* Hcad

Phone (Iraq) 315 0015

27 2 Subject lo tin provisions of the Agreement, the I’nilics iigrec lltnl till

infonnnlion and tlutn inquired oi obtained by any Party in respect ol

Petroleum 0|ici,iliuiiH ulmll be considered confidential and vhull he kepi

confidential and not l»e disclosed during ihc term of the Agicemonl in any

pen-in ot entity not a Party to this Agreement, except

a) lo an Affiliate, provided such Affiliate maintains confidentiality as

b| To a governmental agency or other entity when required by the


c) To the extent such data and information it rexjuired lo he furnished in

compliance with any appitcable laws or irgulaiMms. or pursuant to any

legal proceedings or becaese of aay order of any court hindmg upon a



e) To a bona fide prospective transferee of a Party 's participating interest

(including an entity with whom a Party «i its Affiliates arc conducting

bona fide negotiations directed toward a ineigci. consolidation or the

sale of a maturity of itsor an Affiliate's shares).



28.1 Ai liny lime, it in Ihv opinion of the Conirador, circumsiiou< do not worrani

continuation of tin Pctiolcunt Operations. the Conliaeloi may, by giving

written notice to that effect to the Government relinquish its lights and be

relieved of its obligations pursuant to this Agreement except lor the

Contractor’s obligations to complete the Minimum Work Program, and except

such right' and obligations as related to the period prior to such

relinquishment Neither this Agreement nor any of the rights granted

hereunder nor the Operator's right may be terminated as a result of any act or

omission of the Operator save in the case where the Operator lias earned out

an act or omitted to do something at the specific request of the Contractor and

the Operator has previously advised the Contractor prioi to carrying out the act

or omitting to do something that to carry out that act or to omit to do the

relevant thing may result In this Agreement being terminated

28.2 The (.ovemmont is entitled to terminate this Agreement by giving ninety (90)

days’ advance written notice thereof to all Parties, when the Contractor

commits a material breach in relation to its obligations indicated in the

Agreement or if the Contractor has not accomplished its warranties according

to Article 26 7 Where the Government is satisfied with the remedy plan

presented by the Contractor after revising rhe termination notice, the remedy

penod may he extended for a term at approved hy the Government The

termination notice will he effective at the end of the arbitration procedure in

case thr claim ol material breach is applied to arbitration SJ

Article 29

\RriC I E 2?


29.1. The const ruction, validity and performance of thiv Agreement shall he

governed by CurTcnt Legislation and the law* of England

29 2. Any arbitral tribunal constituted pursuant to this Agreement shall apply thr

provisions of this Agreement as supplemented and interpreted by general

princ iplcs of Cuncut Legislation and the laws of England as are in force on the

Effective Dale Where these principles are in conflict w*h each other, the

laws of England shall prevail

29.2. All disputes between the Parties an sag in out of or relating to thiv agreement,

or to the breach, lamination or validity thereof, which the panics arc unable to

resolve amicably, shall be refened by cither Party to arbitration in accordance

with the Arbitration Rules of ihc I'mtcd NatMM ( I ViH» •«« Intcmatiannl

Trade l aw tIINCITRAL) in force on the dalr when this Agreement was



29 3 A Pally need no! exhaust udminiMt alive or judicial remedies priot to

commencement of arbitral proceeding*

29 *i I oi the purpose of an arbitration under the TWIT RAL Rules.

n) the appointing authority shall be the International Court of Arbitration

of the International Chamber of Commerce:

b) there shall he a single arbitrator appointed in accordance with said


c) rhe seat and venue of the nrbitntiinn will Ik London. United Kingdom

and will be conducted in the English language.

29 5 Articles 29.2. 29.3 and 29 I shall have no application to a dispute or

disagreement which has. in accordance with the provisions of this Agreement,

been referred for the opinion of an intemalionnlly recognised independent

expert appointed pursuant to Article '•

29 6 'Phis clause shall survive witli this Agreement until oil rights and obligations

amongst the Parties in connection with tins Agreement have ceased

29 7 The award of the arbitration tribunal w ill be final and binding upon the Parlies



I his Agreement -shall be executed in two (2) originals in the I ■ glivh language

which will be duly certified by a competent authorised body .« levied In tin


ARTK l.l, 31

Ml'HOVAL A\p mu l u t l?*jr

31.1 The Parties acknowledge that this Agreement together with its Nnnexes.

Constitutes the totality of the agKCWCtW between the Panics, and supersedes

and replaces any prc'ious agreement <»r contract

J1 I he Parties acknowledge that this Agreement can only enter into to:.

ffleet m compfuiKC with applicable limp law. regulations ol the Coalition

Provisional Authority, and relrv ant I 'mu d Nations Security t .mhk il


31 3 I his Agreement shall ewer into force and cflect in its eatiret;. on t lie Effective

Date The Effective Dale shall he the dale on which the Parties notify each

other, in writing, rhai the ratificaiinn process for the Agreenv m tv complete

their Mtisfaction

kitlHta N)MMlU«««


•«hoo*v » y»" 47

? 1 .4 If." iiliin six (6) months of the date of signing, the Panics have not notified

each other in writing that the latification process has been completed to their

satisfaction, this Agreement expires

Signed this twentieth day of January, 2004 m two (2) copies in English language

1 or the Government of the Kurdistan For Contractor


Prime Minister Authorised Representative

Dr. Barham Salih Mchmet Scpil




The Coordinates ol'rlf Agreement Area m straight lines are as follow*:

A- Degree 22 Minnies 48 seconds East and 36 Degree ' Mimiio 12 teconds North.

