NOTICE: The text below was created automatically and may contain errors and differences from the contract's original PDF file. Learn more here

PRODUCTION SHARING CONTRACT


QUSH TAPPA BLOCK


KURDISTAN REGION


BETWEEN


THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ


AND





KOREA NATIONAL OIL CORPORATION


 TAB1.F. OF CONTENTS





PREAMBLE





Article 1 DEFINITIONS


Article 2 SCOPE OF THE CONTRACT


Article 3 CONTRACT .AREA


Article 4 GOVERNMENT PARTICIPATION


Articles 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 AM)


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


Article 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 UNiriSATION


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 4 i WAIVER OF SOVEREIGN IMMUNITY


Article 42 .ARBITRATION AND EXPERT DETER MINA HON


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 CONTRACT AREA MAP AND LIST OF COORDINATES


Annex B ACCOUNTING PROCEDURE


 PRODUCTION SHARING CONTRACT





BETWEEN


I he KURDISTAN REGIONAL GOVERNMENT OF IRAQ (hereafter referred to as the


"GOVERNMENT ), duly represented by the Minister of Natural Resources;





AND





KOREA NATIONAL OIL CORPORATION, a company established and existing under


the law* of the Republic of Korea, whose registered office is at 1588-14. Gwanyang-dong.


Dongan-gu. Anyang. Gyeonggi-do. 431-711, Republic of Korea, duly represented by its


Executive Vice President, Dr. Scong-Hoon Kim;


(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 ah of Iraq, using the most advanced techniques of


market principles and encouraging investment, consistent with the Constitution of


Iraq including Article 112 thereof;


(D) In accordance with the Constitution of Iniq, the prevailing law of the Kurdistan


Region is the Kurdistan Region Law (as defined in thi* Contract), except with regard


to a matter wholly within the exclusive jurisdiction ol'the Government oflraq.


(C) The GOVERNMENT intends to present to the National Assembly of tbe Kuditfan


Region a law or laws to authorise the GOVERNMENT, by contract or other


authonsacon. to exempt invrslcn in lcng term projects relating to tbc cooduct of


petroleum operatioea in the Kurdistan Region from Kurdistan Region taxabon. to


indemnify such holders against liability to pay such taxation, and or to guarantee the


stability of tbc applicable legal, fiscal and economic conditions of such projects


(D) Tbe CONTRACTOR is a company,


(i) with the financial capability, and the technical knowledge and technical


ability, to cany out Petroleum Operations in the Contract Area (as defined in


this Contract! under the terms of this Contract;


(ii) having a record of compliance with the principles of good corpora*


i ,u) willing » cooperate w ith the GOVERNMENT by entering into this Ccotract.


thereby assisting tbc GOVERNMENT to develop tbe Kurdistan Region


petroleum industry, thereby promoting the economic development of the


Kurdistan Region and Iraq and the social welfare of its people: and











4/113


(E) the CONTRACTOR, in recognition of tbc oeeds of the people of the Kurdistan


Region of Iraq, has entered into an agreement with the GOVERNMENT to


implement certain infrastructure and capacity building projects in the Capacity


Building Support Agreement (as defined in this Contract);





NOW. THEREFORE, THE PARTIES HAVE AGREED AS FOLLOWS





ARTICLE 1 - DEFINITIONS





l.l Capitalised terms and expressions in this Contract shall have the following meaning.


unless otherwise specified:


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


Access Authorisation is defined in Article 17.9.


Accounts is defined to Article 15.L





Accounting Procedure means the Accounting Procedure attached to this Contract as


Annex B and constituting an integral part of thu Contract.


Adjacent Contract Area is defined in .Article 54.1


Adjustment Date is defined in An.de 27.6.


Affiliated Company or Affiliate means, as regards any of the companies or entities


constituting the C ON I K At I OK. a company or other legal entity which


(a) amcrols a CONTRACTOR Entity; or





(b) is controlled by a CONTRACTOR Entity; or


(c) control* or is controlled by a company or entity' which controls a


CONTRACTOR Entity,


but shall not include tha GOVERNMENT in respect of the Public Company. For the


purpose of this definition, “control" mean* direct or indirect ownership or control of


the majority of the voting nghts of lit applicable entity at its shareholders' meetings


or their equivalent


Agreed Terms u defined in Article 14.10(a)


Appraisal Area mean* ihc area defined m .Article 12 2





Appraisal Work Program and Budget is defined in Aiticlc 122.


Appraisal Report is defined in Article 12.4.











5/113


Appraisal 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 and buyers having no direct or indirect relationship or common


interest whatsoever with each other that could reasonably influence the sales pnee.


Such Arm's- Length Sales shall exclude


(a) sales between or among any of the CONTRACTOR hntitics and their


respective Affiliates;


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


(c) sales involving exchange* 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 diisolvcd in Crude Oil under


reservoir conditions and (ii) any residue gas remaining alter the extraction of Crude


Oil from a reservoir.


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


Available Associated Natural Gas is defined in Article 25.1


Available ( rude (Ml ;s 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 gaOom as a unit to measure liquids, at a


temperature of mty degrees (60“) Fahrenheit 2nd pressure of fourteen point wen


<14 /0 p*


Budgets means any budgets 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


Calendar A car mean* a period of twelve (12) consecutive Months, commencing 1


January and ending on 31 December of the same year


Capacity Building Sapport Agreement means the agreement entered into on 21


June 2008 between the GOVERNMENT and the CONTRACTOR for infrastructure


and capacity building in the Kurdistan Region


 Chairman u defined in Article 8.1.


Commercial Discovery means a Discover} 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 other 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 of 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 and B that


are an integral pan 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, and the Capacity Building Support


Agreement.


Contract Aren 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.


Co.tract Year means a period of twelve (12) consecutive Months startmg from the


Effective Date or any anniversary of the said Effective Date


CONTRACTOR includes and comprises each and all CONTRACTOR Entitle*,


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 cocnpooent


of the CONTRACTOR, and'or any a»ugnee of all or pan of the rights and


obligations of such Person under this Contract in accordance with Article 39. but not


ok hiding any holder of the Government Interest. For the avoidance of ttoubt at any


tune when there is only one entity constituting the CONTRACTOR, any reference


made in this Contract to “the entities constituting the CONTRACTOR" or the


“CONTRACTOR entitle*" or similar reference, shall be deemed to mean "the entity


constituting the CONTRACTOR" KOREA NATIONAL OIL CORPORATION


as the CONTRACTOR Entity as at the Effective Da*, owns an undivided interest in


the Petroleum Operations m respect of the entire Contract Area in the following


percentage at the Effective Date:

















7/113





r


KOREA NATIONAL OIL CORPORA I ION 80S





rbe balance of the interest in Petroleum Operations in respect of the entire Contract


Area, being twenty per cent (20%). is the Government Interest as denned in Article


4LL


Crude Oil meant all lufud 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 Find 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 allcr extraction, specified in the approved


Development Plan for a Production Area, at which the Crude Oil. Associated Natural


Gas and/or Non Associated Natural Gu* is metered for the purposes of Article 27.5.


valued for the purposed of Article 27.1 and ready to be taken and disposed of.


consistent with prudent international petroleum ankotry 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 the Parties


Development Costa means all the costs and expenditures incurred by the


CONTRACTOR when carrying out Development Operations, including those


defined in the Accounting Procedure





Development Operations mean, all development operations or works conducted in


accordance with a Development Plan up to the Delivery Point w.th a view to


developing a Production Area, including drilling of welb; prmary 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 tramportatico of Petroleum), obtaining of such materials, equipment,


machinery, items and supplies as may be required or expedient for the foregoing


activities, and all auxJiary operation* and activities required or expedient for the





Development Period is defined in Article 6








8/113


Development PIam meanta plan for development defined in Article 12 8.


Development Well mean* any well drilled after the dale of approval of the


Development Plan for the purpose of producing Petroleum, increasing or accelerating


production of Petroleum, me hiding injection wells and dry boles. Any well dr lied


within a Production Area shall be deemed a Development Well


l>evrlopment Work Program and budget means the development work progiam


and budget prepared pursuant to Article 13.2.


Discovery means a discovery of Petroleum within the limits of the Contract Area


resulting from Petroleum Operation* carried out under this Contract, provided such


Petroleum is recoverable at the surface with a measurable How utilising techniques


used in prudent international petroleum industry practice.


Dispute is defined in Article 42 1.


Dollar (CSS) 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 nnd Materials is defined m Article 19 1.


Exploration Costs mean* all the costs and expenditure incurred by the


CONTRACTOR when carrying out Exploration Operation* including those defined


in the Accounting Procedure


I tploratioo Operation* means any and all operation* conducted with a wew to


discovering Petroleum, including any Ktivitic* necessary to coramciwe operation*,


any lopopaphicai. 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 boks. core holes and


stratigraphic lest holes; spud, drilling, testing, corag. logging and equipping of


Exploration Wells or Appraisal Wells; procurement of such serwees. material,


equipment, machinery, itemv 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 acuvitiev


Exploration Prrtod is defined in Article 6.


Exploration Rental is defined in Article 6.3.


Exploration W ell means any well drilled for the purpose of confirming a geological


structure ot stratigraphic unit in which no Discovery has previously been made by the


CONTRACTOR











9/113


Kipioration Work Program and Budget means tbc exploration work program and


budget prepared pursuant to Article II I.


F tport Grade OU is defined in Amdc 242.


k sport > on-Associated Nataral Gas is defined in Article 24.2.


F.sport Petroleum is defined in Article 242.


First Commercial Declaration Date is defined in Article 4.1.


First Kxploration Well is defined in Article 10.2 (e).


First Production means the moment when Commercial Production of Crude Oil or


Non-Associatcd Natural Gas (us the case may be) first commences, by flowing at the


rale 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 cost* and expenditure incurred by the


CONTRACTOR when carrying out Gas Marketing Operations, including those


defined in the Accounting Procedure.


(jus Marketing Operations means any and all of the activities and operation*


contemplated by Article 14.6.


Gas Marketing Work Program and Budget means the marketing work program


and budget prepared pursuant to Article 14.S.


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 mimstcr, ministry, departmet*.


subdivision, agency, authority, council, committee, or other constituent demon


thereof and shall, without limitation, include any corporation owned and or controlled


by any of the foregoing.


International Market Price is defined in Article 272.


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


Joint Operating Agreement means the agreement executed by the CONTRACTOR


Polities for the purpose of regulating botweon such entities the terms under which the


Petroleum Operations will be conducted, which agreement shall be (a) consistent


with piudcnt international petroleum industry practice; (b) as between such entities,


supplementary to this Contract, and (c) consistent with the provisions ol the Contract











10/113


Kurdistan Region means the Federal Region of Kurdistan recognised 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,


temtonal. proviccial. or any other duly constituted governmental authority or agency


in the Kurdistan Region


Kuidiilan Region Oil and Gas Law mean* the Oil and Gas Law of the Kurdistan


Region - Iraq (Law No. 22 of 2007) as the same may be amended.


1-aw means all applicable laws including the following: constitutional law. civil law.


common law. international law, equity, treaties, statutes, decrees, edicts, codes,


orders, judgements, roles, ordinances and regulations of any local, municipal,


territorial, provincial, federated, national or any other duly constituted governmental


authority or agency.


IX'IA is defined in Altaic 42 1(b).


LIBOR means the Lcotton Inter-Bank Offered Rate at which Dollar deposits lot one


(I) Month are offered in the inter-hank market in Lcmdon, as quoted in the Financial


Tunes of London for the day in question In the event that such rate is not published in


the Financial Times, it shall mean the londcn Inier-bank Offered Rate at which


Dollar deposits for one (1) Month arc offered for the nearest day as quoted by


NiiIiou.iI Westminster Bunk pic.


Management Committee is defined in Article 8.


Maximum Efficient Rate ("MKK”) is defined in Article 16.12.


Minimum Exploration Obligations is defined in Article 10.1.


Minimum f inancial Commitment means


(a) in respect of the First Sub-Period, the total of the amounts set out in Articles


10.2(d) and 102(e); and


(b) in respect of the Second Sub Period, the amount act out in Article 10.3(b).


Month means a calendar month according lo 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 cany out all


Petroleum Operations. If at an> time there exists more than ooe (1) Operator under


this Contract, any reference herein to the term ’Operator' shall be to each Operator


with respect to the pans of the Contract Area in which such Operator confects


Petroleum Operations





Option of Government Participation is defined in Article 4.1





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


andor the CONTRACTOR


Permits means all licences, permits, consents, authorisations or other permissions, as


the context requires.


Penoa shall include natural and juristic persons (including corporations and








Petroleum means


(a) any naturally occurring hydrocarbon m a gaseous or liquid state;


(b) any mixture of naturally occurring hydnxaibom ui a gaseous or liquid stale,


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 hy the CONTRACTOR


for the Petroleum Operations, and which the CONTRACTOR is entitled to recover


under this Contract and us 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 lo 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 Costa 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.





12/113


Production Cost* means all the costs and expenditure incurred by the


CONTRACTOR in canying out the Production Operations, including those defined


in the Accounting Procedure.


Production Operations mans any worts, together with all rda*d and auxiliary


activities, for the production of Petroleum from the stall of Commercial Production.


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 Hudgrf shall mean the production work program


and budget prepared pursuant to Article 13.6.


Profit Crude Oil is defined in Ai title 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 pubhc company duly registered and incorporate! in the


Kurdistan Region and regulated by the GOVERN MEN I under the Kurdistan Region


Oil nnd GtS I aw


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 Month* starting on the first dav of


January. April, July or October respectively.


Reservoir means a subsurface rock formation containing an individual and separate


natural accumulation of producible Petroleum characterised by a single natural


pressure system.


“R" Factor is defined .n Article 26.4.


Royalty is defined in Article 24.


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


•semester mean* a period of six (6) consecutive Months starting from the lint day of


January or July respectively.


Senior Representatives is defined in Article 42.1(a).


V




13/113


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-Period* arc defined in Article 6.2.


Tax or Taxes means all current or ftiturc levies, duties, payments, charges,


impositions, imposts, withholdings, fee*, taxes (including value added tax or other


sales or transaction based tax. corporation tax. income tax, capital gams 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.


Work Program means any work program prepared by, or on behalf of the


CONTRACTOR pursuant to this Contract and funning pan of an Exploration Work


Program and Budget aiaVur an Appraisal Work Program and Budget and or a Gas


Marketing Work Program and Budget and/or n 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 other's iw





stated


(a) headings arc to be ignored;


(b) "including" and similar words do not imply any limit*ions.





(d) reference to an “Annie” is :o an article of this Contract and to a “Paragraph”





is to a paragraph in the Accounting Procedure.





ARTICLE 2 - SCOPE OF TUE CONTRACT





2.1 Hus Contract is a product Km-ihanng arrangement with respect to the Contract Are*,


whereby (be GOVERNMENT has the right, pursuant to the Constitution oflraq. to


regulate and oversee Petroleum Operations within the Contract Area.





The purpose ol this Contract is to define the respective rights and obligations of the


Parties and the terms and conditions under which the CONTRACTOR shall cany out


all the Petroleum Operations


By entering into dm Contract the GOVERNMENT grants the exclusive right and


authority to conduct all Petroleum Operations in the Cootraci Area as detailed in


Article 3.





2.2 Upon the CONTRACTOR** request the GOVERNMENT shall provide and or


procure all Permits relating to the Petroleum Operations requred by the


Kf


14/113


 CONTRACTOR to fulfil its obligations under this Contract, including those relating





of Iraq. The GOVERNMENT (i) represent* and warrants to the CONTRACTOR


that it has not done and has not omitted to do anythn^ that would cause the





2.2 or pursuact to thu 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 22 or pursuant to this Contract For the avoidance


of doubt nothing in this Article shall affect the ngbts and obligations of the Parties


pursuant to Article 43


The CONTRACTOR shall conduct all Petroleum Operations within the Contract





Area at its sole cost, mk and penl on behalf of (he GOVERNMENT, pursuant to this


Contract, including the following operations:





(u) T echnical Services


Implementation of all technical, human and matenal resources reasonably


required lor execution of the Petroleum Operations, in accordance with


prudent international petroleum industry practice.


(b) Financial Sen ices





IT»e responsibility for funding the Exploration Operations and. in the event ol


a Commercial Discovery. Development, Production and Decommissioning


Operations, pursuant to this Contract.





For the funding of Petroleum Operation*, each CONTRACTOR Entity 'hall


be entitled to have recourse to external financing trom cither its Affiliated


Companies or from any third parties





(c) Administratis e Serv ices


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


2.5 pursuant to the terms of this Contract


Natmal resources ether than Petroleum dull be excluded from the scope of th-»





Contract, even if the CONTRACTOR discover* any such resources when exeocing


26 its obligations pursuant to this Contract


The CON TRACTOR shall only be entitled to recover Petroleum Costs inclined


under this Contract in the event of a Commeicial Discovery. Recovery of Petroleum


Costs shall occur within the limits provided under Article 25.








A





15/113





2.7 l>uring the ictni of this Contract, I'rollt C rude Oil and/or Profit Natural Gas produced


from Petroleum Operations shall be slimed between the Parties in accordance with the


provisions of Article 26.


2.8 Pot the execution of Petroleum Operation^ 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;




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 aml'or Subcontractors required


for die conduct of Petroleum Operations in accordance with Articles 22 and


23. Any foreign personnel working in the Kurdistan Region shall require prior


authorisation of the GOVERNMENT (such authorisation not to be


unreasonably delayed or withheld) and the GOVERNMENT shall obtain any


authorisation required by the Government of Iraq;


(c) import any goods, materials, equipment and/or services required for the


Pctroloum Operations in occotdauce with Articles 19.22 and 30; and


(0 freely use land or property belonging to the Kurdistan Region, and the


GOVERNMENT will assist the CONTRACTOR with facilitating the use by


the CON I RACTOR of any private property m the Kurdistan Region


ARTICLE 3 - CONTRACT ARIA


The initial Contract Area covers the Qush Tappa Block (also published on the block maps of


the Ktrdisun Regional Government as “Block K26”) and extends over an area of ooe


thousand and three square kilometres <1.003 km:), as detailed and unhealed on the map





Points X • Easting Y -Northing Longitude - E Latitude - N


A 424 308 4004 160 44 09 30 3610 45


B 434 1 34 3981 101 44 16 10 35 58 20


C 444 064 3975 253 44 22 48 35 55 12


D 436 445 3967 347 44 17 46 35 50 54


E 426 876 3958 058 44 11 28 35 45 50


F 397 891 3981 622 43 52 03 35 58 25


G 405 000 3990 000 43 56 43 36 02 59


 The GOVERNMENT, by execution of this Contract, hereby validate* and approves the


foregoing co-ordinates of the Contract Area.





The total men of the Contract Area may be reduced only in accordance with the provisions of


this Contract.








ARTICLE 4 GOVERNMENT PARTICIPATION





Government Interest


4.1 The GOVERNMENT shall participate in this Contract through a Public Company,


effective from the F.fTeclivc 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 m respect of the Contract Area, of twenty per cent


(20%) (the Government Interest")


4.2 The Public Company ahull not have any liability to the CONTRACTOR to





contribute its Government Interest share of all Petroleum Costs, whenever those


Petroleum Coats may he incurred, and its Government Interest share of such


Petroleum Costs shall be the responsibility of KOREA NATIONAL Oil.


CORPORATION for the duration of this Contract, provided always that KOREA


NATIONAL OIL CORPORATION 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 uttnbutuhlc to the Government Interest and payable pursuant to


Articles 52.5 and 32.4.





For the purposes of Article 37 of the Kurdistan Region Oil and Gas I-aw. the


Government Interest shall be deemed » be held by the GOVERNMENT and m


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


CONTRACTOR Entities) to the GOVERNMENT for it* obligations, duties and


liabilities under this Contract and the provisions of Article 4.5 ahall apply


4.3 The Public Company may, at its discretion, assign part or all of Us Government


Interest to a third party or parties which is another Public Company duly authorised


by the GOVERNMENT, provided that m no event shall a trawler be made which


would rcmilt in the transferor or transferee bolding less than a five per cent (5%)








In the event of such an assignment to another Public Company, for the purposes of


Article 37 of the Kurdistan Rcgioo Oil and Gas Law, the Government Interest so


assigned shall be deem*! to be held by the GOVERNMENT and m accordance with


the principle in Article 1613, the Public Company to wtucfc such Government Interest


is transferred will be individually and separately liable (and not jointly and severally


liable with the CONTRACTOR Entities) to the GOVERNMENT for its obligations,


duties and liabilities under this Contract and the provisions of Article 4 4 shall apply.











