NOTICE: The text below was created automatically and may contain errors and differences from the contract's original PDF file. Learn more here
Exploration and Production Sharing Agreement
4lh May 2006
- between -
Kurdistan Regional Government - Iraq/Sulaimany
Administration
- and -
WesternZagros Limited
South Sulaymaniyah Area
TABLE OF CONTENTS
p««*
ARTICLE I INTERPRETATION
---2
1.1 ---2
u
--- 9
1.3 -9
14 --- 9
1J Operator 10
ARTICLE 2 SCOPE AND TERMINATION.
2.1 SCOPC ................ •••• »---••••--- --- WMMHMMWOW --- 10
10
12 Conditions Precedent.................................... II
2-3 Effective Date and T.
2.4 Grounds for Tenninat II
2.5 Surviving Obligations 11
ARTICLE 3 MANAGEMENT OF OPERATIONS. 12
---12
3.1
--- 12
3 2
--- 13
ARTICLE 4 WORK PROGRAMS AND BUDGET -15
4.1 Commitment in First Exploration Period...------------------------------ -15
4.2 Exploration Wells during First Exploration Period.................. -IS
4.3 Testing of Selected Structures .............................. -16
4.4 AppMSal Program........................................._..... .... 16
4.5 Factors Affecting Schedule of Exploration and Appraisal Activities ir
4.6 First Exploration -.....-........--- ______ IS
Commitment in Second Exploration Period------------ -19
4.7 Commitment in Third .19
4.1 -19
49 20
4.10 21
4.11
-21
4.12 Exploration--------------..... -21
4.13 Discovery and Appraisal .22
4.14 Commercial Discovery.. .22
4.15 Development Plan......... .23
4.16 Development Work .25
4.17 EHS .25
4. IS .26
ARTICLES DUCT OF WORK 26
5.1 --- 26
52 to Contract Area -B4
TABLE OF CONTENTS
(continued)
P*«c
5.3 Goods, Services, Training and Secondment .............28
5.4 Flaring of Natural Gas------------------- ..............30
5.5 ()perator and its Sub-Contractors........ ................30
ARTICLE 6 SHARING OF PETROLEUM............. ................30
Option A
6.1 Allocation of Petroleum under Option A...................... ................30
6 2 Option D ..........-.36
Allocation of Petroleum under Option B......................
6.3
Interpretation of Article 6................ ...41
64 Adjustment of Price Categories---------- ...41
65 Option of Government....................... ...42
6.6 Lifting ••••••••••••••••••••••••••••••••••••••»•••••« tminlliHMi 42
6.7 Title and Risk........................................ ...............43
6.8 Downstream Delivery........................................................................... ..............43
6.9 Payment termM....................................................................................... -............44
6.10 Sharing on a Tax Paid Basis.................................................................. 41
•••••••••••at* ^ »
ARTICLE 7 SUPPLY OF CRUDE OIL TO KURDISTAN REGION !X)MESTTC
MARKET
7.1
Domestic Market Obligation------------------------------- --- 44
7 2 --- 44
7J Swap of Regional Supply V for Export Volumes. --- 45
ARTICLE 8 VALUATION AND MEASUREMENT OF PETROU-UM________ -------46
8.1 Point of Valuation..... --------46
8.2 Value ofCradc Oil- ---------46
8.3 Natural Gas Markets. -----47
84 ------47
ARTICLE 9 SIGNATURE BONUS AND PAYMENTS------
48
9.1
9 2 Payment -48
-48
9J Late Payment --- 48
ARTICLE 10 RELINQUISHMENT OF CONTRACT AREA...
.....49
10.1 Periodic Relinquishment of Exploration Area -.....................
10.2 Final Relinquishment of Exploration Area™.................. .49
10.3 Relinquishment of Development Area........................ .49
10.4 Termination of Agreement in respect of Relinquished Area. -49
10.5 Gas Retention Area--------- .... SO
106 Oil I ...50
TABLE OF CONTENTS
(continued)
P«*c
ARTICLE II OBLIGATIONS OF GOVERNMENT- --- 51
11.1 ...SI
11.2 Stability.................. ...53
11.3 Foreign Exchange... .54
ARTICLE 12 RECOVERABLE COSTS................................................. --- 55
12.1 Generally................................................................... -55
12.2 Recoverable Coats...................................................--- -56
12.3 Recoverable Costs Allocation------------------.....-............... ...56
ARTICLE 13 TITLE TO EQUIPMENT... 56
13.1 Property... 56
ARTICLE 14 EXISTING CONDmONS .57
14.1 Base Line Study .57
14.2 .57
14.3 .51
ARTICLE 15 CONSULTATION AND ARBITRATION .51
15.1 -51
15.2 _59
I5J Arbitration-- .59
15.4 Expert IX*termination. .60
15.5 Waiver of Sovereign Immunity------------------------ -61
ARTICLE 16 FINANCIAL AND TECHNICAL DATA. RECORDS AND REPORTS .. .61
16.1 Ownership................---.......................................................................... .61
16.2 Records. Storage. Retrieval and Submission..................................................... .62
16.3 Reports .62
16.4 Export of Data and Information......................................................................... .62
16.5 11 sc of Data and Information.............................................................................. .63
16.6 Confidentiality of Data and Information............................................................ .63
16.7 Trade Secrets................................................................................. ••••I........ .65
16.8 Public Announcement.................................................................... 65
ARTICLE 17 AUDIT........................................................................................... 66
17.1 Independent Audit...............................-................-.......-.........-....................... 66
171 Government Audit------------------------- 66
17.3 Exceptions..........---......-................... 66
17.4 Contractor to Assist--------------------------- 66
17.5 Affiliates ------.........---------- ----------- -“'s
EPSA 20064541 -111-
TABLE OF CONTENTS
ARTICIB III INDEMNITY AND INSURANCE --67
III __67
l«J _67
AR PU LE 19 FORCE MAJEURE - -67
19.1 Force Majeure Relief. «*mM***t«MM ----67
19.2 --61
19.1 -61
194
19.5 of Tic 69
ARTICLE 20 RESTRICTIONS ON ASSIGNMENT. 69
69
70
ARTICLE 21 OTHER PROVISIONS. 70
21.1 70
2U 70
21J --71
21.4 Ratification of Agreement as Aprlicable Law.. _71
21.5 Enuranenl and Third Part)- Rights............... _________71
21.6 Amcndmcnts/Modi ficatlon --71
21.7 OECD Convention ............ --------71
21.1 Severability....................... ______72
21.9 lintirc Agreement................ •••••••••••••••••••••••••••••••••ms*** 72
21.10 Relationship of Parties ....... 72
21.11
ANNEX A- CONTRACT AREA
ANNEX B • ACCOUNTING PROCEDURE
ANNEX C- ILLUSTRATIVE DRILLINO PLAN
ANNBXD- SAMPLE TABLES AND EXAMPLES OP ROYALTY OIL. COST
RECOVERY OIL. PROFIT OIL AND LOCAL COMMUNITY
ANNEXR- BENEFIT
DRAFT LA
-iv-
EXPLORATION AND PRODUCTION SHARING AGREEMENT
Tkb F.iploration and Production Sharing Agreement is entered into this fourth day of May
2006
BETWEEN:
Kurdistan Regional Government -
IRAQ/SULAIMANY ADMINISTRATION, represented in this
Agreement by His Excellency Mr. Omar Fatah Hussein, in his
official capacity as Prime Minuter of the Kurdistan Regional
Government Iraq - Sulaimanv Administration (Che
"Government*)
- and -
WeSTEKNZaGROS LIMITED, a wholly owned subsidiary of
Western Oil Sands Inc., represented in this Agreement by Mr.
John Frangos. in his official capacity as a Director
('Contractor'’)
(each referred to individually as a "party* or collectively as the "parties").
RECITALS:
A Ihc development of Petroleum to bring the greatest benefit for the people is a strategic
policy of the Government, using the most modem techniques of market principles;
B. The Government wishes to encourage investment in Petroleum in the Territory, and has
the power to enter into Petroleum contracts within the Tciritory;
C. The area referred to as the "South Suiaymamyah Area* (more specifically defined below
as the Contract Area) contains no “current fields* within the meaning of the Constitution
of the Republic of Iraq:
D. The Government has the power to administer Petroleum Operations within the Contract
Area;
E. The Government wishes to promote Petroleum Operations in the Contract Area and
Contractor desires to join and assist the Government in exploring for, developing and
producing, transporting, processing, marketing and exporting Petroleum from the
Contract Area;
F. Pursuant to a Memorandum of Understanding between Contractor and the Government
dated November 24. 2004. and a Memorandum of Understanding between Contractor and
the Ministry of OU. Baghdad dated March 23. 2005. Contractor has been providing /
training programs in support of the Government, and conducting geological, geochemical^ 3
trSA70*4i4l
2
and geophysical surveys in support of cxplornlion in the Contract Area, in anticipation of
providing survey results to the Government, and in the expectation of the issuance of this
H. Contractor, as a wholly-owned subsidiary of Western Oil Sands Inc. that has executed oil
projects in Canada, has the financial and management capability, and the technical
knowledge and technical ability, to carry out the Petroleum Operations in a manner
wholly consistent with this Agreement.
I. In view of the difficult history of suffering that the people of the Federal Region of
Kurdistan have endured and in recognition of the urgent need of the population of the
Federal Region of Kurdistan to improve their standard of living, the parties agree to use
their best efforts, in accordance with Good Oil Field Practice, to explore for. appraise,
develop, produce and export Commercial Discoveries of Petroleum in order to commence
commercial production at the earliest possible date; and
J. The work program laid out in Article 4 for the First Exploration Period is planned on the
basis of this urgent need of the disadvantaged people of the Federal Region of Kurdistan
in order to alleviate their suffering in the most timely manner.
NOW. THEREFORE, it is agreed:
ARTICLE I
INTERPRETATION
l.l Definitions
In this Agreement and any Annex, except where the context shall not permit
Accounting Records' has die meaning given in Clause 1.2 of Annex B;
•Affiliate* means, in respect of a corporation, a corporation that controls, is controlled by. or is
under common control with, that corporation, and far the purposes of this definition, "coocrol*
menu the ownership directly or indirectly of a sufficient number of the shares or vooig rights in
a corporation lo be able to elect its board of directors;
•Agreement" means this Exploration and Production Sharing Agreement;
"Applicable I.aw" has the meaning given in Section 2.1.1;
’Appraisal" meins any appraisal activities, including appraisal wells, the purpose of which at
Petroleum reserves and the volume of recoverable oil contained in a Discovery, and all related
activities;
'Appraisal Costs' has the meaning given in Clause 2.2 of Annex B
cm J006 M 01
"AMociuied (|UM means Natural Gas, commonly known ns gas-cap gas. which overlies and is .3 .3
contact witli rignificani quantities of Crude Oil in u Reservoir, and solution gas dissolved
Crude Oil in a Reservoir,
'Available ( rude OiT means Crude Oil produced from the Contract Area, excluding that
portion of such Crude Oil which is utilized in conducting Petroleum < >perations;
"Available Natural Gas" means Natural Gas produced from the Contract Area, excluding that
portion of such Natural Qaa which is utilized in conducting Petroleum Operations;
'Basiues* Day" means a day which is not a weekend or official public holiday in the Federal
Region of Kurdistan or the Republic of Iraq and on which hanks are open for business in
Calgary, Alberta, Canada and in New York City;
"Calendar Year" means a period of twelve (12) months commencing with January I tuid ending
on the following December 31 according to the Gregorian calendar,
"Capital Expenditures” means expenditures of a capital nature in accordance with generally
accepted accounting principles and standards of the international petroleum industry;
■Commercial Discovery" means a discovery of Petroleum that has been declared commercial in
accordance with the provisions of this- Agreement;
•Commercial Production" occurs on the first day of the first period of thirty (30) consecutive
days of regular production according to the Development Plan;
"Coatract Area" means the area specified in Annex A which is in part of the Territory, but not
any part of it which has been relinquished under Article 10. and which has been exclusively
allocated by the Government to the Contractor,
"Contractor" means Wcstcm/agros Limited, a wholly owned subsidiary of Western Oil Sands
Inc, subject to assignment pursuant to Section 20.1;
"Contract Year" means a period of twelve (12) t 12:01 am. on January 1
and ending at 12:01 am. on the following January I according to the Gregorian calendar,
provided that the first Contract Year commences at 1201 the Effective Date, and ends at
12:01 am on the January 1 of the first Gregorian calendar year to
I to the Effective Date;
"Control* means, in rciatioo to a corporation, the power of another corporation to secure
(a) by means of the bolding of share, or the possession of voting power in or in
relation to the first corporation or any other corporation; or
(b) by virtue of any power conferred by the articles of association of, or any othrr
document regulating, the first corporation or any ocher corporation,^^ ,
(hat the allairs of the first corporation arc conducted in accordance with the wishes or directions
of that other corporation;
•Cost Recovery Cat* has the meaning given in (as appropriate) Section 6.1.42 or Section
6242;
■Cost Recovery Oil" has the meaning given in (as appropriate) Section 6.1.4.1 or Section
62.4.1;
"Cost Recovery Statement" has die meaning given in Clause 7 of Annex B;
■('rude OH" means crude mineral oil and all liquid hydrocarbons in their natural state or
obtained from Natural Gas by condensation or extraction; and shall include all other substances
produced in association with crude mineral oil and liquid hydrocarbons;
'Crude Oil Field" means:
(a) a single Reservoir; or
(b) multiple Reservoirs all grouped on, or related to, the same geological structure, or
stratigraphic trap, und includes all Reservoirs that may be located above or
beneath the geological structure or stratigraphic trap,
from which Crude Oil and Associated Gas may be produced;
’Delivery Poinl" means the point at which Crude Oil produced from the Contract Area is
delivered into the regional or federal transportation system, in order to permit its ultimate
delivery to on Iraqi Export Point;
'Development' means any development, including design, construction, installation, dnlling
and supporting operations and all related activities;
‘Development Costs" has the meaning given in Clause 2.3 of Annex B;
'Development Work Program and Budget" has the meaning in Section 4.16;
"Development Area’ has the meaning given in Section 4.14;
Development Plan' has the meaning given in Section 4.15;
"Discovery" means a discovery of Petroleum in a Reservoir, structure or stratigraphic trap in
which Petroleum has not previously been found that is recoverable at the surface in a flow
measurable by conventional petroleum industry testing methods;
‘Dollars’ or "USS" mean the lawful currency of the United States of America;
' Effective Date" has the meaning given in Section
etsa :oom>s«i
5
-EHN PUn” mean* the environment health and safety plan proposed by Contractor and
^pnned by the Management Committee in accordance with Section 4.17;
"Exploration' means any exploration activities including geological, geophysical, geochemical
and oilier surveys, investigation* and tests, and the drilling of shot holes, core lioles, stratigraphic
tests, exploration wells and other drilling nnd testing operations for the purpose of niuking a
Discovery, and all rclnted activities;
"Exploration Costs" hat the meaning given in Clause 2.1 of Annex B;
"Exploration Phase* means a period of up to ten Contract Years, comprised of the First
Exploration Period, the Second Exploration Period and the Ihird Exploration Period.
"Exploration Wall" Is any well drilled on a previously undrillcd structure or stratigraphic trap
with no existing proven, probable oi possible reserves; a well drilled on a previously drilled
structure to evaluate deeper or by-passed shallow reservoir hydrocurbon potential; or any well
drilled further than 5 kilometres from an existing wellbore;
"Exploration Work Program and Budget" has the meaning given in Sections 4.1,4.6 and 4.7;
"Kirld" means a Gas Field or a Crude Oil Field from which Petroleum may be produced;
'Field Export Point" means the point within the Contract Area at which Petroleum produced
pursuant to this Agreement, having gone through field level separation, is made ready for sale.
Author processing or transportation or such other point as designated in an approved
Development Plan;
'Field Price' has the meaning given in Section 8.1;
'First Exploration Period* means a period beginning at the Effective Date and continues op
to. but no longer than, the end of the fourth Contract Year.
"f.o.b." means “free on board";
"Force Majeure" has the meaning given in Article 19;
"Foreign Exchange" means US$ and/or other freely convertible foreign currency generally
aocepted in the international hunking community;
*Ga« Field" means:
(a) a single Reservoir; or
(b) multiple Reservoirs grouped on, or related to, the some geological structure, or
stratigraphic trap, and includes all Reservoirs that may he located above or
beneath the geological structure or stratigraphic trap,
from which Non-Associated Gas may be produced;
"Gm Retention Area" has the meaning given in Section 10.5;
to those experienced in connection with the relevant aspect or aspects of the Petroleum
Operations, including, without limitation. API. ASTM, IADC. ISO. IAD and ADI standards and
practices. a» applicable, and other standards and practices as approved by the Management
Committee, principally aimed at ensuring:
adequate methods and processes to maximize the recovery percentage
*8,3,
hydrocarbons in a technically and economically sustainable manner, and
minimize losses at the surface;
(b) operational safety, which entails the use of methods and processes that promote
occupational health and the prevention of accidents, aad includes making
facilities and personnel secure from threats and actions of hostile interests,
(c) environmental protection, that calls for the adoption of methods and processes
which minimise the impact of the Petroleum Operations on the environment, and
(d) decommissioning of equipment and property the end of production, which
entails efforts to abandon, decommission, transfer, remove and/or dispose of
structures, facilities, installations, equipment and other property, and other works.
used in Petroleum Operations in the area, to make the area safe and to protect the
environment, und to remediate and reclaim the area such that the ability of the
nren to support various land uses after the remediation and reclamation is similar
to the ability that existed prior to the Petroleum Operations being conducted on
the urea;
"Government” means the Kurdistan Regional Governxncnt-lraq'Sutaiuny Administration,
responsible (inter alia) for the administration of Petroleum activities in the Territory any *dy
constituted successor body thereto; and It shall include any minister, ministry, agency,
department or other duly constituted organ thereof;
'Ineligible Costs' has the meaning given in Clause 2.7 of Annex B;
'Iraqi Export Point" means cither the point at the inlet flange of the receiving tank ship at the
loading terminal In the eastern Mediterranean or the point at the inlet flange of the receiving tank
ship at the loading terminal in the Arabian Gulf;
'Joint Operating Agreement- means, if there is more than one corporation comprising
Contractor, any or contract among all of such corporations with
respective rights or obligations under the Agreement, as such agreement or contract may be
amended or supplemented from time to time.
*KRG' means the unified government of the Federal Region of Kurdistan to be coomfixed and
appointed subject to and pursuant to the Unification Agreement of 23 January 2006;^g
7
“LIBOR* means the London Interbank Offer Rate for Dollar deposits, as puWished in London
by the Financial Times or, if not so published, then as published in New York by The Wall Street
Journal;
“Loan FacUlty" means any overdraft, loon or other financial facility or accommodation
(including any acceptance credit, bond, note, bill of exchange or commercial paper, finance
leaie, hire purchase agreement, trade bill, forward sale or purchase agreement, or conditional
having the commercial effect of a borrowing);
given in Section 3.1;
given in Clause 2.6 of Annex B;
'Natural Gas* means all gaseous hydrocarbons, including wet mineral gas, dry
head gas and residue gas remaining after the extraction of liquid hydrocarbons from wet
but not Crude Oil; and shall include all other substances produced in
“Net Available Crude OH" for a Development Area means Available Crude Oil produced from
l Area less the quantity of Royalty Oil determined for that Development Area;
Gns;
‘Neo-Associated Gas
"Oil Retention Am" has the meaning given in Section 10.6;
“Operating Costs’ has the meaning given in Clause 2.4 of Annex B;
’’Operator" means Contractor, or where there is more than one corporation comprising
Contractor, the corporation appointed from time to time to organize and supervise Petroleum
Operations,
’’Ordnance" has the meaning given in Section 11.1.8;
’Petroleum" means:
(a) any naturally occurring hydrocarbon, whether in a gaseous, liquid, or solid state;
(b)
any mixture of naturally occurring hydrocarbons, whether in a gaseous, liquid or
solid state; or
any mixture of one or more naturally occurring hydrocarbons, whether in a
(c)
gaseous, liquid or solid state, as well as other substances produced in association
with such hydrocarbons,
■Petroleum Operation." means any activity authorised by the
includes:
s
and S^rtmg*Penotam'prwSoS^frwi the Contract Ana. and
exporting from the Republic of Iraq; and
but not Development.
"Production Statement has the meaning given in Clause 5.1 of Annex B;
"Profit Gas' has the meaning given in (as appropriate) Section 6 I .* or Section 6-2.1;
"Profit Oil" has the meann^ given in (as appropriate) Section 6.1.7 or Section 6.2.7;
'Quarter" means a period of three months beginning on January I, Apnl I. July 1 or October I
of each Gregorian Calendar Year.
'Recoverable Coats' has the meaning given in Article 12,
■Reservoir" means a porous and permeable underground formation containing an individual and
separate natural accumulation of producible h>drocarboos (Crude Oil or Natural Gas or both)
that is confined by impermeable rock and/or water barriers and is characterized by an initial
single natural pressure system:
"Royalty Oil' has the meaning given in (as appropriate) Section 6 1.3 or Section 6.2 3;
"Sccuad Exploration Period" means a period beginning on the first day of the fifth Contract
Year and continuing up to, but no longer than, the cod of the seventh Contract Year,
"Seconder" means an employee of the Government who is sccoodcd to Contractor pursuant to
Section 5.3.4 to provide services under a secondment agreement to be negotiated and entered
into between Contractor and the Government;
"Territory ' means, for purposes of this Agreement, the area of the Federal Region of Kurdistan
at the date hereof administered by the Government;
Third Exploration Period" means a period beginning on the first day of the eighth Contract
Year and continuing up to, but no longer than, the end of the tenth Contract Year.
T1A. ( on*umer Price Index* means the consumer price index published by the US Bweaa of
Labor Statistics;
•Value of Production and Pricing Statement' has the meaning given in Clause 6.1 of
B; and
9
"Work Program and Hudgct" means a work program for Petroleum Operations and budget
therefor approved in accordance with this Agreement.
12 Heading*
As used herein, heudings are for convenience and do not form a part of; and shall not affect the
interpretation of, this Agreement
1.3 Further Interpretation
In this Agreement, unless tire context otherwise requires:
13.1 the words ’including" and ‘in particular" shall be construed as being by way of
illustration or emphasis only, and shall not be construed as. nor shall they take effect as.
limiting (lie generality of any preceding words;
1-3.2 a reference to an Article, Section, or to an Annex, is to an Article, Section, of or to an
Annex to. this Agreement;
1.3.3 u reference to an agreement (including this Agreement) or instrument, is to the same as
amended, varied, novated, modified or replaced from time to time, according to this
Agreement and as approved by the parties;
1.3.4 the singular includes the plural, and vice versa;
I -3.5 any gender includes the other;
1.3.6 an agreement includes an arrangement, whether or not having the fare* of law.
1.3.7 a reference to the consent or approval of the Government means the consent or approval
in writing, of the Government and in accordance with the conditions of that consent or
approval;
13.8 "contiguous area" means a geographic area, or a number of areas each having a point in
common with another such area, and
13.9 where a word or expression is defined, cognate words and expressions shall te construed
and this Agreement shall enure to the benefit and burden of the parties, their respective
successors and permitted assigns
1.4 Annexes
If there is a conflict, the main body of this Agreement prevails over an Annex.^/g
10
,5 Operator
1.5.1 Ifre Contractor is appointed us the Operator. If ot some future time there is more than
ooc corporation comprising Contractor, then one of them shall be appointed as the
Operator. The change or an Operator by Contractor shall require the agreement of both
parties, and neither party shall unreasonably withhold or delay its approval of such an
agreement.
1.5.2 For all purposes of this Agreement, the Operator shall represent Contractor, and the
Government may deal with, and rely on. the Operator. The obligations, liabilities, acts
and omissions of the Operator are. additionally, the obligations, liabilities, acts and
omissions of Contractor.
