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PRODUCTION SHARING CONTRACT
PULKHANA BLOCK 10
BETWEEN
THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ
AND
SHAMARAN PETROLEUM B.V.
AND
PETOIL PETROLEUM AND PETROLEUM PRODUCTS INTERNATIONAL
EXPLORATION AND PRODUCTION INC
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TAi»-Kwra.viffiyrs
PREAMBLE
Article 1 DEFINITIONS 5
Article 2 SCOPE OF THE CONTRACT 15
Article 3 CONTRACT AREA 18
Article 4 GOVERNMENT PARTICIPATION IS
Articles OPERATOR 20
Articles TERM OF THE CONTRACT 20
.Article 7 RELINQUISHMENTS 23
Articles MANAGEMENT COMMITTEE 24
Article 9 GUARANTEES 27
Article 10 MINIMUM EXPLORATION WORK OBLIGATIONS 28
Article 11 EXPLORATION WORK PROGRAMS AND BUDGETS 30
Article 12 DISCOVERY AND DEVELOPMENT 31
Article 13 DEVELOPMENT AND PRODUCTION WORK 35
PROGRAMS AND BUDGETS
Article 14 NATURALGAS 37
Article IS ACCOUNTING AND AUDITS 41
Article 16 CONTRACTOR’S RIGHTS AND OBLIGATIONS 43
Article 17 USE OF LAND AND EXISTING INFRASTRUCTURE 47
At tide 18 ASSISTANCE FROM THE GOVERNMENT 49
Article 19 EQUIPMENT AND MATERIALS 50
Article 20 TITLE TO THE ASSETS 50
Article 21 USE OF THE ASSETS 51
Article 22 SUBCONTRACTING 5!
Article 23 PERSONNEL TRAINING AND TECHNOLOGICAL ASSISTANCE 51
Article 24 ROYALTY 54
2 ni6
iKs
Ankle 25 RECOVERY OF PETROLEUM COSTS 55
Ankle 26 SHARING OF PROFIT PETROI-EUM 57
Article 27 VALUATION AND METERING OF CRUDE OIL AND 60
NATURAL GAS
Ankle 28 DOMESTIC MARKET - SALE OF GOVERNMENT SHARE 62
Article 29 FINANCIAL PROVISIONS 62
Article 30 CUSTOMS PROVISIONS 64
Article 31 TAX PROVISIONS 65
Article 32 BONUSES AND SHARES ISSUES 67
Article 33 PIPELINES AN IVOR OTHER TRANSPORTATION MEANS 69
Article 34 UMTISATION 71
Article 35 LIABILITY AND INSURANCE 72
Article 36 INFORMATION AND CONFIDENTIALITY 74
Article 37 ENVIRONMENTAL PROVISIONS 76
Article 38 DECOMMISSIONING 77
Article 39 ASSIGNMENT AND CHANGE OF CONTROL 79
Article 40 FORCE MAJBURE 80
Artklc 41 WAIVER OF SOVEREIGN IMMUNITY 82
Artklc 42 ARBITRATION AND EXPERT DETERMINATION 82
Article 43 GOVERNING LAW. FISCAL STABILITY. 85
AMENDMENTS AND VALIDTIY
Artklc 44 NOTICES 86
Article 45 TERMINATION 88
Article 46 APPLICATION OF CORRUPHON LAWS 89
Article 47 EFFECTIVE DATE 90
Annex A MAP SHOWING COORDINATES OF PULKHANA 91
BLOCK 10 CONTRACT AREA CORNER POINTS
Annex B ACCOUNTING PROCEDURE 92
A- k2 +
PRODUCTION SHARING CONTRACT
BETWEEN
The KURDISTAN REGIONAL GOVERNMENT OF IRAQ (hereafter referred to as the
“GOVERNMENT*), duly represented by the Minister of Natural Resources.
AND
S HAMA RAN PETROLEUM B.V.. (currently known as "BBPL International BV“> a
company established and existing under the laws of the Netherlands, having a registered
office at Amalias trial 3 - 5. 2514 JC. The Hague, the Netherlands, and which is pan of ihe
laindir family group of companies, duly represented by Keith C. ITili. its Attorney in Fact
(hereafter referred to as “SHAMARAN ’);
AND
PRTOIL PETROLEUM AND PETROLEUM PRODUCTS INTERNATIONAL
EXPLORATION AND PRODUCTION INC a company established and existing under
the laws of Turkey, whose registered office is at Filistin Caddesi No: 16. G.O.P., 06700
Ankara. Turkey, duly represented by Mchtnet Ali Ak (hereafter referred to as “PETOIL”).
t Iter cafits reflectively referred id as !bc '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 w:tl the Consiiijrioo 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 Lilw (as defined in this Contract). except with regard
to a matter wholly within the exclusive jurisdiction ol the Government of Iraq;
(C) The National Assembly of the Kurdistan Region approved ihe Oil and Gas I aw of the
Kurdistan Region Iraq (Law No. 22 of 2007) which law regulates 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 ocher
authorisation, to exempt investors m long term projects relating to the conduct of
petroleum operations in the Kurdistan Region from Kurdistan Region taxation, to
indemnify such holders against liability to pay such taxation, and/or to guarantee the
stability of the applicable legal, fiscal and economic conditions of such projects.
(E) The GOVERNMENT acting through the Interim Joint Regional Administration of
Northern Iraq and represented by the Regional Government (SuLumamyah
Administration) entered into a production sharing agreement dated 14 January 2003
with PI-TOIL, for the exploration and development of Petroleum in areas of the
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IK?
Kurdistan Region, including the area known ns Shakal, and the Contract Area (as
defined in this Contract) (hereafter referred to a$ the "Original Contract”);
(F) Die Original Contract was amended and restated by an Amended and Restated
Production Sharing Agreement between the GOVERNMENT, PETOIL, Shakal
Production f,td., and Trilax Oil Ltd. dated 25 February 2007, for the exploration and
development of Petroleum in the Shakal area only, and the GOVERNMENT
undertook to PETOIL. on that date, to recognise a continued PE I Oil, interest in the
Contract Area, and to enter into a production sharing contract in respect of the
Contract Area with PETOIL and such qualified company acceptable to the
GOVERNMENT, being a new entrant to the Kurdistan Region, as PETOIL may, in
its sole discretion, identify;
(G) Each CONTRACTOR Entity is a company,
(a) with the financial capability, and the technical knowledge and technical
ubilily. to carry out Petroleum Operations in the Contract Aren (as defined in
this Contract) under the terms of this Contract;
(b) having a record of compliance with the principles of good corporate
citizenship; and
(c) willing to cooperate with the GOVERNMENT by entering into this Contract,
thereby assisting the GOVERNMENT to develop the Kurdistan Region
petroleum industry, thereby promoting the economic development ot the
Kurdistan Region mid 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 oilier wise specified;
Abroad means outside of the Kurdistan Region and other parts 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 nn integral part of this Contract
Adjacent Contract Area is defined in Article 34.1.
Adjustment Date is defined in Article 27.6.
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Affiliated Company or Affiliate means, as regards any of the companies or entries
constituting the CONTRACTOR, a company or other legal entity which:
(a) controls a CONTRACTOR Entity; or
(b) is control led by a CONTRACTOR Entity; or
(c) controls or is controlled by a company or entity which controls n
CONTRACTOR Entity.
but shall not include the GOVERNMENT in respect of the Public Company. For the
purpose of this definition, “control” means direct or indirect ownership or control of
the majority of the voting rights of the applicable entity at its shareholders' meetings
or their equivalent
Agreed Terms is defined in .Article 14.10(a).
Appraisal Area means the area defined in Article 12.2.
Appraisal Work Program and Budget is defined in Article 12,2.
Appraisal Report is defined in Article 12.4.
Appraisal Well means a well drilled for the purpose of evaluating ihc commercial
potential ora geological feature or a geological structure in which Petroleum has been
discovered.
Arm's-Length Sales means sales of Petroleum in freely convertible currencies
between sellers and buyers having no direct or indirect relationship or common
interest whatsoever with each other thai could reasonably influence the sales price.
Such Arm's-Length Sales shall exclude:
(a) sales between or among any of the CONTRACTOR Erwin and their
(c) sales involving exchanges and any transactions aoc relating to normal
commercial practices.
Assets means nil land, platforms, pipelines, plant, equipment, machinery, wells,
facilities and all oilier installations and structures and all Materials and Equipment.
Associated Natural Gas means (i) any Natural Gas dissolved in Crude Oil under
reservoir conditions and (ii) any residue gas remaining after the extraction of Crude
Oil from a reservoir.
Audit Request Period is defined in /Article 15.3(a).
Available Associated Natural Gas is defined iri Article 25.1.
Asalia Me Crude Oil is defined in Article 25.1.
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Available Non-Assoclatcd Natural Goa is defined in Article 25.1.
Available Petroleum Is defined in Article 25.1.
Barrel means a quantity of forty two (4?) US gallons ns a unit to measure liquids, at a
temperature of sixty degrees (60"> Fahrenheit and pressure or fourteen point seven
(14.7) psi.
Budgets means any budgets prepared by. or on behalf of, the CONTRACTOR
pursuant to this Contract and forming part of an Exploration Work Program and
Budget und/or an Appraisal Work Program and Budget and/or n Gas Mx'kcting Work
Program and Budget and/or a Development Work Program and Budget and/or a
Production Work Program and Budget.
Calendar Year means a period of twelve (12) consecutive Months, commencing 1
January and ending on JI December of the same year.
Capacity Building Bonus means the Capacity Building Bonus First Tranche and
the Cnpnclty Building Bonus Second Tranche.
Capacity Building Bonus is defined in Article 32.2.
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 data collected
when carrying out appraisal works or similar operations, including recoverable
reserves of Petroleum, sustainable regular production levels and other material
technical, operational, commercial and financial parameters, all in accordance with
prudent international petroleum industry practice.
Commercial Production means the production of Petroleum from the Pn diction
Area in accordance with annual Production Work Program and Budget.
Common Shares is defined in Article 32.5.
Common Shares - First Tranche is defined in Article 323
Common Shares - Second Tranche is defined in Article 32.4
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 tint
are an integral part hereof, as w-ell 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 roodificaticm
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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 foot the
Effective Date or any anniversary of that date
CONTRACTOR includes and comprises each and all COM RACTOR Entities,
including any assignee of all or part of the rights and obligations of z
CONTRACTOR Entity under this Contract in accordance with Article 39, but not
including any holder of the Government Interest
CONTRACTOR Entity means any Person which is for the time being a component
of the CONTRACTOR, and/or any assignee of all or part of the rights and
obligations of such Person under this Contract in accordance with Article 39, but not
including any holder of the Government Interest. I or the avoidance of doubt, at any
time when there is only ooe entity constituting the CONTRACTOR, any reference
mode in this Contract to The entities constituting the CON I RACTOR' or the
'CON I It ACTOR entities" or subOh retcrcr.ee. "a \* cccmcd « WO* * fe cadi
constituting the CONTRACTOR". SHAMARAN and PETODU as the
CONTRACPOR Entities as at the Effective Date, own an undivided interest ir. the
Petroleum Operations in respect of the entire Contract Are* in the following
percentages at the Effective Date:
SHAMARAN 60%
PKTOII, 20%
Ihc balance of the interest in Petroleum Operations in respect of the entire Contract
Area, being twenty per cent (20%), is the Government Interest as defined in Ankle
4.1.
Crude Oil means ail liquid hydrocarbons in their unprocessed state or obtained &om
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 andor removal andor abandonment and
making safe all of the Assets and she restoration and remediation related tfcrwo in
relation to any Production Area.
Decommissioning Plan is defined in Article 38.7.
Decommissioning Reserve Fud 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.
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Delivery Point means the point Of points after extraction, specified in the approved
Development Plan for a Production Area, at which the Crude Oil, Associated Natural
Gas and/or Non-Associated Natural Gas is metered for the purposes of Article 27 5,
valued for the purposes of Article 27.1 and ready to be taken and disposed of.
consistent with prudent international petroleum industry' practice, and at which a Party
may acquire title to its share of Petroleum under this Contract or such ocher 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 Optra lions means all development operations or works conducted in
accordance with a Development Plan up to the Delivery Point with a view to
developing a Production Area, including: drilling of wells; primary and subsequent
recovery projects and pressure maintenance: survey, engineering, building and
erecting or laying of production plants and Utilities (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 transportahon of Petroleum); obtaining of such materials, equipment,
machinery, items and supplies as may be required or expedient for the foregoing
activities; and all auxiliary operafrens 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 Ankle 12.8.
Development Well means any well drilled after the date of approval of the
Development Plan Cor the purpose of producing Petroleum, increasing or accelerating
production of Petroleum, including injection wells anc dry boles. Any well drilled
within a Production .Area shali be deemed a Development Well.
Development Work Program and Budget means the development wo;k program
and budget prepared pursuant to Article 13 2.
Discovery means a discovery of Petroleum within the limits of the Contract Area
resulting from Petroleum Operations carried out under this Contract, provided such
Petroleum is recoverable at the surface with a measurable flow utilising techniques
used in prudent international petroleum industry practice.
Dispute is defined in Article 42.1.
Dollar (USS) means the legal currency (dollar) of the United States of America
(USA).
Effective Date means the date on which the conditions referred to in Article 47 have
been fulfilled.
Environment Fund is defined in Article 23.9.
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yWs-
Equipment und Male rials is defined in Article 19.1.
Exploration Cost* means all the costs and expenditure incurred by the
CONTRACTOR when carrying out Exploration Operations, including those defined
in the Accounting Procedure.
Exploration Operations means any and all operations conducted with a view to
discovering Petroleum, including: any activities necessary to commence operations:
any topographical, hydrographical, geological, geophysical, aerial and other surveys
and activities (including interpretations, analyses and related studies) to investigate
the subsurface for the location of Petroleum; drilling of shot holes, cote holes arid
stratigraphic test holes; spud, drilling, testing, coring, logging and equipping of
Exploration Wells or Appraisal Wells; procurement of such services, material,
equipment, machinery, items and supplies as may be required or expedient for the
foregoing activities; and all auxiliary operations and activities required or expedient
for the conduct of the foregoing activities.
Exploration Period is defined in Article 6.
Exploration Rental is defined in Article 6,4.
Exploration Well means any well drilled for the purpose of confirming a geological
structure or stratigraphic unit in which no Discovery has previously been made by the
CONTRACTOR
Exploration Work Program and Budget means the exploration work program and
budget prepared pursuant to Article 11.1.
Export Crude Oil n defined in Article 24.2.
Export Noo- A»*ociatrd Natural Gas is defined in Article 24.2.
Eiport Petroleum is defined in Article 242.
First Secoad and Third Exploration Wdb or Appraisal Wrlh are defined k>
Article 10.2 (e).
First Production means the moment when Commercial Production of Crude Oil or
Non-Associated Natural Gas (as the case may be) first commences, by flowing a: the
rate forecast in the Development Plan without interruption tot a mini* xum of forty-
eight (48) hours.
Force Majeare is defined in Article 40.2.
Fourth and the Fifth Exploration or Appraisal Wells it defined m Article 10.3(b).
Gms Dev Wopaent a defined in Ankle N. 10.
Gas Marketing Costs means ail costs and expenditure maned by the
CONTRACTOR when carrying out Gas Marketing Operations, including those
defined in the Accounting Procedure.
1
Gas Marketing Operations means £5i> and all of the activities
contemplated by Article 14.6.
Gas Marketing Work Prof ram and Budget means the market in* work program
and budget prepared pursuant to Article 14.1
Government Interest is defined in Article 4.1.
Government of Iraq meats the Federal Government of the Republic of Iraq. Much
holds office under the Constiubor. of Iraq and any rambler, ministry, department
sub-division, agency, authority, council, committee, or erther constiaicnt element
•hereof 2nd JuU. witJkxf )imraton. inebde any corpenuk* owned anti or ccoiroUed
by any of the foregoing
International Market Price is defined in Article 27.?.
Iraq means Ihc 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 mternatiooal petroleum indusffy
practice: (b) as belwccn such entities, supplementary to this Contract; and (c)
consistent w ith the provisions of the Coobact-
KardLstan Region means the Federal Region of Kurd Un recognised by the
Constitution of Iraq aad having the same mama* as ‘Region' in the Kurdistan
Region Oil and Gas Law.
Kurdistan Region Law mea^s all satutes. decrees, edicts, codes, orders. *ules.
Ordinances and regulations of the GOVIlRNMI NT or of any other l
territorial, provincial, or any other duly constituted governmental authority or agency
in the Kurdistan Region.
Kurdistan Region Oil and Gas Low means the Oil and Gas 1 aw of the Kurdistan
Region - frnq (Law iVo. 22 of2007} as rtte same may 6c artendoi.
I.iiw moans all applicable laws including the following . <-m(itutional law. civil law.
common law, international law, equity, treaties, statutes, decrees, edicts, codes,
orders, judgements, rules, ordinances und regulations of any local, municipaL
territorial, provincial, federated, national . .r any other duly constituted governmental
authority or agency.
LC1A is defmed in Ankle 42.1(b).
LIBOR means the London Lntrr-Bank GfTercd Rate at which Dollar deposits for one
(1) month are offered in the inter-ask ca.-iet in London. » qi>
Tunes of London for the day in question. In the event that such rale M not published in
the Financial Tanes. it shaf mean the London Interbank Offered Rate at which
Dollar deposits for one month are offered for the nearest day as queued by National
Westminster Bonk pk.
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Management Committee is defined in Ankle 8.
Maiimum Efficient Rate (“MER") is defined in Artkle 16.12.
Mainin Exploration OM^atioas » defined in Article 10.1.
Mi aim am Financial Commitment OMBt;
(a) in respect of the First Sub-Period. the total of the amounts set out in Articles
10.2(d) and 10.2(e); and
(b) in respect of the Second Sub-Period, the amount set out in Article 10.3(b).
Month means a calendar month according to the Gregorian calendar.
Natural (ins means all gaseous Petroleum nnd inerts.
Non-Associated Natural Gas means any Natural (ins which is not Jmy Associated
Natural Gas.
Notice of Dbputc is defined in Article 42.1.
Operator means SI1AMARAN pursuant to Article 5, or another entity designated by
the CONTRACTOR pursuant to Article •> which, in the name and on bclult of the
( ONTRACTOR. shall carry out all Petroleum Operations. If at any time there exists
more than one (1) Operator under this Contract, any reference herein to the term
•Operator’ shall be to each Operator with respect to the parts of the Contract Area in
which such Operator conducts Petroleum Operations.
Original Contract means the production sharing agreement dated 14 January 2003
with PETOIL, such production sha ing agreement amended and restated by an
Amended and Restated Production Sharing Agreement between the
GOVERNMENT. PETOIL, Sbahal Production Ltd., and Tribu Oil Ltd., dated
25 February 2007.
F.rt> or Parties means the GO\T.R N ME NT antVor c*:b CONTRACTOR Entity
and'or he CONTRACTOR
Permits means all licences, permit*, consents, authorisatioss or other permissions, as
the context requires.
Persoa shall include natural and juristic persons (including corporations and
Petrokn ru means:
(a) any naturally occurring hydrocarbon in a gaseous or liquid state;
(b) any mixture of naturally occurring hydrocarbons in a gaseous or liquid state;
or
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(c) any Petroleum (as defined in paragraph; (a) and (b) above) that has been
returned to a Reservoir.
Petroleum Costs means all costs and expenditure incurred by the CONTRACTOR
for the Petroleum Operations, and which the CONTRACTOR
under This Contract and its Accounting Procedure, including Decommissioning Costs,
Development Costs, Exploration Costs, Gas Marketing Costs, Transportation Costs
and Production Costs.
Petroleum Field means a Reservoir or group of Reservoirs within a common
geological structure or stratigraphic unit, which may become part of a Production
Area pursuant to a Development Plan.
Petroleum Operations means all Exploration Operations. Gas Marketing Operations.
Development Operations. Production Operations and Decommissioning Operations,
as well as any other activities or operations directly or indirectly related or connected
with the said operations (including health, safety and environmental operations and
activities) and authorised or contemplated by, or performed in accordance with, this
Contract
Production Area means .such areas within the Contract Area designated as a
production urea m an approved Development Plan prepared pursuant to Article 12.
I or the avoidance of doubt, all superjacent or subjacent strata of the Reservoir in
which a Commercial Discovery is located arc automatically included in die relevant
Production Area.
Production Bouu* means any bonus due purcuant to Article 32.7 or 32.8,
Production Costs means all the costs and expenditure incurred by die
CONTRACTOR in carrying out the Production Operations, including those dr/iord
in the Accounting Procedure.
Production Operations means any works, together with all related and auxilary
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 Ankle 26.1
Profit Natural Gas is defined in Article 26.1.
Profit Petroleum is defined in Article 26.1.
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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 (JOVF.KNMRNT under the Kurdistan Region
Oil and Gas Law.
Public Officer means a civil servant, including a member or employee of a public
entity, a member of the Kurdistan National Assembly or a member of the
GOVERNMENT.
Quarter means a period of three (3) consecutive Months starting on the first day of
January, April, July or October respectively.
Reservoir means n subsurface rock lommtlon containing an individual and separate
nuturai accumulation of producible Petroleum characterised by a single natural
pressure system.
“K” Factor is defined in Article 26.4.
Royalty is defined in Article 24.
Semester means a period of six (61 consecutive Months starting from the first day of
January or July respectively.
Senior Representative is defined in Article 47 1(a).
Signature Bonus is defined in Article 32.1.
Subcontractor means any entity of any contracting tier providing services and/o:
undertaking works relating to the Petroleum Operations directly or indirectly on
bchalfof. the CONTRACTOR or any < 'ONI UACIOR Polity
Sub-Period and Sub-Periods ore defined in Article 6.2.
Tai or Taxes means all current or future levies, duties, payments, charges,
impositions, imposts, wdhholdrags, fees, taxes tiacludrag value added tax or other
duty, land tax. reparation tax. capital and wealth tax. profit tax. dmdewi tax or
withhold mgs. transfer ux. easterns duties, branch or perroment establishment ax or
will holdings, tax on income from movable capital and fixed tax on transfers) or
contributions payable to or imposed by the GOVERNMENT
Transportation Costs is defined in Article 33.5
Work Program means any work program prepared by, or on behalf of. the
CONTRACTOR pursuant lo this Contract and forming part of an Kxploration Work
Program and Budget and'or an Appraisal Work I’rogram and Budget and'or a Gas
Marketing Work Program and Budget and'or a Development Work Program and
Budget and'or a Production Work Program and Budget.
I4fll*
Vice-Chairman is defined in Article 8.1.
1.2 In Ibis Contract, unless the context otherwise requires or is specifically otherwise
staled:
(a) headings are to be ignored;
(b) “including" and similar words do not imply any limitations;
(c) singular includes plural and vice versa; and
(d) reference to an "Article” is to an article of this Contract and to a •‘Paragraph"
is to a inragraph in the Accounting Procedure.
ARTICLE 2 - SCOPE OF THE CONTRACT
2.1 This Contract is a production-sharing arrangement with respect to the (\mlract 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 obligators of the
Parties and the terms ur.d conditions under which the CONTRACTOR tul! 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.
2.1.1 The Parties hereby agree that this Contract may be terminated by either the
GOVERNMENT or SHAMAKAN, acting reasonably, by giving each of the other
Parties written notice (hereafter the "Special Termination Notice")
(a) at any time, that the Contract Area, in part or in whole, is determined in
accordance with Artiefe (40 of the Constitution of fraq, or by any other
settlement agreement reached between the GOVERNMENT and the
Government of Iraq, to lie outside the boundaries of the Kurdistan Region
and/or is otherwise not wholly within the authority and control of the
GOVERNMENT and/or is illegal or otherwise not ia compliance with Law;
(b) not later than the date thirty (30) days prior the expiry of the First Sub-Period,
that in the reasonable view of the notifying Party, a determination, in
accordance with Article 140 of the Constitution of Iraq, or in accordance with
any other settlement process agreed between the GOVERNMENT and the
Government of Iraq, as to whether the Contract Area Ls wholly within the
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boundaries of ihc Kurdistan Region and wholly within the authority and
control of the GOVERNMENT and in compliance with Law. remains in
dispute, and/or is unresolved such that the CONTRACTOR is not able or.
acting reasonably, not willing to proceed with or invest in further wotk in the
Contract Aren.
If a Special Termination Notice is delivered in accordance with this Article 2.1 I. the
GOVERNMENT shall reimburse each CONTRACTOR Entity for all Petroleum
Costs incurred by such CONTRACTOR Entity from the Effective Date until the date
of termination. Such reimbursement shad be made by the GOVERNMENT within
sixty (60) days following the date of the delivery of the Special Tctir.ination Notice in
accordance with this Article 2.1.1. The Contract shall only be terminated in
accordance with this Article 2 1 I following satisfaction by the GOVERNMENT or
such reimbursement.
2.: ,2 The provisions of Article 2.1.1 shall not affect the rights of the GOVERNMENT and
Ihc CONTRACTOR to terminate this Contract in accordance with Article 45
2.2 Upon the CONTRACTOR'S request, the GOVERNMENT shall provide and/or
procure all Permits reluting to the Petroleum Operations required by the
(CONTRACTOR to fulfil us obligations under this Contract, including those relating
to any extension and renewal periods one including those required by the Government
of Iraq Hie GOVERNMENT (i) represents and warrants to the CONTRACTOR
Iluii 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 oi pursuant to this Contract; and (ii) covenants that it will not do. or omit to do.
anything that would cause the cancellation or suspension of Hus Contract or any
Permit granted under this. Article 2.2 or pursuant to this Contract Fot the avoidance
of doubt, nothing in this Article shall affect the rights and obligations of the Parlies
pursuant to Article 43.
2 3 The CONTRACTOR (hall coodua all Petroleum Operations within the Contract
Area at its sole cost, risk and peril on behalf of the GOVERNMENT, pursuant to this
Contract, including the following operations
(a) Technical Services
Implementation of all technical, human and material resources reasonably
tequired for execution of the Petroleum Operations, in accordance with
prudent international petroleum industry practice.
(b) financial Services
The responsibility for funding the Exploration Operations and. in the event of
a Commercial Discovery. Development. Production and
Operations, pursuant to this Contract
Foe the funding of Petroleum Operations, each CONTRACTOR Entity sbal.
be entitled to have recourse to external financing from either its Affiliated
Com pan «s or from any third parties.
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(c) Administrative Services
Impko^ntaboa of ail appropriate management and adimmstratwo lecWaqoes
for execution o< the Petroleum Operations under this Contract in accordance
with prudent iirematiooil petroleum industry practice.
2.4 During the term of this Contract, the CONTRACTOR shall be responsible 10 the
GOVERNMENT for tiie 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
(.'onuact, even if the CONTRA(’ TOR discovers any such resources when executing
its obligations pursuant to this Conlruct.
2.6 The CONTRACTOR shall only be entitled to recover Petroleum Costs incuirnl
under this Contract in the event ol n Commercial Discovery. Recovery of Petroleum
Costs shall occur within the limits piovidcd under Article 25.
2.7 Dunn j the term of this Contract. Profit Cmde Oil and/or Profit Natural Gas produced
from JVi/nlrum Operations shall he 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 we” as any fa. In -\
associated with the Petroleum Operations, wherever they may be located.
