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AMENDMENT AND RELINQUISHMENT AGREEMENT
BETWEEN
THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ
AND
DNO IRAQ AS
Relating to the Production Sharing Contract for the Tawke Block,
the Production sharing Contract for the Dohuk Block and
the Production Sharing Contract for the Erbil Block
AMENDMENT AND RELINQUISHMENT AGREEMENT
THIS AMENDMENT AND RELINQUISHMENT AGREEMENT is made and entered into
on this /(j^ day of September 2008. hereafter referred to as the "Agreement Date *,
between tlw following parties:
THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ, hereafter referred to as the
"KRG"; and
DNO IRAQ AS, a company established and existing under the laws of Norway, whose
registered office is at Strandcn I, Aker Brygge, PO Box 1345 Vika. 0113 Oslo, Norway, and
a wholly owned subsidiary of DNO International ASA (hereafter referred to as "DNO");
hereafter collectively referred to as the "Parties**.
WHEREAS
(a) The Parties, on 13 March 2008, executed production sharing contracts for the Tawke
Block in the Kurdistan Region (hereafter referred to as the “Tawke €0011301”), the Dohuk
Block in the Kurdistan Region (hereafter referred to as the “Dohuk Contract"), and the Erbil
Block in the Kurdistan Region (hereafter referred to as the “Erbil Contract") (collectively
referred to as the "Contracts”);
(b) DNO has discharged the Minimum Exploration Obligations of the Contractor for the
First Sub-Period of the Exploration Period as set out in the Dohuk Contract, including an
initial seismic program;
(c) The seismic program in respect of the First Sub-Period of the Exploration Period as
set out in the Dohuk Contract has shown a number of petroleum structures, all of which
require further exploration, including drilling;
(d) The KRG has advised DNO that the Contracts arc in conformity with the Kurdistan
Region Law except for the Contract Area for the Dohuk Contract which covers a greater
surface area that the contract area customarily included in other production sharing contracts
awarded by the KRG. and consequently DNO is required to relinquish part of the Contract
Area for the Dohuk Contract;
(c) Further to such requirement of the KRG, DNO agrees, in accordance with Article 7.4
of the Dohuk Contract, to relinquish part of the Contract .Area, and in recognition of DNO's
agreement to relinquish. KRG is willing to add part of the relinquished area to the Contract
Area of the Tawke Contract; and
(0 The KRG and DNO arc entering into this Agreement to amend the terms of the
Tawke Contract. Dohuk Contract and Erbil Contract and to set out rights and obligations to
each other that are separate from and in addition to the rights and obligations set out in those
Contracts.
NOW THEREFORE, in consideration of the mutual covenants set out in this Agreement,
the Part ip* agree that
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Dohuk Contract
1. I he Parties agree that the Contract Area for the Dohuk Contract shall include only the
petroleum structure known as the “Summail Structure” and certain surrounding areas including
the "Summail Extension Area”.
2. The Contract Area set out in Article 3 of the Dohuk Contract and Annex A thereof
(hereafter referred to as the “Onginal Dohuk Contract Area”), and also set out in Annex A of this
Agreement, is hereby amended so that the Dohuk Contract Area is as detailed and indicated on
the map and coordinates attached in Annex B.
3. Areas set out in the Original Dohuk Contract Area that arc not part of the area as
detailed and indicated on the map and coordirules attached in Annex B, are hereby relinquished.
Those relinquished areas are. for illustrative purposes, marked “Relinquishment Area” and “West
Dohuk Structure" in die map attached in Annex C.
4. Notwithstanding the provisions of Article 7.4 of the Dohuk Contract.
(a) the relinquishment referred to in Article 3 is effective as of the Agreement
Date; and
(b) in consideration of such relinquishment the KRG waives the right to receive
from DNO, and releases DNO from any liability to pay, any outstanding
minimum financial amounts for the relinquished areas referred to in Article
10.3 of the Dohuk Contract in respect of the Second Sub-Period of the
Exploration Period of the Dohuk Contract
5. As further consideration for the relinquishment. DNO shall drill u well on the area not
relinquished in accordance with Article 3. provided that the Government agrees that DNO
may drill such well at anytime prior to the 25 June 2010 being the end of the first one (1) year
extension of the Second Sub-Period referred to in Article 6.6. and DNO shall be hereby
deemed to have given notice of such one year extension under Article 6.6 and the additional
well mentioned above is the proposed minimum work obligation for such extension.
