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PRODUCTION SHARING CONTRACT



BER BAHR BLOCK



KURDISTAN REGION



BETWEEN



THE KURDISTAN REGIONAL GOVERNMENT OF

IRAQ



AND



GENEL ENERGY INTERNATIONAL LIMITED





March 2009





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[signature]TABLE OF CONTENTS



PREAMBLE



Article 1 DEFINITIONS



Article 2 SCOPE OF THE CONTRACT



Article 3 CONTRACT AREA



Article 4 GOVERNMENT PARTICIPATION AND THIRD PARTY

PARTICIPATION



Article 5 OPERATOR



Article 6 TERM OF THE CONTRACT



Article 7 RELINQUISHMENTS



Article 8 MANAGEMENT COMMITTEE



Article 9 GUARANTEES



Article 10 MINIMUM EXPLORATION WORK OBLIGATIONS



Article 11 EXPLORATION WORK PROGRAMS AND BUDGETS



Article 12 DISCOVERY AND DEVELOPMENT



Article 13 DEVELOPMENT AND PRODUCTION WORK PROGRAMS

AND BUDGETS



Article 14 NATURAL GAS



Article 15 ACCOUNTING AND AUDITS



Article 16 CONTRACTOR’S RIGHTS AND OBLIGATIONS



Article 17 USE OF LAND AND EXISTING

INFRASTRUCTURE



Article 18 ASSISTANCE FROM THE GOVERNMENT



Article 19 EQUIPMENT AND MATERIALS



Article 20 TITLE TO THE ASSETS



Article 21 USE OF THE ASSETS



Article 22 SUBCONTRACTING







2/116Article 23 PERSONNEL TRAINING AND TECHNOLOGICAL

ASSISTANCE



Article 24 ROYALTY



Article 25 RECOVERY OF PETROLEUM COSTS



Article 26 SHARING OF PROFIT PETROLEUM



Article 27 VALUATION AND METERING OF CRUDE OIL AND

NATURAL GAS



Article 28 DOMESTIC MARKET - SALE OF GOVERNMENT SHARE



Article 29 FINANCIAL PROVISIONS



Article 30 CUSTOMS PROVISIONS



Article 31 TAX PROVISIONS



Article 32 BONUSES



Article 33 PIPELINES



Article 34 UNITISATION



Article 35 LIABILITY AND INSURANCE



Article 36 INFORMATION AND CONFIDENTIALITY



Article 37 ENVIRONMENTAL PROVISIONS



Article 38 DECOMMISSIONING



Article 39 ASSIGNMENT AND CHANGE OF CONTROL



Article 40 FORCE MAJEURE



Article 41 WAIVER OF SOVEREIGN IMMUNITY



Article 42 ARBITRATION AND EXPERT DETERMINATION



Article 43 GOVERNING LAW, FISCAL STABILITY, AMENDMENTS

AND VALIDITY



Article 44 NOTICES



Article 45 TERMINATION



Article 46 APPLICATION OF CORRUPTION LAWS



Article 47 EFFECTIVE DATE



Annex A MAP SHOWING COORDINATES OF BER BAHR CONTRACT

AREA CORNER POINTS





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Annex B ACCOUNTING PROCEDURE



































































4/116PRODUCTION SHARING CONTRACT



BETWEEN



The KURDISTAN REGIONAL GOVERNMENT OF IRAQ (hereafter referred to as the “GOVERNMENT”), duly represented by the Minister of Natural Resources;



AND



GENEL ENERGY INTERNATIONAL LIMITED, a company established and existing under the laws of British West Indies, whose registered office is at Caribbean Suites, The Valley, Anguilla, British West Indies TV1 11P, duly represented by Mehmet Sepil;



(hereafter referred to as the ”CONTRACTOR")



WHEREAS



(A) The GOVERNMENT wishes to develop the petroleum wealth of the Kurdistan Region (as defined in this Contract) in a way that achieves the highest benefit to the people of the Kurdistan Region and all of Iraq, using the most advanced techniques of market principles and encouraging investment, consistent with the Constitution of Iraq including Article 112 thereof;



(B) In accordance with the Constitution of Iraq, the prevailing law of the Kurdistan Region is the Kurdistan Region Law (as defined in this Contract), except with regard to a matter wholly within the exclusive jurisdiction of the Government of Iraq;



(C) The National Assembly of the Kurdistan Region approved the Oil and Gas Law of the Kurdistan Region - Iraq (Law No. 22 of 2007) which law regulates Petroleum Operations, including production sharing contracts and Article 54 of which requires that all production sharing contracts entered into by the GOVERNMENT prior to the entry into force of that Law shall be subject to review by the Regional Council for the Oil and Gas Affairs of the Kurdistan Region - Iraq to make them consistent with the provisions of that Law, taking into consideration the prevailing conditions when those contracts were entered into;



(D) The GOVERNMENT intends to present to the National Assembly of the Kurdistan Region a law or laws to authorize the GOVERNMENT, by contract or other authorization, to exempt investors in long term projects relating to the conduct of petroleum operations in the Kurdistan Region from Kurdistan Region taxation, to indemnify such holders against liability to pay such taxation, and/or to guarantee the stability of the applicable legal, fiscal and economic conditions of such projects; and



(E) Each CONTRACTOR Entity is a company,



(a) with the financial capability, and the technical knowledge and technical ability, to carry out Petroleum Operations in the Contract Area (as defined in this Contract) under the terms of this Contact;



(b) having a record of compliance with the principles of good corporate citizenship; and





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[signature]

KS(c) willing to cooperate with the GOVERNMENT by entering into this Contract, thereby assisting the GOVERNMENT to develop the Kurdistan Region petroleum industry', thereby promoting the economic development of the Kurdistan Region and Iraq and the social welfare of its people.



NOW, THEREFORE, THE PARTIES HAVE AGREED AS FOLLOWS



ARTICLE 1 - DEFINITIONS



1.1 Capitalised terms and expressions in this Contract shall have the following meaning, unless otherwise specified:



Abroad means outside of the Kurdistan Region and other pans of Iraq.



Access Authorisation is defined in Article 17.9.



Accounts is defined in Article 15.1.



Accounting Procedure means the Accounting Procedure attached to this Contract as Annex D and constituting an integral port of this Contract.



Adjacent Contract Area is defined in Article 34.1.



Adjustment Dale is defined in Article 27.6.



Affiliated Company or Affiliate means, as regards any of the companies or entities constituting the CONTRACTOR, a company or other legal entity which:



(a) controls a CONTRACTOR Entity: or



(b) is controlled by a CONTRACTOR Entity; or



(c) controls or is controlled by a company or entity which controls a CONTRACTOR Entity,



but shall not include the GOVERNMENT in respect of the Public Company. For the purpose of this definition, "control” means direct or indirect ownership or control of the majority of the voting rights of the applicable entity at its shareholders’ meetings or their equivalent.



Agreed Terms is defined in Article 14.10(a).



Appraisal Area means the area defined in Article 12.2.



Appraisal Work Program and Budget is defined in Article 12.2.



Appraisal Report is defined in Article 12.4.



6/116Appraisal Well means a well drilled for the purpose of evaluating the commercial potential of a geological

feature or a geological structure in which Petroleum has been discovered.



Arm's-Length Sales means sales of Petroleum in freely convertible currencies between sellers land buyers

having no direct or indirect relationship or common interest whatsoever with each other that could reasonably

influence the sales price. Such Arm's-Length Sales shall exclude :



(a) sales between or among any of the CONTRACTOR Entities and their respective Affiliates;

(b) sales involving the GOVERNMENT or the Government of Iraq; and

(c) sales involving exchanges and any transactions not relating to normal commercial practices.



Assets means all land, platforms, pipelines, plant, equipment, machinery, wells, facilities and all other

installations and structures and all Materials and Equipment.

Associated Natural Gas means (i) any Natural Gas dissolved in Crude Oil under reservoir conditions

and (ii) any residue gas remaining after the extraction of Crude Oil from a reservoir.



Audit Request Period is defined in Article 15.3(a).

Available Associated Natural Gas is defined in Article 25.1.

Available Crude Oil is defined in Article 25.1.

Available Non-Associated Natural Gas is defined in Article 25.1.

Available Petroleum is defined in Article 25.1.



Barrel means a quantity of forty-two (42) US gallons as a unit to measure liquids, at a temperature of sixty

degrees (600) Fahrenheit and pressure of fourteen point seven (14.7) psi.



Budgets means any budgets prepared by, or on behalf of, CONTRACTOR pursuant to this Contract and

forming part of an Exploration Work Program and Budget and/or an Appraisal Work Program and Budget

and/or an Gas Marketing Work Program and Budget and/or a Development Work Program and Budget and/or

a Production Work Program and Budget.



Calender Year means a period of twelve (12) consecutive Months. commencing 1 January and ending on 31

December of the same year.



Capacity Building Bonus is defined in Article 32.2.



Chairman is defined in Article 8.1Commercial Discovery means a Discovery which is potentially commercial when taking into account all technical, operational, commercial and financial data collected when carrying out appraisal works or similar operations, including recoverable reserves of Petroleum, sustainable regular production levels and oilier material technical, operational, commercial and financial parameters, all in accordance with prudent international petroleum industry practice.



Commercial Production means the production of Petroleum from the Production Area in accordance with annual Production Work Program and Budget.



Constitution or Iraq means the permanent constitution of Iraq approved by the people of Iraq in the general referendum of 15 October 2005.



Contract means this production sharing contract, including its Annexes A, B, C and D that are an integral part hereof, as well as any extension, renewal, substitution or amendment of this production sharing contract that may be agreed in writing by the Parties in accordance with Article 43.7.



Contract Area means the area described and defined in Annex A attached to this Contract and constituting an integral part of this Contract, and any modifications made to that Annex in accordance with the provisions of this Contract, through amendments, surrender, withdrawal, extension or otherwise.



Contract Year means a period of twelve (12) consecutive Months starting from the Effective Date or any anniversary of that date.



CONTRACTOR includes and comprises each and all CONTRACTOR Entities, including any Third Party Participant nominated by the GOVERNMENT pursuant to Article 4, and/or any assignee of all or part of the rights and obligations of a CONTRACTOR Entity under this Contract in accordance with Article 39, but not including any holder of the Government Interest.



CONTRACTOR Entity means any Person which is for the time being a component of the CONTRACTOR, and/or any assignee of all or part of the rights and obligations of such Person under this Contract in accordance with Article 39. but not including any holder of the Government Interest. For the avoidance of doubt, at any time when there is only one entity constituting the CONTRACTOR, any reference made in this Contract to “the entities constituting the CONTRACTOR's or the "CONTRACTOR entities” or similar reference, shall be deemed to mean “the entity constituting the CONTRACTOR”. Genel Energy International Limited and the GOVERNMENT (the GOVERNMENT owning the Third Party Interest until a whole or partial assignment of such Third Party Interest pursuant to Article 4) as the CONTRACTOR Entities as at the Effective Date, own an undivided interest in the Petroleum Operations in respect of the entire Contract Area in the following percentages at the Effective Date:



8/116Genel Energy International Limited | 40%



GOVERNMENT (Third Party Interest) | 40%



The balance of the interest in Petroleum Operations in respect of the entire Contract Area, being twenty per cent (20%), is the Government Interest as defined in Article 4.1.



Crude Oil means nil liquid hydrocarbons in their unprocessed state or obtained from Natural Gas by condensation or any other means of extraction.



Decommissioning Costs means all the costs and expenditures incurred by the CONTRACTOR when carrying out Decommissioning Operations, including those defined in the Accounting Procedure.



Decommissioning Operations means any works, together with all related and auxiliary activities, for decommissioning and/or removal and/or abandonment and making safe all of the Assets and site restoration and remediation related thereto in relation to any Production Area.



Decommissioning Plan is defined in Article 38.7.



Decommissioning Reserve Fund is defined in Article 38.1 and includes all contributions paid into such fund and all interest accumulated such fund.



Deductible Amount is defined in Article 35.12.



Delivery Point means the point or points after extraction, specified in the approved Development Plan for a Production Area, at which the Crude Oil, Associated Natural Gas and/or Non-Associated Natural Gas is metered for the purposes of Article 27.5, valued for the purposes of Article 27.1 and ready to be taken and disposed of, consistent with prudent international petroleum industry practice, and at which a Party may acquire title to its share of Petroleum under this Contract or such other point which may be agreed by die Patties.



Development Costs means all the costs and expenditures incurred by the CONTRACTOR when carrying out Development Operations, including those defined in the Accounting Procedure.



Development Operations means all development operations or works conducted in accordance with a Development Plan up to the Delivery Point with a view to developing a Production Area, including: drilling of wells; primary and subsequent recovery projects and pressure maintenance; survey, engineering, building and erecting or laying of production plants and facilities (including: separators; compressors; generators; pumps and tankage; gathering lines; pipelines and all facilities required to be installed for production, pressure maintenance, and treatment, storage and transportation of Petroleum); obtaining of such materials, equipment, machinery, items and supplies as may be required or expedient for the foregoing



9/116activities; and all auxiliary Operations and activities required or expedient for the production of Petroleum from the Production Area.



Development Period is defined in Article 6.



Development Plan means a plan for development defined in Article 12.8.



Development Well means any well drilled after the date of approval of the Development Plan for the purpose of producing Petroleum, increasing or accelerating production of Petroleum, including injection wells and dry holes. Any well drilled

within a Production Area shall be deemed a Development Well.



Development Work Program and Budget means the development work program and budget prepared pursuant to Article 13.2.



Discovery means a discovery of Petroleum within die limits of the Contract Area resulting from Petroleum Operations carried out under this Contract, provided such Petroleum is recoverable at the surface with a measurable flow utilizing techniques used in prudent international petroleum industry practice.



Dispute is defined in Article 42.1.



Dollar (US) means the legal currency (dollar) of the United States of America (USA).



Effective Date means the date on which the conditions referred to in Article 47 have been fulfilled.



Environment Fund is defined in Article 23.9.



Equipment and Materials is defined in Article 19.1.



Exploration Costs means all the costs and expenditure incurred by the CONTRACTOR when carrying out Exploration Operations, including those defined in the Accounting Procedure.



Exploration Operations means any and all operations conducted with a view to discovering Petroleum, including: any activities necessary to commence operations; any topographical, hydrographical, geological, geophysical, aerial and other surveys

and activities (including interpretations, analyses and related studies) to investigate the subsurface for the location of Petroleum; drilling of shot holes, core holes and stratigraphic test holes; spud, drilling, testing, coring, logging and equipping of Exploration Wells or Appraisal Wells; procurement of such services, material, equipment, machinery items and supplies as may be required or expedient for the foregoing activities; and all auxiliary operations and activities required or expedient for the conduct of the foregoing activities.



Exploration Period is defined in Article 6.



Exploration Rental is defined in Article 6.4.





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[signature]Exploration Well means any well drilled for the purpose of confirming a geological structure or stratigraphic unit in which no Discovery has previously been made by the CONTRACTOR.



Exploration Work Program and Budget means the exploration work program and budget prepared pursuant to Article 11.1.



Export Crude Oil is defined in Article 24.2.



Export Non-Associated Natural Gas is defined in Article 24.2.



Export Petroleum is defined in Article 24.2.



First Exploration Well is defined in Article 10.2(d).



First Production means the moment when Commercial Production of Crude Oil or Non-Associated Natural Gas (as the case may be) first commences, by flowing at the rate forecast in the Development Plan without interruption for a minimum of forty

eight (48) hours.



Force Majeure is defined in Article 40.2.



Gas Development is defined in Article 14.10.



Gas Marketing Costs means all costs and expenditure incurred by the CONTRACTOR when carrying out Gas Marketing Operations, including those defined in the Accounting Procedure.



Gas Marketing Operations means any and all of the activities and Operations contemplated by Article 14.6.



Gas Marketing Work Program and Budget means the marketing work program and budget prepared pursuant to Article 14.8.



Government Interest is defined in Article 4.1.



Government of Iraq means the Federal Government of the Republic of Iraq. which holds office under the Constitution of Iraq and any minister. ministry. department, sub-division, agency, authority, council, committee, or other constituent element

thereof and shall, without limitation, include any corporation owned and/or controlled by any of the foregoing.



International Market Price is defined in Article 27.2.



Iraq means the entirety of the Republic of Iraq, including the Kurdistan Region.



Joint Operating Agreement means any agreement executed by the CONTRACTOR Entities at any time for the purpose of regulating between such entities the terms under which the Petroleum Operations will be conducted, which agreement shall be: (a) consistent with prudent international petroleum industry practice; (b) as between such entities, supplementary to this Contract; and (c) consistent with the provisions of the Contract.





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[signature]Kurdistan Region means the Federal Region of Kurdistan recognized by the Constitution of Iraq and having the same meaning as ‘Region' in the Kurdistan Region Oil and Gas Law.



Kurdistan Region Law means all statutes, decrees, edicts, codes, orders, rules, ordinances and regulations of the GOVERNMENT or of any other local, municipal, territorial, provincial, or any other duly constituted governmental authority or agency in the Kurdistan Region.



Kurdistan Region Oil and Gas Law means the Oil and Gas Law of the Kurdistan Region - Iraq (Law No. 22 of 2007) as the same may be amended.



Law means all applicable laws including the following: constitutional law. civil law. common law, international law, equity, treaties, statutes, decrees, edicts. codes, orders, judgements, rules, ordinances and regulations of any local, municipal, territorial, provincial, federated, national or any other duly constituted governmental authority or agency.



LCIA is defined in Article 42.1(b).



LIBOR means the London Inter-Bank Offered Rate at which Dollar deposits for one (1) month are offered in the inter-bank market in London, as quoted in the Financial Times of London for the day in question. In the event that such rate is not published in the Financial Times, it shall mean the London Inter-bank Offered Rate at which Dollar deposits for one month are offered for the nearest day as quoted by National Westminster Bank plc.



Management Committee is defined in Article 8.



Maximum Efficient Rate (“MER") is defined in Article 16.12.



Minimum Exploration Obligations is defined in Article 10.1.



Minimum Financial Commitment means:



(a) in respect of the First Sub-Period, the total of the

amount set out in Article 10.2(d). and 10.2(e); and



(b) in respect of the Second Sub-Period, the amount set

out in Article 10.3(b),



Month means a calendar month according to the Gregorian calendar.



Natural Gas means all gaseous Petroleum and inerts.



Non-Associated Natural Gas means any Natural Gas which is not any Associated Natural Gas.



Notice of Dispute is defined in Article 42.1.



Operator means the entity designated by the CONTRACTOR pursuant to Article 5 which, in the name and on behalf of the CONTRACTOR, shall carry out all Petroleum Operations. If at any time there exists more than one (1) Operator under







12/116this Contract, any reference herein to the term ‘Operator' shall be to each Operator with respect to the parts of the Contract Area in which such Operator conducts Petroleum Operations.



Option of Third Party Participation is defined in Article 4.6.



Party or Parties means the GOVERNMENT and/or each CONTRACTOR Entity and/or the CONTRACTOR



Permits means all licences, permits, consents, authorisations or other permissions, as the context requires.



Person shall include natural and juristic persons (including corporations and governmental agencies).



Petroleum means:



(a) any naturally occurring hydrocarbon :n a gaseous or

liquid state;



(b) any mixture of naturally occurring hydrocarbons in a

gaseous or liquid state;

or



(c) any Petroleum (as defined in paragraphs (a) and (b)

above) that has been returned to a Reservoir.



Petroleum Costs means all costs and expenditure incurred by the CONTRACTOR for the Petroleum Operations, and which the CONTRACTOR is entitled to recover under this Contract and its Accounting Procedure, including Decommissioning Costs, Development Costs. Exploration Costs, Gas Marketing Costs and Production Costs.



Petroleum Field means a Reservoir or group of Reservoirs within a common geological structure or stratigraphic unit, which may become part of a Production Area pursuant to a Development Plan.



Petroleum Operations means all Exploration Operations, Gas Marketing Operations, Development Operations, Production Operations and Decommissioning Operations, as well as any other activities or operations directly or indirectly related or connected with the said operations (including health, safety and environmental operations and activities) and authorised or contemplated by, or performed in accordance with, this Contract.



Pipeline Costs is defined in Article 33.5.



Production Area means such areas within the Contract Area designated as a production area in an approved Development Plan prepared pursuant to Article 12. For the avoidance of doubt, all superjacent or subjacent strata of the Reservoir in which a Commercial Discovery is located are automatically included in the relevant Production Area.



Production Bonus means any bonus due pursuant to Article 32.3 or 32.4.





13/116Production Costs means all the costs and expenditure incurred by the CONTRACTOR in carrying out the Production Operations, including those defined in the Accounting Procedure.



Production Operations means any works, together with all related and auxiliary activities, for the production of Petroleum from the start of Commercial Production, including: extraction, injection, stimulation, pumping, treatment, storage, engineering, operating, servicing, repairing, and maintaining any wells, plants, equipment, pipelines, terminals and any other installations and facilities, and any related operations and auxiliary operations, and storage and transportation of Petroleum from the Production Area to the Delivery Point.



Production Rental is defined in Article 13.10.



Production Work Program and Budget shall mean the production work program and budget prepared pursuant to Article 13.6.



Profit Crude Oil is defined in Article 26.1.



Profit Natural Gas is defined in Article 26.1.



Profit Petroleum is defined in Article 26.1.



Proposed Contract is defined in Article 14.10(a).



Public Company means a public company duly registered and incorporated in the Kurdistan Region and regulated by the GOVERNMENT under the Kurdistan Region Oil and Gas Law.



Public Officer means a civil servant, including a member or employee of a public entity, a member of the Kurdistan National Assembly or a member of the GOVERNMENT.



Quarter means a period of three (3) consecutive Months starting on the first day of January. April. July or October respectively.



Reservoir means a subsurface rock formation containing an individual and separate natural accumulation of producible Petroleum characterized by a single natural pressure system.



"R" Factor is defined in Article 26.4.



Royalty is defined in Article 24.



Second Exploration Well is defined in Article 10.3 (b).



Semester means a period of six (6) consecutive Months starting from the first day of January or July respectively.



Senior Representative is defined in Article 42.1(a).



Signature Bonus is defined in Article 32.1.







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Subcontractor means any entity of any contracting tier providing services and/or undertaking works relating to the Petroleum Operations directly or indirectly on behalf of, the CONTRACTOR or any CONTRACTOR Entity.



Sub-Period and Sub-Periods arc defined in Article 6.2.



Tax or Taxes means all current or future levies, duties, payments, charges, impositions, imposts, withholdings, fees, taxes (including value added lax or other sales or transaction based tax, corporation tax. income tax. capital gains tax. stamp duty, land tax, registration tax, capital and wealth tax, profit tax. dividend tax or withholdings, transfer tax, customs duties, branch or permanent establishment tax or withholdings, tax on income from movable capital and fixed tax on transfers) or contributions payable to or imposed by the GOVERNMENT.



Third Party Interest is defined in Article 4.6.



Third Party Participant means the third party/parties and/or the Public Company holding the Third Part)' Interest pursuant to Article 4.6, as may be the case.



Work Program means any work program prepared by, or on behalf of, the CONTRACTOR pursuant to this Contract and forming part of an Exploration Work Program and Budget and/or an Appraisal Work Program and Budget and/or a Gas Marketing Work Program and Budget and/or a Development Work Program and Budget and/or a Production Work Program and Budget.



Vice-Chairman is defined in Article 8.1.



1.2 In this Contract, unless the context otherwise

requires or is specifically otherwise stated:



(a) headings are to be ignored:



(b) “including*’ and similar words do not imply any

limitations;



(c) singular includes plural and vice versa: and



(d) reference to an “Article” is to an article of

this Contract and to a “Paragraph” is to a

paragraph in the Accounting Procedure.



ARTICLE 2 - SCOPE OF THE CONTRACT



This Contract is a production-sharing arrangement with respect to the Contract Area, whereby the GOVERNMENT has the right, pursuant to the Constitution of Iraq, to regulate and oversee Petroleum Operations within the Contract Area.



The purpose of this Contract is to define the respective rights and obligations of the Parties and the terms and conditions under which the CONTRACTOR shall carry out all the Petroleum Operations.





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By entering into this Contract, the GOVERNMENT grants the CONTRACTOR the exclusive right and authority to conduct all Petroleum Operations in the Contract Area as detailed in Article 3.





2.2 Upon the CONTRACTOR’S request, the GOVERNMENT shall provide and/or procure all Permits relating to the Petroleum Operations required by the CONTRACTOR to fulfill its obligations under this Contract, including those relating to any extension and renewal periods and including those required by the Government of Iraq. The GOVERNMENT (i) represents and warrants to the CONTRACTOR that it has not done and has no: omitted to do anything that would cause the cancellation or suspension of this Contract or any Permit granted under this Article 2.2 or pursuant to this Contract; and (ii) covenants that it will not do, or omit to do, anything that would cause the cancellation or suspension of this Contract or any Permit granted under this Article 2.2 or pursuant to this Contract. For the avoidance of doubt, nothing in this Article shall affect the rights and obligations of the Parties pursuant to Article 43.



2.3 The CONTRACTOR shall conduct all Petroleum Operations within the Contract Area at its sole cost, risk and peril on behalf of the GOVERNMENT, pursuant to this Contract, including the following operations:



(a) Technical Services



Implementation of all technical, human and

material resources reasonably required for

execution of the Petroleum Operations, in

accordance with prudent international petroleum

industry practice.



(b) Financial Services



The responsibility for funding the Exploration

Operations and. in the event of a Commercial

Discovery, Development, Production and

Decommissioning Operations, pursuant to this

Contract.



For the funding of Petroleum Operations, each

CONTRACTOR Entity shall be entitled to have

recourse to external financing from either its

Affiliated Companies or from any third parties.



(c) Administrative Services



Implementation of all appropriate management and

administration techniques for execution of the

Petroleum Operations under this Contract, in

accordance with prudent international petroleum

industry practice.



2.4 During the term of this Contract, the CONTRACTOR shall be responsible to the GOVERNMENT for the conduct of Petroleum Operations within the Contract Area pursuant to the terms of this Contract.



2.5 Natural resources other than Petroleum shall be excluded from the scope of this Contract, even if the CONTRACTOR discovers any such resources when executing its obligations pursuant to this Contract.







16/116 2.6 The CONTRACTOR shall only he entitled to recover Petroleum Costs incurred under this Contract in the event of a Commercial Discovery. Recovery of Petroleum Costs shall occur within the limits provided under Article 25.



2.7 During the term of this Contract, Profit Crude Oil and/or Profit Natural Gas produced from Petroleum Operations shall be shared between the Parties in accordance with the provisions of Article 26.



2.8 For the execution of Petroleum Operations under

this Contract, the CONTRACTOR shall have the right

to:



(a) freely access and operate within the Contract

Area, as well as any facilities associated with

the Petroleum Operations, wherever they may be

located:



(b) freely use access roads located within the

Contract Area and outside the Contract Area for

the construction, installation, maintenance,

operation and removal of pipelines and other

facilities required for the Petroleum

Operations;



(c) freely use sand, water, electricity and any

other natural resources located inside or

outside the Contract Area for the Petroleum

Operations;



(d) use any qualified foreign and local personnel

and/or Subcontractors required for the conduct

of Petroleum Operations in accordance with

Articles 22 and 23. Any foreign personnel

working in the Kurdistan Region shall require

prior authorization of the GOVERNMENT (such

authorization not to be unreasonably delayed or

withheld) and the GOVERNMENT shall obtain any

authorization required by the Government of

Iraq;



(e) import any goods, materials, equipment and/or

services required for the Petroleum Operations

in accordance with Articles 19,22 and 30: and



(f) freely use land or property belonging to the

Kurdistan Region, and the GOVERNMENT will assist

the CONTRACTOR with facilitating the use by the

CONTRACTOR of any private property in the

Kurdistan Region.





ARTICLE 3 - CONTRACT AREA



The initial Contract Area covers the Ber Bahr Block and extends over an area of two hundred and eight square kilometers (208 kin:), as detailed and indicated on the map attached in Annex A and is delimited by the following coordinates:



Point X (mE) V(mN)

A 323 658 4095 715

B 327 174 4093 034

C 337 851 4089 544

D 328 900 4077 765







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E 321 735 4081 188

F 315 517 4084 405



The GOVERNMENT, by execution of this Contract, hereby validates and approves the foregoing co-ordinates of the Contract Area.



The total area of the Contract Area may he reduced only in accordance with the provisions of this Contract.



ARTICLE 4 - GOVERNMENT PARTICIPATION AND THIRD PARTY

PARTICIPATION



Government Interest



4.1 The GOVERNMENT shall participate in this Contract through a Public Company, effective from the Effective Date in respect of the entire Contract Area with an undivided interest in the Petroleum Operations and all the other rights, duties, obligations and liabilities of the CONTRACTOR (save as provided in and subject to this Article 4) under this Contract in respect of the Contract Area, of twenty per cent (20%) (the “Government Interest").



4.2 The Public Company shall not have any liability to Genel Energy International Limited and the other CONTRACTOR Entities to contribute its Government Interest share of all Petroleum Costs, whenever those Petroleum Costs may be incurred, and its Government Interest share of such Petroleum Costs shall, until such time as the GOVERNMENT exercises the Option of Third Party Participation, be the responsibility of Genel Energy International Limited, and thereafter shall be the responsibility of the CONTRACTOR for the duration of this Contract, provided always that Genel Energy International Limited and after the exercise of the Option of Third Party Participation, the CONTRACTOR, shall be entitled (through the CONTRACTOR) to recover all such Petroleum Costs in accordance with Article 25. For the avoidance of doubt, the Public Company shall contribute its share of Production Bonuses attributable to the Government Interest and payable pursuant to Articles 32.3 and 32.4.



For the purposes of Article 37 of the Kurdistan Region Oil and Gas Law, the Government Interest shall be deemed to be held by the GOVERNMENT and in accordance with the principle in Article 16.13, the Public Company will be individually and separately liable (and not jointly and severally liable with the other CONTRACTOR Entities) to the GOVERNMENT for its obligations, duties and liabilities under this Contract and the provisions of Article 4.5 shall apply.



4.3 The Public Company may, at its discretion, assign part or all of its Government Interest to a third party or parties which is another Public Company duly authorized by the GOVERNMENT, provided that in no event shall a transfer be made which would result in the transferor or transferee holding less than a five percent (5%) participating interest.







18/116In the event of such an assignment to another Public Company, for the purposes of Article 37 of the Kurdistan Region Oil and Gas Law, the Government Interest so assigned shall be deemed to be held by the GOVERNMENT and in accordance with the principle in Article 16.13. the Public Company to which such Government Interest is transferred will be individually and separately liable (and not jointly and severally liable with the other CONTRACTOR Entities) to the GOVERNMENT for its obligations, duties and liabilities under this Contract and the provisions of Article 4.4 shall apply.