(b) fier y esc access roads located within the Contract Area and outside the
Contract Area for the constriction, 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 oc outside the Contract Area for the Petroleum Operations.
for the conduct of Petroleum Operations in accordance with Articles 22 and
23. Any foreign personne. wooing in the Kurdistan Region siul require pnor
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;
(e) import any goods, materials, equipment and/or services required lor the
Petroleum Operations in nccorclnncc with Articles 19.22 arid 30; and
(f) freely use land or property belonging to the Kurdistan Region, anti the
GOVERNMENT will assist the CONTRACTOR with facilitating the use by
the CONTRACTOR of any private property in the Kurdistan Region.
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ARTICLE 3 - CON I R ACT ARE A
The initial Contract Area covers the Pulkhana Block 10 and extends over an area of live
hundred ami twenty nine point four eight square kilometres (52948 km}), as detailed and
indicated on the mip attached in Annex A and Is delimited by the following coordinates:
WGS 84 UTM Zone 38N [M]
P( Latitude [ Longitude | Easting Northing
A 34,57‘35” 44“32'39’' 458.386 3.868.672
B 35’01’35" 44’ 39-4 T 469.142 3.876.034
c 34°47’44" 44’55'Or 492.441 3.850.361
D 34"45'54" 44°50'11” 485.028 3.847.006
E 34543‘28" 44,42‘52’‘ 473.851 3.842.519
The GOVERNMENT, by execution of this Contract, hereby validates and approves the
foregoing co-ordinates of the Contract Area.
1 he total area of the Contract Area may be reduced only in accordance with the provisions of
this Contract.
ARTICLE 4 - GOVERNMENT PARTICIPA I KIN
Government Interest
4 I The GOVERNMENT shall participate in this Contract through a Public Company,
effective from the Effective Date in respect of the entire Contract Area with an
undivided interest in the Petroleum Operations and all the other rights, duties,
obligations and liabilities of the CONTRACTOR (save as provided in and subject to
this Article 4) under this Contract in respect of the Contract Area, of twenty per cent
(20%) (the “Government Interest”).
4.2 Tlic Public Company shall not have any Lability to the CONTRACTOR Entities to
contribute its Government Interest share of all PcL-oleum Costs, whenever those
Petroleum Costs may be incurred, and its Government Interest share of such
Petroleum Costs shall be the responsibility of the CONTRACTOR Entities foe tlic
duration of this Contract, provided always that CONTRACTOR Entities shall be
entitled to recover all such Petroleum Costs in accordance with Article 2.> For the
avoidance of doubt, the Public Company shall contribute its share of Production
Bonuses attributable to the Government Interest and payable pursuant to Articles 32.7
and 32 8.
For the purposes of Article 37 of the Kurdistan Region Oil and Gav Law. the
Government Interest shall be deemed to be held by the GOVERNMENT and .n
accordance with the principle in Article 16.13. the Public Company will be
individually and separately liable (and not jointly and severally liable with the other
CONTRACTOR Entities) to the GOVERNMENT for its obligations, duties and
liabilities ur.dci this Contract and the provisions of Article 4.5 shall apply.
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4.3 The Public Company may. at its discretion, assign pan or all of its Government
Interest to a tlmd party or parties which is another Public Company duly authorised
by the GOVERNMENT, provided that ir no event shall a transfer be made which
would result tn the transferor or transferee holding less than a five per cent (5%)
participating interest.
in the event of such an assignment to anothci Public Company, for the purpose of
Article 37 of the Kurdistan Region Oil and Gas Law. the Government Interest so
assigned shall be deemed to be held by the GOVERNMENT and in accordance with
the principle in Article 16 13. the Public Company to which such Government Interest
is transferred will be individually and separately liable {and not jointly and severally
liable with the other CONTRACTOR Entities) to the GOVERNMENT for its
obligations, duties and liabilities under this Contract and the provisions of Article 4.4
shall apply.
4.4 Any failure by the Public Company to perform any of its obligations or to satisfy any
of its duties or liabilities under this Contract sliall no; be considered as a default of the
CONTRACTOR Entities and shall in no ease 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 it may arise pursuant to the provisions of this
Contract, shall in no event cancel or affect the rights of the CONTRACTOR Entities
to seek to settle a dispute or to refer such dispute to arbitration or expert determination
in accordance with the* provisions of .Article **2.
4.5 A Public Company may assign par? or sll of its GovontiMK Initvec io a third party or
parties {not being a Public Company) and for Hie avoidance of doubt the provisions of
Articles 39.1. 39.2 and 39.3 shall not apply. Any such assignee shall have the iame
rights and responsibilities held by the Public Company poor to the assignment
For the avoidance of doubt, following any assignment by a Public Company part or
nil of a Government Interest to a thud party which is not a Public Company, in
accordance with the provisions of this Article 4, the provisions of Articles 39 1. 39.2
and 39.3 shall apply to any subsequent assignment of such interest
•Joint Operating Agreement Provisions
4.6 Any Joint Operating Agreement entered into in relation to this Contract shall be
consistent with the principles of this Article 4 and shall provide as follow s
(a) all decisions of any operating committee established under such Joint
Operating Agreement sliall require the affirmative vote of an agreed
percentage of participating interests held thereunder, which in any event shall
be not more than sixty per cent (60**); and
(b) in the event of a proposed transfer by any CONTRACTOR Entity of pan of a
participating interest under such Joint Operating Agreement.
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AS
(i) oo transfer may be mode which woukl result in the transferor or
transferee holding less than a five per cent (5%) participating interest;
(ii) the proposed third party assignee must demonstrate to the reasonable
satisfaction of each of the extant CONTRACTOR Entities that it has
the financial capability to perform its |>ayment obligations under the
Contract and under the Joint Operating Agreement; and
(lii) the proposed third piuty assignee shall enter into an instrument
satisfactory to each of the extant CONTRACTOR Entities so as to
assume and to perform the obligations of the transferor.
ARTICLE S - OPERATOR
5.1 SHAMARAN shall from the Effective Dale act as the Operator on behalf OJ the
CONTRACTOR for the execution of the Petroleum Operations. 1 he
CONTRACTOR shall at any time have the right to appoint any of the
CONTRACTOR entities as the Operator, upon giving the GOVERNMENT not lr-ss
than thirty (30) days prior written notice of such appointment, and to be approved by
the Government.
5.2 The CONTRACTOR shall submit to tlic GOVERNMENT for comment any
agreement regarding or regulating the Operator's appointment and its conduct of
Petroleum Operations on behalf of the CONTRACTOR pursuant to this Contract
prior to execution of such agreement.
5.3 In the event of the occurrence of either of the following, the GOVERNMENT may
require the CONTRACTOR to appoint another entity .« Operator as soon as is
reasonably practicable:
(a) if 2n order has been passed in court declaring :he bankruptcy, liquidation, or
dissolution of the Operator; or
(b) if the Operator terminates the activities under this Contract delegated to it by
the CONTRACTOR or a material proportion thereof, and. as a result the
CONTRACTOR fails to fulfill us obligations under the Contract.
ARTICLE 6 TERM OF THE CONTR ACT
6 I This Contract comprises an Exploration Period and a Development Period as define.:
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 (2) sub-periods as follows:
(a) an initial sub-period of tluce (3) Contract Years ("First Sub-Period”); and
(b) a second sub period of iwo (2) Contract Years CSecood Sub-Period),
each a “Sub-Period " end collectively Sub-Periods’
ft is understood that (he right of the CONTRACTOR to accede to the next Sitb-
Pcri-d 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 (as the case may be)
6.3 During the Exploration Period, the CONTRACTOR shall pay to the
GOVERNMENT, in arrears, an annual surface rental for tbc Contract Area, as may
be reduced by relinquishment from time to time pursuant to Article 7. of ten Dollars
(US$10) per square kilometre per Contract Year (“Exploration Rental”). Such
Exploration Rental shall be considered as a Petroleum Cost and shall be recovered by
the CONTRACTOR id accordance with the provisions of Articles 1 and 25.
6 4 If the CONTRACTOR deckles not to enter into the Second Sub-Period, it shall
notify the GOVERNMENT at least thirty (30) days prior to tbc expiry of die First
Sub-Period, and 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.
6.5 If the CONTRACTOR has fulfilled its Minimum Exploration Obligations for a Sub-
Period of the Exploration Period but considers that additional work is required prior
(a) to deciding to submit an Appraisal Work Program and Budget as provided
unde: Article 12.2 in respect of a Discovery, or
(b) to deciding to declare a Discovery as a Commercial Discovery in accordance
with Article 12.6(a) or 14.5(a), which additional ««.r. may include the
preparation and/or execution of sn Appraisal Work Progum aod BLdgei as
provided under Article 12.2 and/or Gas 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). The
CONTRACTOR’S notification of its intention to exercise such extension and its
duration shall be submitted in writing to the GOVERNMENT at least thirty (30)
days prior to the end of the then current Sub-Period or the end of the then current
extension (us the case may be).
6.6 Without prejudice to Article 6.5, upon expiry of the initial term of the Exploration
Period, if it considers it has not completed its exploration evaluation of tlie Contract
Area, the CONTRACTOR shall be entitled to an extension of the Second Sub-
Period, provided it notifies the GOVERNMENT in writing at least thirty .30) days
prior to the end of such Sub-Period, togethci with .i proposal for a minimum work
obligation for such extension. Any such extension shall not exceed one (1) Contract
Year, {/port the expiry of such extension, if ,i consider. >: has soJJ not complied its
evaluation of the Contract Area, the CONTRACTOR shall be entitled to a funher
extension of one (1) Contract Year provided that it notifies tbe GOVERN'MEN I in
writing at least thirty (30) days poor to the end of tlx original extension. The right of
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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 Ankle 6 4. at any time during tbe 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
ObUgglioas relating to the then cunezii Sub-Period have bcco 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
SubPenod
6.8 It no Commercial Discovery has been made at the end of the Exploration Period
(including any extensions thereof) this Contract shall terminal.
6.9 If a Discovery is made within the maximum Exploration Period of seven (7) Contract
Years (as provided in Article 6.2). and if the CONTRACTOR considers ii 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 a: ieast thirty (30) days prior to the end of the maximum
Exploration Pcnod, together with a proposal for Gas Marketing Operations to be
undertaken during such extension. If granted by the GOVERNMENT, any such
extension shall not exceed two (2) Contract Years. Upon the expiry of such extension,
if it considers :t has still not completed its Gas Marketing Operations relating to such
Discovery, the CONTRACTOR shall be entitled to request a further extension of
two (2) Contract Years provided that it so requests the GOVERNMENT in writing at
least thirty (30) days prior to the end of the original extension, together with a
proposal for Gas Marketing Operations to t>c undertaken during such extension
Development Period
6.10 If the CONTRAC TOR considers that u Discovery of Crude Oil and any Associated
Natural Gas is a Commercial Discovery, the CONTRACTOR shall have the
exclusive right to develop and produce such Commercial Discovery, pursuant to the
terms of this Contract. The Development Period for a Commercial Discovery of
Crude Oil and any Associated Natural Gas shall lie 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-Associntcd Natural Gas is
a Commercial Discovery, the CONTRACTOR shall have the exclusive right to
develop and produce such Commercial Discovery, pursuant to the terms of this
Contract The Development Period for a Commercial Discovery of Non-Associated
Natural Gas shall be twenty (20) years, commencing on the declaration of such
Commercial Discovery by CONTRACTOR, in accordance with Article 12.6(a) or
Article 14.5(a). with an automatic right to a five (5) year extension.
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6.12 Tf Commercial Production from a Production A\rca is still possible al die end of its
Development Period us defined in Articles 6.10 or 6.11 then, upon its request, the
CONTRACTOR shall he entitled to uu extension o!' 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 Oi; and any Associated Natural Cas. and/or
(b) five (5) Years for Non-Associated Natural (Jus.
6.13 The CONTRACTOR shall have the right to laminate 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 tlic last Production Aiea or when Production
Operations for all Production Atcas have terminated.
ARTICLE 7 RF.LINQI TSHMENTS
7.1 Subject to the provisions of Articles 7.2 and 7.3. the CONTRACTOR shall surrender
portions of the Contract Area as follows:
fa) at the end of the initial term of the Exploration Period referred to in Article
6.2, tsventy five per cent (75%) of the net area determined by subtracting the
Production Areas from the initial Contract Area;
(b) at the end of the first extension period entered into under this Contract after
the end of the initial term of the Exploration Period referred to in Article 6.2,
an additional twenty five per cent (25%) of the net area determined by
subtracting the Production Areas from the remaining pan of the Contract
Area; and
(c) at the end of the Exploration Period (including al) extensions ibeteof). all of
the remaining area that is not m a Production Aren
7.2 For the application of Article 7.1:
(a) any areas already relinquished pursuant to Article 7.4 shall be deducted from
areas to be surrendered; and
(b) the CONTRACTOR shall have the right to determine the area, shape and
location of the Contract Area to be kept, provided that such surrendered
portions of the Contract Area shall be in contiguous blocks.
7.3 II the relinquishment refened to in Article 7.1 can only be achieved b) including pan
of an Appraisal Area, then these percentages shall be reduced to exclude such
Appraisal Area.
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7.4 During the Exploration Pcr.od, the CONTRACTOR may at the end of each Contract
Year surrender ail or any pan of the Contract Area by written notice sent to the
GOVERNMENT 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.
7.5 No surrender provided under Article 7.4 shall exempt the CONTRACTOR from its
outstanding obligations under this Contract. In the event the CONTRACTOR elects
to surrender the entire Contract Area without having fulfilled the Minimum
Exploration Obligations relating to the then current Sub Period as provided in Article
10.2 oi Article 10.3. the CONTRACTOR shall pay to the GOVERNMENT the
relevant outstanding amount as detailed in Article 10.2 or Article 10 3, ns the. case
may be.
7.6 The boundaries of the portion of the Contract Area to be rclinquislved hy 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.
A RT1CLE X MANAGEMENT COMMUTES
8.1 A Management Committee shall be established within thirty (30) days following the
infective Date for the purpose of providing orderly direction of all matters pertaining
to the Petroleum Operations and the Work Programs Within such period, each of (be
GOVERNMENT and the CONTRACTOR shall by written notice nominate its
respective members of the Management Committee and then deputies
The Management Committee shall comprise two (2) members designated by the
GOVERNMENT .md two (2) members designated by the CONTRACTOR
Upon ten (10) days nouce. each of tb« GOVERNMENT and the CONTRACTOR
may substitute any of its members of the Management Committee. The chairman of
the Management Committee shall be one of the members designated by the
GOVERNMENT (the "Chairman''.. The vice-chairman of the Management
Committee shall be one of the members designated by the CONTRACTOR (the
•Vice-Chairman *)- In the absence of the Chairman, the Vice-Chairman shall chair
the meeting
Ei:h Party shall have the rigfrr to invite a reasonable Bomber of observers as deemed
necessary to aixnd the meetings of the Management Committee in a non voting
capacity.
8.2 The Management Committee shall review, deliberate, decide and give advice,
suggestions and recommendations to the Parties regarding the following subject
matters:
(a) Work Programs and Budgets;
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(e) production levels submitted by t.»c CONTRACTOR, based oa prudent
international petroleum industry practice;
(d) Accounts of Petroleum Costs;
(c) procurement procedures lor potentiid 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 othci subject matter of a material nature that the Parties are willing to
consider
8.3 Each of the GOVERNMENT and the CONTRACTOR shall have one (1) vote in
the Management Committee. Tlte Management Committee cannot validly deliberate
unless each of the GOVERNMENT and the CONTRACTOR is represented by at
least one (1) of its members or its deputy.
The Management Committee shall attempt to reach unanimous agreement on any
subject matter being submitted In the event the Management Committee cannot
reach unanimous agreement, a second meeting shall be held within fourteen (14) days
to discuss the same subject matter and attempt to reach a unanimous decision.
Except as provided for in Article 8.4, in the event that no agreement U reached at the
second meeting, the matter will be referred by the CONTRACTOR :o the Minster of
Natural Resources to reach an agreement, :n the absence of which the rutter will be
referred to an Export as defined in and in accordance with Article 42.2.
8.4 In the event that, during the Exploration Period and until the completion of the
Development Plan, no agreement is reached a: the second meeting of the N1.ir.agemerit
Committee, as provided for in Ar.icte S3, or urauwacus approval js sc* obtained, as
required pursuant to Article 8.5. then the proposal made by the CONTRACTOR
shall be deemed adopted by the Management Committee.
8.5 Subject to Ankles 8.3 and 8.4. unanimous approval of the Management Committee
shall be required for:
(a) approval of. ar.d any material revision to. any Exploration Work Program and
Budget prepared alter the first Commercial Discovery in the Production Area
relating to such Commercial Discovery;
(b) approval of. and any material revision to. the Development Plan, the
production schedule, lifting schedule and Development and Production Work
Programs and Budgets;
(c) establishment of rules of procedure for the Management Committee;
(d) any insurance issues over which the Management Committee has authority;
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(C) approval of. and any material revision to, procurement procedures fcr 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 Ankle 19.3);
(I) approval of, and any material revision to, any proposed pipeline project,
submiWed by CONTRACTOR in accordance with Article 33.3;
(g) approval of a fust rate bank in which to place the Decommissioning Reserve
Fund, in accordance with Article 38.1;
(h) appioval of, and any mair.riHl revision to. any proposed Decommissioning
Plan submitted pursuant to Aiticle 38.7 on any Decommissioning Work
Program and budget or Gas Marketing Wort. Program and Budget;
(i) any Terms of Reference which are required to he prepared and agreed for Ihc
purposes of expert determination, pursuant to Article 42.2;
(j) approval of any costs in excess of ten per cent (10%) above any Budget; and
(k) any waiter having a material adverse effect on Petroleum Operations.
8.6 Ordinary meetings of the Management Committee shall take place in the Kurdistan
Region, alternately at the offices of the GOVERNMENT and those of the
CONTRACTOR, or at any other location agreed between Parties, at least twice a
Contract Year prior to the date of tlic fust Commercial Discovery and three times a
Contract Year thereafter.
8.7 Either the GOVERNMENT or tl* CONTRACTOR may call an extraordinary
meeting of the Management Committee to discuss important issue* or developments
related to Petroleum Operations, subject to giving reasonable prior notice, specifying
the matters to be discussed at the meeting, to tlie 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 m such correspondence
8.8 Unless at least one (1) member or its deputy of each of the GOVERNMENT and the
CONTRACTOR is present, the Management Committee shall be adjourned for a
period not to exceed eight (8) days. The Party being present shall then notify the other
Party of the new dale, time and location for the meeting.
8.9 The agenda for meetings of the Management Committee shall be prepared by the
CONTRACTOR in accordance with instructions of the Chairman and communicated
to the Panics at least fifteen (15) da>s prior to the date of the meeung. The agenda
shall include any subject matter proposed by either ihe GOVERNMENT or the
CONTRACTOR Decision* of the Management Committee will be mace at the
meetings The CONTRACTOR shall be responsible for preparing and keeping
minutes of the decisions made at the meetings. Copies of such minutes shall be
forwarded to each Party for review and approval. Each Party shall review and
approve such minutes within ten (10) days of receipt of the draft minutes. A Party
who fails to notify in writing us approval or disapproval of such minutes within such
ten (10) days shall be deemed to hare approved the minutes
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8.10 If required, the Management Committee may request the creation of a technical sub¬
committee or any other sub-committee to assist it. Any such sub-committee shall
composed of a reasonable number of experts from (he GOVERNMENT and the
CONTRACTOR. After each meeting, the technical sub-committee or any oilier sub
committee shall deliver a written report to the Management Committee.
8.11 Any costs and expenditure incurred by the CONTRACTOK for meetings of the
Management Committee or any technical sub committee or any other sub-committee
shall he considered as PWroieum Costs and shill be recovered by (lie
CONTRACTOR in accordance with the provisions of Articles I and 25.
ARTICLE 9 - GUARANTEES
9.1 Each CONTRACTOR Entity shall provide the GOVERNMENT, if so required by
the latter pursuant to written notice received by the CONTRACTOR Entity within
thirty (30) days of the Effective Date, with a corporate guarantee in a form as shall be
agreed in good faith between the GOVERNMENT and each CONTRACTOR
Entity not later than ninety (90) days after the Effective Date, provider I that such
corporate guarantee shall be given only in respect of die Minimum Financial
Commitment for the First Sub Period, . and shall expire automatically upon
completion of the performance of the Minimum Exploration Obligations set out in
Article 10.2(d) and (e) or expenditure of such Minimum Financial Commitment,
whichever is the earlier.
9.2 Not h;ei than sixiy (60) days after the commencement c»f 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 GO\T;RNME\T and each
CONTRACTOR Entity for the Bret Sub-Penod, if any. subject to nuking the
cringes necessary in order for the corporate guarantee to apply only to the
Second Sub-Period, ot
(b) if there is no agreed foun. in a form as shall be agreed m good faith between
the GOVERNMENT and each CONTRACTOR Entity not later than ninety
(90) days after the GOVERNMENTS notice.
and provided in each ease 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 autonuiically upon completion of the performance of
the Minimum Exploration Obligations set out in Article 10 3 (b) or expenditure of
such Minimum Financial Commitment, whichever is the earlier.
9.3 In the event of an assignment by a CONTRACTOR Entity m accordance with
Article 39. the relevant third party assignee shall piovidc ibe GOVERNMENT, if so
required by the laltcr pursuant to written notice given to such avrignee within thirty
(30) days of the Effective Date, with a corporate guarantee in the form agreed
pursuant to Article 9.1 or 9.2, as applicable to the then current Sub-Period or. in the
absence of any such agreed form of corporate guarantee, in a form as shall be agreed
ak. m ^
in good faith between the GOVERNMENT and such assignee not later than ninety
(90) days after the effective date of the assignment, provided that such corporate
guarantee shall be given only in respect of the Minimum Financial Commitment for
the then current Sub-Period, and shall expire automatically upon completion of the
performance of the Minimum Exploration Obligations set out in Articles 10.2(d) and
(c) or Article 103(b), us the ease may be, or expenditure of such Minimum Financial
Commitment, whichever is the earlier.
ARTICLE 10- MINIMUM EXPLORATION WORK OBLIGATIONS
10.1 The CONTRACTOR shall start Exploration Operation* within thirty (30) days of
Management Committee approval of the Exploration Work Program and Budget in
accordance with Article 8. The CONTRACTOR sliall perform geological,
geophysical and/or drilling works as provided under Articles 10.2 to 10.3 (the
"Minimum Exploration Obligations”). If applicable, the said Minimum Exploration
Obligations shall be performed during each Sub-Period in accordance with prudery,
international pr Itokom ihdMtiy practice
10.2 During the Fust Sub Period, tl>c CONTRACTOR shall
(a) carry 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 fol.owing.
(i) well data, if available, for example, electric logs.
(ii) seismic data and gravity data, if available; And
(iii) reprocess the seismic data, if available;
(c) perform field work comprising structural, stratigraphic and lithologic mapping
and sampling;
(d) acquire, process and interpret two hundred and fifty (250) line kilometres of
two dimensional seismic data, committing for this purpose a minimum
financial amount of five million Dollars (US$5,000,000);
and
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process and interpret the seismic data provided to the CONTRACTOR in
accordance with Article 6.3: and
(e) drill three (3) Exploration Wells or Appraisal Wells (the ''First. Second, and
Third Exploration or Appraisal Wells"), committing for this purpose a
minimum financial amount of thirty million Dollars (US$30,000, OCO).
10.3 During the Second Sub-Period, the CONTRACTOR shall
(a) acquire, process and interpret further seismic data (being either two
dimensional or three dimensional), if the CONTRACTOR considers that the
results from the Fiiy Exploration Well or Appraisal Well (as the case may be)
justify the acquisition of further seismic data; and
(b) drill two (2) Exploration Wells or Appraisal Wells (the "Fourth and the Fifth
F.xploration or Appraisal Wells**) committing for this purpose a minimum
financial amount of twenty five million Dollars (S25.000.000). unless the data
from the First. Second and Third Exploration or Appraisal Wells demonstrates
that there is not a reasonable technical case for drilling the Fourth and Fifth
Exploration or Appraisal Wells in the Contract Area.
10.4 Notwithstanding the provisions in Articles 102 to 10.3. for the execution of the
Minimum Exploration Obligations under Articles 10.2 to 10.3, it is agreed as follows.
(a) Minimum Exploration Obligations in the Second Sub-Pcnod shall only apply
in the event the CONTRACTOR has not elected to notify the
GOVERNMENT -hat it will not enter into tbc Second Sub-Period, in
accordance with and subject to Article 6.4.
Minimum Exploration Obligations for the applicable Sub-Period, even if tins
entails exceeding the Minimum Financial Oiimiutment fur such Sub-Arriix/
If the CONTRACTOR has satisfied its Minimum Exploration Obligations
without liaving spent the total Minimum Financial Commitment for such Sub
Period, it shall be deemed to have satisfied its Minimum Exploration
Obligations for such Sub-Period.
(c) Each Exploration Well or Appraisal 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 or Appraisal Well presents a hazard due to the
presence of abnormal or unforeseen conditions;
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(v) petroleum formations are encounter*! whose penetration requires
layir.f protective casing that does no: enable the depth agreed by the
Management Corrunittce to be reached.
If drilling is stopped for any of the foregoing reasons, the Exploration Well or
Appraisal Well shall be deemed to have been drilled to the depth agreed by the
Management Committee and the CONTRACTOR shall be deemed to have
satisfied its Minimum Exploration Obligations in respect of the Exploration
Well or Appraisal Well.
(d) Any geological or geophysical work carried out or any seismic data acquired,
processed or interpreted or any Exp!orat.on Well or Appraisal Well drilled or
any other work performed in excess of the Minimum Exploration Obligations
and/or any amounts spent in excess of the total Minimum financial
Commitment in any given Sub-Pcnod. shall be earned forward to the next
Sub-Period or any extension period and 'hall be taken into account to satisfy
the Minimum Exploration Obligations and/or the total Minimum Financial
Commitment for such subsequent Sub-Period or extension period.
(e) For the avoidance of doubt, if: (i) in the First Sub-Period, the
CONTRACTOR performs any of the Minimum Exploration Obligations
prescribed for the Second Sub-Period in Article 10.3: and (u) the
CONTRACTOR has not elected to notify the GOVERNMENT that it will
not enter into the Second Sub-Period (in accordance with aid subject to
Article 6.4), the performance of such Minimum Exploration Obligations shall
be deemed to satisfy the same Minimum Exploration Obligations for il»e
Second Sub-Pcriod.
ARTICLE II - 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 3 proposed work program and
budget relating to Exploration Operations (the "Exploration Work Program and
Budget") for the remainder of the Calendar Year. Thereafter, r.o later than 1 October
m each Calendar Year, the CONTRACTOR shall submit a proposed Exploration
Work Program and Bodge* to ihs Management Conuninee for the foUowiag Calendar
Year.
11.2 Each Exploration Work Program and Budget shall include details of. but not be
limited to. the following
(a) work to be undertaken;
(b) materials, goods and equipment to be acquired;
(c) cost estimate of services to be provided, including services by third parties
and/or Affiliated Companies of any CONTRACTOR Entity; and
(d) estimated expenditures, broker, down by cost centre in accordance with the
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Accounting Procedure;.
