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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
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(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.
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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:
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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
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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
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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
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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.
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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
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Subcontractor means any entity of any contracting tier providing services and-or
undertaking works relating to the Petroleum Operations directly or indirectly on
behalf of. the CONTRACTOR or any CONTRACTOR Entity.
Sub-Period and Sub-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
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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
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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.
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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.
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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
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(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
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: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
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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;
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(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;
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(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
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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.
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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
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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
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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
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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;
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(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;
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(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;
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(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
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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
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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.
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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.
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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
&
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(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
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(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.
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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
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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
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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
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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
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«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.
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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
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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
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(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
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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.
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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)
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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
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(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.
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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.
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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
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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.
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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
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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.
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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;
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(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
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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.
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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.
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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
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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
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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;
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(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
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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
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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.
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(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.
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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.
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(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
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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),
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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;
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(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.
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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
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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
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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:
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(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
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*
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.
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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.
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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.
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(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*
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*
(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
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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.
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(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
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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
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(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
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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
\&
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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
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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
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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
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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*
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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;
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(c) General and administrative expenditures related to the Petroleum Operations
performed under this Contract;
(d) depreciation of capital expenditure in accordance with the following
provisions:
(i) capital expenditures incurred by 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
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Article 20.2, bad debts, indemnities paid to third parties as compensation for
damage;
(h) any other costs, expenses, losses or charges directly related to the Petroleum
Operations, including exchange losses 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).
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