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JANUARY 14"\ 2003



Preamble ... ... --- •■»--- --- .....w --- _ A

Article 1 Definitions................... .......------------------ A

Article 2 Scope o' Agreement ana Gonrvai Provisions ... --- 11

Article 3 Agreement Area ........ .. 12

Artde 4 Agreement Term . -------------- .....12

ArtideS Relinquishments ...... ... ------ ------- .....12

Article 6 Co-ordmaoon Comrwtloo .....-............... .....13

Article 7 Operator Responsibly . . ......................... .... 15

Article 8 Procedure for Determination of Commeraality and ..... 16

Approval of Development Plans...........................

Article 9 Annual Work Programs and Budgets..................... ..... 18

Article 10 Allocation of Production. Recovery of Costs and Expenses.

Production Snaring and Right of Export .......... ...... 20

AOde 11 Crude Oi Valuation 22

Article 12 Ancillary Rights of the Contractor and Operator..................... 23

Artde 13 Asslstonoe Provided by the Covemorate...................... ........ 25

Article 14 Measurement of Petroleum .......... 25

Article 15 Natural Gas 26 16 Ta*/F«cal Regime 28

Artde 17 Accounting. Fnanoal Reporting and Audrt ......... 29

Artde 18 Currency. Payments and Exchange Control 29

Artde 18 Import and Export.................. . ---------------- 30

Artde 20 f- xport of Hydrocarbons. Trans'er of Ownership

and Reguiatrons'or Disposal.................. ... .......31

Artde 21 Ownership of Assets... . . 31

Artde 22 insurance. Environment Health. Safety and lie&My ------- . 32

Artde 23 fVrtcme 35

Artde 24 r orce Maje jre..... 36

Artde 25 Assortments and Guarantees .......-..............36

Artde 26 Agreement Enforcement orxJ Stab satOn and Representations

and Warranties 38

Artde 27 Nooces and Confioeobaiity.................. 40

Artde 28 Temnaton and Breach .....--- .. ... 41

Artde 2S Depute Resc*jlon .. . ................42

Artde 30


Article 31 Etfective Date and the Commencement of Operations.............42

ANNEX A AGREEMENT AREA .............................. Total (1)page

ANNEX B ACCOUNTING PROCEDURE............... Total (15) pages

(MuaStoniC k/marrt


 * 2003 by and

•GcSmorelt*). of the Ihlenm Jomt Rogmrjl AOmnehaton of Northern Iraq

(hereinafter referred to M 'Northem Iraq Admtototraton’) m the party of the fr*


(2) •• party of the socond pari. PetOil Petroleum and Petroleum Products

International Lwntor and Producbon Inc (heremohor referred to as


I he Northern Iraq Admmislralion and-or Goverrorate and the Contractor may

Kxrrttr.1 be referred to as -Party' and cotectively as the Tamet*.


WMERLA8 Petrolic Union of Kurdrslnn and Kurdistan Democrat* Party together

**th the Department of State of the United Stales of America entered nlo the Final

Slat ament on September 17. 1990 In Washington DC (heremahw inferred lo as

WHEREAS the Final Statement is detorm.nmg me atnHNHon of the Northern

Iraq as wel as the governmental rights.

WHFRFAS Northern Iraq Administration, to the context of its commHmont lo Iraq*

territorial Integrity; enters mto this Agreement vesting to promote the development of

the Agreement Aree and Contractor Oet*es to jom ana assist n toe exptoraeor

develcpmenl end producbon of the potential resources witfvn toe Agreement Area.

WtCREAS. Oovemorale e toe axrenl holder of the oi and ges usage ngr* to

respect of the Agreement Area, and

WHEREAS toe Parties have agreed that m order to promoSe the development of

hydrocarbon resources n Northern Iraq Adrmustratior and to promote mternntonal

investment in Northern Iraq Administration. Petroleum Operations should bo corned

out pursuant lo the terms of to* Agreement

NOW. THEREFORE, to conseferatmn of toe promises and me mutual covenants and

conditions harem contained, it n hereby agreed as fotows

The foSowtng words end terms used to this Agreement shad unless otherwise

expnr»nly specified in this Agreement have the following respective meaning*


• 1 'AcctxxMfy) Procedirtf* mean* tne accountng procec ure se: out »i Amo "8*


^2 An ‘AfUatec Ccnoahy* or Aft note* -naans

w*n respect tc a Contractor Party a company corporation, partner**) or

other legal entity

I) in *4ieh a Contractor Party owns flreetty or indrecOy mom than fitly

percent (50%) of the sharee. voting nghts or otherwise has the nght to

establish management policy, or

■) in which at least fifty percent (50%) erf the shares or voting rights are

Owned erectly or mOractly by a company or other legal entity which

owns C'-ectly or indirectly mom than fifty percent (50%) erf the shares,

voting rights or otherwise hat toe nght to estabish management pobey

of a Contractor Party

1 3 -Agreement* or *PSA* mean* me Producton Shanng Agreement together

mlh ad attached Annexes and any vanaton. extension or modrfeator hereto

wnch may be agreed n writing by ai re 1‘arties

1 4 Ag-eement Area* means the area specified at Article 3 hereof and deinealed

n Annex A. as reduced or enlarged from time to time m accordance with the

provisions of this Agreement

1 5 ‘ Agreement Year* means a penod of twelve (12) consecutr.e months from the

Effective Date w'thm the term (A the Agreement

1 0, ’Annex* or ‘Annexes* means each or al of the Annexes A* and *B attachod

to th» Agreement and made a pari hereof In the event of a conffcct between

the provisions of an Annex and a term in the mom body erf this Agreement.

1 7 ’Appnasar mesne al works earned out by Contractor to eve mate and

detreate the commensal character of a Discovery of Pebotoum n the

Agreement Area

1.8 ‘Appraisal Program* means a work program submitted Oy Contractor under

when Contractor plans to evaluate and dedneate a Discovery of Petrotoun *t

the Agreement Area

1.8 ’Associated Natural Gas* means all gaseous hydrocarbons produced ei

association with Crude 04 which Crude 04 itserf can be commerctaty

produced and soporatod therefrom

1 10 ‘Autoonty* means any authoosed body of the Northern Iraq Adnknutrauon

and/or Governor ate

1.11 A.arfafce Crude Of msane Crude Orf produced and saved from the

Agreement A-ea and not used m Petroleum Operator® n accordance mth

An«e 10.3

1 12 'Available Natural Gas* means Natural Gas produced and saved from tho

Agreement Area and not used in Petroleum Operations.

1.13 ■Barrel* means a quantity consisting ol forty-two (42) United States gallons

liquid measure, corrected to a temperature of sixty degrees (60’) Fahrenheit

1.14 with pressure at sea level.

"Budget" moans the estimate of the expenditures, listed category-by-category,

relating to Petroleum Operations and contained in any Work Program

1.15 proposed by Contractor.

'Calendar Quarter* or •Quarter" means a period of three consecutive months

beginning on January 1st, April 1st. July 1st and October 1st of each

1.16 Calendar Year.

’Calendar Year* moans a period of twelve (12) conaocutive months beginning

on January 1st and ending on December 31st in tho s.imo year, according to

1.17 the Gregorian Calendar

’Capital Expenditures* moans Development Expenditures. Exploration

Expenditures and Drilling Costs.

1.18 • Commercial Discovery’ means a discovery of Petroleum that the Contractor

in ils sole discretion in accordance with the provisions of Article 8 commits

1.10 itsoll to develop and produce undo* Ihc terms of the Agreement

•Commorcial Production* moons regular and continuous production of

Petroleum from a Developm»m Arc.i m such quantities (taking into account

1.20 any other relevant factors) as are worthy of commercial development

* Cor tractor* means PetO Petroleum and Petroleum Products International

Exploration and Production Inc

1.21 ‘Co-ordination Commute*' means the committee composed ol

representatives of the Contractor and the* constituted m

1.22 accordance with Article 6

•Cost Recovery Petroleum’ means Cost Recovery Crude OH and Cost

Recovery Natural Gas

1.23 ‘Cost Recovery Crude OiT s defined as set forth in Article 10 4

1.24 •Cost Recover/ Natural Gas' is def-nec as set forth r\ Article 10.4.

1.25 'Costs and Expenses* compose the Exploration Expenditures Development

Expend rues. Operation Expenses and Drufang Costs together with Finance

1.26 Costs whether drectly or mdxectty incurred by Contractor

'Crude Oil* means crude mineral oH. asphaiten. o/ophento and ail kinds of

hydrocarbons whether n a sofcd, hqwd or mixed slate at tho wolhead or

separator or which rs obtained from Natural Gas through condensation or

extra ebon


1.27 "Cumulative Production* means the cumulative total crude oil production less

Reserved Crude Oil from the Agreement Area commencing from the date of

I he Transfer of the Operations of the Field to the Contractor

1.28 "Current Legislation' means laws, legislative acts, and normative documents

that *e effective on the Effective Date m the Nonhem Iraq Admm.$traton

1.29 "Customs Duties’ means al import (or export) tariffs and duties and other

mandatory payments as stipulated by applicable laws, regulations or other

legal measures of Northern Iraq AdrmnetraLon with respect to tho import or

export of matenais. ecuemert. goods and any other similar items

1 30 'Development Area' means an or any pan of the Agreement Area specified m

an approved Development Plan

1.31 "Development Expenditures' means all Costs and Expenses for Development

Operations with the exception of Operation Expenses and Drilling Costs

whether directly or indirectly incurred, including but not limited to training,

administration, service. Finance Costs and rolotod expenses.

1 32 "Development Plan* means the pfan to be produced by Contractor in

accordance with Article 8.6. following a declaration that Commercial

Production may be established.

1.33 "Dovolopmenf or "Development Operations" or 'Development Work" means

nnd Includes any activities or operations associated with work to develop

Petroleum for production and subsequently to produce and render Petroleum

marketable for commercial sale and shall include, but not limited »o

a) al the operations and activities under the Agreement with respect to

the dnang of welts other than Exploration weds, the deepenmg,

reworking, plugging back, completing and equipping of such weas.

together * th the des^n. construction and installation erf such

equipment, pipe ne or gathering lines insta atioos. production units

and a i other systems -elating to such wets and rotated operations m

connection with production and operaton of such weiis as may be

necessary in conformity with sound oi field practices in me

international Petroleum industry

0) al operators and relating to the servicing and maintenance

of pipelines gathering lines mstalaUxrs production units and al

related activities for the production and management of we«s including

the undortakmg of re-pressunsing recycling and other operations

aimed at ntensified recovery, enhanced production and W recovery


1 34 'Discovery" means a wd that the Contractor determmes has encountered

Petroleum, which could justify Commercial Production

1.35 'Doiar' or "U S $' means tne currency of the United States of America

1 36 "Double Tax Treaty' moans any international treaty or convention for the

avoidance of double taxation of mcome and'or capital which « applicable or

wti be app cable n the future, m Northern Iraq Administration


1 37 “Drilling Costs' moans aa expenditures whether directly or "directly incurred

during Exploration and Development for wrH dri ing. completing and

reworking operations "duding. but nut tm tod lo. labour godogicai design

engineering and other Subcontractor* (including al toes laritts and charges

payable to any such Subcontractors), material and equipment consumod or

lost. Defloration formation testing cementing. well-logging and transportation

1 38 -Effective Date’ means the date on which aN Parties have signed tfwt


1 39 Excess Associated Natural Gas' « de'-ned ae sot forth in Article 15 1 b

1 40 “Exploration’ or “Exploration Operations* means operations conducted under

this Agreement m connect on with tho exploration for previously undiscovered

Petroleum, or the evaluation of discovered reserves which shafl Include

geotogcal. geophysical, aenai and (other survey) activities and any

interpretation of dota rotating thereto as may be contained in Exploration

Wort Programs and Budgets, ond tho drilling of such shol holes, core holes,

stratigraphic tests. Exploratory Wells for thn discovery of Potroteum. Appraisal

wells and other related operations

1.41 "Exploration Expenditures’ means fill Costs and Expenses for Exploration

Operations other than Drilling Cofltn whether directly or indirectly incurred

todudmg but not Istsukj to training ridmtntttrnton. service, finance Costs

and related expenses and overhead and study costs

1 42 ‘Exploratory Weir means any *e> dn«ed wth the objective of coW.mvg a

structure or geologc trap m «4*dt FVtrcteum capable ct Commeroai

1 43 *RekT means a Prrreteum reserve* or gnxc o' reserve** trtrm a common

gedogcai sbuefese or feature T«

Fefcf as designated by Contractor

1 44 -Finance Costa’ or 'Interest Costs’ snaS nefude al amounts of -Seres! lees

and charges pad in respect of any debt incurred m carry ng out the Petroleum

Operations .md any mr ng of such debts prowling that m the case of

AfMate debt it shat ndude uteres! only to the niter* that « does not exceed

a rate wtveh *oud have bm* agreed upon betwo.m Independent parties m

Srrlar crcumstances and such ^merest IS not fcm-ted by which assets or

145 Force Majsjre’is def ned as sal »am r Ar*tte ?4 2

SubcSrector eath a natorutty odier than Iraq

1 47 Foreign Subcont'actors msans Subconbactore. «t»ch are organeed outside

of Northern Iraq Admmstraoor and Ctwrer* legs abu-i are not obbged

to estabfeh permanent representative offices in Northern Iraq At*r resbabon.

1 48 Gas Safes Agreesrenr a any agreement to be entered "to for the s^e c/

Nor-assooated Nerjra Gas $nc Assocatod Natural Gas " accordance erfh

dwpWsOTo'Areee 152

1 49 'Gas Field* means a field from which more than fifty (50) percent of the

1 61 *PaV or 'Pa*** mean* the PetCN Pelr©«i*n and PetrcSeum Produ ts.