4.4 Any failure by the Public Company to perform any of its obligations or to satisfy any of its duties or liabilities under this Contract shall not be considered as a default of the CONTRACTOR Entities and shall in no case be invoked by the GOVERNMENT to terminate this Contract or exercise any other rights or remedies in expect of such default that may be available to it.



The capacity of a Public Company, as it may arise pursuant to the provisions of this Contract, shall in no event cancel or affect the rights of the CONTRACTOR Entities to seek to settle a dispute or to refer such dispute to arbitration or expert determination in accordance with the provisions of Article 42.



4.5 A Public Company may assign part or all of its Government Interest to a third party or parties (not being a Public Company) and for the avoidance of doubt the provisions of Articles 39.1, 39.2 and 39.3 shall not apply. Any such assignee shall have the same rights and responsibilities held by the Public Company prior to the assignment.



For the avoidance of doubt, following any assignment by a Public Company part or all of a Government Interest to a third party which is not a Public Company, in accordance with the provisions of this Article 4. the provisions of Articles 39.1, 39.2 and 39.3 shall apply to any subsequent assignment of such interest.



Third Party Interest



4.6 The GOVERNMENT shall have the option of assigning to a third party, or third parties, in respect of the Contract Area, as a CONTRACTOR Entity or CONTRACTOR Entities, an undivided interest in the Petroleum Operations in respect of the entire Contract Area and which option, when exercised, shall assign and novate all the other rights, duties, obligations and liabilities of the CONTRACTOR (save as provided in and subject to this Article 4). under this Contract, of an aggregate of forty percent (40%) (the “Third Party Interest”), such option being referred to herein as the "Option of Third Party Participation". Until the earlier of the exercise of the Option of Third Party Participation or the assignment by the GOVERNMENT of the Third Party Interest (or part thereof) to a Public Company in accordance with Article 4.9, or the expiry of the six (6) month period contemplated by Article 4.7. the extant CONTRACTOR Entities shall undertake all necessary work under this Contract, provided always that those CONTRACTOR Entities shall he entitled (through the CONTRACTOR) to recover all such Petroleum Costs in accordance with Article 25.



4.7 The GOVERNMENT may exercise the Option of Third Party Participation at any time prior to the date twelve (12) months following the Effective Date by notifying







19/116the extant CONTRACTOR Entities, in writing, of a company which has, or companies which have, adequate resources and capacity to discharge the obligations of a CONTRACTOR Entity under this Contract and a Joint Operating Agreement in respect thereof.



4.8 If the GOVERNMENT notifies the extant CONTRACTOR Entities of a Third Party Participant in accordance with Articles 4.6 and 4.7, that Third Party Participant shall have the Third Party Interest or such part of the Third Party Interest as the GOVERNMENT may decide.



4.9 If:



(a) the GOVERNMENT does not notify the extant CONTRACTOR Entities of a Third Party Participant in accordance with Articles 4.6 and 4.7 for all or part of the Third Party Interest; and/or



(b) if the Third Party Participant does not complete the exercise of the option as contemplated in Article 4.10 within sixty (60) days following its assignment by the GOVERNMENT of a Third Party Interest;



then the Third Party Interest and/or that part of the Third Party Interest not assigned by the GOVERNMENT in accordance with Articles 4.6 and 4.7 shall be held by a Public Company to be identified by the GOVERNMENT, which Public Company shall act as a Third Party Participant. For the avoidance of doubt for the purposes of this Article 4.9, a Public Company shall be a wholly-owned entity of the GOVERNMENT.



4.10 If the Option of Third Party Participation is exercised in accordance with Articles 4.6 and 4.7. or if the Public Company holds all or part of the Third Party Interest under Article 4.9:



(a) the effective date of such participation shall be the Effective Date, notwithstanding that the exercise of the Option of Third Party Participation

under Articles 4.6 and 4.7, or the date on which the Public Company acquires the Third Party Interest under Article 4.9, occurs after such date;



(b) a Third Party Participant shall, upon signature of a binding and enforceable instrument of assignment and novation in respect of this Contract referred to in Article 3.9.3, pay to Genel Energy International Limited by way of cleared funds to a bank account nominated by Gael Energy International Limited, an amount equivalent to the proportion of Petroleum Costs incurred by Genel Energy International limited as at the date of such payment attributable to the interest held by such Third Party Participant (which Petroleum Costs, for

the avoidance of doubt, shall not include the Signature Bonus or the Capacity Building Bonus paid or payable by Genel Energy International Limited or

the other CONTRACTOR Entities); and



(i) if the Option of Third Party Participation is exercised in accordance with Articles 4.6 and 4.7, Genel Energy International Limited shall, within fourteen (14) days of the notification, propose to the GOVERNMENT a statement of Petroleum Costs. Within thirty (30)





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[signature]

KS days of the notification, the GOVERNMENT shall

present the Third Party Participant with a

statement, agreed as between the GOVERNMENT and

Genel Energy International Limited, of

Petroleum Costs. Within sixty (60) days of the

notification, the GOVERNMENT shall cause the

Third Party Participant to pay the full amount

due in accordance with this Article 4.10(b);



(ii) if the Public Company holds all or part of the

Third Party Interest under Article 4.9. the

payment of the amount due in accordance with

this Article 4.10(b) shall be made by the

Public Company to Genel Energy International

limited within sixty (60) days of the Public

Company acquiring the Third Party Interest

under Article 4.9:



(c) upon payment pursuant to and in accordance with

Article 4.10(b) and the execution of the instrument

referred to in Article 4.10(b) a Third Party

Participant shall participate as a CONTRACTOR

Entity (or, where a Third Party Participant

constitutes a group of companies, as CONTRACTOR

Entities) under this Contract as if it had been a

CONTRACTOR Entity (or as if they had been

CONTRACTOR Entities) from the Effective Date, with

all the rights, duties, obligations and liabilities

under this Contract, including the obligation to

pay the relevant pro rata share of any and all

Production Bonuses due at any time under the

Contract, and a Third Party Participant shall not

become a CONTRACTOR Entity until payment pursuant

to and in accordance with Article 4.10(b) and the

execution of the instrument referred to in Article

4.10(b) has been completed;



(d) where a Joint Operating Agreement has been executed

by the CONTRACTOR Entities prior to any exercise of

the Option of Third Party Participation pursuant to

Articles 4.6 and 4.7, a Third Party Participant

shall, upon signature of the instrument referred to

in Article 4.10(b). become a party or parties to

such Joint Operating Agreement on the terms

thereof; and



(e) if a Joint Operating Agreement is not in place

prior to the GOVERNMENT exercising the Option of

Third Party Participation, then a Third Party

Participant and the other CONTRACTOR Entities

shall, within a reasonable period of time,

negotiate in good faith and enter into a Joint

Operating Agreement and shall daring the period

between the exercising of the Option of Third Party

Participation and the execution of the Joint

Operating Agreement, comply with Article 4.12 (a)

find (b) as if they were provisions of this

Contract.



4.11 If the Public Company shall hold all or part of the

Third Party Interest under Article 4.9, and shall

fail to make the payment referred to in Article

4.10 (b) by the due date of payment, or if the

GOVERNMENT and the Public Company have not competed

the assignment of all or part of the Third Party

Interest under Article 4.9 within ninety (90) days

of the expiry of the six (6) Month period

contemplated by Article 4.6, then upon the day

following that date the GOVERNMENT will with

immediate effect therefrom take all contractual and

procedural measures (enforceable under applicable

law) to procure that:







21/116 (a) fifty percent (50%) of the interest so held by

the Public Company holding such Third Party

Interest shall, notwithstanding any other Article

in this Contract, be automatically deemed to be

assigned and be assigned by such Public Company to

the other CONTRACTOR Entities; and



(b) fifty per cent (50%) of the interest so held by

the Public Company holding such Third Party

Interest shall, notwithstanding the provisions of

Article 39.2 or any other Article in this

Contract, be automatically deemed to be assigned

and be assigned to that Public Company which holds

the Government Interest pursuant to Article 4.1,

and shall for the purposes of this Article 4 be

part of the Government Interest and shall be

subject to the rights and obligations of Article

4.2 and the other provisions of this Contract

relating to the Government Interest.



Joint Operating Agreement Provisions



4.12 Any Joint Operating Agreement entered into in

relation to this Contract shall be consistent with

the principles of this Article 4 and shall provide

as follows:



(a) all decisions of any operating committee

established under such Joint Operating

Agreement, shall require the affirmative vote

of an agreed percentage of participating

interests held thereunder, which in any event

shall be not more than seventy five percent

(75%); and



(b) in the event of a proposed transfer by any

CONTRACTOR Entity of pan of a participating

interest under such Joint Operating Agreement,

including any Third Party Interest:



(i) no transfer may be made which would

result in the transferor or transferee

holding less than a live per cent (5%)

participating interest;



(ii) the proposed third party assignee must

demonstrate to the reasonable

satisfaction of each of the extant

CONTRACTOR Entities that it has the

financial capability to perform its

payment obligations under the Contract

and under the Joint Operating Agreement;

and



(iii) the proposed third party assignee shall

enter into an instrument satisfactory to

each of the extant CONTRACTOR Entities

so as to assume and to perform the

obligations of the transferor.



Power of Attorney



4.13 Notwithstanding any provision of Article 39, in the event of the refusal of a CONTRACTOR Entity to execute any documentation required to complete the assignment and novation referred to in Articles 4.6 and 4.7. then such CONTRACTOR Entity irrevocably constitutes and appoints the GOVERNMENT (or any other person which at any time during the term of the Contract may be nominated by the GOVERNMENT) to act alone, and with full power of substitution, as its true and lawful attorney and agent, with full power and authority in its name, place and stead to execute. file and record when as and where required, any and all of such documentation and hereby ratifies such execution, recording and filing. Each of





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the CONTRACTOR Entities confirms that the power of attorney granted is irrevocable and will survive its insolvency, dissolution, winding-up or bankruptcy and extend to bind its trustees, administrators, successors and assigns. Each of the CONTRACTOR Entities waives any and all defences which may be available to contest, negate or disaffirm the action of the GOVERNMENT taken under such power of attorney.



ARTICLE 5 - OPERATOR





5.1 The CONTRACTOR hereby designates Genel Energy International Limited to act as the Operator on behalf of the CONTRACTOR for the execution of the Petroleum Operations. The CONTRACTOR shall at any time have the right to appoint another entity as the Operator, upon giving the GOVERNMENT not less than thirty (30) days prior written notice of such appointment.



5.2 The CONTRACTOR shall submit to the GOVERNMENT for comment any agreement regarding or regulating the Operators appointment and its conduct of Petroleum Operations on behalf of the CONTRACTOR pursuant to this Contract prior to execution of such agreement.



5.3 In the event of the occurrence of either of the following, the GOVERNMENT may require the CONTRACTOR to appoint another entity as Operator as soon as is reasonably practicable:



(a) if an order has been passed in court declaring

the bankruptcy, liquidation, or dissolution of

the Operator; or



(b) if the Operator terminates the activities under

this Contract delegated to it by the CONTRACTOR

or a material proportion thereof, and, as a

result the CONTRACTOR fails to fulfill its

obligations under the Contract.



ARTICLE 6 - TERM OF THE CONTRACT





6.1 This Contract comprises an Exploration Period

and a Development Period, as defined below:



Exploration Period



6.2 The Exploration Period shall be for an initial term of five (5) Contract Years, extendable on a yearly basis (as provided in Articles 6.5 and 6.6) up to a maximum period of seven (7) Contract Years starting from the Effective Date. The initial term of four (4) years shall he subdivided in two (2) sub-periods as follows:



(a) an initial sub-period of three (3) Contract

Years ("First Sub-Period"); and



(b) a second sub-period of two (2) Contract Years

("Second Sub-Period”),



each a "Sub-Period” and collectively "Sub-Periods”.





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It is understood that the right of the CONTRACTOR to accede to the next Sub-Period or any extension thereof pursuant to Article 6.6 shall be subject to fulfillment of the Minimum Exploration Obligations or minimum work obligations applicable to the previous Sub-Period or extension thereof pursuant to Article 6.6 (as the case may be).



6.3 During the Exploration Period, the CONTRACTOR shall pay to the GOVERNMENT, in arrears, an annual surface rental for the Contract Area, as may be reduced by relinquishment from time to time pursuant to Article 7. of ten Dollars (US$10) per square kilometer per Contract Year (“Exploration Rental"). Such Exploration Rental shall be considered as a Petroleum Cost and shall be recovered by (he CONTRACTOR in accordance with the provisions of Articles 1 and 25.



6.4 If the CONTRACTOR decides not to enter into the Second Sub-Period, its shall notify the GOVERNMENT at least thirty (30) days prior to the expiry of the First Sub-Period and, provided that the data from the First Exploration Well demonstrates that there is no reasonable technical case for drilling the Second Exploration Well in the Contract Area, the Exploration Period shall expire at the end of the First Sub-Period. unless the Forest Sub-Period has been extended pursuant to Article 6.5 and/or Article 6.6



6.5 If the CONTRACTOR has fulfilled its Minimum Exploration Obligations for a Sub-Period of the Exploration Period but considers that additional work is required prior:



(a) to deciding to submit an Appraisal Work Program

and Budget as provided under Article 12.2 in

respect of a Discovery, or



(b) to deciding to declare a Discovery as a

Commercial Discovery in accordance with Article

12.6(a) or 14.5(a), which additional work may

include the preparation and/or execution of an

Appraisal Work Program and Budget as provided

under Article 12.2 and/or Gas Marketing

Operations.



the CONTRACTOR will automatically be entitled to extensions, each of one (1) Contract Year, of the then current Sub-Period, up to the end of the maximum Exploration Period of seven (7) Contract Years, (as provided in Article 6.2). The CONTRACTOR'S notification of its intention to exercise such extension and its duration shall be submitted in writing to the GOVERNMENT at least thirty (30) days prior to the end of the then current Sub-Period or the end of the then current extension (as the case may be).



6.6 Without prejudice to Article 6.5. upon expiry of the initial term of the Exploration Period, if it considers it has not completed its exploration evaluation of the Contract Area, the CONTRACTOR shall be entitled to an extension of the Second Sub-Period, provided it notifies the GOVERNMENT in writing at least thirty (30) days prior to the end of such Sub-Period, together with a proposal for a minimum work obligation for such extension. Any such extension shall not exceed one (1) Contract Year. Upon the expiry of such extension, if it considers it has still not completed its evaluation of the Contract Area, the CONTRACTOR shall be entitled to a further extension of one (1) Contract Year provided that it notifies the GOVERNMENT in writing at least thirty (30) days prior to the end of the original extension. The right of







24/116the CONTRACTOR to accede to the further extension shall be subject to fulfillment of the minimum work obligations applicable to the original extension.



6.7 Subject to Article 6.4, at any time during the Exploration Period, upon thirty (30) days prior notice to the GOVERNMENT, the CONTRACTOR shall have the right to withdraw from this Contract provided that the outstanding Minimum Exploration Obligations relating to the then current Sub-Period have been completed in accordance with the Contract, or it has paid to the GOVERNMENT the amount specified in Article 10.2 or Article 10.3, whichever is applicable to the then current Sub-Period.



6.8 If no Commercial Discovery has been made at the end of the Exploration Period (including any extensions thereof) this Contract shall terminate.



6.9 If a Discovery is made within the maximum Exploration Period of seven (7) Contract Years (as provided in Article 6.2). and if the CONTRACTOR considers it has not had time to complete sufficient Gas Marketing Operations to declare the Discovery a Commercial Discovery pursuant to Article 12.6(a) or 14.5(a), the CONTRACTOR shall be entitled to request an extension of the Exploration Period (notwithstanding the maximum period provided in Article 6.2), provided it so requests the GOVERNMENT in writing at least thirty (30) days prior to the end of the maximum Exploration Period, together with a proposal for Gas Marketing Operations to be undertaken during such extension. If granted by the GOVERNMENT, any such extension shall not exceed two (2) Contract Years. Upon the expiry of such extension, if it considers it has still not completed its Gas Marketing Operations relating to such Discovery, the CONTRACTOR shall be entitled to request a further extension of two (2) Contract Years provided that it so requests the GOVERNMENT in writing at least thirty (30) days prior to the end of the original extension, together with a proposal for Gas Marketing Operations to be undertaken during such extension.



Development Period



6.10 If the CONTRACTOR considers that a Discovery of Crude Oil and any Associated Natural Gas is a Commercial Discovery, the CONTRACTOR shall have the exclusive right to develop and produce such Commercial Discovery, pursuant to the terms of this Contract. The Development Period for a Commercial Discovery of Crude Oil and any Associated Natural Gas shall be twenty (20) years commencing on the declaration of such Commercial Discovery by CONTRACTOR, in accordance with Article 12.6(a), with an automatic right to a five (5) year extension.



6.11 If the CONTRACTOR considers that a Discovery of Non-Associated Natural Gas is a Commercial Discovery, the CONTRACTOR shall have the exclusive right to develop and produce such Commercial Discovery, pursuant to the terms of this Contract. The Development Period for a Commercial Discovery of Non-Associated Natural Gas shall be twenty (20) years, commencing on the declaration of such Commercial Discovery by CONTRACTOR, it, accordance with Article 12.6(a) or Article 14.5(a), with an automatic right to a five (5) year extension.



6.12 If Commercial Production from a Production Area is still possible at the end of its Development Period as defined in Articles 6.10 or 6.11 then, upon its request, the





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CONTRACTOR shall be entitled to an extension of such Development Period under the same terms as those provided in this Contract. Such request shall be made in writing by the CONTRACTOR at least six (6) Months before the end of the said Development Period.



The term of any such extension of the Development Period shall be:



(a) five (5) Years for Crude Oil and any Associated

Natural Gas, and/or



(b) five (5) Years for Non-Associated Natural Gas.



6.13 The CONTRACTOR shall have the right to terminate

Production Operations for any Production Area at

any time during the term of this Contract, subject

to giving notice to the GOVERNMENT of at least

ninety (90) days. This Contract shall terminate on

the expiry date of the last Production Area or when

Production Operations for all Production Areas have

terminated.



ARTICLE 7 RELINQUISHMENTS



Subject to the provisions of Articles 12 and 7.3, the CONTRACTOR shall surrender portions of the Contract Area as follows:



(a) at the end of the initial term of the

Exploration Period referred to in Article 6.2.

twenty five percent (25%) of the net area

determined by subtracting the Production Areas

from the initial Contract Area;



(b) at the end of the first extension period entered

into under this Contract after the end of the

initial term of the Exploration Period referred

to in Article 6.2, an additional twenty five

percent (25%) of the net area determined by

subtracting die Production Areas from the

remaining part of the Contract Area; and



(c) at the end of the Exploration Period (including

all extensions thereof), all of the remaining

area that is not in a Production Area.



7.2 For the application of Article 7.1:



(a) any areas already relinquished pursuant to

Article 7.4 shall be deducted from areas to be

surrendered; and



(b) the CONTRACTOR shall have the right to determine

the area, shape and location of the Contract

Area to be kept, provided that such surrendered

portions of the Contract Area shall be in

contiguous blocks.



7.3 If the relinquishment referred to in Article 7.1 can

only be achieved by including part of an Appraisal

Area, then these percentages shall be reduced to

exclude such Appraisal Area.



7.4 During the Exploration Period, the CONTRACTOR may at

the end of each Contract Year surrender all or any

part of the Contract Area by written notice sent to

the GOVERNMENT at least thirty (30) days in advance

of the proposed date of







26/116surrender, subject to the provisions of this Article 7.4. Such voluntary surrenders during the Exploration Period shall be deemed equal to the obligatory relinquishments referred to under Article 7.1. This Contract shall terminate in the event of the surrender of the entire Contract Area.



7.5 No surrender provided under Article 7.4 shall exempt the CONTRACTOR from its outstanding obligations under this Contract. In the event the CONTRACTOR elects to surrender the entire Contract Area without having fulfilled the Minimum Exploration Obligations relating to the then current Sub-Period as provided in Article

10.2 or Article 10.3, the CONTRACTOR shall pay to the GOVERNMENT the relevant outstanding amount as detailed in Article 10.2 or Article 10.3, as the case may be.



7.6 The boundaries of the portion of the Contract Area to be relinquished by the CONTRACTOR shall be communicated to die GOVERNMENT by written notice at least thirty (30) days in advance of the relevant date for relinquishment, pursuant to Article 7.1.





ARTICLE 8 - MANAGEMENT COMMITTEE



8.1 A Management Committee shall be established within thirty (30) days following the Effective Date for the purpose of providing orderly direction of all matters pertaining to the Petroleum Operations and the Work Programs. Within such period, each of the GOVERNMENT and the CONTRACTOR shall by written notice nominate its respective members of the Management Committee and their deputies.



The Management Committee shall comprise two (2) members designated by the GOVERNMENT and two (2) members designated by the CONTRACTOR.



Upon ten (10) days notice, each of the GOVERNMENT and the CONTRACTOR may substitute any of its members of the Management Committee. The chairman of the Management Committee shall be one of the members designated by the GOVERNMENT (the “Chairman”). The vice-chairman of the Management Committee shall be one of the members designated by the CONTRACTOR (the “Vice-Chairman”). In the absence of the Chairman, the Vice-Chairman shall chair the meeting.



Each Party shall have the right to invite a reasonable number of observers as deemed necessary to attend the meetings of the Management Committee in a non-voting capacity.



8.2 The Management Committee shall review, deliberate, decide and give advice, suggestions and recommendations to the Parties regarding the following subject matters:



(a) Work Programs and Budgets;



(b) the CONTRACTOR'S activity reports;





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(c) production levels submitted by the CONTRACTOR,

based on prudent international petroleum industry

practice;



(d) Accounts of Petroleum Costs;



(e) procurement procedures for potential

Subcontractors, submitted by the CONTRACTOR in

accordance with Article 19.3;



(f) Development Plan and Budget for each Production

Area;



(g) any matter having a material adverse affect on

Petroleum Operations;



(h) any other subject matter of a material nature that

the Parties are willing to consider.



8.3 Each of the GOVERNMENT and the CONTRACTOR shall have one (1) vote in the Management Committee. The Management Committee cannot validly deliberate unless each of the GOVERNMENT and the CONTRACTOR is represented by at least one (1) of its members or its deputy.



The Management Committee shall attempt to reach unanimous agreement on any subject matter being submitted. In the event the Management Committee cannot reach unanimous agreement, a second meeting shall be held within fourteen (14) days to discuss the same subject matter and attempt to reach a unanimous decision.



Except as provided for in Article 8.4, in the event that no agreement is reached at the second meeting, the mutter will be referred by the CONTRACTOR to the Minister of Natural Resources to reach an agreement, in the absence of which the matter will be referred to an Expert as defined in and in accordance with Article 42.2.



In the event that, during the Exploration Period and until the completion of the Development Plan, no agreement is reached at the second meeting of the Management Committee, as provided for in Article 8.3, or unanimous approval is not obtained, as required pursuant to Article 8.5; then the proposal made by the CONTRACTOR shall be deemed adopted by the Management Committee.



Subject to Articles 8.3 and 8.4. unanimous approval of the Management Committee shall be required for:



(a) approval of and any material revision to, any

Exploration Work Program and Budget prepared

after the first Commercial Discovery in the

Production Area relating to such Commercial

Discovery:



(b) approval of, and any material revision to. the

Development Plan, the production schedule,

lifting schedule and Development and Production

Work Programs and Budgets;



(c) establishment of rules of procedure for the

Management Committee;



(d) any insurance issues over which the Management

Committee has authority;





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(e) approval of, and any material revision to, procurement procedures for goods and/or services, submitted by the CONTRACTOR in accordance with Article 19.3 (unless such procedures have been deemed approved by the Management Committee in accordance with Article 19.3);



(f) approval of, and any material revision to, any proposed pipeline project, submitted by CONTRACTOR in accordance with Article 33.3;



(g) approval of a first rate bank in which to place the Decommissioning Reserve Fund, in accordance with Article 38.1;



(h) approval of, and any material revision to, any proposed Decommissioning Plan submitted pursuant to Article 38.7 on any Decommissioning Work Program and Budget or Gas Marketing Work Program and Budget;



(i) any Terms of Reference which are required to be prepared and agreed for the purposed of expert determination, pursuant to Article 42.2;



(j) approval of any costs in excess of ten percent (10%) above any Budget; and



(k) any matter having a material adverse effect on Petroleum Operations.



8.6 Ordinary meetings of the Management Committee shall take place in the Kurdistan Region, alternately at the offices of the GOVERNMENT and those of the CONTRACTOR, or at any other location agreed between parties, at least twice a Contract year prior to the date of the first Commercial Discovery and three times a Contract year thereafter.



8.7 Either the GOVERNMENT or the CONTRACTOR may call an extraordinary meeting of the Management Committee to discuss important issues or developments related to Petroleum Operations, subject to giving reasonable prior notice, specifying the matters to be discussed at the meeting, to the other Party. The Management Committee may from time to time make decisions by correspondence provided all the members have indicated their approval of such decisions in such correspondence.



8.8 Unless at least one (1) member of its deputy of each of the GOVERNMENT and the CONTRACTOR is present, the Management Committee shall be adjourned for a period not to exceed eight (8) days. The Party being present shall then notify the other Party of the new date, time and location for the meeting.



8.9 The agenda for meetings of the Management Committee shall be prepared by the CONTRACTOR in accordance with instructions of the Chairman and communicated to the Parties at least fifteen (15) days prior to the date of the meeting. The agenda shall include any subject matter proposed by either the GOVERNMENT OR THE contractor. Decisions of the Management Committee will be made at the meetings. The CONTRACTOR shall be responsible for preparing and keeping minutes of the decisions made at the meetings. Copies of such minutes shall be forwarded to each Party for review and approval. Each Party shall review and approve such minutes within ten (10) days of receipt of the draft minutes. A Party who fails to notify in writing its approval or disapproval of such minutes within such ten (10) days shall be deemed to have approved the minutes.





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8.10 If required, the Management Committee may request the creation of a technical subcommittee or any other sub-committee to assist it. Any such sub committee shall be composed of a reasonable number of experts from the GOVERNMENT and the CONTRACTOR. After each meeting, the technical sub-committee or any other subcommittee shall deliver a written report to the Management Committee.



8.11 Any costs and expenditure incurred by the CONTRACTOR for meetings of the Management Committee or any technical subcommittee or any other sub-committee shall be considered as Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.





ARTICLE 9 - GUARANTEES



9.1 Each CONTRACTOR Entity shall provide the GOVERNMENT, if so required by the latter pursuant to written notice received by the CONTRACTOR Entity within thirty (30) days of the Effective Date, with a corporate guarantee in a form as shall be agreed in good faith between the GOVERNMENT and each CONTRACTOR Entity not later than ninety (90) days after the Effective Date, provided that such corporate guarantee shall be given only in respect of the Minimum Financial Commitment for the First Sub-Period and shall expire automatically upon completion of the performance of the Minimum Exploration Obligations set out in Article 10.2(d) and (e) or expenditure of such Minimum Financial Commitment, whichever is the earlier.



9.2 Not later than sixty (60) days after the commencement of the Second Sub-Period, each CONTRACTOR Entity shall provide the GOVERNMENT, if so required by the latter pursuant to written notice received by the CONTRACTOR Entity within thirty (30) days of such commencement date, with a corporate guarantee in:



(a) the form substantially agreed between the

GOVERNMENT and each CONTRACTOR Entity for the First

Sub-Period, if any. subject to making the changes

necessary in order for the corporate guarantee to

apply only to the Second Sub-Period, or



(b) if there is no agreed form, in a form as shall be

agreed in good faith between the GOVERNMENT and

each CONTRACTOR Entity not later than ninety (90)

days after the GOVERNMENT'S notice.



and provided in each case that such corporate guarantee shall be given only in respect of the Minimum Financial Commitment for the Second Sub-Period and that such corporate guarantee shall expire automatically upon completion of the performance of the Minimum Exploration Obligations set out in Article 10.3 (b) or expenditure of such Minimum Financial Commitment, whichever is the earlier.



9.3 In the event of an assignment by a CONTRACTOR Entity in accordance with Article 39, the relevant third party assignee shall provide the GOVERNMENT, if so required by the latter pursuant to written notice given to such assignee within thirty (30) days of the Effective Date, with a corporate guarantee in the form agreed pursuant to Article 9.1 or 9.2, as applicable to the then current Sub-Period or, in the absence of any such agreed form of corporate guarantee, in a form





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in good faith between the GOVERNMENT and such

assignee not later than ninety (90) days after the

effective date of the assignment, provided that

such corporate guarantee shall be given only in

respect of the Minimum Financial Commitment for the

then current Sub-Period, and shall expire

automatically upon completion of the performance of

the Minimum Exploration Obligations set out in

Articles 10.2(d) and (e) or Article 10.3(b), as the

case may be, or expenditure of such Minimum

Financial Commitment, whichever is the earlier.



ARTICLE 10 - MINIMUM EXPLORATION WORK OBLIGATIONS



10.1 The CONTRACTOR shall start Exploration Operations

within thirty (30) days of Management Committee

approval of the Exploration Work Program and Budget

in accordance with Article 8. The CONTRACTOR shall

perform geological, geophysical and/or drilling

works as provided under Articles 10.2 to 10.3 (the

"Minimum Exploration Obligations”). If applicable,

the said Minimum Exploration Obligations shall be

performed during each Sub-Period in accordance with

prudent international petroleum industry practice.



10.2 During the First Sub-Period, the CONTRACTOR shall



(a) carry out geological and geophysical studies,

comprising the following:



(i) the compilation of a technical database;



(ii) the performance of a remote sensing study:



(iii) a field visit to verify initial geological and

geophysical work and remote sensing results and

plan for two dimensional seismic acquisition;

and



(b) carry out a data search for existing data

specific to this Contract Area, comprising the

following:



(i) well data, if available, for example, electric

logs;



(ii) seismic data and gravity data, if available;

and



(iii) reprocess the available seismic data;



(c) perform field work comprising structural,

stratigraphic and lithologic mapping and

sampling;



and



(d) drill one (1) Exploration Well (the "First

Exploration Well”) committing for this purpose a

minimum financial amount of thirteen million

five hundred thousand Dollars (US$13.500.000).