I
|
1.5.3 The Operator shall operate under this Agreement from un office located in the Territory.
ARTICLE 2
SCOPE AND TERMINATION
2.1 Scope
2.1.1 Ihe law applicable to this Agreement is the Law of the Republic of Iraq as applied and
administered in the Federal Region of Kurdistan, to the extent consistent with
international law, as defined in Article 38 of the Statute of the International Court of
Justice ("Applicable Law"). Contractor shall, ut all times and in regard to all Petroleum
Operations, comply with its obligations under Applicable Lnw
2.1.2 Subject to this Agreement, Contractor shall:
2.1.2.1 have the exclusive right to carry on Petroleum Operations in the Contract Area
at its sole coat, risk and expense according to an approved Work Program and
Budget;
2.1.2.2 provide all human, financial and technical resources for Petroleum
Operations; and
2.1.2.3 share in Petroleum from the Contract Area
2.1.3 Contractor is not authorised to carry on Petroleum Operations in any port of Territory
outside the Contract Aren, except to the extent that such Petroleum Operations or other
activities are necessary or desirable for the exploration, development, processing,
transportation, marketing or export of Petroleum produced from the Contract Area.
2.1.4 It is acknowledged that Contractor's activities under Section 2.1.3 are to be included in
Work Programs and Budgets approved pursuant to Article 3^^*
I’m 20064)$-61
22 < o*dmo-» Precedent
•mplcmcntariun of the provisions of this Agreement is coodibocal ipoo the following:
2_*. 1 ratification according to a law which will be issued for this purpose by the KRG pursuant
with ten set out in Annex E; and
2.2 2 approval and ratification within fourteen (14) days of the date of this Agreement by the
board of directors of the Contractor of the terms and conditions of this Agreement.
2.3 Khedive Date and Termination
2.3.1 fbc effective date of this Agreement is the date on which the conditions precedent set out
m Section 2.2 has been satisfied (’Effective Dale’)
2.3.2.1 all of the Contract Area being relinquished pursuant to Article 10;
2.3JJ the parties so agreeing; or
2 3.2J termination pursuant to Section 2.4.
2.4 Grounds for Termination
The Government may terminate this Agreement
2.4.1.1 Contractor is insolvent, is adjudged bankrupt or makes any assignment for the
benefit of its creditors, ot is adjudged to be unable to pay its debts as tltc same
fall due;
2.4.1.2 a petition is filed in a court having jurisdiction or an order is made, or an
effective resolution is passed, for the dissolution, liquidation or winding up of
Contractor,
2.4.1.3 a receiver is appointed or an encumbrancer takes possession of a majority of
the assets or undertaking of Contractor; or
2.4.1.4 Contractor ceases or threatens to cease to carry on its business or execution is
forced against all or a majority of Contractor's property and is not discharged
within fourteen (14) days.
•re is more than one corporation comprising Contractor, and only one of those
rations is bankrupt or otherwise affected as in Section 2.4 1. then this Agreement
not terminate if the other corporation(s) composing Contractor provide a written
2,4.1.5 £irv\^Ynahr' -fOa-TU -fo ow\»'vev\.ce
•H-o &cplooa£;0r\ Work. fro^ra^v\
ff3AM0H»«l itva ofXgr ~c •
12
commitment that they will assume and be liable lor tlw obligations of the bankrupt or
otlierwisc affected corporation;
14.2 on thirty (30) day* written notice to Contractor if Contractor is in material default under
this Agreement in respect of a nutter involving deliberate and intentional default by
Contractor and where Contractor's performance is not affected by circumstances beyond
its control, and Contractor does not, within dial thirty (30) days, commence steps to
remedy the default, and proceed continuously to remedy the default; provided that if
Contractor gives written notice to the Government during that thirty (30) day period that
it will require an additional thirty (30) day* in order to commence to remedy the default,
together with justification for this additional period, then the Government has the light to
grant an extension to sixty (60) duy* from the date of written notice, which extension
shall not be unreasonably withheld by the Government, The time period for remedy of a
default shall be suspended during periods of Force Majeure, and during any period when
Contractor is disputing the occurrence of the default and such dispute is being dealt with
pursuant to Article 15; and
2.4.3 on sixty (60) days written notice to Contractor if Contractor is in material default under
this Agreement and docs not. within that sixty (60) days, commenco steps to remedy the
default, and proceed continuously to remedy the default to the satisfaction of the
Government; provided that if Contractor gives written notice to the Government during
that sixty (60) day period that it will require an additional thirty (30) days in order to
commence to remedy the default, together with justification for this additional period,
then the Government has the right to grant an extension to ninety (90) days from the date
of written notice, which extension shall not be unreasonably withheld by the
Government. The time period for remedy of a default shall be suspended during periods
of Force Majeure, and during any period when Contractor is disputing the occurrence of
the default and such dispute is bring dealt with pursuant to Article 15.
2.5 Surviving Obligations
Termination of this Agreement for any reason, in whole or in part, shall be without prejudice to
rights and obligations expressed in this .Agreement to survive termination, or to rights and
obligabons accrued under this Agreement prior to tenninatioc, and ail provisions of this
Agreement reasonably necessary for the full enjoyment and enforcement of those rights and
obligations shall survive termination for the period so necessary. For greater certainty, the
following provisions of this Agreement shall survive termination; Article 9; Article 13; Section
14.1.1, Section 142; Article 15; Section 162; Section 16.5; Section 16.6; Section 16.7; Article
17; and Section 18.1.
ARTICLE 3
MANAGEMENT OF OPERATIONS
3.1 Constitution of Management Committee
For the purpose of this Agreement there will be a committee (foe ’Management Committee') ,
consisting of three representatives from the Government, and dree representatives fivmpf £
13
Contractor, as nominated by the Government and Contractor, respectively. The representatives
of Contractor shall include at least one person who is an executive officer of Contractor. For
the absence of the representative. The Government shall appoint one of its representatives as the
Chairman of the Management Committee, and Contractor shall appoint one of its representatives
as the Vice-Chairman. If the Chairman is absent at a meeting of the Management Cornminee, the
Vice-Chairman shall sene as chairman for that meeting. The Management Cornminee shall be
formed within thirty (30) days after the Effective Date.
32 Mlrtsp
3 2.1 The Management Committee will meet on a regular basis and at least once every two
months, in secure, reasonably accessible locations as the parties may agree. Any member
of the Management Committee may participate in a meeting by conference telephone
such that all members of the meeting can be heard; provided tha, at least ooe meeting
each Quarter shall occur with all members attending in person. A quorum for a meeting
of the Management Committee shall be two representatives of each party, including at
least ooe of the Chairman and the Vice-Chairman. During the first six months following
the Effective Date, the Management Committee will meet as often as necessary. The
Management Committee's duties are the following
3.2.1.1 examining and approving the Work Programs and Budgets for the following
year which Contractor is required to submit under Article 4;
3.2.12 reviewing and approving any amendments to a Work Program and Budget
proposed or agreed by cither party;
3.2.1.3 reviewing the progress of Petroleum Operations under the current Work
Programs and Budgets,
3.2.1.4 upon application by Contractor, to declare that a Discovery is a Commercial
Discovery;
3.2.1.5 examining and approving any Development Plan suteuned by Contractor
under Article 4. or any amendment to a Development Plan proposed or agreed
by either party;
3.2.1.6 retaining external independent consultants and experts where the parties agree
that independent verification is oecessary,
3.2.1.7 establishing appropriate subcommittees to meet from time to time which will
report to the Management Committee, and reviewing such subcommittees
annually for necessary changes to the procedures and representatives of (he
subcommittees;
3.2.I.8 reviewing Contractor's proposed details of a marketing policy consistent with /
the marketing provisions of Article 6 and Article 7 and all Development £
14
32.1.9 approving the purchase of any individual item within an approved Work
Program and Budget if its price is higher than Five Hundred Thousand
(US$500,000) Dollars or a group of identical items purchased simultaneously
if the total price is higher than One Million (US$ 1,000,000) Dollars;
3.2.1.10 approving the renting or leasing of any equipment, or any engineering or other
service contract within an Work Program and Budget if its annual price is
higher than Five Hundred Ihousand (US$500,000) Dollurs;
3.2.1.11 establishing the internal policies and procedures of the Management
Committee, and reviewing the policies, procedures and representatives of the
Management Committee for necessary changes;
3-2.1.12 discussing the compliance of die Government und Contractor with their
respective obligations under this Agreement;
32.1.13 reviewing the proposed insurance program of Contractor under Section 18.2;
and
32.1.14 discussing any other matter relating to Petroleum Operations as delegated to
Management Committee under this Agreement
3.22 Contractor or the Government may request a meeting of the Management Committee at
any time by giving written notice to the chairman. Such notice shall include a lull
description of the purpose of the meeting. The chairman shall thereupon call such
meeting by giving fifteen (15) days notice thereof. During the first six months following
the Fflective Dale, this notice period ia reduced to forty-eight (4*) hours for meetings
that are conducted by conference telephone.
32.3 Decisions of the Management Committee shall be made by a single vote cast by the
Government's representatives and a single vote cast by Contractor's representatives. All
decisions of the Management Committee require that both votes be cast in favour. If the
Management Committee foils to approve:
32-3.1 Contractor's request to declare a Discovery to be a Commercial Discovery;
32.32 a Work Program and Budget or a proposed amendment thereto;
32J.3 a Development Plan or a proposed or agreed amendment thereto,
32.3.4 Contractor’s request to approve the purchase of any individual item or a group
of identical items purchased simultaneously pursuant to Section 32.1.9. or
32.3.5 Contractor's request to rent or lease of any equipment, or any engineering or
other service contract pursuant to Section 3.2.1.10.
then cither party shall be entitled to refer the mutter for senior management negotiatio
pursuant to the provisions of Section 15.2.
t ARTICLE 4
y WORK PROGRAMS AND BUDGET
v«
4.1 Commitment in FliH Exploration Period
During the First Exploration Period. Contractor shall carry out an Exploration Work Program
and Budget which shall include at least the following work:
4.1.1 acquisition of not less than 2000 km of 2D seismic data within two (2) years of the
Effective Date, acquired with a grid of average spacing of three kilometres, or as
determined to be suitable by the Management Committee, and a minimum of 120 trace
recording and record length of not less than six seconds (two way time TWT);
4.1.2 other geological, geophysical (including well velocity surveys) and geochemical studies;
and
4.1.3 the drilling of not less than three Exploration Wells, with the intent of at least one of such
wells penetrating formations of Jurassic age in order to test their commercial
prospectivity.
The intention of this Exploration work program is to make Discoveries as early as possible and
appraise such Discoveries as expeditiously as possible in order to establish Commercial
Discoveries, resulting in early production and export of Petroleum from the Contract Area, as
illustrated in Annex C.
42 Exploration Wells during First Exploration Period
The drilling of Exploration Wells during the First Exploration Penod shall occur in accordance
with the most aggressive schedule allowed by the employment of qualified personnel aod
availability of suitable equipment, and the operating conditions m the Territory and the Contract
.Area Contractor shall comply with the following schedule:
4.2.1 Contractor will commence to identify and mobilise a drilling rig and crew and all
associated supporting equipment and services immediately after the Effective Dale in
order to commence work on the first Exploration Well at the earliest possible date, but
not later than twelve months after the Effective Date;
4 2-2 commence drilling of the second Exploration Well not later than twelve months
following rig release of the first Exploration Well;
423 if the first Exploration Well is not a Discovery. Contractor will commence drilling of the
third Exploration Well at the earliest possible date, but not later than twelve months
following rig release of the second Exploration Well.
42.4 if the third Exploration Well is a Discovery. Contractor will comply with the provisions
of Section 4.4. and advise the Government not later than three months after rig release
from the third Exploration Well whether it intends to conduct the drilling of further
Exploration Wells; on^/
S
I .PSA MM OWI
16
4 2.5 if the third Exploration Well i* not a Discovery, advise the Government not later than
three months after rig release from the third Exploration Well whether it intends to
conduct the drilling of further Exploration Wells.
4.3 Testing of Selected Structures
If Management Committee determines that there is sufficient technical information supporting
the drilling of Exploration Wells on the Shakal, Kaltr and/or Daquq-Bowanoor structural trends,
then subject to approval of the Exploration Work Program and Budget by the Management
Committee, the Exploratory Wells to be drilled pursuant to Section 4.1 will be performed so as to
result in:
4.3.1 the drilling of one Exploration Well into a structure identified by Contractor in the Shakal
structural trend;
4.3.2 the drilling of one Exploration Well into a structure identified by Contractor in the Kalar
structural trend; and
4.3.3 the drilling of one Exploration Well into a structure identified by Contractor in the
Daquq-Bownnoor structural trend,
all Exploratory Wells targeting these structural trends will be at locations of Contractor’s choice.
4.4 Appraisal Program
If during the First Exploration Period an Exploratory Well results in a Discovery, then subject to
shall commence to appraise the Discovery in accordance with the following schedule:
4 4.1.1 commence to identify immediately after declaration of the Discovery and
contract and mobilize a seismic crew at the earliest possible date, bet no hw
than three months after the declaration of the Discovery; and thereafter
promptly commence such infill 2D or 3D seismic surveys (or both) as
Contractor determines to be appropriate in the circumstances; or
4.4.1.2 commence drilling of the first Appraisal Well of the Discovery at the earliest
possible daze, but no later than the later of:
4.4.1.2.1 two months following rig release from the Exploration WcO
which was declared to be a Discovery; and
4.4.1.2.2 three months following completion of interpretation of any
infill 2D ef 2D qr 31) seismic survey s which Contractor has elected to
provided thai if Contractor elects to conduct a seismic survey, tbc drilling ol
any Appraisal Well is contingent on Contractor's satisfaction with tbc results
of the aeismic survey;
jf Contractor determines that the results of the first Appraisal Well warrant farther
appraisal activity, Contractor may either:
4.4.2 I commence drilling of second Appraisal Well at the earliest possible date, hut
not later than two months following rig release from the first Appraisal Well;
or
4.4.2 2 conduct such infill 2D or 3D seismic surveys (or both) as Contractor
determines to be appropriate in the circumstances, and contingent on
Contractor’s satisfaction with the results of the seismic survey, commence
drilling of a second Appraisal Well at the earliest possible date, but not later
than six months following completion of interpretation of such infill 2D or 3D
seismic surveys, provided that if Contractor elects to conduct a seismic
survey, the drilling of any Appraisal Well is contingent on Contractor's
satisfaction with the results of the seismic survey; and
4 4 3 if Contractor determines that the results of the second Appraisal Well warrant farther
appraisal activity. Contractor may cither:
4.4.3,1 commence drilling of the third Appraisal Well at the earliest possible dale, but
not later than two months following rig release from the second Appraisal
Well; or
4 4 1.2 conduct such suitable infill 2D or 3D seismic surveys (or both), and
contingent on Contractor's satisfaction with the results of the seismic survey,
commence drilling of a third Appraisal Well at the earliest possible dale, but
not later than six months following completion of interpretation of such infill
2D or 3D seismic surveys.
4.4.4 Depending on tbc results of any Appraisal Well or 2D or 3D seismic surveys. Contractor
may:
4.44.1 request that the Management Committee declare a Discovery to be a
Commercial Discovery; or
4.4 4.2 cease drilling Appraisal Wells and conducting other geological, geochemical
and geophysical surveys if Contractor determines that Discovery is not a
Commercial Discovery; provided that Contractor may. in appropriate
circumstances, declare that the Discovery is an Oil Retention Area or Gas
Retention Area; or
4.4.4.)
in*
IR
the Discovery is a Commercial Discovery, an Oil Retention Area or a Gas
Retention Area
4.5 Kactors Affecting Schedule of K.iploration and Appraisal Activities In the First
Exploration Period
Neither parry shall introduce any unnecessary delays that will hinder the performance of the
Exploration and Appraisal activities described in Sections 4.2 and 4.4, and will direct their
representatives on the Management Committee to reflect the intent of Sections 4.2 and 4.4 in the
approvals and decisions coming before the Management Committee.
The parties acknowledge that circumstances may ulTcct the ability of Contractor to meet the
desired schedule of Exploration and Appraisal activities as contemplated by Sections 4.2 and 4.4.
fhese circumstances include:
4.5.1 the availability of qualified personnel for Contractor or its subcontractors to perform
Exploration work;
4 5.2 the availability1 of seismic crews and equipment for the conduct of Exploration work in
the Contract Area;
4.5.3 the availability of drilling crews and rigs suitable to the conditions of the Contract Area
and the expected depths, pressure conditions and other circumstances involved in drilling
to the structural trends described in Section 4.3, and meeting the health, safety and
environment standards of Contractor and the Government;
4 5 4 the availability and schedule for delivery of drill pipe, drill bits, drilling mud and other
drilling services, including well logging.
4 5.5 the operating conditions in the Territory and the Contract Area;
4 5.6 the ability to mobilize crews, equipment and materials to the Contmct Area and within
the Contract Area; and
4.5.7 any other circumstances that result in delays to the schedule of Exploration and Appraisal
work and that is outside of the reasonable control of Contractor.
45* If there is a delay for any of the above reasons that affect the ability of Contractor to meet
the desired schedule of Exploration and Appraisal activities as contemplated by Sections
42 and 4 4, then there will be an extension to the performance time for such activities by
• number of days equal U> the duration of the delay caused 3 such
need to declare the occurrence of an event of Force Majcure s
usaw*o»«
4.6 Commitment in Second Exploration Period
During the Second Exploration Period, Contractor slull carry out an Exploration Work Program
and Budget which shall include at least the following work:
4.6.1 acquisition of 1,000 kni of 2D seismic data within eighteen (18) months of the
commencement ol the Second Exploration Period or an equivalent amount of 3D seismic
data as determined to be suitable by the Management Committee, acquired with a
minimum of 120 truce recording and record length of not less than six seconds (two way
time TWO;
46.2 such other geological, geophysical and geochemical studies (including without limitation
3D seismic) as determined to he suitable by Contractor; and
46.3 ilie drilling of three Exploration Wells, if Contractor determines there is sufficient
technical informution to support the drilling of such Exploration Wells.
4.7 Commitment in Third Exploration Period
During the Third Exploration Period. Contractor shall carry out an Exploration Work Program
and Budget which shall include at least the following work:
4.7.1 acquisition of 500 km of 21) seismic duta, acquired with a minimum of 96 trace recording
and record length of not less than five seconds;
4.7.2 such other geological, geophysical and geoclietnical studies (including without limitation
3D seismic) as determmed to be suitable by Contractor, and
4.7.3 the drilling of three Exploration Wells, if Contractor determines there is sufficient
technical information to support the drilling of such Exploration Wells.
4.8 Performance of Exploration Work Program and Budget
4.8.1 If any wdl forming part of the Exploration Work Program and Budget provided for in
this Article 4 is abandoned for any reason other than a reason specified in Section 4.8.2
before reaching the defined objectives of such well. Contractor is permitted to drill a
substitute well. In this event, the First. Second or Third Exploration Period, as the case
may be. shall be extended by a period of time equal in length to the time spent in
preparing for and drilling the substitute well, including mobilisation and demobilisation
of the drilling rig. if applicable. The time of commencement of a substitute well will be
treated as the time of commencement of the wdl that it replaces.
4.g.2 Any well which forms part of the Exploration Work Program and Budget provided for in
this Article 4 shall be drilled to such depth as is necessary for dm evaluation of the
structural treod established by the available data and which Good Oil Field Practices and
idgement would require Contractor to attain, unless before
20
a formation stratigraphically older than the deepest target formation is
encountered, or
repeated stratigraphic formations typical in u geological fold and thnut belt
are encountered so as to indicate to Contractor that the well is unable to reach
its target horizon; or
further drilling would present an obvious danger, such as but not limited to the
presence of abnormal pressure or excessive losses of drilling mud
(recognizing that Contractor needs to be prepared with a dnlling assembly and
drilling mud system to contain well pressures of up to 10,000 psi for the first
Exploration Well, and also be prepared for lost circulation zones expected to
be encountered in the shallow drilling section); or
4 8.2.4 impenetrable formations or formations of unexpected hardness as to render
them functionally impenetrable are encountered; or
4.8.2.5 Petroleum-bearing formations arc encountered which require protection by
running casing or liner, thereby preventing planned depths from being
reached; or
4.8.2.6 Contractor nnd the Government agree to terminate the drilling operation; or
4.8.2.7 the Government confirms that the drilling obligation has been fulfilled
In such circumstances the drilling of any such well may be terminated at a lesser depth
and shall be deemed to have satisfied Contractor’s obligations in respect of that well.
4.9 Consequences of Non-Performance
4.9.1 If. in 3 Contract Year. Contractor carries out less Exploration activity than it intended to
conduct under the Exploration Work Program and Budget for that Contract Year, the
shortfall shall be added to the Exploration Work Program and Budget to be carried out in
the next Contract Year; provided that, if Contractor performs less Exploration activity
than it is required to perform in any Exploration Penod. this Sector 4.9.1 shall not have
the effect of relieving Contractor of its obligation to perform the required amount of
Exploration in such Exploration Period without the written consent of the Government.
4.9J If, in a Contract Year. Contractor carries out more Exploration activity than b required of
it under the Exploration Work Program and Budget for that Contract Year, the excess
shall be credited against Exploration activity to be carried out in the following Contract
Year and. to the extent in excess of that Exploration activity, shall be further carried
forward, including to a subsequent Exploration Period.
4.9J For the purposes of the foregoing provisions of this Article 4 and Annex B. and except
with the consent of the Government, no work in a De\ dopment Area will be regarded as
Exploration except in respect of a Reservoir in which no Dixovery has been maAcgft
• 4l0 Wori Proera-* Budgets
Sobjort injSec6ao4.il. Contractor shall cany oat Petroleum Operations substantially in
' '5’ fcoordanoj with Work Programs and Budgets approved by the Management Committee. Sach
an jffrmal by the Management Committee is without prejudice to any other obligations or
i liabilities of Contractor under this Agreement Contractor will prepare Work Programs and
Budgets ifl accordance with Good Oil Field Practice and reflecting prevailing conditions in die
industry.
■->' 4.11 Emergency and Other Expenditures Outside Approved Work
4.11.1 Without further approval by Management Committee, the total of all over-expenditures
under any Wort Program and Budget for any of the first four Contract Yean shall not
exceed twenty’ percent (20%) of the total expenditures in that Work Program and Budget,
and for any subsequent Coatract Year shall not exceed ten percent (10%) of the total
expenditures in that Work Program and Budget
*1.11.2 Contractor shall promptly inform the if it (or
reasonably anticipate) that any such Section 4.1 I I will be a
the manner provided in this Article 4. to the Work
and Budget
4.11.) In determining whether to approve the over-expenditures contemplated in Section 4.11.1,
the Management Committee shall consider whether such increases are necessary to
complete the program of works, provided that such increase is not the result of any failure
of Contractor to fulfil its obligations under this Agreement
4.11.4 Nothing in Section 4.10 or Section 4.11.1 precludes or excuses Contactor from taking aU
necessary and proper measures for the protection of life, health, the environment and
property if in Contractor's sole opinion there is an emergency or sobstantial ndc of an
emergency (including a fire, explosion. Petroleum release, or sabotage; incident
involving loss of life, senous injury or substantial risk of lorn of life or senous injioy to
an employee, contractor or third party, or serious properly damage; strikes and riots; or
evacuation of the Operator's personnel). As sooo as reasonably practicable, the Operator
will inform the Government of the details of the emergency and of the actions it has taken
and intends to take.
4.11.5 dial it is not possible practically to •
which may arise during the term of this Agreement and they admit
to exert all the proper efforts to overcome any emergency
wherever there is no provision specifically addressing the situation in this
4.12 Exploration
4.12.1 Contractor shall submit annually, for the approval of the Management Committee, at least a
sixty (60) days before the beginning of the following Contract Year, the Explore tior^
IPSA
\ Work Programs and Budget* required by Sections 4.1, 4.6 and 4.7 for each Contract
i ■ Year.
4.12.2 From time to time, Contractor may submit, for the upproval of the Management
Committee, amendments to the Exploration Work Program and Budget.