Inuwniitmrei Exploration and Production Inc. and the Governor ale and tt»r

successors and asugnea*

1 62 Payment Data* hat me me*wng as dataed m 10.9

•■»* a# me Reouoflc of Tiasay***

164 -Petroleum* means Crude O* and Natural Gas

1 65 Petroleum Ojieratlons* means the Exploration Operations. the Development

Opornlionn. Production Operations, and transportation to the Measurement

Point and other octrvrtiee related thereto canted out pursuant to th s

Agreement and the JOA

1 06 Petroleum Operations Accounr shall hove tho moaning given lo it at

p.i'.igraph 4 1 of sedion I of the Accounting Procedure

1.67 Production* or 'Production Operations* means operations and all related

McttvUiee rnrrtod out for Petroleum production after the approval of any

Development Ptan, including without ■ aviation extraction, injection,


operations but do***, nof include any storage or transportation beyond the

Measurement Pomt

1.65 *Prcf4 N..' «.4 Oaa* is defined 8S set forth m Artele 10 9

16» T-c/t or (S cefred as set fcr* nAnoeiSS

1.70 ‘P'tf « PetroSec*’** mean* Natural Gas and Profit Ol

1 71 -Study Aree* means me pel of the Agreement Area «rf*n *• be defned S'

a Study Program

1.72 'Study Program" means the program to tie produced and owned out by the

Contractor in accordance with Article 8 foUowng tho conclusion that

Commercial Production is feas t»e

1.73 •Subcontractor* means any natural person or jundcal entity agreed dxodfy or

mdwectty by or on behalf of Contracts- to supply goods work* or -a-rvots

related lo evs Agreement

1.74 ThKd Parly* or *Thed Parses* means ona or more of a natiaal person or

juwKal #r«y otier than a Pad) nerelo and any Aff-ute of a Part,


2-8 U « agreed that the Operate' shat be the Contractor unloss changed by the

Contractor with another Ope-ator. That appointment shall be offoctivo from

the dale * » notified to aa concerned Partes Fo*owmg the apoo ntroent the

Operator shall act as (he designated non profit agent o' tho Contractor for the

conduct of Petroleum Operations In accordance with this Agreement ana any

future JOA to be entered into


AftRfefcMfeNT AREA

3.1 The Agreement Area includoe the Chiasorkh, Kiln and Cemcemal Fields as

set out by the geogiuptuc location and co-urdirtjtut. described in Annex A'

attached hereto and delineated in the map. which (orms part thereof. The total

area of the Agreement Area may hereafter be reduced only in accordance

with the provisions of this Agreement

3.2 Except as for all nghts and authorisations necessary for the implementation of

the provisions of this Agreement, no right is granted to the Contractor, any

other entity to tho use or disposal of any othor natural or man-made

resources or aquatic resources or other natural resources with the exception

of aquatic resources used directly in Petroleum Operations in accordance

with relevant permits which will be obtained through the Northern Iraq




4 1 The term of the Agreement shall be deemed to have begun or the Transfer of

Operations Onto and shall continue for a total of forty (40) consecutive

Agreement Years, unless the Agreement s sooner terminated in accordance

with Art.ce 28 ol Ifvs Agreement

4.2 If in respect of any Deve opment Area Commercial Production remans

poss OS beyond the Initial perod of forty (40) consecutive Agreement Years

specified in 4 1 the Contractor aftor givng nonce to toe Gove mom to at

least one (1) year p nor to the end ol any such ponod. and aftor obtaining

approval by the Co-ordination Commrttee oI a revised Development Plan shall

be giver priority to have an extension of toe lean of tr»s Agreement with

respect to such Development Area lor an additional term of five (5) years or

the producing >‘e of me Development Area whichever is esse' subject to the

approval of the Gove morale, and such approval shall not be unreasonably




5.1 Contractor may ol any time relinquish volunlarlly all or any pari ol the

Agreement Area without any further liability. The area designated under

Article 0.1 lor relinquishment shall consist as lar as practicable of rectangular

blocks bounded by lines running due north and south and due east and west


 ana aha" not be less than five (5) square kilometres Tim area designated for

relinquishment need not consist of one contiguous aroa


6 1 For tho purport** ol providing the overall supervision and 0 reckon of and

ensuring the performance ol tho Petroleum Operations. Gove morale and

Contractor shall establish a Co-ordination Committee within forty five (45)

days of the Effective Date.

6.2 Tho Co-ordination Committer shall compose a maximum total ol four (4)

members. Tho Oovornorate 8hal appoint a total of two < 2) representatives

and Contractor shall appoint two (2) representatives to form the Co-ordination

Committee. All lh* aforesaid mpmsentativos shall have the right lo attend and

present their views at meetings of the Co-ordinalion Committoe Each

representative shall have the right to appoint an alternate who shall be

entitled lo iltond nil mootings of the Coordination Committee but who shall

have no vole except in the absence of the representative for whom he is the


6 3 The first Chairman of the Co-ordmaUxi Committee shall be one ol the

represen'.itives designated by the Gcvemorate (or his alternate), and tho lust

Vico Chaim m s»m 1 be the chief representative designed by the Contractor

(or h« attar note) The Chairman and Vice Chapman shah be apoomiad tor a

lerniof two(2)yo.K» The Chairman of the CoonSration Convnree seal

preside over meetngs of tie Co-ordnason Comratiee and m the absence of

the Chairman (or n* atemate). the Vce-Chaaman shea presxJe Such

Partes may des crate a reasonapre numbar of advisers, who may abend but

she I not be entiled to vole at Coordination Committee meetings

6 4 A regular meotng of the Coordeialon Comm tee shal hr held at least twice

every year The Secretary to be designated pursuant to Article 6 9 sha" be

re soon* Ole tor caftng suen regular meetings of the CoonJrvition Committee

ard shal do so at the request of the Chairman by send ng a robe® to the

Parties Other meetings, rf necessary, may be held at any time at the request

of one of the Parties or Operator In each case the secretary shal give tha

Partins at least fifteen (15) days notice (or such shorter penod as the Parties

may agree) ol tho proposed meeting date the time end location of the


65 The hereby the Co-ordinaton Commttee to

a) rev«w and any Wort Program and Budget proposed by the

of each preposed Development Plan,

c> approve or confrm re fesowng corns of procurement and

approve procurement of any

price exceaci"g Five Hundred Thousand USS (USS

 500.000) or any single purchase order of total monetary value

exceeding One Million U.S. S (U.S.S1.000.000).

ii) approve a toaso ol equipment, or an enginoorlng sub

agreement cx a service agreement within the Budget worth

more than Five Hundred T housand U S S (US5500,000) in

total; and

m) approve excess expenditures pursuant to Articlo 9.5 hereof

and the expenditures pursuant to Article 9.6 hereof;

d) demarcate boundaries of a Development Area;

a) review and approve the Insurance program proposed by the

Contractor and emergency procedures on safety and environmental

protection; in addition alt programmes and budgets which are In

connection with environmental protection;

f) review and approve personnel policies, selection and training

programs for Operator. Without prejudice to the foregoing. It is

accepted that part of tt>o personnel policy of Operator shall he to give

preference to local cithers, provided that the conduct of Potroloum

Operations shall not be affected.

ij) discuss, review decide and approve other matters that have been

proposed by oither Party or the Operator;

h) review and discuss tho dovolopment work and technological regimes

proposed by the Paries, and

i) appoint sub-cornmrttees to meet from time to time to review any

aspect of Petroleum Operations which the Coordination Comrrxttee

thinks fa

6 6 Meeting quorum of die Co-ordinabor Commitoo shal requnu the presence o'

at least cne representabve from each & the Parties Deos ons ol the Co¬

ordination Ccmrrttee shall be made by unanimous decision of the

representatives present and entffied to vote Each representative wit have

one vote. A9 decisions made unanimously shall be deemed os formal

decsons and shall be conclusive and equally binding upon the Parties

6.7 A matter, which requ res u-gent handling, may be decided by the Co¬

ordination Committee without convening a meeung. w tn the Co-ordmaaon

Committee making deosons through electronic means or me circulation of


6.8The Co-ordination Committee shall nominate a Secretary, to record minutes of the

mootings o( the Co-ordination Committee, and may establish tochmcaland

othor advisory sub-committees The Secretary shall take a record of each

proposal voted on and the results of such vote at each mooting of the Co¬

ordination Committee Fach representative of tho Parties shall sign and be

provided with a copy of such record at the end of such meeting The

Secrotary stuill provide each Party with a copy of the minutes of each meeting

of the Co-ordination Committee within fiftoon (10) days after the ond of such


 meeting Each Parry shal thereafter have a period of Ween (15) day* to give

notice of any objections to the m mites to the Secretary FaAjra to gn*e notice

w«hm the said fifteen « 15> d ay* penod she! be deemed approval of those

it nutes In any event the record of proposals voted on to D* provided at the

end of each meau^ srjt be conciuwe and taKe precedence o»*r re

fl 0 All costs and expenses incurred with respect to the activit-.* of the Co¬

ordination Committee sha> be pM or reimbursed by the Contractor and

cfiarged to Operation Expenses In accordance with the Accounting




7 1 Tl»o Parties agree that the Contractor shall act as the Operator for Petroleum

Operations within the Agreement Area in accordance with approved Wot*

Programs and Budgets unless otherwso stipulated in this Article 7. until the

apoortmem of an Operator by the Contractor

7 2 The Operator shal have the to lowing obtgabons

a) to perform the Petroleum Operators reasonably, economically and

eftcientfy in accordance with directions received from the Co¬

ordination Committee;

b) to conduct implement] tty> Wort. Prog ••me and Budgets approved by

d) to prepare and subnet ter approval a personnel traong program

Ms annuel budget and carry out the same as approved by the Co-

el accounting

costs and for Iho Petroleum Operations in

the and this Agreement.

to make necessary preparation lor regular meetings of the Co¬

ordination Commit toe and to subm* to the Coord mot on Committee

information related to the manors lo be renewed and approved by the

9) to provide repons to toe Cc-ordmaaon Comnttee on Peuoie^n



7 3 Operator and its sha'cholce-s sha* rot be responsible lor any activities

(nctodmg Petrotoum affecting me Aqreer-er: Area prior to the

Effective Date

7 4 The Operator sha provtoe both Part** * th cop-es of all rolevant data and

reports pertaining to Petroleum Operations

0ooph/s»cai. geological tecfwvnogcal. operational. accounting or other

material) required by such Parties

7 5 The Parties agree to use their best endeavours to agreo and execute a Joint

Operating Agreement should the Parties consider II necessary after

appointment of on Operator other than the Contractor. Any Joint Operating

Agreement to be ontorod into shnli be based on the Association of

International Petroleum Negotiators Model International Joint Operating

Agreement then current and shall bo subject lo. wholly consistent with and

shall not detract from the provisions of this Agreement




e.1 It, at any time Contractor concludes that Commercial Production (or

significant additional Commercial Production if Commercial Production has

previously been established) from the Agreement Area is feasible, it shall

notify the Northern Iraq Administration within forty-five (451 days of reaching

such a conclusion

3.2 Within forty-five (45) days of rocoipt of such notice Contractor sha* in the first

-'stance present to the Co-ordination Committee for approval a proposed

Study Program, which sha l be deemec approved if no written ejections ore

raised by any member of the Co-orCration Committee w.tfsn thirty (30) days

following receipt thereof The proposed Study Program sha l specify in

reasonable detail the appraisal wrorfc including seismic, doling of we: s and to be earned out and the estimated time frame witfwi which the

Contractor shall commence and complete the program and also appropriate


8 3 Thereafter the Contractor shal cany out the Study Program approved by the

Coordination Committee Within ninety (90) days after completion of such

Study Program, the Contractor shall submt lo the Co-ordination Committee a

comprehensive ovoluotion report on thu Study Program Such evaluation

report shall include, but not bo limited to goological conditions, such ns

structural configuration, physical properties and extent of reservoir rocks;

pressure, volume and temperature analysis of the reservoir fluid, fluid

characteristics, Including gravity of liquid bydrocorbons. sulphur percentage,

sediment and water percentage, and product yield pattern; Natural Gas

composition, production forecasts (per well and per Field), and estimates of

recoverable resorvo:.

84 Together with the submission of the evaluation report, the Contractor sha*

submit to the Co-ordmabon Ccmnvttee a wrtten declaration including one of

the following statements



b) toatsu^Commerria Production is not feasiale (contrary to ton nr:■ «»

c that ComercMi Produchon wM bo conditional on me outcome o'

Vtoec speeded wor* that the Contractor commits to carry out under •

**toer Explore*** or Stody Program * spoofed areas ««ton or

ouistfe the refcrvnrrf Study Area

8 5 In the event the Cor: ., tor makes i decmranar under Article 3 4 c: above

Contractor shaa fe erode0 to reUn toe relevant Study Area pendtog toe

complex or of the further wor> commttod unde- that Article, at which »mr me

Cortractor sna* aarar to# Co*jrd*eoon Corrrvttee of o conduson as to

whether or r»os there h n fact a new Corrme'aa Discovery and toe

provisions cf Article 8 4{n) ct (b) shnl be appl *d accordingly

8 6 If me Contractor declares pursuant to Aside 8 *a) toat Commeroal

PnxJucbon is ‘east* the Contractor shat soton* lo the CoortJrvdwr

Cam-mtee (a) a proposed Development Plan .n respect of t’ e ww.a".

Commercial 3 scow*-, ct ■»!* n -v, me mane's speofed r Adic* 8 7 a»J c B)

and (t»J a proposed designate* of toe Development Area both of which the*

be unreascnaby withheld o> Oouyod p'c.ded tna- each sha be deemed

app-cved as suom tted i no wntton objectoons are p-esonaed toereto by any

member of toe Co-ortrebon Coevrttae wito n torty-frve (45) days of rece.pi

Upon approval being jrar'ed or deemed as pro-vded under this A-tide 8 6

the Contractor, with any requested (instance from ne Operator, shu

proceed promptly md diigentfy lo implement the Development Plan it

accordance with good oilfinld practice to i nil nrrcessary facilities and lo

commence Commercial Production

87 The Contractor s proposed Development Plan to be submitted pursuant lo 8 6 shall the Contractor's proposals for Development and

operation of toe Development Are* It w

infrastructure which may lie required up lo the Me inurement Point either

ms de of outs*de of the Development Arou Any Development Plan shall set

forth production parameters, number and spacing of wells, the fadMms and

infrastructure (Indudinq proposed ocetions) to be installed for product" m.