10.3 During the Second Sub-Period, the CONTRACTOR shall:



(a) acquire, process and interpret further seismic

data (being either two dimensional or three

dimensional), if the CONTRACTOR considers that

the





31/116results from the First Exploration Well justify the acquisition of further seismic data; and



(b) drill one (1) Exploration Well (the "Second Exploration Well"), unless the data from the First Exploration Well demonstrates that there is not a reasonable technical case for drilling the Second Exploration Well in the Contract Area.



10.4 Notwithstanding the provisions in Articles 10.2 to 10.3, for the execution of the Minimum Exploration Obligations under Articles 10.2 lo 10.3, it is agreed as follows:



(a) Minimum Exploration Obligations in the Second Sub-Period shall only apply in the event the CONTRACTOR has not elected to notify the GOVERNMENT that it will not enter into the Second Sub-Period, in accordance with and subject to Article 6.4.



(b) Subject to Article 10.4(a), the CONTRACTOR shall be required to meet its Minimum Exploration Obligations for the applicable Sub-Period, even if this entails exceeding the Minimum Financial Commitment for such Sub-Period. If the CONTRACTOR has satisfied its Minimum Exploration Obligations without having spent the total Minimum Financial Commitment for such Sub-Period, it shall be deemed to have satisfied its Minimum Exploration Obligations for such Sub-Period.



(c) Each Exploration Well shall be drilled to the depth agreed by the Management Committee unless:



(i) the formation is encountered at a lesser depth than originally anticipated;



(ii) basement is encountered at a lesser depth than originally anticipated;



(iii) in the CONTRACTOR's sole opinion continued drilling of the relevant Exploration Well presents a hazard due to the presence of abnormal or unforeseen conditions;



(iv) insurmountable technical problems are encountered rendering it impractical to continue drilling with standard equipment; or



(v) petroleum formations are encountered whose penetration requires laying protective casing that does not enable the depth agreed by the Management Committee to be reached.



If drilling is stopped for any of the foregoing reasons, the Exploration Well shall be deemed to have been drilled to the depth agreed by the Management Committee and the CONTRACTOR shall be deemed to have satisfied its Minimum Exploration Obligations in respect of the Exploration Well.



(d) Any geological or geophysical work carried out or any seismic data acquired, processed or interpreted or any Exploration Well drilled or any other work performed in excess of the Minimum Exploration Obligations and/or any amounts spent in excess of the total Minimum Financial Commitment in any



32/116 [signature] given Sub-Period, shall be carried forward to the

next Sub-Period or any extension period and shall be

taken into account to satisfy the Minimum

Exploration Obligations and/or the total Minimum

Financial Commitment for such subsequent Sub-Period

or extension period.



(e) For the avoidance of doubt, if: (i) in the First

Sub-Period, the CONTRACTOR performs any of the

Minimum Exploration Obligations prescribed for the

Second Sub-Period in Article 10.3; and (ii) the

CONTRACTOR has not elected to notify the GOVERNMENT

that it will not enter into the Second Sub-Period

(in accordance with and subject to Article 6.4). the

performance of such Minimum Exploration Obligations

shall be deemed to satisfy the same Minimum

Exploration Obligations for the Second Sub-Period.



ARTICLE 11 - EXPLORATION WORK PROGRAMS AND BUDGETS



11.1 Within forty-five (45) days following the Effective Date, the CONTRACTOR shall prepare and submit to the Management Committee a proposed work program and budget relating to Exploration Operations (the "Exploration Work Program and Budget") for the remainder of the Calendar Year. Thereafter, no later than 1 October in each Calendar Year, the CONTRACTOR shall submit a proposed Exploration Work Program and Budget to the Management Committee for the following Calendar Year.



Each Exploration Work Program and Budget shall include details of. but not be limited to, the following:



(a) work to be undertaken;



(b) materials, goods and equipment to be acquired;



(c) cost estimate of services to be provided,

including services by third parries and/or

Affiliated Companies of any CONTRACTOR Entity; and



(d) estimated expenditures, broken down by cost centre

in accordance with the Accounting Procedure.



11.3 The Management Committee shall meet within sixty (60) days following its receipt of CONTRACTOR'S proposal to examine and approve the Exploration Work Program and Budget.



11.4 If the GOVERNMENT requests any modification to the Exploration Work Program and Budget, the Management Committee shall meet to discuss the Exploration Work Program and Budget and proposed modifications thereto within the sixty (60) day period referred to in Article 11.3. The CONTRACTOR shall communicate its comments on any such requested modifications to the GOVERNMENT a: the meeting of the Management Committee or in writing prior to such meeting.



11.5 The CONTRACTOR shall be authorised to make expenditures not budgeted in an





33/116approved Exploration Work Program and Budget provided that the aggregate amount of such expenditures shall not exceed ten per cent (10%) of the approved Exploration Work Program and Budget in any Calendar Year and provided further that such excess expenditures shall be reported as soon as is reasonably practicable to the Management Committee. For the avoidance of doubt all excess expenditures shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25, provided that any excess expenditures above the ten per cent (10%) limit shall only be recovered with the unanimous approval of the Management Committee.



11.6 In cases of emergency, the CONTRACTOR may incur such additional expenditures as it deems necessary to protect life, environment or property. Such additional expenditures shall be reported promptly to the Management Committee. For the avoidance of doubt, such additional expenditure shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.





ARTICLE 12 - DISCOVERY AND DEVELOPMENT



12.1 If the drilling of an Exploration Well results in a Discovery, the CONTRACTOR shall notify the GOVERNMENT within forty-eight (48) hours of completing tests confirming the presumed existence of such Discovery or within such longer period as the CONTRACTOR reasonably requires to determine whether or not there is a Discovery. Within thirty (30) days following notification of the said Discovery, the CONTRACTOR shall present to the Management Committee all technical data then available together with its opinion on the commercial potential of the said Discovery (the “Discovery Report”). The CONTRACTOR shall provide in a timely manner such other information relating to the Discovery as the GOVERNMENT may reasonably request.



Appraisal Work Program and Budget



12.2 If pursuant to Article 12.1, the CONTRACTOR considers that the Discovery has commercial potential it shall, within ninety (90) days following notification to the GOVERNMENT of the Discovery, submit an appraisal program in respect of the Discovery (the "Appraisal Work Program and Budget”) to the Management Committee. The Management Committee shall examine the Appraisal Work Program and Budget within thirty (30) days of its receipt. If the GOVERNMENT requests any modification to the Appraisal Work Program and Budget, the Management Committee shall meet to discuss the Appraisal Work Program and Budget and the requested modifications thereto within sixty (60) days from its receipt of the proposed Appraisal Work Program and Budget. The CONTRACTOR shall communicate its comments on any such requested modifications to the GOVERNMENT at the meeting of the Management Committee or in writing prior to such meeting.



The Appraisal Work Program and Budget shall include the following:



(a) an appraisal works program and budget, in accordance

with prudent international petroleum industry

practice;



(b) an estimated time-frame for completion of appraisal

works; and





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(c) the delimitation of the area to be evaluated,

the surface of which shall not exceed twice

(2 x) the surface of the geological structure

or prospect to be appraised (the “Appraisal

Area”).



12.3 If, following a Discovery, a rig acceptable 10 the CONTRACTOR is available to drill a well, the CONTRACTOR may drill any additional Exploration Well or any Appraisal Well deemed necessary by the CONTRACTOR before or during the Management Committee's review of the Discovery Report provided in accordance with Article 12.1 or its review of the Appraisal Work Program and Budget.



The CONTRACTOR shall be authorised to incur expenditures not budgeted in an approved Appraisal Work Program and Budget provided that the aggregate amount of such expenditures shall not exceed ten percent (10%) of the approved Appraisal Work Program and Budget in any Calendar Year and provided further that such excess expenditures shall be reported as soon as is reasonably practicable to the Management Committee. For the avoidance of doubt, all excess expenditures shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25. provided that any excess expenditures above the ten percent (10%) limit shall only be recovered with the unanimous approval of the Management Committee.



Appraisal Report



12.4 The CONTRACTOR shall submit a detailed report

relating to the Discovery (the “Appraisal Report")

to the Management Committee within ninety (90)

days following completion of the Appraisal Work

Program and Budget.



12.5 The Appraisal Report shall include the following:



(a) geological conditions:



(b) physical properties of any liquids:



(c) sulphur, sediment and water content;



(d) type of substances obtained;



(e) Natural Gas composition;



(f) production forecast per well; and



(g) a preliminary estimate of recoverable

reserves.



Declaration of Commercial Discovery



12.6 Together with its Appraisal Report, the

CONTRACTOR shall submit a written statement to the

Management Committee specifying that:



(a) the CONTRACTOR has determined that the

Discovery is a Commercial Discovery;



(b) the CONTRACTOR has determined that the

Discovery is not a Commercial Discovery;





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(c) the CONTRACTOR has determined that the

Discovery is a significant Discovery, which

may become a Commercial Discovery subject to

additional exploration and/or appraisal

works within or outside of the Appraisal

Area: or



(d) the CONTRACTOR has determined that the

Discovery is a significant Discovery of Non-

Associated Natural Gas, which may become a

Commercial Discovery subject to Gas

Marketing Operations, in accordance with

Article 14.5.



12.7 In case the statement of the CONTRACTOR corresponds to Article 12.6(c), the CONTRACTOR shall submit a Work Program and Budget to the Management Committee within thirty (30) days following such statement. Any well drilled to evaluate the said significant Discovery shall be considered an Exploration Well.



Development Plan



12.8 If the Discovery has been declared a Commercial Discovery by the CONTRACTOR pursuant to Article 12.6(a) or Article 14.5(a), the CONTRACTOR shall submit a proposed Development Plan to the Management Committee within one hundred eighty (180) days following such declaration. The Development Plan shall be in accordance with prudent international petroleum industry practice. Except with the consent of the GOVERNMENT, such Development Plan shall include details of the following as applicable:



(a) the delimitation of the Production Area, taking

into account die results of the Appraisal Report

regarding the importance of the Petroleum Field

within the Appraisal Area;



(b) drilling and completion of Development Wells;



(c) drilling and completion of water or Natural Gas

injection wells;



(d) laying of gathering pipelines;



(e) installation of separators, tanks, pumps and any

other associated production and injection

facilities for the production:



(f) treatment and transportation of Petroleum to the

processing and storage facilities onshore or

offshore;



(g) laying of export pipelines inside or outside the

Contract Area to the storage facility or

Delivery Point;



(h) construction of storage facilities for

Petroleum;



(i) plan for the utilization of Associated Natural

Gas:



(j) training commitment in accordance with Article

23;



(k) a preliminary decommissioning and site

restoration plan;





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(l) all contracts and arrangements made or to be made by

the CONTRACTOR for the sale of Natural Gas:



(m) to the extent available, all contracts and

arrangements made or to be made by Persons in

respect of that Natural Gas downstream of the point

at which it is to be sold by the CONTRACTOR and

which are relevant to the price at which (and other

terms on which) it is to be sold by the CONTRACTOR

or are otherwise relevant to the determination of

the value of it for the purposes of this Contract,

but; not beyond the point at which it is first

disposed of in an Arm’s length Sale;



(n) each CONTRACTOR Entity's plans for financing its

interest, if any; and



(o) any other operations not expressly provided for in

this Contract but reasonably necessary for

Development Operations, Production Operations and

delivery of Petroleum produced, in accordance with

prudent international petroleum industry practice.



12.9 The Management Committee shall use its best efforts to approve the Development Plan within sixty (60) days after its receipt of such plan. The Development Period for each Commercial Discovery within a Development Plan shall be extended for the number of days in excess of such sixty (60) day period that it takes for the Management Committee to approve the Development Plan. The Development Plan shall be considered approved by the GOVERNMENT if the GOVERNMENT, through its representatives on the Management Committee, indicates its approval in writing.



12.10 If the GOVERNMENT requests any modifications to the Development Plan, then the Management Committee shall meet within sixty (60) days of receipt by the CONTRACTOR of the GOVERNMENT'S written notification of requested modifications accompanied by all the documents justifying such request, and shall discuss such request. The CONTRACTOR shall communicate its comments on any such requested modifications to the GOVERNMENT at such meeting or in writing prior to such meeting. Any modification approved by the Management Committee at such meeting or within a further period of thirty (30) days from the date of such meeting shall be incorporated into the Development Plan which shall then be deemed approved and adopted.



12.11 If the CONTRACTOR makes several Commercial Discoveries within the Contract Area each such Commercial Discovery will have a separate Production Area. The CONTRACTOR shall be entitled to develop and to produce each Commercial Discovery and the GOVERNMENT shall provide the appropriate Permits covering each Production Area. In case the area covered by the Commercial Discovery extends beyond the boundaries of the Contract Area, and to the extent such area outside the Contract Area is not the subject of a Petroleum Contract (as defined in the Kurdistan Region Oil and Gas Law) with a third party, the provisions of Article 34.2 shall apply







37/116ARTICLE 13 - DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND

BUDGET



13.1 Upon the approval of the Development Platt by the Management Committee, the CONTRACTOR shall start the Development Operations for the Commercial Discovery in accordance with the Development Plan and prudent international petroleum industry practice.



Approval of Development Works Program and budget



13.2 Within ninety (90) days following approval of the Development Plan by the Management Committee, the CONTRACTOR shall prepare and submit to the Management Committee a proposed work program and budget for Development Operations (the “Development Work Program and Budget”) to be carried out in the Production Area for the duration of the Development Operations. Thereafter, no later than 1 October in each Calendar Year, the CONTRACTOR shall submit to the Management Committee updates in respect of its Development Work Program and Budget. To enable the Management Committee to forecast expenditures, each Development Work Program and Budget shall include details of the following:



(a) works to be carried out;



(b) material and equipment to be acquired by main categories;



(c) type of services to be provided, distinguishing between third parties and Affiliated Companies of any CONTRACTOR Entity; and



(d) categories of general and administrative expenditure.



13.1 If any modification to the Development Work Program and Budget is requested by the GOVERNMENT, the Management Committee shall meet to discuss the Development Work Program and Budget and proposed modifications thereto within sixty (60) days from its receipt of the proposed Development Work Program and Budget. The CONTRACTOR shall communicate its comments on any such requested modifications to the GOVERNMENT at the meeting of the Management Committee or in writing prior to such meeting.



13.4 The CONTRACTOR shall be authorised to incur expenditures not budgeted in an approved Development Work Program and Budget provided that the aggregate amount of such expenditures shall not exceed ten per cent (10%) of the approved Development Work Program and Budget in any Calendar Year and provided further that such excess expenditures shall be reported as soon as is reasonably practicable to the Management Committee. For the avoidance of doubt, all excess expenditures shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25, provided that any excess expenditures above the ten per cent (10%) limit shall only be recovered with the unanimous approval of the Management Committee.



13.5 In cases of emergency, the CONTRACTOR may incur such additional expenditures as it deems necessary to protect life, environment or property. Such additional expenditures shall be reported promptly to the Management Committee. For the



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avoidance of doubt, such additional expenditure shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.



Approval of Annual Production Works Programs and Budget



13.6 No later than 1 October of the Calendar Year preceding the estimated commencement of production pursuant to an approved Development Plan and thereafter no later than 1 October in each Calendar Year, the CONTRACTOR shall prepare and submit to the Management Committee a proposed work program and budget for Production Operations (the “Production Work Program and Budget”) for the following Calendar Year. To enable the Management Committee to forecast expenditures, the Production Work Program and Budget shall include details of the following:



(a) works to be carried out;



(b) material and equipment to be acquired by main

categories;



(c) type of services to be provided, distinguishing

between third parties and Affiliated Companies of

any CONTRACTOR Entity; and



(d) categories of general and administrative

expenditure.



13.7 If any modification to the Production Work Program and Budget is requested by the GOVERNMENT, the Management Committee shall meet to discuss the Production Work Program and Budget and proposed modifications thereto within sixty (60) days from its receipt of the proposed Production Work Program and Budget. The CONTRACTOR shall communicate its comments on any such requested modifications to the GOVERNMENT at the meeting of the Management Committee or in writing prior to such meeting.



13.8 The CONTRACTOR shall be authorized to incur expenditures not budgeted in an approved Production Work Program and Budget provided that the aggregate amount of such expenditures shall not exceed ten per cent (10%) of the approved Production Work Program and Budget in any Calendar Year and provided further that such excess expenditures shall be reported as soon as reasonably practicable to the Management Committee. For the avoidance of doubt, all excess expenditures shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25. provided that any excess expenditure above the ten percent (10%) limit shall only be recovered with the unanimous approval of the Management Committee.



13.9 In cases of emergency, the CONTRACTOR may incur such additional expenditure as it deems necessary to pretext life, environment or property. Such additional expenditures shall be reported promptly to the Management Committee. For the avoidance of doubt, such additional expenditure shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.



13.10 After the commencement of Commercial Production the CONTRACTOR shall pay to the GOVERNMENT, in arrears, an annual surface rental for the Production Area, of ten Dollars (US $10) per square kilometre per Contract Year (“Production"





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Rental”). Such Production Rental shall be considered

us a Petroleum Cost and shall be recovered by the

CONTRACTOR in accordance with the provisions of

Articles 1 and 25.





ARTICLE 14 - NATURAL GAS



Use for the Petroleum Operations



14.1 To take account of specific conditions relating to Natural Gas and to promote its development in the Kurdistan Region, the GOVERNMENT will grant specific benefits to the CONTRACTOR on principles materially similar to those contained in this Contract, including, consistent with the Kurdistan Region Oil and Gas Law, more generous provisions in respect of the recovery of Petroleum Costs and the sharing of Profit Petroleum than in respect of Crude Oil.



14.2 The CONTRACTOR may freely use any Natural Gas required for the Petroleum Operations. If technically and economically justified, the CONTRACTOR shall in priority use any Natural Gas for the purpose of enhancing recovery of Crude Oil in accordance with prudent international petroleum industry practice as follows.



Associated Natural Gas



14.3 Any excess Associated Natural Gas produced that is

neither used in the Petroleum Operations nor

developed and sold by the CONTRACTOR shall, upon

the GOVERNMENT’S written request, be transferred

at the first practicable delivery point as agreed

between the Parties, free of charge to the

GOVERNMENT. In such case, the GOVERNMENT shall he

solely responsible for collecting, treating,

compressing and transporting such Natural Gas from

such agreed delivery point and shall be solely

liable for any additional direct and indirect

costs associated therewith. The construction and

operation of required facilities as well as the

offtake of such excess Associated Natural Gas by

the GOVERNMENT shall occur in accordance with

prudent international petroleum industry practice

and shall not interfere with the production,

lifting and transportation of the Crude Oil by the

CONTRACTOR. For the avoidance of doubt, all

expenditure incurred by the CONTRACTOR up to such

agreed delivery point shall be considered

Petroleum Costs and shall be recovered by the

CONTRACTOR in accordance with the provisions of

Articles 1 and 25.



In the event the GOVERNMENT finds a market for

Associated Natural Gas, it shall promptly give

written notice to the CONTRACTOR, and the

CONTRACTOR may elect to participate in supplying

such Associated Natural Gas within ninety (90)

days following notification thereof by the

GOVERNMENT. If the CONTRACTOR elects to

participate in supplying Associated Natural Gas to

such market, all expenditures associated with any

necessary facilities shall be paid for by the

CONTRACTOR. For the avoidance of doubt, such

expenditure incurred shall be considered Petroleum

Costs and shall be recovered by the CONTRACTOR in

accordance with the provisions of Articles 1 and

25.



Non Associated Natural Gas









40/11614.4 Until an approved Natural Gas sales contract is executed in respect of all volumes of Natural Gas expected to be produced, the CONTRACTOR shall be entitled during the Exploration Period and the Development Period to carry out Gas Marketing Operations.



14.5 If, pursuant to Article 12.6(d), the CONTRACTOR has determined that the Discovery is a significant Discovery of Non-Associated Natural Gas. which may become a Commercial Discovery subject to Gas Marketing Operations, it shall carry out Gas Marketing Operations, at the end of which it shall submit a written statement to the Management Committee specifying that:



(a) the CONTRACTOR has determined that the Discovery

is a Commercial Discovery; or



(b) the CONTRACTOR has determined that the Discovery

is not a Commercial Discovery.



14.6 For the purpose of this Contract. “Gas Marketing Operations" means any activity under this Contract relating to the marketing of Non-Associated Natural Gas, including any evaluation to find a commercial market for such Non-Associated Natural Gas and/or to find a commercially viable technical means of extraction of such Non-Associated Natural Gas and may include activities related to evaluating the quantities of Non-Associated Natural Gas to be sold, its quality, the geographic location of potential markets to be supplied as well as evaluating the costs of production, transportation and distribution of the Non-Associated Natural Gas from the Delivery Point to the relevant market.



14.7 All costs and expenditure incurred by the CONTRACTOR in the performance of the activities in relation to the Gas Marketing Operations shall be considered Petroleum Costs.





14.8 No later than 1 October of the Calendar Year preceding the Calendar Year in which any Gas Marketing Operations are due to occur, the CONTRACTOR shall prepare and submit to the Management Committee its Gas Marketing Work Program and Budget for the following Calendar Year. To enable the Management Committee to forecast expenditures, the Gas Marketing Work Program and Budget shall include the following:



(a) works to be carried out;



(b) type of services to be provided, distinguishing

between third parties and Affiliated companies

of any CONTRACTOR Entity; and



(c) categories of general and administrative

expenditure.



If any modification to the Gas Marketing Work Program and Budget is requested by the GOVERNMENT, the Management Committee shall meet to discuss the Gas Marketing Work Program and Budget and proposed modifications thereto within sixty (60) days from its receipt of the proposed Gas Marketing Work Program and Budget. The CONTRACTOR shall communicate its comments on any such requested





41/116

modifications to the GOVERNMENT at the meeting of the Management Committee or in writing prior to such meeting.



14.9 The CONTRACTOR shall be authorised to incur expenditures not budgeted in an approved Gas Marketing Work Program and Budget provided that the aggregate amount of such expenditure shall not exceed ten percent (10%) of the approved Gas Marketing Work Program and Budget in any Calendar Year and provided further that such excess expenditures shall be reported as soon as reasonably practicable to the Management Committee. I;or the avoidance of doubt, all excess expenditures shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25, provided that any excess expenditure above the ten per cent (10%) limit shall only be recovered with the unanimous approval of the Management Committee.



14.10 If any Non-Associated Natural Gas is discovered within the Contract Area, and the CONTRACTOR reasonably considers that the Non-Associated Natural Gas Discovery will only be a Commercial Discovery if certain terms of this Contract are amended, it shall be entitled to request amendments to this Contract, with its reasons. The GOVERNMENT shall in good faith give reasonable consideration to the CONTRACTOR proposed amendment and reasons and the Parties shall in good faith attempt to agree on the necessary amendments to the Contract. If the Parties are unable to agree on such amendments, and the Exploration Period expires without the CONTRACTOR having declared such Discovery to be a Commercial Discovery in accordance with Article 12.6(a) or Article 14.5(a), and subsequently within a period of eight (S) years from the end of such Exploration Period, the GOVERNMENT reaches agreement with any third party to develop such. Discovery (the "Gas Development”), then the following provisions shall apply:



(a) either before or upon agreement in relation to the

Gas Development having been reached (and whether or

not such agreement is recorded in a fully termed

production sharing and or operating or other like

agreement), but before such agreement is signed (the

"Proposed Contract”) (subject only to the rights of

each CONTRACTOR Entity to pre-empt such Proposed

Contract pursuant to Article 14.10(b) and such

conditions as may be applicable), the GOVERNMENT

shall, as soon as reasonably practicable after the

occurrence of such circumstances, serve on each of

the CONTRACTOR Entities, a notice to that effect and

shall with such notice provide such information and

main terms of such agreement as the CONTRACTOR

Entities may reasonably request to determine if they

will exercise their rights (the “Agreed Terms”),

including:



(i) the identity of such third party;



(ii) the effective date of the Proposed Contract;



(iii) the applicable commercial terms, including

bonuses, royalties, cost recovery, profit

sharing, taxation and any other similar terms;

and



(iv) all and any material conditions to which the

Proposed Contract is subject.







42/116(b) Upon a request from any CONTRACTOR Entity, the GOVERNMENT will provide all the CONTRACTOR Entities with such further information and terms as may be reasonably requested by any CONTRACTOR Entity. Within one hundred and eighty days (180) days after receipt of a notice and any further information under Article 14.1003) in relation to a Proposed Contract each of the CONTRACTOR Entities shall elect either:



(i) to enter into the Proposed Contract on the same or substantially similar terms to the Agreed Terms, with the right to cost recover all Petroleum Costs incurred under this Contract against all Petroleum revenues received under the Proposed Contract, up to any cost recovery limits set out therein; or



(ii) to waive the aforesaid right of preemption in relation to the Proposed Contract;



and shall serve notice accordingly upon the GOVERNMENT and all the CONTRACTOR Entities and in default of receipt by the GOVERNMENT of any such notice within such period of one hundred and eighty (180) days such CONTRACTOR Entity shall be deemed conclusively to have served a notice electing to waive its aforesaid right of pre-emption in relation to the Proposed Contract.



(c) In the event that more than one of the CONTRACTOR Entities exercises its rights under Article 14.10(b)(i) in relation to the Proposed Contract, then the GOVERNMENT shall transfer or grant each such CONTRACTOR Entity an interest in the Proposed Contract Upon the Agreed Terms (in accordance with Article 14.10(b)(i)) in the proportions in which their respective percentage interests bear to the aggregate of their respective percentage interests under the relevant Joint Operating Agreement (as it applied at the end of the Exploration Period) or in such other proportions as such CONTRACTOR Entities shall agree between them.



(d) In the event that one of the CONTRACTOR Entities exercises its rights under Article 14.10(b)(i) in relation to the Proposed Contract then the GOVERNMENT shall transfer or grant the whole of the interest in the Proposed Contract upon the Agreed Terms (in accordance with 14.10(b)(i)) to such CONTRACTOR Entity.



(e) In the event that none of the CONTRACTOR Entities exercises its rights under Article 14.10(b)(i) then the GOVERNMENT may enter into the

Proposed Contract on terms no more favorable to its counter party than the Agreed Terms and, in such case, the aforesaid rights of pre-emption shall

thereupon cease to apply in relation to the Proposed Contract.



14.11 If the preemption rights in Article 14.10 are not exercised and the GOVERNMENT enters into the Proposed Contract with the third party concerned. the GOVERNMENT will use its best endeavors to avoid any effect which may hamper the Petroleum Operations of the CONTRACTOR while producing Petroleum.



Flaring





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[signature]

KS14.12 Flaring of Natural Gas in the course of activities

provided for under this Contract, is prohibited

except (i) short-term flaring up to twelve (12)

Months necessary for testing or either operational

reasons in accordance with prudent international

petroleum industry practice (which shall include

the flaring of Associated Natural Gas to the

extent the CONTRACTOR considers that re-injecting

Associated Natural Gas is not justified

technically and economically and provided the

GOVERNMENT decides not to take such Associated

Natural Gas), or (ii) with the prior authorisation

of the GOVERNMENT, such, authorisation not to be

unreasonably withheld or delayed. The CONTRACTOR

shall submit such request to the GOVERNMENT which

shall include an evaluation of reasonable

alternatives to flaring that have been considered

along with information on the amount and quality

of Natural Gas involved and the duration of the

requested flaring.



ARTICLE 15- ACCOUNTING AND AUDITS



15.1 The CONTRACTOR shall keep in its offices in the

Kurdistan Region copies of all books and accounts

of all revenues relating to the Petroleum

Operations and all Petroleum Costs (the

"Accounts”), except during the Exploration Period,

when the CONTRACTOR shall be entitled to keep the

Accounts at its headquarters Abroad. The Accounts

shall reflect in detail expenditure incurred as a

function of the quantities and value of Petroleum

produced, and shall be kept for a period of five

(5) years. All Accounts which are made available

to the GOVERNMENT in accordance with the

provisions of this Contract shall be prepared in

the English language. The Accounts shall be kept

in accordance with prudent international petroleum

industry practice and in accordance with the

provisions of the Accounting Procedure. The

Accounts shall be kept in Dollars, which shall be

the reference currency for the purposes of this

Contract.



15.2 Within ninety (90) days following the end of

each Calendar Year, the CONTRACTOR shall submit to

the GOVERNMENT a summary statement of all

Petroleum Costs incurred during the said Calendar

Year. The summary statement shall also include a

profit calculation pursuant to the provisions of

Article 26.



15.3 The GOVERNMENT shall have the right:



(a) to request an audit of the Accounts with

respect to each Calendar Year within a period

of two (2) Calendar Years following the end of

such Calendar Year (the "Audit Request

Period"); and



(b) to retain an auditor of international

standing familiar with international

petroleum industry accounting practice to

undertake or assist the GOVERNMENT to

undertake the audit.



Notwithstanding paragraphs (a) and (b) of this

Article 15.3, the GOVERNMENT shall have the right

to audit the Accounts with respect to each

Calendar Year at any time in the case of manifest

error or fraud.



15.4 The reasonable cost of retaining an auditor

pursuant to Article 15.3 shall be home by the

CONTRACTOR and treated as a Petroleum Cost for the

purpose of cost recovery under Articles 1 and 25.







44/11615.5 During the Audit Request Period for any Calendar Year but not thereafter, the GOVERNMENT, acting reasonably and in accordance with prudent international petroleum industry practice, may request in writing all reasonably available information and justifications for its audit of Petroleum Costs.



15.6 Should the GOVERNMENT consider, on the basis of data and information available, that the CONTRACTOR made a material mistake or there is any irregularity in respect of the Accounts and considers that any corrections, adjustments or

amendments should be made, the GOVERNMENT shall make any audit exceptions in writing and notified to the CONTRACTOR within six (6) Months of the date of request referred to in Article 15.3, and failure to give such written exception within such time shall be deemed to be an acknowledgement of the correctness of the CONTRACTORS Accounts.



15.7 In respect of any audit exception made by the GOVERNMENT in accordance with Article 15.6, the CONTRACTOR shall then have sixty (60) days to make necessary corrections, adjustments or amendments or to present its comments in writing or request a meeting with the GOVERNMENT. The GOVERNMENT shall within thirty ( 30) days of the CONTRACTOR‘s response, notify the CONTRACTOR in writing of its position on the corrections, adjustments, amendments or comments. If thereafter there still exists a disagreement between the GOVERNMENT and the CONTRACTOR, the dispute will be settled in accordance with Article 15.9.



15.8 In addition to the annual statements of Petroleum Costs as provided in Article 15.2, the CONTRACTOR shall provide the GOVERNMENT with such production statements and reports, as required pursuant to Article 16.3.



