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 PRODUCTION SHARING CONTRACT





MALA OMAR BLOCK


KURDISTAN REGION


BETWEEN





THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ


AND





OMV PETROLEUM EXPLORATION GMBH


























ec£


 TABLE OF CONTENTS





PREAMBLE





Aiiicle 1 DEFINITIONS


Article 2 SCOPE OF THE CONTRACT


.Article 3 CONTRACT AREA


* Article 4 OPTIONS OF GOVERNMENT PARTICIPATION AND 1IIIRD PARTY


PARTICIPATION


Article 5 OPERATOR


Article 6 TERM OF THE CONTRACT


Article 7 RELINQUISHMENTS


.Article 8 MANAGEMENT COMMITTEE


.Article 9 GUARANTEES


Article 10 MINIMUM EXPLORATION WORK OBLIGATIONS


Article 11 EX PI .ORATION WORK PROGRAMS AND BUDGETS


Article 12 DISCOVERY AND DEVELOPMENT


Article 13 DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND


BUDGETS


Article 14 NATURAL GAS


Article 15 ACCOUNTING AND AUDITS


Article 16 CONTRACTOR S RIGHTS AND OBLIGATIONS


Article 17 USE OF LAND AND EXISTING INFRASTRUCTURE


Article 18 ASSISTANCE FROM THE GOVERNMENT


Article 19 EQUIPMENT AND MATERIALS


Article 20 TITLE TO THE ASSETS


Article 21 USE OF THE ASSETS


Article 22 SUBCONTRACTING


Article 23 PERSONNEL TRAINING AND TECHNOLOGICAL ASSISTANCE


Article 24 ROYALTY


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%


Article 25 RECOVERY OF PH ROIJ.UM 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 SIIARE


Article 29 FINANCIAL PROVISIONS


Article 30 CUSTOMS PROVISIONS


Article 31 TAX PROVISIONS


Article 32 BONUSES


Article 33 PIPELINES


Article 34 UNITISATION


Article 35 LIABILITY AND INSURANCE


Article 36 INFORMATION AND CONFIDENTIALITY


Article 37 ENVIRONMENTAL PROVISIONS


Article 38 DECOMMISSIONING


Article 39 ASSIGNMENT AND CHANGE OF CONTROL


Article 40 FORCE MAJEURE


Article 41 WAIVER OF SOVEREIGN IMMUNITY


Article 42 ARBITRATION AND EXPERT DETERMINATION


Article 43 GOVERNING LAW, FISCAL STABILITY, AMENDMENTS AND


VALIDITY


Article 44 NOTICES


Article 45 TERMINATION


Article 46 APPLICATION OF CORRUPTION LAWS


Article 47 EFFECTIVE DATE


Annex A CONTRACT AREA MAP AND LIST OF COORDINATES


Annex B ACCOUNTING PROCEDURE


Annex C VOTING PROCEDURE


ANNEX D COMFORT LETTER





























































































































































































































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 PRODUCTION SHARING CONTRACT





BETWEEN


The KURDISTAN REGIONAL GOVERNMENT OF IRAQ (hereafter referred to ns the


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





AND





OMV PETROLEUM EXPLORATION GMBH, a company established and existing under


the laws of Austria, whose registered office is ut Gerosdorfer Strasse 151, 1210 Vienna,


Austria, duly represented by authorized officer)s);


(hereafter referred to us the “CONTRACTOR")


WHEREAS


(A) The GOVERNMENT wishes to develop the petroleum wealth of the Kurdistan


Region (as defined in this Contract) in a way that achieves the highest benefit to the


people of the Kurdistan Region and all of Iraq, using the most advanced techniques of


market principles and encouraging investment, consistent with the Constitution of


Iraq including Article 112 thereof;


(B) In accordance with the Constitution of Iraq, the prevailing law of the Kurdistan


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


to a matter wholly within the exclusive jurisdiction of the Government of Iraq.


(C) The National Assembly of the Kurdistan Region approved the Oil and Gas I aw of the


Kurdistan Region - Iraq (Law No. 22 of 2007) which low regulate* Petroleum


Operations, including production sharing contracts;


(D) The GOVERNMENT intends to present to the National Assembly of the Kurdistan


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


authorisation, to exempt investors in long term projects relating to the conduct of


petroleum operations in the Kurdistan Region from Kurdistan Region taxation, to


indemnify such holders against liability to pay such taxation, und/or to guarantee die


stability of the applicable legal, fiscal and economic conditions of such projects; and


(F) Each CONTRACTOR Entity is a company,


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


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


this Contract) under the terms of this Contract;


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


citizenship; and


(iii) willing to cooperate with the GOVERNMENT by entering into this Contract,


thereby assisting the GOVERNMENT to develop the Kurdistan Region





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 petroleum industry, thereby promoting the economic development of the


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








NOW, THEREFORE, THE PARTIES HAVE AGREED AS FOLLOWS


ARTICLE 1 - DEFINITIONS


1.1 Capitalised terms and expressions in this Contract shall have the following meaning,


unless otherwise specified:


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


Access Authorisation is defined in Article 17.9.





Accounts is defined in Article 15.1.


Accounting Procedure means the Accounting Procedure attached to this Contract as


Annex B and constituting an integral part of this Contract.


Adjacent Contract Area is defined in Article 34.1.


Adjustment Date is defined in Article 27.6


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


constituting the CONTRACTOR, a company or other legal entity which:


(a) controls a CONTRA! T< >R Entity: or


(b) is controlled by a CONTRACTOR Entity; or





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


CONTRACTOR Entity,


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


purpose of this definition, "control" means direct or indirect ownership or control of


the majority of the voting rights of the applicable entity at its shareholders' meetings


or llieir equivalent.


Agreed Terms is defined in Article 14.10(a).


Appraisal Area means the area defined in Article 12.2.


Appraisal W ork Program and Budget is defined in Article 12.2.


Appraisal Report is defined in Article 12.4.





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.





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3r-


Arm's-Length Sales means sales of Petroleum in finely 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 price.


Such Arm’s- Length Sales shall exclude:


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


respective Affiliates;


(b) sale*, involving the GOVERNMENT or the Government of Iraq; and


(c) sales involving exchanges and any irunsactions 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 anil Equipment.


Associated Natural Gas means (i) any Natural Gas dissolved in Credo Oil under


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


Oil from a reservoir.


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


Available Associated Natural Gas is defined in Article 25.1.


Available ( rude Oil is defined in .Article 25.1


Available N««-Associated Natural Gas is defined in Article 2* i


Available Petroleum is defined in Article 25.1.


Barrel means a quantity of forty-lwo (42i l.'S gallons » a unit to measure liquids, at a


temperature of sixty degrees (60 ) Fahrenheit and pressure ot fourteen point seven


(14.7) p>.


Budgets means any budgets prepared by. or on behalf of. the CONTRACTOR


pursuant to ibis Coolracl and forming pan of an Exploration Work Program and


Budget and/or an Appraisal Work Program and Budgei and/or a Gas Marketing Work


Program and Budget and/or a Development Work Program and Budget and/or a


Production \V oik Program and Budget.


Calendar Year means a period of twelve (12) consecutive Months, commencing 1


January and ending on 31 December of the same year.


Chairman is defined in Article 8.1.


Commercial Discovery means a Discovery which is potentially commercial when


taking into account all technical, operational, commercial and financial dalu collected


when cany mg out appraisal works oe 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 internalional pcirulcum industry practice.








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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 part hereof, as well as any extension, renewal, substitution or


amendment of this production sharing contract that may be agreed in writing by the


Parties in accordance with Article 43.7.


Contract Area means the area described and defined in Annex A attached to this


Contract and constituting an integral part of this Contract, and any modifications


made to that Annex in accordance with the provisions of this Contract, through


amendments, surrender, withdrawal, extension or otherwise.


Contract Year means a period of twelve (12) consecutive Months starting from the


Effective Date or any anniversary of the said Effective Dale.


CONTRACTOR includes and comprises each and all CONTRACTOR Entities,


including any Public Company or Third Party Participant nominated by the


GOVERNMENT pursuant to Article 4, and/or any assignee of .ill or part of the rights


and obligations under this Contract in accordance with Article 39.


CONTRACTOR Entity means any Person which is for the time being a component


of the CONTRACTOR, and/or any assignee of all or pari of the rights and


obligations of such Person under this Contract in accordance w ith Article 39.


Crude Oil means all liquid hydrocarbons in their unprocessed state or obtained from


Natural Gas by condensation or any other means of extraction.


Decommissioning Costs means all the costs and expenditures incurred by the


CONTRACTOR when carrying out Decommissioning Operations, including those


defined in the Accounting Procedure


Decommissioning Operations means any works, together with all related and


auxiliary activities, for decommissioning and/or removal and/or abandonment and


making safe all of the Assets and site restoration and remediation related thereto in


relation to any Production Area.


Decommissioning Plan is defined in Article 38.7.


Decommissioning Reserve Fund is defined in .Article 38.1 and includes all


contributions paid into such fund and all interest accumulated such fund.


Deductible Amount is defined in Article 35.12.


Delivery Point means the point after extraction, specified in the approved


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


Gas and/or Non-Associated Natural Gas is metered for the purposes of Article 27.7.


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





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consistent with prudent international petroleum industry practice, and at which a Party


may acquire title to its share of Petroleum under this Contract or such other point


which may be agreed by the Parties.


Development Costs means all the costs and expenditures incurred by the


CONTRACTOR when carrying out Development Operations, including those


defined in the Accounting Procedure.


Development Operations means all development operations or works conducted tn


accordance with a Development Plan up to the Delivery Point with a view to


developing a Production Area, including: drilling of wells; primary and subsequent


recovery projects and pressure maintenance; survey, engineeiing. building and


erecting or laying of production plants and facilities (including: separators;


compressors; generators; pumps and tankage; gathering lines; pipelines and all


facilities required to be installed for production, pressure maintenance, and treatment,


storage and transportation of Petroleum); obtaining of such materials, equipment,


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


activities; and all auxiliary operations and activities required or expedient for the


production of Petroleum from the Production Area.


Development Period is defined in Article 6.


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


Development Well means any well drilled after the date of approval of the


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


production of Petroleum, including injection wells and dry holes Any well drilled


within a Production Area shall be deemed a Development Well.


Development Work Program and Budget means the devekvpmcnt work program


and budget prepared pursuant to Ankle 13.2.


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


resulting from Pctmlcum Operations carried out under this Contract, provided such


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


used in prudent international petroleum industry practice.


Dispute is defined in Article 42.1.


Dollar (l'S$) means the legal currency (dollar) of the United States of America


(USA).


Effective Dale means the date on whkh ihc conditions referred to m Article 47 have


been fulfilled.


Environment Fund is defined in Artkle 23.9.


Equipment and Materials is defined in Artkle 19.1.


Exploration Costs means all the costs and expenditure incurred by (he


CONTRACTOR when canymg out Exploration Operations, including those defined


in the Accounting Procedure.





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Exploration Operations means any and all operations conducted with a view to


discovering Petroleum, including: any activities necessary to commence operations;


any topographical, hydrographical, geological, geophysical, aerial and other surveys


and activities (including interpretations, analyses anti related studies) to investigate


the subsurface for the locution of Petroleum; drilling of shot holes, core holes and


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


Exploration Wells or Appraisal Wells; procurement of such services, material,


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


foregoing activities; and all auxiliary operations and activities required or expedient


for the conduct of the foregoing activities.


Exploration Period is defined in Article 6


Exploration Rental is defined in Article 6.3.


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


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


CONTRACTOR.


Exploration Work Program and liudget means the exploration work program and


budget prepared pursuant to Article IN.


Export Crude Oil is defined in Article 24.2.


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


Export Petroleum is defined in Article 24 2.


Elrst Commercial Declaration Date is defined in Article 4.1


lint Exploration Well is defined in Article 10.2 (e>


Elrsl Production means the moment when Commercial Pmduetion of Crude Oil itr


Non-Associatcd Natural Gas (as the case may be) first couuncnces. by flowing at the


rate forecast in the Development Plan without interruption for a minimum ol forty


eight (48) hours.


Force .Vlajeure is defined in Article 40.2.


Gas Development is defined in Article 14.10.


Gas Marketing Costs means all costs and expenditure incurred by the


CONTRACTOR when carrying out Gas Marketing Operations, including those


defined in the Accounting Procedure.


Gas Marketing Operations means any and all of the activities and operations


contemplated by Article 14.6.


(ias Marketing Work Program and liudget means the marketing work program


and budget prepared pursuant to Article 14.8.


Government Interest is defined in Article 4.1.





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Government of Iraq means the Federal Government of the Republic of Iraq, which


holds office under the Constitution of Iraq and any minister, ministry, department,


sub-division, agency, authority, council, committee, or other constituent element


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


by the any of the foregoing.


International Market Price is defined in Article 27.2.


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


Joint Operating Agreement means any agreement executed by the


CONTRACTOR Entities at any time for the purpose of regulating between such


entities the terms under which the Petroleum Operations will be conducted, which


agreement shall be: (a) consistent with prudent international petroleum industry


practice;

consistent with the provisions of the Contract.


Kurdistan Region means iltc 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,


territorial, provincial, or any other duly constituted governmental authority or agency


in the Kurdistan Region.


Kurdistan Region Oil and Gas I.aw means the Oil and Gas Law of the Kurdistan


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


Law means all applicable laws including the following; constitutional law. civil law.


common law. international law. equity, trc-.itics. statutes, decrees, edicts, codes,


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


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


authority or agency.


LC1A is defined in Article 42.1(b|.


LIBOR means the London Inter Bank OtTcred Rate at which Dollar deposits for one


(I) month are offered in the inter bank market in London, as quoted in the Financial


Times of London for tlic day in question. In the event that such rate is not published in


the Financial Times, it sliall mean the Loodon Inter-bank Offered Rate at which


Dollar deposits for one month are offered for the nearest day as quoted by National


Westminster Bank pic.


Management Committee is defined in Article 8.


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


Minimum Exploration Obligations is defined in Article 10.1.











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Minimum Financial Commitment mean'





(a) in respect of the First Sub-Period, the amount set out in Article 10.2; and


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


Month means a calendar month according to the Gregorian calendar.


Natural Gas means all gaseous Petroleum and inerts.





Non-Assix'lated Natural Gas means any Natural Gas which is not any Associated


Natural Gas.


Notice of Dispute is defined in Article 42.1


Operator means the entity designated by the CONTRACTOR pursuant to Article 5


which, in the name and on behalf of the CONTRACTOR, shall carry out all


Petroleum Operations. If at any time there exists more than one

tins Contract, any reference lie rein to the term ’Operator' shall be to each Operator


with respect to the parts of the Contract Area in which such Operator conducts


Petroleum Operations.


Option of Government Participation is defined in Article 4 l





Option of Third Party Participation is defined in Article 4 8


Parly or Parties means the GOVERKMEKI and/or each CON TRACTOR Entity


and/or the CONTRACTOR


Permits means all licences, permits, consents, authorisations or other permission', as


the context requires.


Person shall include natural anil juristic persons (including corporations and


governmental agencies).


Petroleum means:


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


(bl any mixture of naturally occurring hydrocarbons in a gaseous or liquid siate;


or




returned to a Reservoir.


Petroleum Costs means all costs and expenditure incurred by the CONTRACTOR


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


under this Contract and its Accounting Procedure, including Decommissioning Costs,


Development Costs, Exploration Costs, Gas Marketing Costs and Production Costs.














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Sr


Petroleum Field means a Reservoir or group of Reservoirs within a common


geological structure or stratigraphic unit, which may become part of a Production


Area pursuant to a Development Plan.


Petroleum Operations means all Kxploration 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, safely and environmental operations and


activities) and authorised or contemplated by. or performed in accordance with, this


Contract.





Pipeline Costs is defined in Article 33.5.


Production Area means such areas within the Contract Area designated as a


production area in an approved Development Plan prepared pursuant to Article 12.


For the avoidance of doubt, all superjacent or subjacent strata of the Reservoir in


which a Commercial Discovery is located arc automatically included in the relevant


Production Area.


Production Bonus means any bonus due pursuant to Article 32.3 «»r 32.4.


Production Costs means all the costs and expenditure incurred by the


CONTRACTOR in carrying out die Production Operations, including those defined


in the Accounting Procedure.


Production Operations means any works, together with all related and auxiliary


activities, for the production of Petroleum from the start of Commercial Production,


including: extraction, injection, stimulation, pumping, treatment, storage, engineering,


operating, servicing, repairing, and maintaining any wells, plants, equipment,


pipelines, terminals and any other installations and facilities, and any related


operations and auxiliary operations, and storage and transportation of Petroleum from


the Production Area to the Delivery Point.


Production Rental is defined in Article 13.10.


Production Work Program and Budget shall mean the production work program


and budget prepared pursuant to .Article 13.6.


Profit Crude Oil is defined in Article 26.1.


Profit Natural Gas is defined in Article 26.1.


Profit Petroleum is defined in Article 26.1.


Proposed Contract is defined in Article 14.10(a).


Public Company means a public company duly registered and incorporated in the


Kurdistan Region and regulated by the GOVERNMENT under the Kurdistan Region


Oil and Gas Law














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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 tin*


GOVERNMENT.


Quarter means a period of three (3) consecutive Months starting on the first day of


January, April, July or October respectively.


Reservoir means a subsurface rock formation containing an individual and separate


natural accumulation of producible Petroleum characterised by a single natural


pressure system.


"R" Factor is defined in Article 26.4.


Royalty is defined in Article 24.


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


Semester means a period of six (6) consecutive Months starting from the first day of


January or July respectively.


Senior Representatives is defined in Article 42.1(a).


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 (.’ON TRACTOR Entity.


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


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


impositions, imposts, withholdings, fees, taxes (including value added lax or other


sales or transaction hased tax. corporaiion tax. income tax. capital gams tax. stamp


duty, land tax. registration tax. capita! and wealth tax. profit lax. dividend tax or


withholdings, transfer tax. customs duties, branch or permanent establishment tax or


withholdings, lax on income from movable capital and fixed lax on transfers) or


contributions payable to or imposed by the GOVERNMENT


Third Party Interest is defined in Article 4.8.


Third Party Participant is defined in Article 4.9.


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


CONTRACTOR pursuant to this Contract and forming part of an Exploration Work


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


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


Budget and/or u Production Work Program and Budget.


Vice-Chairman is defined in Article 8.1.


In this Contract, unless the context otherwise requires or is specifically otherwise


stated:


(a) headings arc to be ignored:





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(I)) "including” und similar words do noi imply any limitations;


(c) singular includes plural and vice versa; and


(d) reference to an "Article" is to an article of this Contract and to a "Paragraph"


is to a paragraph in the Accounting Procedure.


ARTICLE 2 - SCOPE OF Till! CONTRACT


2.1 I his Contract is a production-sharing arrangement with respect to the Contract Area,


whereby the GOVERNMENT has the right, pursuant to the Constitution of Iraq, to


regulate and oversee Petroleum Operations within the Contract Area.


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


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


all the Petroleum Operations.


By entering into this Contract, the GOVERNMENT grants the CONTRACTOR the


exclusive right and authority to conduct all Petroleum Operations in the Contract Area


as detailed in Article 3.


2.2 Upon the CONTRACTOR’S request, the GOVERNMENT shall provide and/or


procure all Permits relating to the Petroleum Operations required by the


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


to any extension and renewal periods and including those required by the Government


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


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


cancellation or suspension of this Contract or any Permit granted under this Article


2.2 or pursuant to this Contract; and (ill covenants that it will not do. or omit to do.


anything that would cause the cancellation or suspension of this Contract or any


Permit granted under this .Article 2.2 or pursuant to this Contract. For the avoidance


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


pursuant to Article 43.


2.3 The CONTRACTOR shall conduct all Petroleum Operations wiihin the Contract


Area at its sole cost, risk and peril on behalf of the GOVERNMENT, pursuant to this


Contract, including the follow ing operations:


Technical Services


Implementation of all technical, human and material resources reasonably-





required for execution of the Petroleum Operations, in accordance with


prudent international petroleum industry practice.





Financial Sen kes





The responsibility for funding the Exploration Operations and. in the event of


a Commercial Discovery, Development Production and Decommissioning


Operations, pursuant to this Contract.








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I or ihe funding of Petroleum Operations, each CONTRACTOR lintily shall


he entitled to have recourse to external financing from either its Affiliated


Companies or from any third parties.


(c) Administrative Services


Implementation of all appropriate management and administration techniques


for execution of the Petroleum Operations under this Contract, in accordance


with prudent international petroleum industry practice.


2.4 During the term of this Contract, the CONTRACTOR shall he responsible to the


GOVERNMENT for the conduct of Petroleum Operations within the Contract Area


pursuant to the terms of this Contract.


2.5 Natural resources other than Petroleum shall be excluded from the scope of this


Contract, even if the CONTRACTOR discovers any such resources when executing


us obligations pursuant to this Contract.


2.6 flic CONTRACTOR shall only be entitled to recover Petroleum Costs incurred


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


Costs shall occur within the limits provided under Article 25.


2.7 During the term of this Contract. Profit Crude Oil and/or Profit Natural Gas produced


from Petroleum Operations shall be shared between the Panics in accordance with the


provisions of Article 26.


2.8 For the execution of Petroleum Operations under this Contract, the CONTRACTOR


shall have the right to:


(a) freely access and operate within the Contract Area, as well as any facilities


associated with the Petroleum Operations, wherever they may be located;


(b) freely use access roads located within the Contract Area ami outside the


Contract Area for the construction, installation, maintenance, operation and


removal of pipelines and other facilities required for the Petroleum


Operations:


(c) freely use sand, water, electricity and any other natural resources located


inside or outside the Contract Area for the Petroleum Operations;


td) use any qualified foreign and local personnel and/or Subcontractors required


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


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


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


Petroleum Operations in accordance with Articles 19. 22 and 30: and











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 (f) freely use land or properly belonging lo the Kurdistan Region, and the


GOVERNMENT will assist the CONTRACTOR with facilitating the use by


the CONTRACTOR of any private properly in the Kurdistan Region.














ARTICLE 3- CONTRACT AREA


Tire initial Contract Area covers the Mala Omar Block ami extends over an area of 2X5





square kilometres (285 km'), as detailed and indicated on the map attached in Annex A and is


delimited by the following coordinates:





Point Latitude (deg min see) Longitude (deg min seel X (mU) Y(mN)


A 36 23 16 44 05 58 419 240 4027 349


B 36 16 15 44 1801 437 138 4014 203


c 36 1045 44 09 30 424 308 4004 160


D 36 1706 44 00 32 411000 4016 000


E 36 19 17 44 03 39 415 700 4020 (MX)


F 36 20 55 44 05 41 1418 768 4023 (KM)





The GOVERNMENT, by execution of this Contract, hereby validates ami approves the


foregoing co-ordinates of the Contract Area.





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


this Contract.








ARTICLE 4 -OPI IONS OF GOVERNMENT PARTICIPATION AND THIRD


PARTY PARTICIPATION





iifil »Interest





4.1 The GOVERNMENT shall have the option of participating through a Public


Company in this Contract, in respect of the entire Contract Area, as a


CONTRACTOR Entity, with an undivided interest in the Petroleum Operations and


all the other rights, duties, obligations and liabilities of the CONTRACTOR (save as


provided in and subject to this Article 4) under this Contract in respect of the Contract


Area, of up to twenty-five per cent (25%). and not less than five per cent (5%) (the


“Government Interest"), such option being referred to herein as the “Option of


Government Participation'' The GOVERNMENT shall be entitled to exercise the


Option of Government Participation by notifying the CONTRACTOR in writing of


such election and the si/c of the Gov ernment Interest.





4.2 The GOVERNMENT may exercise the Option of Government Participation at any


time in the period commencing on the Effective Date and ending one hundred and


eighty (180) days afier the date on which CONTRACTOR declares the first


Commercial Discovery (which date of declaration is referred to herein as the “First


Commercial Declaration Date ), by nominating to the CONTRACTOR, in writing,


a Public Company. If the GOVERNMENT does not notify the CONTRACTOR of








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such election within such period, the Option of Government Participation shall be


deemed to have been waived, save for in relation to any pre-emption rights to


participate that may be granted pursuant to Article .<9.2.


If the GOVERNMENT exercises the Option of Government Participation in


accordance with Articles 4.1 and 4.2:


(a) the effective date of such participation shall be the date of the notice by which


the GOVERNMENT exercises its Option of Government Participation or the


First Commercial Declaration Date, whichever is the earlier:


(b) the Public Company shall participate as a CONTRACTOR Entity under this


Contract from such effective date, with all its rights, duties, obligations and


liabilities under this Contract, save as provided in and subject to the provisions


of this Article 4:


(c) the Public Company shall not have any liability to the other CONTRACTOR


Entities to contribute its Government Interest share of all Petroleum Costs


incurred before the First Commercial Declaration Date and its Government


Interest share of such Petroleum Costs shall he the responsibility of the other


CONTRACTOR Entities, provided always that such other CONTRACTOR


Entities shall be entitled (through the CONTRACTOR i to recover .ill Mich


Petroleum Costs in accordance with Article 25;


if, pursuant to the terms of the Joint Operating Agreement, the Public


Company participates in the development of the Commercial Discovery, it


shall be liable to the other CONTRACTOR F.ntitics to contribute its


Government Interest share of all Petroleum Costs incurred on or after the First


Commercial Declaration Date, with the exception of the Production Bonuses


referred to m Article <2. and shall he entitled (through the CONTRACTOR!


to recover all such Petroleum Costs in accordance with Article 25. including


the Petroleum Costs which it has reimbuised pursuant to Article 4.3 (c);


if such Option of Government Participation is exercised on or after the First


Commercial Declaration Date, the Public Company shall, within thirty (30)


days of the date on which the GOVERNMENT notified the


CONTRACTOR of its election, reimburse the other CONTRACTOR


Entities for all Petroleum Costs for which it is liable pursuant to Article 4. 3(d)


and which have been incurred by such other CONTRACTOR Entities on or


after the First Commercial Declaration Date but prior to and including the


date of the notice pursuant to which tl*c GOVERNMENT exercises its Option


Of Government Participation. From the dale of such notice, the Public


Company shall pay the Government Interest share of such Petroleum Costs


directly; and


(0 for the purposes of Article 37 of the Kurdistan Region Oil and Gas Law. the


Government Interest so assigned shall be deemed to lie held by the


GOVERNMENT anil in accordance with the principle in Article 16.13, the


Public Company will he individually and separately liable (and not jointly anil


severally liable with the other CONTRACTOR Entities) to the








IK/I IK


GOVERNMENT lor iin obligations, duties and liabilities under this Contract


as a CONTRACTOR Entity and the provisions of Article 4.5 shall apply.





4.4 The Public Company may. at its discretion, assign part or all of its Government


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


by the GOVERNMENT, provided that in no event shall a transfer l*c made which


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


participating interest.


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


Article 37 of the Kurdistan Region Oil and Gas Law. the Government Interest so


assigned shall deemed to be held by the GOVERNMENT and in accordance with the


principle in Article 16.13, the Public Company to which such Government Interest is


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


liable with the other CONTRACTOR Entities) to the GOVERNMENT for its


obligations, duties and liabilities under this Contract as a CONTRAt 'TOR Entity and


the provisions of Article 4.5 shall apply.





4.5 Any failure by the Public Company to perform any of its obligations or to satisfy any


of its duties or liabilities under this Contract as a CONTRACTOR Entity shall not be


considered as a default of the other CONTRACTOR Entities and shall in no case be


invoked by the GOVERNMENT to terminate this Contract or exercise any other


rights or remedies in respect of such default that may be available to it.