11.3 The Management Committee shall meet within sixty (60) days following its receipt of
CONTRACTOR'S pioposal to examine and approve the Exploration Work Program
and Budget.
f (.4 if the GOVERNMENT requests any modification to the Exptorarron Work Program
and Budget, the Management Committee shall meet to discuss the Exploration Work
Program and Budget and proposed modifications thereto within the sixty (60) day
period referred to~ in Article 11.3. The CONTRACTOR shall communicate its
comments on any such requested modifications to the GOVERNMENT at the*
meeting of the Management Committee or in writing prior to such meeting
11.5 The CONTRACTOR shall be authorised to make expenditures not budgeted in an
approved Exploration Work Program and Budget provided that the aggregate amount
of such expenditures shall not exceed ten per cent (10%) of the approved Exploration
Work Program and Budget in any Calendar Year and provided further that such
excess expenditures shall I* retried as soon as is reasonably practicable to the
Management Committee. For the avoidance of doubt ail excess expenditures shall he
recovered by die CONTRACTOR in accoatence m
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
116 In case* of emergency, the CON TRACTOR 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. Pot the
avoidance of doubt, such additional expenditure shall be considered Petroleum C-. t
and shall be recovered by the CONTRACTOR in accordance with the provisions of
Articles 1 and 25.
ARTICLE 12-DISCOVERY AM) DEVELOPMENT
12.1 If the drilling of an Exploration Well results in a Discovery, the CONTRACTOR
shall notify the GOVERNMENT within forty-eight (48) bouts of completing tests
confirming the presumed existence of such Discovery or w thin su.l. longer period .is
the CONTRACTOR reasonably requires to determine whether or not there
Discovery. Within thirty (30) days following notification of the laid Discovery, the
CONTRACTOR shall present to the Management Committee all technical data then
available together with its opinion or. the commercial potential of the s.nJ Discovery
(the "Discovery Report”). The CONTRACTOR shall provide in a timely manner
such other information relating to the Discovery as the GOVERNMENT may
reasonably request.
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 tin:
GOVERNMENT of the Discovery, submit an appraisal program in respect of the
Discovery (the ‘‘Appraisal Work Program and Budget") to the Management
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Committee. The Management Committee shall examine the Appraisal Work Program
and Budget within thirty (30) days of its receipt. If die 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 (he
requested modifications thereto within sixty (60) days from its receipt of the proposed
Appraisal Work Program and Budget. The CONTRACTOR shall communicate its
comments on any such requested modifications to the GOVERNMENT at the
meeting of the Management Committee or in writing prior to such meeting.
The Appraisal Work Program and Budget shall include the following
(a) an appraisal works program and budget, in accordance with prudent
international petroleum industry practice;
(c> the delimitation of the area to be evaluated, the surface of which shall not
exceed twice (2 x) the surface of the geological structure or prospect to be
appraised (the “Appraisal Area”).
12.3 If, following n Discovery, a rig acceptable to the CONTRACTOR is available to drii:
■i well the CONTRACTOR may drill any additional P.xplorwion Well or any
Appraisal Well deemed necessary by the CONTRACTOR before or during the
Management Committee’s review of the l>iscovery Report provided in accordance
with Article 12.1 or its review of the Appraisal Work Program and Budget
The CONTRACTOR shall be authorised to incur expenditures not budgeted in an
approved Appraisal Work Program and Budget provided that tiw aggregate amount of
such expenditures shall not exceed ten per cent (10%) of the approved Appraisal
Work Program and Budget in any Calendar Yea: and provided farther 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 l
and 25, provided that any excess expenditures above the ten per cent (10%) limn shall
only be recovered with the unanimous approval of the Management Committee
Appraisal Report
12.4 The CONTRACTOR shall submit a detailed report relating to the Discovery (the
''Appraisal Report”) to the Management Committee within ninety (90) days
following completion of tl* Apprmsal Work Program and Budget.
12.5 The Appraisal Report shall include the following:
(a) geological conditions.
(b) physical properties of any liquids;
(c) sulphur, sediment and water content;
(d) type of sultsiances obtained;
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(e) Natural Gas composition;
(f) production forecast per well; and
(g) .1 preliminary estimate of recoverable reserves.
12.6 Together with its Appraisal Report, the* CONTRACTOR shall subm 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 .1 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 Nog-Associated Natural Gas, which may become a Commercial
Discovery subject to Gas Marketing Operations, in accordance with Article
145.
12.7 In case the statement of the CONTRACTOR corresponds to Article 12.6(c). the
CONTRACTOR shall submit u Work Program and Budget u. the Management
Committee within thirty (30) days following such statement. Any well drilled to
evaluate the said significant Discovery sh«.i be considered an Exploration Well
Ih-iflooment Pten
12 8 If the Discovery has been declared a Commercial Discovery by the CONTRACTOR
pursuant to Article 12.6(a) or Article 14.5(a), the CONTRACTOR shall submit a
proposed Development Plan to the Management Committee within one hundred
eighty (180) days following such declaration. The Development I'Ian shall he 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) faying of gathering pipelines;
33/1 If,
(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 and storage
facilities onshore or offshore;
(g) laying of export pipelines inside or outside the Contract Atcj to die storage
facility or Delivery Point;
(h) construction of storage facilities for Petroleum;
(i) plan for the utilisation of Associated Natural Gas.
(j) training commitment in accordance with Article 23;
(k) a preliminary decommissioning and site restoration plan.
(l) all contracts and arrangements made or to be made by the CONTRACTOR
for the safe of Naiuraf Gas;
(m) to the extent available, all contracts and arrangements made or to be made by
Persons in respect of that Natural Gas downstream of the point at which it is to
be sold by the CONTRACTOR and which arc relevant to the price at which
(and other terms on which) it is to be 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 ic an
Arm’s Length Sale;
(n) each CONTRACTOR Entity’s plans foe financing its imrrest. if any. and
(o) nay ocher operations not expressly provided for tn chit Contract bn: ic^utnibly
necessary for Development Operations, Production Operations anil delivery of
Petroleum produced, in accordance with prudent international petroleum
industry practice
12.9 The Management Committee shall use its best efforts to approve the Development
Plan within sixty (60) days after its receipt of such plan. The Development Period for
each Commercial Discovery within n Development Plan shall be extended for the
number of days in excess ol such sixty (60) day period that it takes for :hc
Management Committee to approve the Development Plan. The Development Plan
shall be considered approved by the GOVERNMENT if the GOVERNMENT,
tlirough its representatives on the Management Committee, indicates its approval in
writing.
! 2.10 If the GOVERNMENT requests any modifications to the Development Plan, then the
Management Committee shall mm within sixty (60) days of receipt by the
CONTRACTOR of the GOVERNMENT’S written notification of requested
modifications accompanied by all the documents justifying such request, and shall
discuss such request. The CONTRACTOR shall communicate ns comments on any
such requested modifications to die GOVERNMENT at such meeting or in writing
prior to such meeting. Any modification approved by tin; Management Committee at
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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 If the CONTRACTOR makes several Commercial Discoveries within the Contract
Area each .such Commercial Discovery will have a separate Production Area. The
CONTRACTOR shall be entitled to develop and to produce each Commercial
Discovery and the GOVERNMENT shall provide the appropriate Permits covering
each Production Area. In ease the area covered by the Commercial Discovery extends
beyond the boundaries of the Contract Area, and to the extent such area outside the
Contract Area is not the subject of a Petroleum Contract (as defined in the Kurdistan
Region Oil and Gas I .aw) with a third party, the provisions of Article 34.2 shall apply.
ARTICLE 13 - DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND
BUDGET
13.1 Upon the approval of the Development Plan by the Management Committee, the
CONTRACTOR Shafi staff the Development Operations for (be Commercial
Discovery in accordance with the Development Plan and prudent international
petroleum industry practice.
Approval Of Development W orks Proiirnrn and Budget
13.2 Within ninety (90) days following approval of the Development Plan by the
Management Committee, the CONTRACTOR shall prepare and submit to the
Management Committee a proposed work program and budget for Development
Operations (the “Development Work Program and Budget"; to be 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 subnut to the
Management Committee updates in respect of its Development Work Program and
Budget. To enable the Management Committee to forecast expenditures, each
Development W ork 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 panics and
Affiliated Compani-s of any CONTRACTOR Fntity, and
(d) categories of genend and administrative expenditure.
13.3 If any modification to the Dctcloptneaf Work Program Aid H.xlgci is retooled by
the GOVERNMENT, the Management Committee shall meet to discuss the
Development Work Program and Budget and proposed modification* thereto within
sixty (60) days from its receipt of the proposed Development Work Program and
Budget. The CONTRACTOR shall communicate its comments on any such
requested modifications to the GOVERNMENT .it the meeting of the Management
Committee or in writing pnor to such meeting.
35/116
IAS
13.4 The CONTRACTOR shall be authorised to incur expenditures not budgeted in an
approved Development Work Program and Budget provided that the aggregate
amount of such expenditures shall not exceed ten per cent (10%) of the approved
Development Work Program and Budget in any Calendar Year and provided further
that such excess expenditures shall he reported as soon us 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 he recovered with the unanimous approval of the Management
Committee.
13.5 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. Fot the
avoidance of doubt, such additional expenditure shall be considered Petroleum Costs
and shall be recovered by the CONTRACTOR in accordance with the provisions of
Articles 1 and 25.
Approval of Annual Production Works Programs and Budget
13.6 No Inter than 1 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 shell prepare and submit to
the Management Committee a proposed work program and budget for lYoduchon
Operations (the “Production Work Program and Budget") for the following
Calendar Year. To enalrie the Management Committee to forecast expenditures, the
Production Work Program and Budget shall include details of the following:
(a) works to be carried out;
(b) material and equipment to be acquired by main categories;
(c) type of services to be provided, distinguishing between third parties and
Affiliated Companies of any CONTRACTOR Entity; and
(d) categories of general and administrative expenditure.
13.7 If any modification to the Production Work Program and Budget is requested by the
GOVERNMENT. the Management Committee shall meet to discuss the Production
Work Program and Budget and proposed modifications thereto w ithin sixty (60; days
from its receipt of the proposed Production Work Program and Budget. The
CONTRACTOR shall communicate its comments on any such requested
modifications to the GOVERNMENT at the meeting of the Management Committee
or in writing pnor to such meeting.
13.8 The CONTRACTOR shall be .wihorised to incur expenditures not budgeted m 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
AK ks
excess expenditures shall be reported ns soon as reasonably practicable to the
Management Committee. For the avoidance of doubt, all excess expenditures shall be
recovered by the CONTRACTOR in accordance with the provisions of Articles 1
and 25. provided that any excess expenditure above the ten 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 to protect life, environment or property. Such additional
expenditure.' 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 I 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 Aren,
of ten Dollars (US$10) per square kilometre |*r Contract Year (“Production
Rental"). Such Production Rental shall he considered a Petroleum Cost and shall
be recovered by the CONTRACTOR in accordance with the provisions of Articles 1
and 25.
ARTICLE 14 - NATURAL GAS
Use for the Petroleum Operations
14.1 lo take account of Specific conditions relating to Natural Gas and to promote its
development in the Kurdistan Region, the GOVERNMENT will grant specific
benefits to the CONTRACTOR on principles maic:iiUl> 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 aid tbe 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, tbe CON TRACTOR shall m
priority use any Natural Gas for the purpose of enhancing recovery of Crude Oil in
accordance with prudent international petroleum industry practice as follows.
Associated Natural Gas
14.3 Any excess Associated Natural Gas produced that is neither used in the Petroleum
Operations nor developed and sold by the CONTRACTOR shall, upon the
GOVERNMENT’S written request, be transferred a: the first practicable delivery
point as agreed between the Parties, free of charge to the GOV ERNMENT. 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 offukc of such
excess Associated Natural Gas by the GOVERNMENT sh'ill 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
37/116
agreed delivery point shall be considered Petroleum Cost* and shall be recovered by
the CONTRACTOR in accordance with the provisions of Articles 1 and 25.
In the event the GOVERNMENT finds a market for Assoc rated Natural Gas. it shal
promptly give written notice to the CONTRACTOR, and the CONTRACTOR may
elect to participate in supplying such Associated Natural Gas within ninety (90) days
following notification thereof by the GOVERNMENT. If the CONTRACTOR
elects to participate in supplying Associated Natural Gas to such market, all
expenditures associated with any necessary facilities shall be paid for by the
CONTRACTOR For the avoidance of doubt, such expenditure incurred shall be
considered Petroleum Costs and shall be recovered by the CONTRACTOR in
accordance with the provisions of Articles 1 and 25.
14 4 Until ar. approved Natural Gas sales contract is executed in respect of all volumes of
Natural Gas expected to be produced, the CONTRACTOR shall be entitled Juring
the Exploration Penod and the Development Period to carry out Gas Marketing
Operations.
14.5 If. pursuant to Article 12.6(d). the CONTRACTOR has determined that the
Discovery is a significant Discovery of Non Associated Natural Gas. which may
become a Commercial Discovery subject to Gas Marketing Operations, it shall carry
out Gas Marketing Operations, at the end of which it shall submit a written statement
to the Management Committee specifying that
(a) the CONTRACTOR has determined that the Discovery is a Commercial
Discovery; or
(b) the CONTRACTOR has determined that the Discovery is not a Commercial
Discovery.
14.6 For the purpose of this Contract. "Gas Marketing Operations" means any activity
under this Contract relating to the marketing of Non*A$sociale
including any evaluation to find a commercial market for such Non-Associated
Natural Gas and/or to find a commercially viable technical means of extraction of
such Non-Associated Natural Gas and may include activities related to evaluating the
quantities of Non-Associatcd Natural Gas to be sold, its quality, the geographic
location of potential markets to be supplied as well as evaluating the costs of
production, transportation and distribution of the Non-Associatcd Natural Gas from
the Delivery Point to the relevant market.
14.7 All costs and expenditure incurred by Che CONTRACTOR in the performance of the
activities ir. relation to the Gas Marketing Operations shall be considered Petroleum
Costs.
14.8 No later than 1 October of the Calendar Year preceding the Calendar Year in which
any Gas Marketing Operations are due to occur, the CONTRACTOR shall prepare
and submit to the Management Committee its Gas Marketing Work Program and
Budget for the following Calendar Year. To enable the Management Committee to
38/116
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 tl»c 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 tlte proposed Gas Marketing Work Program and Budget.
The CONTRACTOR shall communicate its comments on any such requested
modifications to the GOVERNMENT at the meeting of the Management Committee
or in writing prior to such meeting,
14.9 The CONTRACTOR shall be authorised to incur expenditures no: 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 Gas
Marketing Work Program and Budget in any Calendar Year and provided further that
such excess expenditures shall bo reported as soon as reasonably practicable to the
Management Committee. h'or the avoidance of doubt, all excess expenditures sh.il! be
recovered by the CON TRACTOR in accordance with the provisions of Articles 1
and 25, provided that any excess expenditure above tt.c ten per cent (109: limn shall
only be recovered with iltc 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 Nor.-Associated Natural Gas
Discovery will only be a Commercial Discovery if certain terms of this Contract axe
amended, it shall be entitled to request amendments to this Contract, with its reasons.
The GOVERNMENT shall in good faith give reasonable consideration to the
CONTRACTOR'S proposed amendment ar.d reasons and the Parties hall in good
faitli 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 G-rnmercial Discovery ir
accordance with Article 12.6(a) or Article 14.5(a), ar.d subsequently within a period
of eight (8) years from the end of such Exploration Period, the GOVERNMENT
reaches agreement with any third party to develop such Discovery the "Gas
Development"), then the following provisions shall apply:
(a) either before or upon agreement in relation to the Gas Development having
been reached (and whether or not such agreement is recorded in a fully termed
production sharing and/or operating or other like agreement), but before such
agreement is signed (the "Proposed Contract") (subject only lo the rights of
each CONTKACTOR Entity to pre-empt such Proposed < lontruet pursuant to
Article 14.10(b) and such conditions as may he applicable), the
GOVERNMENT shall, as soon as reasonably practicable after the occurrence
of such Circumstances, wr oa each of the CONTRACTOR Entities, a
notice to that effect and shall with such notice provide sixrh information and
main terms of such agreement as the CONTRACTOR Entities may
reasonably request to determine if they will exercise their rights (the ‘'Agreed
Terms '), including.
(i) the identity of such third party;
(ii) die effective dnto of the Proposed Contract;
(lii) the applicable cottuneicial 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 .my CONTRACTOR Entity, tl>r 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 CONTRACTOR Endue* shall elect either:
(i) to enter into the Proposed Contract on the san* or substantially similar
terms to the Agreed Terms, with the right to cost recover all Petroleum
Costs Incurred under this Contract against nil Petroleum revenues
received under the Proposed Contract, up to any cost recovery limits
set out therein; or
(ii) to waive tltc aforesaid right of pre-emption in retain >n to the Proposed
Contract;
nnd shall serve notice accordingly upon the GOVERNMENT and »l. ibe
CONTRACTOR Eniuica xx1 m detauAr of ncapt by ihr GOVERNMENT
of any such notice within such period of one hundred and eighty 180) days
such CONTRACTOR I ntity shall be deemed conclusively to have served a
notice electing to waive its aforesaid right of pre-emption in relation to the
Proposed Contract
In the event that more than one of the CONTRACTOR Entities exercises its
rights under Article Id 10(b)(i> in relation to ihc Proposed Contract, then the
GOVERNMENT shall transfer or grant each such CONTRACTOR Entity
an interest in the Proposed Contract upon the Agreed Tcims (in accordance
with A Hide 11.10(b)(1)) in the proportions in which their respective
percentage ininest* bcai to the aggregate of their respective percentage
interests under the relevant Joint Operating Agreement (os it applied at the end
of the Exploration Period) or in such other proportions as such
CONTRACTOR Emilies shall agree between them
(d) In the event that one of the CONTRACTOR Entities exercises its lights
under Article II.IOtbHi) in relation to the Proposed Contract then the
1/ 4
GOVERNMENT shall transfer or grant the whole of (lie interest in the
Proposed Contract upon die Agreed Terms (in accordance with U.HXbXO) to
such CONTRACTOR Entity.
(e) In the event that none of the CONTRACTOR Entities exercises its rights
under Article M.KXbXi) 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 shaff
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 effect which may hamper
the Petroleum Operations of the CONTRACTOR while producing Petroleum.
Flaring
14.12 Flaring of Natural Gas in the course of activities provided for under this Contract, is
prohibited except (i) short-term flaring up to twelve (12) Months necessary for testing
or 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 net
justified technically and economically and provided the GOVERNMENT decides
not to take such Associated Natural Gas), or (ii) with the prior authorisation of the
GOVERNMENT, such authorisation not to be unreasonably withheld or delayed
The CONTRACTOR .shall submit such request to the GOVERNMENT, which shall
include on evaluation of reasonable alternatives to flaring that have been considered
along with information on the amount and quality of Natural Gas involved and (tic
duration of the lequested flaring
ARTICLE 15 - ACCOUNTING AM) Alum'S
15.1 The CONTRACTOR shall keep in its offices in the Kurdistan Region copies of nil
books ./u(> Jccwnis of all revenues relating lo ihf Petroleum Operations and all
Petroleum Costs (the “Accounts"), except during the Exploration Period, when the
CONTRACTOR shall be entitled to keep the Accounts at i:s headquarters Abroad.
The Accounts shall reflect in detail expenditure incurred as a function of tlie
quantities and value of Pcirolcuni produced, and shall be kept (or a period of live (5)
years All Accounts which arc made available to the GOVERNMENT in accordance
with the provisions of this Contract shall be prepared in the English language. The
Accounts shall hr kept in accordance with prudent international petroleum industry
practice and in accordance with the provisions of the Accounting Procedure. The
Accounts shall he kept in Dollars, which shall l>c the reference currency for (lie
purposes of this Contract.
15.2 Within ninety (90) days following the end ol each Calendar Year, the
CONTRACTOR shall submit to thr GOVERNMENT a summary statement of all
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Petroleum Costs incurred during tire 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 tc each Calendar Year within
a period of two (2) Calendar Years following the er.d of such Calendat Year
(the "Audit Request Period"); anti
(b) to retain an auditor of international standing familiar with international
petroleum industry accounting practice to undertake or assist the
GOVERNMENT to undertake the audit
Notwithstanding paragraphs (a) and (h) 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 rase of manifest error or fraud.
15.4 The reasonable cost of retaining an auditor pursuant to Article 15.3 shall be borne by
the CONTRA! TOR and treated as n Petroleum Cost for the purpose of cost recovery
under Articles I and 25.
15.5 During the Audit Request Period for any Calendar Year but not thereafter, the
GOVERNMENT, acting reasonably and in accordance with prudent international
pctioleum industry practice, may request in writing all reasonably available
information and justifications for its audit of Petroleum Costs.
15 6 S Ik hi Id :1k- GOVERNMENT consider. or the basis of da* aid icfcrcrauoo available,
that the CONTRACTOR made a material m lake or there :s any irrcp.iloniy in
respect of the Accounts and considers that any corrections, adjustments or
amendments should be made, the GOVERNMENT shall make any audit exceptions
in writing and notified ro 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 Ik- an acknowledgement of the correctness of the
CONTRACTOR S Accounts.
15.7 In respect of any audit exception made by the GOVERNMENT in accordance w ith
Article 15 6. the CONTRACTOR shall then have uxly (60) days to make necessary
corrections, adjustments or amendments or to present its comments in writing or
request a meeting with the GOVERNMENT The GOVERNMENT shall withm
thirty (30) days of the CONTRACTOR'S response, notify the CONTRACTOR m
writing of its position on the corrections, adjustments, amendments or comments. If
then • irr tlxrre still exists a disagreemrr. between the GOVERNMENT and the
COM RACTOR. the dispute will be willed in accoMance with Article 15.9
15.8 In addition to the annual statements of Petroleum Costs as provided in Article 15.2.
the CONTRACTOR shall provide the GOVERNMENT with such production
statements and reports, as required pursuant to Article 16 3.
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15.9 Any dispute between the Parties under this Article 15 that cannot he settled amicably
within sixty (60) days of tlie GOVERNMENT'* 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 422. Notwithstanding
iltc provisions of /Vrriefe 42. in fhi's specific instance da decision of the expert shall
not necessarily be final and either Party may decide to submit the matter to arbitration
in accordance with the provisions of Article 42.1.
ARTICLE 16 - CONTRACTOR'S RIGHTS AND OBLIGATIONS
Permanent Representative
16.1 If not done already, within ninety (90) days following the Effective Date, each
CONTRACTOR Entity shall open an office and appoint a permanent representative
in the Kurdistan Region, who may he 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 oat all Petroleum Operations in accordance with she
provisions of this Contract, prudent international petroleum industry police and
applicable Kurdistan Region Law.
The CONTRACTOR shall be responsible for the condoci. management, control and
administration of l*etrolcum Operations and shall be entitled (o conduct Petroleum
Operations in accordance with the provisions of this Contract In conducting its
Petroleum Operations, the CONTRACTOR shall have the tight to use any Affiliate
of each CONTRACTOR Entity, its and their Subcontractors, and the employees.
consultants, and agents of cud: of the foregoing. The CONTRACTOR and aJJ such
Persons shall at all times have free access to the Contract Area and any Production
Areas for the purpose of carrying out Petroleum Operations.
i ultimate m»m1 Kvwrls
16.3 The C ON TRACTOR shall provide the GOVERNMENT with pciiodic data and
acLtvity reports relating to Petroleum Operations. Said repons shall include details of
the following:
(a) information and data regarding all Exploiation Operations. Development
Operations and Production Operations (as applicable) performed during the
Calendar Year, including any quantities of Petroleum produced and sold:
(b) data and information regarding any transportation facilities built and operated
hy the CONTRACTOR.
(c) a statement fcpecifytog 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 acquited for the Petroleum
Operations, indicating the date and price or cost of tlieir acquisition.
16.4 The CONTRACTOR mny freely use any Petroleum pioduccd within the Contract
Area for the Petroleum Operations, including the use of Pcirokum or Natural Gas for
power generation.
J6 .< The CONTRACTOR shad at all tunes provide reasonable askance as may
reasonably be requested by the GOVERNMENT during it\ review aod verificauoo
of records and of any other information relating to Petroleum Operations at the
offices, worksites or any other facilities or the CONTRAtTOR
Upon giving reasonable prior notice to the CONTRACTOR, iho GOVERNMENT
may send u tcasonable number of representatives to the work sites or any other
facilities of the CONTRACTOR in the Kurdistan Region to perform such reviews
nnd verifications The representatives of the GOVERNMENT shall at all times
comply with .my safety i emulations imposed by the CONTRACTOR and such
reviews and verifications shall not hinder the smooth progress of tlie Petroleum
Operations.
16.6 For the performance of the Petroleum Operations, the CONTRACTOR, any Affiliate
of each CONTRACTOR Entity, its and their Subcontractors and the employees,
consultants and agents of each of the foregoing shall at all times be granted free
access to live Contract Area and to any facilities for the Petroleum Operations located
within or outside of the Contract Area or within or outside the Production Area, for
the purpose of carrying out the Petroleum Operations.
16.7 Upon notice from the GOVERNMENT, the CONTRACTOR shall make avail**
to a reasonable number of representatives of the GOVERNMENT those of the
CONTRACTOR'S facilities which arc necessary to enable such represrni.ilives to
perform their tasks related to this Contract anti the Kurdistan Region Oil 3nd Gas Law
including, in case of works to be performed on work sites, transportation,
accommodation and board, under the same conditions as those provided by the
CONTRACTOR for its own personnel.
Notwithstanding Article 16.8. the GOVERNMENT shall indemnify and hold
harmless each CONTRACTOR Entity agaimi all losses. damages and liability
arising under any claim, demand, action or proceeding brought or initiated against any
CONTRACTOR Emily by any representative of (he GOVERNMENT in connection
with the access to or use of the facilities by such rcprrsent.iti\es.
Lw or L>*ro»g<-
16 S The CONTRACTOR shall be responsible for any loss or damage caused to third
pait:« by its or Rs Subcontractors personnel solely and directly resulting from their
negligence, errors or omissions in accordance with applicable Kurdistan Region Law.
Intellectual Property Rights
16 0 In its Petroleum Operations, the CONTRACTOR shall respect any patents belonging
to third parties.
Litigation
16.10 The CONTRACTOR shall as soon as reasonably practicable inform Ihe
GOVERNMENT of any material litigation relating to this Contract
Safes
16.11 The CONTRACTOR shall implement a licalth. safety and environment program and
take necessary measures to ensure hygiene, licalth and safety of iu personnel carrying
out Petroleum Operations in accordance with prudent international petroleum industry
practice.
Said measures shall include the following:
(a) supplying fust aid and safely equipment for each work area and mainlining a
healthy environment for personnel;
(b) reporting to the GOVERNMENT within seventy-two (72) hours or wch
accident, any accident where personnel has been injured while engaged m
Feuoteum Operation and reiukiag m such personnel being unable to teturo to
work.
(c) implementing a pcnnit-40-wodt procedure around hazardous equipment and
install3tiocs;
(d) providing safe storage areas for explosives, detonators a.*vd any other
dangerous products used in the operations;
(e) supplying fire-extinguishing equipment in each work area;
(I) for lire purpose of taking control ol tiny blow out or fire which could damage
the environment or Petroleum Held, 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 Crodr Oil and Natural Gas at rates that do not
conform to prudent international petroleum industry practice.
Production Rates
16.12 Subject to Ankle 43.2. in the evert the p*oductioo 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 n decision by the GOVERNMENT or any federal or international
regulatory body, the GOVERNMENT undertakes to allocate any such reduction
fairly and equitably among the various operators (including the GOVERNMENT)
then producing in the Kurdistan Region, pro rata their respective production rates In
such event, the GOVERNMENT shall grant an extension of the Development Period
of any Production Area so 4ffected for a reasonable period of time in order to produce
the Petroleum which would otherwise have already been produced, had the MER for
the individual wells and Reservoir of the Petroleum Field been maintained.