4.12.3 Contractor is not obliged to carry out more Exploration in any Iixploratiun Period than is
required by Section* 4.1. 4.6 und 4.7. Contractor'* obligations to perform Exploration
duriug the First Exploration Period shall be treated as having been fulfilled at the earlier
of (i) Contractor having acquired 2000 km of 2D seismic data and drilled three
Exploration Wells; or (ii) Contractor having expended in the uggrcgatc USS40.000.000
on acquisition of 2D seismic data, conduct of geological, geophysical and geochemical
studies (including without limitation 3D seismic) and the drilling of Exploration Wells
AHer the end of the First Exploration Period, if Contractor has relinquished all of the
lands In the Contract Area other than such pans thereof as arc composed in a
Development Area, a Gas Retention Area or an Oil Retention Area, then Contractor shall
not be required to cany out any further Exploration, and the Exploration Phase shall end.
4.13 Discovery and Appraisal
4 13.1 Contractor aluril notify' the Government immediately of the results of a Discovery
4 13.2 As soon as reasonably practicable alter u Discovery is mude that, in Contractor's opinion
having regurd to Section 4.13.4, merits Appraisal, Contractor shall submit, for the
approval of the Management Committee, an Appraisal Work Program and Budget for the
Contract Year in which the Discover)1 wus made and for the following Contract Year if
necessary, or in tl»e case of a multi-year Appraisal Work Program, fix each of the
following Contract Years; provided that, if the parties shall not have agreed commercial
terms as set forth in Section 6.1 8 or Section 6.2.8. the undertaking of any Appraisal of a
Discovery of Noo- Associated Gas shall be at the discretion of the Contractor.
4.I3J From time to time Contractor may submit, for the approval of the Management
Committee, amendments to the Appraisal Work Program and Budget.
4 13.4 Ac Appraisal Work Program and Budget for a Contact Year will be such as would be
undertaken by a corporation Kicking diligently to appraise (in accordance with this
Agreement and Good Oil Field Practice) a Discovery with a view to determining if it is,
either alone or in combination with other Discoveries, a Commercial Discovery. Unless
Management Committee otherwise directs following a detailed report prepared by
Contractor assessing whether the Discovery should be appraised. Contractor shall have
no obligation to appraise a Discovery where expected production volumes and current
prices for Petroleum suggest that it would not be economic to pursue development of the
Discovery.
4.14 Commercial Discovery
4.14.1 Contractor may, at any time and having regard to Section4.14.2, propose^*! the
Management Committee declare thut a Commercial Discovery has been "““sfS
8FSA IMHHH-OI
data and informant®, in accordance with Good Oilfield Practice, including Contractor's
proposal as to that part of the Contract Area to be declared a "Development Area".
Contractor’s proposal for the Development Area will be a single contiguous area
encompassing the Field in which the Commercial Discovery has been made, plus a
reserve margin sufficient to cover the probable and possible extent of it, in accordance
with Good Oil Field Practice.
4.14.3 The Management Committee shall within thirty (30) days confirm declaration of a
Commercial Discovery and the Development Area proposed by Contractor, or propose its
revision to the areas, having regard to the requirement to encompass the Field in which
the Commercial Discovery has been made, plus a reserve margin sufficient to cover the
probable and possible extent of it, in accordance with Good Oil Field Practice. If the
Management Committee docs not approve the declaration of a Commercial Discovery or
the boundaries of the Development Area, then within thirty (30) days either party may
request that the matter be resolved by senior management negotiations pursuant to the
provisions of Section 15.2.
4.14.4 The Contractor may request, and the Management Committee approve, at any time and
from time to time, an increase of a Development Area as may be required to ensure that it
encompasses the Field concerned. The process of increasing the Development Area shall
follow the same steps as in Sections 4.142 and 4.14 3 above.
4.15 Development Plan
4.15.1 As soon as practically possible, bul not bier than nine (9) months after the declaration of
a Development Area, and in the manner required by the Government. Contractor shall
submit, for the approval of the Management Committee, a plan (the -Development Plan*)
for the Development Area.
4.15.2 From time to time, and in like manner. Contractor may submit, for the approval of the
Management Committee, amendments to the Development Plan.
4.ISJ A Development Plan will be such as would be undertaken by a corporation seeking
diligently to develop and exploit (in accordance with this Agreement and Good Ofl Field
Practice) the Petroleum in the Development Area in the long term, beat interests of the
parties.
4.15.4 Except with the consent of the Management Committee, and withou F^F**** ® ***
4.15.4.1 a description of the proposed reservoir development and management
program:
4.15.42
4 13.4.2.2
be located in the Territory or outside of the Territory;
4.13.4.2.3 facilities for transporting the Petroleum from the Contract Area
and the Territory; and
4.15.4.2.4 facilities, wherever located, which are connected to any such
facilities os aforesaid and which (or the operation of which)
might ulTcct the integrity, management or operation thereof;
4.15.4.3 the production profiles for all hydrocarbon products, including possible
injections for the life of the I Jcvelopmcnt. the commencement of Production
and the specific rates of Petroleum production, and the level of production and
of deliveries which Contractor submit, should constitute the start of
Commercial Production;
4 15.4.4 a marketing und lifting plan, including provisions for joint marketing;
4.15.4.5 an environmental impact statement, and proposals for environmental
management covering the life of the Development;
4.15.4.6 Contractor's proposals for ensuring Uic safety, health and welfare of
individuals in or about the proposed Petroleum Operations;
4.15.4 7 Contractor's proposals for
4 13 4.7.1 the use of local poods and services;
4 13.4.7.2
4 15.4.7J ie the Territory.
4.15.4 9 an evaluation of the commercial it> of the Development, including a full
4.15.4 10 Contractor's proposal for financing of the Development;
25
4.15.5 The Management Committee shall approve or recommend revisions to the Development
Plan proposed by Contractor within 90 days after receipt. If the Management Committee
docs not approve the Development Plan, the matter shall be referred for senior
management negotiations pursuant to the provisions of Section 15.2.
4.16 Development Work Programs and Budgets
4.16.1 Contractor shall submit, for the approval of the Management Committee, a "Development
Work Program and Budget" for each Development Area for each Contract Year. At any
time and from lime to time. Contractor may submit, for approval, amendments to it
4.16.2 A Development Work Program and Budget for a Contract Year shall be substantially in
accordance with the Development Plan for the Development Aren.
4 17 EIIS Plan
4.17.1 Within three (3) months of Uic Effective Date. Contractor shall prepare and submit to the
Management Committee for its approval, its plans for managing the environment, health
and safety relating to Petroleum Operations (the "EHS Plan").
4.17.2 The EHS Plan shall describe the procedures to be adopted by Contractor with respect to:
4.17.2.1 the protection of the environment (including air. land and water and all
organic and inorganic matter and living organisms); and
4.17.2.2 hculth, safety and welfare of persons in or affected by Petroleum Operations.
4.17.3 The procedures contained in the EHS Plan shall include such standards, practices,
methods and procedures, and shall require Contractor to do (and refrain from doing) all
such other things, which are the roost appropriate of such standards, practices, methods.
as
4.17.3.1 arc employed by others exploring for, developing or exploiting Petroleum in
the Territory, with due and proper consideration for special circumstances;
4.17.3.2 arc employed by Contractor or any of its Affiliates in a comparable place in
comparable circumstances, with due and proper consideration for special
circumsunccs; and
4.17.3 J are otherwise required by Applicable Law or this Agreement;
4.17.4 in order to reduce the risks to persons and the environment by Petroleum Operations aa
much as reasonably practicable.
4.17.5 The EHS Plan shall be reviewed annually and amended by Contractor from time to time
as may be necessary to to ensure its continuing compliance with Section 4.17.3. but not so /
practice, method, procedure or thing shall thereby become lcss
26
protective to persons and the environment without the consent of the Management
Committee.
4.18 Information
In connection with any geological, geophysical or geochemical surveys, seismic surveys and the
drilling of any Exploratory Well, Appraisal Well or Development Well, Contractor shall provide
the Government with all original field and processed data and Contractor's interpretation and
report on its final conclusion thereof, including interpretation and processing methods, within 60
du^ of receipt by Contractor.
ARTICLE 5
CONDUCT OF WORK
5.1 Proper and Workmanlike Manner
5.1.1 Contractor shall carry out Petroleum Operations, and shall ensure that they are carried on.
in a proper, efficient and workmanlike manner, and in accordance with this Agreement
and Good Oil Field Practice and such practices and procedures employed in the
petroleum industry worldwide by prudent and diligent operators in similar circumstances.
5.1.2 In particular. Contractor shall cany on Petroleum Operations, and endeavour that they are
carried out, in such a manner as is required by Section 5.1.1 to:
5.1.2.1 protect the environment (including the atmosphere and the prevention of
pollution) and ensure that Petroleum Operations result in minimum ecological
damage or destruction, in accordance with the approved EHS Plan;
5.1.2.2 ensure the safety, health and welfare of individuals in or affected by
Petroleum Operations, in accordance with the approved EHS Plan;
5.1.2.3 manage the resources in a way which has long-term benefits lo the Federal
Region of Kurdistan and Contractor;
5.1.2.4 maintain in safe and good condition and repair, the Contract Area and all
structures, facilities, installations, equipment and oilier property, und other
works, used or to be used in Petroleum Operations;
5.1.2.5 comply with maximum axle bearing capacities of roads leading to and within
the Contract Area; and generate sufficient electrical power as required for
Petroleum Operations without pulling loud on regional or national power
network;
5.1.2.6 abandon, decommission, remove or dispose of the property and other works
mentioned in Section 5.1.2.4, clean up the Contract Area to the conditions as
of the Effective Date and make )t good and safe, and protect und restore the
environment, on the earlier
27
5.1.2.6.1 termination of ihis Agreement, unless the Government
specifically requests that the existing remaining properly in
part or all of the Contract Aren is required for ongoing
Petroleum Operations to lie conducted by the Government, in
which case the Government shall assume all cost*, expenses,
risks and liabilities associated with fiiture Petroleum
Operations and Contractor shall be released from ail
oblignlions and liabilities for the portions of the Contract Area
which are taken over by the Oovcnuiient. including without
limitation all liability for abandonment of and
decommissioning of such portions of the Contract Area; and
5.1.2.6.2 when no longer required for Petroleum Operations;
control the flow and prevent the waste or escape of Petroleum, water or any
product used in or derived by processing Petroleum;
prevent tlic escape of any mixture of water or drilling fluid with Petroleum
treat and re-use drilling fluids to the maximum extent practicul,
prevent damage to Petroleum-bearing strata in or outside the Contract Area;
keep separate:
5.1.2.11.1 each Reservoir discovered in the Contract Area, provided that
similar oil qualities may be commingled; and
51-2-11.2 such of the sources of water discovered in the Contract Area as
5.1.2.12 prevent water or any other matter entering any Reservoir through wells in the
Contract Are*, except when required by. and in accordance with, the
Development Plan and Good Oil Field Practice;
5.1.2.13 minimise interference with pie-existing rights and activities; and
5.1.2.14 to remedy in a timely fashion any damage caused to the environment
5 2 A cert* to Contract Area
5 2-1 Subject to law uxl to this Agreement Contractor may enter and leave the Contract Area
at any rime for the purposes of Petroleum Operation* Contractor will provide the
Government with the notifications required by Applicable Law so as to permit access t£* ^
21
the Contract Area, aid the Government will assist in providing any required permits,
approvals or other authorizations required.
Except with the consent of the Government, Contractor shall ensure dial individuals,
equipment and goods do not enter the Contract Area without meeting the entry
requirements of the Applicable I .aw. and shall notify the Government of all individuals,
vessels, aircraft, vehicles und structures entering or leaving the Contract Area for the
purposes of Petroleum Operation*
Goods, Services, Training and Secondment
Contractor shall:
5.3.1.1 give preference to the acquisition of goods und services from individuals
based in the Federal Region of Kurdistan, provided they are offered on
competitive terms and conditions, having regard to quality, price, and time of
delivery; and
5.3.1.2 with due regard to occupational health and safety requirements give
preference in employment in Petroleum Operations to qualified nationals
residing in the Federal Region of Kurdistan.
5.3.2 Except with the consent of the Government. Contractor shall draw to the attention of
suppliers based in the Federal Region of Kurdistan, in accordance with Government
policy, all opportunities for the provision of locally-available goods and services for
Petroleum Operations.
5J.3 Operator shall plan and implement training programs for such local personnel as art
appointed by the Government. The cost of such training programs shall be considered as
Recoverable Costs Contractor's proposed training program for each Contract Year shall
be subject to the approval of the Management Committee During the first Contract
Year, Contractor's expenditures on training shall be 1.5% of the Work Program A Budget
for the Contract Year, and in each subsequent Contract Year, the training expenditure
shall be the greater of USJI.500,000 and 1.5% of the Work Program A Budget for the
Contract Year In each Calendar Year, the training program shall include five academic
scholarships for masters or doctorate programs at universities in Canada. If in any
Calendar Year, Contractor does not make training expenditures in m amount required for
that Calendar Year, any shortfall shall be carried forward and added to the required
training expenditures for the following Culcndnr Year.
5.3.4 Contractor shall offer to the Government the opportunity to nominate Secondecs to the
Contractor's organization for the purposes of training Secondecs or assisting in the
conduct of Petroleum Operations, in accordance with the following provisions:
5.3.4.1 The Government acknowledges that Contractor shall engage or retain only
J /
such Secondecs as are reasonably necessary to conduct Petroleum Operations'^
29
5.3.42 Contractor shall determine tlic number of Secondees. their hours of work, the
designated purpose und scope of such persons, minimum expertise,
qualifications and experience required and, subject to the secondment
provisions below, the selection of such persons, and the compensation to be
paid to all such persons in connection with operations. Ihe compensation
package of Seconder shall be in accordance with the existing human
resources policies and procedures of Contractor, provided that such
compensation package of Seconders shall not exceed that of other locally
recruited employees of Contractor of similar rank and experience.
5.3.4.3 Either party may propose secondment for a designated purpose Any proposal
for secondment must include the: designated purpose and scope of
secondment, including duties, responsibilities, and deliverables; duration of
the secondment; number of Secondees; work location and position within the
Contractor's organization of each Secondec; and estimated coats of the
secondment.
5.3.4.4 If such secondment position is approved by Management Committee,
Contractor shall request the Government to nominate, by a specified date,
qualified personnel to be the Sccondee for such position. The Government
has the right (but not the obligation) to nominate for each secondment position
one or more proposed Secondees who the Government considers qualified to
fulfil the designated purpose and scope of such secondment. Although each
Secondec shall report to and be directed by Contractor, each Secondec shall
remain at all times the employee of the Government
5.34.5 It is recognized that the number of potential Seconder positions shall van
with the amount of activity involved in performing the Petroleum Operations.
Secondees shall be added as appropriate as operations expand during the
5 3.4.6 Subject to the foregoing provision* regarding the number of potential
Secondec positions and the requirement that the Government nominate
suitably qualified employees, it is Contractor's intention that dunng each
Contract Year after the approval of a Development Plan, the Work Program
and Budget shall include USS500.000 for the total costs of Contractor (for
salaries, benefits, travel and expenses) for Secondees The Management
Committee shall approve the line item in Contractor’s Work Program and
Budget for Secondees in accordance with this provision. Nothing in this
Agreement shall require Contractor to expend in any Contract Year an amount
in excess of USS500.000 for salaries, benefits, travel and expenses for
Secondees. Contractor's costs for Seconder* shall be a Recoverable Cost
5J.4.7 Contractor and the will negotiate in good faith the secondment
to 5.3.4. If the parties cam**
agree on a suitable nerccment. the matter shall be referred foy
■o (he provisions of Section
s
r»A
30
54 Hiring of Natural tin
Except with the consent of the Government, such consent not lo be unreasonably withheld or
delayed, or in an emergency, Contractor shall not flare Natural Gas. However, Contractor shall
be entitled to flare Natural Gas where it is necessary to do so for testing or in order to conduct
Petroleum Operation* for the recovery of Crude Oil, in accordance with Good Oil Field Practice,
aid such practices and procedures employed in the petroleum industry worldwide by prudent and
diligent operators in similar circumstances If there exists an alternative use for g« which is
commercial having regard to required capital and operating cosfc. Contractor shall use
commercially reasonable efforts to utilize Natural Gas for such alternative purpose, and the costs
of doing so shall be Recoverable Costa.
5.5 Operator and its Sub-Coa tractor*
5.5.1 The Operator may carry out Petroleum Operations using its own resources and staff, or
those of its agents and sub-contractors. However, the Operator may nor subcontract the
performance of the entire Work Program to a single subcontractor without the prior
Committee.
5 5 2 This Section 5.5 does not relieve Contractor of any obligation or liability under this
Agreement, and the carrying out of Petroleum Operations by its agents or sub-contractors
who have been subcontracted in accordance with Section 5.5.1 does not relieve the
Operator of any obligation or liability under this Agreement.
ART1CI.E4
SHARING OF MTROUlM
n* Government shall within four (4) months after tie firat declaration of a Commercral
Discovery, by notice to the Contractor, select for the lenn of this Agreement either the
provisions of Option A as set out in this Article 6 the provisions of Option B as act out in this
Article 6. Such selection will he irrevocable. In default of the Government making such
selection, the provisions of Option It in this Article 6 will irrevocably apply to this Agreement.
Potion A
6.1 Allocation of Petroleum under Option A
6.1.1 Petroleum Required for Petroleum Operations
Contractor shall have the right to use flee of charge Petroleum produced from the
Contract Area to the extent reasonably required for Petroleum Operations under the
Agreement.
6.1.2 Measurement Point
All Available Crude Oil and Available Natural Gas shall be measured at the applicable
Field Export PointM) in the manner described in Section 8.4 und allocated os set forth in
this Section ^
rriA»04«fli
6.1.3 Royally Oil
The Government shall be entitled to a royalty ("Royalty Oil") for each Development Area
producing Crude Oil calculated as follow
If the Field Price of Crude Oil is US$45.00 per barrel or leas
Royalty Oil. - 12% x FP._, x ACQ.
If the Field Price of Crude Oil is greater than US$45.00 per band
Royalty Oil. - Ixsscr of: (a) 35% of ACO» and
Royalty Oil. means the amount of Royalty Oil. expreued in bands, m the month from
FP.., means the Field Price of Crude 0.1 produced from the Development Area ia
the previous month, expressed in USS per band
ACOm menu the quantity of Available Crude Oil, expressed in barrels, produced and
saved in the month from the Development Area.
The above calculation shall be performed for each Development Area producing Crude
Oil.
The above formula is expressed as the product of the total amount of Available Crude Oil
in a month and the sum of the proportions determined according to the following table:
Field Price of Crude Oil in the Development Royalty Oil Expressed as a Percentage of
Area in the Previous Month (USVband) Available Crude Oil
4$45 A fraction (expressed as a percentage)
having as a numerator 12% of the Field Price
of Crude Oil in the previous month and a
denominator of the Field Price of Crude Oil
in the previous month
>$45 and <$79.50 A traction (expressed as a percentage) having as
a numerator 65% of the Field Price of Crude Oil
in the previous month in excess of lJSS45/barTcl.
and a denominate* of the Field Price of Cruda
>$79$0 35% of Available Crude Oil .
--1*$
tm loofrovoi
32
A table describing the Royalty Oil at certain prices, and a sample calculation of Royalty
Oil, is attached ai Annex D - Part A under the heading "Royalty Oil". If there is a
conflict between the Royalty Oil calculation above and the table and example in Annex D ■
- Part A, the Royalty Oil calculation above will prevail
The price categories for the Field Price of Crude Oil and the Dollar amounts described
above shall be adjusted for inflation in accordance with Section 6.4 The Field Price of
Crude Oil in a month for • Development Area shall be determined in accordance with
Article 8
6.1.4 Cost Recovery
Contractor shall recover its Recoverable Costs to the extent of and out of the following
maximum limits per month of all Net Available Crude Oil produced from each
Development Area ("Cost Recovery Oil") and Available Natural Gas produced from each
Development Area ("Cost Recovery Gas").
6.1.4.1 Cost Recovery Oil
The maximum amount of Cost Recovery Oil in every month shall be the product of. (a)
Net Available Crude Oil in that month, and (b) 50%.
A table describing the Cost Recovery Oil at certain production rates, and a sample
calculation of Cost Recovery Oil, is attached as Annex D - Part A under the heading
"Cost Recovery Oil". If there is a conflict between the Cost Recovery Oil calculation
above and the table and example in Annex D - Part A. the Cost Recovery Oil calculation
above will prevail.
6.1.4.2 Cost Recovery Gas
TV of CoM Recovery Gas in every month shall be the product of. (a) ■
A nd (b) 75%. ll!
6.15 Allocation of Com Recovery Oil nd Gat I
Each month Contractor shall have the right to take and dispose of that quantity of Coil
Recovery Oil and Cost Recovery Oas which. when valued at Fidd Price, equals the }
amount of total Recoverable Costs maned in such month plus those Recoverable Costs
which have not been recovered m prior months. Any Recoverable Costs which are not
recovered in a month shall be dried forward and shall be recoverable out of Cost
Recovery Oil and Coat Recovery Gas in subsequent months until fully recovered, but not
6.1.6 Excess Cost Recovery Oil and Gas
If Contractor recoven all of its Recoverable Costs out of Cost Recovery Oil and Cost .
Recovery Oas in a month. tl*n any excess of Cost Recovery Oil and Cost Recovery
33
in that month shall be included as Profit Oil or Profit Gas in that month, und allocated in
accordance with Sections 6.1.7 and 6.1.8, Where there is both Net Available Crude Oil
and Available Natural Gas produced in such a month, recovery of Recoverable Costs
shall occur on a pro rata basis with respect to the revenues from Net Available Crude Oil
and Available Natural Gas.
6.1.7 Profit Oil
Net Available Crude Oil produced from each Development Area In a month which iu not
Cost Recovery Oil shall be referred to as "Profit Oil". Profit Oil from each Development
Area in a month shall be allocated between Contractor and the Government as the
product of the total umount of Profit Oil available in a month and the sum of the
proportions determined according to the following table:
fAverage 1*11, rradactfe. of Government Proportion of Pro fa
Available Crude Oil ia the Oil
Development Area In (be Month
Co the ftrer 20.00* 25% of dm fir* 20.000 bopd divided 75% of (be fleet 70.000 bopd divided
Av^'oSeCXT SI’S* * by *e average daily production of
AvaOMe Crude Oil iu the mcoch
On the pteurn exceeding 20.000 70% of (be portion wrmifcg 20. XO
and *> to 40.000 bopd and up to dOJOO tepd divided
AvatiaTcIS^'IItbrS* a
Chi the portion exceed**40.000 taH MuftoSooo'b^d 60% of fee pome* exceed.eg 40.000
and apio 60,000 bopd and up to 60.000 bopd divided
by the average daily pro&xfion nf Available Crude Oil in die month
Available Crude Oil m the mooch
On the portion exceeding 60.000 60% of the portion exceeding 00.000 40% of the portion exceed** 60.000
and tip to 80,000 bopd and up to 80,001) bopd divided bopd and up to *0.000 bopd diwded
by the average daily product** of by the average dady predactioo of
Available Crude Oil in llw- month Available Crude Oil in the month
On the port too exceeding 80.000 175% of the portion exceedmg 80.000 25% of the portion exceeding 80,000
and up to 100,000 bopd and up to 100,000 bopd divided bopd and up to 100.000 bopd divided
by the average daily production of by the average dally production of
Available Crude Oil in the month Available Crude Oil m the month
On the portion in cxcea of 92.5% of the portion exceeding 7 5% of the portion exceeding
100,000 100.000 bopd divided by th* average 100,000 bopd divided by the average
daily product** of Available Crude daily production of Available Oil In
Oil in the month the month
A table describing the Profit Oil allocation at certain production rates, and a sample
calculation of Profit Oil, is attached as Annex D - Part A under the heading 'Profit Oil".
If there is a conflict between the Profit Oil calculation ubovc and the table and example in
Annex D - Part A, the Profit Oil calculation above will prevail.
6.1.8 Profit Gna
Available Natural Gas produced from each Development Area in a month which is not -
Cos* Recovery Gas shall be referred to as "Profit Gas ". Profit Gas shall be allociitcd^^
f?S*
between the Government and Contractor on commercial terms to be negotiated in good
faith by the Government and Contractor in such a manner and at such a time so os to
allow for the earliest possible commercial development of Associated or Non-Associated
Gas on such terms and conditions which would provide economic returns to Contractor
comparable to those established in this Agreement for the commercial development of
Crude Oil.
