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testPRODUCTION SHARING CONTRACT

[ ] BLOCK

KURDISTAN REGION



BETWEEN



THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ



AND



[ ]



TABLE OF CONTENTS

PREAMBLE

Article 1



DEFINITIONS



Article 2



SCOPE OF THE CONTRACT



Article 3



CONTRACT AREA



Article 4



GOVERNMENT PARTICIPATING INTEREST



Article 5



OPERATOR



Article 6



TERM OF THE CONTRACT



Article 7



RELINQUISHMENTS



Article 8



MANAGEMENT COMMITTEE



Article 9



GUARANTEES



Article 10



MINIMUM EXPLORATION WORK OBLIGATIONS



Article 11



EXPLORATION WORK PROGRAMS AND BUDGETS



Article 12



DISCOVERY AND DEVELOPMENT



Article 13



DEVELOPMENT

BUDGETS



Article 14



NATURAL GAS



Article 15



ACCOUNTING AND AUDITS



Article 16



CONTRACTOR’S RIGHTS AND OBLIGATIONS



Article 17



USE OF LAND AND EXISTING INFRASTRUCTURE



Article 18



ASSISTANCE FROM THE GOVERNMENT



Article 19



EQUIPMENT AND MATERIALS



Article 20



TITLE TO THE ASSETS



Article 21



USE OF THE ASSETS



Article 22



SUBCONTRACTING



AND



PRODUCTION



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WORK



PROGRAMS



AND



Article 23



PERSONNEL TRAINING AND TECHNOLOGICAL ASSISTANCE



Article 24



ROYALTY



Article 25



RECOVERY OF PETROLEUM COSTS



Article 26



SHARING OF PROFIT PETROLEUM



Article 27



VALUATION AND METERING OF CRUDE OIL AND NATURAL GAS



Article 28



DOMESTIC MARKET - SALE OF GOVERNMENT SHARE



Article 29



FINANCIAL PROVISIONS



Article 30



CUSTOMS PROVISIONS



Article 31



TAX PROVISIONS



Article 32



BONUSES



Article 33



PIPELINES



Article 34



UNITISATION



Article 35



LIABILITY AND INSURANCE



Article 36



INFORMATION AND CONFIDENTIALITY



Article 37



ENVIRONMENTAL PROVISIONS



Article 38



DECOMMISSIONING



Article 39



ASSIGNMENT AND CHANGE OF CONTROL



Article 40



FORCE MAJEURE



Article 41



WAIVER OF SOVEREIGN IMMUNITY



Article 42



ARBITRATION AND EXPERT DETERMINATION



Article 43



GOVERNING

VALIDITY



Article 44



NOTICES



Article 45



TERMINATION



Article 46



APPLICATION OF CORRUPTION LAWS



Article 47



LAW,



FISCAL



GOVERNMENT REVIEW

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STABILITY,



AMENDMENTS



AND



Article 48



EFFECTIVE DATE



Annex A CONTRACT AREA MAP AND LIST OF COORDINATES

Annex B ACCOUNTING PROCEDURE

Annex C RATIFICATION NOTICE



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PRODUCTION SHARING CONTRACT



BETWEEN



The KURDISTAN REGIONAL GOVERNMENT OF IRAQ (hereafter referred to as the

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

AND

[ ], a company established and existing under the laws of [ ], whose registered office is at [

], duly represented by [ ].



WHEREAS

(A)



The GOVERNMENT wishes to develop the petroleum wealth of the Kurdistan Region

(as defined in this Contract) in a way that achieves the highest benefit to the people of

the Kurdistan Region and all of Iraq, using the most advanced techniques of market

principles and encouraging investment, consistent with the Constitution of Iraq

including, without limitation, Article 112 thereof;



(B)



In accordance with the Constitution of Iraq, the prevailing law of the Kurdistan Region is

the Kurdistan Region Law (as defined in this Contract), except with regard to a matter

wholly within the exclusive jurisdiction of the Government of Iraq;



(C)



The GOVERNMENT proposes to establish, by the Act of the Parliament of the

Kurdistan Region, a Ministry of Natural Resources in the Kurdistan Region, with

responsibility for all natural resources except for water, and forestry;



(D)



The GOVERNMENT intends to present to the Parliament of the Kurdistan Region

the Kurdistan Region Petroleum Act (as defined in this Contract), to regulate

Petroleum Operations (as defined in this Contract), including production sharing

contracts;



(E)



[ ] is a company,

(i)



with the financial capability, and the technical knowledge and technical ability,

to carry out Petroleum Operations in the Contract Area (as defined in this

Contract) under the terms of this Contract;



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(ii)



having a record of compliance with the principles of good corporate citizenship,

and



(iii)



willing to cooperate with the GOVERNMENT by entering into this Contract,

thereby assisting the GOVERNMENT to develop the Kurdistan Region

petroleum industry, thereby promoting the economic development of the

Kurdistan Region and Iraq and the social welfare of its people;



NOW, THEREFORE, THE PARTIES HAVE AGREED AS FOLLOWS



ARTICLE 1 - DEFINITIONS

Capitalised terms and expressions in this Agreement shall have the following meaning, unless

otherwise specified:

Abroad means outside of the Kurdistan Region and other parts of Iraq.

Accounts is defined in Article 15.1.

Accounting Procedure means the Accounting Procedure attached to this Contract as Annex

B and constituting an integral part of this Contract.

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

constituting the CONTRACTOR, a company or other legal entity which:

(a)



controls a CONTRACTOR entity; or



(b)



is controlled by a CONTRACTOR entity; or



(c)



controls or is controlled by a company or entity which controls a CONTRACTOR

entity.



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

the majority of the voting rights of the applicable entity at its shareholders’ meetings or their

equivalent.

Appraisal Area means the area defined in Article 12.2.

Appraisal Program is defined in Article 12.2.

Appraisal Report is defined in Article 12.4.

Appraisal Well means a well drilled for the purpose of evaluating the commercial potential

of a geological feature or a geological structure in which Petroleum has been discovered.

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

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sellers and buyers having no direct or indirect relationship or common interest whatsoever

with each other that could reasonably influence the sales price. Such Arm's- Length Sales

shall exclude:

(a)



sales between the CONTRACTOR and its Affiliates;



(b)



sales involving the GOVERNMENT or the Government of Iraq;



(c)



sales involving exchanges and any transactions not relating to normal commercial

practices.



Assets means all platforms, pipelines, plant, equipment, machinery, wells, facilities and all

other installations and structures and all Materials and Equipment.

Associated Natural Gas means any Natural Gas dissolved in Crude Oil under reservoir

conditions.

Available Associated Natural Gas is defined in Article 25.1.

Available Crude Oil is defined in Article 25.1.

Available Non-Associated Natural Gas is defined in Article 25.1.

Available Petroleum is defined in Article 25.1.

Barrel means a quantity of forty-two (42) US gallons as a unit to measure liquids, at a

temperature of sixty degrees (60°) Fahrenheit and pressure of fourteen point seven (14.7) psi.

Budgets means any budgets prepared by, or on behalf of, the CONTRACTOR pursuant to

this Contract and forming part of an Exploration Work Program and Budget and/or an

Appraisal Work Program and Budget and/or a Gas Marketing Work Program and Budget

and/or a Development Work Program and Budget and/or a Production Work Program and

Budget.

Calendar Year means a period of twelve (12) consecutive Months, commencing 1 January

and ending on 31 December of the same year.

Commercial Discovery means a Discovery which is potentially commercial when taking

into account all technical, operational, commercial and financial data collected when carrying

out appraisal works or similar operations, including but not limited to: recoverable reserves of

Petroleum, sustainable regular production levels and other material technical, operational,

commercial and financial parameters, all in accordance with standard practices in the

international petroleum industry.

Commercial Production means the production of Petroleum from the Production Area in

accordance with annual Production Works Program and Budget.

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

in the general referendum of 15 October 2005;



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Contract means this production sharing contract, including its Annexes A and B that are an

integral part hereof, as well as any extension, renewal, substitution or amendment of this

production sharing contract that may be agreed in writing by the Parties in accordance with

Article 43.7 (except as provided in Article 47).

Contract Area means the area described and defined in Annex A attached to this Contract,

and any modifications made to that Annex in accordance with the provisions of this Contract.

Contract Year means a period of twelve (12) consecutive Months starting from the Effective

Date or any anniversary of the said Effective Date.

CONTRACTOR includes and comprises each and all CONTRACTOR entities, including,

without limitation, any Public Company nominated by the GOVERNMENT pursuant to

Article 4, the CONTRACTOR’s Affiliates and/or any assignee of all or part of the rights and

obligations under this Contract in accordance with Article 39 of this Contract.

CONTRACTOR entity means any person which is for the time being a component of the

CONTRACTOR, including, without limitation, the CONTRACTOR, the CONTRACTOR’s

Affiliates and/or any assignee of all or part of the rights and obligations under this Contract in

accordance with Article 39.

Crude Oil means all liquid hydrocarbons in their unprocessed state or obtained from Natural Gas

by condensation or any other means of extraction.

Decommissioning Costs means all the costs and expenditure incurred by the

CONTRACTOR when carrying out Decommissioning Operations, including but not limited

to those defined in the Accounting Procedure.

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

activities, for decommissioning and/or removal and/or abandonment and making safe all of

the Assets and site restoration related thereto in relation to any Production Area.

Decommissioning Plan is defined in Article 38.7.

Decommissioning Reserve Fund is defined in Article 38.1 and includes all contributions paid

into such fund and all interest accumulated such fund.

Delivery Point means the place after extraction, specified in the approved Development Plan for

a Petroleum Field, at which the Crude Oil, Associated Natural Gas and/or Non-Associated

Natural Gas is metered for the purposes of Article 27.7, valued for the purposes of Article 27.1

and ready to be taken and disposed of, consistent with international practice, and at which a Party

may acquire title to its share of Petroleum under this Contract or such other point which may be

agreed by the Parties.

Development Costs means all the costs and expenditure incurred by the CONTRACTOR

when carrying out Development Operations, including but not limited to those defined in the

Accounting Procedure.

Development Operations means all development operations or works conducted in

accordance with a Development Plan up to the Delivery Point with a view to developing a

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Petroleum Field, including but not limited to: drilling of wells; primary and subsequent

recovery projects and pressure maintenance; survey, engineering, building and erecting or

laying of production plants and facilities (including but not limited to: separators;

compressors; generators; pumps and tankage; gathering lines; pipelines and all facilities

required to be installed for production, pressure maintenance, and treatment, storage and

transportation of Petroleum); obtaining of such materials, equipment, machinery, items and

supplies as may be required or expedient for the foregoing activities; and all auxiliary

operations and activities required or expedient for the production of Petroleum from the

Production Area.

Development Period is defined in Article 6 of this Contract.

Development Plan means a plan for development defined in Article 12.8 of this Contract.

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

Plan for the purpose of producing Petroleum, increasing or accelerating production of

Petroleum, including injection wells and dry holes. Any well drilled within a Production Area

shall be deemed a Development Well.

Development Work Program and Budget means the development work program and

budget prepared pursuant to Article 13.2.

Discovery means a discovery of Petroleum within the limits of the Contract Area resulting

from Petroleum Operations carried out under this Contract, provided such Petroleum is

recoverable at the surface with a measurable flow utilising techniques used in the

international petroleum industry.

Dollar (US$) means the legal currency (dollar) of the United States of America (USA).

Effective Date means the date on which the conditions referred to in Article 48 of this

Contract have been fulfilled.

Equipment and Materials is defined in Article 19.1.

Exploration Costs means all the costs and expenditure incurred by the CONTRACTOR

when carrying out Exploration Operations, including but not limited to those defined in the

Accounting Procedure.

Exploration Operations means any and all operations conducted with a view to discovering

Petroleum, including but not limited to: any activities necessary to commence operations; any

topographical, hydrographical, geological, geophysical, aerial and other surveys and activities

(including interpretations, analyses and related studies) to investigate the subsurface for the

location of Petroleum; drilling of shot holes, core holes and stratigraphic test holes; spud,

drilling, testing, coring, logging and equipping of Exploration Wells or Appraisal Wells;

procurement of such services, material, equipment, machinery, items and supplies as may be

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

required or expedient for the conduct of the foregoing activities.

Exploration Period is defined in Article 6 of this Contract.



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Exploration Well means any well drilled for the purpose of confirming a geological

structure or stratigraphic unit in which no Discovery has previously been made by the

CONTRACTOR.

Exploration Work Program and Budget means the exploration work program and budget

prepared pursuant to Article 11.1.

Export Crude Oil is defined in Article 24.2.

Export Non-Associated Natural Gas is defined in Article 24.2.

Export Petroleum is defined in Article 24.2.

First Exploration Well is defined in Article 10.2 (e).

First Production means the moment when Commercial Production of Crude Oil or NonAssociated Natural Gas (as the case may be) first commences, by flowing at the rate forecast in the

Development Plan without interruption for a minimum of forty eight (48) hours.

Force Majeure is defined in Article 40.2.

Gas Marketing Costs means all costs and expenditure incurred by the CONTRACTOR when

carrying out Gas Marketing Operations, including but not limited to those defined in the

Accounting Procedure.

Gas Marketing Operations means any and all of the activities and operations contemplated by

Article 14.6.

Gas Marketing Work Program and Budget means the marketing work program and budget

prepared pursuant to Article 14.8.

Government of Iraq means the Federal Government of the Republic of Iraq, which holds

office under the Constitution of Iraq and any minister, ministry, department, sub-division,

agency, authority, council, committee, or other constituent element thereof and shall, without

limitation, include any corporation owned by the Government of Iraq and/or controlled buy

the Government of Iraq.

International Market Price is defined in Article 27.2 of this Contract.

Iraq means the entirety of the Republic of Iraq, including, without limitation, the Kurdistan

Region.

Joint Operating Agreement means any agreement executed by the entities constituting the

CONTRACTOR at any time for the purpose of regulating between such entities the terms

under which the Petroleum Operations will be conducted, which agreement shall be: (a)

consistent with international standards in the petroleum industry; (b) as between such entities,

supplementary to this Contract; and (c) consistent with the provisions of the Contract.

Kurdistan Region means the Kurdistan Region of Iraq recognised by the Constitution of Iraq

and having the same meaning as in the Kurdistan Region Petroleum Act.

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Kurdistan Region Law means all statutes, decrees, edicts, codes, orders, rules, ordinances

and regulations of the GOVERNMENT or of any other local, municipal, territorial,

provincial, or any other duly constituted governmental authority or agency in the Kurdistan

Region.

Kurdistan Region Petroleum Act means the draft Kurdistan Region Petroleum Act, [to be]

forwarded to the Parliament of the Kurdistan Region on [insert date] or, when that Act enters

into force, the Act.

Law means all applicable laws including without limitation the following: constitutional law,

civil law, common law, international law, equity, treaties, statutes, decrees, edicts, codes,

orders, judgements, rules, ordinances and regulations of any local, municipal, territorial,

provincial, federated, national or any other duly constituted governmental authority or

agency.