Uval Status
16.13 Hie respective rights, duties, obligations and liabilities of the CONTRACTOR and
the GOVERNMENT under this Contract are to be understood a$ being separate and
individual and not joint and several. As between die CONTRACTOR on the one
hand and (lie GOVERNMENT or. the other hand, the Parr.es agree that this Contract
shall not create and shall not be deemed to have created a partnership cr other form of
association between them
Lifting
16. Id The GOVERNMENT and each CONTRACTOR Entity shall have the light and the
» cake tfi kind sad separately sell or otherwise dispose of their respects e
shares of Petroleum. Upon approval of the Development Plan, the Parties shall meet
as soon as practicable to reach a detailed agreement governing the lifting of Petroleum
by each such CONTRACTOR Entity. Such lifting agreement shall include the
following:
(a) the obligation of the GOVERNMENT and each CONTRACTOR Entity to
lift, regularly throughout each Calendar Year, their share of Petroleum
produced from the Production Area;
(b) notification procedures by the Operator to the GOVERNMENT and each
CONTRACTOR Entity’ regarding entitlements and availability of Petroleum
for lifting by each Party during each lifting period and comirations 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 during each such lifting period
16.15 The CONTRACTOR Entities shall sell and transfer to the GOVERNMENT upon
written request ol the GOVERNMENT, any amounts of Crude Oil that the
GOVERNMENT shall cieera necessary to meet KurdUun Region internal
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consumption requirements. The sales price of such Crude Oil shall be the
International Market Price. The GOVERNMENT shall provide the
CONTRACTOR Entities with not less than six (6» Months' advance written notice
of its intention to buy such Crude Oil.
Payments shall be made in Dollars and otherwise or. terms consistent with prudent
international petroleum industry practice. The CONTRACTOR Entities* obligation
to sell Crude Oil to the GOVERNMENT shall be. with the other contractors and
operators (including the GOVERNMENT) then producing in the Kurdistan Region,
pto tata to their respective production rates.
The provisions of this Article 16.15 shall not apply to Non-Associated Natuial Gas.
ARTICLE 17 USE OF LAM) AND EXISTING INFRASTRUCTURE
17.1 The GOVERNMENT shad make avai/ah/e fu (he CONTRACTOR say Isad 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 lor it. Tlie CONTRACTOR shall have the right to build and maintain,
above and below ground, any facilities required lor the Petroleum Operations.
17.2 If it becomes necessary tor 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 lane! If such amicable agreement cannot Ik reached, the CONTRACTOR Shull
notify the GOVERNMENT. On receipt of such notification:
(a) the GOVERNMENT shall determine the amount of compensation to be paid
by the CONTRACTOR to the owner, if occupation will be for a short
duration; or
(b) the GOVERNMENT shall expropriate the land or property ir accordance
with applicable KurdistaD Region Law. it such occupation will be long lasting
o: makes it henceforth impossible to resume original usage of such land or
property. Any property rights shall be acquired by and recorded in the name
of the GOVERNMENT, but the CONTRACTOR shall be entitled free use
of the land or property for the Petroleum Operations for the enure duration of
this Contract.
The amount of the compensation in Article 17.2(a) shall be fair and reasonable, in
accordance with Article 29 of the Kurdistan Region Oil and Gas Law. and shall lake
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 AH reasonable costs,
expenditures and fair and reasonable compensation (as required pursuant to Article 29
of the Kurdistan Region Oil and Gas Law) which results from such expropriation
shall be borne by the CONTRACTOR Foe the avoidance of doubt, such costs,
expenses and compensation incurred by the CONTRACTOR shall he considered
Pcnoicum Costs and shall be recovered by :1k CONTR ACTOR m accordance with
the provisions of Articles 1 and 25.
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fitS
17.3 For its Petroleum Operations, the CONTRACTOR shall have thr right in the
Kurdistan Region to use, subject to applicable Law, any railway, tramway, road,
airport, landing Held, canal, river, bridge or waterway, nny telecommunications
network and any existing pipelines or transportation infrastructure, on terms no less
favourable than those offered to other entities and. unless generally in force, to lw
mutually agreed. For the avoidance of doubt, nil costs and expenses related to such
use and incurred by tin- CONTRACTOR shall be considered Petroleum Costs and
shall be recovered by the CONTRACTOR in accordance with die provisions of
Articles I and 25.
17.4 Under national emergencies due to environmental catastrophe or disaster, or internal
or external war. the GOVERNMENT shall have the right to request to use nny
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 be considered Petroleum Costs and shall be
recovered by the CONI FACTOR in accordance with the nrovisions 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 and discharge, manage and maintain ditches, tanks, wells, trenches,
access roads, excavations, dams, canals, water mains, plants, reservoirs, basins,
storage and disposal facilities, primary distillation units, extraction and processing
units, separation units, sulphur plants and any other facilities or installations for the
Petroleum Operations, in addition to pipelines, pumping stations, generators, power
plants, high voltage lines, telephone, radio and any other telecommunications systems,
as well as warehouses, offices, sheds, houses for personnel, hospitals, schools,
premises, dikes, vehicles, railways, roads, bridges, airlines, airports and any other
transportation facilities, garages, hangars, workshops, foundries, repair shops and any
other auxiliary facilities foe the Petroleum Operations ar.d. generally, everything
which is required for its performance of die Petroleum Operation* The
CONTRACTOR shall have the right to select the location for these facilities.
17.6 For its Petroleum Operations, the CONTRACTOR shall have the right in the
Kurdistan Region, subject to compliance with applicable Kurdistan Region law, to
remove and use the topsoil, fully-grown timber, clay. sand, lime, gypsum, stones
(other than precious stones) and other similar substances as required for its Petroleum
Operations.
The CONTRACTOR shall have the right in the Kmdistan Region to take or use any
water necessary for the Petroleum Operations provided it does not damage any
existing unganoct or navigation systems and that land, booses or watering pointy
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
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KS
construction. operation tad 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 lx considered Petroleum Costs and shall be
recovered by the CONTRACTOR in accordance with the provisions of Articles I
and 25.
17.8 Upon request of the CONTRACTOR, the GOVERNMENT shall prohibit the
construction of residential or commercial buildings in the vicinity of facilities used for
the Petroleum Operations that may be declared dangerous due to the Petroleum
Operations and to prohibit any interference w ith the use of any facilities required for
the Petroleum Operations.
17.9 Access to fix Contract Area may be gaoled panuani to sn Access Authorisation, as
shall be defined m. and consistent with, the Kurdistan Region Oil and C.as Law, to
authonsed third parties on reasonable terrm and conditions (including coordination),
including Persons authorised to construct, install and operate structures, facilities and
installations, and to carry out other worts, 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 »> rrspret of the Contract Area and shall not grant any
Access Authorisation in respect of the Contract Area until it has taken into account
nny submissions made by the CONTRACTOR nor in such a way that there is undue
interference with or hindrance of the rights and activities of (he CONTRACTOR
ARTICLE 18 - ASSISTANCE FROM THE GOV ERNMENT
Ig | To the extent allowed by Kurdistan Region Law and Iraqi law ami at the specific
request of the CONTRACTOR, the GOVERNMENT shail take all necessary steps
to assist the CONTRACTOR Entities in. but not limited to. tbe following areas:
(a) securing any necessary Permits for the use and installation of means of
transportatkm and communications;
(b) securing regulatory Permits in matters of customs or impon/export.
(c) securing entry and exit visas, work and residence permits as Well as any other
administrative Permits tor each CONTRACTOR Entity's, its Affiliate's and
us ScbcoKuaciors' foreign personnel (including iheir family -member?)
working in the Kurdistan Region and any other part of Iraq daring tbe
implementation of this Contract;
(d) securing any necessary Permits to send Abroad documents, data or samples for
analysis or processing for the Petroleum Operations;
(e) relations with federal and local authorities and administrations, including for
the purposes of the remainder of this Article 18.1.
(f) securing ar,y necessary environmental Permits;
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(gl obtajnng any other Permits requested by any CONTRACTOR Entity foe the
Petroleum Operations;
(h) access to any existing data and information, including data and information
relating to the Contract Area held by previous operators or contractor?*: and
(i) providing ail necessary security for Petroleum Operations.
I 8.2 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 parlies shall be
charged to the CONTRACTOR and shall be considered Petroleum Costs and shall be
recovered by the CONTRACTOR as Petroleum Costs in accordance with the
provisions of Articles I and 25.
ARTICLE 19 - EQUIPMENT AND MATERIALS
19.1 The CONTRACTOR shall supply, or procure the supply of. all materials, equipment,
machinery, tools, spate parts and any other items or goods required tor the Petroleum
Operations ("Equipment «nd 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 scon as possible after the Effective Date, the CONTRACTOR shall provide the
Management Committee with a copy of its procedures for procurement of Equipment
mid Materials and/or services for the Petroleum Operations as required by the
provisions of Article 8.2 (c). including the criteria for tender evaluation, which
procedures and criteria shall be in accordance with prudent international pcuoieum
industry practice. If the Management Committee does not request any modifications
io the procurement procedures within thirty (30) days after receiving such procedures,
the procedures shall be deemed approved by the Management Committee.
19.4 The CONTR ACTOR shall give priority to Equipment and Materials that are readily
available in the Kurdistan Region and other parts of Iraq to the extent their price,
grade, quality, quantity, specifications, purchase, delivery and other commercial and
technical terms are comparable in all material respects with those generally available
in the international petroleum industry.
ARTICLE 20 - TITLE TO ASSETS
20.1 During the Exploration Penod. any Assets acquired by the CONTRACTOR for the
Petroleum Operations shall remain the property of the CONTRACTOR, the
CONTRACTOR Entities, their Affiliates or their Subcontractors, as the case may be.
20.2 During the Development Period, subject to Article 21. all Assets acquired by the
CONTRACTOR for the Petroleum Operations shall become the property of the
GOVERNMENT upon the completion of the recovery of the costs of aii such 2sset.s
by the CONTRACTOR, or the end of the Contract, whichever is the earlier.
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At?
20.3 The provisions of Article 20.2 shall not apply to any Assets leased bythc
CONTRACTOR or belonging to an Affiliated Company of a CONTRAC TOR
Entity or belonging to its (x tlieir Subcontractors or :ts or their employees.
ARTICLE 21 - USE OF THE ASSETS
21.1 Each CONTRACTOR Entity shall hove the exclusive right to use. free of any
charge, all Assets described in Article 20, both before and after recovery of the cost of
the same, for the Petroleum Operations, as well as for any petroleum operations under
other agreements in the Kurdistan Region to which it or any of its Affiliates is a patty,
provided that the Petroleum Operations take priority. The GOVERNMENT agrees
not to transfer or otherwise dispose of any of such Assets without the
CONTRACTOR’S prior written approval.
21.2 The CONTRACTOR may freely move to the Contract Area any Assets from any
relinquished portion of the Contract Area, or from any other area in the Kurdistan
Region.
ARTICLE 22-SUBCONTRACTING
22.1 The CONTRACTOR shall ensure that any Subcontractors it engages have all the
requisite experience and qualifications.
22.2 Tlie CONTRACTOR shall give priority to Subcontractors from the Kurdistan
Region and other part* of Iraq to the extent their competence, rales, experience,
reputation, qualifications, specialties, credit rating and terms ol availability, delivery
and other commercial leans 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 piocureinent
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 v/ith copies ol agreements
entered into w-th Subcontractors, where their amount exceeds the limit set by the
Management Committee from time to time
ARTICLE 23 - PERSONNEL, TRAINING, AND TECHNOLOGICAL ASSISTANCE
Vmvssxi
23.1 For the Petroleum Operations, the CONTRACTOR shall give, and shall require its
Subcontractors to give, preference to personnel from '-he Kurdistan Region and other
pans of Iraq to the extent such personnel have the technical capability, qualifications,
competence and experience required to perform the work.
23.2 The CONTRACTOR Entities shall Rive due consideration to the secondment of
GOVERNMENT peisonncl to the CONTRACTOR Entities and of the
CONTRACTOR Entries’ penar.ncJ to the GOVERNMENT during the various
phases of the Petroleum Operations Terms and conditions for such secondment shall
be mutually agreed by the Parties ansi any costs associated therewith shall be
considered Petroleum Cows and shall be recovered by the CONTRACTOR in
accordance with ’die provisions of Articles I and 25.
23.3 Each CONTRACTOR Entity and its Affiliates and Subcontractors shall have the
right to hire foreign personnel whenever Oie 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 tbeir 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 I or the first five (5) Contract Years, the CONTRACTOR shall provide up to two
hundred and fifty thousand Dollars (US$250,000) in advance each Contract Year to
tl«e GOVERNMENT for the recruitment or secondment of personnel, whether from
the Kurdistan Region other parts of Iraq or Abroad, lo 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
23.5 In a planned way, in accordance with (he provisions of this Article 23.5 and Arfkics
23.6 and 23.7, the CONTRACTOR shali train all its personnel from the Kurdistan
Region and other pans of Iraq directly or indirectly involved in the Petroleum
Operations for the purpose of improving their knowledge and professional
qualifications in order that such personnel gradually reach the level of knowledge and
professional qualification held by the CONTRACTOR Entities’ foreign workers
with an equivalent resume. Such training shall also include the transfer of knowledge
ol petroleum technology and the necessary management experience so as to enable
the personnel from the Kurdistan Region and other parts of Iraq to apply advanced
mid appropriate technology in the Petroleum Operations, to the extent permitted by
applicable Inw 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 |wrts 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 alter 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 Tear. Thereafter, no facer tfcn I Ckxobec la each Calendar Year, the
CONTRACTOR shall submit a proposed training plan to the Management
Committee for the following Calendar Year.
23.7 The training plan referred to in Article 23.6 shall provide for the allocation to the
GOVERNMENT of the amount of one hundred and fifty thousand Dollar
[USS150,000.00) in advance for each Contract Year daring the Exploration Period
and three hundred thousand Dollars (USS300.000) in advance for each Contract Year
during the INrvcIopmcnt Period.
23.8 Each CONTRACTOR Entity shall be responsible for the training costs which it may
incut m respect of the personnel ic employs from che Kardinaa Regxw and. 'her part %
of Iraq All such reasonable costs shall be considered as Petroleum Costs and shall l*e
recovered in accordance with the provisions of Articles 1 and 25. Costs u.^unec by
the CONTRACTOR lor training programs for the GOVERNMENT ;
shall be borne by the CON TRACTOR 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 ol Articles 1 and 25. The cost of all other training programs for the
GOVERNMENT'S personnel shall be the GOVERNMENT’S respor.vbiiiiy
23.9 The CONTRACTOR shall contribute the amount of ooc hundred and fifty thousand
Dollars (US$150,000) in advance each Contract Year dunng the Exploration Period
and three hundred thousand Dollars (US$300,000) in advance for each Contract Year
dunng the Development Period into the environment fund established by the
GOVERNMENT for the benefit of the natural environment of the Kurdistan Region,
pursuant to the Kurdistan Region Oil and Ga> Law (the "Environment Fund”). Such
amounts shall be deemed to be Petroleum Costs and shall be recovered in accordance
with Articles I and 25.
23.10 Any expenditure incurred by the CONTRACTOR under this Article 23 shall be
considered Petroleum Costs ar.d shall be recovered in accordance with Articles 1 and
23.11 Before the end of the first Contract Year. SHAMAKAN shall provide to the
GOVERNMENT technological and logistical assistance to the Kurdistan Region
petroleum sector, including geological computing hardware and software and such
oilier equipment as the Minister of Natural Resources may require, to the value of one
million Dollars (USS (.000.000). The form of such assistance shall be mutually agreed
bv the Parties and any costs associated therewith shall be considered Petroleum Costs
531116 v*
and shall be recovered by the CONTRACTOR in accordance with the provisions of
Articles I and 23.
ARTICLE 24 - ROYALTY
24 I The CONTRACTOR shall pay to the GOVERNMENT a portion of Petroleum
produced and saved from the Contract Area, as provided in this Article 24 (the
“Royalty)
24 2 Ihc Royalty shall be applied on all Petroleum produced and saved from ibe Contract
Area which is Crude Oil or Non Associated Natural Gas. except for Petroleum used in
Petroleum Operations, re injected in a Petroleum Field, lost, flared or for Petroleum
that cannot be used or sold and such Crude Oil and Non-Associated Natural Gas
(excluding the excepted Petroleum) shall be referred to collectively as “Export
Petroleum” and separately ami respectively as “Export Crude OiP and 'Export
Non-Associated Natural Gas".
24.3 If payable in cash, the amount of the Royalty calculated by applying the Royalty rates
provided under Article 24.4 shall be paid by the CONTRACTOR as directed by the
GOVERNMENT, in accordance with Article 24.7.
If payable hi kind, the quantity of Export Petroleum corresponding to the Royalty and
calculated by applying the Royalty rates provided under Article 24.4 shall be
delivered in kind by the CONTRACTOR to the GOVERNMENT at the Delivery
Point Title and risk of loss of the Royalty paid n kind shall be transferred at the
Delivery Point.
Unless the GOVERNMENT requires the Royalty to be paid in kind, by giving the
CONTRACTOR not less than ninety (90) days prior written notice prior to the
commencement of the relevant Quarter, the GOVERNMENT shall be deemed to
have elected to receive the Royalty in full and in cash for the relevant Quarter.
24.4 The Royally due oo any Export Petroleum produced and saved ir. the Contract Area
shall be determined daily by applying the following relevant Royalty rate, to the
Export Crude Oil or to the Export Non-Associated Natural Gas (as the case may be)
produced and saved on that day:
(a) For Export Crude Oil:
the Royalty rate for Export Crude Oil shall be ten per cent (lO'ifc). 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 lo Article 24.3. she 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 kmd. each CONTRACTOR Entity shall assist tlie
GOVERNMENT in selling all or part of such Royalty received :n lend (belonging to
the GOVERNMENT) in consideration of a commission per Bane! payable to such
CONTR ACTOR Entity, in accordance with Article 28.
24.7 If. pursuant to Article 24.3. the GOVERNMENT receives the Royalty ji cash:
(a) any Export Crude Oil shall be valued at the International Market Price
obtained at the Delivery Pom*, as defined in Article 27.2;
(b) any Export Non-Associated Natural Gas shall be valued at the actual price
obta:ned at the Delivery Point under an approved contract, as provided in
Article 27 J;
(c) the CONTRACTOR shall pay such Royalty each Quarter, in arrears, within
thirty (30) days of the end of each Quarter, and shall calculate the payment
due for the relevant Quarter by reference to the price fox the Export Petroleum
at the Delivery Pont, determined in accordance with paragraphs (a) and (b)
above, and the Royalty due on :hc Export Petroleum, determined in
accordance wmh Article 2- 4. for the said Quarter: and
(d) the CONTRACTOR Entities shall be entitled to export freely the voLine of
Export Petroleum corresponding to the Royalty determined in accordance with
Art Idle 24.4 tbr the purpose of paying the Royalty in cash.
ARTICLE 25 - RECOVERY OF PETROLEUM COSTS
25.1 All Export Crude Oil produced and saved from the Contract Area shall, after
deduction of any quantities of Export Cr.ide Oil due foi Royalty pursuant to Article
24. be considered as "Available Crude OU"
All Associated Natural Gas produced and saved from the Contract Area, except for
Associated Natural Gas which is used in Petroleum Operations, re-injccied in a
Petroleum Field, lost. Hared or cannot be used or sold, shall be considered as
"Available Aaodatcd Natural Gas".
All Export Non-Associated Natural Gas produced and saved from the Contract Area
shall, after deduction of any quantities of Export Non-Associated Natural Gas due for
Royalty pursuant to Article 24. be considered as Available Nun-Associated Natural
Gas”
"Available Petroleum" means Available Crude Oil. Available Associated Natural
Gas and Available Non Associated Natural Gas.
25.2 For the purpose of this Article 25:
(a) any Available Crnde Oil shall be valued at the International Market Price
Obtained at the Delivery Point, as defined in Article 27.2; and
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(b) any Available Associated Natural Gas and any Available N'or.-Associated
Natural Gas shall be valued at the actual price obtained at the Delivery Point
under an approved contract, as piovidcri 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 tunes be entitled to recover all Petroleum
Costs Incurred under this Contract, of up to forty per cent (409b) of Available Crude
Oil (which, for the avoidance of doubt, shall apply regardless of the gravity of the oil)
and Available Associated Natural Gas, produced and saved within any Calendar Year
Available Crude Oil above Ibis percentage or otherwise noi used for iIm*. recovery of
Petroleum Costs shall be Profit Crude Oil.
25.4 Subject to the provisions of this Contract, from First Production in the Contract Area,
the CONTRACTOR shall at nil times be entitled to recover all Petroleum Costs
incurred under this Contract of up to fifty per cent (50%) of Available Non-
Associated Natural Gas produced and saved within any Calendar Year. Available
Non Associated Natural Gas above this prrerntage or otherwise not used for the
recovery’ of Petroleum Costs shall be Profit Natural Gas.
25.5 For the application of Article 25.3 and 25.4, (he CONTRACTOR shall keep a
detailed account of Petroleum Costs in accoidance with the provisions detailed in the
Accounting Procedure. Recovery of Petroleum Costs shall occur in the following
order:
(a) Production Costs;
(b) Exploration Costs ‘including appraisal costs and flatter exploration within the
Contract Area);
(d) Development Costs; and
(e) Decommissioning Costs.
25.6 Total recovery of Petroleum Costs during any Calendar Year, expressed in quantities
of Petroleum, shall not exceed the relevant percentages indicated .n Ankles 25 3 and
25.4. If in any Calendar Year, the Available Crude Oil and/or Available Non-
Associated Natural Gas do not allow ibe CONTRACTOR to recover all its
Petroleum Costs pursuant to this Article 25, the amount of un-rccovered Petroleum
Costs in such Calendar Year shall be carried forward indefinitely to the subsequent
Calendar Years until all Petroleum Costs are fully recovered, but. save as provided in
Articles 14 10 and 38.4. in no other ease after the temunaaoo of the Contract.
25.7 The provisions of Articles 27.5 arxl 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 a* the Delivery Point.
25 9 Each CONTRACTOR Entity shall be entitled to receive, take in kind and to export
freely all Available Petroleum to which it is entitled fur 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. Any Petroleum Costs incurred in the Contract Area but not in a Production
Aren, shall be recovered from Available Petroleum tn any Production Area.
25 10 Subject to Article 38.4, for the avoidance of doubt, Petroleum Costs under this
Contract arc not recoverable against oilier contract areas held by the
CONTRACTOR.
ARTICLE 26-SHARING OF PROFIT PETROLEUM
26.1 Under this Contract,
(a) "Profit Petroleum" means Profit Crude Oil and Profit Natural Gas;
(b) "Profit Crude Oil" mcuris the quantities of Available Crude Oil and
Available Associated Natural Gas produced from the Production Area, alter
the recovery of Petroleum Costs, in accordance with Articles I and 25; and
(c) “Profit Natural Gas" means the quantities of Available Non-Associated
Natural Gas produced from the Production Area, after the recovery of
Petroleum Costs in accordance with Articles 1 and 25.
26.2 From First Production and as and when Petroleum is being produced, tbe
CONTRACTOR iha/J be cai/ihd to fake a percentjge share ot Profit Crvde Oil
and/or Profit Natural Gas. in consideration for its investment in the Pea-oleum
Operations, which percentage share shall be determined in accordance with Article
265.
26.3 To determine the percentage share of Profit Crude Oil and/or Profit Natural Gas to
which the CONTRACTOR is entitled, the “R“ Factor shall be calculated in
accordance witn Article 26.4 ami shall be applied separately to each Production Area.
26.4 The "R" Factor shall be calculated as follows:
R = X/Y
where.
X: is equal to Cumulative Revenues actually received by the CON TRACTOR;
Y: is equal to Cumulative Costs actually incurred by tbe CONTRACTOR.
For the purpose of this Article 26.4:
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&
“Cumulative Revenues" means total Revenues, as defined below, received by the
CONTRACTOR until tbe 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 Casts" means all Petroleum Costs in the Production Area, actually
incurred by the CONTRACTOR until the end of the relevant Semester, determined
in accordance with Article 26.7.
Notwithstanding the foregoing provisions of this Article 26.4, for the period from
First Production until the end of the Calendar Year in which First Production occurs,
the "R" Factor shall bit deemed to be less than one (I).
26.5 The share of Profit Petroleum to which the CONTRACTOR shall l>r entitled from
First Production is:
(a) for Profit Crude Oil. equal to the quantities of Petroleum resulting from the
xppMcMlon of the relevant percentage as indicnicd below to »hc daily volume
of production of Profit Ctudc Oil within the Production Area at the
corresponding Delivery Point:
“R” Factor CONTRACTOR’S % Share of Profit Crude Oil
R < or = 1 26%
1
R > 2.0 13%
and
(b) for Profit Natural Gas. equal to the quantities of Non-Associated Natural Gas
resulting flora ±e appiica ion of the relevant percentage as indicated below to
the daily volume of production of Profit Natural Gas within the Production
Area at the corresponding Delivery Point
MR” Factor CONTRACTOR’S % Share of Profit Natural Gas
R < or a 1 33%
KR
R > 2.75 18%
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.
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26.7 For each Semester, scarring from the l“ of January of the Calendar Year following (he
Calendar Year in which Fusi Production occurs, ihe CONTRACTOR shall calculate
the "R" Factor applicable to the relevant Semester within thirty (30) days of the
beginning ot such Semester. The **R” Factor to be applied during a Semester shall lie
that determined by applying the Cumulative Revenues actually received and the
Cumulative Costs actually incurred up to and including the last day of the preceding
Semester.
If the CONTRACTOR is unable to calculate the **R~ Factor foe 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. Up™ the calculation of the “R” Factor for the relevant Semester:
(a) if the allocation of Profit Petroleum in the previous Semester and the relevant
Semester is the same, then no adjustment snail be made; and
(b) if the allocation of the Profit Petroleum in the two Semesters is different, then
the CONTRACTOR shall make any adjustments to the Parlies' respective
shares of Profit Petroleum to restore them to (he position that they would hate
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 percentage 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 (he error occurred. The Parry having benefited from a
surplus of Profit Petroleum shall surrender such surplus lo 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 relating to such error by the Party
receiving the surplus shall not exceed twenty-five per cent (25%) of the share of Profit
Petroleum to which such surrendering Party is entitled. For the avoidance of doubt, if
at any time an error occurs in the calculation of the "R" Factor, which docs not result
in a change in the CONTRACTOR S percentage share of Profit Crude Oil and/or
Profit Natural Gas. no correction shall be made.
26.9 The quantities of Profit Petroleum due to tlic CONTRACTOR shall be delivered to
the CONTRACTOR Entities at the Delivery Point- Title and risk of loss of such
Profit Petroleum shall be tiansferred to tire CONTRACTOR Entities at the Delivery
Point.
Each CONTRACTOR Entity shall Ire 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 which will be paid directly by the GOVERNMENT on
behalf of each such entity representing the CONTRACTOR to the appropriate tax
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authorities in accordance with Article 31.2. The GOVERNMEN I' shall provide the
CONTRACTOR Entities with all written documentation and evidence reasonably
required by the CONTRACTOR Entities to confirm that such corporate income tax
has been paid by the GOVERNMENT
26.11 The quantities of Profit Petroleum due to the GOVERNMENT shall be delivered to
the GOVERNMENT at the Delivery Point. Tide and nsk of loss of such Profit
Petroleum shall be transferred at the Delivery Point.
26.12 At least twenty-one (21) days prior to CONTRACTOR’S estimated date 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 Sonnier and the
forecast of the quantities of Crude Oil and Natural Gas to which each Pjxty shall be
entii.cd during the taid Semester.