17/113








/


4.4 Any failure by the Public Company to perform any ot 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 ease be invoked by ihc GOVERNMENT


to terminate this Contract or exercise any other right* or remedies in revpoct of such


default that may be available to it


The capacity of a PuMk Company, as it nay arise pursuant to the provisions of this


Contract shall ta no event caned or affect the rights of the CON IKACTOR Emnev


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 pan 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


Article* 391. 39.2 and 393 shall not apply. Any such assignee shall have the same


rights and responsibilities held by the Public Company poor to the assignment





Fo* the avwdance 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








Joint Operating Agreement Prosidons


4.6 Any Joint Operating Agreement entered into in idat.on to tins 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 atlimuhve vote of an agreed


percentage of participating mterests held thereunder, which in any event shall


be not more than seventy five per cent (75%); and


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


participating interest under such Joint Operating Agreement;


(i) no transfer may be mode which would result in the transferor or


transferee holding lew than a five per cent (5%) participating interest;


(li) the proposed third party assignee must demonstrate to the reasonable


satisfaction of each of the extant CONTRACTOR lenities that it has


the financial capability to perform its payment obligations under the


Contract and under the Joint (>pcrating Agreement; and


(iii) the proposed third party assignee shall enter into an instrument


satisfactory to each or the extant CONTRACTOR Emilies so as to


avvnnc and to perform the obligations of the transferor.














18/113


 ARTICLE 5-OPERATOR





5 1 The CONTRACTOR hereby designates KOREA NATIONAL OIL


C ORPORA I ION to act as the Operator on behalf of the CONTRACTOR for the


execution ol the Petroleum Operations. The CONTRACTOR shall at any time have


the right to uppoint 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 to amend the Joint Operating Agreement regarding or regulating the


Operator's appointment and its conduct of Petroleum Operations on behalf of the


CONTRACTOR pursuant to this Contract pnor to execution of such agreement.


5 3 In the event of the occurrence of other 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 declunng the bankruptcy, liquidation, or


dissolution of the Operator; or


(b) if llic Operator terminate* the activities under this Contract delegated to it by





the CONTRACTOR or a material proportion thereof, and. as a result the


CONTRACTOR fails to fulfil its obligations under the Contract.





ARTICLE t TERM OK I ME CONTRACT





6.1 This Contract comprises an Exploration Period and a Development Period, a* defined


below:





Linl mi n Period





6.2 Ihe Exploration Period shall be for un 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. The initial term of five (5) years shall be


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”





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 fulfilment of


die Minimum Exploration Obligations or minimum work obligations applicable to the


previous Sub-Period or extension thereof pursuant to Article 6.6 (as the ease may be).





6.3 During the Exploration Period, the CONTRACTOR shall pay to the


GOVERNMENT, in arrears, an annual surface rental for the Contract Aren, hh may


he reduced by relinquishment from time to time pursuant to Article 7, of ten Dollars








19/113


(US$10) per square kilometre per Contract Year ("Exploration Rental”). Such


Exploration Rental shall be considered as a Petroleum Cost and shall be recovered by


the 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, it shall





notify the GOVERNMENT at least thirty 00) days prior to the expiry of the First


Sub-Period and, provided that the data from the First Exploration Well demonstrates


that there in no reasonable technical ease for drilling the Second Exploration Well in


the Contract Area, the Exploration Period shall expire at the end of the Pint Sub-


Period. unless the First Sub-Penod 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 Lxploration Period but considers that additional w ort u required prior


(a) to deciding to submit an Appraisal Work Program nod Budget us provided


under Article 12.2 in respect of n 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 wort may include the


preparation and/or execution of an Appraisal Work Program and Budget as


provided under Article 12.2 andor Gas Marketing Operations.


the CONTRACTOR will automatically he entitled lo 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 Yearn, (ns provided in Article 6.2). The


CONTRACTOR'** notification of its inicuUun to exercise such extension ai»‘


duration shall be submitted in writing »*> ** GOVERNMENT at least thirty (30)


days prior to the end of the then current Sub-Penod 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 Explan* k*i





Period, if it considers it has not completed its exploration evalaaboa of the Contract


Area, the CONTRACTOR shall he 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 (I) Contract


Year Upon the expiry of such extension, if it considers it has still not completed its


evaluation of the Contract Area, the CON TRACTOR shall be entitled to a further


extension of or* (I) Contract Year provided that it notifies the GOVIRNMENT in


writing at least thutv (30) days poor to the end of the ongaul cxteruioa The ng»* of


the CONTRACTOR to accede to 6c further extension shall be subject to fulfilment


of the minimum wort obligation* applicable to the original extension


6.7 Subject to Article 6.4, at any lime during the Exploration Period, upon thirty (3(1) 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 Cootracl. or il has paid to the GOVERNMENT the amounts





Kf





20/113


:pcvificd in Article 10.2 or Article I0J. whichever is applicable to the then current


Sub-Penod.


6.8 If no Commercial Discovery hat been made at the end of the kxploration Period


(including any extensions thereof) this Contract shall terminate


6.9 If a Discovery is made within the maximum kxploration 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 Opciutions to declare the Discovery n


Commercial Discovciy pursuant to Article I2.6

shall be entitled to request an extension of the kxploration Period (notwithstanding


the maximum period provided in Article 63). provided it so requests the


GOVERNMENT in wnting at least thirty (V)) days prior to the end of the maximum


Exploration Pencxl. 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 Yews. Upon die expiry of such extension,


if it considers it has still not completed its (ins 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) day* prior to the end of the original extension together with a


proposal for Gas Marketing Operations to be undertaken during such extension.


Dcvylopmcnt 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 Pcnod 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 nght 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 die exclusive nght to


develop and produce such Commercial Discovery, pursuant to the terms of this


Conti act I lie Development Penod for a Commercial Discovery of Non-Associated


Natural Gan shall he twenty (20) years, commencing on the declaration of such


Commercial Discovery by CONTRACTOR, in accordance with Artak 12 6(a) or


Article 14.5(a). with an automatic nght to n five (') year extension


6.12 If Commercial Production from a Production Area is still possible at the end of its


Development Pcnod as defined in Articles 6.10 or 6.11 then, upon its request, the


CON TRACTOR shall be entitled to an extension ol such Development Period under


the same term* as those provided in this Contract. Such request shall be made in


wnting 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







6.13 The COMRACTOR shall hast the nght 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 llua Contract shall


terminate on the expiry dale of the last Production Area or when Production


Operations for all Production .Areas have terminated





ARTICLE 7 - RELINQUISHMENTS


7.1 Subject to tbc provisions of Articles 7.2 and 7.3. the CONTRACTOR shall surrender


portions of the Contract Area as follows:


(a) at the end o< the iratal term of the fcxploraboe Period referred lo in Article


6 2. twenty five pa cent (25%) of the net area detertninrd by tubcnchcg tbc


Production Areas from the initial Contact Area.


(b) at the end of the first extension period entered into under this Contract after


the end of the initial terra of the Exploration Period icfcricd lo in Article 6.2,


an additional twenty five per cent (25%) of the net area determined by


subtracting the Production Areas than the remaining part of the Contract


Area: and


(C) at llic 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 I


(a) any areas already relinquished pursuant to Article 7.4 shaO be deducted from


areas to be surrendered, and


(b) the CONTRACTOR dull have tlx: right to determine the area, shape and


location of the Contract Area to be kept, provided that such surrendered


portions of the Contract Aren shall be in contiguous blocks.


7.3 If the relinquishment referred to in Article 7.1 can only be achieved hy including part


of an Appraisal Aren, then ihcsc 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 sunender all or any pail of the Contract Area hy written notice sent to the


GOVERNMENT at least thirty (30) days m advance of the proposed date of


sunender, subject to the provisions of this Article 7.4. Such voluntary surrenders


during the Exploration Penod shall be deemed equal to the obligatory relinquishments


referred to under Article 7 I This Contract shall terminate in the event of tbc


surrender of the entire Contract Area


7.5 No surrender provided under Article 7.4 shall exempt the CONTRACTOR from its


outstanding obligations under tlii» Contract. In the event the CON I RACTOR elects


io surrender the entire Contract Area without having fulfilled the Minimum





22/113


 u> ihe then current Sub-Penod as provided m Article


10.2 or Article 10 3. ihc CONTRACTOR shall pay to the GOVERNMENT the


relevant outstanding amount as detailed in Article 10.2 or Article 10.3. as the








7.6 The boundaries of the portion of the Contract Area to be relinquished by the


CONTRACTOR shall be commuucated to the GOVERNMENT by written notice


at least thirty (30) days in advance of tbc relevant dax for relinquishment, pursuant to


ArtKle 7.1.








ARTICLE 8- MANAGEMENT COMMITTEE


8.1 A Management Commicee shall be established within thirty (30) days following the


kflective Date for the purpose of providing orderly director of all manors pertaining


to the Petroleum Operations and the Week Programs Within such pen,id. each of the


GOVERNMENT and the CONTRACTOR dull 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


GOV ERNMENT and two (2) members designated by’ the CONTRACTOR


Upon ten (10) days nonce, 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 rbe 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 tl»c light to invite a reasonable number of observers at deemed


ncccvtaiy to attend the meetings of the Management Committee in a non-voting


capacity.





Ihe Management Committee shall review, deliberate, decide and give advice,


suggestions and recommendations to the Parties regarding the following subject


matters’


(•> Work Programs and Hudgcts;





(b> the CONTRACTOR'S activity report*.


(c) production levels submitted by the CONTRACTOR. bused on prudent





International petroleum industry practice;


(d) Accounts of Petroleum Coats;





(c) procurement procedures for potential Subcontractors, with an estimated sub¬


contract value m excess of one million IXdlars (51,000,000). submitted by the


CONTRACTOR in accordance with Article 19.3;











23/113


(0 Development Plan and Budget for each Production Area;


(g) any ‘natter having a material adverse affect on Petroleum Operations;


(h) any other subject mutter 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 (be CONTRACTOR is represented by at


least one (1) of its member* 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 and Article 8.5, in the eveut that no agreement is


reached ut the second meeting, the Chairman dull have the tie-breaking vole.


8.4 In the event that, during the Exploration Period, 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.


8.5 Notwithstanding the provisions of Article 8.1, ami subject to Article 8.4, unanimous


approval of the Management Committee ahull he required for.





(a) approval of. and any material revision to. any Exploration Work Program and


prepared after the first Commercial Discovery in the Production Area


<*» to such Commercial Discovery;





approval of and any material revision to. the Development Plan, the


production schedule, lifting schedule and Development and Production Work


(c) Programs and Budgets;





establishment of rules of procedure for the Management Committee;





(d) over which the





(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 prpelme fioject.


submitted by CONTRACTOR in accordance with Article 33.3.





(g) approval of a first talc bank in which to place the Decommissioning Reserve


bund, in accordance with Article 38.1;








24/113


(h) approval of, ami any material revision io, any proponed Decommissioning


I'lan 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 arc required to be prepared and agreed for the


purposes of expert determination, pursuant to Article 42.2.





(j) approval of any costs in exec** of ten per cent (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 pnor to the date of the first Commercial Discovery and three times a


Contruct Year thereafter


8.7 hither the GOVERNMENT or the CONTRACTOR may call an extraordinary





meeting of the Management Committee to discus* important issues or developments


related to Petroleum Operations, subject to giving reasonable prior notice, specifying


the mailers to be discussed at the meeting, to the other Party. The Management


Commmee may from time to time make decisions by correspondence prov ided all the


members have indicated their approval of such decisions in such correspondence


8.8 Unless at least one (I) member or 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 P*t> being preseat shall then notify the other


Party of the new date, time and location for the mccung


8 9 Ihc agenda for meetings of the Management Committee shall be prepared by the


CONTRACTOR in accordance with instructions of ihc Chairman and communicated


to the Patties 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 ihc


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 mode at the meetings. Copies of such minutes shall be


forwarded to each Parly for review and approval. Each Party shall review and


approve such minutes within ten (10) days of receipt of the draft minutes. A Pnrty


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.


8.10 If required, the Management Committee may request the creation of a technical sub


committee or any other sub committee to assist it. Any such sub committee shall be


composed of u reasonable number of experts from tlic GOVERNMENT and the


CONTRACTOR. After each meeting, Ihc technical sub committee or any other sub¬


committee shull deliver a written report to the Management Committee.


8.11 Any cost* and expenditure inclined by the CONTRACTOR for meetings of the


Management ( ommittce or any technical sub-committee or any other sub-committee





Kf





25/113


 shall be considered as Petroleum Coats and shall be recovered by the


CONTRACTOR in accordance with the provisions of Articles I and 25.








ARTICLE 9 - GUARANTEES





Each CONTRACTOR Entity shall provide the GOVERNMENT, if so required by


the latter pursuant to wntten 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 (or 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 (c) or expenditure of such Minimum Financial Commitment, whichever is the


earlier


Nor later than sixty (60) days after the commencement of the Secood Sub-Period,


92


each CONTRACTOR Entity shall provide the GOVERNMENT, if so reqmred by


the Inner pursuant io written notice received by the COM RACTOR Entity within


thirty (30) days ol such commencement dale, with a corporate guarantee in:


(a) (lie form substantially agreed between the GOVERNMENT and each


< 'ON I RACTOR Entity for the First Sub-Penod, if any. subject to making the


changes necessary in order for die 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 tn each case that such corporate guarantee shall be given only in respect


of the Minimum Financial Commitment for the Second Sub-Pcnod and that such


corporate guarantee shall expire automatically upon completion of the performance of


thr Minimum Exploration Obligations set out in Article 10 3 (b) cr expenditure of





In the event of an assignment by a COM RACTOR Entity in accordance with


Article 39. the relevant third party assignee shall provide the GOVERNMENT, 'f »


required by the latter pursuant to wntten nonce 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 Conn of corporate guarantee, m a form as shall be agreed


in good faith between the GOVERNMENT and such assignee not lata than ninety


(90) days a hex the effective date of the avsigntivni. presided that such corporate


guarantee shall be given only in respect of the Minimum Financial Commitment for


the then current Sub-Penod. and dial expire automatically upon completion of the


performance of the Minimum Exploration Obligations set out in Articles 102(d) and


(e) or Article 10.3(b). as the case may he. or expenditure of such Minimum Financial


Commitment, whichever is the earlier.








26/113


 AR TIC LE 10-MINIMUM EXPLORATION WORK OBLIGATIONS





10.1 The CONTRACTOR shall mart 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 (tbc


'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-Penod, the CONTRACTOR shall:


(a) cany 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 verity' 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:


(t) well data, if available, for example, clectnc log*.


(ii) seismic data and gravity data, if av ailable; and





(in) reprocess tcivmtc data, if available;


(c) perforin field work composing structural, stratigraphic and lithologic mopping


and sampling;


(d) acquire, process and interpret three hundred (300) line kilometres of two





amount of seven rail boo Dollars (USS7.000.000). or a three dimensional


seismic data program by agreement between the Parties, and


(e) drill one (1) Exploration Well (the "Pint Ftplnrsllon W>U"). including


texting and coring as appropriate, committing for this purpose a minimum


financial amount often million DolWs (USS10.000,000).


10.3 During the Second Sub Pered. tbc CONTRACTOR shall:





(a) acquire, process and interpret further seismic data (being either two


dimensional or three duncruional), if the CONTRACTOR considers that the





6





27/113





A


 results flora the lust Exploration Well justify the of further


seismic data; and





(b) drill one (I) Exploration Well Itbc -Second Exploration Well"), including


testing and coring as appropriate, commuting fee this purpose a minimum


financial amount of tea million Pollan (US$10,000,000) unless the dau from


the Fin» Exploration Well demonstrates that there is not a reasonable technical


ease for drilling the Second Exploration Well m the Coo tract Area


10.4 Notwithstanding the provisions in Articles 10.2 to 10.J. for the execution of the


Minimum Exploration Obligations under Articles 102 to 10.3. il is agreed as follows:





(a) Minimum Exploration Obligations in the Second Sub-Penod shall cnly apply


in the even: the CONTRACTOR has not elected to notify the


GOVERNMENT that it mil not enter into the Second Sub-Period, in


accordance with and subject to Article 6 4





(b) Subject to Article 10.4(a), Ok CONTRACTOR >hall be requacd 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 Us Minimum Exploration Obligations


without having spent the total Minimum Fmancial Commitment for such sub-


Pen od. it shall be deemed to have satisfied its Minimum Exploration


Obligations for such Sub-Pcnod.


(c) hih Exploration Well shall be drilled to the depth agreed by the Management


Committee union*:





(i) the formation is cncounteicd at a lesser depth than originally


anticipated,


(ii) basement u encountered it a lesser depth than onginally anticipated.


(iu) m the CONTRACTOR'S sole Opinion continued (frilling of the





relevant Exploration Well presents a hazard due to the presence of


abnormal or unforeseen conditions;





(iv) insurmountable technical problems are cncoumcred 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 ( ommittcc to be reached


If drilling is stopped for any of tbc foregoing reasons, die 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 reaped of tbc Exploration Well.





(d) Any geological or gcoplijsical wort, earned out or any seismic data acquired,


processed or interpreted or any Exploration Well (billed or any other work


Kir


28 r H3


 performed in excess of the Minimum Exploration Obligations and/or any


amounts spent in excess of the total Minimum Financial Commitment in any


given Sub-Penod. 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 petforms any of the Minimum Exploration Obligations


prescribed for the Second Sub-Penod tn 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


he deemed to satisfy the same Minimum Exploration Obligation* for the


Second Sub-Penod.





ARTICLE II - EXPLORATION WORK PROGRAMS AND BUDGETS


II.) Within forty-five (45) days following the Effective Date, the CONTRACT!<>R shall





prepare and submit to the Management Committee a proposed work program and


budget relating to Exploration Operation* (the "Exploration Work Program and


Budget”) for the remainder of the Calendar Year. Thereafter, no later than l October


in each Calendar Year, the CONTRACTOR shall submit a proposed Exploration


Work Program and Budget to the Management Committee for the following Cakadv


Year.


11.2 Each hxpluraboa Work Program and Budget shall include details of. but no* be





limited to. the following





(a) work lo be undataken.


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





(c) cost estimate of services to be provided, including services by third parties


and m Affiliated Companies of any CONTRACTOR Entity, and


Id) estimated expenditures, broken down by cos* centre m accordance with the





Accounting Procolure





11.3 I be Management Committee shall meet within sixty (60) days follow tug its receipt of


CON TRACTOR'S proposal to examine and approve the Exploration Work Program


and Budget.





114 If the GOVERNMENT request* any modification to the Exploration Work Program


and Budget, the Management (Ynuuaec shall meet to discuss the Exploration Work


Program and Budget and proposed modifications thereto within the sixty (60) day


penod referred lo in Article 113 The CONTRACTOR shall communicate its


comments on any »uch icq nested modifications lo the GOVERNMENT at the


meeting of the Management Committee or in wTiting prior to such meeting


ft


29/113





A





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


approved 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 uny Calendar Year and provided further that auch


excess expenditures shall he reported ns soon as is reasonably practicable to the


Management Comminee For the avoidance of doubt all excess expenditures shall be


recovered by the CONTRACTOR in accordance with the provisions of Articles I


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 COM RAC TOR may incur such additional expenditure*


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 ot


Articles I and 25.


ARTICLE 12 - DISCOVERY AND DEVELOPMENT


12.1 If the drilling of nn 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 i»*


the CONTRACTOR reasonably requires to determine wlretlicr or not there is a


Discovery. Within thirty (30) days following notification of the said Discovery, the


CONTRACTOR shall present to the Management Committee al technical data then


available together with ns opinion on the commercial potential of the said Discovery


(the "Discovery Report"). The

such other information relating to the Discovery as the tiOVERNMFNT may


reasonably request.





and Budmt





12.2 If pursuant to Article 12.1. the CONTRACTOR considers that the Discovery has


commercial potential it shall, within ninety (90) days follow mg unification to the


GOVERNMENT of the Discovcty, submit an appraisal program ui respect of the


Discovery tthc ' 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 GOVERNMF.NT requests any


modification to the Appraisal Work Program and Budget, the Management


Committee shall meet to discuss the Appraisal Work Program and Budget nml the


requested modifications tlicrcto within sixty (60) days from its receipt of the proposed


Appraisal Work Program and Budget I he 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





Ihc Appraisal Work Program and Budget shall include the following:





(a) an npiaaisal works program and budget, in accordance with prudent


international petroleum industry practice;








30/113


 (b) an estimated time-frame fur completion of appraisal works; and


(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”).


