NOTICE: The text below was created automatically and may contain errors and differences from the contract's original PDF file. Learn more here

12/2/13 Topkhana: PSC - Talisman - 19/08/2011












































































































































































































































© 2013 Kurdistan Regional Government, KRG




































































www.krg .org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


©2013 Kurdistan Regional Government, KRG


©2013 Kurdistan Regional Government, KRG


©2013 Kurdistan Regional Government, KRG


 2> 5 / 121 ^^4^^























PRODUCTION SHARING CONTRACT


BETWEEN





The Kl RDISTAN RECIONAL GOVERNMENT OF IRAQ (hereafter referred lo as the


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


AND


TALISMAN (BI.OC K K39> B.V.. a company established and existing under the laws of the





Netherlands, whose registered office is at Atrium Building, Strawinskylaan 3159, 1077 ZX


Amsterdam. The Netherlands, an Affiliate ofTalisman Energy Inc. (' I aliMitan")





WHEREAS





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


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


people of the Kurdistan Region (as defined in this Contract) and all of Iraq (as defined


in this Contract), using the most advanced techniques of market principles and


encouraging investment, consistent with the Constitution of Iraq (as defined in this


Contract) including Article 112 thereof:


iB) In accordance with the Constitution ol Iraq, the prevailing law of the Kurdistan


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


to a matter wholly within the exclusive jurisdiction of the Government of Iraq (as


defined in this Contract).


(C) I he GOVERNMENT, having declared an intention on 4 November 2007 to award


the Contract Area fas defined in this Contract) to the Kurdistan Exploration and


Production Company, has decided not to proceed with that uward:


fl>) The CONTRACTOR las defined in this Contract) has, from the Stan !>atc. earned


out seismic services in the Contract Area pursuant to the Option Agreement fas


defined in this Contract).


ft) The GOV ERNMLVI intends to present to the National Assembly of the Kurdistan


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


authonsation. 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


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


IK) The CON I RAC I OK is a company.


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





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


Contract Area under the term* of this Contract;




















[




















©2013 Kurdistan Regional Government, KRG


 ^ 6 / 121














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


citizenship; and


Hu) witling 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; and


(G) The CONTRACTOR und the GOVERNMENT each affirms its ongoing


commitment and adherence to the Principles and Criteria of the Extractive Industries


Transparency Initiative








NOW, THEREFORE. THE PARTIES HA\ E AGREED AS FOLLOWS


ARTICLE 1-DEFINITIONS





l.l 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 ts defined in Article 15-1.


Accounting Procedure means the Accounting Procedure attached to this Contract as


Annex B and constituting an integral part of this Contract.


Adjacent Contract Area is defined m Article 34.1.





Adjustment Date is defined in Article 27.6.


Affiliated Com pans or Affiliate means, as regards any of the companies or entities


constituting the CON I RACI OR. a company or other legal entity which:


(a) controls a CONTRACTOR Entity; or


(b) is controlled hy a CONTRACTOR Entity; or


(cl controls or is controlled by i company or entity which controls a


CON I RACTOR Entity.


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


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


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


or their equivalent.


Agreed Terms is defined in Article 14.HHa).

















[

















©2013 Kurdistan Regional Government, KRG


 ^ 7 / 121














Applicable Law means. as of any lime 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 detlned in Article 12.2.


Appraisal Work Program and Budget is defined in Article 12.2.


Appraisal Report u defined in Article 12 4,





Appraisal Well means a well drilled for the purpose of csaluatmg the commercial


potential of a geological feature or a geological structure in w hich Petroleum has been


discovered.


Arm's-Length Sales means sales of Petroleum in freely convertible currencies


between sellers and buyers huving 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:


<*> sales between or among any of the CONTRACTOR knlitics 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 (li) any residue gas remaining after the extraction of Crude


Oil from a reservoir


Audit Request Period is defined in Article l5-3ta).





Asailable 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) L‘S gallons as a unit to measure liquids, at a


temperature of sixty degrees (60L) 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 Contruct and iontiing part of un Exploration Work Program and


Budget arul or an Appruisal Work Program und Budget and ur a Gas Marketing Work





3











[

















©2013 Kurdistan Regional Government, KRG


 ^ 8 / 121




















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


Production Work Program and Budget.





C lU-ndur U-ar means a period of twelve (121 consecutive Months, commencing I


January and ending on 31 December of the same year.


Capacity Building Bonus is defined in Article 32.2.


Chairman is defined in Article 8.1.





( ummcmal Discos cry means a Discovery which nr potentially commercial when


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


when carrying out appraisal works or similar operations, including recoverable


reserve* 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


Aren m accordance with annual Production Work Program and Budget





Constitution of Iraq means the permanent constitution of Iraq approved by the


people of Iraq in the general referendum of 15 October 2005.


Contract means this production shuring contract, including its Amieses A. B and C


that are an integral pan hereof, as well as any extension, renewal, substitution or


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


Panics 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 pan of this Contract, and any modifications


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


amendments, surrender, withdrawal, extension or otherw ise.


Contract \ car means a period of twelve \ 121 consecutive Months starting from the


Start Date or any anniversary of the said Start Date, provided that the last Contract


Year of the First Sub-Penod las defined in Article 6.2) shall expire at 12:01 am on 19


December. 2011 and each subsequent Contract Year shall commence on that date or


the anniversary of such date, as appticablc-


CONTRACTOR includes and comprises each and all CONTRACTOR Entities,


including any Third Party Participant nominated by the GOV KRN ML!S I pursuant to


Article 4. but does not include any holder of the Government Interest.


COMKAC I OK Entity means lalisman or any Third Party Participant and or any


assignee of all or part of the rights and obligations of such Person under this Contract


in accordance with Article 39. but does not include any holder of the Government


Interest: and provided, further, the Government as holder of the Third Party Interest is


not a CON TRACTOR Entity. For the avoidance of doubt, 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





4











[























©2013 Kurdistan Regional Government, KRG


 2> 9 / 121 ^^4^^




















reference. shull be deemed lo mein the entity constituting! the COM R.\( IOK".


As of the Effective Date, Talisman, as the CONTRACTOR fcntity. owns an


undiv ided interest in the Petroleum Operations in respect of the entire Contract Area:


Talisman 60%.





The balance of the interest in Petroleum Operations in respect of the entire Contract


Area, being forts1 per cent (411%). is the Government Interest as defined in Article 4 1.


and the Third Party Interest as defined m Article 4.6.


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


Natural Gas by condensation or any other means of extraction


Decommissioning Costs means all the costs and expenditures incurred by the


CONTRACTOR when carrying out Decommissioning Operations, including those


defined in the Accounting Procedure.


Decommissioning Operations means any works, together with all rclutcd and





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


miking safe all of the Assets and site restoration and remediation related thereto m


relation to any Production Area.


Decommissioning Plan is defined in Article 3S.7.





Decommissioning Reserve Fund is defined in Article 38.1 and includes all


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


Deductible Amount is defined in Article 35.12.


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





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


Gas and'or Non-Associated Natural Gas is metered for the purposes of Article 27 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 shore of Petroleum under this Contract or such other point


w hich may be agreed by the Parties.


Development Costs means ail 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 line*, 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 foe the foregoing





5











[























©2013 Kurdistan Regional Government, KRG


 ^ 10 / 121

















uctivHick, anil all auxiliary operations and activities required or expedient for the


production of Petroleum from the Production Area.


Development Period is defined in Article f>.





Development Plan means a plan for development prepared pursuant to Article I2.K


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


Development Plan lor the purpose of producing Petroleum, increasing or accelerating


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


w ithin a Production Area shall he deemed a Development Well.


Development Work Program and Budget means the development work program


and budget prepared pursuant to Article 13.2.


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


resulting from Petroleum Operations earned 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 (ISS) means the legal currency (dollar! of the United States of America


(USA).





Effective Date means August 27. 2010, being the date on w hich Talisman exercised


its option under the Option Agreement.


Environment Fund is defined in Article 23.9


Equipment and Maferiah 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


m tlic Accounting Procedure. For greater certainty. Exploration Costs shall include


the costs of any activities undertaken by the CONTRACTOR pursuant to paragraph V


of the Option Agreement


Fxploration Operations mean* any and all operations conducted from the Stan Date


with a view to discovering Petroleum, including: any acUvitics 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 locution of Petroleum, drilling of shot


holes, core holes and stratigraphic test holes; spud, drilling, testing, conng. logging


and equipping of Exploration Wells or Appraisal W ells, procurement of such serv ices,


material, equipment, machinery, items and supplies as may he required or expedient


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


expedient for the conduct ut the foregoing activ itics.


Fxploration Period is defined in Article 6.








6











[




















©2013 Kurdistan Regional Government, KRG


 ^ 11 / 121














I xploration 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 marie by the


CONTRACTOR.


Exploration Work Program and Budget means the exploration work program and


budget prepared pursuant to Article 111.


Export Crude Oil is defined in Article 24.2.


Export Non-Associated Natural (in is defined tn Article 24 2.





Export Petroleum is defined m Article 24.2.


first Exploration Well is defined m Article 10.2 (c)


first Production means the moment when Commercial Production of Crude Oil or


Son-Associated Natural (ias (as the ease may be) first commences, by Bowing at the


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


eight (4K) hours


f orce Majeurr is defined in Article 40.2.


(ias Development is defined in Article 14.10.


(ias Marketing Costs means all costs and expenditure incurred by the


CONTRACTOR when carrying out (ias Marketing Operations, including those


defined in the Accounting Procedure


(ia« Marketing Operations means any and all of the activities and operations


contemplated by Article 14.6.


Cias Marketing Work Program and Budget means the marketing work program


and budget prepared pursuant to Article 14.K.


(iox eminent Interest is defined in Article 4.1.


(.overnment 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, out horny, council, committee, or other constituent element


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


by any of the foregoing.


International Market Price is defined in Article 27.2.


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





Joint Operating Agreement means the agreement executed by the ('ON I RAC TOR


Entities fur the purpose of regulating betw een such entities the terms under which the


Petroleum Operations will he conducted, which agreement shall be (a) consistent








7











[




















©2013 Kurdistan Regional Government, KRG


 2> 12 / 121

















with prudent international petroleum industry practice: (b) as between such entities,


supplementary to this Contract; and lei consistent w ith the provisions of the Contract


and shall include the key terms described in Annex C.


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 GO\ KR.N MfcNT or of any other local, municipal,


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


in the Kurdistan Region


Kurdistan Region Oil anil Gat l.aw means the Oil and (ias Law of the Kurdistan


Region - Iraq (Law No. 22 of 2007) as the same may he amended.


Law means all applicable laws including the follow ing: 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).


1.IBOK means the London Inter-Bank Offered Rate at which Dollar deposits for one


(I) Month arc offered in the inter-bank market in London, as quoted in the financial


Tunes of London for the day in question. In the event that such rale is not published in


the f inancial I imes. it shall mean the London Inter-bank Offered Rate at which


Dollar deposits for one (I) Month are offered for the nearest day as quoted by


National \\ cstminstcr Bank pic.


Management Committee is defined m Article X.





Maximum f indent Kate (MMEIT) is defined in Article 16.12.


Minimum Lxploration Obligations is defined in Article 10.1.


Minimum financial Commitment means:





(a) in respect of the first Sub-Period, the total of the amounts set out in Aiticlc


10.2(d): and


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


Month means a calendar month according to the (iregnnan calendar.





Natural Gas means all gaseous Petroleum and inerts.


Non-Associated Natural Gas means any Natural Gas which is not any Associated


Natural Gas.








X











[

















©2013 Kurdistan Regional Government, KRG


 2> 13 / 121

















.Notice or Dispute is defined in Artick 42.1.


Operator means the entity designated by the CON I K AC I OK pursuant to Article 5


which, in the name and on behalf of the C ON I K VC IOK shall carry out all


Petroleum Operations. If at ary time there exists more than one (1) Operator under


this Contract, any reference herein to the term 'Operator' shall he to each Operator


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


Petroleum Operations.


Option Agreement means the Block K.39 Option Agreement between the


(toverament and Talisman dated 19 June, 200S. as amended


Option of third Parts Participation is defined in Article 4.6.


Party or Parties means the GOVERNMENT and or each CONTRACTOR Entity


and dr the CONTRACTOR.


Permits means all licences, permits, consents, authorisations or other permissions, as


the context requires.


Person shall include natural and juristic person* (including corporations and





governmental agencies).


Petroleum means:


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


(b) any mixture of naturally occumng hydrocarbons in a gaseous or liquid state:


or


(cl any Petroleum (as defined in paragraphs (a) and (h) above) that has been


returned to a Reservoir.


Petroleum Costs means all costs and expenditure incurred by the CONTRACTOR





tor the Petroleum Operations, and which the CON IKACIOK is entitled to recover


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


Development Costs. Exploration Costs, (ias Marketing Costs. Pipeline Costs and


Production Costs.


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


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


Area pursuant lo a Dev elopment Plan.


Petroleum Operations means all Exploration Operations, (ias 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 ( o*t* is defined in Article 33.9.


9














[

















©2013 Kurdistan Regional Government, KRG





 2> 14 / 121

















Production Area means such areas >% itliin the Contract Area designated as a


production area in an approved Development Plan prepared pursuant to Article 12.8.


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


which a Commercial Discovery it located arc 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 coats and expenditure incurred by the


CON I R AC I OR m carrying out the Production Operations, including those defined


in the Accounting Procedure


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


activities, for the production of Petroleum from the stun of C ommercial Production,


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


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


pipelines, terminals and any other insullutions 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 Ankle 13.6.


Profit Crude Oil is defined in Article 26.1.


Profit Natural Gas is defined in Article 26.1.


Profit Petroleum is defined m Article 26.1.





Proposed Contract is defined in Article 14 I Ota).


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


Kurdistan Region and regulated by the GOV URN VIENT under the Kurdistan Region


Oil and (ins Law.


Public Officer means a civil servant, including a member or employee of a public


entity, a member of the Kurdistan National Assembly or a member of the


GOVERNMENT.


Quarter means a period of three 13) consecutive Months starting on the first day of


January . April. July or October respectively


Reservoir means a subsurface rock formation containing an individual and separate


natural accumulation of producible Petroleum characterised by a single natural


pressure system.


“R" Factor is defined in Article 26.4.


Royalty is defined in Article 24.1.








10











[




















©2013 Kurdistan Regional Government, KRG


 ^ 15 / 121

















Second Exploration Well i* defined in Article 10J (b).


Seismic Service* is defined in Article 10.2(d).


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


January or July respectively.


Senior Represent stives is defined in Article 42.1(a).


Signature Bonus is defined in Article 32.1.





Signature Date means the date indicated at the top of the signature page of this


Contract. being the date on which the (.O' ERVMEN I and Talisman huve executed


this C ontract


Start Date means 12:01 ani on 19 June. 2008.





Subcontractor means any entity of any contracting Iter providing services and or


undertaking worts relating to the Petroleum Operations directly or indirectly on


behalf of, the C IJN I RAC I OR or any CON TRAC TOR Entity.


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


Talisman is defined in the preamble


Tax or Taxes means all cuncnt or hiture levies, duties, payments, charges,


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


sales or transaction bused tax. corporation tax. income tax. capital gains tax. skimp


duty, land tax, registration tax, capital and wealth tax, profit tax, dividend tax or


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


withholdings, tax on income from movable capital und fixed tax on transfers) or


contributions payable to or imposed by the GOVERNMENT.


I bird Party I Merest is defined in Article 4.6.


I bird Party Participant means the holder of a Third Party Interest.





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


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


Program and Budget and or an Appraisal W ork Program and Budget and or a lias


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


Budget and ora Production W ork Program and Budget


Vice-Chairman is defined in Article 8.1.


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


stated:


(a) headings arc to be ignored;


(b) "including” and similar words do not imply any limitations.








II











[

















©2013 Kurdistan Regional Government, KRG


 2> 16 / 121

















(cl singular includes plural and vice versa: and





(d| reference to an "Article** is to an article of this Contract and to a "Paragraph”


ih to a paragraph in the Accounting Procedure


ARTICLE 2 - SCOPE OF THE C ONTRACT





2.1 This Contract is a product ion'-sharing arrangement with respect to the Contract Area,


whereby the GOV ERNMENT 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 nghts and obligations of the


Panics and the terms and conditions under which the CON I RAC I OR shall carry out


all the Petroleum Operations.


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


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


us detailed in Article 3.


2 2 L'pon die CONTRACTOR S request, the GOVERNMENT shall provide and or


procure all Permits relating to the Petroleum Operanons required by the


CON I RAC "I OR to fulfil its obligations under this Contract, including those relating


h> any extension and renewal periods and including those required by the Government


of Iraq. The GOV ERNMENT in 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 (u) 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 I he CON I RAC I OR shall conduct all Petroleum Operations within the Contract


Area at its sole cost, risk and pcnl 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| f manual Services





1 he responsibility for funding the Exploration Operations and. in the event of


a Commercial Discovery. Development. Production and Decommissioning


Operations, pursuant to this Contract.











12











[




















©2013 Kurdistan Regional Government, KRG


 ^ 17 / 121

















For (he funding of Petroleum Operations. each COM KAC'IOK Entity shall


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


Companies or from any third parties.


(cl Administratis? 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 COM MAC I OK shall be responsible to the


GOY tHNMtM 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 Con tract


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


under this Contract in the c\cnt of a Commercial Discovery . Recovery of Petroleum


Costs shall occur within ilic limits provided under Article 25.


2.7 During the term ot this Contract. Profit Crude Oil and or Profit Natural Cias produced


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


provisions of Article 26.


2.X For the execution of Pcuoleum 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 w ith the Petroleum Operations, wherever they may be located.


(b| freely use access roads located within the Coo tract Area and outside the


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


removal of pipelines and other facilities required for the Petroleum


Operations;


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


inside or outside the Contract Area for the Petroleum Operations;


(dl use any qualified foreign and local personnel and or Subcontractors required


for the conduct of Petroleum Operations in accordance w ith Articles 22 and


23. Any torcign 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 (ioveminent of Iraq.


(c) import any goods, materials, equipment and or services required tor the


Petroleum Operation* in accordance with Articles 19. 22 and 30; and











13














[




















©2013 Kurdistan Regional Government, KRG


 2> 18 / 121




















(0 freely use land or property belonging to the Kurdistan Region, and the


GOVERNMENT will assist the CONTRACTOR with facilitating the use by


the CON 1RAC I OR of any private property in the Kurdistan Region.








2.9 Each CONTRACTOR Entity shall at all tiroes comply. and procure that each


Subcontractor complies, with (he Kurdistan Region Oil and Gas Law and all other


Applicable Law No provision of this Contract will: (a) excuse the CONTRAC TOR


or a CON I RAC TOR Entity or any Subcontractor from compliance w ith 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 Topkhana Block and extends osct an area of five


hundred and eighty-tw o square kilometres (5X2 km >. as detailed and indicated on the map


attached in Annex A.





The GOVERNMENT, by execution of this Contract, hereby validates and approve* the


foregoing co-ordinates of the Contract Area.


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


this ContracL


ARTICLE 4 - GOVERNMENT PARTICIPATION AND IIIIRD PARTY





PARTICIPATION


Govrriimrnt Interest





4.1 The GOVERN MEM shall participate in this Contract through a Public Company,


effective from the Effective Dale in respect of the entire Contract Area with an


undivided interest in the Petroleum Operations and all the other rights, duties,


obligations and liabilities of the ( ON I KACTOR (save as provided in and sublett to


this .Article 4) under this Contract m respect of the Contract Area, of twenty per cent


(20%) (the "Government Interest").


4.2 The Public Company shall not have any liability to the CONTRACTOR to


contribute its Government Interest share of all Petroleum Costs, whenever those


Petroleum Costs may be incurred, and its Government Interest share of such


Petroleum Costs shall be the responsibility of TALISMAN for the duration of this


Contract, provided always that TALISMAN shall he entitled (through the


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


Tor the avoidance of doubt, the Public Company shall contribute its share of


Production Bonuses attributable to the Government Interest and payable pursuant to


Articles 32.3 and 32.4.