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 ami Natural Gas to which each
Party is entitled, the quantities of Crude Oil and Natural Gas lifted by each Party and
the resulting over-lift or under-lift position of each Party, pursuant u> the .ifting
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 tlx- GOVERN Mi N T's sh.»rc of Petroleum by the
CONTRACTOR shall not be considered Petroleum Costs and shall be charged to the
GOVERNMENT according to terms to be mutually agreed between ihc
CONTRACTOR and the GOVERNMENT.
ARTICLE 27 VALUATION AND METERING OF CRUDE OIL AND NATl K AL
GAS
Valuation
27.1 For the puipose of this Contract, any Crude Oil produced in Che 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 272.
27.2 The '‘International Market Price'’ refereed to in Article 27.1 shall be the weighted
average price per Barrel, expressed in Dollars, obtained by the CONTRACTOR ai
the Delivery Poiot. by netback if necessary-, during the Quarter ending on the dale 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
GOVERNMENT considers that any such sale of Crude 0:1 is not on the basis of an
Ann's Length Sale then the GOVERNMENT has the right to refer the matter to an
expert pursuant to Article 42.2.
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In the event that there is, no lifting of Crude Oil in the relevant Quarter or no Arm’s
F-enpth 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 of the same or similar gravity and quality from other
production areas sold in markets compering with Crude Oil produced from the
I 'onlwci Area, taking into account gravity and quality djffwences ami 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 Cmdc Oil comparable to those produced in the Contract Area and
sold m 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 pnee 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 I>chvcry Point,
(which may take into account quantities to be sold, quality, geographic location of
markets to be supplied iu> well as costs of production, transportation and distribution
of Natural Gas from the Delivery Point to the relevant market, m accordance with
standard international petroleum industry practice). The GOVERNMENT shall have
the right to review and approve Natural Gas sales contracts.
Accounting Statement
27.4 In accordance with this Article 27.4, the GOVERNMENT and the CONTRACTOR
shall establish a statement showing calculations of the value of Petroleum produced
and sold from the Contract Are. Such statement skill include following information:
(a) quantities of Crude Oil sold by the CONTRACTOR Entities during the
preceding Month constituting Arm’s Length Safes 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 parapiaph (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 Gas sold by the CONTRACTOR Entities and the
GOVERNMENT together with sale prices realised.
.MeR-ring
27.5 All Export Petroleum shall be metered at the Delivery Point in accordance with
prudent international petroleum industry practice and such meters shall be to fiscal
nictci standards. All metering equipment shall be installed and operated by tlu*
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
61/116
/ff
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 dale the
defect became known. The "Adjustment Date" shall be the last date that the
metering equipment was known or agreed to have been measuring correctly, or if not
known or agreed, the date that is midway between the date the defect was discovered
and the lust date the equipment was known to have measured correctly. The results
from the defective equipment shall be disregarded for the period from the Adjustment
Date until the date the defective equipment is repaired or replaced and the
measurement for such period shall be estimated:
(a) if check measuring equipment is installed and registering accurately, then by
using the measurements recorded by such check measuring equipment.
(b) if check measuring equipment is not installed or not registering accurately,
then by correcting the error if the percentage of error is ascertainable by
verification, calibration or mathematical calculation; or
fc) if neither method is feasible, then by estimating the volume and/or quantity
delivered based on deliveries during the preceding comparable period of time
when the metering equipment was registered accurately.
717 Any disputes arising under this Article 27 shall be settled by expert determination in
accordance with the provisions of Article 42.2.
ARTICLE 28 - SALE OF GOVERNMENT SHARE
Upon the GOVERNMENTS prior written notice of a: least ninety (90) days, each
CONTRACTOR Entity shall provide all reasonably necessary assistance to the
GOVERNMENT for the sate of all or part of the quantities of Crude Oil to which the
GOVERNMENT is entitled, in consideration ot a sales commission pci Bone! to be
established with reference to prudent international petroleum practice and to be mutually
agreed upon between the Parties
ARTICLE 29 - FINANCIAL PROVISIONS
29 1 Any payment to be made by a CONTRACTOR Entity to the GOVERNMENT
pursuant to this Contract shall be in Dollars and snail be offset against any
outstanding payments due by the GOVERNMENT to the CONTRACTOR Entity,
or paid into the bank account duly designated by the GOVERNMENT in writing and
shall be paid within thirty (30) days of the due date, after which interest compounded
monthly x lire ra:e of LUIOK plus two (2) percolate poiois shall hr applied-
29.2 The GOVERNMENT may. at its sole discretion, direct the CONTRACTOR
Entities to pay:
(a) nny Royalty in cash due to the GOVERNMENT pursuant to the provisions of
Article 24; and/or
(b) any proceeds from rhe sale undertaken by the CONTRACTOR Entity on
behalf of the GOVERNMENT pursuant to Article 28 of any Crude Oil to
which the GOVERNMENT is entitle'.! 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 ('onstitutior. of Iraq, between the Government of Iraq and other
regions (Including the Kurdistan Region) and govanonilcs oi Iraq. Nothing io this
Article 29.2 shall he understood as implying any contractual relationship oi 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 governoratc* of Iraq.
29.3 Any payment due by the GOVERNMENT to a CONTRACTOR Entity shall be
offset against future payments due by such CONTRACTOR Entity to the
GOVERNMENT, or paid in Dollars to the bank account designated by the
CONTRACTOR Entity in writing and shall be paid within thirty (30) days of the
date of invoice, after which interest compounded monthly at the rale of I.FBOR plus
two (2) percentage points shall be applied.
29.4 Any currency conversion to be made under this Contract shall be at the exchange talc
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 trie 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
Conoact shall be
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 Of loss resulting from the exchange of
currency shall be either considered as revenue and credited to the Accounts or shall be
considered as a Petroleum Cost and shall be recovered by the CONTRACTOR in
accordance with Articles ! and 25. as the case may be.
29.6 Each CONTRACTOR Entity shall at all times be entitled to freely convert into
the Petroleum Operations and to freely transfer the same Abroad. The conversion rate
shall be as provided under Article 29.4.
29.7 Each CONTRACTOR Entity shall have the right :o be paid, receive, keep, transfer
and use Abroad, without any restrictions, all proceeds of its share of Petroleum.
29.8 Each CONTRACTOR Entity and its Subcontractors shall have the right to freely
open and maintain bank accounts for Petroleum Operations within or outside the
Kurdistan Region and other parts of Iraq.
29.9 Each CONTRACTOR Entity shall have tl>c right to pay in any freely convertible
currency all ils financial requirements for the Petroleum Operations and to convert
these currencies to Iraqi dinars in any bant ir. the Kurdistan Region or other parts of
Iraq, si the same exchange rate as provided under Article 294
29.10 Each CONTRACTOR Entity shall have the right. without any rest* idiom. to fier y
repatriate Abroad and to ftedy dispose of:
(a) any proceeds received in the Kurdistan Region or other parts of Iraq from the
sale of Petroleum;
(b) any proceeds received from other operations and activities earned out under
this Contract in the Kurdistan Region or other pits of Iraq.
29.11 Each CONTRACTOR Entity shall have the right to pay in any foreign currency its
Subcontractors and its expatriate personnel, cither in the Kurdistan Region, other parts
of Iraq, o* Abroad. Said Subcontractors and expatriate personnel shall be obliged to
transfer to the Kurdistan Region the amount of foreign currency required for (heir
local needs and they shall have die right to repatriate the proceeds of the sale of their
belongings in accordance with the regulations in force in the Kutdistnn Region
29 12 Each CONTRA! TOR Entity's Affiliates, Subcontractors «nd their personnel shall
equally benefit from the same rights as such CONTRACTOR Entity and its
pereonnel us regards this Article 29.
29.13 For the financing of Petroleum Operations, each CONTRACTOR Entity shall have
die right to have recourse to external financing from third panic■ i trom its Affiliaxd
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 ocher paru of Iraq by the CONTRACTOR, any
CONTRACTOR Entity, its Affiliates, any Subcontractor o* any agent of any of the
foregoing, for use or consumption in the Petroleum Operations shall tic admitted free
and exempt from any and ail Taxes on import. The CONTRACTOR, any
CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of any of the
foregoing shall have the right to re-export from the Kurdistan Region and other parts
of Iraq free from all Taxes on export any material, equipment, goods, consumables
and products that arc no fonger required for the Petroleum Operations, except where
tide has passed to the GOVERNMENT in accordance with Article 20. in which case
re-export shall be approved by the Management Committee.
30-2 The CONTRACTOR any CONTRACTOR Entity. it& Affiliates, any Subcontractor
or any agent of any of the foregoing, and their personnel (it*hiding their family
membersi shall have toe right to freely import into tht Kunlisun Region and other
pans of Iraq and re export from the Kurdistan Region, and oilier pans of Iraq any
personal belongings and furniture free and exempt from any Taxes on import or
export. The sale in the Kurdistan Region and otter parts of Iraq of personal
belonging* and furniture of expatriate personnel shall comply with Kurdistan Region
I.aw.
30.3 Each CONTRACTOR Entity and its Affiliate* shall be entitled to freely export from
the Kurdistan Region and other parts of Iraij free of any faxes, any Petroleum to
which it is entitled pursuant to the provisions of tills Contract
30 4 The GOVERNMENT shall indemnify tl>c CONTRACTOR, any CONTRACTOR
Entity, its Affiliates, any Subcontractor or any agent of any of the foregoing, and their
personnel (including their family members) for any import or export Taxes referred to
in Articles 30.1.30.2 or 30.3.
ARTICLE 31 - TAX PROVISIONS
31.1 Except as expressly provided in this Article 31, and without prejudice to the
exemptions expressly provided for in Article 30 and in this Article 31. each
CONTRACTOR Entity, its Affiliates and any Subcontractor shall, for the entire
duration of this Ccxntiac!. be liable for applicable Taxes as a result of its income,
assets and activities under this Contract, however all such Taxes shall be assumed,
paid and fully discharged by the GOVERNMENT on behalf of such entity. The
GOVERNMENT shall indemnify each CONTRACTOR Entity upon demand
against any liability to pay any Taxes assessed or imposed upon such entity which
ri'J.ilr to this Article 31 I ot any of the exemptions grauted by the GOVERNMENT
under under Article* 31.4 to 31.11.
31 2 Elicit CONTRACTOR Entity shall be subject to corporate income tax on it. income
from Petroleum Operations »s pruvic
inclusive and in full and total discharge ot any Tax on income, receipts, revenues,
gains or profits of each such entity Paynu- a 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 GOVERNMEN r. for the account of cacb CONTRACTOR
Entity, from the GOVERNMENT'S share of the Profit Peuo.eurr. received pursuant
to Article 26
Each CONTRACTOR Entity shall, within sixty (60) days afar the end of each tax
year, provide a statcnxr.: to the appee pnate Kurdistan Region tax authorities of its
profits which arc subject :o corporate income tax. together with a calculation Ot the
amount of corporate income tax due on those profits.
The GOVERNMENT shall, within ninety <‘X>) days after the end of each tax year,
provide to each CONTRACTOR Entity (i) tlx- appropriate official tax receipts Irom
the appropriate Kurdistan Region tax authentic* or other relevant authority certifying
the payment of its corporate income tax. m «L\-i mined in (Ik said statement, a ad that
such entity has met all its Tax obligations in tlx- preceding tax year, and
uny return or other filing made by the GOVERNMENT in respect of its payment of
corporate income tax on behalf of such CON I R ACTOR Entity.
313 For the purposes of Article 31.2:
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(a) The rale 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. 5 of I999j. pasted by the National Assembly of die Kurdistan
Region, as may be amended from time to lime or substituted in respect of
Petroleum Operations (as defined under the Kurdistan Region Oil and Gas
Law) by a petroleum operations taxation law for the Kurdistan Region, but in
no even? in excess cl tony per cent (40*5). The Parties acknowledge ,,r.d agree
that at the Effective Dote of this Contract, the corporate income tax rate is
forty per cent (40%) for all net taxable profits in excess of cme million Iraqi
dinar.
tax shall be calculated foe each CONTRACTOR Entity on its net taxable
profits under the Contact, as calculated in accordance with the provisions
relating thereto in the Accounting Procedure.
314 Each CONTRACTOR Entity, its Affiliates as well as any Subcontractors shall be
exempt from any withholding tax applicable on any payments made to them or by
them to or from Affiliates or third parties, whether inside or outride the Kurdistan
Region and/or Iraq, for the entire duration of this Contract-
31.5 Each CONTRACTOR Entity and its Affiliates shall be exempt from Additional
Profits Tax. as refereed to in Article 40 of the Kurdistan Region Od and Gas Law or
any successor Tax.
31.6 Each CONTRACTOR Entity and its Affiliates shall be exempt from Surface Tax. as
referral to in Article 40 of the Kurdistan Region Oil and Gas Law 0r any successor
‘lax.
31.7 Each CONTRACTOR Entity and its Affiliates shali be exempt from Windfall Profits
Tuxes, as icfcucd to in Article 40 of the Kurdistan Region Oil and Gas Law or any
successor Tax.
31.8 Each CONTKAt TOR Entity and any Subcontractor shall be subject to the payment
or withholding of the personal income tax and social security contributions for which
such entity or Subcontractor is liable to pay or withhold in reaped ot its employees
who me Iraqi nalionuls. pursuant to the Law of Taxation (Law No. 5 of 1999) passed
by the National Assembly of the Kurdistan Region, as may be amended from time to
time, in the same manner as the same shall be generally applied to all other industries,
except that a CONTRACTOR Entity or Subcontractor shall not tx- 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, CONTRACTOR Entities. Subcontractors
ur.d 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 valve added fax (‘‘VAT") shall be considered as a Petroleum Cos! and shall be
cost recovered in accordance with the provisions of Articles 1 und 23.
31.11 Any value added tax TV AT”), not otherwise recoverable by the CONTRACTOR
under VAT law. shall be considered as a Petroleum Cost and shall be cost recovered
:n accord.mcr with the provisions of Articles I and 25.
3J.J2 Ntfwitir-'ardm# ,*ny other provision to the contrary in this Conti.xt. the Parties
acknowledge and agree that the provisions of this Article 31 'hall apply individually
and sepaiHcly 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 refereed
to in this Article 31.
ARTICLE 32 - BONUSES AM) SHARES ISSUES
.SignatureBoniis
32.) SWA MAH AN aJwJI, within sixty (60) days following the hilcctivc Date, pay a
signature bonus of two million, five hundred thousand Dollars (US $2,500,000)
("Signature Bonus") to the GOVERNMENT
Capacity Biilldlm; Bonus
32.2 SHAMAftAN shall, within sixty (60) days following the Effective Date, pay a
capacity building lionus of forty million Dollaia (US $40,000,000) (' Capacity
Building Bonus") to the GOVERNMENT
Sh.tre Js-iie*
32 3 SIlAM AkAN shall, wkhia sixty (60) days of the Effective Date, procure the issuance
of nxry-fivre million (65.000.000) common shares (the "Common Shares • First
Tranche ) ,n SHAM A RAN PETROLEUM CORP.. the ultimate parent company of
SHAMAKAN. m favour of the GOVERNMENT for no further cor.stderat.on
32.4 If Hie Exploration Period does not expire at the end of the First Sub-Penod in
accordance with Article 6 4 and the CONTRACTOR does not withdraw from the
Contract prior to Use Second Sub-Penod and, or. the date thirty (30) days prior the
expiry of the first Sub I'cnod. neither the GOVERNMENT oor SIlAMARAN has
delivered written notice in accordance with Article 2.1.1, SIlAMARAN shall, within
thirty (30) days of the expiry of the first Sub-Penod. picture the issuance of fifty
million (50,000.000) common shares (the "Common Shares Second Tranche") in
SHAMAKAN PETROLEUM COHP. in favour of the GOVERNMENT for no
further consideration.
32.5 If the GOVERNMENT at any time wishes to dispose of any of the Common Shares -
First Tranche or the Common Share.1. - Second Tranche (collectively, the Common
Shared"), live GOVERNMENT shall, through the Minislci of Natural Resources,
provide written notification to SIlAMARAN Where SHAMaKANreceives such
notification. SHAMAKAN may. within ten (10) days ol such notification, elect to
purchase, or identify purchasers for. the Common Shores of which the
GOVERNMENT wishes to dispose, on terms aot levs favourable to the
GOVERNMENT than terms offered by any third party For greater certainty,
nothing herein shall prohibit the GOVERNMENT from period* dly .selling shares to
fund development projects within the Kurdistan Region, lhc GOVERNMENT will
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use its best efforts to cause the Common Shares to lie voted in favour of matters
proposed by the management of SHAM ARAN at meetings of shareholders of
SHAM ARAN. If required by applicable laws, the GOVERNMENT will execute,
deliver and file or assist SHAMARAN in filing such reports, undertakings and other
documents with respect to the Share Issue as may be required by any sccuriijcs
commission, stock exchange or other regulatory authority. The transactions
contemplated herein shall be subject to approval of the TSX Venture exchange and
the issuance of the Common Shaies by SHAMARAN PETROLEUM CORP.
Itercunder shall be subject to any applicable hold period or other rest net ions in
accordance with applicable law and regulation.
32.6 For the avoidance of doubt, and in recognition of exploration services rendered to the
GOVERNMENT by PETOIL. PETOIL shall not be liable to pay to the
GOVERNMENT any signature bonus or capacity building bonus, or issue to the
GOVERNMENT any shares, pursuant to this Contract.
Prod m t ion Boiiums
32.7 The CONTRACTOR shall pay the following relevant Crude 0.1 Production Bonus
to the GOVERNMENT within thirty (30) days of the following relevant occurrence.
(a) Two million five hundred thousand Dollars (US S?.500.00000) when Fust
Production of Crude Oil from the Contract Area commences;
(b) Five million Dollars (US S5.000.000) when production of Crjde Oil from the
Contract Area reaches a cumulative amount of ten million Barrels of Crude
Oil (10 mm, bo);
(c) Tea miilioa Dot I an (VS $!0.(XX>.000> when product tea of Cm.!,' 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,(KM)) when production of Crude Oil from
the Contract Area reaches a cumulative amount of fifty million Barrels of
Crude Oil (50 mmbo).
32.fi In Jbr evem of a Non-Associated Natural Gas Commercial Discovery, the
CONTRACTOR shall pay the following relevant Non-Associated Natural Gas
Production Bonus to the GOVERNMENT within thirty (30) days of the following
relevant occurrence:
(a) Two million live hundred thousand Dollars (US $2,500,000) when First
Production of Non-Associated Natural Gas from the Contract Atea
commences;
(b) Five million Dollars (US $5,000,000) when production of Non-Associated
Natural Gas from the Contract Area reaches a cumulative amount of ten
million bands of oil equivalent (10 nunboc);
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(c) Ten million Dollars (US $10,000,000) when production of Non-Associatcd
Natural Gas from the Contract Area reaches a cumulative amount of twenty
five million barrels of oil equivalent (25 mrnhoc); and
(J) Tuvnty million Dollars (US $20,000,000) when production of New-Associated
Natural Gas from the Contract Area reaches a cumulative amount of fifty
million barrels of oil equivalent (50 mmboe).
32.9 For the purposes of this Article 32, a Commercial Discovery shall he declared by the
CONTRACTOR to be either a Crude Oil Commercial Discovery or a Non-
A.ssocjated Gas Commercial Discovery and under no circumstances shall a Production
Bonus be due in respect of both Crude Oil ar.d Non-Associated Natural Gas for the
same Commercial Discovery.
Bonus cost recovery and payment
32.10 No bonus or share issue due pursuant to this Article 32 shall be deemed to be a
Petroleum Cost
32.11 Payment by tin- CONTRACTOR of any bonus due pursuant to this Article 32 shall
be made in Dollars by wire transfer to a specified bank account of the
GOVERNMENT or by banker's draft and on receipt thereof the GOVERNMENT
shall forthwith issue a written receipt to the CONTRACTOR duly executed by the
Minister of Natural Resources of the GOVERNMENT or such other officer of the
GOVERNMENT who shall be duly authorised to issue such receipt under Kurdistan
Region Law
ARTICLE 33 - PIPELINES AND OTHER TRANSPORTATION ME ANS
33.1 Toe GOVERNMENT shall obtain any required Permits for the transportation by
CONTRACTOR Entities of Petroleum in the Kurdistan Region and in Iraq, as well
as any necessary Permits and easement rights for the construction of any pipelines and
related facilities and/or the acquisition of. access to and use of any other
transportation means (for example, by trucking or rad transport) and related facilities,
required for the Petroleum Operations, as provided in Ankle 33.2.
33.2 The GOVERNMENT undertakes to transfer to the CONTRACTOR its rights for
transportation of Petroleum by pipeline and/or other transportation means The
CONTRACTOR shall have the right to design, construct, operate and maintain
pipelines and any related facilities, and/or to design, acquire, lease, use. operate and
maintain other transportation means (for example, by tiuckicg or mi/ transport) mx/
any related facilities, for the transportation of Petroleum produced under this
Contract.
33.3 Prior to the construction of any pipeline and related facilities and/or the use ol any
other transportation means as provided in Article 33.2. the CONTRACTOR shall
submit following information to the Management Committee:
(a) proposed pipeline and/or other transportation route and related facilities.
ye#
(b) forecasted pipeline flow rate and capacity and/or forecasted capacity of the
other transportation means;
(c) estimate Of financial investment and operating costs of the pipeline and related
facilities and/or other transportation means and related facilities;
(d) proposed financing schedule.
(e) construction schedule.
(f) general technical description of the pipeline and related facilities and/or other
(ratisponsnoa means and Kissed facilities;
(g) construction plans and tests.
(h) preventive measures for damage to the environment and third parties: and
(i) any other information relating to the pipeline project and/or other
transportation.
The Management Committee shall examine all the above information and shall within
ninety (90) days, approve the proposed pipeline and/or other transportation project if)
accordance with the provisions of Article 8.5
33.4 Subject to spare capacity being available and to their Petroleum being compatible,
third parties shall be entitled to transport their Petroleum through any pipeline
constructed On d/or other transportation means acquired, leased or otherwise used by
the CONTRACTOR in accordance with this Article 33 on terms to be agreed
between the CONTR ACTOR and such third party. Those terms ,'h.t I he reasonable
commercial terms and shall not discriminate among third party users. The
CONTRACTOR shall always have priority of access to such pipelines and/or other
Uansporatation means.
33.5 To the extent that they arc incurred upstream of the Delivery Point, any costs
associated mtb the design, construe)ion, operation and mainrenenne of the pipelines
and related facilities, and/or the design, acquisition, leasing, use, operation and
maintenance of the otlier transportation means and related facilities, by
CONTRACTOR under this Article 33 (‘Transportation Costs") shall he considered
Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with
the provisions of Articles 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, and/or other transportation means and related facilities acquired,
leased or otherwise used, by CONTRACTOR under this Article 33 and to transport
Petroleum produced from any Production Area and to operate and maintain any
pipeline und its related facilities and/or other transportation means and related
facilities, fieely and without any additional costs.
33.7 To the extent related to transportation upstream of the Delivery Point, any tariffs
received from third parties for use of any pipeline and related facilities and/or other
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Ks
transportation means and related facilities by CONTRACTOR under ibis Article 33
shall be applied to ihc recovery of Petroleum Costs until all Transportation Costs have
been fully recovered by the CONTRACTOR pursuant to the provisions of Articles I
and 25 ami shall not be included in income for corporate income lax purposes The
GOVERNMENT 'hall be entitled to receive any such tariffs from third parties for
their use of such pipeline and related facilities when the said Transportation Costs
nave been fully recovered hy tlie CONTRACTOR. The costs associated with
providing such transportation services for third patties up to the Delivery Point shall
be considered Transportation Costs and therefore Petroleum Costs and shall he
recovered by the CONT RACTOR in accordance with the provisions ol Articles I
and 25
33.8 Upon recovery )>y the ('<>NTK ACTOR of all the Transportation Costs, the operating
and maintenance costs of any pipeline and its related facilities and/or otlvei
transportation means and related facilities shall be borne, by the CONTRACTOR and
shall be considered Petroleum Costs and shall be recovuied l>y the CONTRACTOR
in accordance with the provisions of Articles 1 and 25.
33.9 The GOVERNMENT shall have the same rights as the CONTRACTOR for use.
free of charge, of any pipeline and related facilities constructed and/or other
transportation means and related facilities acquired, leased oi otherwise used by
CONTRACTOR under this Article 33 for the transportation of the share at
Petroleum to which the GOVERNMENT is entitled under this Contract up to the
Delivery Point, provided that where the GOVERNMENT- is participating in its
capacity as a CONTRACTOR Entity pursuant to Article 4. it shall be liable for its
share of Petroleum Costs.
33.10 The CONTRACTOR shall hear the cost of operation and maintenance ol any
pipeline and related facilities constructed and/or any other transportation means and
related facilities acquired, leased or otherwise used by CONTRACTOR under this
Article 33 and till risks of accidental loss or damage to such pipeline and related
facilities and/or any other transportation means and related facilities while they are
required for Petroleum Operations.
ARTICLE34 -UNITISATION
34.1 In the event a Reservoir extends beyond the Contract Area into an adjacent area which
is ihc svhjcct of another Petroleum Contract (as defined by the Kurdistan Region Oil
and Gas Law) (an ‘ Adjacent Contract Area 'X or ir. the event a Reservoir of an
Adjaccoi Contract Area extends into the Contract Area, the provisions of Article 47.
Paragraph Second of the Kurdistan Region Oil and Gas Law shall apply and the
GOVERNMENT shall require the CONTRACTOR rul the contractor of the
Adjacent Contract Area to agree upon .i ...hedulc for rr.u lung agreement of the tenr.s
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 Resouices
deckles the unitisation pursuant to Article 47, Paragraph Third of the Kurdistan
Region Oil and Gas Law, and if the CONTRACTOR docs not agree with the
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decision of ihc Minister of Natural Resources, the CONTRACTOR shall l>c entitled
to arbitration pursuant to the provisions of Article 42.1.
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 or
another Petroleum Contract (as defined by the Kurdistan Region Oil and Gas I aw),
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 INSURAN< K
Liability
35.1 Subject to the other provisions of this Contract, the CONTRACTOR, in its capacity
.is the entity responsible tor the execution of the Petroleum Operations within the
Contract Area, shall lie liable to third parties to the extent provided under applicable
Law for any losses and damage U may cause to them in conducting tlw Petroleum
Operations, and shall defend, indemnify and hold harmless llic GOVERNMENT
with respect to all claims for such loss or damage.
35.2 Notwithstanding the other provisions of this Contract, the CON I RACTOR and the
CONTRACTOR Entities shall not he liable :.» the GOVERNMENT or the Public
Company or other government a,y r..-,■<•*. *uihc.rii:e< or bodin. coons or [xiitusl
subdivisions for any damj^je 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 fa:, ore 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 m good faith by the
CONTR ACTOR in the exercise of the powers and authorisations conferred upon the
CONTRACTOR by virtue of litis Contract, and further provided that in no event
shall the CONTRACTOR and the CONTRACTOR Entities be liable for any
indirect or consequential loss or damage whatsoever or any loss, damages, costs,
expenses or liabilities caused (directly or indirectly) by any of the following arising
out of. relating to. or connected with this Contract or the Petroleum Operations larried
out under this Contract (i) reservoir or formation damage; (iij inabtiit) to produce,
use or dispose of Petroleum; (iii) loss or deferment ot income; (iv) special or punitive
damages, or (v) other indirect damages or losses whether or not similar to the
foregoing.