123 If. following a Discovery, a ng acceptable to the C ONTRACTOR is available to dnll


a well, the CONTRACT OR may dnll aay additional Exploration Wdl or any


Appraisal Well deemed mccuary 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.


Ihe CONTRACTOR shall be authorised to incur expenditures not budgeted m an





approved Appraisal Work Program and Budget pros hied that the aggregate amount of


such expenditures shall not exceed ten per cent (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. Tor the avoidance of doubt, all excess expenditures shall be


rtcoveiod by the CONTRACTOR m accotduncc with the provisions of Articles I


and 23, provided that any excess expenditures above the ten per cent (ID%) limit shall


only be recovered w ith the unanimous approval of the Management Committee.








12.4 The CONTRACTOR shall submit a detailed report relating to the Discovery (the


"Appraisal Report") to the Management Committee within ninety (*X)> days


following completion of the Appraisal Work Program and Budget


12.5 The Appraisal Report shall include the following








(•)





(b) physical properties of any liquids,


(C) sulphur, sediment and water content;





(d> type of substaiKes obtained;


(el





(0 production forecast per well: and





a preliminary estimate of recoverable reserve*








12.6 T. wrth its Appraisal Report, the CONTRACTOR shall a written


to the Management Committee specifying that





(a) the CONTRACTOR has determined the Discovery is a Commercial


Discovery;


ft





31/113





/t


 (b) ihe CONTRACTOR tun determined that the Discovery is oof a Commercial


Discovery;


(c) the CONTRACTOR has determined that the Discovery is a significant


Discovery, which may become a Commercial Discovery subject to additional


exploration andor 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 !4J.


12“ la ease the statement of Ihe CONTRACTOR corresponds to Article 116(c). the


CONTRACTOR shall submit a Work Program and Budget to the Management


Committee within thirty (JO) days following such statement Any well drilled to


evaluate the said significant Discovery shall be considered an Fxploration Well





DsyglQPfhfnl rj*n


12.8 If the Discovery has been dee bred a Commercial Discovery by the CONTRACTOR





pursuant to Article 12.6(a) 01 Ankle 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 GOVERN MKIVI. such Development Plan shall include details of the


following as applicable


(a) the drlimiranoe of the Production Art*, taking do account the results of the





Appraisal Report regarding the importance of the Petroleum Field within the


Appraisal Area.


(b) dr tiling and completion of Development Wells;





(c) dnllmg and completion of wmer or Natural Gas injection wells.


(d) laying of gathering pipelines;





(e) installation of separators, tanks, pumps and any other auociated protkictioo


and injection facilities for the production.


(f) treatment and tnosportaaon of Petroleum to the proceaamg 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 unlrsation of Associated Natural < ias;


y) training commitment m accordance with Article 23;








32/113





A


 (k) ■ preliminary decommissioning and site restoration plan;


(l) all contracts and arrangement* made or to be made by the CONTRACTOR





for the sale of Natural Cm;


(at) to the extent available, all contracts and arrangements made or to be made by


Persons m 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 beyuod the point at which it is first disposed of m an


Arm's l ength Sale.





(a) each < OVTRACTOR Entity 's plans for financing ns 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


Petmlciim produced, in accordance with prudent international petroleum


industry practice.





12.9 Ihc Management Committee shall use its best efforts to approve the Development


Plan within sixty (60) days a Her its receipt of such plan I he Development Period for


each Commercial Discovery within a Development Plan shall he extended for the


number of days in excess of such sixty (60) day period Out it takes for the


Management Committee to approve the Development Plan The Development Plan


shall he 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 War., then the


Management Committee shall meet within sixty (60) days ol receipt by the


CONIKACIOK of the GOVERNMENT'S wmten ootincaoon of requested


modifications accompanied by all the documents justifying such request, and shall


discuss such request The CONTRACTOR shall conmurucatr its comments on any


such requested modifications to the GOVERNMENT at such meeting or m 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 Pmdumon Are* The


CONTRACTOR shall be entitled to develop and to produce each Commercial


Discovery and the GOVERNMENT shall provide the appropriate Permits coveting


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.








It


A 33/113








 ARTICLE 13 - DF.VF.I OPMF.NT AND PRODI CTION WORK PROGRAMS AND


BUDGET





13.1 Upon ihc approval of ihc Development Plan by the Management Committee, the


CONTRACTOR shall Kart the Development Operations for the Commercial


Discovery in accordance with the Development Plan and prudent international











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


Opcraaons (the 'Development Work Program aad Budget") to be earned out in the


Production Area for the duration of the Dev elopment Operations Thereafter, no later


than I October in each Calendar Year, the CONTRACTOR dull 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 »o be earned out;




(c) type of services to he provided, distinguishing between thud parties and


Affiliated Companies of any CONTRACTOR Knnry. and


(d) categories of general and administrative expenditure


13.3 If any modification to the Development Work Program and Budget it requested by


the GOVERNMENT, the Management Committee shall meet to discuss the


Development Work Program and Budget and proposed modifications tlicicto 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 pci 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


(he Management Committee For the avoidance of doubt, all excess expenditures


shall he recovered by the CONTRACTOR ui accordance with the provisions of


Articles I and 25. provided that any excess expendimres above the ten per cent (10%)


limit ahall only be recovered with the unanimous approval of the Management


Committee.


13.5 In eases of emergency, the < '

as it deems necessary to protect life, environment or property. Such additional








34/113


 expenditures shell be reported promptly to ihc Management CoTirair.ee Fc* tbe


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.








13.6 No later than 1 October of the Calendar Year preceding the estimated commencement


of production pursuant to an approved Development Plan and thereafter no Intel than


I October in each Calendar Year, the CONTRACTOR shall prepare and submit to


the Management Committee a proposed work program and budget lor Production


Operations (the Production Work Program and Budget"I 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 thud 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 Budgetis requested by tbe





GOVERNMKN l\ the Management Committee shall meet to discuss the Production


Work Program and Badger and proposed modification* thereto within sixty (60) days


from its receipt of the preposed Production Work Program and Budget. The


CONTRACTOR shall communicate its comment, 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 authorised 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 pa cent (I0“») 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 die uvoidance of doubt, nil excess expenditures shall be


recovered by the CONTRACTOR in accordance with the provisions of Articles I


and 25, provided that any excess expenditure above the ten pa cent (10%) limit shall


only be recovered with the unanimous approval of the Management Commtttee.


13.9 In cases of emergency, the CONTRACTOR may incur such additional cxpendmire


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 vhall be recovered by tbe CONTRACTOR in accordance with the provisions of


Articles I and 25.








KT





35/113








'


 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 one hundred Dollars (US$100) per square kilometre per Contract Year


I Production Rental"). Such Production Rental shall be considered as a Petroleum


Cost and shall be recovered by the CONTRACTOR in accordance with the


provisions of Articles 1 and 25.








ARTICLE 14 - NATURAL GAS











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 I .aw. more


generous provisions in respect of the recoveiy of Petroleum Costs and the sharing of


Profit Petroleum than in respect of Crude Oil


14.2 The CONTRACTOR may freely u»c any Natural Gas required for die Petroleum


Operations. If technically and economically justified, die CONTRACTOR shall in


priority use ary 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'! written request, he transferred at the first practicable delivery


point as agreed between the Parties, free of charge to the GOVERNMENT. In such


case, the GOVERNMENT shall be 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 .ntcrfcrc with the


production, lifting and transportation of the Crude Oil by the CONTRACTOR For


the avoidance of doubt, all expenditure incurred by die CONTRACTOR up k> such


agreed delivery point shall be considered Petroleum Costs and shill be recovered by


die CONT RACTOR 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 CONT RACTOR


elects to participate in supplying Associated Natural Gas to such market, all


expenditures associated with any necessary facilities shall be pud fur by the


CONTRACTOR. For the avoidance of doubt such expenditure incurred shall he


considered Petroleum Costs and shall be recovered by the CONT RACTOR m


accordance with the provisions of Articles 1 and 25.








36/113


 14.4 Until an approved Natural Gas sales contract is executed in respect of all volumes of


Natural Gas expected to be produced, the C ON IKACTOR shall be enntled dunn*


the Exploration Period and the Development Period to cany out Gas Marketing


Operations





14.5 It pursuant to Article 12.6(d). the CONTRACTOR has determined that the


Discovery ts 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 dial





(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" mans any activity


under this Contract relating to the marketing of Noe-Associated Natural Gas,


including any evaluation to fird a commcriul 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 New Associared 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 I October of the Calendar Year pnxedmg the Calendar Year in winch





any Gas MaAeting Operations arc due to occur, the CONTRACTOR shall prepare


and submit to the Management Committee its Gas Marketing Work Program and


Budget for die 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 earned 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 (in Marketmg Work Program and Budget is requested by


die GOVERNMENT, the Management Committee shall meet to discuss the Gas


Marketing Work Program and Budget and proposed nxxlifkatiers thereto within sixty





&


37/113





*


 (60) day* from its receipt of die proposed Gas Marketing Work Program and Budget.


Tire 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.


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 *uch expenditure shall not exceed ten per cent (10%) of the approved Gas


Marketing Work Program and Budget in any Calendar Year and provided further that


such excess expenditures shall |>c reported as soon as reasonably practicable to the


Management Committee. For the avoidance of doubt, all excess expenditures shall he


recovered by the ( ON TRACTOR in accordance with the provisions of Articles I


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-Associalcd Natural Gas


Discovery will only be a Commercial Discovery if certain terms of this Contract are


amended, it sluill he entitled to request amendments to this Contract, with its reasons,


The GOVERNMENT shall in good faith give reasonable consideration to the


CONTRACTOR’S 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


COM RAC TOR having declared such Discovery to be a Commercial Diaeoray in


accordance with Article 12.6(a) or Article 14.5(a). and subsequently within a penod


of eight (K) years Horn the end of such Exploration Penod. the GOV f KNMENT


reaches agreement with any third party to develop such Discovery (the “Gas


Development"), then the following provision* shall apply:


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





production sharing undo* 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 Mich Proposed Contract pursuant to


Article 14.10(b) and such conditions as may he applicable), the


GOVERNMENT shall, as soon as reasonably practicable after the occurrence


of such circumstances, serve on each of the CONTRACTOR Entities, a


nonce tn that effect and shall with such nrtice provide such information and


main terras of such agreement as the CONTRACTOR Entitle* may


reasonably request to determine if they will exercise tbcu right* (the “Agreed


Terms*}, including:


(i) the identity of such third party;





(ii) the effective date of the Proposed Contract;





(in) the applicable commercial terms, including bonuses, royalties, cost


recovery, profit sharing, taxation and aay other similar icrxn*: and














38/113





yk





 (iv) all and any material conditions to which the Proposed Contract is


subject.


(b) Upon a request from any CON I RACTOR Entity, the GOVERNMENT will





provide all the CONTRACTOR Entities with such further information and


terms as may be reasonably requested by any CONI RACTOR Entity


Within one hundred and eighty days (180) days after receipt of a notice and


any further information under Article 14.10(a) 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


(li) to waive the aforesaid right of pre-emption 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 nnd eighty (180) days


such CON I RACTOR Entity shall he 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(bXi) « relation to the Proposed Contract then the


GOVERNMENT shall transfer or grant each such CONTRACTOR Entity


an interest ui the Proposed Contract upon the Agreed Terms (in accordance


with Article I4.l0(bxi)) in the proportions in which their respective


percentage interests bear to the aggregare of their respective percentage


interests under the relevant Joint Operating Agreement (as it applied at the end


of the Exploration Penod) or in such other prelections as such


T ON TRACTOR Entities shall agree between them.


(d) In the e\ ent that one of the CONTRACTOR Entities exercises ts rights





undo Article l4.10(bXi) in rdaliuo 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(bKi))


such C ONTRACTOR Entity





ie> In the event that neoc of the CONTRACTOR Entities exercises ts rights


under Article 14 10(bXi> then the GOVERNMENT may enter into the


Propooed Contract cn terms no more favourable to its counterparty than the


Agreed Terras and, in soch case, the aforesaid ngbts of pre-emption shall


thereupon cease to apply m relation to the Proposed Contract





14.11 If the pre-emption right* in .Article M.IOare not exercised and the GOVERNMENT


enters into the Proposed Contract with the third party concerned, the


 GOVERNMENT will use its bcsi endcawws to avoid any effect which may


the Petroleum Operations of the CONTRACTOR while producing Petroleum





FlnrlfiK





Flaring of Natural Gas in the course of activities provided for under this Contract, is


prohibited except (i) short-term flanng up to twelve (12) Months necessary for testing


or other operational reasons in accordance with prudent international petroleum


industry practice (which shall include the flanng of Annotated Natural 0a> to the


extent the CONTRACTOR considers that rc-injcctiug Asaociatcd Natural tins is not


justified technically and economically mid provided the GOVERNMENT decides


not to take such Associated Natural Gas), or (li) with the prior authorisation of the


GOVERNMENT, such authorisation not to be unreasonably withheld or delayed


Ihe C ONTRACTOR shall submit such request to the GOVERNMENT, which shall


include an evaluation of reasonable alternatives to flanng that have been oomidcrcd


along with information on the amount and quality of Natural Gas involved and the


duration of the requested flaring.





ARTICLE 15- ACCOUNTING AN1) 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 Coil* (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 aa a function of the


quantities and value of Petroleum produced, and shall he kept for a penod of live (5)


>can All Account* which are made available to the GOVERNMENT «n accordance


with the provisions of this Contract dial I be prepared in the English language, The


Accounts shall be kept ui accordance w ith 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


Within ninety (90) days following the cod of each Calendar Year, the


15 2


CONTRACTOR shall submit to ih* GOVERNMENT a summary statement of all


Petroleum Costs incurred dunng the mhI Calendar Year. The summary statement


sliall also include a profit calculation pursuant to the provisions of Article 26





15.3 Ihe GOVERNMENT shall have the tight:


(a) to request an audit of the Account* with respect to each Calendar Year within





a penod of two (2) Calendar Years following the end of such Calendar Year


(the "Audit Request Period"); and


(h) to retain an auditor of international standing familiar with international


petroleum industry accounting practice to undertake or assist the


GOVERNMENT to undertake the audit.














40/113





*


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 ease of manifest error or (Valid.


15.4 The reasonable cost of retaining an auditor pursuant to Article 15.3 shall be borne by


the CONTRACTOR and treated as a Petroleum Cost for the purpose of cost recovery


under Articles 1 and 25.


15.5 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 dale of


request referred to in Article 15.3, and failure to give such written excqition within


such tone shall be deemed to be an acknowledgement of the correctness of the


CONTRACTOR** 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 160) days to make necessary


corrections, adjustments or amendments or to present its comments in writing or


request a meeting with the GOVERNMENT. Ihe GOVERNMENT dull within


thirty (30) days of the CONTRACTOR'S response. notify the CONTRACTOR in


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 C ONTRACTOR shall provide the GOVERNMENT with such product**


statements aid reports as reqiared pursuant to Article 16 3


15.9 Any dispute between the Parties under this Article 15 that cannot be settled amicably


within sixty (60) day* of the GOVERNMENT'* final notice under Article 15.7, may


be submitted to an expert on the request of either the GOVERNMENT Of the


CON TRACTOR in accordance with the provisions of .Ancle 422. Notwithstanding


the provisions of Ancle 42. in Bus specific tnsancc the decision of die expert shall


not necessarily be final and either Party may decide to submit the matter to a-brrration


in accordance with the provisions of Article 42.1.





ARTICLE 16 --- CONTRACTOR'S RIGHTS AM) OBLIGATIONS








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 Reg ion, 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.








16 2 The CON I KAOT OK shall carry out all Petroleum Operations in accordance with the


provisions of this Contract, prudent international petroleum industry practice and


applicable Kurdistan Region Law.


The CONTRACTOR shall be responsible for the conduct, management. cootol and


administration of Petroleum Operations and shall be entitled to conduct Petroleum


Operations in accordance with the provisions of this Contract, fa confecting 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 nil such


Persons shall at all limes have free access to the Contract Area and any Production


Areas for the purpose of currying out Petroleum Operations.





iHfvriamwn »nd Reports


16.3 The CONTRACTOR shall provide the GOVERNMENT with periodic data ami





activity reports relating to Petroleum Operations Said reports shall include details of


the following:





(a) information and datn regarding ull Exploration Operations, Development


Operations and Production Operations las applicable) performed during the


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


(b) data and mfonaattuo regarding any transportation facilities built and operated


by the CONTRA! I OR


(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 dale and price or cost of their acquisition.








16.4 CONTRACTOR may freely the Contract











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 rclaUng to Petroleum Operations at the


offices, worksites or any other facilities of the CONTRACTOR


Kf


A 42/113





 Upon giving reasonable pno» notice to the CONTRACTOR, the GOVERNMENT


may send a reasonable number of representatives to the worksites or any oilier


facilities of the CONTRACTOR in the Kuidistan Region to perform such reviews


and verifications. The representative! of the GOVERNMENT shall at all times


comply with any safety regulations imposed by the CON TRACTOR and such


reviews and verifications shall not hinder the smooth progress of the Petroleum


Operations











1 6 6 For the performance of the Petroleum Operations, the CONTRACTOR, any Affiliate


of each CONTRACTOR Entity, its and their Subcontractors and the employees,


consultant* 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 not.ee front the GOVERNMENT, the CONTRACTOR shall make available


to a reasonable number of representatives of the GOVERNMENT those of the


CONTRAC TOR's facilities which are necessary to enable such representatives to


perforin their tasks related to this Contract and the Kurdistan Region Oil and Gas Law


including, in ease 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 16.8. the GOVERNMENT shall indemnify and bold


harmless enrh CONTRACTOR Entity against all lomes, damages and liabdity


arising under any claim, demand, action or proceeding brought or initialed 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 km or damage caused to third


panic* by its or its Subcontractors penomd solely and directly resulting from their


negligence, error* or omissions in accordance whh applicable Kurduton Region Low











16.9 In its Petroleum Operations, the CONTRACTOR shall respect any patents belonging


to third parties.


Iittgatioi





1610 The CONTRACTOR shall os soon as reasonably practicable ntforra the


GOVERNMENT of any material litigation relatmg to this Contract


 Safely


16 11 The CONTRACTOR shall implement a health. safety and environment program ami


take necessary measure* to ensure hygiene, health and safety of it* 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:


(b) reporting to the CGOVERNMENT 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 pcmnl-to-work procedure around hazardous equipment ami


installations;


(d) providing safe storage areas for explosives, detonators and any other





dangerous product* used in the operations,


(c) supplying fire-cxtinguuhmg equipment in each work area.


(f) lor 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





lorautwos and production of Crude Oil and Natural Gas at rales that do not


conform to prudent mtcmuiorul petroleum industry practice











16.12 Subject to Article 43.2, in the event the production rate of the individual well* and


Reservoir of a Petroleum Field is to be set below the Maximum Efficient Rale


("MER”) for the Reservoir, as provided for m the Development Plan, as a


consequence of a dectsion by the GOYTRNMEN I or my federal or tnicnutiooal


regulatory body, the GOVERNMENT undertakes to allocate any such reducaon


fairly and equitably among the various operators (including the GO' ERNMENT)


then producing in the Kurdistan Region, pro rata their respective production rates. In


such event, the GOVERNMENT shah grant an extension of die Development Period


of any Production Area so affected for a reasonable period of lime in order to produce


the Petroleum which would otherwise have already been produced, had the \1£R for


.he individual wells and Reservoir of the Petroleum Field been maintained








16.13 The respective rights, duties, obligations and liabilities of the CONTRACTOR and


the GOVERNMENT under this Contract arc to be understood as being aeparate and





44/113





/


 individual and not joint and several 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 Hie GOVERNMENT and each CON IKACTOK 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 lilting of Petroleum


by each such CONTRACTOR Entity Such lifting 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


CON I R ACTOR 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 Panics to lift uny Available Petroleum not scheduled for lifting


and/oi not lifted by the other Party during each such lifting period.