15.9 Any dispute between the Parties under this Article 15 that cannot be settled amicably within sixty (60) days of tire GOVERNMENT's final notice under Article 15.7, may be submitted to an expert on the request of either the GOVERNMENT or the

CONTRACTOR in accordance with the provisions of Article 42.2. Notwithstanding the provisions of Article 42, in this specific instance the decision of the expert shall not necessarily be final and either Party may decide to submit the matter to arbitration in accordance with the provisions of Article 42.1.



ARTICLE 16 - CONTRACTOR’S RIGHTS AND OBLIGATIONS



Permanent Representative



16.1 If not done already, within ninety (90) days following the Effective Date, each CONTRACTOR Entity shall open an office and appoint a permanent representative in the Kurdistan Region, who may be contacted by the GOVERNMENT with regard to any matter relating to this Contract and will be entitled to receive any correspondence addressed to such CONTRACTOR Entity.



Conduct of Petroleum Operations



16.2 The CONTRACTOR shall carry out all Petroleum Operations in accordance with the provisions of this Contract, prudent international petroleum industry practice and applicable Kurdistan Region Law.





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KSThe CONTRACTOR shall be responsible for the conduct, management, control and administration of Petroleum Operations and shall be entitled to conduct Petroleum Operations in accordance with the provisions of this Contract. In conducting its

Petroleum Operations. the CONTRACTOR shall have the right to use any Affiliate of each CONTRACTOR Entity, its and their Subcontractors, and the employees, consultants, and agents of each of the foregoing. The CONTRACTOR and all such Persons shall at all times have free access to the Contract Area and any Production Areas for the purpose of carrying out Petroleum Operations.



Information and Reports



16.3 The CONTRACTOR shall provide the GOVERNMENT with periodic data and activity reports relating to Petroleum Operations. Said reports shall include details of the following:



(a) information and data regarding all Exploration Operations, Development Operations and Production Operations (as applicable) performed during the

Calendar Year, including any quantities of Petroleum produced and sold;



(b) data and information regarding any transportation facilities built and operated by the CONTRACTOR;



(c) a statement specifying the number of personnel, their title, their nationality as well as a report on any medical services and equipment made available to such personnel; and



(d) a descriptive statement of all capital assets acquired for the Petroleum Operations, indicating the date and price or cost of their acquisition.



Requirement for Petroleum Operations



16.4 The CONTRACTOR may freely use any Petroleum produced within the Contract Area for the Petroleum Operations.

Supervision by the GOVERNMENT



16.5 The CONTRACTOR shall at all times provide reasonable assistance as may reasonably be requested by the GOVERNMENT during its review and verification of records and of any other information relating to Petroleum Operations at the

offices, work sites or any other facilities of the CONTRACTOR.



Upon giving reasonable prior notice to the CONTRACTOR, the GOVERNMENT may send a reasonable number of representatives to the work-sites or any other facilities of the CONTRACTOR in the Kurdistan Region to perform such reviews and verification's. The representatives of the GOVERNMENT shall at all times comply with any safety regulations imposed by the CONTRACTOR and such reviews and verifications shall not hinder the smooth progress of the Petroleum Operations.



Access to Facilities





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KS16.6 For the performance of the Petroleum Operations, the CONTRACTOR, any Affiliate of each CONTRACTOR Entity, its and their Subcontractors and the employees, consultants and agents of each of the foregoing shall at all times be granted free access to the Contract Area and to any facilities for the Petroleum Operations located within or outside of the Contract Area or within or outside the Production Area, for the purpose of carrying out the Petroleum Operations.



Use of Facilities



16.7 Upon notice from the GOVERNMENT, the CONTRACTOR shall make available to a reasonable number of representatives of the GOVERNMENT those of the CONTRACTOR'S facilities which are necessary to enable such representatives to perform their tasks related to this Contract and the Kurdistan Region Oil and Gas Law including, in case of works to be performed on work sites, transportation, accommodation and board, under the same conditions as those provided by the CONTRACTOR for its own personnel.



Notwithstanding Article 16.S, the GOVERNMENT shall indemnify and hold harmless each CONTRACTOR Entity against all losses, damages and liability arising under any claim, demand, action or proceeding brought or initiated against any CONTRACTOR Entity by any representative of the GOVERNMENT in connection with the access to or use of the facilities by such representatives.



Loss or Damage



16.8 The CONTRACTOR shall be responsible for any loss or damage caused to third parties by its or its Subcontractors personnel solely and directly resulting from their negligence, errors or omissions in accordance with applicable Kurdistan Region Law.



Intellectual Property Rights



16.9 In its Petroleum Operations, the CONTRACTOR shall respect any patents belonging to third parties.



Litigation



16.10 The CONTRACTOR shall as soon as reasonably practicable inform the GOVERNMENT of any material litigation relating to this Contract.



Safety



16.11 The CONTRACTOR shall implement a health, safety and environment program and take necessary measures to ensure hygiene, health and safety of its personnel carrying out Petroleum Operations in accordance with prudent international petroleum industry practice.



Said measures shall include the following:



(a) supplying first aid and safety equipment for each

work area and maintaining a healthy environment

for personnel;







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(b) reporting to the GOVERNMENT within seventy-two (72) hours of such accident, any accident where personnel has been injured while engaged in Petroleum Operations and resulting in such personnel being unable to return to work;



(c) implementing a permit-to-work procedure around hazardous equipment and installations;



(d) providing safe storage areas for explosives detonators and any other dangerous products used in the operations;



(e) supplying fire-extinguishing equipment in each work area;



(f) for the purpose of taking control of any blow out or fire which could damage the environment or Petroleum Field, in accordance with prudent international petroleum industry practice; and



(g) for the purpose of preventing any involuntary injection of fluids in petroleum formations and production of Crude Oil and Natural Gas at rates that do not conform to prudent international petroleum industry practice.



Production Rates



16.12 Subject to Article 43.2, in the event the production rate of the individual wells and Reservoir of a Petroleum Field is to be set below the Maximum Efficient Rate (“MEIR") for the Reservoir, as provided for in the Development Plan, as a consequence of a decision by the GOVERNMENT or any federal or international regulatory body, the GOVERNMENT undertakes to allocate any such reduction fairly and equitably among the various operators (including the GOVERNMENT) then producing in the Kurdistan Region, pro rata their respective production rates. In such event, the GOVERNMENT shall grant an extension of the Development Period

of any Production Area so affected for a reasonable period of time in order to produce the Petroleum which would otherwise have already been produced, had the MER for the individual wells and Reservoir of the Petroleum Field been maintained.



Legal Status



16.13 The respective rights, duties, obligations and liabilities of the CONTRACTOR and the GOVERNMENT under this Contract are to be understood as being separate and individual and not joint and several. As between the CONTRACTOR on the one hand and the GOVERNMENT on the other hand, the Parties agree that this Contract shall not create and shall not be deemed to have created a partnership or other form of association between them.



Lifting



16.14 The GOVERNMENT and each CONTRACTOR Entity shall have the right and the obligation to take in kind and separately sell or otherwise dispose of their respective shares of Petroleum. Upon approval of the Development Plan, the Parties shall meet as soon as practicable to reach a detailed agreement governing the lifting of Petroleum





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KSby each such CONTRACTOR Entity. Such lilting agreement shall include the following:



(a) the obligation of the GOVERNMENT and each CONTRACTOR Entity to lift, regularly throughout each Calendar Year, their share of Petroleum produced from the Production Area;



(b) notification procedures by the Operator to the GOVERNMENT and each CONTRACTOR Entity regarding entitlements and availability of Petroleum for lifting by each Party during each lifting period and nominations by each Party; and



(c) the right of the Parties to lift any Available Petroleum not scheduled for lilting and/or not lifted by the other Party during each such lifting period.



Kurdistan Region Consumption Requirements



16.15 The CONTRACTOR Entities shall sell and transfer to the GOVERNMENT, upon written request of the GOVERNMENT, any amounts of Crude Oil that the

GOVERNMENT shall deem necessary to meet Kurdistan Region internal consumption requirements. The sales price of such Crude Oil shall be the International Market Price. The GOVERNMENT shall provide the

CONTRACTOR Entities with not less than six (6) Months' advance written notice of its intention to buy such Crude Oil.



Payments shall be made in Dollars and otherwise on terms consistent with prudent international petroleum industry practice. The CONTRACTOR Entities obligation to sell Crude Oil to the GOVERNMENT shall be, with the other contractors and

operators (including the GOVERNMENT) then producing in the Kurdistan Region, pro rata to their respective production rates.



The provisions of this Article 16.15 shall not apply to Non-Associated Natural Gas.



ARTICLE 17 - USE OF LAND AND EXISTING INFRASTRUCTURE



17.1 The GOVERNMENT shall make available to the CONTRACTOR any land or property in the Kurdistan Region required for the Petroleum Operations; provided, however, the CONTRACTOR shall not request to use any such land unless there is a real need for it. The CONTRACTOR shall have the right to build and maintain, above and below ground, any facilities required for the Petroleum Operations.



17.2 If it becomes necessary for conduct of the Petroleum Operations to occupy and use any land or property in the Kurdistan Region belonging to third parties, the CONTRACTOR shall endeavour to reach amicable agreement with the owners of such land. If such amicable agreement cannot be reached, the CONTRACTOR shall notify the GOVERNMENT. On receipt of such notification:



(a) the GOVERNMENT shall determine the amount of compensation to be paid by the CONTRACTOR to the owner, if occupation will be for a short duration; or





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KS(b) the GOVERNMENT shall expropriate the land or property in accordance with applicable Kurdistan Region Law, if such occupation will be long lasting or makes it henceforth impossible to resume original usage of such land or property. Any property rights shall be acquired by and recorded in the name of the GOVERNMENT, but the CONTRACTOR shall be entitled free use of the land or property for the Petroleum Operations for the entire duration of this Contract.



The amount of the compensation in Article 17.2(a) shall be fair and reasonable, in accordance with Article 29 of the Kurdistan Region Oil and Gas Law, and shall take into account the rights of the owner and any effective use of the land or property by its owner at the time of occupation by the CONTRACTOR. All reasonable costs, expenditures and fair and reasonable compensation (as required pursuant to Article 29 of the Kurdistan Region Oil and Gas Law) which results from such expropriation shall be borne by the CONTRACTOR. For the avoidance of doubt, such costs, expenses and compensation incurred by the CONTRACTOR shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.



17.3 For its Petroleum Operations, the CONTRACTOR shall have the right in the Kurdistan Region to use. subject to applicable Law, any railway, tramway, road, airport, landing field, canal, river, bridge or waterway, any telecommunications network and any existing pipelines or transportation infrastructure, on terms no less favourable than those offered to other entities and, unless generally in force, to be mutually agreed.



17.4 Under national emergencies due to environmental catastrophe or disaster, or internal or external war, the GOVERNMENT shall have the right to request to use any transportation and communication facilities installed by the CONTRACTOR. In such cases, the request shall originate from the Minister of Natural Resources. For the avoidance of doubt, such costs, expenses or liabilities incurred by the CONTRACTOR hereunder shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles l and 25.



17.5 For its Petroleum Operations, the CONTRACTOR shall have the right in the Kurdistan Region to clear land, excavate, drill, bore, construct, erect, place, procure, operate, emit and discharge, manage and maintain ditches, tanks, wells, trenches, access roads, excavations, dams, canals, water mains, plants, reservoirs, basins, storage and disposal facilities, primary distillation units, extraction and processing units, separation units, sulphur plants and any other facilities or installations for the Petroleum Operations, in addition to pipelines, pumping stations, generators, power plants, high voltage lines, telephone, radio and any other telecommunications systems, as well as warehouses, offices, sheds, houses for personnel, hospitals, schools, premises, dikes, vehicles, railways, roads, bridges, airlines, airports and any other transportation facilities, garages, hangars, workshops, foundries, repair shops and any other auxiliary facilities for the Petroleum Operations and. generally, everything which is required for its performance of the Petroleum Operations. The CONTRACTOR shall have the right to select the location for these facilities.



50/11617.6 For its Petroleum Operations, the CONTRACTOR shall have the right in the Kurdistan Region, subject to compliance with applicable Kurdistan Region Law, to remove and use the topsoil, fully-grown timber, clay, sand, lime, gypsum, stones (other than precious stones) and other similar substances as required for its Petroleum Operations.



The CONTRACTOR shall have the right in the Kurdistan Region to take or use any water necessary for the Petroleum Operations provided it does not damage any

existing irrigation or navigation systems and that land, houses or watering points belonging to third parties are not deprived of their use.



17.7 The GOVERNMENT shall have the right in the Kurdistan Region to build, operate and maintain roads, railways, airports,landing strips, canals, bridges, protection dams, police stations, military installations, pipelines and telecommunications networks in the Contract Area, provided this does not increase the costs, or compromise or have a material adverse effect on the performance of the Petroleum Operations. If the construction, operation and maintenance of such facilities by the GOVERNMENT

results in increased cost or expense for the CONTRACTOR then, for the avoidance of doubt, such cost and expense shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.



17.8 Upon request of the CONTRACTOR, the GOVERNMENT shall prohibit the construction of residential or commercial buildings in the vicinity of facilities used for the Petroleum Operations that may be declared dangerous due to the Petroleum Operations and to prohibit any interference with the use of any Facilities required for the Petroleum Operations.



17.9 Access to the Contract Area may be granted pursuant to an Access Authorization, as shall be defined in, and consistent with, the Kurdistan Region Oil and Gas Law, to authorized third parties on reasonable terms and conditions (including coordination), including Persons authorized to construct, install and operate structures, facilities and installations, and to carry out other works, provided that nothing in the Access

Authorization or in this Article 17.9 authorizes the holder to drill 3 Well or to perform any Petroleum Operations in Contract Area.



The GOVERNMENT shall give the CONTRACTOR adequate advance notice of any Access Authorization in respect of the Contract Area and shall not grant any Access Authorization in respect of the Contract Area until it has taken into account any submissions made by the CONTRACTOR nor in such a way that there is undue interference with or hindrance of the rights and activities of the CONTRACTOR.



ARTICLE 18 - ASSISTANCE FROM THE GOVERNMENT



18.1 To the extent allowed by Kurdistan Region Law and Iraqi law and at the specific request of the CONTRACTOR. the GOVERNMENT shall take all necessary steps to assist the CONTRACTOR Entities in, but not limited to, the following areas:





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KS(a) securing any necessary Permits for the use and installation of means of transportation and communications;



(b) securing regulatory Permits in matters of customs or import/export;



(c) securing entry and exit visas, work and residence permits as well as any other administrative Permits for each CONTRACTOR Entity's, its Affiliate's and its Subcontractors' foreign personnel (including their family members) working in the Kurdistan Region and any other part of Iraq during the implementation of this Contract;



(d) securing any necessary Permits to send Abroad documents, data or samples for analysis or processing for the Petroleum Operations)



(e) relations with federal and local authorities and administrations, including for the purposes of the remainder of this Article 18.1;



(f) securing any necessary environmental Permits;

(g) obtaining any other Permits requested by any CONTRACTOR Entity for the Petroleum Operations;



(h) access to any existing data and information, including data and information relating to the Contract Arca held by previous operators or contractors; and



(i) providing all necessary security for Petroleum Operations.



18.2 Within the scope of services to be provided under this Article 18, reasonable and duly justified expenses incurred by the GOVERNMENT or paid to third parties shall be charged to the CONTRACTOR and shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR as Petroleum Costs in accordance with the provisions of Articles 1 and 25.



ARTICLE 19 - EQUIPMENT AND MATERIALS



19.1 The CONTRACTOR shall supply, or procure the supply of, all materials, equipment, machinery, tools, spare parts and any other items or goods required for the Petroleum Operations ("Equipment and Materials").



19.2 Said Equipment and Materials shall be provided by the CONTRACTOR in accordance with the relevant Work Programs and Budgets.



19.3 As soon as possible after the Effective Date, the CONTRACTOR shall provide the Management Committee with a copy of its procedures for procurement of Equipment and Materials and/or services for the Petroleum Operations as required by the provisions of Article 8.2 (c), including the criteria for tender evaluation, which procedures and criteria shall be in accordance with prudent international petroleum industry practice. If the Management Committee does not request any modifications to the procurement procedures within thirty (30) days after receiving such procedures, the procedures shall be deemed approved by the Management Committee.



52/11619.4 The CONTRACTOR shall give priority to Equipment and Materials that are readily available in the Kurdistan Region and other parts of Iraq to (lie extent their price, grade, quality, quantity, specifications, purchase, delivery and other commercial and technical terms are comparable in all material respects with those generally available in the international petroleum industry.



ARTICLE 20 - TITLE TO ASSETS



20.1 During the Exploration Period, any Assets acquired by the CONTRACTOR for the Petroleum Operations shall remain the property of the CONTRACTOR, the CONTRACTOR Entities, their Affiliates or their Subcontractors, as the case may be.



20.2 During the Development Period, subject to Article 21, all Assets acquired by the CONTRACTOR for tire Petroleum Operations shall become the property of the GOVERNMENT upon the completion of the recovery of the costs of all such assets by the CONTRACTOR, or the end of the Contract, whichever is the earlier.



20.3 The provisions of Article 20.2 shall not apply to any Assets leased by the CONTRACTOR or belonging to an Affiliated Company of a CONTRACTOR Entity or belonging to its or their Subcontractors or its or their employees.



ARTICLE 21 - USE OF THE ASSETS



21.1 Each CONTRACTOR Entity shall have the exclusive right to use. free of any charge, all Assets described in Article 20. both before and after recovery of the cost of the same, for the Petroleum Operations, as well as for any petroleum operations under other agreements in the Kurdistan Region to which it or any of its Affiliates is a party, provided that the Petroleum Operations take priority. The GOVERNMENT agrees not to transfer or otherwise dispose of any of such Assets without the CONTRACTOR’S prior written approval.



21.2 The CONTRACTOR may freely move to the Contract Area any Assets from any relinquished portion of the Contract Area, or from any other area in the Kurdistan Region.



ARTICLE 22 - SUBCONTRACTING



22.1 The CONTRACTOR shall ensure that any Subcontractors it engages have all the requisite experience and qualifications.



22.2 The CONTRACTOR shall give priority to Subcontractors from the Kurdistan Region and other pans of Iraq to the extent their competence, rates, experience, reputation, qualifications, specialties, credit rating and terms of availability, delivery and other commercial terms are, in the CONTRACTOR’S sole opinion, comparable in all material respects with those provided by foreign companies operating in the international petroleum industry. Such Subcontractors must be bona fide Kurdistan Region companies not related to any Public Officer, directly or indirectly, and must have all necessary resources and capacity.



53/11622.3 Selection of Subcontractors shall take place in accordance with the procurement procedures submitted by the CONTRACTOR to the Management Committee in accordance with Article 19.3 and approved by the Management Committee.



22.4 The CONTRACTOR shall provide the GOVERNMENT with copies of agreements entered into with Subcontractors, where their amount exceeds the limit set by the Management Committee from time to time.



ARTICLE 23 - PERSONNEL, TRAINING, AND TECHNOLOGICAL ASSISTANCE



Personnel



23.1 For the Petroleum Operations, the CONTRACTOR shall give, and shall require its Subcontractors to give, preference to personnel from the Kurdistan Region and other parts of Iraq to the extent such personnel have the technical capability, qualifications, competence and experience required to perform the work.



23.2 The CONTRACTOR Entities shall give due consideration to the secondment of GOVERNMENT personnel to the CONTRACTOR Entities and of the CONTRACTOR Entities’ personnel to the GOVERNMENT during the various phases of the Petroleum Operations. Terms and conditions for such secondment shall be mutually agreed by the Parties and any costs associated therewith shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.



23.3 Each CONTRACTOR Entity and its Affiliates and Subcontractors shall have the right to hire foreign personnel whenever the personnel from the Kurdistan Region and other parts of Iraq do not have the requisite technical capability, qualifications or experience for positions to be filled as required pursuant to Article 23.1. In the event any such foreign personnel and/or a member of their family engage in activities or commit acts which breach Kurdistan Region I aw, the CONTRACTOR shall, at the request of the Management Committee, take the necessary steps to repatriate such individual(s).



23.4 For the first five (5) Contract Years, the CONTRACTOR shall provide up to two hundred and fifty thousand Dollars (US$250,000) in advance each Contract Year to the GOVERNMENT for the recruitment or secondment of personnel, whether from the Kurdistan Region other parts of Iraq or Abroad, to the Ministry of Natural Resources. The selection of such personnel shall be at the discretion of the Minister of Natural Resources. Such costs shall be considered as Petroleum Costs and shall be recovered in accordance with the provisions of Articles 1 and 25.



Training



23.5 In a planned way. in accordance with the provisions of this Article 23.5 and Articles



23.6 and 23.7, the CONTRACTOR shall train all its personnel from the Kurdistan Region and other parts of Iraq directly or indirectly involved in the Petroleum Operations for the purpose of improving their knowledge and professional qualifications in order that such personnel gradually reach the level of knowledge and professional qualification held by the CONTRACTOR Entities’ foreign workers



54/116with an equivalent résumé. Such training shall also include the transfer of knowledge of petroleum technology and the necessary management experience so as to enable the personnel from the Kurdistan Region and other parts of Iraq to apply advanced and appropriate technology in the Petroleum Operations, to the extent permitted by applicable Law and agreements with third parties, and subject to appropriate confidentiality agreements.



23.6 In addition to the requirements of Article 23.1, the recruitment, integration and training of the CONTRACTOR Entities' personnel from the Kurdistan Region and other parts of Iraq shall be planned, which plans shall be submitted to the Management Committee for its approval. The training plan shall take into consideration the requirements of Article 23.5 and may include training for the GOVERNMENT’S personnel, depending on the extent to which the amount allocated to the training plan, as prescribed by Article 23.7, is available after taking into consideration the training of the CONTRACTOR Entities’ Kurdistan Region and other Iraqi personnel.



Within ninety (90) days of the Effective Date, the CONTRACTOR shall submit to the Management Committee a proposed training plan for the remainder of the Calendar Year. Thereafter, no later than 1 October in each Calendar Year, the CONTRACTOR shall submit a proposed training plan to the Management Committee for the following Calendar Year.



23.7 The training plan referred to in Article 23.6 shall provide for the allocation to the GOVERNMENT of the amount of one hundred and fifty thousand Dollars (US$150,000.00) in advance for each Contract Year during the Exploration Period and three hundred thousand Dollars (US$300,000) in advance for each Contract Year during the Development Period.



23.8 Each CONTRACTOR Entity shall be responsible for the training costs which it may incur in respect of the personnel it employs from the Kurdistan Region and other parts of Iraq. All such reasonable costs shall he considered as Petroleum Costs and shall be recovered in accordance with the provisions of Articles 1 and 25. Costs incurred by the CONTRACTOR for training programs lor the GOVERNMENT'S personnel shall be borne by the CONTRACTOR only to the extent that they arc included in the CONTRACTOR'S training plan, pursuant to Article 23.6 and shall also be considered as Petroleum Costs and shall be recovered in accordance with the provisions of Articles I and 25. The cost of all other training programs for the GOVERNMENT’S personnel shall be the GOVERNMENT'S responsibility.



The Environment Fund



23.9 The CONTRACTOR shall contribute the amount of one hundred and fifty thousand Dollars (US$150,000) in advance each Contract Year during the Exploration Period and three hundred thousand Dollars (US$300,000) in advance for each Contract Year during the Development Period into the environment fund established by the GOVERNMENT for the benefit of the natural environment of the Kurdistan Region, pursuant to the Kurdistan Region Oil and Gas Law (the "Environment Fund"). Such amounts shall be deemed to be Petroleum Costs and shall be recovered in accordance with Articles l and 25.



55/11623.10 Any expenditure inclined by the CONTRACTOR under this Article 23 shall be considered Petroleum Costs and shall be recovered in accordance with Articles 1 and 25.



Technological and logistical assistance



23.11 Before the end of the first Contract Year, the CONTRACTOR shall provide to the GOVERNMENT technological and logistical assistance to the Kurdistan Region petroleum sector, including geological computing hardware and software and such other equipment as the Minister of Natural Resources may require, to the value of five hundred thousand Dollars (US$500,000). The form of such assistance shall be mutually agreed by die Parties and any costs associated therewith shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.



ARTICLE 24 - ROYALTY



24.1 The CONTRACTOR shall pay to the GOVERNMENT a portion of Petroleum produced and saved from the Contract Area, as provided in this Article 24 (the "Royalty').



24.2 The Royalty shall be applied on all Petroleum produced and saved from the Contract Area which is Crude Oil or Non-Associated Natural Gas. except for Petroleum used in Petroleum Operations, re-injected in a Petroleum Field, lost flared or for Petroleum that cannot be used or sold and such Crude Oil and Non-Associated Natural Gas (excluding the excepted Petroleum) shall be referred to collectively as '‘Export Petroleum"’ and separately and respectively as "Export Crude Oil" and "Export non-associated Natural Gas".



24.3 If payable in cash, the amount of the Royalty calculated by applying the Royally rates provided under Article 24.4 shall be paid by the CONTRACTOR as directed by the GOVERNMENT, in accordance with Article 24.7.



If payable in kind, the quantity of Export Petroleum corresponding to the Royalty and calculated by applying the Royalty rates provided under Article 24.4 shall be delivered in kind by the CONTRACTOR to the GOVERNMENT at the Delivery' Point. Title and risk of loss of the Royalty paid in kind shall be transferred at the Delivery Point.



Unless the GOVERNMENT requires the Royalty to be paid in kind, by giving the CONTRACTOR not less than ninety (90) days prior written notice prior to the commencement of the relevant Quarter, the GOVERNMENT shall be deemed to have elected to receive the Royalty in full and in cash for the relevant Quarter.



24.4 The Royalty due on any Export Petroleum produced and saved in the Contract Area shall be determined daily by applying the following relevant Royalty rate, to the Export Crude Oil or to the Export Non-Associated Natural Gas (as the case may be) produced and saved on that day;

(a) For Export Crude Oil;



56/116the Royalty rate for Export Crude Oil shall be ten per cent (10%), which, for the avoidance of doubt, shall apply regardless of the gravity of the oil; and



(b) For Export non-associated Natural Gas:



the Royalty rate tor Export Non-Associated Natural Gas shall be ten per cent (10%).



24.5 Associated Natural Gas and any other Petroleum shall be exempt from any Royalty.



24.6 If. pursuant to Article 24.3, the GOVERNMENT receives the Royalty in kind, and pursuant to Article 28, the GOVERNMENT requests assistance for the sale of all or part of the Royalty received in kind, each CONTRACTOR Entity shall assist the GOVERNMENT in selling all or part of such Royally received in kind (belonging to the GOVERNMENT) in consideration of a commission per Barrel payable to such CONTRACTOR Entity, in accordance with Article 28.



24.7 If, pursuant to Article 24.3, the GOVERNMENT receives the Royalty in cash:



(a) any Export Crude Oil shall be valued at the International Market Price obtained at the Delivery Point, as defined in Article 27.2;



(b) any Export Non-Associated Natural Gas shall be valued at the actual price obtained at the Delivery Point under an approved contract, as provided in Article 27.3;



(c) the CONTRACTOR shall pay such Royalty each Quarter, in arrears, within thirty (30) days of the end of each Quarter, and shall calculate the payment due for die relevant Quarter by reference to the price for the Export Petroleum at the Delivery Point, determined in accordance with paragraphs (a) and (b) above, and the Royalty due on the Export Petroleum, determined in accordance with Article 24.4. for the said Quarter; and



(d) the CONTRACTOR Entities shall be entitled to export freely the volume of Export Petroleum corresponding to the Royalty determined in accordance with Article 24.4 for the purpose of paying the Royalty in cash.



ARTICLE 25 - RECOVERY OF PETROLEUM COSTS



25.1 All Export Crude Oil produced and saved from the Contract Area shall, after deduction of any quantities of Export Crude Oil due for Royalty pursuant to Article 24, be considered as “Available Crude Oil”.



All Associated Natural Gas produced and saved from the Contract Area, except for Associated Natural Gas which is used in Petroleum Operations, re-injected in a Petroleum Field, lost, flared or cannot be used or sold, shall be considered as “Available Associated Natural Gas”.



All Export Non-Associated Natural Gas produced and saved from the Contract Area shall, after deduction of any quantities of Export non-associated Natural Gas due for



57/116Royalty pursuant to Article 24. be considered as "Available non-associated Natural Gas".



"Available Petroleum” means Available Crude Oil, Available Associated Natural Gas and Available Non-Associated Natural Gas.



25.2 For the purpose of this Article 25:



(a) any Available Crude Oil shall be valued at the International Market Price obtained at the Delivery Point, as defined in Article 27.2: and



(b) any Available Associated Natural Gas and any Available Non-Associated Natural Gas shall be valued at the actual price obtained at the Delivery Point under an approved contract, as provided in Article 27.3.



25.3 Subject to the provisions of this Contract, from the First Production in the Contract Area, the CONTRACTOR shall at all times he entitled to recover all Petroleum Costs incurred under this Contract, of up to forty per cent (40%) of Available Crude Oil (which, for the avoidance of doubt, shall apply regardless of the gravity of the oil) and Available Associated Natural Gas, produced and saved within any Calendar Year. Available Crude Oil above this percentage or otherwise not used for the recovery of Petroleum Costs shall be Profit Crude Oil.



25.4 Subject to the provisions of this Contract, from First Production in the Contract Area, the CONTRACTOR shall at all limes be entitled to recover all Petroleum Costs incurred under this Contract of up to fifty three per cent (53%) of Available Non-Associated Natural Gas produced and saved within any Calendar Year. Available non-associated Natural Gas above this percentage or otherwise not used for the recovery of Petroleum Costs shall he Profit Natural Gas.



25.5 For the application of Article 25.3 and 25.4, the CONTRACTOR shall keep a detailed account of Petroleum Costs in accordance with the provisions detailed in the Accounting Procedure. Recovery of Petroleum Costs shall occur in the following order:



(a) Production Costs;



(b) Exploration Costs (including appraisal costs and further exploration within the Contract Area);



(c) Gas Marketing Costs;



(d) Development Costs; and



(c) Decommissioning Costs.



25.6 Total recovery of Petroleum Costs during any Calendar Year, expressed in quantities of Petroleum, shall not exceed the relevant percentages indicated in Articles 25.3 and 25.4. If in any Calendar Year, the Available Crude Oil and/or Available nor-associated Natural Gas do not allow the CONTRACTOR to recover all its Petroleum Costs pursuant to this Article 25. the amount of un-recovered Petroleum



58/116Costs in such Calendar Year shall be carried forward indefinitely to the subsequent Calendar Years until all Petroleum Costs are fully recovered, but, save as provided in Articles 14.10 and 38.4, in no other case after the termination of the Contract.