LIBOR means the London Inter-Bank Offered Rate at which Dollar deposits for one (1)

Month are offered in the inter-bank market in London, as quoted in the Financial Times of

London for the day in question. In the event that such rate is not published in the Financial

Times, it shall mean the London Inter-bank Offered Rate at which Dollar deposits for one

Month are offered for the nearest day as quoted by National Westminster Bank plc.

Management Committee is defined in Article 8 of this Contract.

Minimum Exploration Obligations is defined in Article 10.1 of this Contract.

Month means a calendar month according to the Gregorian calendar.

Natural Gas means all gaseous Petroleum and inerts.

Non-Associated Natural Gas means any Natural Gas which is not dissolved in Crude Oil

under reservoir conditions.

Operator means the entity designated by the CONTRACTOR pursuant to Article 5 which,

in the name and on behalf of the CONTRACTOR, shall carry out all Petroleum Operations.

If at any time there exists more than one (1) Operator under this Contract, any reference

herein to the term 'Operator' shall be to each Operator with respect to the parts of the Contract

Area in which such Operator conducts Petroleum Operations.

Party or Parties means the GOVERNMENT and/or the CONTRACTOR.

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

context requires.

Person shall include natural and juristic persons (including, without limitation corporations

and governmental agencies)

Petroleum means:

(a)



any naturally occurring hydrocarbon in a gaseous or liquid state;



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(b)



any mixture of naturally occurring hydrocarbons in a gaseous or liquid state; or



(c)



any Petroleum (as defined in paragraphs (a) and (b) above) that has been returned to a

Reservoir.



Petroleum Costs means all costs and expenditure incurred by the CONTRACTOR for the

Petroleum Operations, and which the CONTRACTOR is entitled to recover under this

Contract and its Accounting Procedure attached to this Contract as Annex B, including but

not limited to Decommissioning Costs, Development Costs, Exploration Costs, Gas

Marketing Costs and Production Costs.

Petroleum Field means a Reservoir or group of Reservoirs within a common geological

structure or stratigraphic unit from which Petroleum may be produced and which has been

declared as a Commercial Discovery by the CONTRACTOR pursuant to Article 12.6 (a) or

Article 14.5 (a).

Petroleum Operations means all Exploration Operations, Gas Marketing Operations,

Development Operations, Production Operations and Decommissioning Operations, as well

as any other activities or operations directly or indirectly related or connected with the said

operations (including but not limited to health, safety and environmental operations and

activities) and authorised or contemplated by, or performed in accordance with, this Contract.

Production Area means such areas within the Contract Area designated as a production area

in an approved Development Plan prepared pursuant to Article 12. For the avoidance of

doubt, all superjacent or subjacent strata of the Reservoir in which a Commercial Discovery is

located are automatically included in the relevant Production Area.

Production Bonus means any bonus due pursuant to Article 32.3 or 32.4.

Production Costs means all the costs and expenditure incurred by the CONTRACTOR in

carrying out the Production Operations, including but not limited to those defined in the

Accounting Procedure.

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

for the production of Petroleum from the start of Commercial Production, including but not

limited to: extraction, injection, stimulation, pumping, treatment, storage, engineering,

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

terminals and any other installations and facilities, and any related operations and auxiliary

operations, and storage and transportation of Petroleum from the Production Area to the

Delivery Point.

Production Work Program and Budget shall mean the production work program and

budget prepared pursuant to Article 13.6.

Profit Crude Oil is defined in Article 26.1.

Profit Natural Gas is defined in Article 26.1.

Profit Petroleum is defined in Article 26.1.



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Public Company means a public company duly registered and incorporated in the Kurdista

Region and regulated by the GOVERNMENT under the Kurdistan Region Petroleum Act.

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

member of the Parliament or a member of the Government;

Quarter means a period of three (3) consecutive Months starting on the first day of January,

April, July or October respectively.

Republic of Iraq Oil and Gas Law means any Republic of Iraq Oil and Gas Law, which

may be enacted properly and legally in accordance and conformity with the provisions of the

Iraq Constitution, when that Law enters into force.

Reservoir means a subsurface rock formation containing an individual and separate natural

accumulation of producible Petroleum characterised by a single natural pressure system.

“R” Factor is defined in Article 26.4.

Royalty is defined in Article 24.

Second Exploration Well is defined in Article 10.3 (b).

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

or July respectively.

Subcontractor means any entity of any contracting tier providing services and/or

undertaking works relating to the Petroleum Operations under the overall supervision by, and

on behalf of, the CONTRACTOR.

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

Work Program means any work program prepared by, or on behalf of, the

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

Program and Budget and/or an Appraisal Work Program and Budget and/or a Gas Marketing

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

Production Work Program and Budget.



ARTICLE 2 - SCOPE OF THE CONTRACT

2.1



This Contract is a production-sharing arrangement with respect to the Contract Area,

whereby the GOVERNMENT has the right, pursuant to the Constitution of Iraq, to

regulate and oversee Petroleum Operations within the Contract Area.

The purpose of this Contract is to define the respective rights and obligations of the

Parties and the terms and conditions under which the CONTRACTOR shall carry out

all the Petroleum Operations.

By entering into this Agreement, the GOVERNMENT grants the CONTRACTOR

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the exclusive right and authority to conduct all Petroleum Operations in the Contract

Area as detailed in Article 3 below.

2.2



Upon the CONTRACTOR's request, the GOVERNMENT shall provide all required

Permits relating to the Petroleum Operations required by the CONTRACTOR to

fulfil its obligations under this Contract, including those relating to any extension and

renewal periods and including those required by the Government of Iraq. The

GOVERNMENT (i) represents and warrants to the CONTRACTOR that it has not

done and has not omitted to do anything that would cause the cancellation or

suspension of this Contract or any Permit granted pursuant to this Contract; and (ii)

covenants that it will not do, or omit to do, anything that would cause the cancellation

or suspension of this Contract or any Permit granted pursuant to this Contract. For the

avoidance of doubt, nothing in this Article shall affect the rights and obligations of the

Parties pursuant to Article 47.



2.3



The CONTRACTOR shall conduct all Petroleum Operations within the Contract

Area at its sole cost, risk and peril on behalf of the GOVERNMENT, pursuant to this

Contract, including but not limited to the following operations:

(a)



Technical Services

Implementation of all technical, human and material resources reasonably

required for execution of the Petroleum Operations, in accordance with

standard practices prevailing in the international petroleum industry.



(b)



Financial Services

The responsibility for funding the Exploration Operations and, in the event of

a Commercial Discovery, Development, Production and Decommissioning

Operations, pursuant to this Contract.

For the funding of Petroleum Operations, each CONTRACTOR entity shall

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

Companies or from any third parties.



(c)



Administrative Services

Implementation of all appropriate management and administration techniques

for execution of the Petroleum Operations under this Contract, in accordance

with standard practices prevailing in the international petroleum industry.



2.4



During the term of this Contract, the CONTRACTOR shall be responsible to the

GOVERNMENT for the conduct of Petroleum Operations within the Contract Area

pursuant to the terms of this Contract.



2.5



Natural resources other than Petroleum shall be excluded from the scope of this

Contract, even if the CONTRACTOR discovers any such resources when executing

its obligations pursuant to this Contract.



2.6



The CONTRACTOR shall only be entitled to recover Petroleum Costs incurred

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under this Contract in the event of a Commercial Discovery. Recovery of Petroleum

Costs shall occur within the limits provided under Article 25 of this Contract.

2.7



During the term of this Contract, Profit Crude Oil and/or Profit Natural Gas produced

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

provisions of Article 26 of this Contract.



2.8



For the execution of Petroleum Operations under this Contract, the CONTRACTOR

shall have the right to:

(a)



freely access and operate within the Contract Area , as well as any facilities

associated with the Petroleum Operations, wherever they may be located;



(b)



freely use access roads located within the Contract Area and outside the

Contract Area for the construction, installation, maintenance and removal of

pipelines and other facilities required for the Petroleum Operations;



(c)



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

inside or outside the Contract Area for the Petroleum Operations;



(d)



use any qualified foreign and local personnel and/or Subcontractors required

for the conduct of Petroleum Operations in accordance with Articles 22 and 23

of this Contract. Any foreign personnel working in the Kurdistan Region shall

require prior authorisation of the GOVERNMENT (such authorisation not to

be unreasonably delayed or withheld) and the GOVERNMENT shall obtain

any authorisation required by the Government of Iraq;



(e)



import any goods, materials, equipment and/or services required for the

Petroleum Operations in accordance with Articles 19, 22 and 30; and



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(f)



freely use land or property belonging to the Kurdistan Region.



ARTICLE 3 - CONTRACT AREA

The initial Contract Area covers the [ ] Block and extends over an area of [ ] square

kilometres ([ ] km2), as detailed and indicated on the map attached in Annex A and is

delimited by the following coordinates:

Point



Latitude (deg min

sec)



Longitude

min sec)



(deg



X (mE)



Y (mN)



1

2

3

4

5

6

7



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

foregoing co-ordinates of the Contract Area.

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

this Contract.



ARTICLE 4 - GOVERNMENT PARTICIPATING INTEREST

4.1



The GOVERNMENT shall through a Public Company duly authorised by the

GOVERNMENT (and notified to the CONTRACTOR) have the option of

participating in this Contract, in respect of the entire Contract Area, as a

CONTRACTOR entity, with an undivided interest in the Petroleum Operations and

all the other rights, duties, obligations and liabilities of the CONTRACTOR, under

this Contract in respect of the Contract Area, of up to twenty-five per cent (25%) (the

“Government Interest”), such option being referred to herein as the “Option to

Participate”. The Public Company shall be entitled to exercise the Option to

Participate by notifying the CONTRACTOR in writing of such election at any time

in the period commencing on the Effective Date and ending one hundred and eighty

(180) days after the date on which CONTRACTOR declares the first Commercial

Discovery (which date of declaration is referred to herein as the “First Commercial

Declaration Date”). If the Public Company does not notify the CONTRACTOR of

such election within such period, the Option to Participate shall be deemed to have

been waived.



4.2



If the Public Company exercises the Option to Participate in accordance with Article

4.1:



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4.3



(a)



the effective date of such participation shall be the date of the notice by which

the Public Company exercises its Option to Participate or the First

Commercial Declaration Date, whichever is the earlier;



(b)



the Public Company shall participate as a CONTRACTOR entity under this

Contract from such effective date, with all its rights, duties, obligations and

liabilities under this Contract, save as provided in and subject to the provisions

of this Article 4;



(c)



the Public Company shall not have any liability to the other CONTRACTOR

entities to contribute its Government Interest share of all Petroleum Costs

incurred before the First Commercial Declaration Date and its Government

Interest share of such Petroleum Costs shall be the responsibility of the other

CONTRACTOR entities, provided always that such other CONTRACTOR

entities shall be entitled to recover all such Petroleum Costs in accordance

with Article 25;



(d)



if, pursuant to the terms of the Joint Operating Agreement, the Public

Company participates in the development of the Commercial Discovery, it

shall be liable to the other CONTRACTOR entities to contribute its

Government Interest share of all Petroleum Costs incurred on or after the First

Commercial Declaration Date, with the exception of the production bonuses

referred to in Article 32 and shall be entitled to recover all such Petroleum

Costs in accordance with Article 25, including the Petroleum Costs which it

has reimbursed pursuant to Article 4.2 (e);



(e)



if such Option to Participate is exercised on or after the First Commercial

Declaration Date, the Public Company shall, within thirty (30) days of the date

of so notifying the CONTRACTOR of its election, reimburse the other

CONTRACTOR entities for all Petroleum Costs for which it is liable

pursuant to Article 4.2 (d) and which have been incurred by such other

CONTRACTOR entities on or after the First Commercial Declaration Date

but prior to and including the date of the notice pursuant to which it exercises

its Option to Participate. From the date of such notice, the Public Company

shall pay the Government Interest share of such Petroleum Costs directly;



(f)



for the purposes of Article 39 of the Kurdistan Region Petroleum Act, the

Government Interest so assigned shall deemed to be held by the

GOVERNMENT and in accordance with the principle in Article 16.13, the

Public Company will be individually and separately liable (and not jointly and

severally liable with the other CONTRACTOR entities) to the

GOVERNMENT for its obligations, duties and liabilities under this Contract

as a CONTRACTOR entity and the provisions of Article 4.4 shall apply.



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

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

by the GOVERNMENT, provided that in the event of a transfer of part of the

Government Interest, such Government Interest will not be less than five per cent

(5%).



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

Article 39 of the Kurdistan Region Petroleum Act, the Government Interest so

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

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

transferred will be individually and separately liable (and not jointly and severally

liable with the other CONTRACTOR entities) to the GOVERNMENT for its

obligations, duties and liabilities under this Contract as a CONTRACTOR entity and

the provisions of Article 4.4 shall apply.

4.4



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

any of its duties or liabilities under this Contract as a CONTRACTOR entity shall

not be considered as a default of the other CONTRACTOR entities and shall in no

case be invoked by the GOVERNMENT to terminate this Contract.

The capacity of a Public Company as a CONTRACTOR entity, as it may arise

pursuant to the provisions of this Contract, shall in no event cancel or affect the rights

of the other CONTRACTOR entities to seek to settle a dispute or to refer such

dispute to arbitration or expert determination in accordance with the provisions of

Article 42.



4.5



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

parties (not being a Public Company), subject to the provisions of Article 4.6 (and for

the avoidance of doubt the provisions of Articles 39.1, 39.2 and 39.3 shall not apply).

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

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

accordance with the provisions of this Article 4, the provisions of Articles 39.1, 39.2

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



4.6



Where a Joint Operating Agreement has been executed by the CONTRACTOR

entities prior to any exercise of the Option to Participate pursuant to this Article 4, the

Public Company authorised as mentioned in Article 4.1 shall become a party to such

agreement, with any amendments necessary to be consistent with the principles of this

Article 4. Where a Joint Operating Agreement is not in place prior to the exercise of

the Option to Participate pursuant to this Article 4, the Public Company and the other

CONTRACTOR entities shall, within a reasonable period of time, negotiate in good

faith and enter into a Joint Operating Agreement and shall during the period between

the exercising of the Option to Participate and the execution of the Joint Operating

Agreement, comply with paragraphs (a) and (b) inclusive of Article 4.7 as if they

were provisions of this Contract.



4.7



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

consistent with the principles of this Article 4 and shall provide as follows:

(a)



all decisions of any operating committee established under such Joint

Operating Agreement shall require the affirmative vote of an agreed

percentage of participating interests held thereunder, which in any event shall

not more than seventy five percent (75%);



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(b)



4.8



in the event of a proposed transfer by any CONTRACTOR entity of part of a

participating interest under such Joint Operating Agreement, including but not

limited to any Government Interest:

(i)



the interest to be transferred will not be less than five per cent (5%);



(ii)



the proposed third party assignee must demonstrate to the reasonable

satisfaction of each of the extant CONTRACTOR entities that it has

the financial capability to perform its payment obligations under the

Contract and under the Joint Operating Agreement; and



(iii)



the proposed third party assignee shall enter into an instrument

satisfactory to each of the extant CONTRACTOR entities so as to

assume and to perform the obligations of the transferor.