Tor the purposes of Article 37 of the Kurdistan Region Oil and Gas Law, the


(tovcmiucnt Interest shall be deemed to be held by the GOVERNMENT and in





14











[























©2013 Kurdistan Regional Government, KRG


 ^ 19 / 121

















accordance with the principle in Article 16.13. the Public Company will be


individually and separately liable (and not jointly and severally liable with the


CON I KACIOK Lntitics) to the GOVtRNMt.M tor its obligations, duties and


liabilities under this Contract and the provisions of Article 4.4 shall apply.


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


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


by the GOVERNMENT. provided that in no event shall a transfer be made which


would result in the transferor or transferee holding less than a five per cent (?4*>


participating interest.


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


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


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


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


» transferred will be individually and separately liable (and not jointly and severalty


liable w ith the CON IKACTOK Entities) to the GOVERNMENT for its obligations,


duties and liabilities under this Contract and the provisions of Article 4.4 shall apply.


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


of its duties or liabilities under this Contract shall not he considered as a default of the


CONTRACTOR Entities and shall in no ease he invoked by the GOVERNMENT


to terminate this Contract or exercise any other rights or remedies in respect of such


drtauh that may be available to il


The capacity of a Public Company, as it may arise pursuant to the provisions of this


Contract, shall in no event caned or affect the rights of the CON I K ACTOK I unties


to seek to settle a dispute or to refer such dispute to arbitration or expert determination


m accordance w ith the provisions of Article 42.


4.5 A Public Company may assign part or all of its Government Interest to a third party or


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


Articles 39.1, 39.2 and 39.3 shall not apply. Any such assignee shall have the same


rights and responsibilities held by the Public Company prior to the assignment.


For the avoidance of doubt, following any assignment by a Public Company part or





all of a Government Interest to a third party which is not a Public Company, in


accordance with the provisions of this Article 4. the prov isions of Articles 39.1. 392


and 39.3 shall apply to any subsequent assignment of such interest.


Third Party Interest





4.6 The GO\ ERNMENT shall have the option of assigning to a third party, or third


parties, in respect of the Contract Area, as a CON TRACTOR Entity or


CONTRACTOR Entities, an undivided interest in the Petroleum Operations in


respect of the entire Contract Area and which option, when exercised, shall assign and


novutc all the other rights, duties, obligations and liabilities of the CON I KACTOK


(save as provided in and subject to this Article 4). under this Contract, of an aggregate


of twenty percent |2(P»> (the "Third Party Interest"). such option being referred to


herein as the "Option of I bird Party Participation''. Until the later of the exercise








IS











[























©2013 Kurdistan Regional Government, KRG





 2> 20 / 121

















of the Option of Third Party Participation. or the assignment by the GOVERNMENT


of the Thud Party Interest tor part thereof) to a Public Company m accordance with


Article 4.9. or the expiry of the eight (8) month period contemplated by Article 4.7,


TALISMAN shall undertake ill necessary work under this Contract, provided always


that TALISMAN shall be entitled (through the CONTRACTOR) to recover all such


Petroleum Costs in accordance with Article 23.


4.7 Ihc GOVERNMENT may exercise the Option of Third Party Participation at any


time prior to the date eight (8) months following the Signature Date by notifying the


CON TRAC ‘TOR Entities, in writing, of m company which has, or companies which


have, adequate resources and capacity to discharge the obligations of a


CONTRACTOR l-ntity under this Contract and a Joint Operating Agreement in


respect thereof.


4.8 If the GOVERNMENT notifies the CONTRACTOR Entities of a Third Party


Participant in accordance with Articles 4.6 and 4.7. that Third Party Participant shall


have the Third Party Intercut or such part of the Third Party Interest as the


GOV ERNMENT may decide.


4.9 If:







Third Party Participant in accordance with Articles 4.6 and 4 7 for all or part


of the Third Party Interest and or


(b| if the Third Party Participant does not complete the exercise of the option as


contemplated in Article 4.10 within sixty (MM days following its assignment


by the GOV ERNMENT of a Third Party Interest;


then the I hud Party Interest and or that pari of the Third Party Interest not assigned


by the GOVERNMENI in accordance with Articles 4 6 and 4.7 shall he held by a


Public Company to he identified by the GOV ERNMENT. which Public Company


shall act as a T hird Party Participant Tor the avoidance of doubt, for the purposes of


Uils Article 4.9. a Public Company shall be a w holly-ow ned entity of the


GOVERNMENT


4.10 If the Option of Third Party Participation is exercised in accordance with Articles 4 6


and 4.7, or if the Public C ompany holds all or part of the Third Party Interest under


Article 4.9:


(m| the effective date of such participation shall be the Effective Date,


notwithstanding that the exercise of the Option of Third Party Participation


under Articles 4.6 and 4.7. or the date on which the Public Company acquires


the Hurd Party Interest under Article 4 9. occurs after such date:


(b) a third Party Participant, upon signature of a binding and enforceable


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


Article 39.3. shall pay to the CONTRAC TOR by w ay of cleared funds to a


hank account nominated by the CON I RAC1 OR. an amount equivalent to the


proportion of Petroleum Costs incurred by the CONTRACTOR l ntitics us at





16














[




















©2013 Kurdistan Regional Government, KRG





 2> 21 / 121 ^^4^^




















the date of such payment attributable to the interest held by such Third Party


Pan it i pant (which Petroleum Costs, for the avoidance of doubt, shall include


the Signature Bonus or the Capacity Building Bonus payable or paid las the


case may bet under this Contract) and which payment shall be equal to one


hundred and twenty-five per cent (125%) of that Third Parly Participant's


interest in this Contract so that if a Ihird Party Participant holds a twenty per


cent (20%) interest in the C ontract, the proportion of Petroleum Costs incurred


by the other CON TRACTOR Entities payable by that 1 hml Party Participant


ik twenty-five per cent (25%) of such Petroleum Costs, und


(i) if the Option of Third Party Participation is exercised in accordance


with Articles 4 6 and 4 7, the CONTRACTOR Entities (excluding the


Third Party Participant) shall, within fourteen (14) days of the


notification, propose to the GOVERNMENT a statement of


Petroleum Costs. Within thirty (30) days of the notification, the


GOVERNMENT shall present the Ihird Party Participant with a


statement, agreed as between the GOVERNMENT and the


CON TRACTOR Entities (excluding the Third Party Participant), of


Petroleum Costs. Within sixty (60) days of the notification, the


GOVERNMENT shall cause the Third Party Participant to pay the


full amount due in accordance w ith this Article 4.10(b):





fii) if the Public Company holds all or part of the Third Party Interest


under Article 4.9. the GOV ERNVIENT shall cause the payment of the


amount due in accordance w ith this Article 4 10(b) to be made by the


Public Company to the CON T R ACTOR within sixty (60) days of the


Public Company acquiring the Third Party Interest under Article 4.9:


(c| upon payment pursuant to and in accordance with Article 4.10(b) and the


execution of the instrument referred to in Article 4.10(b) a Third Party


Participant shall participate as a CON I RACTOR Entity (or. where a Third


Party Participant constitutes a group ol companies, as CONTRACTOR


Entities) under thru Contract as if it had been a CONTRACTOR Entity (or as


if they had been CON TRACTOR Entities) from the ETlcctivc Dale, with all


the rights, duties, obligations and liabilities under this Contract, including the


obligation to pay the relevant pro rata share of any and all Production Bonuses


due at any tune under the Contract, and a Third Party Participant shall not


hccomc a CONTRACTOR Entity until payment pursuant u> and in


accordance w ith Article 4.10(b) and the execution of the instrument referred to


in Article 4 10(b) has been completed: and


(d) where a Joint Operating Agreement has been executed by the





CONTRACTOR Entities prior to any exercise of the Option of Third Party-


Participation pursuant to Articles 4.6 and 4.7. a Third Party Participant shall,


upon signature of the instrument referred to in Article 4.10(b). become a party


or parties to such Joint Operating Agreement on the term* thereof.





4.11 If the Public Company shall hold all or pan of the Third Party Interest under Article


4.9. and shall fail to make the payment referred to in Article 4.10 (b) by the due date


of payment, or if the GOVERNMENT and the Public C ompiny have not completed





17














[























©2013 Kurdistan Regional Government, KRG


 2> 22 / 121 ^^4^^




















(he assignment of nil or part of (he Third Parly Interest under Article 4.9 within ninety


(90) days of (he expiry of the eight (8) Month period contemplated by Article 4.7,


then upon the day following that date the GOV ER.VMEN I' will with immediate


effect therefrom take all contractual and procedural measures (enforceable under


applicable law! to procure that:


(a| fifty per cent (50%) of the interest so held by the Public Company holding


such Ihird Party Interest shall, notwithstanding any other Article in this


Contraet. be automatically deemed to be assigned and be assigned by such


Public Company to Talisman; and


(b) fifty per cent (50%) of the interest so held by the Public Company holding


such Third Parts Interest shall, notwithstanding the provisions of Article 39.2


or any oilier Article in this Contract, he automatically denned to he assigned


and be assigned to that Public Company which holds the Government Interest


pursuant to Article 4.1. and shall for the purposes of this Article 4 be part of


the (internment Interest and shall he subject to the rights und obligations of


Article 4.2 and the other provisions of this Contract relating to the


Government Interest.


Joint Operating Agreement Provisions


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


consistent with the principles of this Article 4 und Annex C and shall provide as


fallows:


(•I all decisions of any operating committee established under such Joint





Operating Agreement shall require the affirmative vote of an agreed


percentage of participating interests held by the Contractor Emilies, which m


any event shall be not more than sixty per cent (60%) of the participating


interest of the Contractor Entities; and


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


participating interest under such Joint Operating Agreement, including any


Third Party Interest:


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


transferee holding less than a fiv e per cent <5*») participating interest;


(ii) the proposed third purty assignee must demonstrate to the reasonable





satisfaction of each of the extant CON I RAC1OR Entities (hat it has


the financial capability to perform its payment obligations under the


Contract and under the Joint Operating Agreement; and


(in) the proposed third parly assignee shall enter into an instrument


satisfactory to each of the extant CON I RAC’I OR Entities so as to


assume and to perform the obligations of the transferor





ARTIC LE 5 - OPERA TOR








IK











[























©2013 Kurdistan Regional Government, KRG


 2> 23 / 121 ^^4^^

















5.1 The CONTRACTOR hereby designates TALISMAN to act as the Operator on


behalf of the CONTRACTOR for the execution of the Petroleum Operations. The


CON I RAC I OR shall at any tune have the right to appoint another entity as the


Operator, upon giting the GOVERNMENT not tea* than thirty (30) days prior


w ntten notice of such appointment


5.2 The CONTRACTOR shall submit to the GOVERNMENT for comment any


agreement to amend the Joint Operating Agreement regarding or regulating the


Operator's appointment and its conduct of Petroleum Operations on behalf of the


CON I RACTOR pursuant to this Contract prior to execution of such agreement.


5.3 In the event of the occurrence of either of the following, the GOVERN MENT may


require the CONT RACTOR to appoint another entity as Operator as soon as is


reasonably practicable:


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


dissolution of the Operator, or


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


the CONI''RACTOR or a material proportion thereof, and. as a result the


CON I R\CI OR fails to lull'll its obligations under the Contract.


ARTICLE 6 - TERM Ol THE CONTRACT





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


below:


Exploration Period


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





extendable on a yearly basis (as provided in Articles 6 5 and 6.6) up to a maximum


period of seven (7) Contract Years. I he initial term of five (5) Contract Years shall


be subdivided in two (2) sub-periods a« follows


(a) an initial sub-penod of three (3) C ontract Years rKirst Sub-IVriod i. and





(b) a second sub-penod of two (2) Contract Years (“Second Sub-Period" l.


each a “Sub-Period" and collectively ‘Sub-Periods .


It is understood that the right of the CONI RACTOR to accede to the next Sub¬


Period or any extension thereof pursuant to Article 6.6 shall be subject to fulfilment of


the Minimum Exploration Obligations or minimum work obligations applicable to the


previous Sub-Period or extension thereof pursuant to Article 6.6 (as the case may bc|.


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


GOVERNMENT, in arrears, on 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 Contract Year (“Exploration Rental ).


commencing with the third Contract Year Such Exploration Rental shall be





19











[




















©2013 Kurdistan Regional Government, KRG


 2> 24 / 121 ^^4^^

















considered as ■ Petroleum Cost and shall be recovered by the CONTRACTOR n


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 the Exploration Period shall expire at the end of the First Sub-Period,


unless the First Sub-Period has been extended pursuant to Article 6.5 and or Article


6 6.


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


Period of the exploration Period but considers that additional work is required prior





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


under Article 12.2 in respect of a Discos cry . or


(b) to deciding to declare a Discovers 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 tinder Article 12 2 and or (ias Marketing Operations.


the C ON I RAC I OR will automatically he entitled to extensions, each of one (I)


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


Lxploration Period of seven (7) Contract Years, (as provided m Article 6.2). The


CONTRACTOR** notification of its intention to exercise such extension and its


duration shall be submined in writing to the GOVERNMENT at least thirty (30)


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


extension (as the ease may be).


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


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


Area, the CONTRACTOR shall be entitled to an extension of the Second Sub-


Penod. provided it notif'icfi the GOVERNMENT m writing at least thirty (30| days


prior to the end of such Sub-Penod. together with a proposal for a minimum work


obligation for such extension. Any such extension shall not exceed one (1) Contract


Year. Upon the expiry of such extension, if it considers it has soil not completed us


evaluation of the Contract Area, the CONTRACT (JK shall be entitled to a further


extension of one (1) Contract Year provided that it notifies the GOA I.RNMI.N I m


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


the CONI RACTOR to accede to the further extension shall be subject to fulfilment


of the minimum work obligations applicable to the original extension


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


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


withdraw from this Contract provided that the outstanding Minimum Exploration


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


accordance with the Contract, or it has paid to the GOVERNMEN I the amounts


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


Sub-Period.











20














[























©2013 Kurdistan Regional Government, KRG


 2> 25 / 121 ^^4^^

















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


(including any extensions thereof) this Contract shall terminate.


6.




Years (as provided in Article 6.2), and if the CONTRACTOR considers it has not


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


Commercial Discovery pursuant la Article 12.6(a) or 14.5(a), the CONTRACTOR


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


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


GOV'URN MEN T in writing at least thirty (50) days prior to the end of the maximum


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


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


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


if it considers it has still not completed its Gat Marketing Operations relating to such


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


two (2) Contract Years provided that it so requests the GOV ERNMEN T in writing at


least thirty (30) days prior to (he end of the original extension, together with a


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


Divcloproent Period





6.10 If the CONTRACTOR consider* that a Discovery of C rude Oil and any Associated


Natural Gas is a Commercial Discovery, the CON IKACIOR 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 lias shall be twenty (20) years commencing on


the declaration of such Commercial Discovery by CONTRACTOR, in accordance


w ith 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 Gns is





a Commercial Discovery, the CONI KAC IOR 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), w ith 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 Dev elopment Period under


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


in writing by the CUN I RAC I OK at least six (6) Months before the end of the said


Development Period.


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





(a| five (5) Years fur Crude Oil and any Associated Natural lias, and or


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











21











[























©2013 Kurdistan Regional Government, KRG





 2> 26 / 121 ^^4^^

















6.13 The CON I RAC I OR shall have the right to terminate Production Operations lor 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. 1'hts Contract shall


terminate on the expiry date of the Development Period 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 an follows:


(a) at the end of the initial term of the Exploration Period referred to in Article


6.2. including any extensions referred lo in Article* 6.5 and 6 6. 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 the first extension period granted under Article 6.9 alter the end


of the initial term of the Exploration Period referred to in Article 6,2. an


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


the Production Arcus from the remaining pan 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 f or the application of Article 7.1:


(al any areas already relinquished pursuant to Anicle 7.4 shall be deducted from


areas to be surrendered: and





(b) the CON I RAC IOR shall have the right to determine die 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 CON TRACTOR may ut 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 tile Exploration Period shall be deemed equal to the obligatory relinquishments


referred to under Article 7.1. Hus C ontract shall terminate in the event of ihc


surrender of the entire Contract Area.





7.5 No surrender provided under Article 7.4 shall exempt the CONTRACTOR from it*


outstanding obligations under this Contract. In the event the CON I RAC 1 OR elects


to surrender the entire Contract Area without having fulfilled Ihc Minimum


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


102 or Article 10 A. ( UNI R \( IOR dull pi) I < .< )\ » KN Ml NT the





22











[























©2013 Kurdistan Regional Government, KRG


 2> 27 / 121 ^^4^^

















relevant outstanding amount as detailed in Article 10.2 or Article I0J. as the ease


may be.


7.ft The boundaries of the portion of the Contract Area to be relinquished by the


COM R ACTOR shall be communicated to the GOV LRNMENT by written notice


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


Article 7,|.


ART ICLE K - MANAGEMENT COMMITTEE





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


Signature Date for the purpose of providing orderly direction of ail matters pertaining


to the Petroleum Operations and the Work Programs Within such period, each of the


GOV ERNMENT 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 Talisman. For the purposes of


this Article K. CON TRACTOR shall mean, during the first Sub-Period of the


Exploration Period, the Operator


Upon ten (I0| 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 I the “Chairman**). I he vice-chairman of the Management


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


**\ ici*-< hairmanT 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


capac ity.


M.2 The Management Committee shall review, deliberate, decide and give advice,


suggesuons and recommendations to llic Parties regarding the following subject


matters:


(a) Work Programs and Budgets:


(b) the CONTRACTOR'S activity reports;





(c) production levels submitted by the CON I RAC I OR. based on prudent


international petroleum industry practice.


(d) Accounts of Petroleum Costs;


(e) procurement procedures for potential Subcontractors, with an estimated sub¬


contract v alue in excess of one million Dollars ($1.000.(MIO), submitted by the


CONTRACTOR in accordance with Article 19.3;








23














[




















©2013 Kurdistan Regional Government, KRG


 2> 28 / 121


(0 Development Plan and Budget lor each Production Area;


(£) any mutter lias mg a material adverse affect on Petroleum Operations:


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 GOV ERN.MIl.NT and the CONTRACTOR is represented by at


least one {1) of its members or ten deputy


Che 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 lor 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


M 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 H,3. or unanimous


approx al is not obtained, as required pursuant to Article 8.5. then the proposal made


by the CONTRACTOR shall be deemed udopted by the Management Committee


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


approval of the Management Committee shall he required for


(a) approval of. and any material rev ision to. any Exploration Work Program and


Budget prepared alter the first Commercial Discovery in the Production Area


relating to such Commercial Discovery;


approval of. and any material revision to, the Development Plan, the


production schedule, lifting schedule and Development and Production Work


Programs and Budgets;




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


<*) 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 w ith Article 19.3k


<0 approval of. and any material revision to. any proposed pipeline project,


submitted by CON TRACTOR in accordance with Article 33.3:


tj) approval of a first rate bank in which to place the Decommissioning Reserve


fund. in accordance with Article 38.1:


24





IN 1




















©2013 Kurdistan Regional Government, KRG


 2> 29 / 121 ^^4^^

















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


Plan submitted pursuant lo Article 38.7 on any Decommissioning Work


Program and Budget or CJa* Marketing W ork Program and Budget:





(i) any Terms of Reference which are required to he prepared and agreed for the


purposes of expert determination, pursuant to Article 42.2;


(j) approval of any costs in excess of ten per cent | Id-*) above any Budget; and





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


X 6 Ordinary meetings of the Management Committee shall take place in the Kurdistan


Region, alternately at the offices of the GOVtRN.MtNT 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.


X.7 hither the GOV CRN Mil NT or the CONTRACTOR may call an extraordinary


meeting of the Management Committee to discuss important issue* or developments


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


the matters to be discussed at the meeting, to the other Party I he 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.K l nlcss al least one 11 > member or its deputy of each of the (i()\KRNMKM and the


COM RAC lOR is present, the Management C ommittee shall be adjourned for a


period not to exceed eight (X) days. The Party being present shall then notify the other


Parry 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


COM RACIOR m accordance w ith instructions of the C hairman 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


COM RAC I OR Decisions of the Management Committee will be made at the


meetings. The CONTRACTOR shall he responsible for preparing and keeping


minutes of the decisions made al 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 w ithin such


ten < 10) days shall be deemed to have approved the minutes.


