NOTICE: The text below was created automatically and may contain errors and differences from the contract's original PDF file. Learn more here PRODUCTION SHARING AQUUSMm
INTERIM JOINT REGIONAL ADMINISTRATION OE
IHiGIONAL GOVERNMENT (SULAIMANlYAJj)
GENEL ENERJI A.S.
W\' riKij* (Ci*uwt>
TARI L W (,\)NTFNTS
Preamble ................................... M M •••••#••••••••• ••»••»•••••*•••••••! •••*••••• t *#• « .....
Article 1 1 SCI 1II1110113.. ,•»..........................................................................
Article 3 Affrccmcni aics ■ --- 1
Article 4 Agreement Term ........................................................ .....1
Article 5 KcliiKiuishmcnts ....... ............................................ .......... .....13
Article 6 ( 'll-imlmutinn ( OinUUtU' .............................. .....13
' w WIMIIHMIWH VVIIIIIIIItVV IM""
Article 7 Operator Responsibility.......................................................... ..... 16
Article 8 Procedure for Determination of Commcrciality and
Approval of Development Plans---------------------------------
Anicle 9 Annual Work Programs and Budgets...................................... ......20
Anicle 10 Allocation of Production, Recovery of Costs and Expenses,
Production Shannp And Riidit ot ...... 22
Article 11 Crude Oil Valuation............................................................... --- 24
Anicle 12 Ancillary Rights of the Contractor and Operalor . __25
Article 13 Assistance Provided by the Goventorate --------------------- --- 27
Article 14 Measurement, Quality and Valuation of Petroleum............. __28
Article 15 .....29
Article 16 Tm/PIkaI Regime .......................... ............ .....32
Article 17 Accounting. Financial Reporting and Audit ... ......- ___33
Article 18 Currency, Payments and Exchange Control . . ................ __33
Article 19 Inttviri md Fvnnvt ... .........
Article 20 Export of Hydrocarbons, Transfer of Ownership
and Regulations for Disposal..................................................
Article 21 Ownership of Assets.............................................................
Article 22 Insurance, Environment. Health. Safety and Liability........... .....36
Article 23 Personnel....................................................................... .....40
Article 24 Force Majeure......................................................................
Anicle 25 Assignments and Guarantees.......................................................41
Article 26 Agreement Enforcement and Stabilisation and Representations
Article 27 Notices and Confidentiality.........................................................45
Article 28 Termination and Breach............................................................. 47
Article 29 Dispute Resolution................... 47
Article 30 Text------------------------------ 48
Article 31 Approval and Effective Date.................................... 48
ANNEX A AGREEMENT AREA................................ Total (I) page
ANNEX B ACCOUNTING PROCEDURE ..................... Total (21) pages
ANNEX C MINIMUM PROGRAMME ........................ Total (I) page
This Agreement is made and entered into on July 17, 2002 by and between
(1) Regional Government of Sulaintaniynli (hereinafter referred to as
"Govemorate"), of the Interim Joint Regional Administration of Northern Iraq
(hereinafter referred to as "Northern Iraq Administration") as the party of the first
(2) as party of the second part. Gcncl Encrji A S (hereinafter referred to as
The Northern Iraq Administration aml'or Govemorate and the Contractor may
sometimes be referred to as “Party" and collectively as the "Parties"
WIIERF.AS. Patriotic Union of Kurdistan and Kurdistan Democratic Party together
with the Department of State of the United Slates of America entered into the Final
Statement on September 17. 1998 in Washington D C. (hereinafter referred to as
WHEREAS, the Final Statement is determining the administration of the Northern
Iraq as well as the governmental rights.
WHEREAS. Northern Iraq Administration, in the context of its commitment to Iraq's
ten itonal integrity; enters into this Agreement wishing to promote the development of
the Agreement Area and Contractor desires to join and assist in the exploration,
development und production of the potential resources within the Agreement Area.
WHEREAS, Contractor has the requisite technical, managerial and financial
capabilities and experience to carry out Petroleum Operations stipulated in this
Agreement and desires to co-operate with the Northern Iraq Administration for the
exploration and exploitation of Petroleum reserves within the Agreement Area;
WHEREAS. Govemorate is the current holder of the oil and gas usage right in respect
of the Agreement Area (hereinafter referred to as the “License") and the License is to
be reissued lo the Contractor, and
WHEREAS the Parties have agreed that in order to promote the development of
hydrocarbon resources in Northern Iraq Administration and to promote international
investment in Northern Iraq Administration. Petroleum Operations should be earned
out pursuant to the terms of this Agreement.
NOW. THEREFORE, in consideration of the promises and the mutual covenants and
conditions herein contained, it is hereby agreed as follows;
The following words and terms used in this Agreement shall unless otherwise
expressly specified in this Agreement have the following respective meanings:
1.1 •'Accounting Procedure" means the accounting procedure set out in Annex
1.2 An "Affiliated Company" or “Affiliate" means:
with respect to a Contractor Party: a company, corporation, partnership or
other legal entity:
i) in which a Contractor Party owns directly or indirectly more than fifty
percent (50%) of the shares, voting rights or otherw ise has the right to
establish management policy-, or
ii) in which at least fifty percent (50%) of the shares or voting rights arc
owned directly or indirectly by a company or other legal entity, which
owns directly or indirectly more than fifty percent (50%) of the shares,
voting rights or otherwise has the right to establish management policy
of a Contractor Party;
1.3 "Agreement” or "PSA" means this Production Sharing Agreement together
with all attached Annexes and any variation, extension or modification hereto
which may l>c agreed in writing by all the Parties.
1.4 “Agreement Aren" means the area specified in Article 3 hereof and delineated
in Annex A, us reduced or enlarged from time to time in accordance with the
provisions of this Agreement.
1.5 “Agreement Year" means a period of twelve (12) consecutive months from the
Effective Date within the term of the Agreement
1.6. ".Annex” or "Annexes" means each or all of the Annexes “A" through D"
attached to this Agreement and made a part hereof. In the ev ent of a conflict
between the provisions of an Annex and a term in the main body of this
Agreement, the provisions of the latter shall prevail.
1.7 "Appraisal" means all works carried out by Contractor to evaluate and
delineate the commercial character of a Discovery of Petroleum in the
1.8 “Appraisal Program" means a work program submitted by Contractor under
which Contractor plans to evaluate and delineate a Discovery of Petroleum in
the Agreement Area.
1.9 "Associated Natural Gas” means all gaseous hydrocarbons produced in
association with Crude Oil, which Crude Oil itself can be commercially
produced and separated therefrom.
1.10 "Authority" means any authorised body of the Northern Iraq Administration
I II "Available Crude Oil" means Crude Oil produced and saved from the
Agreement Area ami not used in Petroleum Operations in accordance with
Article 10 3.
1.12 "Available Natural Gas" means Natural Gas produced and saved from the
Agreement Area and not used in Petroleum Operations in accordance with
1.13 "Barrel" means a quantity consisting of forty-two (42) United States gallons
liquid measure, corrected to a temperature of sixty degrees (60*) Fahrenheit
with pressure at sea level.
114 "Budget” means the estimate of the expenditures, listed category-by-category,
relating to Petroleum Operations and contained in any Work Program
proposed by Contractor.
1.13 "Calendar Quarter" or “Quarter” means a period of three consecutive months
beginning on January’ April 1st. July 1st and October 1st of each Calendar
16 1. "Calendar Year” meant a period of twelve (12) consecutive months beginning
on January 1st and ending on December 31st in the same year, according to
the Gregorian Calendar.
1.18 "Capital Expenditures" means Development Expenditures Exploration
Expenditures and Drilling Costs.
1.19 "Commercial Discovery” means a discovery of Petroleum that the Contractor
in its sole discretion in accordance with the provisions of Article 8 commits
itself to develop and produce under the terms of the Agreement.
1.20 "Commercial Production" means regular and continuous production of
Petroleum from a Development Area in such quantities (taking into account
any other relevant factors) as are worthy of commercial dev elopment.
1.21 •"Contractor" means Gcncl Enerji A S., as provided herein.
1.22 "Co-ordination Committee" means the committee composed of representatives
of the Contractor and the Govemorate constituted in accordance with Article
1.23 "Cost Recovery Petroleum" means Cost Recovery Crude Oil and Cost
Recovery Natural Gas.
1.24 -Cost Recovery Crude Oil" is defined as set forth in Article 10.4.
1.25 "Cost Rocovcry Natural Gas" is defined as scl forth in Article 10.4
I 26 "Cost* and Expenses" comprise the Exploration Expenditures. Development
Expenditures, Operation Expenses and Drilling Costs together with Finance
1.27 Costs whether directly or indirectly incurred by Contractor
"Crude Oil" means crude mineral oil. asphalten. oA>phcntc and all kinds of
hydrocarbons whether in a solid, liquid or mixed state at the wellhead or
separator or which is obtained from Natural Gas through condensation or
"Cumulative Production” means the cumulative total crude oil production less
Reserved Crude Oil from the Agreement Area commencing from the date of
1.29 the Transfer of the Operations of the Field to the Contractor.
"Current Legislation" means laws, legislative acts, and normative documents
that arc effective on the Effective Date in the Northern Iraq Administration.
130 "Customs Duties" means all import (or export) tariffs and duties and other
mandatory payments as stipulated by applicable laws, regulations or other
legal measures of Northern Iraq Administration with respect to the import or
131 export of materials, equipment, goods and any other similar items.
"Development Area" means all or any part of the Agreement Area specified in
on approved Development Plan.
1.32 "Development Expenditures" means all Costs and Expense* for Development
Operations with the exception of Operation Expenses and Drilling Costs
whether directly or indirectly incurred, including but not limited to training,
133 administration, service. Finance Costs ard related expenses
“Development Plan" means the plan to be produced by Contractor in
accordance with Article 8.6. following a declaration that Commercial
1.34 Production may be established.
“Development” or "Development Operations" or “Development Work" means
and includes any activities or operations associated with work to develop
Petroleum for production and subsequently to produce and render Petroleum
marketable for commercial sale and shall include, but not limited to:
a) all the operations and activities under the Agreement with respect to
the drilling of wells, other than Exploration wells, the deepening,
reworking, plugging back, completing and equipping of such wells,
together with 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 he
necessary in conformity with sound oil field practices in the
international Petroleum industry.
b) all operations ami activities relating lo the servicing nnd maintenance
of pipelines, gathering lines, installations, production units and all
related activities for the production and management of wells including
the undertaking of re-pressurising, recycling and other operations
aimed at intensified recovery, enhanced production and oil recovery
1 35 "Discovery" means a well that the Contractor determines has encountered
Petroleum, which would justify- Commercial Production.
1.36 "Dollar” or “U.S.S” means the currency of the United States of .America.
1.37 "Double Tax Treat/' means any international treaty or convention for the
avoidance of double taxation of income and or capital which is applicable or
will be applicable in the future, in Northern Iraq Administration.
1.38 "Drilling Costs" means all expenditures whether directly or indirectly incurred
during F.xploration and Development for well drilling, completing and
reworking operations including, but not limited to, labor, geological design,
engineering and other Subcontractors (including all fees, tariffs and charges
payable to any such Subcontractors), material and equipment consumed or
lost, perforation, formation testing, cementing, well-logging and
1.39 "Effective Date" menns the date on which this Agreement has been signed by
all Parties nnd the requirements of Article 31 have been satisfied.
1.40 “Excess Associated Natural Gas" is defined as set forth in Article 15 1.lv
1.41 “Exploration” or “Exploration Operations” means operations conducted under
this Agreement in connection with the exploration for previously undiscovered
Petroleum, or the evaluation of discovered reserves which shall include
geological, geophysical, aerial and (other survey) activities and any
interpretation of data relaiing thereto as may be contained in Exploration
Work Programs and Budgets, and the drilling of such shot holes, core holes,
stratigraphic tests. Exploratory Wells for the discovery of Petroleum.
Appraisal wells and other related operations.
1.42 "Exploration Expenditures” means all Costs and Expenses for Exploration
Operations other than Drilling Costs whether directly or indirectly incurred
including but not limited to training, administration, service. Finance Costs
and related expenses and overhead and study costs.
I 43 "Exploratory Well" means any well dnllcd with the objective of confirming a
structure or geologic trap in which Petroleum capable of Commercial
Production in significant quantities has not been previously discovered.
1 44 "Field” means a Petroleum reservoir or group of reservoirs within a common
geological structure or feature. “Field” may be an "Oil Field" or a “Natural
Gas Field" as designated by Contractor.