For the avoidance of doubt, there shall be no right of assignment in respect of the

Option to Participate.



ARTICLE 5 -OPERATOR

5.1



The CONTRACTOR hereby designates [ ] to act as the Operator on behalf of the

CONTRACTOR for the execution of the Petroleum Operations.

The

CONTRACTOR shall at any time have the right to appoint another entity as the

Operator, upon giving the GOVERNMENT not less than thirty (30) days prior

written notice of such appointment.



5.2



The CONTRACTOR shall submit to the GOVERNMENT for comment any agreement

regarding or regulating the Operator's appointment and its conduct of Petroleum

Operations on behalf of the CONTRACTOR pursuant to this Contract prior to

execution of such agreement.



5.3



In the event of the occurrence of any of the following, the GOVERNMENT may require

the CONTRACTOR to appoint another entity as Operator as soon as is reasonably

practicable:

(a)



if an order has been passed in court declaring the bankruptcy, liquidation, or

dissolution of the Operator;



(b)



if the Operator terminates its activities under this Contract or a material

proportion thereof, and, as a result CONTRACTOR fails to fulfil its

obligations under the Contract.



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ARTICLE 6 - TERM OF THE CONTRACT

6.1



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

below:



Exploration Period

6.2



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

extendable on a yearly basis (as provided in Articles 6.5 and 6.6) up to a maximum

period of seven (7) Contract Years, starting from the Effective Date. The initial term

of five (5) years shall be subdivided in two (2) sub-periods as follows:

(a)



an initial sub-period of three (3) Contract Years (“First Sub-Period”);



(b)



a second sub-period of two (2) Contract Years (“Second Sub-Period”),



each a “Sub-Period” and collectively “Sub-Periods”.

It is understood that the right of the CONTRACTOR to accede to the next Sub-Period

shall be subject to fulfilment of the Minimum Exploration Obligations applicable to

the previous Sub-Period.

6.3



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

in arrears, an annual surface rental for the Contract Area, as may be reduced by

relinquishment from time to time pursuant to Article 7, of ten Dollars (US$10) per square

kilometre per Contract Year (“Exploration Rental”). Such Exploration Rental shall be

considered as a Petroleum Cost and shall be recovered by the CONTRACTOR in

accordance with the provisions of Articles 1 and 25.



6.4



If the CONTRACTOR decides not to enter into the Second Sub-Period, it shall notify

the GOVERNMENT at least thirty (30) days prior to the expiry of the First SubPeriod and, provided that the data from the First Exploration Well demonstrates that

there is no reasonable technical case for drilling the Second Exploration Well in the

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

unless the First Sub-Period has been extended pursuant to Article 6.5 and/or Article 6.6.



6.5



If the CONTRACTOR has fulfilled its Minimum Exploration Obligations for a SubPeriod of the Exploration Period but considers that additional work is required prior:

(a)



to deciding to submit an Appraisal Program as provided under Article 12.2 of

this Contract in respect of a Discovery, or



(b)



to deciding to declare a Discovery as a Commercial Discovery in accordance

with Article 12.6 (a) or 14.5 (a), which additional work may include the

preparation and/or execution of an Appraisal Program as provided under

Article 12.2 of this Contract and/or Gas Marketing Operations,



the CONTRACTOR will automatically be entitled to extensions, each of one (1)

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

Exploration Period of seven (7) Contract Years, (as provided in Article 6.2). The

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CONTRACTOR’s notification of such extension and its duration shall be submitted

in writing to the GOVERNMENT at least thirty (30) days prior to the end of the then

current Sub-Period or the end of the then current extension (as the case may be).

6.6



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

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

Area, the CONTRACTOR shall be entitled to an extension of the Second SubPeriod, provided it so requests the GOVERNMENT in writing at least thirty (30)

days prior to the end of such Sub–Period, together with a proposal for a minimum

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

Contract Year. Upon the expiry of such extension, if it considers it has still not

completed its evaluation of the Contract Area, the CONTRACTOR shall be entitled

to a further extension of one (1) Contract Year provided that it so requests the

GOVERNMENT in writing at least thirty (30) days prior to the end of the original

extension. The right of the CONTRACTOR to accede to the further extension shall

be subject to fulfilment of the Minimum Exploration Obligations applicable to the

original extension.



6.7



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

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

withdraw from this Contract provided that the outstanding Minimum Exploration

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

accordance with the Contract, or it has paid to the GOVERNMENT the amounts

specified in Article 10.2 or Article 10.3 of this Contract, whichever is applicable to the

then current Sub-Period.



6.8



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

(including any extensions thereof) this Contract shall terminate.



6.9



If a Discovery is made within the maximum Exploration Period of seven (7) Contract

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

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

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

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

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

GOVERNMENT in writing at least thirty (30) days prior to the end of the maximum

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

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

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

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

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

(2) Contract Years provided that it so requests the GOVERNMENT in writing at

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

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



Development Period

6.10



If the CONTRACTOR considers that a Discovery of Crude Oil and any Associated

Natural Gas is a Commercial Discovery, the CONTRACTOR shall have the

exclusive right to develop and produce such Commercial Discovery, pursuant to the

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terms of this Contract. The Development Period for a Commercial Discovery of Crude

Oil and any Associated Natural Gas shall be twenty (20) years commencing on the

declaration of such Commercial Discovery by CONTRACTOR, in accordance with

Article 12.6 (a) of this Contract, with an automatic right to a five (5) year extension.

6.11



If the CONTRACTOR considers that a Discovery of Non-Associated Natural Gas is

a Commercial Discovery, the CONTRACTOR shall have the exclusive right to

develop and produce such Commercial Discovery, pursuant to the terms of this

Contract. The Development Period for a Commercial Discovery of Non-Associated

Natural Gas shall be twenty (20) years, commencing on the declaration of such

Commercial Discovery by CONTRACTOR, in accordance with Article 12.6 (a) or

Article 14.5 (a) of this Contract, with an automatic right to a five (5) year extension.



6.12



If Commercial Production from a Production Area is still possible at the end of its

Development Period as defined in Articles 6.10 or 6.11 above then, upon its request,

the CONTRACTOR shall be entitled to an extension of such Development Period

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

writing by the CONTRACTOR at least six (6) Months before the end of the said

Development Period.

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



6.13



(a)



five (5) Years for Crude Oil and any Associated Natural Gas, and/or



(b)



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



The CONTRACTOR shall have the right to terminate Production Operations for any

Production Area at any time during the term of this Contract, subject to giving

notice to the GOVERNMENT of at least ninety (90) days. This Contract shall

terminate on the expiry date of the last Production Area or when Production

Operations for all Production Areas have terminated.



ARTICLE 7 - RELINQUISHMENTS

7.1



7.2



Subject to the provisions of Articles 7.2 and 7.3, the CONTRACTOR shall surrender portions

of the Contract Area as follows:

(a)



twenty five percent (25%) of the initial Contract Area, excluding any Production

Areas, at the end of the initial term of the Exploration Period referred to in

Article 6.2; and



(b)



an additional twenty five percent (25%) of that part of the Contract Area,

excluding any Production Areas, remaining at the end of each extension period

entered into under this Contract at the end of the initial term of the Exploration

Period referred to in Article 6.2.



For the application of Article 7.1:



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(a)



any areas already relinquished pursuant to Article 7.4 below shall be deducted

from areas to be surrendered; and



(b)



the CONTRACTOR shall have the right to determine the area, shape and

location of the Contract Area to be kept, provided that the portions of the

Contract Area surrendered shall be contiguous.



7.3



If the relinquishment referred to in Article 7.1 can only be achieved by including part of

the area of a Discovery, these percentages shall be reduced to exclude the Discovery

area.i



7.4



During the Exploration Period, the CONTRACTOR may at the end of each Contract

Year iisurrender all or any part of the Contract Area by written notice sent to the

GOVERNMENT at least thirty (30) days in advance of the proposed date of surrender,

subject to the provisions of this Article 7.4. Such voluntary surrenders during the

Exploration Period shall be deemed equal to the obligatory relinquishments referred to

under Article 7.1. This Contract shall terminate in the event of total surrender of the

Contract Area.



7.5



No surrender provided under Article 7.4 shall exempt the CONTRACTOR from its

outstanding obligations under this Contract. In the event the CONTRACTOR elects to

surrender the entire Contract Area without having fulfilled the Minimum Exploration

Obligations relating to the then current Sub-Period as provided in Article 10.2 or Article

10.3, the CONTRACTOR shall pay to the GOVERNMENT the relevant outstanding

amount as detailed in Article 10.2 or Article 10.3, as the case may be.



7.6



The boundaries of the portion of the Contract Area to be relinquished by the

CONTRACTOR shall be communicated to the GOVERNMENT by written notice at

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

Article 7.1.



ARTICLE 8 - MANAGEMENT COMMITTEE

8.1



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

Effective Date for the purpose of providing orderly direction of all matters pertaining

to the Petroleum Operations and Work Program. Within such period each of the

GOVERNMENT and the CONTRACTOR shall by written notice nominate its

respective members of the Management Committee and their deputies.

The Management Committee shall comprise an equal number of members designated

by each Party: two (2) members designated by the GOVERNMENT and two (2)

members designated by the CONTRACTOR.

Upon ten (10) days notice, each Party may substitute any of its members of the

Management Committee. The chairman of the Management Committee shall be one

of the members designated by the GOVERNMENT (the “Chairman”). The vicechairman of the Management Committee shall be one of the members designated by

the CONTRACTOR (the “Vice-Chairman”). In the absence of the Chairman, the

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Vice-Chairman shall chair the meeting.

Each Party shall have the right to invite a reasonable number of observers as deemed

necessary to attend the meetings of the Management Committee in a non-voting

capacity.

8.2



8.3



The Management Committee shall review, deliberate, decide and give advice,

suggestions and recommendations to the Parties regarding the following subject

matters:

(a)



Work Programs and Budgets;



(b)



the CONTRACTOR's activity reports;



(c)



production levels submitted by the CONTRACTOR, based on generally

accepted practice in the international petroleum industry;



(d)



accounts of Petroleum Costs;



(e)



procurement procedures for potential Subcontractors, with an estimated subcontract value in excess of [ ] Dollars ($[ ]), submitted by the

CONTRACTOR in accordance with Article 19.3;



(f)



Development Plan and Budget for each Petroleum Field;



(g)



any matter having a material adverse affect on Petroleum Operations;



(h)



any other subject matter of a material nature that the Parties are willing to

consider.



Each Party shall have one (1) vote in the Management Committee. The Management

Committee cannot validly deliberate unless each Party is represented by at least one

(1) of its members or its deputy.

The Management Committee shall attempt to reach unanimous agreement on any subject

matter being submitted. In the event the Management Committee cannot reach

unanimous agreement, a second meeting shall be held within fourteen (14) days to

discuss the same subject matter and attempt to reach a unanimous decision.

Except as provided for in Article 8.4 and Article 8.5, in the event that no agreement is

reached at the second meeting, the Chairman shall have the tie-breaking vote.



8.4



In the event that, during the Exploration Period, no agreement is reached at the second

meeting of the Management Committee, as provided for in Article 8.3, or unanimous

approval is not obtained, as required pursuant to Article 8.5, the proposal made by the

CONTRACTOR shall be deemed adopted by the Management Committee.



8.5



Notwithstanding the provisions of Article 8.3, unanimous approval of the Management

Committee shall be required for:



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(a)



approval of, and any material revision to, any Exploration Work Program and

Budget prepared after the first Commercial Discovery in the Production Area

relating to such Commercial Discovery (unless such Exploration Work Program

and Budget has been deemed approved by the Management Committee in

accordance with Article 11.4);



(b)



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

schedule, lifting schedule and Development and Production Work Programs and

Budgets;



(c)



establishment of rules of procedure for the Management Committee;



(d)



approval of, and any material revision to, procurement procedures for goods

and/or services, submitted by the CONTRACTOR in accordance with Article

19.3 (unless such procedures have been deemed approved by the Management

Committee in accordance with Article 19.3);



(e)



approval of, and any material revision to, any proposed pipeline project,

submitted by CONTRACTOR in accordance with Article 33.3;



(f)



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

Fund, in accordance with Article 38.1;



(g)



approval of, and any material revision to, any proposed Decommissioning Plan

submitted pursuant to Article 38.7;



(h)



any terms of reference which are required to be prepared and agreed for the

purposes of expert determination, pursuant to Article 42.2; and



(i)



any matter having a material adverse affect on Petroleum Operations.



8.6



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

Region, alternately at the offices of the GOVERNMENT and those of the

CONTRACTOR, or at any other location agreed between Parties, at least twice a

Contract Year prior to the date of the first Commercial Discovery and three times a

Contract Year thereafter.



8.7



Either Party may call an extraordinary meeting of the Management Committee to

discuss important issues or developments related to Petroleum Operations, subject to

giving reasonable prior notice, specifying the matters to be discussed at the meeting,

to the other Party. The Management Committee may from time to time make

decisions by correspondence provided all the members have indicated their approval

of such decisions in such correspondence.



8.8



Unless at least one (1) member or its deputy of each Party is present, the Management

Committee shall be adjourned for a period not to exceed eight (8) days. The Party

being present shall then notify the other Party of the new date, time and location for

the meeting.



8.9



The agenda for meetings of the Management Committee shall be prepared by the

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Operator in accordance with instructions of the Chairman and communicated to the

Parties at least fifteen (15) days prior to the date of the meeting. The agenda shall

include any subject matter proposed by either Party. The Operator shall be

responsible for preparing and keeping minutes of the meetings and decisions. Copies

of such minutes shall be forwarded to each Party for review and approval. Each Party

shall review and approve such minutes within ten (10) days of receipt of the draft

minutes. A Party who fails to notify in writing its approval or disapproval of such

minutes within such ten (10) days shall be deemed to have approved the minutes.

8.10



If required, the Management Committee may request the creation of a technical subcommittee or any other sub-committee to assist it. Any such sub-committee shall be

composed of a reasonable number of experts from the GOVERNMENT and the

CONTRACTOR. After each meeting, the technical sub-committee or any other subcommittee shall deliver a written report to the Management Committee.



8.11



Any costs and expenditure incurred by the CONTRACTOR for meetings of the

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

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

CONTRACTOR in accordance with the provisions of Articles 1 and 25.



