NOTICE: The text below was created automatically and may contain errors and differences from the contract's original PDF file. Learn more here
PRODUCTION SHARING CONTRACT
GARMIAN BLOCK
KURDISTAN REGION
BETWEEN
THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ
AND
WESTERNZAGROS LIMITED
TABLE OF CONTENTS
PREAMBLE
Article 1
DEFINITIONS
Article 2
SCOPE OF THE CONTRACT
Article 3
CONTRACT AREA
Article 4
GOVERNMENT PARTICIPATION AND THIRD PARTY INTEREST
Article 5
OPERATOR
Article 6
TERM OF THE CONTRACT
Article 7
RELINQUISHMENTS
Article 8
MANAGEMENT COMMITTEE
Article 9
GUARANTEES
Article 10
MINIMUM EXPLORATION WORK OBLIGATIONS
Article 11
EXPLORATION WORK PROGRAMS AND BUDGETS
Article 12
DISCOVERY AND DEVELOPMENT
Article 13
DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND
BUDGETS
Article 14
NATURAL GAS
Article 15
ACCOUNTING AND AUDITS
Article 16
CONTRACTOR’S RIGHTS AND OBLIGATIONS
Article 17
USE OF LAND AND EXISTING INFRASTRUCTURE
Article 18
ASSISTANCE FROM THE GOVERNMENT
Article 19
EQUIPMENT AND MATERIALS
Article 20
TITLE TO THE ASSETS
Article 21
USE OF THE ASSETS
Article 22
SUBCONTRACTING
Article 23
PERSONNEL TRAINING AND TECHNOLOGICAL ASSISTANCE
Article 24
ROYALTY
Article 25
RECOVERY OF PETROLEUM COSTS
Article 26
SHARING OF PROFIT PETROLEUM
Article 27
VALUATION AND METERING OF CRUDE OIL AND NATURAL GAS
Article 28
SALE OF GOVERNMENT SHARE
Article 29
FINANCIAL PROVISIONS
Article 30
CUSTOMS PROVISIONS
Article 31
TAX PROVISIONS
Article 32
BONUSES AND CAPACITY BUILDING PAYMENTS
Article 33
PIPELINES
Article 34
UNITISATION
Article 35
LIABILITY AND INSURANCE
Article 36
INFORMATION AND CONFIDENTIALITY
Article 37
ENVIRONMENTAL PROVISIONS
Article 38
DECOMMISSIONING
Article 39
ASSIGNMENT AND CHANGE OF CONTROL
Article 40
FORCE MAJEURE
Article 41
WAIVER OF SOVEREIGN IMMUNITY
Article 42
ARBITRATION AND EXPERT DETERMINATION
Article 43
GOVERNING
LAW,
FISCAL STABILITY,
AMENDMENTS
VALIDITY
Article 44
NOTICES
Article 45
TERMINATION
Article 46
COUNTERPARTS; EFFECTIVE DATE
Annex A
CONTRACT AREA MAP AND LIST OF COORDINATES
Annex B
ACCOUNTING PROCEDURE
Annex C
STIPULATED SUNK BLOCK COSTS PRIOR TO EFFECTIVE DATE
Annex D
FORM OF PAYMENT GUARANTEE
AND
PRODUCTION SHARING CONTRACT
BETWEEN
The KURDISTAN REGIONAL GOVERNMENT OF IRAQ (the “GOVERNMENT”);
AND
WESTERNZAGROS LIMITED a company established and existing under the laws of the
Republic of Cyprus, whose office is Suite 600, 440 Second Avenue SW, Calgary, Alberta,
Canada (“WesternZagros Limited”)
WHEREAS
(A)
The GOVERNMENT wishes to develop the petroleum wealth of the Kurdistan
Region (as defined in this Contract) in a way that achieves the highest benefit to the
people of the Kurdistan Region and all of Iraq, using the most advanced techniques of
market principles and encouraging investment, consistent with the Constitution of
Iraq including Article 112 thereof.
(B)
In accordance with the Constitution of Iraq, the prevailing law of the Kurdistan
Region is the Kurdistan Region Law (as defined in this Contract), except with regard
to a matter wholly within the exclusive jurisdiction of the Government of Iraq.
(C)
The object of this Contract is to (i) carry out Exploration, Development and
Production of Petroleum in the Contract Area; and (ii) define the respective rights and
obligations of the Parties in respect of the conduct of Petroleum Operations in the
Contract Area. The Parties affirm their ongoing commitment and adherence to the
Principles and Criteria of the Extractive Industries Transparency Initiative (EITI).
(D)
The Contract Area consists of an area formerly part of the Kalar-Bawanoor Contract
(as defined in this Contract), but divided from the Kalar-Bawanoor Contract so as to
permit WesternZagros Limited (but not Talisman (Block K44) B.V.) to perform
continued Petroleum Operations on the Contract Area pursuant to this Contract, and
the Parties have agreed that certain petroleum costs solely incurred by
WesternZagros Limited under the Kalar-Bawanoor Contract in the Contract Area
are recoverable as Stipulated Sunk Block Costs under this Contract.
(E)
The GOVERNMENT intends to present to the National Assembly of the Kurdistan
Region a law or laws to authorise the GOVERNMENT, by contract or other
authorisation, to exempt investors in long term projects relating to the conduct of
petroleum operations in the Kurdistan Region from Kurdistan Region taxation, to
indemnify such holders against liability to pay such taxation, and/or to guarantee the
stability of the applicable legal, fiscal and economic conditions of such projects.
(F)
The CONTRACTOR has:
(i)
in a letter of representations and warranties to the GOVERNMENT, dated
concurrently herewith (the “Letter of Representations”), represented that it
has the financial capability, and the technical knowledge and technical ability,
to carry out Petroleum Operations in the Contract Area (as defined in this
Contract) under the terms of this Contract;
(ii)
in the Letter of Representations, represented that it has a record of compliance
with the principles of good corporate citizenship; and
(iii)
a willingness to cooperate with the GOVERNMENT by entering into this
Contract, thereby assisting the GOVERNMENT to develop the Kurdistan
Region petroleum industry, thereby promoting the economic development of
the Kurdistan Region and Iraq and the social welfare of its people.
(G)
WesternZagros Limited and WesternZagros Resources Ltd. have provided the Letter
of Representations as an inducement for the GOVERNMENT to enter into Contract,
and upon which the GOVERNMENT is in entering this Contract. Concurrently with
signing this Contract, WesternZagros Resources Ltd. has also delivered a guarantee in
favour of the GOVERNMENT, in reliance upon which the GOVERNMENT is
entering into this Contract.
NOW, THEREFORE, THE PARTIES HAVE AGREED AS FOLLOWS
ARTICLE 1 – DEFINITIONS
1.1
Capitalised terms and expressions in this Contract shall have the following meaning,
unless otherwise specified:
Abroad means outside of the Kurdistan Region and other parts of Iraq.
Access Authorisation is defined in Article 17.9.
Accounts is defined in Article 15.1.
Accounting Procedure means the Accounting Procedure attached to this Contract as
Annex B and constituting an integral part of this Contract.
Act of Insolvency means, in respect of any Party:
(a)
that it is unable, or will be unable, to timely satisfy all of its financial
obligations under the Contract and to other Parties in relation to the Contract; or
(b)
the insolvency, winding-up, dissolution, administration or liquidation of that
Party, the making by it of any arrangement or composition with its creditors or the
taking of possession by an encumbracer of, or the appointment of a receiver or
administrative receiver over, the whole or any substantial part of its property or assets
or its ceasing or threatening to cease to carry on business and any equivalent or
analogous procedures by whatsoever name known and in whatsoever jurisdiction.
The "winding-up" of a Party also includes the amalgamation, reconstruction,
reorganization (by way of voluntary arrangement, scheme of arrangement or
otherwise), administration, dissolution, liquidation, merger or consolidation of that
Party and any equivalent or analogous procedures under the law of any jurisidiction in
which the Party is incorporated, domiciled, or resident or carries on business or has
assets.
Adjacent Contract Area is defined in Article 34.1.
Adjustment Date is defined in Article 27.6.
Affiliated Company or Affiliate means, as regards any of the companies or entities
constituting the CONTRACTOR, a company or other legal entity which:
(a)
controls a CONTRACTOR Entity; or
(b)
is controlled by a CONTRACTOR Entity; or
(c)
controls or is controlled by a company or entity which controls a
CONTRACTOR Entity,
but shall not include the GOVERNMENT in respect of a Public Company. For the
purpose of this definition, “control” means direct or indirect ownership or control of
the majority of the voting rights of the applicable entity at its shareholders’ meetings
or their equivalent.
Agreed Terms is defined in Article 14.10(a).
Applicable Law means, as of any time of determination, Kurdistan Region Law and
federal Laws of Iraq recognised by the Government as applicable in the Kurdistan
Region.
Appraisal Area means the area defined in Article 12.2.
Appraisal Work Program and Budget is defined in Article 12.2.
Appraisal Report is defined in Article 12.4.
Appraisal Well means a well drilled for the purpose of evaluating the commercial
potential of a geological feature or a geological structure in which Petroleum has been
discovered.
Arm's-Length Sales means sales of Petroleum in freely convertible currencies
between sellers and buyers having no direct or indirect relationship or common
interest whatsoever with each other that could reasonably influence the sales price.
Such Arm's- Length Sales shall exclude:
(a)
sales between or among any of the CONTRACTOR Entities and their
respective Affiliates;
(b)
sales involving the GOVERNMENT or the Government of Iraq; and
(c)
sales involving exchanges and any transactions not relating to normal
commercial practices.
Assets means all land, platforms, pipelines, plant, equipment, machinery, wells,
facilities and all other installations and structures and all Materials and Equipment.
Associated Natural Gas means (i) any Natural Gas dissolved in Crude Oil under
reservoir conditions and (ii) any residue gas remaining after the extraction of Crude
Oil from a reservoir.
Audit Request Period is defined in Article 15.3(a).
Available Associated Natural Gas is defined in Article 25.1.
Available Crude Oil is defined in Article 25.1.
Available Non-Associated Natural Gas is defined in Article 25.1.
Available Petroleum is defined in Article 25.1.
Barrel means a quantity of forty-two (42) US gallons as a unit to measure liquids, at a
temperature of sixty degrees (60°) Fahrenheit and pressure of fourteen point seven
(14.7) psi.
Budgets means any budgets prepared by, or on behalf of, the CONTRACTOR
pursuant to this Contract and forming part of an Exploration Work Program and
Budget and/or an Appraisal Work Program and Budget and/or a Gas Marketing Work
Program and Budget and/or a Development Work Program and Budget and/or a
Production Work Program and Budget.
Calendar Year means a period of twelve (12) consecutive Months, commencing 1
January and ending on 31 December of the same year.
Capacity Building Account means a segregated bank account with a reputable bank
in the name of, and maintained by, the GOVERNMENT, the sole purpose of which
is to support and finance certain infrastructure and capacity building projects to be
identified by the GOVERNMENT in its sole discretion in the Kurdistan Region.
Capacity Building Bonus is defined in Article 32.2.
Capacity Building Payment means the obligation of a Charged Interest Holder
pursuant to Article 32.6, to pay an amount equal to the Capacity Building Value.
Capacity Building Payment Instalments means each obligation of a Charged
Interest Holder to pay an amount equal to the Capacity Building Value as provided by
Articles 32.6.
Capacity Building Value means, in respect of any period of determination: for each
Charged Interest Holder, an amount in Dollars equal to the value, established in
accordance with Article 27, of twenty-five per cent (25%) of the Profit Petroleum
attributed to such Charged Interest Holder pursuant to this Contract as at any time and
period of determination.
Chairman is defined in Article 8.1.
Charged Interest means all or any part of the participation interest in the Contract
following any assignment of all or part of the Third Party Interest pursuant to Article
4.29 as of the Effective Date; but in no event shall include: (a) the Government
Interest; or (b) the Third Party Interest assigned pursuant to a nomination and
assignment in accordance with Articles 4.20through 4.24.
Charged Interest Holder means the holder or holders of a Charged Interest; and any
permitted successor or assignee of a holder or holders of a Charged Interest pursuant
to Article 39.
Charged Interest Holders Monthly Statement is defined in Article 32.6.2(a).
Commercial Discovery means a Discovery which is potentially commercial when
taking into account all technical, operational, commercial and financial data collected
when carrying out appraisal works or similar operations, including recoverable
reserves of Petroleum, sustainable regular production levels and other material
technical, operational, commercial and financial parameters, all in accordance with
prudent international petroleum industry practice.
Commercial Production means the production of Petroleum from the Production
Area in accordance with an annual Production Work Program and Budget.
Constitution of Iraq means the permanent constitution of Iraq approved by the
people of Iraq in the general referendum of 15 October 2005.
Contract means this production sharing contract, including its Annexes A, B, C and
D that are an integral part hereof, as well as any extension, renewal, substitution or
amendment of this production sharing contract that may be agreed in writing by the
Parties in accordance with Article 43.7.
Contract Area means the area described and defined in Annex A attached to this
Contract and constituting an integral part of this Contract, and any modifications
made to that Annex in accordance with the provisions of this Contract, through
amendments, surrender, withdrawal, extension or otherwise.
Contract Year means a period of twelve (12) consecutive Months starting from the
Effective Date or any anniversary of the said Effective Date.
CONTRACTOR means, individually and jointly, each CONTRACTOR Entity.
CONTRACTOR Entity means, as at any time of determination, a Party to this
Contract other than the GOVERNMENT. A holder of the Government Interest is
never a CONTRACTOR Entity. At any time when there is only one entity
constituting the CONTRACTOR, any reference to “the entities constituting the
CONTRACTOR” or the “CONTRACTOR Entities” or similar reference, shall be
construed as “the entity constituting the CONTRACTOR”. As of the Effective Date,
WesternZagros Limited is the only CONTRACTOR Entity and owns an undivided
interest in the Petroleum Operations in respect of the entire Contract Area in the
following percentage:
WesternZagros Limited
40%
The balance of the interest in Petroleum Operations in respect of the entire Contract
Area, being sixty per cent (60%), is the Government Interest of twenty per cent (20%)
as defined in Article 4.1 and the Third Party Interest of forty per cent (40%) as
defined in Article 4.13.
Contractor’s Statement of Estimated Petroleum Costs is defined in Article 4.22.
Corrupt Practices Laws means, assuming the following are applicable to each
CONTRACTOR Entity, whether or not actually applicable or in effect:
(a)
the Kurdistan Region Laws and of the Laws of Iraq in respect of
bribery, kickbacks, and corrupt business practices;
(b)
the Foreign Corrupt Practices Act of 1997 of the United States of
America (Pub. L. No. 95-213 §§ 101-104 et seq), as amended;
(c)
the Corruption of Foreign Public Officials Act of Canada;
(d)
the OECD Convention on combating Bribery of Foreign Public
Officials in International Business Transactions, signed in Paris on 17
December 1997, which entered into force on 15 February 1999, and
the Convention's Commentaries;
(e)
the Bribery Act 2010; and
(f)
any other Law of general applicability relating to bribery, kickbacks,
and corrupt business practices.
Crude Oil means all liquid hydrocarbons in their unprocessed state or obtained from
Natural Gas by condensation or any other means of extraction.
Cumulative Costs is defined in Article 26.4.
Cumulative Revenues is defined in Article 26.4.
Decommissioning Costs means all the costs and expenditures incurred by the
CONTRACTOR when carrying out Decommissioning Operations, including those
defined in the Accounting Procedure.
Decommissioning Operations means any works, together with all related and
auxiliary activities, for decommissioning and/or removal and/or abandonment and
making safe all of the Assets and site restoration and remediation related thereto in
relation to any Production Area.
Decommissioning Plan is defined in Article 38.7.
Decommissioning Reserve Fund is defined in Article 38.1 and includes all
contributions paid into such fund and all interest accumulated such fund.
Deductible Amount is defined in Article 35.10.
Delivery Point means the point after extraction, specified in the approved
Development Plan for a Production Area, at which the Crude Oil, Associated Natural
Gas and/or Non-Associated Natural Gas is metered for the purposes of Article 27.5,
valued for the purposes of Article 27.1 and ready to be taken and disposed of,
consistent with prudent international petroleum industry practice, and at which a Party
may acquire title to its share of Petroleum under this Contract or such other point
which may be agreed by the Parties.
Development Costs means all the costs and expenditures incurred by the
CONTRACTOR when carrying out Development Operations, including those
defined in the Accounting Procedure.
Development Operations means all development operations or works conducted in
accordance with a Development Plan up to the Delivery Point with a view to
developing a Production Area, including: drilling of wells; primary and subsequent
recovery projects and pressure maintenance; survey, engineering, building and
erecting or laying of production plants and facilities (including: separators;
compressors; generators; pumps and tankage; gathering lines; pipelines and all
facilities required to be installed for production, pressure maintenance, and treatment,
storage and transportation of Petroleum); obtaining of such materials, equipment,
machinery, items and supplies as may be required or expedient for the foregoing
activities; and all auxiliary operations and activities required or expedient for the
production of Petroleum from the Production Area.
Development Period is defined in Article 6.
Development Plan means a plan for development defined in Article 12.8.
Development Well means any well drilled after the date of approval of the
Development Plan for the purpose of producing Petroleum, increasing or accelerating
production of Petroleum, including injection wells and dry holes. Any well drilled
within a Production Area shall be deemed a Development Well.
Development Work Program and Budget means the development work program
and budget prepared pursuant to Article 13.2.
Discovery means a discovery of Petroleum within the limits of the Contract Area
resulting from Petroleum Operations carried out under this Contract, provided such
Petroleum is recoverable at the surface with a measurable flow utilising techniques
used in prudent international petroleum industry practice.
Dispute is defined in Article 42.1.
Dollar (US$) means the legal currency (dollar) of the United States of America
(USA).
Effective Date is defined in Article 46.
Environment Fund is defined in Article 23.9.
Equipment and Materials is defined in Article 19.1.
Exploration Costs means all the costs and expenditure incurred by the
CONTRACTOR when carrying out Exploration Operations, including those defined
in the Accounting Procedure.
Exploration Operations means any and all operations conducted with a view to
discovering Petroleum, including: any activities necessary to commence operations;
any topographical, hydrographical, geological, geophysical, aerial and other surveys
and activities (including interpretations, analyses and related studies) to investigate
the subsurface for the location of Petroleum; drilling of shot holes, core holes and
stratigraphic test holes; spud, drilling, testing, coring, logging and equipping of
Exploration Wells or Appraisal Wells; procurement of such services, material,
equipment, machinery, items and supplies as may be required or expedient for the
foregoing activities; and all auxiliary operations and activities required or expedient
for the conduct of the foregoing activities.
Exploration Period is defined in Article 6.
Exploration Rental is defined in Article 6.3.
Exploration Well means any well drilled for the purpose of confirming a geological
structure or stratigraphic unit in which no Discovery has previously been made by the
CONTRACTOR.
Exploration Work Program and Budget means the exploration work program and
budget prepared pursuant to Article 11.1.
Export Crude Oil is defined in Article 24.2.
Export Non-Associated Natural Gas is defined in Article 24.2.
Export Petroleum is defined in Article 24.2.
First Exploration Well is defined in Article 10.2(a).
First Exploration Well Drilling Completion Date means the date of rig release of
the First Exploration Well, provided that it can be reasonably demonstrated that the
drilling and testing has been completed by the CONTRACTOR in accordance with a
drilling plan approved by the GOVERNMENT.
First Production means the moment when Commercial Production of Crude Oil or
Non-Associated Natural Gas (as the case may be) first commences, by flowing at the
rate forecast in the Development Plan without interruption for a minimum of forty
eight (48) hours.
First Sub-Period is defined in Article 6.2(a).
Force Majeure is defined in Article 40.2.
Garmian Block means the area described in Annex A, which was formerly part
Contract Area under the of the Kalar-Bawanoor Contract, but has been divided from
the Kalar-Bawanoor Contract so as to permit the CONTRACTOR to conduct further
Petroleum Operations thereon pursuant to this Contract.
Gas Development is defined in Article 14.10.
Gas Marketing Costs means all costs and expenditure incurred by the
CONTRACTOR when carrying out Gas Marketing Operations, including those
defined in the Accounting Procedure.
Gas Marketing Operations means any and all of the activities and operations
contemplated by Article 14.6.
Gas Marketing Work Program and Budget means the marketing work program
and budget prepared pursuant to Article 14.8.
Government Interest is defined in Article 4.1.
Government of Iraq means the Federal Government of the Republic of Iraq, which
holds office under the Constitution of Iraq and any minister, ministry, department,
sub-division, agency, authority, council, committee, or other constituent element
thereof and includes any corporation owned or controlled by any of the foregoing.
International Market Price is defined in Article 27.2.
Iraq means the entirety of the Republic of Iraq, including the Kurdistan Region.
Joint
Operating
Agreement
means
any
agreement
executed
by
the
CONTRACTOR Entities at any time for the purpose of regulating between such
entities the terms under which the Petroleum Operations will be conducted, which
agreement shall be: (a) consistent with prudent international petroleum industry
practice; (b) as between such entities, supplementary to this Contract; and (c)
consistent with the provisions of the Contract.
Kalar-Bawanoor Block is the area, as at any time of determination, covered by the
Kalar-Bawanoor Contract.
Kalar-Bawanoor Contract means the Production Sharing Contract dated 28
February 2008 by and among the GOVERNMENT, WesternZagros Limited and
Talisman (Block K44) B.V., a company established and existing under the laws of the
Netherlands (as amended by the Amendment Agreement dated 25 July 2011, and
effective 31 December, 2010, such Amendment Agreement renaming the KalarBawanoor Contract the “Kurdamir Contract”).
Kurdistan Region means the Federal Region of Kurdistan recognised by the
Constitution of Iraq and having the same meaning as ‘Region’ in the Kurdistan
Region Oil and Gas Law.
Kurdistan Region Law means all statutes, decrees, edicts, codes, orders, rules,
ordinances and regulations of the GOVERNMENT or of any other local, municipal,
territorial, provincial, or any other duly constituted governmental authority or agency
in the Kurdistan Region.
Kurdistan Region Oil and Gas Law means the Oil and Gas Law of the Kurdistan
Region – Iraq (Law No. 22 of 2007) as the same may be amended.
Law means all applicable laws including the following: constitutional law, civil law,
common law, international law, equity, treaties, statutes, decrees, edicts, codes,
orders, judgements, rules, ordinances and regulations of any local, municipal,
territorial, provincial, federated, national or any other duly constituted governmental
authority or agency.
LCIA is defined in Article 42.1(b).
Letter of Representations is defined in the recitals.
LIBOR means the London Inter-Bank Offered Rate at which Dollar deposits for one
(1) Month are offered in the inter-bank market in London, as quoted in the Financial
Times of London for the day in question. In the event that such rate is not published
in the Financial Times, it shall mean the London Inter-bank Offered Rate at which
Dollar deposits for one (1) Month are offered for the nearest day as quoted by
National Westminster Bank plc.
Loss or Expense is defined in Article 32.6.8(c).
Management Committee is defined in Article 8.
Maximum Efficient Rate (“MER”) is defined in Article 16.12.
Minimum Exploration Obligations is defined in Article 10.1.
Minimum Financial Commitment means:
(a)
in respect of the First Sub-Period, the amount set out in Articles 10.2(c); and
(b)
in respect of the Second Sub-Period, the amount set out in Article 10.3(c).
Month means a calendar month according to the Gregorian calendar.
Natural Gas means all gaseous Petroleum and inerts.
Non-Associated Natural Gas means any Natural Gas which is not any Associated
Natural Gas.
Notice of Dispute is defined in Article 42.1.
Notice of Intended TPI Assignment is defined in Article 4.21(a).
Operator means the entity designated by the CONTRACTOR and approved by the
GOVERNMENT pursuant to Article 5 which, in the name and on behalf of the
CONTRACTOR, shall carry out all Petroleum Operations. If at any time there exists
more than one (1) Operator under this Contract, any reference herein to the term
'Operator' shall be to each Operator with respect to the parts of the Contract Area in
which such Operator conducts Petroleum Operations.
Operatorship Exclusivity End Date is defined in Article 5.1.1.
Option of Third Party Participation is defined in Article 4.20.
Parties means the GOVERNMENT and each CONTRACTOR Entity, and “Party”
means any of the Parties.
Permits means all licences, permits, consents, authorisations or other permissions, as
the context requires.
Person shall include natural and juristic persons (including corporations, Public
Companies, and governmental agencies).
Petroleum means:
(a)
any naturally occurring hydrocarbon in a gaseous or liquid state;
(b)
any mixture of naturally occurring hydrocarbons in a gaseous or liquid state;
or
(c)
any Petroleum (as defined in paragraphs (a) and (b) above) that has been
returned to a Reservoir.
Petroleum Costs means:
(a)
all costs and expenditure incurred by the CONTRACTOR for the Petroleum
Operations, and which the CONTRACTOR is entitled to recover under this
Contract and its Accounting Procedure, including Decommissioning Costs,
Development Costs, Exploration Costs, Gas Marketing Costs and Production
Costs; and
(b)
Stipulated Sunk Block Costs,
but excludes all costs and expenditure incurred by WesternZagros Limited in the
exploration and development of the Kalar-Bawanoor Block (whether prior to or after
the Effective Date), except for Stipulated Sunk Block Costs.
Petroleum Field means a Reservoir or group of Reservoirs within a common
geological structure or stratigraphic unit, which may become part of a Production
Area pursuant to a Development Plan.
Petroleum Operations means all Exploration Operations, Gas Marketing Operations,
Development Operations, Production Operations and Decommissioning Operations,
as well as any other activities or operations directly or indirectly related or connected
with the said operations (including health, safety and environmental operations and
activities) and authorised or contemplated by, or performed in accordance with, this
Contract.
Pipeline Costs is defined in Article 33.5.
Production Area means such areas within the Contract Area designated as a
production area in an approved Development Plan prepared pursuant to Article 12.
For the avoidance of doubt, all superjacent or subjacent strata of the Reservoir in
which a Commercial Discovery is located are automatically included in the relevant
Production Area.
Production Bonus means any bonus due pursuant to Article 32.3 or 32.4.
Production Costs means all the costs and expenditure incurred by the
CONTRACTOR in carrying out the Production Operations from the Effective Date,
including those defined in the Accounting Procedure.
Production Operations means any works, together with all related and auxiliary
activities, for the production of Petroleum from the start of Commercial Production,
including: extraction, injection, stimulation, pumping, treatment, storage, engineering,
operating, servicing, repairing, and maintaining any wells, plants, equipment,
pipelines, terminals and any other installations and facilities, and any related
operations and auxiliary operations, and storage and transportation of Petroleum from
the Production Area to the Delivery Point.
Production Rental is defined in Article 13.10.
Production Work Program and Budget shall mean the production work program
and budget prepared pursuant to Article 13.6.
Profit Crude Oil is defined in Article 26.1(b).
Profit Natural Gas is defined in Article 26.1(c).
Profit Petroleum is defined in Article 26.1(a).
Proposed Contract is defined in Article 14.10(a).
Public Company means a public company established by the Kurdistan Region Oil
and Gas Law, including the Kurdistan Exploration and Production Company.
Public Officer means a civil servant, including a member or employee of a public
entity, a member of the Kurdistan National Assembly or a member of the
GOVERNMENT.
Quarter means a period of three (3) consecutive Months starting on the first day of
January, April, July or October respectively.
“R” Factor is defined in Article 26.4.
Reservoir means a subsurface rock formation containing an individual and separate
natural accumulation of producible Petroleum characterised by a single natural
pressure system.
Revenues is defined in Article 26.4.
Rights Sale means a sale, assignment, or other disposal of the GOVERNMENT’s
rights to receive Capacity Building Payment Instalments from the Charged Interest
Holder, whether for a lump sum payment or in instalment payments, and whether the
purchaser assumes all payment risk and all risk as to the amount of Capacity Building
Payment Instalments, or otherwise.
Royalty is defined in Article 24.1.
Second Exploration Well is defined in Article 10.3(b).
Second Sub-Period is defined in Article 6.2(b).
Semester means a period of six (6) consecutive Months starting from the first day of
January or July respectively.
Senior Representatives is defined in Article 42.1(a).
Signature Bonus is defined in Article 32.1.
Spud Date means the date on which there is initial penetration of the ground at the
start of the drilling operation of the First Exploration Well.
Stipulated Sunk Block Costs means costs and expenses detailed in Annex C in the
total amount of eighty million dollars (US$80,000,000) which were solely incurred by
WesternZagros Limited in conducting Petroleum Operations related to the Contract
Area prior to the Effective Date pursuant to the Kalar-Bawanoor Contract.
Subcontractor means any entity of any contracting tier providing services and/or
undertaking works relating to the Petroleum Operations directly or indirectly on
behalf of, the CONTRACTOR or any CONTRACTOR Entity.
Sub-Period and Sub-Periods are defined in Article 6.2.
Tax or Taxes means all current or future levies, duties, payments, charges,
impositions, imposts, withholdings, fees, taxes (including value added tax or other
sales or transaction based tax, corporation tax, income tax, capital gains tax, stamp
duty, land tax, registration tax, capital and wealth tax, profit tax, dividend tax or
withholdings, transfer tax, customs duties, branch or permanent establishment tax or
withholdings, tax on income from movable capital and fixed tax on transfers) or
contributions payable to or imposed by the GOVERNMENT.
Third Party Interest is defined in Article 4.13.
Third Party Interest Holder is defined in Article 4.14.
TPI Assignment Confirmation Notice is defined in Article 4.21(b).
TPI Conversion Date is defined in Article 4.27.
VAT is defined in Article 31.10.
Vice-Chairman is defined in Article 8.1.
WesternZagros Interest means all or any part of the participating interest hereunder
deemed held by WesternZagros Limited as of the Effective Date.
WesternZagros Interest Holder means a CONTRACTOR Entity to the extent it is
a holder of a WesternZagros Interest. As of the Effective Date, WesternZagros
Limited is the only WesternZagros Interest Holder.
WesternZagros Limited is defined in the preamble.
Work Program means any work program prepared by, or on behalf of, the
CONTRACTOR pursuant to this Contract and forming part of an Exploration Work
Program and Budget and/or an Appraisal Work Program and Budget and/or a Gas
Marketing Work Program and Budget and/or a Development Work Program and
Budget and/or a Production Work Program and Budget.
1.2
In this Contract, unless the context otherwise requires or is specifically otherwise
stated:
(a)
headings are to be ignored;
(b)
“including” and similar words do not imply any limitations;
(c)
singular includes plural and vice versa; and
(d)
reference to an “Article” is to an article of this Contract and to a “Paragraph”
is to a paragraph in the Accounting Procedure.
ARTICLE 2 – SCOPE OF THE CONTRACT
2.1
This Contract is a production-sharing arrangement with respect to the Contract Area,
whereby the GOVERNMENT has the right, pursuant to the Constitution of Iraq, to
regulate and oversee Petroleum Operations within the Contract Area.
The purpose of this Contract is to define the respective rights and obligations of the
Parties and the terms and conditions under which the CONTRACTOR shall carry
out all the Petroleum Operations.
By entering into this Contract, the GOVERNMENT grants to the CONTRACTOR
the exclusive right and authority to conduct all Petroleum Operations in the Contract
Area as detailed in Article 3. The Contract Area consists of an area formerly part of
the Kalar-Bawanoor Contract, but divided from the Kalar-Bawanoor Contract so as to
permit the CONTRACTOR to perform continued Petroleum Operations thereon
pursuant to this Contract, and the Parties have agreed that certain petroleum costs
solely incurred by WesternZagros Limited under the Kalar-Bawanoor Contract in
the Contract Area are recoverable as Stipulated Sunk Block Costs under this Contract.
2.2
Upon the CONTRACTOR’s request, the GOVERNMENT shall provide or procure
the provision of all Permits relating to the Petroleum Operations required by the
CONTRACTOR to fulfil its obligations under this Contract, including those relating
to any extension and renewal periods and including those required by the Government
of Iraq. The GOVERNMENT (i) represents and warrants to the CONTRACTOR
that it has not done and has not omitted to do anything that would cause the
cancellation or suspension of this Contract or any Permit granted under this Article
2.2 or pursuant to this Contract; and (ii) covenants that it will not do, or omit to do,
anything that would cause the cancellation or suspension of this Contract or any
Permit granted under this Article 2.2 or pursuant to this Contract. For the avoidance
of doubt, nothing in this Article shall affect the rights and obligations of the Parties
pursuant to Article 43.
2.3
The CONTRACTOR shall conduct all Petroleum Operations within the Contract
Area at its sole cost, risk and peril on behalf of the GOVERNMENT, pursuant to this
Contract, including the following operations:
(a)
Technical Services
Implementation of all technical, human and material resources reasonably
required for execution of the Petroleum Operations, in accordance with
prudent international petroleum industry practice.
(b)
Financial Services
The responsibility for funding the Exploration Operations and, in the event of
a Commercial Discovery, Development, Production and Decommissioning
Operations, pursuant to this Contract.
For the funding of Petroleum Operations, each CONTRACTOR Entity shall
be entitled to have recourse to external financing from either its Affiliated
Companies or from any third parties.
(c)
Administrative Services
Implementation of all appropriate management and administration techniques
for execution of the Petroleum Operations under this Contract, in accordance
with prudent international petroleum industry practice.
2.4
During the term of this Contract, the CONTRACTOR shall be responsible to the
GOVERNMENT for the conduct of Petroleum Operations within the Contract Area
pursuant to the terms of this Contract.
2.5
Natural resources other than Petroleum shall be excluded from the scope of this
Contract, even if the CONTRACTOR discovers any such resources when executing
its obligations pursuant to this Contract.
2.6
The CONTRACTOR shall only be entitled to recover Petroleum Costs incurred
under this Contract in the event of a Commercial Discovery. Recovery of Petroleum
Costs shall occur within the limits provided under Article 25.
2.7
During the term of this Contract, Profit Crude Oil and/or Profit Natural Gas produced
from Petroleum Operations shall be shared between the Parties in accordance with the
provisions of Article 26.
2.8
For the execution of Petroleum Operations under this Contract, the CONTRACTOR
shall have the right to:
(a)
freely access and operate within the Contract Area, as well as any facilities
associated with the Petroleum Operations, wherever they may be located;
(b)
freely use access roads located within the Contract Area and outside the
Contract Area for the construction, installation, maintenance, operation and
removal of pipelines and other facilities required for the Petroleum
Operations;
(c)
freely use sand, water, electricity and any other natural resources located
inside or outside the Contract Area for the Petroleum Operations;
(d)
use any qualified foreign and local personnel and/or Subcontractors required
for the conduct of Petroleum Operations in accordance with Articles 22 and
23. Any foreign personnel working in the Kurdistan Region shall require prior
authorisation of the GOVERNMENT (such authorisation not to be
unreasonably delayed or withheld) and the GOVERNMENT shall obtain any
authorisation required by the Government of Iraq;
(e)
import any goods, materials, equipment and/or services required for the
Petroleum Operations in accordance with Articles 19, 22 and 30; and
(f)
freely use land or property belonging to the Kurdistan Region, and the
GOVERNMENT will assist the CONTRACTOR with facilitating the use by
the CONTRACTOR of any private property in the Kurdistan Region.
2.9
Each CONTRACTOR Entity shall at all times comply, and procure that each
Subcontractor complies, with the Kurdistan Region Oil and Gas Law and
all other Applicable Law. No provision of this Contract will: (a) excuse the
CONTRACTOR or a CONTRACTOR Entity or any Subcontractor from
compliance with Applicable Law, or (b) impair any right or privilege of the
GOVERNMENT under Applicable Law.
ARTICLE 3 – CONTRACT AREA
The initial Contract Area covers the Garmian Block and extends over an area of one thousand
seven hundred eighty square kilometers (1780 km2), as detailed and indicated on the map
attached in Annex A and is delimited by the following coordinates:
Point
Easting
Northing
Longitude
Latitude
A
534031.75
3832686.29
45.37130
34.63551
B
492441.35
3850381.01
44.91737
34.79561
C
495219.19
3868916.11
44.94763
34.96277
D
502353.68
3870875.46
45.02579
34.98045
a
514750.00
3880500.00
45.16177
35.06713
b
518926.57
3877080.68
45.20750
35.03623
c
524040.00
3875760.00
45.26352
35.02421
d
526720.00
3873930.00
45.29284
35.00764
e
536640.00
3871380.00
45.40145
34.98434
f
553441.19
3859637.79
45.58477
34.87771
G
547673.04
3851704.89
45.52121
34.80646
H
541352.78
3834401.17
45.45126
34.65070
The GOVERNMENT, by execution of this Contract, validates and approves the foregoing
co-ordinates of the Contract Area.
The total area of the Contract Area may be reduced only in accordance with the provisions of
this Contract.