-Finance Costs" or "Interest Costs" shall include all amounts of interest, fees
and charges paid in respect of any debt incurred in carrying out the Petroleum
Operations and any refinancing of such debts, providing that in the case of
Affiliate debt, it shall include interest only to the extent that it docs not exceed
a rate which would have been agreed upon between independent panics in
similar circumstances and such interest is not limited by which assets or
services arc purchased by the loan principal.
1.46 "Force Majeurc" is defined as set forth in Article 24.2.
1.47 "Foreign Employee" is defined as set forth in Article 16.17
1.48 "Foreign Subcontractors" means Subcontractors which arc organised outside
of Northern Iraq Administration and under Current Legislation arc not obliged
1.49 to establish permanent representative offices in Northern Iraq Administration.
"Gas Sales Agreement" is any agreement to be entered into for the sale of
Non-associatcd Natural Gas and Associated Natural Gas in accordance with
1.50 the provisions of Article 152.
"Gcnel F-nerji A S " means the legal entity established in accordance with the
laws of the Republic of Turkey.
1.51 "Joint Operating Agreement" or "JOA" means the agreement to be concluded
if necessary between the Contractor and the third parties, which shall be
supplementary to and consistent with the provisions of this Agreement and
1.52 which shall regulate the terms under which Petroleum Operations will be
"I.IBOR" means the three (3) months U S. Dollars London Interbank fixing
offer rale quoted daily in the London Financial Times.
1.53 "Marketing Team" is defined as set forth in Article I5.2.n.ii.
1.54 "Measurement Point" means the location specified in an approved
Development Plan where the Petroleum is metered and delivered to the Parties
or such other location as tl»e Parties may agree from time to time pnor to the
1.55 submission of a Development Plan as the circumstances muy require.
"Month" or "Calendar Month" means a calendar month.
1.56 "Natural Gas" means Non-associatcd Natural Gas and Associated Natural Gas
in their natural state.
1.57 "Natural Gas Field" means a field from which more than filly (50) percent of
the estimated reserves on an energy equivalency basis arc Natural Gas at
1.58 surface conditions.
"Non-nsaociatcd Natural Gas" means nil gaseous hydrocarbons produced from
gas wells, and includes wet gas. dry gas and residue gas remaining after the
extraction of liquid hydrocarbons from wet gas.
1.59 “Northern Iraq Administration” or “Government" means the Northern Iraq
Administration. Council of Ministers and all political or other agencies or
instrumentality or subdivisions thereof including but not limited to any local
government or other representative, agency or authonty, which has the
authority to govern, legislate, regulate, levy and collect taxes or duties, grant
licences, permits, approve or otherwise impact (whether financially or
otherwise) directly or indirectly upon any of the Parties' rights, obligations or
activities under the Agreement; the word ‘'Governmental” shall be construed
1.60 "Oil Field” means a field from which more than fifty (50) percent of the
estimated reserves comprise Crude Oil.
I 61 "Operation Expenses" means those costs incurred in day-to-day Petroleum
Operations, whether directly or indirectly incurred including but not limited to
all costs, expenses and expenditures associated with the Production,
processing and transportation to the Measurement Point of Petroleum,
1.62 training, administration, sendee, payments for abandonment and site
restoration in accordance with Article 8.8, insurance costs in accordance with
Article 22.2. and related expenses.
“Operator" means the Contractor or a company to be established by the
Contractor upon the mutual agreement of the parties.
1.63 "Party" or “Parties" means I he parties whose authorized representatives have
affixed their signatures hereto-
1.64 "Payment Date" has the meaning as defined in 10.9
165 “Petroleum" means Crude Oil and Natural Gas-
1.66 “Petroleum Operations" means the Exploration Operations; the Development
Operations, Production Operations, and transportation to the Measurement
Point and other activities related thereto carried out pursuant to this
1.67 Agreement and the JO A.
“Petroleum Operations Account" shall have the meaning given to it in
paragraph 4.1 of section I of the Accounting Procedure.
1.63 “Production” or "Production Operations" mams operations and all related
activities carried out for Petroleum production after the approval of any
Development Plan, including without limitation extraction, injection,
stimulation, treatment, transportation, storage, lifting, and associated
1.69 operations, but does not include any storage or transportation beyond the
"Profit Natural Gas” is defined as set forth in Article 10.9.
1.70 “Profit Oil" is defined as set forth in Article 10.9.
1.71 “Profit Tax" is defined as set forth in Article 16
1.72 "Reserved Crude Oil" means Crude Oil produced and saved from die
Agreement Area as determined in Article 11.5.
1.73 "Study Area" means the part of the Agreement Area, which will be defined in
a Study Program.
1.74 "Study Program" means the progrum to he produced and carried out by the
Contractor in accordance with Article 8 following the conclusion that
Commercial Production is feasible.
1.75 "Subcontractor" means any natural person or juridical entity agreed directly or
indirectly by or on behalf of Contractor to supply goods, works or services
related to this Agreement,
1.76 "Third Party" or "Third Parties" means one or more of a natural person or
juridical entity other than a Party hereto and any Affiliate of a Party.
1.77 "Taxes'* means nil levies, duties, payments, fees, taxes or contributions
payable to or imposed by Governmental agencies, Governmental subdivisions
or republican, municipal or local authorities within the Government of
Northern Iraq Administration or within the government of Iraq.
1.78 "Transfer of Operation" means the day, the Petroleum Operations in the Field
arc transferred to the Contractor on the date the Contractor completes the
mobilisation of its office and personnel, within 45 (lofty five) days following
the Effective Date
1.79 “VAT" means Northern Iraq Administration value added tax
1.80 “Withholding Tax” is defined as set forth in Article 16.13.
1.81 "Work Program" and "Work Program and Budget" means any work program
and work program and Budget to be submitted to the Co-ordination
Committee by the Contractor in accordance with the provisions of Article 9
and which shall set out the proposed Petroleum Operations to be earned out in
the Agreement Area together with the associated Budget as the ease may be.
SCOPE OF AOKIDOT AXU G£>XRAL PROVISION
2.1 The approval of this Agreement by the Govemorate should not be deemed as a
challenge of the territorial integrity of Iraq and Govemorate hereby ratifies the
Licence according to the Current Legislation
2.2 Subject to the terms and conditions of the Agreement, the Northern Iraq
Administration hereby in accordance with Current legislation grants to the
Contractor the exclusive rights to conduct Petroleum Operations in the
Agreement Area during the term of this Agreement.
2.3 Contractor shall be responsible to the Govemorate for the execution of such
Petroleum Operations in accordance with the provisions of the Agreement.
2.4 In performing Petroleum Operations, Contractor shall provide all financial and
technical requirements, unless otherwise provided in this Agreement and
conduct all operations in accordance with the standards generally accepted in
the international Petroleum industry.
2.5 Contractor shall be compensated for its services, not by way of reimbursement
in cash of its expenditures under the Agreement, but by receipt of its share ol
Petroleum from the Agreement Area to which it may become entitled by way
of cost recovery out of Cost Recovery Petroleum described in Article 10. If
Petroleum produced from Development Areas within the Agreement Area
developed by Contractor. Cost Recovery Petroleum under Article 10 and
Profit Oil and Profit Natural Gas is insufficient to reimburse Contractor for
Costs and Expenses incurred by Contractor, Contractor shall bear its own
losses in respect of any shortfall.
2.6 This Agreement defines the Parties' rights and obligations, governs their
mutual relations and establishes the rules and methods for the Exploration,
Development. Production, and sharing of Petroleum between them. The entire
interests, rights and obligations of each of the Parties under this Agreement
shall be solely governed by the provisions of this Agreement.
2.7 During the period in which this Agreement is in force, all Available Crude Oil
and Available Natural Gas resulting from Petroleum Operations, will be
shared between the Govemorate and the Contractor in accordance with the
provisions of Article 10 of this Agreement
2.8. It is agreed that the Operator shall be the Contractor unless changed by the
Contractor with another Operator. That appointment shall be effective from
the date it is notified to all concerned Parties. Following the appointment the
Operator shall act as the designated non-profit agent of the Contractor for the
conduct of Petroleum Operations in accordance with this Agreement and any
future JOA to be entered into.
3.1 The Agreement Area is as set out by the geographic location and co-ordinates
described in Annex “A" attached hereto and delineated in the map. which
forms part thereof. The total area of the Agreement Area may hereafter be
reduced only in accordance with the provisions of this Agreement.
3.2 Except as for all rights and authorisations necessary for the implementation of
the provisions of this Agreement, no right is granted to the Contractor, any
other entity to the use or disposal of any other natural or man-made resources
or aquatic resources or other natural resources with the exception of aquatic
resources used directly in Petroleum Operations in accordance with relevant
permits which will be obtained through the Northern Iraq Administration.
AH I IC I K. 4
4 I The term of the Agreement shall be deemed to have begun on the Transfer of
Operations Date and shall continue for a total of twenty-five (25) consecutive
Agreement Years, unless the Agreement is sooner terminated in accordance
with Article 28 of this Agreement
4.2 If in respect of any Development Area. Commercial Production remains
possible beyond the initial period of twenty-five (25) consecutive Agreement
Years specified in Article 4.1 the Contractor, after giving notice to the
Govemonte at least one (I) year prior to the end of any such period, and after
obtaining approval by the Co-ordination Committee of a revised Development
Plan shall be entitled to liuvc an extension of the term of this Agreement with
respect to such Development Area for an additional term of five (5) years or
the prcxlucing life of the Development Area, whichever is lesser, subject to the
approval of the Govemornte, and such approval shall not be unreasonably
5.1 Contractor may at any time relinquish voluntarily all or any part of the
Agreement Area without any further liability. The area designated under
Article 5.1 for relinquishment shall consist as far as practicable of rectangular
blocks bounded by lines running due north and south and due cast and west
and shall not be less than five (5) square kilometres. The area designated for
relinquishment need not consist of one contiguous area.
6.1 For the purpose of providing the overall supervision and direction of and
ensuring the performance of the Petroleum Operations, Govemorate and
Contractor shall establish a Co-ordination Committee within forty-five (45)
days of the Effective Date.
6.2 The Co-ordination Committee shall comprise a maximum total of four (4)
members Hie Govemorate shall appoint a total of two (2) representatives and
Contractor shull appoint two (2) representatives to form the Co-ordination
Committee. All the aforesaid representatives shall have the right to attend and
present their views at meetings of the Co-ordination Committee. Each
*?li< «rl l:r>'i ft ulumtil
representative shall have the right to appoint an alternate who shall be entitled
to attend all meetings of the Co-onlination Committee but who shall have no
vote except in the absence of the representative for whom he is the alternate.
6.3 Ihe first Chairman of the Co-ordination Committee shall one of the
representatives designated by the Govemoralc (or his alternate), and the first
Vice Chairman shall be the chief representative designed by the Contractor,
(or his alternate). The Chairman and Vice Chairman shall be appointed for a
term of two (2) years. The Chairman of the Co-ordination Committee shall
preside over meetings of the Co-ordination Committee and in the absence of
the Chairman (or his alternate); the Vice-Chairman shall preside. Such Parties
may designate a reasonable number of advisors, who may attend, but shall not
be entitled to vote at. Co-ordination Committee meetings.
6.4 A regular meeting of the Co-ordination Committee shall be held at least twice
every year. The Secretary’ to be designated pursuant to Article 6.9 shall be
responsible for calling such regular meetings of the Co-ordination Committee
and shall do so at the request of the Chairman by sending a notice to the
Parties. Other meetings, if necessary, may be held at any time at the request of
the Parties or Contractor. In each case the secretary shall give the Parties at
least 30 days notice (or such shorter period as the Parties may' agree) of the
proposed meeting date, the time and location of the meeting.
6.5 The Parties hereby empower the Co-ordination Committee to:
a) review and examine any Work Program and Budget proposed by the
Contractor and any amendment thereof;
b) determine the Commcrciality of each proposed Development
c) review and adopt proposed Dev elopment Operations and Budgets;
d) approve or confirm the following items of procurement and
i) approve procurement of any item within the Budget with a unit
price exceeding Two Hundred and Fifty Thousand U.S.S (U.S.S
250,000) or any single purchase order of total monetary value
exceeding One Million U S. S (U-S.S1.000.000);
ii) approve a lease of equipment, or an engineenng sub Agreement
or a service Agreement within the Budget worth more than Five
Hundred Thousand U.S. $ (US$500,000) in total; and
iii) approve excess expenditures pursuant to Article 9.5 hereof and
the expenditures pursuant to Article 9.6 hereof.
e) demarcate boundaries of a Development Area.