H. 10 If required, the Management Committee may request the creation of a technical sub¬


committee or any other sub-committee to assist it. Any such sub-committcc shall be


composed of a reasonable number of experts from the (iOVTRNMKM and the


CONTRACTOR, After etch meeting, the technical sub-committee or any other sub¬


committee shall deliver a written report to the Management Committee.


8.11 Any costs and expenditure incurred by the CONT RACTOR for meetings of the


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











25











[























©2013 Kurdistan Regional Government, KRG


 2> 30 / 121

















shall be considered as Petroleum Costs and shall be recovered by the


CONTRACTOR in accordance w ith the provisions of Articles 1 and 25.





ARTICLE 9 - GUARANTEES





9.1 Each CONTRAC TOR Entity shall prov ide the GOVERVVIENT, if so required by


the latter pursuant to written notice received by the CON TRAC TOR Entity w ithin


thirty t TO) days of the Signature Date, with a corporate guaruntec in a form as shall be


agreed in good faith between the GOVERNMENT and each CONTRACTOR


Entity not later than ninety (90) days a Her the Signature Date, provided that such


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


Commitment lor the F list Sub-Period and shall expire automatically upon completion


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


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


earlier.


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





each CONTRACTOR Entity shall prov ide the GOVERNMENT, if so required by


the latter pursuant to written notice received by the CON 'TRACTOR hntity within


thirty (30) days ol such commencement date, w ith u corporate guarantee in:





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


COM R ACTOR Entity for the First Sub-Period, if any. subject to making the


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


Second Sub-Period, or


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


the GOV ERNME.NT and each COM RACTOR Entity not later than ninety


(90) days alter the GOVERNMENT'S notice,


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


of the Minimum Financial Commitment lor the Second Sub-Pcnod and that such


corporate guarantee shall expire automatically upon completion of the performance of


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


such Minimum Financial Commitment, whichever is the earlier.


9.3 In the event of an assignment by a CONTRACTOR Entity ui accordance with


Article 39. the relevant third party assignee shall provide the GOV ERNMENT. if so


required by the latter pursuunt to written notice given to such assignee w ithin thirty


(30) days of the effective date of the assignment, with a corporate guarantee in the


form agreed pursuant to Article 9.1 or 9.2. as applicable to the then current Sub-


Penod or. in the absence of any such agreed form of corporate guarantee, in a form as


shall be agreed in good faith between the GOV ERNMEVf and such assignee not


later than ninety (90) days after the effective date of the assignment, prov ided that


such corporate guarantee shall be given only in respect of the Minimum financial


C ommitment for the then current Sub-Pcnod. and shall expire automatically upon


completion of the performance of the Minimum Exploration Obligations set out in


Articles 10.2(d) and (c) or Article 10.3(b), as the ease may he. or expenditure of such


Minimum Financial Commitment, whichever is the earlier Furthermore, the








26











[























©2013 Kurdistan Regional Government, KRG


©2013 Kurdistan Regional Government, KRG


 2> 32 / 121 ^^4^^

















ItlJ.I The activities carried out by the (OMk\(IOK pursuant to the Option Agreement


shall be deemed lo satisfy the Minimum Exploration Obligations for the first Sub-Penod


set out m Articles l(L2l a) to 10.2(d) and the cost of" such activities shall be recoverable as


Petroleum Coats * ilhout any approval of the Management Committee


I0J 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: and


(b) drill one (1) Exploration Well (the “Second Exploration Weil l committing


for this purpose a minimum li nunc ml amount of fifteen million Dollars


(US$15,000,000) including testing and coring as appropriate, unless the data


from the First Exploration Well demonstrates that there is not a reasonable


technical ease for drilling the Second Exploration Well in the Contract Area





10.4 Notwithstanding the provisions in Articles 10 2 lo 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-Penod 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 lo Article IU.4(a), the CONTR ACTOR shall be required to meet its


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


entails exceeding (he Minimum Financial Commitment for such Sub-Penod.


If the CON I RACTOR has satisfied its Minimum Exploration Obligations


without having spent the total Minimum financial Commitment for such Sub-


Penod, it shall be deemed to have satisfied its Minimum Exploration


Obligations for such Sub-Period.


(c) The First Exploration Well shall be dnllcd lo the depth described in Article


10.2(c) and each other Exploration W ell shall be dnllcd to the depth agreed by


the Management Committee unless:


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


anticipated;


In) basement is encountered at a lesser depth than originally anticipated;


(lii) in the CON I RACTOR'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











2*











[




















©2013 Kurdistan Regional Government, KRG


 2> 33 / 121 ^^4^^




















(v) petroleum formations arc encountered whose penetration requires


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


Management Committee or as described in Article 10.2(c), as


applicable, to be reached


If drilling is stopped lor unv of the foregoing reasons, the Exploration Well


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


Committee or os described in Article 10.2(e). as applicable, and the


CONTRACTOR shall he deemed to have satisfied its Minimum Exploration


Obligations in respect of the Exploration Well-


Id) Any geological or geophysical work earned out or any seismic data acquired,


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


performed in excess of the Minimum I*, xplo ration Obligations and or any


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


given Sub-Period, shall be earned forward tu 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.


(c) For the avoidance of doubt, if: (i) m the First Sub-Penud. the


CONTRACTOR performs any of the Minimum Exploration Obligations


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


COM RACTOR has not elected to notify the GOV ERNMENT that it w ill


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 II - EXPLORATION WORK PROGRAMS AND BUDGETS





11.1 Within forty-five (45) days following the Signature Date, the CON TRACTOR shall


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


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


Budget'*) for the remainder of the Calendar Year. Thereafter, no later than I October


in each Calendar Year, the CON I RAC TOR shall submit a proposed Exploration


Work Program and Budget to the Management Committee for the follow ing Calendar


Year.


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





limned to, the follow mg:


(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








2**











[























©2013 Kurdistan Regional Government, KRG


 2> 34/121 ^^4^^

















(ill estimated expenditure*, broken down by co*l centre in accordance with the


Accounting Procedure


11.3 The Management C ommittee dvull meet within sixty (60) days following its receipt of





COM RACI OK's proposal to examine and approve the Exploration Work Program


and Budget.





11.4 If the GO\ KKNMLM 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. I he CONTRACTOR shall communicate its


comments on any such requested modifications to the GOVERNMENT at the


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





11.5 The CONTRACTOR shall be authorised lo make expenditures not budgeted in an


approved Exploration Work Program and Budget pres ided that the aggregate amount


of such expenditures shall not exceed ten per cent (10%) of the approx cd Exploration


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


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


Management committee For the avoidance of doubt all excess expenditures shall be


recovered by the CONTRACTOR in accordance with the provisions of Articles 1


and 25. pros ided that any excess expenditures above the ten per cent (1(1%) limit shull


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


11.6 In ease* of emergency, the CON I RAC I OR may incur *uch additional expenditure*


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


expenditures shall be reported promptly to the Management Committee, for the


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


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


Article* 1 and 25.








AR TICLE 12 - DISCOVERY AND DK\ EI.OPMENT


12.1 If the drilling of an Exploration W ell results in a Discovery, the COM RAC I OR


shall notify the GOV ERNMENT within forty-eight (4K) hours of completing tests


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


the COM RACTOR reasonably requires to determine whether or not there is a


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


COM RACTOR shall present to the Management Committee all technical data then


available together w ith it* opinion on the commercial potential of the said Discovery


(the “Discovery Report ). I he CON I RAC. I OR shall provide m a timely manner


such other uilbrmation relating to the Discovery as the GOVERNMENT may


reasonably request.


Appraisal Work Program and Budget





12.2 if. pursuant to Article 12 1. the CONT RACTOR considers that (lie Discovery hav


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


GOVERNMENT of the Discovery, submit an appraisal program in respect of the





30














[























©2013 Kurdistan Regional Government, KRG


 ^ 35 / 121




















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


Committee. The Management Committee shall examine the Appraisal Work Program


and Budget v.ithin thirty (30) days of its receipt. II the GOV LRNMt.N1 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 GOVLRVMKNT at the


meeting of the Management Committee or in a nting prior to such meeting.


The Appraisal W urk Program and Budget shall include the follow ing:





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


international petroleum industry practice.


(b) an estimated time-Imine for completion of appraisal works; and





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


exceed twice (2 xi the surface of the geological structure or prospect to be


appraised (the "Appraisal Area").


12.3 If. follow ing a Discovery, a rig acceptable to the CONTRACTOR is available to drill


a well, the CUN I RAC I OR may drill any additional kxploration 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 CON I RACTOR 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 m any C alendar N ear and provided further that such


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


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


recovered by the CONTRACTOR in accordance with the provisions of Articles I


and 25. provided that any excess expenditures above the ten per cent (10%) limit shall


only be recovered with the unanimous approv al 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 190) days


following completion of the Appraisal Work Program and Budget.


12.5 The Appraisal Report shall include the follow ing:





(a) geological conditions;


(b) physical properties of any liquids;





(c) sulphur, sediment and water content:








31











[























©2013 Kurdistan Regional Government, KRG


 ^ 36 / 121

















(ill type of substance* obtained.


(cl Natural Gas composition:


(0 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*;


(cl the CONTRACTOR has determined thut the Discovery is a significant


Discovery, which muy become a Commercial Discovery subject to additional


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


(di the CONTRACTOR has determined thut the Discovery is a significant


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


Discovery subject to Gas Marketing Operations, in accordance with


Article 14.5.


12.7 In ease the statement of the CONTRACTOR corresponds to Article I2.6

CON I RAC I OR shall submit a Work Program and Budget to the Management


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


evaluate the said significant Discovery shall be considered an Exploration \\ ell.


Owekmmen i Plan





12.8 If the Discovery ha* heen declared a Commercial Diaoovery by the CONTRACTOR


pursuant to Article 12.(Ha) or Article 14.5(a), the CON TRACTOR shall submit a


proposed Development Plan to the Management Committee within one hundred


eighty (IKO) 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:








32











I

















©2013 Kurdistan Regional Government, KRG


 2> 37 / 121 ^^4^^





(dl laying of gathering pipelines.


(*> installation of separators, tanks, pumps and any other assoclatcd production


and injection facilities for the production:


to treatment and transportation of Petroleum to the processing and storage


facilities onshore or offshore:


laying of export pipelines inside or outside the Contract Area to the storage


facility or Delivery Point;


construction of storage facilities for Petroleum:


tl) plan for the utilisation of Associated Natural Gan;


0) training commitment in accordance with Article 23;


(k) ■ preliminary decommissioning and sue restoration plan;


d) all contracts and arrangements made or to be made by the CON I RAC 1 OR


for the sale of Natural Gas;


(ml to the extent available, all contracts and arrangements made or to be mode by


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


be sold by the CONT RACTOR and which arc relevant to the price at which


land other terms on which) it u to be *old by the CONTRACTOR or arc


otherwise relev ant 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 m un


Arm** Length Sale:


each CONTRACTOR Entity's plans lor financing its interest, if any. and


(a) any other operations not expressly provided for in this C ontract 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 C omm nice shall use its best efforts to approve the Development


Plan within sixty (60> days alter 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 (601 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 (601 days of receipt by the


CONTRACTOR of the GOVERNMENT'* written notification of requested


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


discuss such request. I he CON I RAC 1 OR shall communicate its comments on any


33





IN 1























©2013 Kurdistan Regional Government, KRG


 ^ 38 / 121




















such requested modification* lu the (iON KKNMKM at such meeting or in anting


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


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


meeting shall be incorporated into the Development IMun which shall then be deemed


approved and adopted.


12.11 If ihc CONTRACTOR makes several Commercial Discoveries within the Contract


Arra each such Commercial Discovery will have a separate Production Area. I hc


COYI RAC I OR shall be entitled to develop and to produce each C ommercial


Discovery and the GOV ERNMEM shall provide the appropriate Permits covering


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


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


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


Region Oil and (ins Law) with a third party, the provisions of Article 34.2 shall apply.





ARTICLE 13 - DEV ELOPMENT AND PRODUCTION WORK PROCRAMS AND


BUDGET


13.1 l.pon the approval of the Development Plan by the Management Committee, the





COM RAC I OR 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 progrum and budget for Development


Operations (the "Development W ork Program and Budget") to be carried out in the


Production Area tor ihc duration of the Dev elopment Operations. I hereafter, no later


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


Management Committee updates in respect of its Development Work Program and


Budget. To enable the Management Committee to forecast expenditures, cuch


Development Work Program and Budget shall include details of the follow mg:


(a) works to be earned oul.


(b) material and equipment to be acquired by mam categories:





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


Affiliated Companies of any CONTRACTOR Entity; and


(d) categories of general and administrative expenditure.





13.3 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 iu receipt of the proposed Development Work Program and


Budget. The CONTRACTOR shall communicate its comments on any such








34











[























©2013 Kurdistan Regional Government, KRG


 2> 39 / 121

















requested modifications to the GOVERNMENT Hi the meeting of'the Management


Committee or in writ mg prior to such meeting.


13.4 The CONI RAC "I'OK shall be uuthonvcU to incur expenditures not budgeted in an


approved Development Work Ingram and Budget provided that the aggregate


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


Development W ork 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, l or the avoidance of doubt, all excess expenditures


shall be recovered by the CON TRAC'TOR in accordance with the provisions of


Articles I and 25. provided that any excess expenditures above the ten per cent (10%)


limit shall only be recovered with the unanimous approval of the Management


Committee.


13.5 In eases of emergency, the CON TRAC TOR may incur such additional expenditures


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


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


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


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


Articles l and 25.





\pproval of \nnu«l Production Works Programs and Budget


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


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


I October in each Calendar Year, die CON I RAC I OK 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


C alendar Year. To enable the Management Committee to forecast expenditures, the


Production Work Program and Budget shall include details of the follow mg:





(a) works to be carried out.


(b) material and equipment to be ucquired by muin categories.





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


Affiliated Companies of any CONTR ACTOR Entity; and


(d) categories of general and ndmirustrativc expenditure.





13.7 If any modification to the Production W ork Progrum and Budget is requested by the


GOV ERNMEVT. 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 Pntgram and Budget. The


CONTRACTOR shall communicate its comments on any such requested


modifications to the GOV KUNMKM 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 m an


approved Production Work Program and Budget provided that the aggregate amount








35











[























©2013 Kurdistan Regional Government, KRG


 ^ 40/121

















of such expenditures shall not exceed ten per cent 4 I0%> of the approved Production


Work Propram and Budget in any C alendar 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


recovered by the CONTRACTOR in accordance with the provisions of Articles 1


and 25. provided that any excess expenditure above the ten per cent (10%) limit shall


only be recovered w ith the unanimous approv al 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 (he


avoidance of douht. such additional expenditure shall be considered Petroleum Costs


and shall be recovered by the CON I RAC I OR in accordance with the provisions of


Articles I and 25.





13.10 After the commencement of C ommercial Production the CON I RAC I OR shall pay


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


of one hundred Dollars (US$100) per square kilometre per Contract Year


i Production Rental ). Such Production Rental shall be considered as a Petroleum


Cod and shall be recovered by the CONTRACTOR in accordance with the


prov isions of Articles 1 and 25.





ARTICLE 14 - NATURAL GAS





1 sc 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 lias 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 C ON I RAC I OR 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.


V»o(UU>d Natural Gas


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





Operations nor developed and sold by the CONTRAC TOR shall, upon the


GOVLRNMENl'*s written request, be transferred at the first practicable delivery


point as agreed between the Parlies, free of charge to the GOVERNMENT. In such


ease, the GO\ LKNMENT 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 os well as the offtake of such


excess Associated Natural Gas by the GOVERNMENT shall occur in accordance








36














[























©2013 Kurdistan Regional Government, KRG


 2> 41 / 121

















with prudcnl international petroleum indtuUy practice and shall nol mlcrfcrc with (he


production, lifting and transportation of the Crude Oil by Ihc CONTRACTOR Tor


the avoidance of doubt, all expenditure incurred by the COM MAC I OK up to such


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


the CON TRACTOR in accordance with the provisions of Articles 1 and 25.


In the event the CO% RRMMtST finds a market for Associated Natural Gas, it shall


promptly give written notice to the CO N'T RAC I OK. and the CONTRACTOR may


elect to participate in supplying such Associated Natural (ins within ninety (90) days


following notification thereof by the GO\ tHNMt.NT. If the CONTRACT OR


elects to participate in supplying Associated Natural lias to such market, all


expenditures associated with any necessary facilities shall he paid for by the


CON I RAC I OK. for the avoidance of doubt, such expenditure incurred shall be


considered Petroleum Costs and shall be recovered by the COM KACT OK in


accordance with the provisions of Articles I and 25.


Non Associated Natural (.as





14.4 Lntil an approved Natural lias sales contract is executed in respect of all volumes of


Natural Gas expected to be produced, the CON TRACTOR shall be entitled during


the exploration Period and the Development Period to cam1 out lias Marketing


Operations.


14.5 If. pursuant to Article I2.6

Discovery is a significant Discovery of Non-Associatcd Natural Gas. which may


become a Commercial Discovery sub|ect 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 ha* determined that the Discovery is a Commercial


Discovery; or


(b) the CONTRACTOR has determined that the Discovery is not a C ommercial


Discovery.


14.6 Tor the purpose of this Contract. “Gas Marketing Operations" means am activity





under this Contract relating to the marketing of Non-Assoc rated Natural lias,


including any evaluation to find a commercial market for such Non-Associated


Natural lias and or to find a commercially viable technical means of extraction of


Mich Non-Associatcd Natural Gas and may include activities related to evaluating the


quantities of Non-Associatcd Natural lias to be sold, its quality, the geographic


location of potential markets to he supplied a* well os evaluating the costs of


production, transportation and distribution of the Non-Associated Natural Gas from


the Deliv ery Point to the relevant market.


14.7 All costs and expenditure incurred by the CON I RAC I OK in the performance of the


activities in relation to the lias Marketing Operations shall be considered Petroleum


Costs.











37











[























©2013 Kurdistan Regional Government, KRG





 2> 42/121




















14.8 No Inter than I October of the Calendar Year preceding the Calendar Year in which


any Gas Marketing Operations arc 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 lias Marketing Work Program and Budget shall include the


following:


(a) w orks to be carried out:





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


Affiliated companies of unv CONTRACTOR Entity. and


(cl 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 modification* thereto within sixty


(Mil 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 GOV fUNMKYI at the meeting of the Management Committee


or in writing prior to such meeting.


14.9 The CON I RAC I OK 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 W ork Program and Budget in any Calendar Year and provided further that


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


Management Committee, for the avoidance of doubt all excess expenditures shall be


recovered by the CONTRACTOR in accordance with the provisions of Articles I


and 25. provided that any excess expenditure above the ten per cent < |0%| limit shall


only be recov ered w ith the unanimous approval of the Management Committee.


14.10 If any Non-Associated Natural Gas is discovered w ithin the Contract Area, and the


COM RAC I OK reasonably considers that the Non-Associatcd Natural Gas


Discovery will only he 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


CO NT'RAC TOR’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 Penod expires w nhout the


COM KACTOR having declared such Discovery to be a Commercial Discovery in


accordance with Article 12.64a) 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

Dvulnpimnt i 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 Coatrucfl (subject only to the rights of








38














[























©2013 Kurdistan Regional Government, KRG





 2> 43 / 121

















each C()M RA( IOR Lntily to pre-empt such Proposed Contract pursuant to


Article 14.10(b) and such conditions as may he applicable!, the


GOV LRVMLN I shall, as soon as reasonably practicable after the occunencc


of such circumstances, sene on each of the (ONfRA( TOR Entities, a


notice to that effect and shall w ith such notice provide such information and


main terms of such agreement as the COM RAC IOR I ntmes may


reasonably request to determine if they- will exercise their rights (the ' Agreed


Terms"), including:


I i) the identity of such third party;





(ii) the effective date of the Proposed Contract;


(ill) the applicable commercial terms, including bonuses, royalties, cost


recovery, profit sharing, taxation and any other similar terms: and





liv) all and any material conditions to which the Proposed Contract is


subject.


