Iraq

31/03/2009

The initial contract area covers the Ber Bahr Block and extends over an area of 208 square kilometers as detailed and indicated on the map attached in Annex A.

Genel Energy International Limited

Ber Bahr Block

Ber Bahr Block

Petroleum

Ministry of Natural Resources, Kurdistan regional government.

The exploration period shall be for an initial term of 5 contract years extendable on a yearly basis up to a maximum period of 7 contract years. The development period for a commercial discovery of crude oil and any associated or non-associated natural gas shall be 20 years beginning on the declaration of a commercial discovery by Genel Energy International Limited (Genel Energy) with an automatic right to a 5 year extension period. If commercial production from a production area is still possible upon the expiration of a development period, then, upon request, Genel Energy shall be entitled to an extension of such development period under the same terms as contained in the contract. The term of the extension shall be 5 years for crude oil and any associated natural gas and/or 5 years for non-associated natural gas.

Production Sharing Contract

Genel Energy shall conduct and submit an environmental impact assessment to the government within 6 months after the effective date.

Gas flaring is prohibited unless it is a short term flaring of up to 12 months necessary for testing or other operational reasons in accordance with prudent international petroleum industry practice (which shall include the flaring of associated natural gas to the extent that Genel Energy International Limited (Genel Energy) considers that re-injecting the associated natural gas is not economically and technically justified and provided the government decides not to take such associated natural gas). Flaring of natural gas would also be permitted with the prior authorization of the government. Genel Energy shall contribute US$ 150,000 each contract year during the exploration period and US$ 300,000 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. During the performance of petroleum operations, Genel Energy shall take reasonable measures to ensure that it, its subcontractors and agents attend to the protection of the environment and prevention of pollution in accordance with prudent international petroleum industry practice and in similar physical and ecological environment and any then applicable Kurdistan region law. Genel Energy shall also 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 (flora and fauna), water sources and any other natural resources when carrying out petroleum operations. Genel Energy 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. Genel Energy shall take reasonable measures to minimize any adverse material impact on national parks and natural reserves which may arise directly as a result of petroleum operations.

For the execution of petroleum operation under this contract, Genel Energy International Limited (Genel Energy) shall have the right to freely use water and any other natural resources located inside or outside the contract area for the petroleum operations. Genel Energy 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.

The government shall have the right to request an audit of Genel Energy International Limited (Genel Energy)'s accounts with regard to each year within a period of 2 years following the end of such year. The government also has the right to retain an auditor of international standing familiar with the international petroleum industry's accounting practice to undertake or assist in auditing the accounts. 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. The reasonable cost of retaining the auditor shall be borne by Genel Energy and shall be treated as petroleum cost for the purpose of cost recovery.

Genel Energy International Limited shall pay to the government the following bonuses: 1) a signature bonus of US$ 1 million; 2) a capacity building bonus of US$ 14 million; 3) a crude oil production bonus payable within 30 days of the following relevant occurrence: a) US$ 2.5 million at the start of the first production of crude oil; b) US$ 5 million when the production of crude oil reaches a cumulative amount of 10 million barrels; c) US$ 10 million when production of crude oil reaches a cumulative amount of 25 million barrels; and d) US$ 20 million when production of crude oil reaches a cumulative amount of 50 million barrels; and 4) if there is a non-associated natural gas discovery, a non-associated natural gas production bonus payable within 30 days of the following relevant occurrence: a) US$ 2.5 million upon the start of first production of non-associated natural gas; b) US$ 5 million when production of non-associated natural gas reaches a cumulative amount of ten million barrels of oil equivalent; c) US$ 10 million when production of non-associated natural gas reaches a cumulative of 25 million barrels of oil equivalent; and d) US$ 20 million when production of non-associated natural gas reaches a cumulative amount of 50 million barrels of oil equivalent.

The government intends to present to the national assembly of the Kurdistan region a law 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 such taxation, and/or to guarantee the stability of the applicable legal, fiscal and economic conditions of such projects. For the entire duration of the contract, Genel Energy International Limited (Genel Energy), its affiliates and any subcontractors shall be exempted from all taxes as a result of its income, assets and activities under the contract. The government shall indemnify Genel Energy, upon demand, against any liability to pay any taxes assessed or imposed on it which relate to this exemption.