ARTICLE 4 – GOVERNMENT PARTICIPATION; THIRD PARTY INTEREST
Government Interest
4.1
The GOVERNMENT has a participating interest of twenty per cent (20%) in
Petroleum Operations and all other rights, duties, and obligations of the
CONTRACTOR (except as provided in this clause 4), carried by the
CONTRACTOR (the “Government Interest”).
4.2
The GOVERNMENT or any other holder of all or any part of the Government
Interest is not, in such capacity, a CONTRACTOR Entity. The GOVERNMENT or
any other holder of the Government Interest, whether in whole or in part, has no
obligation or liability to the CONTRACTOR to contribute any share of Petroleum
Costs or any other liability or obligation of a CONTRACTOR Entity or to the
CONTRACTOR or any CONTRACTOR Entity, all of which are carried by the
CONTRACTOR.
4.3
Subject to Article 4.4, a holder of all or any part of the Government Interest is not, if
that is its only capacity under this Contract, entitled to any notices under this Contract
or entitled to provide any consents, except as specifically provided otherwise, but has
rights and obligations under Article 42.
4.4
Any term of this Contract may be waived or amended without the consent of a holder
of a Government Interest (in such capacity), unless such waiver or amendment would
change any right or obligation of a holder of a Government Interest.
4.5
Persons, other than the GOVERNMENT or a Public Company, that are holders of all
or part of the Government Interest, are jointly and severally obligated to pay the
Production Bonuses in accordance with Articles 32.3(b) and 32.4(b). If the
GOVERNMENT or a Public Company, as a holder of the Government Interest, fails
to pay all or any part of such Production Bonuses: (i) the failure will not constitute a
default by the CONTRACTOR, (ii) the GOVERNMENT will have no remedies
against
the
CONTRACTOR
as
a
consequence
thereof,
and
(iii)
the
GOVERNMENT will not be entitled to terminate this Contract or any
CONTRACTOR Entity’s interests hereunder.
The capacity of a holder of the Government Interest, as it may arise pursuant to the
provisions of this Contract, shall in no event impair the rights of the
CONTRACTOR to seek to settle a dispute or to refer such dispute to arbitration or
expert determination in accordance with the provisions of Article 42.
4.6
The provisions of Article 39 do not apply with respect to any assignment by any
holder of a Government Interest of all or any part of its Government Interest. The
assignment of the Government Interest is governed by this Article 4. A permitted
assignee of a holder of the Government Interest will have, in respect of the assigned
Government Interest, the same rights and obligations as the holder of the Government
Interest prior to the assignment.
4.7
The GOVERNMENT may at any time designate a Public Company as the holder of
all or any part of the Government Interest without the consent of, or prior notice to,
any other Party. The Public Company will be deemed a Party to this Contract only in
respect of its Government Interest, but will not be required to sign any formal
assignment or accession agreement except as required by the GOVERNMENT. The
GOVERNMENT and the Public Company will provide the CONTRACTOR with a
notice notifying the CONTRACTOR of such designation by the GOVERNMENT
to a Public Company, and the Contractor shall be entitled to rely on such notice for all
purposes under this Contract. A Public Company as holder of the Government Interest
will be individually liable (and not jointly and severally liable with the
CONTRACTOR) for any obligations to the GOVERNMENT under this Contract.
4.8
Only for the purposes of Article 37 of the Kurdistan Region Oil and Gas Law,
whenever and to the extent the Government Interest is held by a Public Company, the
Government Interest shall be deemed held by the GOVERNMENT. The
GOVERNMENT incurs no liabilities or obligations (directly, indirectly, or
implicitly) to any other Party as a consequence of such deemed ownership, and the
GOVERNMENT will not be deemed to guarantee any obligation of the Public
Company or any holder of all any part of the Government Interest.
4.9
Subject to Article 4.12, the GOVERNMENT may at any time assign all or part of its
Government Interest to a Person that is not a Public Company without the consent of
any other Party. Such assignee will be deemed a Party to this Contract only in respect
of its Government Interest, but will not be required to sign any formal assignment or
accession agreement unless otherwise required by the GOVERNMENT. The
GOVERNMENT and the Public Company will provide the CONTRACTOR with
such a notice, jointly signed by each, notifying the CONTRACTOR of such
assignment by the GOVERNMENT, and the Contractor shall be entitled to rely on
such notice for all purposes under this Contract.
4.10
Subject to Article 4.12, a Public Company may assign part or all of its Government
Interest to another Public Company, to the GOVERNMENT, or to any other Person
without the consent of, or notice to, the CONTRACTOR or any CONTRACTOR
Entity, but may not make any assignments without the prior consent of the
GOVERNMENT and in accordance with any assignment and novation or other
agreements and conditions required by the GOVERNMENT. Any assignment by a
Public Company of all or part of all or any part of its Government Interest to another
Public Company or any other Person without the prior consent of the
GOVERNMENT or in accordance with the requirements of the GOVERNMENT
will be void. The Public Company or the GOVERNMENT shall promptly notify the
CONTRACTOR of any assignments of the Government Interest held by such Public
Company, and the Contractor will be entitled to rely on such notice for all purposes
under this Contract.
4.11
Subject to Article 4.12, a holder of all or part of the Government Interest which is not
the GOVERNMENT or a Public Company may assign part or all of its Government
Interest to any other Person without the consent of, or prior notice to, the
CONTRACTOR or any CONTRACTOR Entity. Such holder shall not make any
assignments without the prior notice to and consent of the GOVERNMENT and in
accordance with any assignment and novation or other agreements and conditions
required by the GOVERNMENT. Any assignment by such holder without the prior
consent of the GOVERNMENT or in accordance with the requirements of the
GOVERNMENT will be void. The assignor and the assignee shall jointly and
promptly notify the CONTRACTOR of any assignments of the Government Interest
pursuant to this Article 4.11, and the CONTRACTOR will be entitled to rely on such
notice for all purposes under this Contract.
4.12
Nothing under this Contract prohibits a CONTRACTOR Entity at any time from
offering to acquire or acquiring all or any part of the Government Interest from any
Person that is a holder of such Government Interest. If at any time any holder of all or
any part of the Government Interest (including the GOVERNMENT and a Public
Company) intends to offer to sell all or part of its Government Interest to any Person
that is not a Public Company or the GOVERNMENT, the applicable holder of the
Government Interest shall timely notify the CONTRACTOR of the availability of
the Government Interest. No CONTRACTOR Entity has any preemption or similar
priority rights in respect of the Government Interest, and the holder is not required to
sell and assign to a CONTRACTOR Entity.
Third Party Interest
4.13
The “Third Party Interest” is an undivided interest of forty per cent (40%) under
this Contract with all of the rights, obligations, and liabilities of a CONTRACTOR
Entity, except as provided in Articles 4.13 through 4.26.
4.14
A holder of all or any part of the Third Party Interest is a “Third Party Interest
Holder”.
4.15
The initial Third Party Interest Holder is the GOVERNMENT.
4.16
To the extent the GOVERNMENT is a Third Party Interest Holder, the
GOVERNMENT will have no liabilities or obligations as a Third Party Interest
Holder arising under or related to this Contract (including any implied liabilities or
obligations), except as specifically provided in Article 4.18. The CONTRACTOR
shall undertake all work required by this Contract and will be entitled to recover
Petroleum Costs with respect thereto in accordance with this Contract. In addition to
the rights and limitations of liabilities set forth in Articles 4.13 through 4.26, the
GOVERNMENT, as a Third Party Interest Holder, will have all of the rights of a
CONTRACTOR Entity to the extent of its Third Party Interest, including a right to
recover
amounts
paid
as
Petroleum
Costs
and
its
entitlement
to
the
CONTRACTOR’s share of Profit Petroleum in proportion to its Third Party Interest,
but the GOVERNMENT is not a CONTRACTOR Entity.
4.17
The GOVERNMENT, as a Third Party Interest Holder, has no obligation to pay or
contribute to Petroleum Costs incurred before the Spud Date, including Stipulated
Sunk Block Costs.
4.18
The GOVERNMENT, as a Third Party Interest Holder: (i) must pay and contribute,
to the extent of its Third Party Interest, for Petroleum Costs incurred after the Spud
Date, and (ii) will be entitled to recover such Petroleum Costs, to the extent paid, in
proportion to its Third Party Interest in accordance with Article 25, after the
CONTRACTOR has recovered, pursuant to Article 25, the Stipulated Sunk Block
Costs. The GOVERNMENT is only obligated to pay Petroleum Costs in accordance
with this Article 4.18 within thirty (30) days following the GOVERNMENT’s
receipt of an invoice for such Petroleum Costs and the GOVERNMENT has not
disputed such Petroleum Costs. The CONTRACTOR is not entitled to send an
invoice under this Article 4.18 until not less than one hundred and fifty (150) days
following the Effective Date.
4.19
A failure of the GOVERNMENT to contribute all or any part of its share of such
Petroleum Costs in accordance with Article 4.18, or a failure of an assignee to pay
any amount pursuant to Article 4.22, will not: (i) constitute a material breach of this
Contract by the GOVERNMENT, (ii) be considered a default of the
CONTRACTOR, (iii) entitle the CONTRACTOR to claim any extension for the
performance of any of its obligations hereunder, (iv) constitute a defence to the
performance of any obligations of the CONTRACTOR or any CONTRACTOR
Entity hereunder, or (v) constitute Force Majeure. Any amounts not paid by the
GOVERNMENT in accordance with this Article 4.19 will be subject to interest as
provided in Article 29.3, and the CONTRACTOR’s offset rights under Article 29.1.
4.20
Until the Government TPI Conversion Date (as defined in Article 4.27), the
GOVERNMENT may assign and novate all or any part of the Third Party Interest to
one or more Persons without the prior consent of any other Party, provided that no
assignee may have, after giving effect to the assignment together with any other
interests its holds as a CONTRACTOR Entity, less than a five percent (5%) interest
(such rights being the "Option of Third Party Participation"). Each Party assigns to
the GOVERNMENT all of its rights to provide any consents to such assignment and
novation, and each Party is deemed to have consented to each nomination and
assignment by the GOVERNMENT in accordance with Article 4.19 and Articles
4.21 through 4.26 to the extent required under Applicable Law to effect the
GOVERNMENT’s assignment and novation. The provisions of Articles 39.1, 39.2
and 39.3 do not apply to an assignment by the GOVERNMENT of all or any part of
its Third Party Interest.
4.21
The GOVERNMENT may assign and novate all or part of its Third Party Interest
only by providing the CONTRACTOR with:
(a)
a notice (each such notice a “Notice of Intended TPI Assignment”) to the
CONTRACTOR
which
specifies:
(i)
each
Person
to
whom
the
GOVERNMENT intends to assign and novate all or part of the
GOVERNMENT’s Third Party Interest, and (ii) the amount of the
GOVERNMENT’s Third Party Interest to be assigned to each such Person;
and
(b)
not less than thirty (30) days after the date of the Notice of Intended TPI
Assignment, a notice (each such notice a “TPI Assignment Confirmation
Notice”), signed by each proposed assignee and the GOVERNMENT,
confirming: (i) the assignment and novation as set forth in the Notice of
Intended TPI Assignment, (ii) each assignee’s acceptance of its assignment
and novation, including the amount of the Government’s Third Party Interest
assigned to it, (iii) each assignee’s undertaking to perform its obligations as a
CONTRACTOR Entity in accordance with this Contract, (iv) each assignee’s
payment obligations under Article 4.24(c), and (v) each assignee’s acceptance
of a direct right of action against it by the other CONTRACTOR Entities for
breach of its payment obligations under the arbitration agreement set forth in
this Contract.
4.22
Upon receipt of a Notice of Intended TPI Assignment, the CONTRACTOR shall, as
soon as practical, provide the GOVERNMENT and each of the nominated assignees
with the CONTRACTOR’s statement of estimated Petroleum Costs (including
Stipulated Sunk Block Costs) [refence to information redacted in 4.22(c) below has
been redacted here] (each a “Contractor’s Statement of Estimated Petroleum
Costs”) incurred as of a cost determination date established by the CONTRACTOR,
which date must be as near as practicable (with regard to securing accurate and
complete accounting information) to the date of the Notice of Intended TPI
Assignment. The Contractor’s Statement of Estimated Petroleum Costs will be subject
to the audit rights of the Parties, including the proposed assignees, and to equitable
adjustment. Each Contractor’s Statement of Estimated Petroleum Costs must set
forth: (i) the total Petroleum Costs as of the cost estimation date, (ii) the Petroleum
Costs that would be allocable to each proposed assignee based on the Third Party
Interest to be assigned to it, (iii) Petroleum Costs incurred after the Spud Date, (iv) the
amount of such Petroleum Costs incurred after the Spud Date which is attributable to
the Third Party Interest, (v) the amount of such Petroleum Costs incurred after the
Spud Date which has been paid by the GOVERNMENT or other Parties, and (vi) the
amount such Petroleum Costs incurred after the Spud Date that have not been paid by
the GOVERNMENT or other Parties (whether or not then due and owing) and the
proportion of such amount that would be allocable and payable by each proposed
assignee based on the Third Party Interest to be assigned to it. Each CONTRACTOR
Entity shall also provide its wire instructions for the purpose of receiving payments
pursuant to Article 4.24(c).
4.23
If the CONTRACTOR is unable to provide such a Contractor’s Statement of
Estimated Petroleum Costs within twenty (20) days after receipt of a Notice of TPI
Assignment, or such later date as the GOVERNMENT may agree, then the
CONTRACTOR Entities will not be entitled to payment as provided in Article
4.24(c), without prejudice to the assignee’s general obligations to pay its share of
Petroleum Costs under any Joint Operating Agreement.
4.24
As of the date of TPI Assignment Confirmation Notice:
(a)
the GOVERNMENT’s Third Party Interest will be deemed automatically
assigned and novated to each assignee in accordance with TPI Assignment
Confirmation Notice;
(b)
each assignee of the GOVERNMENT’s Third Party Interest identified in the
TPI Assignment Confirmation Notice will: (i) be a Party to this Contract and
(ii) have all the rights and obligations of a CONTRACTOR Entity as of the
Effective Date (which for certainty includes the rights and obligations of a
CONTRACTOR Entity in connection with the Sarqala-1 well drilling in the
Contract Area by WesternZagros Limited prior to the Effective Date) to the
extent of its assigned Third Party Interest;
(c)
each assignee will be obligated to pay:
(i)
the GOVERNMENT, within thirty (30) days following the date of the
TPI Assignment Confirmation Notice, an amount equal to the
proportion of Petroleum Costs incurred after the Spud Date attributable
to the assignee’s Third Party Interest which have been paid by the
GOVERNMENT as set forth in the Contractor’s Statement of
Estimated Petroleum Costs; and
(ii)
to each CONTRACTOR Entity, by way of cleared funds to the bank
accounts nominated by the CONTRACTOR Entities, an amount equal
to the sum of:
(x)
Petroleum Costs (including Stipulated Sunk Block Costs)
incurred by the CONTRACTOR prior to the Spud Date which
are allocable to such assignee’s assigned Third Party Interest
and payable to each CONTRCTOR Entity as set forth in the
Statement of Estimated Petroleum Costs; and
(y)
any unpaid amounts owed to the CONTRACTOR by the
GOVERNMENT in respect of the assigned Third Party
Interest (if any) and allocable to the Third Party Interest (and
assume all of the GOVERNMENT’s obligations and liabilities
with respect thereto) and to such CONTRACTOR Entity as
set forth in the Statement of Estimated Petroleum Costs, which
payment and assumption will be in full discharge of the
GOVERNMENT’s obligation with respect thereto; and
[additional amounts which may be payable by an assignee have
been redacted here]
(d)
where a Joint Operating Agreement exists which has been approved by the
GOVERNMENT, the Third Party Interest Holder is obligated to accede to
such Joint Operating Agreement within thirty (30) days following the date of
the TPI Assignment Confirmation Notice without any material changes to the
terms thereof not agreed by the other CONTRACTOR Entities party thereto.
4.25
Each CONTRACTOR Entity shall promptly take all actions requested by the
GOVERNMENT to give effect to the assignment and novations of the
GOVERNMENT’s Third Party Interest as set forth in a TPI Assignment
Confirmation Notice. If the GOVERNMENT determines, or an assignee requires,
that an agreement or other documentation signed by the GOVERNMENT and each
CONTRACTOR
Entity
or
other
Party
is
desirable
to
evidence
the
GOVERNMENT’s assignment and novation, each such Party shall promptly execute
such documentation within ten (10) days of receipt thereof. If a Party fails to deliver
such signed agreement or other documentation in the form required by the
GOVERNMENT within ten (10) days of receipt thereof, then such Party irrevocably
constitutes and appoints the GOVERNMENT (or any other Person which at any time
during the term of the Contract may be nominated by the GOVERNMENT) to act
alone, and with full power of substitution, as to such Party’s true and lawful attorney
and agent, with full power and authority in its name, place and stead to execute, file
and record when as and where required, any and all of such documentation and
hereby ratifies such execution, recording and filing. The power of attorney granted by
this Article 4.25 is irrevocable and will survive the insolvency, dissolution, windingup or bankruptcy of such Party and extends to bind such Party’s trustees,
administrators, successors and assigns. Each such Party waives any and all defences
which may be available to contest, negate or disaffirm the action of the
GOVERNMENT taken under such power of attorney, provided that the terms of any
such documentation do not increase or change any right or obligation of such Party
under this Contract, except as required to reflect the additional interests of the Third
Party Interest Holder. Each CONTRACTOR Entity shall ensure that the authorising
resolutions of its board or shareholders, as applicable, specifically authorises the
provision of the power of attorney set forth in this Article 4.25, and shall provide a
certified copy of such resolutions on or before the date such CONTRACTOR Entity
becomes a Party.
4.26
Except as provided in the next sentence, the payment obligations of the
GOVERNMENT and each assignee of the Third Party Interest, and the Contractor’s
Statement of Estimated Petroleum Costs, will be subject to applicable audit rights and
equitable adjustment based on the results of such audits. Stipulated Sunk Block Costs
are not subject to audit.
If an assignee fails to make any payments to the
GOVERNMENT or a CONTRACTOR Entity as contemplated by this Article 4 in
connection with an assignment of a Third Party Interest, or if such assignee fails to
accede to a Joint Operating Agreement as provided herein, the GOVERNMENT will
be entitled, on not less than thirty (30) days’ prior notice, to cancel the assignment of
the Third Party Interest to such assignee, with effect from the date of the TPI
Confirmation Notice, and such assignee waives and releases and indemnifies the
GOVERNMENT and each other Party from any claims, losses, demands, or
expenses with respect thereto. [refence to information redacted in 4.22(c) above has
been redacted here]
Government TPI Conversion
4.27
The provisions of Articles 4.27 through 4.31 only apply if the GOVERNMENT is a
Third Party Interest Holder at 12.01 am (Erbil time) on the date which is one hundred
and eighty one (181) days after the Effective Date (the “TPI Conversion Date”), and
only apply in respect of the Third Party Interest which is not identified in a TPI
Assignment Confirmation Notice and is held by the GOVERNMENT as of the TPI
Conversion Date.
4.28
The right of the GOVERNMENT to assign its Third Party Interest will expire on the
TPI Conversion Date.
4.29
The GOVERNMENT’s Third Party Interest as of the TPI Conversion Date is
deemed automatically assigned in its entirety, pro rata, as of the TPI Conversion
Date, to each of the CONTRACTOR Entities on the TPI Conversion Date (but not
including any assignees of the GOVERNMENT’s Third Party Interest in accordance
with Articles 4.1 through 4.25). As of the TPI Conversion Date, each such
CONTRACTOR Entity will hold such Third Party Interest with all the rights, duties,
obligations and liabilities under this Contract in respect of such Third Party Interest
from the Effective Date.
4.30
The provisions of Articles 39.1, 39.2 and 39.3 do not apply to the deemed
assignments as set forth in Article 4.29. The GOVERNMENT and each
CONTRACTOR Entity is deemed to have: (i) consented to the assignment and
novation of the GOVERNMENT’s Third Party Interest to the extent required under
Applicable Law to effect the automatic assignment and novation contemplated by
Article 4.29, and (ii) agreed to the assumption of all rights, liabilities, and obligations
associated therewith.
4.31
As of the TPI Conversion Date, the GOVERNMENT is discharged from any
obligation to pay or contribute its share of Petroleum Costs as provided in Article
4.18, and the obligation of the GOVERNMENT is assumed by the CONTRACTOR
without any right of contribution by a CONTRACTOR Entity that is an assignee of a
Third Party Interest prior to the TPI Conversion Date.
Charged Interest Conversion
4.32
Each CONTRACTOR Entity that has been assigned an interest pursuant to Article
4.29 is a Charged Interest Holder. As of the TPI Conversion Date, the whole of the
interest held by a Charged Interest Holder is a Charged Interest.
4.33
The provisions of Article 32.6, and other provisions of this Contract related to the
Charged Interest, apply to the whole of the Charged Interest.
4.34
Notwithstanding any other provision of this Contract, the Charged Interest Holder
will be responsible for seventy-five percent (75%) of any Production Bonus that
would, but for this Article 4.34, be attributable to the Charged Interest Holder in
accordance with Articles 32.3(a) and 32.4(a).
Joint Operating Agreement
4.35
The CONTRACTOR Entities, or any of them, shall not enter into any Joint
Operating Agreement in respect of this Contract except if the terms of such Joint
Operating Agreement have been approved by the GOVERNMENT, are in
compliance with Applicable Laws of the Kurdistan Region as of the date of the
approval by the GOVERNMENT, and does not require the affirmative vote of more
than fifty-one per cent (51%) of participating interests of the CONTRACTOR
Entities for any decision of any operating committee established under such Joint
Operating Agreement.
ARTICLE 5 – OPERATOR
5.1
5.1.1
The CONTRACTOR hereby designates, and the GOVERNMENT approves,
WesternZagros Limited to act as the Operator on behalf of the
CONTRACTOR for the execution of the Petroleum Operations until the
earlier of:
(a) the First Exploration Well Drilling Completion Date;
(b) 31 December 2011; and
(c) the date which is thirty (30) days after the day on which the
GOVERNMENT notifies the CONTRACTOR in writing that there has been
an Act of Insolvency in respect of WesternZagros Limited;
(such date the “Operatorship Exclusivity End Date”) .
5.1.2
On and from the Operatorship Exclusivity End Date, the GOVERNMENT
may, at any time, nominate a CONTRACTOR Entity other than
WesternZagros Limited to be the Operator.
If the GOVERNMENT
nominates a CONTRACTOR Entity to be the Operator in accordance with
this Article 5.1.2, the CONTRACTOR shall designate that CONTRACTOR
Entity as the Operator.
The GOVERNMENT may exercise its right to
nominate an Operator in accordance with this Article 5.1.2 any number of
times.
5.1.3
On and from the Operatorship Exclusivity End Date, if the Government has
not nominated a CONTRACTOR Entity to be the Operator in accordance
with Article 5.1.2, the CONTRACTOR shall at any time have the right to
designate a CONTRACTOR Entity other than WesternZagros Limited as
the Operator, upon giving the GOVERNMENT not less than thirty (30) days
prior written notice of such appointment.
5.2
The CONTRACTOR shall submit to the GOVERNMENT for approval any
agreement to amend any Joint Operating Agreement regarding or regulating the
Operator's appointment and its conduct of Petroleum Operations on behalf of the
CONTRACTOR pursuant to this Contract prior to execution of such agreement.
5.3
In the event of the occurrence of either of the following at any time, and
notwithstanding the provisions of Article 5.1, the GOVERNMENT may require the
CONTRACTOR to appoint another entity as Operator as soon as is reasonably
practicable:
(a)
if an order has been passed in court declaring the bankruptcy, liquidation, or
dissolution of the Operator; or
(b)
if the the CONTRACTOR fails to fulfil its obligations under this Contract.
ARTICLE 6 – TERM OF THE CONTRACT
6.1
This Contract comprises an Exploration Period and a Development Period, as defined
below:
Exploration Period
6.2
The Exploration Period shall be for an initial term from the Effective Date until 31
December 2013, extendable (as provided in Articles 6.5 and 6.6) up to a maximum
period to 31 December 2014. The initial term shall be subdivided in two (2) subperiods as follows:
(a)
an initial sub-period until 31 December 2011 (“First Sub-Period”); and
(b)
a second sub-period of two (2) Contract Years (“Second Sub-Period”) until
31 December 2013,
each a “Sub-Period” and collectively “Sub-Periods”.
It is understood that the right of the CONTRACTOR to accede to the next SubPeriod or any extension thereof pursuant to Article 6.6 shall be subject to fulfilment of
the Minimum Exploration Obligations or minimum work obligations applicable to the
previous Sub-Period or extension thereof pursuant to Article 6.6 (as the case may be).
6.3
During
the
Exploration
Period,
the
CONTRACTOR
shall
pay to
the
GOVERNMENT, in arrears, an annual surface rental for the Contract Area, as may
be reduced by relinquishment from time to time pursuant to Article 7, of ten Dollars
(US$10) per square kilometre per calendar year (“Exploration Rental”). Such
Exploration Rental shall be considered as a Petroleum Cost and shall be recoverable
by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.
6.4
If the CONTRACTOR decides not to enter into the Second Sub-Period, it shall
notify the GOVERNMENT at least thirty (30) days prior to the expiry of the First
Sub-Period and, provided that the data from the First Exploration Well demonstrates
that there is no reasonable technical case for drilling the Second Exploration Well in
the Contract Area, the Exploration Period shall expire at the end of the First SubPeriod, unless the First Sub-Period has been extended pursuant to Article 6.5 and/or
Article 6.6.
6.5
If the CONTRACTOR has fulfilled its Minimum Exploration Obligations for the
Second Sub-Period of the Exploration Period but considers that additional work is
required prior:
(a)
to deciding to submit an Appraisal Work Program and Budget as provided
under Article 12.2 in respect of a Discovery, or
(b)
to deciding to declare a Discovery as a Commercial Discovery in accordance
with Article 12.6(a) or 14.5(a), which additional work may include the
preparation and/or execution of an Appraisal Work Program and Budget as
provided under Article 12.2 and/or Gas Marketing Operations,
the CONTRACTOR will be entitled to one extension of one (1) Contract Year of the
Second Sub-Period, up to the end of the maximum Exploration Period on 31
December 2014 (as provided in Article 6.2), provided the CONTRACTOR drills an
additional exploration well during such extension period. The CONTRACTOR’s
notification of its intention to exercise such extension and its duration shall be
submitted in writing to the GOVERNMENT at least thirty (30) days prior to the end
of the Second Sub-Period.
6.6
Without prejudice to Article 6.5, upon expiry of the Exploration Period, if the
CONTRACTOR considers it has not completed its exploration evaluation of the
Contract Area, the CONTRACTOR will be entitled to an extension of the Second
Sub-Period, provided, at least thirty (30) days prior to the end of such Sub–Period, the
CONTRACTOR has notified the GOVERNMENT thereof and provided the
CONTRACTOR’s proposal for a minimum work obligation for such extension. Any
such extension shall not exceed one (1) Contract Year. The right of the
CONTRACTOR to receive the extension will be subject to fulfilment of the
preceding minimum work obligations.
6.7
Subject to Article 6.4, at any time during the Exploration Period, upon thirty (30) days
prior notice to the GOVERNMENT, the CONTRACTOR shall have the right to
withdraw from this Contract, provided that the outstanding Minimum Exploration
Obligations relating to the then current Sub-Period have been completed in
accordance with the Contract, or it has paid to the GOVERNMENT the amounts
specified in Article 10.2 or Article 10.3, whichever is applicable, to the then current
Sub-Period.
6.8
If no Commercial Discovery has been made at the end of the Exploration Period
(including any extensions thereof) this Contract will automatically terminate.
6.9
If a Discovery is made within the maximum Exploration Period until 31 December
2014 (as provided in Article 6.2), and if the CONTRACTOR considers it has not
had time to complete sufficient Gas Marketing Operations to declare the Discovery a
Commercial Discovery pursuant to Article 12.6(a) or 14.5(a), the CONTRACTOR
will be entitled to request an extension of the Exploration Period (notwithstanding the
maximum period provided in Article 6.2), provided, not less than thirty (30) days
prior to the end of the maximum Exploration Period, the CONTRACTOR so
requests the GOVERNMENT and provides the CONTRACTOR’s proposal for Gas
Marketing Operations to be undertaken during such extension. If granted by the
GOVERNMENT, any such extension shall not exceed two (2) Contract Years. Upon
the expiry of such extension, if it considers the CONTRACTOR has still not
completed its Gas Marketing Operations relating to such Discovery, the
CONTRACTOR will be entitled to request a further extension of two (2) Contract
Years, provided that, not less than thirty (30) days prior to the end of the original
extension, the CONTRACTOR so requests the GOVERNMENT and provides the
CONTRACTOR’s proposal for Gas Marketing Operations to be undertaken during
such extension.
Development Period
6.10
If the CONTRACTOR considers that a Discovery of Crude Oil and any Associated
Natural Gas is a Commercial Discovery, the CONTRACTOR shall have the
exclusive right to develop and produce such Commercial Discovery, pursuant to the
terms of this Contract.
The Development Period for a Commercial Discovery of
Crude Oil and any Associated Natural Gas shall be twenty (20) years commencing on
the declaration of such Commercial Discovery by CONTRACTOR, in accordance
with Article 12.6(a), with an automatic right to a five (5) year extension.
6.11
If the CONTRACTOR considers that a Discovery of Non-Associated Natural Gas is
a Commercial Discovery, the CONTRACTOR shall have the exclusive right to
develop and produce such Commercial Discovery, pursuant to the terms of this
Contract. The Development Period for a Commercial Discovery of Non-Associated
Natural Gas shall be twenty (20) years, commencing on the declaration of such
Commercial Discovery by CONTRACTOR, in accordance with Article 12.6(a) or
Article 14.5(a), with an automatic right to a five (5) year extension.
6.12
If Commercial Production from a Production Area is still possible at the end of its
Development Period as defined in Articles 6.10 or 6.11 then, upon its request, the
CONTRACTOR shall be entitled to an extension of such Development Period under
the same terms as those provided in this Contract. Such request shall be made in
writing by the CONTRACTOR at least six (6) Months before the end of the said
Development Period.
The term of any such extension of the Development Period shall be:
6.13
(a)
five (5) Years for Crude Oil and any Associated Natural Gas, and/or
(b)
five (5) Years for Non-Associated Natural Gas.
The CONTRACTOR shall have the right to terminate Production Operations for any
Production Area at any time during the term of this Contract, subject to giving
notice to the GOVERNMENT of at least ninety (90) days. This Contract shall
terminate on the expiry date of the last Production Area or when Production
Operations for all Production Areas have terminated.
ARTICLE 7 – RELINQUISHMENTS
7.1
Subject to the provisions of Articles 7.2 and 7.3, the CONTRACTOR shall surrender
portions of the Contract Area as follows:
(a)
at the end of the initial term of the Exploration Period referred to in Article
6.2, twenty five per cent (25%) of the net area determined by subtracting the
Production Areas from the initial Contract Area;
(b)
at the end of any extension period entered into under this Contract after the
end of the initial term of the Exploration Period referred to in Article 6.2, an
additional twenty five per cent (25%) of the net area determined by
subtracting the Production Areas from the remaining part of the Contract
Area; and
(c)
at the end of the Exploration Period (including all extensions thereof), all of
the remaining area that is not in a Production Area.
7.2
For the application of Article 7.1:
(a)
any areas already relinquished pursuant to Article 7.4 shall be deducted from
areas to be surrendered; and
(b)
the CONTRACTOR shall have the right to determine the area, shape and
location of the Contract Area to be kept, provided that such surrendered
portions of the Contract Area shall be in contiguous blocks.
7.3
If the relinquishment referred to in Article 7.1 can only be achieved by including part
of an Appraisal Area, then these percentages shall be reduced to exclude such
Appraisal Area.
7.4
During the Exploration Period, the CONTRACTOR may at the end of each Contract
Year surrender all or any part of the Contract Area by written notice sent to the
GOVERNMENT at least thirty (30) days in advance of the proposed date of
surrender, subject to the provisions of this Article 7.4. Such voluntary surrenders
during the Exploration Period shall be deemed equal to the obligatory relinquishments
referred to under Article 7.1. This Contract shall terminate in the event of the
surrender of the entire Contract Area.
7.5
No surrender provided under Article 7.4 shall exempt the CONTRACTOR from its
outstanding obligations under this Contract. In the event the CONTRACTOR elects
to surrender the entire Contract Area without having fulfilled the Minimum
Exploration Obligations relating to the then current Sub-Period as provided in Article
10.2 or Article 10.3, the CONTRACTOR shall pay to the GOVERNMENT the
relevant outstanding amount as detailed in Article 10.2 or Article 10.3, as the case
may be.
7.6
The boundaries of the portion of the Contract Area to be relinquished by the
CONTRACTOR shall be communicated to the GOVERNMENT by written notice
at least thirty (30) days in advance of the relevant date for relinquishment, pursuant to
Article 7.1.
ARTICLE 8 – MANAGEMENT COMMITTEE
8.1
A Management Committee shall be established within thirty (30) days following the
Effective Date for the purpose of providing orderly direction of all matters pertaining
to the Petroleum Operations and the Work Programs. Within such period, each of the
GOVERNMENT and the CONTRACTOR shall by written notice nominate its
respective members of the Management Committee and their deputies.
The Management Committee shall comprise two (2) members designated by the
GOVERNMENT and two (2) members designated by the CONTRACTOR.
Upon ten (10) days notice, each of the GOVERNMENT and the CONTRACTOR
may substitute any of its members of the Management Committee. The chairman of
the Management Committee shall be one of the members designated by the
GOVERNMENT (the “Chairman”).
The vice-chairman of the Management
Committee shall be one of the members designated by the CONTRACTOR (the
“Vice-Chairman”). In the absence of the Chairman, the Vice-Chairman shall chair
the meeting.
Each Party shall have the right to invite a reasonable number of observers as deemed
necessary to attend the meetings of the Management Committee in a non-voting
capacity.
8.2
The Management Committee shall review, deliberate, decide and give advice,
suggestions and recommendations to the Parties regarding the following subject
matters:
(a)
Work Programs and Budgets;
(b)
the CONTRACTOR’s activity reports;
(c)
production levels submitted by the CONTRACTOR, based on prudent
international petroleum industry practice;
(d)
Accounts of Petroleum Costs;
(e)
procurement procedures for potential Subcontractors, with an estimated subcontract value in excess of one million Dollars (US$1,000,000), submitted by
the CONTRACTOR in accordance with Article 19.3;
(f)
Development Plan and Budget for each Production Area;
(g)
any matter having a material adverse affect on Petroleum Operations;
(h)
any other subject matter of a material nature that the Parties are willing to
consider.
8.3
Each of the GOVERNMENT and the CONTRACTOR shall have one (1) vote in
the Management Committee. The Management Committee cannot validly deliberate
unless each of the GOVERNMENT and the CONTRACTOR is represented by at
least one (1) of its members or its deputy.
The Management Committee shall attempt to reach unanimous agreement on any
subject matter being submitted. In the event the Management Committee cannot
reach unanimous agreement, a second meeting shall be held within fourteen (14) days
to discuss the same subject matter and attempt to reach a unanimous decision.
Except as provided for in Article 8.4 and Article 8.5, in the event that no agreement is
reached at the second meeting, the Chairman shall have the tie-breaking vote.
8.4
In the event that, during the Exploration Period, no agreement is reached at the second
meeting of the Management Committee, as provided for in Article 8.3, or unanimous
approval is not obtained, as required pursuant to Article 8.5; then the proposal made
by the CONTRACTOR shall be deemed adopted by the Management Committee.
8.5
Notwithstanding the provisions of Article 8.3, and subject to Article 8.4, unanimous
approval of the Management Committee shall be required for:
(a)
approval of, and any material revision to, any Exploration Work Program and
Budget prepared after the first Commercial Discovery in the Production Area
relating to such Commercial Discovery;
(b)
approval of, and any material revision to, the Development Plan, the
production schedule, lifting schedule and Development and Production Work
Programs and Budgets;
(c)
establishment of rules of procedure for the Management Committee;
(d)
any insurance issues over which the Management Committee has authority;
(e)
approval of, and any material revision to, procurement procedures for goods
and/or services, submitted by the CONTRACTOR in accordance with Article
19.3 (unless such procedures have been deemed approved by the Management
Committee in accordance with Article 19.3);
(f)
approval of, and any material revision to, any proposed pipeline project,
submitted by CONTRACTOR in accordance with Article 33.3;
(g)
approval of a first rate bank in which to place the Decommissioning Reserve
Fund, in accordance with Article 38.1;
(h)
approval of, and any material revision to, any proposed Decommissioning
Plan submitted pursuant to Article 38.7 on any Decommissioning Work
Program and Budget or Gas Marketing Work Program and Budget;
(i)
any Terms of Reference which are required to be prepared and agreed for the
purposes of expert determination, pursuant to Article 42.2;
8.6
(j)
approval of any costs in excess of ten per cent (10%) above any Budget; and
(k)
any matter having a material adverse effect on Petroleum Operations.