Kfnrage. transportation and loading of Petroleum an estimate of the overall

cost of the Developri«»nt .. 1 estimates of the time requireC tc complete each

phase of the DevelopiTMiit Plan, i production fomcatt and any other factor

that would affect the oconomic or technical feasibility of the


fl 8 Any Development Plan shad also include an abandonment

r.-aoraton program together with a funding procedure for such program

Fach abandonment pL.n si ill dnser be removal and abandonment measures

deemed necessary fohiwirq enmptoton of Production from the relevant

Development Area together with an ostnuii*> of the costs thereof Tho

abandonment plan sha Drov'd*) I or the removu of faefities and equipment

used m Petroleum Opereftons or toe-r to place abandonment. A appropnn* m

the Devetcorrent Area and the return of used areas to a cor'd ton that

reasonably pemsts the us© of such a'eas for purposes smlir to those uses

existing poor to the commencement o' Petroleum Operations hereunder. Ai

expenditures incurred in abandonment and site restoration shall be treated as

Costs and Expenses and recoverable from Cost Recovery Petroleum in

accordance with Article 10 and the Accounting Procedure An funds collected

pursuant to the funding procedure shall be dedicated to site restoration and

abandonment and will be placed in a special interest bearing account by

Contractor, which shall bo hold In the joint names of tho Govornorate and the

Contractor or (heir nominees. Contractor's responsibilities for environmental

degradation, site restoration and well abandonment obligations, and any other

actual, contingent, possible and potential activity associated with the

environmental condition of the Development Area shall bo limited to the

obligation to place the funds agreed to be paid in accordance with the said

funding procedure! in die approved account in accordance with generally

accepted international Petroleum industry practice. Deposits in approved

accounts shall be made on a quarterly bases in arrears commencing with the

first Calendar Quarter In which there is Available Petroleum. All such

payments deposited by Contractor shall be treated as Costs and Expenses

and recoverable os Operntion Expenses from Cost Recovery Potroloum In

accordance wilh Artldo 10 of this Agreement No Taxes shall bo imposod on

any amounts paid into, received or earned by or held in the special Interest

bearing account. The Governorate shall be solely responsible lor the

implementation of the abandonment plan.

8.9 Any significant changes to an approved Development Plan or proposals

related to extension of o Field or for enhanced recovery projects shall bn

submitted to tho Co-ordination Committee

6.10 Subject to the terms c# the Agreement the Contractor shall cany out at its

own e xpense a ndfnoncial risk, alt he necessary Pctrotoum Operations to

implement an approved Development Plan However. if. the Contractor In its

soie discretion determines exploitation turns out not to be commeroaly

profitable, the Contractor shall not be obkgatod to continue Development or

Production and wi in such arcumstances submit a revised development plan

that is commeraalty profitable to the Co-ordination Committee or re’mqu

the Development Area

8 11 Where there is a perceived need recognised by the Parties to improve the

economic effectiveness of the Petroleum Operations by constructing and

operating certain common facies with other organisations (nducfcng for

example roads, non-enport/roo-export pipelines compression and pumping

stations and common cabcn lines) the Parties shad use the* best efforts to

reach agreement between themse-Yes and other appropriate enterprises as to

me construction and operation of such facilities with all costs, tariffs and

investments made by the Contractor to be recoverable as Operation

Expenses in accordance with A hide 10 of the Agreement and Accounting




9 I Contractor shol be responsible for the procurement of installations,

equipment and supplies and entering into contracts for the purchase of goods


and services with SuD Contractors including Foreign Sub Contractors and

others arising out of Petroioum Operations, all in accordance with approved

Work Programs and Budgets. Operator shall assist the Contracts when

requested In resect of the mutters set out in the previous sentence and shall

implement domestic procurement operations as provided in Clause 7 2 (c) in

accordance with approved Work Programs and Budgets

9 2 Contractor shal suDm.t to the Co-ordination Commtiee a rmwnum Work

Program lor the year 2003 and the corresponding Budget within thirty (30)

days foSowing the Transfer of Operation

9 3 Before the 31st October of each Calendar Year, tho Contractor shal prepare

and subnwt to the Co-ordination Committee for its review a proposed anneal

Work Program and Budget lor the next Calendar Year. If the Co-ordination

Committee agrees to modifications in an annual Work Program and/or

Budget, the Contractor shall promptly make such modifications to the Work

Program and/or Budget and resubmit the modified Work Program and Budget

to the Co-ordination Committee. The Co-ordination Committee shall approve

each Work Program and Budyet within forty five (45) days alter receipt of it. If

the Co-ordination Committee fails to notify the Contractor of its approval or

disapproval of the Work Program and Budget within said forty-five (45) days

after its receipt, the annual Work Program and Budget proposed by the

Contractor tOQOlher with any modifications timely regunstnd by thr* Co

ordination Committee, shall bo doomed to have been approved by the Co¬

ordination Committee

9 4 In connection with the review and approval of the annual Work Program and

Budget, thr Contractor and Operator shall submit to the Co-ordirntion

Committee such supporting data as reasonably requested by the Co

ordination Committee.

9 5 The Contractor may. r> accordance with the following provisions, incur

expenditures in excess of the approved Budget or expenditures outsde the

approved Budget m carrying out the approved Work Program provided that

the 00; m die approved Work Program are not substantially changed

a) In carrywig out an approved Budget, the Contractor may it necessary,

incur excess expenditures of no more than ten percent (10%) of the

approved Budget in any specified budgetary category. The Contractor

aha report quarter1-, tne agg-egate amount of al such excess

experditu'es to the Co-ord nation Comm nee for confirmation

b) For the efficient and as required operative performance of Petroleum

Operators, the Contractor may. without approval undertake certa n

odiv dual projects which are not oCuded in the Work Program and

Budget for a maximum expenditure of One Hundred Thousand U S S

(U S St00.0001. Out sha w.thm ten (10) days afte- such expenc tures

are incurred, repeat to the Co-ordination Committee for confirmation

c) Excess expenditures under this Artide 9 5 shall not exceed five

percent (5%) of the approved or modified tola! annual Budget for the

Calendar Year If the aforesaid excess is expected to be m excess of

said I ve percent (5%) of the total annual Budget the Contractor

present rts reasons the-e^or to the Co-ordination Committee

obtain is approve prior to incurring such expenditures

*»•*< *r"

9 6 In c»s*» of iinwgency (ns In where there is an immediate threat to life or

property) Iho Contractor may Incur emergency expenditures for the amount

actuary rooOod but stvWI report such expend tures to toe Coordination

Comm See aa soor as t hay are made The sad emergency expenditures

shai not be scotect to Amda 9.i above

9 7 Petroleum Operators *«i only be pe-fo-r-ed n accordance w tn me approved

or modified annual Wert Program and Badget otherwise they w« not be

deemed to be Costs and Expenses and mil not be trrnted as Cost




10 1 Contractor shal provide or procure the provision of ol funds requeed to

conduct Petroleum Operations under this Agreement, except us otherwise

provided In this Agreement, and Contractor shall be entitled to rocovor its

Co*.Is and Expertaot from Petroleum produced from the Agreement Area as

provided below.

10 2 Contractor and/or Operator shal have the right to use free of charge

Petroleum produced from the Agreement Area to the extent requred for

Petroleum Ope'atom under the Agreement The amount of Petroleum winch

Contractor andfor Operator shal be er: led to use tor Pettdeum Operators

shal not exceed toe amount, which w»Jd be expected to be used to

accordance **to rtemaional Petroleum todustry practice Tor toe avoidance

of doubt, the use of such Petrotoum shal only be far toe benefit <4 Petroleum

Ope'toon* and not the personal gan o» any Party An paper shot

be executed lor toe use of such Petroleum

10 3 AvelaMe Crude Ol and Avatab* Natural Gas (hereinafter referred to

coSoctrvrVy as ‘Available Petroleum*) after reducing the Petroleum used for

Petroleum Operation to accordance with Article 10 2 shall be measured at the

applicable Measurement Pont and allocated as set forth hereinafter

10 4 Contractor shal be enattec to recover al Costs and Expenses incurred In

respect of Petroleum Operations to a Mowing manner

a) Operations Expenses w* firstly be recovered from the AvatoOto


h| Capital Expend*;ms wfl be recove-ed from remorang AvaMttfe

Petroleum (heretoafter referred to as Cost Racovary Oude Of and

'Cost Recovery Natural Gas* and co-ecevey 'Cost Racovary

Petroled* « app-opnate) taiowtog toe recovery of Ope^on*

Costs, to the percentages as defoed Oelcwr

During me pn*se whe-e Avaab* Petroleum can not be

exported but only sow to toe local martet


AC-Twvstra'rer such phase as aramned by the Co-crd«atcr

Commeiee reefy percent (90%); and

) Dunrg the phase where Ava afcte Petroleum can be exported

o c*ner ma-Vets. such pnase as cetemmed by »»e Co-

onSnafton Commmee. eighty percent (80%).

Costs and Expenses shall be lecovored In a manner consistent with the

Accounting Procedure and Article 10 5

10.5 Costs and Expenses shall be recoverable from Available Petroleum on i first

in. firsl out basis (ie Costs and Expenses will be recovered according to tl>o

date they were incurred, earliest first) Recovery of Costs and Expenses will

commence as soon as there is Available Petroleum

10 6 To the extent that in a Calendar Year outstanding recoverable Coals and

E xpenscs r dated t o t he A greement A rea e xceed t he v alue o f a B A variable

Petroleum from the Agreement Area for such Calendar Year, the excess shal

be earned forward for recovery m the next succeeding Calendar Years unti

fu»y recovered, but in no case after termination of the Agreement

10 7 Recovery of Costs and Expenses shaB be achieved by transferring to a Party

nt the Measurement Point title to quantities of Available Petroleum of

oquivaionl vnluo (delemwed in accordance with Article 11) to the Costs and

Expenses lo be recovered m accordance with this Article 10.

10 8 To the extent that the value of Available Polroloum reoolvod by Iho Contractor

from the Agreement Area during a Calendar Quad*' is greator or lesser than

the Contractor was entitled to receive lor that Calendar Quarter, an

appropriate adjustment»hnl be mede m the following Calender Quarter m

accordance with the Accounting Procedure

10 9 Foowng recovery of Coats and Expenses from Avaiafc* Petroeum *i

accordance arth Vie pro. t*ors of Ws Arecte 10. the rememng Petroleum

ndud ngar, portion of Cost Recovery Petroleum not red iered for recorery of

Capo Experdm.*®* (herrHnafier re*erec c as *Prof* Or* or *ProH Nutura

Gas' anc coiiecbve* THofit Petroleum*) shal be aiocated between Vie

Partes r> the fofcwng proportions, over each Calendar Quarter

The Profit Petroleum w* be if «ed between

Govemorate s Share - Mty one percent (51%)

Cont met or s Share - forty nme percent (49%)

10 10 Contractor shal prepare and provide the Govern orate not less than nnety

(90) days prior to the beginning of each Calendar Quarter a wntten forecast

setting out ne total Quantity ot Petroleum that Contractor estimates can be

produced and saved hereunder durng each ol the next four (4) Calendar

Quarters in accordance with Accepted ntemabonal Petroleum industry

pmcbces and the Wortc Program established m accordarce with Artcle 9

10 11 Crude Oi shal be meaaxaed at the Measurement Pomt for ptfpoett <* the

Agreement and deSvered to the Govemorale and Contractor ard each such

Party as owners sha* ta-e *> hnd assume ns* of oss anc separate* Sspose

of me* respedr/e entitle-rents of Cost Recovery 04 and Profi Oi Al Cost


 Recovery Natural 9m and Profit Natjra Gas o* so*C t, P« Contractor

in accordance with ’he principles of the Agreement The Northern Iraq

Adrrofliraton may agree twAiCosi Recovery Or and Profit ©4 shal be

sold by the Contractor on behal of the Govemoraie w.tfwi the same


10.12 For Vie avo-dance of any doubt toe to the* relevant shares of Peode^r snaJ

pass to the Govemoraie and to vie Parties as ropropiW at the

Ha---rmiant Pint

10.13 The Ponies shall agree on procedures for taking volumes of Crude Oil

corresDondmg to their respective entitlements on a regular oasis and in a

manner that is appropnate having regard to the respective destinations and

uses of the Crude Oil. nil in accordance with the provisions of thin Agreement.

If nacesnnry the Pintles will enter into a lifting ngreement setting out the

ogreed procedures for taking volumes of Crude Oil, and such agroomant shall

comply with tho pnnciplos of accoptod international Petroleum industry



11 1 Parties agree that the value of Petroleum should railed 1l*e actual pnco

reamvnil by the Contractor tor tho said Petroleum Owen that the Contractor

can demonstrate that Petroleum « being sold to an independent third party on

an arms length basis then Vie Crude (X shafl be valued as the actual

revenues recaved by the Contractor lor sa

Measurement Point (adjusted if necessary lor transportation storage and

processing costs j i* however such an independent th rd party vilf camot be

demonstrated or at the docrefeon d the Contractor, then the Part«s agree the value of *e Crude Oi, i sold or interrabonal Markets. shal be

admsted to toe nte« notional market price for Crude Ol from time to tme In


deposed of by Vie Parties and.or Vie' assignees under Vm Agreement

during each Calendar Quarter, the Parlies shal. prior to the date of

Commercial Production agree upon the basket of Crude Oil freely traded in

in tor national markets and referred to m subparagraph a) below and the v.ikie

of tho Petroleum shali be adjusted to reflect the weighted average of daily

f o.b prices for Agreement term o' sales from Petroleum producing countries

m international markets for the same Calendar Quarter of such basket of

crude orf 1 being u-deratood that the following principles wil apply

a) The weighted average of the basket shad be such that the average

gravity of the basket and the average granty of the Crude OS

 under this Agreement arriving at a designated sales point (where the

saios point Is not the Measurement Point) and to lake account of

gravity variation beyond a pre-ogrood rango; and

d> Unless agreed otheiwise. the last calculated weighted average basket

price shall serve as the provisional price for a Calendar Quarter until a

now pnco is determined.

11.2 In the event that the Parties are unable to agree upon tho bosket of Crude Oil

envisaged in Article 11.1 above, or the principles relating thereto, then either

of the Parties may refer the question for u final, non-rovisnhle determination

by an independent expert designated by tho UK Institute of Petroleum

Pending such determination, the pnce shall bo as determined in Article

11.1(d) above

11.3. Natural Gas shall be valued at the actual revenues received less

transportation, storage, treatment, processing, market log. distribution,

liquefaction and all other associated costs incurred by Com roc tor beyond the

Measurement Point in supplying Natural Gas to customers beyond Iho

Measurement Point.

11.4 Tho provision m Article 111,112 and 11 3 will also be applicable in case the

Govornoi.ito decides that the Contractor will sell Its Profit Oil or Profit Natural

Gas for the actual payment to be paid by Iho Contractor



12.1 In addition to tho rights to carry out Petroleum Operations within the

Agreement Area, the Govemorate shall provide or otherwise procure access

to Contractor to all existing facilities and infrastructure e the Agreement Area

owned by the Northern Iraq Administration for the purpose of carrying out its

Petroleum Operations during tho term of the Agreement Such access shall

be on terms as regards access and tanffs no less favourable than those

offered to other persons or ontities, in addition, in any case within the

Petroleum Law The Contractor will reimburse the value determined, for the

supporting facilities utilised by the operation personnel (excluding Petroleum

Production facilities), decided to be used by the Contractor Such

determination will be made within two (2) months following the Transfer of the

Operations, by tln> Coord million Committee and the reimbursement to be

made within one (1) year In equal instalments .