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 he the


International Market Price The GOVERNMENT dull provide the


CONTRACTOR Entities with not less than six (6) Months’ ads ante written notice of


its intention to buy such Crude Oil


Payments shall be made m Dollars and otherwise on terms consistent with prudent


international petroleum industry practice. The CONTRACTOR ten ties' obligation


to sell Crude Oil to the GOVERNMENT shall be. with the other operators (.Deluding


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 m 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. Hie CONTRACTOR shall have the right to build and maintain,


above and below ground, any facilities required for the Petroleum Opetotioiu


172 If * becomes necessary for conduct of the Petroleum Operations to occupy and use


any land or property in the Kurdistan Region belonging to thud paiucs, the


CONTRACTOR shall endeavour to reach amicable agreement with the owners of


such land If such amicable agreement cannot be reached, the CONTRACTOR shall


not.* 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 chon


duration; or


(b) the GOVERNMENT shall expropriate the land or property in accordance





with applicable Kurdistan Region Law, if such occupation will be long lasting


or males il 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, hut 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. anti shall take


into account the rights of the owner and any effective use of the land or property by


its ownet ai Utc lime of occupation by the CONTRACTOR. All reasonable costs,


expenditure!! and fair and reasonable compensation (as required pursuant to Article 29


of the Kurdistan Region Oil and (ias Law) which results from such expropriation


shall be borne by the CONTRACTOR. For the avoidance of doubt, such costs,


expenses and compemation incurred by the CONTRACTOR shall be considered


Petroleum Costs and dull 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, nver. 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. unlcra generally m force, lo be


mutually agreed





17.4 Under national emergencies due to environmental catastrophe or disaster, in internal


or external war. the GOVERNMENT shall have the tight lo request to use any


transportation and communication facilities installed by the CONTRACTOR. In


such eases, the request shall originate from the Minister of Natural Resources For the


avoidance of doubt, such costs, expenses or habthbes incurred by the


CONTRACTOR hereunder shall be considered Petrolemn Costs and shall be


recovered by the CONTRACTOR in accordance with the provisions of Articles I


and 25.





17.5 For its Petroleum Operations, the CONTRACTOR shall have the nght in the


Kurdistan Region lo 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


l/f





46/113


 unit!, separation units, sulphur plants and any other facilities or installations for die


Petroleum Operations, in addition to pipelines, pumping stations, generators, power


plants, high voltage lines, telephone, radio and any other telecommunications systems,


us well us 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.


17.6 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 lor its Petroleum


Operations





The CONTRACTOR shall have the right in the Kurdistan Region to take or use any


water neoeuary for the Petroleum Operations provided it docs not damage any


existing irrigation or navigation systems and dial land, houses ot watering points


belonging to third parlies ate not deprived of their use.


17.7 The GOVERNMENT shall have the right in the Kurdistan Region to build, operate


and maintain roads, railway*, airports, landing strips, canals, bridges, protection dam*,


police station*, military installations, pipelines and telecommunications networks in


the Contract Area, provided this docs not increase the costs, or compromise or have a


material adverse effect on the performance of the Peaolcum Operations. If the


construction, operation and maintenance of such facilities by the GOVERNMENT


results in increased cost or expense for die 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 ihc 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 Aulhonsatioe. as


shall be defined in. and consistent wih. the Kurdistan Region Oil and Gas law, to


authorised thud parties on reasonable terms and conditions (including coordination),


including Persons authorised to construct, install and operate structures, facilities and


installations, and to carry out other works, provided that nothing ui the Access


Authorisation or in this At tick 17.9 authorise* the bokkr to Aill a Well or to perforin


any Petroleum Operations in Contract Area





I he GOVERNMENT shall give the CONT RACTOR adequate advance notice of


any Access Authorixauon in respect of the Contract Area and shall not grant any


Access Authorisation in respect of the Contract Are* until it ha* taken into account








47/113








/


 «ny submissions nude by the CONTRACTOR nor m axh ■ way that there it undue


interference with or hndrance of the rights and acbviuc* of the CONTRACTOR


ARTICLE 1* - ASSISTANCE FROM THE GOVERNMENT





To the extent allowed by Kurdistan Region Law and Iraqi law and at (be specific


requeat of the CONTRACTOR the GOVERNMENT shall take all necessary steps


to assist the CONTRACTOR Entities in. but not limited to. the following areas:


(a) securing any necessary Permits for the use and nstallation of means of


transportation and cotmi’inirjtioos.


(b) securing regulatory Permits in matters of customs or importer pact;





(c) securing entry aaJ exit visas. w«k and residence permits as well as any other


administrative Permits for each CONTRACTOR Entity's, its Affiliate's and





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, includmg for


the purposes of the remainder of this Article 18.1;


(0 securing any necessary environmental Permits.





(|C> obtaining any other Pcrmita icqucatcd by any CONTRAC TOR Entity for the


Petroleum Operations;


(h) access to any existing datu and information, including data and information


relating to the Contract Aren held by previous operators or contractors; nnd


(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 he


recovered by the CONTRACTOR as Petroleum Costs in accordance with the


provisions of Articles 1 and 25.


ARTICLE 19 EQUIPMENT ANI> MATERIALS





i9.i The CON TRACTOR shall supply, or procure the supply of, all materials, equipment,


machinery, tools, spare parts and any other items or goods required for the Petroleum


Operation* (“Equipment and Materials ’).











48 m3





*


192 Said hq-iipracnt and Materials shill be provided by the CONTRACTOR in


19 3 At toon as possible after the Effective Dale, the CONTRACTOR shall provide the


Management Commiccc with a copy of iU proccduica foi procurement of Equipment


and Materials andot services for the Petroleum Operations as required by the


provisions of Article H.2 (e), including the criteria for tender evaluation, which


procedures and criteria shall be in accordance with prudent international petroleum


industry practice If the Management Committee docs not request any modifications


to the procurement procedures within thirty (JO) days after receiving such procedure*,


the procedures shall be deemed approved by the Management Committee.


19 A The CONTRACTOR shall give priority to Equipment and Materials that arc readily


available in the Kurdistan Region and other parts of Iraq to the extent their price,


grade, quality, quantity, specifications, purchase, delivery and other commercial and


technical terms arc 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 Operation* dull remain the property of the CONTRACTOR, the


CONTRACTOR Entities, their Affiliates or then Subcontractors, as the ease may be


20.2 Duiuig the Development Period, subject to Ankle 21, all Assets acquired by the


CONTRACTOR for the 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 cod of the Contract, whichever is the earlier.


20 3 The provisions of Article 20.2 shall not apply to any Assets leased by the


CONrKACTOR or brlongiBg to an Affiliated Company of a CONTRACTOR


Entity or bdoofuag to it* or their Subcontractors or it* 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 coat of


the same, for the Petroleum Operations, as well as lor any petroleum operation.! under


other agreements in the Kurdistan Region to which it or any ot its Affiliates is a party,


provided that the Petroleum Operations take priority. Th* GOVERNMENT agree*


nor to transfer or otherwise dispose of any of *uch Assets withovt the


CONTRACTOR’S poor written approval.


21.2 The CONTRACTOR may freely move to the Contract Area any Assets from any


relinquished portion of the Contract Aren, or from any other area in the Kurdistan


Region.





49/113


 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 Subcontractor* from the Kurdistan


Region and other parts of Iraq to the extent their competence, rates, experience,


reputation, qualifications, specialties, crcdtl rating and terms ot' availability, delivery


and other commercial terms arc. 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.


22.3 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 rhe 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 tune to time.





ARTICLE 23 - PERSONNEL, TRAINING, .AND TECHNOLOGICAL ASSISTANCE


Pcnonncl


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


pans of Iraq to the extent such personnel have the technical capability, qualifications,


competence and experience required to perform the wort


23.2 The CONTRACTOR Entities shall gne due consideration to the secondment of


GOVERNMENT personnel to the CONTRACTOR Entities and of the


CONTRACTOR Entities' personnel to the GOVERNMENT dunng the vanous


phases of the Petroleum Operations. Terms and conditions for such secondment shall


be mutually agiccd 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 I and 25.


23J Each CONTRACTOR Entity and its Affiliates and Subcontractors shall have the


right to hire foreign personnel whenever the personnel from the Kunhstan Region and


o*ber 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 oent


any such foreign personnel and'or a member of their tanul> engage m activities or


commit acts which breach Kurdistan Region Law. the C ONTRACTOR shall, at the


request of the Management Committee, take the necessary steps to repatriate such


individual).


&





50 f 113


 23.4 For the first five (5) Contract Years, the CONTRACTOR shall provide two hundred


and fifty thousand Dollars (1JSS250.000) 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


Rcsouiccs. Such costs shall be considered us Petroleum Costs and shall be recovered in


accordance with the provisions of Articles 1 and 25.





I raining


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 tnun all its personnel from the Kurdistan


Region und other parts of Iraq directly or indirectly involved in the Petroleum


Operations for the purpose of improving their knowledge und professional


qualifications in order th.it such personnel gradually reach the level of knowledge and


professional qualification held by the CONTRACTOR Entities' foreign workers


with an equivalent nbsumt Such training shall also include the transfer of knowledge


of petroleum technology and tlK necessary management experience so as to enable


the personnel from the Kurdistan Region and other parts of Iraq to apply advanced


und appropriate technology in the Petroleum Operations, to the extent permitted by


applicable Law and agreements with Uiinl parties, and subject to appropriate


confidentiality agreements.


23.6 In addition to the requirements of Article 23.1, the recruitment, integration and


training ol the CONTRACTOR Entities' pcisonncl 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 ukc into


consideration the requirements of Article 23.5 and may include training for the


GOVERNMENT’S personnel, depending on the extent to which ibe amount


allocated to the training plan, as prescribed by Article 23.7. is asailablc after caking


into consideration the training of the CONTRACTOR Endues' Kurdistan Rcgxn


and other Iraqi personnel


Within ninety (90) days of the Effective Date, the CONTRAC TOR shall submit to


the Management Committee a proposed training plan for the remainder of the


Calendar Year. Thereafter, no later than I 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 filly thousand Dollars


(US5150.000) 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 be considered as Petroleum Costs and shall be


recovered In accordance with the provisions Ol Articles 1 and 25. Costs incurred by


the CONTRACTOR for training programs for the GOVERNMENT’S personnel


51/113











/V


 shall be borne by the CONTRACTOR only to the extent tbit they are included in the


CONTRACTOR'S training plan, pursuant to Article 3* A and shall also be


considered as Petroleum Cost* and shall be recovered in accordance with the


provisions of Articles 1 and 25. Tlie cost of all other training programs for the


GOVERNMENT’S personnel shall be the GOVERNMENT'S responsibility.








25.9 The CONTRACTOR shall contribute the amount of one hundred and fifty Dollars


(USS150.000) in advance each Contract Year during the Exploration Period and three


hundred thousand Dollars (USS300.000) in advance for each Contract Year during the


Development Penod into the environment fund established by the GOVERNMENT


for the benefit of the natural environment of the Kurdistan Region, pursuant to die


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 I and


25.


25.10 Any expenditure ircuiTed by the CONTRACTOR under this Article 23 shall be


considered Petroleum Costs and shall be recovered in accordance with Articles 1 and


25.








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, up to die value of


two million Dollars (l SS2.000.000). The form of such assistance shall be mutually


agreed by the Parties and any costs associated therewith shall he considered


Petroleum Costs tnd shall be recovered by the CONI KAfTOR in accordance with


the provisions of Articles 1 and 2$.


ARTICLE 24 ROYALTY


24.1 The CONTRACTOR shall pay to the GOVERNMENT a portion of Petroleum


produced anJ saved flora 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 ( rude CRT and “Export


Non-Associated .Natural Gas-


243 If payable in cash, the amount of the Royalty calculated by applying the Royalty rates


provided under Article 244 shall be paid by the CONTRACTOR as directed by the


GOVERNMENT, in accordance with Article 24.7.


 If payable in kind, the quantity off sport Petroleum corresponding to the Royalty and


calculated by applying the Royalty fates provided under Article 24.4 shall be


delivered in kmd 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 titan 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 lull 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-Associatcd Natural Gas (as the case may be)


produced and saved on that day


(a) For Export Crude Oil:





the 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-Associatcd Natural Gas:





the Royalty rate for Export Non-Associatcd Natural Gas shall be ten per cent


(10%).





24.3 Associated Natural Gas and any other Petroleum shall be exempt from any Royaltv


24.6 If. pursuant to Article 24.3, the GOVERNMENT receives the Royalty m kind, and


pursuant to Article 28. the GOVERNMENT request* assistance foe the sak of all or


part of the Royalty received in kind, each CONTRACTOR Entity shall assist the


GOVERNMENT in selling all or part of such Royalty received in kind (belonging *o


the GOVERNMENT) in consideration of u commission per Barrel payable ti> such


CONTRACTOR Entity, in accordance with Article 2H.





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 Pnee


obtained at the Delivery Point, as defined in Article 27.2;


(b) any Export Non-Associatcd Natural Gas shall be valued at the actual price





obtained at the Delivery Point under an approved contract, a* provided in


Article 27 3;





(c) the CONTRACTOR shall pay such Royally each Quarter, ui arrears, within


thirty (30) days of the end of each Quarter, and shall calculate the payment


due lor the relevant Quarter by rclcronec to the price Ibr the Export Petroleum


at the Delivery Point, determined in accordance with paragraphs (a) and (b)


above, and the Royalty due on the F.xport Petroleum, determined in


accordance with Article 24 4. for the said Quarter; and








53/113





A


 (d) the CONTRACTOR Entities shall be entitled to export freely the volume of


Export Petroleum corrcspoodmg to the Royalty determined in accordance with


Article 24.4 for the purpose of paying the Royalty m cash.





ARTICLE 25 - RECOVERY OF PFTROLElM 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 lor





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-Associatcd Natural Gas due for


Royalty pursuant to Article 24, be considered as “Available Non-Astociatrd Natural


Gas"


“Available Petroleum" means Available Crude Oil. Available Associated Natural


(ins 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 m Article 27.3.


25.3 Subject to the provisions of this Contract, from the Find Production in the Contract


Area, the CONTRACTOR shall at all times be 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 tins 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 times be entitled to recover all Petroleum Costs


incurred under this Contract of up to fifty per cent (50%) of Available Son-


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 Coat* shall be Profit Natural Gas.


25.5 For the application of Article 253 and 25.4. the CONTRACTOR shall keep a





detailed account of Petrolewn Costs in accordance w ith the provisions detailed in the











54/113


A


 Accounting Procedure Recovery of Petroleum Costs shall occur in the following


order





(a) Production Cotta.


(b) Exploration Cost* (including appraisal coat* and further cxplotatiun within the





Contract Area).


(c) Gas Marketing Costs;


(d) Development Costs; and





(e) 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 Non-


Associated Natural Gas do not allow the CONTRACTOR to recover all its


Petroleum Costs pursuant to this Article 25, the amount of un-recovcicd Petroleum


Costs in such Calendar Year shall be earned 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 ease 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-Associntcd Natural Gas due to the


CONTRACTOR for the recovery of its Petroleum Costs.


25.8 Tlic quantities of Petroleum corresponding to the share of Available Petroleum due to


the CONTRACTOR for the recovery of it* 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 COS’ TRACTOR Entity shall be entitled to receive, take in lend and to export


freely all Available Petroleum to wtueh it is entitled for recovery of it* Petroleum


Costs in accordance with the provision* of dm Contract and to retain Abroad any


proceeds Iran the sale of all such Available Petroleum. Petroleum Costs in each


Prodjcooo Area shall be recovered (ran Available Petrol cum from the Contract Area.


25.10 Subject to Article 38 4. for the avoidance of doubt. Petroleum Costs under this


Contract are not recoverable against other contract area* held by the


CONTRACTOR.
































55/113


 ARTICLE 26 SHAKING OF PROFIT PITROLEt M





26.1 Under this Contract,


(a) "Profit Petroleum ’ means Profit Crude Oil ami Profit Natural Gas;


(b) "Profit Crude OH" means the quantities of Available Crude Oil and


Available Associated Natural Gas produced from the Contract Area, after the


recovery of Petroleum Costs, in accordance with Articles I and 25; and


(c) "Profit Natural Gas" means the quantities of Available Non-Associutcd


Nutural Gns produced from the Contract Area, after the recovery of Petroleum


Costs in accordance with Articles 1 and 25.


26.2 From hirst Production and as and when Petroleum is being produced, the


CONTRACTOR shall be entitled to take a percentage share of Profit Crude Oil


andor Profit Natural (ias, n consideration for its investment in the Petroleum


Operations, which percentage shuic shall be determined in accordance with Article


26.5.


26.3 To determine the percentage share of Profit Crude Oil andor Profit Natural Gas to


which the CONTRACTOR is entitled, the "R" Factor shall be calculated in


accordance with Article 26.4 nnd shall be applied to the Contract Area


26.4 The "R" Factor shall he calculated as follows:


K-X/Y


where


X: is equal to Cumulative Revenues actuall> received by the CONTRACTOR.


V is equal to Cumulative Costs actually incurred by the CON TRACTOR


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 the total amount actually received by the CONTRACTOR for


revovery of its Petroleum Costs and its share of Prof it Petroleum in the Contract Area.


"Cumulative Costs” means all Petroleum Coals actually incurred p«-isuani to this


Contract by the CONTRACTOR until the end of the relevant Semester, determined


in accordance with Article 26.7.





Notwithstanding die foregoing provisions of this Article 26.4. lor the penod from


First Production until the end of the Calendar Year in which First Production occurs,


•he “R” Factor shall be deemed to be less than one (I)





56/113


26.5 The share of Profit Petroleum to which the CONTRACTOR shall be entitled from


First Production i*:


(a) for Profit Crude Oil, equal to the quantities of Petroleum resulting from the


application of the relevant percentage is indicated below to the daily volume


of production of Profit Crude Oil within the Contract Area at the


corresponding Delivery Pomt


“R" Factor CONTRACTOR’* % Share of Profit Crude OU


R < or - I 30%


I < R< or • 2 30% - (30% - 15%) MR-1)


R>2 15%


■ltd


(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


liar daily volume of production of Profit Natural Gas within the Contract Area


at the corresponding Delivery Point:


"K" Factor CON TRACTOR’S % Share of Profit Natural Gas


R < or *• I 40%


1 < R< or = 2 40%-(40%-20%)x(R-1.0000)


R >2 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 l" of January of the Calendar Year following the


Calendar Year in which First Production occurs, the CONTRACTOR shall calculate


the “R" factui applicable to the relevant Semester within thirty (30) days of the


beginning of such Semester I be "R" Factor to be applied during a Semester shall be


that determined by applying the C umulative Revenues actually received and the


Cumulative Costs actually named up to and including the Iasi day of the preceding








If the CONTRACTOR is unable to calculate the TT FkIot for the relevant


Semester before an allocation of Profit Petroleum Tor such Semester must be made,


then rise allotauon of Profit Petroleum foe the previous Semester shall be used for the


relevant Semester Upon the calculation of the ”R" Factor for the relevant Semester :


(a; if the allocator of Profit Petroleum in the previous Semester and the relevant


Semester is the same, then no adjustment shall be made; and











57/113


(b) if Ihc allocation of the Profit Petroleum in the tw o 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 enor 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 he made and any adjustments shall apply


from the Semester in which the error occulted. The Party having benefited from a


surplus of Profit Petroleum shall surrender such surplus to the other Party, beginning


from the first .lay 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 die 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 (ina, no correction shall he 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 nsk of loss of such


Profit Petroleum shall be transferred to the CONTRACTOR Entities at the Delivery


Point.