44 Deiirec 4.' Mimitc* 12 seconds E-asi and 36 Degree 2 Minute* 12 reconiU North;

4a Degree 22 Minnies 48 seconds East are) 35 Degree 55 Minnies 12 tcconds North; and

44 Degree 43 Minnie* 12 second? East and 35 Degice 55 Minnie* 12 retnnd? Noith.

 4 mas i ff M> P.V4 dated •X

A»E\ H




1.1 Purpose

To c recoverable Costs and and prescribe the

manner in which be prepared and

1.2 DcTinitlouv

Words and phrases to which a meaning has been Hfifri in Article 1 of the

Agreement shall have the same meaning when used in this Annex

1.3 Inconsistency

In the event of any inconsnaaKy or conflict between the ptov wcw of this Annex and

the other provisions of the Agreement. then the other provisions of the Apremeni

shall prevail

1.4 Accounting Records and Reports

14 1 The Contractor shall maintain at the Contractor’s or lice in Kurdistan

Region or in the Company's head office complete accounts, books and records of all

revenues. Costs and Expenses relating to all Petroleum Operatic** hereunder in

accordance with generally accepted accounting proccduic* and uandard* in the

international petroleum industry and in accordance w ith the charts of accounts agreed

under Paragraph I 4.2 below Contractor shall keep a certified cops of said accounts

books and records at its office in Kurdistan Region at all times

14 2 Within sixty (60) daxs of the Effective I»«c. the Contractor shall

submit to and discus* with the Government a proposed outline of charts of accounts,

hooks, records and reports, which outline shall be in accordance with generally

accepted standard * and ircogm/ed account mg systems and consistent with normal

petroleum industry practice and procedures. W nhin ninety |90» days of receiving the

above submission, the Government shall either provide written notification ol u»

approval of the proposal or request in writing revisions to the proposal. Within one

hundred and eighty (IHO) days after the Effective I>ate. the Contractor and the

Government shall agree On the outline of charts of accounts. books, and records and

reports which shall describe the basis of the accounting system and procedures to be

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


 iliuinll u, I'SA dated.tan.20. 04

shall expeditiously picpurc and provide the Government with lormal copies of the

comprehensive charts of accounts and manuals related to the accounting, recording

and reporting functions, and procedures which ore. and shall Ik. observed under the


1.4.3 Notwithstanding the generality of the foregoing, tin- Contractor shall

make regular Statements relating to the Petroleum Operations Diene Statements arc

ns shown:

a) Production Statement (as indicated in Paragraph 6 of this Annex).

b) Value of Production and Pricing Statement (as indicated m Paragraph 7

of this Annex).

C) Cost Recovery and Share Account Statement (as indicated in Paragraph

8 of this Annex).


Statement ofFxpcnditurcs and Receipts

this Annex).


Final I nd-ol-Year Statement (as indicated in Paragraph 10 of this


0 Budget Statement (as indicated in Paragraph 11 . t this Annex)

t d 4 All reports and statements shall be ptcpaied in accordance with the

Agreement. Current Legislation, and w here there are no relevant provisions of either

of these, in accordance with generally acccplcd practices in the international

petroleum industry .

1.5 Language and l*«ils of Account

All accounts, records, books and reports shall be maintained and prepared in the

Fnglish language and shall be recorded in Dollars Where necessary ror clarification,

ihe Contractor mav also maintain accounts and reeoids in other currencies.

1.6 Audi! and Inspection Rights of the Republic

1.6.1 The Government shall have the right -

to audit the Contractor's accounts and reeoids maintained under the

Agreement with respect to each Calendar Year within two Years from

the end of each such Year

 iw/t to PSA Aar,tf .’O IU

b) lo retain in audiiot of imemarional standing familial with international

petroleum iiNluitiy accounting practice to undertake or assist the

Government to undertake the audit

I ft 2 lhe imt of retaining an auditor pursuant to Paragraph I 6.1 shall be

home b> the Contractor amI treated 3S Operation Expenses few the purpose of Com

Recovery under Artie If 10 ot the Agreement

1.6.3 Any audit exceptions shall be made in writing amt noli lied lo the

( nniiactor within one hundred and eighty- (180) days, following completion of the

audit in question, and liiilutv to give such written exception wiihm such lime shall he

deemed In lie an iicknowlnlgcmcnt of the correctness of lhe < ontmclni's hooks and


I ft 4 Hot purpoici of auditing, the Govemnu-nt may examine nnd verily, ut

icasonahle limes tipon pnor notice to the Contractor, all chaiges ami«iedits relating lo

the Petioleum Opaations. such as books of account, accounting mines, material

icvoids ami inventories, uhkIkis. payrolls, invoices and any other documents.

> oiie*|«onclciKC and records including electronic records considered necessary by the

' MAcmmcnt to audil .mil vents the charges and ciedt> Furthcrmoie. the auditors

shall have the right in connection with such audit, to visit and inspect at reasonable

times, all sites, plants, facilities. warehouses and office* of the Contractor directly or

indirectly serving the Petroleum Operations and to question personnel associated w nh

those (tperatsons Where the Government requires vcnficalion of charge* made by an

Affiliated ( onpnv of the ( onrracw. the GosemmcM shall hase the nghl to obtain

an audit certificate hum an mmmmlh recogmard fmn ot p*lc accountants

accepoNe lo bod. die Government and die l omo™. »kkk may he ihe Contractor »

I 6.5 fhc Ccnlractcc shall answer any notice of exception under paragraph

I 6.3 within one hundred and eighty (180) days of the receipt of such notice Where

tin* Contractor has. after the said one hundred and eighty < IK0) days, tailed to answei a

notice of exception the exception shall prevail.

I ft ft All agreed adjustments resulting from an audit and all adjustments

required by prevailing except sons shall be promptly made in the t ont roc tor’s accounts

accountant« acct^aMc to both of them Such relerral if ag^^hall be in pU^tf

Arbitration under Article 29 of the Agreement When nwo are ouUtanding with

 Am* 'H >0 l‘\4 iliilrtl Jiih XI 04

respect to an audit, the Contracioi shall maintain ihe relevant documents and permit

inspection thereof until the issue in itMilvcd.