(b) Upon a request from any CONTRACTOR Entity, the GO\ ERVMEYI 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 (1HU) days after receipt of a notice and


any further information under Article l4.l(Ha) in relation to a Proposed


Contract each of the CONTRACTOR Entities shall elect either





fi) to enter into the Proposed Contract on ihc same or substantially similar


terms to the Agreed Terms, with the nght 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


lit) to waive the aforesaid nght of pre-emption in relation to the Proposed





Contract;


and shall serve notice accordingly upon the GOVERYME.N I and all the


CON TRACTOR Entities and in default of receipt by the GOV ERNMENT


of any such notice within such period of one hundred and eighty (I HO) days


such COMRACIOR Entity shall he deemed conclusively to have served a


notice electing to waive its aforesaid nght of pre-emption in relation to the


Proposed Contract.





(c) In the ev ent that more than one of the CON I RAC TOR Entities exercises its


rights under Article l4.l(MbHi) m 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 I4 HNhMi)) 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 n applied at the end








3*














[




















©2013 Kurdistan Regional Government, KRG





 2> 44/121

















of the Exploration Period) or in such other pmportiorLs ax such


CONTRACTOR Entities shall agree between them.







under Article 14 lOtbHO ,n relation to the Proposed Contract then the


GOVERNMENT shall transfer or grant the whole of the interest in the


Proposed Contract upon the Agreed lerms (in accordance with H.IOfbgi)) to


such CONTRAC I OK Entity.





(c) In the event that none of the CON 'TRACTOR Entities exercises its rights


under Article 14 ll)tb>(i> then the GOVERNMENT may enter into the


Proposed Contract on terms no more favourable to its counterparty than the


Agreed lerms and. in such ease, the aforesaid rights of pre-emption shall


thereupon cease to apply in relation to the Proposed Contract.


14.11 If the pre-emption rights n Article 14.10 arc not exercised and the COX ERNMENI


enters into the Proposed Contract with the third party concerned, the


GOX ERNMEN I' will use its best endeavours to avoid any effect which may hamper


the Petroleum Operations of the CON I RAC1 OR while producing Petroleum.


Haring





14.12 1 Lanng of Natural Gas in the course of activities provided for under this Contract, ts


prohibited except (i) short-term Haring up to twelve 112) Months necessary for testing


or other operational reasons in accordance with prudent international petroleum


industry practice (which shall include the llanng of Associated Natural Gas to the


extent the CONTRACTOR considers that rc-injecting Associated Natural Gm is not


justified technically and economically and provided the COX ER.YMENT decides


not to take such Associated Natural Gas), or (u) with the pnor authorisation of the


GOVERNMENT, such authorisation not to he unreasonably withheld or delayed


The CONTRAC TOR shall submit such request to the GOX'ERN.XIEN I. winch shall


include an evaluation of reasonable alternatives to Haring that have been considered


along with information on the amount and quality of Natural Gas involved and the


duration of the requested Haring.


ARTICLE IS-ACCOUNTING AND Al DITS





15.1 The CONI''RAC'TOR shall keep m its offices in ihc Kurdistan Region copies of all





hooks and accounts of all rcxcnucs relating to the Petroleum Operations und all


Petroleum Costs (the ‘ Accounts’ !, except during the Exploration Period, when the


CON I RAO OR shall he entitled to keep the Accounts at its headquarters Abroad


The Accounts shall reflect in detail expenditure incurred as a function of the


quantities and value of Petroleum produced, and shall be kept for a period of five (5)


years. All Accounts which arc made available to the GOVERNMENT in accordance


w ith the provisions of this Contract shall be prepared in the English language. The


Accounts shall he kept in accordance w ith prudent international petroleum industry


practice and in accordance w ith the provisions of the Accounting Procedure The


Accounts shall be kept in Oollars, which shall be the reference currency for the


purposes of this C ontract








40











[


























©2013 Kurdistan Regional Government, KRG


 ^ 45 / 121

















15.2 Within ninety ) days following the end of each Calendar Near, the


('OMRACTOR shall submit to the GO\ KRNMKM 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 w ith respect to each Calendar Year within


a period of two (21 C alendar Years following the end of such Calendar Year


tthc “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 tb| of this Article 15.3. the GOV ERYMENT





shall have the right to audit the Accounts with respect to each Calendar Year at any


tune in the ease of manliest error or fraud.


15.4 The reasonable cost of retaining an auditor pursuant to Article 153 shall be borne by


the CON IKK I OK and treated as u Petroleum Cost for the purpose of cost recovery


under Articles 1 and 25.


15.5 Dunng the Audit Request Period for any Calendar Ycur 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 uudit of Petroleum Costs.


15.6 Should the GO\ ERN ME VI' consider, on the basis of data and information available,


that the CON'I K ACTOR 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 w riting and notified to the CON I KACTOK w ithin six (6) Months of the date of


request referred to in Article 15.3. and failure lo give such written exception within


such time shall be deemed to be an acknowledgement of the correctness of the


CON I RAC 1 OR's Accounts.


15.7 In respect of any audit exception made by the GO\ ERN MEN I in accordance writh


Article 15.6. the COM KACTOK shall then hasc sixty 160) days lo make necessary


corrections, adjustments or amendments or to present its comments in writing or


request a meeting with the GO\EKNMEN'l. Ihc GOYEKNMENf shall within


thirty (30) days of the CONTRACTOR*! 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 he settled in accordance with Article 15»





15.X 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.











41











[























©2013 Kurdistan Regional Government, KRG


 2> 46/121

















15.9 Any dispute between the Parties under this Article 15 that cannot be settled amicably


within sixty (60) days of the GOVERNMENT*! final notice under Article 15.7. may


be submitted to an expert on the request of either the GO\ ERVMLN1' or the


COM RACIOR in accordance with the provisions of Article 42.2. Notwithstanding


the provisions of Article 42. in this specific instance the decision of the cxpcit 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 Signature Date, each


CON I RACTOR hntity 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 C ontract and will be entitled to receive any


correspondence addressed to such CON TRACTOR Lntity.





C miduct of Petroleum Operations


16.2 The CONTRACTOR shall earn' out all Petroleum Operations in accordance with the


pro\ is ions of this Contract, prudent international petroleum industry practice and


applicable Kurdistan Region Law.


The CON I RAC TOR shall be responsible lor 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 nght to use any Affiliate


of each CON TRACTOR hntity. its and their Subcontractors, and the employees,


consultants, and agents of each of the foregoing I he CON I R AC I OR and all such


Person* shall at ill times have free access to the Contract Area and any Production


Areas for the purpose of carry ing 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 Lxploration 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 CON TRACTOR;


(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








42











[























©2013 Kurdistan Regional Government, KRG


 2> 47/121

















Id) a dcM-ripmc statement of all capital assets acquired for the Petroleum


Operations, indicating the date and price or cost of their acquisition.


Requirement for Petrutmm Operations


16.4 The COM RAC TOR may freely use any Petroleum produced within the Contract





Area for the Petroleum ()pcraturns


Sunersismn 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 fac ilitics of the CONTRAC TOR





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


und verification*. The representative* of the GOVERNMENT shall at ill time*


comply with any safety regulations imposed by the CON I RAC'I OR and such


reviews und verification* shall not hinder the smooth progress of the Petroleum


Operations


\ccc*» to f acilities





16.6 I or the performance of the Petroleum Operation*, the COM RAC 1 OR. any Affiliutc


of each CONTRACTOR Entity, its and their Subcontractors and the employee*,


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


w ithin or outside of the Contract Area or within or outside the Production Area, for


the purpose of carrying out the Petroleum Operation*


l sc of Eacilibc*





16.7 Lpon notice from the GOVERNMENT, the CON I RACIOR shall make available


to a reasonable number of representatives of the C.O\ ERA MEN I those of the


CONTRACTOR** facilities which arc necessary to enable such representatives to


perform their tasks related to this Contract and the Kurdistan Region Oil and lias Law


including, in case of work* to he performed on work sites, transportation,


accommodation and board, under the same conditions as those provided by the


CON I RAC I OR tor its own personnel.


Notwithstanding Article 16.8, the GOVERN MEN I shall indemnify and hold





harmless each CONTRACTOR Entity against all losses, damages und liability


arising under any claim, demand, action or proceeding brought or initiated against any


CON I RAC I OR Entity by any representative of the GO\ ERNMEYI in connection


with the access to or use of the facilities by such representative*.














4.1














[




















©2013 Kurdistan Regional Government, KRG





 Los* or Dimiic


16.8 The COM KAC 1 OK shall be responsible for any loss or damage caused to third


panics by its or its Subcontractors personnel solely and directly resulting from their


negligence, errors or omissions tn accordance with applicable Kurdistan Region Law


Intellectual Property Rights





16.9 In its Petroleum Operations, the CONTRACTOR shall respect any patents belonging


to third parties.


Litigation


16.10 The CONTRAC TOR shall os 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 m 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;


(di providing safe storage areas for explosives, detonators and any other





dangerous products used in the operations:


(c| supplying tire-extinguishing equipment in each work area;


(f) for the purpose of taking control of any blow out or tire which could damage


the environment or Petroleum Field, in accordance with prudent international


petroleum industry practice, and


(g) for the purpose of preventing any involuntary injection of fluids m petroleum


formations and production of Crude Oil and Natural Gas at rates that do not


conform to prudent international petroleum industry practice.








44





























©2013 Kurdistan Regional Government, KRG


 2> 49 / 121

















Prmlictlon Rilii


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 he set belim the Maximum Efficient Rate


I NIIR I for the Reservoir, as provided for in the Development Plan, as a


consequence of a decision by the GOV ERNMEN1 or any federal or international


regulatory body, the GOVERNMENT undertakes to allocate any such reduction


fairly and equitably among the various operators (including the GOV EKVY1EN T)


then producing in the Kurdistan Region, pro rata their respective production rates. In


such event, the GOV ERNMEN T shall grant an extension of the Development Period


of any Production Area so aIVcctcd for a reasonable period of time m 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.


l egal Status


16.13 The respective rights, duties, obligations and liabilities of the CON TRACTOR und





the GOV 1-RNMtM under this Contract arc to be understood as being separate and


individual and not joint and several. As between the CONTRACTOR on the one


hand and the GOVERNMENT on the other hand, 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 GOVERNMEN I and each CON I RAC I OR Lntity shall have the right and the


obligation to take in kind and separately sell or otherwise dispose of their respective


shares of Petroleum. Lpon approval of the Development Plan, the Parties shall meet


as soon ms 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 GOV tRNMtNT and each CONTRACTOR f.ntity 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 euch


COM R VCI OR f.ntity regarding entitlements and availability of Petroleum


for lifting by each Party during each lifting period and nominations by each


Party: and


(cl the right of the Panics to lift uny Available Petroleum not scheduled for lifting


and or not lifted by the other Party during each such lifting period.


Kurdivtan Region Consumption Requirements





16 15 The CONTRACTOR Entitle* shall sell and transfer to the GOVERNMENT, upon


written request of the GOV ERNMENT, any amounts of Crude Oil that the


GOVERNMENT shall deem necessary to meet Kurdistan Region internal


consumption requirements. Hie sales pnee of such Crude Oil shall be the








45











[























©2013 Kurdistan Regional Government, KRG


 2> 50 / 121

















International Market Price. The GOVERNMENT shall provide the


COMRACTOR Kntnies with nor less than six (6) Months' advance written nonce 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 rules.





The provisions of this Article 16.15 shall not apply to Non-AsMKiaicd Natural (»av


ARTICLE 17-USE OP 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 CON I RAC I OK shall not request to use any such land unless there is a


real need for it. The CON TRACTOR shall have the nght to build and maintain,


above and below ground, any facilities required lor the Petroleum Operations.


17.2 If it becomes necessary for conduct of the Petroleum Operations in 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 GOV ERNME.YI. On receipt of such notification:


(a) the GOV KRNMKNT shall determine the amount of compensation to be paid


by the CONTRACTOR to the owner, if occupation will he for u short


duration: or


(b) the GOVERNMENT shall expropriate the land or property in accordance


w ith applicable Kurdistan Region Law, if such occupation will be long lasting


or makes it henceforth impossible to resume original usage of such land or


properly. 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 properly 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 w ith Article 2V of the Kurdistan Region Oil and Cias Law. and shall take


into account the rights of the owner and any effective use of the land or property by


its owner at the time of occupation by the CON I K.ACTOR. All reasonable costs,


expenditures and fuir and reasonable compensation (os required pursuant to Article 29


of the Kurdistan Region Oil and Cias Law) which results from such expropriation


shall be borne by the CON I RACTOK. For the avoidance of doubt, such costs,


expenses and compensation incurred by the COM RACTOR shall be considered


Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with


the provisions of Articles I and 23.











46











[























©2013 Kurdistan Regional Government, KRG


 2> 51 / 121 ^^4^^




















17.3 For its Petroleum Operations, the CON 1R ACTOR shall have the right in the


Kurdistan Region to use. subject to applicable Law. any railway, tramway, road,


airport, landing held, canal, river, bridge or waterway, any telecommunication*


network und any existing pipelines or transportation infrastructure. on term* no less


favourable than those otiered to other entities and. unless generally in force, to be


mutually agreed.


17.4 l.nder 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 eases, the request shall originate from the Minister ol Natural Resources. For the


avoidance of doubt, such costs, expenses or liabilities incurred by the


CO.VI RACTOR hereunder shall be considered Petroleum Costs and shall be


recovered by the CON I R AC I OR in accordance w ith the provisions of Articles I


and 25.


17.5 For its Petroleum Operations, the CONTRACTOR shall have the right in the


Kurdistan Region to clear land, excavate, drill, bone, construct, erect, place, procure,


operate, emit and discharge, manage and maintain ditches, tank*, 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, school*,


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


CONI RACTOR shall have the right to select the location for these facilities


17.6 For its Petroleum Operations, the CON! RAC I OR shall have the right in the





Kurdistan Region, subject to compliance w ith applicable Kurdistan Region Law. to


remove and use the topsoil, lulls-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 docs not damage any


existing irrigation or navigation systems and that land, houses or watering points


belonging to third parties arc 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 docs not increase the coats, or compromise or have a


material adverse effect on the performance of the Petroleum Operations. If the


construction, operation und maintenance of such facilities by the COX FRNMF.N I


results m increased cost or expense for the CONTRACTOR then, for the avoidance








47











[


























©2013 Kurdistan Regional Government, KRG


 2> 52 / 121 ^^4^^

















of doubt. such cost and expense shall be considered Petroleum Costs and shall be


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


and 25.


17.X l.pon request of the CONTRACTOR, the GOV ERNMENT 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 he 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 m 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 submission* made by the CONTRACTOR nor in such a way that there is undue


interference with or hindrance of the rights and activities of the CON TRAC'TOR.


ARTICLE IX-ASSISTANCE PROM THE GOVERNMENT





IX.I To the extent allowed by Kurdistan Region Law and Iraq Law and at the specific


request of the CONTRACTOR the GOV ERNMENT 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:


(hi securing regulatory Permits in matters of customs or import export;





(c) securing entry and exit visas, work and residence permits as well a* any other


administrative Permits for each CONTRACTOR Entity's, its Affiliate's and


its Subcontractors’ foreign personnel (including their family members)


working m the Kurdistan Region and any other part of Iraq during the


implementation ol this Contract.


(d) securing any necessary Permits to send Abroad documents, data or samples for


analysis or processing for the Petroleum Operations:


(c) 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;











4X











I




















©2013 Kurdistan Regional Government, KRG





 2> 53 / 121 ^^4^^

















(g) obtaining any other Permits requested by any COM RAC IOR Entity for the


Petroleum Operations:


(ti) access to any existing data and infonnation. including data and information


relating to the Contract Area held by previous operators or contractors: and


(i) providing all necessary security for Petroleum Operations.





IK.2 Within the scope of services to he provided under this Article IK, reasonable and duly


justified expenses incurred by the GO\ ERYMEN I or paid to third parties shall be


charged to the ( ON I RACT'OR and shall be considered Petroleum Costs and Khali be


recovered by the CO.NTRACT'OK as Petroleum Costs in accordance with the


provisions of Articles 1 and 25.





ARTICLE 19 - EQl IPMENT AND MATERIALS


l‘M The CON I KAC I OK 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 Uudgets


19.3 As soon as possible after the Signature Date, the CON I RAC KIR shall provide the


Management Committee with a copy of its procedures lot procurement of Equipment


and Materials and/or services for the Petroleum Operations as required by the


provisions of Article 8.2 (e). including the entena 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 arc 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 und


technical terms arc comparable in all material respects with those generally available


in the international petroleum industry.


ART 1CLE 20 - TITLE TO ASSETS





2U. 1 During the Exploration Period, any Assets acquired by the CON I R ACTOR for the


Petroleum Operations shall remain the property of the CONTRACTOR, the


COYI RACTOR Entities, their Affiliates or their Subcontractors, as the ease may be.


20.2 During the Development Penod. subject to Article 21. all Assets acquired by the


CONTRACTOR lor 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.











49











[























©2013 Kurdistan Regional Government, KRG


 ^ 54 / 121

















20.3 The provisions of Article 20.2 shall nut 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 - HSL (IT THE ASSETS





21.1 Each CON TRACTOR Entity* 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 far any petroleum operations under


other agreements ill the Kurdistan Region to which it or any of its Affiliates is a party,


provided that the Petroleum Operations laJcc priority The GOVERNMENT agrees


not to transfer or otherwise dispose of any of such Assets without the


CON I HACTOR's prmr 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 CONT RACTOR shall ensure that any Subcontractors it engages have all the


requisite experience and qualifications.


22.2 The CONTRACTOR dull give priority to Subcontractors from the Kutdistan


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 arc. in the CON'TRACTOR‘1 sole opinion, comparable


in all materia] 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 Subcontractor; shall lake 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 lo lime.


ARTICLE 23 - PERSONNEL, TRAINING. AM) TECHNOLOGICAL ASSISTANCE





Personnel





23.1 Tor the Petroleum Operations, the CON TRACTOR shall give, and shall require us


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





SI)











[























©2013 Kurdistan Regional Government, KRG


 2> 55/121




















23.2 The CON I RAC I OR Entities shall give due consideration to the secondment of


GOVERNMENT personnel to the CONTRACTOR Entities and of the


CO.VIRACIOR Lntitics' personnel to the GOVERNMEN'I durine the various


phases of the Petroleum Operations. Terms and conditions for such secondment shall


he mutually agreed by the Parties and any costs associated therewith shall be


considered Petroleum Costs and shall be recovered by the CONTRACTOR in


accordance with the provision* of Articles I and 25.





23.3 hitch CONTRACTOR Entity und its Affiliate* and Subcontractor* shall have (he


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 he filled a* required pursuant to Aniclc 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 CON I RAC TOR shall, at the


request of the Management Committee, take the necessary steps to repatriate such


mdividual(s).





23.4 Commencing with the third Contract Year, the CON TRACTOR shall provide two


hundred and fifty thousand Dollars {US$2 50.000) w ithin ninety (90) days of the start


of the applicable Contract Year to the GOVERNMENT for the recruitment or


secondment of personnel, whether from the Kurdistan Region or other parts of Iraq or


Abroad, to the Miniary of Natural Resources, provided that, lor the third Contract


Year, such amount shall be provided w ithin ninety (90) days of the Signature Date


The selection ul such personnel shall be at the discretion of the Minister of Natural


Resources. Such cost* shall be considered as Petroleum Cost* anil shall be recovered in


accordance w ith 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 Article*


23.6 and 23.7, the CON I RAC I OR 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 know ledge and


professional qualification held by ihc CONTRACTOR Entities* foreign worker*


w ith an equivalent resume. Such training shall also include the transfer of know ledge


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


confidentialiry 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 und may include training for the


GOVERNMENT*! personnel, depending on the extent to which the amount


allocated to the training plan, as prescribed by Article 23.7, is available after taking











51











[


























©2013 Kurdistan Regional Government, KRG


 2> 56 / 121

















mio consideration (he training of the COM R AC I OK Entities* Kurdistan Region


and other Iraqi personnel.