Genel Energy International Limited (Genel Energy) shall be subject to corporate income tax on its income from petroleum operations and this shall be deemed to be inclusive and in full and total discharge of any tax on its income, receipts, revenues, gains or profit. The share of the profit petroleum to which the government is entitled in any calendar year shall be deemed to include a portion representing the corporate income tax imposed upon and due by Genel Energy, and which will be paid directly by the government to the tax authority on behalf of Genel Energy.

The rate of the corporate income tax applicable to Genel Energy International Limited (Genel Energy) shall be the generally applicable rate prescribed in the Law of Taxation (Law No. 5 of 1999) under the Kurdistan region, as may be amended from time to time or substituted in respect of petroleum operations but it shall not exceed 40%. The parties acknowledge and agree that at the effective date, the corporate income tax rate is 40% for all net taxable profits in excess of 9 million Iraqi dinar. The parties agree that the Genel Energy’s corporate income tax shall be calculated on its net taxable profit under the contract.

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 Genel Energy International Limited (Genel Energy) 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. Before the end of the first contract year, Genel Energy shall provide to the government technological and logistical assistance to the Kurdistan region petroleum sector, including geological computing hardware and software and such other equipment as the minister of natural resources may require, up to the value of US$ 500,000. The form of such assistance shall be mutually agreed by the parties and any costs associated shall be considered petroleum costs and shall be recoverable.

To determine Genel Energy International Limited (Genel Energy)’s percentage share of the profit crude oil and/or profit natural gas, the R factor shall be calculated as follows: R = X/Y (where X is equal to cumulative revenues actually received by Genel Energy and Y is equal to cumulative costs actually incurred by Genel Energy). The share of profit petroleum to which Genel Energy shall be entitled from first production is: (a) for profit crude oil, equal to the quantities of petroleum resulting from the application of the relevant percentage as indicated below to the daily volume of production of profit crude oil within the contract area at the corresponding delivery point: R < or = 1: Genel Energy 32%; 1 < R < or = 2: Genel Energy 32 - (32 – 16) x (R – 1) / (2 – 1); R > 2: Genel Energy 16%; and (b) for profit natural gas, equal to the quantities of non-associated natural gas resulting from the application of the relevant percentage as indicated below to the daily volume of production of profit natural gas within the contract area at the delivery point: R < or = 1: Genel Energy 35%; 1 < R < or = 2.75: Genel Energy 35 – (35 – 20) x (R – 1) / (2.75 – 1); R > 2.75: Genel Energy 20%.

From the first production, Genel Energy International Limited (Genel Energy) shall at all times be entitled to recover all petroleum costs incurred of up to 40% of available crude oil, which shall apply regardless of the gravity of the oil, and available associated natural gas produced and saved within any year. From first production, Genel Energy shall at all times be entitled to recover all petroleum costs incurred of up to 53% of available non-associated natural gas produced and saved within any year. If in any year, the available crude oil and/or available non-associated natural gas do not allow Genel Energy recover all of its petroleum costs under the contract, the unrecovered petroleum costs in that year shall be carried forward indefinitely to the subsequent years until all the petroleum costs are fully recovered but, unless as provided in the contract, in no other case after the termination of the contract. The petroleum costs under the contract are not recoverable against other contract areas held by Genel Energy.

For the financing of petroleum operations, Genel Energy International Limited shall have the right to have recourse to external financing from third parties or from its affiliated companies on an arm's length basis.

For export crude oil, the royalty rate shall be 10% which shall apply regardless of the gravity of the oil. For export non-associated natural gas, the royalty rate shall be 10%. Associated natural gas and any other petroleum are exempt from any royalty payments.

The government shall participate in the contract through a public company, effective from the effective date, with an undivided interest in the petroleum operations and all other rights, duties, obligations and liabilities of the contractor under the contract of up to 20%. The public company shall not have any liability to Genel Energy International Limited (Genel Energy) to contribute its government interest share of all petroleum cost, whenever those costs may be incurred, and its government interest share of the petroleum costs shall, until the government exercises the option of third party participation, be the responsibility of Genel Energy. 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 no transfer shall be made which would result in the transferor or transferee holding less than 5% participating interest. The government shall have the option of assigning to a third party, as a contractor entity, an undivided interest in the petroleum operations and which option, when exercised, shall assign and novate all other rights, duties, obligations and liabilities of Genel Energy, of an aggregate of 40%.