1.7 Payments

1.7.1 All payments between tlic Parlies shall, unless otherwise agreed. be in

Dollars and he made through a bank designated by each receiving party . Unless

otherwise specified all sums due under the Agreement shall be paid within sixty (60)

.lays follow ing the end of the month in which tlic obligation to make such payment


1.7.2 All sums due by one parly to the other under the Agreement shall, for

each day such sums are* overdue, bear interest compounded daily at the London

Interbank Offered Kate for three month deposits in Dollars (“LIBOR") plus two and

half percent (2.5%)

l.x Currency Kxrhangt Kales

1.8.1 It is the intent of this Accounting Procedure lhal neither ihe

Oovrrameni nor the Contractor should experience an exchange gam or loss at the

expense of. or to the benefit of. tlic oilier. However, should there be .mv gain or loss

front exchange of currency, it will he credited 01 charged to the accounts under the


1.8 2 Amounts received and Costs and fspenses nude in L-iLuhh n other

currencies which air m excess of ten ihomand (10.000) Dollatv o: iIk equivalent in

other currencies shall be convened from other currencies into on the basis of

the average of the buying sellmg exchange rates between the currencies in

question, as published by the Central Hank of Iraq, prevailing on the dale upon which

such amounts are received and costs and expenditures are paid

1.8.3 Amounts received and Coala and Expenses nude in Dollars m in other

currencies which do not exceed ten thousand (10.000) Dollars or ihe equivalent in

other currencies, shall be convened other cuuenciex into Dollaift on iIm lusts of the

average ol tlic buying and selling exchange rote- lieiween the currencies m question

as published by the Central Bank of Iraq, prevailing on the Iasi business day of the

month preceding the momh in which such amounts arc received and Costs and

Expenses arc made

1.9 Ke'Hiou of the Accounting Procedure

By mutual agreement between the Government and the Coniraclni this Accounting

Procedure may be revised from time to tune by a document in writing signed by the



 4ifur itf H* rSA iiOtCit Jilit 20. '«

1.10 Accrual Basis. C ash Ho** Basis ami Report'

Ml books and accounts shall be prepared on an accrual basis. Re* chocs shall he

jltnbiilcd to the accounting period in which they ate earned, and Costs and Expenses

lo the accounting period in which they are incurred, without the need to distinguish

whether cosh is recovered or disbursed in connection with a particular transaction

Costs mid Expenses shall be deemed lo have been incurred, in the case of physical

items, m the accounting period when title thereto passes to the Contractor and in the

case of services, in the accounting period w hen such services arc performed

l.l I Values and Treatments

Values and treatments proposed by the Contractor lelatmg to all Costs and Expenses

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

they ate in accordance with the provisions of this Accounting Procedure. Upon

request by the Government or its representative, the Contractor shall present all

records and original documents supporting such Costs or Expenses, such as invoices,

cash voucher*, debit notes, price lists or similar documentation venlying the values

and treatment proposed.




2.1 Segregation of Costs and Expenses

Cost* and Expenses shall be segregated in accordance with the purposes fair which

tush Coals and Expenses are made The purposes winch shall quality -re those which

base been included in the approved Work Programme and Budget lot ihr year m

which the Costs and Expenditures arc made and other items which base been agreed

by the Parties from time to time All Costs and Expenses recoverable under Paragraph

« relating to Petroleum Operations shall be classified, defined and athwaled as set out


2.2. Exploration Expenses

Exploration Expenses aie all duett and allocated indirect expenditures incurred in the

search foi Petroleum in an area which is. or w»* at the tune when such Costs and

Expenses were incurred, part of the Aptemci* Area including

22 1 Aerial, geophysical.


 $0 PSA JaiHtAu, :o 04

2 22 Stratigraphic lest hole drilling and water well drilling.

2 2 3 I .oltour. materials, supplies, and services used in drilling wells will) list*

object of finding Petroleum oi Appraisal wells excluding .uiy costs of the subsequent

completion of such w ells as producing wells

2.2.4 Facilities used solely in support of the purposes described in

Paragraphs 2.2.1. 2 2 2 and 2.2.3 above, including access roads and puicltavcd

geological and geophysical information, all separately idem died.

2.2.5 I hat portion of all Service Expenditures and that portion of all General

und Administrative Expenditures allocated to Exploration Expenses as detentiined by

the proportionate share of total Petroleum OperationK Expenditures (excluding

Genual and Administrative Expenditures and Service Expenditures| repiesented by

nil oilier Exploration Expenses.

2 2 6 Any other expenditures incurred in the search foi and appraisal ol

Petroleum after the Effective l>atc but prior to the commencement of Commercial

Production and not covered under Paragraph A 2.3

2.3 Development Expenditures

Development Expenditures shall consist of all cxpcmliluio incum ,

2.3.) Drilling wells which are completed as producing wells and drilling

w ells foi 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 cnhamc

recovery of Petroleum

2.3 2 Completing wells by way of installation of casing or equipment in

Otherwise after a well ha* been drilled for the purpose of bringing the well into use uv

a producing well oi as a well for the injection of water or gas to enhance recovery of


2.3.3 The coals of Petroleum production, transport and storage facilities such

as pipelines. How line, production and treatment units, wellhead equipment,

subsurface equipment, enhanced recovery systems. Petroleum storage facilities, and

access roads for production activities

2.3 4 Engineering and design studies for the wells and facilities referred ro in

Paragraphs 2.3.1. 2.3.2 ami 2 3.3

2 3 5 Thai portion of all service expenditures and that portion of all general

und administrative expeiidiltucs allocated to Development l:\peiidinues us

determined by the proportionate share of total Petroleum Operations Expenditures

 *mtxB 10 PSa tlomlJm or

(excluding General and Administrative Expenditure* ami Svmci Expenditure*)

represented by all other Development Expenditure*

2.3.6 Any other expenditure incurred in tbc DevcI'i'rnmi Operations ol

I’etrolcum after the Handover Dale and not covered under Paragraph ' 1

2.4 Operation Expenses

Operation Expenses are all Costs and Expenses incurred in Petroleum < >peraiiom after

the commencement of Commercial Product** which are other than Exploration

Expenses. Development Expenditures. General and Admmi>trati»e Expenditures and

Service Expenditure* The balance of General and Admin -lianvc Expenditures and

Service Expenditures not allocated to the Exploration Expenses »* Development

Expenditures shall be allocated to Operation Expense*

2.5 Serxlce Expenditure*

Serxicc Expenditure* aic expenditure* m support ol Petroleum Operations including

warehouses, vehicles, motomed rolling equipment. am raft. fire and security stations,

workshops, water and sewerage plants, power plants, housing, community and

recreational facilities and furniture, tools and equipment used m there activities

Service Expenditure* in any Calendar Year shall include the cos* incurred m such

year to purchase and nr construct the said facilities as well a* the annual costs o!

maintaining and operating the same. All Service Expenditure* shall be regularly

allocated as specified in I’.uagraphs 2.2.5. 2.3.5 and 2.4 in I xploraikm Expense*.