Within ninety (90) days of the Signature Date, the CONTRACTOR shall submit to





the Management Committee a proposed training plan for the remainder of the


Calendar Year. Thereafter, no later than I 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





GOVE KN MU NT of the amount of one hundred and fifty thousand Dollars


(US$150,000) for each Contract Year commencing with the third Contract Year durmg the


Exploration Period and three hundred thousand Dollars i US$300,000) for each Contract


Year during the Development Period, payable within ninety (90» days of the sum of the


applicable Contract Year, provided that, for the third Contract Year, such amount shall he


payable within ninety (90) days of the Signature Dale..


23.X Each (OS I RAC I OK Entity shall be responsible for the training costs which it may


incur in respect of the personnel it employs from the Kurdistan Region and other parts


of Iraq. All such reasonable costs shall be considered as Petroleum Costs and shall be


recovered in accordance w ith the prov isions of Articles I and 25. Costs incurred by


the CONTRACTOR for training programs foe the GOVERNMENT*! personnel


shall be borne by the COM'KACTOK only to the extent that they are included in the


COM RAC I OK's training plan, pursuant to Article 23.6 and shall also be


considered as Petroleum Costs and shall be recovered in accordance with the


provisions of Articles I and 25. The cost of all other training programs for the


GOVERNMENT * personnel shall be the GOVERNMENT'S responsibility





I he Environment fund


23.9 I he CONTRACTOR shall contribute the amount of one hundred and fifty thousand


Dollars

during the Exploration Period and three hundred thousand Dollars (US$300,000) for each


Contract Year during Lite Development Period, payublc within ninety (90) days of the


start of the applicable Contract Year (but. tor the thrd Contract Year, payable within


ninety (90) days of the Signature Date), 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 I Such


amounts shall be deemed to be Petroleum Costs and shall be recovered in accordance


with Articles 1 and 25.


23.10 Any expenditure incurred by* the CON TRACTOR under this Article 23 shall be





considered Petroleum Costs and shall be recovered in accordance with Ankles 1 and


25.


1 technological and logistical assistance


23.11 Before the end of the third Contract Year, the CON TRACTOR dull provide to the





GOVERNMENT technological and logistical assistance to the Kurdistan Region


petroleum sector, including geological computing hardware and software and such








52














[























©2013 Kurdistan Regional Government, KRG


 2> 57 / 121 ^^4^^

















other equipment as the Minister of Natural Resources may require. up to the value of


one million Dollars fUSS l.000.000). I he form of such assistance shall be mutually


agreed by the Parties and any costs associated therewith shall be considered


Petroleum Costs and shall he recovered by the CONTRACTOR in accordance with


the provisions of Articles I and 25.


ARTICLE 24-ROYALTY





24.1 The COM RAt I OR shall pay to the GOVk.KN.MLM a portion ot Petroleum


produced and saved from the Contract Area, as provided in this Article 24 (the


"Royalty'*).


24.2 The Royalty shall he 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 held. lost, flared or lor Petroleum


that cannot be used or sold and such Crude Oil and Non-Assoc luted Natural Gas


(excluding the excepted Petroleum) shall be referred to collectively as ‘Export


Prtrolrum' and separately and respectively as "Export Crudr Oil und "Export


Non-Associated Natural Gti"


24.3 If payable in cash, the amount of the Royally 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 rales provided under Article 24.4 shall be


delivered in kind by the CONTRACTOR to the GOV ERN MEM' at the Delivery


Point. I itle and risk of loss of the Royalty paid in kind shall be transferred at the


Delivery Point.


Unless the GOVERNMENT requires the Royalty to he paid in kind, by giving the


CON I RAC TOR not less than ninety (90) days prior written notice pnor U> the


commencement of the rclcviim Quarter, the GOVERNMENT shall he 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 ease may be)


produced und saved on that day:


(a) Eor Export Crude Oil:





the Royalty rale fur 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-Axsociutrd Natural Gas:


the Royalty rate for Export Non-Associated Natural (ias shall be ten per cent





(10%).








5.1











[























©2013 Kurdistan Regional Government, KRG


 2> 58 / 121 ^^4^^

















24.5 Associated Natural Gas and any other Petroleum shall be exempt from any Royalty .


24.6 If. pursuant to Article 24J. the (iOVtR.NMLM receives the Royalty in kind, and


pursuant to Article 2K. the GOVERNMENT requests assistance for the sale of all or


pan 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


COM RAC I OR Entity, in accordance with Article 28.


24.7 If. pursuant to Anicie 24.3. the GOVERN MEN T receives the Royalty m cash:





(a) any Export Crude Oil shall be valued at the International Market Price


obtained at the Delivery Point, as defined m 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 pay ment


due lor the relevant Quarter by reference to the pnee lor 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 COM RAC ITOR 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 - KECO\ EK\ Of PETROLEl M COSTS





25.1 All Export Crude Oil produced and saved from the Contract Area shall, alter


deduction of any quantities of Export Crude Oil due for Royalty pursuant to Article


24. he 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. Hared or cannot he used or sold, shall he considered as


"Available Associated Natural Gas".


All Export Non-Associatcd Natural Gas produced and saved from the C ontract Area


shall, alter deduction of any quantities of Export Non-Associated Natural Gas due lor


Royulty pursuant to Article 24. be considered as "Available Non-Associated Natural


Gas".


"Available Petroleum' means Available Crude Oil. Available Associated Natural


(ias and Available Non-Associated Natural Gas.


25.2 For the purpose of this Article 25:








54











[




















©2013 Kurdistan Regional Government, KRG


 2> 59 / 121




















(a) any Available Crude Oil shall be valued at (he International Market Price


obtained at the Delivery Point, as defined in Article 27.2; and


(b) any Available Associated Natural tills and any Available Non-Associated


Natural lias shall be valued at the actual price obtained at the Delivery Point


under an approved contract an 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 tiroes be entitled to recover all Petroleum


Costs incurred under thts 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 thts percentage or otherwise not used for


the recovery of Petroleum Costs shall be Profit t rude Oil.


25.4 Subject to the provisions of this Contract front first Production in the Contract Area,





the CONTRACTOR shall at all times be entitled to recover all Petroleum Costs


incurred under thts Contract of up to filly-five per cent (55%) of Available Non-


Assoctatcd Natural Cias produced and saved within any Calendar Year. Available


Non-Associated Natural Cias above this percentage or otherwise not used for the


recovery of Petroleum Costs shall be Profit Natural Cias.


25.5 For the application of Article 25.3 and 25.4. the CON TRACTOR shall keep a


detailed account of Petroleum Costs in accordance with the provisions detailed in the


Accounting Procedure. Recovery of Petroleum C osts shall occur in the following


order:


(a) Production Costs;





(b) exploration Costs (including appraisal costs and further exploration within the


Contract Area);


(c) Cias Marketing C osts;


(d) Development Costs; and





Cel Decommissioning Coats.


25.6 Total recovery of Petroleum Coats dunng any Calendar Year, expressed in quantities





of Petroleum, shall not exceed the relevant percentages indicated m Articles 25.3 and


25.4. If in any Calendar Year, the Available Crude Oil and or Available Non-


Assooaicd Natural Cias do not allow the CONTRACTOR to recover all its


Petroleum Costs pursuant to this Article 25, the amount of un-rccov crcd Petroleum


Costs tn such Calendar Y ear shall he carried forward indefinitely to the subsequent


Calendar Years until all Petroleum Costs arc fully recovered, but, save as provided in


Articles 14.10 and 3K.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 Cias due to the


CON I K ACTOR for the recovery of its Petroleum Costs.








55














[




















©2013 Kurdistan Regional Government, KRG





 2> 60/121

















25.X 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


COM RAC I OR at the Delivery Point. Title and risk of loss of such Available


Petroleum shall be transferred at the Delivery Point.


25.9 hach CON IRACTOR l.ntity shall he entitled to receive, take in kind and to export


freely all Available Petroleum to which it is entitled for recovery of its Petroleum


Costs m 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 he recovered from Available Petroleum from the Contract Area.


25.10 Subject to Amclc 3M.4. for the avoidance of doubt. Petroleum Costs under this





Contract are not recoverable against other contract areas held by the


CONTRACT OR.





ARI KM; 26 - SHARING OP PROMT PBTROl.fcl M


2ft.I l.ndcr this Contract.





(a) ‘Profit Petroleum" means Profit Crude Od and Profit Natural Gas.


(b) 'Profit Crude Oil" means the quantities of Available Crude Oil and


Available Associated Natural Iras produced from the Contract Area, after the


recovery of Petroleum Costs, in accordance w ith Articles I and 25; and


(c) Profit Natural Gai" means the quantities of Available Non •Associated


Natural Gas produced from the Contract Area, after the recovery of Petroleum


Costs in accordance w ith Articles I and 25.


26.2 from First Production and as and when Petroleum is being produced, the


CON I HACTOR 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.


26.3 To determine the percentage share of Profit Crude Oil and. or Profit Natural Gas to


which the CONTRACTOR is entitled, the **R” factor shall be calculated in


accordance with Article 26.4 and shall be applied to the Contract Area.


26.4 The Factor shall be calculated as follow t:





R-X/Y


where:


X: is equal to Cumulative Revenues actually received by the CON IRACTOR,





\ is equal to Cumulative Costs actually incurred by the CON I RAC TOR.








56








[




















©2013 Kurdistan Regional Government, KRG


 ^ 61 / 121














For the purpose ot Ihis Article 26.4.


‘'Cumulative Revenues'* means total Revenues, as defined below, received by the


( OMKA( IOK until the end of the relevant Semester, determined in accordance


w ith 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 actually incurred pursuant to thi*


Contract hv the CON I KACTOR 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 w hich First Production occurs,


the “R“ Factor shall be deemed to be less than one 11).


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*! % Share of Profit Crude Oil


R < or = I 30%


1 < R< or = 2 30% - (30% - 16%) x (R-l)





R > 2 16%


and


(b) for Profit Natural lias, equal to the quantities of Non-Associated Natural lias


resulting from the application of the relevant percentage us indicated below to


the daily volume of production of Profit Natural Gas within the Contract Area


at the corresponding Delivery Point.


“R~ Factor CONTRACTOR** % Share of Profit Natural Gas


R < or = 1 40%


1 < R< or » 2.75 40% - (40% - 20%) x (R-l.0000)


R >2.75 20%





26.6 The CONTRACTOR'S accounting shall account separately lor all components for


the calculation of “X** and ~Y** values in the formulu prov ided in Article 26.4








57








[




















©2013 Kurdistan Regional Government, KRG


 2> 62/121

















26.7 1 or each Semester. starting from the I4 of January of the Calcndur Year follow ing the


C alendar 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 lor 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 he made: and


(b) if the allocution of the Profit Petroleum m 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 CON I RACIOR * percentage share of Profit Crude Oil and or Profit


Natural Cias. 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 tilUng 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 umc an error occurs in the calculation of the ''R‘* factor, which docs not result


in a change in the CONTRACTOR'S percentage share of Profit Crude Oil and/or


Profit Natural (ias. no correction shall be made.





26.9 The quantities of Profit Petroleum due to the CONTRACTOR shall be delivered to


the CON TRAC IOR hntitic* at the Delivery Point. Title and nsk of loss of such


Profit Petroleum shall he transferred to the C ON TRACTOR Fntities at the Delivery


Pomt.


hach CONI RACTOR F.ntity shall be entitled to receive, take in kind and to export


freely its share of Profit Petroleum in accordance with the provisions of this Contract


and to retain Abroad any proceed* from the sale of all such Profit Petroleum.


26.10 The share of the Profit Petroleum to which the GOVERNMENT is entitled in any


Calendar Year in accordance with Article 26.5 shall be deemed to include a portion


representing the corporate income tax imposed upon and due by each


CONTRACTOR Polity, 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








5H














[























©2013 Kurdistan Regional Government, KRG


 ^ 63 / 121

















COM KAC'IOK lnh tics with all written documentation and evidence rca-sonubly


required by the CONTRACTOR Hntmes to confirm that such corporate mcomc tax


has been paid by the (iOVtk.NMtN I.


26.11 The quantities of Profit Petroleum due to the GOV EKNMENT shall be delivered to





the (iONTR.NMKM at the Delivery Point. Title and risk of loss of such Profit


Petroleum shall be transferred at the Delivery Point





26.12 At least twenty-one (21) days prior to CONTRACTORS 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 GOV ERNMENT a


production program comprising the production forecast for the next Semester and the


forecast of the quantities of Crude Oil and Natural Gas to w hich each Party shall be


entitled during the said Semester.





26.13 Within ninety (901 days following the end of each Calendar Year, the


CONTRACTOR shall prepare and deliver an annual production report to the


GOV URN MEN I , stating the quantities of Crude Oil and Natural Gas to which each


Party is entitled, the quantities of Crude Oil und Natural Gas lifted by each Puny 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 CON I RAC I'OR. its Subcontractors or


suppliers relating to the lifting of the GOV ERNMENT'* share of Petroleum by the


CONTRACTOR shall not be considered Petroleum Costs and shall be charged to the


GOV ERNMEN I' according to terms to be mutually ugreed between the


CONTRACTOR and the GOVERNMENT.








ARTICLE 27 - VALUATION ANI) METERING OF CRI DE OIL AND NATURAL


GAS


V aluation





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 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 il ncccssury. during the Quarter ending on the date ol


valuation for Arm's Length Sales of ( rude Oil.


The CONTRACTOR shall provide ev idence to the GOVERNMENT that the sides


of Crude Oil referred to in Article 27.2 arc Arm's Length Sales. If the


GOV LKVMLN f considers that any such sale of Crude Oil is not on the basis of an


Arm's Length Sale then the GOVERNMENT hus the right to refer the matter to an


expert pursuant to Article 42.2.














59














[























©2013 Kurdistan Regional Government, KRG


 ^ 64 / 121

















In the event that there is no lifting of Crude Oil in the relevant Quarter or no Arm's


Length Sales, the applicable "International Market Price" for such Quarter shall be


the weighted average price per Barrel obtained during that Quarter from Arm's


Length Saks 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 Poinl costs


To determine such price, (lie Parties shall, prior to the commencement of Production,


agree on a basket of Crude Oil comparable to those produced in the C ontract 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 m price and demand, general market trends and


other terms of sale.


27.3 The price of Natural Cias shall be the actual pace obtained at the Delivery PoinL


(which may take into uccount quantities to be Mild, quality, geographic location of


markets to be supplied as well as costs of production, transportation and distribution


of Natural Cias 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 Cias sales contracts.


Accounting Statement





27.4 In accordance w ith this Artick 27.4. the GOVERNMENT and the CONTRACTOR


shall establish a statement showing calculations of the value ot Petroleum produced


and sold from the Contract Area. Such statement shall include following information:


(a| quantities of Crude Oil sold by the CONTRACTOR Entities during (he


preceding Month constituting Arm’s Length Sales together with corresponding


sale prices:


(b| quantities of Crude Oil sold by the CONIKACTOK Lntities during the





preceding Month that do not fall in the category referred to in paragraph U)


above, together with sale prices applied during such Month:





(cl inventory in storage belonging to the CONTRACTOR Entities at the


beginning and at the end of the Month: and


(d) quantities of Natural Cias sold by the CONTRACTOR Lntities and the


GOVERNMENT together with sale prices realised.


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


CON TRACTOR. The GOVERNMENT shall, on receipt by the CON TRACTOR


of reasonable pnor written notice, have the right to inspect any such metering


equipment installed by the CONTRACTOR, as well as all relevant documents and








Ml











[























©2013 Kurdistan Regional Government, KRG


 ^ 65 / 121




















supporting information reasonably necessary to validate the accuracy of such


metering. All metering equipment shall he subject to periodic technical inspections in


accordance with prudent international petroleum industry practice.


27.6 If any metering equipment is defective, the CON TRACTOR shall use all reasonable


endeavours to repair it within fifteen (15) days or, if deemed necessary by the


COIN TRACTOR, replace it as soon as reasonably practicable from the date the


defect became known. Ihc ‘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. Ihc results


from the defectiv e equipment shall he 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 ts 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 andor quantify


delivered based on deliveries during the preceding comparable period of time


when the metering equipment was registered accurately.


27.7 Any disputes among under this Article 27 shall be settled by expert determination in


accordance with the provisions of Article 42.2.





ART R LE 211 - SALE OF GOVERNMENT SHARE





Lpon 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


GO\ EKNMENI is entitled, in consideration of a sales commission per Barrel to be


established with reference to prudent international petroleum practice and to be mutuully


agreed upon between the Parties.





ARTICLE 29 - FINANCIAL PRO\ ISIONS


29.1 Any payment to be made by a CONTRACTOR Entity to the GOVERNMENT





pursuunt to this Contract shall be in Dollurs and shall he offset against any


outstanding payments due by the GOVERNMENT to the CONTRACTOR Entity,


or paid into the bonk account duly designated by the CO\ ERNMENT in writing and


shall be paid w ithin thirty (30) days of the due date, after which interest compounded


monthly at the rate of LIBOR plus two (2) percentage points shall be applied


29 2 The GOVERNMENT may. at its sole discretion, direct the CONTRACTOR


Entities to pay:


61














[























©2013 Kurdistan Regional Government, KRG


 2> 66/121

















(al any Royally in cash due to die (.ON IRNMI.M pursuant to the pruv isions of


Article 24; and. or


(b) any proceeds from the sale undertaken by the CONTRACTOR Entity on


behalf of the GOVERNMENT pursuant to Article 2X of any Crude Oil to


which the GOVERNMENT is entitled pursuant to Article 25; and/or


(c| any Production llonui.





to a tiind 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 governo rates 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 und


the Government of Iraq and.or the regions of Iraq (other than the Kurdistan Region)


and or and govemorates of Iraq.


29.3 Any payment due by the GOVERNMENT to a CONTRACTOR Emits shall be


offset against future payments due by such CONTRACTOR Entity to the


GOVERNMENT, or paid m Dollars to the bank account designated by the


(.'OYIRACTOR Entity m writing and shall be paid within thirty (30) days of the


dale of invoice, after which interest compounded monthly at the rate of L.1BOR 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 I ntitics shall not be less favourable than the rale offered by other


private, commercial or industrial banks in the international market. In the absence of


the ( cntral Bank of Iraq or in the event that the Central Bank of Iraq is unable to


provide the relevant exchange role, any currency conversion to be made under this


Contract shall be at die exchange rule of a reputable commercial bank canytng on


business in the international market and approved by the Parties.


29.5 I be CON I RAC I OR shall not realise any gain or loss due to exchange rate





fluctuations and. consequently, any gam 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 recovered by the COM RAC I OR in


accordance with Articles I and 25. as the case may be.


29.6 Each CONTRACTOR Entity shall at all times he 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 l-i»ch CONTRAC TOR 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.H Each CONTRACTOR Entity and its Subcontractors shall have the nght to freely


open and maintain hank accounts for Petroleum Operations within or outside the


Kurdistan Region and other pans of Iraq.





62














I




















©2013 Kurdistan Regional Government, KRG


 2> 67/121

















29.9 Lath (OMKAC'IOK Entity shall have the right to pay in any freely convertible


currency all its financial requirements for the Petroleum Opera lions and lo convert


these currencies to Iraqi dinars in any bank in the Kurdistan Region or other parts of


Iraq, ut the same exchange rote as provided under Article 29.4.





29.10 Lath CONTRACTOR Entity shall have the right, without any restrictions, to freely


repatriate Abroad and to freely dispose of:


(ill any proceeds received in the Kurdistan Region or other pans of Iraq from the


sale of Petroleum:


(b) any proceeds received from other operations and activities earned out under


this Contract in the Kurdistan Region or oilier 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 ol torcign currency required fur their


local needs and they shall have the right to repatriate the proceed* 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 personnel shall


equally benefit from the same rights as such CON I RAC I OR Lntity and its


personnel a* regard* this Article 29.