Ordinary meetings of the Management Committee shall take place in the Kurdistan
Region, alternately at the offices of the GOVERNMENT and those of the
CONTRACTOR, or at any other location agreed between Parties, at least twice a
Contract Year prior to the date of the first Commercial Discovery and three times a
Contract Year thereafter.
8.7
Either the GOVERNMENT or the CONTRACTOR may call an extraordinary
meeting of the Management Committee to discuss important issues or developments
related to Petroleum Operations, subject to giving reasonable prior notice, specifying
the matters to be discussed at the meeting, to the other Party. The Management
Committee may from time to time make decisions by correspondence provided all the
members have indicated their approval of such decisions in such correspondence.
8.8
Unless at least one (1) member or its deputy of each of the GOVERNMENT and the
CONTRACTOR is present, the Management Committee shall be adjourned for a
period not to exceed eight (8) days. The Party being present shall then notify the other
Party of the new date, time and location for the meeting.
8.9
The agenda for meetings of the Management Committee shall be prepared by the
CONTRACTOR in accordance with instructions of the Chairman and communicated
to the Parties at least fifteen (15) days prior to the date of the meeting. The agenda
shall include any subject matter proposed by either the GOVERNMENT or the
CONTRACTOR. Decisions of the Management Committee will be made at the
meetings.
The CONTRACTOR shall be responsible for preparing and keeping
minutes of the decisions made at the meetings. Copies of such minutes shall be
forwarded to each Party for review and approval.
Each Party shall review and
approve such minutes within ten (10) days of receipt of the draft minutes. A Party
who fails to notify in writing its approval or disapproval of such minutes within such
ten (10) days shall be deemed to have approved the minutes.
8.10
If required, the Management Committee may request the creation of a technical subcommittee or any other sub-committee to assist it. Any such sub-committee shall be
composed of a reasonable number of experts from the GOVERNMENT and the
CONTRACTOR. After each meeting, the technical sub-committee or any other subcommittee shall deliver a written report to the Management Committee.
8.11
Any costs and expenditure incurred by the CONTRACTOR for meetings of the
Management Committee or any technical sub-committee or any other sub-committee
shall be considered as Petroleum Costs and shall be recoverable by the
CONTRACTOR in accordance with the provisions of Articles 1 and 25.
ARTICLE 9 – GUARANTEES
9.1
Concurrently with the signing of this Contract, WesternZagros Limited shall deliver
to the GOVERNMENT a payment guarantee of a parent company or ultimate parent
company acceptable to the GOVERNMENT. Such guarantee will be (i) in form and
content acceptable to the GOVERNMENT and (ii) in respect of WesternZagros
Limited’s payment obligations pursuant to Article 10.2(c).
9.2
Not later than sixty (60) days after the commencement of the Second Sub-Period, the
CONTRACTOR Entities shall provide the GOVERNMENT, unless the
GOVERNMENT waives this clause 9.2 pursuant to notice received by each
CONTRACTOR Entity within 30 days following start of the Second Sub-Period,
with a joint and several guarantee of such parent company or ultimate parent company
of each CONTRACTOR Entity as is acceptable to the GOVERNMENT with
respect to the obligations of the CONTRACTOR under Article 10.3(c).
Such
guarantee shall be in the form and content as set forth in Annex D.
9.3
In the event of the exercise by the GOVERNMENT of the Option of Third Party
Participation or an assignment by a CONTRACTOR Entity in accordance with
Article 39, a parent company or ultimate parent company of each Third Party Interest
Holder or third party assignee acceptable to the GOVERNMENT must accede to the
applicable guarantee effective as of the effective date of the assignment, as a
condition precedent to the approval of the assignment by the GOVERNMENT.
ARTICLE 10 – MINIMUM EXPLORATION WORK OBLIGATIONS
10.1
The CONTRACTOR shall start Exploration Operations within thirty (30) days of the
Management Committee’s approval of the Exploration Work Program and Budget in
accordance with Article 8. The CONTRACTOR shall perform geological,
geophysical and/or drilling works as provided under Articles 10.2 to 10.3 (the
“Minimum Exploration Obligations”). If applicable, the said Minimum Exploration
Obligations shall be performed during each Sub-Period in accordance with prudent
international petroleum industry practice.
10.2
During the First Sub-Period, the CONTRACTOR shall:
(a)
drill one (1) Exploration Well at a location near to the village of Mil Qasim,
to a depth of 2400m to evaluate the Upper Fars formation, including testing of
this formation if technically justified (the “First Exploration Well”);
(b)
perform field work comprising structural, stratigraphic and lithologic mapping
and sampling required in support of the First Exploration Well; and
(c)
commit twenty-five million Dollars (US$25,000,000) in performing the work
described in Articles 10.2(a) and 10.2(b).
10.3
During the Second Sub-Period, the CONTRACTOR shall:
(a)
acquire, process and interpret further seismic data (being either two
dimensional or three dimensional), if the CONTRACTOR considers that the
results from the First Exploration Well justify the acquisition of further
seismic data;
(b)
drill one (1) Exploration Well (the “Second Exploration Well”), including
testing as appropriate unless the data from the First Exploration Well
demonstrates that there is not a reasonable technical case for drilling the
Second Exploration Well in the Contract Area; and
(c)
commit twenty-five (US$25,000,000) in performing the work described in
Articles 10.3(a) and 10.3(b).
10.4
Notwithstanding the provisions in Articles 10.2 to 10.3, for the execution of the
Minimum Exploration Obligations under Articles 10.2 to 10.3, it is agreed as follows:
(a)
Minimum Exploration Obligations in the Second Sub-Period shall only apply
in the event the CONTRACTOR has not elected to notify the
GOVERNMENT that it will not enter into the Second Sub-Period, in
accordance with and subject to Article 6.4.
(b)
Subject to Article 10.4(a), the CONTRACTOR shall be required to meet its
Minimum Exploration Obligations for the applicable Sub-Period, even if this
entails exceeding the Minimum Financial Commitment for such Sub-Period.
If the CONTRACTOR has satisfied its Minimum Exploration Obligations
without having spent the total Minimum Financial Commitment for such SubPeriod, it shall be deemed to have satisfied its Minimum Exploration
Obligations for such Sub-Period.
(c)
Each Exploration Well shall be drilled to the depth agreed by the Management
Committee unless:
(i)
the formation is encountered at a lesser depth than originally
anticipated;
(ii)
basement is encountered at a lesser depth than originally anticipated;
(iii)
in the CONTRACTOR’s sole opinion continued drilling of the
relevant Exploration Well presents a hazard due to the presence of
abnormal or unforeseen conditions;
(iv)
insurmountable technical problems are encountered rendering it
impractical to continue drilling with standard equipment; or
(v)
petroleum formations are encountered whose penetration requires
laying protective casing that does not enable the depth agreed by the
Management Committee to be reached.
If drilling is stopped for any of the foregoing reasons, the Exploration Well
shall be deemed to have been drilled to the depth agreed by the Management
Committee and the CONTRACTOR shall be deemed to have satisfied its
Minimum Exploration Obligations in respect of the Exploration Well.
(d)
Any geological or geophysical work carried out or any seismic data acquired,
processed or interpreted or any Exploration Well drilled or any other work
performed in excess of the Minimum Exploration Obligations and/or any
amounts spent in excess of the total Minimum Financial Commitment in any
given Sub-Period, shall be carried forward to the next Sub-Period or any
extension period and shall be taken into account to satisfy the Minimum
Exploration Obligations and/or the total Minimum Financial Commitment for
such subsequent Sub-Period or extension period.
(e)
For the avoidance of doubt, if: (i) in the First Sub-Period, the
CONTRACTOR performs any of the Minimum Exploration Obligations
prescribed for the Second Sub-Period in Article 10.3; and (ii) the
CONTRACTOR has not elected to notify the GOVERNMENT that it will
not enter into the Second Sub-Period (in accordance with and subject to
Article 6.4), the performance of such Minimum Exploration Obligations shall
be deemed to satisfy the same Minimum Exploration Obligations for the
Second Sub-Period.
ARTICLE 11 – EXPLORATION WORK PROGRAMS AND BUDGETS
11.1
Within forty-five (45) days following the Effective Date, the CONTRACTOR shall
prepare and submit to the Management Committee a proposed work program and
budget relating to Exploration Operations (the “Exploration Work Program and
Budget”) for the remainder of the Calendar Year. Thereafter, no later than 1 October
in each Calendar Year, the CONTRACTOR shall submit a proposed Exploration
Work Program and Budget to the Management Committee for the following Calendar
Year.
11.2
Each Exploration Work Program and Budget shall include details of, but not be
limited to, the following:
(a)
work to be undertaken;
(b)
materials, goods and equipment to be acquired;
(c)
cost estimate of services to be provided, including services by third parties
and/or Affiliated Companies of any CONTRACTOR Entity; and
(d)
estimated expenditures, broken down by cost centre in accordance with the
Accounting Procedure.
11.3
The Management Committee shall meet within sixty (60) days following its receipt of
CONTRACTOR’s proposal to examine and approve the Exploration Work Program
and Budget. For the purposes of permitting the CONTRACTOR to commence
operations as soon as possible after the Effective Date, the drilling of the Mil Qasim
well, to a depth of 2400m to evaluate the Upper Fars formation, is deemed to have
been approved by the Management Committee and is approved by the
GOVERNMENT.
11.4
If the GOVERNMENT requests any modification to the Exploration Work Program
and Budget, the Management Committee shall meet to discuss the Exploration Work
Program and Budget and proposed modifications thereto within the sixty (60) day
period referred to in Article 11.3.
The CONTRACTOR shall communicate its
comments on any such requested modifications to the GOVERNMENT at the
meeting of the Management Committee or in writing prior to such meeting.
11.5
The CONTRACTOR shall be authorised to make expenditures not budgeted in an
approved Exploration Work Program and Budget provided that the aggregate amount
of such expenditures shall not exceed ten per cent (10%) of the approved Exploration
Work Program and Budget in any Calendar Year and provided further that such
excess expenditures shall be reported as soon as is reasonably practicable to the
Management Committee. For the avoidance of doubt all excess expenditures shall be
recoverable by the CONTRACTOR in accordance with the provisions of Articles 1
and 25, provided that any excess expenditures above the ten per cent (10%) limit shall
only be recoverable with the unanimous approval of the Management Committee.
11.6
In cases of emergency, the CONTRACTOR may incur such additional expenditures
as it deems necessary to protect life, environment or property. Such additional
expenditures shall be reported promptly to the Management Committee. For the
avoidance of doubt, such additional expenditure shall be considered Petroleum Costs
and shall be recoverable by the CONTRACTOR in accordance with the provisions
of Articles 1 and 25.
ARTICLE 12 – DISCOVERY AND DEVELOPMENT
12.1
If the drilling of an Exploration Well results in a Discovery, the CONTRACTOR
shall notify the GOVERNMENT within forty-eight (48) hours of completing tests
confirming the presumed existence of such Discovery or within such longer period as
the CONTRACTOR reasonably requires to determine whether or not there is a
Discovery. Within thirty (30) days following notification of the said Discovery, the
CONTRACTOR shall present to the Management Committee all technical data then
available together with its opinion on the commercial potential of the said Discovery
(the “Discovery Report”). The CONTRACTOR shall provide in a timely manner
such other information relating to the Discovery as the GOVERNMENT may
reasonably request.
Appraisal Work Program and Budget
12.2
If, pursuant to Article 12.1, the CONTRACTOR considers that the Discovery has
commercial potential it shall, within ninety (90) days following notification to the
GOVERNMENT of the Discovery, submit an appraisal program in respect of the
Discovery (the “Appraisal Work Program and Budget”) to the Management
Committee. The Management Committee shall examine the Appraisal Work Program
and Budget within thirty (30) days of its receipt. If the GOVERNMENT requests any
modification to the Appraisal Work Program and Budget, the Management
Committee shall meet to discuss the Appraisal Work Program and Budget and the
requested modifications thereto within sixty (60) days from its receipt of the proposed
Appraisal Work Program and Budget. The CONTRACTOR shall communicate its
comments on any such requested modifications to the GOVERNMENT at the
meeting of the Management Committee or in writing prior to such meeting.
The Appraisal Work Program and Budget shall include the following:
(a)
an appraisal works program and budget, in accordance with prudent
international petroleum industry practice;
(b)
an estimated time-frame for completion of appraisal works; and
(c)
the delimitation of the area to be evaluated, the surface of which shall not
exceed twice (2 x) the surface of the geological structure or prospect to be
appraised (the “Appraisal Area”).
12.3
If, following a Discovery, a rig acceptable to the CONTRACTOR is available to drill
a well, the CONTRACTOR may drill any additional Exploration Well or any
Appraisal Well deemed necessary by the CONTRACTOR before or during the
Management Committee’s review of the Discovery Report provided in accordance
with Article 12.1 or its review of the Appraisal Work Program and Budget.
The CONTRACTOR shall be authorised to incur expenditures not budgeted in an
approved Appraisal Work Program and Budget provided that the aggregate amount of
such expenditures shall not exceed ten per cent (10%) of the approved Appraisal
Work Program and Budget in any Calendar Year and provided further that such
excess expenditures shall be reported as soon as is reasonably practicable to the
Management Committee. For the avoidance of doubt, all excess expenditures shall be
recoverable by the CONTRACTOR in accordance with the provisions of Articles 1
and 25, provided that any excess expenditure above the ten per cent (10%) limit shall
only be recoverable with the unanimous approval of the Management Committee.
Appraisal Report
12.4
The CONTRACTOR shall submit a detailed report relating to the Discovery (the
“Appraisal Report”) to the Management Committee within ninety (90) days
following completion of the Appraisal Work Program and Budget.
12.5
The Appraisal Report shall include the following:
(a)
geological conditions;
(b)
physical properties of any liquids;
(c)
sulphur, sediment and water content;
(d)
type of substances obtained;
(e)
Natural Gas composition;
(f)
production forecast per well; and
(g)
a preliminary estimate of recoverable reserves.
Declaration of Commercial Discovery
12.6
Together with its Appraisal Report, the CONTRACTOR shall submit a written
statement to the Management Committee specifying that:
(a)
the CONTRACTOR has determined that the Discovery is a Commercial
Discovery;
(b)
the CONTRACTOR has determined that the Discovery is not a Commercial
Discovery;
(c)
the CONTRACTOR has determined that the Discovery is a significant
Discovery, which may become a Commercial Discovery subject to additional
exploration and/or appraisal works within or outside of the Appraisal Area; or
(d)
the CONTRACTOR has determined that the Discovery is a significant
Discovery of Non-Associated Natural Gas, which may become a Commercial
Discovery subject to Gas Marketing Operations, in accordance with
Article 14.5.
12.7
In case the statement of the CONTRACTOR corresponds to Article 12.6(c), the
CONTRACTOR shall submit a Work Program and Budget to the Management
Committee within thirty (30) days following such statement. Any well drilled to
evaluate the said significant Discovery shall be considered an Exploration Well.
Development Plan
12.8
If the Discovery has been declared a Commercial Discovery by the CONTRACTOR
pursuant to Article 12.6(a) or Article 14.5(a), the CONTRACTOR shall submit a
proposed Development Plan to the Management Committee within one hundred
eighty (180) days following such declaration. The Development Plan shall be in
accordance with prudent international petroleum industry practice. Except with the
consent of the GOVERNMENT, such Development Plan shall include details of the
following as applicable:
(a)
the delimitation of the Production Area, taking into account the results of the
Appraisal Report regarding the importance of the Petroleum Field within the
Appraisal Area;
(b)
drilling and completion of Development Wells;
(c)
drilling and completion of water or Natural Gas injection wells;
(d)
laying of gathering pipelines;
(e)
installation of separators, tanks, pumps and any other associated production
and injection facilities for the production;
(f)
treatment and transportation of Petroleum to the processing and storage
facilities onshore or offshore;
(g)
laying of export pipelines inside or outside the Contract Area to the storage
facility or Delivery Point;
(h)
construction of storage facilities for Petroleum;
(i)
plan for the utilisation of Associated Natural Gas;
(j)
training commitment in accordance with Article 23;
(k)
a preliminary decommissioning and site restoration plan;
(l)
all contracts and arrangements made or to be made by the CONTRACTOR
for the sale of Natural Gas;
(m)
to the extent available, all contracts and arrangements made or to be made by
Persons in respect of that Natural Gas downstream of the point at which it is to
be sold by the CONTRACTOR and which are relevant to the price at which
(and other terms on which) it is to be sold by the CONTRACTOR or are
otherwise relevant to the determination of the value of it for the purposes of
this Contract, but not beyond the point at which it is first disposed of in an
Arm’s Length Sale;
(n)
each CONTRACTOR Entity’s plans for financing its interest, if any; and
(o)
any other operations not expressly provided for in this Contract but reasonably
necessary for Development Operations, Production Operations and delivery of
Petroleum produced, in accordance with prudent international petroleum
industry practice.
12.9
The Management Committee shall use its best efforts to approve the Development
Plan within sixty (60) days after its receipt of such plan. The Development Period for
each Commercial Discovery within a Development Plan shall be extended for the
number of days in excess of such sixty (60) day period that it takes for the
Management Committee to approve the Development Plan. The Development Plan
shall be considered approved by the GOVERNMENT if the GOVERNMENT,
through its representatives on the Management Committee, indicates its approval in
writing.
12.10 If the GOVERNMENT requests any modifications to the Development Plan, then
the Management Committee shall meet within sixty (60) days of receipt by the
CONTRACTOR of the GOVERNMENT’s written notification of requested
modifications accompanied by all the documents justifying such request, and shall
discuss such request. The CONTRACTOR shall communicate its comments on any
such requested modifications to the GOVERNMENT at such meeting or in writing
prior to such meeting. Any modification approved by the Management Committee at
such meeting or within a further period of thirty (30) days from the date of such
meeting shall be incorporated into the Development Plan which shall then be deemed
approved and adopted.
12.11 If the CONTRACTOR makes several Commercial Discoveries within the Contract
Area each such Commercial Discovery will have a separate Production Area. The
CONTRACTOR shall be entitled to develop and to produce each Commercial
Discovery and the GOVERNMENT shall provide the appropriate Permits covering
each Production Area.
ARTICLE 13 - DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND
BUDGET
13.1
Upon the approval of the Development Plan by the Management Committee, the
CONTRACTOR shall start the Development Operations for the Commercial
Discovery in accordance with the Development Plan and prudent international
petroleum industry practice.
Approval of Development Works Program and Budget
13.2
Within ninety (90) days following approval of the Development Plan by the
Management Committee, the CONTRACTOR shall prepare and submit to the
Management Committee a proposed work program and budget for Development
Operations (the “Development Work Program and Budget”) to be carried out in the
Production Area for the duration of the Development Operations. Thereafter, no later
than 1 October in each Calendar Year, the CONTRACTOR shall submit to the
Management Committee updates in respect of its Development Work Program and
Budget.
To enable the Management Committee to forecast expenditures, each
Development Work Program and Budget shall include details of the following:
(a)
works to be carried out;
(b)
material and equipment to be acquired by main categories;
(c)
type of services to be provided, distinguishing between third parties and
Affiliated Companies of any CONTRACTOR Entity; and
(d)
13.3
categories of general and administrative expenditure.
If any modification to the Development Work Program and Budget is requested by
the GOVERNMENT, the Management Committee shall meet to discuss the
Development Work Program and Budget and proposed modifications thereto within
sixty (60) days from its receipt of the proposed Development Work Program and
Budget. The CONTRACTOR shall communicate its comments on any such
requested modifications to the GOVERNMENT at the meeting of the Management
Committee or in writing prior to such meeting.
13.4
The CONTRACTOR shall be authorised to incur expenditures not budgeted in an
approved Development Work Program and Budget provided that the aggregate
amount of such expenditures shall not exceed ten per cent (10%) of the approved
Development Work Program and Budget in any Calendar Year and provided further
that such excess expenditures shall be reported as soon as is reasonably practicable to
the Management Committee. For the avoidance of doubt, all excess expenditures
shall be recoverable by the CONTRACTOR in accordance with the provisions of
Articles 1 and 25, provided that any excess expenditure above the ten per cent (10%)
limit shall only be recoverable with the unanimous approval of the Management
Committee.
13.5
In cases of emergency, the CONTRACTOR may incur such additional expenditures
as it deems necessary to protect life, environment or property. Such additional
expenditures shall be reported promptly to the Management Committee. For the
avoidance of doubt, such additional expenditure shall be considered Petroleum Costs
and shall be recoverable by the CONTRACTOR in accordance with the provisions
of Articles 1 and 25.
Approval of Annual Production Works Programs and Budget
13.6
No later than 1 October of the Calendar Year preceding the estimated commencement
of production pursuant to an approved Development Plan and thereafter no later than
1 October in each Calendar Year, the CONTRACTOR shall prepare and submit to
the Management Committee a proposed work program and budget for Production
Operations (the “Production Work Program and Budget”) for the following
Calendar Year. To enable the Management Committee to forecast expenditures, the
Production Work Program and Budget shall include details of the following:
(a)
works to be carried out;
(b)
material and equipment to be acquired by main categories;
(c)
type of services to be provided, distinguishing between third parties and
Affiliated Companies of any CONTRACTOR Entity; and
(d)
13.7
categories of general and administrative expenditure.
If any modification to the Production Work Program and Budget is requested by the
GOVERNMENT, the Management Committee shall meet to discuss the Production
Work Program and Budget and proposed modifications thereto within sixty (60) days
from its receipt of the proposed Production Work Program and Budget. The
CONTRACTOR shall communicate its comments on any such requested
modifications to the GOVERNMENT at the meeting of the Management Committee
or in writing prior to such meeting.
13.8
The CONTRACTOR shall be authorised to incur expenditures not budgeted in an
approved Production Work Program and Budget provided that the aggregate amount
of such expenditures shall not exceed ten per cent (10%) of the approved Production
Work Program and Budget in any Calendar Year and provided further that such
excess expenditures shall be reported as soon as reasonably practicable to the
Management Committee. For the avoidance of doubt, all excess expenditures shall be
recoverable by the CONTRACTOR in accordance with the provisions of Articles 1
and 25, provided that any excess expenditure above the ten per cent (10%) limit shall
only be recoverable with the unanimous approval of the Management Committee.
13.9
In cases of emergency, the CONTRACTOR may incur such additional expenditure
as it deems necessary to protect life, environment or property. Such additional
expenditures shall be reported promptly to the Management Committee. For the
avoidance of doubt, such additional expenditure shall be considered Petroleum Costs
and shall be recoverable by the CONTRACTOR in accordance with the provisions
of Articles 1 and 25.
13.10 After the commencement of Commercial Production the CONTRACTOR shall pay
to the GOVERNMENT, in arrears, an annual surface rental for the Production Area,
of one hundred Dollars (US$100) per square kilometre per Contract Year
(“Production Rental”). Such Production Rental shall be considered as a Petroleum
Cost and shall be recoverable by the CONTRACTOR in accordance with the
provisions of Articles 1 and 25.
ARTICLE 14 – NATURAL GAS
Use for the Petroleum Operations
14.1
To take account of specific conditions relating to Natural Gas and to promote its
development in the Kurdistan Region, the GOVERNMENT will grant specific
benefits to the CONTRACTOR on principles materially similar to those contained in
this Contract, including, consistent with the Kurdistan Region Oil and Gas Law, more
generous provisions in respect of the recovery of Petroleum Costs and the sharing of
Profit Petroleum than in respect of Crude Oil.
14.2
The CONTRACTOR may freely use any Natural Gas required for the Petroleum
Operations. If technically and economically justified, the CONTRACTOR shall in
priority use any Natural Gas for the purpose of enhancing recovery of Crude Oil in
accordance with prudent international petroleum industry practice as follows.
Associated Natural Gas
14.3
Any excess Associated Natural Gas produced that is neither used in the Petroleum
Operations nor developed and sold by the CONTRACTOR shall, upon the
GOVERNMENT’s written request, be transferred at the first practicable delivery
point as agreed between the Parties, free of charge to the GOVERNMENT. In such
case, the GOVERNMENT shall be solely responsible for collecting, treating,
compressing and transporting such Natural Gas from such agreed delivery point and
shall be solely liable for any additional direct and indirect costs associated therewith.
The construction and operation of required facilities as well as the offtake of such
excess Associated Natural Gas by the GOVERNMENT shall occur in accordance
with prudent international petroleum industry practice and shall not interfere with the
production, lifting and transportation of the Crude Oil by the CONTRACTOR. For
the avoidance of doubt, all expenditure incurred by the CONTRACTOR up to such
agreed delivery point shall be considered Petroleum Costs and shall be recoverable by
the CONTRACTOR in accordance with the provisions of Articles 1 and 25.
In the event the GOVERNMENT finds a market for Associated Natural Gas, it shall
promptly give written notice to the CONTRACTOR, and the CONTRACTOR may
elect to participate in supplying such Associated Natural Gas within ninety (90) days
following notification thereof by the GOVERNMENT. If the CONTRACTOR
elects to participate in supplying Associated Natural Gas to such market, all
expenditures associated with any necessary facilities shall be paid for by the
CONTRACTOR. For the avoidance of doubt, such expenditure incurred shall be
considered Petroleum Costs and shall be recoverable by the CONTRACTOR in
accordance with the provisions of Articles 1 and 25.
Non Associated Natural Gas
14.4
Until an approved Natural Gas sales contract is executed in respect of all volumes of
Natural Gas expected to be produced, the CONTRACTOR shall be entitled during
the Exploration Period and the Development Period to carry out Gas Marketing
Operations.
14.5
If, pursuant to Article 12.6(d), the CONTRACTOR has determined that the
Discovery is a significant Discovery of Non-Associated Natural Gas, which may
become a Commercial Discovery subject to Gas Marketing Operations, it shall carry
out Gas Marketing Operations, at the end of which it shall submit a written statement
to the Management Committee specifying that:
(a)
the CONTRACTOR has determined that the Discovery is a Commercial
Discovery; or
(b)
the CONTRACTOR has determined that the Discovery is not a Commercial
Discovery.
14.6
For the purpose of this Contract, “Gas Marketing Operations” means any activity
under this Contract relating to the marketing of Non-Associated Natural Gas,
including any evaluation to find a commercial market for such Non-Associated
Natural Gas and/or to find a commercially viable technical means of extraction of
such Non-Associated Natural Gas and may include activities related to evaluating the
quantities of Non-Associated Natural Gas to be sold, its quality, the geographic
location of potential markets to be supplied as well as evaluating the costs of
production, transportation and distribution of the Non-Associated Natural Gas from
the Delivery Point to the relevant market.
14.7
All costs and expenditure incurred by the CONTRACTOR in the performance of the
activities in relation to the Gas Marketing Operations shall be considered Petroleum
Costs.
14.8
No later than 1 October of the Calendar Year preceding the Calendar Year in which
any Gas Marketing Operations are due to occur, the CONTRACTOR shall prepare
and submit to the Management Committee its Gas Marketing Work Program and
Budget for the following Calendar Year. To enable the Management Committee to
forecast expenditures, the Gas Marketing Work Program and Budget shall include the
following:
(a)
works to be carried out;
(b)
type of services to be provided, distinguishing between third parties and
Affiliated companies of any CONTRACTOR Entity; and
(c)
categories of general and administrative expenditure.
If any modification to the Gas Marketing Work Program and Budget is requested by
the GOVERNMENT, the Management Committee shall meet to discuss the Gas
Marketing Work Program and Budget and proposed modifications thereto within
sixty (60) days from its receipt of the proposed Gas Marketing Work Program and
Budget. The CONTRACTOR shall communicate its comments on any such
requested modifications to the GOVERNMENT at the meeting of the Management
Committee or in writing prior to such meeting.
14.9
The CONTRACTOR shall be authorised to incur expenditures not budgeted in an
approved Gas Marketing Work Program and Budget provided that the aggregate
amount of such expenditure shall not exceed ten per cent (10%) of the approved Gas
Marketing Work Program and Budget in any Calendar Year and provided further that
such excess expenditures shall be reported as soon as reasonably practicable to the
Management Committee. For the avoidance of doubt, all excess expenditures shall be
recoverable by the CONTRACTOR in accordance with the provisions of Articles 1
and 25, provided that any excess expenditure above the ten per cent (10%) limit shall
only be recoverable with the unanimous approval of the Management Committee.
14.10 If any Non-Associated Natural Gas is discovered within the Contract Area, and the
CONTRACTOR reasonably considers that the Non-Associated Natural Gas
Discovery will only be a Commercial Discovery if certain terms of this Contract are
amended, it shall be entitled to request amendments to this Contract, with its reasons.
The GOVERNMENT shall in good faith give reasonable consideration to the
CONTRACTOR’s proposed amendment and reasons and the Parties shall in good
faith attempt to agree on the necessary amendments to the Contract. If the Parties are
unable to agree on such amendments, and the Exploration Period expires without the
CONTRACTOR having declared such Discovery to be a Commercial Discovery in
accordance with Article 12.6(a) or Article 14.5(a), and subsequently within a period
of eight (8) years from the end of such Exploration Period, the GOVERNMENT
reaches agreement with any third party to develop such Discovery (the “Gas
Development”), then the following provisions shall apply:
(a)
either before or upon agreement in relation to the Gas Development having
been reached (and whether or not such agreement is recorded in a fully termed
production sharing and/or operating or other like agreement), but before such
agreement is signed (the “Proposed Contract”) (subject only to the rights of
each CONTRACTOR Entity to pre-empt such Proposed Contract pursuant to
Article 14.10(b) and such conditions as may be applicable), the
GOVERNMENT shall, as soon as reasonably practicable after the occurrence
of such circumstances, serve on each of the CONTRACTOR Entities, a
notice to that effect and shall with such notice provide such information and
main terms of such agreement as the CONTRACTOR Entities may
reasonably request to determine if they will exercise their rights (the “Agreed
Terms”), including:
(i)
the identity of such third party;
(ii)
the effective date of the Proposed Contract;
(iii)
the applicable commercial terms, including bonuses, royalties, cost
recovery, profit sharing, taxation and any other similar terms; and
(iv)
all and any material conditions to which the Proposed Contract is
subject.
(b)
Upon a request from any CONTRACTOR Entity, the GOVERNMENT will
provide all the CONTRACTOR Entities with such further information and
terms as may be reasonably requested by any CONTRACTOR Entity.
Within one hundred and eighty days (180) days after receipt of a notice and
any further information under Article 14.10(a) in relation to a Proposed
Contract each of the CONTRACTOR Entities shall elect either:
(i)
to enter into the Proposed Contract on the same or substantially similar
terms to the Agreed Terms, with the right to cost recover all Petroleum
Costs incurred under this Contract against all Petroleum revenues
received under the Proposed Contract, up to any cost recovery limits
set out therein; or
(ii)
to waive the aforesaid right of pre-emption in relation to the Proposed
Contract;
and shall serve notice accordingly upon the GOVERNMENT and all the
CONTRACTOR Entities and in default of receipt by the GOVERNMENT
of any such notice within such period of one hundred and eighty (180) days
such CONTRACTOR Entity shall be deemed conclusively to have served a
notice electing to waive its aforesaid right of pre-emption in relation to the
Proposed Contract.
(c)
In the event that more than one of the CONTRACTOR Entities exercises its
rights under Article 14.10(b)(i) in relation to the Proposed Contract, then the
GOVERNMENT shall transfer or grant each such CONTRACTOR Entity
an interest in the Proposed Contract upon the Agreed Terms (in accordance
with Article 14.10(b)(i)) in the proportions in which their respective
percentage interests bear to the aggregate of their respective percentage
interests under the relevant Joint Operating Agreement (as it applied at the end
of the Exploration Period) or in such other proportions as such
CONTRACTOR Entities shall agree between them.
(d)
In the event that one of the CONTRACTOR Entities exercises its rights
under Article 14.10(b)(i) in relation to the Proposed Contract then the
GOVERNMENT shall transfer or grant the whole of the interest in the
Proposed Contract upon the Agreed Terms (in accordance with 14.10(b)(i)) to
such CONTRACTOR Entity.
(e)
In the event that none of the CONTRACTOR Entities exercises its rights
under Article 14.10(b)(i) then the GOVERNMENT may enter into the
Proposed Contract on terms no more favourable to its counterparty than the
Agreed Terms and, in such case, the aforesaid rights of pre-emption shall
thereupon cease to apply in relation to the Proposed Contract.
14.11 If the pre-emption rights in Article 14.10 are not exercised and the GOVERNMENT
enters into the Proposed Contract with the third party concerned, the
GOVERNMENT will use its best endeavours to avoid any effect which may hamper
the Petroleum Operations of the CONTRACTOR while producing Petroleum.
Flaring
14.12 Flaring of Natural Gas in the course of activities provided for under this Contract, is
prohibited except (i) short-term flaring up to twelve (12) Months necessary for testing
or other operational reasons in accordance with prudent international petroleum
industry practice (which shall include the flaring of Associated Natural Gas to the
extent the CONTRACTOR considers that re-injecting Associated Natural Gas is not
justified technically and economically and provided the GOVERNMENT decides
not to take such Associated Natural Gas), or (ii) with the prior authorisation of the
GOVERNMENT, such authorisation not to be unreasonably withheld or delayed.
The CONTRACTOR shall submit such request to the GOVERNMENT, which shall
include an evaluation of reasonable alternatives to flaring that have been considered
along with information on the amount and quality of Natural Gas involved and the
duration of the requested flaring.
ARTICLE 15 – ACCOUNTING AND AUDITS
15.1
The CONTRACTOR shall keep in its offices in the Kurdistan Region copies of all
books and accounts of all revenues relating to the Petroleum Operations and all
Petroleum Costs (the “Accounts”), except during the Exploration Period, when the
CONTRACTOR shall be entitled to keep the Accounts at its headquarters Abroad.
The Accounts shall reflect in detail expenditure incurred as a function of the
quantities and value of Petroleum produced, and shall be kept for a period of five (5)
years. All Accounts which are made available to the GOVERNMENT in accordance
with the provisions of this Contract shall be prepared in the English language. The
Accounts shall be kept in accordance with prudent international petroleum industry
practice and in accordance with the provisions of the Accounting Procedure. The
Accounts shall be kept in Dollars, which shall be the reference currency for the
purposes of this Contract.
15.2
Within ninety (90) days following the end of each Calendar Year, the
CONTRACTOR shall submit to the GOVERNMENT a summary statement of all
Petroleum Costs incurred during the said Calendar Year. The summary statement
shall also include a profit calculation pursuant to the provisions of Article 26.
15.3
The GOVERNMENT shall have the right:
(a)
to request an audit of the Accounts with respect to each Calendar Year within
a period of five (5) Calendar Years following the end of such Calendar Year
(the “Audit Request Period”); and
(b)
to retain an auditor of international standing familiar with international
petroleum industry accounting practice to undertake or assist the
GOVERNMENT to undertake the audit.
Notwithstanding paragraphs (a) and (b) of this Article 15.3, the GOVERNMENT
shall have the right to audit the Accounts with respect to each Calendar Year at any
time in the case of manifest error or fraud. Stipulated Sunk Block Costs are not
subject to audit.
15.4
The reasonable cost of retaining an auditor pursuant to Article 15.3 shall be borne by
the CONTRACTOR and treated as a Petroleum Cost for the purpose of cost recovery
under Articles 1 and 25.
15.5
During the Audit Request Period for any Calendar Year but not thereafter, the
GOVERNMENT, acting reasonably and in accordance with prudent international
petroleum industry practice, may request in writing all reasonably available
information and justifications for its audit of Petroleum Costs.
15.6
Should the GOVERNMENT consider, on the basis of data and information available,
that the CONTRACTOR made a material mistake or there is any irregularity in
respect of the Accounts and considers that any corrections, adjustments or
amendments should be made, the GOVERNMENT shall make any audit exceptions
in writing and notified to the CONTRACTOR within six (6) Months of the date of
request referred to in Article 15.3, and failure to give such written exception within
such time shall be deemed to be an acknowledgement of the correctness of the
CONTRACTOR’s Accounts.
15.7
In respect of any audit exception made by the GOVERNMENT in accordance with
Article 15.6, the CONTRACTOR shall then have sixty (60) days to make necessary
corrections, adjustments or amendments or to present its comments in writing or
request a meeting with the GOVERNMENT. The GOVERNMENT shall within
thirty (30) days of the CONTRACTOR’s response, notify the CONTRACTOR in
writing of its position on the corrections, adjustments, amendments or comments. If
thereafter there still exists a disagreement between the GOVERNMENT and the
CONTRACTOR, the dispute will be settled in accordance with Article 15.9.