6. Hie part of the area set out in the Original Dohuk Contract Aren that are not part of the
area as detailed and indicated on the map and coordinates attached in Annex B, and that are
marked on the map attached in Annex C as “West Dohuk Structure", sltall be part of the Contract
Area of the Tawke Contract in accordance with Articles 9 to 12 below.
7. Notwithstanding any provision of the Dohuk Contract or the Tawke Contract, Petroleum
Costs incurred by DNO pursuant to the Dohuk Contract up to and including the Agreement Date
(hereafter referred to as 'Transferred IXiliuk Petroleum Costs") shall not be recoverable in
uccorduncc with the Dohuk Contract, and shall he recoverable as Petroleum Costs in accordance
with live Tawke Contract. Petroleum Costs incurred by DNO from the Agreement Date pursuant
to the Dohuk Contract (as that Contract is amended by this Agreement) shall, from the
Agreement Date, be recoverable in accordance with the Dohuk Contract.
8. DNO shall provide to the KRG, within thirty (30) days of the Agreement Date and for
no consideration:
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(a) an electronic copy; and
(b) three (3) sets of hard copies,
of all data, in any form, whether written, graphic or otherwise, in the possession of DNO
relating to areas set out in the Original Dohuk Contract Area that arc relinquished in
accordance with Article 3 above, together with a statement in a form to be approved by the KRG
that DNO is bound by confidentiality obligations to the KRG in respect of such data, and agrees
that the KRG may use such data at its sole discretion DNO shall have the right to retain a copy
of any such data solely for its internal use and solely for the purpose of aiding the interpretation
of the geology of areas of the Dohuk Contract and the Tawke Contract as amended by this
Agreement.
Tawke Contract
9. I he Parties intend that the Contract Area for the Tawke Contract should include the
petroleum structure known as the “West Dohuk Structure". 1 he area of the West Dohuk Structure
is detailed and indicated on the map and coordinates attached in Annex E (hereafter referred to as
the “West Dohuk Structure Area").
10. The Contract Area set out in Article 3 of the Tawke Contract and .Annex A thereto
(hereafter referred to as the "Original Tawke Contract Area"), and also set out in Annex D of this
Agreement, is hereby amended so that it extends over an area as detailed and indicated on the
map and coordinates attached in Annex F.
11. DNO shall be obliged, in addition lo the Minimum Exploration Obligations of the
Second Sub-Period of the Exploration Period of the Tawke Contract, to drill a well on the
West Dohuk Structure Area such well lo be drilled prior to 25 June 2010 being the end of the
first one (1) year extension of the Second Sub-Period referred to in Article 6.6, and DNO
shall be hereby deemed to have given notice of such one year extension under Article 6.6 and
the additional well mentioned above is the proposed minimum work obligation for such
extension.
12. Notwithstanding Article 25 of the Tawke Contract and any other provision thereof,
t ransferred Dohuk Petroleum Costs shall be recoverable from production from the Tawke
Contract Area and shall for the purposes of the Tawke Contract be deemed to be Petroleum
Costs.
Third Party Participation
13. Article 4.7 of the Tawke Contract is amended so that it provides as follows:
"The GOVERNMENT may exercise the Option of Third Party Participation at ary
time prior to the earlier of
(a) 31 December 2008, or
(b) the date on which Crude Oil produced from the Contract Area is first
exported from the Kurdistan Region and from Iraq in accordance with
an authorisation from the KRG and the KRG shall provide any other
authorisations, approvals and consents that may be necessary to export
such Crude Qlfirom the Kurdistan Region and Iraq;
KA
3
by notifying the extant CONTRACTOR Entities, in writing, of a company which
has. or companies which have, adequate resources and capacity to discharge the
obligations of a CONTRACTOR Entity under this Contract and a Joint Operating
Agreement in respect thereof."
Article 4.7 of the Dohuk Contract is amended so that it provides as follows:
"The GOVERNMENT may exercise the Option of Third Party Participation at any
lime prior to the earlier of
(a) 31 December 2008, or
(b) the date on which Crude Oil produced from the area of the Production
Sharing Contract in respect of the Tawke Block concluded between the
GOVERNMENT and DNO Iraq AS on 13 March 2008 is first
exported from the Kurdistan Region and from Iraq in accordance with
an authorisation from the KKG and the KRG shall provide any other
authorisations, approvals and consents that may be necessary to export
such Crude Oil from the Kurdistan Region and Iraq;
by notifying the extant CON TRACTOR Entities, in writing, of a company which
has. or companies which have, adequate resources and capacity to discharge the
obligations of a CONTRACTOR Entity under this Contract and a Joint Operating
Agreement in respect thereof."