ARTICLE 9 - GUARANTEES

9.1



Each CONTRACTOR entity shall provide the GOVERNMENT, if so required by the

latter pursuant to written notice received by the CONTRACTOR entity within thirty (30)

days of the Effective Date, with a corporate guarantee in a form as shall be agreed in good

faith between the GOVERNMENT and each CONTRACTOR entity not later than

ninety (90) days after the Effective Date, provided that such corporate guarantee shall be

given only in respect of the Minimum Exploration Obligations for the First Sub-Period up

to the total amount of the minimum financial commitment for the Minimum Exploration

Obligations for the First Sub-Period (as such details are provided in Article 10.2) and

shall expire automatically upon completion of the performance of such Minimum

Exploration Obligations or expenditure of such minimum financial commitment,

whichever is the earlier.



9.2



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

CONTRACTOR entity shall provide the GOVERNMENT, if so required by the latter

pursuant to written notice received by the CONTRACTOR entity within thirty (30) days

of such commencement date, with a corporate guarantee in the form substantially agreed

between the GOVERNMENT and each CONTRACTOR entity for the First SubPeriod, subject to making the changes necessary in order for the corporate guarantee to

apply only to the Second Period Minimum Exploration Obligations up to the total amount

of the minimum financial commitment for the Minimum Exploration Obligations for the

Second Sub-Period (as such details are provided in Article 10.3), and provided that such

corporate guarantee shall expire automatically upon completion of the performance of

such Minimum Exploration Obligations or expenditure of such minimum financial

commitment, whichever is the earlier.



9.3



In the event of an assignment by a CONTRACTOR entity in accordance with Article

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39, the relevant third party assignee shall provide the GOVERNMENT, if so required by

the latter pursuant to written notice given to such assignee within thirty (30) days of the

Effective Date, with a corporate guarantee in the form agreed pursuant to Article 9.1 or

9.2, as applicable to the then current Sub-Period or, in the absence of any such agreed form

of corporate guarantee, in a form as shall be agreed in good faith between the

GOVERNMENT and such assignee not later than ninety (90) days after the effective

date of the assignment, provided that such corporate guarantee shall be given only in

respect of the Minimum Exploration Obligations for the then current Sub-Period up to the

total amount of the minimum financial commitment for the Minimum Exploration

Obligations for such Sub-Period (as such details are provided in Article 10.2 or Article

10.3, as the case may be), and shall expire automatically upon completion of the

performance of such Minimum Exploration Obligations or expenditure of such minimum

financial commitment, whichever is the earlier.



ARTICLE 10 - MINIMUM EXPLORATION WORK OBLIGATIONS

10.1



The CONTRACTOR shall start Exploration Operations within thirty (30) days of

Management Committee approval of the Exploration Work Program and Budget in

accordance with Article 8 of this Contract. The CONTRACTOR shall perform

geological, geophysical and/or drilling works as provided under Articles 10.2 to 10.3

below (the "Minimum Exploration Obligations"). If applicable, the said Minimum

Exploration Obligations shall be performed during each Sub-Period in accordance with

good and prudent international oilfield practice.



10.2



During the First Sub-Period, the CONTRACTOR shall:

(a)



carry out geological and geophysical studies, comprising the following:

(i)

(ii)



the compilation of a technical database;

the performance of a remote sensing study:



(iii) a field visit to verify initial geological and geophysical work and remote

sensing results and plan for two dimensional seismic acquisition; and

(b)



carry out a data search for existing data specific to this Contract Area,

comprising the following:

(i)

well data, if available, for example, electric logs;

(ii)

seismic data and gravity data, if available; and

(iii) reprocess seismic data, if available.



(c)



perform field work comprising structural, stratigraphic and lithologic mapping

and sampling;



(d)



acquire, process and interpret [ ] ([ ]) line kilometres of two dimensional

seismic data, committing for this purpose a minimum financial amount of [ ]

Dollars (US$[ ]); and



(e)



drill one (1) Exploration Well (the “First Exploration Well”), committing for

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this purpose a minimum financial amount of [ ] Dollars (US$[ ]).

10.3



During the Second Sub-Period, the CONTRACTOR shall:

(a)



acquire, process and interpret further seismic data (being either two

dimensional or three dimensional), if the CONTRACTOR considers that the

results from the First Exploration Well justify the acquisition of further

seismic data; and



(b)



drill one (1) Exploration Well (the “Second Exploration Well”) committing

for this purpose a minimum financial amount of [ ] Dollars (US$[ ]), unless the

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

reasonable technical case for drilling the Second Exploration Well in the

Contract Area.



10.4 Notwithstanding the provisions in Articles 10.2 to 10.3 above, for the execution of the

Minimum Exploration Obligations under Articles 10.2 to 10.3 above, it is agreed as follows:

(a)



Minimum Exploration Obligations in the Second Sub-Period shall only apply in

the event the CONTRACTOR has not elected to notify the GOVERNMENT

that it will not enter into the Second Sub-Period, in accordance with and subject to

Article 6.4.



(b)



Subject to Article 10.4 (a), the CONTRACTOR shall be required to meet its

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

entails exceeding the minimum financial amount for such Sub-Period. If the

CONTRACTOR has satisfied its Minimum Exploration Obligations without

having spent the total minimum financial amount for such Sub-Period, it shall

be deemed to have satisfied its Minimum Exploration Obligations for such

Sub-Period.



(c)



Each Exploration Well shall be drilled to the depth agreed by the Management

Committee unless:

(i)



the formation is encountered at a lesser depth than originally

anticipated;



(ii)



basement is encountered at a lesser depth than originally anticipated;



(iii)



in the CONTRACTOR’s sole opinion continued drilling of the

relevant Exploration Well presents a hazard due to the presence of

abnormal or unforeseen conditions;



(iv)



rock formations are encountered rendering it impractical to continue

drilling with standard equipment;



(v)



petroleum formations are encountered whose penetration requires

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

Management Committee to be reached.



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If drilling is stopped for any of the foregoing reasons, the Exploration Well

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

Committee and the CONTRACTOR shall be deemed to have satisfied its

Minimum Exploration Obligations in respect of the Exploration Well.

(d)



Any geological or geophysical work carried out or any seismic data acquired,

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

performed in excess of the Minimum Exploration Obligations and/or any

amounts spent in excess of the total minimum financial amount in any given

Sub-Period, shall be carried forward to the next Sub-Period and shall be taken

into account to satisfy the Minimum Exploration Obligations and/or the total

minimum financial amount for such subsequent Sub-Period.

For the avoidance of doubt, if: (i) in the First Sub-Period, CONTRACTOR

performs any of the Minimum Exploration Obligations prescribed for the

Second Sub-Period in Article 10.3; and (ii) CONTRACTOR has not elected

to notify the GOVERNMENT that it will not enter into the Second Sub-Period

(in accordance with and subject to Article 6.4), the performance of such

Minimum Exploration Obligations shall be deemed to satisfy the same

Minimum Exploration Obligations for the Second Sub-Period.



ARTICLE 11 - EXPLORATION WORK PROGRAMS AND BUDGETS

11.1



Within forty-five (45) days following the Effective Date, the CONTRACTOR shall

submit to the Management Committee a proposed work program and budget relating

to Exploration Operations (the "“Exploration Work Program and Budget") for the

remainder of the Calendar Year. Thereafter, no later than 1 October in each Calendar

Year, the CONTRACTOR shall submit a proposed Exploration Work Program and

Budget to the Management Committee for the following Calendar Year.



11.2



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

limited to, the following:



11.3



(a)



work to be undertaken;



(b)



materials, goods and equipment to be acquired;



(c)



cost estimate of services to be provided, including services by third parties

and/or Affiliated Companies of any CONTRACTOR entity;



(d)



estimated expenditures, broken down by cost centre in accordance with the

Accounting Procedure.



The Management Committee shall meet within sixty (60) days following its receipt of

CONTRACTOR's proposal to examine and, unless already deemed approved

pursuant to the provisions of Article 11.4 below, approve the Exploration Work

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Program and Budget.

11.4



Any modification to the Exploration Work Program and Budget requested by the

GOVERNMENT shall be submitted to the CONTRACTOR within thirty (30) days

following receipt of the proposed Exploration Work Program and Budget by the

Management Committee, accompanied by all the documents justifying such request.

If the GOVERNMENT requests any modifications to the Exploration Work Program

and Budget, the CONTRACTOR shall communicate its comments on any such

requested modifications to the GOVERNMENT at the meeting of the Management

Committee or in writing prior to such meeting.



11.5



The CONTRACTOR shall be authorised to make expenditures not budgeted in an

approved Exploration Work Program and Budget provided that the aggregate amount

of such expenditures shall not exceed ten percent (10%) of the approved Exploration

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

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

Management Committee. For the avoidance of doubt, such excess expenditures shall

be considered Petroleum Costs and shall be recovered by the CONTRACTOR in

accordance with the provisions of Articles 1 and 25.



11.7



In cases of emergency, the CONTRACTOR may incur such additional expenditures

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

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

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

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

Articles 1 and 25.

ARTICLE 12 - DISCOVERY AND DEVELOPMENT



12.1



If the drilling of an Exploration Well results in a Discovery, the CONTRACTOR

shall notify the GOVERNMENT within forty-eight (48) hours of completing tests

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

CONTRACTOR reasonably requires to determine whether or not there is a

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

CONTRACTOR shall present to the Management Committee all technical data then

available together with its opinion on the commercial potential of the said Discovery

(the "Discovery Report"). The CONTRACTOR shall provide in a timely manner such

other information relating to the Discovery as the GOVERNMENT may reasonably

request.



Appraisal Program

12.2



If, pursuant to Article 12.1 above, the CONTRACTOR considers that the Discovery

has commercial potential it shall, within ninety (90) days following notification to the

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

Discovery (the "Appraisal Program") to the Management Committee. The

Management Committee shall examine the Appraisal Program within thirty (30) days

of its receipt. If the GOVERNMENT requests any modification to the Appraisal

Program, the Management Committee shall meet to discuss the Appraisal Program

and such objections thereto within sixty (60) days from its receipt of the proposed

30/112



Appraisal Program. The CONTRACTOR shall communicate its comments on any

such objections to the GOVERNMENT at the meeting of the Management

Committee or in writing prior to such meeting.

The Appraisal Program shall include but not be limited to the following:



12.3



(a)



an appraisal works program and budget, in accordance with good and prudent

international oilfield practice;



(b)



an estimated time-frame for completion of appraisal works;



(c)



the delimitation of the area to be evaluated, the surface of which shall not

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

appraised (the "Appraisal Area").



If, following a Discovery, a rig acceptable to CONTRACTOR is available to drill a

well, the CONTRACTOR may drill any additional Exploration Well or any

Appraisal Well deemed necessary by the CONTRACTOR before or during the

Management Committee’s review of the Discovery Report provided in accordance

with Article 12.1 or its review of the Appraisal Program.



Appraisal Report

12.4



The CONTRACTOR shall submit a detailed report relating to the Discovery (the

"Appraisal Report") to the Management Committee within ninety (90) days

following completion of the Appraisal Program.



12.5



The Appraisal Report shall include but not be limited to the following:

(a)



geological conditions;



(b)



physical properties of any liquids;



(c)



sulphur, sediment and water content;



(d)



type of substances obtained;



(e)



Natural Gas composition;



(f)



production forecast per well; and



(g)



a preliminary estimate of recoverable reserves.



Declaration of Commercial Discovery

12.6



Together with its Appraisal Report, the CONTRACTOR shall submit a written

statement to the Management Committee specifying that:

(a)



the CONTRACTOR has determined that the Discovery is a Commercial

Discovery; or

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12.7



(b)



the CONTRACTOR has determined that the Discovery is not a Commercial

Discovery; or



(c)



the CONTRACTOR has determined that the Discovery is a significant

Discovery, which may become a Commercial Discovery subject to additional

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



(d)



the CONTRACTOR has determined that the Discovery is a significant

Discovery of Non-Associated Natural Gas, which may become a Commercial

Discovery subject to Gas Marketing Operations, in accordance with Article

14.5.



In case the statement of the CONTRACTOR corresponds to Article 12.6(c), the

CONTRACTOR shall submit a Work Program and Budget to the Management

Committee within thirty (30) days following such statement. Any well drilled to

evaluate the said significant Discovery shall be considered an Exploration Well.



Development Plan

12.8



If the Discovery has been declared a Commercial Discovery by the CONTRACTOR

pursuant to Article 12.6 (a) or Article 14.5 (a), the CONTRACTOR shall submit a

proposed Development Plan to the Management Committee within one hundred

eighty (180) days following the said declaration. The Development Plan shall be in

accordance with good and prudent international oilfield practice. Except with the consent

of the GOVERNMENT, such Development Plan shall include details of, but not be

limited to, the following:

(a)



the delimitation of the Production Area, taking into account the results of the

Appraisal Report regarding the importance of the Petroleum Field to be

developed within the Appraisal Area;



(b)



drilling and completion of Development Wells;



(c)



drilling and completion of water or Natural Gas injection wells;



(d)



laying of gathering pipelines;



(e)



installation of separators, tanks, pumps and any other associated production

and injection facilities for the production;



(f)



treatment and transportation of Petroleum to the processing and storage

facilities onshore or offshore;



(g)



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

facility or Delivery Point;



(h)



construction of storage facilities for Petroleum;



(i)



plan for the utilisation of Associated Natural Gas;



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12.9



(j)



training commitment in accordance with Article 23 of this Contract;



(k)



a preliminary decommissioning and site restoration plan;



(l)



all contracts and arrangements made or to be made by the CONTRACTOR

for the sale of Natural Gas;



(m)



all contracts and arrangements made or to be made by persons in respect of

that Natural Gas downstream of the point at which it is to be sold by the

CONTRACTOR and which are relevant to the price at which (and other

terms on which) it is to be sold by the CONTRACTOR or are otherwise

relevant to the determination of the value of it for the purposes of this

Contract, but not beyond the point at which it is first disposed of in an Arm’s

Length Sale;



(n)



CONTRACTOR financing; and



(o)



any other operations not expressly provided for in this Contract but reasonably

necessary for Development Operations, Production Operations and delivery of

Petroleum produced, in accordance with generally accepted practice in the

international petroleum industry.



The Development Plan shall be deemed approved by the Management Committee if

the GOVERNMENT, through its representatives on the Management Committee,

indicates its approval in writing.



12.10 If the GOVERNMENT requests any modifications to the Development Plan, then

the Parties shall meet within sixty (60) days of receipt by the CONTRACTOR of the

GOVERNMENT’s written notification of requested modifications accompanied by

all the documents justifying such request, and shall discuss such request. The

CONTRACTOR shall communicate its comments on any such requested

modifications to the GOVERNMENT at such meeting or in writing prior to such

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

or within a further period of thirty (30) days from the date of such meeting shall be

incorporated into the Development Plan which shall then be deemed approved and

adopted.

12.11 If the CONTRACTOR makes several Commercial Discoveries within the Contract

Area each such Commercial Discovery will have a separate Production Area. The

CONTRACTOR shall be entitled to develop and to produce each Commercial

Discovery and the GOVERNMENT shall provide the appropriate Permits covering

the Production Area. In case the area covered by the Commercial Discovery extends

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

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

Region Petroleum Act) with a third party, the provisions of Article 34.2 shall apply.