For the petroleum operation, Genel Energy International Limited (Genel Energy) shall give, and shall require that its subcontractors give, preference to personnel from the Kurdistan region and other parts of Iraq to the extent that such personnel have the technical capability, qualifications, competence and experience required to perform the work. Genel Energy, its affiliates and subcontractors shall have the right to hire foreign personnel where the personnel from the Kurdistan region and other parts of Iraq do not have the required technical capabilities, qualification or experience for the position.

Genel Energy International Limited (Genel Energy) shall give priority to equipment and materials that are readily available in the Kurdistan region and other parts of Iraq to the extent that their price, grade, quality, specifications, purchase, delivery and other commercial and technical terms are comparable in all material respects with those generally available in the international petroleum industry. Genel Energy shall give priority to subcontractors from the Kurdistan region and other parts of Iraq to the extent their competence, rates, experience, reputation, qualifications, specialties, credit rating and terms of availability, delivery and other commercial terms are, in its 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.

Genel Energy International Limited (Genel Energy) shall give due consideration to the secondment of government personnel to Genel Energy and the secondment of Genel Energy personnel to the government during the various phases of the petroleum operations. The parties shall mutually agree on the terms, conditions and associated costs of the secondment. For the first 5 contract years, Genel Energy shall provide up to US$ 250,000 to the government in advance each contract year for the recruitment or secondment of personnel whether from the Kurdistan region, other parts of Iraq or abroad to the ministry of natural resources. This cost shall be considered as petroleum cost. Genel Energy shall train all its personnel from Kurdistan and other parts of Iraq directly or indirectly involved in the petroleum operations to improve their knowledge and professional qualification to the same level as that of its foreign personnel with an equivalent résumé. The training shall include the transfer of knowledge of petroleum technology and the necessary management experience to enable the local personnel apply advanced technology in the petroleum operations to the extent permitted by law and agreements with third parties, and subject to appropriate confidentiality agreements. The recruitment, integration and training of Genel Energy’s local personnel shall be provided in a plan submitted to the management committee for approval. The training plan shall provide for the allocation to the government of US$ 150,000 in advance for each contract year during the exploration period and US$ 300,000 for each contract year during the development period. All reasonable training expenses shall be considered as petroleum costs.

For its petroleum operations, Genel Energy International Limited (Genel Energy) 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 pipeline or transportation infrastructure, on terms no less favorable than those offered to other entitles and, unless generally in force, to be mutually agreed. For its petroleum operation, Genel Energy 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 unit, 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. Genel Energy shall have the right to design, construct, operate and maintain pipelines and any related facilities for the transportation of petroleum produced under this contract.

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 Genel Energy International Limited (Genel Energy) on terms to be agreed between Genel Energy and the third party. Those terms shall be reasonable commercial terms and shall not discriminate among third party users. Genel Energy shall always have priority of access to such pipelines. To the extent related to transportation upstream of the delivery point, any tariffs received from third parties for use of any pipeline and related facilities by Genel Energy shall be applied to the recovery of petroleum costs until all pipeline costs have been fully recovered.

Genel Energy International Limited 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.

Genel Energy International Limited (Genel Energy) shall provide the government, if so required, with a corporate guarantee issued with respect to the minimum financial commitment for each sub-period. The corporate guarantee shall expire automatically upon completion of the performance of the minimum exploration obligations or expenditure of such minimum financial commitment, whichever is earlier. During the first sub-period, Genel Energy 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; and (iii) a field visit to verify initial geological and geophysical work and remote sensing results and plan for 2 dimensional seismic acquisition; (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 seismic data, if available; (C) perform field work comprising structural, stratigraphic and lithologic mapping and sampling; and (D) drill 1 exploration well, committing for this purpose a minimum financial amount of US$ 13.5 million. During the second sub-period, Genel Energy shall: A) acquire, process and interpret further seismic data (being either 2 or 3 dimensional), if Genel Energy considers that the result from the first exploration well justify the acquisition of further seismic data; and B) drill 1 exploration well, unless the data from the first exploration well demonstrates that there is no reasonable technical case for drilling the second exploration well.