The capacity of a Public Company as a CONTR ACTOR Entity, as it may arise


pursuant to the provisions of this Contract, shall in no event cancel or affect the rights


of the other CONTRACTOR Entities to seek to settle a dispute or to refer such


dispute to arbitration or expert determination in accordance with the provisions of


Article 42.


4.6 A Public Company may assign part or all of ils Government Interest to a third party or


parties (not being a Public Company) and for the avoidance of doubt the provisions of


Articles 39.1. 39.2 and 39.3 shall not apply. Any such assignee shall be jointly and


severally liable with the other CONTRACTOR Entities.


For die avoidance of doubt, following any assignment by a Public Company of all or


part or all of a Government Interest to a third parly 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.


4.7 Where a Joint Operating Agreement has been executed by the CONTRACTOR





Entities prior to any exercise of the Option of Government Participation pursuant to


this Article 4. the Public Company nominated by the GOVERNMENT shall become


a party to such agreement, with any amendments necessary' to be consistent w ith the


principles of this Article 4. Where a Joint Operating Agreement is not in place prior


to die exercise of the Option of Government Participation pursuant to this Article 4.


the Public Company and the other CONTRACTOR Entities shall, within a


reasonable period of time, negotiate in good faith and enter into a Joint Operating


Agreement and shall during the period between the exercising of the Option of


Government Participation and the execution of the Joint Operating Agreement,


comply w ith Article 4.14(a) and (b) as if they were pros isions of this Contract.


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9*


Third Part) InKllH





4.8 The GOVERNMENT shall have the option of nominating a third party, in respect of


the Contract Area, as a CONTRACTOR Entity, with un undivided interest in the


Petroleum Operations in respect of the entire Contract Area 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, of up to twenty per cent (201*) and not


less than five per cent <5‘*) (the ‘'Third Party Interest '), such option being referred


to herein us tlic "Option of Third Parly Participation”. The Government shall give


reasonable consideration to a third puny proposed by the CONTRACTOR The third


party proposed by the CONTRACTOR shall in any event fulfil the requirements as


set out under Article 4.9.


4.9 The GOVERNMENT may exercise the Option of Third Party Participation at any


time prior to the date twelve (12) months following the Effective Date by nominating


to the CONTRACTOR, in writing, the size of the Third Party Interest and a


nominated company which has adequate resources and capacity to discharge the


obligations of a CONTRACTOR Entity under this Contract and a Joint Operating


Agreement in respect thereof.


Before tin: expiry of a period of eight (8) months (such period commcrx ing upon il»e


Effective Date) the Parties shall have caused to have commenced, and poor to the


expiry of the twelve (12) month period following the Effective Dale, have fully


completed, an investigation carried oat mco such nominated company in respect of.


and accordance w nh. the standards and requirements of lhe I 'ruled States Federal Law


Foreign Corrupt Practices Act of 1977 (as nut be amended from lime to time), and


the Parties, acting reasonably, shall be fully satisfied with the results of such


investigation In the event that the Parties arc so satisfied, the nominated company


shall he deemed the Third Party Participant


For the avoidance ol doubt, the GOVERNMENT may only exercise the Option of


third Party Participation once, and after such exercise the resulting Third Party


Interest may not he increased under this Article 4. However, in the event that the


nominated company docs not fulfil die criteria set out in this Article 4.9. the


GOVERNMENT shall:


(a) have the option, upon the formal rejection of a nomination, to nominate a


second company (such company not to be an Affiliate of any previously


nominated company) and the criteria set out in th«s Article 4 9 shall be applied


to such second company, provided that the twelve (12) month period set our m


this Article 4.9 shall continue to run from the Effective Dale and shall no* be


postponed, re started or in any other way altered: and


(b) in the event that such second company shall not. in the opinion of the Parties


(acting reasonably) fulfil the criteria set out in this Article 4 9. nominate, and


the CONTRACTOR shall accept. a Public Company as the Thud Party


Participant.


For the avoidance of doubt, for the purposes of this Article 4.9. a Public Company


shall be a wholly-owned entity of the GOVERNMENT.


4.10 It the GOVERNMENT nominates a ITiird Party Participant pursuant to and in


accordance with Articles 4.8 and 4.9, that Third Party Participant shall have the Third


Party Interest.


4.11 If the GOVERNMENT does not nominate a Third Party Participant pursuant to and


in accordance with Articles 4.8 and 4.9 then the Option of Third Party Participation


shall Ik* deemed to have been waived.


4.12 II the Option of Third Party Participation is exercised in accordance with Articles 4.8


and 4.9:


(n) the effective date of such participation shall be the Effective Date,


notwithstanding that the exercise of the Option of Third Party Participation


under Article 4.8 occurs after such date;


(b) the Third Party Participant shall, upon signature of a binding and enforceable


instrument of assignment and novation in respect of this Contract referred to in


Article 39.3, pay to tin- CONTR ACTOR, by way of cleared funds to a bank


account nominated by the CONTRACTOR, an amount equivalent to the


proportion of Petroleum Costs incurred by the CONTRACTOR until the date


of such payment attributable to the Third Party Interest (which Petroleum


Costs, for the avoidance of doubt, do not include bonuses payable under this


Contract);


upon payment pursuant to and in accordance with Article 4.12(b) and the


execution of the instrument referred to in Article 4.12(b). the Third Party


Participant shall participate as a CONTRACTOR Entity under this Contract


asif it had been a CONTRACTOR Entity front the Effective Date, with all


its rights, duties, obligations and liabilities under this Contract; and




CONTRACTOR Emilies prior to any exercise of die Option of Third Party


Participation pursuant to Article 4.8 and 4.9. the Third Party Participant shall,


upon signature of the instrument referred to in .Article 4.12(b). become a party


to such Joint Operating Agreement on the terms thereof.


(e) If a Joint Operating Agreement is not in place prior to the GOVERNMENT


exercising the Option of Third Party Participation, then the Third Party


Participant and the other CONTRACTOR Entities shall, w ithin a reasonable


period of time, negotiate in good faith and enter into a Joint Operating


Agreement and shall during the period between the exercising of the Option of


Third Party Participation and the execution of the Joint Operating Agreement,


comply w ith Article 4.14(a) and (b) as if they were provisions of this Contract.


Order of Exercising Options


4.13 Notw ithstanding Articles 4.8 to 4.12. if the GOVERNMENT exercises the Option of


Government Participation:





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(a) after the GOVERNMENT has exercised the Option of Third Party


Participation, the Government Interest shall be assigned under this Article 4 to


the Public Company by the CONTRACTOR Rntitics pro rata to their


respective participating interests under this Contract; and


(b) prior to the GOVERNMENT exercising the Option of Third Party


Participation, then the Third Party Interest shall be reduced by a percentage so


as to put the other CONTRACTOR Entities (other than the Person holding


the Government Interest) and the Third Party Participant in the position they


would have been in had the Option of Third Party Participation been exercised


before the Option of Government Participation.


Joint Operating Agreement Provisions


4.14 Any Joint Operating Agreement entered into in relation to this Contract shall be


consistent w ith the principles of this Article 4 and shall provide as follow s:


(a) ail decisions of any operating committee established under such Joint


Operaiing Agreement shall require the affirmative vote of an agreed


percentage of participating interests held thereunder as set out in Annex C


hereto and


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


participating interest under such Joint Operating Agreement, including any


Government Interest or Third Party Interest:


(i) no transfer may he made which would result in the transferor or


transferee holding less 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 Entities that it has


the financial capability to perform its payment obligations under the


Contract and under the Joint Operating Agreement, jnd


(till the proposed third party assignee shall enter into an instrument


satisfactory to each of the extant CONTRACTOR Entities v» as to


assume and to perform the obligations of the transferor.











ARTICLE 5-OPERATOR


5.1 The CONTRACTOR hereby designates OMV Petroleum Exploration C.mhll to


act as the Operator on behalf of the CONTRACTOR for the execution of the


Petroleum Operations. The CONTRACTOR shall at any time have the right to


appoint another entity as the Operator, upon giving the GOVERNMENT not less


than thirty (30) days prior written notice of such appointment


5.2 The CONTRACTOR shall submit to the GOVERNMENT lor comment any


agreement regarding or regulating the Operator's appointment and its conduct of








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Petroleum Operations on behalf of the CONTRACTOR pursuant to this Contract


prior to execution of such agreement


5.3 In the event of the occurrence of either of tire follow ing, the GOVERNMENT may


require the CONTRACTOR to appoint another entity as Operator as soon as is


reasonably practicable:


(a) if an order has been passed in court declaring the bankruptcy, liquidation, or


dissolution of the Operator, or


(b) if the Operator terminates the activities under this Contract delegated to it by


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


CONTRACTOR fails to fulfil its obligations under the Contract.


ARTICLE 6 - TERM OF THE CONTRACT


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


below:


Exploration Period


6.2 The Exploration Period shall be for an initial term of five (5) Contract Years,


extendable on a yearly basis (as provided in Articles 6.5 and 6 6) up to a maximum


period of seven (7) Contract Years starting from the Effective Date. The initial term


of five (5) years shall be subdivided in two (21 sub-periods as follow >


(n) 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 "i.


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


the Minimum Exploration Obligations or minimum work obligations applicable to the


previous Sub-Period or extension thereof pursuant to Article 6 6(M the CM nu> tvi


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


GOVERNMENT, in arrears, an annual surface rental for the Contract Area, as may


Ik reduced by relinquishment from time to ume pursuant to Article 7. of one Hundred


Dollar* (US$100) per square kilometre per Contract Year ( Exploration Ki ntal ).


Such Exploration Rental shall he considered as a Petroleum Cost and shall be


recovered by the CON TRACTOR in accordance with the provisions of Articles 1


and 25.


6.4 It the CONTRACTOR decides not to enter into the Second Sub-Pcnod. it shall


notify the GOVERNMENT at least thirty (30) days prior to the expiry of the First


Sub-Pcnod and. provided that there is no reasonable technical case for drilling the


Second Exploration Well in the Contract Area, the Exploration Period shall expire at


the end of the First Sub-Period, unless the First Sub-Period has been extended


pursuant to Article 6.5 and/or Article 6.6.





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6.5 If the CONTRACTOR has fulfilled its Minimum Explication Obligations for a Sub


Period of the Exploration Period but consider* that additional work is required prior





i a) to deciding to submit an Appraisal Work Program and Budget as provided


under Ankle 12.2 in respect of a Discovery-, or


(b) to deciding to declare a Discover)- ns n Commercial Discovery in accordance


with Article 12.6(a) or 14.5(a), which additional work may include the


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


provided under Article 12.2 and/or Cius Marketing Operations,


the CONTRACTOR will automatically be entitled to extensions, each of one (I)


Contract Year, of the then current Sub-Period, up to the end of the maximum


Exploration Period of seven (7) Contract Years, (as provided in Article 6.2). I he


CONTRACTOR'S notification of its intention to exercise such extension and its


duration shall he submitted in writing to the GOVERNMENT at least thirty (30)


days prior to the end of the then current Sub-Period or the end of the then current


extension (as the ease may he).


6.6 Without prejudice to Article 6.5. upon expiry of the initial term of the Exploration


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


Area, the CONTRACTOR shall lie 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 lor a minimum work


obligation for such extension. Any such extension shall not exceed one (I) Contract


Year. I'pon the expiry of such extension, if it considers it has still not completed its


evaluation of the Contract Area, the CONTRACTOR sliall be entitled to a further


extension of one (I) Contract Year provided that it notifies the GOVERNMENT in


writing at least thirty (30) days pnor to the end of the original extension. The right of


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


of the minimum work obligations applicable to the original extension.


6.7 Subject to Article 6.4. at any time during the Exploration Period, upon thirty (30) days


prior notice to the GOVERNMENT, the CONTRACTOR shall have the right to


withdraw from this Contract provided that the outstanding Minimum Exploration


Obligations relating to the then current Sub-Period have been completed in


accordance with the Contract, or it has paid to the GOVERNMENT the amounts


specified in Article 10.2 or .Article 10.3. whichever is applicable to the then current


Sub Period


6.8 If no Commercial Discovery has been made at the end of the Exploration Period


(including any extensions thereof) this Contract shall terminate


6.9 If a Discovery is nude within the maximum Exploration Period of seven (7) Contract


Year* (as prosided in .Article 6.2). and if the CONTRACTOR considers it has not


had time to complete sufficient Gas Marketing Operations to declare the Discovery a


Commercial Discovery pursuant to Article 12.6(a) or 14.5(a). the CONTRACTOR


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


the maximum period provided in Article 6.2). provided it so requests the


GOVERNMENT in writing at least thirty (30) days prior to the end of the maximum


Exploration Period. together with a proposal for Gas Marketing Operations to be





24/118


undertaken during such extension. If granted by the GOVERNMENT. any such


extension shall not exceed two (2) Contract Years. Upon the expiry of such extension,


if it considers it has still not completed its Gas Marketing Operation' relating to such


Discovery, the CONTRACTOR shall he entitled to request a further extension of


two (2) Contract Years provided lli.it it so requests the GOVERNMENT in writing at


least thirty (30) da>s prior to the end of the original extension, together with a


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


Development Period


6.10 If the CONTRACTOR considers that a Discovery of Crude Oil and any Associated


Natural Gas is a Commercial Discovery, the CONTRACTOR shall have the


exclusive right to develop anti produce such Commercial Discovery, pursuant to the


terms of this Contract The Development Period for a Commercial Discovery of


Crude Oil and any Associated Natural Gas shall be twenty (20) years commencing on


the declaration of such Commercial Discovery by CONTRACTOR, in accordance


with Article 12.6(a). with an automatic right to a five (5) year extension.


6.11 If the CONTRACTOR considers that a Discovery of Non Associated Natural Gas is


a Commercial Discovery, the CONTRACTOR shall have the exclusive right to


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


Contract. The Development Period for a Commercial Discovery of Non-Associated


Natural Gas shall ho twenty (20) years, commencing on the declaration of such


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


Article 14.5(a), with an automatic light to a five (5) year extension.


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


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


CONTRACTOR shall be entitled to an extension of such Development Period under


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


writing by the CONTRACTOR at least six (6) Months before the end of the said


Development Period.


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


(a) five (5) Years for Crude Oil and any .Associated Natural Gas. and/or


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


6.13 The CONTRACTOR shall have the right to terminate Production Operations for any


Production Area at any time during the term of this Contract, subject to giving


notice to the GOVERNMENT of at least ninety (90) days This Contract shall


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


Operations for all Production .Areas have terminated.


ARTICLE 7 - RELINQUISHMENTS


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


portions of the Contract Area as follows:








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(a) ut I lie end of the initial term of the Exploration Period referred to in Article


6.2, twenty live per cent (25%) of the net area determined by subtracting (he


Production Areas from the initial Contract Area;


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


the end of the initial term of the Exploration Period referred to in Article 6.2.


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


subtracting the Production Areas from the remaining part of the Contract


Area; and


(c) at the end of the Exploration Period (including all extensions theteof), nil of


the remaining area that is not in a Production Area.


For the application of Article 7.1:


(at any areas already relinquished pursuant to Article 7.4 shall be deducted from


areas to be surrendered: and


(b) the CONTRACTOR shall have the right to determine the area, shape and


locution of the Contract Area to be kepi, provided that such surrendered


portions of the Contract Area shall lx* in contiguous blocks.


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


of an Appraisal Area, then these percentages shall be reduced to exclude such


Appraisal Area.


During the Exploration Period- the CONTRACTOR mjy at the end of each Contract


Year surrender all or any pan of the Contract Area by uritten notice sent to the


CR)VERNMENT at least thirty »30» days in advance of the proposed date of


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


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


referred to under Article 7.1. This Contract shall terminate in the event of the


surrender of the entire Contract Area.


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


outstanding obligations under this Contract. In the event the CONTRACTOR elects


to surrender the entire Contract Area without having fulfilled the Minimum


Exploration Obligations relating to the then current Sub Pcnod as provided in Article


10.2 or .Ankle 10.3. the CONTRACTOR shall pay to the GOVERNMENT the


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


maybe.


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


CONTRACTOR shall be communicated to the GOVERNMENT by written notice


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


Article 7.1.





ARTICLE K - MANAGEMENT COMMITTEE


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


Effective Date for the purpose of providing orderly direction of all matters pertaining





26/118


lo the Petroleum Operations and the Wort Program*. Within such period, each of the


GOVERNMENT and the CONTRACTOR shall by written notice nominate its


respective members of the Management Committee and their deputies.


The Management Committee shall comprise two (2) members designated by the


GOVERNMENT and two (2) members designated by the CONTRACTOR.


Upon ten (10) days notice, each of the GOVERNMENT and the CONTRACTOR


may substitute any of its members of the Management Committee. The chairman of


the Management Committee shall be »>nc of the members designated by the


GOVERNMENT (the “Chairmen**). The vice-chairman of the Management


Committee shall be one of the members designated by the CONTRACTOR (the


• Vice-Chairman'). In the absence of the Chairman, the Vice-Chairman shall chair


the meeting.


Each Party shall have the nght to invite a reasonable number of observers as deemed


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


capacity.


8.2 The Management Committee shall review, deliberate, decide and give advice,


suggestions and recommendations lo the Parties regarding the following subject


mailers:


(a) Work Programs and Budgets;


(h) the CONTR ACTOR’s activity reports.


(c) production levels submitted by the CONTRACTOR, based on prudent


international petroleum industry practice:


(d) Accounts of Petroleum Costs;


(e) procurement procedures for potential Subcontractors, submitted by the


CONTRACTOR in accordance with .Article 19.3;


(0 Development Plan and Budget for each Production Area;


(g) any matter having a material adverse affect on Petroleum Operations:


(h) any other subject matter of a material nature that the Parties arc willing to


consider.


8.3 Each of the GOVERNMENT and the CONTRACTOR shall have one (I) vote in


the Management Committee. The Management Committee cannot validly deliberate


unless each of the GOVERNMENT and the CONTRACTOR is represented by at


least one (I) of its members or its deputy.


The Management Committee shall attempt to reach unanimous agreement on any


subject matter being submitted. In the event the Management Committee cannot


reach unanimous agreement, a second meeting shall be held within fourteen (14) days


to discuss the same subject matter and auempt to reach a unanimous decision.








27/118


Except as provided for in Article 8.4 and Article 8.5. in ihe event that no agreement i'


readied at the second meeting, the Chairman shall have the tie-breaking vote.


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, us required pursuant to Article 8.5; then the proposal made


by the CONTRACTOR shall be deemed adopted by the Management Committee.


Notwithstanding the provisions of Article 8.3. and subject to Article 8.4. unanimous


approval of the Management Committee shall be required for:


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


Budget prepared after the first Commercial Discovery in the Production Area


relating to such Commercial Discovery;


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


production schedule, lifting schedule and Development and Production Work


Programs and Budgets;


(c) establishment of rules of procedure for the Management Committee;


(d) any Insurance issues over which the Management Committee has authority;





(e» approval of, and any material revision to. procurement procedures for goods


and/or services, submitted by the CONTRACTOR in accordance with Article


19.3 (unless such procedures have been deemed approved by the Management


Committee in accordance with Article 19.3):


(f) approval of, and any material revision to, any proposed pipeline project,


submitted by CONTRACTOR in accordance with Article 33.3;


(g) appro'al of a first rate bank in which to place the Decommissioning Reserve


Fund, in accordance with Ankle 38.1;


(h) approval of. and any material revision to. any proposed Decommissioning


Plan submitted pursuant to Article 38.7 on any Decommissioning Work


Program and Budget or Gas Marketing Work Program and Budget;


(i) any Terms of Reference w hich arc required to be prepared and agreed for the


purposes of expert determination, pursuant to Article 42.2;


(j) approval of any costs in excess of ten per cent (10*i) above any Budget; and





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


Ordinary meetings of the Management Committee dull 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 Panics, at least twice a


Contract Year prior to the (laic of the first Commercial Discovery and three times a


Contract Year thereafter.











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9-


 8 7 Either the GOVERNMENT or the CONTRACTOR may call an extraordinary


meeting of the Management Comminee to discuss important issues or developments


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


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


Committee may from time to time make decisions by correspondence provided all the


members have indicated their approval of such decisions in such correspondence





8 8 Unless 3t least one (I) member or its deputy of each of the GOVERN ME NT and the


CONTRACTOR is present, the Management Committee shall he adjourned for a


period not to exceed eight (8) days. The Party being present shall then m*lify the other


Party of the new date, time and location for the meeting.


8.9 The agenda for nveetings of the Management Committee shall be prepared by the


CONTRACTOR in accordance with instructions of the Chairman and communicated


to the Parties at least fifteen (15) days prior to the date of the meeting. The agenda


shall include any subject matter proposed by cither the GOVERNMENT or the


CONTRACTOR Decisions of the Management Committee will he made ai the


meetings. I he CONTRACTOR shall be responsible for preparing and keeping


minutes of the decisions made at the meetings. Copies of such minute' slull be


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


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


who fails to notify in writing its approval or disapproval of such minutes within such


ten (10) days shall lie deemed to have approved the minutes.





8 10 If required, the M.inagcmcnt Committee may request the creation of a technical sub-


committee or any other sub-commiticc to assist it Any Mich subcommittee shall be


composed of a reasonable number of experts from the GOVERNMENT and the


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


committee shall deliver a written report to the Management Committee.


8 11 Any costs and expenditure incurred by the CONTRACTOR for meetings of the


Management Committee or any technical sub-committee or any other sub-committee


shall he considered as Petroleum Ci*\ls and shall he recovered by the


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














ARTICLE 9 - GUARANTEES


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





the latter pursuant to written noricc received by the CONTRACTOR Entity within


thirty (30) days of the Effective Dale, with a coqxwate guarantee in a form as shall he


agreed in good faith between the GOVERNMENT and each CONTRACTOR


Entity not later than ninety (90) days after the Effective Date, provided that such


corporate guarantee shall be given only in respect of the Minimum Financial


Commitment for the First Sub-Period and shall expire automatically upon completion


of the performance of the Minimum Exploration Obligations set out in Article 10.2(d)


and (e) or expenditure of such Minimum Financial Commitment, whichever is the


earlier.





'U 29/118


9.2 Not later than sixty (60) days after the commencement of the Second Sub-Period,


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


the latter pursuant to written notice received by the CONTRACTOR Entity within


thirty (30) days of such commencement date, with a corporate guarantee in:


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





CONTRACTOR Entity for the First Sub-Period, if any, subject to making the


changes necessary in order for the corporate guarantee to apply only to the


Second Sub-Period, or


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


the GOVERNMENT and each CONTRACTOR Entity not later than ninety


(90) days after the GOVERNMENT'S notice.





and provided in each case that such corporate guarantee shall be given only in respect


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


corporate guarantee shall expire automatically upon completion of the |icrfornunce of


the Minimum Exploration Obligations set out in Article 10.3 (b) or expenditure of


such Minimum Financial Commitment, whichever is ihc earlier.





9.3 In the event of an assignment by a CONTRACTOR Lntuv in accordance with


.Ankle 39. the relevant third party assignee shall provide the GOVERNMENT, if so


required by the latter pursuant to written notice given to such assignee within thirty


(30) days of the Effective Dale, with a corporate guarantee in the form agreed


pursuant to Article 9.1 or 9.2, as applicable to the then current Sub-Period or. in the


absence of any such agreed form of corporate guarantee, in a form as shall be agreed


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


(90) days nfler the effective date of the assignment, provided that such corporate


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


the then current Sub-Period, and shall expire automatically upon completion of the


performance of the Minimum Exploration Obligations set oui in Articles 10.2(d) and


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


Commitment, whichever is the earlier.














ARTICLE 10-MINIMI M EXPLORATION WORK OBLIGATIONS


10.1 The CONTRACTOR slmll start Exploration Operations within thirty (30) days of


Management Committee approval of the Exploration Wort Program and Budget in


accordance with Article 8. The CONTRACTOR shall perform geological,


geophysical and/or drilling works as provided under Articles 10.2 to 10.3 (the


“Minimum Exploration Obligations' > If applicable, lire said Minimum Exploration


Obligations shall lx‘ |)crformed during cadi Sub-Period in accordance with prudent


international petroleum industry practice.

















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10.2 During ihc First Sub-Period, the CONTRACTOR shall:





(a) earn out geological and geophysical studies, comprising the follow ing:


(i) the compilation of a technical database;


(ii) the performance of a remote sensing study:





(iii) a field visit to verify initial geological and geophysical work and


remote sensing results and plan for two dimensional seismic


acquisition; and


(b) carry out a data search for existing data specific to this Contract Area,


comprising the follow ing:


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





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


(iii) reprocess seismic data, if available;


(c) perform field work comprising structural, stratigraphic and lithologic mapping


and sampling;


(d) acquire, process and interpret one Hundred (100) line kilometres of two


dimensional seismic data within the Contract Area,; and


(c) drill one (I) Exploration Well (the First Exploration WdT).





committing for the purpose of Article 10.2 to .a minimum financial amount of


Twenty Million Dollars (USS 20.000.000).


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


drill one (I) Exploration Well (the “Second Exploration WdTl. which shall be


contingent upon a reavwiahle technical case committing for this purpose a minimum


financial amount of Twenty Million Dollars (USS 20.000.000)


10.4 Notwithstanding the provisions in Articles 10 2 to 10.3. for the execution of the


Minimum Exploration Obligations under Ankles 10.2 to 10.3. it is agreed as follows:


(a) Minimum Exploration Obligations, in the Second Sub-Period shall only apply


in the event the CONTRACTOR has not elected to notify the


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


accordance with and subject to Article 6.4.


(b) Subject to .Article 10.4(a). the CONTRACTOR shall be required to meet its


Minimum Exploration Obligations for the applicable Sub-Period, even if this


entails exceeding the Minimum Financial Commitment for such Sub-Period.


If the CONTRACTOR has satisfied its Minimum Exploration Obligations


without having spent die total Minimum Financial Commitment for such Sub-








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*


Period, it shull he deemed to have satisfied its Minimum Exploration


Obligations for Midi Sub-Period.


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


Committee unless


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


anticipated.


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


(iii) in the CONTRACTOR'S sole opinion continued drilling of the


relevant Exploration Well presents a hazard due to the presence of


abnormal or unfoicsccn conditions;


(iv> insurmountable technical problems are encountered rendering it


impractical to continue drilling with standard equipment; or


(v) petroleum formations are encountered whose penetration requires


laying protective casing that docs not enable the depth agreed by the


Management Committee to be reached.


If drilling is stopped for any of the foregoing reasons, the Exploration Well


shall be deemed to have been drilled to the depth agreed by the Management


Committee and the CONTRA(T()R shall be deemed to have satisfied iis


Minimum Exploration Obligations in respect of the Exploration Well.


(d) Any geological or gcoph>sical work earned out or any seismic data acquired,


processed or interpreted or any Exploration Well drilled or any other work


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


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


gisen Sub-Period, shall be canicd forward to the next Sub-Period or any


extension period and shall he taken into account to satisfy ihc Minimum


Exploration Obligations and/or the total Minimum Financial Commitment for


such subsequent Sub-Period or extension period




CONTRACTOR performs any of the Minimum Exploration Obligations


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


CONTRACTOR has not elected to notify the GOVERNMENT that it will


not enter into the Second Sub-Period (in accordance with and subject to


Article 6.4). the performance of such Minimum Exploration Obligations shall


be deemed to satisfy tbe same Minimum Exploration Obligations for the


Second Sub-Period.