15.8
In addition to the annual statements of Petroleum Costs as provided in Article 15.2,
the CONTRACTOR shall provide the GOVERNMENT with such production
statements and reports, as required pursuant to Article 16.3.
15.9
Any dispute between the Parties under this Article 15 that cannot be settled amicably
within sixty (60) days of the GOVERNMENT’s final notice under Article 15.7, may
be submitted to an expert on the request of either the GOVERNMENT or the
CONTRACTOR in accordance with the provisions of Article 42.2. Notwithstanding
the provisions of Article 42, in this specific instance the decision of the expert shall
not necessarily be final and either Party may decide to submit the matter to arbitration
in accordance with the provisions of Article 42.1.
ARTICLE 16 – CONTRACTOR’S RIGHTS AND OBLIGATIONS
Permanent Representative
16.1
If not done already, within ninety (90) days following the Effective Date, each
CONTRACTOR Entity shall open an office and appoint a permanent representative
in the Kurdistan Region, who may be contacted by the GOVERNMENT with regard
to any matter relating to this Contract and will be entitled to receive any
correspondence addressed to such CONTRACTOR Entity.
Conduct of Petroleum Operations
16.2
The CONTRACTOR shall carry out all Petroleum Operations in accordance with the
provisions of this Contract, prudent international petroleum industry practice and
applicable Kurdistan Region Law.
The CONTRACTOR shall be responsible for the conduct, management, control and
administration of Petroleum Operations and shall be entitled to conduct Petroleum
Operations in accordance with the provisions of this Contract. In conducting its
Petroleum Operations, the CONTRACTOR shall have the right to use any Affiliate
of each CONTRACTOR Entity, its and their Subcontractors, and the employees,
consultants, and agents of each of the foregoing. The CONTRACTOR and all such
Persons shall at all times have free access to the Contract Area and any Production
Areas for the purpose of carrying out Petroleum Operations.
Information and Reports
16.3
The CONTRACTOR shall provide the GOVERNMENT with periodic data and
activity reports relating to Petroleum Operations. Said reports shall include details of
the following:
(a)
information and data regarding all Exploration Operations, Development
Operations and Production Operations (as applicable) performed during the
Calendar Year, including any quantities of Petroleum produced and sold;
(b)
data and information regarding any transportation facilities built and operated
by the CONTRACTOR;
(c)
a statement specifying the number of personnel, their title, their nationality as
well as a report on any medical services and equipment made available to such
personnel; and
(d)
a descriptive statement of all capital assets acquired for the Petroleum
Operations, indicating the date and price or cost of their acquisition.
Requirement for Petroleum Operations
16.4
The CONTRACTOR may freely use any Petroleum produced within the Contract
Area for the Petroleum Operations.
Supervision by the GOVERNMENT
16.5
The CONTRACTOR shall at all times provide reasonable assistance as may
reasonably be requested by the GOVERNMENT during its review and verification
of records and of any other information relating to Petroleum Operations at the
offices, worksites or any other facilities of the CONTRACTOR.
Upon giving reasonable prior notice to the CONTRACTOR, the GOVERNMENT
may send a reasonable number of representatives to the work-sites or any other
facilities of the CONTRACTOR in the Kurdistan Region to perform such reviews
and verifications. The representatives of the GOVERNMENT shall at all times
comply with any safety regulations imposed by the CONTRACTOR and such
reviews and verifications shall not hinder the smooth progress of the Petroleum
Operations.
Access to Facilities
16.6
For the performance of the Petroleum Operations, the CONTRACTOR, any Affiliate
of each CONTRACTOR Entity, its and their Subcontractors and the employees,
consultants and agents of each of the foregoing shall at all times be granted free
access to the Contract Area and to any facilities for the Petroleum Operations located
within or outside of the Contract Area or within or outside the Production Area, for
the purpose of carrying out the Petroleum Operations.
Use of Facilities
16.7
Upon notice from the GOVERNMENT, the CONTRACTOR shall make available
to a reasonable number of representatives of the GOVERNMENT those of the
CONTRACTOR’s facilities which are necessary to enable such representatives to
perform their tasks related to this Contract and the Kurdistan Region Oil and Gas Law
including, in case of works to be performed on work sites, transportation,
accommodation and board, under the same conditions as those provided by the
CONTRACTOR for its own personnel.
Notwithstanding Article 16.8, the GOVERNMENT shall indemnify and hold
harmless each CONTRACTOR Entity against all losses, damages and liability
arising under any claim, demand, action or proceeding brought or initiated against any
CONTRACTOR Entity by any representative of the GOVERNMENT in connection
with the access to or use of the facilities by such representatives.
Loss or Damage
16.8
The CONTRACTOR shall be responsible for any loss or damage caused to third
parties by its or its Subcontractors personnel solely and directly resulting from their
negligence, errors or omissions in accordance with applicable Kurdistan Region Law.
Intellectual Property Rights
16.9
In its Petroleum Operations, the CONTRACTOR shall respect any intellectual
property belonging to third parties.
Litigation
16.10 The CONTRACTOR shall as soon as reasonably practicable inform the
GOVERNMENT of any material litigation relating to this Contract.
Safety
16.11 The CONTRACTOR shall implement a health, safety and environment program and
take necessary measures to ensure hygiene, health and safety of its personnel carrying
out Petroleum Operations in accordance with prudent international petroleum industry
practice.
Said measures shall include the following:
(a)
supplying first aid and safety equipment for each work area and maintaining a
healthy environment for personnel;
(b)
reporting to the GOVERNMENT within seventy-two (72) hours of such
accident, any accident where personnel has been injured while engaged in
Petroleum Operations and resulting in such personnel being unable to return to
work;
(c)
implementing a permit-to-work procedure around hazardous equipment and
installations;
(d)
providing safe storage areas for explosives, detonators and any other
dangerous products used in the operations;
(e)
supplying fire-extinguishing equipment in each work area;
(f)
for the purpose of taking control of any blow out or fire which could damage
the environment or Petroleum Field, in accordance with prudent international
petroleum industry practice; and
(g)
for the purpose of preventing any involuntary injection of fluids in petroleum
formations and production of Crude Oil and Natural Gas at rates that do not
conform to prudent international petroleum industry practice.
Production Rates
16.12 Subject to Article 43.2, in the event the production rate of the individual wells and
Reservoir of a Petroleum Field is to be set below the Maximum Efficient Rate
(“MER”) for the Reservoir, as provided for in the Development Plan, as a
consequence of a decision by the GOVERNMENT or any federal or international
regulatory body, the GOVERNMENT undertakes to allocate any such reduction
fairly and equitably among the various operators (including the GOVERNMENT)
then producing in the Kurdistan Region, pro rata their respective production rates. In
such event, the GOVERNMENT shall grant an extension of the Development Period
of any Production Area so affected for a reasonable period of time in order to produce
the Petroleum which would otherwise have already been produced, had the MER for
the individual wells and Reservoir of the Petroleum Field been maintained.
Legal Status
16.13 The respective rights, duties, obligations and liabilities of the CONTRACTOR and
the GOVERNMENT under this Contract are to be understood as being separate and
individual and not joint and several.
The Parties agree that this Contract shall not
create and shall not be deemed to have created a partnership or other form of
association between them.
Lifting
16.14 The
GOVERNMENT
and, subject
to
Articles
32.6.6(a)
and
(b),
each
CONTRACTOR Entity, shall have the right and the obligation to take in kind and
separately sell or otherwise dispose of their respective shares of Petroleum in
accordance with Articles 25, 26 and 27. Upon approval of the Development Plan, the
Parties shall meet as soon as practicable to reach a detailed agreement governing the
lifting of Petroleum by each such CONTRACTOR Entity. Such lifting agreement
shall include the following:
(a)
the obligation of the GOVERNMENT and each CONTRACTOR Entity to
lift, regularly throughout each Calendar Year, their share of Petroleum
produced from the Production Area;
(b)
notification procedures by the Operator to the GOVERNMENT and each
CONTRACTOR Entity regarding entitlements and availability of Petroleum
for lifting by each Party during each lifting period and nominations by each
Party; and
(c)
the right of the Parties to lift any Available Petroleum not scheduled for lifting
and/or not lifted by the other Party during each such lifting period.
Kurdistan Region Consumption Requirements
16.15 The CONTRACTOR Entities shall sell and transfer to the GOVERNMENT, upon
written request of the GOVERNMENT, any amounts of Crude Oil that the
GOVERNMENT shall deem necessary to meet Kurdistan Region internal
consumption requirements. The sales price of such Crude Oil shall be the
International
Market
Price.
The
GOVERNMENT
shall
provide
the
CONTRACTOR Entities with not less than six (6) Months' advance written notice of
its intention to buy such Crude Oil.
Payments shall be made in Dollars and otherwise on terms consistent with prudent
international petroleum industry practice. The CONTRACTOR Entities’ obligation
to sell Crude Oil to the GOVERNMENT shall be, with the other operators (including
the GOVERNMENT) then producing in the Kurdistan Region, pro rata to their
respective production rates.
The provisions of this Article 16.15 shall not apply to Non-Associated Natural Gas.
ARTICLE 17 – USE OF LAND AND EXISTING INFRASTRUCTURE
17.1
The GOVERNMENT shall make available to the CONTRACTOR any land or
property in the Kurdistan Region required for the Petroleum Operations; provided,
however, the CONTRACTOR shall not request to use any such land unless there is a
real need for it. The CONTRACTOR shall have the right to build and maintain,
above and below ground, any facilities required for the Petroleum Operations.
17.2
If it becomes necessary for conduct of the Petroleum Operations to occupy and use
any land or property in the Kurdistan Region belonging to third parties, the
CONTRACTOR shall endeavour to reach amicable agreement with the owners of
such land. If such amicable agreement cannot be reached, the CONTRACTOR shall
notify the GOVERNMENT. On receipt of such notification:
(a)
the GOVERNMENT shall determine the amount of compensation to be paid
by the CONTRACTOR to the owner, if occupation will be for a short
duration; or
(b)
the GOVERNMENT shall expropriate the land or property in accordance
with applicable Kurdistan Region Law, if such occupation will be long lasting
or makes it henceforth impossible to resume original usage of such land or
property. Any property rights shall be acquired by and recorded in the name
of the GOVERNMENT, but the CONTRACTOR shall be entitled free use
of the land or property for the Petroleum Operations for the entire duration of
this Contract.
The amount of the compensation in Article 17.2(a) shall be fair and reasonable, in
accordance with Article 29 of the Kurdistan Region Oil and Gas Law, and shall take
into account the rights of the owner and any effective use of the land or property by
its owner at the time of occupation by the CONTRACTOR. All reasonable costs,
expenditures and fair and reasonable compensation (as required pursuant to Article 29
of the Kurdistan Region Oil and Gas Law) which results from such expropriation
shall be borne by the CONTRACTOR. For the avoidance of doubt, such costs,
expenses and compensation incurred by the CONTRACTOR shall be considered
Petroleum Costs and shall be recoverable by the CONTRACTOR in accordance with
the provisions of Articles 1 and 25.
17.3
For its Petroleum Operations, the CONTRACTOR shall have the right in the
Kurdistan Region to use, subject to Applicable Law, any railway, tramway, road,
airport, landing field, canal, river, bridge or waterway, any telecommunications
network and any existing pipelines or transportation infrastructure, on terms no less
favourable than those offered to other entities and, unless generally in force, to be
mutually agreed.
17.4
Under national emergencies due to environmental catastrophe or disaster, or internal
or external war, the GOVERNMENT shall have the right to request to use any
transportation and communication facilities installed by the CONTRACTOR. In
such cases, the request shall originate from the Minister of Natural Resources. For the
avoidance of doubt, such costs, expenses or liabilities incurred by the
CONTRACTOR hereunder shall be considered Petroleum Costs and shall be
recoverable by the CONTRACTOR in accordance with the provisions of Articles 1
and 25.
17.5
For its Petroleum Operations, the CONTRACTOR shall have the right in the
Kurdistan Region to clear land, excavate, drill, bore, construct, erect, place, procure,
operate, emit and discharge, manage and maintain ditches, tanks, wells, trenches,
access roads, excavations, dams, canals, water mains, plants, reservoirs, basins,
storage and disposal facilities, primary distillation units, extraction and processing
units, separation units, sulphur plants and any other facilities or installations for the
Petroleum Operations, in addition to pipelines, pumping stations, generators, power
plants, high voltage lines, telephone, radio and any other telecommunications
systems, as well as warehouses, offices, sheds, houses for personnel, hospitals,
schools, premises, dikes, vehicles, railways, roads, bridges, airlines, airports and any
other transportation facilities, garages, hangars, workshops, foundries, repair shops
and any other auxiliary facilities for the Petroleum Operations and, generally,
everything which is required for its performance of the Petroleum Operations. The
CONTRACTOR shall have the right to select the location for these facilities.
17.6
For its Petroleum Operations, the CONTRACTOR shall have the right in the
Kurdistan Region, subject to compliance with applicable Kurdistan Region Law, to
remove and use the topsoil, fully-grown timber, clay, sand, lime, gypsum, stones
(other than precious stones) and other similar substances as required for its Petroleum
Operations.
The CONTRACTOR shall have the right in the Kurdistan Region to take or use any
water necessary for the Petroleum Operations provided it does not damage any
existing irrigation or navigation systems and that land, houses or watering points
belonging to third parties are not deprived of their use.
17.7
The GOVERNMENT shall have the right in the Kurdistan Region to build, operate
and maintain roads, railways, airports, landing strips, canals, bridges, protection dams,
police stations, military installations, pipelines and telecommunications networks in
the Contract Area, provided this does not increase the costs, or compromise or have a
material adverse effect on the performance of the Petroleum Operations. If the
construction, operation and maintenance of such facilities by the GOVERNMENT
results in increased cost or expense for the CONTRACTOR then, for the avoidance
of doubt, such cost and expense shall be considered Petroleum Costs and shall be
recoverable by the CONTRACTOR in accordance with the provisions of Articles 1
and 25.
17.8
Upon request of the CONTRACTOR, the GOVERNMENT shall prohibit the
construction of residential or commercial buildings in the vicinity of facilities used for
the Petroleum Operations that may be declared dangerous due to the Petroleum
Operations and to prohibit any interference with the use of any facilities required for
the Petroleum Operations.
17.9
Access to the Contract Area may be granted pursuant to an Access Authorisation, as
shall be defined in, and consistent with, the Kurdistan Region Oil and Gas Law, to
authorised third parties on reasonable terms and conditions (including coordination),
including Persons authorised to construct, install and operate structures, facilities and
installations, and to carry out other works, provided that nothing in the Access
Authorisation or in this Article 17.9 authorises the holder to drill a Well or to perform
any Petroleum Operations in Contract Area.
The GOVERNMENT shall give the CONTRACTOR adequate advance notice of
any Access Authorisation in respect of the Contract Area and shall not grant any
Access Authorisation in respect of the Contract Area until it has taken into account
any submissions made by the CONTRACTOR nor in such a way that there is undue
interference with or hindrance of the rights and activities of the CONTRACTOR.
ARTICLE 18 – ASSISTANCE FROM THE GOVERNMENT
18.1
To the extent allowed by Applicable Law, and only at the specific request of the
CONTRACTOR, the GOVERNMENT shall take all necessary steps to assist the
CONTRACTOR Entities in, but not limited to, the following areas:
(a)
securing any necessary Permits for the use and installation of means of
transportation and communications;
(b)
securing regulatory Permits in matters of customs or import/export;
(c)
securing entry and exit visas, work and residence permits as well as any other
administrative Permits for each CONTRACTOR Entity’s, its Affiliate’s and
its Subcontractors’ foreign personnel (including their family members)
working in the Kurdistan Region and any other part of Iraq during the
implementation of this Contract;
(d)
securing any necessary Permits to send Abroad documents, data or samples
for analysis or processing for the Petroleum Operations;
(e)
relations with federal and local authorities and administrations, including for
the purposes of the remainder of this Article 18.1;
(f)
securing any necessary environmental Permits;
(g)
obtaining any other Permits requested by any CONTRACTOR Entity for the
Petroleum Operations;
(h)
access to any existing data and information, including data and information
relating to the Contract Area held by previous operators or contractors; and
(i)
18.2
providing all necessary security for Petroleum Operations.
Within the scope of services to be provided under this Article 18, reasonable and duly
justified expenses incurred by the GOVERNMENT or paid to third parties shall be
charged to the CONTRACTOR and shall be considered Petroleum Costs and shall
be recoverable by the CONTRACTOR as Petroleum Costs in accordance with the
provisions of Articles 1 and 25.
ARTICLE 19 – EQUIPMENT AND MATERIALS
19.1
The CONTRACTOR shall supply, or procure the supply of, all materials, equipment,
machinery, tools, spare parts and any other items or goods required for the Petroleum
Operations (“Equipment and Materials”).
19.2
Said Equipment and Materials shall be provided by the CONTRACTOR in
accordance with the relevant Work Programs and Budgets.
19.3
As soon as possible after the Effective Date, the CONTRACTOR shall provide the
Management Committee with a copy of its procedures for procurement of Equipment
and Materials and/or services for the Petroleum Operations as required by the
provisions of Article 8.2(e), including the criteria for tender evaluation, which
procedures and criteria shall be in accordance with prudent international petroleum
industry practice. If the Management Committee does not request any modifications
to the procurement procedures within thirty (30) days after receiving such procedures,
the procedures shall be deemed approved by the Management Committee.
19.4
The CONTRACTOR shall give priority to Equipment and Materials that are readily
available in the Kurdistan Region and other parts of Iraq to the extent their price,
grade, quality, quantity, specifications, purchase, delivery and other commercial and
technical terms are comparable in all material respects with those generally available
in the international petroleum industry.
ARTICLE 20 – TITLE TO ASSETS
20.1
During the Exploration Period, any Assets acquired by the CONTRACTOR for the
Petroleum Operations shall remain the property of the CONTRACTOR, the
CONTRACTOR Entities, their Affiliates or their Subcontractors, as the case may be.
20.2
During the Development Period, subject to Article 21, all Assets acquired by the
CONTRACTOR for the Petroleum Operations shall become the property of the
GOVERNMENT upon the completion of the recovery of the costs of all such assets
by the CONTRACTOR, or the end of the Contract, whichever is the earlier.
20.3
The provisions of Article 20.2 shall not apply to any Assets leased by the
CONTRACTOR or belonging to an Affiliated Company of a CONTRACTOR
Entity or belonging to its or their Subcontractors or its or their employees.
ARTICLE 21 – USE OF THE ASSETS
21.1
The CONTRACTOR shall have the exclusive right to use, free of any charge, all
Assets described in Article 20, both before and after recovery of the cost of the same,
for the Petroleum Operations, as well as for any petroleum operations under other
agreements in the Kurdistan Region to which it or any of its Affiliates is a party,
provided that the Petroleum Operations take priority. The GOVERNMENT agrees
not to transfer or otherwise dispose of any of such Assets without the
CONTRACTOR’s prior written approval.
21.2
The CONTRACTOR may freely move to the Contract Area any Assets from any
relinquished portion of the Contract Area, or from any other area in the Kurdistan
Region.
ARTICLE 22 – SUBCONTRACTING
22.1
The CONTRACTOR shall ensure that any Subcontractors it engages have all the
requisite experience and qualifications.
22.2
The CONTRACTOR shall give priority to Subcontractors from the Kurdistan
Region and other parts of Iraq to the extent their competence, rates, experience,
reputation, qualifications, specialties, credit rating and terms of availability, delivery
and other commercial terms are, in the CONTRACTOR’s sole opinion, comparable
in all material respects with those provided by foreign companies operating in the
international petroleum industry. Such Subcontractors must be bona fide Kurdistan
Region companies not related to any Public Officer, directly or indirectly, and must
have all necessary resources and capacity.
22.3
Selection of Subcontractors shall take place in accordance with the procurement
procedures submitted by the CONTRACTOR to the Management Committee in
accordance with Article 19.3 and approved by the Management Committee.
22.4
The CONTRACTOR shall provide the GOVERNMENT with copies of agreements
entered into with Subcontractors, where their amount exceeds the limit set by the
Management Committee from time to time.
ARTICLE 23 – PERSONNEL, TRAINING, AND TECHNOLOGICAL ASSISTANCE
Personnel
23.1
For the Petroleum Operations, the CONTRACTOR shall give, and shall require its
Subcontractors to give, preference to personnel from the Kurdistan Region and other
parts of Iraq to the extent such personnel have the technical capability, qualifications,
competence and experience required to perform the work.
23.2
The CONTRACTOR shall give due consideration to the secondment of
GOVERNMENT personnel to the CONTRACTOR and of the CONTRACTOR’s
personnel to the GOVERNMENT during the various phases of the Petroleum
Operations. Terms and conditions for such secondment shall be mutually agreed by
the Parties, and any costs associated therewith shall be considered Petroleum Costs
and shall be recoverable by the CONTRACTOR in accordance with the provisions
of Articles 1 and 25.
23.3
Each CONTRACTOR Entity and its Affiliates and Subcontractors shall have the
right to hire foreign personnel whenever the personnel from the Kurdistan Region and
other parts of Iraq do not have the requisite technical capability, qualifications or
experience for positions to be filled as required pursuant to Article 23.1. In the event
any such foreign personnel and/or a member of their family engage in activities or
commit acts which breach Kurdistan Region Law, the CONTRACTOR shall, at the
request of the Management Committee, take the necessary steps to repatriate such
individual(s).
23.4
For the first five (5) Contract Years following 31 December 2011, the
CONTRACTOR shall provide two hundred and fifty thousand Dollars
(US$250,000) in advance each Contract Year to the GOVERNMENT for the
recruitment or secondment of personnel, whether from the Kurdistan Region other
parts of Iraq or Abroad, to the Ministry of Natural Resources. The selection of such
personnel shall be at the discretion of the Minister of Natural Resources. Such costs
shall be considered as Petroleum Costs and shall be recoverable in accordance with the
provisions of Articles 1 and 25.
Training
23.5
In a planned way, in accordance with the provisions of this Article 23.5 and Articles
23.6 and 23.7, the CONTRACTOR shall train all its personnel from the Kurdistan
Region and other parts of Iraq directly or indirectly involved in the Petroleum
Operations for the purpose of improving their knowledge and professional
qualifications in order that such personnel gradually reach the level of knowledge and
professional qualification held by the CONTRACTOR Entities’ foreign workers
with an equivalent résumé. Such training shall also include the transfer of knowledge
of petroleum technology and the necessary management experience so as to enable
the personnel from the Kurdistan Region and other parts of Iraq to apply advanced
and appropriate technology in the Petroleum Operations, to the extent permitted by
Applicable Law and agreements with third parties, and subject to appropriate
confidentiality agreements.
23.6
In addition to the requirements of Article 23.1, the recruitment, integration and
training of the CONTRACTOR Entities’ personnel from the Kurdistan Region and
other parts of Iraq shall be planned, which plans shall be submitted to the
Management Committee for its approval. The training plan shall take into
consideration the requirements of Article 23.5 and may include training for the
GOVERNMENT’s personnel, depending on the extent to which the amount
allocated to the training plan, as prescribed by Article 23.7, is available after taking
into consideration the training of the CONTRACTOR Entities’ Kurdistan Region
and other Iraqi personnel.
Within ninety (90) days of the Effective Date, the CONTRACTOR shall submit to
the Management Committee a proposed training plan for the remainder of the
Calendar Year. Thereafter, no later than 1 October in each Calendar Year, the
CONTRACTOR shall submit a proposed training plan to the Management
Committee for the following Calendar Year.
23.7
The training plan referred to in Article 23.6 shall provide for the allocation to the
GOVERNMENT of the amount of one hundred and fifty thousand Dollars
(US$150,000) in advance for each Contract Year during the Exploration Period following
31 December 2011 and three hundred thousand Dollars (US$300,000) in advance for each
Contract Year during the Development Period.
23.8
Each CONTRACTOR Entity shall be responsible for the training costs which it may
incur in respect of the personnel it employs from the Kurdistan Region and other parts
of Iraq. All such reasonable costs shall be considered as Petroleum Costs and shall be
recoverable in accordance with the provisions of Articles 1 and 25. Costs incurred by
the CONTRACTOR for training programs for the GOVERNMENT’s personnel
shall be borne by the CONTRACTOR only to the extent that they are included in the
CONTRACTOR’s training plan, pursuant to Article 23.6 and shall also be
considered as Petroleum Costs and shall be recoverable in accordance with the
provisions of Articles 1 and 25. The cost of all other training programs for the
GOVERNMENT’s personnel shall be the GOVERNMENT’s responsibility.
The Environment Fund
23.9
The CONTRACTOR shall contribute the amount of one hundred and fifty thousand
Dollars (US$150,000) in advance each Contract Year during the Exploration Period
following 31 December 2011 and three hundred thousand Dollars (US$300,000) in
advance for each Contract Year during the Development Period into the environment
fund established by the GOVERNMENT for the benefit of the natural environment
of the Kurdistan Region, pursuant to the Kurdistan Region Oil and Gas Law (the
“Environment Fund”). Such amounts shall be deemed to be Petroleum Costs and
shall be recoverable in accordance with Articles 1 and 25.
23.10 Any expenditure incurred by the CONTRACTOR under this Article 23 shall be
considered Petroleum Costs and shall be recoverable in accordance with Articles 1
and 25.
Technological and Logistical Assistance
23.11 Before the end of the first Contract Year, the CONTRACTOR shall provide to the
GOVERNMENT such technological and logistical assistance to the Kurdistan
Region petroleum sector, including geological computing hardware and software and
such other equipment as the Minister of Natural Resources may request, up to the
value of two hundred and fifty thousand Dollars (US$250,000). The form of such
assistance shall be mutually agreed by the Parties, any costs associated therewith shall
be considered Petroleum Costs, and such Petroleum Costs shall be recoverable by the
CONTRACTOR in accordance with the provisions of Articles 1 and 25.
ARTICLE 24 – ROYALTY
24.1
The CONTRACTOR shall pay to the GOVERNMENT a portion of Petroleum
produced and saved from the Contract Area, as provided in this Article 24 (the
“Royalty”).
24.2
The Royalty shall be applied on all Petroleum produced and saved from the Contract
Area which is Crude Oil or Non-Associated Natural Gas, except for Petroleum used
in Petroleum Operations, re-injected in a Petroleum Field, lost, flared or for Petroleum
that cannot be used or sold and such Crude Oil and Non-Associated Natural Gas
(excluding the excepted Petroleum) shall be referred to collectively as “Export
Petroleum” and separately and respectively as “Export Crude Oil” and “Export
Non-Associated Natural Gas”.
24.3
If payable in cash, the amount of the Royalty calculated by applying the Royalty rates
provided under Article 24.4 shall be paid by the CONTRACTOR as directed by the
GOVERNMENT, in accordance with Article 24.7.
If payable in kind, the quantity of Export Petroleum corresponding to the Royalty and
calculated by applying the Royalty rates provided under Article 24.4 shall be
delivered in kind by the CONTRACTOR to the GOVERNMENT at the Delivery
Point. Title and risk of loss of the Royalty paid in kind shall be transferred at the
Delivery Point.
Unless the GOVERNMENT requires the Royalty to be paid in kind, by giving the
CONTRACTOR not less than ninety (90) days prior written notice prior to the
commencement of the relevant Quarter, the GOVERNMENT shall be deemed to
have elected to receive the Royalty in full and in cash for the relevant Quarter.
24.4
The Royalty due on any Export Petroleum produced and saved in the Contract Area
shall be determined daily by applying the following relevant Royalty rate, to the
Export Crude Oil or to the Export Non-Associated Natural Gas (as the case may be)
produced and saved on that day:
(a)
For Export Crude Oil:
the Royalty rate for Export Crude Oil shall be ten per cent (10%), which, for
the avoidance of doubt, shall apply regardless of the gravity of the oil; and
(b)
For Export Non-Associated Natural Gas:
the Royalty rate for Export Non-Associated Natural Gas shall be ten per cent
(10%).
24.5
Associated Natural Gas and any other Petroleum shall be exempt from any Royalty.
24.6
If, pursuant to Article 24.3, the GOVERNMENT receives the Royalty in kind, and
pursuant to Article 28, the GOVERNMENT requests assistance for the sale of all or
part of the Royalty received in kind, each CONTRACTOR Entity shall assist the
GOVERNMENT in selling all or part of such Royalty received in kind (belonging to
the GOVERNMENT) in consideration of a commission per Barrel payable to such
CONTRACTOR Entity, in accordance with Article 28.
24.7
If, pursuant to Article 24.3, the GOVERNMENT receives the Royalty in cash:
(a)
any Export Crude Oil shall be valued at the International Market Price
obtained at the Delivery Point, as defined in Article 27.2;
(b)
any Export Non-Associated Natural Gas shall be valued at the actual price
obtained at the Delivery Point under an approved contract, as provided in
Article 27.3;
(c)
the CONTRACTOR shall pay such Royalty each Quarter, in arrears, within
thirty (30) days of the end of each Quarter, and shall calculate the payment
due for the relevant Quarter by reference to the price for the Export Petroleum
at the Delivery Point, determined in accordance with paragraphs (a) and (b)
above, and the Royalty due on the Export Petroleum, determined in
accordance with Article 24.4, for the said Quarter; and
(d)
the CONTRACTOR Entities shall be entitled to export freely the volume of
Export Petroleum corresponding to the Royalty determined in accordance with
Article 24.4 for the purpose of paying the Royalty in cash.
ARTICLE 25 – RECOVERY OF PETROLEUM COSTS
25.1
All Export Crude Oil produced and saved from the Contract Area shall, after
deduction of any quantities of Export Crude Oil due for Royalty pursuant to Article
24, be considered as “Available Crude Oil”.
All Associated Natural Gas produced and saved from the Contract Area, except for
Associated Natural Gas which is used in Petroleum Operations, re-injected in a
Petroleum Field, lost, flared or cannot be used or sold, shall be considered as
“Available Associated Natural Gas”.
All Export Non-Associated Natural Gas produced and saved from the Contract Area
shall, after deduction of any quantities of Export Non-Associated Natural Gas due for
Royalty pursuant to Article 24, be considered as “Available Non-Associated Natural
Gas”.
“Available Petroleum” means Available Crude Oil, Available Associated Natural
Gas and Available Non-Associated Natural Gas.
25.2
For the purpose of this Article 25:
(a)
any Available Crude Oil shall be valued at the International Market Price
obtained at the Delivery Point, as defined in Article 27.2; and
(b)
any Available Associated Natural Gas and any Available Non-Associated
Natural Gas shall be valued at the actual price obtained at the Delivery Point
under an approved contract, as provided in Article 27.3.
25.3
Subject to the provisions of this Contract, from the First Production in the Contract
Area, the CONTRACTOR shall at all times be entitled to recover all Petroleum
Costs incurred under this Contract, of up to forty-five per cent (45%) of Available
Crude Oil (which, for the avoidance of doubt, shall apply regardless of the gravity of
the oil) and Available Associated Natural Gas, produced and saved within any
Calendar Year. Available Crude Oil above this percentage or otherwise not used for
the recovery of Petroleum Costs shall be Profit Crude Oil.
25.4
Subject to the provisions of this Contract, from First Production in the Contract Area,
the CONTRACTOR shall at all times be entitled to recover all Petroleum Costs
incurred under this Contract of up to fifty-five per cent (55%) of Available NonAssociated Natural Gas produced and saved within any Calendar Year. Available
Non-Associated Natural Gas above this percentage or otherwise not used for the
recovery of Petroleum Costs shall be Profit Natural Gas.
25.5
For the application of Article 25.3 and 25.4, the CONTRACTOR shall keep a
detailed account of Petroleum Costs in accordance with the provisions detailed in the
Accounting Procedure. Recovery of Petroleum Costs shall occur in the following
order:
(a)
Production Costs;
(b)
Exploration Costs (including appraisal costs and further exploration within the
Contract Area);
25.6
(c)
Gas Marketing Costs;
(d)
Development Costs; and
(e)
Decommissioning Costs.
Total recovery of Petroleum Costs during any Calendar Year, expressed in quantities
of Petroleum, shall not exceed the relevant percentages indicated in Articles 25.3 and
25.4. If in any Calendar Year, the Available Crude Oil and/or Available NonAssociated Natural Gas do not allow the CONTRACTOR to recover all its
Petroleum Costs pursuant to this Article 25, the amount of un-recovered Petroleum
Costs in such Calendar Year shall be carried forward indefinitely to the subsequent
Calendar Years until all Petroleum Costs are fully recovered, but, save as provided in
Articles 14.10 and 38.4, in no other case after the termination of the Contract.
25.7
The provisions of Articles 27.5 and 27.6 shall be applied to determine the quantities
of Available Crude Oil and/or Available Non-Associated Natural Gas due to the
CONTRACTOR for the recovery of its Petroleum Costs.
25.8
The quantities of Petroleum corresponding to the share of Available Petroleum due to
the CONTRACTOR for the recovery of its Petroleum Costs shall be delivered to the
CONTRACTOR at the Delivery Point. Title and risk of loss of such Available
Petroleum shall be transferred at the Delivery Point.
25.9
Each CONTRACTOR Entity shall be entitled to receive, take in kind and to export
freely all Available Petroleum to which it is entitled for recovery of its Petroleum
Costs in accordance with the provisions of this Contract and to retain Abroad any
proceeds from the sale of all such Available Petroleum. Petroleum Costs in each
Production Area shall be recoverable from Available Petroleum from that Production
Area.
25.10 Subject to Article 38.4, for the avoidance of doubt, Petroleum Costs under this
Contract are not recoverable against other contract areas held by the
CONTRACTOR.
ARTICLE 26 – SHARING OF PROFIT PETROLEUM
26.1
Under this Contract,
(a)
“Profit Petroleum” means Profit Crude Oil and Profit Natural Gas;
(b)
“Profit Crude Oil” means the quantities of Available Crude Oil and
Available Associated Natural Gas produced from the Production Area, after
the recovery of Petroleum Costs, in accordance with Articles 1 and 25; and
(c)
“Profit Natural Gas” means the quantities of Available Non-Associated
Natural Gas produced from the Production Area, after the recovery of
Petroleum Costs in accordance with Articles 1 and 25.
26.2
From First Production and as and when Petroleum is being produced, the
CONTRACTOR shall be entitled to take a percentage share of Profit Crude Oil
and/or Profit Natural Gas, in consideration for its investment in the Petroleum
Operations, which percentage share shall be determined in accordance with Article
26.5. The GOVERNMENT or any other holder of all or any part of the Government
Interest is entitled to be attributed and allocated a percentage share of Profit
Petroleum in accordance with the participating interest of the Government Interest.
26.3
To determine the percentage share of Profit Crude Oil and/or Profit Natural Gas to
which the CONTRACTOR and the GOVERNMENT or any other holder of all or
any part of the Government Interest is entitled, the “R” Factor shall be calculated in
accordance with Article 26.4. The calculation of the R Factor will apply to all
Production Areas in the Contract Area for until a new R Factor calculation has been
made in accordance with clause 26.4.
26.4
The “R” Factor shall be calculated as follows:
R = X/Y
where:
X:
is equal to Cumulative Revenues actually received by the CONTRACTOR;
Y:
is equal to Cumulative Costs actually incurred by the CONTRACTOR.
For the purpose of this Article 26.4:
“Cumulative Revenues” means total Revenues, as defined below, received by the
CONTRACTOR until the end of the relevant Semester, determined in accordance
with Article 26.7.
“Revenues” means the total amount actually received by the CONTRACTOR for
recovery of its Petroleum Costs and its share of Profit Petroleum in the Contract Area.
“Cumulative Costs” means all Petroleum Costs in the Contract Area, actually
incurred by the CONTRACTOR until the end of the relevant Semester, determined
in accordance with Article 26.7.
Notwithstanding the foregoing provisions of this Article 26.4, for the period from
First Production until the end of the Calendar Year in which First Production occurs,
the “R” Factor shall be deemed to be less than one (1).
26.5
The share of Profit Petroleum to which the CONTRACTOR shall be entitled from
First Production is:
(a)
for Profit Crude Oil, equal to the quantities of Petroleum resulting from the
application of the relevant percentage as indicated below to the daily volume
of production of Profit Crude Oil within the Contract Area at the
corresponding Delivery Point:
“R” Factor
CONTRACTOR’s % Share of Profit Crude Oil
R < or = 1
35%
1 < R< or = 2
35 – (35 – 16) * (R - 1) / (2 - 1)
R>2
16%
and
(b)
for Profit Natural Gas, equal to the quantities of Non-Associated Natural Gas
resulting from the application of the relevant percentage as indicated below to
the daily volume of production of Profit Natural Gas within the Contract Area
at the corresponding Delivery Point:
“R” Factor
CONTRACTOR’s % Share of Profit Natural Gas
R < or = 1
40%
1 < R < o r =2 . 7 5
40 – (40 – 20) * (R-1) / (2.75-1)
R >2.75
20%
26.5.1 Profit Petroleum which is attributed and allocated neither to the CONTRACTOR or
GOVERNMENT as holder of the Government Interest, or any other holder of the
Government Interest in accordance with clause 26.5 is to be attributed and allocated
to the GOVERNMENT.
