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 PRODUCTION SHARING AGREEMENT








BETWEEN




















TI1E KURDISTAN REGIONAL GOVERNMENT


AND


GENEL ENERJI A.S.




















DATED


January 20, 2004


 I MH.E OF COM ENTS





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


Contractor")


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


collectively as the "Panics".





WITNESSETH:


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


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


elections.


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.





h n.lfiaa RsvaiiwdlaHrtWMeiH Crete* !•••*


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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


Program*


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


6





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


Contractor


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


extraction.


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


rule.


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


transportation.


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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8


 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








10


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


Region.


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


occurred


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


ARTICLE 2


SCOPE OF At.KI I ME NT AM> GEM KM PROVISIONS


.' 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


Agicemenl.


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


Legislation





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





Amiim


Af.REFNltM AKEA





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


*Kii







I '>**»*.--- *••---( *,!>•"» >1


|M !..!«


 UHM








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


withheld





MUK.Lt .*


Kf I IMJI IMIMf N fS








' 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








52














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


relinquish.





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











M


 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


Operation.


c) review and adopt proposed Development Operations and Budgets:





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


expenditures


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





fit.





k> review and adopt proposed exploration work programs and


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


documents


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

Committee;


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


PKOt t in HF H>K DFTKKMIN \ I IPX OF C OMMj H< lALI 11 -\M>





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 vigndk.ml 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





(fXr





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


budgets.


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 i.il 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











10


 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











20


 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





WIK LE «»


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


Committee.


') 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








**T'













fits


22





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


10.6


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








23


 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


Govi-mmeiii





10 ) the


take all or








24


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


Bands:


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».


25


 11


(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.





26


 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.











OMHXt TOK AVDOPFkXTOB








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























MUH.il 1.*


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


AWTK l,E M


fxm hi mim^iai.id-am*





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 Po.nl


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








29


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 Naiui.il (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 Natnr.il 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%).














32


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


payment*


AKTjCLEjJ


A< « Ol N EING, I IN.XM I M Ji> I’OK I IVG.A.M*


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


language


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


 .\*™y»»


< 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


18.2


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


Legislation


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


18.3


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


18.4


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


18.5


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


18.7


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


188.


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








MUIO.U?


PirVWT AMUM’QPT


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


ONNM RSHIP. AMIR-!.OH A l IONS FOR !>|>POS M,


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

















SRTIC.IUi














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


M.tn \\ IILMFE.U AN* HMHI.in





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 Nofrthvund.ng the other pros mom of this Agreement, thr < ontractoe shall


mdrmnfv and hold hremlrui the Government aga.mt 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























37


 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 th.it 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


ri KSQNNII





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


AKIK'LL X





I JUi








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








42


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 w.th 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 ocherw.se 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


Government


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


Agreement.








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


Pasty,


di














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).




















27.3


 I I l(MIN,>IIONAM)BHKN(.ll











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?


IHSPl 11 WEMH I NON


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


signed.











46


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


Rules:


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


AliU<-lLiL>


TIM


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


Government,


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


resolutions.


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«««


MtiMtiNMhi


•«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


Region CENEL ENCR.il AS


Prime Minister Authorised Representative


Dr. Barham Salih Mchmet Scpil


/YV\**Q


PSA ANNEX A





AGREEMI:N1 AREA





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


V.'«’»«:%Tivir|<

PARAGRAPH I





<.» NERAL PROA ISIONS





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











i


 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


Agreement.


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).


d)


Statement ofFxpcnditurcs and Receipts

this Annex).


e>


Final I nd-ol-Year Statement (as indicated in Paragraph 10 of this


Annex).


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


accounts.





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


occurred.


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


Agreement


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


Parties

















4


 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.





PARAGRAPH 2


< LASS1H CATION. DEFINITION AND ALLOC A I ION Ol


COSTS AM) EXPENSES


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


below





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. paleontologw.il.

















4


 $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


Petroleum


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*


 lof'U














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


following
































n








i








 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 th.ni 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


guidelines:


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





PARAGRAPH 3


(OSIS. I \PI SSI s. | XPEND1TI RES AND CREDITS


Of IIIK CONTRACTOR


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


specified


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

















12


 AnnexN M t'SA iliiM.hu 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 ha.se.





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




















fir





 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


equipment;





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


Agreement





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))


method;


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


market.


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:


 4













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


above


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


audit.


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.

















16


 HI PSA














3.1.10





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


cause





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 an.mg 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.

















17


 *«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

















ll


 ,»€*« .’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





COSTS AND EXPENSES NOT TO BE I REATEI) AS RE< I >VKKABLE


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


RECORDS AND VALI ATION OF XSSI TS


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














I')


 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


PARAGRAPH 6


PROM < I ION STATEMENT


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














20


 4~r< t*oPS.A4o<*J--- > 04











6 1.9 The size of Pciroleum slocks held M ihc end of the calendar month in


question


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





PARAGRAPH 7


VALUE OF PROIH CTION AND PRIC INC ST AT I Ml M





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


























21


 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


above)


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


question.


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














22


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.








PAR.XGR.APII 0








MAH MINT OrrXPFADITI Ml AMI MM llfls





























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











PARAGRAPH 10


FINAL F N'D-OF- YEAR S I ATFMENT


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


Year








PARAGRAPH II


ANM \l WORK PROGRAMME RI DC.FT





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.






































2*