ARTICLE 11 - EXPLORATION WORK PROGRAMS AND BUDGETS


11.1 Within forty-five (45) days following the Effective Date, the CONTRACTOR shall


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


budget relating to Exploration Operations (the "Exploration Work Program and


Budget"* for the remainder of the Calendar Year Thereafter, no later than I October





32/1 IS


in each Culcndai Year, ihe CONTRACTOR shall submil a proposed Exploration


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


Year


11.2 Each Exploration Work Program and Budget shall include details of. but not be


limited to. the following:


(a) work to he undertaken;


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


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


and/or Affiliated Companies of any CONTRACTOR Entity; and


(d) estimated expenditures, broken down by cost centre in accordance with the


Accounting Procedure.


11.3 The Management Committee shall meet within sixty (60) days following its receipt of


CONTRACTOR’S proposal to examine anil approve the Exploration Work Program


and Budget.


11.4 If the GOVERNMENT requests any modification to the Exploration Work Program


ami Budget, the Management Committee shall meet to discuss the Exploration Work


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


period referred to in Article 11.3. The CONTRACTOR shall communicate its


comments on an> such requested modifications to the GOVERNMENT at the


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


11.5 The CONTRACTOR 'hall 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 percent (10%) of the approved Exploration


Work Program and Budget in any Calendar Year ami provided further that such


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


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


recovered by the CONTRACTOR in accordance with the provisions of Articles 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 eases of emergency, the CONTRACTOR may incur such additional expenditures


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


expenditures shall be reported promptly to the Management Committee. For the


avoidance of doubt, such additional expenditure shall be considered Petroleum Costs


and shall be recovered by the CONTRACTOR in accordance w ith the provisions of


Articles I and 25.


ARTICLE 12 - DISCOVERY AND DEV ELOPMENT


12.1 II the drilling of an Exploration Well results in a Discovery, the CONTRACTOR


shall notify the GOVERNMEN T within forty-eight (48) hours of completing tests





33/118


 confirming the presumed existence of such Discovery or within such longer period as


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


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


CONTRACTOR shall present to the Management Committee all technical data then


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


(the Discover) Report"). The CONTRACTOR shall provide in a timely manner


such other information relating to the Discovery as the GOVERNMENT may


reasonably request.











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


commercial potential it shall, within ninety (90) days following notification to the


GOVERNMENT ol the Discover)’, submit an appraisal program in respect of the


Discovery (the "Appraisal Work Program and Budget") to the Management


Committee. The Management Committee shall examine the Appraisal Work Program


and Budget within thirty (30) days of its receipt. If the GOVERNMENT requests any


modification to the Appraisal Work Program and Budget, the Management


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


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


Appraisal Work Program and Budget. The CONTRACTOR shall communicate its


comments on any such requested modifications to the GOV ERNMENT at the


meeting of the Management Committee or in wnting prior to such meeting.


The Appraisal Work Program and Budget shall include die following


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


international petroleum industry practice;


(h) an estimated lime-frame for completion ol appraisal works; and


(c) the delimitation of the area to be evaluated, the surface of which shall not


exceed twice (2 x) else surface of the geological structure or prospect to be


appraised (the "Appraisal Area").


12 3 If. following a Discovery, a rig acceptable to the CONTRACTOR is available to drill


a well, the CONTRACTOR may drill any additional Exploration Well or any


Appraisal Well deemed necessary by the CONTRACTOR before or during the


Management Committee’s review of the Discovery Report provided in accordance


with Article 12.1 or its review of the Appraisal Work Program and Budget.


I he CONTRACTOR shall he authorised to incur expenditures not budgeted in an


approved Appraisal Work Program and Budget provided that the aggregate amount of


such expenditures shall not exceed ten 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, 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 percent (10%) limit shall


only lie recovered with the unanimous approval of the Management Committee.








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Appraisal Report





12.4 The CONTRACTOR shall submil a detailed report relahng to the Discovery (the


“Appraisal Report") to the Management Committee within ninet> (90) days


following completion of the Appraisal Work Program and BudgeL


12.5 The Appraisal Report shall include the following:


(a) geological conditions;


(b) physical properties of any liquids;


(c) sulphur, sediment and water content;


(d) type of substances obtained;


(e) Natural Gas composition.


(f) production forecast per well; and


(g> a preliminary estimate of recoverable reserves





Decla





12.6 Together with its Appraisul Report, the CONTRACTOR shall submit a written


statement to the Management Committee specifying that


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


Discovery;


(b> the CONTRACTOR has determined that the Discovery is not a Commercial


Discovery.


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


Discovery, which may become a Commercial Discovery subject to additional


exploration and/or appraisal works within or outside of the Appraisal Area; or


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


Discovery of Non-Associated Natural Gas. which may become a Commercial


Discovery subject to Gas Marketing Operations, in accordance with


Article 14.5.


12.7 In case the statement of the CONTRACTOR corresponds to Article 12.6(c). the


CONTRACTOR shall submit a Wort Program and Budget to the Management


Committee within thirty (30) days following such statement. Any well drilled to


esaluate the said significant Discovery shall be considered an Exploration Well.


12.8 If the Discovery has been declared a Commercial Discovery by the CONTRACTOR


pursuant to Article 12.6(a) or Article 14.5(a). the CONTRACTOR shall submit a


proposed Development Plan to the Management Committee within one hundred





35/118


 eighty (ISO) days following such declaration. The Development Plan shall be in


accordance with prudent international petroleum industry practice. Except with the


consent of the GOVERNMENT, such Development Plan shall include details of the


following as applicable:


(a) the delimitation of the Production Area, taking into account the results of the


Appraisal Report regarding the importance of the Petroleum Field within the


Appraisal Area;


(b) drilling and completion of Development Wells:


(c) drilling and completion of water or Natural Gas injection wells:





(d) laying of gathering pipelines;


(e) installation of separators, tanks, pumps and any other associated production


and injection facilities for the production;


(0 treatment and transportation of Petroleum to the processing ami storage


facilities onshore or offshore;


(g» laying or export pipelines inside or outside the Contract Area to the storage


facility or Delivery Point;


t h) construction of storage facilities for Petroleum;





(i) plan for the utilisation of Associated Natural Gas:


(j> training commitment in accordance w ith Article 23:


(kl a preliminary decommissioning and sue restoration plan:





tl) all contracts and arrangements made or to he made by the CONTR\CTOR


for the sale of Natural Gas;


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


Persons in respect of that Natural Gas downstream of the point at which it is to


be sold by the CONTRACTOR and which arc relevant to the price at which


(and other terms on which) it is to he sold by the CONTRACTOR or arc


otherwise relevant to the determination of the value of it for the purposes of


this Contract, but not beyond the point at which it is first disposed of in an


Ann's length Sale;


(n) each CONTRACTOR Entity’s plans for financing its interest, if any; and





(o) any other operations not expressly provided for in this Contract but reasonably


necessary for Development Operations, Production Operations and delivery of


Petroleum produced, in accordance with prudent international petroleum


industry practice.





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


Plan within sixty (60) days after its receipt of such plan. The Development Period for


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


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


Management Committee to approve the Development Plan. The Development Plan


shall be considered approved by the GOVERNMENT if the GOVERNMENT,


through it' representatives on the Management Committee, indicates its approval in


writing.


12 10 If the GOVERNMENT request any modification to the Development Plan, then the


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


CONTRACTOR of the GOVERNMENT'S written notification of requested


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


discuss such request I he ('ONTRACTOR shall communicate its comments on any


such requested modifications to the GOVERNMENT at such meeting or in writing


prior to such meeting. Any modification approved by the Management Committee at


such meeting or within a further period of thirty (30) days from the date of such


meeting shall he incorporated into the Development Plan which shall then be deemed


approved and adopted.


12.11 II the CONTRACTOR makes several Commercial Discoveries within the Contract


Area each such Commercial Discovery will have a separate Production Area. The


CONTRACTOR shall be entitled to develop and to produce each Commercial


Discovery and the GOVERNMENT shall provide the appropriate Permits covering


each Production Area. In case the area covered by the Commercial Discovery extends


beyond the boundaries of the Contract Area, and to the extent such area outside the


Contract Area is not the subject of a Petroleum Contract (as defined in the Kurdistan


Region Oil ami Gas. Law) with a third party, the provisions of Aritclc 34 2 shall apply.














ARTICLE 13 - DEVELOPMENT AND PRODUCTION WORK PROGR VMS AND


BUDGET





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


CONTRACTOR shall start the Development Operations for the Commercial


Discovery in accordance with the Development Wan and prudent international


petroleum industry practice.





Works Program and Budeel





13.2 Within ninety (90) days following approval of the Development Plan by the


Management Committee, the CONTRACTOR shall prepare and submit to the


Management Committee a proposed work program and budget for Development


Operations (the "Development Work Program and Budget ) to be earned out in the


Production Area for the duration of the Development Operations Thereafter, no later


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


Management Committee updates in respect of its Development Work Program and


Budget. To enable iIk Management Committee to forecast expenditures, each


Development Work Program and Budget shall include details of tin? following:


 (u) works to be carried out;





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


(C) type of services to be provided, distinguishing between third parties and


Affiliated Companies of any CONTRACTOR Entity; and





(d) categories of general and administrative expenditure.


13.3 II any modification to the Development Work Program and Budget is requested by


the GOVERNMENT, the Management Committee shall meet to discuss the


Development Work Program and Budget and proposed modifications thereto within


sixty (60) days from its receipt of the proposed Development Work Program and


Budget. 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


13.4 The CONTRACTOR shall he authorised to incur expenditures not budgeted in an


approved Development Work Program and Budget provided that the aggregate


amount of such expenditures shall not exceed ten per cent (10%) of the approved


Development Work Program and Budget in any Calendar Year and provided further


that such excess expenditures shall be reported as soon as is reasonably practicable to


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


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


Articles I ami 25, provided that any excess expenditures above the ten per cent < 10%)


limit shall only he recovered with the unanimous approval of die Management


Committee.


I.Y5 In cases of emergency, the CONTRACTOR may incur such additional expenditures


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


expenditures shall be rcpivrtcd promptly to the Management Committee. For the


avoidance of doubt, such additional expenditure shall be considered Petroleum Costs


and shall be recovered by the CONTRACTOR in accordance with the provisions of


.Articles I and 25.











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


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


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


the Management Committee a proposed work program and budget for Production


Operations (the ' Production Work Program and Budget 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 mam categories;


(c) type of services to be provided, distinguishing between third parties and





Affiliated Companies of any CONTR ACTOR [Entity; and








& 38/118










13.7 If anv modification to the Production Wort Program and Budget is requested by the


GOVERNMENT, the Management Committee shall meet to discuss the Production


Work Program and Budget and proposed modifications thereto within sixty (60) days


from its receipt of the proposed Production Wort Program and Budget. The


CONTRACTOR shall communicate its comments on any such requested


modifications to the GOVERNMENT at the meeting of the Management Committee


or in writing prior to such meeting.


13.8 The CONTRACTOR shall lx* 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 per cent (10%) of the approved Production


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


excess expenditures shall be reported as soon as reasonably practicable to the


Management Committee. Pot lire 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 expenditure above the ten per cent (10%) limit shall


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


13.9 In eases of emergency, the CONTRACTOR may incur such additional expenditure


as it deems necessary Co protect life, environment or properly Such additional


expenditures shall be reported promptly to the Management Committee. For the


avoidance of doubt, such additional expenditure shall be considered Petroleum Costs


and shall be recovered by the CONTRACTOR in accordance with the provisions of


Articles l and 25.


13.10 After the commencement of Commercial Production the CONTRACTOR shall pay


to the GOVERNMENT. in arrears, an annual surface rental for the Production Area,


of one hundred Dollars (USSI00) per square kilometre per Contract Year


( Production Rental " i. Such Production Rental shall he considered as a Petroleum


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


provisions of Articles I and 25.








ARTICLE 14 - NATURAL GAS








14.1 To take account of specific conditions relating to N'aiural Gas and to promote its


development in the Kurdistan Region, the GOVERNMENT will grant specific


benefits to the CONTRACTOR on principles materially similar to those contained in


this Contract, including, consistent with the Kurdistan Region Oil and Gas Law. more


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


Profit Petroleum than in respect of Crude Oil.


14.2 The CONTRACTOR may freely use any Natural Gas required for the Petroleum


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


priority use any Natural Gas for the purpose of enhancing recovery of Crude Oil in


accordance w ith prudent international petroleum industry practice as follow s








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Associated Natural Gas





14.3 Any excess Associated Natural Gas produced that is neither used in the Petroleum


Operations nor developed and sold by the CONTRACTOR shall, upon the


GOVERNMENT'S written request, be transferred at the fust practicable delivery


point as agreed between the Panics, 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 interfere with the


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


the avoidance of doubt, all expenditure incurred by the CONTRACTOR up to such


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


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


In the event the GOVERNMENT finds a market for Associated Natural Gas. it shall


promptly give written notice to the CONTRACTOR, ami the CONTRACTOR may


elect to participate in supplying such Associated Natural Gas within ninety (91)) days


following notification thereof by the GOVERNMENT. If the CONTRACTOR


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


expenditures associated with any ncccssury facilities shall be paid for by the


CONTRACTOR. For the avoidance of doubt, such expenditure incurred shall lie


considered Petroleum Costs and shall lx* recovered by the CONTRACTOR in


accordance with the provisions of Articles 1 and 25


Non Associated Natural Gas


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


Natural Gas expected to be produced, the CONTRACTOR shall he entitled during


the Exploration Period and the Development Period lo carry out Gas Marketing


Operations


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


Discovery is a significant Discovery of Non-Associated Natural Gas. which may


become a Commercial Discovery subject to Gas Marketing Operations, it shall carry


out Gas Marketing Operations, at the end of which it shall subnut a written statement


to the Management Committee specifying that:


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


Discovery, or


(b) the CONTRACTOR has determined that the Discovery is not a Commercial


Discovery.


14.6 For the purpose of this Contract. ‘ Gas Marketing Operations" means any activity


under this Contract relating to the marketing of Non-Associated Natural Gas.


including any evaluation to find a commercial market for such Non-Associated


Natural Cias 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 Ik sold, its quality, the geographic


location of potential markets to be supplied as well us evaluating the costs of


production, transportation and distribution of the Non Associated Natural Gas from


the l>elivery 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 preceding the Calendar Year in which


any Gas Marketing Operations are due to occur, the CONTRACTOR shall prepare


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


Budget for the following Calendar Year. To enable the Management Committee to


forecast expenditures, the Gas Marketing Work Program and Budget shall include the


following:


(a) works to be carried out;


(b) type of services to be provided, distinguishing between third parties and


Affiliated companies of any CONTRACTOR Entity; and


(c) categories of general and administrative expenditure.


If any modification to the Gas Marketing Work Program and Budget is requested by


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


Marketing Work Program and Budget and proposed modifications thereto within sixty


(60) days from its receipt of the proposed Gas Marketing Work Program and Budget.


The CONTRA (TOR shall communicate its comments on any such requested


modifications to the GOVERNMENT at the meeting of the Management Committee


or m writing prior to such meeting.


14.9 'Hie CONTRACTOR shall ho authorised to incur expenditures not budgeted in an


approved Gas Marketing Work Program and Budget provided that the aggregate


amount of such expenditure shall not exceed ten per cent (10%) of the approved Ga\


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


such excess expenditures shall be reported as soon as reasonably practicable to the


Managemeni Committee. Pol 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 expenditure above the ten per cent (10%) limit shall


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


14.10 If any Non-Associated Natural Gas is discovered within the Contract Area, and the


CONTRACTOR reasonably considers that the Non-Associated Natural Gas


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


amended, it shall lie 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 arc


unable to agree on such amendments, and the Exploration Period expires without the


CONTRACTOR having declared such Discovery to be a Commercial Discovery in


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





41/118


of eight (8) years from ihc end of such Exploration Period, the GOVERNMENT


reaches agreement with any third party to develop such Discovery (the G*s


Development ), then the following provisions shall apply:


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


been reached (and whether or not such agreement is recorded in a fully termed


production sharing and/or operating or other like agreement), but before such


agreement is signed (the “Proposed Contract") (subject only to the rights ol


each CONTRACTOR Entity to pre empt such Proposed Contract pursuant to


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


GOVERNMENT shall, as soon as reasonably practicable after the occurrence


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


notice to that effect and shall with such notice provide such information and


main terms of such agreement as the CONTRACTOR Entities may


reasonably request to determine if they w ill exercise their rights (the Agreed


Terms"), including:




(ii) the effective date of the Proposed Contract;


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


recovery, profit sharing, taxation and any other similar terms: and


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


subject.


(b) Upon a request from any CONTRACTOR Entity, the GOVERNMENT will


provide all the CONTRACTOR Entities with such further information and


terms as may be reasonably requested by any CONTRACTOR Entity.


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


any further information under Article 14.10(a) in relation to a Proposed


Contract each of the CON IRACTOR 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


receised under the Proposed Contract, up to any cost recovery limits


set out therein; or


(ii) to waive the aforesaid nght 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 and eighty (180) days


such CONTRACTOR Entity shall he deemed conclusively to have served a


notice electing to waive its aforesaid nght of pre-emption in relation to the


Proposed Contract.














42/1 IS


(c) In the event that more than one of the CONTRACTOR Entities exercises its


rights under Article I4.l0(b)(i) in relation to the Proposed Contract, then the


GOVERNMENT shall transfer or grant each such CONTRACTOR Entity


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


with .Article 14.10(b)(i)) in tile proportions in which their respective


percentage interests bear to tlie aggregate of their respective percentage


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


of the Exploration Period) or in such other proportions as such


CONTRACTOR Entities shall agree between them.


(d) In the event that one of the CONTRACTOR Entities exercises its rights


under Article 14. IO(b)(i) in relation to the Proposed Contract then the


GOVERNMENT shall transfer or grant the whole of the interest in the


Proposed Contract upon the Agreed Terms (in accordance with 14. IO(bK<)) to


such CONTRACTOR Entity.


(e) In the event that none of the CONTRACTOR Entities exercises its rights


under Article I4.l0(b)(i) then the GOVERNMENT may enter into the


Proposed Contract on terms no more favourable to its counterparty than the


Agreed Terms and. in such case, the aforesaid rights of pre-emption shall


thereupon cease to apply in relation to the Proposed Contract.


14.11 If the pre-emption rights in Article 14.10 are not exercised and the GOVERNMENT


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


GOVERNMENT will use its best endeavours to avoid any cffcci which nu> hamper


the Petroleum Operations of the CONTR ACTOR while producing Petroleum.


Haring


14.12 Raring of Natural Gas in the course of activities provided for under this Contract is


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


or other operational reasons in accordance with prudent international petroleum


industry practice (which shall include the flaring of Associated Natural Gas to the


extent the CONTRACTOR considers that re injecting Associated Natural Gas is not


justified technically and economically and provided the GO\ RRNMENT decides


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


GOV ERNMENT, such authorisation mi to he unreasonably withheld or delayed.


The CONTRACTOR shall submit such request to the GOVERNMENT, which dull


include an evaluation of reasonable alternative* to flaring that have been considered


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


duration of the requested fljring


ARTICLE 15 - ACCOUNTING AND AUDITS


15.1 The CONTRACTOR shall keep in its offices in the Kurdistan Region copies of all


books and accounts of all revenues relating to the Petroleum Operations and all


Petroleum Costs (the "Accounts"), except during the Exploration Period, w hen the


CONTRACTOR shall he entitled to keep the Accounts at its headquarters Abroad


The Accounts shall reflect in detail expenditure incurred as a function of the


quantities and value of Petroleum produced, and shall be kept for a period of five (5)





45/118


vrars. All Accounts which arc made available to the GOVERNMENT in accordance


*ith the provisions of this Contract shall be prepared in the English language. The


Accounts shall be kept in accordance with prudent international petroleum industry


practice and in accordance with the provisions of the Accounting Procedure. The


Accounts shall be kept in Dollars, which shall be the reference currency for the


purposes of this Contract.


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


CONTRACTOR shall submit to the GOVERNMENT a summary statement of all


Petroleum Costs incurred during the said Calendar Year. The summary statement


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


15.3 The GOVERNMENT shall have the right:


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


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


(the "Audit Request Period1; and


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


petroleum industry accounting practice to undertake or assist the


GOVERNMEN l to undertake the audit.


Nor withstanding paragraphs (a) and (b) of this Article 15.3. the GOVERNMENT


shall have the right to audit the Accounts with respect to each Calendar Year at any


time in the case of manifest error or fraud.


15.4 The reasonable cos* 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 o st recovery


under Articles I and 25.


15.5 During the Audit Request Period for any Calendar Year but no* 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,


thai the CONTRACTOR nude a material mistake or there is any irregularity in


respect of the Accounts and considers that any corrections, adjustments or


amendments should be nude, the GOVERNMENT 'dull make any audit exceptions


in writing and notified to the CONTRACTOR within six (6) Months of the date of


request referred to in Article 15.3. and failure to give such written exception within


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


CONTRACTOR'S Accounts


15.7 In respect of any audit exception made by the GOVERNMENT in accordance with


Article 15.6. the CONTRACTOR shall then have sixty (60) days to make ncccsviry


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


request a meeting with the GOVERNMENT. The GOVERNMENT shall within


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


writing of its position on the corrections, adjustments, amendments or comments If








44/118


thereafter there still exists a disagreement between the GOVERNMENT and the


CONTRACTOR, the dispute will be settled in accordance with Article 15.9.


15 H In addition to the annual statements of Petroleum Costs as provided in Article 15.2,


the CONTRACTOR shall provide the GOVERNMENT with such production


statements and reports, as requited pursuant to Article 16.3.


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


within sixty (60) days of the GOVERNMENT’S final notice under Article 15.7, may


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


CONTRACTOR in accordance with the provisions of Article 42.2. Notwithstanding


the provisions of Article 42, in this specific instance the decision of the expert shall


not necessarily he final and either Party may decide to submit the matter to arbitration


in accordance with the provisions of Article 42-1.


ARTICLE 16 - CONTRACTOR'S RIGHTS AND OBLIGATIONS


Permanent Representative


16.1 If not done already, within ninety (90) days following the Effective Date, each


CONTRACTOR Entity shall open an office and appoint a permanent representative


in the Kurdistan Region, who may lx: 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 CONTRACTOR shall carry out all Petroleum Operations in ;*xordancc with the


provisions of ihis Contract, prudent international petroleum industry practice and


applicable Kurdistan Region Law .


Ihc CONTRACTOR shall be responsible for the conduct, management, control and


administration of Petroleum Operations and shall be entitled to conduct Petroleum


Operations in accordance with the provisions of this Contract In conducting its


Petroleum Operations, the CONTRACTOR shall hast ilk- right to use any Affiliate


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


consultants, and agents of each of the foregoing. The CONTRACTOR and all such


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


Areas for the purpose of carrying out Petroleum Opcraiions.








16 3 The CONTRACTOR shall provide the GOVERNMENT with periodic data and


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


the following:


(a) information and data regarding all Exploration Operations. Development


Operations and Production Operations (as applicable) performed during the


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


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


by ihe CONTRACTOR;


(c) a statement specifying the number of personnel, their title, their nationality as


well as a report on any medical services and equipment made available to such


personnel; and


(d) a descriptive statement of all capital assets acquired for the Petroleum





Operations, indicating ihe date and price or cost of their acquisition








16.4 The CONTRACTOR may freely use any Petroleum produced within the Contract


Area for the Petroleum Operations.








16.5 ITie CONTRACTOR shall at all times provide reasonable assistance as may


reasonably be requested by the GOVERNMENT during its review and verification


of records and of any other information relating to Petroleum Operations at the


offices, worksites or uny other facilities of the CONTRACTOR.


Upon giving reasonable prior notice to Ihe COM KACTOR. the GOVERNMENT


may send a reasonable number of representative* to the work sites or any other


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


and verifications. The representatives of the GOVERNMENT shall at all times


comply with any safety regulations imposed by the CONTRACTOR ami such


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


Operations.


\v rrcimto


16.6 l or the performance of the Petroleum Operations, live CONTRACTOR, any Affiliate


of each CON TRACTOR Entity, its and their Subcontractors and the employees,


consultants and agents of each of the foregoing shall at all limes be granted free


access to the Contract Area and to anv 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.


fat of Facilities


16.7 Upon notice from the GOVERNMENT, the CONTRACTOR shall nuke available


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


CONTRACTOR'S facilities which arc necessary to enable such representatives to


perform their tasks related to this Contract and the Kurdistan Region Oil and Gas |jw


including, in case of works to be performed on work sites, transportation,


accommodation and board, under the same conditions as those provided by the


CONTRACTOR for its ow n personnel.


Notwithstanding Article 16.8. the GOVERNMENT shall indemnify and hold


harmless each CONTRACTOR Entity against all losses, damages and liability


arising under any claim, demand, action or proceeding brought or initiated against any





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 CONTRACTOR Entity by any representative of the GOVERNMENT in connection


with the access to or use of the facilities by such representatives.





i ms or i>nnmirc


I6.K The CONTRACTOR shall he responsible for any loss or damage caused to third


parties by its or its Subcontractors personnel solely and directly resulting from their


negligence, errors or omissions in accordance with applicable Kurdistan Region I.aw.


Int>‘j|yctpa} l»r„perty_Ri£hts


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


to third parties.


Litigation


16.10 The CONTRACTOR shall as soon as reasonably practicable inform the


GOVERNMENT of any material litigation relating 10 this Contract.





Safely


16.11 The CONTRACTOR shall implement a health, safely and environment program and


lake necessary measures to ensure hygiene, health and safety of its personnel carrying


out Petroleum Operations in accordance with prudent international petroleum industry


practice.


Said measures shall include the following


(a) supplying first aid and safely equipment for each work area and maintaining a


healthy environment for personnel;


(b) reporting to the GOVERNMENT within seventy-two (72) hours of such


accident, any accident where personnel has been injured while engaged in


Petroleum Operation and resulting in such personnel being unable to return to


work;


implementing a permit-to-work procedure annind hazardous equipment and


installations;


(d) providing safe storage areas for explosives. dctonatc»rs and any other


dan gen his products used in the operations;


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


(ft for the purpose of taking control of any blow out or tire which could damage


the environment or Petroleum Field, in accordance with prudent international


petroleum industry practice; and


(g) for the purpose of preventing any involuntary injection of fluids in petroleum


formations and production of Crude Oil and Natural Gas at rates that do not


conform to prudent international petroleum Industry practice.








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Production Rates





16.12 Subject to Article 43.2. in ihc event the production rate of the individual wells and


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


(“MER") for the Reservoir, as provided for in the Development Plan, as a


consequence of a decision by Ihc GOVERNMENT or any federal or international


regulatory body, the GOVERNMENT undertakes to allocate any such reduction


fairly and equitably among the various operators (including the GOVERNMENT)


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


such event, the GOVERNMENI shall gram an extension of the Development Period


of any Production Aren so affected for a reasonable period of time in order to produce


the Petroleum which would otherwise have already been produced, had the MHR for


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


Slptus


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


the GOVERNMENT under this Contract are to he understood as being separate and


individual and not joint and several. The Panics 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 Ihc GOVERNMENT and each CONTRACTOR Entity shall have (he right and the


obligation 10 take in kind and separately sell or otherwise dispose of their respective


shares of Petroleum Upon approval of the Development Plan, the Panics shall meet


as soon as practicable to reach a detailed agreement governing the lifting of Petroleum


by each such CONTRACTOR Entity. Such lifting agreement shall include the


following:


(a) ihc obligation of ihc GOVERNMENT and each CONTRACTOR Entity to


lift, rcguljrly throughout each Calendar Year, their share of Petroleum


produced from the Production Area:


(b) notification procedures by the Operator to die GOVERNMENT and each


CONTR 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 any Available Petroleum not scheduled for lifting


and/or not lifted by the other Party dunng each such lifting period.