15. Article 4.7 of the Kibil Contract is amended so that it provides as follows:
"The GOVERNMENT may exercise the Option of Third Party Participation at any
time prior to the earlier of
(a) 31 December 2008, or
(b) the date on which Crude Oil produced from the area of the Production
Sharing Contract in respect of the Tawke Block concluded between the
GOVERNMENT and DNO Iraq AS on 13 March 2008 is first
exported from the Kurdistan Region and from Iraq in accordance with
an authorisation from the KRG and the KRG shall provide any other
authorisations, approvals and consents that may be necessary to export
such Crude Oil from the Kurdistan Region and Iraq;
by notifying the extant CONTRACTOR Entities, in writing, of a company which
has. or companies which have, adequate resources and capacity to discharge the
obligations of a CONTRACTOR Entity under this Contract and a Joint Operating
Agreement in respect thereof.”
Purification Project
16- The KRG shall provide the bank account details of a Government account in
sufficient time to allow DNO to meet its obligations in the following paragraphs.
,7- DNO shall, in accordance with Article 18 below, pay to the above referenced
Government account a Water Project Payment of one hundred and fifty million Dollars
4
($150,000,000) (hereafter referred to as the “Water Project Payment”) which payment slutll
be further transferred by the KRG into a segregated account, the sole purpose of which is to
support and finance the water purification system in the Dohuk Governorntc for the benefit of
the people of the Dohuk Govemorate (hereafter the "Water Project Account").
18. The Water Project Payment shall be payable in monthly instalments as provided in
Article 19 below following the date that cumulative production from the Tawke, Dohuk and
Erbil Contract Areas of Export Production in accordance with an authorisation from the KRG
nt un average of thirty thousand barrels of Crude Oil per day (30,000 bpd) (hereafter referred
to as tire “First Instalment Trigger Date”).
19. Within thirty (30) days of the First Instalment Trigger Date, DNO shull pay to the
Government account specified in Article 16 above an initial instalment of twelve million five
hundred thousand Dollars ($12,500,000). DNO shall pay further instalments every thirty (30)
days thereafter until the Water Project Payment has been paid in full (hereafter referred to ns
an “Instalment Month"). Except as provided in Article 20 below, each such further
instalment shall be twelve million five hundred thousand Dollars ($12,500,000). All such
payments shall be made in accordance with Article 32.7 of the Contract.
20. A further instalment of the Water Project Payment may be reduced in accordance with
this Article as follows:
(a) Where, in any Instalment Month, the collective production of Export
Production from the Tawke, Dohuk and Erbil Contract Areas, is less than an
average of thirty thousand barrels of Crude Oil per duy (30,000 bpd), the
instalment in respect of that Instalment Month payable to the KRG shall be
reduced from twelve million five hundred thousand Dollars ($12,500,000)
proportional to the shortfall in Export Production for that Instalment Month;
(b) Further, and in addition, if the Revenues (as defined in Article 26.4 of the
Tawke Contract) received in such Instalment Month by DNO in respect of its
CONTRACTOR interest share is less than forty million Dollars
($40,000,000.00) the instalment shall be reduced by a fraction of which the
numerator shall be the Revenues actually received by DNO and the
denominator shall be forty million Dollars ($40,000,000.00). If DNO has
made the monthly instalment payment prior to the actual Revenues received
hav ing been determined, any amount shown to have been overpaid by DNO in
such Instalment Month if such reduction had been made shall be deducted
from any amount due for the following Instalment Month.
21. A failure by DNO to pay an installment of the Water Project Payment when it is due
and owing as herein provided shall entitle the KRG. at its sole discretion, to receive
automatically and immediately the amount of Profit Petroleum in respect of any or all of the
Tawke, Dohuk and Erbil Contracts equivalent in value to the amount of the installment not
paid. For the purposes of this Article 21. the value of all Profit Petroleum received by KRG
as provided in this Article 22 shall be either (1) the actual price received by the KRG adjusted
for transportation costs provided such price is an international export price obtained from an
arm's length purchaser, or (2) if the price obtained is not in accordance w ith (1), it shall be
the International Market I Vice as defined in Article 272 of the Tawke Contract for the month
or months in which the Profit Petroleum is received adjusted as provided in the said
Article 27.2.