Each CONTRACTOR Entity shall be entitled to receive, lake 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 the sole of all such Profit Petroleum


26 10 The share of the Profit Petroleum to which the GOVERNMENT is entitled in any


Calendar Year in accordance with Article 26.5 shall be deemed to include a portion


representing the corporate income lax imposed upon and due by each


CONTRACT O R Entity, and which will be paid (Erectly by the GOVERN Ml NT on


behalf of each such entity representing the CONTRACTOR to the appropriate tax


authorities in accordance with Article 31.2. The GOVERNMENT shall provide the


CONTRACTOR Entities with all written documentation and evidence reasonably


required by the CONTRACTOR Entities to confirm that such corporate income ux


has been paid by the GOVERNMENT


26.11 The quantities of Profit Petroleum due to the GOVERNMENT shall be delivered to


the GOVERNMENT at the Delivery Point Title and nsk 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 oi first


Production and. subsequently, thirty (30) days prior to the beginning of each


Semester, Use CONTRACTOR shall prepare and deliver to the GOVERNMENT a


production program comprising the production forecast for the next Semester and the


forecast of the quantities of Crude Oil and Natural Gas to which each Party shall be


entitled during the said Semester.











58/113


 26 13 Within ninety (90) days following the end of each Calendar Year, the


CONTRACTOR shall prepare and deliver an annual production report lo the


GOVERNMENT, stating the quantities of Crude Oil and Natural Gas to which each


Party is entitled, the quantities of Crude Oil and Natural Gas lifted by each Party and


the resulting over-lift or undcr-htl position of each Party, pursuant to the 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 the GOVERNMENT* share of Petroleum by the


CONTRACTOR shall not be considered Petroleum Costs and shall be charged lo the


GOVERNMENT according to terms lo be mutually agreed between the


CONTRACTOR and the GOVERNMENT








ARTICLE 27 - VALUATION AND METERING OF CRUDE OIL AND NATURAL


GAS





Valuation


27.1 For the purpose of this Contract, any Crude Oil produced m the Contract Area shall be


valued at the end of each Quarter at the Delivery Point based on the International


Market Price, as defined in Article 27.2,


27.2 Hie "International Market Price" referred lo in Article 27.1 shnll be the weighted


average price per Barrel, expressed In Dollars, obtained by the CONTRACTOR at


the Delivery Point, by netback if necessary, during the Quarter ending on the date of


valuation for Arm's Length Sales of Crude Oil


The CONTRACTOR shall provide evidence to the GOVERNMENT that the sales





of Crude Oil referred to m Article 27.2 are Arm's Length Sales. If the


GOVERNMENT considers that any such sale of Crude Oil is not on the bun of an


Aim’s Length Sale then the GOVERNMENT ha* the right to icfct the matter to an


expert pursuant to Article 42.2.





In the event that there is do lifting of Crude Oil in the relevant Quarter or no Ann's


Length Sales, the applicable International Market Price for such Quarter shall he


the weighted average price per Barrel obtained duneg 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 difference* and Uimportation


and other post Delivery Point costs.


To determine such price, the Par.ici shall, poor to the coouneixcmcnt of Production,





agree on a basket of Cnide Oil ctroparabk to those produced m the Contract .Area and


sold in the intcnut»ooal market. Prices obtained shall be adjusted to account for any


variance* such as qualny. specific gravity, sulphur content, transportation costs,


product yield, seasonal variation* m pnee and demand, general market trends and


other terms of sale.














59/113





>


27.3 The price of Natural Gaa shall be the actual price obtained at the 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 the relevant market, in accordance with


standard international petroleum industry pructice). Hie GOVERNMENT shall have


the right to review and approve Natural Gas wile* contracts.


Accounting Statement


27.4 In accordance with thia Article 27.4, the GOVERNMENT and the CONTRACTOR


•hall establish a statement showing calculations of ihc value of Petroleum produced


and sold from the Contract Area Such statement shall include following information:


(a) quantities of ( rude Oil sold by the CONTRACTOR Entities during (he


preceding Monlh 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 fall in the category referred to in paragraph (a)


above, together with sale pnccs applied during such Month;


(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 wiih


prudent international petroleum industry practice and tuch meter* shall he to fiscal


meter standards. All metering equipment dull 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 he subject to periodic technical inspections in


accordance with prudent international petroleum industry practice.


27.6 If any metering equipment is defective, die CONTRACTOR shall use all reasonable


endeavours to repau 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 be the last date that the


metering equipment was known or agreed to have been measuring correctly, or if not


known or agreed, tlie date that is midway between the dale the defect was discovered


and the last date the equipment wus known to have measured correctly Die results


from the defective equipment shall be disicgiudcd for rite period from the Adjustment


Date until the dale die defective equipment is repaired or replaced and the


measurement lor such penod shall he estimated:


(a) if check measuring csfiipmcnt u installed and rcgistcrmg accurately, then by


(b) if check measuring equipment a not metalled or not registering accurately,





then by correcting the 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 woa icgistcnxl 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 - SALE 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 lo the


GOVERNMENT for the sale of all or part of the quantities of Crude Oil to which the


GOVERNMENT is entitled, id consideration of a sales commission per Band to be


established with reference to prudent international petroleum practice and lo be mutually


agiccd upon between the Parties.








ARTICLE 29-FINANCIAL PROVISIONS


29.1 Any payment to be made by a CONTRACTOR Entity to :he 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 w riting and


shall be puid within thirty (30) days of the due date, after winch interest compounded


monthly at the rale of LIBOR plus two (2) percentage points shall be applied


29 2 The GOVERNMENT may. at «a sole dacreiioa. direct die CONTRACTOR


Entities io pay:


(a) any Royalty in cash due lo 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


w hich the GOVERNMENT is entitled pursuant lo Article 25; andor


(c) any Production Bonus.


to a bind 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 (ndudmg the Kurdistan Region) and govenorares of Iraq Nothing id this


Article 29.2 shall be understood at implying any conawrtual reUnor.ship or other


relationship between the CONTRACTOR andor any CONTRACTOR Entity and








61/113


 the Government of Iraq and or the regions of Iraq (other than the Kurdistan Region)


and or and governor*tes of Iraq.


29.3 Any payment due by the GOVERNMENT to a CONTRACTOR Entity shall he





offset against future payments due by such CONTRACTOR Entity to the


GOVERNMENT, or paid in Dollar* to the bunk account designated by the


CONTRACTOR Entity in writing and shall he paid within thirty (TO) days of the


date of invoice, after which interest compounded monthly at the rate of 1.IBOR plus


two (2) percentage points shall be applied.





29.4 Any currency conversion to be made under this Contract shall be at the cue


of the Central Bank of Iraq, provided such exchange rate applied to the


CONTRACTOR Entities shall not be leas favourable than the rate offered by other


private, commercial or industrial hanks in the international market In the absence of


the Central Hank of Iraq or in the event that the Central Bank of Iraq is unable to


provkfc the relevant exchange rate, any currency conversion to be made under this


Contract shall be at the exchange rate of a








29.5 The CONTRACTOR shall not realise any gain or knt due lo exchange rale


fluctuations and. consequently. any gain or loss resulting from the exchange of


currency’ shall be either considered as revenue and credited to the Accounts or shall be


considered as a Petroleum Cost and dull be recovered by the CONTRACTOR in


accordance with Articles I and 25. as the case may be





29.6 Each CONTRACTOR Entity dull at aH tunes be entitled to freely convert into


Dollars or any other foreign currency any Iraqi dmars received n the fraujenoti of


the Petroleum Operations and to freely transfer the same Abroad The conversion rate


shall he as provided under Article 29.4.





29.7 Each CONTRACTOR Entity ahull have the right to be paid, receive, keep, transfer


and use Abroad, without any restrictions, all proceeds of its share of Petroleum.





29.8 Each CONTRACTOR Entity and its Subcontractors shall have the right to freely


open and maintain hank accounts for Petroleum Operations within or outside the


Kurdistan Region and other parts of Iraq.





29.9 Each CON I RACTOR Entity shall have the right to pay in any freely convertible


currency all iti financial requirements for die 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 parts of Iraq from (he


sale of Petroleum;





O') any proceeds received from other operations and activities earned out under


this Contract in the Kurdistan Region or other pints of Iraq.








62/113





/ k


29.11 Each CONTRACTOR Entity shall have (he right to jay in any foreign currency its


Subcontractors and it* expatriate personnel either in the Kunfoaac Region, other part*


of Iraq, or Abroad. Said Subcontractor* 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 nghl to repatriate the proceeds of the sale of their


belongings m accordance with the regulation* in force in tbc Kurdistan Region.


29.12 Each CONTRACTOR Entity** Affiliate*. Subcontractors and then personnel shall


equally benefit from the same lights as such CONTRACTOR Entity *nd 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 39-CUSTOMS PROVISIONS


30.1 All services, material, equipment, good*, consumable* and products imported into the


Kurdistan Region and other pan* of Iraq by the CONTRACTOR, any


CONTRACTOR Entity, it* Affiliates, any Subcontractor or any agent of any ot the


foregoing, for use or consumption in the Petroleum Operations shall be admitted free


and exempt from any and all luxe* on import. The CONTRACTOR, any


< 'ONTRACTOR Entity, its Affiliate*, any Subcontractor or any agent of any of the


foregoing shall have the right to rc-cxpoi1 from the Kurdistan Region and other parts


of Imq free from all Taxes on export uny material, equipment, good.*, consumables


und products that arc no longer requited fov die Petroleum Operatic*!*, except where


title has pasted to the GOVERNMENT in accordance with .Article 20, in which case


re-export shall be approved by the Management Committee.


30.2 rbe CONTRACTOR any CONTRACTOR Entity, it* Affiliates, any Subcontractor


or any agent of any of the foregoing, and their personnel (including their family


members) shall have the ngbt to freely import into the Kurdistan Region »nd other


parts of Iraq and re-export from the Kurdistan Region and other parts of Iraq ary


personal belonging* and fonunae free and exempt from any Taxes on mpurt ot


expert. The sale in the Kurdistan Region and other part* of Iraq of personal


belongings and ftamturc of expatriate personnel shall comply with KimJutan Region


Law


30.3 Each CONTRACTOR Entity and it* Affiliates shall be entitled to freely export from


the Kurdistan Region and other pull of Iraq, free of any Taxes, any Petroleum to


which it is entitled pursuant to lire provisions of this Contract.


30.4 lire GOVERNMENT shall indcmtiUy the CONTRACTOR, any CONTRACTOR


Entity, it* Affiliates, any Subcontractor or any ageut of any of the foregoing, and their


personnel (including their family members) for any import or export T axes referred to


in Article* 30.1, 30.2 or 30.3.


 ARTICLE 31 - TAX PROVISIONS





31.1 hxccp< ii expressly provided in this Article 31. and without prejudice to the


cxcniptioni 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 ot the exemptions granted by the


GOVERNMENT under this Article 31.1, and under Articles 31.4 to 31.11.


31.2 Each CON I RAC TOR Entity shall be subject to corporate income tax on its income





from Petroleum Operations as provided in Article 31 3, which »h.ill be deemed to be


inclusive and in full and total discharge of any Tux on income, receipts, revenues,


gains or profits of each such entity. Payment of the said corporate income lax 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 ’» share of the Profit Petroleum received pursuant


to Article 26.





Each CON TRACTOR Entity shall, within sixty (60) days after rhe end of each tax


year, provide a statement to the appropriate Kurdistan Region tax authorities of its


profits which arc subject to corporate income tax, together with a calculation of the


amount of corporate income tax due on thoac profits.





The GOVERNMENT shall, within ninety (90) days after the end of each tax year,


provide to each CONTRACTOR Entity (i) the apptopnafe official lax receipts from


the appropriate Kurdistan Region tax authorities or other rckv ant authority certify ing


the payment of its corporate income tax. as determined in the aaid statement, and that


such entity hat met all its Tax obligations m the preceding tax year, and (ii) a copy of


any return or other filing made by the GOVERNMENT in reaped of its payment of


corporate income tax on behalf of such CONTRACTOR Entity.


31J Foe the purposes of Article 31.2:








(•) The rale 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). pasted by the National Assembly of the Kurdistan


Region, as has been amended by law No 26 of 2007. and as may he amended


from time to time or suK«iituted in respect of Petroleum Operations (as defined


under the Kurdistan Region Oil and Gas Law) by a petroleum operations


taxation law for the KurduUn Region, but in no event in excess of forty per


cent (40%X The Parties acknowledge and agree that at the Effective Date of


this Contract, the corporate mcorre tax rate is fifteen pet cent (15%) for all net


taxable profits.





(b) The GOVERNMENT and the CONTRACTOR agree that corporate income


tax shall he calculated foe each CONTRACTOR Entity on its net taxable


profit* under the Con trad, as calculated in accordance with die provisions


relating thereto in the Accounting Procedure


Iff





64/113


31.A 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 anchor Iraq, for the entire duration of this Contract


31.5 Each 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 horn Surface Tax, as


referred to in Article 40 of the Kurdistan Region Oil and Gas Law or any successor


Tax.


31.7 Each CONTRACTOR 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 lor which


such entity or Subcontractor is liable to pay or withhold in respect of its employees


who nrc Iraqi national*, 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 to


time, in ihe same manner as the same shall be generally applied to all other Industrie!.,


except that a CONTRACTOR Entity or Subcontractor jhall not be liable for such


taxes or contribution* with respect to employees of another Per**n.


31.9 It i» acknowledged that double tax treaties will have effect to give relief from taxes to,


but not limited to. the CONTRACTOR. CONTRACTOR Entities. Subcontractors


and employees and other Persons m accordance with the 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 a* a Petroleum Corf 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 Panics


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.


























65/113


 ARTICLE 32 - BONUSES








32.1 A signature bonus of fivx million Dollars (USS5.000.000) C Signature Bobus") shall


be payable to the GOVERNMENT by KOREA NATIONAL OIL


CORPORATION on or before the Effective Due.








32.2 A capacity building bonus of forty-five million Dollars (USM5.000.000) ("Capacity


Building Bonus”) shall be payable to the GOVERNMENT by KOREA


NATIONAL OIL CORPORATION on or before the Effective Date








32 3 In the c\enl of a Crude Oil Commercial Dtxovoy, the CONTRACTOR and the


holder of the Govennnect Interest shall pay. pro rata the relevant percentage


participation interest m the Contract the following relevant Crude Oil Production


Bonus to the GOVERNMENT within thirty (30) day* of the following relevant


occurrence-


(a) two million five hundred thousand Dollars (US S2,500,000) when First


Production of Crude Oil from the Contract Area commences;


(b) five million Dollars (US S3.000.000) when production of Crude Oil from the


Contract Are* reaches a cumulative amount of ten million Barrels of Crude


Oil (lOranbok


(c) ten million Dollars (US S10.000.000) when production of Crude Oil from the


Contract Area reaches n cumulative amount of twenty five million Barrel* of


Crude Oil (25 nvnbo); ami


(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 mnibo).


32.4 In the event of a Non-Aisocutcd Natural Gas Commercial Discovery, the


CONTRACTOR and the holder of the Government Interest shall pay. pro rata the


relevant percentage participation interest in the Contract, 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 tlanmiud Dollars (US S2.500.000) when First


Producuon of Non Associated Natural Gas from the Contract Area


commences;


(b) five million Dollars (US S5.000.000) when production of Nun-Associated


Natural (ka from the Contract Area reaches a cumulative amount of ten


million barrels of oil equivalent (10 inmboc);


 (c) len million Dollars (US SI0,000.000) when production of Non-Associatcd


Natural Ou from the Contract Area reaches a cumulative amount of twenty


five million barrels of oil equivalent (25 nunboc); and


(d) twenty million Dollars (US $20,000,000) when production of Non-Associatcd





Natural Gas from the Contract Area reaches a cumulative amount of fifty


million hands of oil equivalent (50 mmboe).


32.5 For the purposes of this Article 32, a Commercial Discovery shall l»c declared by the





CONTRACTOR to be either a Crude Oil Commercial Discovery or a Non-


Associatcd 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 C ommercial 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 (and. where applicable, the holder of the


Government Interest) 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 ( ON IRACTOR 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





33.1 The GOVERNMENT shall obtain any required Permits for the transportation of


Petroleum in the Kurdistan Region and in Iraq, as w ell as any necessary Permits and


casement 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 imdertakes to transfer to the CONTRACTOR its rights for


transportation of Petroleum by pipeline. The CON I RACTOR shill have the nght to


design, construct, operate and maintain pipelines and any related facilities for the


transportation of Petroleum produced under tins 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 How rate and capacity;


(c) estimate of financial investment and operating costs of tbc pipeline and related


facilities;


(d) proposed financing schedule;








67/113





*


 (e) commjctK* schedule;


(0 genera: technical description of the pipeline and related facilities.





(g) construction plans and tests.


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





(i) ary other information relating to the pipeline prefect


The Management Committee shall examine all the above information and shall within





ready (90) days, approve the proposed pipeline project in accordance with the


provisions of Article 8.5.





33.4 Subject to spare capacity bang available and to their Petroleum bang compatible,


third parties shall be entitled to transport their Petroleum through any pipeline


constructed by the CONTRACTOR in accordance with this Amcle 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 party users. The


CONTRACTOR shall alw ays have priority of access to such pipelines


33.5 To the extent that they arc ircurred upstream of the Delivery Point. any cos»


associated with the design, consrurtioa. operation and maintenance of the pipelines


and related facilities by CONTRACTOR under dus Article 33 CPiprluie Costs’)


shall he considered Petroleum Costs and shall be recovered by the CONTRACTOR


in accordance with the provisions of Artkles I and 25.


33.6 I he CONTRACTOR shall have the ahaoiute right, without any exceptions and for


the entire duration of this Contract, to us*, fre* of charge, any pipeline and related


facilities constructed by CONTRACTOR under this Article 33 and to transput


Petroleum produced from any Production Area and to operate and maictam any


pipeline and us 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 parties for use of any pipeline and related facilities by


CONTRACTOR under this Article 33 shall he applied to the- recovery of Petroleum


(\»Sts until all Pipeline Costs have been fully recovered by the CONTRACTOR


pursuant to the provisions of Articles I and 25 and shall not be unludcd in income for


corporate income tax purposes Pic GOVERNMENT 'hall 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 die CONTRACTOR. TTie


costs associated with providing such transportation services for third parties op 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 I and 25.


33.8 Upon recovery by the CONTRACTOR of all the Pipeline Costs, the operanng and





maintenance costs of any pipeline and its related facilities shall be borne by the


CONTRACTOR and shall be considered Petroleum Coals and shall be recovered by


the CONTRACTOR in accordance with the provisoes of -Articles I and 25


VCC





68/113





A


33.9 Tbc GOVERNMENT shill have the sane 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.


'3 10 The CONTRACTOR shall bear the curt 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 - LNITISA TION


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 Ga< I aw) (an "Adjacent Contract Area"), or in the event a Reservoir of an


Adjacent Contract Area extends into tlsc Contract Axes, the provisions of Article 47,


Paragiaph Second of the Kurdistan Region Oil and Gas Law shall appl> and the


GOVERNMENT shall require the C ONTRACTOR and the contractor of the


Adjacent Contract Aren to agree upon a schedule for reaching agreement of the terms


of the unitisation of the Reservoir, which terms shall be based on reliable technical,


operational and economical parameter*, all in accordance with prudent international


petroleum industry practice. In the event Ihui the Minister of Natural Rcsouivcs


decides the unitisation pursuant to Article 47. Paragraph Third or the Kunli'Un


Region Oil and Gas Law. and if the CONTRACTOR does not agree with the


decision of ihc Minister of Naomi Resources, the CONTRACTOR shall be entitled


to arbicatxxi 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 it 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 the necessary


steps to extend the boundar.es of Contract Area so as to include the entire Reservoir


withm the Contract Area, provided that the CONTRACTOR can offer the


GO\ ER.YMEVf 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, tbc CONTR\CTOR m its cap*it>


as the entity responsible for the execution of the Petroleum Operations within the


Contract Area, shall be liable to third parties to the extent provided under applicable


Law for any fosses and damage it may cause to them in conducting the Petroleum


Operations, and shall defend, indemnify and hold harmless the GOVERNMENT


with respect to all claims for such loss or damage.