16.15 The CONTRACTOR Entities shall sell and transfer to the GOVERNMENT, upon


written request of ihc 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 shall provide the








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 CONTRACTOR Entities with not less than six (6) Months' advance written notice of


its intention to buy such Crude Oil.





Payments shall he made in Dollars and otherwise on terms consistent with prudent


international petroleum industry practice. The CONTRACTOR Entities* obligation


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


the GOVERNMENT) then producing in the Kurdistan Region, pro rata to their


respective production rates.


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


ARTICLE 17 - USE OF LAND AND EXISTING INFRASTRUCTURE


17.1 The GOVERNMENT shall make available to the CONTRACTOR any land or


property in the Kurdistan Region required for the Petroleum Operations; provided,


however, the CONTRACTOR shall not request to use any such land unless there is a


real need for it. The CONTRACTOR shall have the right to build and maintain,


above and below ground, any facilities required for the Petroleum Operations.


17.2 If it becomes necessary for conduct of the Petroleum Operations to occupy and use


any land or property in the Kurdistan Region belonging to third parties, the


CONTRACTOR shall endeavour to reach amicable agreement with the owners of


such land. II such umicoble agreement cannot be reached, the CONTRACTOR shall


notify the GOVERNMENT On receipt of such notification:


(a) the GOVERNMENT shall determine the amount of compensation to he |\ud


by the CONTRACTOR to the owner, if occupation will be for a short


duration; or


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


with applicable Kurdistan Region Ijw. if such occupation will he long lasting


or makes it henceforth impossible to resume original usage of such land or


property. Any property rights shall he acquired by and recorded in the name


of the GOVERNMENT, but the CONTRACTOR shall he entitled free use


of the land or property for the Petroleum Operations for the entire duration of


this Contract.


Hie amount of the compensation in .Article 17.2 shall he fair and reasonable, in


accordance w ith Article 29 of the Kurdistan Region Oil and Cias Law. and shall take


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


its owner at the time of occupation by the CONTRACTOR All reasonable costs,


expenditures and fair and reasonable compensation (as required pursuant lo Article 29


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


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


expenses and compensation incurred by the CONTRACTOR shall he considered


Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with


the pros isions of .Articles 1 and 25.


17.3 For its Petroleum Operations, the CONTRACTOR shall have lire right in ihc


Kurdistan Region to use. subject to applicable Law. any railway, tramway. n»ad.








49/118


uirport, landing field, canal, river, bridge or waterway, any telecommunication'


network and any existing pipelines or transportation infrastructure, on terms no less


favourable thun those offered to other entities and. unless generally in force, to Ik


mutually agreed.


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


or external war. the GOVERNMENT shall have tlte right to 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 liabilities incurred by the


CONTRACTOR hereunder shall he considered Petroleum Costs and shall he


recovered by the CONTRACTOR in accordance with the provisions of Articles 1


and 25.


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


Kurdistan Region to clear land, excavate, drill, bore, construct, erect, place, procure,


operate, emit amt discharge, manage and maintain ditches, tanks, wells, trenches,


access roads, excavations, dams, canals, water mains, plants, reservoirs, basins,


storage and disposal facilities, primary distillation units, extraction and processing


units, separation units, sulphur plants and any other facilities or installations for the


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


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


as well as warehouses, offices, sheds, houses for personnel, hospitals, schools,


premises, dikes, vehicles, railways, roads, bridges, airlines, airports and any other


transportation facilities, garages, hangars, workshops, foundries, repair shops and any


other auxiliary facilities for the Petroleum Operations and. generally, everything


which is required for its performance of the IVtroleum Operations. 11k


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, si.tncs


(other than precious stones) and other similar substances as required for its Petroleum


Operations.


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


water necessary for the Petroleum Operations provided it does not damage any


existing irrigation or navigation systems and that land, houses or watering points


belonging to third parties are not deprived of their use


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


and maintain roads, railways, airports, landing strips, canals, bridges, protection dams,


police stations, military installations, pipelines and telecommunications networks in


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


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


construction, operation and maintenance of such facilities by the GOVERNMENT


results in increased cost or expense for the CONTRACTOR then, for the avoidance


of doubt, such cost and expense shall he considered Petroleum Costs and shall be


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


and 25.








u 50/118





17.8 Upon request of the CONTRACTOR, the GOVERNMENT shall prohibit tire


construction of residential or commercial buildings in the vicinity of facilities used for


the Petroleum Operations that may be declared dangerous due to the Petroleum


Operations and to prohibit any interference with the use of any facilities required for


the Petroleum Operations.


17.9 Access to the Contract Area may be granted pursuant to an Access Authorisation, as


shall be tlcfincd in, and consistent with, the Kurdistan Region Oil and Gas Law, to


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


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


installations, and to carry out oilier works, provided that nothing in the Access


Authorisation or in this Article 17.9 authorises the holder to drill a Well or to perform


any Petroleum Operations in Contract Area.


The GOVERNMENT shall give the CONTRACTOR adequate advance notice of


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


Access Authorisation in respect of the Contract Area until it has taken into account


any submissions made by the CONTRACTOR nor in such a way that there is undue


interference with or hindrance of the rights and activities of llic CONTRACTOR





ARTICLE IN - ASSISTANCE FROM THE GOV ERNMENT


18.1 To the extent allowed by Kurdistan Region Law and Iiaqi law and at the specific


request of the CONTRA (TOR, the GOVERNMENT shall take all necessary steps


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


(a» securing any necessary Permit' for the use and installation of means of


transportation and communications.


(b) securing regulatory Permits in mallets of customs or impon/export;


(c) securing entry and exit visas, wort and residence permits as well as any other


administratisc Permits for each CONTRACTOR Entity’s, its Affiliate's and


its Subcontractors’ foreign personnel (including their family members)


working in the Kurdistan Region and any oilier pan of Iraq during the


implementation of this Contract;


id) securing any necessary Permits to send Abroad documents, data or samples for


analysis or processing for the Petroleum Operations;


(e) relations with federal and local authorities and administrations, including for


the purposes of the remainder of this Article IK. I;


(I) securing any necessary environmental Permits;


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


Petroleum Operations;


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


relating to the Contract Area held by prc\ious operators or contractors; and








51/118


 (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 In*


charged to the CONTRACTOR and shall be considered Petroleum Costs and shall be


recovered by the CONTRACTOR as Petroleum Costs in accordance with the


provisions of Articles I and 25.


ARTICLE 19 - EQUIPMENT AM) MATERIALS





19.1 The CONTRACTOR shall supply, or procure the supply of. all materials, equipment,





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


Operations ("Equipment and Materials").


19.2 Said Equipment and Materials shall be provided by the CONTRACTOR in





accordance with the relevant Work Programs and Budgets.


19.3 As soon as possible after the Effective Date, the CONTRACTOR shall provide the


Management Committee with a copy of its procedures for procurement of Equipment


and Materials and/or services for the Petroleum Operations as required by the


provisions of Article 8.2 (c). including the criteria for tender evaluation, which


procedures and criteria shall he in accordance with prudent international petroleum


industry practice. If the Management Committee does not request any modifications


to the procurement procedures within thirty (30) days after receiving such procedures,


the procedures shall lx* deemed approved by the Management Committee.


19.4 TV CONTRACTOR shall give priority to Equipment and Materials that arc readily


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


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


technical terms ate comparable in all material respects with those general!) available


in tV international petroleum industry.





ARTICLE 20 - TITLE TO ASSETS





20.1 During the Exploration Period, any Assets acquired by the CONTRACTOR for the


Petroleum Operations shall remain the property of the CONTRACTOR, the


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


20.2 During tltc Development Period, subject to Article 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 end of the Contract, whichever is the earlier.


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


CONT RACTOR or belonging to an Affiliated Company of u CONTRACTOR


Entity or belonging to its or their Subcontractors or its or their employees.














52/118





£


 ARTICLE 21 - USE OF THE ASSETS





21.1 liuch CONTRACTOR Emily shall have the exclusive right lo use. free of any


charge, all Assets described in Article 20, both before and after recovery of the cost of


the same, for the Petroleum Operations, as well as for any petroleum operations under


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


provided that the Petroleum Operations take priority. The GOVERNMENT agrees


not to transfer or otherwise dispose of any of such Assets without the


CONTRACTOR'S prior written approval.


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





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


Region,


AR TICLE 22 - SUBCONTRACTING





22.1 The CONTRACTOR shall ensure that any Subcontiactois it engages have all the


requisite experience anti qualifications.


22.2 The CONTRACTOR shall give priority to Subcontractors from the Kurdistan


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


reputation, qualifications, specialties, credit rating and terms of availability, delivery


and other commercial terms 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 The CONTRACTOR shall provide the GOVERNMENT with copies of agreements


entered into with Subcontractors, where their amount exceeds the limit set by the


Management Committee from lime to time.


ARTICLE 23 - PERSONNEL, TRAINING. AND TECHNOLOGICAL ASSISTANCE











23.1 Tor the Petroleum Operations, the CONTRACTOR shall give, and shall require its


Subcontractors to give, preference to personnel from the Kurdistan Region and other


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


competence and experience required to perform the work.


232 The CON TRACTOR Entities shall give due consideration lo the secondment of


GOVERNMENT personnel to the CONTRACTOR Entities and of the


CONTRACTOR Entities* personnel to the GOVERNMENT during the various


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


53/118





Q





be mutually agreed by the Parties and any costs associated therewith shall be


considered Petroleum Costs and shall be recovered by the CON I RACTOR in


accordance with the provisions of Articles 1 and 25.


23.3 Each CONTRACTOR Entity and its Affiliates and Subcontractors shall have the


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


other parts of Iraq do not have the requisite technical capability, qualifications or


experience for positions to be filled as required pursuant to .Article 23.1. In the event


any such foreign personnel and or a member of their family engage in activities or


commit acts which breach Kurdistan Region Law, the CONTRACTOR shall, at the


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


individual(s).


23 4 For the first Three (3) Contract Years, the CONTRACTOR shall provide up to Two


llundcrcd and Fifty Thousand Dollars (USS250.000) in advance each Contract Year


to the GOVERNMENT for the recruitment or secondment of personnel, whether


from the Kurdistan Region other parts of Iraq or Abroad, to the Ministry of Natural


Resources. The selection of such personnel shall be at the discretion of the Minister


of Natural Resources. Such costs shall be considered as Petroleum Costs and shall be


recovered in accordance with the provisions of Articles 1 and 25.


Training


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


23.6 and 23.7, the CONTRACTOR shall tram all its personnel from the Kurdistan


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


Operations for the purpose of improving their knowledge and professional


qualifications in order that such personnel gradually reudi the level of know ledge and


professional qualification held by the CONTRACTOR Entities' foreign workers


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


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


the personnel front the Kurdistan Region ami other parts of Iraq to apply advanced


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


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


confidentiality agreements.


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


training of the CONTRACTOR Entities' personnel from the Kurdistan Region and


other pans of Iraq shall be planned, which plans shall be submitted to the


Management Committee for its approval. The training plan shall take into


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


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


allocated to the training plan, as prescribed by Article 23.7, is available after taking


into consideration the training of the CONTRACTOR Entities' Kurdistan Region


and other Iraqi personnel.


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


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


Calendar Year. Thereafter, no later than 1 October in each Calendar Year, the


CONTRACTOR shall submit a proposed training plan lo the Management


Committee for the following Calendar Year.





54/118


23.7 The (raining plan referred to in Article 23/* shall provide (or the allocation of the


amount of One Hundred 'Hiousand Dollars (US$100,000) for each Contract Year


•luring the Exploration Period and Three Hundred Thousand Dollars (US$300,

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 of Articles I and 25. Costs incurred by


the CONTRACTOR for training programs for the GOVERNMENT'S personnel


shall be home by the CONTRACTOR only to the extent that they are included in the


CONTRACTOR'S training plan, pursuant to Article 23.6 and shall also be


considered as Petroleum Costs and shall be recovered in accordance with the


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


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


lilt LavIroiinKm fund





23.9 From the date of First Production from the Contract Area, the CONTRACTOR shall


contribute the amount of seventy five thousand Dollars (US$75,000) each Contract


Year during the Exploration Period and onhe hundred and fifty thousand Dollars




environment turn! established by the GOVERNMt NT for the benefit of the natural


environment of the Kurdistan Region, pursuant to the Kurdistan Region Oil and Gas


Law (the “Environment Fund"). Sudi amounts shall be deemed to be Petroleum


Costs and shall be recovered in accordance with Article* I and 25





23.10 Any expenditure incurred by the CONTRACTOR under this Article 23 shall be


considered Petroleum Costs ami shall be recovered in accordance with Articles I and


25.





Technological and logistical assistance





23.11 Before the end of the first Contract Year, the CONTRACTOR shall provide to the


GOVERNMENT in kind technological and logistical assistance to the Kurdistan


Region petroleum sector, including geological computing hardware and software and


such other equipment as the Minister of Nuturul Resources may require, up to the


value of One Million Dollars (USS 1,000,000). "Hie form of such assistance shall be


mutually agreed by the Parties and any costs associated therewith shall be considered


Petroleum Costs und shall he recovered by the CONTRACTOR in accordance with


the provisions of Articles 1 and 25.





ARTICLE 24 - ROYALTY





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


produced and saved from the Contract Area, ns provided in this Article 24 (the


“Royalty").


24.2 The Royalty shall be applied on all Petroleum produced and saved from the Contruct


Area which is Crude Oil or Non-Assoeiuled Natural Gas, except for Petroleum used in








55/1)8


Ccs


Petroleum Operation*, re injected in a Petroleum Field, lost. flared or for Petroleum


that cannot he used or sold and such Crude Oil and Non Associated Natural C.as


(excluding the excepted Petroleum) shall he referred to collectively as "Export


Petroleum' and separately and respectively as "Export Crude Oil" and "Export


Not*-Associated Natural Gas'.


24.3 If pa>ablc in cash, the amount of the Royally calculated by applying the Royalty rates





provided under Ankle 24.4 shall he paid by the CONTRACTOR is directed by the


GOVERNMENT, in accordance w uh Article 24.7.





If payable in kind, the quantity of Expoit Petroleum corresponding to the Royalty and


calculated by applying the Royalty rates provided under Article 24.4 shall he


delivered in kind by the CONTRACTOR to the GOVERNMENT at the Delivery


Point. Title and risk of loss of the Royalty paid in kind shall be transferred at the


Delivery Point.


Unless the GOVERNMENT requites the Royalty to he paid in kind, by giving the


CONTRACTOR not less than ninety (90) days prior written notice prior to the


commencement of the relevant Quarter, the GOVERNMENT shall be deemed to


have elected to receive the Royally in full and in cash for the relevant Quarter.


24.4 The Royalty due on any Export Petroleum produced and saved in the Contract Area


shall be determined daily by applying the following relevant Royalty rate, to the


Export Crude Oil or to the Export Non-Associated Natural Gas (as the case may he)


producer! and saved on that day:


(a) For Export Crude Oil:


the Royalty rate for Export Ciude Oil shall lie ten per cent (10%), which, for


the avoidance of doubt, shall apply regardless of the gravity of the oil; and








(b) For Export Non-Associated Natural Gas:





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


(10%).


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


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


pursuant to Article 28. the GOVERNMENT requests assistance for the sale of all or


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


GOVERNMENT in selling all or pari of such Royalty received in kind (belonging to


the- GOVERNMENT) in consideration of a commission per Barrel payable to such


CONTRACTOR Entity, in accordance w ith Article 28.


24.7 If. pursuant to Article 24.3. the GOVERNMENT receives the Royally in cash:


(a) any Expoti Crude Oil shall be valued at the International Market Price


obtained at the Delivery Point, as defined in Article 27,2;








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9-


 (h) any Export Non-Aswxiatcd Natural Gat* shall be valued at the actual price


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


Ankle 27.3;


(c) tlx- CONTRACTOR 'hall pay such Royalty each Quarter. in arrears, within


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


due for the relevant Quarter by reference to the price for the Export Petroleum


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


above, and the Royalty due on the Export Petroleum, determined in


accordance with Article 24.4, for the said Quarter; and


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


Export Petroleum corresponding to the Royalty determined in accordance with


Ankle 24.4 fix the purpose of paying the Royalty in cash.





ARTICLE 25-RECOVERY OF PETROLEUM COSTS


23.1 All Export Crude Oil produced and saved from the Contract Area shall, alter


deduction of any quantities of Export Crude Oil due for Royalty pursuant to Article


24. be considered as “Available Crude OH *.


All Associated Natural Gas produced and saved from the Contract Area, except fix


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 G«s~.


All Export Non-Asvviatcd Natural Gas produced and saved from the Contract Area


shall, after deduction of any quantities of Export Non-Associated Natural Gas due for


Royalty pursuant to Article 24. be considered as “Available Non-Associated Natural


Gas





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


Gas and Available Non-Associated Natural Ga\


25.2 For the purpose of this Article 25:


(a) any Available C rude Oil shall be valued at the International Market Price


obtained at the Deliver) Point, as defined in Artxlc 27.2. and


(b) any Available Associated Natural Gas and any Available Non-Associated


Natural Gas shall he valued at the actual price obtained at the Delivery Point


under an approved contract, as provided in Article 27.3.


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


Area, the CONTRACTOR shall at all times he entitled to recover all Petroleum


Costs incurred under this Contract, of up to forty per cent (40%) of Available Crude


Oil (which, for the avoidance of doubt, shall apply regardless of the gravity of tlx* oil)


and Available Associated Natural Gas produced and saved w ithin any Calendar Year.


Available Crude Oil above this percentage or otherwise not used fix the recovery of


Petroleum Costs shall he Profit Crude Oil








57/1IX


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 (SOS) of Available Non-


Associated Natural Gas produced and saved within any Calendar Year. Available


Non-Associated Natural Gas above this percentage or otherwise not used for the


recovery of Petroleum Costs shall be Profit Natural Gas.


25.5 For the application of Article 25 J nd 25 4. the CONTRACTOR shall keep a


detailed account of Petroleum Costs in accordance with the provisions detailed in the


Accounting Procedure. Recovery of Petroleum Costs shall occur in the following


order:


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


Contract Area):


(c) Gas Marketing Costs:


(d) Dev elopment Costs: and


(e) Decommissioning Costs.


25.6 Total recovery of Petroleum Coats during any Calendar Year, expressed in quantities


of Petroleum, shall not exceed the relevant percentages indicated in Article* 25.3 and


25.4. If in any Calendar Year, the Available Crude Oil and/or Available Non-


Associntcd Nuturnl Gas do not allow the CONTRACTOR to recover all its


Petroleum Costa pursuant to this Article 25. the amount of un-recovered Petroleum


Costs in such Calendar Year shall be carried forward indefinitely to the subsequent


Calendar Year* until all Petroleum Costs arc fully recovered, but. save as provided in


Articles 14.10 and 38.4, in no other case after the termination of the Contract


25.7 The provisions of Articles 27.5 and 27.6 shall be applied to determine the quantities


of Available Crude Oil and/or Available Non-Associated Natural Gas due to the


CONTRACTOR for the recovery of its Petroleum Costs.


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


the CONTRACTOR for the recovery of its Petroleum Costs shall be delivered to the


CONTRACTOR at the Delivery Point Title and risk of loss of such Available


Petroleum shall be transferred at the Delivery Point.


25.9 Each CONTRACTOR Entity shall be entitled to receive, lake in kind and to export


freely all Available Petroleum to which it is entitled for recovery of its Petroleum


Costs in accordance with the provisions of this Contract and to retain Abroad any


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


Production Area shall be recovered from Available Petroleum from that Production


Area.


25.10 Subject to Article 38.4. for the avoidance of doubt. Petroleum Costs under this


Contract are not recoverable against other contract areas held by the


CONTRACTOR.





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 ARTICLE 26 - SHARING OF PROFIT PETROLEUM





26.1 Under this Contract,


(a) "Profit Petroleum*' means Profit Crude Oil and Profit Natural Gas;







Available Associated Natural Gas produced from the Production Area, after


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


"Profit Nutural Gas" means the quantities of Available Non-Associated


Natural Gas produced from the Production Area, after the recovery of


Petroleum Costs in accordance with Articles I and 25.


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


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


and/or Profit Natural Gas, in consideration for its investment in the Petroleum


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


26.5.


26.3 To determine the percentage share of Profit Crude Oil and/or Protit Natural Gas to





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


accordance with Article 26.4 and shall be applied separately to each Production Area.


26.4 The "K" Factor shall be calculated as follows:





R = XA


where:


X is equal to Cumulative Revenues actually received by the CONTRACTOR;





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


the date of the signature of this Contract.


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


recovery of its Petroleum Costs and its share of Profit Petroleum in the Production


Area.


“Cumulative Costs” means all Petroleum Costs in the Production Area, actually


incurred by the CONTRACTOR until the end of llic relevant Semester, determined


in accordance w ith Article 26.7.











59/1 18





Si-


Notwithstanding the foregoing provisions of this .Article 26.4. for the period from


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


the R" Factor shall be deemed to be less than one (1).


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


First Production is:


la) for Profit Crude Oil. equal to the quantities of Petroleum resulting from the


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


of production of Profit Crude Oil within the Production .Area at the


corresponding Delivery Point:


•R" Factor CONTRACTOR'S % Share of Profit Crude Oil


R < or = I 30'S


I < R< or = 2 30- <30- 15) • (R - l)/(2- I)


R >2 15%


and


(b) for Profit Natural Gas. equal to the quantities of Noo-Associatcd Natural Ga\


resulting from the application of the relevant percentage a\ indicated below to


the daily volume of production of Profit Natural Gas within the Production


Area at the corresponding Delivery Point;


MR” Factor CONTRACTOR’S % Share of Profit Natural Gas


R < or = I 40%


1 < R< or - 2.75 40 (40- 20) * (R - I)/(2.75 -1)


K > 2.75 20%


26.6 The CONTRACTOR’S accounting shall account separately for all components for


the calculation of "X” and “Y" values in the formula provided in Article 26.4.


26.7 For each Semester, starting from the I* of January of the Calendar Year following the


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


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


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


that determined by applying the Cumulative Revenues actually received and the


Cumulative Costs actually incurred up to and including the lust day of live preceding


Semester.


If the CONTRACTOR is unable to calculate tlx- ”R" Factor for the relevant


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


then the allocation of Profit Petroleum for the previous Semester shall be used for the


relevant Semester. Upon the calculation of the *R” Factor for the relevant Semester








6(YI 18


(a) if Clio allocation of Profit Petroleum in the previous Semester and the relevant


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


(b) tl the allocation of the Profit Petroleum in the two Semesters is different, then


the CONTRACTOR shall make any adjustments to the Parties' respective


shares of Profit Petroleum to restore them to the position that they would have


been in had the "R" Factor for the relevant Semester been available from the


start of such Semester.


26.8 If at any lime an error occurs in the calculation of the “R" Factor, resulting in a


change in the CONTRACTOR’S |>erccnlugc share of Profit Crude Oil and/or Profit


Natural Gas. the necessary correction shall be made and any adjustments shall apply


from the Semester in which the error occurred. The Party having benefited from a


surplus of Profit Petroleum shall surrender such surplus to the other Party, beginning


from the first day of the Semester following the Semester in which the error was


recognised. However, each lifting of Petroleum minting to such error by the Party


receiving the surplus shall not exceed twenty-five per cent (25%) of the share of Profit


Petroleum to which such surrendering Party is entitled. For the avoidance of doubt, if


at any lime an error occurs in the calculation of the "K” Factor, which docs not result


in a change in the CONTRACTOR'S percentage share of Profit Crude Oil and/or


Profit Natural Gas. no collection shall In- made.


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


the CONTRACTOR Entities at the IX-livery Point. Title and risk of loss of such


Profit Petroleum shall be transferred to the CON TRACTOR Entities at the Delivery


Point.


Each CONTRACTOR Entity shall be entitled to receive, take in kind and to export





freely its share of Profit Petroleum in accordance with the provisions of this Contract


and to retain Abroad any proceeds from the sale 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 tax imposed upon and due by each


CONTRACTOR Entity, and w hich will be paid directly by the GOVERNMENT on


behalf of each such entity representing the CONTRACTOR to the appropriate tax


authorities in accordance with Article 31.2. The GOYERNNfEYI shall provide the


CONTRACTOR Entities with all written documentation and evidence reasonably-


required by the CONTRACTOR Entities to confirm that such corporate income lax


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 risk ol loss of such l*rofrt


Petroleum shall he transferred at the Delivery Point.





26.12 At least twenty-one (21 > days prior to CONTRACTOR'S estimated date of First


Production and, subsequently, thirty (30) days prior to the beginning of each


Semester, the CONTRACTOR shall prepare and deliver to the GOVERNMENT a


production program comprising the production forecast for the next Semester and die


forecast of the quantifies of Crude Oil and Natural Gas to which each Party shall be


entitled during the said Semester.








61/118





£


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


CONTRACTOR shall prepare and deliver an annual production report to the


GOVERNMENT, stating the quantities of Crude Oil and Natural (las to which each


Party is entitled, the quantities of Crude Oil and Natural Gas lifted by each Puny and


the resulting over-lift or under-lift position of each Party, pursuant to tl»c 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'S share of Petroleum by the


CONTRACTOR shall not be considered Petroleum Costs and shall be charged to die


GOVERNMENT according lo terms to be mutually agreed between the


CONTRACTOR and the GOVERNMENT








AKIR I E 27 - VALUATION AND METERING OF CRUDE Oil. AND NATURAL


GAS





Valuation


27.1 For die purpose of this Contract, any Crude Oil produced in the Contract Area shall be


valued at the end of each Quarter at the Delivery Point based on the International


Market Price, as defined in Article 27.2.


27 : I he international Market Price ' referred to in Article 27.1 shall be the weighted


average price per Barrel, expressed in Dollars, obtained by the CONTRACTOR .it


tl>e 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 in Article 27.2 arc Arm's Length Sales. If the


GOVERNMEN T considers that any such sale of Crude Oil is not on the basis of an


Arm’s l ength Sale then the GOVERNMENT has the right to refer the matter to an


expert pursuant to Article 42.2.


In the event that there is no lifting of Crude Oil in the relevant Quarter or no Arm's


length Sales, the applicable "International Market Price” for such Quarter shall be


the weighted average price per Barrel obtained during that Quarter from Arm’s


length Sales of Crude Oil ol the same or similar gravity and quality from other


production areas sold in markets competing with Crude Oil produced from the


Contract Area, taking into account gravity and quality differences and transportation


and other post Delivery Point costs.


To determine such price, the Parties shall, prior to the commencement of Production,


agree on a basket of Crude Oil comparable to those produced in the Contract Area and


sold in the international market. Prices obtained shall be adjusted to account for any


variations such as quality, specific gravity, sulphur content, transportation costs,


product yield, seasonal variations in price and demand, general market trends and


other terms of sale.





27.3 The price of Natural Gas shall be the actual price obtained at the Delivery Point,


(which may take into account quantities to be sold, quality, geographic location of


 markets lo be supplied as well us costs of production, transportation and distribution


of Natuial Cias from the Delivery Point 10 the relevant market, in accordance with


standard international petroleum industry practice). The GOVERNMENT shall have


tiie right to review and approve Natural Gas sales contracts.