26.6
The CONTRACTOR’s accounting shall account separately for all components for
the calculation of “X” and “Y” values in the formula provided in Article 26.4.
26.7
For each Semester, starting from the 1st of January of the Calendar Year following the
Calendar Year in which First Production occurs, the CONTRACTOR shall calculate
the “R” Factor applicable to the relevant Semester within thirty (30) days of the
beginning of such Semester. The “R” Factor to be applied during a Semester shall be
that determined by applying the Cumulative Revenues actually received and the
Cumulative Costs actually incurred up to and including the last day of the preceding
Semester.
If the CONTRACTOR is unable to calculate the “R” Factor for the relevant
Semester before an allocation of Profit Petroleum for such Semester must be made,
then the allocation of Profit Petroleum for the previous Semester shall be used for the
relevant Semester. Upon the calculation of the “R” Factor for the relevant Semester:
(a)
if the allocation of Profit Petroleum in the previous Semester and the relevant
Semester is the same, then no adjustment shall be made; and
(b)
if the allocation of the Profit Petroleum in the two Semesters is different, then
the CONTRACTOR shall make any adjustments to the Parties’ respective
shares of Profit Petroleum to restore them to the position that they would have
been in had the “R” Factor for the relevant Semester been available from the
start of such Semester.
26.8
If at any time an error occurs in the calculation of the “R” Factor, resulting in a
change in the CONTRACTOR’s percentage share of Profit Crude Oil and/or Profit
Natural Gas, the necessary correction shall be made and any adjustments shall apply
from the Semester in which the error occurred. The Party having benefited from a
surplus of Profit Petroleum shall surrender such surplus to the other Party, beginning
from the first day of the Semester following the Semester in which the error was
recognised. However, each lifting of Petroleum relating to such error by the Party
receiving the surplus shall not exceed twenty-five per cent (25%) of the share of
Profit Petroleum to which such surrendering Party is entitled. For the avoidance of
doubt, if at any time an error occurs in the calculation of the “R” Factor, which does
not result in a change in the CONTRACTOR’s percentage share of Profit Crude Oil
and/or Profit Natural Gas, no correction shall be made.
26.9
The CONTRACTOR shall deliver the quantities of Profit Petroleum to which the
GOVERNMENT and each CONTRACTOR Entity are entitled at the Delivery
Point.
The quantity of Profit Petroleum to which the GOVERNMENT is entitled is:
(a)
the share of Profit Petroleum to which the GOVERNMENT is entitled in any
Calendar Year in accordance with Article 26.5; and
(b)
(notwithstanding any other provision of this Contract, any lifting agreement,
any sales or marketing agreement, or any other agreement), three per cent
(3%) of the share of Profit Petroleum attributable to the WesternZagros
Interest; so that the WesternZagros Interest Holders are only entitled to ninetyseven per cent (97%) of the share of Profit Petroleum attributable to the
WesternZagros Interest.
The CONTRACTOR shall ensure that all agreements in respect of the lifting or sale
of Petroleum reflect the GOVERNMENT’s rights as set forth in this Article 26.9.
Notwithstanding the other provisions of this Article 26.9, where a Charged Interest
Holder is in breach of any of its obligations in respect of the payment of Capacity
Building Payment Instalments under Article 32.6, the GOVERNMENT will have the
rights set forth in Articles 32.6.6 through 32.6.8.
26.10 Title and risk of loss of Profit Petroleum pass to the GOVERNMENT and the
CONTRACTOR Entities at the Delivery Point. The GOVERNMENT and each
CONTRACTOR Entity will be entitled to receive, take in kind and to export freely
its share of Profit Petroleum in accordance with the provisions of this Contract and to
retain Abroad any proceeds from the sale of all such Profit Petroleum.
26.11 The share of the Profit Petroleum to which the GOVERNMENT is entitled in any
Calendar Year in accordance with Article 26.5 will be deemed to include a portion
representing the corporate income tax imposed upon and due by each
CONTRACTOR Entity, and which will be paid directly by the GOVERNMENT on
behalf of each such entity representing the CONTRACTOR to the appropriate tax
authorities in accordance with Article 31.2. The GOVERNMENT shall provide the
CONTRACTOR Entities with all written documentation and evidence reasonably
required by the CONTRACTOR Entities to confirm that such corporate income tax
has been paid by the GOVERNMENT.
26.12 At least twenty-one (21) days prior to CONTRACTOR’s estimated date of First
Production and, subsequently, thirty (30) days prior to the beginning of each
Semester, the CONTRACTOR shall prepare and deliver to the GOVERNMENT a
production program comprising the production forecast for the next Semester and the
forecast of the quantities of Crude Oil and Natural Gas to which each Party shall be
entitled during the said Semester.
26.13 Within ninety (90) days following the end of each Calendar Year, the
CONTRACTOR shall prepare and deliver an annual production report to the
GOVERNMENT, stating the quantities of Crude Oil and Natural Gas to which each
Party is entitled, the quantities of Crude Oil and Natural Gas lifted by each Party and
the resulting over-lift or under-lift position of each Party, pursuant to the lifting
agreement entered into pursuant to Article 16.14.
26.14 Any costs or expenditure incurred by the CONTRACTOR, its Subcontractors or
suppliers relating to the lifting of the GOVERNMENT’s share of Petroleum by the
CONTRACTOR shall not be considered Petroleum Costs and shall be charged to the
GOVERNMENT according to terms to be mutually agreed between the
CONTRACTOR and the GOVERNMENT.
ARTICLE 27 – VALUATION AND METERING OF CRUDE OIL AND NATURAL
GAS
Valuation
27.1
For the purpose of this Contract, any Crude Oil produced in the Contract Area shall
be valued at the end of each Quarter (and, where there is a Charged Interest Holder,
each Month) at the Delivery Point based on the International Market Price, as defined
in Article 27.2.
27.2
The “International Market Price” referred to in Article 27.1 shall be the weighted
average price per Barrel, expressed in Dollars, obtained by the CONTRACTOR at
the Delivery Point, by netback if necessary, during the Quarter (and where there is a
Charged Interest Holder, the Month) ending on the date of valuation for Arm's Length
Sales of Crude Oil.
The CONTRACTOR shall provide evidence to the GOVERNMENT that the sales
of Crude Oil referred to in Article 27.2 are Arm’s Length Sales.
If the
GOVERNMENT considers that any such sale of Crude Oil is not on the basis of an
Arm’s Length Sale then the GOVERNMENT has the right to refer the matter to an
expert pursuant to Article 42.2.
In the event that there is no lifting of Crude Oil in the relevant Quarter (and where
there is a Charged Interest Holder the relevant Month), or no Arm’s Length Sales, the
applicable “International Market Price” for such Quarter shall be the weighted
average price per Barrel obtained during that Quarter and Month from Arm’s Length
Sales of Crude Oil of the same or similar gravity and quality from other production
areas sold in markets competing with Crude Oil produced from the Contract Area,
taking into account gravity and quality differences and transportation and other post
Delivery Point costs.
To determine such price, the Parties shall, prior to the commencement of Production,
agree on a basket of Crude Oil comparable to those produced in the Contract Area and
sold in the international market. Prices obtained shall be adjusted to account for any
variations such as quality, specific gravity, sulphur content, transportation costs,
product yield, seasonal variations in price and demand, general market trends and
other terms of sale.
27.3
The price of Natural Gas shall be the actual price obtained at the Delivery Point,
(which may take into account quantities to be sold, quality, geographic location of
markets to be supplied as well as costs of production, transportation and distribution
of Natural Gas from the Delivery Point to the relevant market, in accordance with
standard international petroleum industry practice). The GOVERNMENT shall have
the right to review and approve Natural Gas sales contracts.
Accounting Statement
27.4
By the tenth (10th) day of each Month, the CONTRACTOR shall provide a statement
to the GOVERNMENT showing the CONTRACTOR’s calculations of the value of
Petroleum produced and sold from the Contract Area for the previous Month. Such
statement shall include the following information:
(a)
quantities of Crude Oil sold by the CONTRACTOR Entities during the
preceding Month constituting Arm’s Length Sales together with corresponding
sale prices;
(b)
quantities of Crude Oil sold by the CONTRACTOR Entities during the
preceding Month that do not fall in the category referred to in paragraph (a)
above, together with sale prices applied during such Month;
(c)
inventory in storage belonging to the CONTRACTOR Entities at the beginning
and at the end of the Month; and
(d)
quantities of Natural Gas sold by the CONTRACTOR Entities and the
GOVERNMENT together with sale prices realised.
Where there is a Charged Interest Holder, the CONTRACTOR shall deliver,
concurrently with the delivery of the monthly statement, the Charged Interest Holders
Monthly Statement to the GOVERNMENT as provided in Article 32.6.2(a).
Metering
27.5
All Export Petroleum shall be metered at the Delivery Point in accordance with
prudent international petroleum industry practice and such meters shall be to fiscal
meter standards. All metering equipment shall be installed and operated by the
CONTRACTOR. The GOVERNMENT shall, on receipt by the CONTRACTOR
of reasonable prior written notice, have the right to inspect any such metering
equipment installed by the CONTRACTOR, as well as all relevant documents and
supporting information reasonably necessary to validate the accuracy of such
metering. All metering equipment shall be subject to periodic technical inspections in
accordance with prudent international petroleum industry practice.
27.6
If any metering equipment is defective, the CONTRACTOR shall use all reasonable
endeavours to repair it within fifteen (15) days or, if deemed necessary by the
CONTRACTOR, replace it as soon as reasonably practicable from the date the
defect became known.
The “Adjustment Date” shall be the last date that the
metering equipment was known or agreed to have been measuring correctly, or if not
known or agreed, the date that is midway between the date the defect was discovered
and the last date the equipment was known to have measured correctly. The results
from the defective equipment shall be disregarded for the period from the Adjustment
Date until the date the defective equipment is repaired or replaced and the
measurement for such period shall be estimated:
(a)
if check measuring equipment is installed and registering accurately, then by
using the measurements recorded by such check measuring equipment;
(b)
if check measuring equipment is not installed or not registering accurately,
then by correcting the error if the percentage of error is ascertainable by
verification, calibration or mathematical calculation; or
(c)
if neither method is feasible, then by estimating the volume and/or quantity
delivered based on deliveries during the preceding comparable period of time
when the metering equipment was registered accurately.
27.7
Any disputes arising under this Article 27 shall be settled by expert determination in
accordance with the provisions of Article 42.2.
ARTICLE 28 – SALE OF GOVERNMENT SHARE
Upon the GOVERNMENT’s prior written notice of at least ninety (90) days, each
CONTRACTOR Entity shall provide all reasonably necessary assistance to the
GOVERNMENT for the sale of all or part of the quantities of Crude Oil to which the
GOVERNMENT is entitled, in consideration of a sales commission per Barrel to be
established with reference to prudent international petroleum practice and to be mutually
agreed upon between the Parties.
ARTICLE 29 – FINANCIAL PROVISIONS
29.1
A Party making a payment to the GOVERNMENT: shall: (i) make such payment in
Dollars in cleared funds by wire transfer from a reputable bank in accordance with
wire instructions provided by the GOVERNMENT, on the date when due; and (ii)
not offset against such payment any outstanding and undisputed payments due from
the GOVERNMENT to such Party, except with the prior written consent of the
GOVERNMENT.
29.2
The GOVERNMENT may, at its sole discretion, direct the CONTRACTOR
Entities to pay any or all of the following:
(a)
any Royalty in cash due to the GOVERNMENT pursuant to the provisions of
Article 24;
(b)
any proceeds from the sale undertaken by a CONTRACTOR Entity on behalf
of the GOVERNMENT pursuant to Article 28 of any Crude Oil to which the
GOVERNMENT is entitled pursuant to Article 25; and
(c)
any Production Bonus,
to a fund for revenue sharing, which may in due course be established by legislation
consistent with the Constitution of Iraq, between the Government of Iraq and other
regions (including the Kurdistan Region) and governorates of Iraq. Nothing in this
Article 29.2 shall be understood as implying any contractual relationship or other
relationship between the CONTRACTOR and/or any CONTRACTOR Entity and
the Government of Iraq and/or the regions of Iraq (other than the Kurdistan Region)
and/or and governorates of Iraq.
29.3
Any payment due by the GOVERNMENT to a CONTRACTOR Entity may be
offset against future payments due by such CONTRACTOR Entity to the
GOVERNMENT, or paid in Dollars to the bank account designated by the
CONTRACTOR Entity in writing and shall be paid within thirty (30) days of the
date of invoice, after which interest compounded monthly at the rate of LIBOR plus
two (2) percentage points shall be applied.
29.4
Any currency conversion to be made under this Contract shall be at the exchange rate
of the Central Bank of Iraq, provided such exchange rate applied to the
CONTRACTOR Entities shall not be less favourable than the rate offered by other
private, commercial or industrial banks in the international market. In the absence of
the Central Bank of Iraq or in the event that the Central Bank of Iraq is unable to
provide the relevant exchange rate, any currency conversion to be made under this
Contract shall be at the exchange rate of a reputable commercial bank carrying on
business in the international market and approved by the Parties.
29.5
The CONTRACTOR shall not realise any gain or loss due to exchange rate
fluctuations and, consequently, any gain or loss resulting from the exchange of
currency shall be either considered as revenue and credited to the Accounts or shall be
considered as a Petroleum Cost and shall be recoverable by the CONTRACTOR in
accordance with Articles 1 and 25, as the case may be.
29.6
Each CONTRACTOR Entity shall at all times be entitled to freely convert into
Dollars or any other foreign currency any Iraqi dinars received in the framework of
the Petroleum Operations and to freely transfer the same Abroad. The conversion rate
shall be as provided under Article 29.4.
29.7
Each CONTRACTOR Entity shall have the right to be paid, receive, keep, transfer
and use Abroad, without any restrictions, all proceeds of its share of Petroleum.
29.8
Each CONTRACTOR Entity and its Subcontractors shall have the right to freely
open and maintain bank accounts for Petroleum Operations within or outside the
Kurdistan Region and other parts of Iraq.
29.9
Each CONTRACTOR Entity shall have the right to pay in any freely convertible
currency all its financial requirements for the Petroleum Operations and to convert
these currencies to Iraqi dinars in any bank in the Kurdistan Region or other parts of
Iraq, at the same exchange rate as provided under Article 29.4.
29.10 Each CONTRACTOR Entity shall have the right, without any restrictions, to freely
repatriate Abroad and to freely dispose of:
(a)
any proceeds received in the Kurdistan Region or other parts of Iraq from the
sale of Petroleum;
(b)
any proceeds received from other operations and activities carried out under
this Contract in the Kurdistan Region or other parts of Iraq.
29.11 Each CONTRACTOR Entity shall have the right to pay in any foreign currency its
Subcontractors and its expatriate personnel, either in the Kurdistan Region, other parts
of Iraq, or Abroad. Said Subcontractors and expatriate personnel shall be obliged to
transfer to the Kurdistan Region the amount of foreign currency required for their
local needs and they shall have the right to repatriate the proceeds of the sale of their
belongings in accordance with the regulations in force in the Kurdistan Region.
29.12 Each CONTRACTOR Entity’s Affiliates, Subcontractors and their respective
personnel shall equally benefit from the same rights as such CONTRACTOR Entity
and its personnel as regards this Article 29.
29.13 For the financing of Petroleum Operations, each CONTRACTOR Entity shall have
the right to have recourse to external financing from third parties or from its Affiliated
Companies on an arm’s length basis.
ARTICLE 30 – CUSTOMS PROVISIONS
30.1
All services, material, equipment, goods, consumables and products imported into the
Kurdistan Region and other parts of Iraq by the CONTRACTOR, any
CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of any of the
foregoing, for use or consumption in the Petroleum Operations shall be admitted free
and exempt from any and all Taxes on import. The CONTRACTOR, any
CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of any of the
foregoing shall have the right to re-export from the Kurdistan Region and other parts
of Iraq free from all Taxes on export any material, equipment, goods, consumables
and products that are no longer required for the Petroleum Operations, except where
title has passed to the GOVERNMENT in accordance with Article 20, in which case
re-export shall be approved by the Management Committee.
30.2
The CONTRACTOR, any CONTRACTOR Entity, its Affiliates, any Subcontractor
or any agent of any of the foregoing, and their personnel (including their family
members) shall have the right to freely import into the Kurdistan Region and other
parts of Iraq and re-export from the Kurdistan Region and other parts of Iraq any
personal belongings and furniture free and exempt from any Taxes on import or
export. The sale in the Kurdistan Region and other parts of Iraq of personal
belongings and furniture of expatriate personnel shall comply with Kurdistan Region
Law.
30.3
Each CONTRACTOR Entity and its Affiliates shall be entitled to freely export from
the Kurdistan Region and other parts of Iraq, free of any Taxes, any Petroleum to
which it is entitled pursuant to the provisions of this Contract.
30.4
The GOVERNMENT shall indemnify the CONTRACTOR, any CONTRACTOR
Entity, its Affiliates, any Subcontractor or any agent of any of the foregoing, and their
personnel (including their family members) for any import or export Taxes referred to
in Articles 30.1, 30.2 or 30.3.
ARTICLE 31 – TAX PROVISIONS
31.1
Except as expressly provided in this Article 31, and without prejudice to the
exemptions expressly provided for in Article 30 and in this Article 31, each
CONTRACTOR Entity, its Affiliates and any Subcontractor shall, for the entire
duration of this Contract, be exempt from all Taxes as a result of its income, assets
and activities under this Contract.
The GOVERNMENT shall indemnify each
CONTRACTOR Entity upon demand against any liability to pay any Taxes assessed
or imposed upon such entity which relate to any of the exemptions granted by the
GOVERNMENT under this Article 31.1, and under Articles 31.4 to 31.11.
31.2
Each CONTRACTOR Entity shall be subject to corporate income tax on its income
from Petroleum Operations as provided in Article 31.3, which shall be deemed to be
inclusive and in full and total discharge of any Tax on income, receipts, revenues,
gains or profits of each such entity. Payment of the said corporate income tax shall be
made for the entire duration of this Contract directly to the official Kurdistan Region
tax authorities by the GOVERNMENT, for the account of each CONTRACTOR
Entity, from the GOVERNMENT’s share of the Profit Petroleum received pursuant
to Article 26.
Each CONTRACTOR Entity shall, within sixty (60) days after the end of each tax
year, provide a statement to the appropriate Kurdistan Region tax authorities of its
profits which are subject to corporate income tax, together with a calculation of the
amount of corporate income tax due on those profits.
The GOVERNMENT shall, within ninety (90) days after the end of each tax year,
provide to each CONTRACTOR Entity (i) the appropriate official tax receipts from
the appropriate Kurdistan Region tax authorities or other relevant authority certifying
the payment of its corporate income tax, as determined in the said statement, and that
such entity has met all its Tax obligations in the preceding tax year, and (ii) a copy of
any return or other filing made by the GOVERNMENT in respect of its payment of
corporate income tax on behalf of such CONTRACTOR Entity.
31.3
For the purposes of Article 31.2:
(a)
The rate of corporate income tax to be applied to each CONTRACTOR
Entity shall be the generally applicable rate prescribed in the Law of Taxation
(Law No. 5 of 1999), passed by the National Assembly of the Kurdistan
Region, as may be amended from time to time or substituted in respect of
Petroleum Operations (as defined under the Kurdistan Region Oil and Gas
Law) by a petroleum operations taxation Law for the Kurdistan Region, but in
no event in excess of forty per cent (40%). The Parties acknowledge and agree
that at the Effective Date of this Contract, the corporate income tax rate is
forty per cent (40%) for all net taxable profits in excess of nine million Iraqi
dinars.
(b)
The GOVERNMENT and the CONTRACTOR agree that corporate income
tax shall be calculated for each CONTRACTOR Entity on its net taxable
profits under the Contract, as calculated in accordance with the provisions
relating thereto in the Accounting Procedure.
31.4
Each CONTRACTOR Entity, its Affiliates as well as any Subcontractors shall be
exempt from any withholding tax applicable on any payments made to them or by
them to or from Affiliates or third parties, whether inside or outside the Kurdistan
Region and/or Iraq, for the entire duration of this Contract.
31.5
Each CONTRACTOR Entity and its Affiliates shall be exempt from Additional
Profits Tax, as referred to in Article 40 of the Kurdistan Region Oil and Gas Law or
any successor Tax.
31.6
Each CONTRACTOR Entity and its Affiliates shall be exempt from Surface Tax, as
referred to in Article 40 of the Kurdistan Region Oil and Gas Law or any successor
Tax.
31.7
Each CONTRACTOR Entity and its Affiliates shall be exempt from Windfall Profits
Taxes, as referred to in Article 40 of the Kurdistan Region Oil and Gas Law or any
successor Tax.
31.8
Each CONTRACTOR Entity and any Subcontractor shall be subject to the payment
or withholding of the personal income tax and social security contributions for which
such entity or Subcontractor is liable to pay or withhold in respect of its employees
who are Iraqi nationals, pursuant to the Law of Taxation (Law No. 5 of 1999) passed
by the National Assembly of the Kurdistan Region, as may be amended from time to
time, in the same manner as the same shall be generally applied to all other industries,
except that a CONTRACTOR Entity or Subcontractor shall not be liable for such
taxes or contributions with respect to employees of another Person.
31.9
It is acknowledged that double tax treaties will have effect to give relief from taxes to,
but not limited to, the CONTRACTOR, CONTRACTOR Entities, Subcontractors
and employees and other Persons in accordance with the provisions of such double
tax treaties, but shall not impose an additional burden of taxation.
31.10 Any Tax that is a value added tax (“VAT”) and that is not otherwise recoverable by
the CONTRACTOR Entity under applicable VAT Law shall be considered as a
Petroleum Cost and shall be cost recoverable in accordance with the provisions of
Articles 1 and 25.
31.11 Notwithstanding any other provision to the contrary in this Contract, the provisions
of this Article 31 shall apply individually and separately to all CONTRACTOR
Entities under this Contract and there shall be no joint and several liability in respect
of any liability, duty or obligation referred to in this Article 31.
ARTICLE 32 – BONUSES AND CAPACITY BUILDING PAYMENTS
Signature Bonus
32.1
Pursuant to the terms of the Kalar-Bawanoor Contract, WesternZagros Limited paid
a signature bonus of five million Dollars (US$5,000,000) (“Signature Bonus”) to the
GOVERNMENT, receipt of which is confirmed by the GOVERNMENT. No
additional Signature Bonus payable in respect of this Contract.
Capacity Building Bonus
32.2
Pursuant to the terms of the Kalar-Bawanoor Contract, WesternZagros Limited paid
a capacity building bonus of forty million Dollars (US$40,000,000) (“Capacity
Building Bonus”) to the GOVERNMENT, receipt of which is confirmed by the
GOVERNMENT. No additional Capacity Building Bonus is payable in respect of
this Contract.
Production Bonuses
32.3
In the event of a Crude Oil Commercial Discovery, and subject to Article 4.34:
(a)
the CONTRACTOR shall pay the following relevant Crude Oil Production
Bonus to the GOVERNMENT within thirty (30) days of the following
relevant occurrence:
(1)
Two million Dollars (US$2,000,000) when First Production of Crude
Oil from the Contract Area commences;
(2)
Four million Dollars (US$4,000,000) when production of Crude Oil
from the Contract Area reaches a cumulative amount of ten million
(10,000,000) Barrels of Crude Oil and Natural Gas BOE;
(3)
Eight million Dollars (US$8,000,000) when production of Crude Oil
from the Contract Area reaches a cumulative amount of twenty five
million (25,000,000) Barrels of Crude Oil and Natural Gas BOE; and
(4)
Sixteen million Dollars (US$16,000,000) when production of Crude
Oil from the Contract Area reaches a cumulative amount of fifty
million (50,000,000) Barrels of Crude Oil and Natural Gas BOE.
(b)
each holder of a Government Interest, other than the GOVERNMENT or a
Public Company, shall pay, pro rata the percentage of the Government Interest
held such holder to the total Government Interest held by Persons other than
the GOVERNMENT or a Public Company, the following Crude Oil
Production Bonuses to the GOVERNMENT within thirty (30) days of the
following relevant occurrences:
(1)
five hundred thousand Dollars (US$500,000) when First Production of
Crude Oil from the Contract Area commences;
(2)
one million Dollars (US$1,000,000) when production of Crude Oil and
Natural Gas from the Contract Area reaches a cumulative amount of
ten million (10,000,000) Barrels of Crude Oil and Natural Gas BOE;
(3)
two million Dollars (US$2,000,000) when production of Crude Oil
from the Contract Area reaches a cumulative amount of twenty five
million (25,000,000) Barrels of Crude Oil and Natural Gas BOE; and
(4)
four million Dollars (US$4,000,000) when production of Crude Oil
from the Contract Area reaches a cumulative amount of fifty million
(50,000,000) Barrels of Crude Oil and Natural Gas BOE.
32.4
In the event of a Non-Associated Natural Gas Commercial Discovery, and subject to
Article 4.34:
(a)
the CONTRACTOR shall pay the following relevant Non-Associated Natural
Gas Production Bonus to the GOVERNMENT within thirty (30) days of the
following relevant occurrence:
(1)
Two million Dollars (US$2,000,000) when First Production of NonAssociated Natural Gas from the Contract Area commences;
(2)
Four million Dollars (US$4,000,000) when production of NonAssociated Natural Gas from the Contract Area reaches a cumulative
amount of ten million (10,000,000)Natural Gas BOE;
(3)
Eight million Dollars (US$8,000,000) when production of NonAssociated Natural Gas from the Contract Area reaches a cumulative
amount of twenty five million (25,000,000) Natural Gas BOE; and
(4)
Sixteen million Dollars (US$16,000,000) when production of NonAssociated Natural Gas from the Contract Area reaches a cumulative
amount of fifty million (50,000,000) Natural Gas BOE.
(b)
each holder of a Government Interest, other than the GOVERNMENT or a
Public Company, shall pay, pro rata the percentage of the Government Interest
held such holder to the total Government Interest held by Persons other than
the GOVERNMENT or a Public Company, the following Natural Gas
Production Bonuses to the GOVERNMENT within thirty (30) days of the
following relevant occurrence:
(1)
five hundred thousand Dollars (US$500,000) when First Production of
Non-Associated Natural Gas from the Contract Area commences;
(2)
one million Dollars (US$1,000,000) when production of NonAssociated Natural Gas from the Contract Area reaches a cumulative
amount of ten million (10,000,000) of Natural Gas BOE;
(3)
two million Dollars (US$2,000,000) when production of Crude Oil
from the Contract Area reaches a cumulative amount of twenty five
million (25,000,000) Barrels of Natural Gas BOE; and
(4)
four million Dollars (US$4,000,000) when production of Crude Oil
from the Contract Area reaches a cumulative amount of fifty million
(50,000,000) Barrels of Natural Gas BOE.
32.5
The CONTRACTOR shall declare a Commercial Discovery to be either a Crude Oil
Commercial Discovery or a Non-Associated Gas Commercial Discovery. Under no
circumstances shall a Production Bonus be due in respect of both Crude Oil and NonAssociated Natural Gas for the same Commercial Discovery.
Capacity Building Payments
32.6
The provisions of this Article 32.6 are not triggered and do not apply unless, on the
TPI Conversion Date, the GOVERNMENT is a Third Party Interest Holder, and the
assignments contemplated by Article 4.29 occur. If the provisions of this Article 32.6
have been triggered and are applicable, each Charged Interest Holder is bound by the
provisions of this Article 32.6.
32.6.1
The obligations of a CONTRACTOR Entity, to the extent it is a Charged
Interest Holder, as set forth in this Article 32.6, attach to, and may not be
severed from, the Charged Interest.
32.6.2
In respect of the Capacity Building Payment Instalments:
(a)
on or before the tenth (10th) day of each Month in the Development
Period, the CONTRACTOR shall provide to the GOVERNMENT,
together with the monthly production statement prepared by the
CONTRACTOR in accordance with Article 27.4 and Paragraph 6.1,
and the monthly valuation statement in accordance with Article 25 and
Paragraph 7.1, a statement (the “Charged Interest Holders Monthly
Statement”) setting out the CONTRACTOR’s calculation of the
Capacity Building Value attributable to each Charged Interest Holder
for the preceding Month. In each Charged Interest Holders Monthly
Statement, the CONTRACTOR shall detail each item taken into
account in making its calculation of the amounts due from each
Charged Interest Holder, the quantities of Profit Petroleum produced
during the Month covered by such Charged Interest Holders Monthly
Statement, the volumes of such production sold, the Capacity Building
Value attributed to such sales, and the Capacity Building Payment
Instalments required to be paid with respect thereto by each Charged
Interest Holder;
(b)
on the same date on which the CONTRACTOR provides the Charged
Interest Holders Monthly Statement to the GOVERNMENT in
accordance with Article 32.6.2(a), each Charged Interest Holder shall
pay (except as provided in the next sentence) the Capacity Building
Payment Instalment as shown as owed by such Charged Interest
Holder in the Charged Interest Holders Monthly Statement. If:
(1)
a Charged Interest Holder has sold its Profit Petroleum to (i) the
GOVERNMENT or a Public Company (or a company or an
entity owned and controlled, directly or indirectly, by a Public
Company or the GOVERNMENT), (ii) the State Oil Marketing
Organisation (SOMO) or any entity owned and controlled by the
Government of Iraq; and if
(2)
any such counterparty as identified in (1) has not paid the
Charged Interest Holder for the Petroleum lifted by such entity,
then:
(3)
the Charged Interest Holder is only obligated to pay the Capacity
Building Payment when, if, and to the extent the Charged
Interest Holder has received payment by such counterparty. The
preceding sentence does not apply with respect to, and to the
extent of, sales of a Charged Interest Holder’s Profit Petroleum
to any other counterparties;
(c)
within thirty (30) calendar days following the date on which the
CONTRACTOR delivered the Final End-of-Year Statement to the
GOVERNMENT for each Calendar Year in accordance with Article
26.13 and Paragraph 10, and based on the information in such Final
End-of-Year Statement, the CONTRACTOR shall provide to the
GOVERNMENT, in respect of each Charged Interest Holder, a
written reconciliation of the aggregate amount of the Capacity
Building Value and the aggregate payments of the Capacity Building
Payment Instalments during such Calendar Year period (the “Annual
Reconciliation Statement”);
(d)
if the results of an Annual Reconciliation Statement show that a
Charged Interest Holder has, in the aggregate over the Calendar Year
period covered by the Annual Reconciliation Statement, made
Capacity Building Payment Instalments in an amount less than the
aggregate Capacity Building Value attributed to such Charged Interest
Holder during such Calendar Year period, such Charged Interest
Holder shall pay (subject to the same exception as provided in the
second and third sentences of Article 32.6.2(b)) the amount of the
underpayment as shown in the Annual Reconciliation Statement within
thirty (30) calendar days following the same date the CONTRACTOR
delivered
the
Annual
Reconciliation
Statement
to
the
GOVERNMENT;
(e)
if the results of an Annual Reconciliation Statement show that a
Charged Interest Holder has, in the aggregate over the Calendar Year
period covered by the Annual Reconciliation Statement, made
Capacity Building Payment Instalments in excess of the Capacity
Building Value attributed to it during such Calendar Year period, and
if and to the extent the GOVERNMENT has agreed with the
CONTRACTOR and the affected Charged Interest Holder in respect
of the amount of such overpayment, such Charged Interest Holder may
deduct such overpayment to the extent that the GOVERNMENT has
agreed with the amount of such overpayment from the next following
payments of Capacity Building Payment Instalments. In no event will
a Charged Interest Holder be entitled to deduct more than fifteen per
cent (15%) of the amount otherwise payable from the next following
payments of Capacity Building Payment Instalments. The right of set-
off against Capacity Building Payment Instalments will be a Charged
Interest Holder’s only remedy in respect of any overpayment, and the
GOVERNMENT will have no obligation to make any reimbursement
or other compensating payments to the Charged Interest Holder;
(f)
if a Charged Interest Holder fails to pay all or part of a Capacity
Building Payment when due, the Charged Interest Holder shall pay
interest on the unpaid amount at an annual rate of LIBOR plus two per
cent (2%) compounded monthly from and including the date the
payment was due to, but not including, the date paid; and
(g)
if any Capacity Building Payment is due to be paid to the
GOVERNMENT on a day that is either not a banking day in either
the place where the Capacity Building Account is maintained, or the
location of the financial institution through which a Charged Interest
Holder will make such payment, then the Capacity Building Payment
will be due on the next following banking day. A “banking day” is a
day (other than a Saturday, Sunday, or public holiday) on which banks
are open for general business in the specified locations.
Capacity Building Account
32.6.3
The GOVERNMENT shall:
(a)
establish and maintain the Capacity Building Account; and
(b)
deposit
all
Capacity
Building
Payments
received
by
the
GOVERNMENT into the Capacity Building Account.
Rights Sale
32.6.4
The GOVERNMENT may enter into a Rights Sale without the consent of
the CONTRACTOR or any CONTRACTOR Entity.
Separate Liability
32.6.5
Each Charged Interest Holder is separately liable (and not jointly and
severally liable with any other Charged Interest Holder) to the
GOVERNMENT for its obligations, duties and liabilities under this Article
32.6. A CONTRACTOR Entity that is not a Charged Interest Holder will
have no liability to the GOVERNMENT for any claim by the
GOVERNMENT arising out of or related to the breach of any Charged
Interest Holder’s obligations under this Article 32.6.
Breach; Indemnity
32.6.6
(a)
If a Charged Interest Holder fails to pay a Capacity Building Payment
in full when due, the GOVERNMENT will, notwithstanding any
other provision of this Contract, any lifting agreement, any sales or
marketing agreement, or any other agreement, automatically be
entitled, on not less than sixty (60) days prior notice to the defaulting
Charged Interest Holder and the CONTRACTOR in the case of the
first default, and not less than thirty (30) days in the case of any
subsequent default, to:
(1)
lift, at the Delivery Point or at such other point as the
GOVERNMENT may decide, up to twenty-five per cent
(25%) of such defaulting Charged Interest Holder’s Profit
Petroleum; and
(2)
continue to lift up to twenty-five per cent (25%) of such
defaulting Charged Interest Holder’s Profit Petroleum for the
remainder of the Development Period.
(b)
A defaulting Charged Interest Holder will have a single cure period of
thirty (30) days only in respect of its first default. If the defaulting
Charged Interest Holder pays the defaulted Capacity Building
Payments in full plus interest in accordance with Article 32.6.2(f) in
such thirty (30) day period, the GOVERNMENT shall not exercise its
lifting rights under this Article 32.6.6 in respect of such defaulting
Charged Interest Holder. In the case of any subsequent default, the
GOVERNMENT may exercise its right to lift whether or not the
defaulting Charged Interest Holder cures its default in the thirty (30)
day notice period.
32.6.7
The lifting rights of the GOVERNMENT pursuant to Article 32.6.6 are
exercisable by way of set-off, without first resort to legal process, and
without any liability or claims of the defaulting Charged Interest Holder, the
CONTRACTOR, the Operator, or any other Person, and regardless of any
provisions of any lifting agreement or provision of a joint operating
agreement or any other agreement to which the CONTRACTOR or a
defaulting Charged Interest Holder is a party. The CONTRACTOR shall
ensure that all agreements in respect of the lifting or sale of Petroleum
reflect the GOVERNMENT’s priority rights as set forth in Article 32.6.6
and this Article 32.6.7.
32.6.8
(a)
A
defaulting
Charged
Interest
Holder
shall
indemnify
the
GOVERNMENT from any Loss or Expense (as defined in Article
32.6.8(c), below) that may in any way arise from the exercise by the
GOVERNMENT of its rights in respect of such defaulting Charged
Interest Holder under Articles 32.6.6 and 32.6.7.
(b)
The GOVERNMENT will retain control over the defence of, and any
resolution or settlement relating to, such Loss or Expense. A defaulting
Charged Interest Holder shall cooperate with the GOVERNMENT
and provide reasonable assistance in defending any claims against the
GOVERNMENT.