If a dispute arises under the contract, the parties shall first use their reasonable endeavors to negotiate promptly in good faith a mutually acceptable resolution of the dispute. The parties shall attempt to settle the dispute by negotiation between senior representatives. Senior representatives are individuals who have authority to negotiate the settlement on behalf of the parties, which for the government shall mean the minister of natural resources. If the dispute cannot be settled by negotiation, the dispute may be referred to mediation in accordance with the London Court of International Arbitration (LCIA) mediation procedure. If the dispute is not settled by mediation, the dispute may be referred to arbitration in accordance with the LCIA rules. The arbitration shall be held in London, England and shall be conducted in English. The arbitration shall be heard by 3 arbitrators. During the arbitral proceeding and until the dispute is determined, the parties shall continue to perform their obligations and to take no actions which would impair the contract. The parties agree that the arbitral award shall be final and not subject to any appeal including an appeal to the English courts on issues of law. The government and any public company which may be a contractor under the contract fully and irrevocably waive any claim to immunity for itself or any of its assets. This waiver includes any claim to immunity from any expert determination, mediation, arbitration, enforcement of any decision, settlement, award or judgment or the service of processes.

The parties undertake to keep all data and information relating to the contract and the petroleum operations confidential during the entire term of the contract and to refrain from disclosing such information to third parties without the consent of the other party. The confidentiality obligation does not apply to: 1) information which is, or through no fault of the parties becomes, a part of the public domain; 2) information which is known to the recipient at the date of disclosure; 3) information disclosed in compliance with any applicable law, by a government agency having jurisdiction over Genel Energy International Limited (Genel Energy), or by a court order or any legal proceedings; 4) disclosure required pursuant to the rules and regulations of any government or recognized stock exchange having jurisdiction over Genel Energy. In accordance with prudent international petroleum industry practice, confidential information may be disclosed to: 1) Genel Energy’s affiliates, employees, officers, directors for the purpose of the petroleum operations and subject to Genel Energy ensuring that customary precautions to keep the information confidential is taken; 2) consultants or agents retained by Genel Energy or its affiliates for the purpose of analyzing or evaluating information; 3) banks or other financial institutions, including any such consultants retained by the banks, engaged by Genel Energy or its affiliates for the purpose of financing the petroleum operations. 4) bona fide prospective assignees of a participating interest under the contract; 5) prospective or actual subcontractors engaged by a party; and 6) any other person with the prior written approval of the non-disclosing party. Provided that disclosure shall not be made unless the third party has entered into a confidentiality undertaking. Subject to the contract, Genel Energy is precluded from engaging in the sale or exchange of any data relating to the petroleum operations without the approval of the government which shall not be unreasonably withheld or delayed where in Genel Energy’s opinion such sale or exchange would benefit the petroleum operation.

The governing law is 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 and by principles and practice generally accepted in petroleum producing countries and in the international petroleum industry.

If it is reasonably proven that this contract was obtained in violation of Kurdistan region law relating to corruption, the contract shall be void. Genel Energy International Limited agrees that if, at any time, it is reasonably proven to be in breach of Kurdistan region law concerning corruption, the government or any other contractor shall have the right to terminate this contract.

The government intends to present to the national assembly of the Kurdistan region a law 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 such taxation, and/or to guarantee the stability of the applicable legal, fiscal and economic conditions of such projects. The obligations of Genel Energy International Limited (Genel Energy) under the contract shall not be changed by the government and the general and overall equilibrium between the parties under the contract shall not be affected in a substantial and lasting manner. The government guarantees that for the entire duration of the contract, it will maintain the stability of the legal, fiscal and economic conditions of the contract as they result from the contract and from laws and regulations in force on the date of signing the contract. If at any time after the effective date there is a change in the fiscal, legal and economic framework under the Kurdistan region law or other applicable law in or to the Kurdistan region which adversely affects Genel Energy, or any person entitled to benefits under the contract, the terms and conditions of the contract shall be altered to restore Genel Energy or such other person to the same overall economic position (taking into account home country taxes) as they would have been if the change did not occur. If Genel Energy believes that its economic position or that of any person entitled to benefits under this contract has been detrimentally affected by any change, upon Genel Energy’s written request, the parties shall meet to agree on any necessary measures or amendments to the terms of the contract to reestablish the equilibrium between the parties and restore Genel Energy and such person to the position (taking into account home country taxes) they were prior to the occurrence of the change. If the parties fail to agree on the merit of amending the contract or on any amendment to be made within 90 days from Genel Energy’s request to meet, or such other period as may be agreed by the parties, Genel Energy may refer the matter directly to arbitration in accordance with the provision for arbitration under the contract. Genel Energy shall be entitled to the benefits of any future changes in the petroleum legislation or any other legislation complementing, amending or replacing it.