12 2. Provided that, the Govemorate are submitted information below, the

Contractor shall have the right to use. produce, reprocess and export all

existing geoscience engineering environmental and geodetic data (including

magnetic tapes and films) maps, surveys reports, and studies it deems

necossary to carry out Petroleum Operations hereunder Including, but not

limited to magnetic surveys, eotsmic surveys, well logs and analysis, core

analysis, well tiles, geologic and geophysical maps and reports, reservoir

studies, reserve calculations, accurate geodetic co-ordinates for the location

of all wells and seismic lines and all other pertinent data relative to the

Agreement Aren, which are owned by the Govemorate In the event that any

information Is to ho sold on confidential bnsis to any third party by the Parties


(consent on which is required from the Parties) profit shaII be distributed in

accordance with the share of Profit Oil under the Article 10

12 3 Tho Contractor shall have the right to conduct all geonoonco, engineering,

environmental and geodetic studies it deems necessary to carry out

Petroleum Operations under the Work Program. Said studies may include,

but are not limited to: seismic surveys, magnetic surveys, global positioning

surveys, oonal photography (obtaining relevant permiln). collection of

soll/wntor/oil/rock samples for scientific and environmental studios Contractor

shall tio grunted access to and/or permission to fly subject to obtaining

appropriate consents (which will not be unreasonably withhold or delayed)

over the Agreement Area to conduct said studies. Contractor shall hove the

right to import equipment and supplies necessary to conduct said studies as

well ns tho right to export data, film and samples to laboratories outside the

Northorn Iraq Administration to conduct such studies

12.-1 Subject to (i) pnor approval by the Co-ordination Committee; and (n) poor

consent and/or permit with any necessary local administration or

govommontal bodies or Govcmorate and relevant landowners, tho Contractor

ond/or Operator shall have the nght to clear the land, to dig. pierce. driB,

construct, oroct, locate, supply, operate, manage and maintain pits, tanks,

wells, trenches, excavations, dams, canals, water pipes, lactones, reservoirs,

basins, maritime storage facilities and such, primary distillation units,

separating units tor first oil extraction, sulphur factories and other Petroleum

producing installations, as well as pipelines pumping stations, generator

units, power plants, high voltage lines, telephone, telegraph, radio and other

means of communication (including satellite communication systems), plants

warehouses, offices, shelters, personnel hous-ng. hospitals, schools,

premises under*.iter pwr& and other msUNabons means of transportation,

roads, badges, and other means of transportation, garages, hangers,

workshops. maintenance and repair shops and all the auxiliary services which

are necessary or useful to Petroleum Operations or related to them and. more

generally, everything that «s or axJd become necessary or accessory to cany

cut the Petroleum Operations but for the avoidance of any doubt n

accordance with the Current Legislation

12.5 The agents, employees and personnel of both Contractor and Operator, or

Subcontractors may enter or leave the Agreement Area and have free

access within the scope of their functions, to aB installations put to place by

the Contractor or Operator or otherwise uti sod in Petroleum Operations.

12.6 Subject to pnor consent ol any appropriate local governments bodies and the

relevant landowners the Contractor shall have the right to rthse the upper

sod. mature timber, day. sand Ime. gypsum ard stones other than precious

stones, and any other similar substances necessary for the performance of

Petroleum Operators onfy m accordance with the Current Legislation The

Contractor may uti’isc the wator necessary for Petroleum Operations, on

condition that reasonable efforts are taken to mrxrmse potent ally adverse

effects on irrigation and navigation, and that land, houses and the waiemg

Paces are not advereefy exacted

12 7 The Contractor shall have the nght to use ousting pipeSne and terminal

facSties belonging »o or under the control ol the Northern Iraq Admmslraton

The Govemorate shal oss-st in mnkmg these facilities avalabie to the

 Contractor or te-ns wtfi regard to acc--- and tariffs that art* no toss

favourable tnar those made to others

111 To enable the Contractor to properly carry ool the Petroleum Operations. Iho

Govnrnorate shall have the obligation to assist the Contractor upon roquost


a) provide the approvals or pormltt needed to conduct Petroleum

Operations and to carry not nnsoclutod business activities ond to open

local and foreign bank accounts (lor both local and foreign currency) in

Northern Iraq Administration.

b) arrange for Foreign Fxrhnnoe to be converted m accordance with the

principles set out si Artido 18 9 of this Agreement:

c) use off

futilities and make arrangements for accommodations as roquirod

d) assist with any cuslom formaMies,

e) provide entry and exit visas and work permits for employee*) nnrl their

family members of Operator. Contractor, their Affiliated companies

and Foreign Subcontractors M>o are no* citizens of Northern tr

Administrator and who come to Northern Iraq Ad nan is (ration to

implement tty? Agreement and lo provide assistance for th««

transpcrtabor. travel and merfcal facilities whist in Northern Iraq


0 prov-de necessary pern** to send abroad documents dala and

samples for analysis O' processing Axing re Petroleum Operators.

0> contact and nstruct appropriate departments and rrwwtnes of tha

Northern Iraq Admstaton and ary ofrer bodies cemtro ied by the

Northern Iraq Administration to do a» things necessary to e«pedte

Petroleum Operations;

h) provide right of way. permits, approvals, and land usage rights

requested by Contractor and/or Operator for the construction of bases,

facilities and insinuations for use in conducting Petroleum Operations;


I) provide to the Contractor data and samploc if such data and samples

oxist concerning the Agreement Area other than (hose producod aa a

result of Petroleum Operations



14.1 All Petroleum produced, saved and not used n the Petroletm Operations in

accordance with Ar*jde 10.2 Shan be measured at the Measurement Poeit

approved m the Development Plan

14 2 The Measurement Pomt shall be the very final faotty among a* faditirs the

cost ol winch is included as a Cost and Expense recoverable from Cost

Recovery Petroleum under the Agreement.

14 3 All Petroleum shall be measured in accordance with standards generally

acceptable in the international Petroleum industry All measurement

equipment shall be installed, maintained and operated by the Operator Tho

installed measurement equipment will have certificates o* standards ol

International organisation. The Parties shall be entitled periodically to inspect

the measuring equipment installed and all charts and other measurement or

lost data .it all reasonable times The accuracy of measuring equipment shall

bo verified by tests at regular intervals and upon request by either Party,

using means and methods generally accepted iri the international petroleum


14.4 Should a meter malfunction occur. Operator shall immediately have the meter

repaired, adjusted and corrected and following such repairs, adjustment or

correction shall have it tested or calibrated to establish Its accuracy Upon

tho discovery of metering error. Operator shall have the motor looted

immediately and shall take the necessary steps to correct any error that may

bo discovered and after each case approval of tho Govomorato on using tho

motor 19 necessary

14.5 In the event a measuring error is discovered me Paries shai use afl

reasonable efforts to determine the coned production figures for the period

dunng wh»ch there was a moasurmg error and coned previously used

readings Contrador sbal submit to tho Coordination Committee a report on

the corrections earned out In deiemvnmg the corrector. Contractor shaB

use. where required, the information from other measurements made

or outside the Development Are* If rt proves .mposs-bte to determine when

the measuring error first occurred, the commencement of the error shall be

deemed to be the point in time haHwoy between the date of the previous lest

and the date on which the existooce of the moasuing error was !*st


14.6 At measu'ements for afi purposes thu Agreement shall be adjusted to

standard conditions of pressure at sea level and temperature at sixty degrees

fahrenhei (60 * F)



15 1 Associated Natural Gas

a) Associated Natural Gas produced within the Agreement Area shall be

used primarily for purposes related lo tho Production Operations and

production enhancement including, without limitation, oil treating, gas

injection, gas lifting ana power generation


 b> Based on Iho principle of full utilisation of the Associated Natural Gas

and with no impediment to normal prodocton of the Crude Oi. any

Development Plan shall include a pum of util saton of Associated

Natural Gas. If there is any excess Associated Natural Gas renaming

in any Oil Tield after utilisation pursuant to Article 15 i a) above

(hereafter referred to as 'Excess Associated Natural Gas*), the

Contractor Shall carry out a feasibility study regard*ig the commercial

utilisation of such Excess Assoc-ned Natuai Gas

i) If the Parties agree that Excess Associated Natural Gas has

no commercial value. then Operator shal act under the ptan

approved by Co-orCinaton Committee so that no! to interfere

with normal orf production Besides, m order to avoid any

doubt, both tne ptar and the Operator s actMbes under the

plan shall exclude pollution and correspond »o relevant

standards effective m Current Legislation

II) If the Parlies agree that Excess Associated Natural Gas has

commercial value, they win endeavour to enter Into gas sales

agreement(s) and/or other commercial and/or technical

arrangements with Third Parties required to develop such

Natural Gas Investments m the faoMies necessary for

production, transportation and delivery of Excess Associated

Natural Gas sha* be mace by the Contractor The constructors

of facilities for such Production and urn sat on of the Excess

Associated Natural Gas shal be earned out at the same tenc

as Iho Development Operations, or at any tine as may be

agreed to by the Parties

iii) H either Party considers that Excess Associated Natural Gas

has commercial value while the other considers that Excess

Associated Natural Gas has no commercial value, the one wtio

considers Excess Associated Natural Gas to have commercial

value may utilise such Excess Associated Naturol Gas. ot as

own cost and expense and without impeding llv? Production of

Crude Oil and without affecting the shares or Crude Oil and

Natural Gas otherwise to be allocated undor Iho other

provisions of this Agreement, but if such Excess Associated

Natural Gas is not so utilised at any time or from time to time,

then such Excess Associated Natural Gas shall be disposed of

by the Operator in accordance with Article 15.1b) I)

c) The price of Associated Natural Gas produced from Iho Agreement

Area shall be determined by the Parties based on general pnemg

principles taking into consideration such factors as sales prices of

internationally transported gas delivered in Western Europe, quality

and quantity of the Associated Natural Gas (including the equivalent

substitute energy value) and the economics of Development Unless

otherwise agreed, the Parties shall participate in all gas sales

agreements entered into for the sale of Associated Natural Gas

produced from the Agreement Area in proportion to their Article 10

allocation rights Gas sales pnees shall be denominated in U S S

ini VM»Hf Arwmt


d) Investments made in conjunction with the utilisation of both

Associated Natural Gas and Excess Associated Natural Gas. together

with investments incurred after approval of a Development Plan in

carrying out feasibility studies on the utilisation of Excess Associated

Natural Gas, shall be charged to Operation Expenses.

15 2 Non associated Natural Gas

When any Non-associated Natural Gas «s discovered within the Agreement

Area, the Parties shall implement, within six (6) months, a new agreement

regarding the Appraisal and possible development and marketing of the Non-

associated Natural Gas in the domestic and international markets



10 1 This Article shall apply to each Contractor Party individually.

10 2 Each Contractor Party. Operator and their Subcontractors and Foreign

Employees shall be subject to Taxes in accordance with the Current

I eglslntlon Fnch Contractor Party. Operator and their Subcontractors and

Foroign Employoos shall be entitled to lull and complete oxomption from all

Taxes pronuilgolod after the Effective Date of this Agreement except as

otherwise provided for in this Agreement

16 3 It is acknowledged that Double Tax Treaties will have effect to give relief from

Taxes lo. but not limited to. Operator. Contractor. Contractor Par *s. Fomgn

Subcontractors and Foreign Employees n accordance with the provisions of

such Double Tax Treaties, but not otherwise

16.4 The Govemorate. its successors or assignees will assume, pay and

discnarge. « the name and on behalf of each Operator. Contractor.

Contractor- Party Subcontractor, and their Employee s all Ta* Sab res dumg

the term of the Agreement The Govemorate will assume al Taxes to be

levied on the calculation of the local sales of the crude erf anO'or petroleum

products pnee at the entrance of the local rolmery or foflowmg the refining


16 5 The obligator to assume pay and discharge each Contracto- Party's

payment set out above by Govemorate in accordance with the provisions of

Article 16 4 shall fulfil the entve lax hab^ty of each Contractor Party indudtog

Ihe VAT on local sales

10 6 Each Contractor Party sha’i man tarn ts tax books and 'ecords both in local

currency and U.S $

16 7 Govemorate shai furrvsh to each Contractor Party the proper off.aal receipts

that evidence official payment that Contractor Party’s Tax latxlity for a

Calendar Year is fiity satisfied by 30 Apnl following tho Calendar Year

16.8 Govemorate shal assume, pay and o scharge any penaftes. nterast. fires or

urrvar levies for ate payment of Tax haCAUcs as indicated in Artide 16 4 m

respect of any Ca ercar Year

16.9. The Contractor will be entitled to oflset the Taxes to be paid by the

Governorate as indicated In Article 16.2 above, from the Governorate's share

as set our m Article 10 9., In case of the failure of the Governorate



17 1 Contractor shall maintain books and accounts of Petroleum Operations m

nccordanco with the Accounting Procedure attached horoto os Annox B.

These shall tie maintained in tocal currency of Northern lr:icj Administration

and in U S S in accordance with generally accepted International Petroleum

industry accounting principles. All books and accounts, which are made

available lo (he authorities in accordance with the provisions of the

Accounting Procedure, shall be prepared in English language.

17 ’/ Thn Accounting Procedure specifies the procedure to tie used to verify and

establish promptly and finally Contractor's Costs and Expenses under Article

10 ol this Agreement.

17 3 Sales revenues, expenditures, financial results, tax liabilities, and loss carry¬

forwards of each Contractor Party shall bo determined in accordance with the

rules, nghts rind obligations sot forth in litis Agroomnnt in so far as such

sales rovonuos, expenditures, tinancial results, tax liabilities, and loss carry

forwards are related to Petroleum Operations under this Agreement

17 4 On annual basis Contractor shall submit to the Governmental agency an

internationally recognised audit's report on Costs and Expenses incurred, that

under Article 10 should be compensated by AvaJabie Petroleum The report

shall also include prof* calculation pursuant to provisions of Arvde 16 ol this

Agreement Governorate shall have the right tc audit the books and accounts

ma nta ned by Contractor.