35.3 The CONTRACTOR shall indemnify and hold harmless the GOVERNMENT
against all losses, damages and liability arising under any claim, demand, action or
proceeding brought or instituted against the GOVERNMENT by any employee of
the CONTRACTOR or of any Subcontractor or by any dependent thereof, for
personal injuries, industrial illness, death or damage to personal property sustained in
connection with, related to or arising out of the performance or non-performance of
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this Contract regardless of the fault or negligence in whole or in party of any entity o:
individual.
35.4 Notwithstanding Article 35.1. the GOVERNMENT shall indemnify and hold
harmless the CONTRACTOR ami the CONTRACTOR Entities against atf losses-,
damages and liability arising under any claim, demand, action or proceeding brought
ot instituted against the CONTRACTOR or any CONTRACTOR Entity by any
employee of the GOVERNMENT or of any Public Company or of any subcontractor
of the foregoing or by any dependent of any such employee, lor personal injuries,
indusliial illness, death or damage to persona! property sustained in connection with,
related to or arising out of the performance or non-performance of this Contract
regardless of the fnult or negligence in whole or in part of any entity or individual.
35.5 The CONTRACTOR shall take all necessary steps to respond to. and shall promptly
notify the GOVERNMENT of. ail emergency and other events (including
explosions, leaks and spills), occurring in relation to the Petroleum Operaaons which
arc causing or likely to cause materia- environmental damage or material risk to
health and safety Such notice shall include a summary description of the
circumstances ard steps taken and planned by the CONTRACTOR to control and
remedy die situation. The CONTRACTOR shall provide such additional reports to
the GOVERNMENT as are reasonably necessary in respect of the effects of such
events and the course of til actions eaten lo prevent farther loss and to raii/galc
deleterious effects.
35.6 In the event of emergency situations as set out in Article 35.4 . at die 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 passible, 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 GOVERNMENTS reasonable and
necessary costs incurred in such efforts, which reimbursed amounts shall l>c
considered Petroleum Costs and shall be recovered by the CONTRACTOR in
accordance with the provisions of Articles 1 and 25.
35.7 The GOVERNMENT shall indemnify 43d hold harmless the CONTRACTOR and
each CONTRACTOR Entity from and against all costs (including legal costs)
expenses, losses, damages and liability which such Person may suffer or incur, or
may result from such Person being denied, hindered or prevented from fully
exercising its rights ot taking the full benefit of Articles 29.4. and 29.6 to 29.11.
Insurance
35.8 In accordance with prudent international petroleum industry practice, each
CONTRACTOR Fruity shall mat,vam any insurance required by applicable
Kurdistan Region Law, as well as any insurance approved by the Management
Committee.
^ Iff v*
Such insurance policies may cover:
(a) loss of and damage to material and equipment used in the Petroleum
Operations; anil
(l>) personal injury, damage to third parties and risks of pollution associated with
Petroleum Operations for reasonable amounts, within the limits approved by
tlie Management Committer.
35.9 Any insurance policy relating to this Contract shall nam.c the GOVERNMEN T as an
additional insured party and shall include a waiver of subrogation protecting the
GOVERNMENT against any claim. Jos* and damage resulting from any Petroleum
Operation conducted by or or. behalf of the CONTRACTOR under this Contract, to
the extent that the CONTRACTOR s liable for such claim, loss or damage under
this Contract. The CONTRACTOR shall not be liable for and shall m* purchase
insurance cover for any claims arising from negligence or wilful misconduct of the
GOVERNMENT or of any Public Company o* of any of its or their subcontractors
or of any personnel of any of the foregoing.
3S 10 Upon irs written request. the GOVERNMENT shall be provided with insurance
certificates, including necessary details, for any insurance policy maintained by the
CONTRACTOR which relates to this Contract.
35.11 Each CONTRACTOR Entity shall be responsible for the filing of all claims made
under any insurance policy maintained by such CONTRACTOR Entity which relates
to this Contract. Any premiums and payments relating to such insurance policies shall
he considered Petroleum Costs and shall be recovered by the CONTRACTOR in
accordance with the provisions of Articles 1 and 25.
15.12 In any insurance policy maintained by a CONTRACTOR Entity which relates to the;
Contract, the amount for which the CONTRACTOR itself is liable (the “Deductible
Amount") shall be reasonably determined between the CONTRACTOR Entity and
the insurer and such Deductible Amount shall in the event of any Insurance claim be
considered a Petroleum Cost and shall be recovered by the CONTRACTOR in
accordance with the provisions of Articles 1 and 25.
ARTICLE 36 - INFORMATION AND CONFIDENTIALITY
36.1 The CONTRACTOR shall keep all records, data and information relating to the
Petroleum Operations in accordance with the Kurdistan Region Oil and Gas Law and
prudent international petioleum industry practice, in addition, it shall provi ie the
GOVERNMENT with such information and dat2 as it is obliged to provide under
this Contract.
362 Upon the GOVERNMENT'S written request, the CONTRACTOR shall provide the
GOVERNMENT with samples of any rocks or any other items extracted during the
fttrofeum Operations.
36.3 The GOVERNMENT shall have title to ail data and information, whether raw.
derived, processed, interpreted or analysed, obtained pursuant to tfcis Contract.
36.4 Each CONTRACTOR Emily shall have the right, without any Limitation. 10 send
Abroad copies of all reports and technical data, magnetic tapes and other data relating
to the Petroleum Operations. Magnetic tapes or other data, the original of which must
be analysed and processed Abroad, may be transported out of the Kurdistan Region.
36.5 Any representatives authorised by ilte GOVERNMENT and notified to the
CONTRACTOR shall, upon reasonable prior writ ton notice, have reasonable access
to any information and data relating to the Contract Area in the |>ossession of the
CONTRACTOR which the CONTRACTOR is obliged to provide 10 the
GOVERNMENT pursuant to this Contract. It is understood that, when exercising
such right, the GOVERNMENT shall ensure it does not unduly interfere with or
hinder the CONTRACTOR'S rights and activities.
36.6 The CONTRACTOR shall provide the GOVERNMENT upon the
GOVERNMENT'S written request any analysis information, reports, rapes or other
data (geological, geophysical, logs, interpretations, drilling reports, etc.) related to the
Petroleum Operations in the possession of the CONTRACTOR All available
originals of such data shall be tiansferred to (lie GOVERNMENT at the end ol this
Contract.
36.7 Apart from the exceptions stated in this Article 36, the Parties undertake to keep all
data and information relating to this Contract and the Petroleum Operations
confidential during the entire term of this Contract and not to divulge or disclose such
data or information to third parties without the specific consent of the other Parties,
such consent not to be uniiMsonab/y withheld oc dclaytxl The foregoing
confidentiality obligation shall not apply to information or data which
(a) is or, through no fault of any Party, becomes part of the public dotr^in,
(b) is known to the recipient at the dare of disclosure;
(c) is required to be furnished in compliance with any applicable Law. by a
government agency having jurisdiction over a CONTRACTOR Entity, by a
court order any other legal proceedings; or
(d) is required to be disclosed pursuant to the rules cr regulations of any
government or recognised stock exchange having jurisdiction over a
CONTRACTOR Entity.
36.8 Notwithstanding the foregoing in Article 36.7. in accordance with prudent
international petroleum industry practice, such data and information may be disclosed
to:
(a) Affiliates of each CONTRACTOR Emity-
(b) employees, officers and directors of each CONTRACTOR Entity and their
respective Affiliated Companies for the purpose of :he Petroleum Operations,
subject to each such entity taking customary precautions to ensure such
information :s kept confidential;
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{c) consultants or agents retained by any CONTRACTOR Emily or its Affiliates
lor the purpose of analysing or evaluating information or data;
(d) banks or financial institutions retained by any CONTRACTOR Entity or its
Affiliates with a view to financing Petroleum Operations, including any
professional consultants retained by such bank or financial institution;
(c) bona fide prospective assignees of a participating interest under this Contract
(including any entity with whom u CONTRACTOR Entity and/or its
Affiliates are conducting bona fide negotiations directed towards a merger,
consolidation or the sale of a material portion of its or an Affiliates shares);
(0 prospective or actual Subcontractors and suppliers engaged by a Party where
disclosure of such information is essential to such Subcontiactor’s or
supplier’s work for such Party; and
(g) any other Person or entity, upou the prior written approval o( the non-
dUclosing Parties.
provided that disclosure shall not be made pursuant to paragraphs (c). (d). (c) and (0.
unless such third party has entered into a confidentiality undertaking.
36.9 Any data and information relating to relinquished or surrendered areas under this
Contract sh.il become the exclusive property of the GOVERNMENT, who shall
have the right to use same for «r»y psupose. in particular for the purpose of promoting
said areas Each CONTRACTOR Entity shall be entitled to keep copies of such data
and information and to use such data and information for any purpose
36.10 Subject to the provisions of this Article 36. the CONTRACTOR may not sell nor
exchange any data related to the Petroleum Operations without the approval of the
GOVERNMENT, which approval shall not lie unreasonably withheld or delayed
where, in the CONTRACTOR s reasonable opinion, such sale oi exchange would
benefit the Petroleum Operations
ARTICLE 37 - ENVIRONMENTAL PROVISIONS
37.1 During the performance of the Petroleum Operations, the CONTRACTOR shall take
reasonable measures to ensure that it, the Operator, its Subcontractors and agents
attend to the protection of the environment and prevention of pollution, in accordance
with prudent international petroleum industry practice in similar physical and
ecological environments and any then applicable Kurdistan Region Law.
37.2 Prior to surrendering a portion of the Contract Area, the CONTRACTOR shall hike
reasonable measures to abandon the area to be surrendered in accordance with prudent
international petroleum industry practice in similar physical and ecological
environments. Such measures shall include removal or closure in place of facilities,
material and equipment together with reasonable measures necessary for the
preservation of fauna, flora and ecosystems, a'.l in accordance with prudent
ytA
$
international petroleum industry practice in similar physical and ecological
environments The 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 lake reasonable precautions and measures in accordance
with preden; international petroleum industry practice in similar physical and
ecological environments to prevent any pollution which may arise daectly as a result
of thr Petroleum Operations and to protect the environment (fauna and flora), water
sources mid any other natural resources when carrying out Petroleum Operations.
37.4 The CONTRACTOR shall, in accordance with prudent international petroleum
industiy practice in similar physical and ecological environments, respect she
preservation of property, agricultural areas, find fisheries, when carrying out
Petroleum Operations.
37.5 The CONTRACTOR shall conduct and submit an environmental impact assessment
to the GOVERNMENT within six (6) months after the Effective Date.
National Parks and Najiijgjivseryt Areas
37.6 The CON TRACTOR 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 and warrants that, on the Effective Date, there
a Hi no national parks, nature reserves or o'.hftr protected areas located in whole or in
part within the Contract Area where the CONTRACTOR shall no; be entitled to
carry out Petroleum Operations and (ia) covenants that during the term of this
Contract will n« designate or create or permit the creation of any national parks,
nature reserves or other protected areas, located in whole or in pun within the
Contract Area.
Expenditures
37.8 Any reasonable expenditure incurred by the CONTRACTOR in relation with this
Article 37 shall be deemed Petroleum Costs and shall be recovered by the
CONTRACTOR in accordance with the provisions of Articles I and 25.
Pre-existing Conditions
37.9 The CONTRACTOR is not responsible for any pre-existing environmental
conditions or any acts of unrelated third parties, including in respect of any pre¬
existing wells in the Contract Area.
ARTICLE 38 - DECOMMISSIONING
38.1 To enable the CONTRACTOR to recover the costs associated with future Contract
Area Decommissioning O|>erations under this Contract, the CONTRACTOR shall
have the right to establish it reserve fund for future decommissioning and site
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restoration (a ‘ Decommissioning Reserve Fund”). The Decommissioning Reserve
Fund may be established at any time dunng the final tec (10) Calendar Ycus 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, die
CONTRACTOR shall make regular contributions to the Decommissioning Reserve
Fund based upon estimated Petroleum Field decommissioning and site restoration
costs in accordance with prudent international petroleum industry practice, and taking
into account interest received and future interest expected to be earned on the
Decommissioning Reserve Fund Any contributions by the CONTRACTOR to the
CONTRACTOR in accordance with the provisions of Articles I and 25.
bank approver! by the Management Committee in accordance with Article 8.5
38.2 If ut the end of the term of the Production Operations of the Production Area, the
GOVERNMENT decides to take over production operations in the Production Area:
(a) the GOVERNMENT shall become liable for its future Decommissioning
Operations;
(b) the contributions and any interest accumulated in the Decommissioning
Reserve Fund, to the extent that such contributions have been recovered as
Petroleum Costs, shall be paid to the GOVERNMENT; and
(c) the GOVERNMENT shall release the CONTRACTOR and die
CONTRACTOR Entities from any obligations relating to Decommissioning
Operations an ti 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 Fuad shall be paid to the CONTRACTOR and shall be used for the
Decommissioning Operations The CONTRACTOR shall undertake ary such
Decommissioning Operations in accordance with prudent international petroleum
industry practice in similar physical and ecological environments.
38.4 If the Decommissioning Reserve Fund is paid :o the CONTRACTOR and the
Decommissioning Reserve Fund is not sufficient to cover all Decommissioning Costs
for the Contract Area, the balance shall be paid by die CONTRACTOR and may be
recovered, if applicable, by the CONTRACTOR Entities or any of then Affiliates
from any other area which is the subject of another Petroleum Contrac t (as defined by
the Kurdistan Region Oil and Gas Ia»w> anywhere in the Kurdistan Region and. to the
extent the balance is not recoverable as aforesaid, such remaining balance shall be
paid by the GOVERNMENT to the CONTRACTOR.
38.5 If the Decommissioning Reserve Fund is paid to the CONTRACTOR and the
Decommissioning Reserve Fund exceeds all Decommissioning Costs for (he Contract
Area, the balance shall be transferred to the GOVERNMENT.
38.6 Any expenditure incurred by the CONTRACTOR in relation with this Article 3tf,
including any contributions to the Decommissioning Reserve Fund, shall be deemed
Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with
the provisions of Articles 1 and 25.
38.7 The CONTRACTOR shall submit to the Management Committee for oppiuval in
accordance with Article 8.5 a detailed plan for decommissioning the Contract Area
facilities and .site restoration (the "Decommissioning Plan”), such Decommissioning
Plan to be submitted no taler (nan twenty four (24) Months prior to fire date estimated
by the CONTRACTOR for the end of Commercial Production from the Contract
Area The Management Committer, shall provide comments, if any, on the
Decommissioning Plan within ninety (90) days after receipt. The CONTRACTOR’S
completion of the Decommissioning Operations in accordance, in nil material
respects, with the Decommissioning Plan for a Production Area approved by the
Management Committee shall satisfy all of the CONTRACTOR’S obligations with
respect to the pcrfomiar.ee of Decommissioning Operations for such Production Am
/n flic even! (he GOVERNMENT docs not agree that Decommissioning Opr. n vn
for a Production Area were carried out ir. accordance with the approved
Decommissioning Plan, it must advise the CONTRACTOR within six (6) months of
the CONTRACTOR'S completion of such operations.
ARTICLE 39 - ASSIGNMENT AND CHANGE OF CONTROL
39.1 Each CONTRACTOR F.niity shall be free to sell, av^gn. transfer or oi icrwise
dispose of a]] or part of its rights, obligations and interests under this Contract to an
Affiliated Company or to another CONTRACTOR Entity with the prior >,>nseot of
the GOVERNMENT, which consent shall not be unreasonably delayed oi withheld.
39.2 Each CONTRACTOR Entity shell have the right to tell, assign, transfer or otherwise
dispose of all or part of its rights and interests under this Contrac i to any third party
(not being an Affiliated Company or anothci CONTRACTOR F.niity) with the prior
consent of GOVERNMENT, and each other CONTRACTOR F.niity (if any) which
consent shalj not be unreasonably delayed or withheld. Any CONTRACTOR Entity
proposing to sell, assign, transfer or otherwise dispose ol all or part of its lights 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
acid financial capability of the proposed third party assignee.
39.3 In order for any deed of sale, assignment, transfer or other disposal as provided under
Articles 39.1 or 39.2 to be effective, the Patties and the relevant third party, if any,
shall enter into a binding and enforceable instrument of assignment and novation,
which shall include an undertaking by the transferee or assignee to fulfil the
obligations under this Contract which correspond to the interest transferred or
assigned.
39.4 By way of clarification, and not in limitation of the foregoing provisions ot this
Article 39. die GOVERNMENT shall not be considered to be * ting unreasonably in
withholding consent to any such assignment if the assignment to such proposed
assignee is deemed contrary to the GOVERNMENT* interest*, as evidenced in
writing to that effect signed by the duly authorised representative of the
GOVERNMENT below
39 5 In the event a CONTRACTOR Entity assigns or in any other way transfers its rights
and imerest* under this Contract, whether id whole oc m part, sue ft assignment or
transfer shall not give rise to any Tax. including on the consideration paid or received
or on the income or gain therefrom.
396 The GOVERNMENT may not at any time transfer any or all its nghl* ar.d
obligations under this Contract to any Person, including to a Public Company or any
other company or entity, except in accordance with Ankle 4.
Change of Control
39.7 “Change of Control for the purpose of this Article 39.7 mean, 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 senes of transactions, from ooo or more transferor' to one or
more transferee', in which the market value of such entity’s participating interest
(which shall be as specified in the Joint Operating Agreement relating to this
Contract, or where there is ooly one CONTRACTOR Entity, one hundred pet cent
(100%) in this Continct reprints more than seventy five per cent (75%) of the
aggregate market value of the assets of such entity and its Affiliates that arc subject to
the Change in Control For the purpose of this definition "Control” means the direct
o: indirect ownenhip or control of the majority of the voting rights of the applicable
entity at its shareholders’ meetings or their equivalent, and "market value” shall be
determined based upon the amount in cash ,i willing buyer would pay a willing seller
in an Ann's Length transaction.
Each CONTRACTOR Entity which is or anticipates with a reasonable degree of
certainty that it will be subject to a Change in Control, other than to an Affiliated
Company or a CONTRACTOR Entity, shall notify the GOVERNMENT as soon as
practicable after it becomes aware of the Clumge ic Control or anticipated Change in
Control and request the consent of GOVERNMENT, which convent shall not be
unreasonably delayed or withheld.
A Change in Control shall not give rise to 2ny Tax including on the consideration paid
or received or on the income or gain therefrom.
ARTICLE 40 - FORCE MAJEL RE
40.1 No delay, defat:!«. breach or omission of the CONTRACTOR m the execution of any
of its obligations under this Contract shall be considered a failure to perform this
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Contract o; be the subject of a dispute t: such delay, default, breach or omission is tlur
to a case of Force Majeure. In acfc event the CONTRACTOR shall promptly notify
tiic tJOVIIRNMENT in writing and *.ikc all reasonably appropriate roeiisures to
perform ics obligations under this Contract to the extent possible. The time resulting
from any such delay or curtailment in the execution of such obligations, increased by
the time necessary to repair any damage resulting from or occurred during such delay
or curtailment, shall be added to any time period provided under this Contract
(including the Exploration Period and any extension thereto, any Sub-Period and any
extension thereto and any Development Period and any extension thereto). The Parties
shall meet as soon as possible after the notification of Force Majeure with a view to
using icasonablc endeavours to mitigate the effects thereof.
40.2 F/v Ihc purpose of ibis Contract, ‘ force Majeure'' means any event that is
unforeseeable, insurmountable and irresistible, no: due to any error or omission by tt>c
CONTRACTOR but due to circumstances lieyond its control, which prevents or
impedes execution of all or part of it.s obligations under this Contract. Such events
shall include the following:
(a) war. whether declared or not, civil war, insurrection, riots, civil commotion,
terrorism, any other hostile acts, whether internal or external;
(bl sfnles or otter tabouc conflict;
(c) accidents or blowouts;
(d) quarantine restrictions or epidemics;
(e) any act. event happening or occurrence due to natural causer in pon.cuU'
but without limitation, flood*, storms, cycloocs. fires. Lightning, or
earthquakes.
(0 environmental reductions, which me GOVERNMENT has not notified to the
CONTRACTOR:
(g) except m respect of the GOVERNMEN T 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 He foregoing; and
(h) any acts « orders of any other government claiming or asserting jurisdiction
over the subject matter of this Contract, any minister, ministry, department,
wb^vision. agency, authority, council. eommicer or other constituent
element thereof, or any corporation owned and/or controlled by any of the
foregoing,
‘10.3 The intention of the Parties is that Force Majeure shall receive the interpretation that
cornpi'uM most wic/i prudent international petcoktitn imlusuy practice. force Majeurc
affecting u CONTRACTOR Entity or an Affiliated Company of a CONTRACTOR
Entity shall be deemed Force Mtycure affecting the CONTRACTOR if the
m- m
consequence of such Force Majeure pie vans the performance of any
CONTRACTOR'S obligations under this Contract
ARTTCLE 41 - WAIVER OF SOVEREIGN IMMUNITY
The GOVERNMENT and any Public Company which may be a CONTRACTOR Entity at
any lime hereby fully and irrevocably waives any claim to immunity for itself or any of its
assets.
This waiver includes any claim to immunity from:
(a) any expert determination, mediation, or arbitration proceedings commenced pursuant
10 Article *12;
(b) any judicial, administrative or other proceedings to aid the expert determination,
mediation, or arbitration proceedings commenced pursuant to Article 42; and
(c) any effort to confirm, enforce or execute any decision, settlement, award, judgment,
service of process, execution order or attachment (including pre-judgment attachment)
that results from on expert determination, mediation, arbitration or any judicial.
administrative or other proceedings commenced pursuant to this Contract.
ARTICLE 42 ARBI (RATION AND EXPERT DETERMINATION
42.1 For the purpose of this Article 42.1. "Dispute” shall mean any dispute, controversy or
claim (of any and every kind or lypc, whether based on contract, ion. statute,
regulation or otherwise) arising out of. relating to. or connected with this Contract or
the operations carried out under this Contract, including any dispute as the
construction, existence, validity, interpretation, enforceability, breach or termination
Of this Contract, which arises between the Parties (or between any one or mote
entities constituting the CON TRACTOR and the GOVERNMENT)
In the event of a Dispute, the parties to the Dispute shall use their -easonable
endeavours to negotiate promptly in good faith a mutuully acceptable resolution of
such Dispute.
Subject to the provisions of Article 42.2. a Party who desires to subnut a Dispute for
resolution which has not been promptly resolved as aforesaid shall commence lire
dispute resolution process by providing the other parties to the Dispute written notice
of the Dispute (‘ Notice of Dispute”). The Notice of Dispute shall identify the parties
to the Dispute, shall contain a brief statement of the nature of the Dispute and the
relief requested and .shall request negotiations among Senior Representatives.
(af In the tf*\mr that any Notice of Dispute is given in accordance with this Article
42.1. the parties to the Dispute shall first seek settlement of the dispute by
negotiation between Senior Representatives. "Senior Representative" means
any individual who has authority to negotiate the settlement of the Dispute for
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KS
a party to the Dispute, which for the GOVERNMENT shall mean the
Minister of Nararad Resources. Within thirty (30) days after the date of
delivery of die Notice of Dispute, die Senior Representatives representing the
parties to tbc Dispute shall meet at a mutually acceptable date, time and pi**
to exchange relevant information in an attempt to resolve the Dispute. K a
Senior Rcpiesentativc intends to he accompanied at the meeting by a legal
adviser, each other party shall be given written notice of such intention and its
Senior Representative may also be accompanied at the meeting by a legal
adviser.
If the Dispute cannot be resolved by negotiation in accordance with Article
42.1 (a) within sixty (60) days after the date of tl*c receipt by each party to the
Dispute of the Notice of Dispute or such further period as ti-.e parties to the
Dispute may agree in writing, any party to the Dispose may seek settlement of
tte dispute by mediation in accordance with die London Court of International
Arbitration f ‘LCIA~) Mediation Procedure, which Procedure shall be deemed
to be incorporated by reference into this Article, and the parties to such
Dispute shall submit to such mediation procedure
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 parties to the
Dispute may otherwise agree in writing under the mediation procedure under
Article 42.1 (b). and
of the Dispute Notice, any party to the Dispute may refer the Dispute to. and
seek final resolution by, arbitration under the LClA Rules, which Rules shall
be deemed to be incorporated by reference into this Article.
(;) Any arbitration shall be conducted by three (3) urbilrators.
(ii) If the parties to the Dispute arc the GOVERNMENT and all the
CONTRACTOR EnlUics, the GOVERNMENT and (he
CONTRACTOR shall each appoint one (1) arbitrator If the parties to
the Dispute arc the GOVERNMENT and more man one, bur not all
the CONTRACTOR Entities, the GOVERNMENT shall appo.nl
one (1) arbitrator and such CONTRACTOR Entities shali appoint one
(1) arbitrator. If the parties to the Dispute are the GOVERNMENT
and one CONTRACTOR Entity, the GOVERNMENT and such
CONTRACTOR Entity shall each appoint one (1) arbitrator.
(ill) fn any event, the two arbitrators so appointed shall in gvxxf fa:!h. use
all reasonable endeavours to agree on the appointment of the third
arbitrator, who will chair the arbitral trtbuiu.. In case of failure to
appoint an arbitrator or to agree on the appointment of the third
arbitrator. Rules of Ihe LClA shall apply.
(vi) Arbitration shall take place in London. England. The language to be
used in any prior negotiation, mediation and in the arbitration shall be
English. During the arbitration procedure and until the arbitral
decision, the Parties shall continue to perform their obligations and
lake no actions 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 l»e expressed 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 o: Law
(vi) With respect to any matter referred to arbitration under Article 43.4.
the arbitral tribunal 'lull have the authority to amend this Contract to
restore the economic position referred to in Article 43.3.
Expert Determination
■12.2 Any disagreement between the Parties relating to Articles 15.9, 27.2 and 27.5, as well
us any disagreement the Parties agree to refer to Jin expen. shall be submitted to an
expert. The Management Committee shall prepare and agree appropriate terms oi
reference relating to the disagreement to be submitted to the expert, in accordance
with Article 8.5 ("Terms of Reference’*), as soon is possible after the disagreement
arises.
(a) The disagreement shall be submitted to .in expert appointed by mutual
agreement of the Parties within thirty (30) days following die dale of
preparation and agreement of the Terms Of Reference by the Management
Committee. If the Parties cannot agree on the choice of the expert within such
thirty (30) day period, at the request of either Party, the expert shall be
appointed by the President of the Energy Institute in London, England Any
expert appointed must have the necessary qualifications for reviewing nnd
deciding on the subject matter of the disagreement.
(b) The duties of the expert shall be staled m the Tettns of Reference prepared inti
agreed by the Management Committee The Management Committee shall
promptly provide the expert with the agreed Terms of Reference relating to il*
disagreement. Each Party shall have the right to give to the expert in writing
any information which it considers useful, provided it does so within forty-fire
(45) days after the expert’s appointment Such information shall he provided
to the ether Pany a ibr same time an] such cXbci Party shall be enuLed to
provide comoecis on such information to e* first Party and the expert within
thirty (30) Gays after receiving such information. The expert «hall have the
ngh: to review and verify any information he deems useful to as*is: him in hi'
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 »2 2
Subject to the provisions of Article 15.9, any decision of the expert shall be
final and shall not be subject to any appeal, except in the ease of manifest
error, fraud or mdpaKtke. Any costs and expenses associated with ihc expen
determination shall be shared equally between the Parties
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AT
General
42.3 No negotiation. mediation, arbitration or expert determination procedure under this
Article 42 shall exempt the Panics from fulfilling their respective legal and/or
contractual obligations.