29.13 For the financing of Petroleum Operation*, each CON I RAC I OR 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.





AKIICLE 30 - CCS 10MS PROV IS IONS





30.1 All sers ices, male ml. equipment, goods, consumables and products imported into the


Kurdistan Region and other part* of Iraq by the CONTRACTOR, any


CON I RAC I OR 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


COYI RAC I OK 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 cm export any material, equipment, goods, consumables


and products that arc no longer required for the Petroleum Operations, except where


title lias passed to the COYI.RNMKNT 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 oilier


pans of Iraq and re-export from the Kurdistan Region and other parts of Iraq any


personal belongings and furniture free and exempt from any Taxes on import or


export. The sale in the Kurdistan Region and other pans of Iraq of personal








63











[























©2013 Kurdistan Regional Government, KRG


 2> 68/121




















belonging* and furniture of expatriate personnel shall comply with Kurdistan Region


Law.


30.3 loich CONTRACTOR Entity and its Affiliates shall he entitled to freely export fmm


the Kurdistan Region and other parts of Iraq, free of any Taxes, any Petroleum to


which n is entitled pursuant to the pros is Kins 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 I including their family members* for any import or export Taxes referred to


in Articles 30,1,30,2 or 30,3.


ARTICLE 31 - TAX PRO\ ISIONS





31.1 Except as expressly provided in this Article 31. and without prejudice to the


exemptions expressly provided for m Article 30 and in this Article 31, each


CONTRACTOR Entity. it* Affiliates and any Subcontractor shall. for the entire


duration of this Contract. be exempt from all (axes as a result of its income, assets


and activities under this Contract The (iOXKHNMfM shall indemnify euch


CO VI R AC I OK f ntity upon demand against any liability to pay any faxes assessed


or imposed upon such entity which relate to any of tile exemptions granted by the


GOVERNMENT under thin Article .11 1. and under Articles 31 4 to 31 11


31.2 hitch COM R AC I OK t.ntity shall he subject to corporate income tax on its income


from Petroleum Operations os provided in Article 31.3, which shall he deemed lo be


inclusive and in full and total discharge of any Tax on income, receipts, revenues,


gains or profits of each such entity Pay mem of the said corporate income tax shall be


made for the entire duration of this Contract directly to the official Kurdistan Region


lax 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.


Kach CONTRA!'TOR 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 <<>0) days after the end of each tax year,





provide to each CON TRAC I OK Entity (11 die appropriate uflicial tax receipts from


the appropriate Kurdistun 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

any return or other filing made by the GO\ ERNMENT in respect of its payment of


corporate income tax on behalf of such CONTRACTOR Entity.


31.3 For the purposes of Article 31.2:














64














[




















©2013 Kurdistan Regional Government, KRG





 ^ 69 / 121

















(a) I he rale of corporate income lax to be applied to each CONTRACTOR


Entity shall be the generally applicable rate prescribed in the Law of Taxation


I Law No. 5 of 1999). passed by the National Assembly of the Kurdistan


Region, as has been amended by Law No. 26 of 2007. and as may be amended


from tune 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 (4U*«). I he Parties acknowledge and agree that at the Effective Date of


thin C ontract, the corporate income tax rate is fifteen per cent (15%) for all net


taxable profits.





(b) Ihc GOVERNMENT and the CONTRACTOR agree that corporate income


tax shall be calculated for each CON I KACTOR Lntity on its net taxable


profits under the Contract, as calculated in accordance with the provisions


relating thereto in the Accounting Procedure.


3L4 L-ach 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 Lach CON I KAC I OK Lntity and its Affiliates shall be exempt from Surface lax. 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 he exempt from indfall Profits


(axes, as referred to in Article 40 of the Kurdistan Region Oil and Gas Law or any


successor lax.


3 LX Lach CON I RAC "I OK Lntity 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 fixation (Law No. 5 of 1999) passed


by the National Assembly of the Kurdistan Region, as may be amended from tune 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 w ith respect to employ ees of another Person.


31.9 It is acknow ledged that double tax treaties will have effect to give relief from taxes to.


but not limited to. the COM VIA! I OK. C ON I KAC TOR 1 :.t. uv Mwitllf


and employees and other Persons in accordance with the provision* of such double


tax treaties, but shall not impose an additional burden of taxauon.


31.10 Any value added tax ( ‘VAT**) shall be considered as a Petroleum Cost and shall be


cost recovered in accordance w ith the provisions of Articles I and 25.








65














[




















©2013 Kurdistan Regional Government, KRG





 2> 70 / 121

















31.11 Any value added tax ("VAT**), not others-i>c recoverable by the CONTRACTOR


under VAT law. shall be considered as a Petroleum Cost and shall be cost recovered


in accordance with the provisions of Articles 1 and 25.


31.12 Notwithstanding any other provision to the contrary in this Contract, the Parties


acknowledge and agree that the provisions of this Article 31 shall apply individually


and separately to all CON TRACTOR Entitle* under this Contract and that there shall


he no joint and several liability in respect ot any liability, duty or obligation referred


to in thts Article 31.





ARTICLE 32 - BOM SES


Signature Bonus





32.1 A Mg nature bonus of two million Dollars (USS2.000.0001rSignature Bonus') shall


be payable to the GOVERNMENT by TALISMAN within thirty (30) days of the


Signature Date.


Capacity Building Bonus


32.2 A capacity building bonus of eighteen million Dollars (CSSIX.OUO.QOO) I'Capacitv


Building Bonus ) shall be payable to the CO\ EKVMEYT by TALISMAN within


thirty (30) days of the Signature Date.








Production ftanuici


32.3 In the event ot a Crude Oil Commercial Discovery, the CONTRACTOR and the


holder of the Government Interest shall pay. pro rata the relevant percentage


participation interest in the Contract, the following relevant Crude Oil Production


Bonus to the GOVERNMENT within thirty (30) days of the following relevant


occurrence:


(a| two million five hundred thousand Doilurs (US $2,500,000) when find


Production of Crude Oil from the Contract Area commences:


(b) five million Dollars (US $5,000,000) when production of Crude Oil from the


Contract Area reaches a cumulative amount of ten million Barrels of Crude


Oil (10 mmbo);


(c) ten million Dollars (US SIO.OOO.OOU) when production of Crude Oil from the


Contract Area reaches a cumulative amount of twenty five million Barrels of


Crude Oil (25 mmbo); and


(d) twenty million Dollars (US S20.000.000) when production of Crude Oil from


the Contract Area reaches a cumulative amount of fifty million Barrels of


Crude Oil (50 mmbo)























[




















©2013 Kurdistan Regional Government, KRG


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





71 / 121 £

















32.4 In the event of a Nun* Associated Natural Gas Commercial Discovery, the


CONTRACTOR and the holder of the Government Interest shall pay. pro rata the


relevant percentage participation interest in the Contract, the following relevant Non-


As.MH.uicd Natural CiaH PriKiuction Bonus to the GOVERNMENT within thirty (30)


(lav's of the follow ing relevant occurrence:


(a) two million five hundred thousand Dollars




Production of Non*Associated Natural Gas from the Contract Area


commences;


(bl five million Dollars (US S5.0U0.UUUI when production of Non*Associatcd





Natural lias from the Contract Area reaches a cumulative amount of ten


million barrels of oil equivalent (10 mmboc):


(c) ten million Dollars (US S 10.000.000) when production of Non-Associated





Natural (ias from the Contract Area reaches a cumulative amount of twenty


five million barrels of oil equivalent (25 mmboc); and


(dl twenty milium Dollars (US S20.000.000) when production of Non• Assoctated





Natural Gas from the Contract Area reaches a cumulative amount of fitly


million barrels of oil equivalent (50 mmboc).


32.5 For the purposes of this Article 32. a Commercial Discovery shall be declared by the





COYI RAC I OR to be cither a Crude Oil Commercial Discovery or a Non-


Assoc cited (ias Commercial Discovery and under no circumstances shall a Production


Bonus be due in respect of both Crude Oil and Non-Associatcd Natural Gas for the


same Commercial Discovery


Bonus cost recovers and pavmeat


32.6 No bonus due pursuant to this Article 32 shall be deemed to be a Petroleum Cost.





32.7 Payment by the CONTRACTOR land, where applicable, the holder of the


Government Interest) of any bonus due pursuant to this Article 32 shall be made in


Dollars by wire transfer to a specified hank account of the GO\ TUN MI N I or by


banker's draft and on receipt thereof the GOVERNMENT shall forthwith issue a


written receipt to the CONTRACTOR duly executed by the Minister of Natural


Resources of the GOVERNMEN T or such other officer of the GOV ERVMENT


who shall be duly authorised to issue such receipt under Kurdistan Region Law.


ARTICLE 33 - PIPELINES





33.1 The GOVERN VIENT shall procure and obtain any required Permits for





(a) the transportation of Petroleum in the Kurdistan Region and in Iraq .


(b) the export of Petroleum from the Kurdistan Region and Iraq.














67
































©2013 Kurdistan Regional Government, KRG


















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





72 / 121 £

















as well as any necessary Permits and easement rights lor 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


332. the CON I RAC I OR shall submit follow ing information to the Management


Committee:


(a) proposed pipeline route and related facilities;





(b) forecasted pipeline How rule and capacity;


(c) estimate of financial investment and operating costs of the pipeline and related


facilities;


(d) proposed financing schedule.


(cl construction schedule.





(f> general technical description of the pipeline and related facilities:


(g| construction plans and tests;





(hi preventive measures for damage to the cm ironnient and third parlies; 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


prov is ions 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 he


agreed between the CONTRACTOR and such third party Chose 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 arc incurred upstream of the Delivery Pomt. any costs


associated with the design, construction, operation and maintenance of the pipelines


and related facilities by CONTRACTOR under this Article 33 ("Pipeline CmAT)


shall be considered Petroleum Costs and shall be recovered by the CON TRACT OR


in accordance with the provisions of Articles I and 25.


33.6 I'he CON TRACTOR shall have the absolute tight. without any exceptions and for


the entire duration of this Contract, to use. free of charge, any pipeline and related





6X
































©2013 Kurdistan Regional Government, KRG


















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





73 / 121 £




















facilities constructed by CONTRACTOR under this Article 33 and id 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


C ONTRACTOR under this Article 33 shall Sc applied io the recovery of Petroleum


Costs until all Ptpeltne Costs have been fully recovered by the CONIRACIOR


pursuant to the provisions of Articles I and 25 and shall not be included in income for


corporate income tax purposes. The GO\ ERNMENT shall be entitled to receive


any such tantls I rum third patties for their use of such p^>clmc and related facilities


when the said Pipeline Costs have been fully recovered by the COM RAC TOR The


costs associated with providing such transportation services for third parties up to the


Delivery Point shall be considered Pipeline Costs and therefore Petroleum Costs and


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


Articles 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 he borne by the


COM RACTOK and shall be considered Petroleum Costs and shall be recovered by


the CON TRACTOR in accordance with the provisions of Articles I and 25.


33.9 The GOVERNMENT shall have the same rights as the CONI''RACTOK for use.





free of charge, of any pipeline and related facilities constructed by CON IRACIOR


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 COM RACTOK under this Article 33


and all risks of accidental loss or damage to such pipeline and related facilities w hile


they arc required for Petroleum Operations.





ARTICLE 34 - UNI I ISA I ION


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 (ias 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 und 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 unittsation 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 Ihird of the Kurdistan


Region Oil and (ias Law-, and if the CONIRACIOR 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.











6$






































©2013 Kurdistan Regional Government, KRG
























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





74 / 121 £




















34.2 Tor clarification and the avoidance of doubt and notwithstanding Article 47 of the


Kurdistan Region Oil and fias Law. in the event that a Reservoir extends beyond the


boundaries of the Contract Area into an adjacent area which is not the subject of


unoihcr Petroleum Contract (as defined by the Kurdistan Region Oil and (ias Law),


the COX KRNMfcNT shall, upon the CONTRACTOR'* request, take the necessary


steps to extend the boundaries of Contract Area so as to include the entire Reservoir


within the Contract Area, provided that the CONTRACTOR can offer the


GOVERN M£NT a competitive minimum work program for such adjacent area.





ARTICLE: 35- LIABILITY AND INSLRANCH





Liability





35.1 Sub|ect 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 tor any losses and damage it may cause to them in conducting the Petroleum


Operations, and shall defend, indemnify and hold harmless the GOVERNMENT


with respect to all claims for such loss or damage.


35.2 Notwithstanding the other provisions of this Contract, the CONTRACTOR and the


CONTRACTOR Lntities shall 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 its conduct


of the Petroleum Operations unless such damage or loss is the mult of wilful


misconduct or a material failure to conduct Petroleum Operations in accordance with


the terms of this Contract: provided, however, that such liability cannot result in the


event of any omissions, errors or mistakes committed in good faith by the


CONTR ACTOR in the exercise of the powers and authorisations conferred upon the


CONTRACTOR by virtue of this Contract, and further provided that in no event


shall the CONTRACTOR and the CONTRACTOR l ntities he liable for any


indirect or consequential loss or damage whatsoever or any loss, damages, costs,


expenses or liabilities caused (directly or indirectly! by any of the following arising


out of. relating to. or connected with this Contract or the Petroleum Operations earned


out under this Contract:

use or dispose of Petroleum: (m) loss or deferment of income, (tv! special or punitive


damages: or (v) other indirect damages or losses whether or not similar to the


foregoing.


35.3 The CONTRACTOR shall indemnify and hold harmless the GOV LR.NML.NT


against all losses, damages and liability arising under any claim, demand, action or


proceeding brought or instituted against the GOVERNMENT by any employee of


the CON I KACTOk or of any Subcontractor or by any dependent thereof, for


personal injuries, industrial illness, death or damage to personal property sustained in


connection w ith, related to or arising out of the performance or non-performance of


this Contract regardless of the fault or negligence in w hole or in part of any entity or


individual.











70






































©2013 Kurdistan Regional Government, KRG



























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2





12/2/13 Topkhana: PSC - Talisman - 19/08/2011





75 / 121 £




















35.4 Notwithstanding Article 33.1. the GOVERNMENT shall indemnify and hold


harmless the COM RACIOR and the (‘ONiRAdOR Entities against alt losses,


damages and liability arising under any claim, demand, action or proceeding brought


or instituted against the CONTRACTOR or any CONTRACTOR Emily by any


employee of the GOVERNMENT or of any Public Company or of any subcontractor


of the foregoing or by any dependent of any such employee, for personal injuries,


industrial illness, death or damage to personal properly sustained in connection with,


related to or arising out of the performance or non-performance of this Contract


regardless of the fault or negligence in whole or in pan of any entity or individual


35.5 The CON I KAC I OK shall take oil necessary steps to respond to. and shall promptly





notify the GOVERNMENT of. all emergency and other events (including


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


arc causing or likely to cause material environmental damage or material risk to


health and safety. Such notice shall include a summary description of the


circumstances and steps token and planned by the CON TRACTOR to control and


remedy the situation. The COM RAC TOR shall provide such additKvn.il reports to


the GOVERNMENT as arc reasonably necessary' m respect of the effects of such


events and the course of all actions token to prevent further loss and to mitigute


deleterious effects.


35 6 In the event of emergency situations as set out in Article 35 4 . at the request of the





CONTRACTOR, the GOVERNMENT, without prejudice and in addition to any


indemnification obligations the GOVERNME.YI may have, shall assist the


CONTRACTOR, to the extent possible, in any emergency response, remedial or


repair efTort by making available any labour, materials and equipment in reasonable


quantities requested by the CONTRACTOR which are not otherwise readily


uvailahlc 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 GO\ EKNMKYFs reasonable and


necessary costs incurred in such efforts, which reimbursed amounts shall be


considered Petroleum Cost* and shall be recovered by the CONTRACTOR in


accordance with the provisions of Articles 1 and 25.


35.7 The GOVERNMENT shall indemnify- and hold harmless the CONTRACTOR and


each COMRACIOR Lntity from and against all costs (including legal costs)


expenses, losses, damages and liability which such Person may sutler or incur, or may


result from such Person being denied, hindered or prevented from fully exercising its


rights or taking the full benefit of Articles 29.4. and 29,6 to 29.11.


Insurance





35.8 In accordance with prudent international petroleum industry practice, each


CONTRACTOR Entity shall maintain any insurance required by applicable


Kurdistan Region Law. as well os any insurance approved by the Management


Committee.


Such insurance policies may cover











71






































©2013 Kurdistan Regional Government, KRG



























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





76 / 121 £




















(a) loss of and damage to matcnul and equipment used in the Petroleum


Operations; and





(b) pcrsonul injury, damage to third parties and risks of pollution associated with


Petroleum Operations for reasonable amounts, within the limits approved by


the Management C ommittee.


35.9 Any insurance policy (elating to this Contract shall name the GO\ EKNMEN I as an


additional insured party and ahull include a waiver of subroguiton protecting the


(tOVi.KN.ME.Xr against any claim, loss and damage resulting from any Petroleum


Operation conducted by or on behalf'of the CON I RLACTOR under this Contract, to


the extent that the CONTRACTOR i* liable tor such claim, loss or damage under


this Contract I he CON I KAC I OK shall not be liable tor and shall not purchase


insurance cover for any claims anting from negligence or w ilful misconduct of (he


GOVERNMENT or of any Public Company or of any of its or their subcontractors


or of any personnel of any of the toregomg.


35.10 Lpon its written request, the GOVERNMENT shall be provided with insurance


certificates, including necessary details, for any insurance policy maintained by the


CONTRACTOR w hich relates to this Contract.


35.11 Each CONTRACTOR f.ntity shall be responsible for the fifing of all claims mude


under any insurance policy maintained by such CONTRACTOR Entity which relates


to this Contract. Any premiums and payments relating to such insurance policies shall


be considered Petroleum Costs and shall be recovered by the CONTRACTOR in


accordance w ith the provisions of Articles I and 25.





35.12 In any insurance policy maintained by a CONTRACTOR Entity which relates to this


Contract, the amount for which the CONTRACTOR itself is liable (the Deductible


Amount'*) shall be reasonably determined between the CONTRACTOR Entity and


the insurer and such Deductible Amount shall m the event of any insurance claim be


considered a Petroleum Cost and shall be recovered by the CONTRACTOR in


accordance with the provisions of Articles 1 and 25.


ART 1CLE 36 - IN FORMAT ION AND CONFIDENT IALIT V





36.1 The CONTRACTOR shall keep all records, data and information relating to the


Petroleum Operations in accordance with the Kurdistan Region Oil and (ias 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 COM KAC IOK shall provide the


GOVERNMENT w ith samples of any mcks 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.











72
































©2013 Kurdistan Regional Government, KRG





















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





77 / 121 £




















36.4 Each (OMKACIOK 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 ol w hich must


be analysed and processed Abroad, may be transported out of the Kurdistan Region


36.5 Any representatives authorised by the (.(>\ IlkNMI.M and notified to the





C'OM HACIOR shall, upon reasonable poor written nonce, have reasonable access


to any information and data relating to the Contract Area m the possession of the


CONTRACT OR which the CONTRACTOR is obliged to provide to the


GOV KRNMKM pursuant to this Contract. It is understood that, when exercising


such right, the GOV tRNMfNT shall ensure it docs not unduly interfere with or


hinder the CONTRACTOR s rights and activities.


36.6 The CONTRACTOR shall provide the GOVERNMENT upon the


CiOM.RNMK.N I s written request any analysts information, reports, tapes or other


data (geological, geophysical, logs, interpretations, drilling reports, etc.I 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 oc 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 CON I KACIOR kntity. 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 Operation*,


subject to each such entity taking customary precautions to ensure such


information is kept confidential:











73



































©2013 Kurdistan Regional Government, KRG





















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





78 / 121 £




















(c) consultants or agents retained by any CONTRACTOR Entity or its Affiliate*


for the purpose of analy sing or evaluating in formation or data:





(d) hanks 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 hank 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 arc conducting buna fide negotiations directed towards a merger,


consolidation or the sale of a material portion of its or an Affiliates shares).