181 Contractor and each Contractor Party and thee Affiliates. Subcontractors and

Operator shai have the nght to open mamtan. and operate Foreign

Exchange bank accounts both m and outside of Northern Iraq Administration

and kxa' currency bank accounts ms*Je Northern Iraq Adrrvmstroton Such

operations performed m Northern Iraq Administration wil comply with Current


18 2 Contractor and each; Contractor Party, and their Aff hates shall have the nght

to transfer ail funds received in and converted to Foreign Exchange in

Northern Iraq Adm ntstration without payment of Taxes fees, duties or

imposts lo bank accounts outside Northern Iraq Administration

18 3 Contractor and each Contractor Party, and their Affiliates and Foreign

Subcontractors shall have the right to hold, receive and retain outside

Northern Iraq Administrator and free* use all funds received and derived

from Petroleum Operations by them outside Northern Iraq Administration

without any ob'-gatton to repatriate or return the funds to No-them Iraq

Administration, including but not limited to an payments receded from export

sales of Contractor Partes share of Petroleum and any s*s proceeds from

an assume* of the* interest to this Agreement

18 4 Contractor and each Contractor Party, and their A^Saies. Foreign

Subcontractors and Operator have the right to import into Northern Iraq

Ad me-is trati on funds requwed for Petroleum Operations under this Agreement

to Foreign Exchange

18 5 Contractor and oach Contractor Party, and their Affiliates and Foreign

Subcontractors shall have the right to pay outside of Northern Iraq

Administration lor goods. works and services ot whatever nalure in

connection with tha conduct of Petroleum Operations undor this Agreement

without having first to transfer to Northern Iraq Administration the funds for

such payments,

18 6 Whenever ouch n need arises Contractor and each Contractor Parly and their

Affiliates, Foreign Subcontractors and Operator shall be entitled to purchase

local currency with Foreign Exchange and covert locnl currency into Foreign

Exchange in accordance with provisions stipulated in legislation.

18.7 Contractor and each Contractor Party, and their Affiliates and Foreign

Subcontractors shall have the right to pay outside Northern Iraq

Administration principal and interest on loans used for funding Petroleum

Operations without having to first transfer to Northern Iraq Administration the

funds for such payment

18 8. Contractor and each Contractor Party and thee Afffcates. ar.d Operator shal

have the nght to pay wages, salaries allowances and benefits of their ‘ore

personnel working m Northern Iraq Administration in Foreign Exchange partly

or whoRy outside of Northorn Iraq Administration

18 9 Conversions of currency shal bo recorded at the rate actuary experienced in

that conversion Expenditu-es and sales revenues m currency other than the

US S Shan be translated to U S $ at the rates offoalty published by [ Natona:

Bank of the Northern Iraq Administration l ot the close of business on the first

business day of the current month



19.1 Contractor, oach Contractor Party and Affiliates and their agents and

Operator shall hovo the right to import Into, export and re export from

Northern Iraq Administration in accordance with the Currant Legislation

19.2 Contractor oach Contractor Party and Affiliates and thrnr agents shall have

the right to soil any materials or equipment or goods which were used in

Petroleum Operattons provided that such items are no longer needed for

Petroleum Operations ond the costs of such Items hove not boon and are not


mtondod to be mciuded as Costs and Expenses recoverable Iron' Ava lable


19 3 Contractor each Contractor Party, wr customers and thee earners shal

have the right to export the share of Petroleum on behalf of Contractor or

each Contractor Party in accordance with Current Legislation

19 4 Foreign Empoyees and family members of Contractor and its Affihates, its

agents and Foreign Subcontractors, shall have the nght to import mto and re¬

export from Northern Iraq Administrator household goods and personal

property at any time in accordance with the Current Legislation



20 1 The Contractor. Contractor any purchasor from such partes and the*

respective earners sha*. for the duration of this Agreement, have the right to

export from any export point selected by the Contractor lor such purpose, the

share of Petroleum to which the Contractor is entitled under this Agreement

provided that access to such export pont s not restricted generally on the

grounds of safety or national security and/or Current Legislation Access to

export polnls shall bo given to tho above part

and at rotos no loss lavoumblo than those av.i.'able m tho country, or granted

to others by the Northern Iraq Administration

20 2. The transfer of title to each Contrador Pady ar

Petroleum shall be effective upon the *ting of that share by such Party at the

Measurement Point or. at the Partes' option, at some other po*it. approved

by Co-ordination Committee

20 3 The Pities shall each be entitled to designate (at their own cost) an

employee, independent company or consultant wt»o shall choc* the l*tmg of

Petroleum from the Measurement Point or at such other point as may be




21 1 Ownership of any asset, whether fixed or moveable, acquired by or on behalf

of Contractor n connection with Petroleum Operations hereunder shall vest n

the Northern Iraq Admnstrabon without consideration if bom (i) the costs of

such asset have been recovered by Contractor under this Agreement and (■)

either the Agreement has come to an end or. if earner, when the asset is no

longer roquirod (or Petroleum Operations by the Contractor The Contractor

sha! enjoy continued free, exclusive and jrrestricted use of art assets at no

cost or loss of benefit to the Contractor until the termination of tfw Agreement

or d ear her unU they are no lorger req Jred for Petroleum Operations The

 Contract©* lTal boar tie custody and maintenance of such and al

nsfcs oi ncodentni loss or carnage thereto wnie they are required lor

Petroleum Operat*™-., prodded however that aR costs necessary to operate,

maintain and repair such assets and to replace or repair any damage or loss

Shan be recoverable as Operation Expenses from Avali.»t)lo Petroleum in

accordance with the provisions ol Article 10.

21 2 Whenever Contractor reinQuishes any par of me Agreement Area al

moveable property located within the portion of the Agreement Area so

remqmihed may be removed to any part of the Agreement An-a that has

been retamed for use n Petroleum Operations

2t 3 Thrt provisions of Article 21.1 and 21.2 shall not apply to matenals or other

property that am runted or leased to Contractor. Its Affiliates or Operator or

which belong to employees of Contractor, its Affiliates or Operator


22 1 Contractor shall obtain and maintain such types and amounts of m6uranco for

the Petroleum Operations as are reasonable and such that they comply with

the Current LogiBlntlon and accepted international Petroioum Industry practice

and standards

22 2 The insurance which may be obtained, may cover.

•) destnxchcr and damage lo ary property held Sor use durng Petroleum

Operations and oassfted as fixed capital anaor leased or rented

properly and/or »vnrests In pipelines operated by the Contractor

b) destruction of Crude O ' m storage

c) ‘abrfcty to third Panes

dj habrlity for pollution and expenses for clearing up in the course of

Petroleum Operations.

e) expenses for wild well control.

0 imtxMy incurred by the Contractor m h*nng land dnfcng ngs. vessels

and aircraft serving the Petroleum Operations; and

g) losses and expenses incurred dunng »«• transportation and storage In

transit of goods shipped from areas outside the Agreemant Area

22 3 The premiums o' ary insurance agreements regarding Petroleum Operations,

for urns* the Contractor' tse* is l able, shall m the event of any insurance

cta*r be coraoered as Costs and Expenses of Petroioum Operations

recoverable from Avateb» Petroieixn

22 - it i unde»«foc'J that, m c'der lo meet their ns*xance at

providers used by Contractor may conclude reinsurance and

agreements wi*h any ether insurance enterprises ard o-garwobo


72 5 Notwithstanding -ne other provisions of mis Agreement. the Contractor shall

indemnify and hold harmless the Northern Iraq Administration against all

lossos, damages and liability arising undor any claim, demand, action or

proceeding brought or instituted against the Northern Iraq Administration by

any employee of the Contractor or any Subcontractor or 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 this Agreement regardloss of the fault or negligence In

whole or m pan of any entity or individual, provided, howevei. thal such

losses, damages and liabilities are not caused by or do not arise out of the

performance or non-performance of this Agreement by the Northern Iraq

Administration or Govemorate and the Northern Iraq Administration or

Govemoruto shod indemnify and hold the Contractor (including for this

purposo any Affiliate, the Operator and all Subcontractors) hormlase against

all such damage, losses and liabilities

22.6. The Contractor (including for this purpose any Affiliate, the Operator and all

Subcontractors) shall Indemnify the Northern Iraq Administration for all loss or

damage suffered by the Northern Iraq Administration arising out of the

Contractor’s Petroleum Operations if such Petroleum Operations were riot in

accordance with good oilfield practices or applicable laws, rules and

regulations and. notwithstanding the foregoing, for any loss or damage to the

environment or any cultural or national monument arising out of conduct of

the Petroleum Operations; provided, however, that the Contractor (including

for this purpose any Affiliate, the Operator and all Subconlrnctors) shall have

no liability hereunder if and to the extent any loss and damage is caused by

or arises out of any broach of this Agreement (and any other agreements that

may be entered into by and between the Contractor, the Northern Iraq

Administration «i respect of the Petroleum Operations) or breach of duly by

the Northern Iraq Admn.straoon Notwithstanding the foregc-og. the

Contractor (including for this purpose any Affiliate, the Operator and an

Subcontractors) stia't not be table to the Northern Iraq Administration for any

punitive or exemplary damages or any other indirect or consequential


22 7 The Contractor shall not be response to the Northern Iraq Admrwtration for

and sna l bear no cost, expense or -abdity of the Northern Iraq Admn stratwn

for. any daim. damage or loss to the extent such daim. damage or loss does

not arise out of a failure to conduct Petroleum Operations as provided in

Article 22 6 In ampWicafcon of the kxegomg. the Contractor shal not be

responsible for any environmental condition or damage existing *i the

Agreement Area poor to the commencement of Petroleum Operations or

caused by a Force Maieure event during the term of this Agreement Existing

environmental conditions will be evidenced by an independent Third Party

through environmental baseSne study of existing environmental conditions to

be commissioneC by the Contractor, a! its own cost and expense (which shai

be included as Costs and Expenses for the purposes of determinng Cost

Recovery Petroleum subject to prior approval by the Co-ordmation

Committee) and shal be completed prior to the commencement of the

relevant Petroleum Operators in accordance with good onfield practices and

Current Legislation related to the environmental issues Such baseline study

shat: be submitted to the Gov«mor3te and shall be incorporated in the

Environmental Impact Assessment to be prepared by the Contractor in

accordance with the environmental laws tor the purpose of obtaring a permit


for Petroleum Operations from the authority which permit and any other

permits, authorisations and consents which ore or may be applicable under

the Current Legislation, shall not be unreasonably withheld. Govornor.ile

agrees to provide Contractor with all authorisations, pormits. certificates and

other documents necessary for Petroleum Operations If in the courso of the

Petroleum Operations, the Govemorate provides other areas for Contractor's

activities, then new environmental baseline studies shall be included m the

Development Plan that includes these areas. The Northorn Iraq

Administration shall indemnify the Contractor against ony claim, damage or

ions arising from such pre-existing environmental condition or damaqo,

subject however, to the Contractor having taken reasonable and appropriate

precautions in conducting Petroleum Operations, it being understood that in

pursuing Petroleum Operations the Contractor has assumed the risk ol

working In the Agreement Area, and provided, further, that such

indemnification shrill not extend to any natural pre-existing condition

2? 8. In conducting Petroleum Operations, the Contractor shell operate according to

good oilfield piactices and use best endeavours to minimise poUmtiiil

disturbances to the environment, including the surface, subsurface, sea. an.

flora fauna other natural resources and property The order of pnonty for

actions shall be protection of life, environment and properly

22.9 I ho Contractor shall lake all necessary steps to rospond to. and shall promptly

notify It** Govemorate of, all emergency and other ovents (including

explosions, leaks and spills), occurring in relation to Ilia Petroleum Operations

which are causing or likely to cause material environmental damage o>

material risk to health and safety Such notice shall include a summary

description of the circumstances and steps tnkrrn and p .tnned by the

Contractor to control and remedy the situation The Contractor shal provide

such additional reports to tho Authority as are necessary in respeef of the

effects of such events and the course of al actons taken to prevent further

loss and to n*agate deleterious effects.

22 10 In the evert of emergency situations as set forth in 22 9. above, at the request

of the Contractor, the Govemorate. w thout prejudice and n addition to any

irdemnifioition obkgabons the Northern Iraq Administration may have

hereunder, shall assist the Contractor, to tho extent possible, to any

emergency response, remeoal or repair effort by making available any

labour, materials ard equipment m reasonabe quart ties requested by the

Contractor which are not otherwise macMy ava table to the Contractor and by

facaktoing the measures taken by Contractor to bring mlo Northern Iraq

Admtoatrabon personnel, mat one to and equipment tobeusedmanysuch

emergency response or remedial or repair effort Contractor shal revnbursc

the Northern Iraq Adr--miration's reasonable and necessary costs incurred

such efforts, which reimbursed amounts shal be considered Costs and


22 1 * The Contractor shal! not be lioWo to the Northern Iraq Administration or Third

Part»s for any damages caused by contammobon entering the Agreement

Aren as a result of Northorn Iraq Admtoistroton. or Th*d Party activities

beyond or withto the ocundanes of the Agreement Area The Northern Iraq

AdTO ttraton snail be ega: y and financially responsible for any oss.

carnage and i ability. inducing remediation of environmental conditions which

may be required for safe conduct of the Petroleum Operations caused by the

Northern Iraq Adm nitration's activities beyond or within the Agreement Area.

22.12 The Contractor shall rot he Mabte lor any loss or damage. including bul not

limited to spillage, explosion, contamination or similar environmental damage

In respect of any storage facilities, pipelines or moans of transportation which

mo not under the direct possession and control of the Contractor or Its

Affiliates or its Subcontractors or the Operator In addition to the foregoing,

tiiu Contractor shall not be liable for any damage whatsoever in respect ol the

Northern Iraq Administration share of Petroleum, storage or transportation

thereof once Governors lias taken custody of the Govemornto share of


22.13 Tho Nortfwrn Iraq Administration shall make Best efforts to ensure ttm safety

end security of tho Contractor s property and personnel m Iraq and to protect

them from loss, injury and damage resulting from war (declared or

undeclared), ovil conflict, sabotage blockado. not. terrorism, unlawful

comma*otil extortion, or organised crime. Notwithstanding anything to the

contrary contained herein. Contractor acknowledges and agrwot that the

obligations undertaken by the Northern Iraq Administration in this Article

22.13 are no groatw than the general obligations of the Northern Iraq

Administration towards citizens ol Northern Ir.Kj Administration In respect to

the perils nomod obovo. Furthermore. Contractor agrees that it shrill have no

claim for logoi or equitable relief for failure of tho Northern Iraq Admlmetrollon

lo comply with tho provisions of this Article 22.13. except as may be permitted


22 14 Except as set forth in Article 28 hereof, it «s understood and agreed that the

Northern Iraq Admmatration shall not seek or declare any canceketion or

termination of this Agreement as a result o< the occurrence d any emergency

event descried in d*s Article 22



23 1 Contractor snal oe emitted to onng Foreign Employees mto Northern Iraq

Admnistraiion m connection wth the performance of Petroleum Operations

The entry mto Northern it;iq Admo strotion of such personnel « hereby

authorised and the Northern Iraq Adnwvstrator authorised body she* ssue

at the Contractors request the reqiared documents, such as entry and ewt

visas work permits and resdenca cards At CorCradors request, the

Northern Iraq Adminst-aton shak faoMate a* trrmgraujn formatoos at tie

poetts oI ex’ and entry me Northern Iraq Admevstrabon tor the employes

and fame/ mercers of fr>e Contractor, ts Aflttares. Subcontractors. Operator,

agents and boxers The Contractor (or Operator on «s benaf) shat contact

the appropriate oh-ces of the Northern Iraq Adm.-xstration to secure the

necessary doownerts. and to tabsfy the requeed tarma i as

23 2 The employees working w ithm the scope of Petroleum Operator* sh.iil bo

placed under the authority of the Contractor Its its Subcontractors,

agents or brokers or the Operator r-ach oI which shaft act Individually in the*

capacty as employers. The wo-ks. hours, wages and a* other condn ons

ratal ng to the' emptoymert shal be detorrmnrxl by the relevant employer ol

such employees lr re'abon to employees who are obrons at Northern Iraq

Adminisfat on mer employment shal be r acco'Carte with the Ctn nt

Legeiabon To me extent that any expatriate personnel are engaged under

on agreement subject to the Current Legislation, that agreement shal comply

With tho provisions of the Current Legislation The Contractor its Aft utos. its

Subcontractors, agontsor brokers however shall enjoy full freedom m the

selector and aiugrvrwnt of their employees



2a 1 If at a reeol of Force Majeure. Conk*** is rendered uneble wfioky or m

part, to cany out its obligations under the Agreeme'S other than the

ob iqatioh to pay any amounts cue then the obbgabons of Contractor so far

as and to tho oxtont that the obligations are affected by such Forco Majeure.