 35-2 Notwithstanding ihc other provmom of this Contract, the CONTRACTOR and the


CONTRACTOR Entities shall not be liable lo the GOVERNMENT or the Public


C ompany or other government agencies, authorities or bodies, courts or political


subdivisions for any damage or Ion or claims of any kind resulting from its conduct


of the Petroleum Operations unless such damage or loss « the result of wilful


misconduct or a material failure to conduct Petroleum Operations in accordance with


the iemu of thU Contract; provided, however, that such liability cannot result in the


event of any onuauuos. enurs or misuses committed in good faith by the


CONTRAC TOR in the exercise of the powers and authonsatioro conferred upon the


CONTRACTOR by virtue of this Contract, and further provided that in no event


shall the CONTRACTOR and the CONTRACTOR Entities he liable for any


indirect or consequential loss nr dnmHgr whatsoever or any lo**, damages, costs,


expenses or liabilities caused (directly or indirectly) by any or the following arising


out of, relating to, or connocted with this Contract or the Petroleum Operations earned


out under this Contract: (i) reservoir or formation damage; (it) inability to produce,


use or dispose of Petroleum, (lit) loss or deferment of income, (iv) 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 clmm, demand, action or


proceeding brought or instituted ugninst the GOVERNMENT by any employee of


the CONTRACTOR or of any Subcontractor or by any dcfvnJent thereof, for


personal injuries, industrial illness, death or damage to personal property sustained in


connection with, related to or arising oat of the performance or non-pcrfomunce of


this Contract regardless of the fault or neghgence in whole or in party of any entity or


individual.


35.4 Notwithstanding Article 35.1. the GOVERNMENT shall indemnify and bold


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 CONI KA< TOR or any CONTRACTOR Entity by any


employee of the GOVERNMENT or of any PubUc Company or of any subcontractor


of the foregoing or by any dependent of any such employee, for personal injuries,


industrial illness, death i* damage to personal property sustained in connectkn 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 ahull take ull necessary steps to respoad to, and shall promptly


notify the GOVERNMENT of, all emergency and other events (including


explosions, leaks and spills), occurring in relation »the Petroleum Operations which


arc causing or lfcely to cauae material environmental damage or material risk to


health and safety Such nonce shall include a summary deserpbon of the


circumstances and steps taken md planned by the CONTRACTOR » control and


remedy the situation. The CONTRACTOR shall provide such additional reports to


the GOVERNMENT as arc reasonably necessary in respect of the effects of such


events and the course of all actions taken to prevail further loss and to mitigate


deleterious effects.


VS


A 70'113








35.6 In the even! 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 hy making available any labour, materials and equipment in rcosonablc


quantities requested by the CONTRACTOR which arc 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 GOVERNMENT’S reasonable and


necessary costs incurred in such efforts, which reimbursed amounts shall be


considered Petroleum Costs and shall he recovered by the CONTRACTOR in


accordance with the provision* of Articles I 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.S In accordance with prudent international petroleum industry practice, each


CONTRACTOR Entity shall maintain any maurance required by applicable


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


Committee.


Such insurance policies may cover


(a) loss of and damage to mtmd and equipment used in the Petroleum


(b) personal injury, damage to third parties and risks of pollution associated with


Petroleum Operations for reasonable amounts, within (be limit* approved by


(he Management Committee


35.9 Any insurance policy relating to this Contract shall name the GOVERNMENT as an


additional insured parry and shall me hide a waiver of subrogatico protecting the


GOVERNMENT against any claim, km and damage resulting from any Petroleum


Operation conducted by or on behalf of the COPfl RAC TOR 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 subcontractor*


or of any personnel of any ot the luregoing.


35.10 Upon ts written request, the GOVERNMENT shall be provided with insurance


certificates, including necessary details, for any insurance policy maintained by the


CON TRACTOR which relates to this Contract.


v(f


71/113


 35.11 Emcb CONTRACTOR Eniity shall be responsible for the filing of all claims made


under any insurance policy maintained by such CONTRACTOR Entity which relate**


to this Contract. Any premiums anti payments relating to such insurance policies shall


he considered Petroleum Costs and shall be recovered hy the CONTRACTOR in


accordance with the provision* »f Articles I and 25


35.12 In any insurance policy maintained by a CONTRACTOR I ntity which relate, to this





Contract, the amount for which the CONTRACTOR itself is bable (the Deductible


Amount”) shall be reasonably determined between the C ON I RACTOR Entity and


the insurer and such Deductible Amount shall in the event of any insurance claim be


considered a Petroleum Cost und shall be rccovctcd by the CONTRACTOR in


accordance with the provisions of Articles I and 25








AR I ICI.E 36 INFORMATION AM)CONFIDENTIALITY





36.1 The CONTRACTOR shall keep all records, data und information relating to the


Petroleum Operations in accordance with the Kurdistan Regain Oil and Gas Law und


prudent international petroleum industry practice. In addition, it shall provide the


GOVERNMFNT with such information and data as it i* obliged to provide under


this Contract


36.2 Upon the GOVERNMENTS written request the CONTRACTOR du.II provide the





GOVERNMENT with sample* of any rock* or any other item* extracted dunng the


Petroleum Operation*


36 3 The GOVERNMENT shall huve r.tlc to all data and information, whether


derived, processed, interpreted or analysed, obtained puixuanl to lliis Contract.





36.4 Each CONTRACTOR Entity dial I have the right, without any lianrtanna, to iced


Abroad copies of all reports and technical data, magnetic tapes and other dao 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





.16.5 Any representatives authorised by the GOVERNMENT and notified to the


CONTRACTOR shall, upon reasonable prior written notice, have reasonable occoss


to any information and data relating to the Contract Area ;n 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 ernure it doe* not unduly .nteriert with or


hinder 'die CONTRACTOR * rights and activities


36 6 1 he 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 possessk-o of the CONTRACTOR All available


ongmaR of such data shall be transferred an the GOV EKNMENT at the end of this

















72/113


36.7 Apart from tlic exceptions slated in this Article 36, the Parties undertake to keep all


data and information relating to thu Contract and the Petroleum Operations


confidential during the entire tenn 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 he unreasonably withheld or delayed. The foregoing


confidentiality obligation shall not apply to information or data which:


(a) ts or. through no fault of any Party, becomes pail of the public dwnarn.


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


(c) is required to be farm shed 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


(dl 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 Outgoing in Article 36.7, in accordance with prudent


international petroleum industry practice, such data and information may be disclosed


to:


(a) Affiliates of each ( 'ONTRACTOR 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;


(c) consultants or agents retained by any CONTRACTOR Entity or its Affiliates


foe the purpose of analysing or evaluating infoanitKm or data;


(dl banks or financial i&tt«utum retained by any CONTRACTOR Entity or its


Atlibales with a view to financing Petroleum Operations, including any


professional consultants retained by such hank or financial institution;




(including any entity with whom a CONTRACTOR Entity andor it*


Affiliates are conducting bona fide negotiations directed towards a merger,


consolidation or the sale of a material portion of as or an Affiliates shares);


(f) prospective or actual Subcontractors and suppliers engaged by a Party where


toclostre of such information ts essential to sach Subcontractor s or


suppliers week for such Party; and


(g) my other Person or entity, upon the pno* written approval of the non-


disclosing Parties,


provided that disclosure shall not lie made pursuant to paragraphs (c), (d), (c) and (I),


unless such third party has entered into a confidentiality undertaking.


 36.9 An) 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 ami 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 the


GOVERNMENT, which approval shall not be unreasonably withheld or delayed


where, in the CONTRACTOR'* reasonable opinion, such sale or exchange would


benefit the Petroleum Operations.


ARTICLE37-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 Law.


37.2 Prior to surrendering a portion of the Contract Area, the CONTRACTOR shall take





reasonable measures to abandon the ilea to be surrendered in accordance with prudent


international petroleum industry practice in similar physical and ecological


environments Such measures shall incliulc removal or closure in place of facilities,


material and equipment together with reasonable measures accessary for the


preservation of fauna, flora and ecosystems, all in accordance with prudent


international petroleum industry practice in similar physical and ecological


environments Tbc CONTRACTOR shall only be responsible for site restoration or


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 environment* to present any pollution which may arise directly a> a result


of tbc Petroleum Operations and lo protect the environment (fauna and flora), water


sources and any saber 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








37.6 The CONTRACTOR shall take reasonable measures to minimise any adverse


material impact on national parks and nature reserves which may an sc directly as a





\fS


74/113





/>


 result of the Petroleum Operations, in accordance with prudent international


petroleum industry practioe in similar physical and ccoloRical environments


37.7 The GOVERNMENT (i) represents and warrants that, on the Effective l>ate. there





arc no national parks, nature reserves or other protected areas located in whole or in


pan within the Cotfract Area where the CONTRACTOR shall not be entitled to


cany out Pctrolewn Operations and (h) covenants that denrg the term of this


Contract will not designate or create or permit the crealxn of any national parts,


nature reserves or other protected areas, located in whole or in part within the


Contract Area.


i.spendltures





37.8 Any reasonable expenditure incurred by the CONTRACTOR m relation with this


Article 37 shall be deemed Petroleum Costs and shall be recovered by the


CONTRACTOR in accordance with the provisions of Articles I and 25.


Pre-existing Condition!


37.9 The CONTRACTOR is not responsible for any pre-existing environmental





conditions or any acts of unrelated third parties.


AH IICLE 38 - DECOMMISSIONING





38.1 lo enable the CONTRACTOR to recover the costs associated with future Contract


Area Decommissioning Operations under this Contract, the CON TRACTOR shall


have the njjhr to establish a reserve fund for figure decomnmaiomng and site


restoration (a Deconmlssioaing Reserve Fuad) The Decommissioning Reserve


Fund may be established at any tunc during the final ten (10) Calendar Yean of the


term of the Producucn Operations of a Production Area tsiL upon the reasonable


request by the CONTRACTOR, the GOVERNMENT shall allow the


CONTRACTOR to establish such fund over a longer period. Once established, the


CON IR ACTOR shall make regular contributions to the 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 mterot 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 the 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 rule


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 lo take over production operations in the Production Area





(a) (he GOVERNMENT shall become liable for its tuturc Decommissioning


Operations;











75/113





A


(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 umi 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.


.18.-1 If the Decommissioning Reserve Fund is paid to tlie CONTRACTOR tuid the


Decommissioning Reserve Fund is not sufficient to cover all Decommissioning ( nets


for the Contract Area, the balance shall be paid by the CONTRACTOR and may be


recovered, if applicable, by the CONTRACTOR Fntitics or any of their Affiliate*


from any other area which k the subject of another Petroleum Contract (as defined by


the Kurdistan Region Oil ansi Gas Law) anywhere in the 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 ( ON TRACTOR and the


Decommissioning Reserve Fund exceeds all Decommissioning Costs for the Contract


Area, the balance shall be transferred to the GOVERNMENT.


38.6 Any expenditure incurred by the CONTRACTOR m relation with this Article »K.


uv-iudag any contributions to the Dcvofnnussicntng Reserve Fund, shall be deemed


Petroleum Costs and shall be recovered by the CON TRACTOR in accordance with


the provisions of Articles I and 25.


38 7 The CONTRACTOR shall submit to the Management Comm inee 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 dale estimated


b> the CONTRACTOR for the end of Commercial Production from the Contract


Area Hie Management Committee shall provide comments, if any, oo the


Deccromssionmg Plan w.thm ninety (90) dayi after receipt The CONTRACTOR'S


completion of the Decommissioaing Operations in accordance, in all material


respects, with the Decommissioning Plan for a Production Area 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 earned out in accordance with the approved


Decommissioning Plan, it must advise the CONTRACTOR within ssx (6) months of


CONTRACTOR’S completion of such operations


76/113


 ARTICLE 39-ASSIGNMENT AMI C MANGE OF CONTROL








39.1 bach CONTRACTOR tniity shall he free to sell, assign, transfer or otherwise


dispose of all or part of its rights, obligations and interests under this Contract to an


Affiliated Company or to another CONTRACTOR bitty with the prior consent of


the GOVERNMENT, which consent shall not be unreasonably delayed or withheld








392 Each CONTRACTOR Entity shall base the right to sell, assign, cansfer 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 CON TRACTOR Entity (if any) which


consent shall not he unreasonably delayed or withheld. Any CONTRACTOR Entity


proposing to sell, assign, transfer or otherwise dispose of all or part of ils light* and


interests under this Contract to any such third party shall request such consent in


writing, which request shall be accompanied by reasonable evidence ot 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 thud 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 coiicspond to the interest translcucd or


assigned.


39 4 Dy way of clarification, and not in limitation of the foregoing pensions of this


Article 39, the GOVERNMENT shall not be considered to be acung unreasonably in


withholding consent to any such assignment if the ali gnment to such proposed


assignee is deemed contrary to the GOVERNMENT*, interests, as evidenced m


writing to that effect signed by the duly authorised representative of the


GOVERNMENT below


39.5 In the ev ent a CONTRACTOR Entity assigns or in any oeber way transfers its nghts


and interests under this Contract, including through the exercise of the Option of


Government Participation, whether in whole or in part, such assignment or transfer


shall not give nse to any Tax. including on the consideration paid or received or on


the income or gam therefrom


39.6 The GOVERNMENT may not at any time transfer any or all its nghw 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.








I’hmntf of Control














77/113


39.7 -Chaise Of < oairor fo* the purpo* of this Article 39.7 means my direct or indtreci


change of the identity to the Person who ContrvU a CONTRACTOR Entity (whether


through merger, sale of shares or of otltcr equity interests, or otherwise) through a


single transaction or series of transactions, from one or more transferors to one or


more transferees, in which the market value of auch 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 percent


(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 afler it becomes aware of the Change in Control or anticipated Change in


Control and request the consent of GOVERNMEN T, 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 ihc income or gain therefrom





ARTICLE 40 EORCF MAJEURE





40 1 No delay, default, breach or omission of the < ON IRACTOR in the execution of any


of its obligations under this Contract shall be considered a failarc to perform this


Contract or be the subject of a dispute if such delay, default, breach or mmmnn is due


to a case of Force Majeure. In such event the CONTRACTOR shall promptly notify


the GOVERNMENT in wTiting and take all reasonably appropriate measures to


perform 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 tune necessary to repair any damage resulting from or occurred during such delay


or curtailment, shall be added to any time period provided under this Contract


(tncludmg the Exploration Period and any extension dsereto. any Sub-Penod 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 cflcxls thereof.


40.2 For the purpose of this Contract, Force Majeure* means any event that is


COM RACTOR but due to circumstances beyond its control, w hich prevents or


impedes execution of all or part of its obligations under this Contract Sud* events


shall include the following


(a) war. whether declared or not, civil war, insurrection, not*, civil commotion.


terrorism, any other hostile acts, whether internal or external.








78/113


(b) strikes or other labcur conflicts.


(c) accidents or blowouts;


(d) quarantine restrictions or epidemics;


(e) any act. event, happening or occurrence due to natural causes, in particular,


but without limitation, floods, storms, cyclones, fires. lightning, or


earthquakes


(0 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 uctx or orders of the


GOVERNMENT, any minister, ministry, department, sub-divisioo. agency,


authority, council, committee, or other constituent element thereof, any


corporation owned ami or controlled by die any of die foregoing; and


(h) uny 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 the


foregoing


40.3 The intention of the Parties it that Force Majeure shall receive the interpretation that


complies most with prudent international petroleum uidusUy practice. Fcece Majeure


affecticg a CONTRACTOR Enut) w an Affiliated Company of a CONTRACTOR


Entity shall be deemed Force Manure affecting the CONTRACTOR if the


consequence of such Force Majeure prevents the performance of any of the


CONTRACT OR*! obligations under this Contract








ARTICLE 41 - WAIVER OF SOVEREIGN IMMUNITY





The GOVERNMENT and any Public Company which may be a CONTRACTOR Entity at


ary nine hereby fully and irrevocably waive* any claim to immunity for itself or any of its








This waiver includes any claim to immunity from


(a) any expert determination, mediation, or arbitration proceedings commenced pursuant


to Amdc 42.


(b) any judicial, administrative or other proceedings to ud the expert determination,


mediation, or arbitration proceeding, commenced pursuant to Article 42. and


(c) any effort to confirm, m force or execute any decision, settlement, award, judgment,


service of process, execution order or attachment (including pre-judgment attachment)


that results Dom an expert determination, mediation, arbitration or any judicial.


Mlministrative or other proceedings commenced puisuant to this Contract.





79/113


 ARTICLE 42 - ARBI IRA I ION AND EXPERT DETERMINATION











42 I For the purpose of this Article 42.1. "Dispute" shall mean any dispute, controversy or


claim (of any and every kind or type, whether hated on contract, tort, statute,


regulation or otherwise) arsing out of. relating to. or connected with this Contract or


the operations earned oat under thn Contract, unlading any dispute as the


construction, existence, validity, interpretation, enforceability, breach or tenrmatton


of this Contract which arises between the Parties (or between any one or more


entities constituting the CON IKACTOK and the GOVERNMENT).


In the event of a Dispute, the parties to the Diipute 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 desire* to submit a Dispute for


resolution which has not been promptly resolved as aforesaid shall commence the


dispute resolution procea* by providing die other paries to the Dispute wntten nonce


of the Dispute ("Notice of DHpetc '>. The Notice of Dispute shall identify the paries


to the Dispute, shall contain a bnef statement of the aature of the Dispute and the


relief requested and shall request negotiation* among Senior Representative*.


(u) In the event that any Notice of Dispute is given in accordance with this Ancle


42.1, the parties to the Dispute shall first seek settlement of the dispute by


negotiation between Senior Representative*. "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


Marnier 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


to 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 oilier party shall be given wntten notice of such miration 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


411 (a) within sixty (60) days after the date of the receipt by each party to the


Dispute of the Notice of Dispice 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 IntematKXUl


.Arbitration ("IX IA' ) 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.














80/113


(c) If the Dispute is not settled within the curlier of (A) sixty (60) days of the


appointment of the mediator, or such further period as the parties to die


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 LC1A Rules, which Rules shall


he deemed to be incorporated by reference into this Article.


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


(ii) If the parties to the Dispute arc the GOVERNMENT and all the


CONTRACTOR Entities, the GOVERNMENT and the


CONTRACTOR shall each appoint one (1) arbitrator. If the parties to


the Dispute arc the GOVERNMENT and more than one, hut not all


the CONTRACTOR Entities, tho GOVERNMENT shall appoint


one (1) arbitrator and such CONTRACTOR Entities shall appoint one


(I) arbitrator. If the panics to the Dispute arc the GOVERNMENT


and one CONTRACTOR Entity, the GOVERNMENT and such


CONTRACTOR Entity shall each appoint one (I) arbitrator.


(in) In any event, the 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 agreo on the appointment of the third


arbitrator. Rules of the LCIA shall apply.


(vi) Arbitration shall take place in London, England The language to be


used in any poor negotiation, mediation and a the arbitration shall be


English During the arbitration procedure and until the arbitral


decision, the Parties shall continue to perform their obligations and


akc no actions that would impair the Contract The arbitral award may


be enforced by any court of competent jurisdiction, including in the


Kurdistan Region Any award shall be expressed in Dollar*


(v) The Parties agree that the arbitral award shall be final and not subject


io any appeal, including to the Courts of England on issues of Law.


(vi) W’ith respect to any matter refencd to arbitration under Article 43.4.


the arbitral tribunal shall have the authority to amend this Contract in


restore the economic position referral to in Article 43 3
































HI /113


42.2 Am A~gxccracni between the Panic* relating to Articles 15.9.273. and 27 7. as well


as any disagreement the Parties agree to refer to an expert, shall be submitted to an


expert I he Management Committee shall prepare and agree appropriate terms of


reference relating to a disagreement to be submitted to the expert, in accordance with


Article 8 5 (“Term* of Reference"), as toon as possible after the Effective Date


(a) The disagreement shall be submitted to an expert appointed by mutual


agreement of the Parties within thirty (JO) days following the date of


preparation and agreement of the Terms of Reference by die Management


Committee If the Parties cannot agree on the choice of the expert within such


thirty (30) day penod. at the request of either Party, die 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 Tenns of Reference relating to the


disagreement bach Party shall have the nght to give to the expert m writing


any information which it considers useful, provided it does so within forty-five


(45) days after lh_* expert's appointment Such informant* dull be provided


to the other Party at the same time and such other Party shall be entitled to


provide comments on such information » the first Party and the expert within


thirty (30) days after receiving such information. The expert shall have the


right lo review and verify any information he deems useful to a.ttr*? him in his


review of the disagreement.


(c) The expert shall render hit decision within forty-five (45) days of his receipt





of the Term* of Reference and the information referred to in Article 42 2


Subject to the provisions of Article 15.9. an) decision of the expert shall be


final and shall not be subject to any appeal, except in the case of manifest


error, fraud or mnlpiucticc. Any costs and expense* associated with the expert


determination shall lie slwrcd equally between die Tarties.