27.4 In accordance with this Ankle 27.4. the G<>VERNMENT and the CONTRACTOR


shall establish a statement showing calculations of the value of Petroleum produced


and sold from the Contract Area. Such statement shall include following information:


(a) quantities of Crude Oil sold by the CONTRACTOR Entities during the


preceding Month constituting Arm's length Sales together with corresponding


sale prices,


(b> quantities of Crude Oil sold by the CONTRACTOR Entities during the


preceding Month that do not fall in the category referred to in paragraph (a)


above, together with sale prices 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 Cias sold by the CONTRACTOR Entities and the


GOVERNMENT together with sale prices realised.





Ekming





27.5 .All Export Petroleum shall he metered at the Delivery Point in accordance with


prudent international petroleum industry practice and such meters shall he to fiscal


meter standards. All metering equipment shall be installed and operated by the


CONTRACTOR The GOVERNMENT shall, on receipt by the CONTRACTOR


of reasonable prior written notice, have the right to inspect any such metering


equipment installed by the CONTRACTOR, as well as all relevant documents and


supporting information reasonably necessary to validate the accuracy of such


metering. All metering equipment shall be subject to periodic technical inspections in


accordance with prudent international petroleum industry practice.


27.6 If any metering equipment is defective, the CONTRACTOR shall use all reasonable


endeavours to repair it within fifteen (15) days or. if deemed necessary by the


CONTRACTOR, replace it as soon as reasonably practicable from the date the


defect became known The "Adjustment Date" shall be the last date that the


metering equipment was know n or agreed to have been measuring correctly, or if not


known or agreed, the date thai is midway between the date the delect was discovered


and the last date the equipment was known to have measured correctly. The results


from the defective equipment shall he disregarded for the period from the Adjustment


Dale until the dale the defective equipment is repaired or replaced and the


measurement for such period shall be estimated:


(a) if check measuring equipment is installed and registering accurately, then by-


using the measurements recorded by such check measuring equipment;











6.V118


(b) if check measuring equipment is not installed 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 bused on deliveries during (lie preceding comparable period of time


when die metering equipment was registered accurately.


27.7 Any disputes arising under this Article 27 shall lx- 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 to the


GOVERNMENT for the sale of all or part of the quantities of Crude Oil to which the


GOVERNMENT is entitled, in consideration of a sales commission per Barrel to he


established with reference to prudent international petroleum practice and to he mutually


ugreed upon between the Parties


ARTICLE29-FINANCIAL PROVISIONS


29.1 Any payment to l>c made by a CONTRACTOR Entity to the GOVERNMENT


pursuant to this Contract shall be m IX'llars and shall be offset against any


outstanding payments due by the GOVERNMENT to the CONTRACTOR I ntity.


or paid into the bank account duly designated by the GOVERNMENT in writing and


shall he paid within thirty (30) days of the due date, after which interest compounded


monthly at the rate of LIBOR plus two (2) percentage points shall he applied


29.2 The GOVERNMENT may. ai its sole discretion, direct the CONTRACTOR


Entities to pay:


(a) any Royally in cash due to the GOVERNMENT pursuant to the pros isioas of


Article 24; and/or


(b) any proceeds from the sale undertaken hv the CONTRACTOR Entity on


behalf of the GOVERNMENT pursuant to Article 28 of any Crude Oil to


which the GOVERNMENT is entitled pursuant to Article 25; and/or


(c) any Production Bonus.


to a fund for revenue sharing, which may in due course be established by legislation


consistent with the Constitution of Iraq, between the Government of Iraq and other


regions (including the Kurdistan Region) ami goxemoiatcs of Iraq. Nothing in this


Article 29.2 shall be understood as implxing any contractual relationship or other


relationship between the CONTRACTOR and/or any CONTRACTOR Entity and


the Government of Iraq and/or the regions of Iraq (other than the Kurdistan Region)


and/or and go't morales of Iraq.








64/118


29.3 Any payment due by the GOVERNMENT to a CONTRACTOR Entity shall Ik


offset against future payments due by such CONTRACTOR Entity to the


GOVERNMENT, or paid in Dollars to the bank account designated by the


CONTRACTOR Entity in writing and shall be paid within thirty (30) days of the


date of invoice, after which interest coni|Kuinded monthly at the rate of LIBOR plus


two (2| percentage points shall be applied.


29.4 Any currency conversion to be made under this Contract shall be at the exchange rate


of the Central Bank of Iraq, provided such exchange rate applied to the


CONTRACTOR Entities shall not be less favourable than the rate offered by other


private, commercial or industrial banks in the international market. In the absence of


the Central Bank of Iraq or in the event that the Central Bank of Iraq is unable to


provide the relevant exchange rate, any currency conversion to be made under this


Contract shall be at the exchange rate of a reputable commercial bank carrying on


business in the international market and approved by the Parties.


29.5 The CONTRACTOR shall not realise any gain or loss due to exchange rate


fluctuations and, consequently, any gain or loss resulting front the exchange of


currency shall he either considered as revenue and credited to the Accounts or shall he


considered as a Petroleum Cost and shall be recovered by the CONTRACTOR in


accordance with Articles I and 25. as the case may be.


29.6 Each CONTRACTOR Entity shall at all times be entitled to freely convert into


Dollars or any other foreign currency any Iraqi dinars received in the framework of


the Petroleum Operations and to freely transfer die same Ahmad. The conversion rate


shall be as provided under .Article 29.4.


29.7 Each CONTRACTOR Entity shall have the right to be paid, receive, keep, transfer


and use Abroad, without any restrictions, all proceeds of its share of Petroleum.


29.8 Each CONTRACTOR Entity and its Subcontractor, shall have the right to freely


open and maintain bank accounts for Petroleum Operations within or outside the


Kurdistan Region and other pans of Iraq.


29.9 Each CONTRACTOR Entity shall have the right to pay m any freely convertible


currency all its financial requirements for the Petroleum Operations and to convert


these currencies to Iraqi dinars in any bank in the Kurdistan Region or mher 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 the


sale of Petroleum;


any proceeds received from other operations and activities earned out under


this Contract in the Kurdistan Region or ocher parts of Iraq.


29.11 Each CONTRACTOR Entity shall have the right to pay in any foreign currency its


SuheontnKtors and its expatriate personnel, either in the Kurdistan Region, other parts


of Iraq, or Abroad. Said Subcontractors and expatriate personnel shall be obliged to





65/118


 transfer to the Kurdistan Region the amount of foreign currency required for their


local needs and they shall base the right to repatriate the proceeds of the sale of their


belongings in accordance w ith the regulations in force in the Kurdistan Region.





29.12 Eiich CONTRACTOR Entity’s Affiliates, Subcontractors and their personnel shall


equally benefit from the same rights as such CONTRACTOR Entity and it'


personnel as regards this Article 29.


29.1.1 For the financing of Petroleum Operations, each CONTRACTOR Entity shall have


the right to have recourse to external financing from third parties or from its Affiliated


Companies on an arm’s length basis.


ARTICLE 30 - CUSTOMS PROVISIONS





30.1 All services, material, equipment, goods, consumables and products imported into the





Kurdistan Region and Other parts of Iraq by the CONTRACTOR, any


CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of any of the


foregoing, for use or consumption in the Petroleum Operations shall be admitted fiee


and exempt from any and till Taxes on import. The CONTRACTOR, any


CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of any ot the


foregoing shall have the right to re-export from the Kurdistan Region and oilier parts


of Iraq free from all Taxes on cxpoit any material, equipment, goods, consumables


and products that ate no longer required for the Petroleum Operations, except wlierc


title has passed to the GOVERNMENT in accordance with Article 20. in which case


re-ex port shall he approved by the Management Committee


30.2 The CONTRACTOR, any CONTRACTOR Entity, its Affiliates, any Subcontractor





or any agent of any of the foregoing, and their personnel (including their family


members) shall have the right to freely import into the Kurdistan Region and other


pans of Iraq and re-export from the Kurdistan Region and other parts of Iraq any


personal belongings and furniture free and exempt from any Taxes on import or


export. The sale in the Kurdistan Region and other parts of Iraq of personal


belongings and furniture of expatriate personnel shall comply w ith Kurdistan Region


Law


30.3 Each CONTRACTOR Entity and its Affiliates shall be entitled to freely export from


the Kurdistan Region and other parts of Iraq, free of any Taxes, any Petroleum to


which it is entitled pursuant to the provisions of this Contract.





30.4 The GOVERNMENT shall indemnify the CONTRACTOR, any CONTRACTOR


Entity , its Affiliates, any Subcontractor or any agent of any of the foregoing, and their


personnel (including their family members) for any import or export Taxes referred to


in Articles 30.1. 30.2 or 303.




















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O'


 ARTICLE 31 - TAX PROVISIONS





31.1 Except u.s expressly provided in this Article 31, and wiilioul prejudice to the


exemptions expressly provided for in Article 30 and in this Article 31, each


CONTRACTOR Entity, its Affiliates and any Subcontractor shall, for the entire


duration of this Contract, be exempt from all Taxes as a result of its income, assets


and activities under this Contract. The GOVERNMENT shall indemnify each


CONTRACTOR Entity upon demand ngainst any liability to pay any faxes assessed


or imposed upon such entity which relate to any of the exemptions granted by the


GOVERNMENT under this Article 31.1. and under Articles 31.4 to 31.11.


31.2 Each CONTRACTOR Entity shall be subject to corporate income tax on its income


from Petroleum Operations as provided in Article 31.3. which shall he deemed to be


inclusive and in full and total discharge of any Tax on income, receipts, revenues,


gains or profits of each such entity. Payment of the said corporate income tax shall be


made for the entire duration of this Contract directly to the official Kurdistan Region


tax authorities by the GOVERNMENT, for the account of each CONTRACTOR


Entity, from the GOVERNMENT’S share of the Profit Petroleum received pursuant


to Article 26.


Each CONTRACTOR Entity shall, within sixty (60) days after the end of each tax


year, provide a statement to the appropriate Kurdistan Region tax authorities of its


profits which are subject to corporate income tax. together with a calculation of the


amount of corporate income tax due on those profits.


The GOVERNMENT shall, within ninety (90) days after the end of each tax year,


provide to each CONTRACTOR Entity (i) the appropriate official tax receipts from


the appropriate Kurdistan Region lax authorities or other relevant authority certifying


the payment of its corporate income lax. as determined in the said statement, and that


such entity has met all its Tax obligations in the preceding tax year, and (ii) a copy of


any return or «Hhcr filing made by the GOVERNMENT in respect of its payment of


corporate income ux on behalf of such CONTRACTOR Entity.


31.3 For the purposes of Article 31.2:


(a) The rate of corporate income lax to be applied to each CONTRACTOR


Entity shall be the generally applicable rate prescribed in the law of Taxation


(Law No. 4 of 1999). passed by the National Assembly of the Kurdistan


Region, as may he amended from time to time or substituted in respect of


Petroleum Operations (as defined under the Kurdistan Region Oil and Gas


law ) by a petroleum operations taxation law for the Kurdistan Region, hut in


no event in excess of forty per cent (40%). The Parties acknowledge and agree


that ,il the Effective Date of this Contract, the corporate income tax rate is


forty per cent (40'#) for all net taxable profits in excess of nine million Iraqi


dinar.


(b) The GOVERNMENT and the CONTRACTOR agree that corporate income


tax shall be calculated for each CONTRACTOR Entity on its net taxable


profits under the Contract, as calculated in accordance with the provisions


relating thereto in the Accounting Procedure.





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31 4 Each CONTRACTOR Entity. its Affiliate as well a\ any Subcontractors shall be


exempt from any withholding tax applicable on any payments made to them or by


them to or from Affiliates or third parties, whether inside or outside the Kurdistan


Region and/or Iraq, for the entire duraiion 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 I a* or


any successor Tax.


31.6 Each CONTRACTOR Entity and its Affiliates shall be exempt from Surface Tax. as





referred to in Article 40 of the Kurdistan Region Oil and Gas Law or any successor


Tax.





31.7 Each CON TRACTOR Entity and its Affiliates shall be exempt from Windfall Profits


Taxes, as referred to in Article 40 of the Kurdistan Region Oil and Gas Law or any


.successor Tax.


31.8 Each CONTRACTOR Entity and any Subcontractor shall he subject to the payment


or withholding of the personal income tax and social security contributions for which


such entity or Subcontractor is liable to pay or withhold in respect of its employees


who are Iraqi nationals, pursuant to the Law of Taxation (Law No. 4 of 1999) passed


l>v the National Assembly of the Kurdistan Region, as may be amended from time to


time, in the same manner as the same shall be generally applied to all other industries,


except that a CONTRACTOR Entity or Subcontractor shall not be liable for such


taxes or contributions with respect to employees of another Person.


31.9 It is acknowledged that double tax treaties will have effect to give relief from taxes to.





but not limited to. the CONTRACTOR. (OVIRMTOR I unties. Subcontractors


and employees and other Persons in 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 as a Petroleum Cost and shall be





cost recovered in accordance with the provisions of Articles I 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 he cost recovered


in accordance with the provisions of Articles I and 25.


31.12 Notwithstanding any other provision to the contrary in this Contract, the Parties


acknowledge and agree that the provisions of this Anicle 31 shall apply individually


and separately to all CONTRACTOR Entities under this Contract and that there shall


be no joint and several liability in respect of any liability, duty or obligation referred


to in this .Article 31.





ARTICLE 32 - BONUSES





Signature Bonus


32.1 A signature bonus of Ten Million Dollars (US$10,000,000) (“Signature Bonus ’)


shall be payable to the GOVERNMENT by the CONTRACTOR within thirty (30)


days of the Effective Date.





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9


CapflvHy PujhliHK )ton>is





32.2 A capaciiy building bonus of Ten Million Dollars (l'SSI0.000.000) ("Capacity


Building Bonus ) shall be payable to the GOVERNMENT by the CONTRACTOR


within thirty (30) days of the Effective Date.


Production Bonuses


32.3 In the event of a Crude Oil Commercial Discovery, the CONTRACTOR shall pay





the following relevant Crude Oil Production Bonus to the GOVERNMENT within


thirty (30) days of the following relevant occurrence:





(a) two point five million Dollars (US $2,500,000) when First Production of


Crude Oil front the Contract Area commences:


(b) live million Dollars (US $5,000,000) when production of Crude Oil from the


Contract Area reaches a cumulative amount of ten million Barrels of Crude


Oil (10 mmbo);


(c) ten million Dollars (US $10,000,000) when production of Crude Oil from the


Contract Area reaches a cumulative amount of twenty five million Barrels of


Crude Oil (25 mmbo); and


(d) twenty million Dollars (US $20,000,000) when production of Crude Oil from


the Contract Area reaches a cumulative amount of fifty million Barrels of


Crude Oil (50 mmbo).


32 4 In the event of a Noo-Associated Natural Gas Commercial Discovery, the


CONTRACTOR shall pay the following relevant Non Associated Natural Gas


Production Bonus to the GOVERNMENT within thirty (30) days of the following


relevant occurrence:


(a) two point five million Dollars (US S’.500.000) w hen First Production of Non-


Associatcd Natural Gas from the Contract Area commences:


(b) fisc million Dollars (US S5.000.00O) when production of Noo-Associatcd





Natural Gas from the Contract Area reaches a curnuialive amount of ten


million barrels of oil equivalent (10 inniboc);


(c) ten million Dollars (US Sl0.000.000> when production of Non-Associated





Natural Gas from the Contract Area reaches a cumulative amount of twenty


five million barrels of oil equivalent (25 mmboc); and


(d) twenty million Dollars (US S20.000.000) when production of Non-Associated





Natural Gas from the Contract Area reaches a cumulative amount of fifty


million barrels of oil equivalent (50 mmboc).


32.5 For the purposes of this Article 32. a Commercial Discovery shall be 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 Commercial Discovery.





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9


Bonus cosl recovery and payment





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


32.7 Payment by the CONTRACTOR of any bonus due pursuant to this Article 32 shall


be made in Dollars by wire transfer to a specified bank account of the


GOVERNMENT or by banker's drafi and on receipt thereof the GOVERNMENT


shall forthwith issue a written receipt to the CONTRACTOR duly executed by the


Minister of Natural Resources of the GOVERNMENT or such other officer of the


GOVERNMENT who shall be duly authorised to issue such receipt under Kurdistan


Region Low.


ARTICLE 33 - PIPELINES





33.1 Hie GOVERNMENT shall obtain any required Permits for the transportation of


Petroleum in the Kurdistan Region and in Iraq, ns well 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 undertakes to transfer to the CONTRACTOR its rights for


transportation of Petroleum by pipeline. The CONTRACTOR shall have the right to


design, construct, operate and maintain pipelines and any related facilities for the


transportation of Petroleum produced under this Contract.


33.3 Prior to the construction of any pipeline and rclutcd facilities as provided in Anicle


33.2. live CONTRACTOR shall submit following information to the Management


Committee:


(a) proposed pipeline route and related facilities;





(b) forecasted pipeline flow rate and capacity.


(c) estimate of fnunci jI investment and operating costs of the pipeline and related


facilities:


(d) proposed financing schedule;





(e) construction schedule;


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


(g) construction plans and tests;





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


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


The Management Committee shall examine all the above information and shall within


ninety (90) days, approve the proposed pipeline project in accordance with the


provisions of .Article 8.5.








70.118 CQ5.





33.4 Subject Jo spare capacity being available and to their Petroleum being compatible,


third parties shall be entitled to transport their Petroleum through any pipeline


constructed by the CONTRACTOR in accordance with this Article 33 on terms to be


agreed between the CONTRACTOR and such third party. I'hosc terms shall be


reasonable commercial terms and shall not discriminate among third party users. The


CONTRACTOR shall always have priority of access to such pipelines





33.5 To the extent that they are incurred upstream of the Delivery Point, any costs


associated with the design, construction, operation and maintenance of the pipelines


and related facilities by CONTRACTOR under this Article 33 (‘ Pipeline Costs”)


shall be considered Petroleum Costs and shall Ire recovered by the CONTRACTOR


in accordance with the provisions of Aiticlcs I and 25.


33.6 The CONTRACTOR shall have the absolute right, without any exceptions and for


the entire duration of this Contract, to use, free of charge, any pipeline and related


facilities constructed by CONTRACTOR under this Article 33 and to transport


Petroleum produced from any Production Area and to operate and maintain any


pipeline and its related facilities, freely and without any additional costs.


33.7 To the extent related to transportation upstream of the Delivery Point, any tariffs


received from third parlies foi use of any pipeline and related facilities by


CONTRACTOR under this Article 33 shall he applied to the recovery of Petroleum


Costs until all Pipeline Costs have been fully recovered by the CONTRACTOR


pursuant to tire provisions of Articles I and 25 and shall not be included in income for


corporate income lux purposes. The GOVERNMENT shall be entitled to receive


any such tariffs from thud parties for their use of such pipeline and related facilities


when the said Pipeline Costs have been fully recovered by the CONTRACTOR. The


costs associated with providing such transportation services for third parties up to the


Delivery Point shall be considered Pipeline Costs and therefore Petroleum Costs and


shall be recovered by the CONTRACTOR in accordance with the provisions of


Articles I and 25.


33.K Upon recovery by the CONTRACTOR of all the Pipeline Costs, the operatmg and


maintenance costs of any pipeline and its related facilities shall he borne by the


CON TRACTOR and shall be considered Petroleum Costs and shall be recovered by


the CON TRACTOR in accordance with the provisions of Articles I and 25


33.9 The GOVERNMENT shall have ihe same rights as the CON TRACTOR foe use.


free of charge, of any pipeline and related facilities constructed by CO VCR \( 'TOR


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 CON TRACTOR


Entity poiMiant to Article 4. it shall he liable for its share of Petroleum Costs.


33.10 The CONTRACTOR 'hall hear the cost of operation and maintenance of any


pipeline ami 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 arc required for Petroleum Operations.














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 ARTICLE 34 - UNITISATION





34.1 In the event a Reservoir extends beyond the Contract .Area into an ad)acent area which


is the subject of another Petroleum Contract (as defined by the Kurdistan Region Oil


and Gas Law) (an "Adjacent Contract Area"), or in the event a Reservoir of an


Adjacent Contract Area extends into the Contract Area, the provisions of Article 47.


Paragraph Second of the Kurdistan Region Oil and Gas I .aw shall apply and the


GOVERNMENT shall require the CONTRACTOR and the contractor of the


Adjacent Contract Area to agree upon a schedule for reaching agreement of the terms


of the unitisation of the Reservoir, which terms shall be based on reliable technical,


operational and economical parameters, all in accordance with prudent international


petroleum industry practice. In the event that the Minister of Natural Resources


decides the unitisation pursuant to Article 47. Paragraph Third of the Kurdistan


Region Oil and Gas Law. and if the CONTRACTOR does not agree with the


decision of the Minister of Natural Resources, the CONTRACTOR shall he entitled


to arbitration pursuant to the provisions of .Article 42.1.


34 2 Per clarification and the avoidance of doubt and notwithstanding Article 47 of the


Kurdistan Region Oil and Gas Law. in the event that a Reservoir extends beyond the


boundaries of the Contract Area into an adjacent area which is not the subject of


another Petroleum Contract (as defined by the Kurdistan Region Oil and Gas Law),


the GOVERNMENT shall, upon the CONTRACTOR S request, take the necessary


steps to extend the boundaries of Contract Area so as to include the entire Reservoir


within the Contract Area, provided that the CONTRACTOR can offer the


GOVERNMENT a competitive minimum work program for such adjacent area.





ARTICLE 35-LIABILITY AND INSURANCE





Liability


35.1 Subject to the other provisions of this Contract, the CONTRACTOR, in its capacity


as the entity responsible for the execution of the Petroleum Operations within the


Contract Area, shall be liable to third patties to the extent provided under applicable


Law for any losses and damage it may cause to them in conducting the Petroleum


Operations, and shall defend, indemnify and hold harmless the GOVERNMENT


w ith respect to all claims for such loss or damage.


35.2 Notwithstanding the other provisions of this Contract, the CONTRACTOR and the


CONTRACTOR Entities shall not he liable to the GOVERNMENT or the Public


Company or other government agencies, authorities or bodies, courts or political


subdivisions for any damage or loss or claims of any kind resulting from its conduct


of the Petroleum Operations unless such damage or loss is the result of wilful


misconduct or a material failure to conduct Petroleum Operations in accordance with


the terms of this Contract; provided, however, that such liability cannot result in the


event of any omissions, errors or mistakes committed in good faith by the


CONTRACTOR in the exercise of the powers and authorisations conferred upon 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 or damage whatsoever or any loss, damages, costs.





72/1IX


expenses or liabilities caused (directly or indirectly) by any of the following arising


out of. relating to. or connected with this Contract or the Petroleum Operations carried


out under this Contract: (i) reservoir or formation damage; (ii) inability to produce,


use or dispose of Petroleum; (m) loss or deferment of income;

damages; or (v) other indirect damages or losses whether or not similar to (he


foregoing.


35.3 The CONTRACTOR shall indemnify and hold harmless the GOVERNMENT


against all losses, damages and liability arising under any claim, demand, action or


proceeding brought or instituted against the GOVERNMENT by any employee of


the CONTRACTOR or of any Subcontractor or by any dependent thereof, for


personal injuries, industrial illness, death or damage to personal properly sustained in


connection with, related to or arising out of the performance or non-performance of


this Contract regardless of the fault or negligence in w hole or in party of any entity or


individual.


354 Notwithstanding Article 35.1. ihe GOVERNMENT shall indemnify and hold


harmless the CONT RACTOR and the CONTRACTOR Entities against all losses,


damages and liability arising under any claim, demand, action or proceeding brought


or instituted against the CONTRACTOR or any CONTRACTOR Emily by any


employee of the GOVERNMENT or of any Public Company or of any subcontractor


of the foregoing or by any dependent of any such employee, for personal injuries,


industrial illness, death or damage to personal property sustained in connection with,


related to or arising out of the performance or non-performance of this Contract


regardless of the fault or negligence in whole or in pan of any entity or individual


35.5 The CONTRACTOR shall take all necessary steps to respond to. and shall promptly


notify the GOVERNMENT of. all emergency and other events (including


explosions, leaks and spills), occurring in relation to the Petroleum Operations which


arc causing or likely to cause material environmental Jamagc or material risk to


health and safely. Such notice shall include a summary description of the


circumstances and steps taken and planned by the CONTRACTOR to control and


remedy the situation. The CONTRACTOR shall provide such additional reports to


the GOVERNMENT as are reasonably necessary in respect of the effects of such


events and ihe course of all actions taken to prevent further loss and to mitigate


deleterious effects.


35.6 In the event of emergency situations as set out in .Article 35.4 . at the request of the


CONTRACTOR the GOVERNMENT, without prejudice and in addition to any


indemnification obligations the GOVERNMENT may have, shall assist the


CONTRACTOR, to the extent possible, in any emergency response, remedial or


repair effort by making available any labour, materials and equipment in reasonable


quantities requested by the CONTRACTOR which 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 he


considered Petroleum Costs and shall be recovered by the CONTRACTOR in


accordance with the provisions of .Articles I and 25.








73/118


35 7 ll>c GOVERNMENT shall indemnify and hold harmless the CONTRACTOR and


cadi 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.








35 8 In accordance with prudent international petroleum industry practice, each


CONTRACTOR Entity shall maintain any insurance required by applicable


Kurdistan Region Law. as wdl as any insurance approved by the Management


Committee.


Such insurance policies may cover


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


Operations; and


(b) personal injury , damage to third parties and risks of pollution associated with


Petroleum Operations for reasonable amounts, within the limits approved by


the Management Committee.


35.9 Any insurance policy relating to this Contract shall name the GOVERNMENT as an


additional insured pans and shall include a waiver of subrogation protecting the


GOVERNMENT against any claim, loss and damage resulting from any Petroleum


Operation conducted by or on behalf of the CON IKACTOR under this Contract, to


the extent that the CONTRACTOR is liable for such claim, loss or damage under


this Contract. Hie CONTRACTOR shall not he liable for and shall not purchase


insurance cover for uny claims arising from negligence or wilful misconduct of the


GOVERNMENT or of any Public Company or of any of its or their subcontractors


or of any personnel of any of the foregoing.


35.10 Upon its written request, the GOVERNMENT shall be provided with insurance


certificates, including necessary details, for any insurance policy maintained by the


CONTRACTOR which relates to this Contract.


35.11 Each CONTRACTOR Entity shall be responsible for the tiling of all claims made


under any insurance policy maintained by such CONTRACTOR Entity which relates


to this Contract. Any premiums and payments relating to such insurance policies shall


be considered Petroleum Costs and shall I* recovered by the CONTRACTOR in


accordance with the provisions of Art icles I and 25.


35.12 In any insurance policy maintained by a CONTRACTOR Entity which relates to this


Contract, the amount for which the CONTRACTOR itself is liable (the "Deductible


Amount") shall be reasonably determined between the CONTRACTOR Entity and


the insurer and such Deductible Amount shall in the event of any insurance claim be


considered a Petroleum Cost and shall be recovered by the CONTRACTOR in


accordance with the provisions of Articles I and 25.














74/118


 ARTICLE 36 - INFORMATION AND CONFIDENTIALITY





36.1 The CONTRACTOR shall keep all records, dam and information relating to the


Petroleum Operations in accordance with the Kurdistan Region Oil and Gas Law and


prudent international petroleum industry practice. In addition, it shall provide the


GOVERNMENT with such information and data as it is obliged to provide under


(his Contract.