Shull brt suspondod during the continuance of any inability ao caused, but for

no longnt (xirtod Contractor shall notify the Parties of the Torce Majeure

situation within sovon (7) days of becoming nwnro of the circumstances relied

upon and shall keep tho Governor, iln informed of uN significant

developments Such notice shall give reasonably full perticolme of the said

Force Mnjouro, a nd a iso e stimate the penod of time, which Contractor writ

probably require to romedy the Force Mojoure. Contractor shall use all

riMHonahlri diligonco to remove or overcomo the Force Majeure situation as

quichly a f. p otKibie mane conomic manner Tho p eriod of a ny s uch non¬

performance or delay, together wth such period as may bo necessary for the

restoration of any damage done during such delay, shaB be added to the time

given In ton Agreement for the performance of any obligation dependent

theroon(and the continuation of ary right granted) and to the term of this


24 2. For the purposes of th» Agreement force Majeure' sbas mean a

circumstance. <**Ch <$ inesrstbie or beyond the reasonable central al

Contractor and when hoOe^s the Operator to perform, or any other hexVence

of Conk actor's performance not due to


25 t No assignment, mortgage or charge or other encumbrance shal be made by

a Party of Its rights obi gat ©ns and interests arising under this Agreement

other than m accordance with the prove*©ns of this Artide 25 Any purported

assignment made m breach of the provoxye of this Artide 25 shal be nu4

and void.

25.2 Save st the case of any assignment mace pirsuant to tha prorsons of

Amcree 25 4. 25 5 and 25 6 the ‘oiow'ng sha apply. Any Party wishmg to

assign # or part of its rights and interests hereunder or in any circumstances

where Itiere is doomed to be an assignment, the Party wishing to make the

assignment shall first grva written notice to tho othor Parttos specifying tha

proposed leant and conditions of the assignment

Following receipt of those terms and conditions, for a penod of thirty (30) days

o-ich Marty shal have the preferential right to match the terms and conditions

of tho proposed assignment or deemed assignment This nght may be

exercised by any Party giving written notice of its intention to match the

relevant terms and conditions (Hie ‘Acceptance*) and thereafter tin* relevant

Parties shall negotiate all necessary documentation in good faith If within a

further period of ninety (90) days from receipt of the Acceptance the relevant

parties hove not reached final agreement the Party seeking toassign may

within a further period of thirty (30) days complete an assignment to n Third

Party on the same terms and conditions F or the avoidance of doubt any

assignment to a Third Party shall be subject to the assigning Party and tho

Third Party complying with the provisions of this Article 25.

25 3 A Contractor Party may assign nil oc port of its rights, obligations and interests

ansihg from this Agreement to a Third Party provided that the Third Party

a) has the technical and financial ability to perform the obligations to be

assumed by it under the Agrooment. and

b) as to the interest assigned to it accepts and assumes all of Iho terms

and conditions of the Agreement

Any such assignment shall be subject to the prior written consent of the

Govornorate which consent shall not be unreasonably withheld or delayed.

By way of clarification, and not In limitation of tho foregoing provisions of this

Article 25.3. the Northern Iraq Administration shall not be considered to be

acting unreasonably in declining to consent to any such assignment if the

assignment to such proposed assignee is deemed contrary to Northern Iraq

Administration interests, as evidenced by a writing to that eftect signed by the

President, Prime Minister, Minister, Chancellor, or the Minister of Foreign

Affairs or Defence or there s an act of Parfement to that effect

If within trwty (30) days foiowing noUicaticn of an intended assignment,

accompanied by a copy of toe proposed deed of assignment and related

documentation with respect to the proposed assignee, including certified

financial statements and other eveence to me Northern Iraq Administration s

reasonable satisfaction of the matters set forth in Article 25.3 and such

documentation, which shall include evidence of the identity of owners of the

assignee provdod in the case of a company the stock of M+ch a registered

on a recognised stock exchange, a copy of the documents dontifyng the

s qnif cant owners, as such concept is defined or used m the applicable laws

pursuant to when such company registered its stock, wrt satisfy the foregoing

requirements and >ts direct and indirect parent companies, including the

dontity of the owners of the intimate parent, subject to the forego*ng proviso,

as may be reasonably necessary for Hie Northern Iraq Adrrwwtrution. and as

requested by the Northern Iraq Administration, to mako o determination ot

the Northorn Iraq Administration interests as desenbod above, tho Northern

irnq Administration has not given its written decision concerning such

nsBignmenl thon it shall be deemed that the Northern Iraq Administration has

declined to givn such consent, p rovided that thereafter If upon the further

written request ol the Contractor for a whiten decision, tho Northern Iraq

Administration has not given a written response of any kind within fifteen (15)

days after such further request, then the assignment shall be deemed

approved and the Northern Iraq Administration shall execute an assignment,

in n form acceptable to the Northern Iraq Administration, accepting such

assignment Thus second request from the Contractor shnll cue the provisions

of tins paragraph and the Contractor shall obtain confirmation from ihe


Northern Iraq Administration mat the request has been received In the event

of the transfer of rights and obligations under the Agreement and License to a

Third Party. Contractor shall pay all costs associated with such transfer

incurred by the Agency and any tax or charge duo on such transfer under Iho

Current Legislation

25.4 A Contractor Party may assign all or part of its rights, obligations and interests

arising from this Agreement to another Contractor Party or Affiliate, without

prior consent of the Govemorate. provided that any such Affiliate

a) has the technical and financial ability to porlorm the obligations to bo

assumed by it under the Agreement, and

b) as to the interest assigned to It. accepts and assumes all of the terms

and conditions of the Agreement

25.5 Each reference m this Agreement to the Contractor shall bo treated as

including each assignee to which on assignment has been mad© pursuant to

this Article 25 Each reference in this Agrcemont to Govemorate shaR be

treated as including each assignee to which an assignment has been made

by Govemorate pursuant to this Article 25

25.6 Govemorate may assign all or part of its rights, obligations and interests

ansmg from this Agreement (including all or part of its right to lift a share of

Profit Oil) to a wholly owned legal entity or to any othor sovereign state

authority having )uhsdiction over the Aqroomont Aron, with the pnor consent

of the Contractor

25 7 Subject to the approval of the Govemorate n the event of there being any

proposed ass-gnment m accordance with the terms of this Article 25 then to

the extent of the interest assgned the assgnor shal be reeased from all

further obhgat-ons ano labii ties arising under the Agreement afte* the

effective date of the assignment The assignee shall thereafter be liable for

the obligations arising from such interest n the Agreement except to the

extent provided «i the Agreement


liiaa akiEimsKE


261 In the course of pertomwg the Petroleum Operations the Operator and the

Pa-ties shall be subject to el aopbcabte lews, decreet end regulations

26 2 The Northern Iraq AdrmvstraUor agrees and commits lo Contractor, for tho

duration of this Agreement, to manlam the stability of tho legal, lax. financial,

■nming's. customs and economic import and export conditions of this

Agreement Furthermore the Govemorate hereby represents and warrants

that the Govemorate already receved the approval of the elected ParSament

of the Northern Iraq Admmtration. which euthonses the Govemorate to enter

into this Agreement

26 3 The Parties agree to co-oporalo In ovory powubto way In order to achttvo I ho

objectives of this Agreement The Northern Iraq Adnsnstration and its


 •ubOvsjors she' fao rate ire exerose o' Contractor s acuities by grantng 4

all decrees pwmsts. rasolutons Senses and access nghts infl maMng

to 4 a* appropriate existing 'adStes and service* irde< toe control

c/ me Gove morale to that Partes may derive the greatest benefit from

Petx © jn Operator* for the' own benefit and for me beneftf of the Northern

r®Q Admmstration

28 4 H at any tare after this Agreement has been sened there t a change n me

eppfccabte laws, regulations or other provsons effacing Current Legoto:on

when to a material degree adversely affect the economc position of me

Contractor or any Contractor Party rereurder. the tern* and condtons c4

ihrs Agreement Shan be altered so as tc restore the Contractor to the same

overall economic position ns that which the Contractor would have been in

had this Agreement txM*n given full force and effect without umendmont

26.5 If the Contractor believes that its economic position hon boon adversely

affected, undor Ariida 26.4 it may give notice to tho Northern Iraq

Administration and lo Governorato describing how Its position has been so

affected and the Parties shall thereafter promptly meet with a view to reaching

agreement on thn remedial .iction to be taken If mnttore have not been

resolved within 00 days or as otherwise agreed the matter may be referred to

arbitration by any Party in accordance with the provisions of Article 29

26 6 The Northern Iroq Administration withm the Current Legislation and its

capacities warrants lo thr Contractor as follows

a) The Northern Iraq Administration has taken the appropnate steps

necessary to authorise the Governor nln In Northern Iraq

Admnrstrabon tc execute ths Agreement on befe* of I he Northern

Ireq Adrmtstrabor and has the power to do so.

b) The signatory to this Agreement on behalf of me Northern Iraq

Administration [m each of its capac««s hereunder) is di/y authorised

to bind Governor ale n Northern Iraq Adnvmstretion

c) Go.©morale m Northern Iraq Admai-strabon has been tegaly vested

by the Northern Iraq Admavstrabon with the necessary power lo

aumonse Pelroteum Operations In the Agreement Area and to

compensate the Contractor by allocating to it a share of the Petroleum

produced in accordance with the terms of lh«s Agreement

d) Upon completion of the matters and procedures sot out «n A/tide 31

there is no other entity or authority whose approval or authorisation is

required to permit the Contractor to en|oy and enforce its nyhts

tie rounder.

26.7 Contractor, roprosents and warrants that:

a) It possesses the technical expertise and financial resourcos to fulfil the

obkgations of Contractor under this Agreement.

b) Tho execution, delivery and performance by PetOil Petroleum and

Petroleum Products International Exploration and Production Inc of

tm Agreement are wtfSn the corporate powers of PeOi

Petroleumand Petroleum Products International Exploration and

Production Inc.;

c) PotOil Petroleum and Potroleum Products International Exploration

and Production Inc, have obtained all carporaln consents. approvals,

authorisations and resolutions in accordance with its corporate

statutes and the applicable laws to empower PetOil Petroleum and

Petroleum Products International Exploration and Production Inc. to

oxecuto this Agroomont. to undertoko all of the obligations of

Controctor hereunder



27.1 Except as otherwise specifically provided, all notices authonsed or required

between the Parties by any of the provisions of this Agreement, shall be in

writing In English nnd delivered In person or by registered mail or by courier

service or tiy any electronic moans of transmitting written communications

which provides confirmation of complete transmission, and addressed to such

Parties as designated below. The ongmating notice given under any

provision of this Agreement shall be deemed delivered only when received by

the Party to whom such notice Is directed, and the time for such Party to

deliver any notice in response to such originating notice shall run from the

dnto the onginating notice is received. The second or any responsive notice

shall bo doomed delivered when rocoived •Received’ for purposus of Utte

Article with respect to written notice delivered pursuant to th» Agreement

shall be actual det very of the note* to the address of the Party to be notifed

speoftec m accodance with this Article Each Party sna'i have the right to

charge ts address at any time and/or desxjnete that copies of a* such

notices be directed to another person at another address, by giving written

nobce thereof to al other Panics The addresses for service of notices on

eatfi of the parties are as follows •

Contractor: PetOi Petroleum and Petroleum Products International

Exploration and Production inc

Address Koza Sokak No 43GOP Ankara

Phone +90 312 4403150

Facsimile *90 312 -Ml 6026

441 6027

Contact person: H Guniekm Koksal

Governor ate

Address Sdaimanyah. R/gan Boulevard Pnme Min ster s Headquarters

Phone 315 00 15

Contact person : [']

27 2 Subject to the provisions of the Agreement, the Parties agree that an

informaton and data acquired or obtained by any Party m respect of

Petroleum Operations shal be considered confidential and shal be kept

confidenLal and not be disclosed durmg the term of the Agreement to any

person or entity rot a Party to th* Agreement, except


 a) To an Affiliate, provided such Affiliate maintains confidentiality ua

provided herem;

b) To a governmental agency or other entity when required by the


c) To the extent such data and Information is required lo be furnished in

compliance with any applicable lav/s or regulations, or pursuant to any

Io»jiI proceedings or because of any order of any conn binding upon n


C> To prospective or actual Subcontractors, consultants and attorneys

employed by ary Party where cfcsccsure of such data or information *

essential to such Subcontractor’s consultant s or attorney's work

e> To a bona fide prospective transferee of a Party's partopatmg interest

bona fiCe negct abons d^ectec toward a merger, consolidation or the

sale of a majority of its or an Affiliate s shares);

f) To n bank or other financial institution to the extent appropriate to a

Party arranging for funding,

g) To Hid extent that any data or information which, through no fault of h

Party, becomes a part of the public domain

?7 3 Disclosure as pursuant lo Article 27 2 (d), (o). nnd (f) shall nol be rr^do

unless prior lo such disclosure the disclosing Party has obtained a written

undertaxing from the recipient party to keep the data and nformation strictly

confident a for at least tnree (3) years and not to use or Asctose the data and

information except ‘or the express purpose for which disclosure a to bo




28 1 At any hmo. if in the opinion of Contractor. circumstances do not warrant

continuation of the Petroleum Operations. Contractor may. t>y giving w-itten

notice to that effect to toe Govemorate relinquish its rights and be reteved of

its obligations pursuant to this Agreement, except such nghts and obkgaux*

as related to the period prior to such reSnqjishment Neither this Agreement

nor any of the nghts granted hereunder may be term, mi ted as a result of any

act or omisaon of Operator save in the case where Operator has carried out

an ad or omitted to do something at the specific request of the Contractor

and Operator has previously advised the Contractor or-or to carrying out toe

act or omitting lo do something that to carry out that ad or to on* to do too

re evant thing may result m this Agreement bong temwated.