0 review and approve the insurance program proposed by the Contractor
and emergency procedures on safely and environmental protection, in
addition all programmes and budgets which arc in connection with
g) review and approve personnel policies, selection and training programs
for Operator. Without prejudice to the foregoing, it is accepted that
part of the personnel policy of Operator shall be to give preference to
local citizens, provided that the conduct of Petroleum Operations shall
not be affected.
h) discuss, review, decide and approve other matters that have been
proposed by cither Party. Contractor or the Operator.
i) review and discuss the development work and technological regimes
proposed by the Parties; and
j) appoint sub-commiuees to meet from time to time to review any aspect
of Petroleum Operations, which the Co-ordination Committee thinks
6.6 Decisions of the Co-ordination Committee shall be made by unanimous
decision of the representatives present and entitled to vote. Each
representative will have one vote. All decisions made unanimously shall be
deemed as formal decisions and shall be conclusive and equally binding upon
6.7 Parties shall endeavour to reach agreement and unanimous decision on all
matters presented to the Co-ordination Committee In the event that on any
matter related to the investment or any matter related for the Contractor to
make or cause to make any cost or expense for the Petroleum Operations in
relation with the Annual Work Program and Budget; which the Co ordination
Committee arc unable to reach agreement and the Contractor is insisting that
its proposal shall prevail. If Govemorate Representative's view is that the
proposed action would result in serious permanent damage to that field or
reservoir or materially reduced recover)' of Petroleum over the life of the field
or reservoir then the matter will be referred to an internationally recognised
independent expert appointed by the Parties (and in case of failing to appoint
such expert within fifteen (15) days then as appointed by the United Kingdom
Petroleum Institution Chairman), whose decision on accepted international
Petroleum Industry practice shall be final and binding. The costs of the expert
shall be met by the Parties equally and shall be recoverable as Costs and
6.8 A matter, which requires urgent handling, may be decided by the Co¬
ordination Committee without convening a meeting, with the Co-ordination
Committee making decisions through telexes or the circulation of documents.
The Co-ordination Committee shall nominate a Secretary, to record minutes of
the meetings of the Co-ordination Committee, and may establish technical and
other advisory sub committees. The Secretary shall take a record of each
proposal voted on anil the results of such vote at each meeting of the Co¬
ordination Committee Each representative of the Parties shall sign and be
provided with a copy of such record at the end of such meeting. The Secretary
shall provide each Party with a copy of the minutes of each meeting of the Co¬
ordination Committee within fifteen (15) days after the end of such meeting.
Each Party shall thereafter have a period of fifteen (15) days to give notice of
any objections to the minutes to the Secretary. Failure to give notice within
the said fifteen (15) day period shall be deemed approval of those minutes. In
any event the record of proposals voted on to be provided at the end of each
meeting shall be conclusive and take precedence over the minutes.
6.10 All costs and expenses incurred with respect to the activities of the Co¬
ordination Committee shall be paid or reimbursed by the Contractor and
charged to Operation Expenses in accordance with the Accounting Procedure.
7.1 The Parties agree that the Operator shall act as the Operator for Petroleum
Operations within the Agreement Area in accordance with approval Work
Programs and Budgets unless otherwise stipulated in this Article 7.
7.2 The Operator shall have the following obligations:
a) to perform the Petroleum Operations reasonably, economically and
efficiently in accordance with directions received from the Co¬
ordination Committee. It is recognised that the Co-ordination
Committee through the Operator will have operating control of all
Petroleum Operations, including the right to authon.se the appointment
of the General Director and Deputy Director or the Directors;
b) to conduct (implement) the Work Programs and Budgets approved by
the Co-ordination Committee;
c) to be responsible for purchasing facilities, equipment and
miscellaneous material and enter into subcontracts and service
contracts at Contractor’s instruction with service providers and vendors
related to the Petroleum Operations, in accordance with approved
Work Programs and Budgets and instructions from Contractor.
d) to prepare and submit for approval a personnel training program and its
annual budget and carry out the same as approved by the Co-ordination
to establish and maintain complete and accurate accounting records
regarding its costs and expenditures for the Petroleum Operations in
accordance with the Accounting Procedure and this Agreement;
0 to make necessary preparation for regular meetings of the Co¬
ordination Committee, and to submit to the Co-ordination Committee
information related to the matters reviewed and approved by the Co¬
g) to assist Contractor and Govemorate ns requested in the provision of
reports to the Co-ordination Committee on Petroleum Operations
conducted under this Agreement.
7.3 Operator and its shareholders shall not be responsible for any activities
(including Petroleum activities) affecting the Agreement Area prior to the
7.4 The Operator shall provide both Parties with copies of all relevant data and
reports pertaining to Petroleum Operations (including but not be limited to
geophysical, geological, technological, operational, accounting or other
material) required by such Parties.
7.5 The Parties agree to use their best endeavours to agree and execute a Joint
Operating Agreement should the Parties consider it necessary after
appointment of an Operator other than the Contractor. Any Joint Operating
Agreement to he entered into shall be based on the Association of
International Petroleum Negotiators Model International Joint Operating
Agreement then current and shall be subject to, wholly consistent with and
shall not detract from the provisions of this Agreement
PROCEDURE FOR DETERMINATION QF COMMERCIAUIY AXD
APPROVAL QF DEVELOPMENT PLAXS
8.1 If. at any time Contractor concludes that Commercial Production (or
significant additional Commercial Production if Commercial Production has
previously been established) from the Agreement Area is feasible, it shall
notify the Northern Iraq Administration within forty-five (45) days of reaching
such a conclusion.
8 2 Within forty-five (45) days of receipt of such notice. Contractor shall tn the
first instance present to the Co-ordination Committee for approval a proposed
Study Program which shall be deemed approved if no written objections are
raised by any member of the Coordination Committee w ithin thirty (30) days
following receipt thereof. The proposed Study Program shall specify in
reasonable detail the appraisal work including seismic, drilling of wells and
studies to be earned out and the estimated time frame within which the
Contractor shall commence and complete the program and also appropnate
8 3 Thereafter the Contractor shall carry out the Study Program approved by the
Co-ordination Committee Within ninety (90) days after completion of auch
Study Program, the Contractor shall submit to the Co-ordination Committee a
comprehensive evaluation report on the Study Program. Such evaluation
report shall include, but not be limited to: geological conditions, such ns
structural configuration; physical properties and extent of reservoir rocks;
pressure, volume and temperature analysis of the reservoir fluid; fluid
characteristics, including gravity of liquid hydrocarbons, sulphur percentage,
sediment and water percentage, and product yield pattern; Natural Gas
composition; production forecasts (per well and per Field); and estimates of
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 Northern
Iraq Administration pursuant to Article 8.1 is feasible;
b) that such Commercial Production is not feasible (contrary to the notice
containing Contractor's initial expectations); or
c) that Commercial Production will be conditional on the outcome of
further specified work that the Contractor commits to carry out under a
further Exploration or Study Program in specified areas within or
outside the rclcvunt Study Aren
8.3 In the event the Contractor makes a declaration under Article 8.4(c) above.
CocUraclor shall be entitled to retain the relevant Study Area pending the
completion of the further work committed under that Article, at w hich time the
Contractor shall advise the Co-ordination Committee of its conclusion aa to
whether or not there m in fact a new Commercial Discovery and the provisions
of Article 8.4(a) or (b) shall be applied accordingly
8 6 If the Contractor declares pursuant to Article 8.4(a) that Commercial
Production is feasible, the Contractor shall submit to the Co-ordination
Committee (a) a proposed Development Plan in respect of the relevant
Commercial Discovery (containing the mart era specified in Article 8.7 and
8 8) and (b) a proposed designation of the Development Area, both of which
shall be subject to the Co-ordination Committee's approval Such approval
will not be unreasonably withheld or delayed, provided that each shall be
deemed approved as submitted if no written objections are presented thereto
by any member of the Co-ordination Committee within forty-five (45) days of
receipt Upon approval being granted or deemed as provided under this
Article 8.6. the Contractor, with any requested assistance from the Operator,
shall proceed promptly and diligently to implement the Development Plan in
accordance with good international Petroleum industry practices, to install all
necessary facilities and to commence Commercial Production.
8.7 The Contractor's proposed Development Plan to be submitted pursuant to
Article 8.6 shall detail the Contractor’s proposals for Development and
operation of the Development Area It will detail any facilities and
infrastructure, which may be required up to the Measurement Point, either
inside or outside of the Development Area. Any Development Plan shall set
forth production parameters, number and spacing of wells, the facilities and
infrastructure (including proposed locations) to be installed for production,
storage, transportation and loading of Petroleum, an estimate of the overall
cost of the Dev elopment, and estimates of the time required to complete each
phase of the Development Plan, a production forecast and any other factor that
would affect the economic or technical feasibility of the proposed
8.8 Any Development Plan shall also include an abandonment and site restoration
program together with a funding procedure for such program Each
abandonment plan shall describe removal and abandonment measures deemed
necessary following completion of Production from the relevant Development
Area together with an estimate of the costs thereof. The abandonment plan
shall provide for the removal of facilities and equipment used in Petroleum
Operations or their in place abandonment, if appropriate, in the Development
Area and the return of used areas to a condition that reasonably permits the use
of such areas for purposes similar to those uses existing prior to the
commencement of Petroleum Operations hereunder. All expenditures
incurred in abandonment and site restoration shall be treated as Costs and
Expenses and recoverable from Cost Recovery Petroleum in accordance with
Article 10 and the Accounting Procedure. All funds collected pursuant to the
funding procedure shall be dedicated to site restoration and abandonment and
will be placed in a special interest bearing account by Contractor, which shall
be held in the joint names of the Govemorate and the Contractor or their
nominees. Contractor's responsibilities for environmental degradation, site
restoration and well abandonment obligations, and any other actual,
contingent, possible and potential activity associated with the environmental
condition of the Development Area shall be limited to the obligation to place
the funds agreed to be paid in accordance with the said funding procedure in
the approved account in accordance with generally accepted international
Petroleum industry practice. Deposits in approved accounts shall be made on
a quarterly basis in arrears commencing with the first Calendar Quarter in
which there is Available Petroleum. All such payments deposited by
Contractor shall be treated as Costs and Expenses and recoverable as
Operation Expenses from Cost Recovery Petroleum in accordance with Article
10 of this Agreement. No Taxes shall be imposed on any amounts paid into,
received or earned by or held in the special interest bearing account. Hie
Govemorate shall be solely responsible for the implementation of the
8.9 Any significant changes to an approved Development Plan or proposals
related to extension of a Field or for enhanced recovery projects shall be
submitted to the Co-ordination Committee.
[«(]< (( l«l*"**)
8.10 Subject to the terms of this Agreement the Contractor shall carry out, at its
own expense and financial risk, all the necessary Petroleum Operations to
implement an approved Development Plan. However, if, the Contractor in its
sole discretion determines exploitation turns out not to be commercially
profitable, the Contractor shall not be obligated to continue Development or
Production and will in such circumstances submit a revised development plan
that is commercially profitable to the Co-ordination Committee or relinquish
the Development Area.
8.11 Where there is a perceived need recognised by the Parties to improve the
economic effectiveness of the Petroleum Operations by constructing and
operating certain common facilities with other organisations (including for
example roads, non-import/non-export pipelines, compression and pumping
stations and communication lines) the Parties shall use their best efforts to
reach agreement between themselves and other appropriate enterprises as to
the construction and operation of such facilities with all costs, tariffs ami
investments made by the Contractor to be recoverable as Operation Expenses
in accordance with Article 10 of the Agreement and Accounting Procedure.
ASttLAL-WOKK PROGRAMS AJSD BUDGETS
9.1 Contractor shall be responsible for the procurement of installations, equipment
and supplies and entering into contracts for the purchase of goods and services
with Sub Contractors including Foreign Sub Contractors and others arising out
of Petroleum Operations, all in accordance with approved Work Programs and
Budgets. Operator shall assist the Contractor when requested in respect of the
matters set out in the previous sentence, and shall implement domestic
procurement operations as provided in Clause 7.2.(c) in accordance with
approved Work Programs and Budgets.
9.2 Contractor shall submit to the Co-ordination Committee a minimum Work
Program for the year 2002 and the corresponding Budget within thirty (30)
days follow ing the Effective Dale of the Agreement.