Development Expenditures and Operation Expenses and sholl be separately shown

under each of these categories. Where Service Expenditures ore made in respect ol

•luiivd futilities the basis ol allocation of costs to I'etrolcuin < tpemlions hereundei

xluill be specified.

2.6 General and Administrative Expenditures

Gcncial and Administratisc Expenditures are:

2 6 1 All main office, field office and gcncial administrative expenditure* in

the Kurdistan Region including but not limited to supervisory, accounting and

employee relation* services

2 6.2 Where the Contractor or any Contractoi Party is a foreign contractor.

.Ill annual overhead charge for services rendered (excluding the direct expenditures us

referred in Paragraph 3.1 2 (b) below) by the Parent ( onipam or an Affiliate ol the

Parent Company outside the Kurdistan Region to support and manage Petroleum

Operations under the Agreement, or where the Contractor, not being a Foreign

Contractor, draws upon the services of a Parent ( ompany or an Affiliate ot the Parent

t ixnptm within the Kurdistan Region, an annual overhead charge for service*


rendered by such C ompany 10 support and manage Petroleum (Ipci.ilions under llte

Agreement (Paicnl Company overhead*

Parent Company overhead will be denned to covn the actnal cost t being salaries,

napes and Labour burden, employee benefits, travel. hotel and «>ihcr normally

reimbursable expenses paid by the Contractor's Parent Company or an \fliiiate of the

Parenr Company in accordance nilh its standard personnel policy in force in the

relevant period, provision of office accommodation and provision ol services

reasonably necessary U* operation and maintaining such stall' offices) inclined for

services rendered by those functions of Contractor’s Parent Company -rich as. but not

limited to. international production headquarters. intcmotioiMl exploration

headquarters, treasury, payroll, taxation, msuiarxc. legal, communisa(ions, computer

a) cannot, without unreasonable effort and or expenditure iw without the

release of confidential data proptietary to the C ontractor's Parent

Company be charged under any other section of this Annex, and

b) are properly allocable to Petroleum Operations under the Agreement Ir

is understood, however, that services performed In ihe departments

luted above and other coqxwate departments which directly benefit

coals in accordance w ith Paragraph l ol this Anne*

In respect of lb* tod* ol the Contractor's Parent Company overhead, as described

nliovc. the Contractor shall charge monthly to Petroleum Operations an amotint equal

10 the lolul of the following:

2.0 2. J Exploration Overhead

Ihe C ontractor shall be entitled to an annual charge hasol on a sliding Kale

percentage and charged monthly to Petroleum Operations. The Iums applying this

percentage shall be the total of Exploration Expenses during cash t alcridv Year or

traction thereof less expenditures which have been subjected to the live <5) percent

fee. referred to in Paragraph 3.1.8(b) H* sliding Kale percentage shall be the




 Aimr*U * l’\4 Wta .V». 04

I.« the liml million (1.000.000) Dollars fom percent (4". i

I or ihc next live million (5.000 000) Dolton. Ilirce petveni (3%)

I or the next five million (5 000 000) Dolton two percent 12%)

Over eleven million 111 00(1 (MH)) Dollars one percent t I'd

I lie foregoing percentages may be reviewed but not more oUen annually, and any

approved appropriate adjustment slmll be made, if necessary, prospectively.

2.6 2.2 Development and Production Ope i at ions Overhead

flie overhead rates applicable to Dcvclupnicnt and Production Operations shall be

agreed between the Patties in due course and shall incorporate the following


a) Use Contractor's charges must be charged as direct charges whenever

possible Overhead charges exist only to compensate the Contractor's

Affiliates for costs which arc properly allocable to Petroleum

Operations under the Agreement but which c.mnoL without

unirasonable effon and or release of confidential dau pruprieurv to

Ihc Contractor's Affiliates, he charged under am or her section

Overhead costs are billed monthly Overhead must he commensurate

with services rendered and based on actual cost dMtks but may not

exceed an amount calculated as a percentage of certain annual

expcndiiwcs excluding f vploration fcxpenses Thai percentage as well

av the type* of expenditures, which affect overhead and those, which

do not shall he agreed among the Parties

b) The maximum percentage rales nuv be revised by mutual agreement

and the type* of expenditures to which they apply vhall be agreed as

soon as the Parties possess reasonably reliable cost cvmuie* for the

relevant Development Area

cl Overhead charges arc not subject to audit by Government ( onlracror's

Affiliates must maintain records enabling a cost analysis to be made

annually to determine overhead properly chaigeablc to Petroleum

Operations If the resultant amount is less than the amorol actually

billed, the difference shall be credited to Petroleum Operations, and if

mure, the difference shall be debited to Petroleum Operations, but in

no case may the final amount he charged by the Coon.icloc exceed the

maximum amount as calculated in tbl above

 4 Hue iB ft* PSA dated Jim 20 tn

tl) The Contractor shall upon request I'utimh to the Government a

conflmtatlon by its statutory auditor that the ovahead costs actually

charged do tun duplicate any other chat yes and that the method used in

allocating ovctliead to Pcirolcum Operations hcicnndci ns opi»i»cd to

othei activities is reasonable and in accordance with standard

accounting practices.

c) The C onlractoi must budget for overhead charges.