25.7 The provisions of Articles 27.5 and 27.6 shall be applied to determine the quantities of Available Crude Oil and/or Available Non-Associated Natural Gas due to the CONTRACTOR for the recovery of its Petroleum Costs.



25.8 The quantities of Petroleum corresponding to the share of Available Petroleum due to the CONTRACTOR for the recovery of its Petroleum Costs shall be delivered to the CONTRACTOR at the Delivery Point. Title and risk of loss of such Available Petroleum shall be transferred at the Delivery Point.



25.9 Each CONTRACTOR Entity shall be entitled to receive, take in kind and to export freely all Available Petroleum to which it is entitled for recovery of its Petroleum Costs in accordance with the provisions of this Contract and to retain Abroad any proceeds from the sale of all such Available Petroleum. Petroleum Costs in each Production Area shall be recovered from Available Petroleum from that Production Area.



25.10 Subject to Article 38.4. for the avoidance of doubt, Petroleum Costs under this Contract arc not recoverable against other contract areas held by the CONTRACTOR.



ARTICLE 26 - SHARING OF PROFIT PETROLEUM



26.1 Under this Contract,



(a) "Profit Petroleum" means Profit Crude Oil and Profit Natural Gas:



(b) "Profit Crude Oil" means the quantities of Available Crude Oil and Available Associated Natural Gas produced from the Production Area, after the recovery of Petroleum Costs, in accordance with Articles 1 and 25; and



(c) “Profit Natural Gas" means the quantities of Available Non-Associated Natural Gas produced from the Production Area, after the recovery of Petroleum Costs in accordance with Articles 1 and 25.



26.2 From First Production and as and when Petroleum is being produced, the CONTRACTOR shall be entitled to take a percentage share of Profit Crude Oil and/or Profit Natural Gas. in consideration for its investment in the Petroleum Operations, which percentage share shall be determined in accordance with Article 26.5.



26.3 To determine the percentage share of Profit Crude Oil and/or Profit Natural Gas to which the CONTRACTOR is entitled, the “R" Factor shall be calculated in accordance with Article 26.4 and shall he applied separately to each Production Area.



26.4 The “R” Factor shall be calculated as follows:



59/116R-X/Y

where:



X: is equal 10 Cumulative Revenues actually received by the CONTRACTOR:



Y: is equal to Cumulative Costs actually incurred by the CONTRACTOR.



For the purpose of this Article 26.4:



"Cumulative Revenues” means total Revenues, as defined below, received by the CONTRACTOR until the end of the relevant Semester, determined in accordance with Article 26.7,



"Revenues” means live total amount actually received by the CONTRACTOR for recovery of its Petroleum Costs and its share of Profit Petroleum in the Production Area.



"Cumulative Costs” means all Petroleum Costs in the Production Area, actually incurred by the CONTRACTOR until the end of the relevant Semester, determined in accordance with Article 26.7.



Notwithstanding the foregoing provisions of this Article 26.4. for the period from First Production until the end of the Calendar Year in which First Production occurs, the "R" Factor shall be deemed to be less than one (I).



26.5 The share of Profit Petroleum to which the CONTRACTOR shall be entitled from First Production is:



(a) for Profit Crude Oil. equal to the quantities of Petroleum resulting from the application of tlte relevant percentage us indicated below to the daily volume of production of Profit Crude Oil within the Production Area at the corresponding Delivery Point:



“R" Factor CONTRACTOR’S % Share of Profit Crude OH



R < or= 1 | 32%



1


R > 2 | 16%



and



(b) for Profit Natural Gas, equal to the quantities of Non-Associated Natural Gas resulting from the application of the relevant percentage as indicated below to the daily volume of production of Profit Natural Gas within the Production .Area at the corresponding Delivery Point:



"R" Factor CONTRACTOR’s % Share of Profit Natural Gas



60/116R


1 < R< or = 2.75 | 35 - (35 -20) * (R - 1)/ (2.75 - 1)



R > 2.75 | 20%



26.6 The CONTRACTOR’S accounting shall account separately for all components for the calculation of "X" and “Y” values in the formula provided in Article 26.4.



26.7 For each Semester, starting from the 1st of January of the Calendar Year following the Calendar Year in which First Production occurs, the CONTRACTOR shall calculate the “R” Factor applicable to the relevant Semester within thirty (30) days of the beginning of such Semester. The “R” Factor to be applied during a Semester shall be that determined by applying the Cumulative Revenues actually received and the Cumulative Costs actually incurred up to and including the last day of the preceding Semester.



If the CONTRACTOR is unable to calculate the “R” Factor for the relevant Semester before an allocation of Profit Petroleum for such Semester must be made, then the allocation of Profit Petroleum for the previous Semester shall be used for the relevant Semester. Upon the calculation of the “R” Factor for the relevant Semester:



(a) if the allocation of Profit Petroleum in the previous Semester and the relevant Semester is the same, then no adjustment shall be made; and



(b) if the allocation of the Profit Petroleum in the two Semesters is different, then the CONTRACTOR shall make any adjustments to the Parties’ respective shares of Profit Petroleum to restore them to the position that they would have been in had the “R” Factor for the relevant Semester been available from the start of such Semester.



26.8 If at any time an error occurs in the calculation of the "R” Factor, resulting in a change in the CONTRACTOR’s percentage share of Profit Crude Oil and/or Profit Natural Gas, the necessary correction shall be made and any adjustments shall apply from die Semester in which the error occurred. Ibe Parly having benefited from a surplus of Profit Petroleum shall surrender such surplus to the oilier Parly, beginning from the first day of the Semester following the Semester in which the error was recognised. However, each lifting of Petroleum relating to such error by the Party receiving the surplus shall not exceed twenty-five per cent (25%) of the share of Profit Petroleum to which such surrendering Party is entitled. For the avoidance of doubt, if at any time an error occurs in the calculation of the “R’‘ Factor, which docs not result in a change in the CONTRACTOR’S percentage share of Profit Crude Oil and/or Profit Natural Gas, no correction shall be made.



26.9 The quantities of Profit Petroleum due to the CONTRACTOR shall be delivered to



the CONTRACTOR Entities at the Delivery Point. Title and risk of loss of such Profit Petroleum shall be transferred to the CONTRACTOR Entities at die Delivery Point



61/116 Each CONTRACTOR Emily shall be entitled to receive, take in kind and to export freely its share of Profit Petroleum in accordance with the provisions of this Contract and to retain Abroad any proceeds from die sale of all such Profit Petroleum.



26.10 The share of the Profit Petroleum to which the GOVERNMENT' is entitled in any Calendar Year m accordance with Article 26.5 shall be deemed to include a portion representing the corporate income tax imposed upon and due by each CONTRACTOR Entity, Mid which will be paid directly by die GOVERNMENT on behalf of each such entity representing the CONTRACTOR to the appropriate tax authorities in accordance with Article 31.2. The GOVERNMENT shull provide tire CONTRACTOR Entities with all written documentation and evidence reasonably required by the CONTRACTOR Entities to confirm that such corporate income tax has been paid by the GOVERNMENT.



26.11 The quantities of Profit Petroleum due to the GOVERNMENT shall be delivered to tire GOVERNMENT at the Delivery Point. Title and risk of loss of such Profit Petroleum shall be transferred at the Delivery Point.



26.12 At least twenty-one (21) days prior to CONTRACTOR'S estimated date of First Production and, subsequently, thirty (30) days prior to the beginning of each Semester, the CONTRACTOR shall prepare and deliver to the GOVERNMENT a production program comprising the production forecast for the next Semester and tire forecast of the quantities of Crude Oil and Natural Gas to which each Party shall be entitled during the said Semester.



26.13 Within ninety (60) days following the end of each Calendar Year, the CONTRACTOR dial! prepare and deliver an annual production report to the GOVERNMENT, stating tire quantities of Crude Oil and Natural Gas to which each Parly is entitled. the quantities of Crude Oil and Natural Gas lifted by each Party and the resulting over-lift or under-lift position of each Party, pursuant to die lifting agreement entered into pursuant to Article 16.14.



26.14 Any costs or expenditure incurred by the CONTRACTOR, its Subcontractors or suppliers relating to the lifting of tire GOVERNMENT'S share of Petroleum by the CONTRACTOR shall not be considered Petroleum Costs and shall be charged to the GOVERNMENT according to terms to be mutually agreed between the CONTRACTOR and the GOVERNMENT.



ARTICLE 27 - VALIDATION AND METERING OF CRUDE OIL AND NATURAL



GAS



Valuation



27.1 For the purpose of this Contract, any Crude Oil produced in the Contract Area shall be valued at the end of each Quarter at the Delivery Point based on ibe International Market Price, as defined in Article 27.2.



27.2 The "International Market Price” referred to in Article 27.1 shall be the weighted average price per Barrel, expressed in Dollars, obtained by the CONTRACTOR at.



62/116the Delivery Point, by netback if necessary, during the Quarter ending on the date of valuation for Ann's Length Sales of Crude Oil.



The CONTRACTOR shall provide evidence to the GOVERNMENT dial the sales of Crude Oil referred to in Article 27.2 are Arm’s length Sales. If the GOVERNMENT considers that any such sale of Crude Oil is not on the basis of an Arm’s Length Sale then the GOVERNMENT has the right to refer the matter to an expert pursuant to Article 42.2.



In the event that there is no lifting of Crude Oil in the relevant Quarter or no Arm’s Length Sales, the applicable '‘International Market Price” for such Quarter shall be the weighted average price per Barret obtained during that Quarter from Arm’s length Sales of Crude Oil of the same or similar gravity and quality from other production areas sold in markets competing with Crude Oil produced from the Contract .Area, taking into account gravity and quality differences and transportation and other post Delivery Point costs.



To determine such price, the Parties shall, prior to the commencement of Production, agree on a basket of Crude Oil comparable to those produced in the Contract Area and sold in the international market. Prices obtained shall be adjusted to account for any variations such as quality, specific gravity, sulphur content, transportation costs, product yield, seasonal variations in price and demand, general market trends and other terms of sale.



27.2.1 If. and for so long as, the CONTRACTOR is required by the GOVERNMENT to sell all Crude Oil within Iraq due to restrictions in transporting such Crude Oil to access international markets then, notwithstanding other provisions of (his Article 272, the CONTRACTOR shall, subject to the prior approval of the GOVERNMENT, sell such Crude Oil at the best price reasonably obtainable within Iraq.



27.3 Die price of Natural Gas shall be the actual price obtained at die Delivery Point, (which may take into account quantities to be sold, quality, geographic location of markets to be supplied as well as costs of production, transportation and distribution of Natural Gas from the Delivery Point to die relevant market, in accordance with standard international petroleum industry practice). The GOVERNMENT shall have the right to review and approve Natural Gas sales contracts.



Accounting Statement



27.4 In accordance with this Article 27.4. the GOVERNMENT and the CONTRACTOR shall establish a statement showing calculations of the value of Petroleum produced and sold from the Contract Area. Such statement shall include following information:



(a) quantities of Crude Oil sold by the CONTRACTOR Entities during the preceding Month constituting Arm's Length Sales together with corresponding sale prices:



(b) quantities of Crude Oil sold by the CONTRACTOR Entities during the preceding Month that do not fell in the category referred to in paragraph (a) above, together with sale prices applied during such Month;



63/116(c) inventory in storage belonging to the CONTRACTOR Entities at the beginning and at the end of the Month; and



(d) quantities of Natural Gas sold by the CONTRACTOR Entities and the GOVERNMENT together with sale prices realised.



Metering



27.5 All Export Petroleum shall be metered at the Delivery Point in accordance with prudent international petroleum industry practice and such meters shall be to fiscal meter standards. All metering equipment shall be installed and operated by the CONTRACTOR. The GOVERNMENT shall, on receipt by the CONTRACTOR of reasonable prior written notice, have the right to inspect any such metering equipment installed by the CONTRACTOR, as well as all relevant documents and supporting information reasonably necessary to validate the accuracy of such metering. All metering equipment shall be subject to periodic technical inspections in accordance with prudent international petroleum industry practice.



27.6 If any metering equipment is defective, the CONTRACTOR shall use all reasonable endeavours to repair it within fifteen (15) days or, if deemed necessary by the CONTRACTOR, replace it as soon as reasonably practicable from the date the defect became known. The “Adjustment Date" shall he the last date that the metering equipment was known or agreed to have been measuring correctly, or if not known or agreed, the date that is midway between the date the defect was discovered and the last date the equipment was known to have measured correctly. The results from the defective equipment shall be disregarded for the period from the Adjustment Date until the date the defective equipment is repaired or replaced and the measurement for such period shall be estimated:



(a) if check measuring equipment is installed and registering accurately, then by using the measurements recorded by such check measuring equipment;



(b) if check measuring equipment is not installed or not registering accurately, then by correcting die error if the percentage of error is ascertainable by verification, calibration or mathematical calculation; or



(c) if neither method is feasible, then by estimating the volume and/or quantity-delivered based on deliveries during the preceding comparable period of time when the metering equipment was registered accurately.



27.7 Any disputes arising under this Article 27 shall be settled by expert determination in accordance with the provisions of Article 42.2.

ARTICLE 28 - SALK OF GOVERNMENT SHARE



Upon the GOVERNMENT'S prior written notice of at least ninety (90) days, each CONTRACTOR Entity shall provide all reasonably necessary assistance to the GOVERNMENT for the sale of all or part of the quantities of Crude Oil to which die GOVERNMENT is entitled, in consideration of a sales commission per Hand to be



64/116established with reference to prudent international petroleum practice and to be mutually agreed upon between the Parties.



ARTICLE 29 - FINANCIAL PROVISIONS



29.1 Any payment to be made by a CONTRACTOR Entity to the GOVERNMENT pursuant to this Contract shall be in Dollars and shall be offset against any outstanding payments due by the GOVERNMENT to the CONTRACTOR Entity, or paid into the bank account duly designated by the GOVERNMENT in writing and shall be paid within thirty (30) days of the due date, after which interest compounded monthly at the rate of UBOR plus two (2) percentage points shall be applied.



29.2 The GOVERNMENT may. at its sole discretion, direct the CONTRACTOR Entities to pay:



(a) any Royalty in cash due to the GOVERNMENT pursuant to the provisions of Article 24: and/or



(b) any proceeds from the sale undertaken by the CONTRACTOR Entity on behalf of the GOVERNMENT pursuant to Article 28 of any Crude Oil to which the GOVERNMENT is entitled pursuant to Article 25; and/or



(c) any Production Bonus,



to a fund for revenue sharing, which may in due course be established by legislation consistent with the Constitution of Iraq, between the Government of Iraq and other regions (including the Kurdistan Region) and governorates of Iraq. Nothing in this Article 29.2 shall be understood as implying any contractual relationship or other relationship between the CONTRACTOR and/or any CONTRACTOR Entity and the Government of Iraq and/or the regions of Iraq (other than the Kurdistan Region) and/or and governorates of Iraq.



29.3 Any payment due by the GOVERNMENT to a CONTRACTOR Entity shall be offset against future payments due by such CONTRACTOR Entity to the GOVERNMENT, or paid in Dollars to the bank account designated by the CONTRACTOR Entity in writing and shall be paid within thirty (30) days of the date of invoice, after which interest compounded monthly at the rate of LIBOR plus two (2) percentage points shall be applied.



29.4 Any currency conversion to be made under this Contract shall be at the exchange rate of the Central Bank of Iraq, provided such exchange rate applied to the CONTRACTOR Entities shall not be less favourable than die rate offered by other private, commercial or industrial banks in the international market. In the absence of tire Central Bank of Iraq or in the event that the Central Bank of Iraq is unable to provide the relevant exchange rate, any currency conversion to be made under this Contract shall be at the exchange rate of a reputable commercial bank carrying on business in the international market and approved by the Parties.



29.5 The CONTRACTOR shall not realise any gain or loss due to exchange rate fluctuations and, consequently, any gain or loss resulting from the exchange of



65/116currency shall be either considered as revenue and credited to the Accounts or shall be considered as a Petroleum Cost and shall be recovered by the CONTRACTOR in accordance with Articles 1 and 25, as the case may be.



29.6 Bach CONTRACTOR Entity shall at all times be entitled to freely convert into Dollars or any other foreign currency any Iraqi dinars received in the framework of the Petroleum Operations and to freely transfer the same Abroad. The conversion rate shall be as provided under Article 29.4.



29.7 Bach CONTRACTOR Entity shall have the right to be paid, receive, keep, transfer and use Abroad, without any restrictions, all proceeds of its share of Petroleum.



29.8 bach CONTRACTOR Entity and its Subcontractors shall have the right to freely open and maintain bank accounts for Petroleum Operations within or outside the Kurdistan Region and other parts of Iraq.



29.9 Each CONTRACTOR Entity shall have the right to pay in any freely convertible currency all its financial requirements for the Petroleum Operations and to convert these currencies to Iraqi dinars in any bank in the Kurdistan Region or other parts of Iraq, at the same exchange rate as provided under Article 29.4.



29.10 Each CONTRACTOR Entity shall have the right, without any restrictions, to freely repatriate Abroad and to freely dispose of:



(a) any proceeds received in the Kurdistan Region or other pans of Iraq from the sale of Petroleum:



(b) any proceeds received from other operations and activities carried out under this Contract in the Kurdistan Region or other parts of Iraq.



29.11 Each CONTRACTOR Entity shall have the right to pay in any foreign currency its Subcontractors and its expatriate personnel, either in die Kurdistan Region. other parts of Iraq, or Abroad. Said Subcontractors and expatriate personnel shall be obliged to transfer to the Kurdistan Region the amount of foreign currency required for their local needs and they shall have the right to repatriate the proceeds of the sale of their belongings in accordance with the regulations in force in the Kurdistan Region.



29.12 Each CONTRACTOR Entity's Affiliates. Subcontractors and their personnel shall equally benefit from the same rights as such CONTRACTOR Entity' and its personnel as regards this Article 29.



29.13 For the financing of Petroleum Operations, each CONTRACTOR Entity shall have the right to have recourse to external financing from third parties or from its Affiliated Companies on an arm's length basis.



ARTICLE 30 - CUSTOMS PROVISIONS



30.1 All services, material, equipment, goods, consumables and products imported into the Kurdistan Region and other parts of Iraq by the CONTRACTOR, any CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of any of the



66/116foregoing, for use or consumption in the Petroleum Operations shall be admitted free and exempt from any and all Taxes on import. The CONTRACTOR, any CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of any of the foregoing shall have the right to re-export from the Kurdistan Region and other parts of Iraq free from all Taxes on export any material, equipment, goods, consumables and products that are no longer required for the Petroleum Operations, except where title has passed to the GOVERNMENT in accordance with Article 20. in which case re-export shall be approved by the Management Committee.



30.2 The CONTRACTOR, any CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of any of the foregoing, and their personnel (including their family members) shall have the right to freely import into the Kurdistan Region and other parts of Iraq and re-export from the Kurdistan Region and other pans of Iraq any personal belongings and furniture free and exempt from any Taxes on import or export. The sale in the Kurdistan Region and other parts of Iraq of personal belongings and furniture of expatriate personnel shall comply with Kurdistan Region Law.



30.3 Each CONTRACTOR Entity and its Affiliates shall be entitled to freely export from the Kurdistan Region and other parts of Iraq, free of any Taxes, any Petroleum to which it is entitled pursuant to the provisions of this Contract.



30.4 The GOVERNMENT shall indemnify the CONTRACTOR, any CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of any of the foregoing, and their personnel (including their family members) for any import or export Taxes referred to in Articles 30.1,30.2 or 30.3.



ARTICLE 31 - TAX PROVISIONS



31.1 Except as expressly provided in this Article 31, and without prejudice to the exemptions expressly provided for in Article 30 and in this Article 31, each CONTRACTOR Entity, its Affiliates and any Subcontractor shall, for the entire duration of this Contract, be exempt from all Taxes as a result of its income, assets and activities under this Contract. The GOVERNMENT shall indemnify each CONTRACTOR Entity upon demand against any liability to pay any Taxes assessed or imposed upon such entity which relate to any of the exemptions granted by the GOVERNMENT under tilts Article 31.1. and under Articles 31.4 to 31.11.



31.2 Each CONTRACTOR Entity shall be subject to corporate income tax on its income from Petroleum Operations as provided in Article 31.3. which shall be deemed to be inclusive and in full and total discharge of any Tax on income, receipts, revenues, gains or profits of each such entity. Payment of the said corporate income tax shall be made for the entire duration of this Contract directly to the official Kurdistan Region tax authorities by the GOVERNMENT, for the account of each CONTRACTOR Entity, from the GOVERNMENT'S share of the Profit Petroleum received pursuant to Article 26.



Each CONTRACTOR Entity shall, within sixty (60) days after the end of each tax year, provide a statement to the appropriate Kurdistan Region tax authorities of its,



67/116profits which arc subject to corporate income tax, together with a calculation of the amount of corporate income tax due on those profits.



The GOVERNMENT shall, within ninety (90) days after the end of each tax year, provide to each CONTRACTOR Entity (i) the appropriate official tax receipts from the appropriate Kurdistan Region tax authorities or other relevant authority certifying the payment of its corporate income tax, as determined in the said statement, and that such entity has met all its Tax obligations in the preceding tax year, and (ii) a copy of any return or other filing made by the GOVERNMENT in respect of its payment of corporate income tax on behalf of such CONTRACTOR Entity.



31.3 For the purposes of Article 31.2:



(a) The rate of corporate income tax to be applied to each CONTRACTOR Entity shall be the generally applicable rate prescribed in the Law of Taxation (Law No. 5 of 1999). passed by the National Assembly of the Kurdistan Region, as may be amended from time to time or substituted in respect of Petroleum Operations (as defined under the Kurdistan Region Oil and Gas Law) by a petroleum operations taxation law for the Kurdistan Region, but in no event in excess of forty per cent (40%). The Panics acknowledge and agree that at the Effective Date of this Contract, the corporate income tax rate is forty per cent (40%) for all net taxable profits in excess of nine million Iraqi dinar.



(b) The GOVERNMENT and the CONTRACTOR agree that corporate income tax shall be calculated for each CONTRACTOR Entity on its net taxable profits under the Contract, as calculated in accordance with the provisions relating thereto in the Accounting Procedure.



31.4 Each CONTRACTOR Entity, its Affiliates as well as any Subcontractors shall be exempt from any withholding tax applicable on any payments made to them or by them to or from Affiliates or third parties, whether inside or outside the Kurdistan Region and/or Iraq, for the entire duration of this Contract.



31.5 Bach CONTRACTOR Entity and its Affiliates shall be exempt from Additional Profits Tax, as referred to in Article 40 of the Kurdistan Region Oil and Gas Law or any successor Tax.



31.6 Each CONTRACTOR Entity and its Affiliates shall be exempt from Surface Tax, as referred to in Article 40 of the Kurdistan Region Oil and Gas Law or any successor Tax



31.7 Each CON TRACTOR Entity and its Affiliates shall be exempt from Windfall Profits Taxes, as referred to in Article 40 of the Kurdistan Region Oil and Gas Law or any successor Tax.



31.8 Each CONTRACTOR Entity and any Subcontractor shall be subject to the payment or withholding of the personal income tax and social security contributions for which such entity or Subcontractor is liable to pay or withhold in respect of its employees who are Iraqi nationals, pursuant to the Law of Taxation (Law No. 5 of 1999) passed by the National Assembly of the Kurdistan Region, as may be amended from time totime, in the same manner as (he same shall be generally applied to all other industries, except that a CONTRACTOR Entity or Subcontractor shall not be liable for such taxes or contributions with respect to employees of another Person.



31.9 It is acknowledged that double tax treaties will have effect to give relief from taxes to, but not limited to, the CONTRACT OR, CONTRACTOR Entities, Subcontractors and employees and other Persons in accordance with die provisions of such double tax treaties, but shall not impose an additional burden of taxation.



31.10 Any value added tax (“VAT") shall be considered as a Petroleum Cost and shall be cost recovered in accordance with the provisions of Articles 1 and 25.



31.11 Any value added tax ("VAT"), not otherwise recoverable by the CONTRACTOR under VAT law. shall be considered as a Petroleum Cost and shall be cost recovered in accordance with the provisions of Articles 1 and 25.



31.12 Notwithstanding any other provision to the contrary in this Contract, the Parties acknowledge and agree that the provisions of this Article 31 shall apply individually and separately to all CONTRACTOR Entities under this Contract and that there shall be no joint and several liability in respect of any liability, duty or obligation referred to in this Article 31.

ARTICLE 32 - BONUSES

Signature Bonus



32.1 A signature bonus of one million Dollars (US$1,000,000) (“Signature Bonus") shall be payable to the GOVERNMENT by the CONTRACTOR Entity.



Capacity Building Bonus



32.2 A capacity building bonus of fourteen million Dollars (US$14,000,000) (“Capacity Building Bonus") shall be payable to the GOVERNMENT by the CONTRACTOR Entity.

Production Bonuses



32.3 The CONTRACTOR shall pay the following relevant Crude Oil Production Bonus to the GOVERNMENT within thirty (30) days of the following relevant occurrence:

(a) Two million five hundred thousand Dollars (US $2,500,000) when First Production of Crude Oil from the Contract Area commences:



(b) Five million Dollars (US $5,000,000) when production of Crude Oil from the Contract Area reaches a cumulative amount of ten million Barrels of Crude Oil (10 mmbo);



69/116(c) Ten million Dollars (US $10,000,000) when production of Crude Oil from the Contract Area reaches a cumulative amount of twenty five million Barrels of Crude Oil (25 mmbo); and



(d) Twenty million Dollars (US $20,000,000) when production of Crude Oil from the Contract Area reaches a cumulative amount of fifty million Barrels of Crude Oil (50 mmbo).



32.4 In the event of a Non-Associated Natural Gas Commercial Discovery, the CONTRACTOR shall pay the following relevant Non-Associated Natural Gas Production Bonus to the GOVERNMENT within thirty (30) days of the following relevant occurrence:



(a) Two million five hundred thousand Dollars (US $2,500,000) when First Production of Mon-Associated Natural Gas from the Contract Area commences;



(b) Five million Dollars (US $5,000,000) when production of non-associated Natural Gas from the Contract Area reaches a cumulative amount of ten million barrels of oil equivalent (10 mmboe);



(c) Ten million Dollars (US $10,000,000) when production of Son-Associated Natural Gas from the Contract Area reaches a cumulative amount of twenty five million barrels of oil equivalent (25 mmboe); and



(d) Twenty million Dollars (US $20,000,000) when production of Non-Associated Natural Gas from the Contract Area reaches a cumulative amount of fifty million barrels of oil equivalent (50 mmboe).



32.5 For the purposes of this Ankle 32. a Commercial Discovery shall be declared by the CONTRACTOR to be either a Crude Oil Commercial Discovery or a Non-Associated Gas Commercial Discovery and under no circumstances shall a Production Bonus be due in respect of both Crude Oil and Non-Associated Natural Gas for the same Commercial Discovery.



Bonus cost recovery and payment



32.6 No bonus due pursuant to this Article 32 shall be deemed to be a Petroleum Cost.



32.7 Payment by the CONTRACTOR of any bonus due pursuant to this Article 32 shall be made in Dollars by wire transfer to a specified bank account of the GOVERNMENT or by banker’s draft and on receipt thereof the GOVERNMENT shall forthwith issue a written receipt to the CONTRACTOR duly executed by the Minister of Natural Resources of the GOVERNMENT or such other officer of the GOVERNMENT who shall be duly authorised to issue such receipt under Kurdistan Region Law.



ARTICLE 33 - PIPELINES



70/11633.1 The GOVERNMENT shall obtain any required Permits for the transportation by CONTRACTOR Entities of Petroleum in the Kurdistan Region and in Iraq, as well as any necessary Permits and easement rights for the construction of any pipelines and related facilities required for the Petroleum Operations, as provided in Article 33.2.



33.2 The GOVERNMENT undertakes to transfer to the CONTRACTOR its rights for transportation of Petroleum by pipeline. The CONTRACTOR shall have the right to design, construct, operate and maintain pipelines and any related facilities for the transportation of Petroleum produced under this Contract.



33.3 Prior to the construction of any pipeline and related facilities as provided in Article 33.2, the CONTRACTOR shall submit following information to the Management Committee:



(a) proposed pipeline route and related facilities;



(b) forecasted pipeline flow rate and capacity;



(c) estimate of financial investment and operating costs of the pipeline and related facilities;



(d) proposed financing schedule;



(e) construction schedule:



(f) general technical description of the pipeline and related facilities;



(g) construction plans and tests;



(h) preventive measures for damage to the environment and third parties; and



(i) any other information relating to the pipeline project.



The Management Committee shall examine all the above information and shall within ninety (90) days, approve the proposed pipeline project in accordance with the provisions of Article 8.5.



33.4 Subject to spare capacity being available and to their Petroleum being compatible, third parties shall be entitled to transport their Petroleum through any pipeline constructed by the CONTRACTOR in accordance with this Article 33 on terms to be agreed between the CONTRACTOR and such third party. Those terms shall be reasonable commercial terms and shall not discriminate among third part)' users. The CONTRACTOR shall always have priority of access to such pipelines.



33.5 To the extent that they are incurred upstream of the Delivery Point, any costs associated with the design, construction, operation and maintenance of the pipelines and related facilities by CONTRACTOR under this Article 33 (“Pipeline Costs") shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.



33.6 The CONTRACTOR shall have the absolute right without any exceptions and for the entire duration of this Contract, to use, free of charge, any pipeline and related



71/116facilities constructed by CONTRACTOR under this Article 33 and to transport Petroleum produced from any Production Area and to operate and maintain any pipeline and its related facilities, freely and without any additional costs.



33.7 To the extent related to transportation upstream of the Delivery Point, any tariffs received from third panics for use of any pipeline and related facilities by CONTRACTOR under this Article 33 shall be applied to the recovery of Petroleum Costs until all Pipeline Costs have been fully recovered by the CONTRACTOR pursuant to the provisions of Articles I and 25 and shall not be included in income for corporate income tax purposes- The GOVERNMENT shall be entitled to receive any such tariffs from third parties for their use of such pipeline and related facilities when the said Pipeline Costs have been fully recovered by the CONTRACTOR. The costs associated with providing such transportation services for third parties up to the Delivery Point shall be considered Pipeline Costs and therefore Petroleum Costs and Shall be recovered by the CONTRACTOR in accordance with the provisions of Articles) and 25.