9.3 Before the 31st October of each Calendar Year, the Contractor shall prepare
and submit to the Co-ordination Committee for its review a proposed annual
Work Program and Budget for the next Calendar Year. If the Co-ordination
Committee agrees to modifications in an annual Work Program andor Budget,
the Contractor shall promptly make such modifications to the Work Program
andor Budget and resubmit the modified Work Program and Budget to the
Co-ordination Committee. The Co-ordination Committee shall approve each
Work Program and Budget within forty five (45) days after receipt of it. If the
Co-ordination Committee fails to notify’ the Contractor of its approval or
disapproval of the Work Program and Budget within said forty-five (45) days
after its receipt, the annual Work Program and Budget proposed by the
Contractor together with any modifications timely requested by the Co-
111, IV 01
ordination Committee, shall be deemed to have been approved by the Co¬
9.4 In connection with the review and approval of the annual Work Program and
Budget, the Contractor and Operator shall submit to the Co-ordination
Committee such supporting data as reasonably requested by the Co-ordination
9.5 The Contractor may, in accordance with the following provisions, incur
expenditures in excess of the approved Budget or expenditures outside the
approved Budget in carrying out the approved Work Program, provided that
the objectives in the approved Wort: Program are not substantially changed:
a) In carrying out an approved Budget, the Contractor may. if necessary,
incur excess expenditures of no more than ten percent (10%) of the
approved Budget in any specified budgetary category. The Contractor
shall report quarterly the aggregate amount of all such excess
expenditures to the Co-ordination Committee for confirmation.
b) For the efficient und as required operative performance of Petroleum
Operations, the Contractor may. without approval, undertake certain
individual projects which arc not included in the Work Program and
Budget, for a maximum expenditure of One Hundred Thousand U.S.S
(U S SI00,000), but shall, within ten (10) days after such expenditures
arc incurred, report to the Co-ordinaiion Committee for confirmation
c) Excess expenditures under this Article 9 5 shall not exceed five percent
(5%) of the approved or modified foul annual Budget for the Calendar
Year. If the aforesaid excess is expected to be in excess of said five
percent (5%) of the total annual Budget, the Contractor shall present its
reasons therefor to the Co-ordination Committee and obtain its
approval poor to incurring such expenditures
9.6 In ease of emergency (as in where there is an immediate threat to life or
property), the Contractor may incur emergency expenditures for the amount
actually needed but shall report such expenditures to the Co-ordination
Committee as soon as they are made The said emergency expenditures shall
not be subject to Article 9.5 above.
9.7 Petroleum Operations will only be performed in accordance with the approved
or modified annual WoA Program and Budget, otherwise they will not be
deemed to be Costs and Expenses and will not be treated as Coat Recoverable.
id, I ’loj
SliARlM;. AND KICHT fir RXPOH1
10.1 Contractor shall provide or procure the provision of all funds required lo
conduct Petroleum Operations under this Agreement, except as otherwise
provided in this Agreement, and Contractor shall be entitled to recover its
Costs and Expenses from Petroleum produced from the Agreement Area as
1U-2 Contractor and/or Operator shall have the right to use free of charge Petroleum
excluding the Reserved Crude Oil produced from the Agreement Area to the
extent required for Petroleum Operations under the Agreement. The amount
of Petroleum which Contractor and/or Operator shall be entitled to use for
Petroleum Operations shall not exceed the amount, which would be expected
to be used in accordance with international Petroleum industry practice. For
the avoidance of doubt, the use of such Petroleum shall only be for the benefit
of Petroleum Operations and not the personal gain of any Party. An
appropriate paper shall also be executed for the use of such Petroleum.
10.3 Available Crude Oil and Available Natural Gas (hereinafter referred lo
collectively as "Available Petroleum") after reducing the Reserved Crude Oil
shall be measured at the applicable Measurement Point and allocated as set
10.4. Contractor shall be entitled to recover all Costs and Expenses incurred in
respect of Petroleum Operations in a following manner
a) Operations Expenses will firstly be recovered from the Available
b) Capital Expenditures will be recovered from remaining Available
Petroleum (hereinafter referred to as “Cost Recovery Crude Oil" and
“Cost Recovery Natural Gas" and collectively "Cost Recovery
Petroleum" as appropriate) following the recovery of Operations Costs
in the percentages as defined below:
(i) During the phase where Available Petroleum can not be
exported but only sold in the local market in the Northern Iraq
Administration, such phase as determined by the Co-ordination
Committee ninety percent (90%); and
(ii) During the phase where Available Petroleum can be exported
to other markets, such phase ns determined by the Co
ordination Committee, eighty percent (80%) on the exported
amount of the Available Petroleum will be allocated to the
Contractor as Cost Recovery Petroleum.
Costs and Expenses shall be recovered in a manner consistent with the
Accounting Procedure and Article 10.5.
10.5 Costs and Expenses shall be recoverable from Cost Recovery Petroleum on a
first in, first out basis (i.c. Costs and Expenses will be recovered according to
the date they were incurred, curliest first). Recovery of Costs and Expenses
will commence as soon as Cost Recovery Petroleum is available.
10.6 To the extent that in a Calendar Year outstanding recoverable Costs and
Expenses related to the Agreement Area exceed the value of all Cost Recovery
Crude Oil or Cost Recovery Natural Gas from the Agreement Area for such
Calendar Year, the excess shall he carried forward for recovery' in the next
succeeding Calendar Years until fully recovered, but in no ease after
termination of the Agreement,
10.7 Recovery of Costs and Expenses shall be achieved by transferring to a Party at
the Measurement Point title to quantities of Cost Recovery Petroleum of
equivalent value (determined in accordance with Article II) to the Costs and
Expenses to be recovered in accordance with this Article 10.
10.8 To the extent that the value of Cost Recovery Petroleum received by the
Contractor from the Agreement Area during a Calendar Quarter is greater or
lesser than the Contractor was entitled to receive for that Calendar Quarter, an
appropriate adjustment shall be made in accordance with the Accounting
10.9 Following recovery of Costs and Expenses from Cost Recovery Petroleum in
accordance with the provisions of this Article 10, the remaining Petroleum
including any portion of Cost Recovery Petroleum not required for recovery of
Costs and Expenses (hereinafter referred to as “Profit Oil" or “Profit Natural
Gas" and collectively "Profit Petroleum”) shall be allocated between the
Parties in the following proportions, over each Calendar Year
The Profit Petroleum will be shared between:
Governorate's Share - fifty one percent (51%)
Contractor's Share - forty nine percent (49%)
10.10 Contractor shall prepare and provide the Govemoratc not less than ninety (90)
days prior to the beginning of each Calendar Quarter a written forecast setting
out the total quantity of Petroleum that Contractor estimates can be produced
and saved hereunder during each of the next four (4) Calendar Quarters in
accordance with Accepted international Petroleum industry practices and the
Work Program established in accordance with Article 9.
10.11 Crode Oil shall be measured at the Measurement Point for purposes of the
Agreement and delivered to the Govemoratc and Contractor and each such
Party as owners shall take in kind, assume risk of loss and separately dispose
of their respective entitlements of Cost Recovery Oil and Profit Oil. All Cost
Recovery Natural Gas and Profit Natural Gas shall be sold by the Contractor
in accordance with Article 15 of this Agreement. The Northern Iraq
Administration may agree that All Coat Recovery Oil and Profit Oil shall be
sold by the Contractor within the same principles as indicated in Article 15.
10.12. For the avoidance of any doubt, title to their relevant shares of Petroleum shall
pass Govemorale to the Parties as appropriate at the Measurement Point.
10.13 The Parties shall agree on procedures for taking volumes of Crude Oil
corresponding to their respective entitlements on a regular basis and in a
manner that is appropriate having regard to the respective destinations and
uses of the Crude Oil, all in accordance with the provisions of this Agreement.
If necessary the Parties will enter into a lifting agreement setting out the
agreed procedures for taking volumes of Crude Oil, and such agreement shall
comply with the principles of accepted international Petroleum industry
10.14 The Govemorate shall have the right to receive the Reserved Crude Oil in kind
at the well head and freely dispose the same. All costs incurred by the
Govemorate starting from the well head will be borne by the Govemorate.
11.1 Parties agree that the value of Cost Recovery Petroleum should reflect the
actual price received by the Contractor for the said Petroleum. Given that the
Contractor can demonstrate that Petroleum is being sold to an independent
third party on an arms length basis, then the Cost Recovery Crude Oil shall be
valued as the actual revenues received by the Contractor for sales of Crude Oil
at the Measurement Point (adjusted if necessary for transportation, storage and
processing costs). If however such an independent third party sale cannot be
demonstrated, or at the discretion of the Contractor, then the Parties agree that
the value of the Cost Recovery Crude Oil. if sold on International Markets,
shall be adjusted to the international market price for Crude Oil from time to
time. In this case, for the purpose of determining the value of the Cost
Recovery Petroleum taken and disposed of by the Parties and/or their
assignees under this Agreement during each Calendar Quarter, The Parties
shall, pnor to the date of Commercial Production, agree upon the basket of
Crude Oil freely traded in international markets and referred to in
subparagraph a) below and the value of the Cost Recovery Petroleum shall be
adjusted to reflect the weighted average of daily f.o.b. prices for Agreement
term of sales from Petroleum producing countries in international markets for
the same Calendar Quarter of such basket of crude oil it being understood that
the follow ing principles will apply:
a) The weighted average of the basket shall be such that the average
gravity of the basket and the average gravity of the Crude Oil produced
under this Agreement arc equal; and
b) The pnees for individual referenced crude oil markers used within the
basket shall be based upon the numerical average of a daily report of
the actual price for each referenced crude oil marker as published in
agreed internationally recognised publications; and
c) Adjustment provisions will be incorporated into the basket formula to
take account of transportation costs involved in Crude Oil produced
under this Agreement arriving at a designated sales point (where the
sales point is not the Measurement Point) and to take account of
gravity \ anation beyond a pre-agreed range; and
d) Unless agreed otherwise, the last calculated weighted average basket
pnee shall sene as the provisional pnee for a Calendar Quarter until a
new pnee is determined.
11-2.In the event that the Parties arc unable to agree upon the basket of Crude Oil
envisaged in Article 11.1 above, or the principles relating thereto, then either of
the Parties may refer the question for a final, non-rcvisablc determination by an
independent expert designated by the UK Institute of Petroleum. Pending such
determination, the price shall be as determined in Article 11.1(d) above.
11.3. Natural Gas shall be valued at the actual revenues received less transportation,
storage, treatment, processing, marketing, distribution, liquefaction and all other
associated costs incurred by Contractor beyond the Measurement Point in
supplying Natural Gas to customers beyond the Measurement Point.
11 4.The provision in Article 11.1, 11.2 and 11.3 will also be applicable in ease the
Govemorate decides that the Contractor will sell its Profit Oil or Profit Natural
Gas for the actual payment to be paid by the Contractor.
11.5. The daily average of the Cmde Oil produced between January I. 2002 and the
Signing Date will he the base line for the determination of the daily production.
The Reserved Crude Oil will be calculated by reducing 15% (fifteen percent)
from such average daily production, for the operation and lifting costs of the
Reserved Crude Oil
ANCILLARY RICH IS OK THE CONTRACTOR AND OPLKAIOK
12.1 In addition to the rights to carry out Petroleum Operations within the
Agreement Area the Govemorate shall provide or otherwise procure access to
Contractor to all existing facilities and infrastructure in the Agreement Area
owned by the Northern Iraq Administration for the purpose of carrying out its
Petroleum Operations during the term of the Agreement Such access shall be
on terms as regards access and lands no less favourable than those offered to
other persons or entities, in addition, in any case within the Petroleum Law.
The Contractor will reimburse the value determined, for the supporting
facilities utilized by the operation personnel (excluding Petroleum Production
facilities), decided to be used by the Contractor. Such determination will be
made within two (2) months following the Transfer of the Operations, by the
Co-ordination Committee and the reimbursement to be made within one (I)
year in equal instalments..
12.2. Provided that, the Govcmorate arc submitted information below, the
Contractor shall have the right to use. produce, reprocess and export all
existing geoscience, engineering, environmental and geodetic data (including
magnetic tapes and films) maps, surveys, report*, and studies it deems
necessary to carry out Petroleum Operations hereunder including, but not
limited to magnetic surveys, seismic survey*, well logs and analysis, core
analysis, well Hie*, geologic and geophysical map* and reports, reservoir
studies, reserve calculations, accurate geodetic co-ordinates for the locution of
all wells and seismic lines and all other pertinent data relative to the
Agreement Aren, which are owned by the Govcmorate. In the event that any
information iN to be sold on confidential basis to any third party by the Parties
(consent on which is required from the Parties) profit shall be distributed in
accordance with the shore of Profit Oil under the Article 10.