36.2 I Ipon the GOVERNMENT'S written request, the CONTRACTOR shall provide the


GOVERNMENT with samples of any rocks or any other items extracted during the


Petroleum Operations.


36.3 The GOVERNMENT shall have title to all dam and information, whether raw.


derived, processed, interpreted or analysed, obtained pursuant to this Contract.


36.4 Each CONTRACTOR Entity shall have the right, without any limitation, to send


Abroad copies of all reports and technical data, magnetic tapes and other data relating


to the Petroleum Operations. Magnetic tapes or other data, the original of which must


he analysed and processed Abroad, may he transported out of the Kurdistan Region.


36.5 Any representatives authorised by the GOVERNMENT and notified to the


CONTRACTOR shall, upon reasonable prior written notice, have reasonable access


to any information and data relating to the Contract Area in the possession of the


CONTRACTOR which the CONTRACTOR is obliged to provide to the


GOVERNMENT pursuant to this Contract. It is understood that, when exercising


such right, the GOVERNMENT dull ensure ii does not unduly interfere with or


hinder the CONTRACTOR’S rights and activities.


366 The CONTRACTOR shall provide the GOVERNMENT upon the


GOVERNMENTs written request any analysis information, reports, tapes or other


data (geological, geophysical, logs, interpretations, drilling reports, etc ) related to the


Petroleum Operations m the possession of the CONTRACTOR All available


originals of such dam shall be transferred to the GOV ERNMENT at the end of this


Contract.


36.7 Apart from the exceptions staled in this Article 36, the Parties undertake to keep all


data and information relating to this Contract and the Petroleum Operations


confidential during the entire term of this Contract and not to divulge or disclose such


data or information to third parlies without the specific consent of the other Parties,


such consent not to he unreasonably withheld or delayed. The foiegoing


confidentiality obligation shall nor apply to information or data which:


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


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


(c) is required to he furnished in compliance with any applicable Law. by a


government agency having jurisdiction over a CONTRACTOR Entity, by a


court order or any other legal proceedings; or








73/118


(d) is required to he disclosed pursuant to the rules or regulations of any


government or recognised stock exchange having jurisdiction over a


CONTRACTOR Entity.


36 8 Notwithstanding the foregoing in Article 36.7. in accordance with prudent


international petroleum industry practice, such data and information may he disclosed


to:


(a) Affiliates of each CONTRACTOR Entity;


(b) employees, officers and directors of each CON IRACTOR Entity and ihcir


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 (.'ONTKAC.TOR Entity or its Affiliates


for the purpose of analysing or evaluating information or data;


(d) bunks or financial institutions retained by any CONTRACTOR Entity 01 its


Affiliates with a view to financing Petroleum Operations, including any


professional consultants retained by such hank or financial institution;


(e) bona fide prospective assignees of a participating interest under this Contract


(including any entity with whom u CONTRACTOR Entity and/or its


Affiliates arc conducting Ixma fide negotiations directed towards a merger,


consolidation or the sale of a material portion of its or an Affiliates shares);


(0 prospective or actual Subcontractors and suppliers engaged by a Party where


disclosure of such information is essential to such Subcontractor’s or


supplier’s work for such Party, and


(g) any other Person or entity, upon the prior written approval of the non¬


disclosing Parties.


provided that disclosure shall not he made pursuant to paragraphs (c). (d). (c) and (0.


unless such third parly has entered into a confidentiality undertaking


36.9 Any data and information relating to relinquished or surrendered areas under this


Contract shall become the exclusive property of the GOVERNMENT, who shall


have the right to use same for any purpose, in particular for the purpose of promoting


said areas Each CONTRACTOR Entity shall be entitled to keep copies of such data


and information and to use such data and information for any purpose.


36.10 Subject to the pros isions 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’S reasonable opinion, such sale or exchange would


benefit the Petmlcum Operations.














76/118


 ARTICLE 37 - ENVIRONMENTAL PROVISIONS





37.1 During the performance of the Petroleum Operations, the CONTRACTOR shall take


reasonable measures to ensure that it. the Operator, its Subcontractors and agents


attend to the protection of the environment and prevention of pollution, in accordance


with prudent international petroleum industry practice in similar physical and


ecological environments and any then applicable Kurdistan Region I .aw.


37.2 Prior to surrendering a portion of the Contract Area, the CONTRACTOR shall take





reasonable measures to abandon tire area to be surrendered in accordance with prudent


international petroleum industry practice in similar physical and ecological


environments. Such measures shall include removal or closure in place of facilities,


material and equipment together with reasonable measures necessary for the


preservation of fauna, flora and ecosystems, all in accordance with prudent


international petroleum industry practice in similar physical and ecological


environments. Hie 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 environments to prevent any pollution which may arise directly as a result


of the Petroleum Operations and to protect the environment (fauna and flora), water


sources and any other natural resources when carry ing 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 Cloying 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 arise directly as a


result of the Petroleum Operations, in accordance with prudent international


petroleum industry practice in similar physical and ecological environments.


37.7 The GOVERNMENT: (i) represents ami warrants that, on the Effective Dale, there





arc no national parks, nature reserves or other protected areas located in whole or m


part within the Contract Area where the CONTRACTOR shall not be entitled to


curry out Petroleum Operations and (ii> covenants that during the term of this


Contract will not designate or create or permit the creation of any national parks,


nature reserves or other protected areas, located in whole or in part within the


Contract Area.














77/11H





*


Expenditures


37.8 Any reasonable expenditure incurred by the CONTRACTOR in relation with this


Article 37 shall be deemed Petroleum Costs and shall be recovered by the


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


Prc-cxistlne Conditions


37.9 The CONTRACTOR is not responsible for any pre-existing environmental


conditions or any acts of unrelated third panics.





ARTICLE 38 - DECOMMISSIONING


38.1 To enable the CONTRACTOR to recover the costs associated with future Contract


Area Decommissioning Operations under this Contract, the CONTRACTOR shall


have the right to establish a reserve fund for future decommissioning and site


restoration (a "Decommissioning Reserve Fund"). The Decommissioning Reserve


hind may be established at any time during the final ten (10) Calendar Years of the


term of the Production Operations of a Production Area but, upon the reasonable


request by the CONTRACTOR, the GOVERNMENT shall allow the


CONTRACTOR to establish such fund over a longer period. Once established, the


CONTRACTOR shall make regular contributions to the Decommissioning Reserve


Fund based upon estimated Petroleum Field decommissioning and site restoration


costs m accordance with prudent international petroleum industry practice, and taking


into account interest received and future interest expected to he earned on the


Decommissioning Reserve Fund. Any contributions by the CONTRACTOR to the


Decommissioning Reserve Fund shall be made in Dollars and shall he deemed


Petroleum Costs when paid into the reserve fund, and shall he recovered by the


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


Contributions to the Decommissioning Reserve Fund shall be placed with a first rate


bank approved by the Management Committee in accordance with Article 8.5.


38.2 If. at the end of the term of the Production Operations of the Production Area, the


GOVERNMENT decides to take oser production operations in ihc Production Area:


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


Operations;


(b) the contributions and any interest accumulated in the Decommissioning


Reserve Fund, to the extent that such contributions have been recovered as


Petroleum Costs, shall be paid to the GOVERNMENT; and


(c) the GOVERNMENT shall release the CONTRACTOR and Ihc


CONTRACTOR Entities from any obligations relating to Decommissioning


Operations and shall indemnify the CONTRACTOR and the


CONTRACTOR Entities for any costs, liabilities, expenses, claims or


obligations associated therewith.


38.3 If the CONTRACTOR undertakes the Production Area Decommissioning


Operations, the contributions and any interest accumulated in the Decommissioning


Reserve Fund shall he paid to the CONTRACTOR and shall be used for the





7W118


Decommissioning Operations. The CONTRACTOR shall underlake any such


Decommissioning Operations in accordance with prudent international petroleum


industry practice in similar physical and ecological environments.


38.4 It the Decommissioning Reserve Fund is paid to the CONTRACTOR and the


Decommissioning Reserve Fund is not sufficient to cover all Decommissioning Costs


for tile Contract Area, the balance shall be paid by the CONTRACTOR and may be


recovered, if applicable, by the CONTRACTOR Entities or any of their Affiliates


from any other area which is the subject of another Petroleum Contract (as defined by


the Kurdistan Region Oil and Gas 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 It the Decommissioning Reserve Fund is paid to the CONTRACTOR and the


Decommissioning Reserve Fund exceeds all Decommissioning Costs for the Contract


Area, the balance shall he transferred to the GOVERNMENT.


38.6 Any expenditure incurred by the CONTRACTOR in relation with this Article 38.


including any contributions to the Decommissioning Reserve Fund, shall be deemed


Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with


the provisions of Articles I and 25.


38.7 The CONTRACTOR shall submit to the Management Committee for approval in


accordance with Article 8.5 a detailed plan for decommissioning the Contract Area


facilities and site restoration (the "Decommissioning Plun'T. such Decommissioning


Plan to be submitted no later than twenty four (24) Months prior to the date estimated


by the CONTRACTOR for the end of Commercial Production from the Contract


Area The Management Committee shall preside comments, if any. on the


Decommissioning Plan w ithin ninety (90) days after receipt. The CONTRACTOR’S


completion of the Decommissioning Operations in accordance, in all material


respects, with the Decommissioning Plan for a Production Area appnned 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 docs not agree that Decommissioning Operations


for a Production .Area were carried out in accordance with the approved


Decommissioning Plan, it must advise the CONTRACTOR within six (6) months of


CONTRACTOR’S completion of such operations.








ARTICLE 39 - ASSIGNMENT AND CHANGE OF CONTROL








Asm UUUl I to Affiliates





39.1 Each CONTRACTOR Entity shall be free to sell, assign, transfer or otherwise


dispose of all or pan of its rights, obligations and interests under this Contract to an


Affiliated Company or to another CONTRACTOR Entity with the poor consent of


the GOVERNMENT, which consent shall not be unreasonably delayed or withheld.

















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Assignment to Third Pai U.s





39.2 Each CONTRACTOR Entity shall have ihc right to sell, assign, transfer or otherwise


dispose of all or part of its rights and interests under this Contract to any third party


(not being an Affiliated Company or another CONTRACTOR Entity) with the prior


consent of GOVERNMENT, and each other CONTRACTOR Entity (if any) which


consent shall not l>e unreasonably delayed or withheld. Any CONTRACTOR Entity


proposing to sell, assign, transfer or otherwise dispose of all or part of its rights and


interests under this Contract to any such third party shall request such consent in


writing, which request shall be accompanied by reasonable evidence of the technical


and financial capability of the proposed third party assignee. In the event that the


Ihird Party Participant with a I hir'd Party Intcresi subject to Article 4.8 proposes to


sell, assign, transfer or otherwise dispose of all or part of such I hird Party Interest to a


Person that is not an Affiliate, such Third Party Participant shall first offer to both the


other CONTRACTOR Entity (01. if applicable. CONTRACTOR Emilies) and to


the GOVERNMENT pre-emption rights in relation to such Third Party Interest, or


pan thereof. Such pre emption rights shall be offered on terms that are at least as


favourable us the terms upon which the Third Party Interest (or part thereof) has been


offered to the interested Person. Any option by the GOVERNMENT to utilise* such


pre-emption lights shall be subject to the maximum participation limit imposed upon


a Government Interest by Article 4.1. Furthermore, any sale, assignment, transfer oi


other disposal by the ITiird Party Participant shall be subject to the minimum


participation requirements imposed upon the Third Party Participant by Article 4.8.


unless such sale, assignment, transfer or other disposal is of tin- entire Third Party


Interest taken pursuant to Article 4.8.


39.3 In order for any deed of sale, assignment, transfer or other disposal as provided under


Articles 39.1 or 39.2 to he effective, die Parties and the relevant third party, if any.


shall enter into a binding and enforceable instrument of alignment and novation,


which shall include an undertaking by the transferee or assignee to fulfil the


obligations under this Contract which correspond to the interest transferred or


assigned.


39.4 By way of clarification, and not in limitation of the foregoing provisions of this


Article 39. the GOVERNMENT shall not be considered to be acting unreasonably in


withholding consent to any such assignment if the assignment to such proposed


assignee is deemed contrary to the GOVERNMENT'S interests, as evidenced in


writing to that effect signed by the duly authorised representative of the


GOVERNMENT below.


395 In die event a CONTRACTOR Entity assigns or in any other w ay transfers its rights


and interests under this Contract, including through the exercise of the Option of


Government Participation or the Option of Thud Party Participation, whether in


whole or in part, such assignment or transfer shall not give rise to any Tax. including


on Ihc consideration paid or received or on the income or gain therefrom.


39.6 The GOVERNMENT may not at any time transfer any or all its rights and


obligations under this Contract to any Person, including to a Public Company or any


other company or entity, except in accordance with Article 4.


39.7 “Change of Control" for the purpose of this Article 39.7 means any direct or indirect


change of the identity to the Person who Controls a CONTRACTOR Entity (whether


through merger, sale of shares or of other equity interests, or otherwise) through a


single transaction or series of transactions, from one or more transferors to one or


more transferees, in which lire market value of such entity's participating interest


(which shall be as specified in the Joint Operating Agreement relating to this


Contract, or where there is only one CONTRACTOR Entity, one hundred (100%)


per cent) 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 tire 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 tire GOVERNMENT as soon as


practicable after it becomes aware of the Change in Control or anticipated Change in


Control and request the consent of GOVERNMENT, which consent shall not Ire


unreasonably delayed or withheld.


A Change in Control shall not give rise to any Tax including on the consideration paid


or received or on the income or gain therefrom.


Comfort letter


39.8 The ultimate parent company of OMV Petroleum Exploration GmbH has issued a


comfort letter attached in Annex D


ARTICLE 40 - FORCE MAJEHRE


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


of its obligations under this Contract shall be considered a failure to perform this


Contract or bo the subject of a dispute if such delay, default, breach or omission is due


to a case of Force Majcure. In such event the CON TRACTOR shall promptly notify


the GOVERNMENT in writing and take all reasonably appropriate measures to


perform its obligations under this Contract to the extent possible, l ire time resulting


from any such delay or curtailment in the execution of such obligations, increased by


the time necessary to repair any damage resulting from oi occurred during such delay


or curtailment, shall Ire added to any time period provided under this Contract


(including ihc Exploration Period and any extension thereto, any Sub-Period and any


extension thereto and any Development Period and any extension thereto). The Parties


shall meet as soon as possible after the notification of Force Majcure with a view to


using reasonable endeavours to mitigate the effects thereof


40.2 For the purpose of this Contract. "Force Majcure" means any event that is


unforeseeable, insurmountable and irresistible, not due to any error or omission by the


CONTRACTOR bu( due to circumstances beyond its control, which prevents or


impedes execution of all or part of its obligations under this Contract. Such events


shall include the following:


(a) war. whether declared or not, civil war, insurrection, riots, civil commotion,


terrorism, any other hostile acts, wltciher internal or external;


(hi strikes or other labour conflicts;


(c) accidents or blowouts:


(d) quarantine restrictions or epidemics;


(c) any act, event, happening or occurrence due to natural causes, in particular,


hut without limitation, floods. storms, cyclones, fires, lightning, or


earthquakes;


(f) environmental restrictions, which the GOVKRNMKNT has not notified to the


CONTRACTOR;


(g) except in respect of Ihc GOVERNMENT and/or any Public Company which


may be a CONTRACTOR Entity, any acts or orders of the


GOVERNMENT, any minister, ministry, department, sub-division, agency,


authority, council, committee, or other Constituent element thereof, any


corporation owned and/or controlled by the any of the foregoing; and


(h) any acts or orders of any other government claiming or asserting jurisdiction


over the subject matter of this Contract, any minister, ministry, department,


sub division, agency, authority, council, committee, or other constituent


element thereof, or any corporation owned and/or controlled by any ot the


foregoing,


40.3 The intention of the Parties is that Force Majeure shall receive the interpretation that


complies most with prudent international petroleum industry practice. Force Majeure


affecting a CONTRACTOR Entity or an Affiliated Company of a CONTRACTOR


Entity shall be deemed Force Majeure affecting the CONTRACTOR it the


consequence of such Force Majeure prevents the performance of any of the


CONTRACTOR’S obligations under this Contract.





ARTICLE 41 - WAIVER OF SOVEREIGN IMMUNITY


The GOVERNMENT and any Public Company which may be a CONTRACTOR Entity ot


any time hereby fully and irrevocably waives any claim to immunity for itself or any of its


assets.


This waiver includes any claim to immunity from:


(a) any expert deiermination, mediation, or arbitration proceedings commenced pursuant


to Article 42;











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(b) any judicial, administrative or other proceedings to aid the expert determination,


mediation, or arbitration proceedings commenced pursuant to Article 42; and





any effort to confirm, enforce or execute any decision, settlement, award, judgment,


service of process, execution order or attachment (including pre-judgment attachment)


that results from an expert determination, mediation, arbitration or any judicial,


administrative or other proceedings commenced pursuant to this Contract.








ARTICI.K 42 - ARBITRATION AND EXPERT DETERMINATION


Negotiation, Mediation and Arbitration





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 based on contract, tort, statute,


regulation or otherwise) arising out of. relating to. or connected with this Contract or


the operations carried out under this Contract, including any dispute as the


construction, existence, validity, interpretation, enforceability, breach or termination


of this Contract, which arises between tl>c Parties (or between any one or more


entities constituting the CONTRACTOR and the GOVERNMENT).





In the event of a Dispute, the parties to the Dispute shall use their reasonable


endeavours to negotiate promptly in good laitlt a mutually acceptable resolution of


such Dispute.


Subject to the provisions of Article 42.2. a Party who desires to submit a Dispute for





resolution which has not been promptly resolved as aforesaid shall commence the


dispute resolution process by prov iding the other parties to the Dispute written notice


of the Dispute ("Notice of Dispute"*. The Notice of Dispute shall identify the parties


to the Dispute, shall contain a brief statement of the nature of the Dispute and live


relief requested and shall request negotiations among Senior Representatives.





(a) In the event that any Notice of Dispute is given in accordance u ith this Article


42.1. the parties to the Dispute shall first seek settlement of the dispute by


negotiation between Senior Representatives. "Senior Representative' means


any individual who has authority to negotiate the settlement of the Dispute for


a party to the Dispute, which for the GOVERNMENT shall mean the


Minister of Natural Resources. Within thirty (30) days after the date of


delivery of the Notice of Dispute, the Senior Representatives representing the


parties to the Dispute shall meet at a mutually acceptable date, lime and place


to exchange relevant information in an attempt to resolve the Dispute. If a


Senior Representative intends to he accompanied at the meeting by a legal


adviser, each other parly shall be given written notice of such intention and its


Senior Representative may alv* be accompanied at the meeting by a legal


adviser.


(b) If the Dispute cannot be resolved by negotiation in accordance with Article


42.1 (a) within sixty (60) days after the date of the receipt by each party to the


Dispute of the Notice of Dispute or such further period as the parties to the


Dispute may agree in writing, any party to the Dispute may seek settlement of


the dispute by mediation in accordance with the London Court of International








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Q


Arbitration ("LCIA") Mediation Procedure, which Procedure shall be deemed


to he incorporated by reference into this Article, and the parties to such


Dispute shall submit to such mediation procedure.


(c) If the Dispute is not settled within the earlier of (A) sixty (60) days of the


appointment of the mediator, or such further period as the panics to the


Dispute may otherwise agree in writing under the mediation procedure under


Article 42.1 (b). and (B) oik- hundred and twenty (120) days after the delivery


of the Dispute Notice, any party to the Dispute may refer the Dispute to, and


seek final resolution by. arbitration under the LCIA Rules, which Rules shall


be deemed to he incorporated by reference into this Article.


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


(ii) If the parties to the Dispute arc the GOVERNMENT and all the


CONTRACTOR Entities, the GOVERNMENT and the


CONTRACTOR shall each appoint one (I» arbitrator. If the parties to


the Dispute are the GOVERNMENT and more than one. but not all


the CONTRACTOR Entities the GOVERNMENT shall appoint


one (I) arbitrator and such CONTRACTOR Entities shall appoint one


(1) arbitrator. If the parties to the Dispute arc the GOVERNMENT


and one CONTRACTOR Entity, the GOVERNMENT and such


CONTRACTOR Entity shall each appoint one (I) arbitrator.


(iii) In any event, the two arbitrators so appointed shall, in good faith, use


all reasonable endeavour to agree on the appointment of the third


arbitrator, who will chair llie arbitral tribunal. In ease of failure to


appoint an arbitrator or to agree on the appointment of the third


arbitrator. Rules of the LCIA shall apply.


(vi) Arbitration shall take place in Ixmdon. England. Tbc language to be


used in any prior negotiation, mediation and in the arbitration shall be


English. During the arbitration procedure and until rhe arbitral


decision, the Parties shall continue to perform their obligations and


take 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 exprcsxrd in Dollars.


(v) The Parties agree that the arbitral award shall be final and not subject


to any appeal, including to the Courts of England on issues of Law.


(vi) With respect to any matter referred to arbitration under Article 43.4.


the arbitral tribunal shall have the authority to amend this Contract to


res!ore the economic position referred to in .Article 43.3.


Expert Determination


42.2 Any disagreement between the Parties relating to Articles 15.9. 27.2 and 27.9. as well


as any disagreement the Parties agree to refer to an expert, shall be submitted lo an


expert. The Management Committee shall prepare and agree appropriate terms of








84/118


 reference relating to the disagreement lo be submitted to the expert, in accordance


with Article 8.5 (“Terms of Reference"), as soon as possible after the Effective Date


(a) The disagreement shall be submitted to an expert appointed by mutual





agreement of the Parties within thirty (30) days following the date of


preparation and agreement of the Terms of Reference by live Management


Committee. If the Parties cannot agree on the choice of the expen within such


thirty (30) day period, at the request of either Party, the expen shall be


appointed by the President of the Energy Institute in (.ondon. England. Any


expert appointed must have the necessary qualifications for reviewing and


deciding on the subject mailer of the disagreement.


(b) The duties of the expert shall be stated in the Terms of Reference prepared and


agreed by the Management Committee. The Management Committee shall


promptly provide the expert with the agreed Terms of Reference relating to the


disagreement. Each Party shall have the right to give to the expert in writing


any information which it considers useful, provided ii docs so within forty -five


(45) days after (he expert’s appointment. Such information shall be provided


to the other Party at the same time and such other Party shall be entitled to


provide comments on such information to the liist Party and the expert within


thirty (30) days after receiving such information Ihe expert shall have the


right to review- and verify any information lie deems useful to assist him in his


review of the disagreement.


(c) The expert shall render his decision within forty-five (45) days of his receipt





of the Terms of Reference and the information referred to in Article 42.2.


Subject to the provisions of Article 15.9. any decision of the expert shall be


final and shall not be subject lo any appeal, except in the ease of manifest


error, fraud or malpractice. Any costs and expenses associated w ith the expert


determination shall be shared equally between the Parties.








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.








ARTICLE43-GOVERNING LAW, FISCAL STABILITY AND AMENDMENTS








43.1 This Contract, including any dispute arising therefrom, thereunder or in relation


thereto and the agreement to arbitrate in Article 42. shall be governed by English law


(except any role of English lasv which would refei the matter to another jurisdiction),


together with any relevant rules, customs and practices of international law. as well as


by principles and practice generally accepted in petroleum producing countries and in


the international petroleum industry.

















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FiM:al Stability





43.2 The obligations of ihc CONTRACTOR in respect of this Contract shall not he


changed by the GOVERNMENT and the general and overall equilibrium between


the Panics under this Contract shall not be affected in a substantial and lasting


manner.





43.3 The GOVERNMENT guarantees to the CONTRACTOR, for the entire duration of


this Contract, that it will maintain the stability of the legal, fiscal and economic


conditions of this Contract, as they result from this Contract and as they result from


the laws and regulations in force on the date of signature of this Contract. The


CONTRACTOR has entered into this Contract on the basis of the legal, fiscal and


economic framework prevailing at the Effective Date. If, at any time alter the


Effective Date, there is any change in the legal, fiscal and/or economic framework


under the Kurdistan Region Law or other Law applicable in or to the Kurdistan


Region which detrimentally affects the CONTRACTOR, the CONTRACTOR


Entities or any other Person entitled to benefits under this Contract, the terms and


conditions of the Contract shall be altered so as to restore the CONTRACTOR, the


CONTRACTOR Entities and any other Person entitled to benefits under this


Contract to the same overall economic position (caking into account home Country


taxes) as that which such Person would have been in. had no such change in the legal,


fiscal and/or economic framework occurred.


43.4 If the CONTRACTOR believes that its economic position, or the economic position


of a CONTRACTOR Entity or any other Person entitled to benefits under this


Contract, has been detrimentally affected as provided in Article 43.3. upon tire


CONTRACTOR’S written request, the Parties shall meet to agree on any necessary


measures of making any appropriate amendments to the terms of this Contract to re


establishing the equilibrium between the Parties and restoring the CONTRACTOR,


the CONTRACTOR Entities or any other Person entitled to benefits under this


Contract to the position (taking into account home country taxes) it wis in prior to the


occurrence of the change having such detrimental effect. Should the Parties be unable


to agree on the merit of amending this Contract and/or on any amendments to be


made to this Contract within ninety (90) days of the CONTRACTOR'S request (or


such other period as may be agreed by the Panics), the CONTRACTOR may refer


the matter in dispute to arbitration as provided in .Article 42.1. without the necessity of


first referring the matter to negotiation and mediation.


43.5 Without prejudice to the generality of the foregoing, the CONTRACTOR shall he


entitled to the benefit of any future changes to the petroleum legislation or any other


legislation complementing, amending or replacing it.


43.6 The Parties agree to cooperate in all possible ways with a view to fully achieving the


objectives of this Contract. The GOVERNMENT shall facilitate the performance of


the Petroleum Operations by promptly granting to the CONTRACTOR any


necessary authorisation, permit, licence or access right and making available any


existing facilities and services with a view to the Parties obtaining maximum mutual


benefit from the Contract.














u 86/118





Amendments





43.7 Any amendment to this Contract shall be the subject of a formal amendment, duly


approved in writing by the Parties and subject to the same conditions of validity as


this Contract. Notwithstanding the foregoing, the GOVERNMENT has the right and


authority to waive the application of the provisions of this Contract on a cusc-by-casc


basis without having to fulfil the conditions of validity of this Contracl.


43.8 This Contract constitutes the entire agreement of the Parties and supersedes any and


all prior understandings or agreements in respect of the subject matter of this


Contract.


43.') 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 signatories to this Contract for and on behalf of die GOVERNMENT. the


Ministry of Natural Resources in the Kurdistan Region and the Regional Council for


the Oil and Gas Affairs of the Kurdistan Region - Iraq hereby represent that they


agree and approve this Contract for the purposes of the Kurdistan Region Oil and Gas


Law.





ARTICLE 44 - NOTICES


44.1 All notices, demands, instructions, waivers, consents or other communications to he


provided pursuant to this Contract shall he in writing in English, shall be effective


upon receipt, and shall be sent by receipted liund delivery or by email (followed by


delivery by reputable international air courier company with an establishment in Hrbil


in the Kurdistan Region) to the following addresses:


To the GOVERNMENT:


Attention:


Mis Excellency the Minister of Natural Resources





Address:





Ministry of Natural Resources


Kurdistan Regional Government





Hrbil. Kurdistan


Email: mnrWkrgoil.com











87/118


 To the CONTRACTOR





Attention: Managing Director


Address: Gerasdorferstrasse 151. 1210 Vienna. Austria








Email: Wolfgang. Rcmp@omv.com





To each CONTR ACTOR Entity:








Attention Managing Director


Email: Wollgang.Rcmp@omv.com





Address: Gerasdorferstrawe 151.1210 A ienna. Austria














A notice delivered by email (followed by air courier) shall, save for manifest error, be


deemed to have been delivered upon its transmission by email.