2 6 * All (icncral and Administrative Expenditures shall be rcyuloily

allocated as specified in Paragraph* 2.2 5. 2.3.5 and 2.4 to Exploration Ixpcnscv

Development iixpcndilurcs nml < )per»tion Expenses respectively




3.1 ( o*f* Recoverable " iihnui Further Approval of the Government

Petroleum Operations Expenditures inclined by the Contractoi imrsuant to tlw

Agreement as classified under the headings referred 10 in Paragraph 2 slull be

recoverable for the purpose of ArliclelO the Agrrement (except to the extent provided

in Paragraph 4 or elsewhere in this Annex l. subject to audit as prov ided for herein

3 I I Surface Rights

All Arret costs necessary foe the acquisition. renewal or relinquishment of surface

rights acquired arxl maintained m force foe the purposes of the Agreement

a) The Coon ut lot's Ux.tlh mmiUil employee* hosetl in »A» A'lm/fOuu

Region Costs of all Contractoi's locally recruited cmrlovrrs w ho are

directly engaged m the conduct of Pcliuhmm Operations under the

Agreement in the Kurdistan Regno Such costs stall include the cow

of employe* benefits and Govern me m benefits for employers and

levies imposed on the Contractor as an employer, transportation and

relocation costs withm the Kurdistan KegHwi of the employer and such

members of the employee s family (limited to spouse and dependent

children) as required by law or customary practice in the Kurdistan

Region If such employees ore engaged in other activities in the

Kurdistan Region, in addition to Pcliolcum Operations, the emt ol

 ItwrtH to PKA ikitnl /.»i SI til

Mich employees shill lie apportioned on a lime sheet I>jm» according to

sound and acceptable account my principles

b) /ttstgnetl Ptnoimel: Costs of sola lies and wayes mcludiny bonuses <»|

the Contractor's employees directly enyayed in the conduct ol the

Petroleum Operations under tin* Ayiremcnt. whelltet tcmpornrlly or

permanently assigned, irrespective ol the location ol such employees, it

lieiny undcistood that in the case ol those personnel only u portion ol

whose time is wholly dedicated to Petroleum Operations under the

Agreement, only that pro rata portion of applicable salaries, wages, and

oilier costs as delineated in I'aiagraphs 3.1.2(c).

slsall be cluigcd and the basis of such pm-ratn allocation shall Ik


c) The Contractor's costs tcgording holiday, vocation, sickness and

disability Iwnefits and living an,I Iwusmg ainl nihcr customary

allowances applicable to the salaries and wages ihargeable ondci

Paragraph .VI .2(b) above

d) Expenses or contributions made pursuant to assessments or obligations

imposed under ( uncut Legislation which uie applicable to the

Contractor's cost of sulurics nnd wages iTuugeablc under Paragraph

3.1.2.(b) above

el The Contractor's cost of established plans for employes* group life

insurance. hospitalization. pen won. slock purchases, saving*. bonus,

and other bcnefi! plans of a like nature customanlv granied lo lire

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

accordance with generally accepted standards .n ibe mtenunonal

l^trolcura industry, applicable to ulmo and waj.-o chargeable to

Petroleum Operations under Paragraph 3 1 2 (b) ahose

0 Actual transportation and travel expenses of employers of Contractor,

including those made for travel and re local ion ol the expatriate

employees, including their families and personal elicet' assigned to

the Kurdistan Region whose salaries and wages arc chargeable to

Petrol cum Operations under Paragraph 3 I 2 fb) above

Actual transportation expenses of expatriate personnel transferred to

Petroleum Operations from ihcii country of origin shall be charged to

Ihc Petroleum Operations I ranvportation expense* of personnel

transferred from Petroleum Opetalwn* to a country other than the

country of their origin shall not Ik charged to the Petroleum

Operations. Transportation cost as used in tins section shall mean the

cost of freight and passcngci service, meals, hotels, insurance and other

 4«il m P\4 -V> iu

expenditures related to vacation and tramfer travel and authorized

under the Contractor'* atandard personnel policies I he Contractor

shall ensure that all expenditures related to transportation com are

equitably allocated to the activities, which have benefited from the

personnel concerned

g» Reasonable personal expenses of personnel whose salaries and wages

are chargeable to I'ctiolcum < Ipcration* undei Paragraph ‘ I 2 above

and for which expenses such personnel are rcimhuixcd under the

Contractor’s standard personnel policies In the event such expenses

are not wholly altribuublr to Petroleum Operations its* Petroleum

Operations shall be charged with only the applicable iwmikhi thereof.

3.1 3

I lie cost of transportation of employee*. equipment materials and supplies other than

as provided in Paragraph 3.1 2 (fl necessary for the conduct of the Petroleum

OpcrulinM under the Agreement along with other iclatcd costs such a' Hut not limited

to, Import dutta. custom Pm, anloatffiif claim, dock fees, and Mad and ocean

freight charges

y i 4 > Ifflfig foj SciVKCh

a) Third Parlies

i) The actual costs of contract sen ices, serv ices of professional

consultants, utilities, and other services necessary l«»i the

conduct of the Petroleum Operations under ihc Agreement

performed by Third Paroes other than an Affiliate of the

bl Affiliate* 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 but nnl limited to services provided by

the Production. Exploration, legal. Financial. Insurance.

Accounting and Computer Services Divisions other than those

covered by paragraphs 3.1 •» I 8 (bl which

Contractor max use in lieu of having its own employees

Charges shall reflect the cost of providing the* serv ices ami

shall not include any element of profit and »hall he no lest


 AnnexN M t'SA JO. "A

favourable than similar charges for other operations canied on

by ihc ( 'onliactot and in. Affiliate* The chargeout rale shall

include all costs incidental to the employment of such

personnel Where the work is performed outside the honte

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

from the date Mich personnel leave the home office base w here

they usually work up to their return thereto, including days

which arc not working days in the location where the work is

performed, excluding any holiday entitlements derived by such

personnel fiom their employment al then home office

ii) Scientific or recltnicol 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 net vice basis and shall not include any

element of prolli Unless (he work to be done by such

personnel is coveted by an apptoved Wot* Programme and

Budget, the ( onlraclot 'hull not authorize work by such

personnel without approval of the Government

III) Equipment and facilities use of equipment and facilities owned

and furnished by ihc Contractor's Affiliates, at talcs

commensurate with the cost of ownersh*> and operation

provided, howeset. that such rales shall not esceed those

currently presailing foe the supply of like equipment and

facilities on comparable terms in the area where the Petroleum

Operations arc being conducted The equipment and facilities

referred to herein shall exclude major investment items such at

(but not limited to) dulling rigs, producing platforms, oil

treating facilities, oil and gas loading and ttamportalton

syMcms. storage and terminal facilities and othet major

facilities, tales for w hich shall be subject to separate agiccmcnt

with the Government

3 I 5 Com muni cations

• ml of acquiring, leasing. installing, operating. repairing and maintaining

communication systems including radio and microwave facilities between the

( ontnet Area ar*l the Contractor s nearest base facility

1 I 6

office, warehouse, housing or other facility dueslls xrsmg the Petroleum Operations