(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 non¬


disclosing Parties.


provided that disclosure shall not be made pursuant to paragraphs (c). (d). (cl and (fk


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 GOV ERNMENT* who shall


have the right to use same for any purpose, in particular for the purpose of promoting


said areas. Each COYI’KAC 1 OR 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


w here, m the CONTRACTOR'S reasonable opinion, such sale or exchange would


benefit the Petroleum Operations.


ARTICLE 37 - ENVIRONMENTAL PROV ISIONS





37.1 During the pcrtonnance of the Petroleum Operations, the CONI RAC I OR 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


intcmanonal petroleum industry practice in similar physical and ecological








74
































©2013 Kurdistan Regional Government, KRG





















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





79 / 121 £




















environments. The CONTRAC TOR dull 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 m 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 t fauna and flora), water


sources and any other natural resource* when carrying out Petroleum Operations


37.4 The CON I RAO OR shall, in accordance w ith prudent international petroleum


industry practice m similar physical and ecological environments, respect the


preservation of property, agricultural areas, and fisheries, when carrying out


Petroleum Operations.


37.3 The CONTRACTOR acknowledges that the CONTRACTOR has. prior to the


execution of this Contract, conducted and submitted an environmental impact baseline


study to the GO\ I RNVILNT.


National Park* 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


arc no national parks, nature reserves or other protected areas located m whole or in


part within the Contract Area where the CONTRACTOR shall not he entitled to


cany out Petroleum Operations and (ii) covenants that during the term of this


Contract will not designate or create or permit the cteation of any national park*,


nature reserves or other protected areas, located in whole or m part within the


Contract Area.


tiDcadilirc*





37* Any reasonable expenditure incurred by the CONTRACTOR in relation with this


Article 37 shall be deemed Petroleum Costs and shall be recovered by the


COM R ACT OR in accordance with the provision* of Amcles 1 and 25.


Pre-existing Condition*





37.9 The CONTRACTOR is not responsible for any pre-existing environmental


conditions or any acts of unrelated third parties.


ARTICLE 3* - DECOMMISSIONING





31.1 To enable the CONTRACTOR to recover the costs associated with future Contract





Area Decommissioning Operations under this Contract, the CONT RACTOR shall


hasc the right to establish a reserve fund for future decommissioning and site





75

















III 1























©2013 Kurdistan Regional Government, KRG





















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 80 / 121 £

















restoration (a "UivommKtioninK Reserve fund i I he DccommiiMioning Reserve


Fund may be established ai any lime 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


COYIRACIOR 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 he recovered 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 H.5.


38.2 If. at the end of the term of the Production Operations of the Production Area, (he


CiOVKkN.MfM decides to take over production operations in the Production Area:





(a) the GOVERNMENT shall become liable for its future l>ccommissioning


Operations;


(b) the contributions and any interest accumulated in the Decommissioning


Reserve Fund, to die extent that such contributions have been recovered as


Petroleum Costs, shall be paid to the GOVERNMENT; and





(cl the GOVERNMENT shall release the CONTRACTOR and the


CONTRACTOR kntitics from any obligations relating to I>ccommissioning


Operations and shall indemnify the CON I RAC I OR 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 he used for the


Decommissioning Operations. The CONTRACTOR shall undertake any such


Decommissioning Operation* 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


fur the Contract Area, the bulance shall be paid by the CON I RAC I OR and may be


recovered, if applicable, by the CONTRACTOR Fntitic* or any of their Affiliate*


from any other area w hich is the subject of another Pcuoicum Contract (as defined by


the Kurdistan Region Oil and (ins Law I anywhere in the Kurdistan Region and. to the


extent the balance u> not recoverable as aforesaid, such remaining balance shall be


paid by the GOVERNMENT to the CONTRACTOR.

















76






































©2013 Kurdistan Regional Government, KRG
























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 81 / 121 £

















38.5 If the Decommissioning Reserve f und is paid to the ('OMRACIOK and the


Decommissioning Reserve Fund exceeds all Decommissioning Costs for the Contract


Area, the balance shall be transferred to the GO\ KRNMKM


38.6 Any expenditure incurred by the CONTRACTOR in relation with this Article 38.





including any contributions to the Decommissioning Reserve Fund, shall be deemed


Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with


the provisions of Articles I and 25.





38.7 The CONTRACTOR shall submit to the Management Committee for approval m


accordance with Article 8.5 a detailed plan fur decommissioning the Contract Area


facilities and site restoration (the "Dccomamsioaint Plan”), such Decommissioning


Plan to be submitted no later than twenty four (24) Months pnor to the date estimated


by the CONTRAC TOR for the end of Commercial Production from the Contract


Area. The Management Committee shall provide comments, if any. on the


Decommissioning Plan w itlun ninety (90) days after receipt. Ihc CON I KAC'I OR 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 ol the CON IRACIOR s obligations with


respect to the performance of Decommissioning Operations for such Production Area.


In the event the COY EKN.YIEN I docs not agree that Decommissioning Operations


for a Production Area were carried out in accordance with the approved


Decommissioning Plan, u must advise the CONTRACTOR w ithin six (6) months of


the CON TRAC I OR's completion of such operations.





ARTICLE 39 - ASSIGNMENT AND CHANGE OF CON IROL





Assignment to Affillatn





39.1 bach CONTRACTOR bntitv shall be free to sell, assign, transfer or otherwise


dispose of all or pan of its rights, obligations and interests under this Contract to an


Affiliated Company or to another CONTRACTOR bntrty with the pnor consent of


the COY ERNYIENT. which consent shall not be unreasonably delayed or withheld.


Assignment to T hird Parties





39.2 bach CONTRAC TOR bntitv shall have the right to sell, assign, transfer or otherwise


dispose of all or part of Ms rights and interests under this Contract to any third party


(not being an Affiliated Company or another CONTRACTOR I ntity) with the prior


consent of COY ERVMENT, and each other CON I RACIOR bntitv (if any) which


consent shall not he unreasonably delayed or withheld. Any CONTRACTOR bntity


proposing to sell, assign, transfer or otherwise dispose of all or part of its rights and


interests under this Contract to any such third party shall request such consent m


wnting. which request shall be accompanied by reasonable evidence of the technical


and financial capability of the proposed third party assignee. In the event that the


Third Party Participant with a Third Party Interest subject to Article 4.8 proposes to


sell, assign, transfer or otherwise dispose of all or part of such Third Party Interest to a


Person that is not an Affiliate, such Third Party Participant shall first offer to the other


('ON| RACIOR Entity (or. if applicable. CONTRACTOR Entities) pre-emption





71






































©2013 Kurdistan Regional Government, KRG
























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





82 / 121 £

















rights in relation to such Third Pam Interest, or part thereof. Such pre-emption rights


shall he offered on terms that are at least as favourable as the terms upon which the


Third Party Interest (or part thereof) has been offered to the interested Person.





39 .3 In order for any deed of sale, assignment, transfer or other disposal as provided under


Articles 39.1 or 39.2 to he effective, the Parties and the relevant third party, if any,


shall enter into a binding and enforceable instrument of assignment and novation,


which shall include an undertaking by the transferee or assignee to fulfil the


obligation* under this Contract which correspond to the interest transferred or


assigned.





39.4 By way of clarification, and not in limitation of the foregoing provisions of this


Article 39. the GO\'LR.NMLM 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 (i()\ tRN.MKM'i 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 l-ntiiy assign* or in any other way trunvfcrv it* rights


and interests under this Contract, whether in whole or in part, such assignment or


transfer shall not give nse to any Tax. including on the consideration paid or received


or on the income or gam therefrom.


39.6 The GOVERNMENT may not at any time transfer any or all its rights and


obligations under this Contract to any Person, including to a Public Company or any


other company or entity, except in accordance w ith Article 4.


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 of the Person who Controls a CON I K VC I OR Lntity (whether


through merger, sale of shares or of other equity interests, or otherwise) through a


single transaction or senes 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 a* specified in the Joint Operating Agreement relating to this


Contract, or where there is only one CON I RAC I OR hntity. one hundred per cent


(100%) of its participating interest as specified in this Contract) represents more than


seventy five per cent (75%) of the aggregate market v alue of the assets of such entity


and its Affiliates that are subicct to the Change in Control, for the purpose ot this


definition: “Control" mean* 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 »alur " shall be determined based upon the amount in cash a


willing buyer would pay a willing seller in an Arm's Length transaction.


Iiach CONTRACTOR Lntity 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 another CONTRACTOR Lntity. 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 w ithheld








78






































©2013 Kurdistan Regional Government, KRG
























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





83 / 121




















A Change in Control shall not give rue to any Tax including on the consideration paid


or received or on the income or gam therefrom.





ARTICLE 40 - FORCE MAJEt ML





40.1 No delay, default, breach or omission of the CONTR ACTOR in the execution of any


of its obligations under this Contract shall be considered a failure to perform this


Contract nr be the subject of a dispute if such delay, default, breach or omission u due


to a ease of force Ma]curc. In such event the CON I RAC I OR 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 curtuihncnt in the execution of such obligations, increased by


the time necessary to repair uny damage resulting from or occurred during such delay


or curtailment, shall be added to any tune pc nod 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 For the purpose of this Contract. "Force Majeure' means any event that is


unforeseeable, insurmountable and irresistible, not due to any emir or omission by the


COM KACIOK 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;


(cf accidents or Wow outs;





(d) quarantine restrictions or epidemics;





(el any act. event happening or occurrence due to natural causes, in particular,


hut without limitation. Hoods, storms, cyclones, fires, lightning, or


earthquakes.


(0 environmental restrictions, which the GOVERNMENT has not notified to the


(ON TRACTOR;


(g) except in respect of the GOVERNMENT and. or any Public Company which


may be a CONTRACTOR Entity, any acts or orders of the


GOVERNMENT, any minister, ministry, department, sub-divixion. agency,


authority, council, committee, or other constituent element thereof, any


corporation owned and or controlled by the uny 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.









































©2013 Kurdistan Regional Government, KRG





















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 84 / 121 £

















subdivision, 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 Maieure


affecting a COM R AC TOR Entity or an Affiliated Company of a CONTRACTOR


Entity shall be deemed force Mu (cure affecting the COM RAC TOR if the


consequence of such Force Majeure prevents the performance of any of the


COM RACTOR's obligations under this Contract.


ARTICLE 41 - WAIVER OF SOV FREIGN IMMLNIl V





The GO\ F.RVMHNT and any Public Company which may be a CON I RACIOR Fntity at


any time hereby fully and irrevocably waives any claim to immunity for itself or any of its


assets.


This waiver includes any claim to immunity from:


(a| any expert determination, mediation, or arbitration proceedings commenced pursuant


to Article 42:


(hi 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, ludgmcnt.


service of process, execution order or attachment (including pre-judgment attachment )


that results from an expert determination, mediation, arbitration or any judicial,


administrative or other proceedings commenced pursuant to this Contract.





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 C ontract or


the operations earned 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).


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





HO
































©2013 Kurdistan Regional Government, KRG


















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 85 / 121 £




















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 indh idual 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


panics 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 wntten nonce of such intention and its


Senior Representative may also be accompanied at the meeting by a legal


advtscr.


(b| If the Dispute cannot be resolved by negotiation in accordance with Aniclr


42.1 (a) within sixty (60) days after the dale of the receipt by each party to the


Dispute of the Notice of Dispute or such further period as the parties u> the


Dispute may agree in writing, any party to the Dispute may seek settlement of


the dispute by mediation in accordance w ith 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.


(cl 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 Articlc.


(i) Any arbitration shall be conducted by three (3) arbitrators.





(ii) If the panics to the Dispute arc the GOVERNMENT and all the


CONTRACTOR Entities. the (iOMRN.MtM and the


CONTR ACTOR shall each appoint one (I) arbitrator If the parties to


the Dispute arc the GOV HRVMKNT and more than one, but not all


the CON I RACTOR I ntiticv the GOV ERYMENT shall appoint one


(I) arbitrator and such CONTRACTOR I.ntitics shall appoint one (I)


arbitrator. If the parties to the Dispute are the GOVERNMENT and


one CONTRACTOR Entity, the GOVERNMENT and such


CONTRACTOR Entity shall each appoint one (I) arbitrator


(in) In any event, the two arbitrators so appointed shall, m 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





XI






































©2013 Kurdistan Regional Government, KRG



























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 86 / 121 £

















appoint an arbitrator or to agree on the appointment of the third


arbitrator. Rule* of the LCJA shall apply.


(vi) Arbitration shall take place in London. Lnglund The language to he





used in any poor negotiation, mediation and in the arbitration shall be


Lnglish. 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. Ihc arbitral award may


he 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 Lngland 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.


I.xpcrt Determination





42.2 Any disagreement between the Parties relating to Articles 15.9. 272 and 27.7. as well


as any disagreement the Parties agree to refer to an expert, shall he submitted to an


expert. Ihc Management Committee shall prepare and agree on 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 being notified of a


disagreement to be resolved by an expert. .





(a) The disagreement shall be submitted to an expert appointed by mutual


agreement of the Panics 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 knergy Institute in London. Lngland. Any


expert appointed must base the necessary qualifications for reviewing and


deciding on the subject matter of the disagreement.


(b) The duties of the expert shall he stated in the lerim 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 five to the expert in writing


any information w hich it considers useful, provided it does so wnhin forty -live


(45) days after (he expert's appointment. Such information shall be provided


to the other Party at the same time and such other Party shall be entitled to


provide comments on such information to the lint 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 iorty-fivc (45) days of his receipt





of the I crms of Reference and the information referred to in Article 42.2.








H2






































©2013 Kurdistan Regional Government, KRG
























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





87 / 121 £

















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 ui the case of manifest


error, fraud or malpractice. Any costs and expenses associated with the expert


determination shall he shared equally between the Panics.


(.cm-nil





42.3 No negotiation, mediation, arbitration or expert determination procedure under this


Article 42 shall exempt the Parties from fulfilling their respective legal andor


contractual obligations.


ARTICLE 43 - GOVEK.M.NG LAW. FISCAL S I ABILII V AND AMEN DM EN I S





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 Lnglish Ian


(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


hy principles and practice generally accepted in petroleum producing countries and in


the international petroleum industry.


f iscal 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 ol this Contract, as they result from this Contract and as they result from


the laws and regulations in force on the Effective Date The CON I KACIOR has


entered into this Contract on the basis of the legal, fiscal and economic framework


prevailing at the Effective Date. If. at any time alter the Effective Date, there is any


change in the legal, fiscal and or economic framework under the Kurdistan Region


Law or other Law applicable in or to the Kurdistan Region which detrimentally


affects the CONTRACTOR, the CONTRACTOR Entities or any other Person


entitled to benefits under this Contract the terms and conditions of the Contract shall


be altered so as tu restore the CON TRAC TOR. the COM KACIOR 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 IcgaL 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





K3






































©2013 Kurdistan Regional Government, KRG
























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011






































































































































































































































©2013 Kurdistan Regional Government, KRG




































































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 89 / 121 £

















43.11 The Panin confirm their mutual commitment to the goal of promoting respect for and


compliance with human rights principles, including those set forth in the Universal


Declaration of Human Rights. I he United Nations Basic Principles on the use of


Force and Firearms by Law Fnforccincnt Officials. U nited Nations Code of Conduct


for Law Fntdreement Officials, and in a manner consistent with the laws of the


Kurdistan Region and Iraq and the Voluntary Principles on Security and Human


Rights, being those principles for oil and mining companies developed by the United


States and the United Kingdom governments as a result of discussions with


companies and non-governmental organizations as published 20 December 2000


Without limitation to any other right or remedy which may be available to the


CONTRAC I OR. the Parties agree that the failure of the GOVERNMENT, or an>


of its Ministries or subdivisions to observe these commitments shall, at the election of


the CO.VI RAC 10R. be deemed to be an ev ent of Force Mareure in accordance with


the prov isions of Article 40.





43.12 The Parties confirm their mutual respect for the goals of the Extractive Industries


Iransparancy Initiative and in particular the goal of creating a standard for revenue


transparency in the oil, gas and mineral sectors.


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 Kurdivtun Region! to the following addresses:


To the GOVERNMENT:





Attention:


Hts Excellency the Minister of Natural Resources





Address:





Ministry of Natural Resources


Kurdistan Regional (kivemmeni





Erbil. Kurdistan. Iraq





Email: nmrokrgoil.com








To the COM RACTOR:

















*5



































©2013 Kurdistan Regional Government, KRG
























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011






































































































































































































































©2013 Kurdistan Regional Government, KRG




































































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 91 / 121 £




















45.3 At any time prior to the Development Period. the CONTRACTOR shall have the


right to terminate this Contract by surrendering the entire Contract Area in accordance


with the provisions of Article 7.


45.4 During the Development Period, the CONTRACTOR shall have the right to


terminate this Contract at any time by surrendering all Production Areas, provided its


then current obligations have been satisfied in accordance with this Contract.


45.5 If the GOVERN ML NT intends to exercise its right to terminate this Contract


pursuant to Article 45.1. it shall first comply with the following pros isions:





(a) The GOV EKVMENT shall notify the CONTRACTOR of its intention to


terminate this Contract stating the reasons for such termination and requesting


the Litter:


(0 to remedy the default, or


(u) to propose acceptable compensation.





(hi If. within three (3) Months after the notice referred to in Article 45.5(a). the


CON I Ra(*TOK has not remedied the situation complained of by the


GOVERNMENT to it* satisfaction or offered compensation acceptable to the


GOV ERWIEN I in each case acting reasonably, the GOV ERNMENT shall


notify the CONTRACTOR in writing that the Contract shall be terminated


from the termination date detailed in such notice. This C ontract shall terminate


on such termination date unless the CONTRACTOR issues a Notice of


Dispute as provided under Article 42. in which case this Contract shall remain


in force until a final settlement of the Dispute has been reached in accordance


with the Dispute resolution provisions of Article 42.


The foregoing provisions of this Article 45.5 arc subject to the proviso that, in ease of


a Dispute where there has been breach of this Contract which has been submitted to


Dispute resolution pursuant to Article 42. the GOV ER.VMEN I shall not be entitled


to exercise its right to terminate this Contract prior to a final determination under


Article 42 in favour of the GOV ERNMENT.


45.6 If the GOV ERNMENT terminates this Contruct pursuant to the provisions of


Articles 45.1 and 45.5. the CONTRACTOR shall lose all its rights and interests


under this Contract. Notw ithstanding the foregoing, 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 I to 43.6 shall survive the


termination or expiry of this Contract.


45.7 If the Contract is terminated under Article 45.2 or 46 the interest of the relevant


CON I RAC I OR Entity shall be transferred to the other CONI RAC'I OR Entities in


the proportions in which their respective percentage interests bcur to the aggregate of


their respective percentage interests under the relevant Joint Operating Agreement or


in vuch other proportions as such CON TRACTOR Entities shall agree between them


for the market value thereof (as such term is defined in Article 39.7). Such transfer


shall not give rise to any Tax including on the consideration paid or received or on the


income or gam therefrom.








87



































©2013 Kurdistan Regional Government, KRG
























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011






































































































































































































































©2013 Kurdistan Regional Government, KRG




































































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011












































h nirrcd rnK' M CVt


for Ja KURDISTAN REGIONAL GOVERNMENT











Barham Site Aibi I IsnnMU


Prime Mini*** \1 inner hf Neural ftoMicn


K unfcran Ref iora* Gateim wn KunSnfein Pt*f k*»l Qo» cmmcnt


On R«fi<>«*» Co---il On hetalfcl the Mirtisuv ofNelute


tor the Oil »d Or* Afters i>l Rckmkcs w iK« Kd(iiic»n *<*ion


ihr RordniM Hrjwi • Imq








OR Perilv



















































































































































































©2013 Kurdistan Regional Government, KRG










































































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011












































































































































































































































©2013 Kurdistan Regional Government, KRG




































































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2





12/2/13 Topkhana: PSC - Talisman - 19/08/2011









































Map thowinj* coordinate* of Iopkhana Block Contract Area corner point*











Bloch K39 - Coordinates


K39 i sal Bin*)


JL J X


A asstiTB.TOO 539«33.(jn


* BiJDH .1


c »02S37.|*?