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ARTICLE 13 - DEVELOPMENT AND

PRODUCTION WORK PROGRAMS AND BUDGET

13.1



Upon the approval of the Development Plan by the Management Committee, the

CONTRACTOR shall start the Development Operations for the Commercial

Discovery in accordance with the Development Plan and the practices generally

accepted in the international petroleum industry.



Approval of Development Works Program and Budget

13.2



13.3



Within ninety (90) days following approval of the Development Plan by the

Management Committee, the CONTRACTOR shall prepare and submit to the

Management Committee a proposed work program and budget for Development

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

Production Area for the duration of the Development Operations. Thereafter, no later

than 1 October in each Calendar Year, the CONTRACTOR shall submit to the

Management Committee updates in respect of its Development Work Program and

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

Development Work Program and Budget shall include details of, but not be limited to,

the following:

(a)



works to be carried out;



(b)



material and equipment to be acquired by main categories;



(c)



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

Affiliated Companies of any CONTRACTOR entity; and



(d)



categories of general and administrative expenditure.



Any modification to the Development Work Program and Budget requested by the

GOVERNMENT shall be submitted to the CONTRACTOR within thirty (30) days

following receipt of the proposed Development Work Program and Budget by the

Management Committee, accompanied by all the documents justifying such request.

If any such modification is requested, the Management Committee shall meet to

discuss the Development Work Program and Budget and proposed modifications

thereto within sixty (60) days from its receipt of the proposed Development Work

Program and Budget. The CONTRACTOR shall communicate its comments on any

such requested modifications to the GOVERNMENT at the meeting of the

Management Committee or in writing prior to such meeting.



13.4



The CONTRACTOR shall be authorised to incur expenditures not budgeted in an

approved Development Work Program and Budget provided that the aggregate

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

Development Work Program and Budget and provided further that such excess

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

Committee. For the avoidance of doubt, such excess expenditure up to the ten

percent (10%) limit shall be considered Petroleum Costs and shall be recovered by the

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CONTRACTOR in accordance with the provisions of Articles 1 and 25. For the

avoidance of doubt, where such excess costs exceed ten percent (10%) of the

approved Development Work Program and Budget such excess over ten per cent

(10%) shall be considered Petroleum Costs only with the approval of the

Management Committee (as it would approve any material revision to any

Development Work Program and Budget under Article 8.5 (b)).

13.5



In cases of emergency, the CONTRACTOR may incur such additional expenditures

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

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

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

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

Articles 1 and 25.



Approval of Annual Production Works Programs and Budget

13.6



13.7



No later than 1 October of the Calendar Year preceding the estimated commencement

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

1 October in each Calendar Year, the CONTRACTOR shall submit to the

Management Committee a proposed work program and budget for Production

Operations (the “Production Work Program and Budget”) for the following

Calendar Year. To enable the Management Committee to forecast expenditures, the

Production Work Program and Budget shall include details of, but not be limited to,

the following:

(a)



works to be carried out;



(b)



material and equipment to be acquired by main categories;



(c)



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

Affiliated Companies of any CONTRACTOR entity; and



(d)



categories of general and administrative expenditure.



Any modification to the Production Work Program and Budget requested by the

GOVERNMENT shall be submitted to the CONTRACTOR within thirty (30) days

following receipt of the proposed Production Work Program and Budget by the

Management Committee, accompanied by all the documents justifying such request.

If any such modification is proposed, the Management Committee shall meet to

discuss the Production Work Program and Budget and proposed modifications thereto

within sixty (60) days from its receipt of the proposed Production Work Program and

Budget. The CONTRACTOR shall communicate its comments on any such

requested modifications to the GOVERNMENT at the meeting of the Management

Committee or in writing prior to such meeting.



13.8



The CONTRACTOR shall be authorised to incur expenditures not budgeted in an

approved Production Work Program and Budget provided that the aggregate amount

of such expenditures shall not exceed ten percent (10%) of the approved Production

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

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

Management Committee. For the avoidance of doubt, such excess expenditure up to

the ten percent (10%) limit shall be considered Petroleum Costs and shall be

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

and 25.

13.9



In cases of emergency, the CONTRACTOR may incur such additional expenditure

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

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

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

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

Articles 1 and 25.



13.10 After the commencement of Commercial Production the CONTRACTOR shall pay

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

of [ ] Dollars (US$[ ]) per square kilometre per Contract Year (“Production

Rental”). Such Production Rental shall be considered as a Petroleum Cost and shall

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

and 25.



ARTICLE 14 - NATURAL GAS

Use for the Petroleum Operations

14.1



To take account of specific conditions relating to Natural Gas and to promote its

development in the Kurdistan Region, the GOVERNMENT will grant specific

benefits to the CONTRACTOR on principles materially similar to those contained in

this Contract, including, consistent with the Kurdistan Region Petroleum Act, more

generous provisions in respect of the recovery of Petroleum Costs and the sharing of

Profit Petroleum.



14.2



The CONTRACTOR may freely use any Natural Gas required for the Petroleum

Operations. If technically and economically justified, the CONTRACTOR shall in

priority use any Natural Gas for the purpose of enhancing recovery of Crude Oil in

accordance with standard practices in the international petroleum industry as follows.



Associated Natural Gas

14.3



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

Operations nor developed and sold by the CONTRACTOR shall, upon the

GOVERNMENT's written request, be transferred at a delivery point to be agreed

between the Parties free of charge to the GOVERNMENT. In such case, the

GOVERNMENT shall be solely responsible for collecting, treating, compressing and

transporting such Natural Gas from such agreed delivery point and shall be solely

liable for any additional direct and indirect costs associated therewith. The

construction and operation of required facilities as well as the offtake of such excess

Associated Natural Gas shall occur in accordance with best practice in the

international petroleum industry and shall not interfere with the production, lifting and

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transportation of the Crude Oil by the CONTRACTOR. For the avoidance of doubt,

all expenditure incurred by the CONTRACTOR up to such agreed delivery point

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

in accordance with the provisions of Articles 1 and 25.

In the event the GOVERNMENT finds a market for Associated Natural Gas, it shall

promptly give written notice to the CONTRACTOR, and the CONTRACTOR may

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

following notification thereof by the GOVERNMENT. If the CONTRACTOR

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

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

CONTRACTOR. For the avoidance of doubt, such expenditure incurred shall be

considered Petroleum Costs and shall be recovered by the CONTRACTOR in

accordance with the provisions of Articles 1 and 25.

Non Associated Natural Gas

14.4



Until an approved Natural Gas sales contract is executed, the CONTRACTOR shall be

entitled during the Exploration Period and the Development Period to carry out Gas

Marketing Operations.



14.5



If, pursuant to Article 12.6 (d), the CONTRACTOR has determined that the Discovery

is a significant Discovery of Non-Associated Natural Gas, which may become a

Commercial Discovery subject to Gas Marketing Operations, it shall carry out Gas

Marketing Operations, at the end of which it shall submit a written statement to the

Management Committee specifying that:

(a)



the CONTRACTOR has determined that the Discovery is a Commercial

Discovery; or



(b)



the CONTRACTOR has determined that the Discovery is not a Commercial

Discovery.



14.6



For the purpose of this Agreement, “Gas Marketing Operations” means any activity

relating to the marketing of Non-Associated Natural Gas, including but not limited to any

evaluation to find a commercial market for such Non-Associated Natural Gas and/or to

find a commercially viable technical means of extraction of such Non-Associated Natural

Gas and may include activities related to evaluating the quantities of Non-Associated

Natural Gas to be sold, its quality, the geographic location of potential markets to be

supplied as well as evaluating the costs of production, transportation and distribution

of the Non-Associated Natural Gas from the Delivery Point to the relevant market.



14.7



All costs and expenditure incurred by the CONTRACTOR in the performance of the

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

Costs.



14.8



No later than 1 October of the Calendar Year preceding the Calendar Year in which

any Gas Marketing Operations are due to occur, the CONTRACTOR shall submit to

the Management Committee its Gas Marketing Work Program and Budget for the

following Calendar Year. To enable the Management Committee to forecast

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expenditures, the Gas Marketing Work Program and Budget shall include but not be

limited to the following:

(a)

(b)

(c)



works to be carried out;

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

Affiliated companies of any CONTRACTOR entity;

categories of general and administrative expenditure.



If the GOVERNMENT has not requested any modifications to the Gas Marketing

Work Program and Budget through its representatives in the Management Committee

within thirty (30) days from receipt of such proposal, the Gas Marketing Work

Program and Budget shall be deemed approved by the Management Committee.

Any modification to the Gas Marketing Work Program and Budget requested by the

GOVERNMENT shall be submitted to the CONTRACTOR within thirty (30) days

following receipt of the proposed Gas Marketing Work Program and Budget by the

Management Committee, accompanied by all the documents justifying such request.

If any such modification is proposed, the Management Committee shall meet to

discuss the Gas Marketing Work Program and Budget and proposed modifications

thereto within sixty (60) days from its receipt of the proposed Gas Marketing Work

Program and Budget. The CONTRACTOR shall communicate its comments on any

such requested modifications to the GOVERNMENT at the meeting of the

Management Committee or in writing prior to such meeting.

14.9



The CONTRACTOR shall be authorised to incur expenditures not budgeted in an

approved Gas Marketing Work Program and Budget provided that the aggregate

amount of such expenditure shall not exceed ten percent (10%) of the approved

Budget in any Calendar Year and provided further that such excess expenditures shall

be reported as soon as reasonably practicable to the Management Committee. For the

avoidance of doubt, such excess expenditure up to the ten percent (10%) limit shall be

considered Petroleum Costs and shall be recovered by the CONTRACTOR in

accordance with the provisions of Articles 1 and 25.



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

CONTRACTOR reasonably considers that the Non-Associated Natural Gas

Discovery will only be a Commercial Discovery if certain terms of this Contract are

amended, it shall be entitled to request an amendment to this Contract, with its

reasons. The GOVERNMENT shall in good faith give reasonable consideration to

the CONTRACTOR’s proposed amendment and reasons. If the GOVERNMENT

rejects such request, and the Exploration Period expires without the CONTRACTOR

having declared such Discovery to be a Commercial Discovery in accordance with

Article 12.6 (a) or Article 14.5 (a), and subsequently within a period of eight (8) years

from the end of such Exploration Period, the GOVERNMENT reaches agreement

with any third party to develop such Discovery, (the “Gas Development”) then the

following provisions shall apply:

(a)



either before or upon agreement having been reached (and whether or not such

agreement is recorded in a fully termed production sharing and/or operating or

other like agreement) in relation to the Gas Development (the “Proposed

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Contract”) (subject only to the rights of the CONTRACTOR entities to preempt such Proposed Contract pursuant to Article 14.10(b) below and such

conditions as may be applicable) then the GOVERNMENT shall, as soon as

reasonably practicable after the occurrence of such circumstances, serve on each

of the CONTRACTOR entities, a notice to that effect and shall with such

notice provide such information and main terms of such agreement (the

“Agreed Terms”) and including:



(b)



(i)



the identity of such third party; and



(ii)



the effective date of the Proposed Contract; and



(iii)



the applicable commercial terms, including but not limited to bonuses,

royalties, cost recovery, profit sharing, taxation and any other similar

terms; and



(iv)



all and any material conditions to which the Proposed Contract is

subject.



Within one hundred and eighty days (180) days after receipt of a notice under

Article 14.10 (a) in relation to a Proposed Contract each of the

CONTRACTOR entities shall elect either:

(i)



to enter into the Proposed Contract on the same or substantially similar

terms to the Agreed Terms, with the right to cost recover all Petroleum

Costs incurred under this Contract against all Petroleum revenues

received under the Proposed Contract, up to any cost recovery limits

set out therein; or



(ii)



to waive the aforesaid right of pre-emption in relation to the Proposed

Contract;



and shall serve notice accordingly upon the GOVERNMENT and all the

CONTRACTOR entities and in default of receipt by the GOVERNMENT of

any such notice within such period of one hundred and eighty (180) days such

CONTRACTOR entity shall be deemed conclusively to have served a notice

electing to waive its aforesaid right of pre-emption in relation to the Proposed

Contract.

(c)



In the event that more than one of the CONTRACTOR entities exercises its

rights under Article 14.10 (b) (i) in relation to the Proposed Contract, then the

GOVERNMENT shall transfer the relevant interest upon the Agreed Terms

(in accordance with 14.10 (b) (i)) to each of such CONTRACTOR entities so

exercising their rights, in the proportions in which their respective percentage

interests bear to the aggregate of their respective percentage interests under the

relevant Joint Operating Agreement (as it applied at the end of the Exploration

Period) or in such other proportions as such CONTRACTOR entities shall

agree between them.

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(d)



In the event that one of the CONTRACTOR entities exercises its rights under

Article 14.10 (b) (i) in relation to the Proposed Contract then the

GOVERNMENT shall transfer the whole of the relevant interest upon the

Agreed Terms (in accordance with 14.10 (b) (i)) to such CONTRACTOR

entity.



(e)



In the event that none of the CONTRACTOR entities exercises its rights

under Article 14.10 (b) (i) then the aforesaid rights of pre-emption shall

thereupon cease to apply in relation to the Proposed Contract.



(f)



The provisions of this Article 14.10 shall survive any termination of this

Contract.



14.11 If the pre-emption rights in Article 14.10 are not exercised and the GOVERNMENT

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

will use its best endeavours to avoid any effect which may hamper the Petroleum

Operations of the CONTRACTOR while producing Petroleum.

Flaring

14.12 In the course of activities provided for under this Contract, flaring of Natural Gas, except

short-term flaring up to twelve Months necessary for testing or other operational reasons

in accordance with practice generally accepted in the international petroleum industry

(which shall include the flaring of Associated Natural Gas to the extent the

CONTRACTOR considers that re-injecting Associated Natural Gas is not justified

technically and economically and provided the GOVERNMENT decides not to take

such Associated Natural Gas), is prohibited, except on prior authorisation of the

GOVERNMENT, such authorisation not to be unreasonably withheld or delayed. The

CONTRACTOR shall submit such request to the GOVERNMENT, which shall include

an evaluation of reasonable alternatives to flaring that have been considered along with

information on the amount and quality of Natural Gas involved and the duration of the

requested flaring.

ARTICLE 15 - ACCOUNTING AND AUDITS

15.1



The CONTRACTOR shall keep in its offices in the Kurdistan Region copies of all

books and accounts of all revenues relating to the Petroleum Operations and all

Petroleum Costs (the "Accounts"), except during the Exploration Period, when the

CONTRACTOR shall be entitled to keep the Accounts at its headquarters Abroad. The

Accounts shall reflect in detail expenditure incurred in function of the quantities and

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

Accounts which are made available to the GOVERNMENT in accordance with the

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

be kept in accordance with generally accepted practice and procedures in the

international petroleum industry and in accordance with the provisions of the

Accounting Procedure. The Accounts shall be kept in Dollars, which shall be the

reference currency for the purposes of Articles 24, 25, 26, 27 and 31 of this Contract.