33.8 Upon recovery by the CONTRACTOR of all the Pipeline Costs, the operating and maintenance costs of any pipeline and its related facilities shall be borne by the CONTRACTOR and shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.



33.9 The GOVERNMENT shall have the same rights as the CONTRACTOR for use, free of charge, of any pipeline and related facilities constructed by CONTRACTOR under this Article 33 for the transportation of the share of Petroleum to which the GOVERNMENT is entitled under this Contract up to the Delivery Point, provided that where the GOVERNMENT is participating in its capacity as a CONTRACTOR Entity pursuant to Article 4. it shall be liable for its share of Petroleum Costs.



33.10 The CONTRACTOR shall bear the cost of operation and maintenance of any pipeline and related facilities constructed by CONTRACTOR under this Article 33 and all risks of accidental loss or damage to such pipeline and related facilities while they are required for Petroleum Operations.

ARTICLE 34 - UTILISATION

34.1 In the event a Reservoir extends beyond the Contract Area into an adjacent area which is the subject of another Petroleum Contract (as defined by the Kurdistan Region Oil and Gas Law) (an “Adjacent Contract Area”), or in the event a Reservoir of an Adjacent Contract Area extends into the Contract Area, the provisions of Article 47. paragraph Second of the Kurdistan Region Oil and Gas Law shall apply and the GOVERNMENT shall require the CONTRACTOR and the contractor of the Adjacent Contract Area to agree upon a schedule for reaching agreement of the terms of the uтшtisation of foe Reservoir, which terms foal) be based on reliable technical, operational and economical parameters, all in accordance with prudent international petroleum industry practice. In the event that the Minister of Natural Resources decides the unitisation pursuant to Article 47. Paragraph Third of the Kurdistan Region Oil and Gas Law. and if the CONTRACTOR docs not agree with the



72/116decision of the Minister of Natural Resources, the CONTRACTOR shall be entitled to arbitration pursuant to the provisions of Article 42.1.



34.2 For clarification and the avoidance of doubt and notwithstanding Article 47 of the Kurdistan Region Oil and Gas Law. in the event that a Reservoir extends beyond the boundaries of the Contract Area into an adjacent area which is not the subject of another Petroleum Contract (as defined by the Kurdistan Region Oil and Gas Law), the GOVERNMENT shall, upon the CONTRACTOR’S request, take die necessary steps to extend the boundaries of Contract Area so as to include the entire Reservoir within the Contract Area, provided that the CONTRACTOR can offer the GOVERNMENT a competitive minimum work program for such adjacent area.

ARTICLE 35 - LIABILITY AND INSURANCE

Liability



35.1 Subject to the other provisions of this Contract, the CONTRACTOR, in its capacity as the entity responsible for the execution of the Petroleum Operations within the Contract Area, shall I be liable to third parties to the extent provided under applicable Law for any losses and damage it may cause to them in conducting die Petroleum Operations, and shall defend, indemnify and hold harmless the GOVERNMENT with respect to all claims for such loss or damage.



35.2 Notwithstanding the other provisions of this Contract, the CONTRACTOR and the CONTRACTOR Entities shall not be liable to the GOVERNMENT or the Public Company or other government agencies, authorities or bodies, courts or political subdivisions for any damage or loss or claims of any kind resulting from its conduct of the Petroleum Operations unless such damage or loss is the result of wilful misconduct or a material failure to conduct Petroleum Operations in accordance with the terms of tills Contract; provided, however, that such liability cannot result in the event of any omissions, errors or mistakes committed in good faith by the CONTRACTOR in the exercise of the powers and authorisations conferred upon live CONTRACTOR by virtue of this Contract, and further provided that in no event shall the CONTRACTOR and the CONTRACTOR Entities be liable for any indirect or consequential loss or damage whatsoever or any loss, damages, costs, expenses or liabilities caused (directly or indirectly) by any of the following arising out of, relating to, or connected with this Contract or the Petroleum Operations carried out under this Contract: (i) reservoir or formation damage; (ii) inability to produce, use or dispose of Petroleum; (Hi) loss or deferment of income; (tv) special or punitive damages; or (v) other indirect damages or losses whether or not similar to the foregoing.



35.3 The CONTRACTOR shall indemnify and hold harmless the GOVERNMENT against all losses, damages and liability arising under any claim, demand, action or proceeding brought or instituted against the GOVERNMENT by any employee of the CONTRACTOR or of any Subcontractor or by any 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



73/116this Contract regardless of the fault or negligence in whole or in party of any entity or individual.



35.4 Notwithstanding Article 35.1, the GOVERNMENT shall indemnify and hold harmless the CONTRACTOR and the CONTRACTOR Entities against all losses, damages and liability arising under any claim, demand, action or proceeding brought or instituted against the CONTRACTOR or any CONTRACTOR Entity by any employee of the GOVERNMENT or of any Public Company or of any subcontractor of the foregoing or by any dependent of any such employee, 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 Contract regardless of the fault or negligence in whole or in part of any entity or individual.



35.5 The CONTRACTOR shall take all necessary steps to respond to, and shall promptly notify the GOVERNMENT of, all emergency and other events (including explosions, leaks and spills), occurring in relation to the Petroleum Operations which are causing or likely to came 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 GOVERNMENT as are reasonably 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.



35.6 In the event of emergency situations as set out in Article 35.4, at the request of the CONTRACTOR, the GOVERNMENT, without prejudice and in addition to any indemnification obligations the GOVERNMENT may have, shall assist the CONTRACTOR, to the extent possible, in any emergency response, remedial or repair effort by making available any labour, materials and equipment in reasonable

quantities requested by the CONTRACTOR which are not otherwise readily available to the CONTRACTOR and by facilitating the measures taken by the CONTRACTOR to bring into the Kurdistan Region personnel, materials and equipment to be used in any such emergency response or remedial or repair effort. The CONTRACTOR shall reimburse the GOVERNMENTS reasonable and necessary costs incurred in such efforts, which reimbursed amounts shall be

considered Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.



35.7 The GOVERNMENT shall indemnify and hold harmless the CONTRACTOR and each CONTRACTOR Entity from and against all costs (including legal costs)

expenses, losses, damages and liability which such Person may suffer or incur, or may result from such Person being denied, hindered or prevented from fully exercising its rights or taking the full benefit of Articles 29.4, and 29.6 to 29.11.



Insurance



35.8 In accordance with prudent international petroleum industry practice, each CONTRACTOR Entity shall maintain any insurance required by applicable

Kurdistan Region Law, as well as any insurance approved by the Management Committee.





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KSSuch insurance policies may cover:



(a) loss of and damage to material and equipment used in the Petroleum Operations; and



(b) personal injury, damage to third parties and risks of pollution associated with Petroleum Operations for reasonable amounts, within the limits approved by the Management Committee.



35.9 Any insurance policy relating to this Contract shall name the GOVERNMENT as an additional insured party and shall include a waiver of subrogation protecting the GOVERNMENT against any claim, loss and damage resulting from any Petroleum Operation conducted by or on behalf of the CONTRACTOR under this Contract, to the extent that the CONTRACTOR is liable for such claim, loss or damage under this Contract. The CONTRACTOR shall not be liable for and shall not purchase insurance cover for any claims arising from negligence or wilful misconduct of the

GOVERNMENT or of any Public Company or of any of its or their subcontractors or of any personnel of any of the foregoing.



35.10 Upon its written request, the GOVERNMENT shall be provided with insurance certificates, including necessary details, for any insurance policy maintained by the CONTRACTOR which relates to this Contract.



35.11 Each CONTRACTOR Entity shall be responsible for the filing of all claims made under any insurance policy maintained by such CONTRACTOR Entity which relates to this Contract. Any premiums and payments relating to such insurance policies shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.



35.12 In any insurance policy maintained by a CONTRACTOR Entity which relates to this Contract, the amount for which the CONTRACTOR itself is liable (the “Deductible Amount”) shall be reasonably determined between the CONTRACTOR Entity and the insurer and such Deductible Amount shall in the event of any insurance claim be considered a Petroleum Cost and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.



ARTICLE 36 - INFORMATION AND CONFIDENTIALITY



36.! The CONTRACTOR shall keep all records, data and information relating to the Petroleum Operations in accordance with the Kurdistan Region Oil and Gas Law and prudent international petroleum industry practice. In addition, it shall provide the GOVERNMENT with such information and data as it is obliged to provide under this Contract.



36.2 Upon the GOVERNMENT'S written request the CONTRACTOR shall provide the GOVERNMENT with samples of any rocks or any other items extracted during the Petroleum Operations.



36.3 The GOVERNMENT shall have title to all data and information, whether raw, derived, processed, interpreted or analysed, obtained pursuant to this Contract .





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KS36.4 Each CONTRACTOR Entity shall have the right, without any limitation, to send Abroad copies of all reports and technical data, magnetic tapes and other data relating to the Petroleum Operations. Magnetic tapes or other data, the original of which must be analysed and processed Abroad, may be transported out of the Kurdistan Region.



36.5 Any representatives authorised by the GOVERNMENT and notified to the CONTRACTOR shall, upon reasonable prior written notice, have reasonable access to any information and data relating to the Contract Area in the possession of the CONTRACTOR which the CONTRACTOR is obliged to provide to the GOVERNMENT pursuant to this Contract. It is understood that, when exercising such right, the GOVERNMENT shall ensure it docs not unduly interfere with or hinder the CONTRACTOR'S rights and activities.



36.6 The CONTRACTOR shall provide the GOVERNMENT upon the GOVERNMENT’S written request any analysis information, reports, tapes or other data (geological, geophysical, logs, interpretations, drilling reports, etc.) related to the Petroleum Operations in the possession of the CONTRACTOR. All available originals of such data shall be transferred to the GOVERNMENT at the end of this Contract.



36.7 Apart from the exceptions slated in this Article 36, the Parties undertake to keep all data and information relating to this Contract and the Petroleum Operations confidential during the entire term of this Contract and not to divulge or disclose such data or information to third parties without the specific consent of the other Parties, such consent not to be unreasonably withheld or delayed. The foregoing confidentiality obligation shall not apply to information or data which:



(a) is or. through no fault of any Party, becomes part of the public domain;



(b) is known to the recipient at the date of disclosure;



(c) is required to be furnished in compliance with any applicable Law, by a government agency having jurisdiction over a CONTRACTOR Entity, by a court order or any other legal proceedings; or



(d) is required to be disclosed pursuant to the rules or regulations of any government or recognised stock exchange having jurisdiction over a CONTRACTOR Entity.



36.8 Notwithstanding the foregoing in Article 36.7. in accordance with prudent international petroleum industry practice, such data and information may be disclosed to:



(a) Affiliates of each CONTRACTOR Entity:



(b) employees, officers and directors of each CONTRACTOR Entity and their respective Affiliated Companies for the purpose of the Petroleum Operations, subject to each such entity taking customary precautions to ensure such information is kept confidential:



76/116(c) consultants or agents retained by any CONTRACTOR Entity or its Affiliates for the purpose of analysing or evaluating information or data:



(d) banks or financial institutions retained by any CONTRACTOR Entity or its Affiliates with a view to financing Petroleum Operations, including any professional consultants retained by such bank or financial institution:



(e) bona fide prospective assignees of a participating interest under this Contract (including any entity with whom a CONTRACTOR Entity and/or its Affiliates are conducting bona fide negotiations directed towards a merger, consolidation or the sale of a material portion of its or an Affiliates diarcs);



(f) prospective or actual Subcontractors and suppliers engaged by a Party where disclosure of such information is essential to such Subcontractor's or supplier's work for such Parly; and



(g) any other Person or entity, upon the prior written approval of the non-disclosing Parties.



provided that disclosure shall not be made pursuant to paragraphs (c), (d). (e) and (f). unless such third party has entered into a confidentiality undertaking.



36.9 Any data and information relating to relinquished or surrendered areas under this Contract shall become the exclusive property of the GOVERNMENT, who shall have the right to use same for any purpose, in particular for the purpose of promoting said areas. Each CONTRACTOR Entity shall be entitled to keep copies of such data and information and to use such data and information for any purpose.



36.10 Subject to the provisions of this Article 36, the CONTRACTOR may not sell nor exchange any data related to the Petroleum Operations without the approval of tire GOVERNMENT, which approval shall not be unreasonably withheld or delayed where, in the CONTRACTOR’S reasonable opinion, such sale or exchange would benefit the Petroleum Operations.

ARTICLE 37 - ENVIRONMENTAL PROVISIONS

37.1 During the performance of the Petroleum Operations, the CONTRACTOR shall take reasonable measures to ensure that it, the Operator, its Subcontractors and agents attend to the protection of the environment and prevention of pollution, in accordance with prudent international petroleum industry practice in similar physical and ecological environments and any then applicable Kurdistan Region I .aw.



37.2 Prior to surrendering a portion of the Contract Area, the CONTRACTOR shall take reasonable measures to abandon the area to be surrendered in accordance with prudent international petroleum industry practice in similar physical and ecological environments. Such measures shall include removal or closure in place of facilities, material and equipment together with reasonable measures necessary for the preservation of fauna, flora and ecosystems, ail in accordance with prudent international petroleum industry practice in similar physical and ecological environments. The CONTRACTOR shall only be responsible for site restoration or



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environmental damage to the extent the same pertains solely and directly to Petroleum Operations conducted pursuant to this Contract.



37.3 The CONTRACTOR shall take reasonable precautions and measures in accordance with prudent international petroleum industry practice in similar physical and ecological environments to prevent any pollution which may arise directly as a result of the Petroleum Operations and to protect the environment (fauna and flora), water sources and any other natural resources when carrying out Petroleum Operations.



37.4 The CONTRACTOR shall, in accordance with prudent international petroleum industry practice in similar physical and ecological environments, respect the preservation of property, agricultural areas. and fisheries, when carrying out Petroleum Operations.



37.5 The CONTRACTOR shall conduct and submit an environmental impact assessment to the GOVERNMENT within six (6) months after the Effective Date.



National Parks and Nature Reserve Areas



37.6 The CONTRACTOR shall take reasonable measures to minimize any adverse material impact on national parks and nature reserves which may arise directly as a result of the Petroleum Operations, in accordance with prudent international petroleum industry practice in similar physical and ecological environments.



37.7 The GOVERNMENT: (i) represents and warrants that, on the Effective Date, there are no national parks, nature reserves or other protected areas located in whole or in part within the Contract Area where the CONTRACTOR shall not be entitled to

carry out Petroleum Operations and (ii) covenants that during the term of this Contract will not designate or create or permit the creation of any national parks, nature reserves or other protected areas, located in whole or in part within the

Contract Area.



Expenditures



37.8 Any reasonable expenditure incurred by the CONTRACTOR in relation with this Article 37 shall be deemed Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.



Pre-existing Conditions



37.9 The CONTRACTOR is not responsible for any pro-existing environmental conditions or any acts of unrelated third parties.



ARTICLE 38 - DECOMMISSIONING



38.1 To enable the CONTRACTOR to recover the costs associated with future Contract Area Decommissioning Operations under this Contract, the CONTRACTOR shall have the right to establish a reserve fund for future decommissioning and site

restoration (a "Decommissioning Reserve Fund”). The Decommissioning Reserve Fund may be established at any time during the final ten (10) Calendar Years of the





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KSterm of the Production Operations of a Production Area but upon the reasonable request by the CONTRACTOR, the GOVERNMENT shall allow the CONTRACTOR to establish such fund over a longer period. Once established, the CONTRACTOR shall make regular contributions to live Decommissioning Reserve Fund based upon estimated Petroleum Field decommissioning and site restoration costs in accordance with prudent international petroleum industry practice, and taking into account interest received and future interest expected to be earned on the Decommissioning Reserve fund. Any contributions by the CONTRACTOR to the Decommissioning Reserve Fund shall be made in Dollars and shall be deemed Petroleum Costs when paid into tire reserve fund, and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles I and" 25. Contributions to the Decommissioning Reserve Fund shall be placed with a first rate bank approved by the Management Committee in accordance with Article 8.5.



38.2 If, at the end of the term of the Production Operations of the Production Area, the GOVERNMENT decides to take over production operations in the Production Area:



(a) the GOVERNMENT shall become liable for its future Decommissioning Operations;



(b) the contributions and any interest accumulated in the Decommissioning Reserve Fund, to the extent that such contributions have been recovered as Petroleum Costs, shall be paid to the GOVERNMENT; and



(c) the GOVERNMENT shall release the CONTRACTOR and the CONTRACTOR Entities from any obligations relating to Decommissioning Operations and shall indemnify the CONTRACTOR and the CONTRACTOR Entities for any costs, liabilities, expenses, claims or obligations associated therewith.



38.3 If the CONTRACTOR undertakes the Production Area Decommissioning Operations, the contributions and any interest accumulated in the Decommissioning Reserve Fund shall be paid to the CONTRACTOR and shall be used for the Decommissioning Operations. The CONTRACTOR shall undertake any such Decommissioning Operations in accordance with prudent international petroleum industry practice in similar physical and ecological environments.



38.4 If the Decommissioning Reserve Fund is paid to the CONTRACTOR and the Decommissioning Reserve Fund is not sufficient to cover all Decommissioning Costs for the Contract Area, the balance shall be paid by the CONTRACTOR and may be recovered, if applicable, by the CONTRACTOR Entities or any of their Affiliates from any other area which is the subject of another Petroleum Contract (as defined by the Kurdistan Region Oil and Gas l,aw) anywhere in Ihc Kurdistan Region and. to the extent the balance is not recoverable as aforesaid, such remaining balance shall be paid by the GOVERNMENT to the CONTRACTOR.



38.5 If the Decommissioning Reserve Fund is paid to the CONTRACT OR and the Decommissioning Reserve Fund exceeds all Decommissioning Costs for the Contract Area, the balance shall be transferred to the GOVERNMENT.



79/11638.6 Any expenditure incurred by the CONTRACTOR in relation with this Article 38. including any contributions to the Decommissioning Reserve Fund, shall be deemed Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.



38.7 The CONTRACTOR shall submit to the Management Committee for approval in accordance with Article 8.5 a detailed plan for decommissioning the Contract Area facilities and site restoration (the '‘Decommissioning Plan"), such Decommissioning Plan to be submitted no later than twenty four (24) Months prior to the date estimated by the CONTRACTOR for the end of Commercial Production from the Contract Area. The Management Committee shall provide comments, if any. on the Decommissioning Plan within ninety (90) days after receipt. The CONTRACTOR'S completion of the Decommissioning Operations in accordance, in all material respects, with the Decommissioning Plan for a Production Arcs approved by the Management Committee shall satisfy all of the CONTRACTOR’S obligations with respect to the performance of Decommissioning Operations for such Production Area. In the event the GOVERNMENT does not agree that Decommissioning Operations for a Production Area were carried out in accordance with the approved Decommissioning Plan, it must advise the CONTRACTOR within six (6) months of the CONTRACTOR’S completion of such operations.

ARTICLE 39 - ASSIGNMENT AND CHANGE OF CONTROL



Assignment to Affiliates



39.1 Each CONTRACTOR Entity shall be free to sell, assign, transfer or otherwise dispose of all or pan of its rights, obligations and interests under this Contract to an Affiliated Company or to another CONTRACTOR Entity with the prior consent of the GOVERNMENT, which consent shall not be unreasonably delayed or withheld.



Assignment to Third Parties



39.2 Each CONTRACTOR Entity shall have the right to sell, assign, transfer or otherwise dispose of all or part of its rights and interests under this Contract to any third party (not being an Affiliated Company or another CONTRACTOR Entity) with the prior consent of GOVERNMENT, and each other CONTRACTOR Entity (if any) which consent shall not be unreasonably delayed or withheld. Any CONTRACTOR Entity' proposing to sell, assign, transfer or otherwise dispose of all or part of its rights and interests under this Contract to any such third party shall request such consent in writing, which request shall be accompanied by reasonable evidence of the technical and financial capability of the proposed third party assignee.



39.3 In order for any deed of sale, assignment transfer or other disposal as provided under Articles 39.1 or 39.2 to be effective, the Parties and the relevant third party, if any, shall enter into a binding and enforceable instrument of assignment and novation, which shall include an undertaking by the transferee or assignee to fulfil the obligations under this Contract which correspond to the interest transferred or assigned.



80/11639.4 By way of clarification and not in limitation of the foregoing provisions of this Article 39, the GOVERNMENT shall not be considered to be acting unreasonably in withholding consent to any such assignment if the assignment to such proposed assignee is deemed contrary to the GOVERNMENT’S interests, as evidenced in writing to that effect signed by the duly authorised representative of the GOVERNMENT below.



39.5 In the event a CONTRACTOR Entity assigns or in any other way transfers its rights and interests under this Contract, whether in whole or in part, such assignment or transfer shall not give rise to any Tax, including on the consideration paid or received or on the income or gain therefrom.



39.6 The GOVERNMENT may not at any time transfer any or all its rights and obligations under this Contract to any Person, including to a Public Company or any other company or entity, except in accordance with Article 4.



Chance of Control



39.7 “Change of Control" for the purpose of this Article 39.7 means any direct or indirect change of the identity to the Person who Controls a CONTRACTOR Entity (whether through merger, sale of shares or of other equity interests, or otherwise) through a single transaction or series of transactions, fiom one or more transferors to one or more transferees, in which the market value of such entity's participating interest (which shall be as specified in the Joint Operating Agreement relating to this Contract, or where there is only one CONTRACTOR Entity, one hundred per cent (100%) in this Contract represents more than seventy five per cent (75%) of the aggregate market value of the assets of such entity and its Affiliates that are subject to the Change in Control. For the purpose of this definition: "Control” means the direct or indirect ownership or control of the majority of the voting rights of the applicable entity at its shareholders' meetings or their equivalent; and “market value” shall be determined based upon the amount in cash a willing buyer would pay a willing seller in an Arm's Length transaction.



Each CONTRACTOR Entity which is or anticipates with a reasonable degree of certainty that it will be subject to a Change in Control, other than to an Affiliated Company or a CONTRACTOR Entity, shall notify the GOVERNMENT as soon as practicable after it becomes aware of the Change in (Control or anticipated Change in Control and request the consent of GOVERNMENT, which consent shall not be unreasonably delayed or withheld.



A Change in Control shall not give rise to any Tax including on the consideration paid or received or on the income or gain therefrom.



ARTICLE 40 - FORCE MAJEURE



40.1 No delay, default, breach or omission of the CONTRACTOR in die execution of any



of its obligations under tills Contract shall be considered a failure to perform this Contract or be the subject of a dispute if such delay, default, breach or omission is due to a case of Force Majeure. In such event the CONTRACTOR shall promptly notify the GOVERNMENT in writing and take all reasonably appropriate measures to



81/116perform its obligations under this Contract to the extent possible. The time resulting from any such delay or curtailment in the execution of such obligations, increased by the time necessary to repair any damage resulting from or occurred during such delay or curtailment, shall be added to any lime period provided under this Contract (including the Exploration Period and any extension thereto, any Sub-Period and any extension thereto and any Development Period and any extension thereto). The Parties shall meet as soon as possible after the notification of Force Majeure with a view to using reasonable endeavours to mitigate the effects thereof.



40.2 For the purpose of this Contract, “Force Majeure” means any event that is unforeseeable, insurmountable and irresistible, not due to any error or omission by the CONTRACTOR but due to circumstances beyond its control, which prevents or impedes execution of ail or part of its obligations under this Contract. Such events shall include the following:



(a) war, whether declared or not, civil war, insurrection, riots, civil commotion, terrorism, any other hostile acts, whether internal or external;



(b) strikes or other labour conflicts;



(c) accidents or blowouts;



(d) quarantine restrictions or epidemics;



(c) any act. event, happening or occurrence due to natural causes, in particular, but without limitation, floods, storms, cyclones, fires, lightning, or earthquakes;



(f) environmental restrictions, which the GOVERNMENT has not notified to the CONTRACTOR;



(g) except in respect of the GOVERNMENT and/or any Public Company which may be a CONTRACTOR Entity, any acts or orders of the GOVERNMENT, any minister, ministry, department, subdivision, agency, authority, council, committee, or other constituent element thereof, any corporation owned and/or controlled by the any of the foregoing; and



(h) any acts or orders of any other government claiming or asserting jurisdiction over the subject matter of this Contract, any minister, ministry, department, sub-division, agency, authority, council, committee, or other constituent element thereof, or any corporation owned and/or controlled by any of (he foregoing.



40.3 The intention of the Parties is that Force Majeure shall receive the interpretation that complies most with prudent international petroleum industry practice. Force Majeure affecting a CONTRACTOR Entity or an Affiliated Company of a CONTRACTOR Entity shall be deemed Force Majeure affecting the CONTRACTOR if the consequence of such Force Majeure prevents the performance of any of the CONTRACTOR’S obligations under this Contract.



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ARTICLE 41 - WAIVER OF SOVEREIGN IMMUNITY



The GOVERNMENT and any Public Company which may be a CONTRACTOR Entity at any lime hereby fully and irrevocably waives any claim to immunity for itself or any of its assets.



This waiver includes any claim to immunity from:



(a) any expert determination, mediation, or arbitration proceedings commenced pursuant to Article 42;



(b) any judicial, administrative or other proceedings to aid die expert determination, mediation, or arbitration proceedings commenced pursuant to Article 42; and



(c) any effort to confirm, enforce or execute any decision, settlement, award, judgment, service of process, execution order or attachment (including pre-judgment attachment) that results from an expert determination, mediation, arbitration or any judicial, administrative or other proceedings commenced pursuant to this Contract.



ARTICLE 42 - ARBITRATION AND EXPERT DETERMINATION Negotiation. Mediation and Arbitration



42.1 For the purpose of this Article 42.1, "Dispute” shall mean any dispute, controversy or claim (of any and every kind or type, whether based on contract, tort, statute, regulation or otherwise) arising out of, relating to. or connected with this Contract or the operations carried out under this Contract, including any dispute as the construction, existence, validity, interpretation, enforceability, breach or termination of this Contract, which arises between the Parties (or between any one or more entities constituting the CONTRACTOR and the GOVERNMENT).



In the event of a Dispute, the parties to the Dispute shall use their reasonable endeavours to negotiate promptly in good faith a mutually acceptable resolution of such Dispute.



Subject to the provisions of Article 42.2, a Party who desires to submit a Dispute for resolution which has not been promptly resolved as aforesaid shall commence the dispute resolution process by providing the other parties to the Dispute written notice of the Dispute ("Notice of Dispute”). The Notice of Dispute shall identify the parties to the Dispute, shall contain a brief statement of the nature of the Dispute and the relief requested and shah request negotiations among Senior Representatives.



(a) In the event that any Notice of Dispute is given in accordance with this Article 42.1. the parties to the Dispute shall first seek settlement of the dispute by negotiation between Senior Representatives. "Senior Representative" means any individual who has authority to negotiate the settlement of the Dispute for a party to the Dispute, which for the GOVERNMENT shall mean the Minister of Natural Resources. Within thirty (30) days after the date of delivery' of the Notice of Dispute. the Senior Representatives representing the parties to the Dispute shall meet at a mutually acceptable date, time and place



83/116to exchange relevant information in an attempt to resolve the Dispute. If a Senior Representative intends to be accompanied at the meeting by a legal adviser, each other party shall be given written notice of such intention and its Senior Representative may also be accompanied at the meeting by a legal adviser.



(b) If the Dispute cannot be resolved by negotiation in accordance with Article 42.1 (a) within sixty (60) days after the date of the receipt by each party to the Dispute of the Notice of Dispute or such further period as the parties to the Dispute may agree in writing, any party to the Dispute may seek settlement of the dispute by mediation in accordance with the London Court of International Arbitration ("LCIA”) Mediation Procedure, which Procedure shall be deemed to be incorporated by reference into this Article, and the parties to such Dispute shall submit to such mediation procedure.



(c) If the Dispute is not settled within the carrier of (A) sixty (60) days of the appointment of the mediator, or such further period as the parties to the Dispute may otherwise agree in writing under the mediation procedure under Article 42.1 (b), and (B) one hundred and twenty (120) days after the delivery of the Dispute Notice, any party to the Dispute may refer the Dispute to, and seek final resolution by, arbitration under the LCIA Rules, which Rules shall be deemed to be incorporated by reference into this Article.



(i) Any arbitration shall be conducted by three (3) arbitrators.



(ii) If the parties to the Dispute are the GOVERNMENT and all the CONTRACTOR Entities, the GOVERNMENT and the CONTRACTOR shall each appoint one (I) arbitrator. If the parties to the Dispute are the GOVERNMENT and more than one, but not all the CONTRACTOR Entities, the GOVERNMENT shall appoint one (I) arbitrator and such CONTRACTOR Entities shall appoint one (1) arbitrator. If the parties to the Dispute are die GOVERNMENT and one CONTRACTOR Entity, the GOVERNMENT and such CONTRACTOR Entity shall each appoint one (1) arbitrator.



(iii) In any event, die two arbitrators so appointed shall, in good faith, use all reasonable endeavours to agree on the appointment of the third arbitrator, who will chair the arbitral tribunal. In case of failure to appoint an arbitrator or to agree on the appointment of the third arbitrator, Rules of the LCIA shall apply.



(vi) Arbitration shall take place in London, England. 'Die language to be used in any prior negotiation, mediation and in the arbitration shall be English. During the arbitration procedure and until the arbitral decision, the Parties shall continue to perform their obligations and lake no actions dial would impair die Contract. The arbitral award may be enforced by any court of competent jurisdiction, including in the Kurdistan Region. Any award shall be expressed in Dollars.



84/116(v) The Parties agree that the arbitral award shall be final and not subject to any appeal, including to the Courts of England on issues of Law.



(vi) With respect to any matter referred to arbitration under Article 43.4, the arbitral tribunal shall have the authority to amend this Contract to restore the economic position referred to in Article 43.3.



Expert Determination



42.2 Any disagreement between the Panics relating to Articles 15.9, 27.2 and 27.5, as well as any disagreement the Parties agree to refer to an expert, shall be submitted to an expert. The Management Committee shall prepare and agree appropriate terms of reference relating to the disagreement to be submitted to the expert, in accordance with Article 8.5 ("Terms of Reference"), as soon as possible after the disagreement arises.



(a) The disagreement shall be submitted to an expert appointed by mutual agreement of the Panics within thirty (30) days following the date of preparation and agreement of the Terms of Reference by the Management Committee. If the Parties cannot agree on the choice of the expert within such thirty (30) day period, at the request of either Party, the expert shall be appointed by the President of the Energy institute in London, England. Any expert appointed must have the necessary qualifications for reviewing and deciding on the subject matter of the disagreement.