41 •
shall pay and the Government shall be entitled to a 'Local Community
Benefit* to be utilized by the Government exclusively for the benefit of the population of
the Federal Region of Kurdistan who reside in the vicinity of the
determined as follows:
6.1.9.1 Calculation of local Community Benefit
Contractor shall pay and the Government shall be entitled to an amount (the 'Local
Community Benefit*) in cash from each Development Area producing Crude Oil.
calculated as follows:
LCB.=10SxFP«-,x CPO.
where:
LCB. means the amount of Local Community Benefit, expressed in USS, in the
month from the Development Area
FP.. i means the Field Price of Crude Oil produced from the Development Area in
the previous month, expressed in USS per barrel
CPOm means the quantity of Contractor's Profit Oil, expressed in barrels, produced
and saved in the month from the I )cvelopmenl Area.
The above calculation shall be performed for each Development Area producing Crude
Oil.
A table describing the Local Community Benefit at certain production rales, and a sample
calculation of Local Community Benefit, set out in Annex D Part A under the heading
“Local Community Benefit". If there is a conflict between the Local Community- Benefit
formula above, arid the table and example in Annex D Part A, the calculation resulting
from the Local Community Benefit formula above will prevail.
6.1.9.2 The Dollar above shall be adjusted for inflation in
accordance with Article 6.4. The Field Price of Crude Oil in u month for a
Development Area shall be determined in accordance with Article 'klc>a<
35
.3 Option of Government to convert Local Community Benefit into working
interest
6.1.9.3.1 TTio Government shall have the option within four (4) months after
the first declaration of a Commercial Discovery to notify the
Contractor of the Government’s desire with immediate effect to
convert the focal Community Benefit payable by the Contractor
unde* this Agreement into a ten percent (10%) working interest in
the Contractor's rights and obligations under this Agreement, such
working interest to be held by a corporate entity which will be
wholly owned by the Government and whose primary objects and
purpose shall be the provision of benefit to the population of the
Federal Region of Kurdistan who reside in the vicinity of
Petroleum Operations; and. further, the Government may at its
option in duo course offer all or part of the shares in such corporate
entity to the public in the Federal Region of Kurdistan on terms
which ensure that such corporate entity will continue indefinitely
to be managed and operated exclusively for the benefit of the
population of the Federal Region of Kurdistan who reside in the
vicinity of Petroleum Operations.
6.1.9.3.2 With effect from the date of the notification by the Government to
the Contractor referred to in Section 6.1.93 1, (1) the obligation of
the Contractor to pay any Local Community Benefit will
irrevocably terminate and (2) the Oovcmment and the Contractor
will establish all necessary arrangements for the holding by the
wholly owned Government entity referred to in Section 6.1.93.1
of a ten percent (10%) working interest in the Contractor's rights
and obligations under this Agreement with the practical effect that
the wholly owned Go'crnmcni entity referred to in Section
6.1.93 1 will become a ten percent (10%) participant in the
Contractor's rights and obligations for purposes of the
implementation of das Agreement.
61.9 3.3 The parties agree that, in the event of the Government exercising
its option under Section 6 1.93.1, they will procure that the
Contractor and the entity referred to in Section 6.1.93-1 will enter
into a Joint Operating Agreement on terms which shall include and
be subject to provisions and standard^ customarily applicable in
the international Petroleum industry^
IWA20C4O5-0I
Option B
r, 2. | Petroleum Required for Petroleum Operations
Contractor shall hast the right to we free of charge Petroleum produced from the
Contract Areu to the extent reasonably required for Petroleum Operation* under the
Agreement.
6.2.2 Measurement Point
All Available Crude Oil and Available Natural Gas shall be measured at the applicable
Field Export Points) in the manner described in Section 8.4 and allocated as set forth in
this Section 6.2.
6.2.3 Royalty Oil
The Government shall be entitled to a royalty ("Royalty Oil") for each Development Area
producing Crude Oil calculated at follows:
If the Field Price of Crude Oil is US$45.00 per barrel or less
Royalty Oil.-12% xFP..,x ACO.
If the Field Pncc of Crude Oil is greater than US$45.00 per bwrtl
Royalty Oil. - Lesser of: (a) 35% of ACOm, and
FP,.,
where:
Royalty Oil. means the amount of Royalty Oil. expressed in barrels, in the month from
the Development Area
FP.. i means the Field Price of Crude Oil produced from the Development Area in
the previous montlu expressed in US$ per barrel
ACO. means the quantity of Available Crude Oil, expressed in barrels, produced and
saved in the month from the Development Area.
The above calculation shall be performed for each Development Area producing Crude
Oil
The above formula is expressed as the product of tbc total amount of Available Crude
in a month and the sum of the proportions determined according to the following table
A table describing the Royalty Oil at certain prices, and a sample calculation of Royalty
Oil, in attached as Annex D - Part B under the heading 'Royalty Oil". If there is a
conflict between the Royalty Oil calculation above and the table and example in Annex D
Part B. the Royalty Oil calculation above will prevail.
The price categories for the Field Price of Crude Oil and the Dollar amounts described
above shall be adjusted for inflation in accordance with Section 6.4. The Field Price of
Crude Oil in a month for a Development Area shall be determined in accordance with
Article 8.
6-2.4 Cost Recovery
Contractor shall recover its Recoverable Costs to the extent of and out of the following
maximum limits per month of all Net Available Crude Oil produced from cadi
Development Area ('Cost Recovery Oil") and Available Natural Gas produced from each
Development Area ("Cost Recovery Gas")
6.2.4.1 Cos! Recovery Oil
The maximum amount of Cost Recovery Oil in every month shall be the product of: (a)
Net Available Crude Oil in that month, and (h) 50%.
A table describing the Cost Recovery Oil at certain production rates, and u sample
calculation of Cost Recovery Oil, is attached ns Annex D Part B under the heading
"Cost Recovery Oil". If there is a conflict between the Cost Recovery’ Oil calculation
above and the table uiti example in Annex I) - Port It. the Cost Recovery Oil calculation
above will prevail
CPSA KOHU CI
6-2 4.2 Cost Recovery Cku
The maximum amount erf Cost Recovery Gas in every month shall be the product of: (a)
Available Natural Gas in that uioath. and (b) 75%.
62.5 Allocation of Cost Recovery Oil and Gas
shall Haw the right to take and dispose of that quantity of Cost
Recovery Oil and Cost Recovery Gas which, when valued at Field Price, equals the
amount of total Recoverable Costs incurred in such month plus those Recoverable Costs
which have not been recovered in prior months. Any Recoverable Costs which are not
recovered in a month shall be carried forward and shall be recoverable out of Cost
Recovery Oil and Cost Recovery Gas in subsequent months until fuDy recovered, but not
, of this.
6.2.6 Excess Cost Recovery Oil and Gas
If Contractor recovers all of its Recoverable Costs out of Cost Recovery Oil and Cost
Recovery Gas in a month, then any excess of Cost Recovery Oil and Cost Recovery Gas
in that month shall be included as Profit OU or Profit Gas in that month, and allocated in
accordance with Sections 6.2.7 and 6.2.8, Where there is both Net Available Crude Oil
and Available Natural Gas produced in such a month, recovery of Recoverable Costs
shall occur on a pro rata basis with respect to the revenues from Net Available Crude Oil
and Available Natural Gas.
6.2.7 Profit Oil
Net Available Crude Oil produced from each Development Area in a month which is not
Cost Recovery Oil shall be referred to as "Profit Oil", Profit Oil from each Development
Area in a month shall be allocated between Contractor and the Government as the
product of the total amount of Profit Oil available in £ month and the sum of the
proportions determined according to the following tabhg/f <
S
Ef\A XXS-05-01
rsrsrrr c™r^--r*u.
BP Os (be firjr *0.000 30% of the 6ru 40,000 bopd Chided 70% of the fra 40.000 bopd divided
by Ike evens* daily predathc* of by (he ever*, (tally preset--- of
AvailableCrudeOil m (be Booth Available Crude OU Is the month
pt* tbe exceed*# 40.000 bopd and *0.000 bopd divided 50% of tbe pomca esceedmg 40.000
aadip to 10,000 bopd aad t? » *0,000 bopd dividrd
by the evens* duly pn-toctk* of Available Crade Oil ta (be mooch
Available Crude Oil is *r neat
r&i (be portion accede# fO.OOO 65% of the poncm nunfcru 10.000 35% of lbe portioo cat redan 80.000
bopd Mid up Bo 100.000 bopd divided bopd and up n> 100.000 bopd dhrtad
by (he avmp daily production of by die average dady product** of
Avaitable Crude Oil a thr monCi Available Crude Oil la the nMd
pli Ibr portion exewdmi 100.000 IOOJOoScS* mi -p is 120.000 25% of (he portioo excemhag 100.000
Bad 120.000 bopd and up lo 120.000 bopd divided
bopd divided by (he ivtnp daily by (be average daily prodactaa af
production of An table Crude Oil n Avaitabta Oude OU ■ tba m*
the mooch
| °° mo!*wMOjSoO *0% of ttc pcrtMB exceed** bopd aid up lo" l'do'.OOQ bej dtaid^d
120.000 bopd ard up lo 140.000
bopd divided by ihe avenge daily yUadaMcCradi Oi in tbe meob
production of Available Owls OH*
tbe sooth
On ihe portion in excess of 95% of (be pertaoa exceeding 5% Of (he portion exceed*# 140.000
140,000 140.000 bopd divided by (be avenge bopd divided by tbe average duly
Oil in (He month product mo of Avutattc Oi ia (be
A table describing the Profit Oil allocation at certain production rates, and a sample
calculation of Profit Oil. is attached as Annex D - Pari B under the beading 'Profit Oil".
If there is a conflict between the Profit Oil calculation above and the table and example in
Annex D - Pan B. the Profit Oil calculation above will prevail
6.2.8 Profit Oas
Available Natural Oas produced from each Development Area in a is not
Cost Recovery Gas shall be referred to as "Profit Gas". Profit Gas be allocated
between the Government and C ontractor on commercial terms to be
faith by the Government and Contractor in such a manner and at such a time so as to
allow for the earliest possible commercial development of Associated or
Gas on such terms and condition* which would provide ccooomi to Contractor
comparable uJ those established in this Agreement for the commercial of
Crude Oi*^
Contractor shall pay sad the Government shall be entitled to a ‘Local Community
Benefit' to be utilized by the Government exclusively for the benefit of the population of
the Federal Region of Kurdistan who reside in the vicinity of the Petroleum Operations,
determined as follows:
6.2.9.1 Calculation of Local Community Benefit
Contractor shall pay and the Government shall be entitled to an amount (the 'Local
CocnmurriTy Benefit") in cash from each Development Area producing Crude Oil.
calculated as follows:
LCB.-IO%xFP..,x CPO.
where:
LCB. means the amount of Local Community Benefit, expressed in USS. in the
FP». i means the Field Price of Crude Oil produced from the Development Area in
the previous month, expressed in USS per barrel
CPO, means the quantity of Contractor's Profit Oil. expressed in barrels, produced
and saved in (he month from the Development Area.
The above calculation shall be performed for each Development Area producing Crude
Oil.
A table describing the Local Community Benefit at certain production rates, and a sample
calculation of Local Community Benefit, net out in Annex D Part B under the heading
"Local Community Benefit". If then; is n conflict between the Local Community Benefit
formula above, and the table and example in Annex D Part B, the calculation resulting
from Use local Community Benefit formula above will prevail.
6.2.9.2 The Dollar amounts described above shall be adjusted for inflation in
accordance with Article 6.4. Ihe Field Price of Crude Oil in a month for a Development
Area shall be determined in accordance with Article 8.
6.2 9.3 Option of Government lo convert luteal Commiwity Benefit into working
Interest
6.2.9.3.1 The Government shnlI huve the option within four (4) months aficr
the first declaration of a Commercial Discovery to notify the
Contractor of the Government's desire with immediate efrect to
convert the Local Community Benefit payable by the Contractor
under this Agreement into a ten percent (10%) working interest in j
the Contractor’s rights and obligations under this Agreement, such^ar j
tPWWMMI
41
working interest to be held by ■ corporate entity which will be
wholly owned by the Government and whose primary objects and
purpose shall be the provision of beoefit to the population of the
Federal Region of Kurdistan who reside in the vicinity of
Petroleum Operations; and. further, the Government may at its
option in due course offer all or part of the shares in such corporate
entity to the public in the Federal Region of Kurdistan on terms
which ensure that such corporate entity will continue indefinitely
to be managed and operated exclusively for the benefit of the
population of the Federal Region of Kurdistan who reside in the
vicinity of Petroleum Operations
6-2.9JJ With effect from the date of the notification by the Government to
the Contractor referred to in Section 6.2.9J.I, (!) the obligation of
the Contractor to pay any Local Community Benefit will
irrevocably terminate and (2) the Government and the Contractor
will establish all necessary arrangements for the bolding by the
wholly owned Government entity referred to in Section 62.9.3.1
of a ten percent (10%) working interest in the Contractor’s rights
and obligations under this Agreement with the practical effect that
the wholly owned Government entity referred to in Section
6.2.9 3.1 will become a ten percent (10%) participant in the
Contractor's rights and obligations for purposes of the
implementation of this Agreement
6.2.9.3.3 The parties agree that, in the event of the Government exercising
its option under Section 62.9.3.1, they will procure that the
Contractor and the entity referred to in Section 6.2.9.3.I will enter
into a Joint Operating Agreement on terms which shall Include and
be subject to provisions and standards customarily applicable in
the international Petroleum industry.
Interpretation of Article 6
6.J
The terms of Section 6.4 through Section 6.10 shall apply notwithstanding whether the
Government selects Option A or Option B as set out in Section 6.1 and Section 6.2.
6.4 Adjustment of Price Categoric*
The categories for Field Price of Crude Oil and the Dollar amounts in the tables
contained in this Article 6 and in Section 8.3.1 shall he adjusted annually in accordance
with the U.S. Consumer Price Index. The annual adjustment shall be made on a Calendar
Year basis. The adjustment .dull occur as soon as the U.S. Consumer Price Index
information for the month of January is published by the U.S. Bureau of Labor Statistics
The adjustment shall be calculated by multiplying the F ield Price of Crude Oil amounts
shown in the tables in this Article 6 by the following adjustment factor^ ^
Where: "AF" is the adjustment factor,
"CPItono*" is the U.S. Consumer Price Index for the month of
January in the Calendar Year in which the adjustment is to occur;
and
"CPIbmc" is the U.S. Consumer Price Index for the month in which
the Effective Date occurs.
6.5 Option of Government
63 1 The Government's share of Petroleum is the quantity of Royally Oil plus the Government
share of Profit Oil and Profit Gas, and, in the event of the Government selecting the
option to convert the Local Community Benefit into a working interest pursuant to either
Section 6.1.3.9 I or Section 6.23.9.1. the Government will be entitled to a percentage
share of Cost Recovery Oil and Cost Recovery Gas commensurate with its percentage
working interest in the rights and obligations of Contractor under this Agreement.
6.5.2 Unless the Government elects otherwise pursuant (as appropriate) to Section 6.1.3 or
Section 6.2 3. Contractor shall take and receive, and dispose of, in common stream with
its own sluuc und on terms no less favourable to the Government than Contractor receives
for its own sluuc. ull of Government's share of Petroleum
6.5.3 The Government may make an election to take and separately dispose of Ciovemment's
share of Petroleum aa provided for under Section 63. Unless Contractor otherwise
agrees, which agreement will not be unreasonably withheld, the Government may not so
elect other than
633.1 in respect of all. or the same percentage of all, of Government's shares of
Crude Oil and Royalty Oil foe and throughout each Calendar Year, on not less
than six (6) months poor written notice to Contractor before the start of the
Calendar Year concerned, and
6333 in respect of Government's share of Natural Gas. in connection with its
approval of the Development Plan.
66 Lifting
6 61 Subject to this Agreement, and in accordance with the approved marketing and lifting
plan as contemplated by Section 4.15.4.4. Contractor may lift, dispose of and export from
the Federal Region of Kurdistan and the Republic of Iraq its share of Petroleum and
retain the proceeds from the sale or other disposition of that share
66-2 Upon an election by the Government to take its share separately. Contractor and the /
Government shall, from time lo time, make such agreements between them as anyf £
4J
reasonably necessury, in accordance wilh Good Oil Field Practice and the commercial
practices of the international petroleum industry, for the separate lifting of their shares of
Petroleum.
6.7 Title and Risk
6.7.1 Petroleum shall be at the risk of Contractor until it is delivered at the Field Export Point.
6.12 Title in Contractor’s sliarc of Petroleum shall pass to it at the Field Export Point, and then
immediately be transferred to the Oovcmment for the purposes of transporting
Contractor's share of Petroleum to the Iraqi Export Point Title to Contractor’s share of
Petroleum shall be transferred back to Contractor when (and risk therein shall remain
with Contractor after) a quantity of Petroleum having equivalent value (less
transportation cost between the Field Export Point and the Iraqi Export Point) is delivered
at the Iraqi Export Point.
6.7.3 Title in the Government's share of Petroleum taken by Contractor pursuant to Section 6.2
shall pass to Contractor when (and risk therein shall remain with Contractor after) s
quantity of Petroleum having equivalent value (less transportation cost between the Field
Export Point and the Iraqi Export Point) is delivered at tbc Iraqi Export Point, except for
that share of Petroleum which Government has elected to take in kind pursuant to (as
appropriate) Section 6.1.3 or Section 6.2.3.
6 8 Downstream Delivery
Ihe Government will arrange for all required transportation for delivery of Crude Oil produced
from the Contract Area between the Deliver)1 Point and the Iraqi Export Point, with such
assistance and cooperation of the Ministry of Oil. Baghdad as may be accessary Contractor
retains the right to establish required transportation for delivery of Crude Oil produced from the
Contract Area between the Field Export Point and the Delivery Point. Contractor will receive
Crude Oil produced from the Contract Area at the Iraqi Export Point The Government ma>
elect to receive all or any portion of Crude Oil produced from the Contract Area (other than the
)at
6.8.1 the Iraqi Export Point.
6.8.2 the Field Export Point; or
6.8J the Delivery Point.
Crude Oil (other than Contractor’s share) shall be at the risk of the Government or any agency or
department of the Government once it is delivered at one of the points) described above.
Contractor's share of Crude Oil received by Contractor at the Iraqi Export Point may have been
blended with other crude oil production and transported to the Iraqi Export Point At tte Iraqi
Export Point, the Government or agency or department of the Government shall deliver to
ContracjAr a quantity of Crude Oil equivalent in value to the Crude Oil delivered at the Delivery
wsa
44
Payment terms
tor shall pay to the Government an amount equal to Local Community Benefit and
(unless the Government has made an election under Section 6.5.3) proceeds of the Government's
*fure of Petroleum within ten (10) Business Days after Contractor has received puyment from
the buyer of such Petroleum.
Sharing on a Tai Paid Basb
Tec. The parties acknowledge that the basis for the sharing of Petroleum between the Government and
Contractor in this Article 6 is that the Government share of Petroleum is compensation for all
federal, regional and municipal taxes, fees (including stamp fees and any export fees), levies,
customs and duly obligations of Contractor related to its activities in performing the Petroleum
Operations. Therefore, Contractor has no liability for the payments of any taxes under the
Applicable Law, or for any other federal, regional and municipal taxes on income, profit or gain,
or other fees. levies, customs and duty in relation to the conduct of the Petroleum Operations
imposed by any federal, regional or municipal government in the Republic of Iraq. The
Government shall indemnify Contractor and hold Contractor harmless from any liability, cost*,
claims or damages that Contractor may suffer in the Federal Region of Kurdistan or the Republic
of Iraq in relation to federal, regional and municipal taxes, fees, levies, customs and duty
obligations of Contractor related to its activities in performing the Petroleum Operations. In
addition, the stability provisions of Section 11.2.3 shall apply to ensure that the fiscal sharing
reflected in this Agreement shall be enforceable for the term of this Agreement.
ARTICLE 7
SUPPLY OF CRUDE OIL TO KURDISTAN REGION DOMESTIC M ARKET
7.1 Domestic Market Obligation
7.1.1 Notwithstanding Section 6.5.1, if. in the event of essential regional demand declared by
the Government, it is necessary to limit exports of Crude Oil. the Government may. with
six (6) months advance wntten notice, require Contractor to meet the needs of the local
market with Crude Oil that it has produced and received pursuant to this Agreement.
Before the Government declares an event of essential regional demand, the Government's
share of Crude Oil shall be applied to meet regional demand.
12 Calculation of Regional Supply Obligation
7.2.1 Contractor's obligation to supply Crude Oil for domestic purposes shall be calculated for
each month as the lower of:
7.2.1.1 the local quantity of Crude Oil produced from the Contract Area in the
previous month multiplied by a fraction the numerator of which is the total
quantity of Crude Oil to be supplied pursuant to Section 7.1 and the
denominator is the entire production in thqfTenitory of Crude Oil from all
Contract Areas in the previous month. ■izc;
45
7.2.1.2 twenty (20) of the total quantity of Crate Oil produced from the
Contract Area
The lower quantity computed under either Section* 72.1 1 or 7.2.12 is multiplied by the
percentage of production from the Contract Area to which Contractor i*
provided under Article 6 of this
For the purposes of determining the entire production in the Territory of Crate Oil from
all Contract Areas in a month, the Government shall provide to Contractor a report on
total Crude Oil production, approved by a
12.2 The quantity of Crude Oil computed under Section 7.2.1 shall he the maximum quantity
to be supplied by Contractor in any month pursuant to dus Article. Deficiencies, if any.
shall not be carried forward to ary subsequent month If in any Calendar Year.
Recoverable Costs exceed the difference of total sales proceeds from Crate Oil produced
and saved hereunder. Contractor shall be relieved from this supply obligation for such
Calendar Year.
7.2.3 The price at which such Crate Oil shall be delivered and sold under this Article 7
be the price as determined under Section 82. unless Contractor makes the
swap regional supply volumes for export volumes pursuant to Section 7 3.
7,2.4 Contractor shall not be obliged to transport such Crate Oil beyond the Field Export
Point, but upon request by the Government. Contractor shall assist in
transportation and such assistance shall be without cost or risk to»
7.3 Sw ap of Regional Supply V for F.iport Volur
Crude Oil delivered by Contractor to the Government or any agency or department of the
Government pursuant to Section 7.1 or 72 may. at Contractor’s option, be exchanged for xn
equivalent quality adjusted quantity of Crude Oil at an Iraqi export point. Where Contractor
elects to receive an equivalent quality adjusted quantity of Crude Oil at an Iraqi Export Point, the
following procedure shall apply;
7.3.1 Contractor shall deliver a notice indicating its election to take Crate Oil at an export
point, such notice to indicate the Iraqi export point or points where Contractor is willing
to accept an equivalent quality adjusted quantity of Crude Oil. and the Contractor's
assessment of quality and quantity adjustment mechanism or formula required so that
Contractor's deliveries pursuant to Section 7.1 or 12 will be equivalent at the export
point or points, and (ailing agreement on the mechanism or formula, the matter shall be
referred for senior management negotiations pursuant to the provisions of Section 15.2;
7.3.2 if Contractor has offered more than ooe possible export point, the Government may select
one or more points al which it will provide equivalent quality adjusted quantity or Crude
Oil; and the Government will confirm its acceptance of Contractor's roech«ism or
formula, or propose revisions to it as it believes are appropriate, to which Contractor sha!!
either accept or propose its own revisoos, and failing agreement on the myharusm or
formula, the matter shall be resolved by an expert pursuant to Section \*>A\p{.