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








ARTICLE 43 - GOVERNING LAW, FISCAL STABILITY AND AMENDMENTS


Govyrning Law


43.1 This Contract, including any dispute arising therefrom, thereunder or in relation


thereto and the agreenvent 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),


vCr





82/113


together with any relevant rule*, custom* and practice* of international law. as well a*


by principle* and practice generally accepted in petroleum producing countries and in


the international petroleum industry.


total Stability


43.2 I he 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 guarantee* 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 lit the Effective Date. If, at uny time after the


Effective Date, there is any chungc in the legal, fiscal and/or economic framework


under the Kurdistan Region Law or oilier 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 *uch Person would have been in, had no such change in the legal,


fiscal und'or economic framework oecuricd,


43.4 If the (:< )NT RACTOR believe* that its economic position, or the economic position


of a CONTRACTOR Entity or any other Person entitled to benefit* under this


Contract, ha* been dctnmentally affected as provided in Article 43.3, upon the


CONTRACTOR** written request, the Parte* shall meet to agree on any necessary


measures or making any appropriate amendments to the tmn* of this Contract to re¬


establishing the equilibrium between the Parte* and restoring the C ONTRACTOR,


the CONTRACTOR Entities or any other Person entitled to benefit* under this


Contract to the position (faking into account home country taxes) it wa* in poor to the


occurrence of tlic 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 fo thu Contract within ninety (90) days of the CONTRACTOR * request (or


such other period as may be agreed by the Pirties). the CONTRACTOR may refer


the matter in dispute to arbitration at provided in Article 42.1, without the necessity of


first referring the matter to negotiation and mediation


43-5 Without prejudice to the generality of the foregoing, the CONTRACTOR shall be


exuded 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


objective* 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 nght and making available any


 existing facilities and services with a view to the Panics obtaining maximum mutual


benefit from the Contract.





^mcndmepls


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 fceegomg. the GOVERNMENT has the ngh* and


authority to waive the application of the provision* of thu C ontract on a case by case


basis without having to fulfil the conditions of validity of this Contract, should


CONTRACTOR to request.


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, including the Original 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 nght. power or


remedy preclude any other or future exercise thereof or the exercise of any other nght.


power or remedy.


Validity


43.10 As signafoni'i to this Contract for and on behalf of the GOVERNMENT, the


Mimvtry of Natural Resources in the Kurdistan Region and the Regional Council foe


the Oil and Gas Allairs 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.








AR11C LK 44 NOTICES


44.1 All notices, demands, instruction*, waivers, consents or other common Katiocs to be


provided pursuant to this Contract shall be in writing in English, shall he effective


upon receipt, and shall be lent by receipted hand delivery or by email (followed by


delivery by reputable international air courier ccxnpany with an establishment in Eibtl


in the Kurdistan Region) to the following addresses


To the GOVERNMENT.


AttratlM:


His Excellency the Minister of Natural Resources


Address:





Ministry of Natural Resources


Kurdistan Regional Government


 Eitxl. Kunfctun. Iraq


Email: mnrfakrgoiicom











To the CONTRACTOR





KOREA NATIONAL Oil. CORPORATION


Attention Managing Director. Exploration Department








Address: 1588-14. Gw*r.yang-Jong. Donjun gu,


Aa>xng. Gyctmggi-do. 431-711.


Republic of Korea








Email: honginraknoccokr (with a copy to ikch










A


deemed to hive been delivered upon ns transmission try 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 does not cany out drilling and seismic acquisition,


as detailed in Article 10.2 or, during the Second Sub-Period (or earlier), does


not carry 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 accordnncc with this Contract or


under prudent international petroleum industry practice, it being recognised


that Force Majeure is an acceptable justification lor such interruptions; or





(d) intentionally extracts or produces any mineral which is not covered by the


object of this Contract, unless such extraction or production is expressly


authorised or unavoidable as a result of operations earned out in occordancc


with prudent international petroleum industry practice;











85/113


 (e) if the CONTRACTOR comprise* solely one entity, is declared bunkmpl in


accordance with applicable Law.


(0 wilfully re Also to abide by negotiation. mediation, arbitration or expert


dec is ion under Article 42; or


(g) breaches the Capacity Building Support Agreement.











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 aothotwaiiun in accordance with Article 39.7.


45.3 At any time ptior to the Development Period, the CONTRACTOR shall have the





right to terminate this Contract by surrendering the entire Contract Atcu 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 Us 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

CONTRACTOR has not remedied the situation complained of by the


GOVERNMENT to its satisfaction u* offered compensation acceptable to the


GOVERNMENT in each case acting reasonably, the GOVERNMENT shall


notify the CONTACTOR in writing that the Contract shall be terminated


from the termination date detailed in such notice. This Contract shall terminate


on such tennmanon date unless the CONTRACTOR issues a notice of


dispute as provided under Article 42, m which case this Contract shall remain


in force until a final settlement of the dispute has been rca_bcd in accordance


with the dispute resolution provisions of Ankle 42.


The foregoing provinces of this Article 45.5 arc subject to the proviso that, in case of


a dispute where there has been breach of this Contract which has been submined to


dispute resolution pursuant to Article 42. the GOVERNMENT shall not be entitled


to exercise its right to terrauute this Contract poor to a final drtcrminatioa under


Article 42 in favour of the GOVERNMENT.


&











86/113





A


 45 6 If the GOVERNMENT terminates this Contract pursuant to the provisoes of


Articles 45.1 and 455, 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. 33.1, 355. 35.4. 35.7. 36. 385(c), 41. 42. 43.1 to 4J.6 shall survive the


termination or expiry of this Contract


45 7 If a CON IKACTOR Entity breaches Altaic 46 ! 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 uthet CONTRACTOR Entities in


the proportions in which their respective percentage interests bear to the aggregate of


their respective percentage interests under the relevant Joint Operating Agreement or


it such other proportions as such CONTRACTOR Entities shall agree between them


for the market value thereof (as such term is defined in Article '9 7) Such transfer


shall not fisc nse to any Tax including on the consideration paid or receiscd or on the


income or gain therefrom.





ARTICLE 46 - APPLICATION OF CORKi r I ION LAWS





46.1 If this Contract is reasonably proven to have been obtained in violation ol Kurdistan


Region law concerning corruption, this Contract is void ab Initio.


46 2 Each CONTRACTOR Entity agrees that if it is at any time, reasonably proven to be


m breach of Kunlisun Region Law concerning corrupt ion the provisions of Article


45 7 apply.








ARTICLE 47 EFFECTIVE DATE:


This Contract shall become effective and be binding on the Parties when both of the


following conditions have been satisfied


(a) the duly authorised representatives of the GOVERNMENT and the


CONTRACTOR have signed the Contract as provided below . and


(b) the Capacity Building Support Agreement Commencement Date (a* the term


‘Commencement Date' is defined in that Agreement) has occurred.























Kr


87/113


A


 Entered into in three (3) originals in Erbil. the Kurdistan Region on 21 June 2008.


For the KURDISTAN REGIONAL GOVERNMENT














Ashti Hawrami


Prime Minister Minister of Natural Resources


Kurdistan Regional Government Kurdistan Regional Government


On behalf of the Regional Council On behalf of the Ministry of Natur


for the Oil and Gas Affairs of Resources in the Kurdistan Regior


the Kurdistan Region - Iraq








For each CONTRACTOR Entity





KOREA NATIONAL OIL CORPORATION





Dv:





Dr. Scong-Hoon Kim


Executive Vice President


New Ventures & Exploration


Korea National Oil Corporation










































































88/113








 AMStX A


Map showing coordinates of the Qush Tappa Contract Area corner points


 ANNEXB


AimL>nNQ rK*A LtfVKl











PARAGRAPH 1 -GENERAL PROVISIONS





LI





To classify expenditures, define further Petroleum Costs (in addition to those defined


1.2


CONTRACTOR'S Accounts shall be prepared and approved.





Definitions


Woid.% mid phrases to which a meaning has been assigned in Article I or other


IJ Articles of the Contract shall have the same meaning when used in this Annex.





Inconsistency


In the event of any inconsistency or conflict between the provisions of this Annex and





1.4 the other provisions of the Contract, then the other provisions of the Contract shall


prevail.


Accounting Record* and Reports


1.4.1 The CONTRACTOR shall maintain the Accounts in accordance with Ancle 15.1





and in accordance with this Accounting Procedure, including in accordance with the


142 chans of Accounts agreed under Paragraph 1.4.1





itfcrn sixty (60) days of the Effective Date, the CONTRACTOR shall submit to and


discuss with the GO\ ERNMENT a proposed outline of chans of Acccsmt*. 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 >ubnnssKin, the


GOVERNMENT shall either provide wntien 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 the accounting system and procedures to be developed and used


under this Contract, hollowing such agreement, the CONTRACTOR shall


expeditious!* prepare and provide the GOVERNMENT with formal copies of the





and repotting functions, and procedures which are. and shall he. observed andcr the


Notwithstanding the generality of the foregoing, the CONTRACTOR shall make


1.4.3


regular Statements relating to the Petroleum Operations These Statements arc aa


shown:





A





90/113








 (a) Production Statement (a» indicated in Paragraph 6).


(b) Value of Production and Pricing Statement (<*> 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).





(c) final End-of-Year Statement (as indicated in Paragraph 10).


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





1.4.4 All reports and statements shall lie prepared in accordance with the Contract.


Kurdistan Region l.aw, and where there are no relevant provisions of either of these,


in accordance with prudent international petroleum induxtiy practice.





1.5 I anguagr 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 CONI RACTOR 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


provision* shall apply to any audit carried out in accordance w.ih Articles 15.3 to


15.7:


1 6.1 For purposes of auditing, the GOVERNMENT acting reasonably and in accordance


with prudent international petroleum industry practice, may examine and verify, at


reasonable times upon reasonable prior wntten notice to the CONTRACTOR, all


charges and credits relating to the Petroleum Operations, such as hooks of account,


accounting entries, material records ami inventories, vouchers, payrolls, invoices and


ary other documents, correspondence and records including electronic records


reasonably considered neccuary by the GOVERNMENT to audit usd verify the


charges aad 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 tunes, all site*, 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


Coo^any of the CONTRACTOR, the GOV ERNMENT shall have the right to


ofctam an audit certificate let such changes from an icienuuooally recognized firm of


public accountants acceptable to both the GOVERNMENT and the


CONTRACI OR, which may be the CONTRACTOR’S satutorv 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





vi


91/113





*


 the CONTRACTOR or to the GOVERNMENT, as the may be. shall be


prompt!)





164 When issues arc outstanding with respect lo 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 cacti receiving parry; 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.


1.72 All sums due by one party to the other under the Contract shall for each day such


sums arc overdue, bear interest compounded monthly at LIBOR plus two per cent


(2%).


l.H Currency Exchange Kates


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 recaved and Petroleum Costs named, shall be converted from other


currencies into Dollars a accordance with the CONTRACTOR'S usual accounting


procciiao which shall reflect generally accepted accounting practices in the





accordance with Article 29.


1.9 Accrual Basis. Cash Flow Basis aad Reports


All books and Accounts shall be prepared on an accrual basis in accordance with








1.10 \ flues 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.


PARACRYPII 2 Cl.AERIFICATION. DEFINITION AND ALLOCATION OF


COST S AND EXPENSES


2.1 Segregation of Coats and Expenses


Petroleum Costs shall be segregated in accordance with the purposes for which such


Petroleum Coat* arc made. The purposes which shall qualify arc


(a) those which have been included m the approved Work Program and Budget


for die year in which the Coeu and Expenditure* are made.


(b) expenditure* incurred in can of emergency as set out in Articles 11.7, 13 3,


13.9 33.3, 33.6 and any other Articles of the Contract;


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


(d) other item* which have been agreed by the Parties from time to time


All Petroleum Cost* recoverable under Paragraph 3 relating to Petroleum Operations


shall be classified. defined and allocated as set out below.


2.2 Exploration Com


Exploration Costs arc all direct and allocated indirect costs and expenditures incurred


in carrying out the Exploration Operations, including all direct and allocated mdircct


costs and expenditures incurted «n the search tor Petroleum in an area which is. or w as


at the time w hen sach costs and expenses were incurred part of the Contract Area


including


22.1 Aerial, geophysical, geochemical, paleontological, geological, topographical and


seismic survey* and studies and their interpretation and purchased geological and


geophysical information.


222 Stratigraphic teat hole drilling and water well drilling.


22.3 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 w ells as producing well.


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 roads


22.5 That portion of all service expenditures and that portion of all general and


administrative expenditures directly attributable to Exploration Cost* or allocated


thereto on a consistent and equitable basis.


22.6 Any other expenditures incurred in the search lor and appraisal of Petroleum aflct 14


January 200S and not otherwise covered under this Paragraph 2.2, and including any


and all costs incurred in the search for and appraisal of Petroleum at the area known


as the Pulkhana area pursuant to the Original Contract.


2.3 tins Marketing Costs


Gas Marketing Costs arc all direct and allocated indirect cost* and expenditures


incurred in carrying out Gas Marketing Operations and include that portion ol all


service expenditures and that portion ol all general and administrative expenditures


directly attributable to Gas Marketing ('osls or allocated thereto on a consistent ind


equitable basis.


93/113


 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 I Drilling wells which arc completed as producing wells and drilling wdls for purposes


of producing Irom a Petroleum reservoir, whether these wclb 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 casing or equipment or otherwise after a


well has been drilled for the purpose of bringing the well into use as a 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,


llow 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 expenditure* directly attributable to Development Costs or


allocate*! thereto on a consistent and equitable basis; and any other expenditure


incurred in the Development Operations and not otherwise covered aider


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


IXxomnussioatng Costs. Production Costs include that portion of aO service





attributable to Production Costs or allocated thereto on a com stent and equitable





2.6 Decommissioning Costs


Decommissioning Costs arc all direct and allocated indirect costs and expenditures


incurred ui cany mg out Decommissioning Operations and include that portion of all


service expenditure* and that portion of all general and administrative expenditure*


directly attributable to Dcxoamusaoaing Costs or allocated thereto on a consistent


and equitable basts, and the Decommissioning Reserve Fund shall he determined on


such basis, in advance of mcixnng such cost*, as provided in Article 38 and. for the


purpose* of cost recovery, the contributions to the Decommissioning Reserve Fund


shall be recovered in accordance with .Article 38.











*4f 113


2.7 Service Expenditures





Service expenditures are expenditures in support of Petroleum Operations including


warehouses, vehicles, moton/cd rolling equipment, aircraft, fire and security stations,


workshops, water and scweiagc plants, power plants, housing, community untl


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 wdI as the annual costs of


maintaining and operating the same All service expenditures shall be regularly


allocated at specified in Paragraphs 2.2.5, 2.3. 2.4, 2.5 and 2.6 to Explotation Costs.


Gas Marketing Costs, Development Costs, Production Costs and Decommissioning


Costs respectively and sluill be separately shown under each of these categories


Where service expenditures arc 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 Espendlturrs


General ami administrative expenditure* are:


2.8.1 All main office, field office and general administrative expenditures in ihc 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


headquarter* is Abtoad (a "Foreign CONTRACTOR”), an annual overhead charge


shall Ik 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 Operation, under the Contract, or


where the CONTRACTOR, nor being a Foreign CONTRACTOR draws upon the


service* of an Affiliate within the Kurdistan Repeal, an annual overhead charge shall


be made for services rendered (excluding the direct expenditures as refined in


Paragraphs 3.1_2 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 b«rdetv employee benefits, travel, hotel and other normally


reimbursable expenses paid by the Affiliate of a CONTRACTOR in accordance wuh


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) inclined for sconces rendered by those functions of


CON TRACTOR'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 devekptnem. central engineering





(a) cannot, without unreasonable effort and'or expenditure or without the release


of confidential data proprietary to any of the CONTRACTOR’* Affiliates, be


charged under any other section of this Annex; and




understood, however, that services performed by the departments listed above


und other corporate departments which directly benefit Petroleum Operation*


under the Contract shall be churned as direct costs in accordance with


Paragraph 3.


In respect of the costs of the CONTRACTOR’* Parent Company Overhead, a*


described above, the CONTRACTOR shall charge monthly to Petroleum Operation*


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 thi*


percentage shall be the total of Exploration Costs und Gas Marketing Costs during


each Calendar Year (exclusive of this Exploration Overhead) or traction thereof less


expenditures which have been subjected to the two (2) per cent fee, referred to in


Paragjaph 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 Dollar* (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





I he overhead rales 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 lo Petroleum Operations


under the Contract but which cannot, without unreasonable effort and/or


release of confidential data proprietary to the CONT RACTOR’S Affiliates,


be charged under any other section. Overhaul costs are billed monthly.


Overhead must be commensurate with service* 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) Tliat percentage as well as the types of expenditures, which affect overhead


and those, which do not. shall be agteed among the Parties.





(c) ITtc maximum percentage rates may be revised by mutual agreement not more


often than annually. The initial maximum percentage rate* and the types of


expenditures to which they apply shall be agreed a* soon as the Panics possess


reasonably reliable coat estimates for the relevant Production Area.


vCf


96/113


 (d) Overhead charges are not subject to audit GOVERNMENT.


(e) The CONTRACTOR *a0 upon request furrudi at the end of each rckv.nl





Calendar Year to the GOVERNMENT > 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 accordarcc with


generally accepted accounting practices





(0 The CONTRACTOR must budget for overhead charge*.


2.83 All general and administrative expenditure* shall be regularly allocated as specified in





Paragraphs 2.2 5. 2 3. 24. 25 and 2-6 to Exploration Costs. Gas Marhctng Coatt.


Development Costs, Production Costs and Decommissioning Costs respectively and


shall be separately shown under each of these categories








PARAGRAPH 3 - COSTS. EXPENSES. EXPENDITURES AND CREDITS OK Till


CONTRACTOR





3.1 Costs Recoverable N% ithoat Further Approval of the GOVERNMENT


The follow mK Petroleum Coos incurred by the CONTRACTOR pursuant to the


Contract as ctauifted under the heading* referred to in Paragraph 2 shall be


recoverable foe the purpose of Article 25 of the Contract (except to the extent


provided in Paragraph 4 «« elsewhere in this Annex) without the requirement for


obtaining any Amber approval of the GOVERNMENT, subject to audit as provided


for in Article 15 and in Paragraph 1.6.


3.1.1 Surface Righto





All direct costs necessary for the acquisition, renewal or relinquishment of surface


rights acquired and maintained in force for the purpose* of the Contract.











(a) The CONTRACTOR'S locally recruited em/rloyetu based in the Kurdistan


Region: Costs of all CONTRACTOR'S locally recruited employees who arc


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 »uch members of the employee’* family (limited to spouse and


dependent children) as required by law or customary practice in the Kurdistan


Region. If such employees are engaged in oilier 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 principle*











971113





*


 (b) Assigned Personnel: Costs of salaries and wage* including bonuses of the


CONTRACTOR’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 ol applicable salaries, wages, and other costs as delineated in


Paragraphs 3.1.2(c), (d). (c). (0 and (g). shall be charged and the basis of such


pro-rata allocation shall be specified.


(c) The CONTRACTOR'S costa regarding holiday, vacation, sickness and


disability benefits and living and bousing and other customary allowances


applicable to the salaries and wages chargeable undei Paragraph 3.1.2(b).


(tl) Expenses or contributions made pursuant to assessments or obligations





imposed under Law which arc applicable to the CONTRACTOR’S cost of


salaries and wages chargeable under Paragraph 3.1 2(b)


(c) Ihc CONTRACTOR’S cost of established plans for employee*' group life


insurance, hospitalization, pension, stock purchase*, .savings, bonus, and oilier


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).


(I) 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 effect*, assigned to the KurdoUn Region


whose salaries and wages arc chargeable to Petroleum Operatic** under


Paragraph 3.1.2(b).


Actual transportation expenses of expatriate personnel transferred to Petroleum





Operations from their country of origin shall be charged to the Petroleum Operation*


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 taction shall mean the cost of freight


and passenger semce, meals, hotels, insurance and other expenditure* 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





Reasonable personal expenses ._____ l wnote


chargeable to Petroleum Operation* under Paragraph 3.1.2(b) and for which


expenses such personnel arc reimbursed under the CONTRACTOK'»


standard personnel policies In the event such expenses arc not wholly


attributable vo Petroleum Operations, the Petroleum Opera*--- •**•” »-


charged with only the applicable portion thereof, which shall be


an equitable *








0*/ 113





/ t


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(0 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


freight charges.