D «««2l *su J*l J*'-l /**


L 1MSS9JD0 ms??t orn


f «#W Oi£i »0«B«C CW


Q 3IIJ2MOO m


>)jqa m































































































































































































©2013 Kurdistan Regional Government, KRG













































































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 96 / 121 £




















ANNEX B


ACCOI NUNC. PROCEPI RE








PARAGRAPH 1 - GENERAL PROVISIONS





1.1 Purpose


To duskily expenditures. define farther Petroleum Coots (in addition to those defined


as such in the Articles of the Contract), and prescribe the manner in which the


COM RAC I OR > 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 w hen used in this Annex.


1J 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 I The CONTRACTOR shall maintain the Accounts in accordance with Article IS.I


and in accordance wnh this Accounting Procedure, including in accordance with the


charts of Accounts agreed under Paragraph 1.4.2.


1.4.2 W ithin sixty (60) days of the Signature Date, the CUM RACTOR 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 (MO) 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 (1X0) days after the Signature Date, the CONTRACTOR and the


GOVER.VMEM' shall agree on the outline of charts of Accounts which shall


describe the basis of the accounting system and procedures to he developed and used


under this Contract. Following such agreement, the CONTRACTOR shall


expeditiously prepare and provide the GOVERNMEM with formal copies of (he


comprehensive charts of Accounts and manuals related lo the accounting, recording


and reporting functions, and procedures which are. and shall be. observed under the


Contract.


I.4J Notwithstanding the generality of the foregoing, the CONTRACTOR shall make


regular Statements relating to the Petroleum Operations. These Statements arc as


shown:












































©2013 Kurdistan Regional Government, KRG





















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





97 / 121 £

















(a) Production Stalcmcnl (as indicated in Paragraph 6).


(hi Value of Production and Pricing Statement (as indicated in Paragraph 7).





(c) Cost Recovery and Share Account Statement (as indicated in Paragraph S).


(d i Statement of Expenditures and Receipts (as indicated in Paragraph 9).


(c) Final End-of-Ycar Statement (as indicated in Paragraph 10).





(f) Budget Statement (as indicated in Paragraph 12).


1.4 4 All reports and statements shall be prepared in accordance with the Contract.


Kurdistan Region Law, and where there arc no relevant provisions of either of these,


in accordance w ith prudent international petroleum industry practice.


1.5 Language and L nits of Account





All Accounts shall be maintained and prepared ui the English language and shall be


recorded in Dollars. Where necessary for clarification, the CON TRAC I OR may


uIm mjiiiturn Accounts in other currencies.


1.6 Audit and Inspection Rights of the GOVERNMENT





In addition to the provisions of Articles 153 to 15.7 and 15.9. the following


provisions shall apply to any audit carried out in accordance with Articles 15.3 to


15.7:


1.6.1 For purposes of auditing, the GO\ ERNMENT. acting reasonably and in accordance


with prudent international petroleum industry practice, may examine and verify, at


reasonable times upon reasonable pnor 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 record*


reasonably considered necessary by the GOVERNMENT to audit and verity the


charges and credits, value* and treatments.





1.6.2 Furthermore, the auditors shall have the right in connection with such audit, to visit


und inspect at reasonable times, all sites, plants, facilities, warehouses and offices of


the CONTRACTOR directly or indirectly serv ing the Petroleum Operations and to


question personnel associated with those Petroleum Operations


1.6.3 Where the COX ERW1EN I 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


CON I KAC I OK. which may he the CONTRACTOR'S statutory auditor.


1.6.4 All agreed adjustments resulting from an audit shall be promptly nude in the


CON I KACIOK's Accounts and any consequential adjustments to payments due to









































©2013 Kurdistan Regional Government, KRG















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 98 / 121 £

















the CONTRAC1 OK or to the GOVERNMENT, m the case may be. shall be mude


promptly.


1.6.4 When issues arc outstanding with respect to an audit, the CONTRACTOR shall


maintain the relevant documents and permit inspection thereof until the issue is


resolved.


1.7 Payments





Unless as otherwise provided in Article 24. Article 29 or other Articles ol 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


under the Contract shall be paid within thirty (30) day's following the end of the


Month m 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 das such


sums are overdue, hear interest compounded monthly at 1.IHOR plus two per cent


(2%).


1JI Currency Exchange Rates





In addition to the provisions of Aroclc 29. the follow ing provisions shall apply to any


exchanges of currency earned out in accordance with Article 29:


hi 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, l ash How Basis and Reports


All books and Accounts shall be prepared on an accrual basis m accordance with


generally accepted accounting principles used in the international petroleum industry





1.10 Values and 1 rcitmrnts


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 arc made The purposes which shall qualify arc:





3














III 1




















©2013 Kurdistan Regional Government, KRG


















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011






































































































































































































































©2013 Kurdistan Regional Government, KRG




































































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 100 / 121 £




















2.4 Development ( wti


Development Costs arc 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 arc completed as producing wells and drilling wells for purposes


of producing from a Petroleum reservoir, whether these wells arc dry or producing


and drilling wells for the injection of water or gas to enhance recovery of Petroleum


2.4.2 Completing wells by way of installation of casing or equipment or otherwise alter a


well has been drilled for the purpose of bringing the well mto 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 activ itics.


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


incurred in the Development Operations and not otherwise covered tinder


Paragraph 2.3.





2.5 Production Costs


Production Costs are all direct and allocated indirect costs and expenditures incurred


in carry ing 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, tins Marketing Costs. Development Costs and


Decommissioning Costs. Production Costs include that portion of all service


expenditures and that portion of all general and administrative expenditures directly


attributable to Production Costs or allocated thereto on a consistent and equitable


basis.


2.6 Occam m ission in g ( os Is





Decommissioning Costs arc 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 3X and. for the


purposes of cost recovery, the contributions to the Decommissioning Reserve fund


shall he recovered in accordance with Article 3K.








5



































©2013 Kurdistan Regional Government, KRG





















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 101 / 121 £

















2.7 Service Expenditures





Sen icc expenditures arc expenditures in support of Petroleum Operations including


warehouse*. vehicles, motorized rolling equipment, aircraft, fire und security stations,


workshops, water and sewerage plants, power plants, housing, community and


recreational facilities und furniture, tools and equipment used in these activities


Sen-ice 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 sen ice expenditures shall he regularly


allocated as specified in Paragraphs 2.2.$. 2.3, 2.4, 2.5 and 2.6 to Exploration Costs.


Cias Marketing Costs. Development Costs. Production Costs and Decommissioning


Costs respectively and shall be separately shown under each of these categories


W here service expenditures arc 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 Central and Administrative Expenditures





(iener.il and administrative expenditures arc:


2.8.1 All mum 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 CONI RACTOR” I. an annual overhead charge


shall he made for services rendered (excluding the direct expenditures as referred in


Paragraph 5.1.2.(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 mode for services rendered (excluding the direct expenditures as referred in


Paragraphs 3.l.2.(a) and (b)| by such Affiliate to support and manage Petroleum


Operations under the Contract ("Parent Company Overhead f


Parent Compan> 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 CON I R VC I OK 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


main taming such staff offices I incurred for services rendered by those functions of


COM RAC I OK's Affiliate, such us. but not limned lo. 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:





(a) cannot, without unreasonable effort and or expenditure or without the release


of confidential data proprietary to any of the CON I R VC I OR s Affiliates, be


charged under any other section of this Annex, and


fr









































©2013 Kurdistan Regional Government, KRG
























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 102 / 121 £ ^^4/4)

















(b) arc 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 .V


In respect of the costs of the CONTRACTOR'S Parent Company Overhead, as


described above, the CON I 'RAC TOR shall charge monthly to Petroleum Operations


an amount equal to the total of the following r


2.8.2.1 Exploration Overhead


The CON I RAC I OK shall be entitled to an annual charge based on a sliding scale


percentage ami charged monthly to Petroleum Operations. I he basis for applying this


percentage shall be the total of Exploration Costs and Cias Marketing Costs during


each Calendar Year texclusive of this Exploration Overhead) or traction thereof less


expenditures which have been subjected to the two (2) per cent fee. referred to in


Paragraph 3.1.8(b). I he sliding scale percentage shall be the following:


For the first four million Dollars (USS4.000.000) four per cent (4%)


For the next four million Dollars (US$4,000,000) three per cent (3%)





Over cighi million Dollars (USS8.000.000) 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.


(a) The CONTRACTOR'S charges must be charged as direct charges whenever


possible. Overhead charges exist only to compensate the CONI KAC'IOK's


Affiliates for costs which arc properly allocable to Petroleum Operations


under the Contract but which cannot, without unreasonable effort andor


release of confidential data proprietary to the CONTRACTOR'S Affiliates,


be charged under any other section. Overhead costs arc billed monthly


Overhead must be commensurate with services rendered and based on actual


cost studies but may not exceed an umouni 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 unnually. The initial maximum percentage rates and the types of


expenditures lo which they apply shall be agreed as soon as the Parties possess


reasonably reliable cost estimates tor the relevant Production Area.


7



































©2013 Kurdistan Regional Government, KRG





















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 103 / 121 £




















(ill Overhead charge* arc not subject to audit by GOVERNMENT


(tr > The CON Ik At I Ok shall upon request furnish at the end of each relevant


Calendar Year to the GOVERNMENT a confirmation hy its statutory auditor


that the overhead costs actually charged do not duplicate any other charges


and that the method used in allocating overhead to Petroleum Operations


hereunder as opposed to other activities is reasonable and in accordance with


generally accepted accounting practices.


(0 The I'OMKAl'l OK must budget for overhead charges.





2.8.3 All general and administrative expenditures shall be regularly allocated as specified in


Paragraphs 2.2.3. 2.3. 2.4. 2.3 and 2.6 to Exploration Costs. Gas Marketing Costs.


Development Costs. Production Costs and Decommissioning Costs respectively and


shall be separately show n under each of these categories.


PARAGRAPH 3 - COSTS, EXPENSES. EX PEND 111 RES ANDCREDI IS OF I HE





CONTRACTOR


3.1 Costs Recoverable \\ ilhoul I ufiber Approval of the GOVERNMENT


The following Petroleum Costs incurred by the CON I RAC TOR pursuant to the


Contract as classified under the headings referred to in Paragraph 2 shall he


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 prov ided


for m 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 lor 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 CON I k At I OR 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 law or customary practice in the Kurdistan


Region. If such employees arc 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.








8



































©2013 Kurdistan Regional Government, KRG





















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 104 / 121 £




















(hi Ax signed Penonmei: Cost* uf salaries and wages including bonuses of (he


CONTRACTOR'S employees directly engaged in the conduct of the


Petroleum Operations under the Contract. whether temporarily or permanent!)


assigned, irrespective of the location of such employees, it being understood


that in the case of those personnel only a ponton of whose time is wholly


dedicated to Petroleum Operations under the Contract, only that pro-rata


portion of applicable salaries, wages, and other costs as delineated in


Paragraphs 3.1.2(c). (dl. (eh (0 and (g). shall be charged and the basis of such


pro-rata allocation shall he specified-


(c) The CON I KAC 10K'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) Lxpcnscs or contributions made pursuant to assessments or obligations





imposed under Law w hich arc applicable to the COM'RAC I OK’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 native customarily granted to the CON 1 RAC1OK'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).





(fl Actual transportation and travel expense* of employee* of COM RAC TOR.


including those made for travel and relocation of the expatriate employees,


including their families and personal effects, assigned lo the Kurdistan Region


whose salanc* and wage* arc chargeable lo Petroleum Operations under


Paragraph 3.1.2(b).


Actual transportation expenses of expatriate personnel transferred to Petroleum


Operations from their country of origin shall he charged to the Petroleum Operations


Transportation expense* of personnel transferred from Petroleum Operations to a


country other than the country of then 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, meal*, hotels, insurance and other expenditures related to


vacation and transfer travel and authorized under the CONIKACTOR’s standard


personnel policies The CONTRACTOR shall ensure that all expenditures related to


transportation costs arc 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


expense* such personnel arc 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 he determined on


an equitable basis.





9






































©2013 Kurdistan Regional Government, KRG



























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 105 / 121 £




















3.1.3 Transportation and Imnlovcc Relocation Com*


The cost of transportation of employees, equipment, materials and supplies other than


us presided in Paragraph 3.1.2(0 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 Ices, unloading charges, dock fees, and inland and ocean


freight charges.


3.1.4 Charges for Service*





(a) Third Purlieu





I he actual costs of contract services, services of professional consultants,


utilities, and other service* necessary for the conduct of the Petroleum


Operations under the Contract performed by third parties other than an


Affiliate of the CONTRACTOR.


(b) Affiliate* of the CONTRACTOR





li) Professional and Administrative Services Kvpenscv 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, finuncial. insurance, accounting and computer services


divisions other than those covered by paragraphs 3.1.4 (b) in). 3.1.6


and 3.1.8 (b) which CONTRACTOR may use in lieu of having its


own employee* Such charge* shall reflect the cost of providing their


services. Such charges shall not include any element of profit and shall


he no more or less favourable than similar charges for other operations


carried on by the CONTRACTOR and its Affiliates. I he chargeout


rate shall include all costs incurred by At filiates incidental to the


employment of such personnel including all l.abour and Associated


Labour Costs and the cost of maintaining and operating offices and


providing all support services lor 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-AlTihated third parties, taking into


account the quality and availability of such serv ices. 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 arc not working days in the location where the


worl 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


10









































©2013 Kurdistan Regional Government, KRG



























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 106 / 121 £




















incidental to the employment of such personnel including all Labour


and Associated Labour Costs and the cost of maintaining and operating


offices and pro\ iding all support services for such personnel costs of


travel of uich personnel in respect of Petroleum Operation* will he


directly charged. I he charges for such serv ices shall not exceed those


prevailing if performed by non-alldialed 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 w ithout approval of the GOVERNMENT


(iii) Equipment and facilities: use of equipment and facilities ow ned and


furnished by the CONI RAC I OK 's Affiliates, at rates commensurate


w ith the cost of ow nership 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 he on an arm s


length basis On the request of the GOVERNMENT, the


CONTRACTOR shall provide the GOVERNMENT with evidence


of such rales 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 nghi to refer the matter to an expert


pursuant to Article 42.2 of the Contract), flic 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 lor which shall be subject to


separate agreement w ith the GOVERNMENT.





3.1.5 (omrnunic.it inns





Cost of acquiring, leasing, installing, operating, repairing and maintaining


communication systems including radio and microwave facilities within and between


the Contract Area and the CON I RAC I OR s nearest base fucility.


3.1.6 Otficcand 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 cost*


thereof shall be allocated on an equitable basis in accordance with prudent


international petroleum industry practice.


3.1.7 Ecological and Environment





(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:


























I I I























©2013 Kurdistan Regional Government, KRG



























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 107 / 121 £




















(b) Cost* incurred in environmental or ecological survey* 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 requirement* of Article 37;


(c) Cost* to provide or have available pollution containment and removal





equipment:


(dl Costs of actual control and cleanup of oil spills, and of such timber


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 31 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 3X. when such contributions are


made.


3.1 .8 Material and Equipment Cost*


Costs of materials and supplies, equipment, machines, tools and any other goods of a





similar nature u*cd or consumed in Petroleum Operations subject to the following


(a) \rquisition - the CONTRACTOR shall only supply or purchase material*


for use in Petroleum Operations that may he 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


replacement, emergency needs, weather conditions affecting operations and


similar considerations.


(b) Component* of costs, arm's length transaction* • except as otherwise





provided in paragraph 3.1.8(d) . material purchased by the CONTKACIOK


in arm's length transactions in the open market for use in the Petroleum


Operations under the Contract shall he 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


CON I R ACTOR 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












































©2013 Kurdistan Regional Government, KRG





















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 108 / 121 £




















exceed a fee equal to two per cent (2%) of the value of the mutcriul* added to


the cost of the materials purchased.


(c) Keenuntinn * such material costs shall he charged to the accounting records


and books in accordance with the “first in, first Out" (f IK)) method;


(d) Material purchased from or sold to Affiliates of the CONTRACTOR or


transferred from other activities of the CONTRACTOR to or from Petroleum


Operations under this Contract shall he valued and charged or credited at the


pnccs specified in Paragraphs 3.1.S|:


(i) New material, including used new material moved from inventor)


(Condition “A**k 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";





IAI Material which is in sound and serviceable condition and is


suitable for re-use w ithout reconditioning shall be classified as


Condition “B” and pneed at seventy live per cent (75*«) of the


current price of new material defined in Paragraph 3 1 K(dMi);


(B> Material which cannot he classified as Condition T3~ hut which


after reconditioning will be further serviceable for its original


function shall be classified as Condition **t“* and priced at not


more than fifty per cent (50%) of the current price of new


material as defined in Paragraph 3.LHldgi). The cost of


reconditioning shall be charged to the reconditioned material


provided that the value of Condition material plus the cost


of reconditioning do not exceed the value of Condition “B”


material;


(O Material which cannot he classified ax Condition “B** or


Condition ~C*' shall be classified as Condition ~D" and priced


at a value commensurate with its use by the CON TRACTOR.


If material is not lit 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 knockcd-down price of new


maicrial ax defined in Paragraph 3.1 .mdRi).


(iv) When the use of material is temporary and its service to the Petroleum


Operations under the Contract docs not justify the reduction in price as


provided for in paragraph TlX.tdHiiKb). such material shall be priced


on a basis that will result in u net charge to the accounts under the


Contract consistent w ith the value of the serv ice rendered.











13






































©2013 Kurdistan Regional Government, KRG





















































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 109 / 121 £

















|v) Premium price* • whenever material is not readily obtainable at


published or listed prices because of national emergencies, strikes or


other unusual causes over which the CON I R AC I OK has no control,


the CONTRACTOR may charge Petroleum Operations for Ihc


required material at the COVl'KA€*TOR‘s actual cost incurred m


providing such material, in making it suitable for use. and in mov ing it


to the Contract Area; provided notice m writing ts furnished to the


OOVkRNMLNT of the proposed charge prior to charging Petroleum


Operations for such muleriul and the («0\ KRNMLNT shall have the


right to challenge the transaction on audit


(vi) Warranty of material furnished by the CONTRACTOR - the


CON I K AC TOR docs not warrant the material furnished. In ease 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.


tviil Adjustments arising from material inventories conducted in accordance


w ith Paragraph 9.2.





(e) 1 quipment of the COVI RAC I OK charged at rates not to exceed the average


commercial rates of non-affiliatcd third panics for equipment, facilities,


installations and utilities for use in the area where the same arc used. On


request, the CONTRACTOR shall furnish a list of rates and the basis of


application. Such rates shall he 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


(0 Use of leased or hired machinery and>or equipment in the Petroleum


Operations shall be charged at full cost to the CONTRACTOR rhis may


include mobilisation and de-mobilisation charges, lease and hire fees, as well


as other contractual costs.


3.1.9 Rental' and I uxo





All rentals of every kind and nature levied by any CO\ LKNMi.N I and all (axes


imposed in connection with the CONTRACTOR'S assets, income or activities under


the Contract and paid directly by the CON TRACTOR or any CON TRACTOR


l-.ntity (save where the contrary is expressly provided in the Contract) with the


exception of Taxes described in Article 31.2) and bonus payments made under Article


32.


If the CONTRACTOR, any CONTRACTOR fcntitv or any of its Affiliated





Companies is subject to income or w ithholdtng 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.





14






































©2013 Kurdistan Regional Government, KRG
























































www.krg ,org/p/p.aspx?l=12&r=296&h= 1 &s=030000&p= 176 2/2


12/2/13 Topkhana: PSC - Talisman - 19/08/2011





4) 110 / 121 £

















3.1.10 Insurance and Losses


Insurance premiums and costs incurred for insurance earned for the benefit of the





Petroleum Opera twin* provided that such insurance is customary, affords prudent


protection against rt&k and is at a premium no higher than that charged on a


competitive basis by insurance companies w hich are not Affiliated Companies of the


CONTRACTOR Lxeept 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 fawn an act


of wilful misconduct by the CONTRACTOR. Such costs may include repai