(c)
“Loss or Expense” means any liability, loss, claim, settlement
payment, cost and expense, interest, award, judgment, damages
(including punitive damages), diminution in value, fees or other charge
and, to the extent permitted by Applicable Law, any court filing fee,
court cost, arbitration fee or cost, witness fee, and each other fee and
cost of investigating and defending or asserting a claim for
indemnification, including attorneys’ fees, other professionals’ fees,
and disbursements; but does not include consequential damages. A
claim set forth in a notice from the GOVERNMENT to a defaulting
Charged Interest Holder will be conclusively deemed a Loss or
Expense if the Charged Interest Holder fails to dispute the
GOVERNMENT’s liability by the end of a thirty (30) day period
following the effective date of the notice from the GOVERNMENT.
The Charged Interest Holder shall promptly pay the deemed Loss or
Expense on demand.
32.6.9
The GOVERNMENT’s rights under Articles 32.6.6 through 32.6.8 are not
exclusive and are without prejudice to the GOVERNMENT’s termination
rights under Article 45.
Payments; No Set-off or Deduction
32.6.10 Except as provided in Article 32.6.2(e) and notwithstanding any provision in
this Contract to the contrary, each Charged Interest Holder shall pay all
Capacity Building Payments without (and free and clear of any deduction
for) set-off or counterclaim.
32.6.11 Each Charged Interest Holder acknowledges and accepts that a fundamental
principle of this Article 32.6 is that such Charged Interest Holder must pay
the Capacity Building Payments owed by it as and when required.
Accordingly, in respect of its obligations under this Article 32.6 only and
except as provided in Article 32.6.2(e), each Charged Interest Holder hereby
waives any right to raise by way of set off or invoke as a defence to its
obligations to pay Capacity Building Payments pursuant to this Article 32.6,
whether in law or equity, any failure by the GOVERNMENT or any
CONTRACTOR Entity to pay amounts due and owing under the Contract
or any alleged claim that such Charged Interest Holder may have against the
GOVERNMENT, Operator, other CONTRACTOR Entity, or any other
Person, whether such claim arises under or relates to this Contract or
otherwise.
32.6.12 Each Charged Interest Holder shall make Capacity Building Payments to the
GOVERNMENT by wire transfer of immediately available funds in
Dollars
in
accordance
with
wire
instructions
provided
by
the
GOVERNMENT. The making of any payments by a Charged Interest
Holder under this Article 32.6, or the acceptance or use of any payments by
the GOVERNMENT, does not impair the rights of such Charged Interest
Holder or the GOVERNMENT under Article 15. Any dispute between the
GOVERNMENT and a Charged Interest Holder in respect of the
calculation of each of the Capacity Building Value and the Capacity
Building Payment due with respect thereto is subject to Article 15.9.
Assignment, Reversion
32.6.13 (a)
If a Charged Interest Holder assigns and novates all or any part of its
Charged Interest, the assignee will be a Charged Interest Holder to the
extent of such assignment and novation.
(b)
If (i) a Charged Interest Holder withdraws as a CONTRACTOR
Entity, or (ii) the GOVERNMENT terminates a Charged Interest
Holder as a CONTRACTOR Entity; and if in the cases of clauses (i)
or (ii) all or part of the Charged Interest of the Charged Interest Holder
is either assigned and novated or reverts to the remaining
CONTRACTOR Entities as provided in Article 45, then, in either
such case, such assignee or each remaining CONTRACTOR Entity,
as the case may be, will be a Charged Interest Holder to the extent of
such assignment and novation or reversion, as applicable, provided that
the withdrawing or terminating Charged Interest Holder will be solely
liable for any unpaid Capacity Building Payments attributable to its
Charged Interest prior to the date of withdrawal or termination.
Bonus Recovery and Payment
32.7
No bonus or other payment pursuant to this Article 32 will be recoverable as a
Petroleum Cost.
32.8
Payment by the CONTRACTOR of any bonus or payment due pursuant to this
Article 32 shall be made in Dollars by wire transfer to a specified bank account of the
GOVERNMENT.
ARTICLE 33 – PIPELINES
33.1
The GOVERNMENT shall obtain any required Permits for the transportation of
Petroleum in the Kurdistan Region and in Iraq, as well as any necessary Permits and
easement rights for the construction of any pipelines and related facilities required for
the Petroleum Operations, as provided in Article 33.2.
33.2
The GOVERNMENT undertakes to transfer to the CONTRACTOR its rights for
transportation of Petroleum by pipeline. The CONTRACTOR shall have the right to
design, construct, operate and maintain pipelines and any related facilities for the
transportation of Petroleum produced under this Contract.
33.3
Prior to the construction of any pipeline and related facilities as provided in Article
33.2, the CONTRACTOR shall submit following information to the Management
Committee:
(a)
proposed pipeline route and related facilities;
(b)
forecasted pipeline flow rate and capacity;
(c)
estimate of financial investment and operating costs of the pipeline and related
facilities;
(d)
proposed financing schedule;
(e)
construction schedule;
(f)
general technical description of the pipeline and related facilities;
(g)
construction plans and tests;
(h)
preventive measures for damage to the environment and third parties; and
(i)
any other information relating to the pipeline project.
The Management Committee shall examine all the above information and shall within
ninety (90) days, approve the proposed pipeline project in accordance with the
provisions of Article 8.5.
33.4
Subject to spare capacity being available and to their Petroleum being compatible,
third parties shall be entitled to transport their Petroleum through any pipeline
constructed by the CONTRACTOR in accordance with this Article 33 on terms to be
agreed between the CONTRACTOR and such third party. Those terms shall be
reasonable commercial terms and shall not discriminate among third party users. The
CONTRACTOR shall always have priority of access to such pipelines.
33.5
To the extent that they are incurred upstream of the Delivery Point, any costs
associated with the design, construction, operation and maintenance of the pipelines
and related facilities by CONTRACTOR under this Article 33 (“Pipeline Costs”)
shall be considered Petroleum Costs and shall be recoverable by the
CONTRACTOR in accordance with the provisions of Articles 1 and 25.
33.6
The CONTRACTOR shall have the absolute right, without any exceptions and for
the entire duration of this Contract, to use, free of charge, any pipeline and related
facilities constructed by CONTRACTOR under this Article 33 and to transport
Petroleum produced from any Production Area and to operate and maintain any
pipeline and its related facilities, freely and without any additional costs.
33.7
To the extent related to transportation upstream of the Delivery Point, any tariffs
received from third parties for use of any pipeline and related facilities by
CONTRACTOR under this Article 33 shall be applied to the recovery of Petroleum
Costs until all Pipeline Costs have been fully recovered by the CONTRACTOR
pursuant to the provisions of Articles 1 and 25 and shall not be included in income for
corporate income tax purposes. The GOVERNMENT shall be entitled to receive
any such tariffs from third parties for their use of such pipeline and related facilities
when the said Pipeline Costs have been fully recovered by the CONTRACTOR.
The costs associated with providing such transportation services for third parties up to
the Delivery Point shall be considered Pipeline Costs and therefore Petroleum Costs
and shall be recoverable by the CONTRACTOR in accordance with the provisions
of Articles 1 and 25.
33.8
Upon recovery by the CONTRACTOR of all the Pipeline Costs, the operating and
maintenance costs of any pipeline and its related facilities shall be borne by the
CONTRACTOR and shall be considered Petroleum Costs and shall be recoverable
by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.
33.9
The GOVERNMENT shall have the same rights as the CONTRACTOR for use,
free of charge, of any pipeline and related facilities constructed by CONTRACTOR
under this Article 33 for the transportation of the share of Petroleum to which the
GOVERNMENT is entitled under this Contract up to the Delivery Point.
33.10 The CONTRACTOR shall bear the cost of operation and maintenance of any
pipeline and related facilities constructed by CONTRACTOR under this Article 33
and all risks of accidental loss or damage to such pipeline and related facilities while
they are required for Petroleum Operations.
ARTICLE 34 – UNITISATION
34.1
In the event a Reservoir extends beyond the Contract Area into an adjacent area
which is the subject of another Petroleum Contract (as defined by the Kurdistan
Region Oil and Gas Law) (an “Adjacent Contract Area”), or in the event a
Reservoir of an Adjacent Contract Area extends into the Contract Area, the provisions
of Article 47, Paragraph Second of the Kurdistan Region Oil and Gas Law shall apply
and the GOVERNMENT shall require the CONTRACTOR and the contractor of
the Adjacent Contract Area to agree upon a schedule for reaching agreement of the
terms of the unitisation of the Reservoir, which terms shall be based on reliable
technical, operational and economical parameters, all in accordance with prudent
international petroleum industry practice. In the event that the Minister of Natural
Resources decides the unitisation pursuant to Article 47, Paragraph Third of the
Kurdistan Region Oil and Gas Law, and if the CONTRACTOR does not agree with
the decision of the Minister of Natural Resources, the CONTRACTOR shall be
entitled to arbitration pursuant to the provisions of Article 42.1.
ARTICLE 35 – LIABILITY AND INSURANCE
Liability
35.1
Subject to the other provisions of this Contract, the CONTRACTOR, in its capacity
as the entity responsible for the execution of the Petroleum Operations within the
Contract Area, shall be liable to third parties to the extent provided under Applicable
Law for any losses and damage it may cause to them in conducting the Petroleum
Operations, and shall indemnify the GOVERNMENT with respect to all claims for
such loss or damage where a claim is made against the GOVERNMENT. The
GOVERNMENT will retain control over the defence of, and any resolution or
settlement relating to, such loss or damage. The CONTRACTOR shall cooperate with
the GOVERNMENT and provide reasonable assistance in defending any claims
against the GOVERNMENT.
35.2
Notwithstanding the other provisions of this Contract, the CONTRACTOR will not
be liable to the GOVERNMENT or the Public Company or other government
agencies, authorities or bodies, courts or political subdivisions for any damage or loss
or claims of any kind resulting from the CONTRACTOR’s conduct of the Petroleum
Operations (other than personal injuries, industrial illness, or death), unless such
damage or loss is the result of wilful misconduct or a material failure to conduct
Petroleum Operations in accordance with the terms of this Contract.
35.3
The CONTRACTOR shall indemnify the GOVERNMENT against all losses,
damages and liability arising under any loss, expense, claim, demand, action or
proceeding brought or instituted against the GOVERNMENT:
(i)
by any employee of the CONTRACTOR or of any Subcontractor or
by any dependent thereof, for personal injuries, industrial illness, death
or damage to personal property sustained in connection with, related to
or arising out of the performance or non-performance of this Contract
regardless of the fault or negligence in whole or in party of any entity
or individual; and
(ii)
with respect to all claims for loss or damage made by third parties
arising out of or related to Petroleum Operations.
The GOVERNMENT will retain control over the defence of, and any
resolution or settlement relating to, such loss or damage. The CONTRACTOR
shall cooperate with the GOVERNMENT and provide reasonable assistance in
defending any claims against the GOVERNMENT. A claim set forth in a
notice from the GOVERNMENT to the CONTRACTOR will be conclusively
deemed an indemnifiable loss, damage, or expense. if the CONTRACTOR
fails to dispute the GOVERNMENT’s liability by the end of a thirty (30) - day
period following receipt of the notice from the GOVERNMENT. The
CONTRACTOR shall promptly pay the deemed Loss or Expense on demand.
35.4
The CONTRACTOR shall take all necessary steps to respond to, and shall promptly
notify the GOVERNMENT of, all emergency and other events (including personal
injuries, explosions, leaks and spills), occurring in relation to the Petroleum
Operations which are causing or likely to cause material environmental damage or
material risk to health and safety. Such notice shall include a summary description of
the circumstances and steps taken and planned by the CONTRACTOR to control
and remedy the situation. The CONTRACTOR shall provide such additional reports
to the GOVERNMENT as are reasonably necessary in respect of the effects of such
events and the course of all actions taken to prevent further loss and to mitigate
deleterious effects.
35.5
In the event of emergency situations as set out in Article 35.4, at the request of the
CONTRACTOR, the GOVERNMENT, without prejudice and in addition to any
indemnification obligations the GOVERNMENT may have, shall assist the
CONTRACTOR, to the extent possible, in any emergency response, remedial or
repair effort by making available any labour, materials and equipment in reasonable
quantities requested by the CONTRACTOR which are not otherwise readily
available to the CONTRACTOR and by facilitating the measures taken by the
CONTRACTOR to bring into the Kurdistan Region personnel, materials and
equipment to be used in any such emergency response or remedial or repair effort.
The CONTRACTOR shall reimburse the GOVERNMENT's reasonable and
necessary costs incurred in such efforts, which reimbursed amounts shall be
considered Petroleum Costs and shall be recoverable by the CONTRACTOR in
accordance with the provisions of Articles 1 and 25.
Insurance
35.6
In accordance with prudent international petroleum industry practice, the
CONTRACTOR shall obtain and maintain any insurance required by applicable
Kurdistan Region Law, as well as any insurance approved by the Management
Committee.
Such insurance policies may cover:
(a)
loss of and damage to material and equipment used in the Petroleum
Operations; and
(b)
personal injury, damage to third parties and risks of pollution associated with
Petroleum Operations for reasonable amounts, within the limits approved by
the Management Committee.
35.7
Any insurance policy relating to this Contract shall name the GOVERNMENT as an
additional insured party and shall include a waiver of subrogation protecting the
GOVERNMENT against any claim, loss and damage resulting from any Petroleum
Operation conducted by or on behalf of the CONTRACTOR under this Contract, to
the extent that the CONTRACTOR is liable for such claim, loss or damage under
this Contract. The CONTRACTOR shall not be liable for and shall not purchase
insurance cover for any claims arising from negligence or wilful misconduct of the
GOVERNMENT or of any Public Company or of any of their respective
subcontractors or personnel.
35.8
Upon its written request, the GOVERNMENT shall be provided with insurance
certificates, including necessary details, for any insurance policy maintained by the
CONTRACTOR which relates to this Contract.
35.9
Each CONTRACTOR Entity shall be responsible for the filing of all claims made
under any insurance policy maintained by such CONTRACTOR Entity which relates
to this Contract. Any premiums and payments relating to such insurance policies
(other than political risk insurance) shall be considered Petroleum Costs and shall be
recoverable by the CONTRACTOR in accordance with the provisions of Articles 1
and 25.
35.10 In any insurance policy maintained by a CONTRACTOR Entity which relates to this
Contract, the amount for which the CONTRACTOR itself is liable (the “Deductible
Amount”) shall be reasonably determined between the CONTRACTOR Entity and
the insurer and such Deductible Amount shall in the event of any insurance claim be
considered a Petroleum Cost and shall be recoverable by the CONTRACTOR in
accordance with the provisions of Articles 1 and 25.
ARTICLE 36 – INFORMATION AND CONFIDENTIALITY
36.1
The CONTRACTOR shall keep all records, data and information relating to the
Petroleum Operations in accordance with the Kurdistan Region Oil and Gas Law and
prudent international petroleum industry practice. In addition, it shall provide the
GOVERNMENT with such information and data as it is obliged to provide under
this Contract.
36.2
Upon the GOVERNMENT's written request, the CONTRACTOR shall provide the
GOVERNMENT with samples of any rocks or any other items extracted during the
Petroleum Operations.
36.3
The GOVERNMENT shall have title to all data and information, whether raw,
derived, processed, interpreted or analysed, obtained pursuant to this Contract.
36.4
Each CONTRACTOR Entity shall have the right, without any limitation, to send
Abroad copies of all reports and technical data, magnetic tapes and other data relating
to the Petroleum Operations. Magnetic tapes or other data, the original of which must
be analysed and processed Abroad, may be transported out of the Kurdistan Region.
36.5
Any representatives authorised by the GOVERNMENT and notified to the
CONTRACTOR shall, upon reasonable prior written notice, have reasonable access
to any information and data relating to the Contract Area in the possession of the
CONTRACTOR which the CONTRACTOR is obliged to provide to the
GOVERNMENT pursuant to this Contract. It is understood that, when exercising
such right, the GOVERNMENT shall ensure it does not unduly interfere with or
hinder the CONTRACTOR’s rights and activities.
36.6
The
CONTRACTOR
shall
provide
the
GOVERNMENT
upon
the
GOVERNMENT’s written request any analysis information, reports, tapes or other
data (geological, geophysical, logs, interpretations, drilling reports, etc.) related to the
Petroleum Operations in the possession of the CONTRACTOR. All available
originals of such data shall be transferred to the GOVERNMENT at the end of this
Contract.
36.7
Apart from the exceptions stated in this Article 36, the Parties undertake to keep all
data and information relating to this Contract and the Petroleum Operations
confidential during the entire term of this Contract and not to divulge or disclose such
data or information to third parties without the specific consent of the other Parties,
such consent not to be unreasonably withheld or delayed. The foregoing
confidentiality obligation shall not apply to information or data which:
(a)
is or, through no fault of any Party, becomes part of the public domain;
(b)
is known to the recipient at the date of disclosure;
(c)
is required to be furnished in compliance with any applicable Law, by a
government agency having jurisdiction over a CONTRACTOR Entity, by a
court order or any other legal proceedings; or
(d)
is required to be disclosed pursuant to the rules or regulations of any
government or recognised stock exchange having jurisdiction over a
CONTRACTOR Entity.
36.8
Notwithstanding the foregoing in Article 36.7, in accordance with prudent
international petroleum industry practice, such data and information may be disclosed
to:
(a)
Affiliates of each CONTRACTOR Entity;
(b)
employees, officers and directors of each CONTRACTOR Entity and their
respective Affiliated Companies for the purpose of the Petroleum Operations,
subject to each such entity taking customary precautions to ensure such
information is kept confidential;
(c)
consultants or agents retained by any CONTRACTOR Entity or its Affiliates
for the purpose of analysing or evaluating information or data;
(d)
banks or financial institutions retained by any CONTRACTOR Entity or its
Affiliates with a view to financing Petroleum Operations, including any
professional consultants retained by such bank or financial institution;
(e)
bona fide prospective assignees of a participating interest under this Contract
(including any entity with whom a CONTRACTOR Entity and/or its
Affiliates are conducting bona fide negotiations directed towards a merger,
consolidation or the sale of a material portion of its or an Affiliates shares or
any prospective acquiror of the Government Interest or Third Party Interest);
(f)
prospective or actual Subcontractors and suppliers engaged by a Party where
disclosure of such information is essential to such Subcontractor’s or
supplier’s work for such Party; and
(g)
any other Person or entity, upon the prior written approval of the nondisclosing Parties,
provided that disclosure shall not be made pursuant to paragraphs (c), (d), (e) and (f),
unless such third party has entered into a confidentiality undertaking.
36.9
Any data and information relating to relinquished or surrendered areas under this
Contract shall become the exclusive property of the GOVERNMENT, who shall
have the right to use same for any purpose, in particular for the purpose of promoting
said areas. Each CONTRACTOR Entity shall be entitled to keep copies of such data
and information and to use such data and information for any purpose.
36.10 Subject to the provisions of this Article 36, the CONTRACTOR may not sell nor
exchange any data related to the Petroleum Operations without the approval of the
GOVERNMENT, which approval shall not be unreasonably withheld or delayed
where, in the CONTRACTOR’s reasonable opinion, such sale or exchange would
benefit the Petroleum Operations.
ARTICLE 37 – ENVIRONMENTAL PROVISIONS
37.1
During the performance of the Petroleum Operations, the CONTRACTOR shall take
reasonable measures to ensure that it, the Operator, its Subcontractors and agents
attend to the protection of the environment and prevention of pollution, in accordance
with prudent international petroleum industry practice in similar physical and
ecological environments and any then applicable Kurdistan Region Law.
37.2
Prior to surrendering a portion of the Contract Area, the CONTRACTOR shall take
reasonable measures to abandon the area to be surrendered in accordance with
prudent international petroleum industry practice in similar physical and ecological
environments. Such measures shall include removal or closure in place of facilities,
material and equipment together with reasonable measures necessary for the
preservation of fauna, flora and ecosystems, all in accordance with prudent
international petroleum industry practice in similar physical and ecological
environments. The CONTRACTOR shall only be responsible for site restoration or
environmental damage to the extent the same pertains solely and directly to Petroleum
Operations conducted pursuant to this Contract.
37.3
The CONTRACTOR shall take reasonable precautions and measures in accordance
with prudent international petroleum industry practice in similar physical and
ecological environments to prevent any pollution which may arise directly as a result
of the Petroleum Operations and to protect the environment (fauna and flora), water
sources and any other natural resources when carrying out Petroleum Operations.
37.4
The CONTRACTOR shall, in accordance with prudent international petroleum
industry practice in similar physical and ecological environments, respect the
preservation of property, agricultural areas, and fisheries, when carrying out
Petroleum Operations.
37.5
The GOVERNMENT acknowledges that the CONTRACTOR has conducted and
submitted to the GOVERNMENT an environmental baseline study in respect of the
Contract Area (when it formed part of the Kalar-Bawanoor Contract). The
CONTRACTOR will conduct and submit to the GOVERNMENT an environmental
impact assessment in respect of the First Exploration Well within six (6) months after
the Effective Date.
National Parks and Nature Reserve Areas
37.6
The CONTRACTOR shall take reasonable measures to minimise any adverse
material impact on national parks and nature reserves which may arise directly as a
result of the Petroleum Operations, in accordance with prudent international
petroleum industry practice in similar physical and ecological environments.
37.7
The GOVERNMENT: (i) represents and warrants that, on the Effective Date, there
are no national parks, nature reserves or other protected areas located in whole or in
part within the Contract Area where the CONTRACTOR shall not be entitled to
carry out Petroleum Operations and (ii) covenants that during the term of this
Contract will not designate or create or permit the creation of any national parks,
nature reserves or other protected areas, located in whole or in part within the
Contract Area.
Expenditures
37.8
Any reasonable expenditure incurred by the CONTRACTOR in relation with this
Article 37 shall be deemed Petroleum Costs and shall be recoverable by the
CONTRACTOR in accordance with the provisions of Articles 1 and 25.
Pre-existing Conditions
37.9
The CONTRACTOR is not responsible for any pre-existing environmental
conditions or any acts of unrelated third parties.
ARTICLE 38 – DECOMMISSIONING
38.1
To enable the CONTRACTOR to recover the costs associated with future Contract
Area Decommissioning Operations under this Contract, the CONTRACTOR shall
have the right to establish a reserve fund for future decommissioning and site
restoration (a “Decommissioning Reserve Fund”). The Decommissioning Reserve
Fund may be established at any time during the final ten (10) Calendar Years of the
term of the Production Operations of a Production Area but, upon the reasonable
request
by the
CONTRACTOR,
the
GOVERNMENT
shall
allow
the
CONTRACTOR to establish such fund over a longer period. Once established, the
CONTRACTOR shall make regular contributions to the Decommissioning Reserve
Fund based upon estimated Petroleum Field decommissioning and site restoration
costs in accordance with prudent international petroleum industry practice, and taking
into account interest received and future interest expected to be earned on the
Decommissioning Reserve Fund. Any contributions by the CONTRACTOR to the
Decommissioning Reserve Fund shall be made in Dollars and shall be deemed
Petroleum Costs when paid into the reserve fund, and shall be recoverable by the
CONTRACTOR in accordance with the provisions of Articles 1 and 25.
Contributions to the Decommissioning Reserve Fund shall be placed with a first rate
bank approved by the Management Committee in accordance with Article 8.5.
38.2
If, at the end of the term of the Production Operations of the Production Area, the
GOVERNMENT decides to take over production operations in the Production Area:
(a)
the GOVERNMENT shall become liable for its future Decommissioning
Operations;
(b)
the contributions and any interest accumulated in the Decommissioning
Reserve Fund, to the extent that such contributions have been recovered as
Petroleum Costs, shall be paid to the GOVERNMENT; and
(c)
the
GOVERNMENT
shall
release
the
CONTRACTOR
and
the
CONTRACTOR Entities from any obligations relating to Decommissioning
Operations
and
shall
indemnify
the
CONTRACTOR
and
the
CONTRACTOR Entities for any costs, liabilities, expenses, claims or
obligations associated therewith.
38.3
If the CONTRACTOR undertakes the Production Area Decommissioning
Operations, the contributions and any interest accumulated in the Decommissioning
Reserve Fund shall be paid to the CONTRACTOR and shall be used for the
Decommissioning Operations. The CONTRACTOR shall undertake any such
Decommissioning Operations in accordance with prudent international petroleum
industry practice in similar physical and ecological environments.
38.4
If the Decommissioning Reserve Fund is paid to the CONTRACTOR and the
Decommissioning Reserve Fund is not sufficient to cover all Decommissioning Costs
for the Contract Area, the balance shall be paid by the CONTRACTOR and may be
recovered, if applicable, by the CONTRACTOR Entities or any of their Affiliates
from any other area which is the subject of another Petroleum Contract (as defined by
the Kurdistan Region Oil and Gas Law) anywhere in the Kurdistan Region and, to the
extent the balance is not recoverable as aforesaid, such remaining balance shall be
paid by the GOVERNMENT to the CONTRACTOR.
38.5
If the Decommissioning Reserve Fund is paid to the CONTRACTOR and the
Decommissioning Reserve Fund exceeds all Decommissioning Costs for the Contract
Area, the balance shall be transferred to the GOVERNMENT.
38.6
Any expenditure incurred by the CONTRACTOR in relation with this Article 38,
including any contributions to the Decommissioning Reserve Fund, shall be deemed
Petroleum Costs and shall be recoverable by the CONTRACTOR in accordance with
the provisions of Articles 1 and 25.
38.7
The CONTRACTOR shall submit to the Management Committee for approval in
accordance with Article 8.5 a detailed plan for decommissioning the Contract Area
facilities and site restoration (the “Decommissioning Plan”), such Decommissioning
Plan to be submitted no later than twenty four (24) Months prior to the date estimated
by the CONTRACTOR for the end of Commercial Production from the Contract
Area.
The Management Committee shall provide comments, if any, on the
Decommissioning Plan within ninety (90) days after receipt. The CONTRACTOR’s
completion of the Decommissioning Operations in accordance, in all material
respects, with the Decommissioning Plan for a Production Area approved by the
Management Committee shall satisfy all of the CONTRACTOR’s obligations with
respect to the performance of Decommissioning Operations for such Production Area.
In the event the GOVERNMENT does not agree that Decommissioning Operations
for a Production Area were carried out in accordance with the approved
Decommissioning Plan, it must advise the CONTRACTOR within six (6) months of
CONTRACTOR’s completion of such operations.
ARTICLE 39 – ASSIGNMENT AND CHANGE OF CONTROL
Assignment to Affiliates
39.1
Each CONTRACTOR Entity shall be free to sell, assign, transfer or otherwise
dispose of all or part of its rights, obligations and interests under this Contract to an
Affiliated Company or to another CONTRACTOR Entity with the prior consent of
the GOVERNMENT, which consent shall not be unreasonably delayed or withheld.
Assignment to Third Parties
39.2
Articles 39.2 through 39.6 do not apply to the extent provided in Articles 4.6 through
4.11, Article 32.6, and Article 45.6. Except as provided in those Articles, each
CONTRACTOR Entity shall have the right to sell, assign, transfer or otherwise
dispose of all or part of its rights and interests under this Contract to any Person (other
than an Affiliated Company or another CONTRACTOR Entity) only with the prior
consent of GOVERNMENT, and each CONTRACTOR Entity (if any), which
consent shall not be unreasonably delayed or withheld. Any CONTRACTOR Entity
proposing to sell, assign, transfer or otherwise dispose of all or part of its rights and
interests under this Contract which requires the consent of the GOVERNMENT shall
request such consent in writing and provide reasonable evidence of the technical and
financial capability of the proposed assignee.
39.3
In order for any deed of sale, assignment, transfer or other disposal as provided under
Articles 39.1 or 39.2 to be effective, the Parties (other than a Public Company as a
holder of a Government Interest) and the relevant assignee, shall enter into a binding
and enforceable instrument of assignment and novation governed by English Law,
which shall include an undertaking by the assignee to fulfil the obligations under this
Contract which correspond to the assigned interest.
39.4
By way of clarification, and not in limitation of the foregoing provisions of this
Article 39, the GOVERNMENT shall not be considered to be acting unreasonably in
withholding consent to any such assignment if the assignment to such proposed
assignee is deemed contrary to the GOVERNMENT's interests, as evidenced in
writing to that effect signed by the duly authorised representative of the
GOVERNMENT below.
39.5
In the event a CONTRACTOR Entity assigns or in any other way transfers its rights
and interests under this Contract, including through the exercise of the Option of
Third Party Participation, whether in whole or in part, such assignment or transfer
shall not give rise to any Tax, including on the consideration paid or received or on
the income or gain therefrom.
39.6
The GOVERNMENT may not transfer any or all its rights and obligations under this
Contract to any Person, including to a Public Company or any other company or
entity, except in accordance with Article 4 and Article 32.6.
Change of Control
39.7
“Change of Control” for the purpose of this Article 39.7 means any direct or indirect
change of the identity to the Person who Controls a CONTRACTOR Entity (whether
through merger, sale of shares or of other equity interests, or otherwise) through a
single transaction or series of transactions, from one or more transferors to one or
more transferees, in which the market value of such entity’s participating interest
(which shall be as specified in the Joint Operating Agreement relating to this
Contract) or where there is only one CONTRACTOR Entity, one hundred percent
(100%) in this Contract represents more than seventy five per cent (75%) of the
aggregate market value of the assets of such entity and its Affiliates that are subject to
the Change in Control. For the purpose of this definition: “Control” means the direct
or indirect ownership or control of the majority of the voting rights of the applicable
entity at its shareholders’ meetings or their equivalent; and “market value” shall be
determined based upon the amount in cash a willing buyer would pay a willing seller
in an Arm’s Length transaction.
Each CONTRACTOR Entity which is or anticipates with a reasonable degree of
certainty that it will be subject to a Change in Control, other than to an Affiliated
Company or a CONTRACTOR Entity, shall notify the GOVERNMENT as soon as
practicable after it becomes aware of the Change in Control or anticipated Change in
Control and request the consent of GOVERNMENT, which consent shall not be
unreasonably delayed or withheld. For the avoidance of doubt any change in control
of a publicly listed Affiliate of a Contractor Entity shall not constitute a Change of
Control under the terms of this Contract.
A Change in Control shall not give rise to any Tax including on the consideration paid
or received or on the income or gain therefrom.
ARTICLE 40 – FORCE MAJEURE
40.1
No delay, default, breach or omission of the CONTRACTOR in the execution of any
of its obligations under this Contract shall be considered a failure to perform this
Contract or be the subject of a dispute if such delay, default, breach or omission is due
to a case of Force Majeure. In such event the CONTRACTOR shall promptly notify
the GOVERNMENT in writing and take all reasonably appropriate measures to
perform its obligations under this Contract to the extent possible. The time resulting
from any such delay or curtailment in the execution of such obligations, increased by
the time necessary to repair any damage resulting from or occurred during such delay
or curtailment, shall be added to any time period provided under this Contract
(including the Exploration Period and any extension thereto, any Sub-Period and any
extension thereto and any Development Period and any extension thereto). The
Parties shall meet as soon as possible after the notification of Force Majeure with a
view to using reasonable endeavours to mitigate the effects thereof.
40.2
“Force Majeure” means any event that is unforeseeable, insurmountable and
irresistible, not due to any error or omission by the CONTRACTOR but due to
circumstances beyond its control, which prevents or impedes execution of all or part
of its obligations under this Contract. Such events shall include the following:
(a)
war, whether declared or not, civil war, insurrection, riots, civil commotion,
terrorism, any other hostile acts, whether internal or external;
(b)
strikes or other labour conflicts;
(c)
accidents or blowouts;
(d)
quarantine restrictions or epidemics;
(e)
any act, event, happening or occurrence due to natural causes, in particular,
but without limitation, floods, storms, cyclones, fires, lightning, or
earthquakes;
(f)
environmental restrictions, which the GOVERNMENT has not notified to the
CONTRACTOR;
(g)
except in respect of an of the GOVERNMENT or any Public Company
undertaken in a commercial capacity, any acts or orders of the
GOVERNMENT, any minister, ministry, department, sub-division, agency,
authority, council, committee, or other constituent element thereof, any
corporation owned or controlled by the any of the foregoing; and
(h)
any acts or orders of any other government claiming or asserting jurisdiction
over the subject matter of this Contract, any minister, ministry, department,
sub-division, agency, authority, council, committee, or other constituent
element thereof, or any corporation owned and/or controlled by any of the
foregoing.
40.3
The intention of the Parties is that Force Majeure shall receive the interpretation that
complies most with prudent international petroleum industry practice. Force Majeure
affecting a CONTRACTOR Entity or an Affiliated Company of a CONTRACTOR
Entity shall be deemed Force Majeure affecting the CONTRACTOR if the
consequence of such Force Majeure prevents the performance of any of the
CONTRACTOR’s obligations under this Contract.
ARTICLE 41 – WAIVER OF SOVEREIGN IMMUNITY
41.1
Each Party fully and irrevocably waives any claim to immunity for itself or any of its
assets.
This waiver includes any claim to immunity from:
(a)
any expert determination, mediation, or arbitration proceedings commenced
pursuant to Article 42;
(b)
any judicial, administrative or other proceedings to aid the expert
determination, mediation, or arbitration proceedings commenced pursuant to
Article 42; and
(c)
any effort to confirm, enforce or execute any decision, settlement, award,
judgment, service of process, execution order or attachment (excluding prejudgment attachment) that results from an expert determination, mediation,
arbitration or any judicial, administrative or other proceedings commenced
pursuant to this Contract.
41.2
Notwithstanding Article 41.1 above, this Article 41 will not apply to the
GOVERNMENT in respect of any claim or proceeding arising out of or related to
the exercise of rights by the GOVERNMENT as set forth in Articles 32.6.6 and
32.6.7, in respect of which the GOVERNMENT expressly reserves all sovereign
immunities.
ARTICLE 42 – ARBITRATION AND EXPERT DETERMINATION
Negotiation, Mediation and Arbitration
42.1
For the purpose of this Article 42.1, “Dispute” shall mean any dispute, controversy or
claim (of any and every kind or type, whether based on contract, tort, statute,
regulation or otherwise) arising out of, relating to, or connected with this Contract or
the operations carried out under this Contract, including any dispute as the
construction, existence, validity, interpretation, enforceability, breach or termination
of this Contract, which arises between the Parties (or between any one or more
entities constituting the CONTRACTOR and the GOVERNMENT).
This Article 42.1 does not apply to any Dispute arising out of, or relating to, the
obligations of a Party or the exercise of rights by the GOVERNMENT as set forth in:
(a)
Articles 4.24 and 4.25; and
(b)
Article 32.6.6;
which Disputes shall, except only as provided in Article 32.6.12, be subject to the
exclusive jurisdiction of the courts of the Kurdistan Region located in Erbil.
In the event of a Dispute, the parties to the Dispute shall use their reasonable
endeavours to negotiate promptly in good faith a mutually acceptable resolution of
such Dispute.
Subject to the provisions of Article 42.2, a Party who desires to submit a Dispute for
resolution which has not been promptly resolved as aforesaid shall commence the
dispute resolution process by providing the other parties to the Dispute written notice
of the Dispute (“Notice of Dispute”). The Notice of Dispute shall identify the parties
to the Dispute, shall contain a brief statement of the nature of the Dispute and the
relief requested and shall request negotiations among Senior Representatives.
(a)
In the event that any Notice of Dispute is given in accordance with this Article
42.1, the parties to the Dispute shall first seek settlement of the dispute by
negotiation between Senior Representatives. “Senior Representative” means
any individual who has authority to negotiate the settlement of the Dispute for
a party to the Dispute, which for the GOVERNMENT shall mean the
Minister of Natural Resources.
Within thirty (30) days after the date of
delivery of the Notice of Dispute, the Senior Representatives representing the
parties to the Dispute shall meet at a mutually acceptable date, time and place
to exchange relevant information in an attempt to resolve the Dispute. If a
Senior Representative intends to be accompanied at the meeting by a legal
adviser, each other party shall be given written notice of such intention and its
Senior Representative may also be accompanied at the meeting by a legal
adviser.
(b)
If the Dispute cannot be resolved by negotiation in accordance with Article
42.1 (a) within sixty (60) days after the date of the receipt by each party to the
Dispute of the Notice of Dispute or such further period as the parties to the
Dispute may agree in writing, any party to the Dispute may seek settlement of
the dispute by mediation in accordance with the London Court of International
Arbitration (“LCIA”) Mediation Procedure, which Procedure shall be deemed
to be incorporated by reference into this Article, and the parties to such
Dispute shall submit to such mediation procedure.
(c)
If the Dispute is not settled within the earlier of (A) sixty (60) days of the
appointment of the mediator, or such further period as the parties to the
Dispute may otherwise agree in writing under the mediation procedure under
Article 42.1 (b), and (B) one hundred and twenty (120) days after the delivery
of the Dispute Notice, any party to the Dispute may refer the Dispute to, and
seek final resolution by, arbitration under the LCIA Rules, which Rules shall
be deemed to be incorporated by reference into this Article.