ARTICLE 43 - GOVERNING LAW. FISCAL STABILITY ANI) AMENDMENTS
Governing Law
•(v[ Tin's Contract, including a ay dispute arising therefrom, ihanunder or in retetion
thereto and ihe agreement to arbitrate in Article 42, shall be governed by English law
(except any rule of English law which would refer the matter to another jurisdiction),
together with any relevant rules, customs and practices of international law. as well as
by principles and practice generally accepted in petroleum producing countries and in
the international petroleum industry.
fuming:
43.2 The obligations of the CONTRACTOR in respect of this Contract shall not be
changed by the GOVERNMENT and the genera and overall equilibrium between
the Parties under this Contract shall not be affected in a substantial and lasting
manner.
•43.3 The GOVERNMENT guiunntccs to the CONTRACTOR, lor 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 ns they result from
(he laws uni regulations in force on the dale ol signature of this Contract The
CONTRACTOR has entered into this Contract on the basts of the legal, fiscal and
economic framework prevailing at ihe Effective Date If. at any time after the
Effective Dale, there it any change in the legal, fiscal and/or economK framework
u.’ader me KanJisJan Refine Law or ocher Law applicable in or to • he Kurdistan
Region which detrimentally affects the CONTRACTOR, the COYIRACTOR
Entities or any oilier Person entitled to benefits under this Contract, he terms and
conditions of :!>.c C. i :r*r? 'hall be altered so as to restore the CON TRACTOR, the
CONTRACTOR Emitics and any other Person entitled so benefits cade: this
Contract to the same overall economic position (taking into account !*cme country
taxes) as that which such Person would have been in. had no such change in the legal,
frscai and'Of economic framework occurred.
43.4 If the CONTRACTOR believes that its economic position, or the economic position
of a CONTRACTOR Entity or any other Person entitled to benefits under this
Contract, has been detrimentally affected as provided in Article 43.3, upon the
CONTRACTOR'S written request, the Parties shall meet to agree on any necessary
measures or making any appropriate amendments to the terms of this Contract to re-
c4UhU.?J>Jj># the equilibrium between the Parties and restoring the CONTRACTOR,
the CONTRACTOR Entities tw any other Peison entitled to benefits under this
Contract to the position (taking into account home country taxes) it was m 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 ameodmer.ts to be
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KT
made to this Contract within ninety (90} days of the CONTRACTOR'S request (or
such other period as may be agreed by the Parties), the CONTRACTOR may refer
the matter in dispute to arbitration as provided in Article 42.1, without the necessity of
first referring the matter to negotiation and mediation
43.5 Without prejudice to the generality of the foregoing, the CONTRACTOR shall be
entitled to the benefit of any future changes to the petroleum legislation or any other
legislation complementing, amending cr replacing it.
43.6 The Parties agree to cooperate :n ail possible ways with ii view to fully achieving the
objectives of this Contract. The GOVERNMENT shall fnclliiato the performance of
the Petroleum Operations by promptly granting to the CON1RACTOR any
ncccssaiy authorisation, permit, licence or access right and making available any
existing facilities and .services with a view to the Parties obtaining maximum mutual
benefit from the Contract.
Amendments
43.7 Any amendment to this Comma shall be the subject ot a forma} amendment, duly
approved in writing by the Parties and subject to the >.imt conditions of validity as
this Contract. Notwithstanding the foregoing, the GOVERN MEN I has the right and
authority to waive the application of the provisions of this Contract on a case-by-case
basis without having to fulfil the conditions of validity ot this Contract.
43.8 This Contract constitutes the entire agreement of the Parties and .supersedes any and
all prior understandings or agreements in respect of the subject matter of this
Contract.
43.9 Unless otherwise expressly stated elsewhere in this Contract, no failure or delay of
any Party to exercise any right, power or remedy under thj$ Contract shall operate as a
naive/ thereof: nor shah any single or partial exercise of any such nghl. power or
remedy preclude .-.ny other or future exercise thereof or the exercise of any other right,
power a' remedy
Validity
43.10 As signatories to thu Contract for and on behatf of tbe GOVERNMENT, the
Ministry of Natural Resources in the Kurdistan Region and the Regional Council for
the Oil and Gav Affairs of the Kurdistan Region Iraq hereby represent tea; they
agree and approve this Contract for the purposes of the Kurdistan Region Oil aod Gas
Law.
AR 1’fCLE 44 - NO nets
44.1 All notices, demands, instructions, waivers, consents or other communications to be
provided pursuant to this Contract shall be in writing in English, shall be effective
delivery by reputable international air courier company with in establishment in krbti
in the Kurdistan Region) m die following addresses:
To ihc GOVERNMENT
Attention:
His Excellency the Minister of Natural Resources
Address:
Ministry of Natural Resources
Kurdistan Regional Government
Erbil. Kurdistan
Email: rnr.r@krgoil.coni
To the CONTRACTOR:
PETOIE
Attention: Mehmet Ali Ak
Address: Filistin Caddesi No: 16. G O P . 06700 Ankara. Turkey
Phone: ♦90 312 446 6373
Facsimile: ♦90 312 446 6303
Email: ak@Detgii&fiQiilr
SHAMARAN
Attention: Keith C. Hill
Address: 2101 - 885 West Georgia Street. Vancouver. Canada V6C 3E8
Phone: + f 604 6S9 7842
Facsimile: ♦ 1 604 689 4250
Email: khill@nanido.com
A notice delivered by email (followed by air courier) shall, save for manifest error, be
deemed to have been delivered upon its transmission by email.
)h 87/116
44.2 The above address and/or designated representative ot' any of the Parties may be
changed on giving ten (10) dnys prior notice to the oilier Party delivered pursuant to
Article 44.1.
ARTICLE 45 - TERMINATION
45.1 The GOVERNMENT shall have the right, subject to the provisions of Article 45.5.
to terminate this Contract in the event the CONTRACTOR
(a) fails to meet a material financial obligation expressly stated in this Conti act. or
(b) during the First Sub-Period dees not cany out drilling ar.d seismic acquisition,
as detailed in Article 10.2 or. during the Second Sub-Period (or earlier), does
not carry out drilling and seismic acquisition, as detailed in Article 10.3. or
(c) interrupts Production for a period of more than ninety (90) consecutive days
with no cause or justification acceptable in accordance with this Contract or
under prudent international petroleum industry practice, it being recognised
that Force Manure is an acceptable justification for such interruptions; or
(d) intentionally extracts or produces any mineral which is not covered by die
object of this Contract, unless such extraction or production is expressly
authorised or unavoidable as a result of operations earned out in accordance
with prudent international petroleum industry practice;
(c) if the CONTRACTOR comprises solely one entity, is declared bankrupt ir.
accordance with applicable I.aw; 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 Change of Control for which the
GOVERNMENT has not given its authorisation in accordance with Article 39.7.
45.3 At any time prior to the Development Period, the CONTRACTOR shat: have the
right to terminate this Contract by surrendering the entire Coo tract Area in accordance
with the provisions of Article 7.
45 4 During the Development Period, the CONTRACTOR shall have the right to
terminate this Contract at any time by surrendering all Production Areas, provided its
then current obligations have been satisfied in accordance with this Contract
45 5 If the GOVERNMENT intends to exercise in right to terminate this Contract
pursuant to Article 45.1. it shall fust comply with the following provisions:
(a) The GOVERNMENT shall notify the CONTRACTOR of its intention to
terminate this Contract stating the reasons for such termination and requeuing
(lie latter:
(i) to remedy the default; or
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(li) to propose acceptable compensation.
(b) If. within three (3) Montiis after the nonce referred to in Article 45.5(a), the
CONTRACTOR has not remedied the situation complained of by the
GOVERNMENT to its satisfaction ot offered compensation acceptable to the
GOVERNMENT in each ease acting reasonably, the GOVERNMENT shall
notify tltc CONTRACTOR in writing that the Contract shall be terminated
from the termination date detailed in sucb notice. This Contract shall terminate
on such termination date unless the CONTRACTOR issues a notice of
dispute us provided under Article 42, in which case this Contract shall remain
in force until a final settlement of the dispute hits been reached in accordance
with the dispute resolution provisions of Article 42.
The foregoing provisions of this Article 45.5 are 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 puisuant to Article 42, the GOVERNMENT shall not lie entitled
to exercise its right to terminate this Contract prior to n final determination under
Article 42 in favour of the GOVERNMENT.
45.6 If live GOVERNMENT terminates this Contract pursuant to the provisions of
Articles 45.1 and 45.5, the CONTRACTOR shall lose all its rights and interests
under this Contract. Notwithstanding the foregoing, the provisions of Articles 14 id,
16.7, 30, 31, 35.1, 35.3. 35.4, 35.7, 36. 38.2(c), 41.42. 43.1 to 43.6 shall survive the
termination or expiry of this Contract.
45.7 If a CONTRACTOR Emily 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 M»all be transferred to the other CONTRACTOR Entities in
the proportions in which tbeir respective percentage interests bear to the aggregate of
their respective percentage interests under the relevant Joint Operating Agreement or
in such other proportions as such CONTRACTOR Entities shall agree between them
for the market value thereof (as such term is defined in Article 39.7) Such transfer
shall not gi\e rise to ar.y Tax including on '-he consideration paid oc received or on the
income or gain therefrom.
45.9 If S HAMA RAN does not satisfy its obligations under Articles 321. 32.2 and 32.3 by
the date which is sixty (60) days following the Effective Date, then this Contract
automatically and immediately terminates and each of the CONTRACTOR and the
GOVERNMENT shall lose all its rights and interests under this Contract.
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 initto.
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.
7#
ARTICLE 47 - EFFECTIVE DATE
This Contract shall become effective and be binding on die Parties upon the signature of the
Contract by the duly authorised representatives of the GOVERNMENT and (he
CONTRACTOR, as provided below
Entered into in four (4) originals in Etbil, the Kurdistan Region on 2.*$ 2009.
For the KURDISTAN REGIONAL GOVERNMENT in its capacity as a Party and as a
representative of the Public Company holding the Government Interest:
Nechirvan Barzani Dr. Ashti Hawraini
Prime Minister Minister of Natural Resources
Kurdistan Regional Government Kurdistan Regional Government
On behalf of the Regional Council On behalf of the Ministry of Natural
for the Oil and Gas Affairs of Resources in the Kurdistan Region
the Kurdistan Region - Iraq
For SHAMARAN PETROLEUM B.V. (currently known as “BBPL International BV> in
its capacity av u CONTRACTOR Entity:
Keith C. Hill
Attorney in Fact
For PETOIL PETROLEUM AND PETROLEUM PRODUCTS INTERNATIONAL
EXPLORATION AND PRODUCTION INC., in its capacity as a CONTRACTOR
Entity:
Mehract Ali Ak
General Manager
ANNEXA
MAP SHOWING COORDINATES OF PULKHANA BLOCK 10 CONTRACT AREA
CORNER POINTS
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ACCOUNTING PROCEDURE
PARAGRAPH 1-GENERAL PROVISIONS
1.1 Purpose
To classify expenditures, define further Petroleum Costs (in addition to those defined
.is 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 I or other
Articles of the Contract shall have the same meaning when used in this Annex.
1.3 Inconsistency
In the event of any inconsistency or conflict between the provisions of this Annex and
the other provisions of the Contract, then the other provisions of the Contract shall
prevail.
1.4 Accounting Records and Reports
1.4.1 The CONTRACTOR shall maintain the Accounts :n accordance with Article 15.1
and in accordance with this Accounting Procedure, including in accordance with the
charts of Accounts agreed under Paragraph 1.4.2.
I 4.2 Within sixty (60) days of the Effective Date, the CONTRACTOR shall submit to and
discuss with the GOVERNMENT a proposed outline of charts of Accounts, which
outline shall be in accordance with generally accepted standards and recognized
accounting systems and coosisrcn with normal petroleum industry practice and
procedures. Within ninety (00) 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 charts of Accounts which shall
describe the basis of the accounting system and procedures to be developed and used
under tbs Contract. Following such agreement, the CONTRACTOR shall
expeditiously prepare and provide the GOVERNMENT with formal copies ol the
comprehensive charts of Accounts and manuals related to the accounting, recording
and reporting functions, and procedures which are. and shall be. observed under the
Contract.
1.4.3 Notwithstanding the generality of the foregoing. the CONTRACTOR shall make
regular Statements relating to the Petroleum Operations. These Statements are as
shown:
(a) Production Statement (as indicated in Paragraph 6).
(b) Value of Production and Pricing Statement (as indicated in Paragraph 7).
(c) Com Recovery and Share Account Statement (as indicated in Paragraph 8).
(
Final P.nd-of Year Statement (as indicated in Paragraph 10).
(0 Budget Statement (as indicated in Par agraph 12).
1.4.4 All reports and statements shall be prepared in accordance with the Contract,
Kurdistan Region laiw, and wliere there arc no relevant provisions of either of these,
tn Accordance with pevdeoi international petroleum indusuy practice.
1.5 Kunuuaut' and Units of Account
All Accounts shall be maintained and prepared tn the English language and shall be
recorded in Dollars. Where necessary for clarification, die CONTRACTOR may
also maintain Accounts in other currencies.
1.6 Audit nnd Inspection Rights of the GOVERNMENT
In addition to the provisions of Articles 15 3 to 15.7 and 15.9. the following
provisions shall apply to any audit carried out in accordance with Articles 15.3 to
15.7:
1.6.1 For purposes of auditing, the GOVERNMEN I*, acung reasonably and in accordance
wnh prudent international petroleum industry practice, may examine and verify, at
reasonable times upon reasonable prior written notice to the CONTRACTOR, all
charges and credits relating to the Petroleum Operations. Such as booits of account,
accounting entne'. material records 3rd inventories. vouchers, payrolls, invoices ar.d
ary othc* documents, conespccder.ce md records inciting electronic records
reasonably considered necessary by the GOVERNMENT to audit and verify the
charges and credits, values anc treatments
1.6.2 Furthermore, the auditors shall have the right in connection with such audit, to visit
•md inspect at reasonable times, all sites, plant*, facilities, warehouses and offices of
trie CONTRACTOR directly or indirectly serving Che flsro/eum Openootte sad to
question personnel associated with those Petroleum Operations.
I 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 fro::, an in cmariorally recognized firm of
public accountants acceptable to both the GOVERNMENT and the
CONTRACTOR, which may be the CONrK ACTOR * statutory auditor
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1.6.4 All agreed adjustments resulting (rom 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, a^ the case may be, shall be made
promptly
1.64 When issues axe 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 m Article 24. Article 29 or other Articles of the
Contract:
1.7.1 Ail payments between the Parties shall, unless otherwise agreed, be in Dollars and be
made through a bank designated in writing by each receiving party; and ail sums due
under the Contract shall be paid within thirty (30) days following the end of the
Month in which the obligation to make such payment occurred
1.7.2 All sums due by one party to thr oilier under the Contract shall, for each day such
sums are overdue, bear interest compounded monthly at LIBOR plus two pet cent
(2%).
1.8 Currency Exchange Rates
In addition to the provisions of Article 29. the following provisions shall apply to any
exchanges of currency carried out in accordance with Article 29
1.8.1 Amounts received and Petroleum Costs incurred, shall be converted from other
currencies into Dollais in accordance with the CONTRACTOR’S usual accounting
procedures which shall reflect generally accepted accounting practices in the
international petroleum industry, and with reference to exchange rates obtained in
accordance with Article 29.
1.9 Accrual Basis. Cash Flow Basis and Reports
All books and Accounts shall be prepared on an accrual basis in accordance with
generally accepted accounting principles used in rite international peftu.’eutrx industry.
1.10 Values and Treatments
Values and treatments proposed by the CONTRACTOR relating to all Petroleum
Costs shall be subject to challenge by the GOVERNMENT in the couise of audit to
ensure that they arc in accordance with the provisions of this .Accounting Procedure
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PARAGRAPH 2 CLASSIFICATION, DEFINITION AND ALLOCATION OK
COSTS AND EXPENSES
2.1 Segregation of Costs, and Expenses
Petroleum Costs shall be segregated in accordance with (he purposes for wfucfc such
Petroleum Costs arc made. The purposes which shall qualify are
(a) those which have been included in the approved Work Program and Budget
for the year in which the Costs and Expenditures are made;
(b) expenditures incurred in cases of emergency as set out in Articles 1 1.7, 13.5,
13.9 35.5. 35.6 and any other Articles of the Contract;
(c) any other purposes agreed in the Articles of the Contract; and
(d) other items which have been agreed by the Parties from time to time.
All Petroleum Costs recoverable under Paragraph 3 relating to Petroleum Operations
shall be classified, defined and allocated as set out below.
2.2 Exploration Costs
Exploration Costs are all direct and allocated indirect costs and expenditures incurred
in carrying out the Exploration Operations, including all direct and allocated indirect
costs and expenditures incurred in the search for Petroleum in an area which is. or was
x ihe time when such costs and expenses were incurred, pan of the Contract Area
including:
2.2.1 Aerial, geophysical, geochemical, paleontological, geological, topographical and
seismic surveys and studies and their interpretation and purchased geological and
geophysical information.
2.2.2 Stratigraphic test hole drilling and water well drilling.
2.2.3 labour, materials, supplies, and services used in drilling and formation testing of
wells with tltc 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 extern used in support of the purposes described in Paragraphs 2.2.1,
2.2.2 and 2.2.3, including access roads.
2.2.5 That portion of all service expenditures and that portion of all general and
administrative expenditures directly attributable to Exploration Costs or allocated
thereto on a consistent and equitable basis.
2.2.6 Any other expenditures incurred in tltc search for and appraisal of Petroleum after the
Effective Date and not otherwise covered under this Paragraph 2.2
2.3 Gas Marketing Costs
Gas Marketing Costs are nil direct and allocated indirect costs and expenditures
incurred in carrying out Gus Marketing Operations and include tliat portion ot' .ill
serv ice expenditures and that portion of nil general 3nd administrative expenditures
directly attributable to Gas Marketing Costs or allocated thereto on a consistent and
equitable basis.
2.4 Development Costs
Development Costs axe ail direct and allocated indirect costs and expenditures
incurred in carrying out Development Operations including all direct and allocated
indirect costs and expenditures incurred in:
2.4.1 Drilling wells which are completed as producing wells and drilling wells for purposes
of producing from a Pcuolcum 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 oi otherwise after a
well has been drilled for the purpose of bringing the well into use as a producing well
or as a well for the injection of water or gas to enhance recovery of Petroleum.
2.4.3 I he costs of Petroleum production, transport and storage facilities such as pipelines,
flow lines, production and treatment units, wellhead equipment, subsurface
equipment, cnlianced recovery systems. Petroleum storage facilities, and access roads
for production activities.
2.4.4 Engineering and design studies for the wells and facilities referred to in Paragraphs
2.4.1,2.4.2 and 2.4.3.
And Including that portion of all service expenditure' and that portion of all general
and administrative expenditures duccil) attributable to Development Costs or
allocated thereto on a consistent and equitable basis: and any other expenditure
inclined us the Development Operation- ami not otherwise covered unde: Paragraph
2.3.
2-5 Production Costs
Production Costs are all direct and allocated indirect costs and expenditures incurred
in carrying out Production Operations, including all direct and allocated indirect costs
and expenses incurred in Petroleum Operations alter Fast Production which are other
than Exploration Costs. Gas Marketing Costs. Development Costs urvd
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
2.6 Dctoimnivdnning Costs
Decommissioning Costs are all direct and allocated indirect costs and expenditures
incurred in carrying out Decommissioning Operations and include that portion of all
serv .ce expenditures and that portion of all general and administrative expenditures
directly attributable to Decommissioning Costs or allocated thereto on a consistent
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and equitable basis, and the Decommissioning Reserve Fund shall be determined on
such basis, in advance of incurring such costs, as provided in Article 38 and. for the
purposes of cost recovery, tbc 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 FVrtroteum Operations iiKindiag
warehouses, vehicles, motorized rolling equipment, aircraft, fire 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 annua! costs ol
maintaining and operating the vune. All service expenditures shall be regularly
allocated as specified in Paragraidus 2X5. 2.3. 2.4. 25 and 2.6 to Exploration Costs.
Gas Marketing Costs, Development Costs. Production Cost' and Decommissioning
Costs respectively and shall be separately shown under each of these categories.
Where service expenditures are made in respect of shared facilities, the basis of
allocation of costs to Petroleum Operations shall be consistent and equitable and shall
be specified.
2.8 General and Administrative F.xpcnditures
General and administrative expenditures are:
2.8.1 .-Ml main office, field office and general administrative expenditures in the Kurdistan
Region including supervisory, accounting, procurement and employee relations
services.
2.8.2 Where the CONTRACTOR is an Affiliate of a group of companies whose
headquarters is Abroad (a "Foreign CONTRACTOR”), an annual overhead charge
shall lx? made for services rendered (excluding the direct expenditures as referred in
Paragraph 3.1.2.(b» by any Affiliate of the Foreign CONTRACTOR outside the
Kurdistan Region to support and manage Petroleum Operations under the Contract. or
Where die CONTRACTOR, not being a Foreign CONTRACTOR draws upon the
services of an Affiliate within the Kurdistan Region, an annual overhead charge shall
lie made for services rendered (excluding the direct expenditures as referred in
Paragraphs 3.1.2.(a) and (b)) by such Affiliate to support and manage Petroleum
Operations under the Contract (“Parent Company Overhead").
Parent Company Overhead will be deemed to cover the actual cost (being salaries,
wages anil labour burden, employee benefits, travel, hotel and other normally
reimbursable expenses paid by the Affiliate of u CONTRACTOR in accordance with
its standard personnel policy in force in the relevant period, provision of office
accommodation and provision of services reasonably necessary for operation and
maintaining such staff offices) incurred for services rendered by those functions of
CONTRACTOR’S Affiliate, such as, but not limited to, international production
headquarters, international exploration headquarters, treasury, payroll, taxation,
insurance, legal, communications, computer services, controllers, personnel,
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executive administrative management, research and development, central engineering
and process engineering which:
(a) cannot, witlrout 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) arc properly allocable to Petroleum Operations under the Contract It i.‘
understood, however, chat 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 cost* 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 lie 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 ol 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 (?.) 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 (USS4.000.000) four per cent (4%)
For the next tour million Dollars (USVI.000.000) three per cent (3%)
Over eight million Dollars (USM.000.000) two per cent (2*)
The foregoing percentages may be reviewed hut not more often than annually, and
any approved appropriate adjustment sluill be made, if necessary, prospectively
2.8.2.2 Development. Production ar.d Deconuniwionir.g Operations Overhead
The overhead rates applicable to Development. Production and Decommissioning
Operations shall be agreed between the Parties in due course ani shall incorporate the
following guidelines:
(a) The CON I RACTOR s charges must be charged as direct charges whenever
possible. Overhead charges exist only to compensate ±e CONTRACTOR\
Affiliates for costs which are properly allocable to Petroleum Operations
under die 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 no: exceed an amount calculated as a percentage of
certain annual expenditures excluding Exploration Costs and
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(b) Thai percentage as well as the types of expenditures, which affect overhead
and those, which do aoc. shall be agreed among the Parties.
(c) The maximum percentage rates may be revised by mutual agreement not more
often than annually. The initial maximum percentage rates anc the types of
expenditures to which they apply shall be agreed as soon as the Parties possess
reasonably reliable cost estimates for the relevant Production Area.
(d) Overhead charges arc not subject to audit by GOVERNMENT.
(e) The CONTRACTOR shall upon request furnish at the end of each relevant
Calendar Year to the GOVERNMENT a confirmation by its statutory auditor
that the overhead costs actually charged do not duplicate any other charges
and that the method used in allocating overhead to Petroleum Operations
hereunder as opposed to other activities is reasonable and in accordance with
generally accepted accounting practices.
(0 The CONTR ACTOR must budget lor overhead chajges.
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.
Devel opment Costs. Production Costs and Decommissioning Coys respectively and
dull be separately shown under each of these categories
PARAGRAPH 3 - COSTS. EXPENSES. EXPENDITURES AND CREDITS OF THE
CONTRACTOR
3.1 Costs Recoverable Without t tirlbw Approval of the GOVERNMENT
The following Petroleum Costs incurred by the CONTRACTOR pursuant to the
Contract as classified under the headings referred to in Paragraph 2 shall be
recoverable for tlic purpose of Article 25 of the Contract (except to the extent
provided in Paragraph 4 or elsewhere in this Annex) without the further approval ol
the GOVERNMENT, subject to audit as provided for in Article 15 and in Paragraph
1.6
3.1.1 Surtaftiiliis
All direct costs necessary lor the acquisition, renewal or relinquishment of surface
rights acquired and maintained in force for the purposes of the Contract.
3.12 lith'.nir mid /hnai»He
(a) The CONTRACTOR'S locally recruited employees based in the Kurdistan
Region Costs of all CONTRACTOR'S locally reciuited employees who arc
directly engaged in the conduct of Petroleum Operations under the Contra in
the Kurdistan Region Such costs shall include the costs of salaries, wages,
bonuses, overtime, employee benefits and GOVERNMENT benefits for
employees and levies imposed on the CONTRACTOR as an employer,
transportation and relocation costs within the Kurdistan Region ol the
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employee and such members of the employee's family (limited to spouse and
dependent children) as required by law or customary practice in the Kurdistan
Region If such employees are engaged in other activities in the KuadtMan
Region, in addition to Petroleum Operations, the com of such employees shall
be apportioned on a time sheet basts according to sound and acceptable
accounting principles.
(b) Assigned Personnel: Costs of salaries and wages including bonuses of the
CONTRACTOR’S employees directly engaged m the conduct of the
Petroleum Operations under the Contract, whether temporarily o» permanently
assigned, irrespective of the location of such employees, it bring understood
that in the ease of those personnel only a portion of whose tune is wholly
dedicated to Petroleum Operations under the Contract, only that pio-rata
portion of applicable salaries, wages, and other cosu as delineated in
Paragraphs 3.1.2(c). (d). (e). (0 and (g). shall be charged and the basis of such
pro-rata allocation shall be specified
»C) The CONTRACTOR’* 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 obligation*
imposed under Law which are upplicablc to the CONTRACTOR'S cost ol
salaries and wages chargeable under Paragraph 3.1 2(b).
(e) The CONTRACTOR’S cost of established plans for employees group life
insurance, hospitalization, pension, stock purchases, savings, bonus, and other
benefit plans of a like nature customarily granted to the CONTRACTOR'*
employees, provided Iiowev.i that such costs are in .iccoidanu* with generally
accepted standards in the international petroleum industry, applicable to
salaries and wages chargeable to Petroleum Operations under Paragraph
3.1.2(b).
(0 Actual transportation and tt.ivel cxivnirs of employees of CONTRACTOR,
including those made foe travel and relocation of the expatriate employees.
iik (mlir.g (heir families and personal effects, assigned to the Kurdistan Region
whose salaries and wages arc chargeable to Petroleum Operations under
Paragraph 3 l 2(b).
Actual transportation expenses of expatriate personnel transferred to Petroleum
Operations ’rom their country of origin shall br charged to tl»e Petroleum Opermioni.
Transportation expenses of personnel transferred from Petroleum Operations i' i
country other than the country of their origin shall not be charged to tlx* Petroleum
Operations Transportation cost as uved in this section hall mean the cost of freight
and passenger service, meals, hotels, insurance and other expenditure' related to
vacation and transfer travel and authorized under the CONTRACTOR’S standard
personnel policies. The CONTRACTOR shall ensure that all expenditures related to
transportation costs are equitably allocated to tlx- activities, which have benefited
Ifom the personnel concerned.