Sfcar*( A,i»re ««•*


28 2 The Govornorato and'or the Northern Iraq Administration is entitled to

lormlnnto this Agreement by giving ninety (90) days advance written notice

thereof to .ill Parties, when Contractor commits a material breach in relation

with its obligations indicated in the Agreement or if Contractor has not

accomplished its warranties according to Article 2G 7. Tiw termination notice

will bo offoctive at the end of the arbitration procedure in case the claim of

mntonnl bronch is applied to arbitration as srpulotod in Article 29.



29 V The Partios Iroroby consent to submit to the International Centro for

Settlomont of Investment Disputes any dispute in relation to or arising out of

this Agreement for settlement by alteration pursuant to tho Convention on tins

SetUement of Investment Disputes.

20 2 The Partios agree thnt. for the purposes of Article 24(1) of the Convention,

any dlsputo In rotation to or arising out of this Agroomont is a legal dlsputo

arming directly out of any investment, and this article has force only if all the

requirements of Articlo 29.1 are followed

29 3 For tho purposos of Article 24(2) of the Convention. H is agreed that, although

PotOII Petroleum and Petroleum Products International Exploration and

Production Inc Is a national of Republic of Turkey, shall be treated as a

national of that Northern Iraq Administration for the purposes of the


29.4 A Party need not exhaust administrative or judical remedies poor to

commencement of arbitrage proceedings.

29 5 Any arbitrage tribunal. consisting of three arbitrators and constituted pursuant

to this Agreement shol apply the provisions of this Agreement as

supplemented and mtorproted by general principles of the Current Legsfaton

and Laws of England as are m force on the Effective Date In case these

prmoptes are m contact with each other. Engfcsh Laws shaft prevail. The seat

and venue cf the arbitration w i be London. United Kingdom. The arbitration

language w* be English language.



30.1. This Agreement shall be executed in two (2) ongmats m the m the English

language, when wit be duty certfttd by a competent authonsed body

selected by the Northern Irac Admin strason


311 TM Agreement sha« enter into force and effect in *s enurety on me sign-ng

31 2 Transfer of Openuons she* be conOBcn* toon me fuTrfmert of the totowng

a) Govemorate has msrvctad end moored the relevant Tax author res

of Northern Iraq AcmrxstratjQn that the Governors!® sha* assume,

pay and discharge in the name and on the behalf of Contrador.

Contractor's entire Tax kabMy for each Agreement Year, and

b) Govamorate has instructed and inlormod the customs authorities of

Northern Irac Administration that the Contractor sha* be exempt from

al customs dotes, lenes. 'ees. ate., and

c) Cover nor ate has provided Contractor the wntien notice of mo

reakrabon of a and b above

31 3 In case the Contractor la*s to '■bate the necessary admrstrabve actons

(such as esubtshmg ar office r Sjarunyafi moofeang professional

personnel rto Northern Irac Aflmmtnwi) n three (3) momhs fokowmg

the Transfer of Operators, or the Contractor fa -s to initiate the mob zaben of

necessary eqiapmenl for proper aopnasai of fte exsstmg feds m

Agreement Area (wch as workover ng or seisme field crew) mthn w («)

months following the Trans'er of Operations, the Governor ate may teornate

this Agreement upon sixty (60) Cays prior written nonce

31 4 Within one month of the expiry of the nine (9) month period mentioned m

Clause 313 above, the Co ordination Committee shall meef and approve

Conti actor's proposal regarding tfm time of commencement of Development


By execution horeef. the Governornte in Northern Iraq Administration, acting m its

capacity as the sovereign representative of Nonhem Iraq Administration pursuant to

the Current Legislation joins as a Party to the foregoing Production Shanng

Agreement as amended, and consents to the provisions thereof

Sgnod and waled th* 14th dsy of January, 2003 m two (2) copies m English


For Govomorate For Contractor

/ f.aJcT



Approved on behalf of the

Northern Iraq Administration

Name: J/)CA L


\«f--- r- 2

httmiu ApwnKxi




AtLuhed to and made part oI the Production Sharing Agreement. hereinafter c»t©d the "Agreement"

Mgned as o< U« 14th Cay of January. 2003. by and between Suiurremryah Regrjnni Government of the

Interim Jont Region* AC frustration of Northern Iraq and PetOil Petroleum a nd Petroleum Products

international Execration and Production Inc..



1.1 Purpose.

1.1.1 The purpose of this Accounting Procedure is lo establish equitable methods for

determining charges end credits applicable to operations u nder the Agreement which

reflect the costs of Potroleum Operations to the «nd that no Party shall gain or lose m

mint ion lo other Parties

It is intended that iipixoval of the Work Program rind Budget as provided In the Agree¬

ment shall constitute approval of the rates and aHocaton methods used therein to cur¬

rently charge the Petroleum Operations Account, hut subject to verification by audit at a

later dale as provided «the Accounting Procedure.

1.1.2 The Parties agree. howe-er. that if the methods prove unfa* or net) jtabe to Operator or

Non-Operators. the Part

in methods deemed necessary to correct any urfatness or mequrty

1.2 Conflict with Agreement in the event of h confld tietween the provisions of th« Accosting

Procedure and the provisions of the Agroomonl to wtveh this Accounting Procedure is attached

the provisions of the Agreement shal pre/uii

1.3 Definitions. The defmoTs contained n Article I of the Agreement to which this Accounting

Procedure is attached shal apply to th* Accounting Procedure and have the same meanings

whan used nere*n. Certaat terms used herem are defined as foh>ws

mean Northern Iraq Administration.

“Metaoar shal mean persona) property (nctodng. txX ntf imited to. equipment and suppties)

acquired and held for use at Petroleum Operations

14 PstrpNumpperatlgns Account Records*nd Curregcy_Exchang».

 1 4.1 Operator *na* at aa tmes ma^iton arc wg true and correct record* of the

production and disposibon of aP Petrote urn and c* a3 costs and expenditures under

Tv Agreement, as weM as other data necessary cr proper for Tie settlement ot

accounts between the Parlies hereto in cormechon with their rights and obigutons

under the Agreement and to enafcfo Partws to comply with their respective apptca-

be income tax and other taws

1,4.2 Operator shal maintain accounting records pertaining to Petroleum Operations in

accordance with generally accepted accounting practices used in the international

petroleum industry and any applicable statutory obligations of the Country ol

Operations ns well as the provisions of the Agreement

1 4.3 Petroleum Ojierotons Account records slvill be maintained by Operator m the

Engish language and in Untlod Statu:. of America ("U S") currency and in sutii

other language and currency as may be required by the laws of the Country ot

Operations. Conversions of currency shall be recorded at the rate actua ry

experienced in that conversion Currency translations for expeodXures and receipts

shall bo roconlnd at the arithmetic averngo buying and neimg exchange rates for

the Old Iraqi Dinar and tho United States Dolors of the preceding month ns

determined by lltn local market.

1.4.4 Any currency exchange gam or losses shad be credited or charged to the Petroleum

Operations Account, except as otherwise specified in this Accounting Procedure

1.4.5 The accrual beers for accounting shal be used m preparing accounts

concerning the Petroleum Operations if a 'cash" 03sis for accountng » used

Operator snai show eccruo j n*i momorendian terns

1 5 Statements and Billings

1.5.1 Unless otherwise agreed by the Part-* Openvor shall subma refty to e*h

Parry, on cr before the 1CT Day ol each month, statements at the mh «

expenddtres oarred direj the pnar month. rxtoatng by appropriate daw**' •

the nature therec' the uxrevpcrxt ng budget caEegcry. and the porton ol such

costs charged to each of the Partes

These statements, as a mr r>xr * na§ contact nefoaowngrfonTaoon:

- advances of funds set ng forth the asrenaes receered from each Parly

- the share erf each Party m total expencrures

- summary of cost*. credits, and experxfitures on a currant month. >^ar-to-d*e

arc inception-to-cate basis or other penodc bas«s. as agreed by Parties

- defat*

the thousand)

1-5-2 Operator shoi. upon request, fumah a description of the accounbng dassfcabon*

used by it

1.5.3 Amounts induded in the statemnnts and hiBings shall bo expressed in U.S currency

and reconciled to the currencies jKlv;inced.

1.3.4 Each Party shall bo responsible for preparing its own aoooonting arvl tnx reports to

meet the requirements of the Country of Operations and ol fill other countries to

which it may be subject Operator. to the extent that the information m reasonably

available from the Petroleum Operations Account records, shall provide Non-

Operators in a timely manner with the necessary statements to facilitate the

discharge of such responsibility

1.6 Payment* and Advances Upon approval of nny Work Program and Budget, the Contractor wil

provxlu .ill required «etim»l«Hl cneh requirement* tor the succeeding month's i>perations

1.7 Audit*.

1.7.1 A Non-Operator, upon at least sixty (60) Doys advance mtfee in writing to Operator

and ail ofher Non-Operators, shai have the ngh*. to aud< the Petrofeum Operations

Accounts and records of Operator rdabng to the accounbng hereundor tor any

Calendar Yea* within the twenty-four (24) month penod fctovwng the end of such

Cntorvlnr Year The cost of each such audit shall be borne by Non-Operator*

conducting the outfit It is provided, however, that Non-Operators must take written

exception to and make claim upon the Operator for al discrepancies dbctased by

tard audit w«hr said twenty-four (24) month penod Where there are two or more

Non-Operators, the Next-Operators shall make every reasonable effort to conduct

pint or simultaneous audits in a manner, which *i result in a nmnum of vtconve-

nienoo to Iho O ptuntor. Operator and Non-Operators shaB make every oflort to

resolve any dam resuBrng from an awfit within a reasonable period of time

A Non-Operator may audit the records of an A Male of Operator relating to mat

AfWato's charges. The provisions ol thrs Accounting Procedure shal apply mutate

rr j'arxfis to such audits.

1.7.2 Any rfonnation oota ned by a Non-Operator under the provision* of the Sectoor. 1.8

wtwch does not re ate c reedy to the Pecroeum Operation* Wul be kept corffeenbat

and shai not be disdosed to any party, except as wodd otherwise be pemcec by

 Article 27 of the Agreement

1.7,3 In the event that the Operator Is required by law to employ a public accounting firm

to audit the Petroleum Operations Account and records of Operator reiatrrg to the

accounting hereunder, the cost thereof shall be a charge against the Petroleum

Operations Account, and a copy of the audit shall be furnished to each Party.

1.8 Allocations If it becomes necessary to allocate any costs or expenditures to or between

Petroleum Operations and any other operations, such allocation shall be made on an equitable

basis Upon request, Operator shall furnish a description of its allocation procedures pertaining

to these costs and expenditures


Operator shau charge the Petroleum Operations Account with all costs and expenditures incurred in

connection with Petroleum Ojieraticns. It ta also understood that charges (or services rvxmnlly provided

by on operator such as those contemplated in Section 2.7 2 which are provided by Operator's Affiliates

shall tolled the cost to bio Affiliate, excluding profit, for performing such services, except os otherwise

provtdod in Section 2.6. Section 2.7 1. and Secbon 2.5.1 if selected.

The costs and expenditures shall be recorded as required for the settlement of accounts between the

Parties hereto in connection with the nghts and obligations under this Agreement and for purposes of

complying with the tax laws of the Country of Operations and of such other countnes to which any of the

Pathos may bo subject Without in any way limiting the generality of the foregoing, chargeable corns and

expenditures shall indude

2.1 Liconsos. Permits. Etc All costs, if any. attributable to the acquisition, maintenance, renewal

or rdirKHtthment of licenses, poimils, contractual and/or surface nghts acqixred fcr Polroleum

Operations when paid by Operator in accordance with the provisions of the Agreement.

2.2.1 The employees of Operator and Ks Affiliates *» the Country of Operations deectfy

ongaged in Petroleum Operations whether temporary or permanently ass-3 nod

2 2.2 The employees of Operator and ns Afft

directty engaged in Petroleum Operator** whether tempcranfy or permanently

assigned and not otherwise covered o Secbcn 2 72

22.3 Saiares and wages inctotfng everything construing the employees’ fc*»

compensation To the extent not nduded in salaries and wages, the Petroleum

Operator** Account shdi also be charged with the cost to Operate* of hcfcday.

vacation, sicfcness. CisabiXy benefits, fcv>ng and housog alowances. travel tore

bcouses. and other customary asowarces apocable to the salaries and wages

chargeable herevmder. as wel as costs to Operate* for employee benefits, ndutbng

but not invtad to employee group rfe insurance, group medical insurance

hospftnlzaUon. retirement. and other benefit plans of a Hie nature appfccabie to labor

costs of Operator. Operator’s employees partiapatng r Country of Operations

benef* plans may be charged at a percen*age rate to reflect payments or acoua %

made by Operator applicable to such employees Such accruals fc* Country

Operator** benefit Ftans shal not be paid by Noo-Operatcrs unless otherwise

approved by the Co-ordinaSon Ccmmidee. unU the same are due and payable to

tt« emptoyee. upon withdrawal of a Parly pursuant to the Agreement, or upon

termnation of tho Agreement, whichever occurs first

^7 ^

 224 E»ppfvHtufm or rantnbutfcms made pursuant lo ,«sv by

0<».i4rT»inH auibcrty for payments w*h 0--- *to or on account oI such


Satanesand wages cha-ced i n a cccrdance « to Opr'afcr'i ,tual procure. when

and at p*d or accrued or on a basis of toe Op nr »\ a.tnHjH coal enxtayw*

tor each job category; and toe rates to be charged she* be rwvfmwd at toast

armo/tify In detemursng the average cost pur on i^oyrw lor each job category,

rijvitruitfi and national employee salaries and wages shell be calculated separatory

2.20 During a giver uenod of tore 1 is understood tout some costs tor saianes and

vniyon n .iy be charged on an actual basis while the romninirv) oontn for irvl

wages .i«e charged at a rate based upon the above doncnlmd nvnrugn umt

Kensonoble expenses (including rolnted trnvol crxitn) ol thowi ompfoyomi whose

salfl'los and wngos are chargeiihlo to the Fiitroliuiin Oper.itionii Account under

Socllons ? 2 1 nnd 2 2 2 of this Suction II and lor which expanses the entptoyees

22 7 am undor tlm usual practice of Operator

If rmptoyooe mo engaged in other activftiee at addition to the Petroleum Oporatcns.

ton ooet of such employees shall be allocated on an equAabte basts

Except m prrv-ded n Secbon 2 33 Operate*** cost of en^oyees ie*OCS*on to or

bom toe Agreement a-ba wonty a nemor mmn toe metoyu ra*oe or

and househoto effects of the employer nn-1 f<*r4y. «r.. *wt enmnses. end all ether

reietnd onto to acccrdance veto Operator's usual practice.