46
each month. Contractor shall deliver a written notice advising the Government of the
quantity of Crude Oil delivered by Contractor pursuant to Section 7.1 or 7.2, and the
equivalent quality adjusted quantity of Crude Oil to be delivered by the Government at an
Iraqi export point as determined by tbc agreed mechanism or formula;
i7.3.4 the Government shall deliver to Contractor the equivalent quality adjusted quantity or
Crude Oil at an Iraqi Export Point promptly following Contractor's notice; and
7.3.S either the Government or the Contractor may request an adjustment of the mechanism or
formula agreed under Section 7.3.1 and 7.3.2 not more frequently than twice in any
Calendar Year, and following such request, the process for proposing and agreeing on the
mechanism or formula tinder Sections 7.3.1 and 7.3.2 shall be utilized.
ARTICLE 8
VALUATION AND MEASUREMENT OF PETROLEUM
8.1 Point or Valuation
Petroleum is valued f.o.b.. or equivalent, at the Field I xport Pouit. The value of Petroleum
calculated in the manner described in this Article 8 is the "Field Price*. In any place in this
Agreement where the Field Price of Crude Oil in a month is referenced, it shall be calculated as
the average of the Field Price of Crude Oil on each day in that month, expressed in Dollars.
8 2 Value of Crude Oil
The value of Crude Oil from a Development Area.
8.2.1 sold f.o.b. (or equivalent) at the Field Export Point in an arm s length transaction is the
price payable for it; or
8.2.2 sold other than f.o.b., or equivalent, at the Field Export Point in an arm's length
transaction is the price payable for it, less such fair and reasonable proportion of such
price that relates to the transportation and delivery of the Petroleum downstream of the
Field Export Point; or
8.2.3 sold other than as mentioned in Sections 8.2.1 and 8.2.2 is based on the average netback
value or f.o.b. value of cither;
8.2.3.1 a bosket of at least three light crude oil types entering the Mediterranean
and/or Black Sea;
8.23.2 a basket of at least three medium sour crude oil types entering the
Mediterranean and/or Black Sea; or
8.2.3.3 a basket of
at least three heavy crude oil types entering the Mediterranean
and/or Black
47
whichever basket is most representative of Crude Oil produced from the Development
Area, and then adjusted for quality, less the actual transportation charge from the Fidd
Export Point to the Iraqi Export Point to a maximum charge according to prevailing
tariffs generally applicable in the Republic of Iraq, not to exceed US$3.75 per barrel. For
the purposes of determining the vuluo of a basket of crude oil, the average prices quoted
by Platt's Oilgram for the relevant month shall be used.
8.3 Natural Gas Markets
8.3.1 If Natural Gas can be made economically available for sale, it will be made available at
the Field Export Point for a price which takes due account of (I) the commercial value of
Natural Gas in markets considered reasonably accessible to Nntural Gas from the
Contractor's Field and (2) the prevailing tariffs generally applicable in the Republic of
Iraq.
8 3 2 Ihc price in Section 8,3.1 shall be adjusted from time to time to reflect changes in
competitive market conditions.
8.3.1 The Government may purchase Natural Gas from Contractor at the Field lx port Point at
the price in Section 8.3 1 for domestic use in Kurdistan.
8.3.4 If Contractor identifies a market for Natural Gas outside of Kurdistan. Contractor shall
propose to the Government to form a joint venture for the sale of Natural Gas to such
market, with participating interests of 50% to Contractor and 50% to the Government.
Ihc terms of this joint venture shall be set forth in a separate agreement to be mutually
agreed by the parties, which agreancut shall contain provisions contemplating the
sharing of revenues, investments and operating costs in such joint venture in proportion
to the above percentages Contractor shall supply gas to the joint venture at the Fidd
Export Point at the price in Section 83.1.
84 Measurement
The volume and quality of the Available Crude Oil and Available Natural Gas produced from
each Field will be measured at or upstream of the Field Export Point, at the responsibility and
aw of Contractor, with the use of the metering methods, equipment and instruments
by the oil industry , including without limitation the following.
8 4.1 Available Crude Oil shall be the actual quantity ddivered at the Field Export Point
minus bottom sediment and water, adjusted to 60 degrees Fahrenheit. Quantity
to the methods and tables described in ASTM Designation DI250. API Gravity shall be
determined using the test described in ASTM Designation D287 The amount of water
and to be subtracted in calculating the quantity of Oil sold shall be determined
according to the method described in ASTM Designation D1796 or D473.
8 4 2 Available Natural Gas shall be the actual quantity delivered at the Field Export Point i
standard reference conditions of a temperature of sixty degrees (60*) Fahrenheit and
Em toowwei
48
pressure of fourteen and nsty-five hundredths (14.65) PSIA Adjustment from observed
conditions to standard reference conditions shall be made according to the methods and
tables described in ASTM Designation D3588.
4.3 Samples of Crude (hi shall be taken from the tanks in the Contract Area, or from the
delivery pipelines when line sampling devices are available. Tests to determine quality
shall be made from such samples and shall be made in accordance with the appropriate
tests or procedures in the most recent edition of the Annual Book of ASTM Standards
published by the American Soocty for T esting Materials.
|
1.4.4 In performing its several obligations under this Article 8 the Contractor shall adhere
strictly to Good Oil Field Practice
1.4-5 As used herein "ASTM* refers to the specifically designated lest or procedure in edition
of the Annual Book of ASTM Standards published by the American Society for Testing
Materials.
ARTICLE 9
SIGNATURE BONUS AND PAYMENTS
9.1 Signature Bonus
Within thirty (30) days of the Effective Date the Contractor shall pay USS5.000.000 to the
account of the Government.
9.2 Payment Mechanism
All payments due from the Contractor to the Government under this Agreement and any
payments which may fall due from the Government to the Contractor pursuant, without
limitation and by way of illustration, to any indemnification provided in this Agreement by the
Government to the Contractor or in connection with the purchase of Natural Gas by the
Government from the Contractor pursuant to Section 8.3. shall be made in Dollars, unless
otherwise agreed, and within thirty (30) days after the end of the month in which the obligation
to make the payment is incurred to a bank specified by the party to whom the payment is due
9.3 Late Payment
Any amount no* paid in full when due shall bear interest at a rate per annum equal to the oor(l)
month term for UBOR current from day to day. plus, to the extent that the same shall be
permitted by Applicable Law. five (5) percentage points, or iJ from the due date for payment
until the amount, together with interest thereon, is paid in fulM ,
ARTICLE 10
RELINQUISHMENT OF CONTRACT AREA
Arc*
Contractor shall relinquish:
10.1.1.1 ot the end of the First Exploration Period. Dot less than twenty-five percent
(25%) of the portion of the Contract Area that is not a Development Area. Gas
Retention or Oil Retention Area ut the end of the First Exploration Period; und
10.1.12 ut the end of the Second Exploration Period, not less than n farther twenty
percent (20%) of the portion of the remaining Contract Area that is not a
Development Arcu. Gas Retention Area or Oil Retention Area at the end of
Second Exploration Period
10.12 At the end of any Contract Year. Contractor may relinquish some, or all. of the Contract
Area Any nrca so relinquished will be credited against the next relinquishment
obligation of Contractor under Section 10.1 I.
Contractor shall consult with and give not less than sixty (60) days notice to the
Management Committee of the areas which, at any time, it wishes to relinquish.
However. Contractor shall not be required to relinquish any area which it deems to have
undiscovered Petroleum potential Management Committee approval is required for the
relinquishment of any urea, unless Contractor is relinquishing all of the lands in the
Contract Area other than such parts thereof as are composed in a Development Area, a
Gas Retention Area or an Oil Retention Area.
10.1.3 If Contractor does not relinquish a portion of the Contract Area at the time and in the
manner required by this Section 10.1. the Government shall notify Contractor of its
faihae to relinquish the required portion of the Contract Area, and
comply with its relinquishment obligation within sixty (60) days of such
10.2 Flaal
Area
At the end of the all of the Contract Area other
than such parts thereof as comprised in a Development Area, a Gas Retention Area or an Oil
Retention Area.
10.3 Relinquishment of Development Area
10.3.1 Except with the consent of the Government, a Development Area shall be deemed to be
relinquished on the first to occur of:
10.3.1.1 production from the Development Area censing permanently (as detenmped
by Management Committee) or for n continuous period of thirty six (36)^^
EKA XXXMM-ei
so
months (excluding any months during which there is an event of Force
Majcure); and
10.3.1.2 the twentieth (20th) anniversary of the date of the declaration by Contractor of
the first Commercial Discovery in regard to the Contract Area, plus a number
of months equal to the total number of months during that twenty (20) year
period during which there was an event of Force Majcure. plus any extensions
pursuant to Section 10.3.2 or Section 10.3.3.
10.3.2 Within twelve (12) months prior to the end of the period in Section 10.3.1.2, Contractor
may give notice to the Government of its desire to extend the terra of this Agreement us it
rclutcs to any Development Area for an additional penod of five (5) years, if:
IOJ.2.1 there is production of Petroleum at thnt time und in Contractor’s opinion there
ia n reasonable expectation of continued production of Petroleum in
commercial quantities from the Development Aiea; or
10.3.2.2 production of Petroleum has ceased but in Contractor’s opinion there is a
reasonable expectation that production of Petroleum in commercial quantities
from the Development Area will recommence,
any such extension being subject to (lie approval of the Government, which shall not be
unreasonably withheld and which approval shall be deemed to have been given if the
Government shall not, within three (3) months of the Government having received notice
of the Contractor's desire to extend the term, have notified the Contractor of its intention
to withhold its approval of the further extension of the term
10.3.3 Within twelve (12) months prior to the end of any extended lerm pursuant to
Section 10.3.2. Contractor may give notice lo the Government of its desire to extend the
term of this Agreement os it relates to any Development Area for a further period of five
(5) years, if either of the circumstances described in Section 10.J.2.I or I0J.2.2 exist,
any such extension being subject to the approval of the Government, which shall not be
unreasonably withheld find wliieh approval shall be deemed to have been given if the
Government shall not, within three (3) months of the (iovemraeni having received notice
Of the Contractor's desire to extend the term, have notified the Contractor of its intention
to withhold its approval of the further extension of the term.
10.4 Termination of Agreement in respect of Relinquished Area
Ibis Agreement shall terminate in respect of a part of the Contract Area which is relinquished.
10.5 Gas Retention Area
If a Discovery (or the Appraisal of n Discovery) of Non-Associutcd Gas demonstrates that the
Discovery is not commercially viable at that time, either alone or in combination with other
Discoveries, Contractor is permitted to submit a comprehensive study to the Government
demonstrating that the Discovery is likely to become commercial within fifteen (15) years. The /
study shull contain a detailed evaluation of the Discovery based on known information, a map o£^
»ka
I
51
die area which Contractor believes would be the l>cvelopment Area of the Discovery if it is
commercial, and an economic model establisliing the potential for the Discovery to become
commercial in the liiture. If the Government approves the study, which approval shall not be
unreasonably withheld or delayed, the Government shall declare a Gas Retention Area in respect
of the proposed Development Area of the Discovery us defined in the study. A Gas Retention
Aren shall continue as if it were a Development Area with continuous production of Petroleum,
provided that Contractor shall take all reasonable actions available to Contractor to make the Gas
Retention Area commercially viable; and further provided thut Use Gas Retention Area will bo
relinquished after fifteen years if Contractor has not requested that the Management Committee
declare die Discovery to he a Commercial Discovery pnor to that time.
10 6 Oil Retention Area
If a Discovery (or the Appraisal of a Discovery) of Crude Oil demonstrates that the Discovery is
not commercially viable at that time, either alone or in combination with other Discoveries.
Contractor is permitted to submit a comprehensive study to the Government demonstrating that
the Discovery is likely to become commercial within fifteen (15) years. The study shall contain
a detailed evaluation of the Discovery hosed on known information, a map of the area which
Contractor believes would he the Development Area of the Discovery if it is commercial, and an
economic model establishing the potential for the Discovery to become commercial b the future.
If the Government approves the study, which approval shall not be unreasonably withheld or
delayed, the Government ahull declare an Oil Retention Area in respect of the proposed
Development Area of the Discovery as defined in the study. An Oil Retention Area shall
continue as if it were a Development Area with continuous production of Petroleum, provided
that Contractor shall tukc all reasonable actions avuilnblc to Contractor to make the Oil Retention
Area commercially viable; and further provided that the Oil Retention Area will be relinquished
after fifteen years if Contractor has not requested that the Management Committee declare the
Discovery to be a Commercial Discovery prior to that time.
ARTICLE II
OBLIGATIONS OF GOVERNMENT
The Government shall:
11.1.1 within thirty (30) days after the Effective Date, provide Contractor with the current and
historical technical data pertaining to the Contract Area, including seismic and wdl data
available to the Government from areas adjacent to die Contract Area to assist Contractor
with seismic interpretation of the Contract Area, to be used by Contractor exclusively for
Petroleum Operations;
11.1.2 the (rovemment shall, upon request by Contractor, such request to be supported by a
suitable map or plan, moke available to Contractor such Innd as may reasonably be
required for the conduct of Petroleum Operations. Contractor shall pay a reasonable
vner/user of such land. Such compensation shall be treated us
|TSAJ00fr«M>l
52
11.1.3 permit free access for Contractor to the Contract Area and to structures, facilities,
installations, equipment and other property within the Contract Area and existing roads
and bridges leading to it;
||1.4 permit use of raw water available within and m the vicinity of the Contract Area for the
ptvposc of Petroleum Operations free of charge (however, all installations foe off take,
treatment and distribution of water shall be the responsibility of Contractor); and to allow
usage of all other utilities at the same charges payable by other citizens of the Federal
11.1.5 allow use of Petroleum produced by Contractor from the Field for Petroleum Operations
free of charge;
11.1.6 permit use of existing wells and facilities within the Contract Area for Petroleum
Operations in accordance with the approved Development Plan;
11.1.7 assist Contractor in the development of a security plan and the implementation of private
security setviccs for all of its operations in the Territory related to this Agreement, ensure
the safety and security of the Contractor's property and personnel in the Contract Area
and to protect them from loss, injury ami damage resulting from war (declared or
undeclared), civil conflict, sabotage, blockade, riot, terrorism, unlawful commercial
extortion, or organized crime. Notwithstanding anything to the contrary contained herein.
Contractor acknowledges and agrees tliat the obligations undertaken by the Government
hereunder are no greater than the general obligations of the Government towards citizens
of the Territory in respect to the perils named above;
11 I I continuously provide current information on known or potential environment, health and
threats including location of conventional.
: or residue thereof (collectively. "Ordnance");
11.1.9 visas, approvals..
authorizations, rights of way. and renewals thereof from any
in the Republic of Iraq.
11.1.10 ensure Contractor has the unrestricted right to import all equipment, supplies and
materials necessary or desirable for the conduct of Petroleum Operations, and the
unrestricted right to export all such equipment, supplies and materials which were
imported on a temporary basis with all such imports and exports exempt from import and
were imported and not leased or rented by Contractor may only be exported with the
approval of the Management C ommittee, and if such approval is given, with an
appropriate credit to Recoverable Costs for the remaining value of such equipment,
supplies and materials;
11.1.11 ensure Contractor has the unrestricted right to hire and grant entry into Iraq and
the Federal Region of Kurdistan persons who are nationals from foreign countries to /
rist in the conduct of Petroleum Operations, provided that such foreign nationals abidq^
53
by the prov isions of Applicable Law; such persons to be exempt from taxes and fees lor
entry and exit;
11.1.12 grant to Contractor the flail right to take the benefit of any future laws or
amendments to laws which would represent an improvement in the Contractor’s rights
compared to the provisions contemplated by this Agreement, provided that such benefits
shall apply prospectively and not retrospectively from the date of implementation;
11.1.13 allow unrestricted access to transportation downstream of the Field Export Point
for Petroleum produced from the Contract Area; grant all approvals as may be necessary
or desirable to permit Contractor to construct pipelines and facilities downstream of tlie
Field Export Point so as to permit production from the Contract Area to be delivered to
the national or regional pipeline network in order to have access to export markets; to use
best efforts to assist Contractor to obtain approvals from other governments in the
Republic of Iraq whose approvul may he needed for the construction, ownership and
operation of any such pipeline* and facilities; and allow unrestricted access to present and
future transportation systems downstream of the Field Export Point to allow marketing
of Petroleum from the Contract Area;
11.1.14 arrange for foreign exchange to be converted in accordance with the principles set
out in this Agreement; and
11.1.15 not apply any export quotas to Petroleum produced from the Contract Area until
at least 100,000 bopd is bang produced, and in respect of production in excess of that
daily rate, any export restrictions shall be applied proportionately to all production in the
Territory.
11.2 Stability
11.2.1 Hie Government constitutes the government of the Territory which has been one of two
in the Federal Region of Kurdistan. The Federal Region of Kurdistan is
a region by the Constitution of the Republic of Iraq. Pursuant to a
Unification Agreement of 23 January 2006 the KRG is being constituted as the single
government of the Federal Region of Kurdistan and in consequence thereof -
112 1.1 the parties acknowledge that this Agreement is entered into by the parties at a
time when the Government is the proper authority and government of the
Territory, with full power and authority to enter into this Agreement;
1J.2.I2 this Agreement is binding on any successor government of the region of
Kurdistan having authority over the Territory. and the Government shall cause
this Agreement to be recognized and adopted by stxh «tcaor government
112.2 In the event of any change in governing policy m The Republic of Iraq that results in the
and sudden termination of this agreement for any rearoc. the Government
Contractor for all Recoverable Costs plus a sum to be negotiated bored
on the calculated present value of future net revenues to Contractor for the tfarabon of
iriA
I1.2J n»e Government shall take no action which prevents or impedes the due
performance of rights and obligations of the parties. The Government the
stability of terms and conditions of this Agreement and the tax and fiscal framework in
effect in Federal Region of Kurdistan and the Republic of Iraq at the dale of this
Agreement, and will not introduce or aher the terms and conditions of the Agreement or
the tax and fiscal framework in a manner which would negatively affect the economic
balance of this Agreement Should any changes occur to the terms and conditions of this
Agreement or the lax and fiacal framework in effect on the Effective Date, the
Government shall, at Contractor's election, either:
11.2.3.1
of this Agreement, including without limitation the
of Article 6, ao as to restore the fiscal balance
of this and grant to Contractor the same benefits under this
Agreement as it was to receive as though the terms and conditions of this
or the tax and fiscal framework, had not been changed; or
11-2-32 allow the and with such altered terms and
of the or altered tax and fiscal framework to be
included as Recoverable Costs
If a tax, income tax. duty, levy or other charge, whether imposed by the federal
government of the Republic of Iraq or bythe Government, becomes applicable to
Contractor or to Petroleum Operations, the Government shall assume, pay and discharge,
in the name and on behalf of Contractor. Contractor's obligations in relation to
duty, levy or charge out of Royalty Oil. Local Community Benefit or
of the Available Petroleum The Government acknowledges that payment by
Contractor of the Local Community Benefit and the Government's share of
(or. if the Government has elected to take its share in kind, delivery by the Contractor of
the Government’s share of Available Petroleum at the Field Export Point) constitutes
payment of Contractor's such taxes, duties, levies or charges Whenever the provisions of
this Section apply, the Government shall furnish to Contractor the proper official receipts
evidencing the payment of Contractor's taxes, duties, levies or charges. Such receipts
shall be issued by the proper authorities and shall state the amount and other particulars
customary for such receipts
However, should
altered terms and conditions of the .Agreement or altered tax and
fiscal framework » .~»~ivd> affect the economic balance of this Agreement so radically
effective expropriation of this Agreement. Contractor’s rights under the
--- - 11.22 shall apply.
IIJ Foreign Eicbange
113.1 Contractor shall have the right to open, maintain, and operate Foreign Exchange honk
both m and outside of the Federal Region of Kurdistan and the Republic of Iraq
and local currency bank accounts inside the Federal Region of
Republic of IrayY
55
11 .3-2 Contractor shall have the right to transfer all funds received in and converted to Foreign
Exchange u> the Federal Region of Kurdistan »d the Republic of Iraq to bank accounts
outside the Federal Region of Kurdistan and the Republic of Iraq, subject only lo the
payment of taxes, fees, dimes or imposts of general application in the Federal Region of
Kurdistan and the Republic of Iraq.
113.3 Contractor shall have the right to hold, receive and retain outside the Federal Region of
Kurdistan and the Republic of Iraq and freely use all funds received and derived from
Petroleum Operations without any obligation to repatriate or return the funds to the
Federal Region of Kurdistan or the Republic of Iraq, including but not limited to all
payments received from export sales of the Contractor’s shnre of Petroleum and any sales
proceed* from an assignment of their interest in this Agreement
11.3.4 Contractor shall luive the right to import into the Federal Region of Kurdistan and the
Republic of Iraq funds required for Petroleum Operations in Foreign Exchange and to
export freely any fluids held in the Federal Region of Kurdistan and the Republic of Iraq
to outside bank accounts.
11.3.5 Contractor shall have the right to pay outside of the Republic of Iraq for goods, works
and services of whatever nature in connection with the conduct of Petroleum Operations
without having first lo transfer to the Federal Region of Kurdistan or the Republic of Iraq
the fluids for such payments.
11.3.6 Whenever such n need arises Contractor shall be entitled to purchase local currency with
Foreign Exchange and convert local currency into Foreign Exchange, according to
prevailing rules.
11.3.7 Contractor and its Affiliates and foreign subcontractors shall have the right to pay outside
the Federal Region of Kurdistan and the Republic of Iraq the principal and interest on
loans used for funding Petroleum Operations without having lo first transfer to the
Federal Region of Kurdistan or the Republic of Iraq the funds for such payment.
113.1 Contractor shall have the right to pay wages, salaries, allowances aod benefits of Foreign
Employees working in the Federal Region of Kurdistan in Foreign Exchange partly or
wholly outside of the Federal Region of Kurdistan and the Republic of Iraq..
ARTICLE 12
RECOVERABLE COSTS
12.1 Generally
12.1.1 Contractor's accounts shall be prepared and maintained in accordance with Annex B
12.13 Only incurred by the Contractor in carrying on Petroleum Operations
arc Recoverable Costs, ut without prejudice to any other provision of this A£tement
which would result in cost or expense not being a Recoverable Cast^{
I
' f: |2-2 Recoverable Casn
(In any Contract Year, Recoverable Costs are. subject as further provided in Arana B. the sum of
! (hove of die following that are not Ineligible Costs:
i 12.2 1 the sura of:
12.2.1.1 recoverable Exploration Costs;
12-2.12 recoverable Appraisal Costs;
12.2.1J recoverable Development Costs;
122-1.4 recoverable Operating Costs; and
122.1 _5 costs lo Contractor of providing training pursuant to Section 5.3J and
Secondces;
12-2.2 Recoverable Costs in any previous Contract Year, to the extent in excess of the value of
Contractor’s share of Petroleum under Article 6 (as selected by the Government pursuant
to Section 6.1.4.1 or Section 624.1) in those previous Contract Years,
Any federal or regional customs, taxes, duties and other fees shall be Recoverable Costs in such
category as is appropriate for the activities to which they relate.
12.3 Recoverable Costs Allocation
Where there is more than one Development Area:
12.3.1 recovery of Exploration Costs incurred anywhere in the Contract Area can be made from
Available Crude Oil and Available Natural Gas from any Development Area; and
12.3.2 those Recoverable Costs which are in the nature of overhead, infrastructure and common
facility costs will be allocated for Cost Recovery Oil and Cost Recovery Gas purposes
among the Development Arens pro rata on the basis of the barrels of oil equivalent
produced from each Development Area.
ARTICLE 13
TITLE TO EQUIPMENT
13.1 Property
13.1.1 AH structures, fecilities. installations, equipment and other properly, and other works,
used or to be used in Petroleum Operations, shall be and remain the property of
Contractor while so used or held for use. and shall become the property of the
Government once the Recoverable Costs charged by Contractor in respect of such
structures, facilities, installations, equipment, property and works have been recovered icn /
ETSA2CK±»4\
57
Contractor. Once such structures, facilities, installations, equipment, property, and
works have become the property of the Government, Contractor shall continue to have
lull and free use of such property in any part of the Contract Area, together with the
continued right to move such property wherever it is needed for Petroleum Operations,
and Contractor shall have no obligation to maintain except as required in accordance with
Good Oil Field Practice for property and equipment required for Petroleum Operations
13.12 Section 13.1.1 does not apply to property leased or rented to Contractor or leased or
rented by or belonging to third parties providing services
ARTICLE 14
EXISTING CONDITIONS
14.1 Base Line Study
14.1.1 The Contractor shall not be responsible for any environmental damage and conditions
existing in the Contract Area on the Effective Date, and the Government shall indemnity
Contractor from and against any liability, loss, costs, claims or damages, including
obligations to remediate or decommission any facilitic* or surface damage in effect a! the
Effective Date
14.1.2 In order to determine the environmental damage and conditions on such date. Contractor
shall cany out a baseline environmental study to be conducted by an independent
environmental firm mutually acceptable to the Government and Contractor identifying
the environmental condition* of the Contract Area und its installations mid wells on the
Effective Pate.