 Aw -VI aw

If any such facility services a contract urea, other titan the Agreement Area, the net

costs thereof shall be allocated on an equitable basis

3.1.7 FwMc nl and Lnvi LUtlllHft

a) Costs UKUiTcd in the Agreement Area as a result of legislation for

archaeological and geophysical suivcys relating to identification and

protection of cultural sues or resources.

h) Cost* inclined in environmental ot ecological survey* required by

regulatory authorities, including uti environmental intpnet Statement

commissioned pursuant to Article 22.7 of the Agiuentcnt;

c) Costs to provide or have available pollution containment and removal


d | Cost* of actual control and cleanup of oil spills, and of such fuilhci

responsibilities resulting therefrom as may be required by applicable

laws ami regulations, unless such oil spills result directly from the

negligence or wilful misconduct of the Contractor.

e) Cost* of restoration of the updating environment incurred pursuant to

an approved scheme prcparctl in a.vOfdMKC * ill* sub-Article 8.8 of (hi


3.1.8 Material CPits

Costs of materials and supplies. equipment. machines, tools and ary thcr goods of a

similar nature used or consumed in Petroleum Operations subjeci to the following

a) Acquisition - the Contractor shall only supply or purchase materra.s 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 and

economical operations. Inventory levels shall, however, take into

account the time lag for replacement, emergency needs, wcathei

comill ions affecting operations and similar considerations

hi Components of costs, arm's length transactions • except as olhciwisc

provided in paragraph 3.1.8(d) below. material purchased by the

Contractor in arm’s length transactions in the open market for use in the

Petroleum Operations under the Agreement shall be valued to include

invoice price less trade and cash discount* 111 ony|, purchase and

procurement fees plus freight and forwaiding charges between point ol

supply mid point of shipment, freight to port of destination, insurance.

 Awiestl to PSA dated Jan 20.

iaxc». customs duties, consular fees, excise taxes, other items

chargeable against ini|>oitcd materials and. wlicic applicable, handling

ami transporiation expenses from point of impoitatiou lo warehouse or

o|K’iaiiM|! Site. Where an Affiliate of the Contractor lias arranged the

purchase, coordinated the forwarding and expediting elTort. its costs

should not exceed those currently prevailing in normal arm's length

transactions on the open market and in any case shall not exceed a tee

equal lo four point five percent (4.5%) ol the value of the materials

added to the cost of the materials purchased

c) Accounting - such material costs shall be clunycd to tire accounting

recoids and books in accordance with the "I iihI in. l iisl Out" (HR))


d) Material purchased from or sold to Affiliates of the Contractor or

transferred fioni othei activities of the ( untrncioi to or from Petroleum

Operation* under this Agreement shall In- valued and charged oi

i (edited at the prices specified in Paragraphs 3.1 8.(d).(i>. 3.1 8 (d) (n)

and 3.1 8 (d) (in) hereof:

i) New material, including used new material moved from

inventory (Condition 'A"), shall Ik valued at the current

international net price which shall not exceed the price

prevailing hi normal arm's length transacts in the open


it) Used material (Conditions "B". ~C~ and "D_.

a) Material which is rn sound and serviceable condition and

is suitable for re-use without reconditioning lull be

classified as Condition ~U~ and pneed at *c\cnty-fivc

percent (75%) of the current price ot new nutcrial

defined in Paragraph 3.1,8(d).(i>;

b) Material which cannot be classified as < ondition "II" but

which after reconditioning will be furlhei serviceable lOI

its original function shall Ire classified as Condition "C"

and priced at not more than fifty pcicent (SO1)") of the

current price of new material as defined in 3 I 8(d) (1)

above. The cost of reconditioning shall be charged to the

reconditioned material provided that the value ol

Condition fcC" material plus the cost ol reconditioning

do not exceed The value ol Condition “B“ material:


C) Material which cannot be classified as C oiKlition "B" or

Condition f shall be classified as Condition ’D’ and

priced al a value commensurate with its use by

Contractor If material is not fit foi use l»y ihe Contractor

it shall be disposed of as junk

nil Material involving erection costs shall lie cluigcd at tile

applicable condition percentage of the current knockcd-down

price of new material as defined in Paragraph 3.l.8(dl<0


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

Petroleum Operations under the Agreement does not justify the

reduction in price as provided for in paragraph 3.1.8.(d).(ii).(b)

hereof, such material shall be priced on a basis that will result in

a net charge to the accounts under the Agreement consistent

w uh the value of the service tendered

v) Premium prices - whenever material is not readily obtainable at

published or listed prices because of national emergencies,

strikes or other unusual cause* over which the ( .miractor has no

control, the Contractor may charge Petroleum Operations for the

required mnlcrial at the Contractor’s actual cost inclined in

providing such material, in making il suitable lor use. and in

moving il lo the Contract Area; provided nolicc in willing is

furnished to tlur Government of ihe proposed charge prior to

charging Petroleum Operations for such mmerial nnd Ihe

(iovemnunl shall have the riglu to challenge Ihe linnMClion on


vi) Wniranty of material furnished hy Ihe « mtiiactor - the

Contractor docs not warrant the material furnished. In ease of

defective material, credit shall not be passed to Petroleum

Opciations until adjustment has been received by the Contractor

from ihe monufnciurers of the mnlcrial <>i theii agents.

3.1.9 Assessments

All rentals, taxes, levies, charges, fees, contributions and any oilier assessments and

charges of every kind and nature levied by any governmental or taxing authority in

connection with the Contractors activities under the Agreement and paid directly by

the Contractor (save where the contruty is expressly provided in the Agreement) with

the exception of taxes upon the income or profits of the C 'ontractOf or nnv Contractoi

Party, and payments mode under Article 10.