12 3 The Contractor shall have the right to conduct all geoscience, engineering,
environmental and geodetic studies it deems necessary to curry out Petroleum
Operations under the Work Program. Said studies may include, but are not
limited to: seismic surveys, magnetic surveys, global positioning surveys,
acral photography (obtaining relevant permits), collection of
soi l/wutcr/o 11/rock samples for scientific and environmental studies
Contractor shall be granted access to and/or permission to fly subject to
obtaining appropriate consents (which will not be unreasonably withheld or
delayed) over the Agreement Area to conduct said studies Contractor shall
have the nght to import equipment and supplies necessary to conduct said
studies as well as the nght to export data, film and samples to laboratories
outside the Northern Iraq Administration to conduct such studies.
12.4 Subject to (i) prior approval by the Co-ordination Committee, and (ii) prior
consent and/or permit with any necessary local administration or government
or Govcmorate body and relevant landowners, the Contractor and/or Operator
shall have the right to clear the land, to dig. pierce, drill, construct, erect,
locate, supply, operate, manage and maintain pits, tanks, wells, trenches,
excavations, dams, canals, water pipes, factories, reservoirs, basins, man lime
storage facilities and such, primary distillation units, separating units for first
oil extraction, sulphur factories aid other Petroleum producing installation*, as
well as pipelines, pumping stations, generator units, power plants, high voltage
lines, telephone, telegraph, radio and other means of communication
(including satellite communication systems), plants, warehouses, offices,
shelters, personnel housing, hospitals, schools, premises, underwit a pier* and
transportation, garages, hangers, workshops, maintenance and repair shops and
all the auxiliary services which are necessary or useful to Petroleum
Operations or related to them and. more generally, everything that is or could
become necessary or accessory to cany out the Petroleum Operations but for
ny doubt in accordance with the Current Legislation
12.5 The agents, employees and personnel of both Contractor and Operator, or
Subcontractors may enter or leave the Agreement Area and have free access,
within the scope of their functions, to all installations put in place by the
Contractor or Operator or otherwise utilised in Petroleum Operations.
12.6 Subject to prior consent of any appropriate local governmental bodies and the
relevant landowners the Contractor shall have the right to utilise the upper
soil, mature timber, clay, sand, lime, gypsum and stones other than precious
stones, and any other similar substances, necessary for the performance of
Petroleum Operations only in accordance with the Current Legislation. The
Contractor may utilise the water necessary for Petroleum Operations, on
condition that reasonable efforts arc taken to minimise potentially adverse
effects on irrigation and navigation, und that land, houses and the watering
places are not adversely affected.
12.7 The Contractor shall have the right to use existing pipeline and terminal
facilities belonging to or under the control of the Northern Iraq
Administration. The Govemorate shall assist in making these facilities
available to the Contractor on terms with regard to access and tariffs that arc
no less favourable than those make available to others.
ASSISTANCE PROVIDED BY T11E GOVERN ORATE
13.1 To enable the Contractor to properly cany out the Petroleum Operations, the
Govemorate shall have the obligation to assist the Contractor upon request to:
a) provide the approvals or permits needed to conduct Petroleum
Operations and to carry out associated business activities and to open
local and foreign bank accounts (for both local and foreign currency)
in Northern Iraq Administration;
b) arrange for Foreign Exchange to be converted in accordance with the
principles set out in Article 18.9 of this Agreement;
c) use office space, office supplies, transportation and communication
facilities and make arrangements for accommodations as required;
d) assist with any custom formalities;
e) provide entry and exit visas and work permits for employees and their
family members of Operator. Contractor, their Affiliated companies
and Foreign Subcontractors, who are not citizens of Northern Iraq
Administration and who come to Northern Iraq Administration to
implement the Agreement and to provide assistance for their
transportation, travel and medical facilities whilst in Northern Iraq
0 provide necessary permits to send abroad documents, data and samples
for analysis or processing during the Petroleum Operations.
g) contact and instruct appropriate departments and ministries of the
Northern Iraq Administration and any other bodies controlled by the
Northern Iraq Administration to do all things necessary to expedite
h) provide permits, approvals, and land usage rights requested by
Contractor and/or Operator for the construction of bases, facilities and
installations for use in conducting Petroleum Operations; and
i) provide to the Contractor data and samples if such data and samples
exist concerning the Agreement Area other than those produced as a
result of Petroleum Operations.
MEASUREMENT. Ol PLIBQLEL'M
14 1 All Petroleum produced, saved and not used in the Petroleum Operations in
accordance with Article 10.2 shall be measured at the Measurement Point
approved in the Development Plan.
14.2. The Measurement Point shall be the very final facility among all facilities the
cost of, which is included as a Cost, and Expense recoverable from Cost
Recovery Petroleum under the Agreement.
14.3. All Petroleum shall be measured in accordance with standards generally
acceptable in the international Petroleum industry. All measurement
equipment shall be installed, maintained and operated by the Operator. The
installed measurement equipment will have certificates of standards of
international organisation. The Parties shall be entitled periodically to inspect
the measuring equipment installed and all charts and other measurement or
test data at all reasonable ttmos. The accuracy of measuring equipment shall
be verified by tests at regular intervals and upon request by cither party, the
Parties, using means and methods generally accepted in the international
14.4 Should a meter malfunction occur, Operator shall immediately have the meter
repaired, adjusted and corrected and following such repairs, adjustment or
correction shall have it tested or calibrated to establish its accuracy. Upon the
discovery of metering error. Operator shall have the meter tested immediately
and shall take the necessary steps to correct any error that may bo discovered
and after each ease approval of the Govemorate on using the meter is
14.5 In the event a measuring error is discovered, the Parties shall use all
reasonable efforts to determine the correct production figures for the period
during which there was a measuring error and correct previously used
readings. Contractor shall submit to the Co-ordination Committee a report on
the corrections earned ouL In determining the correction. Contractor shall
use. where required, the information from other measurements made inside or
outside the Development Area. If it proves impossible to determine when the
measunng error first occurred, the commencement of the error shall be
deemed to be the point in time halfway between the date of the previous test
and the date on which the existence of the measuring error was first
14.6 All measurements for all purposes in this Agreement shall be adjusted to
standard conditions of pressure at sea level and temperature at sixty degrees
15.1 Associated Natural Gas
a) Associated Natural Gas produced within the Agreement Area shall he
used primarily for purposes related to the Production Operations and
production enhancement including, without limitation, oil treating, gas
injection, gas lifting and power generation.
b) Based on the principle of full utilisation of the Associated Natural Gas
and with no impediment to normal production of the Crude Oil. any
Development Plan shall include a plan of utilisation of Associated
Natural Gas. If there is any excess Associated Natural Gas remaining
in any Oil Field after utilisation pursuant to Article 15.1.a) above
(hereafter referred to as “Excess Associated Natural Gas"), the
Contractor shall cany out a feasibility study regarding the commercial
utilisation of such Excess Associated Natural Gas.
i) If the Parties agree that Excess Associated Natural Gas has no
commercial value, then Operator shall act under the plan
approved by Co-ordination Committee, so that not to interfere
with normal oil production. Besides, in order to avoid any
doubt, both the plan and the Operator's activities under the plan
shall exclude pollution and correspond to relevant standards
effective in Current Legislation
ii) If the Parties agree that Excess Associated Natural Gas has
commercial value, they will endeavour to enter into gas sales
agreement! s) and/or other commercial and/or technical
arrangements with Third Parties required to develop such
Natural Gas. Investments in the facilities necessary for
production, transportation and delivery of Excess Associated
Natural Gas shall be made by the Contractor. The construction
of facilities for such Production and utilisation of the Excess
Associated Natural Gas shall be earned out at the same time as
the Development Operations, or at any time as may be agreed
to by the Parties.
iii) If either Party considers that Excess Associated Natural Gas
has commercial value while the other considers that Excess
Associated Natural Gas has no commercial value, the one who
considers Excess Associated Natural Gas to have commercial
value may utilise such Excess Associated Natural Gas. at its
own cos! and expense and without impeding the Production of
Crude Oil and without affecting the shares of Crude Oil and
Natural Gas otherwise to be allocated under the other
provisions of this Agreement, but if such Excess Associated
Natural Gas is not so utilised at any time or from time to time,
then such Excess Associated Natural Gas shall be disposed of
by the Operator in accordance with Article 15.1b) i)
c) The price of Associated Natural Gas produced from the Agreement
Area shall be determined by the Parties based on general pricing
principles taking into consideration such factors as sales pnees of
internationally transported gas delivered in Western Europe, quality
and quantity of the Associated Natural Gas (including the equivalent
substitute energy value) and the economics of Development. Unless
otherwise agreed, the Parties shall participate in ail gas sales
agreements entered into for the sale of Associated Natural Gas
produced from the Agreement Area in proportion to their Article 10
allocation rights. Gas sales prices shall be denominated in U.S.S.
d) Investments made in conjunction with the utilisation of both
Associated Natural Gas and Excess Associated Natural Gas, together
with investments incurred after approval of a Development Plan in
carrying out feasibility studies on the utilisation of Excess Associated
Natural Gas. shall be charged to Operation Expenses.
15.2 Non-associated Natural Gas
When any Non-associated Natural Gas is discovered within the Agreement
Area, the Parties shall implement a new agreement regarding the Appraisal
and possible development and marketing of the Non-associated Natural Gas in
the domestic and international markets. If the Parties cannot reach a new
agreement w ithin six (6) months or any period mutually agreed upon; the
Govemorate will own and will or cause to appraise, develop or produce such
Non-associated Natural Gas. Govemorate will take all necessary’ measures to
avoid any effect, which may hamper the Petroleum Operations of the
Contractor while producing Crude Oil.
16.1 This Article shall apply to each Contractor Party individually.
16.2 Subject to Current Legislation each Contractor Party. Foreign Employee and
Operator shall be entitled to full and complete exemption from all Taxes prior
to or after the Effective Date of this Agreement except as otherwise provided
for in this Agreement.
16.3 It is acknowledged that Double lax Treaties will have effect to give relief
from Taxes to, but not limited to. Contractor. Contractor Parties, Foreign
Subcontractors and Foreign Employees in accordance with the provisions of
such Double Tax Treaties, but not otherwise.
16.4 The Govemoratc, its successors or assignees will assume, pay and discharge,
in the name and on behalf of each Contractor Party, that Contractor Party’s All
Tax liabilities during the term of the Agreement in case the Contractors’ Tax
Exemption is not covering any taxes. The Govemoratc will assume all Taxes
to be levied on the calculation of the local sales of the crude oil and/or
petroleum products price at the entrance of the local refinery or follow ing the
16.5 The obligation to assume, pay and discharge each Contractor Party’s payment
set out above by Govemoratc in accordance with the provisions of Article 16.4
shall fulfil the entire tax liability of each Contractor Party, except for the VAT
on local sales and taxes established on salaries of hired physical persons by
law, taking into account that no social taxes apply to foreign physical persons
16.6. Each Contractor Party shall maintain its tax books and records both in local
currency and in U.S.S.
16.7 The Profit Tax return for each Contractor Party shall be prepared and
submitted as follows:
i. Each Contractor Party shall prepare a Profit Tax return in local
currency and in U.S.$ for each Calendar Year and submit it lo
Govemoratc by 15 April following the Calendar Year, so that
Govemoratc can submit a Contractor Party’s Profit Tax return to the
relevant Tax authority within terms established by the Law.
ii. The Profit Tax return shall be prepared based on Contractor books and
accounts of Petroleum Operations as described in Article 17 of this
Agreement which Contractor is required to maintain in local currency
and in U.S.S in accordance with the Accounting Procedure attached
hereto as Annex B
16 8 Governorate shall furnish to each Contractor Party the proper official receipts
that evidence official payment that Contractor Party’s Tax liability for a
Calendar Year by 30 April following the Calendar Year.