14.1.3 Contractor and the Government shall jointly review and approve this report if the
Government shall undertake and pay far any remedial measures rccrenmmdrd for
immediate action in the approved report as well aa far any future •virormcrtal costs
arising after the Effective Date and resulting from Petroleum Operations. The approved
bare line study shall he used for the purpose of determining the environmental damage
occurring alter the Effective Dale as a result of Petroleum Operations.
14.1.5 Contractor shall pay for the com of the environmental baseline study. Such cost shall be
u Recoverable Cost.
14.2 limitation
Contractor shall not be liable fee any toss or damage. including but jam fowled to^lUge.
pipelines or means of transportation which arc not under the direct possession and control of the
Contractor or its Affiliates or its subcontractors or the Operator In addition to the foregoing, the j
Contractor shall not be liable for any damage whatsoever in respect of the Government share <£f ^
Petroleum, storage or transportation thereof once the Government tun taken custody of the
Government share of Petroleum.
14.3 Ordnance
14.3.1 Contractor acknowledges that Ordnance may exist in the Contract Area and surrounding
areas Contractor further acknowledges that due to sand coverage and possible
Ordnance dangerous to life, health and equipment may be within the Contract Area or be
reintroduced into such areas aaJ that there are potential dangers concerning the discovety
of and making safe such newly discovered items of Ordnance. It shall be Contractor's
responsibility to exercise care during the performance of the Petroleum Operations, and
Contractor shall all limes be vigilant in ensuring its personnel takes care during the
performance of Petroleum Operations.
14.3.2 Contractor shall include as part of its personnel orientation program for Petroleum
Operations a program for the recognition, precaulionary measures and action upon
discovery for Ordnance. Such program shall be:
14.3.2.1 mandatory for all personnel involved in the performance of Petroleum
Operations, including but nol limited to employees of subcontractors;
14.3.2.2 conducted prior lo the performance of Petroleum Operations and deployment
lo the Contract Area of any person involved in the performance of Petroleum
Operations; and
14.3.23 conducted in a language to ensure understanding by the personnel
participating in the program and subsequently to be employed related to
Petroleum Operations.
1433 If Contractor discovers Ordnance. Contractor shall immediately implement the necessary
safety procedures to secure the area and shall iramcdiatoly notify (he Government who
shall arrange the disposal of the Ordnance.
14.3 4 The Government acknowledges that the existence of Ordnance requires due allowance
for costs and delay of Petroleum Operations.
ARTICLE 15
CONSULTATION AND ARBITRATION
15.1 Dispute Resolution
A party who desires to submit a dispute between the parties arising in. out of. or relating to this
Agreement or to the breach, termination or validity thereof (a "Dispute*) for resoktoon shall
commence the dispute resolution process by providing the other parties to the Dispute written
notice of the Dispute ("Notice of Dispute"). The Notice oC Dispute shall contain a brief
statement of the nature of the Dispute and the relief requested^
59
IV panic* to a Dispute shall initially seek to resolve any Dispute by negotiations among Senior
Executive*. A -Senior Executive- mean* any individual who has authority to settle the Dispute
for a party, and is not a representative of one of the parties on the Management Committee
Within thirty (30) days after the date of the receipt by each party to the Dispute of the Notice of
Dispute (which notice shall request negotiations among Senior Executives), the Senior
Executives representing the paties to the Dispute shall meet at ■ mutually acceptable time and
place to exchange relevant information in an attempt to resolve the Dispute. If the Senior
Executives fail to resolve the Dispute, then they shall elect whether to refer to binding expert
determination under Section 15.4. or binding arbrtrxaon under Section 153. Absent a.
to refer to an expert, all unresolved Disputes shall be subject to binding arbitration
153 Arbitration
153.1 Any Dispute not finally resolved by Senior Executive
referred to binding expert determination under Section 15.4 shall be exclusively anJ
definitively resolved through final and binding arbitration. The artatraben shill V
conducted in accordance with the Rules of Arbitration of the International Chamber of
Commerce (ICC") (as then in effect).
1533 TV arbitration shall be conducted by three arbitrators, unless all parties to the Dispute
agree to a sole arbitrator within thirty (30) Days after the filing of the arbitration.
13.33 If the arbitration is to V conducted by a sole arbitrator, then the arbitrator will be jointly
selected by the parties to the Dispute. If the panics to the Dispute foil to agree on the
arbitrator within thirty (30) Dnys after tV filing of the arbitration, then the ICC shall
appoint the arbitrator.
153.4 ll the arbitration is to be conducted by three arbitrators, then each party to the Dispute
shall appoint one arbitrator within thirty (30) Days of the filing of the arbitration, and the
two arbitrators so appointed shall select the presiding arbitrator within thirty (30) Days
after the latter of the two arbitrators lias been appointed by the parties to the Dispute. If a
party to the Dispute fails to appoint its party-appointed arbitrator or if the two party
appointed arbitrators cannot reach an agreement on the presiding arbitrator within the
applicable time period, then the ICC shall appoint the remainder of the three arbitral on
not yet appointed.
15.3.5 Unless otherwise agreed by all parties to the Dispute, the place of arbitration shall be
Geneva, Switzerland TV arbitration proceedings shall be conducted in the English
language and the arbitrators) shall be fluent in the English language.
153.6 When interpreting any Dispute arising under this Agreement, the arbitraton shall apply
Applicable Law. For the avoidance of doubt, to the extent that the laws of the Republic
of Iraq os applied and administered in the Federal Region of Kurdistan may not be
consistent with international low (as defined in Article 3K of Ac Statute of the
International Court of Justice), then international law shall prevail^
WSAMMEOI
60
15 J.7 The arbitral tribunal shall make its decision within sixty (60) days after completion of the
parties' presentation to the tribunal, and it Shull be a condition of the appointment of each
arbitrator that it commit to make its decision within that time period. The sixty (60) day
limit shall not apply to disputes that involve a claim by a party that this Agreement is
terminated, expropriated or otherwise similarly fundamentally changed. The award of
the arbitral tribunal shall be final and binding. Judgment on the award of the arbitral
tribunal may be entered and enforced by any court of competent jurisdiction.
15.3.8 All arbitrators shall be and remain at all times wholly impartial, and. once appointed, no
arbitrator shall have any ex parte communications with any of the parties to the Dispute
concerning the arbitration or the underlying Dispute other than communications directly
concerning the selection of the presiding arbitrator, where applicable
15.3.9 The costs of the arbitration proceedings, including counsel's fees, shall be determined by
the arbitral tribunal as part of its uwurd
15.3.10 Tlie award shall include interest, as determined by the arbitral award, from the
date of any default or other breach of this Agreement until the arbitral award is paid in
full. Interest shall be awarded, subject to Applicable Low, at the one (I) month term for
LIBOR plus five (5) percentage points
153.11 The parties waive their rights to claim or recover, and the arbitral tribunal shall
not uward, any punitive, multiple, or other exemplary damages (whether statutory or
common law) except to the extent such damages have been awarded to a third party and
are subject to allocation between or nmong the parties to the Depute
15.3.12 To the extent permitted by law. any right to appeal or challenge any arbitral
decision or award, or to oppose enforcement of any such decision or award before a court
or any governmental authority, is hereby waived by the parties except with respect to the
limited grounds for modification or Don-enforcement provided by any applicable
arbitrauon statute or treaty.
15.3.13 During any period in which a dispute has been referred to arbitration,
performance of this Agreement by the parties shall nevertheless continue as though such
dispute tfid not exist Any time limits established in this Agreement fix the termination
of the Agreement in the event of breach shall be suspended while the dispute is being
arbitrated
15.4 Expert Determination
For any decision or Dispute referred to an expert by the Senior Executives pursuant to Section
15.2, or for any other matters where the parties so agree, the parties hereby agree that such
decision shall be conducted expeditiously by an expert selected unanimously by the parties to the
Dispute. The expert is not an arbitrator of the Dispute and shall not be deemed to be acting man
arbitral capacity. The party desiring an expat determination shall give the other parties to the
Dispute written notice of the request for such determination. If the parties to the Dispute are
unable to agree upon an expert within ten (10) Days after receipt of the notice of request for an /I
expert determination, then, upon the request of any of the parties to the Dispute, the Internationa^
i
61
Centre for Expertise of the International Chamber of Commerce shall appoint such expert and
shall administer such expert determination through the ICC's Rules for Expertise. The expert,
once appointed, shall have no ex parte communications with any of the parties to the Dispute
corxxming the expert determination or the underlying Dispute. All parties agree to cooperate
fully in the expeditious conduct of such expert determination and to provide the expert with
access to all facilities, books, records, documents, information and personnel necessary to make
a fully Informed decision in an expeditious manner. Before issuing his final decision, the expert
shall issue a draft report and allow the parties to the Dispute to comment on it. The expert shall
endeavour to resolve the Dispute within thirty (30) Days (but no later than sixty (60) Days) after
his appointment, taking into account the circumstances requiring ufl expeditious resolution of the
matter in dispute. For each Dispute referred to an expert, the parties to the Dispute shall each
submit to the expert its proposed outcome of the Dispute, and the expert shall select the most
reasonable proposal of those submitted as his decision. I he expert's decision shall be final and
binding on the parties to the Dispute.
15.5 Waiver of Sovereign Immunity
Any party that now or hereafter has a right to claim sovereign immunity for itself or any of its
assets hereby waives any such immunity to the fullest extent permitted by the laws of any
applicable jurisdiction. This waiver includes immunity from (i) any expert determination oe
arbitration proceeding commenced pursuant to this Agreement; (ii) any judicial, administrative
or other proceedings to aid the expert determination or arbitration commenced pursuant to this
Agreement; and (iii) any effort to confirm, enforce, or execute any decision, settlement, award,
judgment, service of process, execution order or attachment (including pre-judgment attachment)
that results from an expert determination, arbitration or any judicial or
proceedings commenced pursuant to this Agreement Each party acknowledges that its
and obligations hereunder are of a commercial and not a:
ARTICLE It
FINANCIAL AND TECHNICAL DATA. RECORDS AND REPORTS
16.1 Ownership
16.1.1 Ibe Government shall have tide to nil technical data and information acquires! in the
carrying on. or as a result of Petroleum Operations, provided that Contractor shall have
the right to retain a copy of all data during the term of thi s Agreement.
16.1.2 Section 16.1.1 includes all data and information, whether raw. derived, processed,
interpreted or analysed (including cores, cuttings, samples, and all geological,
geophysical, geochemical, drilling, well, production and engineering data and
information) that Contractor collects and compiles. Contractor shall he entitled to retain
50% of all cores, cuttings and other physical samples acquired during Petroleum
Operations, for the term of this Agreement. Contractor shall use diligence and care in
accordance with Good Oil Field Practice so as not to cause damage to any physical
samples in Contractor’s possession^/
M«SA2
62
16.2 Records. Storage, Retrieval and Submission
162.1 Contractor shall keep full, complete and accurate book*, accounts and other records of
Petroleum Operations and of the vole or other disposition of Petroleum, of the data and
information mentioned in Section 16.1 and of nil other financial, commercial, legal,
operational, technical and other dnU and information acquired or generated for, or
resulting, directly or indirectly, from, Petroleum Operations (including that relating to
marketing and otherwise to die sale of Petroleum).
16.2.2 Contractor shall make the originals or copies of nil such data, information and records
available to the Government (or as it shall direct) at reasonable limes at the Operator's
offices in the Territory, und shall promptly deliver the same to the Government (or as it
directs) as and when, and in such manner as. the Government directs.
16.2.3 Without prejudice to Section 16.2.2, Contractor shall store all such data and information
as the Government, after consultation with Contractor, reasonably directs, and otherwise
in accordance with Good Oil Field Practice, and provide the Government with the details
of its data storage and retrieval system.
16.2.4 Contractor may retain copies of all such data und information and records delivered to the
Government (or as it shall direct) for use in or in relation to Petroleum Operation* in
compliance with obligations under law. but not otherwise without the consent of the
Government.
16.2.5 Except with the or m required by law or the rules of a
recognised slock or as otherwise provided in this Agreement. Contractor may
not sell or disclose any such data,
16.) Reports
Contractor shall provide the Government with such reports as are mentioned in Annex B and as
Deluding aa annual report on Contractor’s measures to protect
with Section 51.2.1.
16.4 Export of Data and Information
Subject to Applicable Law as applied in the Republic of Iraq, upon notice to the
(but without need for specific Government consent). Contractor shaft be entitled to export to
Contractor’s head office outside of the Territory or to other designated offices any data,
information or records which are required for analysis or for financial reporting. No other data.
Information and records shall be taken out of, or transmitted trom or stored outside, the Territory
without the consent of the Government Such consent shaft not be withheld if resources for the
processing, interpretation or analysis thereof are not available in the Territory, if the data,
information and records are promptly returned to the Tetfitary and accurate copies (c
and representative samples) are retained in the Tenitor^^^
63
16.5 line of Data and Information
16.5.1 The Government may make »udi use as it wishes of the data and
in this Article 16 for its internal use. or for the purposes of general statistical and other
general reporting (publicly or otherwise) on its activities.
16.5.2 Except with the consent of the Government, Contractor nuy only use the data and
information mentioned in Section 16.1 for its Petroleum Operations.
16.6 Confide*tiallty of Data and Information
16.6.1 For ilie purposes of this Section 16.6. "Confidential Information" includes:
16.6.1.1 the data, information und records referred to elsewhere in this Article 16;
166.1.2 any information regarding Petroleum Operations; imd
166.1.3 any patents, discoveries, trade marks, cultural properties, tools, products,
forms, books, programs, techniques, designs, research, plans, development
activities, computer programs, cyphers, maintenance plans, list of names of
employees and their positions, and financial statements which have the
chnrncter of being private and confidential and are related to Petroleum
16.6.2 The Government shall not publicly or other than for the purpose
of then the
later of:
16.6-2.1 five (5) yean after it
16.6 2-2 this to apply in respect of the point at or in respect of
16 6 3 Except with the consent of the Government. Contractor shall not disclose any
Confidential Information other than
16.6.3.1 to iu employees, contractors and affiliate* to the
16.6.32
I6.6.3J
I6AJ4
16.6.3 5
64
16.6.3.6 to its and its Affiliates' officers, directors and employees, subject to the
Contractor taking customary precautions to ensure sucli data and information
is kept confidential;
16.6.3.7 on a need to know husin to contractors, consultants, and advisors employed by
the Contractor or its Affiliates where disclosure of such data and information
is reasonably necessary in connection with Petroleum Operations or otherwise
pursuant to the legitimate exercise of the rights of Contractor,
16.6.3.8 to a bona fide prospective transferee from Contractor of all or a part of its
interest in this Agreement (including a corporation with whom Contractor or
its Affiliate is having discussions directed toward a merger, amalgamation,
consolidation, the sole of a majority ownership interest in Contractor or
Affiliate or similar transaction).
16.6.3.9 to its insurers, bonks or other financial institutions, underwriters and investors
and their advisors on a need to know basis in respect of the Contract Area and
die Agreement;
16.6 3.10 to the extent such data and Information must be disclosed, pursuant to any
requirement of applicable laws, to a government or governmental department,
ministry, board, commission, agency, tribunal, securities commission or stock
exchange having jurisdiction;
16.6.3.11 in legal or arbitration proceedings involving the rights and obligations of
Contractor.
16-6.3.12 of a general descriptive or general informational nature in respect of
Petroleum Operations (including independent engineering reports, but
excluding any reports commissioned by or prepared for Contractor) provided
that such information shall not include any proprietary information or data
relating to technology, marketing, trade secrets, competitive mitten or other
;or
16.6.3.13 with th of the not to be unreasonably
withheld or
Contractor shall ensure that a person mentioned in Section 16.63.1 _ the data
and information disclosed to it confidential in the terms of this Article 16
16.64 The Government may release data without compensation to Contractor on portions of the
Contract Area which have been relinquished by Contractor, except where Contractor has
not recovered its Recoverable Costs related to the acquisition of such data. Until
its Recoverable Costs related to the data on relinquished lands,
it may sell such and any amounts recaved for sale of data shall be credited to
X
65
16.6.5 All negotiations, arbitration, and expert determinations relating to a IJisputr (including a
from negotiation, an arbitral award, documents exchanged or
ind memorials, briefs or other documents
)arc ! and may not be disclosed by the parlies, their
employees, officers, directors, counsel, consultants, and expen witnesses, except to the
required by law. provided, however, that breach of this confidentiality provision shall not
void any aettlcmcnl. expert determination or award.
16-7 Trade Secrets
16.7.1 Notwithstanding Section 16.6, the Government shall not publicly discloac or make
available, other than as required for the purpose of the resolution of disputes under this
Agreement, any dnlu or information submitted to it by Contractor, which;
16.7.1.1 is a trade secret of, or data and information the disclosure of which would, or
could reasonably be expected to, adversely uffect, Contractor in respect of its
lawful business, commercial or financial affairs; and
16.7.12 was clearly marked as such when it was submitted to the Government.
16.7.2 Without prejudice to Scctioo 16.7.1.1:
16.7.2.1 the Government may, at any time and from time to tune.
Contractor requiring it to show cause, within the time specified for the
pwpose in the notice, why the data and information which H has
pursuant to Section 16.7.1.2 should still be considered a
information os mentioned in
16.7.2.2 if Contractor does not
iger be
16.7.
16.7.3 The Government shall not use the
Contractor or any Affiliate in any
prior wnuen approval from Contractor, who such approval at iu
Release to revise it to
66
such comments or to refrain from making it after the other party have had the opportunity to
comment as required by this Section 16 8
ARTICLE 17
AUDIT
17.1 Independent Audit
The Government has the right, at Contractor's cost, to an independent audit (starting, except in
the ease of manifest error or fraud, within twelve (12) months after the end of the Contract Yeur,
mid concluding within six (6) months of its commencement) of Contractor's books ami accounts
relating to this Agreement for any Contract Year. The Government may require only a single
independent audit in respect of any Contract Year. Contractor shall forward u copy of the
independent auditor's report to the Government and the Management Committee within sixty
(60) days following the completion of the audit.
17.2 Government Audit
The Government may inspect and audit (by itself or as it directs), and at its own cost.
Contractor’s books ami accounts relating to this Agreement for any Contract Year (starting
within twelve (12) months after the end of the Year, and concluding within six (6) months of this
start). The Government may only conduct a single audit in respect of any Contract Year. This
Section 17.2 docs not affect any audit rights arising under the provisions of Applicable Law
17.3 Kireplions
17.3.1 All audit exceptions shall be raised by the Government within six (6) months alter receipt
of the independent auditor's report by the Government or completion of the audit by the
Government (or as it directed), as the case may be. failing winch Contractor's books and
be conclusively deemed correct except in the case of manifest error or
I7J.2 Contractor shall fully respond to an audit exception within sixty (60) days of its being
raised, failing which the exception shall be deemed accepted.
I7.3J the parties as a consequence of an audit shall be made
promfdy.
174
Contractor shall fully and expeditiously *sse
17.5 Affiliates
The foregoing provisions of this Article 17 apply in respect of Affiliates of Contractor.
Contractor shall use its best endeavours to ensure that its Affiliates axnpiy with them (at
InnnElasraMtioMdtaSeaiaaPg^
JOOMJSOI
ARTICLE 18
INDEMNITY AND INSURANCE
1*1 Indemnity
18 1.1 Contractor shall defend, indemnify and bold harmless (he Goverraacni from all claims of
whatsoever nature which arc brought against the Government by any third party directly
in respect of Petroleum Operations, and all costs, expenses and liabilities incurred by the
Government os a consequence thereof. The Government shall give Contractor prompt
notice of any such claim and shall not settle it without the prior consent of Contractor.
18.1.2 The Government shall defend, indemnify and hold harmless Contractor from all claims of
whatsoever nature which are brought against Contractor by any third party directly in
respect of any failure by the Government to perform its obligations under this Agreement,
and all coats, expenses and liabilities incurred by Contractor ar u consequence thereof.
Contractor shall give the Government prompt notice of any such claim and shall not settle
it without the prior consent of the Government.
18.2 Insurance
Contractor shall take out and maintain insurance in respect of its liabilities for Petroleum
Operations in the amounts and types which ore appropriate in accordance with Oood Oil I ield
Practice, but this obligation applies only if such insurance is available at a cost which is not
materially in excess of the insurance costs applicable for the international oil & gas industry*.
Contractor shall supply evidence of Contractor’s insurance to the Government within 120 days
following the Effective Dale, and on each anniversary of the Effective Date during the term of
this Agreement.
ARTICLE If
FORCE MAJF.CRE
19.1 Fart* Majearc Relief
19.1.1 Subject to the further provisions of this Article 19. a party shall not be liable for any
failure to perform an obligation under thU Agreement to the extent such performance is
prevented, hindered or delayed by events or circumstances which are heyond its
reasonable control and the effects of which could not and cannot reasonably be avoided
or overcome by it ("Force Manure")
68
or the Republic of Iraq (or of a political subdivision thereof) which
substantially prevents or hinders Contractor1* ability to conduct Petroleum
Operations.
19.13 Notwithstanding Section 19.1.1, the following shall not be Force Majeure:
19.1.3.1 failure to pay money;
19.1.3.2 in the case of Contractor, the law, or any action or inaction of the government,
of a place other than the Federal Region of Kurdistan or the Republic of Iraq
(or of a political subdivision thereof); and
19.1.3.3 in the cane of the Government, the law, or any action or inaction of the
Government, or any governmental agency in the Federal Region of Kurdistan
or the Republic of Iraq
192 Procedure
A party claiming Force Majeure shall;
19.2.1 notify the other party as soon as reasonably practicable of the event or circumstance
concerned, and of the extent to which performance of its obligations is prevented,
hindered or delayed thereby;
19.2.2 keep the other party fully informed as to the actions taken, or to be taken, by it to
overcome the cfleets thereof, and, from lime to time, provide it with such information
and permit it such access, as it may reasonably require for the purpose of assessing such
effects and the actions taken or to be taken; and
19.2.3 resume performance of its obligations as soon as reasonably practicable after the event or
circumstarKc no longer exists
19J Consult* boo
shall consult with each other and take all reasonable steps to minimise the losses of
either party and to minimise any overall delay or prejudice to Petroleum Operations as a result of
Force Mqcura.
19.4 Third Parties
Where a party enters into an agreement in relation to this Agreement with a third party , a failure
by the third party to perform an obligation under that agreement shall be Force Majeure affecting
that party only if performance of that obligation was prevented, hindered or delayed by events or
circumstances which (if the third party were party to this Agreement in the capacity of the party
coocemed) udbld (in accordance with the provisions of this Article 19) be Force Majeure
affecting ilyl j
69
19.5 Extension of T
If Force Majeurc materially prevent*, hinders or delays Petroleum Operations, the time period
for the performance of obligations by a party shall be extended by a period equal to the duration
of the Force Majeurc condition. If Force Majeurc materially prevents, hinders or delays
Petroleum Operations for more than three (3) consecutive months, the parties shall discuss, in
good faith, amendments regarding the term of. and the periods of time in which Petroleum
Operations (including tltc duration of each period of the Exploration Phase) are to be carried out
under, this Agreement.
ARTICLE 20
RESTRICTIONS ON ASSIGNMENT
20.1 Assignment by Contractor
20.1.1 Except with the consent of the Government, which consent shall not be unreasonably
withheld or delayed, or as permitted by this Section 20.1, no alignment or other dealing
by Contractor in respect of this Agreement shall be of any force or effect
20.1.2 Upon notice to the Government, Contractor shall be permitted to assign its rights under
this Agreement to a wholly-owned subsidiary that has been incorporated for the purpose
of holding this Agreement. Any such assignment shall not relievo Contractor from its
obligations under this Agreement, without the written approvnl of the Government.