44.2 The above address and/or designated representative of any of the Parties may he


changed on giving ten (10) days prior notice to the other Patty 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 slated in this Contract: or


(b) during the first Sub Period docs not cam out drilling and seismic acquisition,


as detailed in Article 10.2 or. dunng the Second Sub-Period (or earlier), docs


not cany out drilling ami seismic acquisition, as detailed in Article 10.3; or


(c) interrupts Production for a period of more than ninety (90) consecutive days


with no cause or justification acceptable in accordance with this Contract or


under prudent international petroleum industry practice, it being recognised


that force Majcure is an acceptable justification for 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





88/118


authorised ot unavoidable as a result of operations carried out in accordance


with prudent international petroleum industry practice:


(c) if the CONTRACTOR comprises solely one entity, is declared bankrupt in


accordance with applicable Law; or


(f» wilfully refuses to abide by negotiation, mediation, arbitration or expert


decision under Article 42.


45.2 The GOVERNMENT may also terminate the Contract only in respect of one


CONTRACTOR Entity if such entity is subject to a Cnange of Control for which the


GOVERNMENT has not given its authorisation in accordance with Article 39.7.


45.3 At any lime prior to the Development Period, the CONTRACTOR 'lull have the


right to terminate this Contract by surrendering the entire Contract Area in accordance


with the provisions of Article 7.


45.4 During the Development Period, the CONTRACTOR shall have the nght to


terminate this Contract at any time by surrendering all Production Areas, provided its


then current obligations have been satisfied in accordance w ith this Contract.


45.5 If the GOVERNMENT intends to exercise its right to terminate this Contract


pursuant to Article 45.1. it shall first comply with the follow ing provisions:


The GOVERNMENT shall notify the CONTRACTOR of its intention to


(a)


terminate rhis Contract stating the reasons for such termination and requesting


the latter:


(i> to remedy the default; or





(ii) to propose acceptable compensation.




CONTRACTOR has not remedied the situation complained of by the


GOVERNMENT to its satisfaction or offered compensation acceptable to the


GOVERNMENT in each cose acting reasonably, the GOVERNMENT shall


notify the CONTACTOR in writing that the Contract shall he terminated


from the termination date detailed in such notice. This Contract shall terminate


on such termination date unless the CONTRACTOR issues a notice of


dispute as provided under Article 42. in which case this Contract shall remain


in force until a final settlement of the dispute has been reached in accordance


with the dispute resolution provisions of Article 42.





The foregoing provisions of this Article 45.5 arc subject to the proviso that, in case of


a dispute where there has been breach of this Contract which has been submitted to


dispute resolution pursuant to Article 42. the GOVERNMENT shall not be entitled


to exercise its right to terminate this Contract prior to a final determination under


Article 42 in favour of the GOVERNMENT.


45.6 If the GOVERNMENT terminates this Contract pursuant to the provisions of


Articles 45.1 and 45.5, the CONTRACTOR shall lose all its rights and interests


under this Contract. Notwithstanding tlic foregoing, the provisions of Articles 14 10.





14/ K9/IIX





 16.7. 30, 31. 35.1. 353. 35.4. 35.7. 36. 38 2(0. 41. 42. 43.1 to 43.6 shall survive the


termination or expiry of this Coniraci.





45.7 If a CONTRACTOR Encity breaches Article 46.1 or 46 2 the GOVERNMENT or


another CONTRACTOR Entity may terminate this Contract in respect of the first


CONTRACTOR Entity.


45.8 If the Contract is terminated under Article 45.2 or 45.7. the interest of the relevant


CONTRACTOR Entity shall he transferred to the other CONTRACTOR Entities in


the proportions in which their respective percentage interests hear to the aggregate of


their respectise percentage interests under the relevant Joint Operating Agreement or


in such other proportions as such CON TRACTOR Entities shall agree between them


for the market value thereof (as such term is defined tn Article 39.71. Such transfer


shall not give rise to any Tax including on the consideration paid or received or on the


income or gain therefrom.


ARTICLE 46- APPLICATION OF CORRUPTION LAWS


46.1 If this Contract is reasonably proven to have been obtained in violation of Kurdistan


Region Law concerning corruption, this Contract is void ab inuio.


46 2 Each CONTRACTOR Entity agrees that if it is. at any time, reasonably proven to be


in breach of Kurdistan Region Law concerning corruption the provisions of Article


45.7 apply.








ARTICLE 47 - EFFECTIVE DATE


This Con tract shall become effective and be binding on the Parties upon the signature of the


Contract by the duly authorised representatives of the GOVERNMENT and the


CONTRACTOR, as provided below.


FnicTcd into in four (4) originals in ErbiL the Kurdistan Region on Tucaday 6 November.


2007


Foe the KURDISTAN REGIONAL GOVERNMENT





























Ashti Hawrami


Prune Minister Minister of Natural Resources


Kurdistan Regional Government Kurdistan Regional Government


On behalf of the Regional Council On behalf of the Ministry of Kannl


for the Oil and Gas A flairs of Resources in the Kurdistan Region


the Kurdistan Region - Iraq








For each CONTRACTOR Entity


OMV PETROLEUM EXPLORATION GMBH




















HtM:








Group Executive Vice President


Exploration A Production























91/118


 A MAI A OMAR CONIftACT AFEA < OOflOMATlS


































































































Code Latitude


A 419 240 4027 349 44 05 58 36 2316


B 437138 4014 203 44 1801 3616151


C 424 308 I 4004 160 44 09 30 36 10 451





D 411 000 4016 000 4i<00 32 3617 06


E 415 700 4020 000 44 03 39 361917


F 418 768 4023 000 44 05 41 36 20 551








1:1


 ANNEXB


ACCQtNTIN«i fKl RE














PARAGRAPH 1 - GENERAL PROVISIONS





1.1 Purpose


To classify expenditures, define further Petroleum Costs (in addition to those defined





as such in the Articles of the Contract), and prescribe the manner in which the


CONTRACTOR'S Accounts shall be prepared and approved.





1.2 Definitions


Words and phrases to which a meaning has been assigned in Article 1 or other


Articles of the Contract shall have the same meaning when used in this Annex.


13 Inconsistency





In the event of any inconsistency or conflict between the provisions of this Annex and


the other provisions of the Contract, then the other provisions of the Contract shall


prevail.


1.4 Accounting Records and Reports





1.4.1 The CONTRACTOR shall maintain the Accounts in accordance with Article 15.1


and in arcordancc with this Accounting Procedure, including in accordance with the


charts of Accounts agreed under Paragraph 1.4.2.


1.4.2 Within sixty (60) da>s of the Effective Dale, the CONTRACTOR shall submit to and


discuss with die GOVERNMENT a proposed outline of charts of Accounts, which


outline shall he in accordance with generally accepted standards and recognized


accounting systems and consistent with normal petroleum industry practice and


procedures. Within ninety (90) days of receiving the above submission, the


GOVERNMENT shall cither provide written notification of its approval of the


proposal or request in writing revisions to the proposal. Within one hundred and


eighty (180) days after the Effective Date, the CONTRACTOR and the


GOVERNMENT shall agree on the outline of chaits of Accounts which shall


describe the basis of the accounting system and procedures to be developed and used


under this Contract Following such agreement, the CONTRACTOR shall


expeditiously prepare and provide the GOVERNMENT with formal copies of the


comprehensive chans of Accounts and manuals related to the accounting, recording


and reporting functions, and procedures which are. and shall he. observed under the


Contract.


1.4.3 Notwithstanding the generality of the foregoing, the CON TRACTOR shall make


tegular Statements relating to the Petroleum Operations. These Statements are as


shown:











zk


cat


(aj Production Statement (as indicated in Paragraph 6).


(h) Value of Production and Pricing Statement (ns indicated in Paragraph 7).


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


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


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


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


1.4.4 All reports and statements shall be prepared in accordance with the Contract.


Kurdistan Region Law, and where there arc no relevant provisions of either of these,


in accordance with prudent international petroleum industry practice.


1.5 Language and Units of Account


All Accounts shall be maintained and prepared in the English language and shall he


recorded in Dollars. Where necessary for clarification, the CONTRACTOR may


also maintain Accounts in other currencies.


1.6 Audit and Inspection Rights of the GOVERNMENT


In addition to the provisions of Articles 15.3 to 15.7 and 15.9, tlie following


provisions shall apply to any audit carried out in accordance with Articles 15 3 to


15.7:


1.6.1 For purposes of auditing, the GOVERNMENT, acting reasonably 3nd in accordance


with prudent international petroleum industry practice, may examine and verify, at


reasonable times upon reasonable prior written notice to the CONTRACTOR, all


charges 3nd credits relating to the Petroleum Operations, such a' hooks of account,


accounting entries, material records and inventories, vouchers, payrolls, invoices and


any other documents, correspondence and records including electronic records


reasonably considered necessary by the GOVERNMENT to audit and verify the


charges and credits, values and treatments.


1.6.2 Furthermore, the auditors shall have the right in connection with such audit, to visit


and inspect at reasonable times, all sites, plants, facilities, warehouses and offices of


the CONTRACTOR directly or indirectly serving the Petroleum Operations and to


question personnel associated with those Petroleum Operations.


1.6.3 Where the GOVERNMENT requires verification of charges made by an Affiliated


Company of the CONTRACTOR, the GOVERNMENT shall have the right to


obtain an audit certificate for such changes from an internationally recognized firm of


public accountants acceptable to both the GOVERNMENT and the


CONTRACTOR, which uu> he the CONTRACTOR s statutory auditor.


1.6.4 All agreed adjustments resulting from an audit shall be promptly made in the


CONTRACTOR'S Accounts and any consequential adjustments to payments due to


the CONTRACTOR or to the GOVERNMENT, as the case may be. shall be made


promptly.


W


1.6.4 When issues arc outstanding with respect to an audit, the CONTRACTOR shall


maintain the relevant documents and permit inspection thereof until the issue is


resolved.


1.7 Payments





Unless as otherwise provided in Article 24. Article 29 or other Articles of the


Contract:


1.7.1 All payments between the Parties shall, unless otherwise agreed, he in Dollars and be


made through a bank designated in writing by each receiving party; and all sums due


under the Contract shall he paid within thirty (30» days following the end of the


Month in w-hich the obligation to make such payment occurred.


1.7.2 All sums due by one party to the other under the Contract shall, for each day such


sums are overdue, hear interest compounded monthly at LIBOR plus two per cent


(2%).


1.8 Currency Exchange Kales


In addition to the provisions of Article 29. the following provisions shall apply to any


exchanges of currency earned out in accordance with Article 29:


1.8.1 Amounts received and Petroleum Costs incurred, shall be converted from other


currencies into Dollars in accordance with the CONTRACTOR'S usual accounting


procedures which shall reflect generally accepted accounting practices in the


international petroleum industry, and with reference to exchange rates obtained in


accordance with Article 29.


1.9 Accrual Baals, Cash Flow Basis and Reports


All books and Accounts shall be prepared on an acciual basis in accordance with


generally accepted accounting principles used in the international petroleum industry.


1.10 Values and Treatments





Values und 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 prov is ions of this Accounting Procedure.








PARAGRAPH 2 - CLASSIFICATION. DEFINITION AND ALLOCATION OF


COSTS AND EXPENSES


2.1 Segregation of Costs and Expenses





Pctn»lcum Costs shall be segregated in accordance with the purposes for which such


Petroleum Costs are made. The purposes which shall qualify are:


(al those which have been included in the approved Work Program and Budget


for the year in which the Costs and Expenditures ore made:











CU(


(b) expenditures incurred in cases of emergency as set out in Ankles 11.7. 13.5.


13.9 35.5.35.6 and any other Articles of the Contract:


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


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


All Petroleum Costs recoverable under Paragraph 3 relating to Petroleum Operations


shall l>c classified, defined and allocated as set (Hit below


2.2. Exploration Costs


Exploration Costs are all direct and allocated indirect costs and expenditures incurred


in carrying out the Exploration Operations, including all direct and allocated indirect


costs and expenditures incuncd in the search lor Petroleum in an area which is. or was


at the lime when such costs and expenses were incurred, part of the Contract Area


including:


2.2.1 Aerial, geophysical, geochemical, paleontological, geological, topographical and


seismic surveys and studies and tlicii interpretation and purchased geological and


geophysical information.


2.2.2 Stratigraphic test hole drilling and water well drilling.


2.2.3 Labour, materials, supplies, and services used in drilling and formation testing of


wells with the object of finding Petroleum or Appraisal Wells excluding any costs of


the subsequent completion of such wells as producing wells.


2.2.4 Facilities to the extent used in suppon of the purposes described in Paragraphs 2.2.1.


2.2.2 and 2.2.3. including access roads.


2.2.5 Thai portion of all service expenditures and that portion of all general and


administrative expenditures directly attributable to Exploration Cost' or allocated


tlierelo on a consistent and equitable basis.


2.2.6 Any other expenditures incurred in the search for and appraisal of Petroleum after the


Effective Date and not otherwise covered under this Paragraph 2.2.


23 Has Marketing Costs


Gas Marketing Costs arc all direct and allocated indirect costs and e.x|Knditurcs


incurred in carrying out Gas Marketing Operations and include that portion of all


service expenditures and that portion of all general and administrative expenditures


directly attributable to Gas Marketing Costs or allocated thereto on a consistent and


equitable basis.


2.4 Development Costs


Development Costs arc all direct and allocated indirect costs and expenditures


incuncd in carrying out Development Operations including all direct and allocated


indirect costs and expenditures incurred in:


\U


2.4.1 Drilling wells which arc completed as producing wells and drilling wells for purposes


of producing from a Petroleum reservoir, whether these wells arc 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 lias been drilled for tlie 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.


How 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 die wells and facilities referred to in Paragraphs


2.4.1.2.4.2 and 2.4.3.


And including that portion of all service expenditures and that portion of all general


and administrative expenditures directly attributable to Development Costs or


allocated (hereto on a consistent and equitable basis; and any other expenditure


incurred in the IXwclopment Operations and not otherwise covered under


Paragraph 2.3.


2.5 Production Costs


Production Costs arc all direct and allocated indirect costs and expendituies incurred


in carrying out Production Operations, including all direct and allocated indirect costs


and expenses incurred in Petroleum Operation' after first Production which are other


llun Exploration Costs. Gas Marketing Costs. Development Costs and


Decommissioning Costs. Production Costs include that portion of all service


expenditures and that portion of all general and administrative expenditures directly


attributable to Production Costs or allocated thereto on a consistent and equitable


basis.


2.6 Decommissioning Costs


Decommissioning Costs arc all direct and allocated indirect costs and expenditures


incurred in earning out Decommissioning Operations and include that portion of all


service expenditures and that portion of all general and administrative expenditures


directly attributable to Decommissioning Costs or allocated ihcrcto on a consistent


and equitable basis, and the Decommissioning Keseive l;und shall be determined on


such basis, in advance of incurring such costs, as provided in Article 38 and, for the


purposes of cost recovery. live contributions to the Decommissioning Reserve Fund


shall be recovered in accordance with Article 38.


2.7 Service Expenditures


Service expenditures are expenditures in support of Petroleum Operations including


warehouses, vehicles, motorized rolling equipment, aircraft, lire and security stations,


workshops, water and sewerage plants, power plants, housing, community and


recreational facilities and furniture, tools and equipment used in these activities.


Service expenditures in any Calendar Year shall include the costs incurred in such


year to purchase and/or construct the said facilities as well as the annual costs of


maintaining and operating the same. All service expenditures shall he regularly


allocated as specified in Paragraphs 2.2.5. 2.3. 2.4. 2.5 and 2.6 to Kxploration Costs.


Gas Marketing Costs. Development Cosis. Production Costs and Decommissioning


Costs respectively and shall be separately shown under each of these categories.


Where service expenditures are made in respect of shared facilities, the basis of


allocation of costs to Petroleum Operations shall he consistent and equitable and shall


be specified.


2.8 General and Administratise Expenditures


General and administratise expenditures arc


2.8.1 All main office, field office and general administrative expenditures in the Kurdistan


Region including supervisory, accounting, procurement and employee relations


services.


2.8.2 Where the CONTRACTOR is an Affiliate of u group of companies whose


headquarters is Abroad (a "Foreign CONTRACTOR"), an annual overhead charge


shall he made for services rendered (excluding the direct expenditures as referred in


Paragraph 3.1.2 (h)) by any Affiliate of the Foreign CONTRACTOR outside the


Kurdistan Region to support and nunage Petroleum Operations under the Contract, or


wltcrc the CON TRACTOR, not being a Foreign CONTRACTOR draws upon the


services of an Affiliate within the Kurdistan Region, an annual overhead charge shall


he made for services rendered (excluding (he direct expenditures as referred in


Paragraphs 3.1.2 (a) and (b)) bv such Affiliate to support and manage Petroleum


Operations under the Contract (' Parent Companv Overhead")


Parent Company Overhead will be deemed to cover the actual cost (being salaries,


wages and labour burden, employee benefits, travel, hotel and other normally


reimbursable expenses paid by the Affiliate of a CONTRACTOR in accordance with


its standard personnel policy in force in the relevant period, provision of office


accommodation and provision of services reasonably necessary for operation and


maintaining such staff oil ices) incurred for services rendered by those functions of


CONTRACTOR'S Affiliate, such as. hut not limited to. international production


headquarters, international exploration headquarters, treasury, payroll, taxation,


insurance, legal, communications, computer services, controllers, personnel,


executive administrative management, research and development, central engineering


and process engineering which:


ta) cannot, w ithout unreasonable effort and/or expenditure or without the release


of confidential data proprietary to any of the CONTRACTOR’S Affiliates, be


charged under any other section of this Annex , and


(b) are properly allocable to Petroleum Operations under the Contract. It is


understood, however, that services performed by the departments listed above


and other corporate departments which directly benefit Petroleum Operations


under the Contract shall be charged as direct costs in accordance with


Paragraph 3.


In respect of the costs of the CONTRACTOR’S Parent Company Overhead, as


described above, the CONTRACTOR shall charge monthly to Petroleum Operations


an amount equal to the total of the following:


2.8.2.1 Exploration Overhead


The CONTRACTOR shall be entitled to an annual charge based on a sliding scale


percentage and charged monthly to Petroleum Operations The basis for applying this


percentage shall be the total of Exploration Costs and Gas Marketing Costs during


each Calendar Year (exclusive of this Exploration Overhead) or fraction thereof less


expenditures which have been subjected to the two (2) per cent fee. referred to in


paragraph 3.1.8(b). The sliding scale percentage shall be the following:


For the first four million Dollars (US$4,000,000) four per cent (4't)


For the next four million Dollars )


Over eight million Dollars (USS8.000.000) two percent (2*£)


The foregoing percentages may be reviewed hut not more often than annually, anti


any approved appropriate adjustment shall be made, if necessary, prospectively.


2 8.2.2 Development. Production and Decommissioning Operations Overhead


The overhead rales applicable to IX'velopment. Production anti Decommissioning


Operations shall he agreed between the Parties in duo course and shall incorporate the


following guidelines:


(a) The CONTRACTOR’S charges must be charged as direct charges whenever


possible. Overhead charges exist only to compensate the CONTRACTOR'S


Affiliates for costs which are properly allocable to Petroleum Operations


under the Contract but which cannot, without unreasonable effort and/or


release of confidential data proprietary to the CONTRACTOR'S Affiliates,


be charged under any other section. Overhead costs are billed monthly.


Overhead must be commensurate with services rendered and based on actual


cost studies but may not exceed an amount calculated as a percentage of


certain annual expenditures excluding Exploration Costs and


(b) That percentage as well as the types of expenditures, u hich affect overhead


and those, which do not. shall be agreed among the Parties.


(c) The maximum percentage rates may be revised by mutual agreement not more


often than annually. The initial maximum percentage rales and the types of


expenditures to which the) apply shall be agreed as soon as the Parties possess


reasonably reliable cost estimates for the relevant Production Area.


(d) Overhead charges are not subject to audit by GOVERNMENT


(c) Tbe CONTRACTOR shall upon request furnish at the end of each relevant


Calendar Year to the GOVERNMENT a confirmation by its statutory auditor


that the overhead costs actually charged do not duplicate any other charges


and that the method used in allocating oserhead to Petroleum Operations


 hereunder as opposed lo other activities is reasonable and in accordance with


generally accepted accounting practices.





(0 The CONTRACTOR must budget for overhead charges.


2.8.3 All general and administrative expenditures shall be regularly allocated as specified in


Paragraphs 2.2.5, 2.3, 2.4, 2.5 and 2.6 to Exploration Costs. Gas Marketing Costs.


Development Costs. Production Costs and Decommissioning Costs respectively and


shall be separately show n under each of these categories.





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


CONTRACTOR





3.1 Costs Recoverable Without Further Approval of the GOVERNMENT


Petroleum Costs incurred by the CONTRACTOR pursuant to the Contract as


classified under the headings referred lo in Paragraph 2 shall be recoverable for the


purpose of Article 25 of the Contract (except to the extent provided in Paragraph 4 or


elsewhere in this .Annex), subject to audit as provided for in Article 15 and in


Paragraph 1.6.


3.1.1 Surface Rights





All direct costs necessary for the acquisition, renewal or relinquishment of surface


rights acquired and maintained in force for the purposes of the Contract.











(a) The CONTRACTOR'S locally recruited employees base,I in the Kurdistan


Region: Costs of all CONTRACTOR'S locally recruited employees who are


directly engaged in the conduct of Petroleum Operations under the Contract in


the Kurdistan Region. Such costs shall include the costs of salaries, wages,


bonuses, overtime, employee benefits and GOVERNMENT lieneftts for


employees and levies imposed on the CONTRACTOR as an employer,


transportation and relocation costs within the Kurdistan Region of the


employee and such members of the employee's family (limited to spouse and


dependent children) as required by law oi customary practice in the Kurdistan


Region. If such employees are engaged in other activities in the Kurdistan


Region, in addition to Petroleum Operations, the cost of such employees shall


he apportioned on a time sheet basis according to sound and acceptable


accounting principles.


(b) Assigned Personnel: Costs of salaries and wages 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


|Mirtion of applicable salaries, wages, and other costs us delineated in


Paragraphs 3.1.2(c), (d). (c). (0 and (g), shall l*c charged and the basis of such


pro-rata allocation shall be specified.


 (c) The CONTRACTOR'S costs regarding holiday vacation, sickness and


disability benefits and living and housing and other customary allowances


applicable to the salaries and wages chargeable under Paragraph 3.1.2(b).


(d) Expenses or contributions made pursuant to assessments or obligations


imposed under Law which arc applicable to the CONTRACTOR'S cost of


salaries and wages chargeable under Paragraph 3.1.2(b).


(e) The CONTRACTOR'S cost of established plans for employs' group life





insurance, hospitalization, pension, stock purchases, savings, bonus, and other


benefit plans of a like nature customarily granted to the CONTRACTOR'S


employees, provided however that such costs arc in accordance with generally


accepted standards in the international petroleum industry, applicable to


salaries and wages chargeable to Petroleum Operations under


Paragraph 3.1.2(b).


(f) Actual transportation and trasel expenses of employees of CONTRACTOR,





including those made for travel and relocation of the expatriate employees,


including their families and personal effects, assigned to the Kurdistan Region


whose salaries and wages arc chargeable to Petroleum Operations under


Paragraph 3.1.2(b).





Actual transportation expenses of expatriate personnel transferred to Petroleum


Operations from their country of origin shall be charged to the Petroleum Operations.


Transportation expenses of personnel transferred from Petroleum Operations to a


country Other than the country of their origin shall not be cliargcd to the Petroleum


Operations Transportation cost as used in this section shall mean the cost of freight


and passenger service, meals, hotels, insurance and other expenditures related to


vacation and transfer travel and authorized under the CONTRACTOR'S standard


pcrvsnncl policies. Hie CONTRACTOR shall ensure that all expenditures related to


transportation costs arc equitably allocated lo ihe activities, which have benefited


from the personnel concerned







chargeable lo Petroleum Operations under Paragraph 3.1.2(b) and for which


expenses such personnel arc reimbursed under the CONTRACTOR'S


standard personnel policies. In the event such expenses arc noi wholly


attributable to Petroleum Operations, the Petroleum Operations shall be


charged with only the applicable portion thereof, which shall be determined on


an equitable basis.





3.1.3





The cost of transportation of employees, equipment, materials and supplies other than


as provided in Paragraph 3.1.2(f) necessary for the conduct of the Petroleum


Operations under the Contract along with other related costs such as. but not limited


to. import duties, customs fees, unloading charges, dock fees, and inland and ocean


freight charges


3.1.4 Charges for Service.1'


(a) Thin! Parlies








Tlu* actual eosis of contract services, services of professional consultants,


utilities, anil other services necessary for the conduct of the Petroleum


Operations under the Contract performed by third parties other than an


Affiliate of live CONTRACTOR.


(b) Affiliates of the CONTRA CTOR





(i) Professional and Administrative Services Expenses: cost of


professional and administrative services provided by any Affiliates of


live CONTRACTOR for the direct benefit of Petroleum Operations,


including services provided by the production, exploration, legal,


procurement, financial, insurance, accounting and computer services


divisions other than those covered by paragraphs 3.1.4 (b| (ii), 3.1.6


and 3,1.8 (b) which CONTRACTOR may use in lieu of having its


Own employees. Such charges shall reflect the cost of providing their


services. Such charges shall not include any element of profit and shall


be no more or less favourable than similar charges for other operations


carried on by the CONTRACTOR and its Affiliates. The churgcoul


rate shall include all costs incurred by Affiliates incidental to the


employment of such personnel including all Labour and Associated


Labour Costs and the cost of maintaining and operating offices and


providing all support services for such personnel. Costs of travel of


such personnel in respect of Petroleum Operations will be directly


charged. The charges for such services shall not exceed those


prevailing if performed by non Affiliated third parties, taking into


account the quality and availability of such services. Where the work is


performed outside the home office base of such personnel, the daily


rate shall be charged from the date such personnel leave the home


office base when: they usually work up to their return thereto,


including days which arc 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 CONTRA (TOR


for the direct benefit of Petroleum Operations, which cost shall be


charged on a cost of service basis and shall not include any element of


profit. The chargeout rate shall include all costs meuned by Affiliates


incidental to the employment of such personnel including all Labour


and .Associated Labour Costs and the cost of maintaining and operating


offices and providing all support services for such personnel costs of


travel of such personnel in respect of Petroleum Operations will be


directly charged. The charges for such services shall not exceed those


prevailing if performed by non-affihated third parties, taking into


account the quality and availability of such services. Unless the wort,


to be done by such personnel is covered by an approved Work Program


and Budget, the CONTRACTOR shall not authorize work by such


personnel without approval of the GOVERNMENT.


ini) hquipmmt and facilities use of equipment and facilities owned and


furnished by the CONTRACTOR'S Affiliates, at rates commensurate


w ith the cost of ownership and operation: provided, however, that such


rales shall not exceed those currently prevailing for the supply of like


equipment and facilities on comparable terms in the area where the


Petroleum Operations are being conducted and shall be on an arm's


length basis. On the request of the GOVERNMENT, the


CONTRACTOR shall provide the GOVERNMENT with evidence


of such rates being on an arm's length basis. (If the GOVERNMENT


considers that any such rate is not on an arm’s length basis then the


GOVERNMENT has the right to refer the matter to an expert


pursuant to Article 42.2 of iIk Contract). The equipment and facilities


referred to herein shall exclude major investment items such as (but


not limited to) drilling rigs, producing platforms, oil treating facilities,


oil and gas loading and transportation systems, storage and terminal


facilities and other major facilities, rates for which shall be subject to


separate agreement with the GOVERNMENT.