16 9. Governorate shall not credit, directly or indirectly. Contractor Parties’ Tax
payments against any other payments required to be paid to the Government or
16 10 Governorate shall assume, pay and discharge any penalties, interest, fines or
similar levies for late payment of a Contractor Party’s Tax liabilities in respect
of any Calendar Year
16 11 Employees of the Contractor. Contractor Parties, their Affiliates and
Subcontractors, and those employees assigned by Contractor to Operator who
are not citizens of Northern Iraq Administration or Iraq (“Foreign
Employees") shall be not liable to Northern Iraq Administration personal
income tax imposed by the Northern Iraq Administration in accordance with
the Tax Code. Such Taxes if applicable will be paid by the Governorate on
behalf of the Foreign Employees A Foreign Employee will continue to be
subject to the provisions of any applicable Double Tax Treaty.
16.12 Foreign Employees who perform work in Northern Iraq Administration and
their employers that would otherwise be covered by and subject to social
insurance, pension fund contributions and similar payments under the social
security system of Northern Iraq Administration will be exempt from those
16 13 The only Taxes, duties, fees or other charges to be levied by the Northern Iraq
Administration or by any other Governmental entity on a Foreign
Subcontractor in connection with Petroleum Operations pursuant to this
Agreement shall be a tax to be withheld by any person or other legal entity
making revenue payments to a Foreign Subcontractor in the currency in which
the payment is made (the “Withholding Tax”)
16 14 VAT shall be imposed as follows
a) Goods, works and services supplied directly or indirectly to or by a
Contractor Party or its Affiliates. Operator or a Foreign Subcontractor
for the purpose of Petroleum Operations shall be exempt from VAT.
b) Import and re-export of goods for personal use by Foreign Employees
and family members will not be subject to VAT according to Current
c) Exports of Petroleum by ouch Contractor Party or its agents shall be
exempt from VAT with credit (zero per cent rate),
d) All re-exports by a Contractor Party or its Affiliates, Subcontractors or
their agents of goods, works and services supplied for the purposes of
Petroleum Operations including but not limited to re-export of goods
temporarily imported into Northern Iraq Administration for the
purposes of Petroleum Operations shall be exempt from VA T with
credit (zero per cent rate).
AC-LOL'IYl-LNLu HNANUAI. KEP0R£13ti AM) ALHJJ.1
17.1 Contractor shall maintain books and accounts of Petroleum Operations in
accordance with the Accounting Procedure attached hereto as Annex U. These
shall be maintained in loeul currency of Northern Iraq Administration and in
U.S.S in accordance with generally accepted international Petroleum industry
accounting principles. All books and accounts, which are made available to
the authorities in accordance with the provisions of the Accounting Procedure,
shall be prepared in English lunguugcs.
17.2. The Accounting Procedure specifics the procedure to be used to verify and
establish promptly and finally Contractor's Costs and Expenses under Article
10 of this Agreement.
17.3 Sales revenues, expenditures, financial results, tax liabilities, and loss carry¬
forwards of each Contractor Party shall be determined in accordance w ith the
rules, rights, and obligations set forth in this Agreement in so far as such sales
revenues, expenditures, financial results, tax liabilities, and loss carry¬
forwards arc related to Petroleum Operations under this Agreement.
17.4. On annua! basis Contractor shall submit to the Governmental agency an
internationally recognised audit's report on Costs and Expenses incurred, that
under Article 10 should be compensated by Cost Recovery Petroleum, the
report shall also include profit calculation pursuant to provisions of Article 16
of this Agreement. Govemoraic shall have the right to audit the books and
accounts maintained by Contractor.
CCRREXCV, PAYMENTS AND EXCHANGE CONTROL
18.1 Contractor and each Contractor Party, and their Affiliates, Subcontractors and
Operator shall have the right to open, maintain, and operate Foreign Exchange
bank accounts both in and outside of Northern Iraq Administration and local
currency bank accounts inside Northern Iraq Administration. Such operations
performed in Northern Iraq Administration will comply with Current
18.2 Contractor and each Contractor Purty, and their Affiliates shall have the right
to transfer all funds received in and converted to Foreign Exchange in
Northern Iraq Administration without payment of Taxes, fees, duties or
imposts to bank accounts outside Northern Iraq Administration in accordance
with the Current Legislation.
18.3 Contractor and each Contractor Party, and their Affiliates and Foreign
Subcontractors shall have the right to hold, receive and retain outside Northern
Iraq Administration and freely use all funds received and derived from
Petroleum Operations by them outside Northern Iraq Administration without
any obligation to repatriate or return the funds to Northern Iraq
Administration, including but not limited to all payments received from export
sales of Contractor Parties’ share of Petroleum and any sales proceeds from an
assignment of their interest in this Agreement
18.4 Contractor and each Contractor Party, and their Affiliates, Foreign
Subcontractors and Operator have the right to import into Northern Iraq
Administration funds required for Petroleum Operations under this Agreement
in Foreign Exchange.
18.5 Contractor and each Contractor Party, and their Affiliates and Foreign
Subcontractors shall have the right to pay outside of Northern Iraq
Administration for goods, works and services of whatevor nature in
connection with the conduct of Petroleum Operations under this Agreement
without having first to transfer to Northern Iraq Administration the funds for
18.6 Whenever such a need arises Contractor and each Contractor Party and their
Affiliates, Foreign Subcontractors and Operator shall be entitled to purchase
local currency with Foreign Exchange and covert local currency into Foreign
Exchange in accordance with provisions stipulated in legislation.
18.7 Contractor and each Contractor Party, and their Affiliates and Foreign
Subcontractors shall have the right to pay outside Northern Iraq
Administration principal and interest on loans used for funding Petroleum
Operations without having to first transfer to Northern Iraq Administration the
funds for such payment.
18.8. Contractor and each Contractor Party and their Affiliates, and Operator shall
have the right to pay, wages, salaries, allowances and benefits of their foreign
personnel working in Northern Iraq Administration in Foreign Exchange
partly or wholly outside of Northern Iraq Administration.
18 9 Conversions of currency shall be recorded at the rate actually experienced in
that conversion. Expenditures and sales revenues in currency other than the
U.S.S shall be translated to U.S $ at the rates officially published by [ National
Bank of the Northern Iraq Administration ] at the close of business on the first
business day of the current month.
IMPORT AND F-XPORT
19 I Contractor, each Contractor Party and Affiliates and their agents and Operator
shall have the right to import into, export and re-export from Northern Iraq
Administration in accordance with the Current Legislation in force on the date
this Agreement is signed.
19 2 Contractor, each Contractor Party and Affiliates and their agents shall have the
right to sell any materials or equipment or goods which were used in
Petroleum Operations provided that such items are no longer needed for
Petroleum Operations and the coats of such items have not been and are not
intended to be included as Costs and Expenses recoverable front Coat
19 3 Contractor, each Contractor Party, their customers and their earners shall have
the right to export the share of Petroleum on behalf of Contractor or each
Contractor Party in accordance with Current legislation in force on the date
this Agreement is signed
19.4 Foreign Employees and family members of Contractor and its Affiliates, its
agents and Foreign Subcontractors, shall have the nght to import into and re¬
export from Northern Iraq Administration household goods and personal
property at any time in accordance with the Cuncnt Legislation.
LXTUK1 QF H V fmOCARRONS' TRANSFER dt
and regulationsvqr disposal
20.1 The Contractor, Contractor Parties, any purchaser from such parties and their
respective carriers shall, for the duration of this Agreement, have the right to
export from any export point selected by the Contractor for such purpose, the
share of Petroleum to which the Contractor is entitled under this Agreement
provided that access to such export point is not restricted generally on the
grounds of safety or national security and or Current legislation. Access to
export points shall be given to the abo\e parties on a non discriminatory basis
and at rates no less favourable than those available in the country, or granted
to others by the Northern Iraq Administration
20.2. The transfer of title to each Contractor Party and Governorate of its share of
Petroleum shall be effective upon the lifting of that share by such Party at the
Measurement Point or. at the Parties' option, at some other point, proved by
from the Measurement Point or at such other point us may be designated in
accordance with Article 20.2.
20.4 If one of the Parties is unable to lift its share of Petroleum in due time, with
the result that Petroleum Operations may be interfered with or in any way
disrupted, then after giving such notice as is practical in the circumstances any
other Party may dispose of it. and subsequently give back to such Party an
equivalent amount of Petroleum (taking into account any costs incurred).
OWNERSHIP W AhhElh
21.1 Ownership of any asset, whether fixed or mo\cable, acquired by or on behalf
of Contractor in connection with Petroleum Operations hereunder shall vest in
the Northern Iraq Administration without consideration if (I) both the costs of
such asset have been recovered by Contractor under this Agreement, and (2)
either the Agreement has come to an end or. if earlier, when the asset is no
longer required for Petroleum Operations by the Contractor. The Contractor
shall enjoy continued free, exclusive and unrestricted use of all assets at no
cost or Iom of benefit to the Contractor until the termination of this Agreement
or if earlier until they are no longer required for Petroleum Operations. The
Contractor shall bear the custody and maintenance of such asacU and all risks
of accidental loss or damage thereto while they are required for Petroleum
Operations, provided however that all costs necessary to operate, maintain and
repair such assets and to replace or repair any damage or loss shall be
recoverable as Operation Expenses from Cost Recovery Petroleum in
accordance with the provisions of Article 10.
21.2 Whenever Contractor relinquishes any part of the Agreement Area, all
moveable property located within the portion of the Agreement Area so
relinquished may be removed to any part of the Agreement Area that has been
retained for use in Petroleum Operations.
21.3 The provisions of Article 21.1 and 21.2 shall not apply to mutcrials or other
property that arc rented or leased to Contractor, its Affiliates or Operator or
which belong to employees of Contractor, its Affiliates or Operator.
^SAfEIY AND LIABILITY
22.1 Contractor shall obtain and maintain such types and amounts of insurance for
the Petroleum Operations as are reasonable ami such that they comply with the
Current Legislation and accepted international Petroleum industry practice and
22.2 The insurance, which may be obtained, may cover:
a) destruction and damage to any property held for use during Petroleum
Operations and classified as fixed capital and/or leased or rented
property and/or interests in pipelines operated by the Contractor,
h) destruction of Crude Oil in storage;
c) liability to third Parties.
d) liability for pollution and expenses for cleaning up in the course of
e) expenses for wild well control;
o liability incurred by the Contractor in hiring land drilling rigs, vessels
and aircraft serving the Petroleum Operations; and
g) losses and expenses incurred during the transportation and storage in
transit of goods shipped from areas outside the Agreement Area
22.3 In any insurance agreements, the amount for which the Contractor itself is
liable (the “deductible amount") shall be reasonably determined between the
Contractor and the insurer and such deductible amount shall in the event of
any insurance claim be considered as Costs and Expenses of Petroleum
Operations recoverable from Cost Recovery Petroleum.
22.4 It is understood that, in order to meet their insurance obligations, insurance
providers used by Contractor may conclude reinsurance and co-insurancc
agreements with any other insurance enterprises and organisations.
22.5. Notwithstanding the other provisions of this Agreement, the Contractor shall
indemnify and hold harmless the Northern Iraq Administration against all
losses, damages and liability arising under any claim, demand, action or
proceeding brought or instituted against the Northern Iraq Administration by
any employee of the Contractor or any Subcontractor or dependent thereof, for
personal injuries, industrial illness, death or damage to personal property
sustained in connection with, related to or arising out of the performance or
non-performance of this Agreement regardless of the fault or negligence in
whole or in part of any entity or individual; provided, however, that such
losses, damages and liabilities are not caused by or do not ante out of the
performance or non-performarce of this Agreement by the Northern Iraq
Administration or Govemoratc and the Northern Iraq Administration or
Govemoratc shall indemnify and hold the Contractor (including for this
purpose any Affiliate, the Operating Company and all Subcontractors)
harmless against all such damage, losses and liabilities.
22 6. The Contractor (including for this purpose any Affiliate, the Operating
Company and all Subcontractors) shall indemnify the Northern Iraq
Administration for all loss or damage suffered by the Northern Iraq
Administration arising out of the Contractor’s Petroleum Operations if such
Petroleum Operations were not in accordance with Good Oilfield Practices 01
applicable laws, rules and regulations and, notwithstanding the foregoing, fot
any loss or damage to the environment or any cultural or national monument
arising out of conduct of the Petroleum Operations; provided, however, that
the Contractor (including for this purpose any Affiliate, the Operating
Company and all Subcontractors) shall have no liability hereunder if and to the
extent any loss and damage is caused by or arises out of any breach of this
Agreement (and any other agreements that may be entered into by and
between the Contractor, the Northern Iraq Administration in respect of the
Petroleum Operations) or breach of duty by the Northern Iraq Administration.