(a) Third Parlies


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 ofihe CONTRACTOR


(1) Professional and Administrative Services Expenses: cost of





professional and administrative services provided by any Affiliates of


the CONT RACTOR for the direct benefit of Petroleum Operations,


including services provided by the production, exploration, legal,


procurement, financial, insurance, accounting and computer services


division* 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 theit


services. Such charges shall not include any element of profit and dial I


be no more or less favourable than similar charges for other iterations


carried on by the CONTRACTOR and its Affiliate* The chargeout


rate shall include all costs incurred by Affiliates me dental to the


employment of such personnel including all Labour and Associated


Labour Costa and the cost of mainummg and operating offices and


providing all support services for such personnel C ost* 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


accosmt the quality and availability of such service* Where the work is


performed outside the borne 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 duvet benefit of Petroleum Oparinas, which coat 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








99/113


 incidental to the employment of cucb personnel including all Labour


and Associated l abour Costs and the cost of maintaining and operating


offices and providing all support services fur such personnel costs of


travel of such personnel in respect of Petroleum Operations Mill be


directly charged. The charges for such service* shall not exceed those


prevailing it performed by aocs-affiliatcd third panics, taking into


accewnl the quafity ar*i availability of such services Unless the work


to be done by such personnel H covered by an approved Work Program


ar.d Budget, the CONTRACTOR shall not authorize work by such


personnel without approval of the GOVERNMENT.


(ili) Equipment and facilities: use of equipment and (he titties owned and





furnished b) the CONTRACTOR'S Affiliates, at rates commensurate


with the cost of ownership and operation; provided, however, that such


rates shall not exceed those currently prevailing for the supply of like


equipment and facilities on comparable terms in the area where the


Petroleum Operations arc being conducted and Nhull 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


consider* that any such rate is not on an arm’s length basis then the


GOVERNMENT has the right to refer the matter to an export


pursuant to Article 42.2 of the < ’ontraet). The equipment and facilities


referred to herein shall exclude major investment items such as (hut


not limited to) drilling rigs, producing plutforms, oil treating facilities,


oil and gas loading and transportation systems, storage and terminal


facilities and mber major facilities, rates for which dull be subject to


separate agreement with the GOVERNMEN I





3.1.5 Communications


Cost of acquiring, leasing, installing, operating, repairing and maintaining


cctnmumcatoo systems including radio and microwave facilities within and between


the Contract Area and the CONTRACTOR’* nearest have facility


3.1.6 Office and Mis.-fllanfout Facilities





Net cost to the CONTRACTOR of establishing, maintaining and operating any


office, sub-office, warehouse, bousing 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 a accordance with prudent








3.1.7





(a) C osts 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.














100/ 113


 (b) Costs incuncd in environmental or ecological surveys required by regulatory


authorities, including an environmental impact assessment commissioned


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 ol 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;


(0 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 arc


made,





3 1.8





Costs of material! 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 dull only supply or purchase materials


for use m Petroleum Operations that may be used in the foreseeable finer:


The accumulation of surplus slocks 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 tune lag for


replacement, emergency needs, weather conditions affecting operations and


similar considerations





(bi Components af costs, arm's length transactions - except as otherwise


provided m paragraph 3.1.8(d). material purchased by the CONTRACTOR


in arm’s length transactions ai 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


phis freight and forwarding charges between point of supply and point of


shipment, freight so port of destination, insurance, taxes, customs duties,


consular fees, excise taxes, other items chargeable against inputted materials


and. where applicable, handling and transportation expenses from pom: 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


shall nee











101/113








/


exceed a fee equal to two per cent (2%) of the value of the materials added to


the cost of the materials purchased


(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 ot sold to Affiliates of the CONTRACTOR or


transferred ftum 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(dKi). 3.1 H(dXii) and 3.1.8(dX"i):


(i) New nutenaL including used new mstenal moved from inventory


(Condition “A"), shall he valued at the current international net price


which shall not exceed the price prevailing in normal arm's length


transactions in the open liuukct.


(ii) Used material (Condition* ' B*. TT and "D";


(A) Material which » in sound and serviceable condition and is


suitable for re use without reconditioning shall be classified as


Condition “B" and priced n1 seventy five per cent (75%) or the


current price of new material defined in Paragraph }.l.8(d)(i);


(B) Material which cannot be classified as Condition "B" but which


aficr reconditioning will be further serviceable for its original


function shall be classified as ( ondition “C” and priced at not


more than fitly per cent (50%) of the current price of new


material as defined in Paragraph 3.1 8(dMi). rhe cost of


reconditioning shall be charged to the reconditioned material


provided that the value of Condition -C" imternl plus the cost


of reconditioning do not exceed the value of Condition "IT


material;


(C) Material which cannot be classified as Condition ' B' or


Condition -c* dull be classified as Condition T»" and priced


at a value commensurate with its use by the CONTRACTOR


If material is nrt fit for use by the CONTRACTOR - *hall be


disposed of as junk


(jiO Material involving erection costs shall be charged nl the upplicablc


condition percentage of the current knocked down price of new


material as defined in Paraginph 3.1.8(dX») •


(jv) When the use of material i* temporary and its service to the Petroleum


Operations under the Contract does not justify lb« reduction in price as


provided for in parugrnph 3.1.8.(d)(iiXb), such material shall he priced


on a basis that will result in n net charge to the accounts under the


< 'oatract consistent with the value of the service rendered














102/113


 (v) Premium prices - whenever material ik not readily obtainable at


published or listed prices because of national emergencies, strikes or


other unusual causes over which the CONTRACTOR has no conuul,


the CONTRACTOR may charge Petroleum Operations for the


required material at the CONTRACTOR’S actual cost incurred in


providing such material, in making it suitable lor use, and in moving it


to the Contract Area; provided notice in writing is furnished to the


GOVERNMENT of the proposed charge pnor 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 docs not wananl the material furnished. In ease of


defective material, credit shall not Ik* 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


(C) Equipment of the CONTRACTOR charged at rates not to exceed the average


commercial rules of non affiliated third parties for equipment, facilities,


installations and utilities for use in the area where the same are used On


request, die 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 beyood repair


may be charged at replacement coat less depreciation plus transportation costs


to deliver like equipment to the location where used.


(fl Use of leased or hired machinery andui equipment in the Petroleum





Operations shall be charged at full cost to the CONIRACTOR This may


include mobilisation and demobilisation charges, lease and hire fees, as well


as other contractual costs





3.1 9 Rrnuls and T*\cs


All rentals of every kind and nature levied by any GOVERNMENT and all Taxes





imposed in connection with the CONTRACTOR’S asset., income or activities under


the Contract and paid directly by the CONTRACTOR or any CONTRACTOR


Entity (save where the contrary a expressly provided in the Contract) with the


exception of Taxes described in Article M 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 Operation, 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. u








103/ 111


3.1.10 Insurance and losses





Insurance premiums and costs incurred for insurance earned for the benefit of die


Petroleum Operation! provided that such insurance is customary, affords prudent


protection against riik and is at a premium no higher than that charged on a


competitive basil by insurance companies which arc not Affiliated C ompanies of the


CONTRACTOR Except in eases 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 wilftil misconduct by the CONTRACTOR Such casts may include repair and


replacement of property in the Contract Aren resulting from damages or losses


incurred by fire, flood, storm, theft, accident or such other cause.


31-11 Legal bxpenscs


All reasonable costa and expenses resulting front the handling, investigating,


asset ting, 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 foca. court costs, arbitration costs, costs of investigation, and


procuicuieiu of evidence nnd amounts paid in settlement or satisfaction of any such


litigation and claims provided such costs arc not covered elsewhere in tbc Annex.


W here legal services are rendered in such matters by salaried or regularly retained


lawyers of the CONTRACTOR or m Affiliated Company of the CONTRACTOR,


such compensation shall he included instead tauter Paragraph 3 1.2 or 3.1.4b) a*


applicable


3.1.12 Claims


Expenditures made in tbc settlement or satisfaction of any loss, claim, damage,


judgement or other expense ansiag oot of or relating to Petroleum (iperattocs, except


as may otherw ise be covered elsewhere in the .Annex.


3.1.13 Training Costs


All costs and expenses incurred by the CONTRACTOR in the training of its











The costs described in Paragraph 2.8.1 and the charge described in Paragraph 2.8.2





3.1.15





Charges and fees by the banks for money transfers, payments and foreign exchange


transaction*, as w ell as currency exchange losses incurred by the CONTRACT OR in


connector with tbc Petroleum Operations











104/111


3.1.16 oclMJ^psndilyrcs


Other reasonable expenditures not covered or dealt with in the foregoing provisions of


Paragraph 3 which are nccevumly incurred by the CONTRACTOR for the proper,


economical and efficient conduct of Petroleum Operation*.


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 rhe proceeds of any insurance or claim or judicial awards in connection with


Petroleum Operations under the Contract or any asseth ehargod 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 3.1.11 and subsequently


tecovcrcd by the CONTRACTOR.


3 2.3 Revenue received from third parties for tbc 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 supplier*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 refund* of taxes paid, or other credits received by the


CONTRACTOR which apply n» any charge which ha* been made to the Accounts


under the Cootract. bu excluding any award graced to the CONTRACTOR under


arbitration or expert proceedings


3.2-6 Costs originally charged to the Accounts under the Contract for material*


subsequently exported from the Kurdistan Region or transferred to another Contract


Area within the Kurditfar Region


32.7 Proceeds from the sale or exchange by tta: CONTRACTOR of plant or fanhbes used


in Petroleum Operation* 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 arc recoverable under the Contract.


3.2.9 Proceeds derived from the sale, exchange, Iea*c, hire, transfer or disposal in any


manner whatsoever of any other item the costs of which have been charged to


Petroleum Operation*.


3 J Duplication of Charge* and Credits


\&





105/113


 Notwithstanding any provision to the contrary a this Accounting Procedure, there


shall be no duplication of charge* or credits to the Accounts under the Contract.


PARAGRAPH 4 - COSTS AND EXPENSES NOT TO BF. TREATED AS


RECOVERABLE


The following coats and expenditures shall not be included in the Petroleum Costs


recoverable under Article 25:


4.1 Taxes on income or profit paid to any GOVERNMEN I authority except taxes and


duties that may be included in the coats 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 fulfil its Minimum Exploration Obligations in respect of the


relevant Sub-Period under the Contract.


43 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 recognised independent expert


detemunntion h* provided in the Contract or this Accounting Procedure;


4.7 Any interest*, fees. c«U» and expenses paid by the CONTRACTOR for loans and


any other form of financing or advances for the financing of the Petroleun Costs


entered into by the CONTRACTOR with thud parties or Affiliated Companies.


4.8 Any accounting provision for depreciation andor amortisation, excluding any


adjustments in value pursuant to Paragraph 3.1.8;


4.9 Dividends, repayment of equity or repayment of imercompany loaaa;


4.10 Fines and penalties imposed under Law


PARAGRAPH 5- RECORI>S AND VALUATION OF ASSETS





5.1 Records


The CONTRACTOR shall maintain detailed records of property m use for


Petroleum Operations under the Contract in accordance with prudent international


petroleum industry practice for exploration and production activities


5.2 Inventories








106’ 113


A


 bwcnvtr.es of property in use in Petroleum Operation* dull be taken at reasonable


intervals but at least once a year with respect to movable assets and ooce every three


(3) years with respect to immovable assets The C ONTRACTOR shall give the


GOVERNMENT it least thirty (30) days wntten notice of it* intention to take such


inventory and the GOVERNMENT shall have the right to be represented when such








Failure of ibe GOVERNMENT to be represented at an inventory shall bind the


GOVERNMENT io 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 r.ghts


under the Contract takes place the CONTRACTOR may. at the request of the


assignee, take a special inventory provided that the coils of such inventory are borne


by the assignee.








PARAGRAPH 6 - PRODl CTION SIAIEMENT





Production Information


Without prejudice to the rights and obligations of the Parties under Article 16 of the





Contract, from the date of First Production trem the Contract Area the


CONTRACTOR shall submit a monthly production statement to the


GOVE RNMENT 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


6.12 The quality' characteristics of such Crude Oil produced and saved





6.1.3 The quannty 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 aod Natural Gas used for the purpose* of carrying on


drilling and production operation* and pumping to field storage


6.1.6 The quantities of Crude Oil and Natural Cias unavoidably lost.


6.1.7 rbe quantities of Natural Gas Hared and vented





6.1.8 The *ac of Petroleum stocks held at the hcgmring of the calendar Month in question


6.1.9 I he size ol Petroleum stocks held atthe end of the lalrndar Month in question.





The quantities of Natural Gas reinjected into the Reservoir.











i07 /in


 6.1.11 In respect of the Contract Area as a whole, the quantities of Petroleum transferred mt


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).


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


Ihc CONTRACTOR shall, for the purposes of Article 25 of the Contract, prepare u


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 rhe quantities and prices realized tbcrclor by the CONTRACTOR in respect of


sales of Natural Gas and Crude Oil delivered to third parties mode during the Quarter


in question.


7 1.2 The quantities and prices realized therefor by tlx- CONTRACTOR in respect of sales


of Natural Gas and Crude Oil delivered during the Quarter in question, other than to


Third Parties


7.2 Subnotion of Value af 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 ’he end of such


Quarter





PARAGRAPH 8 COST RECOVERY AND SHARE ACCOUNT STATEMENT


8.1 Cost Recovery Statement





The CONTRACTOR shall prepare with roped to each Quarter a Cost Recovery





8.1.1 Recoverable Petroleum Costs earned forward from the previous Quarter, if any.


8.1.2 Recoverable Petroleum Costs for the Quarter in quevlioo





8.IJ Crsifcts under the Contract for the Quarter in question


8.1.4 Total Recoverable Petroleum Costs for the Quarter in question (Paragraph 8.1.1 plu»





8.1.2. net of Paragraph 8.1.3 ). \A








108'113


8.15 Quant ty and value of Petroleum applied to com recovery pursuant to Article 25 taken


by tbe CONTRACTOR for the Quarter in question.


8 16 .Amount of recoverable Petroleum Costs to be carried forward into the next Quarter


(Paragraph 8 I 4 net of Paragraph 8 1 5)


12.


The CONTRACTOR dull prepare with respect to each Quarter a Cumulative


82.1 Production Statement containing tbe following information


Tbe cumulative prediction posmot at the end of tbe Quarter preceding the Quarter in


question


822 Production of Export Petroleum for the Quarter m question.


82.4 Tbe cumulative production position at the end of the Quarter in question.





825 Tbe amount of Petroleum applied to Royalty pursuant to Article 24. cost recovery


pursuant to Article 25 and Profit Petroleum puisuam to Article 26 taken by the


GOVT KNMENT and by the CON TRACTOR, respectively, during the Quarter in


82.6


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 tbe CONTRACTOR, respectively, for the next


8.3


Preparation and Submission of Cost Recovery and Cumulative Production


Statements


8.3.1 Provisional Cost Recovery and Cumulative Production Statements, containing


estimated infonnation where necessary, shall be submitted by the CONTRACTOR


8.3.2 on the last day of each Quarter for the purposes of Article 25 of the Contract.


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 Contract, an Annual Cost i ecu very and


Cumulative Production Statement shall be submitted within ninety (90) days of the


end of each Year. The Aiuiual 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 flic cumulative positions af the end of the Year in


question with respect to cumulative unrecovercd Petroleum Costs and Cumulative


Production





PARAGRAPH 9 STATEMENT OF EXPENDITURE AND RECEIPTh








109 ‘ 113


 9.1 I he CONTRACTOR shall prepare with respect to each Quarter a Statement of


Expenditure and Roceipts under the Contract The Statement will distinguish between


Exploration Costa, Gas Marketing Coats, Development Costa, Production Costs and


Decommissioning Costs and will identify major items of expenditures within these


categories. The Statement will show the following:


9.1 I Actual expenditures and receipts for the Quarter in question.


9.1 2 Cumulative expenditure and receipts for the budget Calendar Year in question





9.1.3 I iitcst 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 KND-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, Com Recovery and Cumulative Production Statements and Statement of





expenses inclined. This Statement will be used to make any adjustments that are necessary to


the payments made by the CONT RACTOR 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 II - AUDITS





Each such report and statement provided lor in Paragraph 6 through 10 shall be considered


true and correct, unless the GOVERN MEM raises an exception thereto within the


timeframe and under the process set oat in Article IS of the Contract


PARAGRAPH 12-ANNUAL WORK PROGRAM AND BUDGET





I l.l Each annual Work Program and Budget to be prepared in accordance with Artxlcs


11, 12 and 14 of the Cottrax in respect of Exploration Costs, Gas Marketing Costs,


Development Costs and Production Costs respectively will show the following


I l.l.I Forecast expenditures for tlx budget Calendar Year in question including a quarterly


classification of such expenditures.


11.12 Cumulative expenditures to the end of said budget Calendar Year





11.13 A schedule showing the most important individual items of Development Coots (if


applicable I for said budget Ye*











110/111





t


 paka<;kapii ij contractor entity income tax computation





13.1 For the purpose of Article 313(b) of the Contract, the net taxable profits of each


CONTRACTOR Entity from all the Petroleum Operations earned out undo thu


Contract. shall be calculated in accordance with this Paragraph.


13.2 bach CONTRACTOR Entity shall main lam for each Calendar Year separate


Accounts with respect to the Petroleum Operations which shall be used, inter aha. to


establish a profit and loss account and a balance sheet which will show the results of


the Petroleum Operations earned 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


13.3.1 the profit and loss account of such CONTRACTOR Entity shall be credited with the


following:


(a) if the Royalty is paid ib cash pursuant to .Article 24. revenoes arising from the


disposal of Royalty vohunc* as recorded m such entity’s Accounts and


determined in accordance with the provisions of Article 24,


(b) revenues arising from the d^posal of any Available Petroleum to which such


entity is enntled for recovery of its Pctrokum Coats as recorded in its


Accounts and determined in accordance with the pros isions 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 m


accordance with the provisions of Article 26;


(d| any other revenues or proceeds directly connected to the Petroleum Operation*


including those arising from the disposal of related Petroleum substances, or


from the treatment storage and transportation of products for thud parties.


it) any exchange gains realised or other financial income earned by such entity in


connection with the Petroleum Operations;


13.3.2 die piolit and loss account Tor such CON I RAC'TOR Entity shall be debited with all


charges incurred lor the purposes of the Petmleum Operations whether incurred inside


or outside the Kurdistan Region, which charge* shall include the following:


In) 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


C ONTRACTOR m 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;








III/113


(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 tltc 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 aisets corresponding to said capital


expenditures are put into normal service, whichever is lata, for the


first Calendar Year in question and for each subsequent Calendar Year,


arc as follows:


Nature of the capital asset to be depreciated Annual depreciation Rate








Permanent buildings 10 «


Temporary buildings 20.0%





Office and home furniture and fixtures 20.0%


Productive wel Is 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%








le) I xploranon Coats (which fur ihc avoidance of doubt include appraisal


expenditures) shall be deductible on a reducing balance basis at the rate of


20% per annum.


(0 interest and lees paid to creditors of the CONTRACTOR, for their actual


amount;





I osves of Assets resulting from destruction or damage, assets which are


renounced or abandoned during the year, assets which arc transferred undei


\k


112/113


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 realised in connection with the


Petroleum Operations as well as the bonuses provided in Arhclc 32. tlic


Exploration Rental provided in Article 6.3, the PtiHluclion 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;


(t) the amount of non-offset losses relating to the previous Calendar Years, which


shall be earned 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 diltcrcnce


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 consritatc a loss.


(b) if the amount t» positive, it shall be grossed up to take account of the tact that


such entity's corporate income tax is being settled out of the


GOVERNMENT* 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 Net Profits/ 1100 - Applicable Rate o[Corporate Income Tax J


Profits^ 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 Operation# earned out iuhJci this


Contract, the net taxable profita (if any) for such tax year shall be multiplied by the


applicable rate of corporate income tax, its provided in Article 31.3(a).












































113/113