InMiiuncc premiums and cosla inclined for insurance provided Hint such insurance is

i nummary, affords prudeni protection against risk and is at a premium no higher than

that charged on a competitive basis by insurance companies which are not Affiliated

( nmpanies of the Contractor. Except in eases of failure to insure where insurance

coverage is required pursuant to the Agreement, actual costs ami losses incurred shall

be recoverable to the extent not made good by insurance unless such losses icsull

solely from an act of wilful misconduct by the Contractor. Such costs may include, but

are not limited to. repair and replacement of propcity in the Agreement Area resulting

from damages or losses incurred by fire. Hood, storm, thefl. accident 01 such other


3 1.11 l.cuul Expenses

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

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

the procuring, perfecting, retention and protection ol the Agreement Area, and in

defending or prosecuting lawsuit* involving the Agreement Area or any Third Party

chum arising out of the Petroleum Operations under the Agreement, or sums paid in

respect of legal services necessary for the protection of the joint interest of the

(iovcinmcnt and the Contractor shall be recoverable Such expenditures

»ithout limitation, attorney a fee*, court cosas. coos of investigation. and procurement

ot evidence and amounts paid in settlement oe satisfaction of any such litigation and

claims provided such costs arc not covered elsewhere in the Annex Where legal

services are rendered in such matters by salaried or regularly retained lawyers of the

Contractor or an Affiliated Company of the Contractor, such compensation shall be

me hided instead under Paragraph J I 2 or 3 1 -4

3-1.12 Claims

Expenditures made in the settlement or satisfaction of any h*s%. cloim. damage,

judgement or other expense out of or relating to Petroleum Operations, except

as may otherwise be covered elsewhere m the Annex

3.1.13 limning Oisu

All costs and expenses incuircd by the Contractor in the training of ns Knrdiitan

Regional employees engaged in Petroleum Operations under tire Agreement

3.i m General and Admimnrn«v€ Qatu

live Costs described in Paragraph 2 6 l and the charge described in Paragraph 2 ti 2 of

this Annex.


 *«neiBlo rU 4,"ntJa*?0. IH

J 1.15

< )ther reasonable expenditures not covered or dealt with in the foregoing provision* of

Paragraph 3 herein which are necessarily incuncd by the Contractor lor the ptoper.

economical and efficient conduct of Petroleum Operations

3.2 < redil I inlet the Agreement

I he proceed*. other than the proceeds from the sale of Petroleum, received from

Petroleum Operations under the Agreement, including but not limned to the item*

listed below dull be credited to the accounts under the Agreement lor the purpose* ol

Article 11 of the Agreement

3,2.1 The proceed* of any insurance or claim or judicial awards in

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

the accounts under the Agreement where such operation* or assets have l»cen insured

and the premia charged to the account* under the Agreement

3 2.2 legal coat* charged to the account* under Paragraph » I II of this

Annex and subsequently recovered by the t ontiactoi

3 2 3 Revenue received front T hud Parties tot the use of property or assets

the cost ol which tus been charged so the account* undei the Agreement

3.2.4 Any adjustment received by the Contractor from the

suppliers manufacturers or their agents in connection with a deft* live material the

cost of which was previously charged by the Contractor to the account* under the

3.2.5 Rental*, refunds, including refund* of taxes paid. «•» other credits

received by the Contractor which apply to any charge which has been made to the

accounts under the Agreement, but excluding any award granted ki the (ontractor

under arbitration or sole expert proceeding* referred to in Paragraph - 2 2(g) ot this

3.2.6 Prices onginally charged to the account* under the Agreement for

materials subsequently exported from lire Kurdistan Region witlioui being used in

Petroleum Operations under the Agreement

3 2 7 Proceeds from the sale or exchange by the Contractor of plant or

facilities used in Petroleum Operations the acquisition costs of “Inch have been

charged to the accounts undei the Agreement.

3.2.8 Proceeds derived from the sale or license of any intellectual property

the development costs of which were incurred pursuant to the Agreement


 ,»€*« .’fl.

3.2.9 Proceed* derived from the vale, exchange, lease. Imc. iranslcr or

disposal m any manner whatsoever of any Oliver item tire coals of Minch haw been

Juiced to Petroleum Operations

JJ Duplication of Charges and C mill*

Non* ithsundmg any |**nuon to the contrary m thu Accounting I’rtvrdurc. shenr

paragraph 4


Tlic following com and cxpendilutes sliall not lie included in the Cost* and Expenses

recoverable umlct Article 10 -

4.1 Taxes on mtome or profit paid to any governmental authority.

4.2 Any payment made to the Government by reason ol the failure ol Hie C ontractor to

fulfill itts minimum cost and Expenses under the Agreement

4.3. The coni of any lettci ol guarantee, if any. required under the Agreement:

4 4 Costs incurred before the Haodovrt Date unless the amounts coiv lined arc agreed

between the Government and the ( ontractot.

45.C ol Petroleum beyond the Measurement Pomt.

4 6 Attorney'« fees and other costs of proceedings in connection with arb.trat»on under

Article 29 of the Agreement or internationally recognised independent expert

determinanon as provided in the Agreement or this Accounting Procedure.

4.7.fines and penalties imposed under Current legislation

Par \<«r \pii 5


5.1 Record*

The Contractor shall maintain detailed records of property in use tor Petroleum

Operations under the Agreement in accordance with normal practice in exploration

and production activities of the international petroleum industry


 iff /.«/’.«< rfawrf :o. oi

5.2 IwtHriM

Inventories of property in uie in Prtrokom Operations shall be taken al reavonabW

mtcivab but at Wail once a year with respect to movable assets and once every three

(3| yea is with respect to immovable asset* The Contractor shall five the«.overament

at least thirty (30) days written notice of its intention to take such inventoiy and liar

«Kivernracnt shall have the right to be represented when such inventoiy it taken 1 lie

Contractor shall clearly infonn Government the principles upon which valuation ol

ll»e inventory has been based The Contracts* shall moke every effort l>« piov kW to the

«•• »veminent u full report on such inventory within thirty 130) slays of the taking oflhc

inventory. When in assignment of tights under the Agreement Hikes place the

Contractor may. at the request ol the assignee, lake a special inventory provided that

the costs of such inventory arc borne by the assignee



6 I Production Information

Without picjudicc to the rights ami obligations ol the Parties under Clause 22.1 of the

Agreement, from the date of Commencement ol Commercial prmhution ftum tin

Agreement Area the Contractor shall submit a monthly production vtatemeni to the

Government showing the following mfomulxei separately lor each producing

Development Area and in aggregate for the Agreement Area:

6.1.1 The quantity of Crude Oil produced and sav ed

6 12 The quality characteristics of such ( rude Oil produced and sav ed

6 1.3 The quantity of Natural Gas produced and saved

6 14 The quality characteristics of such Natural Gas produced and saved.