(i)
Any arbitration shall be conducted by three (3) arbitrators.
(ii)
If the parties to the Dispute are the GOVERNMENT and all the
CONTRACTOR
Entities,
the
GOVERNMENT
and
the
CONTRACTOR shall each appoint one (1) arbitrator. If the parties to
the Dispute are the GOVERNMENT and more than one, but not all
the CONTRACTOR Entities, the GOVERNMENT shall appoint one
(1) arbitrator and such CONTRACTOR Entities shall appoint one (1)
arbitrator. If the parties to the Dispute are the GOVERNMENT and
one CONTRACTOR Entity, the GOVERNMENT and such
CONTRACTOR Entity shall each appoint one (1) arbitrator.
(iii)
In any event, the two arbitrators so appointed shall, in good faith, use
all reasonable endeavours to agree on the appointment of the third
arbitrator, who will chair the arbitral tribunal. In case of failure to
appoint an arbitrator or to agree on the appointment of the third
arbitrator, Rules of the LCIA shall apply.
(iv)
The seat of the arbitration shall be in London, England. The language
to be used in any prior negotiation, mediation and in the arbitration
shall be English. During the arbitration procedure and until the arbitral
decision, the Parties shall continue to perform their obligations and
take no actions that would impair the Contract. The arbitral award may
be enforced by any court of competent jurisdiction, including in the
Kurdistan Region. Any award shall be expressed in Dollars.
(v)
The Parties agree that the arbitral award shall be final and not subject
to any appeal, including to the Courts of England on issues of Law.
(vi)
With respect to any matter referred to arbitration under Article 43.4,
the arbitral tribunal shall have the authority to amend this Contract to
restore the economic position referred to in Article 43.3.
Expert Determination
42.2
Any disagreement between the Parties relating to Articles 15.9, 27.2 and 27.7, as well
as any disagreement the Parties agree to refer to an expert, shall be submitted to an
expert. The Management Committee shall prepare and agree appropriate terms of
reference relating to a disagreement to be submitted to the expert, in accordance with
Article 8.5 (“Terms of Reference”), as soon as possible after the Effective Date.
(a)
The disagreement shall be submitted to an expert appointed by mutual
agreement of the Parties within thirty (30) days following the date of
preparation and agreement of the Terms of Reference by the Management
Committee. If the Parties cannot agree on the choice of the expert within such
thirty (30) day period, at the request of either Party, the expert shall be
appointed by the President of the Energy Institute in London, England. Any
expert appointed must have the necessary qualifications for reviewing and
deciding on the subject matter of the disagreement.
(b)
The duties of the expert shall be stated in the Terms of Reference prepared and
agreed by the Management Committee. The Management Committee shall
promptly provide the expert with the agreed Terms of Reference relating to
the disagreement. Each Party shall have the right to give to the expert in
writing any information which it considers useful, provided it does so within
forty-five (45) days after the expert’s appointment. Such information shall be
provided to the other Party at the same time and such other Party shall be
entitled to provide comments on such information to the first Party and the
expert within thirty (30) days after receiving such information. The expert
shall have the right to review and verify any information he deems useful to
assist him in his review of the disagreement.
(c)
The expert shall render his decision within forty-five (45) days of his receipt
of the Terms of Reference and the information referred to in Article 42.2.
Subject to the provisions of Article 15.9, any decision of the expert shall be
final and shall not be subject to any appeal, except in the case of manifest
error, fraud or malpractice. Any costs and expenses associated with the expert
determination shall be shared equally between the Parties.
General
42.3
No negotiation, mediation, arbitration or expert determination procedure under this
Article 42 shall exempt the Parties from fulfilling their respective legal and/or
contractual obligations.
ARTICLE 43 – GOVERNING LAW, FISCAL STABILITY, AMENDMENTS AND
VALIDITY
Governing Law
43.1
This Contract, including any dispute arising therefrom, thereunder or in relation
thereto and the agreement to arbitrate in Article 42, shall be governed by English law
(except any rule of English law which would refer the matter to another jurisdiction),
together with any relevant rules, customs and practices of international law, as well as
by principles and practice generally accepted in petroleum producing countries and in
the international petroleum industry.
This Article 43.1 does not apply to any dispute arising out of, or relating to, the
obligations of a Party or the exercise of rights by the GOVERNMENT as set forth in
Articles 4.24 and 4.25, which shall be governed by Kurdistan Region Law.
Fiscal Stability
43.2
The obligations of the CONTRACTOR in respect of this Contract shall not be
changed by the GOVERNMENT and the general and overall equilibrium between
the Parties under this Contract shall not be affected in a substantial and lasting
manner.
43.3
The GOVERNMENT guarantees to the CONTRACTOR, for the entire duration of
this Contract, that it will maintain the stability of the legal, fiscal and economic
conditions of this Contract, as they result from this Contract and as they result from
the Laws of the Kurdistan Region in force on the date of this Contract.
The
CONTRACTOR has entered into this Contract on the basis of the legal, fiscal and
economic framework prevailing at the Effective Date. If, at any time after the
Effective Date, there is any change in the legal, fiscal and/or economic framework
under the Laws of the Kurdistan Region or other Laws applicable in or to the
Kurdistan
Region
which
detrimentally
affects
the
CONTRACTOR,
the
CONTRACTOR Entities or any other Person entitled to benefits under this Contract,
the terms and conditions of the Contract shall be altered so as to restore the
CONTRACTOR, the CONTRACTOR Entities and any other Person entitled to
benefits under this Contract to the same overall economic position (taking into
account home country taxes) as that which such Person would have been in, had no
such change in the legal, fiscal and/or economic framework occurred.
43.4
If the CONTRACTOR believes that its economic position, or the economic position
of a CONTRACTOR Entity or any other Person entitled to benefits under this
Contract, has been detrimentally affected as provided in Article 43.3, upon the
CONTRACTOR’s written request, the Parties shall meet to agree on any necessary
measures or making any appropriate amendments to the terms of this Contract to re-
establishing the equilibrium between the Parties and restoring the CONTRACTOR,
the CONTRACTOR Entities or any other Person entitled to benefits under this
Contract to the position (taking into account home country taxes) it was in prior to the
occurrence of the change having such detrimental effect. Should the Parties be unable
to agree on the merit of amending this Contract and/or on any amendments to be
made to this Contract within ninety (90) days of the CONTRACTOR’s request (or
such other period as may be agreed by the Parties), the CONTRACTOR may refer
the matter in dispute to arbitration as provided in Article 42.1, without the necessity
of first referring the matter to negotiation and mediation.
43.5
Without prejudice to the generality of the foregoing, the CONTRACTOR shall be
entitled to the benefit of any future changes to the petroleum legislation or any other
legislation complementing, amending or replacing it.
43.6
The Parties agree to cooperate in all possible ways with a view to fully achieving the
objectives of this Contract. The GOVERNMENT shall facilitate the performance of
the Petroleum Operations by promptly granting to the CONTRACTOR any
necessary authorisation, permit, licence or access right and making available any
existing facilities and services with a view to the Parties obtaining maximum mutual
benefit from the Contract.
Amendments
43.7
Any amendment to this Contract shall be the subject of a formal amendment, duly
approved in writing by the Parties and subject to the same conditions of validity as
this Contract. Notwithstanding the foregoing, the GOVERNMENT has the right and
authority to waive the application of the provisions of this Contract on a case-by-case
basis without having to fulfil the conditions of validity of this Contract, should the
CONTRACTOR so request.
43.8
This Contract and the Letter of Representations constitute the entire agreement of the
Parties and supersedes any and all prior understandings or agreements in respect of
the subject matter of this Contract.
43.9
Unless otherwise expressly stated elsewhere in this Contract, no failure or delay of
any Party to exercise any right, power or remedy under this Contract shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or future exercise thereof or the exercise of any other right,
power or remedy.
Validity
43.10 As signatories to this Contract for and on behalf of the GOVERNMENT, the
Ministry of Natural Resources in the Kurdistan Region and the Regional Council for
the Oil and Gas Affairs of the Kurdistan Region - Iraq hereby represent that they
agree and approve this Contract for the purposes of the Kurdistan Region Oil and Gas
Law.
ARTICLE 44 – NOTICES
44.1
All notices, demands, instructions, waivers, consents or other communications to be
provided pursuant to this Contract shall be in writing in English, shall be effective
upon receipt, and shall be sent by receipted hand delivery or by email (followed by
delivery by reputable international air courier company with an establishment in Erbil
in the Kurdistan Region) to the following addresses:
To the GOVERNMENT:
Attention:
His Excellency the Minister of Natural Resources
Address:
Ministry of Natural Resources
Kurdistan Regional Government
Erbil, Kurdistan, Iraq
Email: mnr@krgoil.com
To the CONTRACTOR:
Attention:
WesternZagros Limited
Address:
Suite 600
440 Second Avenue
Calgary
Alberta
Canada T2P 5E9
Email: shatfield@westernzagros.com
A notice delivered by email with receipt acknowledged shall be deemed to have been
delivered upon leaving the gateway of the sender.
44.2
The above address and/or designated representative of any of the Parties may be
changed on giving ten (10) days prior notice to the other Party delivered pursuant to
Article 44.1.
ARTICLE 45 – TERMINATION
Notice
45.1
The GOVERNMENT undertakes to exercise its termination rights under this Article
45 in a reasonable and proportionate manner, having regard for the nature and severity
of the triggering act or event, the identity of the Person at fault, and the relative
significance of any adverse consequences to the CONTRACTOR or a
CONTRACTOR Entity that may arise from the GOVERNMENT’s exercise of its
rights under this Article 45.
45.2
Except as provided in Article 45.6, in any notice of termination given by the
GOVERNMENT under this Article 45, the GOVERNMENT must specify the
grounds for exercising the termination right and the date on which the Contract or the
rights and interests of a CONTACTOR Entity, as applicable, will terminate.
Corrupt Practices Laws
45.3
If a competent authority has reasonably determined (in a proceeding applying due
process):
(a)
that this Contract has been obtained by the CONTRACTOR, or any Person
acting on behalf of the CONTRACTOR, in violation of Corrupt Practices
Laws; or
(b)
that a permit, approval, consent or waiver in connection with this Contract or
Petroleum Operations has been obtained by the CONTRACTOR, or any
Person acting on behalf of the CONTRACTOR, in violation of Corrupt
Practices Laws;
then, on not less than thirty (30) days’ prior notice to the CONTRACTOR, the
GOVERNMENT may terminate this Contract. Any final determination, judgment,
sanction, or conviction (not subject to further appeal on the issue), including under a
consent order in which there is a finding or admission of guilt, of a judicial or
regulatory authority in Iraq, Canada, England, The Netherlands or Cyprus with
jurisdiction over a CONTRACTOR Entity or an Affiliate of such CONTRACTOR
Entity, will be conclusively determinative.
Unless the GOVERNMENT has
cancelled a notice of termination, this Contract will be terminated as of end of such
thirty (30) day notice period.
Force Majeure
45.4
The CONTRACTOR is not entitled to claim Force Majeure as a consequence of the
GOVERNMENT’s exercise of its rights under this Article 45, and no obligation of
the CONTRACTOR will be tolled as a consequence of any Dispute with respect to
the GOVERNMENT’s exercise of its rights under this Article 45.
Other Grounds for Termination
45.5
45.5.1 The GOVERNMENT may terminate this Contract, on not less than ninety
(90) days’ prior notice, if the CONTRACTOR:
(a)
fails to meet a material financial obligation expressly stated in this
Contract; or
(b)
during the First Sub-Period does not carry out drilling and seismic
acquisition, as detailed in Article 10.2 or, during the Second SubPeriod (or earlier), does not carry out drilling and seismic acquisition,
as detailed in Article 10.3; or
(c)
interrupts Production for a period of more than ninety (90) consecutive
days with no cause or justification acceptable in accordance with this
Contract or under prudent international petroleum industry practice, it
being recognised that Force Majeure is an acceptable justification for
such interruptions; or
(d)
intentionally extracts or produces any mineral which is not covered by
the object of this Contract, unless such extraction or production is
expressly authorised or unavoidable as a result of operations carried
out in accordance with prudent international petroleum industry
practice; or
(e)
refuses to abide by negotiation, mediation, arbitration or expert
decision under Article 42.
45.5.2 If, within the ninety (90) day notice period, the CONTRACTOR has either
remedied the default identified in such notice to the satisfaction of the
GOVERNMENT, or the GOVERNMENT has agreed another remedy with
the CONTRACTOR, including compensation, the GOVERNMENT shall
cancel such notice of termination.
45.5.3 If, within such ninety (90) day notice period, the conditions set forth in Article
45.5.2 have not been satisfied, the GOVERNMENT may, on not less than
thirty (30) days’ notice, terminate the Contract, and, unless such notice is
cancelled by the GOVERNMENT before the end of such thirty (30) day
period, this Contract will be terminated as of the termination date set forth in
the notice from the GOVERNMENT.
Act of Insolvency
45.6.1 Where the CONTRACTOR comprises only WesternZagros Limited, the
GOVERNMENT may terminate the Contract on not less than fourteen (14)
days’ notice to WesternZagros Limited if there occurs, in relation to
WesternZagros Limited, an Act of Insolvency, unless, within such fourteen
(14)-day period, the GOVERNMENT cancels its notice. A termination of the
Contract in accordance with this Article 45.6.1 is effective on and from the
date on which WesternZagros Limited obtained knowledge of the Act of
Insolvency. In a notice provided to WesternZagros Limited in accordance
with this Article 45.6.1, the GOVERNMENT is not obliged to specify the
date on which the termination of the Contract is effective.
45.6.2 Where the CONTRACTOR comprises more than one CONTRACTOR
Entity and WesternZagros Limited is one such CONTRACTOR Entity, the
rights and interests of WesternZagros Limited will be automatically assigned
and novated to the GOVERNMENT on not less than fourteen (14) days
notice from the GOVERNMENT to WesternZagros Limited, and for no
consideration, if there occurs, in relation to WesternZagros Limited an Act
of Insolvency, unless, within such fourteen (14) day period, the
GOVERNMENT cancels its notice.
An assignment and novation of the Contract in accordance with this Article
45.6.2 is automatically effective on and from the date on which
WesternZagros Limited obtained knowledge of the Act of Insolvency. In a
notice provided to WesternZagros Limited in accordance with this Article
45.6.2, the GOVERNMENT is not obliged to specify the date on which the
assignment and novation is effective.
Power of Attorney
45.6.3 Each CONTRACTOR Entity shall promptly take all actions requested by the
GOVERNMENT to give effect to:
(a) an automatic termination of the Contract in accordance with Article 45.6.1;
and
(b) an automatic assignment and novation in accordance with Article 45.6.2.
If the GOVERNMENT determines that an agreement or other documentation
signed by the GOVERNMENT and each CONTRACTOR Entity or other
Party is desirable to evidence an assignment and novation to the
GOVERNMENT in accordance with this Article 45.6.3, each such Party shall
promptly execute such documentation within ten (10) days of receipt thereof.
If a Party fails to deliver such signed agreement or other documentation in the
form required by the GOVERNMENT within ten (10) days of receipt thereof,
then such Party irrevocably constitutes and appoints the GOVERNMENT (or
any other Person which at any time during the term of the Contract may be
nominated by the GOVERNMENT) to act alone, and with full power of
substitution, as to such Party’s true and lawful attorney and agent, with full
power and authority in its name, place and stead to execute, file and record
when as and where required, any and all of such documentation and hereby
ratifies such execution, recording and filing. The power of attorney granted by
this Article 45.6.3 is irrevocable and will survive the insolvency, dissolution,
winding-up or bankruptcy of such Party and extends to bind such Party’s
trustees, administrators, successors and assigns. Each such Party waives any
and all defences which may be available to contest, negate or disaffirm the
action of the GOVERNMENT taken under such power of attorney, provided
that the terms of any such documentation do not increase or change any right
or obligation of such Party under this Contract, except as required to effect the
assignment referred to in Article 45.6.2. Each CONTRACTOR Entity shall
ensure that the authorising resolutions of its board or shareholders, as
applicable, specifically authorises the provision of the power of attorney set
forth in this Article 45.6.3, and shall provide a certified copy of such
resolutions on or before the date such CONTRACTOR Entity becomes a
Party.
Change of Control and Assignment, Expiration
45.7
The rights and interests of an individual CONTRACTOR Entity will be
automatically terminated, without prior notice from the GOVERNMENT, if such
CONTRACTOR Entity: (i) is subject to a Change of Control for which the
GOVERNMENT has not given its authorisation in accordance with Article 39.7; or
(ii)
has made an assignment of all or part of its interests hereunder without the
prior consent of the GOVERNMENT in accordance with Article 39 (including under
any provision of a joint operating agreement).
45.8
This Contract will terminate as provided in Article 6 and Article 7.
Consequences of Termination
45.9
Upon termination or expiration of this Contract:
(a)
the CONTRACTOR (and each CONTRACTOR Entity) will no longer have,
as of the effective date of such termination, any further rights and interests
under this Contract;
(b)
all accrued rights and liabilities of the CONTRACTOR and of each
CONTRACTOR Entity will survive.
(c)
the provisions of Articles 14.10, 16.7, 30, 31, 35.1, 35.3, 35.4, 35.7, 36,
38.2(c), 41, 42, 43.1 to 43.6 and 45.6.3 will survive the termination or expiry
of this Contract.
45.10 If the GOVERNMENT terminates the undivided interests of a CONTRACTOR
Entity, but not the Contract, and there are remaining CONTRACTOR Entities:
(a)
such terminated CONTRACTOR Entity will no longer have, as of the
effective date of such termination, any further rights and interests under this
Contract;
(b)
all accrued rights and liabilities of such terminated CONTRACTOR Entity
will survive; and
(c)
as to and in respect of such terminated CONTRACTOR Entity, the
provisions of Articles 14.10, 16.7, 30, 31, 35.1, 35.3, 35.4, 35.7, 36, 38.2(c),
41, 42, 43.1 to 43.6 and 45.6.3 will survive the termination or expiry of this
Contract.
45.11 If the undivided interests of a CONTRACTOR Entity (or of CONTRACTOR
Entities) are terminated, but the Contract is not terminated and there are remaining
CONTRACTOR Entities, the GOVERNMENT may offer, on not less than fifteen
(15) days’ prior notice from the GOVERNMENT to the other CONTRACTOR
Entities, to assign and novate such terminated CONTRACTOR Entity’s participating
interest, or any part thereof, to the remaining CONTRACTOR Entities on such terms
and in such amounts as the GOVERNMENT may determine. The GOVERNMENT
has no obligation to make such allocation and may retain the terminated interest,
provided that the GOVERNMENT will use reasonable endeavours to find a new
buyer for such interests.
45.12 No assignment, novation, transfer, or other disposition of a terminated
CONTRACTOR Entity’s undivided interests to another CONTRACTOR Entity
pursuant to this Article 45 will be a taxable event under Applicable Law as to the
CONTRACTOR Entity receiving the undivided interests of a terminated
CONTRACTOR Entity.
45.13 Neither the GOVERNMENT nor any CONTRACTOR Entity will assume any
liabilites, obligations, or duties of a terminated CONTRACTOR Entity in respect of
the terminated CONTRACTOR Entity’s undivided interest arising or accrued prior
to the latter of (i) the effective date of the termination of such CONTRACTOR
Entity and (ii) in the case of assignment and novation to the remaining
CONTRACTOR Entities, the effective date of the reassignment and redistribution of
the terminated CONTRACTOR Entity’s interests to another CONTRACTOR
Entity. The GOVERNMENT will in no circumstances assume accrued liabilites,
obligations, or duties of a terminated CONTRACTOR Entity in respect of the
terminated CONTRACTOR Entity’s undivided interest, whenever arising or
accrued. All accrued liabilities will remain the sole obligation of the terminated
CONTRACTOR Entity.
45.14 Nothing in this Article 45 limits or impairs a Party’s rights under the Laws governing
this Contract in respect of termination.
ARTICLE 46 – COUNTERPARTS; EFFECTIVE DATE
The Parties may execute this Contract in counterparts, each of which constitutes an original,
and all of which, collectively, constitute only one agreement. The signatures of all of the
Parties need not appear on the same counterpart, and delivery of an executed counterpart
signature page by facsimile or electronic scan is as effective as executing and delivering this
Contract in the presence of the other Parties. This Contract is effective as of the date set forth
on the signature page (the “Effective Date”). In proving this Contract, a Party must produce
or account only for the executed counterpart of the Party to be charged.
[Signature page follows.]
Execution Date: 25 July, 2011
Effective Date: 31 December, 2010
For the KURDISTAN REGIONAL GOVERNMENT
By :
"Barham Salih"
By :
"Ashti Hawrami"
Barham Salih
Ashti Hawrami
Prime Minister
Minister of Natural Resources
Kurdistan Regional Government
Kurdistan Regional Government
On behalf of the Regional Council
On behalf of the Ministry of Natural
for the Oil and Gas Affairs of
Resources in the Kurdistan Region
the Kurdistan Region - Iraq
For WESTERNZAGROS LIMITED as a CONTRACTOR Entity comprising part of the
CONTRACTOR
By "M.. Simon Hatfield"
M. Simon Hatfield
President
ANNEX A
Map showing coordinates of the Garmian Contract Area corner points
Garmian Block
Point
A
B
C
D
a
b
c
d
e
f
G
H
Easting
534031.75
492441.35
495219.19
502353.68
514750.00
518926.57
524040.00
526720.00
536640.00
553441.19
547673.04
541352.78
Northing
Longitude
3832686.29
45.37130
3850381.01
44.91737
3868916.11
44.94763
3870875.46
45.02579
3880500.00
45.16177
3877080.68
45.20750
3875760.00
45.26352
3873930.00
45.29284
3871380.00
45.40145
3859637.79
45.58477
3851704.89
45.52121
3834401.17
45.45126
Latitude
34.63551
34.79561
34.96277
34.98045
35.06713
35.03623
35.02421
35.00764
34.98434
34.87771
34.80646
34.65070
ANNEX B
ACCOUNTING PROCEDURE
PARAGRAPH 1 – GENERAL PROVISIONS
1.1
Purpose
To classify expenditures, define further Petroleum Costs (in addition to those defined
as such in the Articles of the Contract), and prescribe the manner in which the
CONTRACTOR’s Accounts shall be prepared and approved.
1.2
Definitions
Words and phrases to which a meaning has been assigned in Article 1 or other
Articles of the Contract shall have the same meaning when used in this Annex.
1.3
Inconsistency
In the event of any inconsistency or conflict between the provisions of this Annex and
the other provisions of the Contract, then the other provisions of the Contract shall
prevail.
1.4
Accounting Records and Reports
1.4.1
The CONTRACTOR shall maintain the Accounts in accordance with Article 15.1
and in accordance with this Accounting Procedure, including in accordance with the
charts of Accounts agreed under Paragraph 1.4.2.
1.4.2
Within sixty (60) days of the Effective Date, the CONTRACTOR shall submit to
and discuss with the GOVERNMENT a proposed outline of charts of Accounts,
which outline shall be in accordance with generally accepted standards and
recognized accounting systems and consistent with normal petroleum industry
practice and procedures. Within ninety (90) days of receiving the above submission,
the GOVERNMENT shall either provide written notification of its approval of the
proposal or request in writing revisions to the proposal. Within one hundred and
eighty (180) days after the Effective Date, the CONTRACTOR and the
1
GOVERNMENT shall agree on the outline of charts of Accounts which shall
describe the basis of the accounting system and procedures to be developed and used
under this Contract. Following such agreement, the CONTRACTOR shall
expeditiously prepare and provide the GOVERNMENT with formal copies of the
comprehensive charts of Accounts and manuals related to the accounting, recording
and reporting functions, and procedures which are, and shall be, observed under the
Contract.
1.4.3
Notwithstanding the generality of the foregoing, the CONTRACTOR shall make
regular Statements relating to the Petroleum Operations. These Statements are as
shown:
1.4.4
(a)
Production Statement (as indicated in Paragraph 6).
(b)
Value of Production and Pricing Statement (as indicated in Paragraph 7).
(c)
Cost Recovery and Share Account Statement (as indicated in Paragraph 8).
(d)
Statement of Expenditures and Receipts (as indicated in Paragraph 9).
(e)
Final End-of-Year Statement (as indicated in Paragraph 10).
(f)
Budget Statement (as indicated in Paragraph 12).
All reports and statements shall be prepared in accordance with the Contract,
Kurdistan Region Law, and where there are no relevant provisions of either of these,
in accordance with prudent international petroleum industry practice.
1.5
Language and Units of Account
All Accounts shall be maintained and prepared in the English language and shall be
recorded in Dollars. Where necessary for clarification, the CONTRACTOR may
also maintain Accounts in other currencies.
1.6
Audit and Inspection Rights of the GOVERNMENT
In addition to the provisions of Articles 15.3 to 15.7 and 15.9, the following
provisions shall apply to any audit carried out in accordance with Articles 15.3 to
15.7:
2
1.6.1
For purposes of auditing, the GOVERNMENT, acting reasonably and in accordance
with prudent international petroleum industry practice, may examine and verify, at
reasonable times upon reasonable prior written notice to the CONTRACTOR, all
charges and credits relating to the Petroleum Operations, such as books of account,
accounting entries, material records and inventories, vouchers, payrolls, invoices and
any other documents, correspondence and records including electronic records
reasonably considered necessary by the GOVERNMENT to audit and verify the
charges and credits, values and treatments.
1.6.2
Furthermore, the auditors shall have the right in connection with such audit, to visit
and inspect at reasonable times, all sites, plants, facilities, warehouses and offices of
the CONTRACTOR directly or indirectly serving the Petroleum Operations and to
question personnel associated with those Petroleum Operations.
1.6.3
Where the GOVERNMENT requires verification of charges made by an Affiliated
Company of the CONTRACTOR, the GOVERNMENT shall have the right to
obtain an audit certificate for such changes from an internationally recognized firm of
public
accountants
acceptable
to
both
the
GOVERNMENT
and
the
CONTRACTOR, which may be the CONTRACTOR’s statutory auditor.
1.6.4
All agreed adjustments resulting from an audit shall be promptly made in the
CONTRACTOR’s Accounts and any consequential adjustments to payments due to
the CONTRACTOR or to the GOVERNMENT, as the case may be, shall be made
promptly.
1.6.4
When issues are outstanding with respect to an audit, the CONTRACTOR shall
maintain the relevant documents and permit inspection thereof until the issue is
resolved.
1.7
Payments
Unless as otherwise provided in Article 24, Article 29 or other Articles of the
Contract:
1.7.1
All payments between the Parties shall, unless otherwise agreed, be in Dollars and be
made through a bank designated in writing by each receiving party; and all sums due
3
under the Contract shall be paid within thirty (30) days following the end of the
Month in which the obligation to make such payment occurred.
1.7.2
All sums due by one party to the other under the Contract shall, for each day such
sums are overdue, bear interest compounded monthly at LIBOR plus two per cent
(2%).
1.8
Currency Exchange Rates
In addition to the provisions of Article 29, the following provisions shall apply to any
exchanges of currency carried out in accordance with Article 29:
1.8.1
Amounts received and Petroleum Costs incurred, shall be converted from other
currencies into Dollars in accordance with the CONTRACTOR’s usual accounting
procedures which shall reflect generally accepted accounting practices in the
international petroleum industry, and with reference to exchange rates obtained in
accordance with Article 29.
1.9
Accrual Basis, Cash Flow Basis and Reports
All books and Accounts shall be prepared on an accrual basis in accordance with
generally accepted accounting principles used in the international petroleum industry.
1.10
Values and Treatments
Values and treatments proposed by the CONTRACTOR relating to all Petroleum
Costs shall be subject to challenge by the GOVERNMENT in the course of audit to
ensure that they are in accordance with the provisions of this Accounting Procedure.
PARAGRAPH 2 – CLASSIFICATION, DEFINITION AND ALLOCATION OF
COSTS AND EXPENSES
2.1
Segregation of Costs and Expenses
Petroleum Costs shall be segregated in accordance with the purposes for which such
Petroleum Costs are made. The purposes which shall qualify are:
4
(a)
those which have been included in the approved Work Program and Budget
for the year in which the Costs and Expenditures are made;
(b)
expenditures incurred in cases of emergency as set out in Articles 11.7, 13.5,
13.9 35.5, 35.6 and any other Articles of the Contract;
(c)
any other purposes agreed in the Articles of the Contract; and
(d)
other items which have been agreed by the Parties from time to time.
All Petroleum Costs recoverable under Paragraph 3 relating to Petroleum Operations
shall be classified, defined and allocated as set out below.
2.2
Exploration Costs
Exploration Costs are all direct and allocated indirect costs and expenditures incurred
in carrying out the Exploration Operations, including all direct and allocated indirect
costs and expenditures incurred in the search for Petroleum in an area which is, or
was at the time when such costs and expenses were incurred, part of the Contract
Area including:
2.2.1
Aerial, geophysical, geochemical, paleontological, geological, topographical and
seismic surveys and studies and their interpretation and purchased geological and
geophysical information.
2.2.2
Stratigraphic test hole drilling and water well drilling.
2.2.3
Labour, materials, supplies, and services used in drilling and formation testing of
wells with the object of finding Petroleum or Appraisal Wells excluding any costs of
the subsequent completion of such wells as producing wells.
2.2.4
Facilities to the extent used in support of the purposes described in Paragraphs 2.2.1,
2.2.2 and 2.2.3, including access roads.
2.2.5
That portion of all service expenditures and that portion of all general and
administrative expenditures directly attributable to Exploration Costs or allocated
thereto on a consistent and equitable basis.
5
2.2.6
Any other expenditures incurred in the search for and appraisal of Petroleum after the
Effective Date and not otherwise covered under this Paragraph 2.2.
2.3
Gas Marketing Costs
Gas Marketing Costs are all direct and allocated indirect costs and expenditures
incurred in carrying out Gas Marketing Operations and include that portion of all
service expenditures and that portion of all general and administrative expenditures
directly attributable to Gas Marketing Costs or allocated thereto on a consistent and
equitable basis.
2.4
Development Costs
Development Costs are all direct and allocated indirect costs and expenditures
incurred in carrying out Development Operations including all direct and allocated
indirect costs and expenditures incurred in:
2.4.1
Drilling wells which are completed as producing wells and drilling wells for purposes
of producing from a Petroleum reservoir, whether these wells are dry or producing
and drilling wells for the injection of water or gas to enhance recovery of Petroleum.
2.4.2
Completing wells by way of installation of casing or equipment or otherwise after a
well has been drilled for the purpose of bringing the well into use as a producing well
or as a well for the injection of water or gas to enhance recovery of Petroleum.
2.4.3
The costs of Petroleum production, transport and storage facilities such as pipelines,
flow lines, production and treatment units, wellhead equipment, subsurface
equipment, enhanced recovery systems, Petroleum storage facilities, and access roads
for production activities.
2.4.4
Engineering and design studies for the wells and facilities referred to in Paragraphs
2.4.1, 2.4.2 and 2.4.3.
And including that portion of all service expenditures and that portion of all general
and administrative expenditures directly attributable to Development Costs or
allocated thereto on a consistent and equitable basis; and any other expenditure
6
incurred in the Development Operations and not otherwise covered under
Paragraph 2.3.
2.5
Production Costs
Production Costs are all direct and allocated indirect costs and expenditures incurred
in carrying out Production Operations, including all direct and allocated indirect costs
and expenses incurred in Petroleum Operations after First Production which are other
than
Exploration
Costs,
Decommissioning Costs.
Gas
Marketing
Costs,
Development
Costs
and
Production Costs include that portion of all service
expenditures and that portion of all general and administrative expenditures directly
attributable to Production Costs or allocated thereto on a consistent and equitable
basis.
2.6
Decommissioning Costs
Decommissioning Costs are all direct and allocated indirect costs and expenditures
incurred in carrying out Decommissioning Operations and include that portion of all
service expenditures and that portion of all general and administrative expenditures
directly attributable to Decommissioning Costs or allocated thereto on a consistent
and equitable basis, and the Decommissioning Reserve Fund shall be determined on
such basis, in advance of incurring such costs, as provided in Article 38 and, for the
purposes of cost recovery, the contributions to the Decommissioning Reserve Fund
shall be recoverable in accordance with Article 38.
2.7
Service Expenditures
Service expenditures are expenditures in support of Petroleum Operations including
warehouses, vehicles, motorized rolling equipment, aircraft, fire and security stations,
workshops, water and sewerage plants, power plants, housing, community and
recreational facilities and furniture, tools and equipment used in these activities.
Service expenditures in any Calendar Year shall include the costs incurred in such
year to purchase and/or construct the said facilities as well as the annual costs of
maintaining and operating the same. All service expenditures shall be regularly
allocated as specified in Paragraphs 2.2.5, 2.3, 2.4, 2.5 and 2.6 to Exploration Costs,
Gas Marketing Costs, Development Costs, Production Costs and Decommissioning
7
Costs respectively and shall be separately shown under each of these categories.
Where service expenditures are made in respect of shared facilities, the basis of
allocation of costs to Petroleum Operations shall be consistent and equitable and shall
be specified.
2.8
General and Administrative Expenditures
General and administrative expenditures are:
2.8.1
All main office, field office and general administrative expenditures in the Kurdistan
Region including supervisory, accounting, procurement and employee relations
services.
2.8.2
Where the CONTRACTOR is an Affiliate of a group of companies whose
headquarters is Abroad (a “Foreign CONTRACTOR”), an annual overhead charge
shall be made for services rendered (excluding the direct expenditures as referred in
Paragraph 3.1.2.(b)) by any Affiliate of the Foreign CONTRACTOR outside the
Kurdistan Region to support and manage Petroleum Operations under the Contract, or
where the CONTRACTOR, not being a Foreign CONTRACTOR draws upon the
services of an Affiliate within the Kurdistan Region, an annual overhead charge shall
be made for services rendered (excluding the direct expenditures as referred in
Paragraphs 3.1.2.(a) and (b)) by such Affiliate to support and manage Petroleum
Operations under the Contract (“Parent Company Overhead”).
Parent Company Overhead will be deemed to cover the actual cost (being salaries,
wages and labour burden, employee benefits, travel, hotel and other normally
reimbursable expenses paid by the Affiliate of a CONTRACTOR in accordance with
its standard personnel policy in force in the relevant period, provision of office
accommodation and provision of services reasonably necessary for operation and
maintaining such staff offices) incurred for services rendered by those functions of
CONTRACTOR’s Affiliate, such as, but not limited to, international production
headquarters, international exploration headquarters, treasury, payroll, taxation,
insurance, legal, communications, computer services, controllers, personnel,
executive administrative management, research and development, central engineering
and process engineering which:
8
(a)
cannot, without unreasonable effort and/or expenditure or without the release
of confidential data proprietary to any of the CONTRACTOR’s Affiliates, be
charged under any other section of this Annex; and
(b)
are properly allocable to Petroleum Operations under the Contract. It is
understood, however, that services performed by the departments listed above
and other corporate departments which directly benefit Petroleum Operations
under the Contract shall be charged as direct costs in accordance with
Paragraph 3.
In respect of the costs of the CONTRACTOR’s Parent Company Overhead, as
described above, the CONTRACTOR shall charge monthly to Petroleum Operations
an amount equal to the total of the following:
2.8.2.1 Exploration Overhead
The CONTRACTOR shall be entitled to an annual charge based on a sliding scale
percentage and charged monthly to Petroleum Operations. The basis for applying this
percentage shall be the total of Exploration Costs and Gas Marketing Costs during
each Calendar Year (exclusive of this Exploration Overhead) or fraction thereof less
expenditures which have been subjected to the two (2) per cent fee, referred to in
Paragraph 3.1.8(b). The sliding scale percentage shall be the following:
For the first four million Dollars (US $4,000,000) four per cent (4%)
For the next four million Dollars (US $4,000,000) three per cent (3%)
Over eight million Dollars (US $8,000,000) two per cent (2%)
The foregoing percentages may be reviewed but not more often than annually, and
any approved appropriate adjustment shall be made, if necessary, prospectively.
2.8.2.2 Development, Production and Decommissioning Operations Overhead
The overhead rates applicable to Development, Production and Decommissioning
Operations shall be agreed between the Parties in due course and shall incorporate the
following guidelines:
9
(a)
The CONTRACTOR’s charges must be charged as direct charges whenever
possible. Overhead charges exist only to compensate the CONTRACTOR’s
Affiliates for costs which are properly allocable to Petroleum Operations
under the Contract but which cannot, without unreasonable effort and/or
release of confidential data proprietary to the CONTRACTOR’s Affiliates,
be charged under any other section.
Overhead costs are billed monthly.
Overhead must be commensurate with services rendered and based on actual
cost studies but may not exceed an amount calculated as a percentage of
certain annual expenditures excluding Exploration Costs and
(b)
That percentage as well as the types of expenditures, which affect overhead
and those, which do not, shall be agreed among the Parties.