Notwithstanding the foregoing, the Contractor (including for this purpose any
Affiliate, the Operating Company and all Subcontractors) shall not be liable to
the Northern Iraq Administration for any punitive or exemplary damages or
any other indirect or consequential damages.
22.7. The Contractor shall not be responsible to the Northern Iraq Administration
for, and shall bear no cost, expense or liability of the Northern Iraq
Administration for. any claim, damage or loss to the extent such claim,
damage or loss docs not arise out of a failure to conduct Petroleum Operations
as provided in Article 22.6. In amplification of the foregoing, the Contractor
shall not be responsible for any environmental condition or damage existing in
the Agreement Area prior to the commencement of Petroleum Operations or
caused by a Force Majeure event during the term of this Agreement. Existing
environmental conditions will be evidenced by an independent Third Party
environmental baseline study of existing environmental conditions to be
commissioned by the Contractor, at its own cost and expense (which shall be
included as Costs and Expenses for tbe purposes of determining Cost
Recovery Petroleum, subject to prior approval by the Co-ordination
Committee) and shall be completed prior to the commencement of the relevant
Petroleum Operations in accordance with Good Oilfield Practices and Cun cm
Legislation related to the environmental issues. Such baseline study shall be
submitted to the Govemoralc and shall be incorporated in the Environmental
Impact Assessment to be prepared by the Contractor in accordance with the
environmental laws for die purpose of obtaining a permit for Petroleum
Operations from the authority, which permit and any other permits,
authorisations and consents which are or may be applicable under the Current
Legislation, shall not be unreasonably withheld Gove mo rate agrees to
provide Contractor with all authorisations, permits, certificates and other
documents necessary for Petroleum Operations. If in the course of the
Petroleum Operations, the Govemorate provides other areas for Contractor's
activities, then new environmental baseline studies shall be included in the
Dev elopment Plan that includes these areas. The Northern Iraq Administration
shall indemnify the Contractor against any claim, damage or loss ansing from
such pre-existing environmental condition or damage, subject however, to the
Contractor having taken reasonable and appropriate precautions in conducting
Petroleum Operations, it being understood that in pursuing Petroleum
Operations the Contractor has assumed the risk of working in the Agreement
Area, and provided, further, that such indemnification shall not extend to any
natural pre-existing condition.
22.8. In conducting Petroleum Operations, the Contractor shall operate according to
Good Oilfield Practices and use best endeavours to minimise potential
disturbances to the environment, including the surface, subsurface, sea. air.
flora, fauna, other natural resources and property. The order of priority for
actions shall be protection of life, environment and property.
22.9. The Contractor shall take all necessary steps to respond to. and shall promptly
notify the Govcmoratc of. all emergency and other events (including
explosions, leaks and spills), occurring in relation to the Petroleum Operations
which are causing or likely to cause material environmental damage or
material risk to health and safety. Such notice shall include a summary’
description of the circumstances and steps taken and planned by the
Contractor to control and remedy the situation. The Contractor shall provide
such additional reports to the Authority as arc necessary in respect of the
effects of such events and the course of all actions taken to prevent further loss
and to mitigate deleterious effects.
22.10 In the event of emergency situations as set forth in 22.9, above, at the request
of the Contractor, the Govcmoratc. without prejudice and in addition to any
indemnification obligations the Northern Iraq Administration may have
hereunder, ahull ussist the Contractor, to the extent possible, in any emergency
response, remedial or repair efTort by making available any labour, materials
and equipment in reasonable quantities requested by the Contractor which are
not otherwise readily available to the Contractor and by facilitating the
measures taken by Contractor to bring into Northern Iraq Administration
personnel, materials and equipment to be used in any such emergency
response or remedial or repair efTort. Contractor shall reimburse the Northern
Iraq Administration's reasonable and necessary costs incurred in such efforts,
which reimbursed amounts shall be considered Costs and Expenses.
22.11. The Contractor shall not be liable to the Northern Iraq Administration or Third
Parties for any damages caused by contamination entering the Agreement
Area as a result of Northern Iraq Administration, or Third Party activities
beyond or within the boundaries of the Agreement Area. The Northern Iraq
Administration shall be legally and financially responsible for any loss,
damage and liability, including remediation of environmental conditions
which may be required for safe conduct of the Petroleum Operations, caused
by the Northern Iraq Administration's activities beyond or within the
22.12. The Contractor shall not be liable for any loss or damage, including but not
limited to spillage, explosion, contamination or similar environmental damage,
in respect of any storage facilities, pipelines or means of transportation which
arc not under the direct possession and control of the Contractor or its
Affiliates or its Subcontractors or the Operating Company. In addition to the
foregoing, the Contractor shall not be liable for any damage whatsoever in
respect of the Northern Iraq Administration share of Petroleum, storage or
transportation thereof once Govcmoratc has taken custody of the Govemorate
share of Petroleum.
22.13. The Nonhem Iraq Administration shall make best efforts to ensure the safety
and security of the Contractor’s property and personnel in Iraq and to protect
them from loss, injury and damage resulting from war (declared or
undeclared), civil conllict, sabotage, blockade, riot, terrorism, unlawful
commercial extortion, or organised crime. Notwithstanding anything to the
contrary contained herein, Contractor acknowledges and agrees that the
obligations undertaken by the Northern Iraq Administration in this Article
22.13 arc no greater than the general obligations of the Northern Iraq
Administration towards citizens of Northern Iraq Administration in respect to
the perils named above. Furthermore, Contractor agrees that it shall have no
claim for legal or equitable relief for failure of the Northern Iraq
Administration to comply with the provisions of this Article 22.13, except as
may be permitted by law.
22.14. Except as set forth in Article 28 hereof, it is understood and agreedthat the
Northern Iraq Administration shall not seek or declare any cancellation or
termination of this Agreement and/or the License as a result of the occurrence
of any emergency event described in this Article 22.
23.1 Contractor shall be entitled to bring Foreign Employees into Northern Iraq
Administration in connection with the performance of Petroleum Operations
"The entry into Northern Iraq Administration of such personnel is hereby
authorised, and the Northern Iraq Administration authorised body shall issue
at the Contractor's request the required documents, such as entry and exit
visas, work permits and residence cards. At Contractor's request, the Northern
Iraq Administration shall facilitate all immigration formalities at the points of
exit and entry into Northern Iraq Administration for the employees and family
members of the Contractor, its Affiliates, Subcontractors. Operator, agents and
brokers. The Contractor (or Operator on its behalf) shall contact the
appropriate offices of the Northern Iraq Administration to secure the necessary
documents, and to satisfy the required formalities.
23.2 The employees working within the scope of Petroleum Operations shall be
placed under the authority of the Contractor, its Affiliates, its Subcontractors,
agents or brokers or the Operator, each of which shall act individually in their
capacity as employers. The works, hours, wages, and all other conditions
relating to their employment shall be determined by the relevant employer of
such employees. In relation to employees who are citizens of Northern Iraq
Administration their employment shall be in accordance with the Cunent
Legislation. To the extent dial any expatriate personnel arc engaged under an
Agreement subject to the Current Legislation, that Agreement shall comply
with the provisions of the Current Legislation. The Contractor, its Affiliates,
its Subcontractors, agents or brokers however, shulI enjoy full freedom in the
selection and assignment of their employees.
24 I If ns a result of Force Majeure, Contractor is rendered unable, wholly or in
part, to carry out its obligations under this Agreement, other than the
obligation to pay any amounts due, then the obligations of Contractor, so far
as ami to the extent that the obligations arc affected by such Force Majeure,
shall be suspended during the continuance of any inability so caused, but for
no longer period. Contractor shall notify the Parties of the Force Majeure
situation within seven (7) days of becoming aware of the circumstances relied
upon and shall keep the Govemorate informed of all significant
developments. Such notice shall give reasonably full particulars of the said
Force Majeure. and also estimate the period of time, which Contractor will
probably require to remedy the Force Majeure. Contractor shall use all
reasonable diligence to remove or overcome the Force Majeure situation as
quickly os possible in an economic manner. The period of any such non¬
performance or delay, together with such period as may be necessary for the
restoration of any damage done during such delay, shall be added to the time
given in this Agreement for the performance of any obligation dependent
thereon (and the continuation of any nght granted) and to the term of this
24.2. For the purposes of this Agreement, "Force Majeure" shall mean a
circumstance which is irresistible or beyond the reasonable control of
Contractor, or any other hindrance of Contractor's performance not due to its
fault or negligence and shall be in accordance with the provision of the
ASSIGNMENTS AND GUARANTEES
25.1 No assignment, mortgage or charge or other encumbrance shall be made by a
Party of its rights obligations and interests arising under this Agreement other
[han in accordance with the provisions of this Article 25. Any purported
assignment made in breach of the provisions of this Article 25 shall be null
25.2. Save in the case of any assignment marie pursuant to the provisions of Articles
25.4, 25.5 and 25.6 the following shall apply. Any Parly wishing to assign all
or part of its rights and interests hereunder or in any circumstances where
there is deemed to be an assignment, the Party wishing to make the assignment
shall first give written notice to the other Parties specifying the proposal terms
and conditions of the assignment.
Following receipt of those terms and conditions, for a period of thirty (30)
days each Party shall have the preferential right to match the terms and
conditions of the proposed assignment or deemed assignment. This right may
be exercised by any Party giving written notice of its intention to match the
relevant terms and conditions (the “Acceptance") and thereafter the relevant
Parties shall negotiate all necessary documentation in good faith. If within a
further period of ninety (90) days from receipt of the Acceptance the relevant
parties have not reached final agreement the Party seeking to assign may
within a further period of thirty (30) days complete an assignment to a Third
Party on the same terms and conditions. For the avoidance of doubt any
assignment to a Third Party shall be subject to the assigning Party and the
Third Party complying with the provisions of this Article 25.
25.3 A Contractor Party may assign all or part of its rights, obligations and interests
arising from this Agreement to a Third Party provided that the Third Party :
a) has the technical and financial ability to perform the obligations to be
assumed by it under the Agreement; and
b) as to the interest assigned to it. accepts and assumes all of the terms
and conditions of the Agreement
Any such assignment shall be subject to the prior written consent of the
Govemorate which consent shall not Ik* unreasonably withheld or delayed. By
wuy of clarification, and not in limitation or the foregoing provisions of this
Article 25.3, the Northern Iraq Administration shall not be considered to be
acting unreasonably in declining to consent to any such assignment if the
assignment to such proposed assignee is deemed contrary to Northern Iraq
Administration interests, as evidenced by a writing to that effect signed by the
President, Minister. Chancellor, or the Minister of Foreign Affairs or Defence
or there is an act of Parliament to that effect.
If within thirty (30) Day's following notification of an intended assignment,
accompanied by a copy of the proposed deed of assignment and related
documentation with respect to the proposed assignee, including certified
financial statements and other evidence to the Northern Iraq Administration’s
reasonable satisfaction of the matters set forth in Article 25.3 and such
documentation, which shall include evidence of the identity of owners of the
assignee, provided in the ease of a company the stock of which is registered on
a recognised stock exchange, a copy of the documents identifying the
significant owners, as such concept is defined or used in the applicable laws
pursuant to which such company registered its stock, will satisfy the foregoing
requirements, and its direct and indirect parent companies, including the
identity of the owners of the ultimate parent, subject to the foregoing proviso,
as may be reasonably necessary for the Northern Iraq Administration, and as
requested by the Northern Iraq Administration, to make a determination of the
Northern Iraq Administration interests as desen bed above, the Northern Iraq
Administration has not given its written decision concerning such assignment,
then it shall be deemed that the Northern Iraq Administration has declined to
give such consent; provided that thereafter if upon the farther written request
of the Contractor for a written decision, the Northern Iraq Administration has
not given a written response of any kind within fifteen (15) Days after such
further request, then the assignment shall be deemed approved and the
Northern Iraq Administration shall execute an assignment, in a form
acceptable to the Northern Iraq Administration, accepting such assignment,
This second request from the Contractor shall cite the provisions of this
paragraph and the Contractor shall obtain confirmation from the Northern Iraq
Administration that the request has been received. In the event of the transfer
of rights and obligations under the Agreement and License to a Third Party,
Contractor shall pay all costs associated with such transfer incurred by the
Agency and any tax or charge due on such transfer under the Current
25.4 A Contractor Party may assign all or part of its rights, obligations and interests
arising from this Agreement to another Contractor Party or Affiliate, without
prior consent of the Governoratc. provided that any such Affiliate:
a) has the technical and financial ability to perform the obligations to he
assumed by it under the Agreement; ami
b) as to the interest assigned to it, accepts and assumes all of the terms
and conditions of the Agreement
25.5 Each reference in this Agreement to the Contractor shall be treated as
including each assignee to which an assignment has been made pursuant to
this Article 25. Each reference in this Agreement to Governoratc shall be
treated as including each assignee to which an assignment has been made by
Govemorate pursuant lo this Article 25.