20.1.3 Contractor may assign all or part of its rights, obligations and interests arising from this
Agreement to a third party provided (hat the third party
20.1 J.l has the technical and financial ability to perform the obligations to be assumed
by it under this Agreement, and
20.1 as to the interest assigned to it. accepts and assumes all of the terms and
conditions of this Agreement
20.1.4 Any such assignment shall be subject to the prior written consent of the Government,
which consent shall not be unreasonably withheld or delayed. By way of clarification,
and not in limitation of the foregoing provision* of this Section 20.1 J. the Government
dull not be considered to be acting unreasonably in declining to consent to any such
assignment if the assignment to such proposed assignee is deemed contrary to the
Government’s interests, as evidenced in writing to that effect signed by the representative
of the Government
20 1J Section 20.1.1 docs not apply to an agreement for the sale of Crude Oil under which the
pnee therefor is payable (or such Crude Oil is exchanged for other Petroleum) after title
20.1.6 Section 20.1.1 docs not apply to any encumbrance granted by Contractor. For the
purposes of the foregoing, encumbrance includes any mortgage, charge, pledge, lien. /
assignment by way of security, title retention, option, nght to acquire, right (
70
pre-emption, right of set off, counterclaim, trust arrangement, overriding royalty, net
profits interest, or any other security, preferential right, equity or restriction, any
agreement to give or to create any of the foregoing and any transaction which, in legal
terms, is not a secured borrowing but which has an economic or financial effect similar to
that of a secured borrowing.
20.2 Assignment by Government
202.1 Except with the consent of the Contractor, which consent shall not be unreasonably
withheld or delayed, or as permitted by this Section 20.2, the Government shall not
assign any interest in this Agreement or the Contract Area; provided, however, that
subject to Section 6.2.93, the Government may assign it* rights in the Local Community
Benefit.
20.2 2 Section 20.2.1 does not upply to an agreement for the sale of Crude Oil under which the
price therefor is payublc (or such Crude Oil is exchanged for other Petroleum) after title
thereto has passed to live Government
ARTICLE 21
OTHER PROVISIONS
21.1 Notice of Default
Upon any breach or failure to perform any obligation of this Agreement by a party, the other
party must give written notice of the breach or failure in writing and within thirty (30) days from
the date that the party become aware of the occurrence of the breach or failure, together with u
direction to remedy the breach or cause the obligation to be performed, otherwise the violating
party shall bear legal responsibility for the breach or failure according to the provisions of this
Agreement and Applicable Law.
2\2 Notices
AU notices, demands, instructions, wavers, consents or other communications to be provided
pursuant u> this Agreement shall be in writing in English, shall be effective upon receipt, and
shall be sent by personal delivery, couner or facsimile, to the following addresses:
I f to Contractor, to: WestemZagros limited
do Western Oil Sands Inc.
Suite 2400,440 Second Avenue SW
Calgary, Alberta
Canada T2P5E9
4
Facsimile: ♦I 403 234 9156,
If (0 the Government, to: Office of the Prime Minister
Kurdistan Regional Government, Sulaimany Administration
Sulaymaniyah, Iraqi Kurdistan
Facsimile: .964 31 30527
The addresses and facsimile numbers for notices given pursunnt to this Agreement may be
changed by means of a notice given to all parties at least fifteen Business Days prior to the
effective date of such change.
21.3 Language
This Agreement lias been written in the English language. An unofficial translation of this
Agreement in the Arabic language will be provided by the Contractor to the Government within
sixty (60) days of the date of signature of this Agreement. In ease of a conflict between the
provisions or interpretation or the English text of this Agreement and the Arabic translation, the
English text shall prevail.
21.4 Ratification of Agreement as Applicable Law
Upon adoption of this Agreement as law in the Federal Region of Kurdistan, this Agreement
shall have the force of law within the Federal Region of Kurdistan, shall form part of Applicable
Law and shall take precedence over any other current law, decree or administrative order (or part
thereof) of the Federal Region of Kurdistan which is inconsistent with or conflicts with this
Agreement except as specifically otherwise provided in this Agreement.
21.5 Enurement and Third Party Rights
This Agreement shall be binding upon and enure to the benefit of the parties and their respective
i and permitted assigns. Unless specifically provided in this Agreement (including in
19.4), the parties do not intend that any tom of this Agreement be enforceable by any
person who is not a party to this Agreement
21.6 Ar dr i/Modificstic
This Agreement shall not be amended or modified in any respect, except^ to a written
■ by the officials or representatives authorized by each party
21.7 OECD Convention
The Government acknowledges that Contractor is legally obliged by legislation in its home
country to comply with the 1999 OECD Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions and the Canadian Corruption of Foreign Public
Officials Act (Canada)^
72
21.8 Severability
If any provision of Ail Agreement is hdd to be invalid. illegal or unenforceable, the invalidity,
illegality or unenforceability will not affect any other provision of this Agreement and this
Agreement will be construed as if the invalid, illegal or unenforceable provision had never been
contained herein unices the deletion of the provision would result in such material change to
219 Entire Agreement
This Agreement, including the Annexes, together with documents to be delivered at the time of
execution of this Agreement, constitute the entire agreement between the parties pertaining to the
subject matter hereof and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties. There arc no warranties, representations or
other agreements between the parties in connection with the subject matter hereof except as
specifically set forth in this Agreement and in any document delivered at the time of execution of
this Agreement.
21.10 Relationship of Parties
This Agreement shall not be deemed or construed to authorize any parry to act as an agent,
servant or employee for any other pmty for any purpose whatsoever. The parties acknowledge
that they do not have the right or authority or jurisdiction to enter into contracts or obligations on
behalf of the other party
21.11 Further Assurances
The parties shall execute, acknowledge ami deliver such other instruments and take or
from taking such other action as may be reasonably required to more fully assure the
performance of the provisions of this Agreement and otherwise assure the carrying out of the
intent and purpose of this Agreemen^( ^
trsA ro*>-«?oi
IN WITNESS WHEREOF, the parties have executed tliis Agreement in
Sulaymaniyah, Kurdistan Region, Iraq, on the fourth day of May 2006, and each party has
delivered and received three fully executed copies.
Kurdistan Regional Government - Iraq/Sulaimany Administration^/ f
His Excellency Mr. Omar Fatah Hussein Dilsbad Abdul-Rahmun Muhammed
Prime Ml. Chairman of General Enterprise for
Special Project*
WesternZagros limited
Ah- ■ eXd
M. Simon Hatfield
Officer
Director
Annex A -
CONTRACT AREA
B-I
Annex B -
ACCOUNTING PROCEDURE
CLAUSE 1
GENERAL PROVISIONS
1.1 Purpose and Definition*
I I I Hie purpose of this Annex B is to further define the manner in which the costs
expenses of Petroleum Operations will be recorded. Recoverable Costs will be
determined, and Contractor’s lxx>ks and accounts will be prepored and maintained, and
ancillary mutters.
1. 1.2 A reference to a Clause is to a clause of this Annex B unless the contrary is stated.
1.1-3 A reference to an Article or Section is to an article or section of the Agreement to which
this Annex B is attached.
1.2 Accounting Records
Contractor shall maintain complete accounts, books and records (the “Accounting Records’), on
an accrual basis, of all costs, expenses and revenues of, or relating to. Petroleum Operations, and
the sale or other disposition of Petroleum, oo an accurate basis and in accordance with generally
accepted accounting principles and standards of the international petroleum industry.
IJ Language and Units of Account
1-3 2 The Accounting Records, and all reports to the
IJ.3 Contractor shall maintain its-Accounting Records in US$. Amounts received or paid in
other currencies shaJI be converted into USS on the basis of the average of the buying and
the selling exchange rates for the applicable currency published by Citibank NA and
prevailing on the date on which such amounts were received or |
1-3.4 It b the of the the Contractor should
an ii or loss at the expense of. or to the benefit of. the other,
Therefore. or losses will be credited or charged to the
CLAUSE 2
CLASSIFICATION AND ALLOCATION
2-1 Exploration Costs
•Exploration Costs" are those costs, whether of a capital or operating nature, moored after
signature of this Agreement which directly relate to Exploration and are incurred in respect of
activities carried out substantially in accordance with an approved Exploration Work Program
Mid Budget and in accordance with Good Oil Field Practice, but without prejudice to
Section 4.11 of the Agreement, including costs of;
2.1.1 related abandonment and site remediation
2.1.2 (including desk studies and analysis of
survey data) used in aerial, topographic, geological, geochemical, geophysical and
seismic surveys, purchased survey and other geoscience data (k
2.L3 permanent, auxiliary or temporary faciHtics. including camps.
21.4 workshops, power and facilities. and
facilities.
2.1.5 security personnel, equipment and services, including detection, removal and disposal of
unexploded ordnance and all related environmental, health and safety costs;
2 1.6 floating crafl, automotive equipment, furniture and office equipment;
2.1.7 work conducted pursuant to Section 4.11 of the Agreement in connection with
Exploration activities,
2.1.8 the environmental baseline study' referred to in Section 14.1 of the Agreement; and
2.1.9 if approved by the Government, employee housing, recreational, educational, health and
meals facilities, and other similar costs necessary for Exploration.
2.2 Appraisal Costs
'Appraisal Costs’ are those Exploration Costs that directly relate to Appraisal.
2J Development Costs
’Development Costs- arc;
2.3.1 in respect of a Development Aren, and before the start of Commercial Production from it,
those costs, whether of a capital or operating Aature. which directly relate to the
Exploration, Appraisal or Development of it. arx^-*
2.3.2 in respect of a Development Area, and after the start of Commercial Production from it,
those costs of a capital nature which directly relate to the Development of it (including
conduct or acquisition of seismic surveys), or to the production of Petroleum from it;
and are incurred in respect of activities earned out substantially in accordance with an approved
Work Program and Budget and in accordance with Good Oil Field Practice, or are incurred
puisuant to Section 4.11 of the Agreement, including costs of:
2.3.3 workshops, power and water facilities, warehouses, site offices, ncccss and
communication facilities;
2.3.4 security personnel, equipment and services, including detection, removal and disposal of
unexplodcd ordnance and all related environmental, health and safety costs;
2.3.5 production facilities, wellhead production tubing, sucker rods, surfucc pumps, (low lines,
gathering equipment, storage facilities, all other equipment, treating plants nnd
equipment, secondary recovery systems;
2.3.6 permanent, auxiliary or temporary facilities, including camps, camp support costs, access
roads and bridges and other related infrastructure;
2.3.7 pipelines nnd other facilities for transporting Petroleum produced in die Contract Area to
the Field Export Point;
2.3.8 pipelines and other facilities exclusively used for transporting Petroleum produced in the
Contract Area beyond the Field Export Point;
2 3.9 pipelines and other facilities for transporting Petroleum produced in the Contract Area
and other fields beyood the Field Export Point, provided that the costs of such pipelines
and other facilities shall be equitably allocated on a facility usage basis between the
Contract Area and the other Adds.
2.3.10 movable assets and subsurface drilling and production tools, equipment and instruments,
and miscellaneous equipment;
2.3.11 floating craft, automotive equipment, furniture and office equipment; and
2.3.12 if approved by the Government, employee and welfare housing, recreational, educational,
health and meal facilities, and other similar costs necessary for the Development.
1A Opera tisg Costs
’Operating Costs’ are. in respect of a Development Area and after the start of Commercial
Production from it, those costs of an operating nature which directly relate to the Development
thereof, or to the production of Petroleum therefrom, and are incurred in respect of activities
carried out substantially in accordance with an approved Development Work Program and
incurred pursumt to Section 4.11 of the Agreement Operating Costs shall
2.4 I the decommissioning cost reserve as described in Clause 3.15 of this Accounting
Procedure;
2 4.2 pipeline tariffs, export terminal charges and charges for similar facilities, whether
upstream or downstream of the Field Export Point; but where the Contractor owns such
pipelines and export terminals and similar downstream facilities, the capital and operating
costs of such facilities shall be included in Development Costs and Operating Costs,
respectively, under this Agreement; and
2.4.3 security personnel, equipment and services, including detection, removal and disposal of
uncxplodcd ordnance in the Contract Area or near the area of Petroleum Operations and
required in order to permit Petroleum Operations to be conducted safely, in Contractor''
opinion, and all related environmental, health and safety costs.
2.5 General and Administrative Costs
"General and Administrative Costs" are all main office, field office and general administrative
expenditures incurred after signature of this Agreement related to Petroleum Operations,
including supervisory, accounting and employee relations services, that cannot be directly
charged under any other section of this Accounting Procedure, determined as the sum of the
following.
2.5.! Exploration Overheat! - Contractor shall be entitled to an annual charge to Exploration
Costs based on ten (10%) percent of the total of Exploration Costa, including Appraisal
Costs, during each Contract Year or liaction thereof;
2.5.2 Development Overhead - Contractor shall be entitled to an annual charge to Dor lopment
Costs based on ten (10%) percent of the total of Development Costs dwing each Contract
Year or fraction thereof, and
2-5.3 Operating Overhead - Contractor shall be entitled to an annual charge to Operating Costs
hased on ten (10%) percent of the total of Operating Costs during each Contract Year or
fraction thereof.
The foregoing percentages may be reviewed but not more often than annually, and any
appropriate adjustment approved by the parties shall be made, if necessary, prospectively.
Contractor’s costs must be charged as direct charges whenever possible. General and
administrative costs compensate Contractor's .Affiliates for costs which are properly allocable to
Petroleum Operations under the Agreement but which cannot, without unreasonable effort ani'cc
release of confidential data proprietary to the Contractor's Affiliates, be charged under any other
section. General and administrative costs will be billed monthly. General and administrative
costs are not subject to audit by Government. Contractor must budget for general and
administrative costs.
All General and Administrative Costs shall he regularly allocated to Exploration Costs.
Development Costs and Operating Costs in accordance with Clauses 2.5.1, 2.5.2 and 2.5.3
above, respectively^'£
EPSA 1006-05-01
2.6 Miscellaneous Receipts
"Miscellaneous Receipts* ore:
2.6.1 dll monies received by Contractor, other than for the talc or other disposal of Petroleum
from a Development Area, which are directly related to the conduct of Petroleum
Operations, including:
2.6.1.1 umounts received from the sale or other disposal of Petroleum from
production testing activities undertaken in Exploration and Appraisal wells;
2.6.1.2 amounts received for the disposal, loss, or destruction of property, the cost of
which is a Recoverable Cost;
2.6.1.3 amounts received by the Contractor under an insurance policy, the premiums
of which are Recoverable Costs, in respect of damage to or loss of property;
2.6.1.4 amounts received as insurance (the premiums of which are Recoverable
Costs), compensation or indemnity in respect of Petroleum lost or destroyed
prior to the Field Expod Point;
2.6.1.3 amounts received from the hiring or leasing of property, the cost of which is a
Recoverable Coat;
2.61.6 amounts received from supplying information obtained from Petroleum
Operations;
2.6.1.7 amounts received as charges for the use of employee amenities, the costs of
which are Recoverable Costs: and
2.6.1.8 amounts received in respect of expenditures which are Recoverable Costs, by¬
way of indemnity or compensation for the incurring of the expenditure, refund
of the expenditure, or rebate, discount or commission in respect of the
expenditure; and
2.6.2 the value of property, the cost of which is a Recoverable Cost, when that property ceases
to be used in Petroleum Operations.
2.7 Ineligible Costs
"Ineligible Costs” are:
2.7.1 interest (or any puyment in the nature of, in lieu of. or having the commercial effect of.
interest) or other cost under, or in respect of. a Loan Facility;
2.7.2 currency hedging costs;
2.7J costs relating to formation of corporations or of. any partnerships or joint venture
arrangements, other than in respect of a unitisalion£,( y
usowmsoi
payments of dividends or the
'7.5 repayment* of equity or loan capital;
17.6 payments of private overriding royalties, net profits interests and the like.
17.7 depreciation;
17 * Royalty Oil;
2.79 .ncumd as a result of maxoniplijoc* by Contractor with Good Oil Kidd Practice,
including costs incurred as a result of any negligent act or omission, or wilful
misconduct, of Contractor, its agents or sub-contract.**, including any amount paid in
settlement of any chum alleging negligence or wilful misconduct, whether or not
negligence or misconduct is admittod or whether such sum is stated to be paid on an
cx-grntia or sintilnr basis;
2.7.10 payment of compensation or dumiiuos under this Agreement, cxcopt to the extent such
compensation or damages relate to an award or allocation made in favour of Contractor in
the resolution of a Dispute;
2.7.11 costs relating to the settlement of disputes, which arc not approved in advance by the
Government, including all costs and expenses of arbitration or litigation proceedings
under this Agreement;
2.7 12 decommissioning costs actually incurred which have been taken
2.7.13 payments under Section 9.3 of dns Agreement.
2.7.14 audit fees and accounting fees (excluding fees and expenses incurred for the conduct of
audit and accounting services required by An Agreement) incurred praam to tb*
connection with intra-group corporate reporting requirements (wtietber or not required by
Uw);
2.7.15 except with the consent of the Government, cost*, including donations, relating to public
B-7
2.7.19 costs Dot falling within any of the above items which are stated dtewbere in this
Agreement not to be recoverable, or costs incurred without the consent or approval of the
Government where such is required.
2-8 Other Matters
2.8.1 The methods mentioned in this Clause 2.8 will be used to calculate Recoverable Costa.
2J 2 Inventory levels shall be in accordance with Good Oil Field Practice. The value of
inventory items not used in Petroleum Operations, or sold, the cost of which has been
recovered as an Operating Cost, shall be treated as Miscellaneous Receipts. Tbe cost of
an item purchased for inventory shall be a Recoverable Cost at such time as the item is
incorporated in the inventory in the Federal Region of Kurdistan.
2.8.3 Where the cost of anything, or a receipt (or value) in respect of anything, relates only
partially to the carrying out of Petroleum Operations, only that portion of the cost or the
receipt (or value) which relates to the carrying out of Petroleum Operations will be o
Recoverable Cost or assessed as a Miscellaneous Receipt. Where any cost or related
receipt (or value) relates to more than one of Exploration Costa, Appraisal Costs,
Development Costs and Operating Costs, or to more than one Development Area, the
cost or related receipt (or value) will he apportioned in on equitable manner.
CLAUSE 3
COSTS, EXPENSES ANI> CREDITS
Subject as otherwise provided in this Agreement, the following costs, cluugcs and credits shall
be included in die determination of Recoverable Costs.
3.1 Sarface Right*
All direct coats necessary for the acquisition, renewal or relinquishment of surface rights
acquired and maintained in force for the purposes of the Agreement.
3.2 labour and Associated Labour Costs
3 2.1 Costs of Contractor's locally recruited employees based in the Territory. Such costs shall
include the costs of employee benefits and slate benefits for employees and levies
imposed on Contractor as an employer, transportation and relocation costs within the
Territory of the employee and such members of the employee’s family (limited to spouse
and dependent children) as required by law or customary practice therein. If such
employees are also engaged in other activities, the cost of such employees shall be
apportioned on a time sheet basis according to sound and generally acceptable accounting
3.2.2 Costs of salaries and wages including bonuses of Contractors employees and Secondces
directly and necessarily engaged in the conduct of the Petroleum Operations, whether
temporarily or permanently assigned, irrespective of the location of such employ ees, it /
being understood that in the case of those personnel only a portion of whose time is/y\ £
mw
B-8
wholly dedicated to Petroleum Operations under the Agreement, only that pro-rau
portion of applicable salaries, wages, and other costs as delineated in Clauses 3.2.3, 3.2.4,
3.2.5, 3.2.6 and 3.27 shall be charged oiul the basis of such pro-rata allocation shall be
specified.
3.2.3 Contractor's costs regarding holiday, vacation, sickness and disability benefits and living
and housing and other customary allowances applicable to the salaries and wages
chargeable under Clause 3.2 2
3.2.4 Expenses or contributions made pursuant to assessments or obligations imposed under
Applicable Law which are applicable to Contractor’s cost of silanes and wages
chargeable under Clause 3.2.2.
3.2-5 Contractor's cost of established plans for employees' group life insurance, hospitalisation,
pension, slock purchases, savings, bonus and other benefit plans of alike nature
customarily granted to Contractor's employees, provided however that such costs are in
accordance with generally accepted standards in the international petroleum industry,
applicable to salaries and wages chargeable to Petroleum Operations under Clause 3.22.
3 2.6 Reasonable housing, transportation, travel and other support expenses of employees of
Contractor, including those made for housing, travel, relocation, schooling and security
of tbc expatriate employees and their families and personal effects, assigned to the
Territory whose salaries and wages arc chargeable to Petroleum Operations under
Clause 3.2.2.
Actual transportation expenses of expatriate personnel transferred to Petroleum
Operations from their country of origin shall be charged to the Petroleum Operations.
Transportation expenses of personnel transferred from Petroleum Operations to a country
other than the country of their origin shall not be charged to the Petroleum Operations.
Transportation cost as used in this section shall mean the cost of freight and passenger
service, meals, hotels, insurance and other expenditures related to vacation and transfer
travel and authorised under Contractor's slumlord personnel policies. Contractor shall
ensure that all expenditures related to transportation costs arc equitably allocated to the
activities which have benefited from tlie personnel concerned.
3.2.7 Reasonable personul expenses of personnel whose salaries and wages arc chargeable to
Petroleum Operations under Clause 3.2.2 and for which expenses such personnel
reimbursed under Contractor's standard personnel policies In the event such expenses
ore not wholly attributable to Petroleum Operations, the Petroleum Operations shall be
charged with only the applicable portion thereof, which shall be determined on an
equitable basis.
3J Transportation and Employee Relocation Costs
The cost of transportation of employees, equipment, materials and supplies other Uian as
provided in Clause 3.2 necessary for the conduct of the Petroleum Operations along with other
related costs, including import duties, customs fees, unloading cluuges. dock lees, mid inland and
ocean freight charger^ ^
[PSA 3Q0A4M4I
B-9
J.4 Charges for Smka
For purposes of this Clouse 3.4. Affiliates which arc not wholly owned by Contractor or
34 1 Third partUs
The actual coats of contract services, services of professional consultants, utilities, and
other services necessary for the conduct of die Petroleum Operation* performed by third
parties other than an Affiliate of Contractor.
3.4.2 AffiUattt of Contractor
3.4.2.1 Professional and Administrative Services Expenses: cort of professional and
administrative tervices provided by any Affiliates of Contractor for the direct
benefit of Petroleum Operations, including services provided by the
production, exploration, legal financial, insurance, accounting and computer
services, divisions other than those covered by Clause 3.4.2.2 or Clause 3.6 or
3.8.2 which Contractor may use in lieu of having its own employees. Charges
shall reflect the cost of providing their services and shall not include any
dement of profit and shall be no less favourable than similar charges for other
operations carried oo by Contractor and its Affiliates. The charge-out rate
sluill include all costs incidental to the employment of such personnel Where
the work is performed outside the home office base of such penoond. the
daily rate shall be charged from the dale such personnel leave the home office
base where they usually work up to their return thereto, including days which
are not working days in the location where the work is performed, excluding
any holiday entitlements derived by such personnel from their employment at
their home office base.
3.4 2.2 Scientific or Technical Personnel: cost of scientific or technical personnel
services provided by any Affiliate of Contractor for the direct benefit of
Petroleum Operations, which cos! shall be charged on a cost of service basis
and shall not indude any dement of profit Unless the work to be done by
such personnd is covered by an approved Work Program and Budget.
Contractor shall not authorise work by such personnel.
