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 PRODUCTION SHARING AGREEMENT











BETWEEN











INTERIM JOINT REGIONAL ADMINISTRATION OF NORTHERN


IRAQ





REPRESENTED BY











(SULAIMANIYAH)





MQ


PET OIL


PETROLEUM AND PETROLEUM PRODUCTS INTERNATIONAL


EXPLORATION


AND PRODUCTION INC,




















DATED


JANUARY 14"\ 2003
























































i


 UU1 •MTS





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


Art.de 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








2


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


3


 * 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*


part


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


International Lwntor and Producbon Inc (heremohor referred to as


■Contractor*)


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


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


WITNESSETH.


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*








4


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


hereto


^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 Gc.ernof.it* 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














6


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 activit.es 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


rate


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








T


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


Agreement


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 n.fi 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,


ttvnulalon.

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,


























10


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





ARTICLE 3


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


Administration.





ARTICLE 4


AGREEMENT TERM








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 Art.de 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


withheld.








AR.ILSLE.S





RELINQUISHMENTS





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








12


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


relinquishment need not consist of one contiguous aroa





ARTICLE 6











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


alternate


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


meeting





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


documents


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








14


 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


Procedure.


ARTICLE 7





QPERATQRRESPONSIBIUTY











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








*











IS


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


(nctodmg Petrotoum nctrvti.es) 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





ARTICLE 0


AND APPROVAL OF





PimQPMFNTPJANS








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


stud.es to be earned out and the estimated time frame witfwi which the


Contractor shall commence and complete the program and also appropriate


budgets





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








16


 ai








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


Ait.de 8 6 shall dot.nl 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


Development





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


Procedure.





ARTICLE 9


ANNUAL WORK











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


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











18


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;ectr.es 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


Recoverable.





ARTjQkE.18








AND RIGHT OF EX.PQRI





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 appropn.de 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


Petroleum.


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







20


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





21


 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


pmopies





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


practice.





ARTICLE .11











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


th.il 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


th

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





ABHCkE-U


ANCILLARY RIOHTS OF THE








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








23


(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


10!


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


ACmn.strabor.


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;


ond


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


AftriCLfcH


MEA8URFMFNTOF PETROLEUM


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


industry.


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 rs.de


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


discovered.


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)











ARTICLED


NATURAL GAS


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








26


 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





27


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


ARTICLE-16


TAX/FISCAl REGIME


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


process.


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


ARTICLE 17


ACCOUNTING, FINANCIAL R.EP NG AND AUDIT








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.











ARTICLE 18


CURRENCY. PAYME








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


Legislation


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











ABUC.Lk.lg


IMPORT ANP E.KPQBT


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





30


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


Petroleum


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





ARTICLE 20








REGULATIONS TQR. AL








20 1 The Contractor. Contractor Part.es. 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


designated










ARTICLE 21


OWNERSHIP OF ASSETS








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





ARTICLE 22











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








32


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


damages


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








33


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


Expenses


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


Petroleum


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


bylaw.


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





AUT'CLE a


PERSONNEL








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 AffAa-.es. 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


ARTICLE 24


FORCE MAJEURE


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


Agroomrmt


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







ARTICLE 2?











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








37


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





ARTICLE 26





liiaa akiEimsKE





AND WARRANTIES








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





38


 •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


ARTICLE 27


NOTICES AND CONFIDENTIALITY


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











v


 a) To an Affiliate, provided such Affiliate maintains confidentiality ua


provided herem;





b) To a governmental agency or other entity when required by the


Agreement.


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


Party.


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


made

















ARTICLE 28


TERMINATION AND BREACH








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 ««•*


41


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.





ARTICLE 29


CHSPUTE RESOLUTION


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


Convention.


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.


ARTICLE 30


TEXT





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























42


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


Operations.








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


language














For Govomorate For Contractor














/ f.aJcT

















IN'SlW'MH VUnw





•it


Approved on behalf of the


Northern Iraq Administration














Name: J/)CA L








Title:





\«f--- r- 2

























































































































httmiu ApwnKxi





44


 ANNEX B








ACCOUNTING PROCEDURE


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..


SECHONI


GENERAL PROVISIONS





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


 SECTION II














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


12.5





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 nnliir.is 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 folmhur-.ml 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




25.


 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








Drttng Superve.cn








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


2.9.3


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 resoiu-.cn 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.


 SECTION III











3.1 Purpose Operator shall charge the Petroleum Operator® Account monthly for the cost of


Indirect servrr.es 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.


 SECTION IV








ACQMtSmp* OF MATERIAL





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








42.2








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


 SECTION V








DISPOSAL OF MATERIALS


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 pnrt.es 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


 SECTION VI








INVENTORIES








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