5
Water Project Account
22. The KRG covenants and agrees that
(a) it shall establish or maintain the Water Project Account;
(b) the Water Project Payment shall be paid into the Water Project Account;
(c) it shall provide in a form reasonably satisfactory to the Parties on a quarterly
basis a written accounting of the application of the Water Project Payment,
from the Water Project Account to the water purification system in the Dohuk
Government together with a reconciliation of such payments in order to allow
DNO to identify the projects to which such payments has been applied; and
(d) Each Party shall be entitled, notwithstanding any provision to the contrary,
either express or implied within this Agreement or the Contract, to disclose the
details of the payments and applications of the Water Project Payment in its
public reports.
Water Purification Project
23. The Parties shall, within thirty (30) days of the payment of the initial instalment of the
Water Project Pay ment referred to in Article 19 above, establish a Management Committee
for the oversight of the capacity building projects referred to in Article 17 above. The
Management Committee shall include representatives of the Parties.
Corporate Social Responsibility
24. The Parties confirm their mutual commitment to the goal of promoting respect for and
compliance with human rights principles, including those set forth in the Universal
Declaration of Human Rights, The United Nations Basic Principles on tlK use of Force and
Firearms by Law Enforcement Officials, United Nations Code of Conduct for Law
Enforcement Officials, und in a manner consistent with the laws of the Kurdistan Region and
Iraq and the Voluntary Principles on Security and Human Rights, being those principles lor
oil and mining companies developed by the United States and the United Kingdom
governments as a result of discussions with companies und non-governmental organizations
as published December 20,2000.
25. The Parties confirm their mutual support for the goals of the Extractive Industries
Transparency Initiative and in particular the goal of creating a standard for revenue
transparency in the oil, gas and mineral sectors.
Other provisions
26. For the avoidance of doubt, if DNO assigns any interest to a third parly pursuant to
the Tawke Contract anil/or tlie Dohuk Contract, the third party shall have all rights,
obligations and liabilities of DNO under, and be subject to, this Agreement.
27. (a) Words and phruscs in this Agreement which are capitalised and not defined in
this Agreement arc defined in one or all of the Tawke Contract, Dohuk
Contract and Krbil Contract, und shall have the same meaning us given to it in
such Contracts.
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(b) “Export Production” means Petroleum produced under the Tawke Contract,
the Dohuk Contract and/or the Erbil Contract and which is transported and
exported from Iraq and sold at a price equal to Brent or other recognised
marker price adjusted only for quality and transportation costs.
28 The following Articles of the Tawke. Dohuk and Erbil Contracts arc hereby
incorporated by reference into this Agreement and shall apply to and be binding upon the
Parties hereto muiatis mutandis-.
Article 36 - Information and Confidentiality
Article 39 - Assignment and Change of Control
Article 40 Force Majeure
Article 41 - Waiver of Sovereign Immunity
Article 42 - Arbitration and Expert Determination
Article 43 - Governing Law. Fiscal Stability and Amendments
Article 44 - Notices
Article 46 - Application of Corruption Laws
29. This Agreement shall be binding upon and inure to the benefit of the Parties hereto
and their respective successors, assigns and legal representatives.
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IN WITNESS WHEREOF the Parties have executed this Agreement us of the day, month
and year hereinabove first written.
For and on behalf of DNO:
For and on behalf of the KRG:
DNO IRAQ AS
THE KURDISTAN REGIONAL
GOVERNMENT OF IRAQ
Kcchirvan Barzani Hclge tide
Prime Minister DNO Iraq AS
Kurdistan Regional Government
On behalf of the Regional Council
for the Oil and Gas Affairs of
the Kurdistan Region - Iraq
Ashti Hawrami
Minister of Natural Resources
Kurdistan Regional (iovemment
On behalf of the Ministry of Natural
Resources in the Kurdistan Region
Signature
ANNEX A
Map showing Coordinates of March 2008 Dohuk Contract Area
lo.'coio WllWf 4lM0)t 41IOIO) 4120000
H-*wh lriotni
Kil---••iv"
ANNEX B
Dohuk Contract Area
Code Northing
4 081 196
4 075 207
4 076 449
ANNEXC
404CUtO MM¥* umwo 4*>f0JO 41WH0
ANNEX 1)
Map showing Coordinates of March 2008 Tawke Contract Area
410M*» 41IW00 4120JW 11WS
WN WlWlt
; , /* v-
1 $ 412 Sq. Km
Codo NorttilnR
A 293 240 4119 886
B 327 368 4119 718
C 327 342 4107 347
D 296 978 4107 347
E 296 978 4112 389
F 293 240 4112 389
110000 1:200.000
ANNEX E
Map showing Coordinates of West Dohuk Structure to he added to Tawke Contract Area as of September 2008
ANNEX F
Amended Original Tawke Contact Area