15.2



Within ninety (90) days following the end of each Calendar Year, the

CONTRACTOR shall submit to the GOVERNMENT a summary statement of all

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Petroleum Costs incurred during the said Calendar Year. The summary statement shall

also include a profit calculation pursuant to the provisions of Article 26 of this Contract.

15.3.1 The GOVERNMENT shall have the right:

(a)



to request an audit of the Accounts with respect to each Calendar Year within

a period of two (2) Calendar Years following the end of such Calendar Year

(the “Audit Request Period”); and



(b)



to retain an auditor of international standing familiar with international

petroleum industry accounting practice to undertake or assist the

GOVERNMENT to undertake the audit.



Notwithstanding paragraphs (a) and (b) of this Article 15.3.1, the GOVERNMENT

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

time in the case of manifest error or fraud.

15.3.2 The reasonable cost of retaining an auditor pursuant to Article 15.3.1 shall be borne

by the CONTRACTOR and treated as a Petroleum Cost for the purpose of cost

recovery under Articles 1 and 25.

15.3.3 Subject to the Audit Request Period referred to in Article 15.3.1, the

GOVERNMENT, acting reasonably and in accordance with generally accepted

international petroleum industry practice, may request in writing all reasonably

available information and justifications for its audit of Petroleum Costs.

15.3.4 Should the GOVERNMENT consider, on the basis of data and information available,

that the CONTRACTOR made a material mistake or there is any irregularity and

considers that any corrections, adjustments or amendments should be made, any audit

exceptions shall be made by the GOVERNMENT in writing and notified to the

CONTRACTOR within six months of the date of request referred to in Article

15.3.1, and failure to give such written exception within such time shall be deemed to

be an acknowledgement of the correctness of the CONTRACTOR's Accounts.

15.3.5 In respect of any audit exception made by the GOVERNMENT in accordance with

Article 15.3.4, the CONTRACTOR shall then have sixty (60) days to make

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

writing or request a meeting with the GOVERNMENT. The GOVERNMENT shall

within thirty (30) days of CONTRACTOR’s response, notify the CONTRACTOR

in writing of its position on the corrections, adjustments, amendments or comments. If

thereafter there still exists a disagreement between the GOVERNMENT and the

CONTRACTOR, the dispute will be settled in accordance with Article 15.5 of this

Contract.

15.4



In addition to the annual statements of Petroleum Costs as provided in Article 15.2

above, the CONTRACTOR shall provide the GOVERNMENT with such

production statements and reports, as required pursuant to Article 16.3.



15.5



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

may be submitted to an expert in accordance with the provisions of Article 42.2 of

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this Contract. Notwithstanding the provisions of Article 42, in this specific instance

the decision of the expert shall not necessarily be final and either Party may decide to

submit the matter to arbitration in accordance with the provisions of Article 42.1 of

this Contract.



ARTICLE 16 - CONTRACTOR'S RIGHTS AND OBLIGATIONS

16.1



Permanent Representative

If not done already, within ninety (90) days following the Effective Date, the

CONTRACTOR shall open an office and appoint a permanent representative in the

Kurdistan Region, who may be contacted by the GOVERNMENT with regard to any

matter relating to this Contract and will be entitled to receive any correspondence

addressed to the CONTRACTOR.



16.2



Conduct of Petroleum Operations

The CONTRACTOR shall carry out all Petroleum Operations in accordance with the

provisions of this Contract, generally accepted practice in the international petroleum

industry and applicable Kurdistan Region Law.

The CONTRACTOR shall be responsible for the conduct, management, control and

administration of Petroleum Operations and shall be entitled to conduct Petroleum

Operations in accordance with the provisions of this Contract. In conducting its

Petroleum Operations, the CONTRACTOR shall have the right to use any Affiliate

of each CONTRACTOR entity, its and their Subcontractors, and the employees,

consultants, and agents of each of the foregoing. The CONTRACTOR and all such

persons shall at all times have free access to the Contract Area and any Production

Areas for the purpose of carrying out Petroleum Operations.



16.3



Information and Reports

The CONTRACTOR shall provide the GOVERNMENT with periodic data and

activity reports relating to Petroleum Operations. Said reports shall include details of,

but not be limited to, the following:

(a)



information and data regarding all Exploration Operations, Development

Operations and Production Operations (as applicable) performed during the

Calendar Year, including any quantities of Petroleum produced and sold;



(b)



data and information regarding any transportation facilities built and

operated by the CONTRACTOR;



(c)



a statement specifying the number of personnel, their title, their nationality

as well as a report on any medical services and equipment made available to

such personnel; and



(d)



a descriptive statement of all capital assets acquired for the Petroleum

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Operations, indicating the date and price or cost of their acquisition.

16.4



Requirement for Petroleum Operations

The CONTRACTOR may freely use any Petroleum produced within the Contract

Area for the Petroleum Operations.



16.5



Supervision by the GOVERNMENT

The CONTRACTOR shall at all times provide reasonable assistance as may

reasonably be requested by the GOVERNMENT during its review and verification

of records and of any other information relating to Petroleum Operations at the

offices, worksites or any other facilities of the CONTRACTOR.

Upon giving reasonable prior notice to the CONTRACTOR, the GOVERNMENT

may send a reasonable number of representatives to the work-sites or any other

facilities of the CONTRACTOR in the Kurdistan Region to perform such reviews

and verifications. The representatives of the GOVERNMENT shall at all times

comply with any safety regulations imposed by the CONTRACTOR and such

reviews and verifications shall not hinder the smooth progress of the Petroleum

Operations.



16.6



Access to Facilities

For the performance of the Petroleum Operations, the CONTRACTOR, any Affiliate

of each CONTRACTOR entity, its and their Subcontractors and the employees,

consultants and agents if each of the foregoing shall at all times be granted free access

to the Contract Area and to any facilities for the Petroleum Operations located within

or outside of the Contract Area or within or outside the Production Area, for the

purpose of carrying out the Petroleum Operations.



16.7



Use of Facilities

The CONTRACTOR shall make available to representatives of the

GOVERNMENT those facilities which are necessary to enable them to perform their

tasks including, in case of works to be performed on work sites, transportation,

accommodation and board, under the same conditions as those provided by the

CONTRACTOR for its own personnel.



16.8



Loss or Damage

The CONTRACTOR shall be responsible for any loss or damage caused to third

parties by its or its Subcontractors personnel solely and directly resulting from their

negligence, errors or omissions in accordance with applicable Kurdistan Region Law.



16.9



Intellectual Property Rights

In its Petroleum Operations, the CONTRACTOR shall respect any patents belonging

to third parties.



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16.10 Litigation

The CONTRACTOR shall as soon as reasonably practicable inform the

GOVERNMENT of any material litigation relating to this Contract.

16.11 Safety

The CONTRACTOR shall implement a health, safety and environment program and

take necessary measures to ensure hygiene, health and safety of its personnel carrying

out Petroleum Operations in accordance with generally accepted practice in the

international petroleum industry.

Said measures shall include but not be limited to the following:

(a)



supplying first aid and safety equipment for each work area and maintaining a

healthy environment for personnel;



(b)



reporting to the GOVERNMENT within seventy-two (72) hours any accident

where personnel has been injured while engaged in Petroleum Operations and

resulting in such personnel being unable to return to work;



(c)



implementing a permit-to-work procedure around hazardous equipment and

installations;



(d)



providing safe storage areas for explosives, detonators and any other

dangerous products used in the operations;



(e)



supplying fire-extinguishing equipment in each work area;



(f)



for the purpose of taking control of any blow out or fire which could damage

the environment or Petroleum Field, in accordance with generally accepted

practice in the international petroleum industry;



(g)



for the purpose of preventing any involuntary injection of fluids in petroleum

formations and production of Crude Oil and Natural Gas at rates that do not

conform to generally accepted practice in the international petroleum industry.



16.12 Production Rates

Subject to Article 43.2 of this Contract, in the event the production rate of the

individual wells and Reservoir of a Petroleum Field is to be set below the Maximum

Efficient Rate (MER) for the Reservoir as provided for in the Development Plan as a

consequence of a decision by the GOVERNMENT or any federal or international

regulatory body, the GOVERNMENT undertakes to allocate any such reduction

fairly and equitably among the various operators (including the GOVERNMENT)

then producing in the Kurdistan Region, pro rata their respective production rates. In

such event the GOVERNMENT shall grant an extension of the Development Period

of any Production Area so affected for a reasonable period of time in order to produce

the Petroleum which would otherwise have already been produced, had the MER for

the individual wells and Reservoir of the Petroleum Field been maintained.

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16.13 Legal Status

The respective rights, duties, obligations and liabilities of the CONTRACTOR and

the GOVERNMENT under this Contract are to be understood as being separate and

individual and not joint and several. The Parties agree that this Contract shall not

create and shall not be deemed to have created a partnership or other form of

association between them.

16.14 Lifting

The GOVERNMENT and each CONTRACTOR entity shall have the right and the

obligation to take in kind and separately sell or otherwise dispose of their respective

shares of Petroleum. Upon approval of the Development Plan, the Parties shall meet

as soon as practicable to reach a detailed agreement governing the lifting of Petroleum

by each such CONTRACTOR entity. Such lifting agreement shall include, inter alia,

the following:

(a)



the obligation of the GOVERNMENT and each CONTRACTOR entity to

lift, regularly throughout each Calendar Year, their share of Petroleum

produced from the Production Area;



(b)



notification procedures by the Operator to the GOVERNMENT and each

CONTRACTOR entity regarding entitlements and availability of Petroleum

for lifting by each Party during each lifting period and nominations by each

Party;



(c)



the right of the Parties to lift any available Petroleum not scheduled for lifting

and/or not lifted by the other Party during each such lifting period.



16.15 Kurdistan Region Consumption Requirements

The CONTRACTOR shall sell and transfer to the GOVERNMENT, upon written

request of the Ministry, any amounts of Crude Oil that the GOVERNMENT shall

deem necessary to meet Kurdistan Region internal consumption requirements. The

sales price of such Crude Oil shall be the International Market Price. The

GOVERNMENT shall provide the CONTRACTOR with not less than six (6)

months' advance written notice of its intention to buy such Crude Oil.

Payments shall be made in US Dollars and otherwise on terms consistent with

international standards in the petroleum industry. The CONTRACTOR’s obligation

to sell Crude Oil to the GOVERNMENT shall be no greater than the obligation that

applies to another contractor, or other contractors in the Kurdistan Region.

The provisions of this Article 16.15 shall not apply to Non-Associated Natural Gas.



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ARTICLE 17 - USE OF LAND AND EXISTING INFRASTRUCTURE

17.1



The GOVERNMENT shall make available to the CONTRACTOR any land or

property in the Kurdistan Region required for the Petroleum Operations provided,

however, the CONTRACTOR shall not request to use any such land unless there is a

real need for it. The CONTRACTOR shall have the right to build and maintain,

above and below ground, any facilities required for the Petroleum Operations.



17.2



If it becomes necessary for conduct of the Petroleum Operations to occupy and use

any land or property in the Kurdistan Region belonging to third parties, the

CONTRACTOR shall endeavour to reach amicable agreement with the owners of

such land. If such amicable agreement cannot be reached, the CONTRACTOR shall

notify the GOVERNMENT; on receipt of such notification the GOVERNMENT

shall determine the amount of compensation to be paid by the CONTRACTOR to

the owner if occupation will be for a short duration or the GOVERNMENT shall

expropriate the land or property in accordance with applicable Kurdistan Region Law

if such occupation will be long lasting or makes it henceforth impossible to resume

original usage of such land or property. The amount of such compensation shall be

fair and reasonable, in accordance with Article 37, Section 1 (a) (iii) of the Kurdistan

Region Petroleum Act, and shall take into account the rights of the owner and any

effective use of the land or property by its owner at the time of occupation by the

CONTRACTOR. Any property rights shall be acquired by and recorded in the name

of the GOVERNMENT but the CONTRACTOR shall be entitled free use of the

land or property for the Petroleum Operations for the entire duration of this Contract.

All reasonable costs, expenditure and fair and reasonable compensation (as required

pursuant to Article 37, Section 1 (a) (iii) of the Kurdistan Region Petroleum Act) which

results from such expropriation shall be borne by the CONTRACTOR. For the

avoidance of doubt, such costs, expenses and compensation incurred by the

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

CONTRACTOR in accordance with the provisions of Articles 1 and 25.



17.3



For its Petroleum Operations, the CONTRACTOR shall have the right in the

Kurdistan Region to use, subject to applicable Law, any railway, tramway, road,

airport, landing field, canal, river, bridge or waterway, any telecommunications

network and any existing pipelines or transportation infrastructure, on terms no less

favourable than those offered to other entities and, unless generally in force, to be

mutually agreed.



17.4



Under national emergencies due to environmental catastrophe or disaster, or internal

or external war, the GOVERNMENT shall have the right to request to use any

transportation and communication facilities installed by the CONTRACTOR. In

such cases, the request shall originate from the Minister for Natural Resources. For the

avoidance of doubt, such costs, expenses or liabilities incurred by the

CONTRACTOR hereunder shall be considered Petroleum Costs and shall be

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

and 25.



17.5



For its Petroleum Operations, the CONTRACTOR shall have the right in the

Kurdistan Region to clear land, excavate, drill, bore, construct, erect, place, procure,

operate, manage and maintain ditches, tanks, wells, trenches, access roads,

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excavations, dams, canals, water mains, plants, reservoirs, basins, storage facilities,

primary distillation units, extraction and processing units, separation units, sulphur

plants and any other facilities or installations for the Petroleum Operations, in

addition to pipelines, pumping stations, generators, power plants, high voltage lines,

telephone, radio and any other telecommunications systems, as well as warehouses,

offices, sheds, houses for personnel, hospitals, schools, premises, dikes, vehicles,

railways, roads, bridges, airlines, airports and any other transportation facilities,

garages, hangars, workshops, foundries, repair shops and any other auxiliary facilities

for the Petroleum Operations and, generally, everything which is required for its

performance of the Petroleum Operations. The CONTRACTOR shall have the right

to select the location for these facilities.

17.6



For its Petroleum Operations, the CONTRACTOR shall have the right in the

Kurdistan Region, subject to compliance with applicable Kurdistan Region Law, to

remove and use the topsoil, fully-grown timber, clay, sand, lime, gypsum, stones

(other than precious stones) and other similar substances as required for its Petroleum

Operations.

The CONTRACTOR shall have the right in the Kurdistan Region to take or use any

water necessary for the Petroleum Operations provided it does not damage any

existing irrigation or navigation systems and that land, houses or watering points

belonging to third parties are not deprived of their use.