3.1.5 Conmumiymions


Cost of acquiring, leasing, installing, operating, repairing and maintaining


communication systems including radio and microwave facilities within and between


the Contract Area and the CONTRACTOR s nearest base facility


3.1.6 Office and Miscellaneous* Facilities


Net cost to the CONTRACTOR of establishing, maintaining and operating any


office, sub-office, warehouse, bousing or other facility directly serving the Petroleum


Operations. If any such facility services more than one contract area the net costs


thereof shall he allocated on an equitable basis in accordance with prudent


international petroleum industry practice.





3.1.7





(a) Costs incurred in the Contract Area as a result of legislation for archaeological


an

sites or resources;


(b) Costs incurred 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;




responsibilities resulting therefrom as may be required by applicable laws and


regulations;


ic> 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.I.K Material and liquipuwnt Costs


Costs of materials and supplies, equipment, machines, tools and any other goods of a


similar nature used or consumed in Petroleum Operations subject to the following:


(a) Acquisition the CONTRACTOR shall only supply or purchase materials


for use in Petroleum Operations that may be used in the foreseeable futuiv.


The accumulation of surplus stocks and inventory shall be avoided so far as is


reasonably practical and consistent with efficient and economical operations.


Inventory levels shall, however, take into account die time lag for


replacement, emergency needs, weather conditions affecting operations and


similar considerations.


(b> Components of costs, arm’s length transactions - except as otherwise


presided in paragraph 3.1.8(d). material purchased by the CONTRACTOR


in arms length transactions in the open market for use m the Petroleum


Operations under the Contract shall be valued to include invoice price less


trade and cash discounts (if any), licence fees, purchase and procurement fees


plus freight and forwarding charges between point of supply and point of


shipment, freight to port of destination, insurance, taxes, customs duties,


consular fees, excise taxes, other items chargeable against imported materials


and. where applicable, handling and transportation expenses from point of


importation to ware Ik hi sc or operating site. Where an Affiliate of the


CONTRACTOR has arranged the purehasc. coordinated the forwarding and


expediting effort, its costs should not exceed those currently prevailing in


normal arm's length transactions on the open market and in any case shall not


exceed a fee equal to two per cent (21) of the value of the materials added to


the cost of the materials purchased.


(c) Accounting - such material etuis shall he charged to the accounting records


and books in accordance with the “First in. First Out” (FIFO) method;


(d) Material purchased from or sold to Affiliates of the CONTRACTOR or


transferred from other activities of the CONTRACTOR to or from Petroleum


Operations under this Contract shall he valued and charged or credited at the


prices specified in Paragraphs 3.1 X(dHi). 3.1 K(dNii) and 3.l.8(dKiu):


(i) New material, including used new material moved from inventory


(Condition "A"), shall be valued at the current international net price


which shall not exceed the price prevailing in normal arm's length


transactions in the open market.


(ii) Used material (Conditions "B". “C* and "D";


(A) Material which is in sound and serviceable condition and is


suitable for re-use without reconditioning shall be classified as


Condition "B" and priced at seventy five per cent (75%) of the


current price of new material defined in Paragraph 3.|.8(d)(i);


(B) Material which cannot be classified as Condition "B" but which


after reconditioning will be further serviceable for its original


function shall be classified as Condition “C" and priced at not


more than fifty per cent (50%) of the current price of new


material as defined in Paragraph 3.1.8(d)(i). The cost of


reconditioning shall be charged to the reconditioned material


provided that the value of Condition "C" material plus the cost


of reconditioning do not exceed the value of Condition "B”


material;


(C> Material which cannot be classified as Condition "B" or


Condition “C" shall be classified as Condition "I)’’ and priced


at a value commensurate with its use by the CONTRACTOR.


If material is not fit for use by the CONTRACTOR it shall he


disputed of as junk.


(iii) Material involving erection costs shall be charged at the applicable


condition percentage of the current knocked-down pnee of new


material as defined in Paragraph 3.1 SidHi).


(iv) When ilie use of material is temporary and its service to the Petroleum


Operations under the Contract does not justify the reduction m pnec as


provided for in paragraph 3.1.8.(dXiiKb). such material shall be priced


on a basis that will result in a net charge to the accounts under the


Contract consistent with the value of the service rendered


(v) Premium prices - whenever material is not readily obtainable ai


published or listed prices because of national emergencies, strikes or


other unusual causes over which the CONTRACTOR has no control,


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 for use. and in moving it


to the Contract Aren; provided notice in writing is furnished to the


GOVIiRNMKNT of the proposed charge prior to charging Petroleum


Operations for such material and the GOVKRNMENT shall have the


right to challenge the transaction on audit


(vi) Warranty of material furnished by the CONTRACTOR - the


CONTRACTOR docs not warrant the material furnished. In case of


defective material, credit shall not be passed to Petroleum Operations


until adjustment has been received by the CONTRACTOR from the


manufacturers of the material or their agents.


(vii) Adjustments arising from material inventories conducted in accordance


with Paragraph 5.2.


(e) Equipment of the CONTRACTOR charged at rates not to exceed the average


commercial rates of non-affiliated third parties for equipment, facilities,


installations and utilities for use in the area where the some are used. On


request, the CONTRACTOR shall furnish a list of rales and the basis of


application. Such rates shall be revised when found to be either excessive or


insufficient, but not more than once every six (6) Months


Drilling tools and other equipment lost in the hole or damaged beyond repair


may be charged at replacement cost less depreciation plus transportation costs


to deliver like equipment to the location where used.


(f) Use of leased or hired machinery and/or equipment in the Petroleum


Operations shall be charged at full cost to the CONTRACTOR This may


include mobilisation and de-mobilisation charges, lease and hire fees, as well


as other contractual costs.


3.1.9 Rmah iUiOJaaca


All rentals of every kind and nature levied by any GOVERN NO N I and all Taxes


imposed in connection with the CONTRACTOR'* assets, income or activities under


the Contract and paid directly by the CONTRACTOR or any CONTRACTOR


Entity (save where the contrary is expressly provided in the Contract) with the


exception of Taxes described in Article 31 2) and bonus payments made under Article


32.


If the CONTRACTOR, any CONTRACTOR Entity or any of its Affiliated


Companies is subject to income or withholding tax as a result of sen ices performed at


cost for the Petroleum Operations under the Contract, its charge* for such services


may be increased by the amount required to cover such taxes (grossed up) including


taxes on such gross up.


3.1.10 Insurance and Lesse*


Insurance premiums and costs incurred for insurance carried for the benefit of the


Petroleum Operations provided that such insurance is customary, affords prudent


protection against risk and is at a premium no higher than that charged on a


competitive basis by insurance companies which arc not Affiliated Companies 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 wilful misconduct by the CONTRACTOR Such costs may include repair and


replacement of property in the Contract Area resulting from damage* or losses


incurred by fire. Hood, storm, theft, accident or such other cause.


3.1.11 l-cgul Hxikuncs


All reasonable costs and expenses resulting from the handling, investigating,





asserting, defending, or settling of any claim or legal action necessary or expedient for


the procuring, perfecting, retention and protection of the Contract Area, and in


defending or prosecuting lawsuits involving the Contract Area or any third party


claim arising out of the Petroleum Operations under the Contract, or sums paid in


respect of legal services necessary for the protection of the joint interest of the


GOVERNMENT and the CONTRACTOR shall be recoverable. Such expenditure',


shall include attorney’s fees, court costs, arbitration costs, costs of investigation, and


procmvmcnt of evidence and amounts paid in settlement or satisfaction of any such


litigation and claims provided such costs are not covered elsewhere in tlie Annex.


Where legal services arc rendered in such matters by salaried or regularly retained


lawyers of the CONTRACTOR or an Affiliated Company of the CONTRACTOR,


such compensation shall be included instead under Paragraph 3.1.2 or 3.1.4(b) as


applicable.





3.1.12 Claims


Expenditures made in the settlement or satisfaction of any loss, claim, damage,





judgement or other expense arising out of or relating to Petroleum Operations, except


as may otherwise be covered elsewhere in the Annex.





3.1.13





All costs and expenses incurred by the CONTRACTOR in the training of its


employees engage*! in Petroleum Operations under the Contract.





3.1.14





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


transactions, as well as currency exchange losses incurred by the CONTRACTOR in


connection with the Petroleum Operations.





3.1.16





Other reasonable expenditures not coscred or dealt with in the foregoing provisions of


Paragraph 3 which arc necessarily incurred by the CONTRACTOR for the proper,


economical and efficient conduct of Petroleum Operations.





T2 Credit I'nder 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 purpo'cs of Article 25 of the


Contract.

















ce^


3.2.1 The proceeds of any insurance or claim or judicial awards in connection with


Petroleum Operations under the Contract or any assets charged to the Accounts under


the Contract where such operations or assets have been insured and the premia


charged to the Accounts under the Contract.


3.2.2 legal costs charged to the accounts under Paragraph 3.1.11 and subsequently


recovered by the CONTRACTOR.


3.2.3 Revenue received from third parties for the use of properly or assets the cost of which


has been charged to the Accounts under the Contract.


3.2.4 Any adjustment received by the CONTRACTOR from the .suppliers/manufacturers


or their agents in connection with a defective material the cost of which was


previously charged by the CONTRACTOR to the Accounts under the Contract.


3.2.5 Rentals, refunds, including refunds of taxes paid, or other credits received by the


CONTRACTOR which apply to any charge which has been made to the Accounts


under the Contract, but excluding any awaid granted to the CONTRACTOR under


arbitration or expert proceedings.


3.2.6 Costs originally charged lo the Accounts under the Contract for materials


subsequently exported from the Kurdistan Region or iransfcncd to another Contract


Area within the Kurdistan Region.


3.2.7 Proceeds from the sale or exchange by the (ON TRACTOR of plant or facilities u>ed


in Petroleum Operations the acquisition costs o! which have been charged to the


Accounts under the Contract-


3.2.8 Proceeds derived from the sale or license of any intellectual property the development


costs of which were incurred pursuant to and are recoverable under the Contract.


3.2.9 Proceeds derived from the sale, exchange, lease, hire, transfer or disposal in any


manner whatsoever of any other item the costs of which have been charged to


Petroleum Operations.


3.3 Duplication of Charges and Credits


Notwithstanding any provision to the contrary in this Accounting Procedure, there


shall be no duplication of charges or credits to the Accounts under the Contract.


PARAGRAPH 4 - COSTS AND EXPENSES NOT TO BK TREATED AS





RECOVERABLE


The following costs and expenditures shall not Ik included in the Petroleum Costs


recoverable under Article 25:


4.1. Taxes on income or profit paid to any GOVERNMENT authority except taxes and


duties that may be included in the costs of material and equipment purchased for the


Petroleum Operations;














COG


 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.


4.3. The cost of any letter of guarantee, if any. required under the Contract;





4.4 The bonuses set out in Article 32 of the Contract;


4.5. Costs of marketing or transportation of Petroleum beyond the Delivery Point


(excluding Gas Marketing Costs);


4.6. Attorney's fees and other costs of proceedings in connection with arbitration under


Article 42 of the Contract or internationally recognised independent expert


determination as provided in the Contract or this Accounting Procedure;


4.7 Any interests, fees, costs and expenses paid by the CONTRACTOR for loans and


any other form of financing or advances for the financing of the Petroleum Costs


entered into by the CONTRACTOR witli third parties or Affiliated Companies;


4.8 Any accounting provision for depreciation and/or amortisation, excluding any


adjustments in value pursuant to Paragraph 3.1.8;


4.‘» Dividends, repayment of equity or repayment of intercompany loans;


4.10 Fines and penalties imposed under 1 .aw.





PARAGRAPH 5 - RECORDS AND VALUATION OF \SSETS





5.1 Records


The CONTRACTOR shall maintain detailed records of property in use for


Petroleum Operations under the Contract in accordance with prudent international


petroleum industry practice for exploration and production activities


5.2 Inventories


Inventories of property in use in Petroleum Operations shall be taken at reasonable


intervals but at least once a year with respect to movable assets and once every three


(3) years wiih respect to immovable assets. The CONTRACTOR shall give the


GOVERNMENT at least thirty (30) days written notice of its intention to take such


inventory and the GOVERNMENT shall have the right to be represented when vuch


inventor) is taken.


Failure of the GOVERNMENT to be represented at an inventory shall bind ihc


GOVERNMENT to accept the inventory taken by the CONTRACTOR


The CONTRACTOR shall clearly inform GOVERNMENT about the principles


upon which valuation of the inventory has been based. The CONTRACTOR shall


make every effort to provide to the GOVERNMENT a full report on such inventory


within thirty (30) days of the taking of the inventory. When an assignment ot rights


under the Contract takes place the CONTRACTOR may, at the request of the








IAS


cce


 assignee, lake a special inventory provided dial the costs of such inventory are borne


by the assignee.





PARAGRAPH 6 - PRODUCTION STATEMENT


6.1 Production Information


Without prejudice to the rights and obligations of the Parties under Article 16 of the


Contract, front the dale of First Production from the Contract Area the


CONTRACTOR shall submit a monthly production statement to the


GOVERNMENT showing the following information separately for each producing


Development Area and in aggregate for the Contract Area:


6.1.1 'Die quantity of Crude Oil produced and saved.


6.1.2 The quality characteristics of such < 'mile Oil produced and saved.


6 1.3 The quantity of Natural Gas produced anil saved.


6.1.4 The quality characteristics of such Natural Gas produced and saved.


6.1.5 The quantities of Crude Oil and Natural Gas used for the purposes of carrying on


drilling and production operations and pumping to field storage.


6 1.6 The quantities of Crude Oil and Natural Gas unavoidably lost.


fi 1.7 The quantities of Natural Gas flared and vented.


6 1.8 71>c si/c ol Petroleum stocks held at the beginning of the calendar Month in question.


6.1.9 fhe size of Petroleum stocks held at the end of the calendar Month in question.


6.1.10 The quantities of Natural Gas reinjected into the Reservoir.


6.1.11 In respect of the Contract Area as a whole, the quantities of Petroleum transferred at


the Measurement Point. All quantities shown in this Statement shall he 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 foe each calendar Month shall be submitted to the


GOVERNMENT no later than ten (10) days after the end of such calendar Month


PARAGRAPH 7-VALUE OF PRODUCTION AND PRICING STATEMENT


7.1 Value of Production and Pricing Statement Information


The CON TRACTOR shall, for the purposes of Article 25 of the Contract, prepare a


statement providing calculations of the value of Crude Oil produced and saved during


each Quarter.


 This "Value of Production and Pricing Statement" shall contain the following


information:





7 I I The quantities and prices realized therefor by the CONTRACTOR in respect of


sales of Natural Gas and Crude Oil delivered to third parties made during the Quarter


in question.


7.1.2 The quantities and prices realized therefor by the CONTRACTOR in respect of sales


of Natural Gas and Crude Oil delivered during the Quarter in question, other than to


Third Parties.


7.2 Submission of Value of Production and Pricing Statement


The Value of Production and Pricing Statement for each Quarter shall be submitted to


the GOVERNMENT not later than twenty-one (21) days after the end of such


Quarter.








PARAGRAPH 8 - COST RECOVERY AM) SHARK ACCOUNT STATEMENT


8.1 Cost Recovery Statement


The CONTRACTOR shall prepare with respect to each Quarter a Cost Recovery


Statement containing the following information:-


8.1.1 Recoverable Petroleum Costs carried forward from the previous Quarter, if any.


8.1.2 Recoverable Petroleum Costs for the Quarter in question.


8.1.3 Credits under the Contract for the Quarter in question.


8.1.4 Total Recoverable Petroleum Costs for the Quarter in question (Paragraph 8.1.1 plus


Paragraph 8.1.2. net of Paragraph 8.1.3 I.


8.1.5 Quantity and value of Petroleum applied to cost recovery pursuant to Article 25 taken


by the CONTRACTOR for the Quarter in question.


8.1.6 Amount of recoverable Petroleum Costs to be earned forward into the next Quarter


(Paragraph 8.1.4 net of Paragraph 8.1.5).


8.2. Cumulative Production Statement


The CONTRACTOR shall prepare with respect to each Quarter a Cumulative


Production Statement containing the following information


8.2.1 The cumulative production position at the end of the Quarter preceding the Quarter in


question.


8.2.2


Production of Export Petroleum for the Quarter in question


8.2.4 The cumulative production position at Ur- end of the Quarter in question.





Kr








 K.2.5 The amount of Petroleum applied to Royalty pursuant to Article 24, cost recovery'


pursuant to Article 25 and Profit Petroleum pursuant to Article 26 taken by lire


GOVERNMENT and by the CONTRACTOR, respectively, during the Quarter in


question.


8.2.6 llic forecast of production and the share of Petroleum applied to Royalty pursuant to


Article 24. cost recovery pursuant to Article 25 and Profit Oil pursuant to Article 26


due to the GOVERNMENT and to the CONTRACTOR, respectively. for the nest


succeeding Quarter.


8.3 Preparation and Submission of Cost Recovery and Cumulative Production


Statements


8.3.1 Provisional Cost Recovery and Cumulative Production Statements, containing


estimated information where necessary, shall be submitted by the CONTRACTOR


on the last .lay of each Quarter for the purposes of Article 25 of the Contract.


8.3.2 Finul quarterly Cost Recovery and Cumulative Production Suiicmcnts 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 \nnuai Cost recovery and


Cumulative Production Statement shall he submitted within ninety (90) days of the


end of each Year. The Annual .Statement shall contain the categories of information


listed in Paragraphs 8.1 and 8.2 for the Year in question, separated into the Quarters


of the Year in question and showing the cumulative positions at the end of the Year in


question with rcs|>cct to cumulative unrccovcrcd Petroleum Costs and Cumulative


Production.


PARAGRAPH 9 - STATEMENT OF EXPENDITURE AND RECEIPTS





9.1 Tire CONTRACTOR shall prepare witli respect to each Quarter a Statement of


Expenditure and Receipts under the Contract. The Statement will distinguish between


Exploration Costs, Gas Marketing Costs. Development Costs. Production Costs and


Decommissioning Costs and will identify major items of expenditures within these


categories The Statement will show the following:


9.1.1 Actual expenditures and receipts for the Quarter in question.


9.1.2 Cumulative expenditure and receipts for the budget Calendar Year in question.





9.1.3 Latest forecast cumulative expenditures at the Calendar Year end.


9.1.4 Variations between budget forecast and latest forecast and explanations thereof.





9.2 The Statement of Expenditure and Receipts of each Quarter shall be submitted to the


GOVERNMEN T no later than thirty (30) days after the end of such Quarter.














Kr


 PARAGRAPH 10 - FINAL KND-OF-YKAR STATEMENT





The CONTRACTOR will prepare a Final End-of Year Statement Tile Statement will


contain information as provided in the Production Statement. Value ol Production and


Pricing Statement. Cost Recovery and Cumulative Production Statements and Statement of


Expenditures and Receipts hut will be based on actual quantities of Petroleum produced and


expenses incurred. This Statement w ill be used to make any adjustments that arc necessary to


the payments made by the CONTRACTOR under the Contract. The Pinal Pind-ol-Ycar


Statement of each Calendar Year shall be submitted to the GOVERNMENT within ninety


(901 days of the end of such Calendar Year.


PARAGRAPH 11-AUDITS


Each such report and statement provided for in Paragraph 6 through 10 shall be considered


true and correct, unless the GOVERNMENT raises an exception thereto within the


timeframe and under the process set out in Article 15 of the Contract.








PARAGRAPH 12-ANNUAL WORK PROGRAM AND BUDGET


11.1 Each annual Work Program and Budget to be prepared in accordance with Articles


11,12 and 14 of the Contract, in resped of Exploration Costs. Gas Marketing Costs.


Development Costs and Production Costs respectively will show the following:


I LI.I Forecast expenditures for the budget Calendar Year in question including a quarterly


classification of such expenditures.


11.1.2 Cumulative expenditures to the end of said budget Calendar Year.


II 1.3 A schedule showing the most important individual items of Development Costs (if


applicable) for said budget Year.


PARAGRAPH 13 - CONTRACTOR ENTITY INCOME TAX COMPUTATION


13.1 l or the purpose of .Article 31.3(b) of the Contract, the net taxable profits of each


CONTRACTOR Entity from all the Petroleum Operations carried out under this


Contract, shall be calculated in accordance with this Paragraph.


13.2 Each CONTRACTOR Entity shall maintain for each Calendar Year separate


Accounts w ith respect to the Petroleum Operations which shall be used, inter alia, to


establish a profit and loss account and a balance sheet which will show the results of


the Petroleum Operations 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


for corporate income tax purposes:





13.3.1 the profit and loss account of such CONTRACTOR Entity shall he credited with the


following:


(n) if the Royalty is paid in cash pursuant to Article 24, revenues arising from the


disposal of Royalty volumes as recorded in such entity's Accounts and


determined in accordance with the provisions of Article 24;


(b) revenues arising from the disposal of any Available Petroleum to which such


entity is entitled for recovery of its Petroleum Costs us recorded in its


Accounts and determined in accordance with the provisions of Article 25;


(c) revenues from the disposal of any Profit Petroleum to which such entity is


entitled under Article 26 as is recorded in its Accounts and determined in


accoidance with the provisions of Article 26;





(d) any other revenues or proceeds directly connected to the Petroleum Operations


including those arising from the disposal of iclatcd Petroleum substances, or


from the treatment, storage and transportation of products for third parties;





|c) any exchange gains realised or other financial income earned by such entity in


connection with the Petroleum Operations;


13.5.2 the profit and loss account for such CONTRACTOR Entity shall be debited with all


charges incurred for the purposes of the Petroleum Operations whether incurred inside


or outside the Kurdistan Region, which charges shall include the following:


(a) in addition to the charges specifically set forth below in this Paragraph, all


other Petroleum Costs, including the costs of supplies, personnel and


manpower expenses, and the cost of services provided to the


CONTRACTOR in connection with the Petroleum Costs.


(b) if the Royalty is paid in cash pursuant to .Article 24, Royalty payments made





and as recorded in such entity's Accounts and determined in accordance with


the provisions of Article 24;


(c) General and administrative expenditures related to the Petroleum Operations





performed under this Contract;


id) depreciation of capital expenditure in accordance with the following


provisions:


(i) capital expenditures incurred by the CONTRACTOR for the purposes


of the Petroleum Operations shall be depreciated on a reducing balance


basis;


(ii) the depreciation rates, which shall be applicable from the Calendar


Year during which such capital expenditures are incurred, or from the


Calendar Year during which the assets corresponding to said capital


expenditures arc pul into normal service, whichever is later, for the


fust Calendar Year in question and for each subsequent Calendar Year,


arc as follows:

















Ccs


 Nature of the capital asset to be depreciated Annual depreciation Kate








Permanent buildings 10.0*


Temporary buildings 20.03





Office and home furniture and fixtures 20.0*


Productive wells 20.0*





Production and delivery equipment 20 0*





Drilling equipment 20.0*


Pipelines 20.0*





Automotive equipment 20.0*


Marine and aviation equipment 20.0*





All other capital assets 20.0*











(e) Exploration Costs (which for the avoidance of doubt include appraisal


expenditures) shall he deductible on a reducing balance basis at the rate of


20% per annum.


(0 interest and fees paid to cTcdil«>rs of the CONTRACTOR, for their actual





amount.




renounced or abandoned during the year, assets which arc transferred under


Aniclc 20.2. bail debts, indemnities paid to third panics as compensation for


damage;


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 .Article 32. the


Exploration Rental provided in Article 6.3. the Production Rental presided in


Article 13.10. (he 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;


0) 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;

















£-05


13.3.3. the net profit of such CONTRACTOR Entity shall lx- equal to the difference


between all the amounts credited and all the amounts debited in the profit and loss


account; and


(a) if this amount is negative, it shall constitute a loss.


(b) if the amount is positive, it shall be glossed up to take account of the fact that


such entity's corporate income tax is being settled out of the


GOVERNMENT'S share of the Profit Petroleum in accordance with Article


31.2, by applying the following formula in order to provide such entity’s net


taxable profits for corporate income tax purposes:


Net Tuxuble Net Profits/ f 100 - Applicable Rale of Coinuiaic Income l ax )


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 Operations carried out under this


Contract, the net taxable profits (if any) for such tax year shall I* multiplied by the


applicable rate of corporate income tax, as provided in Article 31.3(a).


 ANNEXC


JOA VOTINC; PROCEDIIRK








Except as otherwise expressly provided in this JOA. decisions, approvals and other actions of


the Operating Committee on all proposals coming before it shall be decided as follows


(A) All decisions, approvals and other actions as mentioned below shall


require the affirmative vote of at least fifty five percent (55%) of the


Participating Interests:


(1) Deepening. Testing. Sidetracking. Plugging B»:k. Recompiling or





Reworking Exploration Wells;


(2) Deepening. Testing. Sidetracking. Plugging Back. Recomputing or





Reworking Appraisal Wells;


(3) Production programs;





(4| Completion of a well;


(5) Plugging and abandoning a well;


(6) Acquisition of G & C. Data.





Subject to (C) all other decisions, approsals and other actions shall


require the affirmatise vote of two (2) or more Parties having


collectively at least seventy five percent (75 %) of the Participating


Interests.


(C) Matters concerning the following will require in all events unanimous


decision of the Operating Committee:


(1) drilling of Exploration Wells in excess of Minimum Work


Obligation


(2) voluntary relinquishment of pan or wh**lc of the Contract Area


(3) the declaration of a Commercial Discovery





(4) the approval of the Development Plan


(5) amendments to the Contract and this JOA




















C C^>


 •MV


OMV








H.E. Dr. Ashti Howrami


Minister of Natural Resources


Ministry of Natural Resources


Kurdistan Regional Government


Erbil, Kurdistan


Ropublic of Iraq





2jOO )





Undertaking of OMV Aktiengesellschaft ("OMV") regarding





Production Sharing Agreement of even date herewith between


the Kurdistan Regional Government (the 'Government") and


OMV Petroleum Exploration GmbH ("OMV Petroleum") for the OMVMtHam-wmi


Mala Omar Block In the Kurdistan Region of Iraq (the "PSA")








Excellency,





OMV is pleased that our subsidiary, OMV Petroleum, has entered


into the PSA with the Government.


Trt >4311) 40 446-73M3


Wo recognize that the Government wants to be comfortable that Fo> *4311) 40 440 7B999





OMV Potroloum will perform its obligations under PSA. The


purpose of this letter is to give the Government that comfort


Terms defined in PSA have the same meaning in this undertaking


letter.


In consideration of the Government entering into PSA with our





subsidiary, OMV Petroleum, OMV hereby confirms and


undertakes to the Government that OMV will provide all such


technical and financial resources as OMV Petroleum may require


in order to cause OMV Petroleum to perform its exploration


obligations under the PSA and in accordance with the terms of


the PSA. including the obligations of OMV Petroleum to carry out


exploration operations during the exploration period.








Yours faithfully.





























Exploration A Production Gmt>H











COS