(c)
The maximum percentage rates may be revised by mutual agreement not more
often than annually. The initial maximum percentage rates and the types of
expenditures to which they apply shall be agreed as soon as the Parties possess
reasonably reliable cost estimates for the relevant Production Area.
(d)
Overhead charges are not subject to audit by GOVERNMENT.
(e)
The CONTRACTOR shall upon request furnish at the end of each relevant
Calendar Year to the GOVERNMENT a confirmation by its statutory auditor
that the overhead costs actually charged do not duplicate any other charges
and that the method used in allocating overhead to Petroleum Operations
hereunder as opposed to other activities is reasonable and in accordance with
generally accepted accounting practices.
(f)
2.8.3
The CONTRACTOR must budget for overhead charges.
All general and administrative expenditures shall be regularly allocated as specified in
Paragraphs 2.2.5, 2.3, 2.4, 2.5 and 2.6 to Exploration Costs, Gas Marketing Costs,
Development Costs, Production Costs and Decommissioning Costs respectively and
shall be separately shown under each of these categories.
PARAGRAPH 3 – COSTS, EXPENSES, EXPENDITURES AND CREDITS OF THE
CONTRACTOR
10
3.1
Costs Recoverable Without Further Approval of the GOVERNMENT
The following Petroleum Costs incurred by the CONTRACTOR pursuant to the
Contract as classified under the headings referred to in Paragraph 2 shall be
recoverable for the purpose of Article 25 of the Contract (except to the extent
provided in Paragraph 4 or elsewhere in this Annex) without the requirement for
obtaining any further approval of the GOVERNMENT, subject to audit as provided
for in Article 15 and in Paragraph 1.6.
3.1.1
Surface Rights
All direct costs necessary for the acquisition, renewal or relinquishment of surface
rights acquired and maintained in force for the purposes of the Contract.
3.1.2
Labour and Associated Labour Costs
(a)
The CONTRACTOR’s locally recruited employees based in the Kurdistan
Region: Costs of all CONTRACTOR’s locally recruited employees who are
directly engaged in the conduct of Petroleum Operations under the Contract in
the Kurdistan Region. Such costs shall include the costs of salaries, wages,
bonuses, overtime, employee benefits and GOVERNMENT benefits for
employees and levies imposed on the CONTRACTOR as an employer,
transportation and relocation costs within the Kurdistan Region of the
employee and such members of the employee's family (limited to spouse and
dependent children) as required by Applicable Law or customary practice in
the Kurdistan Region. If such employees are engaged in other activities in the
Kurdistan Region, in addition to Petroleum Operations, the cost of such
employees shall be apportioned on a time sheet basis according to sound and
acceptable accounting principles.
(b)
Assigned Personnel: Costs of salaries and wages including bonuses of the
CONTRACTOR’s employees directly engaged in the conduct of the
Petroleum Operations under the Contract, whether temporarily or permanently
assigned, irrespective of the location of such employees, it being understood
that in the case of those personnel only a portion of whose time is wholly
dedicated to Petroleum Operations under the Contract, only that pro-rata
11
portion of applicable salaries, wages, and other costs as delineated in
Paragraphs 3.1.2(c), (d), (e), (f) and (g), shall be charged and the basis of such
pro-rata allocation shall be specified.
(c)
The CONTRACTOR’s costs regarding holiday, vacation, sickness and
disability benefits and living and housing and other customary allowances
applicable to the salaries and wages chargeable under Paragraph 3.1.2(b).
(d)
Expenses or contributions made pursuant to assessments or obligations
imposed
under
Applicable
Law
which
are
applicable
to
the
CONTRACTOR’s cost of salaries and wages chargeable under Paragraph
3.1.2(b).
(e)
The CONTRACTOR’s cost of established plans for employees' group life
insurance, hospitalization, pension, stock purchases, savings, bonus, and other
benefit plans of a like nature customarily granted to the CONTRACTOR’s
employees, provided however that such costs are in accordance with generally
accepted standards in the international petroleum industry, applicable to
salaries
and
wages
chargeable
to
Petroleum
Operations
under
Paragraph 3.1.2(b).
(f)
Actual transportation and travel expenses of employees of CONTRACTOR,
including those made for travel and relocation of the expatriate employees,
including their families and personal effects, assigned to the Kurdistan Region
whose salaries and wages are chargeable to Petroleum Operations under
Paragraph 3.1.2(b).
Actual transportation expenses of expatriate personnel transferred to Petroleum
Operations from their country of origin shall be charged to the Petroleum Operations.
Transportation expenses of personnel transferred from Petroleum Operations to a
country other than the country of their origin shall not be charged to the Petroleum
Operations. Transportation cost as used in this section shall mean the cost of freight
and passenger service, meals, hotels, insurance and other expenditures related to
vacation and transfer travel and authorized under the CONTRACTOR’s standard
personnel policies. The CONTRACTOR shall ensure that all expenditures related to
12
transportation costs are equitably allocated to the activities, which have benefited
from the personnel concerned.
(g)
Reasonable personal expenses of personnel whose salaries and wages are
chargeable to Petroleum Operations under Paragraph 3.1.2(b) and for which
expenses such personnel are reimbursed under the CONTRACTOR’s
standard personnel policies.
In the event such expenses are not wholly
attributable to Petroleum Operations, the Petroleum Operations shall be
charged with only the applicable portion thereof, which shall be determined on
an equitable basis.
3.1.3
Transportation and Employee Relocation Costs
The cost of transportation of employees, equipment, materials and supplies other than
as provided in Paragraph 3.1.2(f) necessary for the conduct of the Petroleum
Operations under the Contract along with other related costs such as, but not limited
to, import duties, customs fees, unloading charges, dock fees, and inland and ocean
freight charges.
3.1.4
Charges for Services
(a)
Third Parties
The actual costs of contract services, services of professional consultants,
utilities, and other services necessary for the conduct of the Petroleum
Operations under the Contract performed by third parties other than an
Affiliate of the CONTRACTOR.
(b)
Affiliates of the CONTRACTOR
(i)
Professional and Administrative Services Expenses: cost of
professional and administrative services provided by any Affiliates of
the CONTRACTOR for the direct benefit of Petroleum Operations,
including services provided by the production, exploration, legal,
procurement, financial, insurance, accounting and computer services
divisions other than those covered by paragraphs 3.1.4 (b) (ii), 3.1.6
and 3.1.8 (b) which CONTRACTOR may use in lieu of having its
13
own employees. Such charges shall reflect the cost of providing their
services. Such charges shall not include any element of profit and shall
be no more or less favourable than similar charges for other operations
carried on by the CONTRACTOR and its Affiliates. The chargeout
rate shall include all costs incurred by Affiliates incidental to the
employment of such personnel including all Labour and Associated
Labour Costs and the cost of maintaining and operating offices and
providing all support services for such personnel. Costs of travel of
such personnel in respect of Petroleum Operations will be directly
charged.
The charges for such services shall not exceed those
prevailing if performed by non-Affiliated third parties, taking into
account the quality and availability of such services. Where the work is
performed outside the home office base of such personnel, the daily
rate shall be charged from the date such personnel leave the home
office base where they usually work up to their return thereto,
including days which are not working days in the location where the
work is performed, excluding any holiday entitlements derived by such
personnel from their employment at their home office base.
(ii)
Scientific or Technical Personnel: cost of scientific or technical
personnel services provided by any Affiliate of the CONTRACTOR
for the direct benefit of Petroleum Operations, which cost shall be
charged on a cost of service basis and shall not include any element of
profit. The chargeout rate shall include all costs incurred by Affiliates
incidental to the employment of such personnel including all Labour
and Associated Labour Costs and the cost of maintaining and operating
offices and providing all support services for such personnel costs of
travel of such personnel in respect of Petroleum Operations will be
directly charged. The charges for such services shall not exceed those
prevailing if performed by non-affiliated third parties, taking into
account the quality and availability of such services. Unless the work
to be done by such personnel is covered by an approved Work
Program and Budget, the CONTRACTOR shall not authorize work
by such personnel without approval of the GOVERNMENT.
14
(iii)
Equipment and facilities: use of equipment and facilities owned and
furnished by the CONTRACTOR’s Affiliates, at rates commensurate
with the cost of ownership and operation; provided, however, that such
rates shall not exceed those currently prevailing for the supply of like
equipment and facilities on comparable terms in the area where the
Petroleum Operations are being conducted and shall be on an arm’s
length basis. On the request of the GOVERNMENT, the
CONTRACTOR shall provide the GOVERNMENT with evidence
of such rates being on an arm’s length basis. (If the GOVERNMENT
considers that any such rate is not on an arm’s length basis then the
GOVERNMENT has the right to refer the matter to an expert
pursuant to Article 42.2 of the Contract). The equipment and facilities
referred to herein shall exclude major investment items such as (but
not limited to) drilling rigs, producing platforms, oil treating facilities,
oil and gas loading and transportation systems, storage and terminal
facilities and other major facilities, rates for which shall be subject to
separate agreement with the GOVERNMENT.
3.1.5
Communications
Cost of acquiring, leasing, installing, operating, repairing and maintaining
communication systems including radio and microwave facilities within and between
the Contract Area and the CONTRACTOR’s nearest base facility.
3.1.6
Office and Miscellaneous Facilities
Net cost to the CONTRACTOR of establishing, maintaining and operating any
office, sub-office, warehouse, housing or other facility directly serving the Petroleum
Operations. If any such facility services more than one contract area the net costs
thereof shall be allocated on an equitable basis in accordance with prudent
international petroleum industry practice.
3.1.7
Ecological and Environment
15
(a)
Costs incurred in the Contract Area as a result of legislation for archaeological
and geophysical surveys relating to identification and protection of cultural
sites or resources;
(b)
Costs incurred in environmental or ecological surveys required by regulatory
authorities, including an environmental impact assessment commissioned
pursuant to Article 37.5 of the Contract and any other costs incurred in
complying with the requirements of Article 37;
(c)
Costs to provide or have available pollution containment and removal
equipment;
(d)
Costs of actual control and cleanup of oil spills, and of such further
responsibilities resulting therefrom as may be required by applicable laws and
regulations;
(e)
Costs of restoration of the operating environment incurred pursuant to an
approved scheme prepared in accordance with Article 38 of the Contract;
(f)
Any costs incurred for the decommissioning of facilities and site restoration,
including any related activity required by the GOVERNMENT or other
competent authority or by the Contract; and
(g)
Any contributions made by the CONTRACTOR to the Decommissioning
Reserve Fund in accordance with Article 38, when such contributions are
made.
3.1.8
Material and Equipment Costs
Costs of materials and supplies, equipment, machines, tools and any other goods of a
similar nature used or consumed in Petroleum Operations subject to the following:
(a)
Acquisition - the CONTRACTOR shall only supply or purchase materials
for use in Petroleum Operations that may be used in the foreseeable future.
The accumulation of surplus stocks and inventory shall be avoided so far as is
reasonably practical and consistent with efficient and economical operations.
Inventory levels shall, however, take into account the time lag for
16
replacement, emergency needs, weather conditions affecting operations and
similar considerations.
(b)
Components of costs, arm's length transactions - except as otherwise
provided in paragraph 3.1.8(d) , material purchased by the CONTRACTOR
in arm's length transactions in the open market for use in the Petroleum
Operations under the Contract shall be valued to include invoice price less
trade and cash discounts (if any), licence fees, purchase and procurement fees
plus freight and forwarding charges between point of supply and point of
shipment, freight to port of destination, insurance, taxes, customs duties,
consular fees, excise taxes, other items chargeable against imported materials
and, where applicable, handling and transportation expenses from point of
importation to warehouse or operating site. Where an Affiliate of the
CONTRACTOR has arranged the purchase, coordinated the forwarding and
expediting effort, its costs should not exceed those currently prevailing in
normal arm’s length transactions on the open market and in any case shall not
exceed a fee equal to two per cent (2%) of the value of the materials added to
the cost of the materials purchased.
(c)
Accounting - such material costs shall be charged to the accounting records
and books in accordance with the “First in, First Out” (FIFO) method;
(d)
Material purchased from or sold to Affiliates of the CONTRACTOR or
transferred from other activities of the CONTRACTOR to or from Petroleum
Operations under this Contract shall be valued and charged or credited at the
prices specified in Paragraphs 3.1.8(d)(i), 3.1.8(d)(ii) and 3.1.8(d)(iii):
(i)
New material, including used new material moved from inventory
(Condition “A”), shall be valued at the current international net price
which shall not exceed the price prevailing in normal arm's length
transactions in the open market.
(ii)
Used material (Conditions “B”, “C” and “D”;
(A)
Material which is in sound and serviceable condition and is
suitable for re-use without reconditioning shall be classified as
17
Condition “B” and priced at seventy five per cent (75%) of the
current price of new material defined in Paragraph 3.1.8(d)(i);
(B)
Material which cannot be classified as Condition “B” but which
after reconditioning will be further serviceable for its original
function shall be classified as Condition “C” and priced at not
more than fifty per cent (50%) of the current price of new
material as defined in Paragraph 3.1.8(d)(i). The cost of
reconditioning shall be charged to the reconditioned material
provided that the value of Condition “C” material plus the cost
of reconditioning do not exceed the value of Condition “B”
material;
(C)
Material which cannot be classified as Condition “B” or
Condition “C” shall be classified as Condition “D” and priced
at a value commensurate with its use by the CONTRACTOR.
If material is not fit for use by the CONTRACTOR it shall be
disposed of as junk.
(iii)
Material involving erection costs shall be charged at the applicable
condition percentage of the current knocked-down price of new
material as defined in Paragraph 3.1.8(d)(i) .
(iv)
When the use of material is temporary and its service to the Petroleum
Operations under the Contract does not justify the reduction in price as
provided for in paragraph 3.1.8.(d)(ii)(b), such material shall be priced
on a basis that will result in a net charge to the accounts under the
Contract consistent with the value of the service rendered.
(v)
Premium prices - whenever material is not readily obtainable at
published or listed prices because of national emergencies, strikes or
other unusual causes over which the CONTRACTOR has no control,
the CONTRACTOR may charge Petroleum Operations for the
required material at the CONTRACTOR’s actual cost incurred in
providing such material, in making it suitable for use, and in moving it
to the Contract Area; provided notice in writing is furnished to the
18
GOVERNMENT of the proposed charge prior to charging Petroleum
Operations for such material and the GOVERNMENT shall have the
right to challenge the transaction on audit.
(vi)
Warranty of material furnished by the CONTRACTOR - the
CONTRACTOR does not warrant the material furnished. In case of
defective material, credit shall not be passed to Petroleum Operations
until adjustment has been received by the CONTRACTOR from the
manufacturers of the material or their agents.
(vii)
Adjustments arising from material inventories conducted in accordance
with Paragraph 5.2.
(e)
Equipment of the CONTRACTOR charged at rates not to exceed the average
commercial rates of non-affiliated third parties for equipment, facilities,
installations and utilities for use in the area where the same are used. On
request, the CONTRACTOR shall furnish a list of rates and the basis of
application. Such rates shall be revised when found to be either excessive or
insufficient, but not more than once every six (6) Months.
Drilling tools and other equipment lost in the hole or damaged beyond repair
may be charged at replacement cost less depreciation plus transportation costs
to deliver like equipment to the location where used.
(f)
Use of leased or hired machinery and/or equipment in the Petroleum
Operations shall be charged at full cost to the CONTRACTOR. This may
include mobilisation and de-mobilisation charges, lease and hire fees, as well
as other contractual costs.
3.1.9
Rentals and Taxes
All rentals of every kind and nature levied by any GOVERNMENT and all Taxes
imposed in connection with the CONTRACTOR’s assets, income or activities under
the Contract and paid directly by the CONTRACTOR or any CONTRACTOR
Entity (save where the contrary is expressly provided in the Contract) with the
19
exception of Taxes (described in Article 31.2), bonus payments, Capacity Building
Payments, and any other payments made under Article 32.
If the CONTRACTOR, any CONTRACTOR Entity or any of its Affiliated
Companies is subject to income or withholding tax as a result of services performed at
cost for the Petroleum Operations under the Contract, its charges for such services
may be increased by the amount required to cover such taxes (grossed up) including
taxes on such gross up.
3.1.10 Insurance and Losses
Insurance premiums and costs incurred for insurance carried for the benefit of the
Petroleum Operations provided that such insurance is customary, affords prudent
protection against risk and is at a premium no higher than that charged on a
competitive basis by insurance companies which are not Affiliated Companies of the
CONTRACTOR. Except in cases of failure to insure where insurance coverage is
required pursuant to the Contract, actual costs and losses incurred shall be recoverable
to the extent not made good by insurance unless such losses result solely from an act
of wilful misconduct by the CONTRACTOR. Such costs may include repair and
replacement of property in the Contract Area resulting from damages or losses
incurred by fire, flood, storm, theft, accident or such other cause.
3.1.11 Legal Expenses
All reasonable costs and expenses resulting from the handling, investigating,
asserting, defending, or settling of any claim or legal action necessary or expedient for
the procuring, perfecting, retention and protection of the Contract Area, and in
defending or prosecuting lawsuits involving the Contract Area or any third party
claim arising out of the Petroleum Operations under the Contract, or sums paid in
respect of legal services necessary for the protection of the joint interest of the
GOVERNMENT and the CONTRACTOR shall be recoverable. Such expenditures
shall include attorney's fees, court costs, arbitration costs, costs of investigation, and
procurement of evidence and amounts paid in settlement or satisfaction of any such
litigation and claims provided such costs are not covered elsewhere in the Annex.
Where legal services are rendered in such matters by salaried or regularly retained
lawyers of the CONTRACTOR or an Affiliated Company of the CONTRACTOR,
20
such compensation shall be included instead under Paragraph 3.1.2 or 3.1.4(b) as
applicable.
3.1.12 Claims
Expenditures made in the settlement or satisfaction of any loss, claim, damage,
judgement or other expense arising out of or relating to Petroleum Operations, except
as may otherwise be covered elsewhere in the Annex.
3.1.13 Training Costs
All costs and expenses incurred by the CONTRACTOR in the training of its
employees engaged in Petroleum Operations under the Contract.
3.1.14 General and Administrative Costs
The costs described in Paragraph 2.8.1 and the charge described in Paragraph 2.8.2.
3.1.15 Banking Charges and Currency Exchange Losses
Charges and fees by the banks for money transfers, payments and foreign exchange
transactions, as well as currency exchange losses incurred by the CONTRACTOR in
connection with the Petroleum Operations.
3.1.16 Other Expenditures
Other reasonable expenditures not covered or dealt with in the foregoing provisions of
Paragraph 3 which are necessarily incurred by the CONTRACTOR for the proper,
economical and efficient conduct of Petroleum Operations.
3.2
Credit Under the Contract
The proceeds, other than the proceeds from the sale of Petroleum received from
Petroleum Operations under the Contract, including the items listed below shall be
credited to the Accounts under the Contract for the purposes of Article 25 of the
Contract:
3.2.1
The proceeds of any insurance or claim or judicial awards in connection with
Petroleum Operations under the Contract or any assets charged to the Accounts under
21
the Contract where such operations or assets have been insured and the premia
charged to the Accounts under the Contract.
3.2.2
Legal costs charged to the accounts under Paragraph 3.1.11 and subsequently
recoverable by the CONTRACTOR.
3.2.3
Revenue received from third parties for the use of property or assets the cost of which
has been charged to the Accounts under the Contract.
3.2.4
Any adjustment received by the CONTRACTOR from the suppliers/manufacturers
or their agents in connection with a defective material the cost of which was
previously charged by the CONTRACTOR to the Accounts under the Contract.
3.2.5
Rentals, refunds, including refunds of taxes paid, or other credits received by the
CONTRACTOR which apply to any charge which has been made to the Accounts
under the Contract, but excluding any award granted to the CONTRACTOR under
arbitration or expert proceedings.
3.2.6
Costs originally charged to the Accounts under the Contract for materials
subsequently exported from the Kurdistan Region or transferred to another Contract
Area within the Kurdistan Region.
3.2.7
Proceeds from the sale or exchange by the CONTRACTOR of plant or facilities used
in Petroleum Operations the acquisition costs of which have been charged to the
Accounts under the Contract.
3.2.8
Proceeds derived from the sale or license of any intellectual property the development
costs of which were incurred pursuant to and are recoverable under the Contract.
3.2.9
Proceeds derived from the sale, exchange, lease, hire, transfer or disposal in any
manner whatsoever of any other item the costs of which have been charged to
Petroleum Operations.
3.2.10 Proceeds of the disposition of any material the cost of which is included in
Stipulated Sunk Block Costs.
Not later than 31 March 2011, the CONTRACTOR shall present a plan to the
Management Committee to detail the disposition of material acquired by
22
WesternZagros Limited exclusively and included in the Stipulated Sunk Block
Costs which are no longer required for future Petroleum Operations.
3.3
Duplication of Charges and Credits
Notwithstanding any provision to the contrary in this Accounting Procedure, there
shall be no duplication of charges or credits to the Accounts under the Contract.
PARAGRAPH 4 – COSTS AND EXPENSES NOT TO BE TREATED AS
RECOVERABLE
The following costs and expenditures shall not be included in the Petroleum Costs
recoverable under Article 25:
4.1
Taxes on income or profit paid to any GOVERNMENT authority except taxes and
duties that may be included in the costs of material and equipment purchased for the
Petroleum Operations;
4.2
Any payment made to the GOVERNMENT by reason of the failure of the
CONTRACTOR to fulfil its Minimum Exploration Obligations in respect of the
relevant Sub-Period under the Contract.
4.3
The cost of any letter of guarantee, if any, required under the Contract;
4.4
The bonuses, Capacity Building Payments, or other payments set out in Article 32 of
the Contract;
4.5
Costs of marketing or transportation of Petroleum beyond the Delivery Point
(excluding Gas Marketing Costs);
4.6
Attorney’s fees and other costs of proceedings in connection with arbitration under
Article 42 of the Contract or internationally recognised independent expert
determination as provided in the Contract or this Accounting Procedure;
4.7
Any interests, fees, costs and expenses paid by the CONTRACTOR for loans and
any other form of financing or advances for the financing of the Petroleum Costs
entered into by the CONTRACTOR with third parties or Affiliated Companies;
23
4.8
Any accounting provision for depreciation and/or amortisation, excluding any
adjustments in value pursuant to Paragraph 3.1.8;
4.9
Dividends, repayment of equity or repayment of intercompany loans;
4.10
Fines and penalties imposed under Law.
PARAGRAPH 5 – RECORDS AND VALUATION OF ASSETS
5.1
Records
The CONTRACTOR shall maintain detailed records of property in use for
Petroleum Operations under the Contract in accordance with prudent international
petroleum industry practice for exploration and production activities.
5.2
Inventories
Inventories of property in use in Petroleum Operations shall be taken at reasonable
intervals but at least once a year with respect to movable assets and once every three
(3) years with respect to immovable assets. The CONTRACTOR shall give the
GOVERNMENT at least thirty (30) days written notice of its intention to take such
inventory and the GOVERNMENT shall have the right to be represented when such
inventory is taken.
Failure of the GOVERNMENT to be represented at an inventory shall bind the
GOVERNMENT to accept the inventory taken by the CONTRACTOR.
The CONTRACTOR shall clearly inform GOVERNMENT about the principles
upon which valuation of the inventory has been based. The CONTRACTOR shall
make every effort to provide to the GOVERNMENT a full report on such inventory
within thirty (30) days of the taking of the inventory. When an assignment of rights
under the Contract takes place the CONTRACTOR may, at the request of the
assignee, take a special inventory provided that the costs of such inventory are borne
by the assignee.
PARAGRAPH 6 – PRODUCTION STATEMENT
24
6.1
Production Information
Without prejudice to the rights and obligations of the Parties under Article 16 of the
Contract, from the date of First Production from the Contract Area the
CONTRACTOR
shall
submit
a
monthly
production
statement
to
the
GOVERNMENT showing the following information separately for each producing
Development Area and in aggregate for the Contract Area:
6.1.1
The quantity of Crude Oil produced and saved.
6.1.2
The quality characteristics of such Crude Oil produced and saved.
6.1.3
The quantity of Natural Gas produced and saved.
6.1.4
The quality characteristics of such Natural Gas produced and saved.
6.1.5
The quantities of Crude Oil and Natural Gas used for the purposes of carrying on
drilling and production operations and pumping to field storage.
6.1.6
The quantities of Crude Oil and Natural Gas unavoidably lost.
6.1.7
The quantities of Natural Gas flared and vented.
6.1.8
The size of Petroleum stocks held at the beginning of the calendar Month in question.
6.1.9
The size of Petroleum stocks held at the end of the calendar Month in question.
6.1.10 The quantities of Natural Gas reinjected into the Reservoir.
6.1.11 In respect of the Contract Area as a whole, the quantities of Petroleum transferred at
the Measurement Point. All quantities shown in this Statement shall be expressed in
both volumetric terms (Barrels of oil and cubic meters of gas) and in weight (metric
tonnes).
6.2
Submission of Production Statement
The Production Statement for each calendar Month shall be submitted to the
GOVERNMENT no later than ten (10) days after the end of such calendar Month.
25
PARAGRAPH 7 – VALUE OF PRODUCTION AND PRICING STATEMENT
7.1
Value of Production and Pricing Statement Information
The CONTRACTOR shall, for the purposes of Article 25 of the Contract, prepare a
statement providing calculations of the value of Crude Oil produced and saved during
each Quarter and (where there is a Charged Interest Holder) each Month.
This “Value of Production and Pricing Statement” shall contain the following
information:
7.1.1
The quantities and prices realised therefor by the CONTRACTOR in respect of sales
of Natural Gas and Crude Oil delivered to third parties made during the Quarter and
Month in question.
7.1.2
The quantities and prices realised therefor by the CONTRACTOR in respect of sales
of Natural Gas and Crude Oil delivered during the Quarter and Month in question,
other than to Third Parties.
7.2
Submission of Value of Production and Pricing Statement
The Value of Production and Pricing Statement for each Quarter and (where there is a
Charged Interest Holder) each Month shall be submitted to the GOVERNMENT not
later than ten (10) days after the end of such Quarter and Month.
PARAGRAPH 8 – COST RECOVERY AND SHARE ACCOUNT STATEMENT
8.1
Cost Recovery Statement
The CONTRACTOR shall prepare with respect to each Quarter and (where there is a
Charged Interest Holder) each Month a Cost Recovery Statement containing the
following information:-
26
8.1.1
Recoverable Petroleum Costs carried forward from the previous Quarter and Month,
if any.
8.1.2
Recoverable Petroleum Costs for the Quarter and Month in question.
8.1.3
Credits under the Contract for the Quarter in question.
8.1.4
Total Recoverable Petroleum Costs for the Quarter and Month in question (Paragraph
8.1.1 plus Paragraph 8.1.2, net of Paragraph 8.1.3).
8.1.5
Quantity and value of Petroleum applied to cost recovery pursuant to Article 25 taken
by the CONTRACTOR for the Quarter and Month in question.
8.1.6
Amount of recoverable Petroleum Costs to be carried forward into the next Quarter
and (where there is a Charged Interest Holder) the next Month (Paragraph 8.1.4 net of
Paragraph 8.1.5).
8.2.
Cumulative Production Statement
The CONTRACTOR shall prepare with respect to each Quarter and (where there is a
Charged Interest Holder) each Month a Cumulative Production Statement containing
the following information:
8.2.1
The cumulative production position at the end of the Quarter preceding the Quarter
and Month in question.
8.2.2
Production of Export Petroleum for the Quarter and Month in question.
8.2.4
The cumulative production position at the end of the Quarter and Month in question.
8.2.5
The amount of Petroleum applied to Royalty pursuant to Article 24, cost recovery
pursuant to Article 25 and Profit Petroleum pursuant to Article 26 taken by the
GOVERNMENT and by the CONTRACTOR, respectively, during the Quarter and
Month in question.
8.2.6
The forecast of production and the share of Petroleum applied to Royalty pursuant to
Article 24, cost recovery pursuant to Article 25 and Profit Oil pursuant to Article 26
due to the GOVERNMENT and to the CONTRACTOR, respectively, for the next
succeeding Quarter and Month.
27
8.3
Preparation and Submission of Cost Recovery and Cumulative Production
Statements
8.3.1
Provisional Cost Recovery and Cumulative Production Statements, containing
estimated information where necessary, shall be submitted by the CONTRACTOR
on the last day of each Quarter and Month for the purposes of Article 25 of the
Contract.
8.3.2
Final quarterly Cost Recovery and Cumulative Production Statements shall be
submitted within thirty (30) days of the end of the Quarter and Month in question.
8.4
Annual Statement
For the purposes of Article 25 of the Contract, an Annual Cost recovery and
Cumulative Production Statement shall be submitted within ninety (90) days of the
end of each Year. The Annual Statement shall contain the categories of information
listed in Paragraphs 8.1 and 8.2 for the Year in question, separated into the Quarters
of the Year in question and showing the cumulative positions at the end of the Year in
question with respect to cumulative unrecovered Petroleum Costs and Cumulative
Production.
PARAGRAPH 9 – STATEMENT OF EXPENDITURE AND RECEIPTS
9.1
The CONTRACTOR shall prepare with respect to each Quarter a Statement of
Expenditure and Receipts under the Contract. The Statement will distinguish between
Exploration Costs, Gas Marketing Costs, Development Costs, Production Costs and
Decommissioning Costs and will identify major items of expenditures within these
categories. The Statement will show the following:
9.1.1
Actual expenditures and receipts for the Quarter in question.
9.1.2
Cumulative expenditure and receipts for the budget Calendar Year in question.
9.1.3
Latest forecast cumulative expenditures at the Calendar Year end.
9.1.4
Variations between budget forecast and latest forecast and explanations thereof.
28
9.2
The Statement of Expenditure and Receipts of each Quarter shall be submitted to the
GOVERNMENT no later than thirty (30) days after the end of such Quarter.
PARAGRAPH 10 – FINAL END-OF-YEAR STATEMENT
The CONTRACTOR will prepare a Final End-of-Year Statement. The Statement will
contain information as provided in the Production Statement, Value of Production and
Pricing Statement, Cost Recovery and Cumulative Production Statements and Statement of
Expenditures and Receipts but will be based on actual quantities of Petroleum produced and
expenses incurred. This Statement will be used to make any adjustments that are necessary to
the payments made by the CONTRACTOR under the Contract. The Final End-of-Year
Statement of each Calendar Year shall be submitted to the GOVERNMENT within ninety
(90) days of the end of such Calendar Year.
PARAGRAPH 11 – AUDITS
Each such report and statement provided for in Paragraph 6 through 10 shall be considered
true and correct, unless the GOVERNMENT raises an exception thereto within the
timeframe and under the process set out in Article 15 of the Contract.
PARAGRAPH 12 – ANNUAL WORK PROGRAM AND BUDGET
11.1
Each annual Work Program and Budget to be prepared in accordance with Articles
11, 12 and 14 of the Contract, in respect of Exploration Costs, Gas Marketing Costs,
Development Costs and Production Costs respectively will show the following:
11.1.1 Forecast expenditures for the budget Calendar Year in question including a quarterly
classification of such expenditures.
11.1.2 Cumulative expenditures to the end of said budget Calendar Year.
29
11.1.3 A schedule showing the most important individual items of Development Costs (if
applicable) for said budget Year.
PARAGRAPH 13 – CONTRACTOR ENTITY INCOME TAX COMPUTATION
13.1
For the purpose of Article 31.3(b) of the Contract, the net taxable profits of each
CONTRACTOR Entity from all the Petroleum Operations carried out under this
Contract, shall be calculated in accordance with this Paragraph.
13.2
Each CONTRACTOR Entity shall maintain for each Calendar Year separate
Accounts with respect to the Petroleum Operations which shall be used, inter alia, to
establish a profit and loss account and a balance sheet which will show the results of
the Petroleum Operations carried out in such Calendar Year as well as the assets and
liabilities assigned or directly related thereto. The profit and loss account will be
maintained under the accrual method of accounting.
13.3
For purposes of determining the net taxable profits of each CONTRACTOR Entity
for corporate income tax purposes:
13.3.1 the profit and loss account of such CONTRACTOR Entity shall be credited with the
following:
(a)
if the Royalty is paid in cash pursuant to Article 24, revenues arising from the
disposal of Royalty volumes as recorded in such entity’s Accounts and
determined in accordance with the provisions of Article 24;
(b)
revenues arising from the disposal of any Available Petroleum to which such
entity is entitled for recovery of its Petroleum Costs as recorded in its
Accounts and determined in accordance with the provisions of Article 25;
(c)
revenues from the disposal of any Profit Petroleum to which such entity is
entitled under Article 26 as is recorded in its Accounts and determined in
accordance with the provisions of Article 26;
(d)
any other revenues or proceeds directly connected to the Petroleum Operations
including those arising from the disposal of related Petroleum substances, or
from the treatment, storage and transportation of products for third parties;
30
(e)
any exchange gains realised or other financial income earned by such entity in
connection with the Petroleum Operations;
13.3.2 the profit and loss account for such CONTRACTOR Entity shall be debited with all
charges incurred for the purposes of the Petroleum Operations whether incurred inside
or outside the Kurdistan Region, which charges shall include the following:
(a)
in addition to the charges specifically set forth below in this Paragraph, all
other Petroleum Costs, including the costs of supplies, personnel and
manpower
expenses,
and
the
cost
of
services
provided
to
the
CONTRACTOR in connection with the Petroleum Costs;
(b)
if the Royalty is paid in cash pursuant to Article 24, Royalty payments made
and as recorded in such entity’s Accounts and determined in accordance with
the provisions of Article 24;
(c)
General and administrative expenditures related to the Petroleum Operations
performed under this Contract;
(d)
depreciation of capital expenditure in accordance with the following
provisions:
(i)
capital expenditures incurred by the CONTRACTOR for the purposes
of the Petroleum Operations shall be depreciated on a reducing balance
basis;
(ii)
the depreciation rates, which shall be applicable from the Calendar
Year during which such capital expenditures are incurred, or from the
Calendar Year during which the assets corresponding to said capital
expenditures are put into normal service, whichever is later, for the
first Calendar Year in question and for each subsequent Calendar Year,
are as follows:
31
Nature of the capital asset to be depreciated
(e)
Annual depreciation Rate
Permanent buildings
10.0%
Temporary buildings
20.0%
Office and home furniture and fixtures
20.0%
Productive wells
20.0%
Production and delivery equipment
20.0%
Drilling equipment
20.0%
Pipelines
20.0%
Automotive equipment
20.0%
Marine and aviation equipment
20.0%
All other capital assets
20.0%
Exploration Costs (which for the avoidance of doubt include appraisal
expenditures) shall be deductible on a reducing balance basis at the rate of
20% per annum.
(f)
interest and fees paid to creditors of the CONTRACTOR, for their actual
amount;
(g)
losses of Assets resulting from destruction or damage, assets which are
renounced or abandoned during the year, assets which are transferred under
Article 20.2, bad debts, indemnities paid to third parties as compensation for
damage;
(h)
any other costs, expenses, losses or charges directly related to the Petroleum
Operations, including exchange losses realised in connection with the
32
Petroleum Operations as well as the bonuses Capacity Building Payments, or
other payments provided in Article 32, the Exploration Rental provided in
Article 6.3, the Production Rental provided in Article 13.10, the allocation to
training, provided in Article 23.7 and the allocation to the Environment Fund
provided in Article 23.9, the costs specified in Articles 23.11, 38.1 and 38.6
and transportation and marketing costs beyond the Delivery Point;
(i)
the amount of non-offset losses relating to the previous Calendar Years, which
shall be carried forward for an indefinite period until full settlement of said
losses or termination of this Contract;
13.3.3. the net profit of such CONTRACTOR Entity shall be equal to the difference
between all the amounts credited and all the amounts debited in the profit and loss
account; and
(a)
if this amount is negative, it shall constitute a loss.
(b)
if the amount is positive, it shall be grossed up to take account of the fact that
such entity’s
corporate income tax
is
being settled
out
of the
GOVERNMENT’s share of the Profit Petroleum in accordance with Article
31.2, by applying the following formula in order to provide such entity’s net
taxable profits for corporate income tax purposes:
Net Taxable
Profits=
13.4
Net Profits/
(100 - Applicable Rate of Corporate Income Tax )
100
For purposes of determining each CONTRACTOR Entity’s liability to corporate
income tax for a tax year in respect of the Petroleum Operations carried out under this
Contract, the net taxable profits (if any) for such tax year shall be multiplied by the
applicable rate of corporate income tax, as provided in Article 31.3(a).
33
ANNEX C
Stipulated Sunk Block Costs Prior to Effective Date
1
ANNEX D
Form of Payment Guarantee
1