6 15 Die quantities of Crude Oil and Natural Gas used for ihe purposes of

carrying on drilling and production operations and pumping 10 field storage

6 16 The quantities of Crude Oil and Natural Gas unavoidably lost

6 17 Ihe quantities of Natural Gas fiared and vented

6.1 S The sue of Petroleum slocks held at the beginning -I the calendar

month in question


 4~r< t*oPS.A4o<*J--- > 04

6 1.9 The size of Pciroleum slocks held M ihc end of the calendar month in


6.1.10 The quantities of Natural Gas reinjected into the Petroleum Reservoir

6.1.11 In respect of the Agreement Area as a whole, the (|tiantitics of

Petroleum transferred at the Measurement Point. All quantities shown in this

Statement shall be expressed in both volumetric term* (barrels oi oil and cubic meters

of pas| and >n weight (metric tonnes).

6.2 Submission of Production Statement

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

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



7.1 Value of Production and Pricing Statement Information

Ihc Contractor shall, foi the purposes of Article II of I'm Agreement. prepare a

Statement providing calculation* of the value of Ctudc Oil produced and saved during

each Qiurtci

This statement shall contain the followmg information

7.1.1 The quantities and prices realized thereto* by the Contractor m respect

of sales of Natural Gas and Crude Oil delivered to Thud Parties made during the

Quarter in question

7.1.2 The quantities and prices realized therefor by the Contractor in icspeci

of sales of Natural Gas and Crude Od delivered during the Quarter in question, other

than to Thud Panics.

7.2 Submission of Value of Production amt Pricing Statement

The Value til Production and Pricing Statement t«»* each Quarter shall he submitted to

the Government not Inter thun twenty-one (21) days nftrr the end of si« h Quartet


 riKM.KW’ll *

«osTRrt mm and share accxn m htattmext

HI Cost Kiro»m Malrmrnl

The Contractor shall prepare with respect lo each Quarter a Com Recovery Statement

Quartet, if any

X. I 2 Recoverable Costs and Expenses for the Quarter in question

8 1) Credits under the Agreement for the Quarter m question

8 I 4 Total Recoverable Cents and Expense* for the Quartee m question

(Subparagraph 8 I I plus Subparagraph 8 12 above, net of Subjcrapraph 8 | J


8 I 5 Quantity and value of Co* Recovery Iftmlrum taken by the

the next Quarter (Subparagraph 8.1.4 net of Subparagraph & |.J above!

8.2. Cumulative Production Statement

I he Contractor shall prc|>arc with respeci to each Quarter a Cumulative Production

Statement containing the following inhumation: -

X.2 I The cumulative production position at the end of the Quarter preceding

the Quartet in question.

X 2.2 Production of ( Hide Oil for the Quartet in question

8 2 4 The cumulative production position at the end of the Quarter in


K 2 5 The amount of Profit Oil taken by the Government and by the

< ontim-im. respectively, timing the Quarter in question.

» 2 ft The share of Profit Oil doc to the Government anti to lire Contractor

respectively, for the next succeeding Quarter


8.3 Preparation and Sab minion ol Coal Recovery mid Cumulative

Piodurtioii Statements

83.1 Provisional Cost Recovery and Cumulative Production Statements.

containing estimated information where necessary, shall be submitted by the

Contractor on the last day of each Quarter for the purpose* ol Anrclc 10 of the

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.

Annual Statement

l ot the purposes of Article 10 of the Agreement, an Anitiinl < i"i meovery and

Cumulative Production Statement shall be submitted within mmi\ C'O) days ol the

end ol each Ycat. Hie Annual Statement shall contain the categories ol information

listed in Subpatagiaphs 8.1 and 8.2 for the Year in question, ^-pirated into the

Quaitrrs of the Year m question and showing the cumulative positions at the end ol

the Ycat in question with respect to cumulative unretovered Costs and Expenses and

Cumulative Production.



9 1.1 Actual expenditures and receipts for the Quarter in ques'ion

9.1 2 Cumulative expenditure and receipts lor ll*c budget Year in question

 to r\4 <4fit yt iu



10.1 The Contractor will prepare a Final End of-Year Suvrmeni The

Statement Will contain information a* provided in the Production Statement. Valueof

Production and Pricing Statement. Cost Recovery and Cumulative PiodiMion

Statements and Sutcmcnt ol |- xpcndmircs and Receipt! hut will In naved on actual

quantities of Petroleum produced and expenses incurred I his Statement will lie used

to make any adfMMMI that are necessary to the payments made by the Contractor

under the Agreement The Final Fnd-of-Year Statement of each Calendar Year thill

be submitted to the Government w ithin ninety (90) days of the end of tuch Calendar




11.1 In accordance with Article 6 of the Agreement, rhe Contractor .lull

prepare an Annual Wort Programme Budget This will distinguish between budgeted

I xplomtinn F.xpcme*. Development expenditures, and Operation Expenses and will

show the fallowing:-

11.1.1 Forecast expenditures a for the budget Year in question including a

quarterly classification of such expenditures

11.1.2 Cumulative expenditures to the end of said budget Year.

1113 A schedule showing the most important individual items of

Development Expenditures lor said budget Year

112 The Annual Work Programme Budget shall he submitted to the

Government w ith respect to each budget Year no less than thirty (Ml) days before the

start of such year.