3.4J.3 Equipment and Facilities, use of equipment and facilities owned and furnished
by Contractor's Affiliates, at rases commensurate with the cost of ownership
and operation; provided, however, that such rates shall not exceed those
currently prevailing for the supply of like equipment and facilities oo
comparable terms in the area where the Petroleum Operations are bring
conducted. The equipment and facilities referred to herein shall exdude
mayor investment items such as (hut not limited to) drilling rigs, producing
platforms, oil treating facilities, oil and gas loading and transportation
systems, storage and terminal facilities and other mayor facilities, aates for
which shall be subject to separate agreement with the Government'
B-IO
W c
Covts of acquiring, leasing, installing, operating. repairing and
systems including radio and microwave facilities between the Contract Area. Contractor’s base
facility in the Territory and Contractor's bead office In Iraq and in its corporate parent's home
3.6 omcc. Storage ami Miscellaneous Facilities
cos« to and operating any office, sub-office,
or other facility in the Territory directly serving the
3.7 EcotogkaJ and Environment
3.7.1 Costs incuned in the Contract Area as a result of legislation for archaeological and
geophysical surveys relating to identification and protection of cultural sites or resources.
3.7.2 Costs incurred in environmental or ecological surveys required by this Agreement or
3.7.3 Costs to provide or have available pollution containment and removal equipment.
3.7.4 Costs of actual control and cleanup of oil spills, and of such further responsibilities
resulting therefrom as may be required by Applicable l-»w.
3 7.5 Costs of restoration of the operating environment
3J Material Costs
3 8.2 shall be to the
B-l I
18.3 Matcnul purchused from or sold to Affiliates of Contractor or transferred from other
activities of Contractor to or from Petroleum Operations sliall be valued and charged or
credited at the prices specified in Clauses 3 8.3.1, 3 8.3.2 and 3.8.3.3.
3 8.3.1 New matenal, including used new material moved from inventory (Condition
"A"), shall be valued at the current international net price which shall not
exceed the price prevailing in normal arm'* length transactions in the open
market.
3.8.3.2 Used material (Conditions “B". "C and "D“):
3.8 3.2.1 Matcriul which is in sound and serviceable condition and is
suitable for re use without reconditioning shall be classified as
Condition HB' and priced at seventy-five per cent (75%) of the
current price of new material defined in Clause 3.8.3.1;
3.8.3.2.2 Material which cannot be classified as Condition "B", but which
after reconditioning will be further serviceable for its original
function, shall be classified as Condition ”C" und priced at not
more titan fifty per cent (50%) of the current pnee of new material
as defined in Clause 3.8.3.1; the cost of reconditioning shall be
charged to the reconditioned material provided tlut the value of
Condition "C" material plus the cost of reconditioning docs not
exceed the value of Condition 'B" material;
18.3.2.3 Material which cannot be classified as Condition *B" or Condition
-C* shall be classified as Condition "D" and pneed at a value
commensurate with its use by Contractor. If material is not fit for
use by Contractor it shall be disposed of as junk-
3.1.) J Material involving erection costs shall be charged at the applicable condition
percentage of the current knocked-down price of new matenal as defined in
Clause 3.8.3.1.
3 8.3.4 When the use of material is temporary and its service to the Petroleum
Operations does not justify the reduction in pnee as provided foe in
Clause 3.8.3.2-2, such material shall be pneed on a basis that will result in a
net churgc to the accounts under this Agreement consistent with the value of
the service rendered.
3.8.3.5 Premium prices - whenever miitcrial is not readily obtainable at published or
listed prices because of national emergencies, strikes or other unusual causes
over which Contractor has no control. Contractor may charge Petroleum
Operations for tlic required material at Contractor’s actual cost incurred in
providing such material, in making it suitable for use, and in moving it to the
Contract Area: provided notice in writing is furnished to the Government of
the proposed charge prior to charging Petroleum Operations for such material A
and the Government shall have the right to challenge the transaction on audi^--( £
B-12
3.8.3.6 Warranty of material furnished by Contractor • Contractor docs not warrant
the material furnished In case of defective material, credit shall not be passed
to Petroleum Operations until adjustment has been received by Contractor
from the manufacturers of the material or their agents.
3.9 Rentals, Dulles and Other Assessments
All rentals, levies, charges, fees, contributions and other charges of every kind and nature
(excluding the Local Community Benefit) levied by any Federal Region of Kurdistan or
Republic of Iraq governmental authority in connection with the Petroleum Operations and paid
directly by Contractor (save where the contrary is expressly provided in this Agreement).
3.10 Insurance and Losses
Insurance premiums and costs incurred for insurance provided that such insurance is cumomary.
affords prudent protection against risk and is at a premium no higher than that charged on a
competitive basis by insurance companies which are not Affiliates of Contractor. Except in
cases of failure to insure where insurance coverage is required pursuant to this Agreement, actual
costs and losses incurred shall be allowable to the extent not made good by insurance. Such
costs may include repair and replacement of property resulting from damuges or losses incurred
by fire, flood, storm, theft, accident or other cause.
3.11 Legal Expenses
All reasonable costs and expenses resulting from the handling, investigating, asserting,
defending, or settling of any claim or legal action necesury or expedient for the procuring,
perfecting, retention and protection of the Contract Area, and in defending or prosecuting
lawsuits involving the Contract Area or any third party claim arising oU of the Petroleum
Operations, or suns paid in respect of legal services necessary for the protection of the job!
interest of the Government and Contractor shall be allowable. Such expenditures shall include.
in settlement or satisfaction of any such litigation and claims. Where legal services are rendered
in such matters by salaried or regularly retained lawyers of Contractor or an Affiliate of
Contractor, such compensation shall be included instead under Clause 3.2 or 3 4.2 as applicable.
3.12 Claims
Expenditures made m the settlement or satisfaction of any loss. daim. damage, judgement or
other expense arising out of or relating to Petroleum Operations
3.13 Training Costs
All costs and expenses incurred by Contractor b the training of its employees engaged in
Petroleum Operations, and such other training as is required by this Agreement
3.14 General and Admbbtrative Coats
Tbc costs described in Clause 2.5// c
m»
B-13
3.15 C'o*t»
Estimates of the monies required for the funding of the decommissioning of the Contract Area
shall be charged as Recoverable Costs beginning in the Contract Year following the Contract
Year in which Commercial Production first occurs. The amount charged in each Contract Year
first be calculated
3.15.2 There shall be deducted from n total decommissioning costs the provisions for
costs made, and as Recoverable Costs, in all previous Contract
to the approved date of
forecast IJBOR three (3) month rate (whichever is
3.15J The residual decommissioning costs, resulting from the calculations under Clauses 3.15 1
and 3.15.2 immediately above, shall then be discounted to the Contract Yew in question
at the forecast rate for three (3) month LIBOR for each Contract Year remaining until the
3.15.4 The discounted total of residual decommissioning costs shall then be divided by the total
number of Contract Years remaining prior to the Contract Year of decommissioning
itself, including the Contract Year in question
3.15.5 The resultant amount shall be the addition to the decommiarioaiag costs reserve for the
Contract Year in question.
It is the intention of this provision that the total accumulated provision allowed, including
interest culculutcd to the Contract Year of decommissioning at the rale of three (3) month
LIBOR, will equal the total decommissioning costs. If the amount in Clause 3.15.5 immediately
above is u negative amount, then such amount shall be treated as a reduction of Recoverable
Costs for the Contract Year in question.
3.16 Other Expenditure*
Other reasonable expenditures not covered or dealt with in the foregoing provisions of this
Clause 3 which arc necessarily incurred by Contractor for the proper, economical and efficient
conduct of Petroleum Operations.
3.17 Terrorism Damage
I he pnrties agree that, where the field equipment is damaged or destroyed by an act of war or
terrorism, and where (here was not wilful misconduct by the Contractorvthe loss of the
Contractor will be indemnified by considering such loss as Recoverable Cos^j-
B-14
118 Duplication
There shall be no duplication of charges and credits.
CLAUSE4
INVENTORIES
Inventories of property in use m Petroleum Operations shall be taken at reasonable intervals but
at least once a year with respect to movable assets and once every three yean with respect to
immovable assets. When an assignment of rights under this Agreement takes place. Contractor
may. at the request of the assignee, take a special inventory provided that the cost* of aich
inventory are home by the assignee.
CLAUSES
PRODUCTION STATEMENT
From the start of production from the Contract Area, Contractor shall suhenit a monthly
statement (the ’Production Statement*) to the Government showing the following information
separately for each producing Development Area and in aggregate for the Contract Area:
5.1.1 the quantity of Crude Oil produced and sold or earned in inventory;
5.1.2 the quality characteristics of such Crude Oil produced and saved;
5.1 T Ihc quantity of Natural (las produced and saved.
5.1.4 the quality characteristics of such Natural Gas produced and saved;
5.1.5 the quantities of Crude Oil and Natural Gas used for the purposes of carrying on drilling
and production operations und pumping to field storage;
5.1.6 the quantities of Crude Oil and Natural Gas unavoidably lost;
5.1.7 the quantities of Natural Gas flared and vented;
5.1.8 the si/e of Petroleum stocks held at the beginning of the month in question;
5.1.9 the size of Petroleum slocks held at the end of the month in question,
5.1.10 the quantities of Natural Gas reinjected into the Reservoirs; and
5.1.11 in respect of the Contract Area as a whole, the quantities of Petroleum transferred at the
Field Export Point.
All quantities shown in this statement shall be expressed in both volumetric (barrels of
Crude Oil and cubic meters of Natural Gas) and in weight (metric tonnes^ £
Tbe Production Statement for each month shall be submined to (he Government no beer than ten
(10) days after the end of such mooth.
CLAUSE 6
VALUE OF PRODUCTION AND PRICING STATEMENT
6.1 Value of Production and Pricing Statement Information
Cootractor shall, for the purposes of Article 6 of the Agreement, prepare a "Value of Production
and Pncing Statement* providing calculations of the value of Crude Oil and Natari! Gas
produced and saved during each Quarter. This Value of Production and Pricing Statement shall
contain tbe following information:
6.1.1 tbe quantities and the pnee payable in respect of sales of Natural Gas and Crude Oil
delivered to third parties during the Quarter in question; and
6.1.2 the quantities and price payable in respect of sales of Natural Oas and Crude Oil
62 Subnotion of Value of Production and Pricing Statement
The Value of Production and Pricing Statement for each Quarter shall be submitted to the
Government not later than twenty-one (21) days after the end of such Quarter
CLAUSE 7
COST RECOVERY STATEMENT
7.1 Quarterly Statement
Contractor shall prepare with respect to each Quarter a 'Cost Recovery Statement' containing
the following information:
7.1.1 Recoverable Costs carried forward from the previous Quarter,
7.12 Recoverable Costs for the Quarter in question:
7.13 Credits under the Agreement for the Quarter in question;
7.1.4 Total Recoverable Costs for the Quarter in question (Clauses 7.1.1 plus 7.1.2 less 7.1.3).
7.1.5 quantity aad value of Contractor’s share of Petroleum unde* Article 6 of the Agreement in
tbe Quarter in question; and
7.1.6 amount of Recoverable Costs to be carried forward into the next Quarter (Clause 7.1.4
less Clause 7.1.5^g
B-16
7J Preparation and Submission of Cmst Recovery Statement*
7.2.1 Provisional Cost Recovery Statements, containing estimated information "hor
necessary, shall be submitted by Contractor on the last day of each Quarter
72.2 Final Quarterly Cost Recovery Statements shall be submitted within thirty (30) days after
the end of the Quarter in question
7.3 Annual Statement
An Annual Cost Recovery Statement doll be submitted within ninety (90) days after the end of
each Contract Year. The annual statement shall contain the categories of information listed in
Section 12.1 for the Contract Year in question, separated into the Quarters of the Contract Year
in question, and showing the cumulative positions at the end of the Contract Year in question.
7.4 Annual Statement
In calculating the recovery of Recoverable Costs, the following principles shall apply:
7.4.1 Costs shall be recovered in the following order.
7.4.1.1 Operating Costs;
7.4.1.2 General and Administrative Costs;
7.4.1.3 Exploration Costs;
7.4.1.4 Appraisal Costs.
7.4.1.5 Development Costs; and
7.4.1.6 any other costs and expense not included in the above; and
7.42 Within each of the above categories, costs shall be recovered on a ‘first in. first out"
CLAUSE 8
STATEMENTS OF EXPENDITURE AND RECEIPT
8.1 Quarterly Statement
The Operator shall prepare with respect to each Quarter a Statement of Expenditure and
Receipts. The statement will distinguish between Exploration Costs. Appraisal Costs,
Development Costs and Operating Costs and will identify major items within these categories.
8.1.1 actual expenditures and receipts for the Quvter in question;
8.12 cumulative expenditure and receipts for the Contract Year in
IVSA
B-17
S.U at the Contract Year end;
114 variations between budget forecast and thereof.
The Statement of Expenditure and Receipt) of each Quarter shall be submitted lo the
Government no later than fifteen (15) days after the end of such Quarter
8.2 Aununl Statement
Contractor shall prepare a final end-of-year statement (the "Final Accounts Statement"). The
Statement will contain information as provided in the production statement. Value of Production
and Pricing Statement. Cost Recovery Statement and Statement of Expenditure and Receipts, but
will be hased on actual quantities of Petroleum produced und cost* incurred. This Statement will
be used to make uny adjustments thnt are necessary to the payments made by Contractor under
this Agreement. The Final Accounts Statement of each Contract Year shall be submitted to the
Government within ninety (90) days of the end of such Contract Year Contractor will assist in
pioviding information so as to permit the Government to prepare reports on/he results of
activities and tho financial status of the project at the end of each Calendar Yewrf^
C-l
Annex C
ILLUSTRATIVE DRILLING PLAN
li^SA »0H)S4>I
D-l
Annex D
Part A
SAMPLE TABLES AND EXAMPLES OF ROYALTY Oil-, COST RECOVERY OIL,
PROFIT OIL AND LOCAL COMMUNITY BENEFIT FOR OPTION A
A. Royalty OH
FIELD [Royalty
PRICE %
LSS.BBL
30 L_ 12 0%
40 [12 0%
50 | 173%
60 25 3%
70 30 0%
7950 15 0%
90 15 0%
100 35 0%
no 15 0%
120 35 0%
130 35 0%
Example
Example calculation of tbc Royalty Oil
At a Field Price of USS70.00/burrcl with a monthly a\eragc Available Crude Oil rate of 250,000
barrels per day (bopd), the Royalty Oil is calculated as
Royalty Oil - [12%> x $45 + 65% x (US$70.00 - $45.00)J/US$70.00 x 250,000 bopd
Royally Oil = ($5.40 + 65% x US$25.00yiJSS70.00 x 250.000 bopd
Royalty Oil = USS21.65/USS70.00 x 250,000 bopd
Royalty Oil - 30.9% x 250,000 bopd
Royalty Oil-77250 bopd J,
J
B. Cost Recover)' Oil
Maximum
Average
Monthly Available Cost
Available Recovery Oil
Oil %
'000 bopd
50 50.0%
150 50.0%
250 50.0%
350 50.0%
450 50.0%
550 50.0%
650 50.0%
" 750 ' 50.0%
850 50.0%
950 50.0%
1050 50.0%
Example
Example calculation of the Cost Recovery Oil
Net Available Crude Oil = (250,000 - 77.250) bopd
Net Available Crude Oil * 172,750 bopd
If the monthly average Net Available Crude Oil rate is 172,750 barrels per day, then before
payout:
Cost Recovery Oil ~ 50% x 172,750Aopd
Cost Recover)’ Oil = 86,375 bopd^_ ^
Eumplc calculation of tbr Govern meat Profit Oil
At a monthly average Available Crude Oil rale of 250.000 barrel* per day (bopd\ the
Government proportion of Profit Oil is calculated at:
Production Rate Government Proportion of GosermncnT
Profit Oil Calculation Proportion of
Profit Oil
25% Of Uic first 20,000 bopd divided 2$0A*2QJ)QO 2.0%
by the average daily Available Oil 250,000
30% of the portion exceeding 20.000 °"000) 2.4%
bopd und up to 40,000 bopd divided
by the uvernge daily Available Oil
40% of the portion exceeding 40,000 40% x (60.000 - 40.000) 3.2%
bopd and up to 60.000 bopd divided 250.000
by the uvciago daily Available Oil
60% of the portion exceeding 60.000 60% x (80.000 - 6Q.Q0Q) 4.8%
250.000
bopd and up to 80,000 bopd divided
bv the average daily Available Oil
6.0%
75% of the portion exceeding 80,000
bopd and up to 100,000 bopd divided
bv the average daily Available Oil
92.5% of the portion exceeding 55.50%
100.000 bopd divided by the average 250,000
daily Available Oil
1
E«A200Mrtfll
D-4
Profit Oil - (172.750 86.375) bopd
• Profit Oil- 86 J75bopd
[v
II tlur monthly avenge Profit Oil rate in 86,375 barrels per day. then:
•M
Government nhare of Profit Oil -73.90S x 86,375 bopd
Government share of Profit Oil - 63,831 bopd
A similar calculation can be done for the Contractor, however, the result will he the balance of
Profit Oil. or in this cue 22,544 barrel* per day of Profit Oil
l>. Local Community benefit
AVERAGE Local Community
MONTHLY benefit
AVAILABLE %
OIL
*000 BOPD
50 10.0%
150 10.0%
250 10.0 .
350 10.0%
450 10.0%
550 10.0%
650 10.0%
750 10 0%
850 100%
450 10.0%
1050 10.0%
At a Field Price of US$70.00toarrd with the Contractor'* share of the monthly average Profit Oil
rate at 22.544 barrel* per day, the Contractor's Profit Oil has a value of US$1.578,080 per day
and the Local Community benefit is calculated as
Local Community Benefit - 10* x US$70.00 x 22JA4 bopd
Local Community Benefit - US$7.00 x 22.544 bopd
Local Community Benefit - US$157.808 per day^
EfSAK«*«»4l
D-5
Part B
SAMPLE TABLES AND EXAMPLES OF ROYALTY Oil, C OVI RECOVERY OIL,
PROFIT OIL AND LOCAL COMMUNITY BENEFIT FOR OPTION B
A- Royalty OU
FIELD Realty
PRICE %
USS/BBL
30 120%
40 12 0%
50 17 3%
60 25 3%
70 30 9%
79 50 35 0%
90 35 0%
100 35 0%
no 35 0%
120 350% j
130 350% I
Example
Example calculation of the Royalty Oil
At a Field Price of US$70.00/band with a monthly average Available Crude Oil rnte of 250,000
barrels per day (bopd). live Royalty Oil is calculated ns:
Royalty Oil = [12% x $45 ♦ 65% x (US$70.00 - S45.00)J/US$70.00 x 250.000 bopd
Royalty Oil - [$5.40 + 65% x US$25.00)/US$70.00 x 250.000 bopd
Royalty Oil - US$21.65/US$70 00 x 250.000 bopd
Royulty Oil - 30.9% x 250.000 bopd
Royalty Oil = 77,250
3
B. Cost Recovery Oil
Average Maximum
Monthly Available Cost
Available Recovery OH
Oil •/.
'000 bopd
50 50 0%
150 50 0%
250 50 0%
350 50 0%
450 50.0%
550 50 0%
650 50 0%
750 50 0%
850 50 0%
950 50 0%
1050 50.0%
Example
Example calculation of the Cost Recovery Oil
Net Available Crude Oil - (250,000 - 77,250) bopd
Net Available Crude Oil - 172,750 bopd
If the monthly average Net Available Crude Oil rate is 172,750 barrels per day, then before
payout:
Cost Recovery Oil = 50% x 172,75(Vbopd
Cost Recovcty Oil - 86,375 bop^/ *
fKSA 2009-05-01
c. Profit Ofl
Average Month!)
Available OU Profit Share
000 bopd _ %_ 1
50 _510%_|
150 57 0%
250 77 2%
350 78 7%
450 82 3%
550 84 6%
650 80 2%
750 . 87 4%
850 88 3%
950 89 0%
1050 09 0%
Ilium pie calculation of the Government Profit Oil
At a monthly average Available Crude Oil tale of 250.000 barrels per day (bopd), the
Government proportion of Profit Oil is calculated us:
Production Kate Government Proportion of Government
Profit Oil Calculation Proportion of
Profit OU
30% of the first 40.000 bopd divided 30% x 40.000 480%
by the average daily Available Oil 250,000
50% of the portion exceeding 40.000 SStei tgQ.W- 4Q.WQJ 8.00%
bopd and up to 80.000 bopd divided 250.000
by the av erage daily Available Oil
65% of the portion exceeding 80,000 65Sx <100.000-80.0001 5.20%
bopd and up to 100,000 bopd divided 250,000
bv the average daily Available Oil
75% of the portion exceeding 100.000 75% i (120.000 100.000) 6.00%
bopd and up to 120,000 bopd divided 250,000
by the average daily Available Oil
80% of the portion exceeding 120.000 80S 5 <140.000- 120.000) 6.40%
bopd and up to 140.000 bopd divided 250.000
by the average daily Available Oil
95% of the portion exceeding 140.000 95%*(230.000.- J4Q.0QOJ 41.80%
bopd divided by the average daily 250,000
Available Oil
Government Share of Profit Oil 72.20%
ePSAfflCMM!
I
[ Profit Oil * (172.750 - 86.375) bopd
Profit Oil- 86,375 bopd
If Che monthly average Profit Oil is 86.375 barrels per day. then:
Government share of Profit Oil - 72.20% x 86,375 bopd
Government share of Profit Oil - 62.363 bopd
A similar calculation can be done for the Contractor, however, the result will be the balance of
Profit Oil. or in this case 24.012 bands per day of Profit Oil
D. l ocal Community Benefit
AVERAGE Benefit
MONTHLY
AVAILABLE
OIL %
•000 BOPD
50 10.0%
150 10.0%
250 10.0%
350 10.0%
450 10.0%
550 10.0%
650 10.0%
750 10.0%
850 10.0%
950 100%
l0W 10.0%
At a Field Price of US$70.00/barrel with the Contactor's share of the monthly average Profit Oil
rate of 24.012 b*Teis per day. the Contractor s Profit Oil has a value of USS1.680,840 per day
and the Local Community Benefit is calculated as:
Local Community Benefit - 10% x US$70.00 x 24.012 bopd
Local Community Benefit - US$7.00 x 24,012 bopd
Local Community Benefit "US$168,084 per
ITlA 70064101
Annex E
DRAFT LAW
KURDISTAN KF(;|QMAL GOVERNMENT
After perusal of the [Constitution of the Federal Region of Kurdistan (1992) the Constitution of
the Republic of Iraq (2005); and the Unification Agreement for the Federal Region of Kurdistan
dated 23 January 2003)
lAnd after approval of the Kurdistan Regional Assembly]
Artklcl
The terms and condition* of the Exploration l*roduction and Sharing Agreement executed by the
Kurdistan Regional Government (Sulaymamyn) and WcstcmZagros Limited on 4th May 2006 in
regard to the South Sulavmaniya Area (the "EPSA") urc hereby confirmed and ratified as binding
on Uic Kurdistan Regional Government and they shall forthwith have the force oflaw within the
Federal Region of Kurdistan
Article 2
The execution of the EPSA by His Excellency Mr. Omar Fatah Hussein in his capacity as Prime
Minister of the areas of the Federal Region of Kurdistan administered by the Kurdistan Regional
Government (Sulaymaniya) is hereby confirmed, authorised and ratified so thnt the terms of the
duly executed EPSA shall be in full force and effect and be binding on the Kurdistan Regional
Government in all govemorates comprising the Federal Region of Kurdistan and shall be binding
on all persons within the Federal Region of Kurdistan^^
FI’S A MOfc-OI-OI
2 Exemptions, dispensations and reliefs concerning (without limitation) taxation and customs
- duties granted under the terms of the EPSA by the KRG (Sulaymamya) to WestcmZagros
Limited are hereby confirmed and ratified and shall have: the force of law and be binding on all
Ministries, concerned authorities, competent officials and other persons throughout the Federal
Region of Kurdistan
Article 4
Region of Kurdistan shall implement the provisions of this Law within their respective
jurisdictions to enable and to facilitate WcstcmZagros Limited's performance of the EPSA.
This Law shall remain in full force and effect throughout the duration of the EPSA including any
extension thereof.
Article 6
This Law shall be published m the Official Gazette of the Federal Region of Kurdistan and shall
President
Federal Region of Kurdistan
Republic of Iraq
Promulgation on:
Corresponding to: (
EWASomm-oi