(g) Reasonable personal expenses of personnel whose salaries and wages arc
chargeable to Petroleum Operations under Paragraph 3.1.2(b) and for which
expenses such personnel are reimbursed under the CONTRACTOR'S
standard personnel policies. In the event such expenses arc not wholly
attributable to Petroleum Operations, the Petroleum Operations shall be
charged with only the applicable portion thereof, which shall be determined on
an equitable basis.
313 X fl IS. *A ULiiSS1
The cost of transportation of employees, equipment, materials and supplies other than
as provided in Paragraph 3.1.2(1) 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 Services
(a) Third Panies
The actual costs of contract services, services of professional consultants,
utilities, and other services necessary for the conduct of the Petroleum
Operations under the Contract performed by third parties other than an
Affiliate of the CONTR ACTOR
(b) Affiliates of the CONTRACTOR
(i) Professional and Administrative Services F.x|*i»ses cost of
professional and administrative services provided by any Affiliates of
Ihc CONTRACTOR for tlx- 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 re fleet 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 othci operations
carried on by the CONTRACTOR and its Affiliates The chargcout
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. Tlie 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 service* Where the work is
performed outside the home office base of such personnel, the daily
rate shall be charged from the .late such personnel leave the home
office base where they usually work up to then return thereto,
including days which are not working days in the kxauon where the
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work is performed, excluding any bdxJsy entitlements derived b% *,jch
personnel from their employment at their home office base.
(ii) Scientific or Technical Personnel, cost of scientific or tcchniciil
personnel services provided by any Affiliate of the CONTRACTOR
for the direct benefit of Petroleum Operations, which cost shall he
charged on a cost of service basis and shall not include any element of
profit. The chnrgeout rate shall include nil costs incurred by Allilintes
and Associated Labour Costs and the cost of maintaining and opcmting
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 panics, taking into
account the quality and availability of such services- Unless the work
to lie done by such jiersonncl is covered by an approved Work Program
and Budget, the CONTRACTOR shall nut authorize work by such
personnel without approval of the GOVERNMENT.
(hi) Equipment and facilities: use of equipment and facilities owned and
furnished by the CONTRACTOR’S Affiliates, at rates commensurate
with the cost of ownership and operation; provided, however, that such
rates shall not exceed those currently prevailing for the supply of like
equipment and facilities on comparable terms m the area where the
Petroleum Operations arc 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 GOVERNMENI
consider th.It any such rate is not on an aim's length basis then the
GOVKRNMt NT has the ngbt to refer the matter to an expert
pursuant to Article 42.2 of the Contract) The equipment and facilities
referred to herein shall exclude major inve.mxct items such as (but
not limited to) drilling ngs. producing platforms, oil treating facilities,
oil and gas loading and traasportauoo systems, storage aad terminal
facilities and other ma or facilities, rates for which shall be subject to
separate agrrrmfnl with the GOVERNMENT
3.1.5 Communications
Cost of acquiring, leasing, installing, operating, repairing and maintaining
communication systems including radio and microwave facilities within and between
the Contract Area and the CONTRACTOR S nearest base facility.
3.16 Office and MiscellarccuN Facilities
Net cost to the CONTRACTOR of establishing, maintaining and operating any
office, sub-office, warehouse, housing or oilier facility dire. :ly serving the Petroleum
Operations. If any such facility services more than one contract area the net costs
thereof shall be allocated on an equitable basis in accordance with prodert
international pc-joleum industry practice.
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3.1.7 Ecological und )jtivintnmciii
(a> Costs incurred in ilic Contract Area as a result of legislation for archaeological
and geophysical surveys relating to identification and protection of cultural
sites or resources;
(b) Costs incurred in environmental or ecological surveys required by regulatory
authorities, including an environmental impact assessment commissioned
pursuant to Aiticlc 37 5 of tlw Contract and any other costs incurred in
complying with the requirements of Aiticlc 37;
(c) Costs to piovidc- or have available pollution containment and removal
equipment;
(d) Costs of actual control and cleanup of oil spills, and of such further
responsibilities resulting therefrom as rnay be required by applicable laws and
regulations;
(e) Costs of restoiiition of the Operating environment incurred pursuant to an
approved scheme prepared in accoidance with Article 38 of the Contract;
(f) Any costs incurred for the decommissioning of facilities and site restoration,
including any related activity required by the GOVERNMENT or other
competent authority or by the Contract, and
(g) Any contributions made by the CONTRACTOR to the Decommissioning
Reserve Fund in accordance with Article 38. when such contributions arc
made.
3.1.8 asd Cto'*
Costs of matcn ils and supplies, equipment, machines, tools and any other goods of a
similar nature used or consumed in Petroleum Operations subject to the following
(a) Acquisition the CONTRACTOR shall only supply or purchase materials
for use in Petroleum Operations that may be used in the foreseeable future.
The accumulation of surplus stock;, and inventory shall be avoided so far as is
reasonably practical and consistent with efficient and economical operations.
Inventory levels shall, however, take into account the tune lag for
replacement, emergency needs, weather conditions affecting operations and
similar considerations.
(b) Components of costs, arm's length transactions - except as otherwise
provided in paragraph 3.1.8(d) . material purchased by the CONTRACTOR
in arm’s length transactions in the open market for use in the Petroleum
Operations under the Contract shall be valued to include invoice price less
trade and cash discounts (if any), licence fees, purchase and procurement fees
plus freight and forwarding charges between point of supply and point of
shipment, freight to port of destination, insurance, taxes, customs duties,
consular fees, excise taxes, olhet items chargeable against imported materials
and. where applicable, handling and transportation expenses from point of
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importation to warehouse or operating site. Where an Affiliate of the
CONTRACTOR has arranged the purchase, coordinated the forwarding and
expediting effort, its costs should not exceed those currently prevailing in
norma: arm's length transactions on the open market and in any case shall not
exceed a fee equal to two per cent (2%) of the value of the materials added to
the cost of the materials purchased.
(c) Accounting - such materia! costs shall be charged to the accounting records
and books in accordance with the “First in. First Out*' (FIFO) method;
(d) Material purchased from or sold to Affiliates of the CONTRACTOR or
transferred from other activities of the CONTRACTOR 10 or from Petroleum
Operations under this Contract shall be valued and charged or credited at the
prices specified in Paragraphs 3.l.8(dXi). 3-1.8(d)(ii) and 3.1.8(d)(iii);
(i) New material, including used new material moved from inventory
(Condition "A"), shall be valued at the current international net price
which shall not exceed the price prevailing in normal arm's length
transactions in the open market.
(ii) Used material (Conditions “B", "C" and "D”;
(A) Material which is in sound and serviceable condition and is
suitable for re-use without reconditioning shall be classified as
Condition “B" and priced at seventy five per cent PVf) of the
current price of new material defined in Paragraph 5 i 6\d> i);
(B) Material which cannot be classified as Condition **B'' but w hich
niter reconditioning will be further serviceable for its original
function shall be classified as Condition ”C and priced a: not
more than fifty per cent (50%) of the current price of new
material as defined in Paragraph 3.1 The cost o|
reconditioning shall be charged to the reconditioned material
provided that the value of Condition “C* material plus the cost
of reconditioning do not exceed the value of Condition "B"
material;
(C) Material which cannot be classified as Condition B" or
Condition “C” shall be classified as Condition "D“ and priced
at a value commensurate with its use by the CONTRACTOR
If material is not fit for use by die CONTRACTOR u shall be
disposed of as junk
(iii) Material involving erection costs shall be charged at the applicable
condition percentage of the current knocked-down price of new
material ns defined in Paragraph .1.18(d)(1) •
(iv) When the use of material is temporary and its sendee to the Petroleum
Operations under die Contract docs not justify the reduction in price as
provided for in paragraph 3.1.8.(d)(ii)(b), such material shall be priced
on a basis that will result tn a net charge to the accounts under the
Contract consistent with the value of the service rendered
(v) Premium prices - whenever material is not readily obtainable at
published or listed prices because of national emergencies, strikes or
other unusual causes over which the CONTRACTOR has no control,
the CONTRACTOR may charge Petroleum Operations for the
required materia! at the CONTRACTOR'S actual cost incurred :n
providing wch material, in making it suitable for use. and in moving it
to the Contract Area, provided notice in writing is furnished to the
GOVERNMENT of the proposed charge prior :o charging Petroleum
Operations for such material and the GOVERNMENT shall have the
right to challenge the transaction on audit.
(vi) Warranty of material furnished by the CONTRACTOR - the
CONTRACTOR does not warrant the materia! 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 ot the C< )NTRACT<)K charged at rates not to exceed the average
cotnmcrci.il rates of non-affiliated third parties for equipment, facilities,
installations and utilities for use in the area where the same are used. On
request, the CON TRACTOR shal furnish a iist of rates and the basis of
application. Such rates shall be revised when found to be either excessive or
insufficient, but not more than once every six (6) Mouths.
Drilling tools and other equipment lost in the hole or damaged beyond repair
may be charged at replacement cos: less depreciation plus transportation costs
to deliver like equipment to the location where used.
(0 Use of leased or hired machinery 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 tees, as well
as other contractual costs.
3.1.9
All rentals of every kind and nature levied by any GOVERNMENT and all Taxes
imposed in connection with the CONTRACTOR’S assets, income or activities under
the Contract and paid directly by the CONTRACTOR or any CONTRACTOR
Entity (save where the contrary is expressly provided in the Contract) with the
exception of Taxes described in Article 31 2) and bonus payments made under Article
If the CONTRACTOR, any CONTRACTOR Entity oi any of its Affiliated
Companies is subject to income or withholding tax as a result of services performed at
cost for the Petroleum Operations under the Contract, its charges for such services
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may be increased by the amount required to cover such taxes (grossed up) including
taxes on such gross up.
3.1 10 Insurance and Losses
Insurance premiums and cons incurred for insurance carried for tbe benefit of the
Petroleum Operations provided tba: 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 Fxcept in cases of failure to insure where insurance coverage is
required pursuant to the Contract, actual costs and losses incurred shall be recoverable
to the extent not made good by insurance unless such losses result solely from an act
of wilful misconduct by the CONTRACTOR Such costs may include repair and
replacement of property in the Contract Area resulting from damages oc losses
incurred by fire, flood, storm, theft, accident oc such other cause.
3.1.11 Legal Expenses
All reasonable costs and expenses resulting from the handling, investigating,
asserting, defending, or settling of any claim or legal action necessary oc expedient for
the procuring, perfecting, retention and protection of the Contract Area, and in
defending or prosecuting towsuils involving the Contract Area or any third party
claim uming out of the Petroleum Operations under the Contract, or sums paid in
respect of legal services necessary for the protection of the joint interest of the
GOVERNMENT and the CONTRACTOR shall be recoverable. Such expenditures
shall include attorney's fees, court costs, arbitration costs, cos’-s of investigation, and
procurement of evidence and amounts paid in settlement or satisfaction of any such
litigation and claims provided such costs arc not covered elsewhere in the Annex.
Where legal services arc rendered in such matters by salaried oi regularly retained
lawyers of the CONTRACTOR or an Affiliated Company o! the CON TRACTOR,
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 Training Costs
All costs and expenses incurred by the CONTRACTOR in the training of its
employees engaged in Petroleum Operations under the Contract.
3-1-14 General and Administrative Cpsiv
The costs described La Paragraph 2.S. l and the charge described its Paragraph 2-8.2.
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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 .QQjK.Hflggflditures
Other reasonable expenditures not covered or dealt with in the foregoing provisions of
Paragraph 3 which are necessarily incurred by the CONTRACTOR for trie proper,
economical and efficient conduct of Petroleum Operations.
3.2 Credit Under the Contract
flic proceeds, other than the proceeds from the sale of Petroleum received from
Petroleum Operations under the Contract, including the items listed below shall be
credited to the Accounts under the Contract for the purposes of Article 25 of the
Contract:
3.2.1 The proceeds of any insurance or claim or judicial awards in connection with
Petroleum Operations under the Contract or any assets charged to the Accounts under
tlie 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 property or assets the cost of which
has been charged to the Accounts under the Contract
3 2 4 An> adjustment received by the CONTRACTOR from the supphers/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 Ok Accounts
under the Contract, bur excluding any award granted to the CONTRACTOR under
arbitration or expert proceedings.
3 26 Costs originally charged to the Accounts under the Contract for materials
subsequently exported from the Kurdistan Region or transferred to another Contract
Area within the Kurdistan Region.
3.2.7 Proceeds from the sale or exchange by the CONTRACTOR of plant or facilities used
in Petroleum Operations the acquisition costs of whkh 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 Cool rad-
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ids
3.2.9 Proceeds derived from the sale, exchange, lease, hire, transfer or disposal in any
manner whatsoever of any oilier item ibe costs of which have been charged 10
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 ciedits to the Accounts under the Contract.
PAR AGRAPH 4 - COSTS AND EXPENSES NOT TO BE TREATED AS
RECOVERABLE
The. following costs and expenditures shall not be included ir, the Petroleum Costs
recoverable under Article 25
4.1 Taxes on income or profit paid to any GOVERNMENT authority except taxes and
Julies thrit may be included in the costs of material and equipment purchased for the
Petroleum Operations;
4.2 Any payment made to the GOVERNMENT by reason of the failure of the
CONTRACTOR to fulfil its Minimum Exploration Obligations ir. respect of the
relevant Sub-Pcnod 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 be>ond the Delivery Point
(excluding (Jjs Marketing Costs),
4.6 Attorney's fees and other costs of proceeding** 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 w-.-Ji 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.
4.9 Dividends, repayment of equity or repayment of intercompany loons;
4 10 Fines and penalties Imposed under Law.
PARAGRAPH 5 - RECORDS AND VALUATION OF ASSETS
5.1 Records
The CONTRACTOR shall maintain detailed records of property in use for
Petroleum Operations under the Contract in accordance with prudent international
petroleum industry practice for exploration and production activities.
5.2 Inventories
Inventories of property in use in Petroleum Operations shall be taken at reasonable
intervals but at least once a year with respect to movable assets and once every three
(3) years with respect to immovable assets. The CONTRACTOR shall give the
GOVERNMENT at least thirty (30) days written notice of its intention to take such
inventory and the GOVERNMENT shall have the right to be represented when such
inventory is taken.
Failure of (he GOVERNMENT (< be represented si an imemory shall bind the
GOVERNMENT to accept the inventory taken by the CONTRAC TOR
The CONTRACTOR shall clearly inform GOVERNMENT alrout the principles
upon which valuation of the inventory has been based. The CONTRACTOR 'ball
make every effort to provide to the GOVERNMENT a full report cm such ir ventory
within thirty (30) days of the taking of the inventory. When an assignment o lights
under the Contract takes place the CONTRACTOR may. it the request of the
assignee, take a special inventory provided that the costs of such inventory are borne
by the assignee.
PARAGRAPH 6 - PRODUCTION STATEMENT
6.1 1‘roduction Information
Without prejudice to the rights and obligations of the Parties under Article 16 of the
Contract, from the date of firsi Production from the Contract Area the
CONTRACTOR shill -limit a mo-faty production Wk---mt to the
GOVERNMENT showing the following information separately for each producing
Development Area and in aggregate for the Contract Area:
6 1.1 The quantity of Crude Oil produced and saved.
6 1.2 The quality characteristics of such Crude Oil produced and saved.
6.1.3 The quantity of Natural Gus produced and saved.
6.1.4 The quality characteristics of such Natural Gas produced and saved.
6.1.5 The quantities of Crude Oil und 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 ami Natural Gas unavoidably lost.
K~ K2 ^
6.1.7 The quantities of Natural Gas Hared and vented
6.1.8 The size of Petroleum stocks held at the beginning of the calendar Month tn question.
6.1.9 The size of Petroleum stocks held at the end of the calendar Month in question.
6.1.10 The quantities of Natural Gas reinjected into the Reservoir.
6.1.11 In respect of the Contract Area ns a whole, the quantities of Petroleum transferred at
the Measurement Point All quantities shown in this Statement shall be expressed in
both volumetric terms (Barrels of oil and cubic meters of gas) and in weight (metric
tonnes).
6.2 Submission of Production Statement
The Production Statement for 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 CONTRACTOR shall, for the purpose* of Article 25 of the Contract, prepare a
statement providing calculations of the value of Ctude Oil produced and saved during
each Quarter.
This "Vaiue of Production and Pricing Statement” shall contain the following
information:
7.1.1 'Hie quantities and prices realised therefor by the CONTRACTOR in respea of
sales of Natural Gas and Crude Oil delivered to third parties made during the Quancr
in question
7.1.2 The quantities and prices realised therefor by die CONTRA CTO K in respect of sales
of Natural Gas and Crude Oil delivered during the Quarter in question, other than to
Third Panics.
12 Submission of Value of Production and Pricing Statement
The Value of Production and Pricing Statement for each Quarter shall be submitted to
the GOVERNMEN T not late: than twenty-one (21) days after the end of such
Quarter.
PARAGRAPH 8 - COST RECOVERY AND SHARE ACCOUNT STATEMENT
8.1 Cost Recovery Statement
The CONTRACTOR shall prepare with respect to each Quancr a Cost Recovery
Statement containing the following information; -
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8.1.1 Recoverable Petroleum Costs canied forward from the previous Quarter, if any.
8.1.2 Recoverable Petroleum Costs for the Quarter in question.
8.! .3 Credits under the Contract for the Quarter in question.
8.1.4 Total Recoverable Petroleum Costs for the Quarter in question (Paragraph 8.1.1 plus
Paragraph 8.1.2, net of Paragraph 8.1.3 ).
8.1.5 Quantity and value of Petroleum applied to cost recovery pursuant to Article 25 taken
by the CONTRACTOR for the Quarter in question.
8.1.6 Amount of recoverable Petroleum Costs to be earned forward into the next Quarter
(Paragraph 8.! .4 net of Paragr aph 8.1.5).
8.2. Cumulative Production Statement
I'hc 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 tile end of the Quartri in question.
8.2.5 The amount of Petroleum applied to Royalty pursuant to Article 24. «>.( recovery
pursuant to Article 25 and Profit Petroleum pursuant to Article 26 taken by the
GOVERNMENT and by the CONTRACTOR, respectively, during the Quarter in
question.
8 2.6 The forecast of production and the share of Petroleum applied to Royalty pursuant to
Article 24. cost recovery pursuant to Article 25 and Profit Oil pursuant to Article 26
due to the GOVERNMENT and to the CONTRACTOR, respectively, for the next
succeeding Quarter
8.3 Preparation and Submission of Cost Recovery and Cumulative Production
Statements
8.3.1 Provisional Cost Recovery and Cumulative Production Statements, containing
estimated information where necessary, shall be submitted by the CONTRACTOR
on the last day of each Quarter for the purposes of Article 25 of the Contract.
8.3.2 final quarterly Cost Recovery and CVmufaiivc Production Statements staff f*e
submitted within thirty (30) days of the end of the Quarter in question.
8.4 Annual Statement
For the purposes of Article 25 of the Contract, an Annual Cost recovery and
Cumulative Production Statement shail be submitted within ninety (90) days of the
end of each Year. The Annual Statement shall contain the categories of information
yi'k Ifa *
listed in [’.iiagiunlis 8.1 and 8.2 for the Year in question, separated into the- Quarters
of the Year in question and showing the cumulative positions at the end of the Year in
question with respect to cumulative uniccovered Petroleum Costs and Cumulative
Production.
PARAGRAPH H - STATEMENT OF EXPENDITURE AND RECEIPTS
91 The CONTRACTOR shall prepare with respect to each Quartet a Statement of
Expenditure and Receipts under the Contract. The Statement will dhtingui'h between
Exploration Cost-.. Gas Marketing Costs. Development Costs. Production Coviv and
Decommissioning Costs and will identify mgor items of expenditures within these
categories The Statement will show the following
9.1.1 Actual expend u urcs and receipts for the Charter 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 explrmation.s thereof.
9.2 Tire Statement »t Expenditure and Receipts of each Quur.er shall lie submitted m the
GOVERNMENT no later than thirty (30) days alter thr end 01 such Quarter
PARAGRAPH 10 FINAL END-OF-YEAR STATEMENT
The CONTRACTOR will prepare a Fuul End-of-Yeai Statement. The Statement will
contain informaucc as provided in the Production Statement. Value of Production and
Pricing Statement. Cost Recovery and Cumulative fYoduciioo Siaremeors and Statement of
Expenditures and Receipts but will bo based on actual quantities of Petroleum produced and
expenses incurred This Statement will be used to make any adjustments that are necessary to
the payments made by the CONTRACTOR under the Contract. The Final End of Year
Statement of each Calendar Year shall be submitted to the GOVERNMENT within n ncty
(90) days of the end of such Calendar Year.
PARAGRAPH 11 - AUDITS
Each such report and statement provided for ;r. Paragraph 6 through 10 shall he considered
true and correct, unless the GOVERNMENT raises an exception thereto within tbc
timeframe and under the process set out in Article 15 of tbc Contract.
PARAGRAPH 12 - ANNUAL WORK PROGRAM AND BUDGET
12.1 Each annual Work Program and Budget to be prepared in accordance with Articles
11. 12 and 14 of the Contract, in respect of Exploration Casts. Gas Marketing Costs.
Development Costs and Production Costs respectively will show the following:
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12.1.1 Forecast expenditure foi the budget Calendar Year in question including a quarterly
classification of such expenditures.
12.1.2 Cumulative expenditures to the end of said budget Calendar Year
12 1.3 A schedule showing the most important individual items of Development Costs (if
applicable) lor said budget Year.
PARAGRAPH 13-CONTRACTOR ENTITY INCOME TAX COMPUTATION
13.1 For the purpose of Article 31.3(b) of the Contract, the net taxable profits of each
CONTRACTOR Entity from all the Petroleum Operations carried out under this
Contract, shall be calculated in accordance with this Paragraph.
13.2 Each CONTRACTOR Entity shall maintain for each Calendar Year separate
Accounts with respect to the Petroleum Operations which shall be used, inter alia. to
establish a profit and loss account and a balance sheet which will show1 the results of
the Petroleum Operations carried out in such Calendar Year as well ns the assets and
liabilities assigned or directly related thereto. The profit and loss account will be
maintained under the accnial method of accounting.
13.3 For purposes of determining the r.ct taxable profits of each CONTRACTOR Entity
for corporate income tax purposes:
1 i.3.1 the profit and loss account of such CONTRACTOR Entity shall be credited with the
following:
(a) if the Royally is paid :n 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 *5 recorded in its
Accounts and determined in accordance with the provisions of Article 25;
(c) revenues from the disposal ol any Profit Petroleum to which such entity is
entitled unde: Article 26 as is recorded in its Accounts and determined in
accordance with the provisions of Article 26;
(d) any other revenues or proceeds directly connected to the Petroleum Operations
including those arising from the disposal of related Petroleum substances, or
from the treatment, storage and transportation of products for third parties.
(e) any exchange gains realised or other financial income earned by such entity in
connection with the Petroleum Operations;
13.3.2 the profit and loss account for such CONTRACTOR Entity shall be debited
with all charges incurred for the purposes of the Petroleum Operations
whether incurred inside or outside tlie Kurdistan Region, which charges shall
include the following:
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(a) in additioo to the charges specifically set forth below in this Paragraph, all
other Petroleum Costs, including the costs of supplies, personnel and
manpower expenses, am] 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 pm poses
of the Petroleum Operations shall be depreciated on a reducing balance
basis;
(ii) the depreciation rales, which shall be applicable from the Calendar
Year during which such capital expenditures lire incurred, or from the
Calendar Year during which the assets corresponding to said capital
expenditures are put into normal service, whichever is later, for the
first Calendar Year ir, question and for each subsequent Calendar Year,
are as follows:
Nature of the c apital asset to be depredated Annual depreciation Rate
Permanent buildings 10.0%
Temporary’ buildings 20.0%
Office and home furniture and fixtuics 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 wm
All other capital assets 20.0%
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(e) Exploration Costs (which for the avoidance of doubt include appraisal
expenditures) shall be deductible on a reducing balance basis at the rate of
20% per annum.
(f) interest and fees paid to creditors of the CONTRACTOR, for tbeir adual
amount;
(g) losses of Assets resulting from destruction or damage, assets which are
renounced or abandoned during the year, assets which are transferred under
Article 20-2. bad debts, indemnities paid to third panics as compensarion for
damage;
(h) any other costs, expenses, losses or charges directly related to the Petroleum
Operations, including exchange losses realised in connection with the
Petroleum Operations as well as the bonuses provided in Article 32. the
Exploration Rental provided in Article 6 4. the Production Rental provided in
Article 13.10, the allocation to training, provided in Article 23.7 and the
allocation to the Environment Fund provided in Article 23 9. the costs
specified in Articles 23.11. 38.1 and 38.6 and transportation and marketing
costs beyond the Delivery Point;
(i) the amount of non-offset losses relating to the previous Calendar Years, which
shall be carried forward for an indefinite period until full settlement of said
losses or termination of this Contract;
13.3.3 the net profit of such CONTRACTOR Entity .shall be equal to die difference
between -ill 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 kxss;
(b) if the amount is positive, it shall be grossal up to take account of the fact that
such entity’s corporate income ux ix being settled out of the
GOVERNMENT* share of the Profit Petroleum n accordance with Article
31.2. by applying the following formula in order to provide such entity's net
taxable profits for corporate income tax purposes:
Net Taxable Net Protits/
Profits
13.4 For purposes of determining each CONTRACTOR Entity's liability to corporate
income tax for a tax year in respect of the Petroleum Operations carried out under this
Contract, the net taxable profits (if any) for such tax year shall be multiplied by the
applicable rate of corporate income tax, as provided in Article 31 ..3(«)
LEND OF AGREEMENT]
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(c) Exploration Costs (which for the nvoidancc of doubt include appraisal
expenditures) shall he deductible on a reducing balance basis at the rate of
20% pc: annum.
(I) interest ami fees paid to creditors of the CONTRACTOR, for their actual
amount,
(g) losses of Assets resulting from destruction or damage, assets which arc
renounced or abandoned during the year, assets which are transferred under
Article 20.2, bad debts, indemnities paid to third parties as compensation for
damage;
(h) any other costs, expenses, losses or charges directly related to the Petroleum
Operations, including exchange losses realised in connection with the
Petroleum Operations as well as the bonuses provided in Article 32. the
Exploration Rental provided in Article 6 4. the Production Rental provided in
Article 13.10, the allocation to training, provided in Article 23.7 and the
allocation to the Environment Fund provided in Article 23 9. tl* costs
specified in Articles 23.11, 38.1 and 38.6 and transportaiion and marketing
costs beyond the Delivery Point.
(i) 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 term nation of this Contract ;
13.3.3 (lie net profit of such CONTRACTOR Entity shall be equal to the difference
between all the amounts credited and all the amouots debited m the profit and loss
account; and
(a) if this amount is negative, it shail constitute a loss;
(b) if the amount is positive, it shall be grossed up to take account t the : dial
such entity's corporate income tax is being settled out of the
GOVERNMENT'S share of the Profit Petroleum in accordance with Article
11.2, by applying the following formula m order to provide vucb entity's net
taxable profits for corporate income tax purposes:
Net Taxable Net Profits/
Profits- 100
13.4 for purposes of determining each CONTRACTOR Entity’s liability to corporate
income lax for a tax year in respect of the Petroleum Operations carried out under this
Contract, the net taxable profits (if any) for such tax year shall be multiplied by the
applicable rate of corporate Income tax, as provided in Article 31.3(a).
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