Relocation costs from the voraty of the Agrn«i*t Area to another tocabcn

ctnsnif««'l at ii foreign location by Operate* shel not be chargeable to toe Petroleum

Of»*ut«»». Aixjunt unless such fon»«gn location is the potrt c< onptn d the

24 nfffcm. sub-offices.

swung any cnlcm. mixances.

iMvtfr* Affiknton dwuutly tmrving

urn Operations If such feefities servr ■' itltMoi to the Potrotoum

Coat net


 Operator Such costs shall mdude. out ;*io not limited to. export brokers’ foes, transportation

charges, loading, unloading fees, export and import duties aixl Iwierwo loon associated with tho

procurement of Material and In-transrt losses, if any. not covered try Insurant*!. So far na it la

retmonably practical and conststent with efficient and economical operation, only such Material

shall be purchased for. and the cost thereof charged to. the Petroleum Operations Account as

may be required for immediate use.

2.5.1 Purchasing Foo. Whan economical to do so, and required for lh* benefit of the

Petroleum Operations. Operator may roquest its Affiliates to provide purchasing,

expediting and traffic coordination services. Charges to the Petroleum Operations

Account for the provision of thoso purchasing services shall bo based on tho

Affiliate’s standard purchasing fee currently set at 5% on the amount of each

purchase order.

The fee shall be reviewed periodically by Operator's Affiliates, and future changes

shall be made upward or downward as Indicated by the Affiliate’s cost oxportonco

for the provision of these purchasing services Any changes affecting the charges

to the Petroleum Operations Account shall be subject to notification by Operator and

approval by the Co-ordination Committee. Such charges shall be in lieu ol any

charges for the same or similar services provdod horem

2.6 and Facilities

Charges for exclusively owned equipment, facilites. and utilities of Operator and *s Afftates a:

rates not to exceed thn nverngo commercial mtes of non-nfffcated third partes then proving lor

He equpmert. facility, and u1>**« lor use in the area where the same are used hereunder

Or request. Operator snal furnish Non-Operators a let of 'ales and the basis of appftcnlion

Such rates shall be reused from tm# to tme if lound to bo either excessive or msuHoont but

not more than once every so months

DrBng tools end other eqiapment lost In the hole or damaged beyond repar may be charged at

replacement cost less deprecation plus transportation costs to deliver Ike ecjpmeot to the

location where used

2.7.1 The cost of services provdod by third parties meUJtog Affuetes of Operator other

than those wmncee covered by Section 2.7 2. Such chorqes tor services by

Operator s Ariifcates shal not exceed tnose currently proving t performed by non-

amt ated third parties, consrferng quaHy and avafeixWy ol u*vcm

2.7.2 The cost Of services perlooned by Operator's Aflifcates tochrscnl and professional

stans not located within the Country of Operabor.


 2.7.3 Tt*o charge* for such iervtcet shall not excoud those currently prevail**) (t

performed by non-afTiiiatewl third partes, considering Whj quality noil nvminbility

of sudi wtrvxMS

Examples of such services Indudo, but nro not limited to. the following

Geologic Studios and Interpretation

Seismc Data Processing

We* Log Analyse. Conetotcn ond Intertvetatlon

Laboratory Services

Well Site Geology

Project Engineering

Source Rock Analyse

Petrophysical Analysis


Acuxmtong and Professional Services

Other Data Pracmang

Caste Rtw* ndude ufarei am waga* of sueh v

-easorade e-penees CoeU aha* alao ncUta al support costs necessary for sudt

techncal and pre+tanrs personnel to perform wt services, such a*. ww

irrstod to rent. uSrties eepoen eta- drafeng. telephone and other amnetcra

api^.(ni^i4pm.tu3f*M MOWtk^

2.8 Insurance. Premwn" pn«J far r-sjmnce requred by i»w or the Agreement to be earned to» !*-•

beneM of the Petroleum Operntans

 2.9.1 Aji costs or expenditures necessary to replace or repair damages or losses najrred

by fire. flood, storm, theft acodent. or any other cause Operator shal furnish Non-

Operators wntten notice of damages or losses incurred in excess of Twenty Five

thousand U S dotars (U S i 25 000) as soon as cracbcai after report of tne same

tut been received by Operator AS losses in excess of ten thousand U.S dollars

(U S S 10000) shall be listedseparate* in the monthly statement of costs and

2 9.2 Credits lor settlements received from insurance earned for the benefit of Petroieur

Operations and from others lor losses or damages to Joint Property or Materials

Each Party shal be cred4..t with Us Partopabng Interest snare thereof except

Men such receipts ate derived frem insurance purchased by Operate* for less

than all Partes in which even! such proceeds sha- be credited to those Partes for

whom Ihe insurance was purchased m the proportion of the*r respective

oontiMmtions toward the insumnew coverage

Expenditures incurred In the sottlwnonl of aB losses, danns. damages. jodgmeNs


and Other i.xponses for the account of Petroleum Operations

2.10 Litigation and Legal Expenses. The costa and expenses of abgabon and legal services

necessary for Ihe protection of the Petroleum Opo-atrcns under the Agreement as follows

2.10.1 Legal services necessary or expedent for Ihe pnrtectxxi d tie Petroleum

Operations, and all costs and expenses of Migabon. arbitration or other Memair.e

d-spute procedure, including reasonable attorneys' fees • nd e xpenses

together w*h at ;odgments ohtaned against ihe Partes or any of them anwj frem

the Petroieim Operations

2.10 2 If the Parties hereunder shal so agree, actions or daims affecting Ihe Petroleum

Operations hereunder may be handled by the legal staff of one o» any of Ihe Partes

hereto; and a charge commensurate w4h the reasonable costs of proving and

furnishing such services rendered may be made by tne Party c*tK*dnQ such service

to Operate' for the Petrol*** Operators Account, but no such charges sha be

mace unti approved by the Ponies

2 11 Texes end Dubes A taxes dotes assessments and governmental charges, of every knd and

nstixe assessed or levied upen or In connection with the Petroleum Operators e4her than any

that are measured by » based upon the revenues. income and net wxh of a Porty.

If Operator or an Atfiale is subject to income or vwthhottng tax as a resut of Sanaa* performed

nl cost for the aperahons under Ihe Agreement, ns charges for such secvxes may be ncreased

by the amount of such taxes incurred (grossed up).

2.12 Other Expenditure. Any other costs and expenditures incurred foy Operator (or the necessary

nnd proper conduct of the Petroleum Operations *> accordance with Approved Work Programs

and Budgets and not covorod in this Section II or in Section III.


3.1 Purpose Operator shall charge the Petroleum Operator® Account monthly for the cost of

Indirect and related office costs of Operator and its Affiliates not otherwise provided In

this Accounting Procedure Indirect costs chargeable under this Section III represent the cost of

gone nil counseling end support services provided to Operator by its Affiliate These costs are

such that It is not practical In identify or nsaocfnto thorn with specific prorocts but are for services

which provide Operator with needed and necessary resources which Operator requires and

provide a real benefit to Petroleum Operations. No cost or expenditure included under Section II

shall bn included or duplicated under this Section III.

3.2 Amount The charge for the period beginning with the Calendar Year through the end of the

period vered by Operator's invoice ("Year-to-Date*) under Section 3.1 above shall be a

percentage of the Year-lo-Oate expenditures, calculated on the following scale (US Dollars).

Annuel Expenditures

$0 to Si 000 000 of expenditures = 4 %

Noxl $5 000 000 of oxpondlures = 3 %

Excess above S 5.000.000 of expend**** = 2 %

3.3 Exclusions Tho expenditures used to calculate the monthly indirect chary* • • d not mdude

the indirect charge (calculated either as a percentage of expenditures or as a minimum monthly

charge), rental!, on surface nghts acquired nnd maintained for tho Petroleum Operations

Account, guarantee deposits, pipeline tariffs, concession acquisition costs nnd Taxes paid under

the Agreement, expenditures assooated with major construction projects for which n separate

indirect charge is established hereundei. payments to third parties in seltlament of dnlms, and

other similar Items

Credits arising from any government subsidy payments, disposition of Material, and luaiipts

from third parlies for settlement of chums shall not be deducted from total expenditures in

determining such indirect charge.

3.4 Indirect Charon for Projects. As to major construction proiccts (such as. but not limited to,

pipelines, gas reprocessing and processing plants, nnd final loading and terminatiing facilities)

whan the estimated cost of each project amounts to more than U.S. $ 15.000.000, a separate

indirect charge for such project shiilt bo wit by the Coordination Committee at the time of

approval of the proiect.



41 Acquisitions Materials puchased for the Petroleum Operations Aaxw she* be chargee a>

net cost p**1 by me Operate* The price of Materials purchased shall nclude but shall nrt be

l-rtfec to expert broker's tees, insurance, transportabon enlarges loatfing and trtoa&ng fees,

import duties, fccense leas, and demurrage (retention charges) associated wth the proasemenl

c* Matenate. and appfecabte taxes less <* dsccunts taken

4 2 Matouals Futr»shod bv Opoiatot. lAaterals required for operations shal be purchased for

direct charge to the Petroleum Operators Account whenever practicable, except the Operator

may furnish such Materials from its stock under the following condition*

4.2.1 New Materials transferred from the warehouse or

other properties of Operator shall be priced at net cost determined In accordance

with Section 4 1 above, as if Operator had purchased such new Material just prior lo

its transler

Such net costs shall In no event exceed the then current market price


4 2 2.1 Material which s In sound and servceaWe conrifcon and sutable for

use wxthout repair or recondhonmg sha* be classed as Condition “2*

and priced at seventy five percent (75%) of such new purchase net

cost at the bme ol transfer

42 22 Materia-s not meeting the requirements of Section 42 21 above Du

which can be made suiteble for use after beeig repeeed or

reconditioned, shal be dossed as Corxfcon “T and pneed * fifty

percent (50%) of such new purchase ret cost at the firm of transfer

The cost of recondtorang shal uteo be charged to the Petroleum

Operations Account provided the Coodfcon ~3~ pnee. ptos coel of

recordibonng. does not exceed the Condrton ~T pnee. and provided

that Materiel SO classified meet the requirements lor CondBon *2*

Material upon bemg repaired or recontStioned

42.2.3 Material which cannc4 be dassBed as Condition *2" or Condition "3",

shall be priced at a value commensurate wants use

4224 Tanks, demchs. buMngs and other items of Material involving

erection coats, rf transferred n knocked-down axvfcUon. sha* be

graded as to condition as provided in the Section 4 2.2 of Section IV.

and pricad on the basis of knocked-down pnce of kka new



5.1 Disposal. Operator shall be under no obligation to purchase the interest of Non-Operator* in

now or used surplus Materials Operator -.hull haw the rirjht to dispose of Materials but shall

odviao and secure prior agreement of Hie Co-ordlnnllon Committee of any proposed disposition

ol Materials having an original cost to the Petroleum Operations Account either individually o' In

the aggregate of One Hundred Ihousand U S. Dollar* (U S. $ 100.000) or more. When

Petroleum Operations are relieved of Material charged to the Petroleum Operations Account,

Operator shall advise each NorvOporntor nf tho onglnnl cost of such Material to the Petroleum

Operations Account so that the Parties may eliminate such costs from their asset records

Crodit6 (or Material sold by Oporjtor shall txi mode to tho Petroleum Operations Account in the

month m which payment is received lor the Material. Any Material sold or disposed of under this

Section shall be on an "as is. where Is' best* without guarantees or warranties of any kind or

nnturo. C osts and expenditures incurred by Operator in the disposition of Materials shall be

charged to the Petroleum Operations Account

5.2 Material Purchased by a Party or Affiliate Material purchased from the Joint Property by a

Pnrty ix an Affiliate thereof shall Im* credited by Operator to the Petroleum Operations Account,

with new Material valued in tho tame monitor .is now Material under Seclon 4.2.1 art:! used

Material valued in the same manner as u sod Material under Section 4.2.2, unless othorwtse

agreed by the Co-ordination Committee.

5.3 Division In Kind. Division of Material in kind. * made between the Parties, srial be m proporto

to their respectne interests m such Material Each Party wrl thereupon be charged mo /dually

*-~i the value (determmeo m accordance with the procedure set forth n Sector 5 2) of the

Material received or reerwnbio by it

5 4 Sales to Third Parties Maierai purchased from the Jort Prcperty by thrd she be

credited by Operator to the Petrcteum Operations Account at tho net amount collected by

Operator from the buyer If the sales pnee ft lees than that deter mmod m accordance wfth in.

pcocedu*e set forth m Sector 52. then approval by the Coontoation Committee shal be

regured poor to trie sa«. Any da-ms by the buyer for defect*.* materials or otherwise sria* be

charged back to the Petroeum Operations Account if and when paid by Operator



61 Periodic Inventories - Note* «rfl Representation. A1 reasonable rtervute, but .4 least

nnmiHly. inventories shall be taken by Operator of all Matenoi on which detailed accounting

records are normally maintained The expense of conducting ponodic inventories shall be

charged to the Petroleum Operations Account Ojxirator shall give Non-Operators written notice

at least thirty Days (30) in advance of its intention to take inventory, and Non Operators, at their

nolo cost and expense, shall each be entitled to hove a representative prwont. Tho failure of

any Non-Operator to be represented at such Invontory shall bind such Non-Operator to accept

the inventory taken by Operator, who shall m that ovont furnish each Non-Operator with a

reconcifcation of overages and shortages Invontory adjustments to the Petroleum Operations

Account shall be made for overages and shortages Any adjustment equivalent to Fifty

Thousand U.S. Dollars (U S.$ 50.000) Of more shall be brought to the (.Mention of tho Co¬

ordination Committee

62 Special Inventories Whenever there is a sale or change of interest *\ the Agreement a

special inventory may be taken by the Operator provided the seier and'or purchaser of such

Merest agrees lo bear a* of the expense thereof la sue* cases Dofh the seier and the

purchase* shall be enMhxJ to be represented and shal be governed by the inventory so taken