(b) The duties of the expert shall be stated in the Terms of Reference prepared and agreed by the Management Committee. The Management Committee shall promptly provide the expert with the agreed Terms of Reference relating to the disagreement. Each Party shall have the right to give to the expert in writing any information which it considers useful, provided it docs so within forty-five (45) days after the expert’s appointment. Such information shall be provided to the other Party at the same time and such other Party shall be entitled to provide comments on such information to the first Party' and the expert within thirty (30) days after receiving such information, The expert shall have the right to review and verify any information be deems useful to assist him in his review of the disagreement.



(c) The expert shall render his decision within forty-five (45) days of his receipt of the Terms of Reference and the information referred to in Article 42.2. Subject to the provisions of Article 15.9, any decision of the expert shall be final and shall not be subject to any appeal, except in the case of manifest error, fraud or malpractice. Any costs and expenses associated with the expert determination shall be shared equally between the Parties.



General



42.3 No negotiation, mediation, arbitration or expert determination procedure under this Article 42 shall exempt the Parties from fulfilling their respective legal and/or contractual obligations.



85/116ARTICLE 43 - GOVERNING LAW, FISCAL STABILITY AND AMENDMENTS



43.1 This Contract, including any dispute arising therefrom, thereunder or in relation thereto and the agreement to arbitrate in Article 42. shall be governed by English law (except any rule of English law which would refer the matter to another jurisdiction), together with any relevant rules, customs and practices of international law, as well as by principles and practice generally accepted in petroleum producing countries and in the international petroleum industry.



Fiscal Stability



43.2 The obligations of the CONTRACTOR in respect of this Contract shall not be changed by the GOVERNMENT and the general and overall equilibrium between the Parties under this Contract shall not be affected in a substantial and lasting manner.



43.3 The GOVERNMENT guarantees to the CONTRACTOR, for the entire duration of this Contract, that it will maintain the stability of the legal, fiscal and economic conditions of this Contract, as they result from this Contract and as they result from

the laws and regulations in force on the date of signature of this Contract. The CONTRACTOR has entered into this Contract on the basis of the legal, fiscal and economic framework prevailing at the Emotive Date. If, at any time after the

Effective Date, there is any change in the legal, fiscal and/or economic framework under the Kurdistan Region Law or other Law applicable in or to the Kurdistan Region which detrimentally affects the CONTRACTOR, the CONTRACTOR Entities or any other Person entitled to benefits under this Contract, the terms and conditions of the Contract shall be altered so as to restore the CONTRACTOR, the CONTRACTOR Entities and any other Person entitled to benefits under this Contract to the same overall economic position (taking into account home country taxes) as that which such Person would have been in, bad no such change in the legal,

fiscal and/or economic framework occurred.



43.4 If the CONTRACTOR believes that its economic position, or the economic position of a CONTRACTOR Entity or any other Person entitled to benefits under this Contract, has been detrimentally affected as provided in Article 43.3, upon the

CONTRACTOR’S written request, the Parties shall meet to agree on any necessary measures or making any appropriate amendments to the terms of this Contract to re establishing the equilibrium between the Parties and restoring the CONTRACTOR, the CONTRACTOR Entities or any other Person entitled to benefits under this Contract to the position (taking into account home country taxes) it was in prior to the occurrence of the change having such detrimental effect. Should the Parties be unable

to agree on the merit of amending this Contract and/or on any amendments to be made to this Contract within ninety (90) days of the CONTRACT OR's request (or such other period as may be agreed by the Parties), the CONTRACTOR may refer the matter in dispute to arbitration as provided in Article 42.1, without the necessity of first referring the matter to negotiation and mediation.





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43.5 Without prejudice to the generality of the foregoing, the CONTRACTOR shall be entitled to the benefit of any future changes to the petroleum legislation or any other legislation complementing, amending or replacing it.



43.6 The Parties agree to cooperate in all possible ways with a view to fully achieving the objectives of this Contract. The GOVERNMENT shall facilitate the performance of the Petroleum Operations by promptly granting to the CONTRACTOR any necessary authorisation, permit, licence or access right and making available any-existing facilities and services with a view to the Parties obtaining maximum mutual benefit from the Contract.



Amendments



43.7 Any amendment to this Contract shall be the subject of a formal amendment, duly approved in writing by the Parties and subject to the same conditions of validity as this Contract. Notwithstanding the foregoing, the GOVERNMENT has the right and authority to waive the application of the provisions of this Contract on a case-by-case basis without having to fulfil the conditions of validity of this Contract.



43.8 This Contract constitutes the entire agreement of the Parties and supersedes any and all prior understandings or agreements in respect of the subject matter of this Contract.



43.9 Unless otherwise expressly stated elsewhere in this Contract, no failure or delay of any Party to exercise any right, power or remedy under this Contract shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or future exercise thereof or the exercise of any other right, power or remedy.



Validity



43.10 As signatories to this Contract for and on behalf of the GOVERNMENT, the Ministry of Natural Resources in the Kurdistan Region and the Regional Council for the Oil and Gas Affairs of the Kurdistan Region - Iraq hereby represent that they agree and approve this Contract for the purposes of the Kurdistan Region Oil and Gas Law.



ARTICLE 44-NOTICES



44.1 All notices, demands, instructions, waivers, consents or other communications to be provided pursuant to this Contract shall be in writing in English, shall be effective upon receipt, and shall be sent by receipted hand delivery or by email (followed by delivery by reputable international air courier company with an establishment in Erbil in the Kurdistan Region) to the following addresses:



To the GOVERNMENT:



Attention:



His Excellency the Minister of Natural Resources Address:



87/116Ministry of Natural Resources



Kurdistan Regional Government



Erbil. Kurdistan



Email: mnr@krgoil.com





To the CONTRACTOR ENTITY:



Genel Energy International Limited Attention: General Manager



Address: do: Turan Emeksiz Sok. Park Silesi N0: 3/15 Kavaklidere 06690 ANKARA



Phone: +90 312 427 4989



Facsimile: +90 312427 4966



Email: m.sepil@genel-enerji.com



A notice delivered by email (followed by air courier) shall, save for manifest error, be deemed to have been delivered upon its transmission by email.



44.2 The above address and/or designated representative of any of the Parties may be changed on giving ten (10) days prior notice to the other Party delivered pursuant to Article 44.1.

ARTICLE 45 - TERMINATION



45.1 Subject to the provisions of Article 45.5, the GOVERNMENT shall have the right to



terminate this Contract in the event the CONTRACTOR:



(a) fails to meet a material financial obligation expressly stated in this Contract: or



(b) during the First Sub-Period docs not carry out drilling and seismic acquisition, as detailed in Article 10.2 or, during the Second Sub-Period (or earlier), does not can)' out drilling and seismic acquisition, as detailed in Article 10.3; or



(c) interrupts Production for a period of more than ninety (90) consecutive days with no cause or justification acceptable in accordance with this Contract or under prudent international petroleum industry practice, it being recognised that Force Majeure is an acceptable justification for such interruptions; or



(d) intentionally extracts or produces any mineral which is not covered by die object of this Contract, unless such extraction or production is expressly authorised or unavoidable as a result of operations carried out in accordance with prudent international petroleum industry practice;



(e) if the CONTRACTOR comprises solely one entity, is declared bankrupt in accordance with applicable Law; o

88/116(f) wilfully refuses to abide by negotiation, mediation, arbitration or expen decision under Article 42.



45.2 The GOVERNMENT may also terminate the Contract only in respect of one CONTRACTOR Entity if such entity is subject to a Change of Control for which the GOVERNMENT has not given its authorisation in accordance with Article 39.7.



45.3 At any time prior to the Development Period, the CONTRACTOR shall have the right to terminate this Contract by surrendering the entire Contract Area in accordance with the provisions of Article 7.



45.4 During the Development Period, the CONTRACTOR shall have the right to terminate this Contract at any time by surrendering all Production Areas, provided its then current obligations have been satisfied in accordance with this Contract.



45.5 If the GOVERNMENT intends to exercise its right to terminate this Contract pursuant to Article 45.1, it shall first comply with the following provisions:



(a) The GOVERNMENT shall notify the CONTRACTOR of its intention to terminate this Contract stating the reasons for such termination and requesting the latter:



(i) to remedy the default; or



(ii) to propose acceptable compensation.



(b) If, within three (3) Months after the notice referred to in Article 45.5(a), the CONTRACTOR has not remedied the situation complained of by the GOVERNMENT to its satisfaction or offered compensation acceptable to the GOVERNMENT in each case acting reasonably, the GOVERNMENT shall notify the CONTRACTOR in writing that the Contract shall be terminated from the termination date detailed in such notice. This Contract shall terminate on such termination date unless the CONTRACTOR issues a notice of dispute as provided under Article 42. in which case this Contract shall remain in force until a final settlement of the dispute has been reached in accordance with the dispute resolution provisions of Article 42.



The foregoing provisions of this Article 45.5 are subject to die proviso that, in case of a dispute where there has been breach of this Contract which has been submitted to dispute resolution pursuant to Article 42, the GOVERNMENT shall not be entitled to exercise its right to terminate this Contract prior to a final determination under Article 42 in favour of the GOVERNMENT.



45.6 If the GOVERNMENT terminates this Contract pursuant to the provisions of Articles 45.1 and 45.5, the CONTRACTOR shall lose all its rights and interests under this Contract. Notwithstanding the foregoing, the provisions of Articles 14.10. 16.7, 30, 31, 35.1, 35.3, 35.4, 35.7,36, 38.2(c), 41.42.43.1 to 43.6 shall survive the termination or expiry of this Contract.



89/11645.7 If a CONTRACTOR Entity breaches Article 46.1 or 46.2 the GOVERNMENT or another CONTRACTOR Entity may terminate this Contract in respect of the first CONTRACTOR Entity.



45.8 If the Contract is terminated under Article 45.2 or 45.7, the interest of the relevant CONTRACTOR Entity shall be transferred to the other CONTRACTOR Entities in the proportions in which then respective percentage interests bear to the aggregate of their respective percentage interests under the relevant Joint Operating Agreement or in such other proportions as such CONTRACTOR Entities shall agree between them for the market value thereof (as such term is defined in Article 59.7). Such transfer shall not give rise to any Tax including on the consideration paid or received or on the income or gain therefrom.



ARTICLE 46 - APPLICATION OF CORRUPTION LAWS



46.1 If this Contract is reasonably proven to have been obtained in violation of Kurdistan Region Law concerning corruption, this Contract is void ab initio.



46.2 Each CONTRACT OR Emily agrees that if it is. at any time, reasonably proven to be in breach of Kurdistan Region Law concerning corruption the provisions of Article 45.7 apply.

ARTICLE 47 - EFFECTIVE DATE



This Contract shall become effective and be binding on die Parties upon the signature of the Contract by the duly authorised representatives of the GOVERNMENT and the CONTRACTOR, as provided below.



90/116Entered into in three (3) originals in Erbil, The Kurdistan Region on 31 March 2009



For the KURDISTAN REGIONAL GOVERNMENT in ist capacity as Party and as a CONTRACTOR Entity (holding the Third Party Interest) comprising part of the CONTRACTOR:





By: [Signature]

Nechirvan Barzani

Prime Minister

Kurdistan Regional Government

On behalf of the Regional Council for the Oil and Gas Affairs of the Kurdistan Region - Iraq



By: [Signature]

Dr. Ashti Hawrami

Minister of Natural Resources

Kurdistan Regional Government

On behalf of the Ministry of Natural Resources in the Kurdistan Region



For Genel Energy Limited, in ist capacity as a CONTRACTOR Entity:



By: [Signature]

Mehmet Sepil

Chief Executive Officer and Director

Genel Energy International Limited









ANNEX A

MAP SHOWING COORDINATES OF CONTRACT AREA CORNER POINTS































































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Barbahar 208 Sq.Km.



Code Easting Northing

A 323 658 4095 715

B 327 174 4093 034

C 337 851 4088 544

D 328 900 4077 765

E 321 735 4081 188

F 315 517 4084 405 ANNEX B



ACCOUNTING PROCEDURE



PARAGRAPH 1 - GENERAL PROVISIONS



1.1 Purpose



To classify expenditures, define further Petroleum Costs (in addition to those defined as such in the Articles of the Contract), and prescribe the manner in which the CONTRACTOR'S Accounts shall be prepared and approved



1.2 Definitions



Words and phrases to which a meaning has been assigned in Article 1 or other Articles of the Contract shall have the same meaning when used in this Annex.



1.3 Inconsistency



In the event of any inconsistency or conflict between the provisions of this Annex and the other provisions of the Contract, then the other provisions of the Contract shall prevail.



1.4 Accounting Records and Reports



1.4.1 The CONTRACTOR shall maintain the Accounts in accordance with Article 15.1 and in accordance with this Accounting Procedure, including in accordance with the charts of Accounts agreed under Paragraph 1.4.2.



1.4.2 Within sixty (60) days of the Effective Date, the CONTRACTOR shall submit to and discuss with the GOVERNMENT a proposed outline of charts of Accounts, which outline shall be in accordance with generally accepted standards and recognized accounting systems and consistent with normal petroleum industry practice and procedures. Within ninety (90) days of receiving the above submission, the GOVERNMENT shall either provide written notification of its approval of the proposal or request in writing revisions to the proposal. Within one hundred and eighty (180) days after the Effective Date, the CONTRACTOR and the GOVERNMENT shall agree on the outline of charts of Accounts which shall describe the basis of die accounting system and procedures to be developed and used under this Contract. Following such agreement the CONTRACTOR shall expeditiously prepare and provide the GOVERNMENT with formal copies of the comprehensive charts of Accounts and manuals related to die accounting, recording and reporting functions, and procedures which are, and shall be, observed under the Contract.



1.4.3 Notwithstanding the generality of the foregoing, the CONTRACTOR shall make regular Statements relating to the Petroleum Operations. These Statements are as shown:



93/116(a) Production Statement (as indicated in Paragraph 6).



(b) Value of Production and Pricing Statement (as indicated in Paragraph 7).



(c ) Cost Recovery and Share Account Statement (as indicated in Paragraph 8).



(d) Statement of Expenditures and Receipts (as indicated in Paragraph 9).



(e) Final End-of-Year Statement (as indicated in Paragraph 10).



(f) Budget Statement (as indicated in Paragraph 12).



1.4.4 All reports and statements shall be prepared in accordance with the Contract, Kurdistan Region Law, and where there are no relevant provisions of either of these, in accordance with prudent international petroleum industry practice.



1.5 Language and Units of Account

All Accounts shall be maintained and prepared in the English language and shall be recorded in Dollars. Where necessary for clarification, the CONTRACTOR may also maintain Accounts in other currencies.



1.6 Audit and Inspection Rights of the GOVERNMENT



In addition to the provisions of Articles 15.3 to 15.7 and 15.9, the following provisions shall apply to any audit carried out in accordance with Articles 15.3 to 15.7:



1.6.1 For purposes of auditing, the GOVERNMENT, acting reasonably and in accordance with rodent international petroleum industry practice, may examine and verify, at reasonable times upon reasonable prior written notice to the CONTRACTOR, all charges and credits relating to the Petroleum Operations, such as books of account, accounting entries, material records and inventories, vouchers, payrolls, invoices and any other documents, correspondence and records including electronic records reasonably considered necessary by the GOVERNMENT to audit and verify the charges and credits, values and treatments;



1.6.2 Furthermore, the auditors shall have the right in connection with such audit, to visit and inspect at reasonable times, all sites, plants, facilities, warehouses and offices of the CONTRACTOR directly or indirectly serving the Petroleum Operations and to question personnel associated with those Petroleum Operations.



1.6.3 Where the GOVERNMENT requires verification of charges made by an Affiliated Company of the CONTRACTOR, the GOVERNMENT shall have the right to obtain an audit certificate for such changes from an internationally recognized firm of public accountants acceptable to both the GOVERNMENT and the CONTRACTOR, which may be the CONTRACTOR's statutory auditor.



1.6.4 All agreed adjustments resulting from an audit shall be promptly made in the CONTRACTOR's Accounts and any consequential adjustments to payments due to



[SIGNATURE] [SIGNATURE]



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1.6.4 When issues are outstanding with respect to an audit, the CONTRACTOR shall maintain the relevant documents and permit inspection thereof until the issue is resolved.



1.7 Payments



Unless as otherwise provided in Article 24, Article 29 or other Articles of the Contract:



1.7.1 All payments between the Parties shall, unless otherwise agreed, be in Dollars and be made through a bank designated in writing by each receiving party; and all sums due under the Contract shall be paid within thirty (30) days following the end of the Month in which the obligation to make such payment occurred.



1.7.2 All sums due by one party to the other under the Contract shall, for each day such sums are overdue, bear interest compounded monthly at LIBOR plus two per cent (2%).



1.8 Currency Exchange Rates



In addition to the provisions of Article 29, the following provisions shall apply to any exchanges of currency carried out in accordance with Article 29;



1.8.1 Amounts received and Petroleum Costs incurred, shall be converted from other currencies into Dollars in accordance with the CONTRACTOR’s usual accounting procedures which shall reflect generally accepted accounting practices in the

international petroleum industry and with reference to exchange rates obtained in accordance with Article 29.



1.9 Accrual Basis, Cash Flow Basis and Reports



All books and Accounts shall be prepared on an accrual basis in accordance with generally accepted accounting principles used in the international petroleum industry.



1.10 Values and Treatments



Values and treatments proposed by the CONTRACTOR relating to all Petroleum Costs shall be subject to challenge by the GOVERNMENT in the course of audit to ensure that they are in accordance with the provisions of this Accounting Procedure.



PARAGRAPH 2 - CLASSIFICATION, DEFINITION AND ALLOCATION OF COSTS AND EXPENSES



2.1 Segregation 01 Costs and Expenses



Petroleum Costs shall be segregated in accordance with the purposes for which such Petroleum Costs are made. The purposes which shall qualify are:





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(a) those which have been included in the approved Work Program and Budget for the year in which the Costs and Expenditures are made;



(b) expenditures incurred in cases of emergency as set out in Articles 11.7, 13.5, 13.9 35.5, 35.6 and any other Articles of the Contract;



(c) any other purposes agreed in the Articles of the Contract; and



(d) other items which have been agreed by the Parties from time to time.



All Petroleum Costs recoverable under Paragraph 3 relating to Petroleum Operations shall be classified, defined and allocated as set out below.



2.2 Exploration Costs



Exploration Costs are all direct and allocated indirect costs and expenditures incurred in carrying out the Exploration Operations, including all direct and allocated indirect costs and expenditures incurred in the search for Petroleum in an area which is, or was at the time when such costs and expenses were incurred, part of the Contract Area including:



2.2.1 Aerial, geophysical, geochemical, paleontological, geological, topographical and seismic surveys and studies and their interpretation and purchased geological and geophysical information.



2.2.2 Stratigraphic test hole drilling and water well drilling.



2.2.3 Labour, materials, supplies, and services used in drilling and formation testing of wells with the object of finding Petroleum or Appraisal Wells excluding any costs of the subsequent completion of such wells as producing wells.



2.2.4 Facilities to the extent used in support of the purposes described in Paragraphs 2.2.1, 2.2.2 and 2.2.3, including access wads.



2.2.5 That portion of all service expenditures and that portion of all general and administrative expenditures directly attributable to Exploration Costs or allocated thereto on a consistent and equitable basis.



2.2.6 Any other expenditures incurred in the search for and appraisal of Petroleum after the Effective Date and not otherwise covered under this Paragraph 2.2.



2.3 Gas Marketing Costs



Gas Marketing Costs are all direct and allocated indirect costs and expenditures incurred in carrying out Gas Marketing Operations and include that portion of all service expenditures and that portion of all general and administrative expenditures directly attributable to Gas Marketing Costs or allocated thereto on a consistent and

equitable basis.





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KS2.4 Development Costs



Development Costs are all direct and allocated indirect costs and expenditures incurred in carrying out Development Operations including all direct and allocated indirect costs and expenditures incurred in:



2.4.1 Drilling wells which are completed as producing wells and drilling wells for purposes of producing from a Petroleum reservoir, whether these wells are dry or producing and drilling wells for the injection of water or gas to enhance recovery of Petroleum.



2.4.2 Completing wells by way of installation of easing or equipment or otherwise after a well has been drilled for the purpose of bringing the well into use as at producing well or as a well for the injection of water or gas to enhance recovery of Petroleum.



2.4.3 The costs of Petroleum production, transport and storage facilities such as pipelines, flow lines, production and treatment units, wellhead equipment, subsurface equipment, enhanced recovery systems, Petroleum storage facilities, and access roads for production activities.



2.4.4 Engineering and design studies for the wells and facilities referred to in Paragraphs 2.4.1, 2.4.2 and 2.4.3. And including that portion of all service expenditures and that portion of all general and administrative expenditures directly attributable to Development Costs or allocated thereto on a consistent and equitable basis; and any other expenditure incurred in the Development Operations and not otherwise covered under Paragraph 2.3.



2.5 Production Costs



Production Costs are all direct and allocated indirect costs and expenditures incurred in carrying out Production Operations, including all direct and allocated indirect costs and expenses incurred in Petroleum Operations after First Production which are other than Exploration Costs. Gas Marketing Costs, Development Costs and Decommissioning Costs. Production Costs include that portion of all service expenditures and that portion of all general and administrative expenditures directly attributable to Production Costs or allocated thereto on a consistent and equitable basis.



2.6 Decommissioning Coats



Decommissioning Costs are all direct and allocated indirect costs and expenditures incurred in carrying out Decommissioning Operations and include that portion of all service expenditures and that portion of all general and administrative expenditures directly attributable to Decommissioning Costs or allocated thereto on a consistent and equitable basis, and the Decommissioning Reserve Fund shall be determined on such basis, in advance of incurring such costs, as provided in Article 38 and, for the purposes of cost recovery, the contributions to the Decommissioning Reserve Fund shall be recovered in accordance with Article 38.





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KS2.7 Service Expenditures



Service expenditures are expenditures in support of Petroleum Operations including warehouses, vehicles, motorized rolling equipment, aircraft, tire and security stations, workshops, water and sewerage plants, power plants, housing, community and recreational facilities and furniture, tools and equipment used in these activities. Service expenditures in any Calendar Year shall include the costs incurred in such year to purchase and/or construct the said facilities as well as the annual costs of maintaining and operating the same. All service expenditures shall be regularly allocated as specified in Paragraphs 2.2.5, 2.3, 2.4, 2.5 and 2.6 to Exploration Costs, Gas Marketing Costs, Development Costs, Production Costs and Decommissioning Costs respectively and shall be separately shown under each of these categories

Where service expenditures are made in respect of shared facilities, the basis of allocation of costs to Petroleum Operations shall be consistent and equitable and shall be specified.



2.8 General and Administrative Expenditures



General and administrative expenditures are:



2.8.1 All main office, field office and general administrative expenditures in the Kurdistan Region including supervisory, accounting, procurement and employee relations services.



2.8.2 Where the CONTRACTOR is an Affiliate of a group of companies whose headquarters is Abroad (a “Foreign CONTRACTOR”), an annual overhead charge

shall be made for services rendered (excluding the direct expenditures as referred in Paragraph 3.1.2.(b)) by any Affiliate of the Foreign CONTRACTOR outside the Kurdistan Region to support and manage Petroleum Operations under the Contract, or where the CONTRACTOR, nor being a Foreign CONTRACTOR draws upon the services of an Affiliate within the Kurdistan Region, an annual overhead charge shall

be made for services rendered (excluding the direct expenditures as referred in Paragraphs 3.1.2(a) and (b)) by such Affiliate to support and manage Petroleum Operations under the Contract (“Parent Company Overhead").



Parent Company Overhead will be deemed to cover the actual cost (being salaries, wages and labour burden, employee benefits, travel, hotel and other normally reimbursable expenses paid by the Affiliate of a CONTRACTOR in accordance with its standard personnel policy in force in the relevant period, provision of office accommodation and provision of services reasonably necessary for operation and maintaining such staff offices) incurred for services rendered by those functions of CONTRACTOR’s Affiliate, such as, but not limited to, international production headquarters, international exploration headquarters, treasury, payroll, taxation, insurance, legal, communications, computer services, controllers. personnel, executive administrative management, research and development, central engineering

and process engineering which:



(a) cannot, without unreasonable effort and/or expenditure or without the release of confidential data proprietary to any of the CONTRACTORS Affiliates, be charged under any other section of this Annex; and





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ks(b) are properly allocable to Petroleum Operations under the Contract. It is understood, however, that services performed by the departments listed above

and other corporate departments which directly benefit Petroleum Operations under the Contract shall be charged as direct costs in accordance with

Paragraph 3.



In respect of the costs of the CONTRACTORS Parent Company Overhead, as described above, the CONTRACTOR shall charge monthly to Petroleum Operations an amount equal to the total of the following:



2.8.2.1 Exploration Overhead



The CONTRACTOR shall be entitled to an annual charge based on a sliding scale percentage and charged monthly to Petroleum Operations. The basis for applying this percentage shall be the total of Exploration Costs and Gas Marketing Costs during

each Calendar Year (exclusive of this Exploration Overhead) or fraction thereof less expenditures which have been subjected to the two (2) per cent fee. referred to in Paragraph 3.1.8(b). The sliding scale percentage shall be the following:



For the first four million Dollars (US$4,000,000) four per cent (4%)



For the next four million Dollars (US$4,000,000) three per cent (3%)



Over eight million Dollars (US$8,000,000) two per cent (2%)



The foregoing percentages may be reviewed but not more often than annually, and any approved appropriate adjustment shall be made, if necessary, prospectively.



2.8.2.2 Development, Production and Decommissioning Operations Overhead



The overhead rates applicable to Development, Production and Decommissioning Operations shall be agreed between the Parties in due course and shall incorporate the following guidelines:



(a) The CONTRACTOR’S charges must be charged as direct charges whenever possible. Overhead charges exist only to compensate the CONTRACTOR‘s Affiliates for costs which are properly allocable to Petroleum Operations under the Contract but which cannot, without unreasonable effort and for

release of confidential data proprietary to the CONTRACTORS Affiliates, be charged under any other section. Overhead costs are billed monthly. Overhead must be commensurate with services rendered and based on actual cost studies but may not exceed an amount calculated as a percentage of

certain annual expenditures excluding Exploration Costs and



(b) That percentage as well as the types of expenditures, which affect overhead and those, which do not, shall be agreed among the Parties.



(c) The maximum percentage rates may be revised by mutual agreement not more often than annually. The initial maximum percentage rates and the types of

expenditures In which they apply shall be agreed as soon as the Parties possess reasonably reliable cost estimates for the relevant Production Area.





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[signature](d) Overhead charges are not subject to audit by GOVERNMENT.



(e) The CONTRACTOR shall upon request furnish at the end of each relevant Calendar Year to the GOVERNMENT a confirmation by its statutory auditor

that the overhead costs actually charged do not duplicate any other charges and that the method used in allocating overhead to Petroleum Operations

hereunder as opposed to other activities is reasonable and in accordance with generally accepted accounting practices.



(f) The CONTRACTOR must budget for overhead charges:



2.8.3 All general and administrative expenditures shall be regularly allocated as specified in Paragraphs 2.2.5, 2.3, 2.4, 2.5 and 2.6 to Exploration Costs, Gas Marketing Costs, Development Costs, Production Costs and Decommissioning Costs respectively and shall be separately shown under each of thase categories.



PARAGRAPH 3 - COSTS, EXPENSES, EXPENDITURES AND CREDITS OF THE CONTRACTOR



3.1 Costs Recoverable Without Further Approval of the GOVERNMENT The following Petroleum Costs incurred by the CONTRACTOR pursuant to the Contract as classified under the headings referred to in Paragraph 2 shall be recoverable for the purpose of Article 25 of the Contract (except to the extent

provided in Paragraph 4 or elsewhere in this Annex) without the further approval of the GOVERNMENT, subject to audit as provided for in Article 15 and in Paragraph 1.6.



3.1.1 Surface Rights



All direct costs necessary for the acquisition. renewal or relinquishment of surface rights acquired and maintained in force for the purposes of the Contract.



3.12 Labour and Associated Labour Costs



(a) The CONTRACTOR’s locally recruited employees based in the Kurdistan Region: Costs of all CONTRACTOR’S locally recruited employees who are

directly engaged in the conduct of Petroleum Operations under the Contract in the Kurdistan Region. Such costs shall include the costs of salaries, wages, bonuses, overtime, employee benefits and GOVERNMENT benefits for employees and levies imposed on the CONTRACTOR as an employer,

transportation and relocation costs within the Kurdistan Region of the employee and such members of the employee's family (limited to spouse and

dependent children) as required by law or customary practice in the Kurdistan Region. If such employees are engaged in other activities in the Kurdistan

Region, in addition to Petroleum Operations, the cost of such employees shall be apportioned on a time sheet basis according to sound and acceptable

accounting principles.





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[signature](b) Assigned Personnel: Costs of salaries and wages including bonuses of the CONTRACT OR's employees directly engaged in the conduct of the Petroleum Operations under the Contract, whether temporarily or permanently assigned, irrespective of the location of such employees, it being understood

that in the case of those personnel only a portion of whose time is wholly dedicated to Petroleum Operations under the Contract. only that pro-rata

portion of applicable salaries, wages, and other costs as delineated in Paragraphs 3.1.2(c), (d), (e), (f) and (g), shall be charged and the basis of such pro-rata allocation shall be specified.



(c) The CONTRACTOR’s costs regarding holiday, vacation, sickness and disability benefits and living and housing and other customary allowances

applicable to the salaries and wages chargeable under Paragraph 3.1.2(b).



(d) Expenses or contributions made pursuant to assessments or obligations imposed under Law which are applicable to the CONTRACTOR’S cost of salaries and wages chargeable under Paragraph 3.1.2(b).



(e) The CONTRACTORS cost of established plans for employees group life insurance, hospitalization. pension, stock purchases, savings, bonus, and other

benefit plans of a like nature customarily granted to the CONTRACTOR’s employees, provided however that such costs are in accordance with generally

accepted standards in the international petroleum industry, applicable to salaries and wages chargeable to Petroleum Operations under Paragraph 3.1.2(b).



(f) Actual transportation and travel expenses of employees of CONTRACTOR, including those made for travel and relocation of the expatriate employees,

including their families and personal effects, assigned to the Kurdistan Region whose salaries and wages are chargeable to Petroleum Operations under

Paragraph 3.1.2(b).