25.6 Govemorate may assign all or part of its rights, obligations and interests
arising from this Agreement (including all or part of its right to lift a share of
Profit Oil) to a wholly owned Affiliate or to any other sovereign state with the
prior consent of the Contractor and the Govemorate provided that any such
Affiliate or such other sovereign state:
a) has the technical and financial ability to perform the obligations to be
assumed by it under the Agreement; and
b) as to the interest assigned to it. accepts and assumes all of the terms
and conditions of the Agreement.
Govemorate shall give prior notice to the Contractor to any assignment under
this Article 25.6.
25.7 The Northern Iraq Administration may assign all or part of its rights,
obligations, and interests arising form this Agreement (including all or part of
its right to lift its share of Profit Oil) to a Third Party, provided, that any such
Third Party accepts and assumes all of the temrs and conditions of this
Agreement as to the interest so assigned. The Northern Iraq Administration
shall notify Contractor of such assignment within thirty (30) days of the
effective date of such transfer.
25.8 Subject to the approval of the Govemorate in the event of there being any
proposed assignment in accordance with the terms of this Article 25 then to
the extent of the interest assigned the assignor shall be released from all
further obligations and liabilities arising under the Agreement after the
effective date of the assignment. I he assignee shall thereafter be liable for the
obligations arising from such interest in ihe Agreement except to the extent
provided in the Agreement.
AGREEMENT ENFORCEMENT AND STABILISATION, A-NU
REPRESENTATIONS AND WARRANTIES
26.1 In the course of performing the Petroleum Operations, the Operator and die
Parties shall be subject to all applicable laws, decrees, rules and regulations.
26.2 The Northern Iraq Administration agrees and commits to Contractor, for the
duration of this Agreement, to maintain the stability of the legal, lax, financial,
mining’s, customs and economic import and export conditions of this
Agreement Furthermore the Govemorate hereby represents and warranmts
that the Govemorate already received the approval of the elected Parliament of
the Northern Iraq Administration which authorises the Govemorate to enter
into this Agreement.
26.3 The Parties agree to co-opcratc in every possible way in order to achieve the
objectives of this Agreement The Northern Iraq Administration and its
subdivisions shall facilitate the exercise of Contractor's activities by granting
it all decrees, permits, resolutions, licenses and access rights and making
available to it all appropriate existing facilities and services under the control
of the Govemorate so that the Parties may derive the greatest benefit from
Petroleum Operations for their own benefit and for the benefit of the Northern
26.4 If at any time after this Agreement has been signed there is a change in the
applicable laws, regulations or other provisions effective Current Legislation
which to a material degree adversely affect the economic position of the
Contractor or any Contractor Party hereunder, the terms and conditions of this
Agreement shall be altered so as to restore the Contractor to the same overall
economic 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 Contractor believes that its economic position has been adversely
affected, under Article 26.4 it may give notice to the Northern Iraq
Administration and to Govemorate describing how its position has been so
alTcctcd and the Parties shall thereafter promptly meet with a view to reaching
agreement on the remedial action to be taken. If matters have not been
resolved within 90 days or as otherwise agreed the matter may be referred to
arbitration by any Party in accordance with the provisions of Article 29.
26.6 The Northern Iraq Administration within the Current Legislation and its
capacities warrants to the Contractor as follows:
a) The Northern Iraq Administration has taken the appropriate steps
necessary to authorise the Go\emorate in Northern Iraq Administration
to execute this Agreement on behalf of the Northern Iraq
Administration and has the power to do so;
b) Ihc signatory to this Agreement on behalf of the Northern Iraq
Administration (in each of its capacities hereunder) is duly authorised
to bind Govemomte in Northern Iraq Administration;
c) Govemorate in Northern Iraq Administration has been legally vested
by the Northern Iraq Administration with the necessary power to
authorise Petroleum Operations in the Agreement Area ami to
compensate the Contractor by allocating to it a share of the Petroleum
produced in accordance with the terms of this Agreement.
d) Upon completion of the matters and procedures set out in Article 31
there is no other entity or authority whose approval or authorisation is
required to permit the Contractor to enjoy and enforce its rights
26.7 Contractor, represents and warrants that:
26.7.1 It possesses the technical expertise and financial resources to fulfil the
obligations of Contractor under this Agreement;
26.7.2 The execution, delivery and performance by Gencl Encrji A.S. of this
Agreement arc within the corporate powers of Gencl Encrji AS;
26.7.3 Gencl Enetji A.S., have obtained all corporate consents, approvals,
authorizations and resolutions in accordance with its corporate statutes
and the applicable laws to empower Gencl Enetji A S . to execute this
Agreement, to undertake all of the obligations of Contractor hereunder.
27.1 Except as otherwise specifically provided, all notices authorised or required
between the Parties by any of the provisions of this Agreement, shall be in
writing in English and delivered in person or by registered mail or by courier
service or by any electronic means of transmitting written communications
which provides confirmation of complete transmission, and addressed to such
Parties as designated below. The originating notice given under any provision
of this Agreement shall he deemed delivered only when received by the Party
to whom such notice is directed, and the time for such Party to deliver any
notice in response to such originating notice shall run from the date the
originating notice is received. The second or any responsive notice shall be
deemed delivered when received. “Received" for purposes of this Article with
respect to written notice delivered pursuant to this Agreement shall be actual
delivery of the notice to the address of the Party to be notified specified in
accordance w-ith this Article. Each Party shall have the right to change its
address at any time and'or designate that copies of all such notices be directed
to another person at another address, by giving written notice thereof to all
other Parties The addresses for service of notices on each of the parties are as
Contractor: Gcnel Encrji A S.
Address: Buyukdcrc Caddcsi Yapi Kredi Plaza A.Blok Kat 12 80820 Levent Istanbul
Phone: +90 212 283 2888
Facsimile:+ 90 212 325 5814
Contact person: Tugrul Tokgoz
Address: Sulaimanyah, Rzgari Boulevard, Prime Minister’s Headquarters
Phone: 315 CM) 15
27.2 Subject to the provisions of the Agreement, the Parties agree that all
information and data acquired or obtained by any Party in respect of
Petroleum Operations shall be considered confidential and shall be kept
confidential and not be disclosed during the term of the Agreement to any
person or entity not a Party to this Agreement, except:
a) To an Affiliate, provided such Affiliate maintains confidentiality as
b) To a governmental agency or other entity when required by the
c) To the extent such data and information is required to be furnished in
compliance with any applicable law s or regulations, or pursuant to any
legal proceedings or because of any order of any court binding upon a
d> To prospective or actual Contractors, consultants and attorneys
employed by any Party where disclosure of such data or information is
essential to such Contractor’s, consultant's or attorney's work;
e) To a bona fide prospective transferee of a Party's participating interest
(including an entity w-ith whom a Party or its Affiliates are conducting
bona fide negotiations directed toward a merger, consolidation or the
sale of a majority of its or an Affiliate's shares):
0 To a bank or other financial institution to the extent appropnatc to a
Party arranging for funding;
g) To the extent that any data or information which, through no fault of a
Party, becomes a part of the public domain.
27.3 Disclosure as pursuant to Article 27.2 (d), (e), and (0 shall not be made unless
prior to such disclosure the disclosing Party lias obtained a written undertaking
from the recipient party to keep the data and information strictly confidential
for at least three (3) years and not to use or disclose the data and information
except for the express purpose for which disclosure is to be made.
TF.RMirSAHU.V AM) BREACH
28.1 At any time, if in the opinion of Contractor, circumstances do not warrant
continuation of the Petroleum Operations, Contractor may. by giving written
notice to that effect to the Governorate relinquish its rights and be relieved of
its obligations pursuant to this Agreement except for Contractor’s obligations
to complete the Minimum Work Program, except such rights and obligations
as related to the period prior to such relinquishment. Neither this Agreement
nor any of the rights granted hereunder nor the Operator Licence may be
terminated as a result of any act or omission of Operator save in the ease
where Operator has carried out an act or omitted to do something at the
specific request of the Contractor and Operator has previously advised the
Contractor prior to carrying out the act or omitting to do something that to
carry out that act or to omit to do the relevant thing may result in this
Agreement being terminated.
28.2 The Governorate and/or the Northern Iraq Administration is entitled to
terminated this Agreement by giving ninety (90) days advance written notice
thereof to all Parties, when Contractor commits a matenal breach in relation
with its obligations indicated in the Agreement or if Contractor has not
accomplished its warranties according to Article 26.7. In case the Governorate
is satisfied with the remedy plan presented by the Contractor after reviving the
termination notice, the remedy period may be extended for a term as approved
by the Governorate. The termination notice will be effective at the end of the
arbitration procedure in ease the claim of material breach is applied to
arbitration as stipulated in Article 29.
29.1. The Parties hereby consent to submit to the International Centre for Settlement
of Investment Disputes any dispute in relation to or arising out of this
Agreement for settlement by arbitration, pursuant to the Convention on the
Settlement of Investment Disputes.
29.2 The Parties agree that, for the purposes of Article 24< I) of the Convention, any
dispute in relation to or arising out of this Agreement is a legal dispute arising
directly out of any investment, and this article has force only if all the
requirements of Article 29.1 arc followed.
29.3 For the purposes of Article 24(2) of the Convention, it is agreed that, although
Gcncl Eneiji A.S. is a national of Republic of Turkey, and shall be treated as a
national of that Northern Iraq Administration for the purposes of the
29.4 A Party need not exhaust administrative or judicial remedies prior to
commencement of arbitrage proceedings.
29.5 Any arbitrage tribunal constituted pursuant to this Agreement shall apply the
provisions of this Agreement as supplemented and interpreted by general
principles of the Current Legislation and England as are in force on the
Effective Date. In case these principles are in conflict with each other. Current
Legislation shall prevail. The seal and venue of the arbitration will be London.
30.1. This Agreement shall be executed in three (3) originals in the in the English
language, which will be duly certified by a competent authorised body
selected by the Northern Iraq Administration.
Afmn AL A>D EFFECtlM 1)A11.
31.1 This Agreement shall enter into force and efTecl in its entirety on the Effective
Dale. The Effective Date shall be the date on which the following conditions
have been fulfilled:
31.1.1 The Govemoratc issues the License to Contractor,
31.1.2. Govemoratc has obtained the consent or approval from the Tax
Inspectorate for Northern Iraq Administration (or its successors or assigns) to
assume, pay and discharge, in the name and on the behalf of Contractor.
Contractor's entire Tax liability for each Agreement Year.
31.1.3. Co-ordination Committee resolution:
a. in the affect of resolving the issues related the allocation of the
additional benefit to Govemoratc from the Reserved Production
between the Govemoratc and the Contractor in case of the upgrade
of the existing domestic refinery or erection of a new refinery or
export of crude oil;
b the method of mitigating the losses of the Reserved Production
c. The cost of the refining process to determine the sale price to the
existing domestic refinery; and
d. The allocation of the petroleum products avai lablc to the Contractor
by taking into consideration the supply of the Reserved Production
and the Petroleum sold to the existing domestic refinery.
31.2. Notwithstanding any other provision of this Agreement to the contrary.
including, but not limited to Article 28. if after the expiration of one (1) year
from the date of the execution of this Agreement by all Parties, the Effective
Date, as determined by provisions of Article 31.1. has not occurred, then the
Uccroc and this Agreement shall terminate and neither shall be of any further
force and effect.
31.3. Notwithstanding any other provision of this Agreement to the contrary, in ease
the Contractor fails to fulfil its obligations mentioned in the Minimum Work
Program and Budget as indicated in Annex C within four (4) months or in ease
the Co-ordination Committees decision to defer the mobilisation of equipment
due to evidenced technical reasons or availability, this Agreement may be
terminated at such deferment date.
By execution hereof, the Govemorate in Northern Iraq Administration, acting in
its capacity as the sovereign representative of Northern Iraq Administration
pursuant to the Current legislation joins as a Party to the foregoing Production
Sharing Agreement as amended, and consents to the provisions thereof.
Signed and sealed this sixteenth day of July, 2002 in two (2) copies in English
For Govemorate on behalf of the For Contractor
NORTHERN IRAQ GENEI.ENER.H A S.