17.7



The GOVERNMENT shall have the right in the Kurdistan Region to build, operate

and maintain roads, railways, airports, landing strips, canals, bridges, protection dams,

police stations, military installations, pipelines and telecommunications networks in

the Contract Area, provided this does not increase the costs, or compromise or have

an adverse material effect on the performance of the Petroleum Operations. If the

construction, operation and maintenance of such facilities by the GOVERNMENT

results in increased cost or expense for the CONTRACTOR then, for the avoidance

of doubt, such cost and expense shall be considered Petroleum Costs and shall be

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

and 25.



17.8



Upon request of the CONTRACTOR, the GOVERNMENT shall prohibit the

construction of residential or commercial buildings in the vicinity of facilities used for

the Petroleum Operations that may be declared dangerous due to the Petroleum

Operations and to prohibit any interference with the use of any facilities required for

the Petroleum Operations.



17.9



Access to the Contract Area may be granted pursuant to an Access Authorisation, as shall

be defined in, and consistent with, the Kurdistan Region Petroleum Act, to authorised third

parties on reasonable terms and conditions (including coordination), including persons

authorised to construct, install and operate structures, facilities and installations, and to

carry out other works, provided that nothing in the Access Authorisation or in this Article

17.9 authorises the holder to drill a Well or to perform any Petroleum Operations in

Contract Area.

The GOVERNMENT shall not grant an Access Authorisation in respect of the Contract

Area until it has taken into account any submissions made by the CONTRACTOR in

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such a way that there is no undue interference with the rights of CONTRACTOR.



ARTICLE 18 - ASSISTANCE FROM THE GOVERNMENT

18.1



18.2



To the extent allowed by Kurdistan Region Law and Iraqi law and at the specific

request of the CONTRACTOR, the GOVERNMENT shall take all necessary steps

to assist the CONTRACTOR in, but not limited to, the following areas:

(a)



securing any necessary Permits for the use and installation of means of

transportation and communications;



(b)



securing regulatory Permits in matters of customs or import/export;



(c)



securing entry and exit visas, work and residence permits as well as any other

administrative Permits for CONTRACTOR's and its Subcontractors’ foreign

personnel (including their family members) working in the Kurdistan Region

and any other part of Iraq during the implementation of this Contract;



(d)



securing any necessary Permits to send Abroad documents, data or samples for

analysis or processing for the Petroleum Operations;



(e)



relations with federal and local authorities and administrations, including for

the purposes of the remainder of this Article 18.1;



(f)



securing any necessary environmental Permits;



(g)



obtaining any other Permits requested by the CONTRACTOR for the

Petroleum Operations;



(h)



access to any existing data and information, including data and information

relating to the Contract Area held by previous operators or contractors; and



(i)



providing all necessary security for Petroleum Operations.



Within the scope of services to be provided under this Article 18, reasonable and duly

justified expenses incurred by the GOVERNMENT or paid to third parties shall be

charged to the CONTRACTOR and shall be considered Petroleum Costs and shall

be recovered by the CONTRACTOR as Petroleum Costs in accordance with the

provisions of Articles 1 and 25.



ARTICLE 19 - EQUIPMENT AND MATERIALS

19.1



The CONTRACTOR shall supply, or procure the supply of, all materials, equipment,

machinery, tools, spare parts and any other items or goods required for the Petroleum

Operations (“Equipment and Materials”).



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19.2



Said Equipment and Materials shall be provided by the CONTRACTOR in

accordance with the relevant Work Programs and Budgets.



19.3



As soon as possible after the Effective Date, the CONTRACTOR shall provide the

Management Committee with a copy of its procedures for procurement of Equipment

and Materials and/or services for the Petroleum Operations as required by the

provisions of Article 8.2 (e), including the criteria for tender evaluation, which

procedures and criteria shall be in accordance with generally accepted standards in the

international petroleum industry. If the Management Committee does not request any

modifications to the procurement procedures within thirty (30) days, the procedures

shall be deemed approved by the Management Committee.



19.4



The CONTRACTOR shall give priority to Equipment and Materials that are readily

available in the Kurdistan Region and other parts of Iraq to the extent their price, grade,

quality, quantity, specifications, purchase, delivery and other commercial and

technical terms are comparable in all material respects with those generally available in

the international petroleum industry.



ARTICLE 20 - TITLE TO ASSETS

20.1



During the Exploration Period, any Assets acquired by the CONTRACTOR for the

Petroleum Operations shall remain the property of the CONTRACTOR or its

Subcontractors, as the case may be.



20.2



During the Development Period, subject to Article 21, all Assets acquired by the

CONTRACTOR for the Petroleum Operations shall become the property of the

GOVERNMENT upon the completion of the recovery of their cost by the

CONTRACTOR, or the end of the Contract, whichever is the earlier.



20.3



The provisions of Article 20.2 shall not apply to any Assets leased by the

CONTRACTOR or belonging to an Affiliated Company of a CONTRACTOR

entity or belonging to its or their Subcontractors or its or their employees.



ARTICLE 21 - USE OF THE ASSETS

21.1



Each CONTRACTOR entity shall have the exclusive right to use, free of any charge,

all Assets described in Article 20 for the Petroleum Operations, as well as for any

petroleum operations under other agreements in the Kurdistan Region to which it or

any of its Affiliates is a party, provided that the Petroleum Operations take priority.

The GOVERNMENT agrees not to transfer or otherwise dispose of any of such

Assets without the CONTRACTOR's prior written approval.



21.2



The CONTRACTOR may freely move to the Contract Area any Assets from any

relinquished portion of the Contract Area, or from any other area in the Kurdistan

Region.



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ARTICLE 22 - SUBCONTRACTING

22.1



The CONTRACTOR shall ensure that any Subcontractors it engages have all the

requisite experience and qualifications.



22.2



The CONTRACTOR shall give priority to Subcontractors from the Kurdistan Region

and other parts of Iraq to the extent their competence, rates, experience, reputation,

qualifications, specialties, credit rating and terms of availability, delivery and other

commercial terms are, in the CONTRACTOR’s sole opinion, comparable in all

material respects with those provided by foreign companies operating in the

international petroleum industry. Subcontractors must be bona fide Kurdistan Region

companies not related to any Public Officer, directly or indirectly, and must have all

necessary resources and capacity.



22.3



Selection of Subcontractors shall take place in accordance with the procurement

procedures submitted by the CONTRACTOR to the Management Committee in

accordance with Article 19.3 and approved by the Management Committee.



22.4



The CONTRACTOR shall provide the GOVERNMENT with copies of agreements

entered into with Subcontractors, where their amount exceeds the limit set by the

Management Committee from time to time.



ARTICLE 23 – PERSONNEL, TRAINING, AND TECHNOLOGICAL ASSISTANCE

Personnel

23.1



For the Petroleum Operations, the CONTRACTOR shall give, and shall require its

Subcontractors to give, preference to personnel from the Kurdistan Region and other

parts of Iraq to the extent such personnel have, in the sole opinion of the

CONTRACTOR or the Subcontractor (as the case may be), the technical capability,

qualifications, competence and experience required to perform the work.



23.2



The CONTRACTOR shall give due consideration to the secondment of

GOVERNMENT personnel to the CONTRACTOR and of CONTRACTOR

personnel to the GOVERNMENT during the various phases of the Petroleum

Operations. Terms and conditions for such secondment shall be mutually agreed by

the Parties and any costs associated therewith shall be considered Petroleum Costs

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

Articles 1 and 25.



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23.3



The CONTRACTOR and its Subcontractors shall have the right to hire foreign

personnel whenever the personnel from the Kurdistan Region and other parts of Iraq

do not have the requisite technical capability, qualifications or experience for

positions to be filled as required pursuant to Article 23.1. In the event any such

foreign personnel and/or a member of their family engage in activities or commit acts

which breach Kurdistan Region Law, the CONTRACTOR shall, at the request of the

Management Committee, take the necessary steps to repatriate such individual(s).



23.3.1 For the first [ ] ([ ]) Contract Years, the CONTRACTOR shall provide up to [ ]

Dollars ($[ ]) in advance each Contract Year to the GOVERNMENT for the

recruitment or secondment of personnel, whether from the Kurdistan Region other

parts of Iraq or abroad, to the Ministry of Natural Resources. The selection of such

personnel shall be at the discretion of the Minister of Natural Resources. Such costs

shall be considered as Petroleum Costs and shall be recovered in accordance with the

provisions of Articles 1 and 25.

Training

23.4



In a planned way, in accordance with the provisions of this Article 23.4 and Articles 23.5

and 23.6, the CONTRACTOR shall train all its personnel from the Kurdistan Region

and other parts of Iraq directly or indirectly involved in the Petroleum Operations for the

purpose of improving their knowledge and professional qualifications in order that such

personnel gradually reach the level of knowledge and professional qualification held by

the CONTRACTOR's foreign workers with an equivalent résumé. Such training shall

also include the transfer of knowledge of petroleum technology and the necessary

management experience so as to enable the personnel from the Kurdistan Region and

other parts of Iraq to apply advanced and appropriate technology in use in the Petroleum

Operations, to the extent permitted by applicable Law and agreements with third parties,

and subject to appropriate confidentiality agreements.



23.5



In addition to the requirements of Article 23. 1, the recruitment, integration and training of

the CONTRACTOR's personnel from the Kurdistan Region and other parts of Iraq shall

be planned, which plans shall be submitted to the Management Committee for its

approval. The training plan shall take into consideration the requirements of Article 23.4

and may include training for GOVERNMENT personnel, depending on the extent to

which the amount allocated to the training plan, as prescribed by Article 23.6, is available

after taking into consideration the training of the CONTRACTOR's Kurdistan Region

and other Iraqi personnel.

Within ninety (90) days of the Effective Date, the CONTRACTOR shall submit to the

Management Committee a proposed training plan for the remainder of the Calendar Year.

Thereafter, no later than 1 October in each Calendar Year, the CONTRACTOR shall

submit a proposed training plan to the Management Committee for the following Calendar

Year.



23.6



The training plan referred to in Article 23.5 shall provide for the allocation of the amount

of [ ] Dollars (US$[ ]) for each Contract Year during the Exploration Period and [ ]

Dollars (US$[ ]) for each Contract Year during the Production Period.



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23.7



The CONTRACTOR shall be responsible for the training costs which CONTRACTOR

may incur in respect of the personnel it employs from the Kurdistan Region and other

parts of Iraq. All such reasonable costs shall be considered as Petroleum Costs and shall

be recovered in accordance with the provisions of Articles 1 and 25. Costs incurred by the

CONTRACTOR for training programs for GOVERNMENT personnel shall be borne

by CONTRACTOR only to the extent that they are included in the CONTRACTOR’S

training plan, pursuant to Article 23.5 and shall also be considered as Petroleum Costs and

shall be recovered in accordance with the provisions of Articles 1 and 25. The cost of all

other training programs for GOVERNMENT personnel shall be the GOVERNMENT’S

responsibility.

The Environment Fund



23.8



From the date of First Production from the Contract Area, the CONTRACTOR shall

contribute the amount of [ ] Dollars (US$ [ ]) each Contract Year during the Exploration

Period and [ ] Dollars US$[ ]) for each Contract Year during the Production Period into

the Environment Fund established by the GOVERNMENT for the benefit of the natural

environment of the Kurdistan Region, pursuant to the Kurdistan Region Petroleum Act.

Such amount shall be deemed to be a Petroleum Cost and shall be recovered in accordance

with Articles 1 and 25.



23.8



Any expenditure incurred by the CONTRACTOR under this Article 23 shall be

considered Petroleum Costs and shall be recovered in accordance with Articles 1 and 25.

Technological and logistical assistance



23.9



Before the end of the first Contract Year, the CONTRACTOR shall provide to the

GOVERNMENT in kind technological and logistical assistance to the Kurdistan

Region petroleum sector, including geological computing hardware and software and

such other equipment as the Minister of Natural Resources may require, up to the

value of [ ] Dollars ($[ ]). The form of such assistance shall be mutually agreed by

the Parties and any costs associated therewith shall be considered Petroleum Costs

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

Articles 1 and 25.



ARTICLE 24 – ROYALTY

24.1



The CONTRACTOR shall pay to the GOVERNMENT a portion of Petroleum produced

and saved from the Contract Area, as provided in this Article 24 (the “Royalty”).



24.2



The Royalty shall be applied on all Petroleum produced and saved from the Contract

Area which is Crude Oil or Non-Associated Natural Gas, except for Petroleum used in

Petroleum Operations, re-injected in the Petroleum Field, lost, flared or for Petroleum that

cannot be used or sold and such Crude Oil and Non-Associated Natural Gas (excluding the

excepted Petroleum) shall be referred to collectively as “Export Petroleum” and

separately and respectively as “Export Crude Oil” and “Export Non-Associated

Natural Gas” .



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24.3



If payable in cash, the amount of the Royalty calculated by applying the Royalty rates

provided under Article 24.4 shall be paid by the CONTRACTOR as directed by the

GOVERNMENT, in accordance with Article 24.7.

If payable in kind, the quantity of Export Petroleum corresponding to the Royalty and

calculated by applying the Royalty rates provided under Article 24.4 below, shall be

delivered in kind by the CONTRACTOR to the GOVERNMENT at the Delivery Point.

Title and risk of loss of the Royalty paid in kind shall be transferred at the Delivery Point.

Unless the GOVERNMENT requires the Royalty to be paid in kind, by giving the

CONTRACTOR not less than ninety (90) days prior written notice prior to the

commencement of the relevant Quarter, the GOVERNMENT shall be deemed to have

elected to receive the Royalty in full and in cash for the relevant Quarter.



24.4



The Royalty due on any Export Petroleum produced and saved in the Contract Area shall

be determined daily by applying the following relevant Royalty rate, to the Export Crude

Oil or to the Export Non-Associated Natural Gas (as the case may be) produced and saved

on that day:

(a)



For Export Crude Oil:

The Royalty rate for Export Crude Oil shall be [ ] percent ([ ]%), which, for

the avoidance of doubt, shall apply regardless of the gravity of the oil.



(b)



For Export Non-Associated Natural Gas

The Royalty rate for Export Non-Associated Natural Gas shall be [ ] percent ([

]%).



24.5



Associated Natural Gas and any other Petroleum shall be exempt from any Royalty.



24.6



If, pursuant to Article 24.3, the GOVERNMENT receives the Royalty in kind, and

pursuant to Article 28, the GOVERNMENT requests assistance for the sale of all or

part of the Royalty received in kind, the CONTRACTOR shall assist the

GOVERNMENT in selling all or part of such Royalty received in kind (belonging to

the GOVERNMENT) in consideration of a commission per barrel payable to the

CONTRACTOR, in accordance with Article 28.



24.7



If, pursuant to Article 24.3, the GOVERNMENT receives the Royalty in cash:

(a)



any Export Crude Oil shall be valued at the International Market Price obtained

at the Delivery Point, as defined in Article 27.2;



(b)



any Export Non-Associated Natural Gas shall be valued at the actual price

obtained at the Delivery Point under an approved contract, as provided in

Article 27.3;



(c)



the CONTRACTOR shall pay such Royalty each Quarter, in arrears, within

thirty (30) days of the end of each Quarter, and shall calculate the payment

due for the relevant Quarter. by reference to the price for the Export

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Petroleum at the Delivery Point, determined in accordance with paragraphs

(a) and (b) above, and the Royalty due on the Export Petroleum, determined

in accordance with Article 24.4, for the said Quarter; and

(d)



the CONTRACTOR shall be entitled to export freely the Royalty due on

the Export Petroleum determined in accordance with Article 24.4 for the

purpose of paying the Royalty in cash.