Actual transportation expenses of expatriate personnel transferred to Petroleum Operations from their country of origin shall he charged to the Petroleum Operations. Transportation expenses of personnel transferred from Petroleum Operations to a country other than the country of their origin shall not be charged to the Petroleum Operations. Transportation cost as used in this section shall mean the cost of freight and passenger service. meals, hotels, insurance and other expenditures related to vacation and transfer travel and authorized under the CONTRACTOR’S standard personnel policies. The CONTRACTOR shall ensure that all expenditures related to transportation costs are equitably allocated to the activities, which have benefited from the personnel concerned.



(g) Reasonable personal expenses of personnel whose salaries and wages are chargeable to Petroleum Operations under Paragraph 3.1.2(b) and for which

expenses such personnel are reimbursed under the CONTRACTOR’s standard personnel policies. In the event such expenses are not wholly attributable to Petroleum Operations, the Petroleum Operations shall be charged with only the applicable portion thereof, which shall be determined on an equitable basis.





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[signature]3.1.3 Transportation and Employee Relocation Costs



The cost of transportation of employees, equipment, materials and supplies other than as provided in Paragraph 3.1.2(f) necessary for the conduct of the Petroleum Operations under the Contract along with other related costs such as, but not limited to, import duties, customs fees, unloading charges, dock fees, and inland and ocean height charges.



3.1.4 Charges for Services



(a) Third Parties



The actual costs of contract services, services of professional consultants, utilities, and other services necessary for the conduct of the Petroleum

Operations under the Contract performed by third parties other than an Affiliate of the CONTRACTOR.



(b) Affiliates of the CONTRACTOR



(i) Professional and Administrative Services Expenses: cost of professional and administrative services provided by any Affiliates of the CONTRACTOR for the direct benefit of Petroleum Operations, including services provided by the production, exploration, legal, procurement, financial, insurance, accounting and computer services divisions other than those covered by paragraphs 3.1.4(b)(ii). 3.1.6 and 3.1.8(b) which CONTRACTOR may use in lieu of having its own employees. Such charges shall reflect the cost of providing their services. Such charges shall not include any element of profit and shall be no more or lees favorable than similar charges for other operations carried on by the CONTRACTOR and its Affiliates. The charge out rate shall include all costs incurred by Affiliates incidental to the

employment of such personnel including all Labour and Associated Labour Costs and the cost of maintaining and operating offices and providing all support services for such personnel. Costs of travel of such personnel in respect of Petroleum Operations will be directly charged. The charges for such services shall not exceed those

prevailing if performed by non-Affiliated third parties. taking into account the quality and availability of such services. Where the work is

performed outside the home office base of such personnel, the daily rate shall be charged from the date such personnel leave the home office base where they usually work up to their return thereto,

including days which are not working days in the location where the work is performed, excluding any holiday entitlements derived by such personnel from their employment at their home office base.



(ii) Scientific or Technical Personnel; cost of scientific or technical personnel services provided by any Affiliate of the CONTRACTOR for the direct benefit of Petroleum Operations, which cost shall be charged on a cost of service basis and shall not include any element of profit. The chargeout rate shall include all costs incurred by Affiliates,





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[signature]incidental to the employment of such personnel including all Labour and Associated Labour Costs and the cost of maintaining and Operating offices and providing all support services for such personnel costs of travel of such personnel in respect of Petroleum Operations will be directly charged. The charges for such services shall not exceed those prevailing if performed by non-affiliated third parties. taking into account the quality and availability of such services. Unless the work to be done by such personnel is covered by an approved Work Program and Budget, the CONTRACTOR shall not authorize work by such personnel without approval of the GOVERNMENT.



(iii) Equipment and facilities: use of equipment and facilities owned and furnished by the CONTRACTORS Affiliates. at rates commensurate

with the cost of ownership and operation; provided. however, that such rattle shall not exceed those currently prevailing for the supply of like equipment and facilities on comparable terms in the area where the Petroleum Operations are being conducted and shall be on an arm's length basis. On the request of the GOVERNMENT, the CONTRACTOR shall provide the GOVERNMENT with evidence of such rates being on an arm’s length basis. (If the GOVERNMENT

considers that any such rate is not on an arm’s length basis then the GOVERNMENT has the right to refer the matter to an expert pursuant to Article 42.2 of the Contract). The equipment and facilities

referred to herein shall exclude major investment items such as (but not limited to) drilling rigs, producing platforms, oil treating facilities

oil and gas loading and transportation systems, storage and terminal facilities and Other major facilities, rates for which shall be subject to

separate agreement with the GOVERNMENT.



3.1.5 Communications



Cost of acquiring, leasing, installing, operating, repairing and maintaining communication systems including radio and microwave facilities within and between the Contract Area and the CONTRACTOR’S nearest base facility.



3.1.6 Office and Miscellaneous Facilities



Net cost to the CONTRACTOR of establishing, maintaining and operating any office, sub-office. warehouse, housing or other facility directly serving the Petroleum Operations If any such facility services more than one contract area the net costs thereof shall be allocated on an equitable basis in accordance with prudent international petroleum industry practice.



3.1.7 Ecological and Environment



(a) Costs incurred in the Contract Area as a result of legislation for archaeological and geophysical surveys relating to identification and protection of cultural sites or resources;



(b) Costs incurred in environmental or ecological surveys required by regulatory authorities, including an environmental impact assessment commissioned





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[signature]pursuant to Article 37.5 of the Contract and any other costs incurred in complying with the requirements of Article 37;



(c) Costs to provide or have available pollution containment and removal equipment;



(d) Costs of actual control and cleanup of oil spills, and of such further responsibilities resulting therefrom as may be required by applicable laws and regulations;



(e) Costs of restoration of the Operating environment incurred pursuant to an approved scheme prepared in accordance with Article 38 of the Contract;



(f) Any costs incurred for the decommissioning of facilities and site restoration, including any related activity required by the GOVERNMENT or other competent authority or by the Contract; and



(g) Any contributions made by the CONTRACTOR to the Decommissioning Reserve Fund in accordance with Article 38. when such contributions are made.



3.1.8 Material and Equipment Costs



Costs of materials and supplies, equipment, machines, tools and any other goods of a similar nature used or consumed in Petroleum Operations subject to the following:



(a) Acquisition - the CONTRACTOR shall only supply or purchase materials for use in Petroleum Operations that may be used in the foreseeable future. The accumulation of surplus stocks and inventory shall be avoided so far as is reasonably practical and consistent with efficient and economical operations. Inventory levels shall, however, take into account the time lag for replacement, emergency needs, weather conditions affirming operations and similar considerations.



(b) Components of coats, arm's length transactions - except as otherwise provided in paragraph 3.1.8(d), material purchased by the CONTRACTOR in arm's length transactions in the open market for use in the Petroleum Operations under the Contract shall be valued to include invoice price less

trade and cash discounts (if any), licence fees, purchase and procurement fees plus freight and forwarding charges between point of supply and point of shipment, freight to port of destination, insurance, taxes, customs duties, consular fees, excise taxes, other items chargeable against imported materials and, where applicable, handling and transportation expenses from point of importation to warehouse or operating site. Where an Affiliate of the CONTRACTOR has arranged the purchase, coordinated the forwarding and expediting effort, its costs should not exceed those currently prevailing in normal arm‘s length transactions on the open market and in any case shall not exceed a fee equal to two per cent (2%) of the value of the materials added to the cost of the materials purchased.





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[signature](c) Accounting - such material costs shall be charged to the accounting records and books in accordance with the “First in, First Out” (FIFO) method;



(d) Material purchased from or sold to Affiliates of the CONTRACTOR or transferred from other activities of the CONTRACTOR to or from Petroleum

Operations under this Contract shall be valued and charged or credited at the prices specified in Paragraphs 3.1.8(d)(i), 3.1.8(d)(ii) and 3.1.8(d)(iii):



(i) New material, including used new material moved from inventory (Condition “A”), shall be valued at the current international net price which shall not exceed the price prevailing in normal arm‘s length

transactions in the open market.



(ii) Used material (Conditions ”B”, "C” and “D“);



(A) Material which is in sound and serviceable condition and is suitable for re-use without reconditioning shall be dammed as Condition “B” and priced at seventy five per cent (75%) of the current price of new material defined in Paragraph 3.1.8(d)(i);



(B) Material which cannot be classified as Condition “B" but which after reconditioning will be further serviceable for its original function shall be classified as Condition “C” and priced at not more than fifty per cent (50%) of the current price of new material as defined in Paragraph 3.1.8(d)(i). The cost of reconditioning shall be charged to the reconditioned material provided that the value of Condition “C“ material plus the cost

of reconditioning do not exceed the value of Condition “B" material;



(C) Material which cannot be classified as Condition “B” or Condition “C” shall be classified as Condition “D” and priced at a value commensurate with its use by the CONTRACTOR. If material is not fit for use by the CONTRACTOR it shall be disposed of as junk.



(iii) Material involving erection costs shall be charged at the applicable condition percentage of the current knocked-down price of new material as defined in Paragraph 3.1.8(d)(i)



(iv) When the use of material is temporary and its service to the Petroleum Operations under the Contract does not justify the reduction in price as

provided for in paragraph 3.1.8.(d)(ii)(b), such material shall be priced on a basis that will result in a net charge to the accounts under the

Contract consistent with the value of the service rendered.



(v) Premium prices - whenever material is not readily obtainable at published or listed prices because of national emergencies, strikes or other unusual causes over which the CONTRACTOR has no control, the CONTRACT OR may charge Petroleum Operations for the required material at the CONTRACTORS actual cost incurred in





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[signature]providing such material, in making it suitable for use, and in moving it to the Contract Area; provided notice in writing is furnished to the

GOVERNMENT of the proposed charge prior to charging Petroleum Operations for such material and the GOVERNMENT shall have the right to challenge the transaction on audit.



(vi) Warranty of material furnished by the CONTRACTOR - the CONTRACTOR does not warrant the material furnished. In case of defective material, credit shall not he passed to Petroleum Operations

until adjustment has been received by the CONTRACTOR from the manufacturers of the material or their agents.



(vii) Adjustments arising from material inventories conducted in accordance with Paragraph 5.2.



(e) Equipment of the CONTRACTOR charged at rates not to exceed the average commercial rates of non-affiliated third parties for equipment, facilities,

installations and utilities for use in the area where the satire are used, on request, the CONTRACTOR shall furnish a list of rates and the basis of application. Such rates shall be revised when found to be either excessive or insufficient, but not more than once every six (6) Months.



Drilling tools and other equipment lost in the hole or damaged beyond repair may be charged at replacement cost less depreciation plus transportation costs to deliver like equipment to the location where used.



(f) Use of leased or hired machinery and for equipment in the Petroleum Operations shall be charged at full cost to the CONTRACTOR. This may

include mobilization and de-mobilization charges,

lease and hire fees, as well as other contractual costs.



3.1.9 Rentals and Taxes



All rentals of every kind and nature levied by any GOVERNMENT and all Taxes imposed in connection with the CONTRACTOR‘s assets, income or activities under

the Contract and paid directly by the CONTRACTOR or any CONTRACTOR Entity (save where the contrary is expressly provided in the Contract) with the

exception of Taxes described in Article 31 .2) and bonus payments made under Article 32.



If the CONTRACTOR, any CONTRACTOR Entity or any of its Affiliated Companies is subject to income or withholding tax as a result of services performed at cost for the Petroleum Operations under the Contract. its charges for such services may be increased by the amount required to cover such taxes (grossed up) including taxes on such gross up.



3.1.10 Insurance and Loses



Insurance premiums and crusts incurred for insurance carried for the benefit of the Petroleum Operations provided that such insurance is customary, affords prudent protection against risk and is at a premium no higher than that charged on a





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[signature]competitive basis by insurance companies which are not Affiliated Companies of the CONTRACTOR. Except in cases of failure to insure where insurance coverage is required pursuant to the Contract, actual costs and losses incurred shall be recoverable to the extent not made good by insurance unless such losses result solely from an act of willful misconduct by the CONTRACTOR Such costs may include repair and replacement of property in the Contract Area resulting from damages or losses incurred by fire, flood, storm, theft, accident or such other cause.



3.1.11 Legal Expences



All reasonable costs and expenses resulting from the handling, investigating, asserting, defending, or settling of any claim or legal action necessary or expedient for the procuring, perfecting, retention and protection of the Contract Area, and in defending or prosecuting lawsuits involving the Contract Area or any third party claim arising out of the Petroleum Operations under the Contract. or sums paid in respect of legal services necessary for the protection of the joint interest of the

GOVERNMENT and the CONTRACTOR shall be recoverable. Such expenditures shall include attorney's fees, court costs, arbitration costs, costs of investigation, and procurement of evidence and amounts paid in settlement or satisfaction of any such litigation and claims provided such costs are not covered elsewhere in the Annex. Where legal services are rendered in such matters by salaried or regularly retained lawyers of the CONTRACTOR or an Affiliated Company of the CONTRACTOR, such compensation shall be included instead under Paragraph 3.1.2 or 3.1.4(b) as applicable.



3.1.12 Claims



Expenditures made in the settlement or satisfaction of any loss, claim, damage, judgment or other expense arising out of or relating to Petroleum Operations, except as may otherwise be covered elsewhere in the Annex.



3.1.13 Training Costs



All costs and expenses incurred by the CONTRACTOR in the training of its employees engaged in Petroleum Operations under the Contract.



3.1.14 General and Administrative Costs



The costs described in Paragraph 2.8.1 and the charge described in Paragraph 2.8.2.



3.1.15 Banking Charges and Currency Exchange Losses



Charges and fees by the banks for money transfers, payments and foreign exchange transactions, as well as currency exchange loses incurred by the CONTRACTOR in connection with the Petroleum Operations.



3.1.16 Other Expenditures



Other reasonable expenditures not covered or dealt with in the foregoing provisions of Paragraph 3 which are necessarily incurred by the CONTRACTOR for the proper, economical and efficient conduct of Petroleum Operations.





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[signature]3.2 Credit Under the Contract



The proceeds, other than the proceeds from the sale of Petroleum received from Petroleum Operations under the Contract, including the items listed below shall be credited to the Accounts under the Contract for the purposes of Article 25 of the

Contract:



3.2.1 The proceeds of any insurance or claim or judicial awards in connection with Petroleum Operations under the Contract or any assets charged to the Accounts under the Contract where such operations or assets have been insured and the premia charged to the Accounts under the Contract.



3.2.2 Legal costs charged to the accounts under Paragraph 3.l.ll and subsequently recovered by the CONTRACTOR.



3.2.3 Revenue received from third parties for the use of property or assets the cost of which has been charged to the Accounts under the Contract.



3.2.4 Any adjustment received by the CONTRACTOR from the suppliers/manufacturers or their agents in connection with a defective material the cost of which was previously charged by the CONTRACTOR to the Accounts under the Contract.



3.2.5 Rentals, refunds, including refunds of taxes paid, or other credits received by the CONTRACTOR which apply to any charge which has been made to the Accounts under the Contract, but excluding any award granted to the CONTRACTOR under arbitration or expert proceedings.



3.2.6 Costs originally charged to the Accounts under the Contract for materials subsequently exported from the Kurdistan Region or transferred to another Contract Area within the Kurdistan Region.



3.2.7 Proceeds from the sale or exchange by the CONTRACTOR of plant or facilities used in Petroleum Operations the acquisition costs of which have been charged to the Accounts under the Contract.



3.2.8 Proceeds derived from the sale or license of any intellectual property the development costs of which were incurred pursuant to and are recoverable under the Contract.



3.2.9 Proceeds derived from the sale, exchange, lease, hire, transfer or disposal in any manner whatsoever of any other item the costs of which have been charged to Petroleum Operations.



3.3 Duplication of Charges and Credits



Notwithstanding any provision to the contrary in this Accounting Procedure, there shall be no duplication of charges or credits to the Accounts under the Contract.





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[signature]PARAGRAPH 4 - COSTS AND EXPENSES NOT TO BE TREATED AS RECOVERABLE



The following costs and expenditures shall not be included in the Petroleum Costs recoverable under Article 25:



4.1 Taxes on income or profit paid to any GOVERNMENT authority except taxes and duties that may be included in the costs of material and equipment purchased for the Petroleum Operations;



4.2. Any payment made to the GOVERNMENT by reason of the failure of the CONTRACTOR to fulfill its Minimum Exploration Obligations in respect of the

relevant Sub-Period under the Contract.



4.3 The cost of any letter of guarantee, if any, required under the Contract:



4.4 The bonuses set out in Article 32 of the Contract;



4.5 Costs of marketing or transportation of Petroleum beyond the Delivery Point (excluding Gas Marketing Costs);



4.6 Attorney’s fees and other costs of proceedings in connection with arbitration under Article 42 of the Contract or internationally recognized independent expert determination as provided in the Contract or this Accounting Procedure;



4.7 Any interests, fees, costs and expenses paid by the CONTRACTOR for loans and any other form of financing or advances for the financing of the Petroleum Costs entered into by the CONTRACTOR with third parties or Affiliated Companies:



4.8 Any accounting provision for depreciation and/or amortization, excluding any adjustments in value pursuant to Paragraph 3.1.8;



4.9 Dividends, repayment of equity or repayment of intercompany loans;



4.10 Fines and penalties imposed under Law.



PARAGRAPH 5 - RECORDS AND VALUATION OF ASSETS



5.1 Records



The CONTRACTOR shall maintain detailed records of property in use for Petroleum Operations under the Contract in accordance with prudent international

petroleum industry practice for exploration and production activities.



5.2 Inventories



Inventories of property in use in Petroleum Operations shall be taken at reasonable intervals but at least once a year with respect to movable assets and once every three (3) years with respect to immovable assets. The CONTRACTOR shall give the

GOVERNMENT at least thirty (30) days written notice of its intention to take such







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[signature]inventory and the GOVERNMENT shall have the right to be represented when such inventory is taken.



Failure of the GOVERNMENT to be represented at an inventory shall bind the GOVERNMENT to accept the inventory taken by the CONTRACTOR.



The CONTRACTOR shall clearly inform GOVERNMENT about the principles upon which valuation of the inventory has been based. The CONTRACTOR shall make every effort to provide to the GOVERNMENT a full report on such inventory within thirty (30) days of the taking of the inventory. When an assignment of rights under the Contract takes place the CONTRACTOR may, at the request of the assignee, take a special inventory provided that the costs of such inventory are home by the assignee.



PARAGRAPH 6 - PRODUCTION STATEMENT



6.1 Production Information



Without prejudice to the rights and obligations of the Parties under Article 16 of the Contract, from the date of First Production from the Contract Area the CONTRACTOR shall submit a monthly production statement to the GOVERNMENT showing the following information separately for each producing Development Area and in aggregate for the Contract Area:



6.1.1 The quantity of Crude Oil produced and saved.



6.1.2 The quality characteristics of such Crude Oil produced and saved.



6.1.3 The quantity of Natural Gas produced and saved.



6.1.4 The quality characteristics of such Natural Gas produced and saved.



6.1.5 The quantities of Crude Oil and Natural Gas used for the purposes of carrying on drilling and production operations and pumping to field storage.



6.1.6 The quantities of Crude Oil and Natural Gas unavoidably lost.



6.1.7 The quantities of Natural Gas flared and vented.



6.1.8 The size of Petroleum stocks held at the beginning of the calendar Month in question.



6.1.9 The size of Petroleum stocks held at the end of the calendar Month in question.



6.1.10 The quantities of Natural Gas reinjected into the Reservoir.



6.1.11 In respect of the Contract Area as a whole, the quantities of Petroleum transferred at the Measurement Point. All quantities shown in this Statement shall be expressed in both volumetric terms (Barrels of oil and cubic meters of gas) and in weight (metric tonnes),





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[signature]6.2 Submission of Production Statement



The Production Statement for each calendar Month shall he submitted to the GOVERNMENT no later than ten (10) days after the end of such calendar Month.



PARAGRAPH 7 - VALUE OF PRODUCTION AND PRICING STATEMENT



7.1 Value of Production and Pricing Statement Information



The CONTRACTOR shall, for the purposes of Article 25 of the Contract, prepare a statement providing calculations of the value of Crude Oil produced and saved during each Quarter.



This “Value of Production and Pricing Statement“ shall contain the following information:



7.1.1 The quantities and prices realized therefor by the CONTRACTOR in respect of sales of Natural Gas and Crude Oil delivered to third parties made during the Quarter in question.



7.12 The quantities and prices realized therefor by the CONTRACTOR in respect of sales of Natural Gas and Crude Oil delivered during the Quarter in question, other than to Third Parties.



7.2 Submission of Value of Production and Pricing Statement



The Value of Production and Pricing Statement for each Quarter shall be submitted to the GOVERNMENT not later than twenty-one (21) days after the end of such Quarter.



PARAGRAPH 8 - COST RECOVERY AND SHARE ACCOUNT STATEMENT



8.1 Cost Recovery Statement



The CONTRACTOR shall prepare with respect to each Quarter a Cost Recovery Statement containing the following information:-



8.1.1 Recoverable Petroleum Costs carried forward from the previous Quarter, if any.



8.1.2 Recoverable Petroleum Costs for the Quarter in question.



8.1.3 Credits under the Contract for the Quarter in question.



8.1.4 Total Recoverable Petroleum Costs for the Quarter in question (Paragraph 8.1.1 plus Paragraph 8.1.2, net of Paragraph 8.1.3).



8.1.5 Quantity and value of Petroleum applied to cost recovery pursuant to Article 25 taken by the CONTRACTOR for the Quarter in question.





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[signature]8.1.6 Amount of recoverable Petroleum Costs to be carried forward into the next Quarter (Paragraph 8.1.4 net of Paragraph 8.1.5).



8.1. Cumulative Production Statement



The CONTRACTOR shall prepare with respect to each Quarter a Cumulative Production Statement containing the following information:



8.2.1 The cumulative production position at the end of the Quarter preceding the Quarter in question.



8.2.2 Production of Export Petroleum for the Quarter in question.



8.2.4 The cumulative production position at the end of the Quarter in question.



8.2.5 The amount of Petroleum applied to Royalty pursuant to Article 24, cost recovery pursuant to Article 25 and Profit Petroleum pursuant to Article 26 taken by the GOVERNMENT and by the CONTRACTOR, respectively, during the Quarter in question.



8.2.6 The forecast of production and the share of Petroleum applied to Royalty pursuant to Article 24, cost recovery pursuant to Article 25 and Profit Oil pursuant to Article 26 due to the GOVERNMENT and to the CONTRACTOR. respectively, for the next

succeeding Quarter.



8.3 Preparation and Submission of Cost Recovery and Cumulative Production Statements



8.3.1 Provisional Cost Recovery and Cumulative Production Statements, containing estimated information where necessary, shall he submitted by the CONTRACTOR on the last day of each Quarter for the purposes of Article 25 of the Contract.



8.3.2 Final quarterly Cost Recovery and Cumulative Production Statements shall be submitted within thirty (30) days of the end of the Quarter in question.



8.4 Annual Statement



For the purposes of Article 25 of the Contact, an Annual Cost recovery and Cumulative Production Statement shall be submitted within ninety (90) days of the end of each Year. The Annual Statement shall contain the categories of information listed in Paragraphs 8.1 and 8.2 for the Year in question, separated into the Quarters of the Year in question and showing the cumulative positions at the end of the Year in question with respect to cumulative unrecovered Petroleum Costs and Cumulative

Production.



PARAGRAPH 9 - STATEMENT OF EXPENDITURE AND RECEIPTS



9.1 The CONTRACTOR shall prepare with respect to much Quarter a Statement of Expenditure and Receipts under the Contract. The Statement will distinguish between Exploration Costs, Gas Marketing Costs, Development Costs, Production Costs and,





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[signature]

Decommissioning Costs and will identify major items of expenditures within these categories. The Statement will show the following:



9.1.1 Actual expenditures and receipts for the Quarter

in question.



9.1.2 Cumulative expenditure and receipts tor the

budget Calendar Year in question.



9.1.3 Latest forecast cumulative expenditures at the

Calendar Year end.



9.1.4 Variations between budget forecast and latest

forecast and explanations thereof.



9.2 The Statement of Expenditure and Receipts of

each Quarter shall be submitted to the

GOVERNMENT no later than thirty (30) days after

the end of such Quarter.





PARAGRAPH 10 - FINAL END-OF-YEAR STATEMENT



The CONTRACTOR will prepare a Final End-of-Year Statement The Statement will contain information as provided in the Production Statement, Value of Production and Pricing Statement, Cost Recovery and Cumulative Production Statements and Statement of Expenditures and Receipts but will be based on actual quantities of Petroleum produced and expenses incurred. This Statement will be used to make any adjustments that arc necessary to the payments made by the CONTRACTOR under the Contract. The Final End-of-Year Statement of each Calendar Year shall be submitted to the GOVERNMENT within ninety (90) days of the end of such Calendar Year.



PARAGRAPH 11 - AUDITS



Each such report and statement provided for in Paragraph 6 through 10 shall be considered true and correct, unless the GOVERNMENT raises an exception thereto within the time frame and under the process set out in Article 15 of the Contract.



PARAGRAPH 12 - ANNUAL WORK PROGRAM AND BUDGET



12.1 Each annual Work Program and Budget to be

prepared in accordance with Articles 11,12 and 14

of the Contract, in respect of Exploration Costs,

Gas Marketing Costs. Development Costs and

Production Costs respectively will show the

following:



12.1.1 Forecast expenditures for the budget Calendar

Year in question including a quarterly

classification of such expenditures.



12.1.2 Cumulative expenditures to the end of said

budget Calendar Year.



12.1.3 A schedule showing the most important individual

items of Development Costs applicable) for said

budget Year.





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PARAGRAPH 13 - CONTRACTOR ENTITY INCOME TAX COMPUTATION



13.1 For the purpose of Article 31.3(b) of the Contract, the net taxable profits of each CONTRACTOR Entity from all the Petroleum Operations carried out under this Contract, shall be calculated in accordance with this Paragraph.



13.2 Each CONTRACTOR Entity shall maintain for each Calendar Year separate Accounts with respect to the Petroleum Operations which shall be used, inter alia, to establish a profit and loss account and a balance sheet which will show the results of the Petroleum Operations carried out in such Calendar Year as well as the assets and liabilities assigned or directly related thereto. The profit and loss account will be maintained under the accrual method of accounting.



13.3 For purposes of determining the net taxable profits of each CONTRACTOR Entity for corporate income tax purposes;



13.3.1 the profit and loss account of such CONTRACTOR Entity shall be credited with the following:



(a) if the Royalty is paid in cash pursuant to Article 24, revenues arising from the disposal of Royalty volumes as recorded in such entity's Accounts and determined in accordance with the provisions of Article 24;



(b) revenues arising from the disposal of any Available Petroleum to which such entity is entitled tor recovery of its Petroleum Costs as recorded in its Accounts and determined in accordance with the provisions of Article 25;



(c) revenues from the disposal of any Profit Petroleum to which such entity is entitled under Article 26 as is recorded in its Accounts and determined in accordance with the provisions of Article 26;



(d) any other revenues or proceeds directly connected to the Petroleum Operations including those arising from the disposal of related Petroleum substances, or from the treatment, storage and transportation of products for third parties;



(c) any exchange gains realised or other financial income earned by such entity in connection with the Petroleum Operations;



13.3.2 the profit and loss account for such CONTRACTOR Entity shall be debited with all charges incurred for the purposes of the Petroleum Operations whether incurred inside or outside the Kurdistan Region, which charges shall include the following:



(a) in addition to the charges specifically set forth below in this Paragraph, all other Petroleum Costs, including the costs of supplies, personnel and manpower expenses, and the cost of services provided to the CONTRACTOR in connection with the Petroleum Costs:



(b) if the Royalty is paid in cash pursuant to Article 24, Royalty payments made and as recorded in such entity’s Accounts and determined in accordance with the provisions of Article 24:



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(c) General and administrative expenditures related to

the Petroleum Operations performed under this

Contract;



(d) depreciation of capital expenditure in accordance

with the following provisions:



(i) capital expenditures incurred by the CONTRACTOR

for the purposes of the Petroleum Operations

shall be depreciated on a reducing balance

basis;



(ii) the depreciation rates, which shall be

applicable from the Calendar Year during which

such capital expenditures are incurred, or from

the Calendar Year during which the assets

corresponding to said capital expenditures are

put into normal service. whichever is later,

for the first Calendar Year in question and for

each subsequent Calendar Year, are as follows;



Nature of the capital asset Annual depreciation Rate

to be depreciated



Permanent buildings 10.0%



Temporary buildings 20.0%



Office and home furniture and fixtures 20.0%



Productive wells 20.0%



Production and delivery equipment 20.0%



Drilling equipment 20.0%



Pipelines 20.0%



Automotive equipment 20.0%



Marine and aviation equipment 20.0%



All other capital assets 20.0%



(e) Exploration Costs (which for the avoidance of doubt

include appraisal expenditures) shall be deductible

on a reducing balance basis at the rate of 20% per

annum.



(f) interest and fees paid to creditors of the

CONTRACTOR, for their actual amount;



(g) losses of Assets resulting from destruction or

damage, assets which are renounced or abandoned

during the year, assets which are transferred

under,







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Article 20.2, bad debts, indemnities paid to

third parties as compensation for damage;



(h) any other costs, expenses, losses or charges

directly related to the Petroleum Operations,

including exchange losses realized in connection

with the Petroleum Operations as well as the

bonuses provided in Article 32. the Exploration

Rental provided in Article 6.4. the Production

Rental provided in Article 13.10, the allocation

to training, provided in Article 23.7 and the

allocation to the Environment Fund provided in

Article 23.9, the costs specified in Articles

23.11, 38.1 and 38.6 and transportation and

marketing costs beyond the Delivery Point;



(i) the amount of non-offset losses relating to the

previous Calendar Years, which shall be carried

forward for an indefinite period until full

settlement of said losses or termination of this

Contract;



13.3.3 the net profit of such CONTRACTOR Entity shall be equal to the difference between all the amounts credited and all the amounts debited in the profit and loss account; and



(a) if this amount is negative, it shall constitute

a loss;



(b) if the amount is positive, it shall be grossed

up to take account of the fact that such

entity's corporate income tax is being settled

out of the GOVERNMENT’S share of the Profit

Petroleum in accordance with Article 31.2, by

applying the following formula in order to

provide such entity's net taxable profits for

corporate income tax purposes:



Net Taxable Profits =



Net Profits/ (100 - Applicable Rate of Corporate Income

Tax)

_________________________________________

100





13.4 For purposes of determining each CONTRACTOR

Entity's liability to corporate income tax for a tax

year in respect of the Petroleum Operations carried

out under this Contract, the net taxable profits (if

any) for such tax year shall be multiplied by the

applicable rate of corporate income tax. as provided

in Article 31.3(a).





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