ARTICLE 25 - RECOVERY OF PETROLEUM COSTS

25.1



All Export Crude Oil produced and saved from the Contract Area shall, after

deduction of any quantities of Export Crude Oil due for Royalty pursuant to Article 24

of this Contract, be considered as "Available Crude Oil".

All Associated Natural Gas produced and saved from the Contract Area, except for

Associated Natural Gas which is used in Petroleum Operations, re-injected in the

Petroleum Field, lost, flared or cannot be used or sold, shall be considered as "Available

Associated Natural Gas".

All Export Non-Associated Natural Gas produced and saved from the Contract Area

shall, after deduction of any quantities of Export Non-Associated Natural Gas due for

Royalty pursuant to Article 24 of this Contract, be considered as "Available NonAssociated Natural Gas".

“Available Petroleum” means Available Crude Oil, Available Associated Natural Gas

and Available Non-Associated Natural Gas.



25.2



For the purpose of this Article 25:

(a)



any Available Crude Oil shall be valued at the International Market Price

obtained at the Delivery Point, as defined in Article 27.2; and



(b)



any Available Associated Natural Gas and any Available Non-Associated

Natural Gas shall be valued at the actual price obtained at the Delivery Point

under an approved contract, as provided in Article 27.3.



25.3



Subject to the provisions of this Contract, from the First Production in the Contract

Area, the CONTRACTOR shall at all times be entitled to recover all Petroleum

Costs incurred under this Contract, of up to [ ] percent ([ ]%) of Available Crude Oil

(which, for the avoidance of doubt, shall apply regardless of the gravity of the oil) and

Available Associated Natural Gas, produced and saved within any Calendar Year.



25.4



Subject to the provisions of this Contract, from First Production in the Contract Area, the

CONTRACTOR shall at all times be entitled to recover all Petroleum Costs incurred

under this Contract of up to [ ] percent ([ ]%) of Available Non-Associated Natural

Gas produced and saved within any Calendar Year.



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25.5



For the application of Article 25.3 and 25.4 of this Contract, the CONTRACTOR

shall keep a detailed account of Petroleum Costs in accordance with the provisions

detailed in the Accounting Procedure attached to this Contract as Annex B. Recovery

of Petroleum Costs shall occur in the following order:

(a)



Production Costs;



(b)



Exploration Costs (including appraisal costs and further exploration within the

Contract Area);



(c)



Gas Marketing Costs;



(d)



Development Costs;



(e)



Decommissioning Contributions.



it being agreed that priority within each category listed above will be given to capital

assets in the order of their acquisition ('first in, first out').

25.6



Total recovery of Petroleum Costs during any Calendar Year, expressed in quantities

of Petroleum, shall not exceed the relevant percentages indicated in Articles 25.3 and

25.4. If in any Calendar Year, the Available Crude Oil and/or Available NonAssociated Natural Gas do not allow the CONTRACTOR to recover all its

Petroleum Costs pursuant to this Article 25, the amount of un-recovered Petroleum

Costs in such Calendar Year shall be carried forward indefinitely to the subsequent

Calendar Years until all Petroleum Costs are fully recovered, but, save as provided in

Article 14.10, in no other case after the termination of the Contract.



25.7



The provisions of Articles 27.7 and 27.8 shall be applied to determine the quantities of

Available Crude Oil and/or Available Non-Associated Natural Gas due to the

CONTRACTOR for the recovery of its Petroleum Costs.



25.8



The quantities of Petroleum corresponding to the share of Available Petroleum due to

the CONTRACTOR for the recovery of its Petroleum Costs shall be delivered to the

CONTRACTOR at the Delivery Point. Title and risk of loss of such Available

Petroleum shall be transferred at the Delivery Point.



25.9



The CONTRACTOR shall be entitled to receive, take in kind and to export freely all

Available Petroleum to which it is entitled for recovery of its Petroleum Costs in

accordance with the provisions of this Contract and to retain Abroad any proceeds

from the sale of all such Available Petroleum. Petroleum Costs in each Production

Area shall be recovered only from Available Petroleum from that Production Area.



55/112



25.10 For the avoidance of doubt, Petroleum Costs under this Contract are not recoverable

against other contract areas held by the CONTRACTOR.



ARTICLE 26 - SHARING OF PROFIT PETROLEUM

26.1



Under this Contract,

(a)



"Profit Petroleum" means Profit Crude Oil and Profit Natural Gas;



(b)



“Profit Crude Oil” means the quantities of Available Crude Oil and Available

Associated Natural Gas produced from the Production Area, after the recovery

of Petroleum Costs, in accordance with Articles 1 and 25; and



(c)



“Profit Natural Gas” means the quantities of Available Non-Associated Natural

Gas produced from the Production Area, after the recovery of Petroleum Costs

in accordance with Articles 1 and 25.



26.2.



From First Production and as and when Petroleum is being produced, the

CONTRACTOR shall be entitled to take a percentage share of Profit Crude Oil

and/or Profit Natural Gas, in consideration for its investment in the Petroleum

Operations, which percentage share shall be determined in accordance with Article

26.5.



26.3



To determine the percentage share of Profit Crude Oil and/or Profit Natural Gas to

which the CONTRACTOR is entitled, the "R" Factor shall be calculated in

accordance with Article 26.4 and shall be applied separately to each Production Area.



26.4



The “R” Factor shall be calculated as follows:

R = X/Y

where:

X:



is equal to Cumulative Revenues actually received by the CONTRACTOR;



Y:



is equal to Cumulative Costs actually incurred by the CONTRACTOR,



from the date of the signature of this Contract.

For the purpose of this Article 26.4:

Cumulative Revenues means total Revenues, as defined below, received by the

CONTRACTOR until the end of the relevant Semester, determined in accordance

with Article 26.7.

Revenues means the total amount actually received by the CONTRACTOR for

recovery of its Petroleum Costs and its share of Profit Petroleum in the Production

Area.

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Cumulative Costs means all Petroleum Costs in the Production Area, actually

incurred by the CONTRACTOR until the end of the relevant Semester, determined

in accordance with Article 26.7.

Notwithstanding the foregoing provisions of this Article 26.4, for the period from

First Production until the end of the Calendar Year in which First Production occurs,

the “R” factor shall be deemed to be less than one (1).

26.5



The share of Profit Petroleum to which the CONTRACTOR shall be entitled from

First Production is:

(a)



for Profit Crude Oil, equal to the quantities of Petroleum resulting from the

application of the relevant percentage as indicated below to the daily volume

of production of Profit Crude Oil within the Production Area at the

corresponding Delivery Point:



"R" Factor



CONTRACTOR'S % Share of Profit Crude Oil



R < 1



[ ]%



1 < R< 2



[ ]–[([ ]–[ ])*(R-1 )/(2-1)]



R >2



[ ]%



an d

(b)



f o r P r o f i t Nat ur al Gas, equal to the quantities of No n - As so ci at ed

Nat ur al Gas resulting from the application of the relevant percentage as

indicated below to the daily volume of production of Profit Nat u r al Gas

within the Production Area at the corresponding Delivery Point:



"R" Factor



CONTRACTOR'S % Share of Profit Natural Gas



R < 1



[ ]%



1 < R< 3



[ ]–[([ ]–[ ])*(R-1 )/(3-1)]



R >3



[ ]%



26.6



The CONTRACTOR's accounting shall account separately for all components for the

calculation of "X" and "Y" values in the formula provided in Article 26.4 above.



26.7



For each Semester, starting from the 1st of January of the Calendar Year following the

Calendar Year in which First Production occurs, the CONTRACTOR shall calculate

the "R" factor applicable to the relevant Semester within thirty (30) days of the

beginning of such Semester. The "R" Factor to be applied during a Semester shall be

that determined by applying the Cumulative Revenues actually received and the

Cumulative Costs actually incurred up to and including the last day of the preceding

Semester.

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26.8



If at any time an error occurs in the calculation of the "R" factor, resulting in a change

in the CONTRACTOR’s percentage share of Profit Crude Oil and/or Profit Natural

Gas, the necessary correction shall be made and any adjustments shall apply from the

Semester in which the error occurred. The Party having benefited from a surplus of

Profit Petroleum shall surrender such surplus to the other Party, beginning from the

first day of the Semester following the Semester in which the error was recognised.

However, each lifting of Petroleum relating to such error shall not exceed twenty-five

percent (25%) of the share of Profit Petroleum to which such surrendering Party is

entitled. For the avoidance of doubt, if at any time an error occurs in the calculation of

the "R" factor, which does not result in a change in the CONTRACTOR’s percentage

share of Profit Crude Oil and/or Profit Natural Gas, no correction shall be made.



26.9



The quantities of Profit Petroleum due to the CONTRACTOR shall be delivered to

the CONTRACTOR at the Delivery Point. Title and risk of loss of such Profit

Petroleum shall be transferred to the CONTRACTOR at the Delivery Point.

The CONTRACTOR shall be entitled to receive, take in kind and to export freely its

share of Profit Petroleum in accordance with the provisions of this Contract and to

retain Abroad any proceeds from the sale of all such Profit Petroleum.



26.10 The share of the Profit Petroleum to which the GOVERNMENT is entitled in any

Calendar Year in accordance with Article 26.5 of this Contract shall, be deemed to

include a portion representing the corporate income tax imposed upon and due by

each CONTRACTOR entity, and which will be paid directly by the

GOVERNMENT on behalf of each such entity representing the CONTRACTOR to

the appropriate tax authorities in accordance with Article 31.2 of this Contract. The

GOVERNMENT shall provide the CONTRACTOR with all written documentation

and evidence reasonably required by the CONTRACTOR to confirm that such

corporate income tax has been paid by the GOVERNMENT.

26.11 The quantities of Profit Petroleum due to the GOVERNMENT shall be delivered to

the GOVERNMENT at the Delivery Point. Title and risk of loss of such Profit

Petroleum shall be transferred at the Delivery Point.

26.12 At the latest twenty-one (21) days prior to CONTRACTOR’s estimated date of First

Production and, subsequently, thirty (30) days prior to the beginning of each

Semester, the CONTRACTOR shall prepare and deliver to the GOVERNMENT a

production program comprising the production forecast for the next Semester and the

forecast of the quantities of Crude Oil and Natural Gas to which each Party shall be

entitled during the said Semester.

26.13 Within ninety (90) days following the end of each Calendar Year, the

CONTRACTOR shall deliver an annual production report to the GOVERNMENT,

stating the quantities of Crude Oil and Natural Gas to which each Party is entitled, the

quantities of Crude Oil and Natural Gas lifted by each Party and the resulting over-lift

or under-lift position of each Party, pursuant to the lifting agreement entered into

pursuant to Article 16.14.

26.14 Any costs or expenditure incurred by the CONTRACTOR, its Subcontractors or

suppliers relating to the lifting of the GOVERNMENT’s share of Petroleum by the

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CONTRACTOR shall not be considered Petroleum Costs and shall be charged to the

GOVERNMENT according to terms to be mutually agreed between the

CONTRACTOR and the GOVERNMENT.



ARTICLE 27 - VALUATION AND METERING OF CRUDE OIL

AND NATURAL GAS

Valuation

27.1



For the purpose of this Contract, any Crude Oil produced in the Contract Area shall be

valued at the end of each Quarter at the Delivery Point based on the International

Market Price, as defined in Article 27.2.



27.2



The "International Market Price" referred to in Article 27.1 shall be the average FOB

price per barrel, expressed in Dollars, obtained by the CONTRACTOR at the

Delivery Point during the Quarter ending on the date of valuation for Arm's Length

Sales of Crude Oil.

The CONTRACTOR shall provide evidence to the GOVERNMENT that the Sales of

Crude Oil referred to in Article 27.2 are Arm’s Length Sales. If the GOVERNMENT

considers that any such sale of Crude Oil is not on the basis of an Arm’s Length Sale

then the GOVERNMENT has the right to refer the matter to an expert pursuant to

Article 42.2.

In the event that there is no lifting of Crude Oil in the relevant Quarter, the applicable

“International Market Price” for such Quarter shall be the average FOB price per barrel

obtained during that Quarter from Arm’s Length Sales of Crude Oil of the same gravity

and quality from other production areas sold in markets competing with Crude Oil

produced from the Contract Area, taking into account quality and transportation cost

differences.

To determine such price, the Parties shall, prior to the commencement of Production,

agree on a basket of Crude Oil comparable to those produced in the Contract Area and

sold in the international market. Prices obtained shall be adjusted to account for any

variations such as quality, specific gravity, sulphur content, transportation costs, product

yield, seasonal variations in price and demand, general market trends and other terms of

sale.



27.3



The price of Natural Gas shall be the actual price obtained at the Delivery Point,

(which may take into account quantities to be sold, quality, geographic location of

markets to be supplied as well as costs of production, transportation and distribution

of Natural Gas from the Delivery Point to the relevant market, in accordance with

standard practice in the international gas industry). The GOVERNMENT shall have

the right to review and approve Natural Gas sales contracts.



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Accounting Statement

27.4



In accordance with this Article 27.4, the GOVERNMENT and the CONTRACTOR

shall establish a statement showing calculations of the value of Crude Oil produced

and sold from the Contract Area. Such statement shall include following information:

(a)



quantities of Crude Oil sold by the CONTRACTOR during the preceding

Month constituting Arm's Length Sales together with corresponding sale

prices;



(b)



quantities of Crude Oil sold by the CONTRACTOR during the preceding

Month that do not fall in the category referred to in paragraph (a) above,

together with sale prices applied during such Month;



(c)



inventory in storage belonging to the CONTRACTOR at the beginning and

at the end of the Month; and



(d)



quantities of Natural Gas sold by the CONTRACTOR and the

GOVERNMENT together with sale prices realised.



Metering

27.7



All Export Petroleum shall be metered at the Delivery Point in accordance with

generally accepted practice in the international petroleum industry and such meters

shall be to fiscal meter standards. All metering equipment shall be installed and

operated by the CONTRACTOR. The GOVERNMENT shall, on receipt by the

CONTRACTOR of reasonable prior written notice, have the right to inspect any

such metering equipment installed by the CONTRACTOR, as well as all relevant

documents and supporting information reasonably necessary to validate the accuracy

of such metering. All metering equipment shall be subject to periodic technical

inspections in accordance with standard practice in the international petroleum

industry.



27.8



If any metering equipment is defective, the CONTRACTOR shall use all reasonable

endeavours to repair it within fifteen (15) days or, if deemed necessary by the

CONTRACTOR, replace it as soon as reasonably practicable from the date the

defect became known. Such defect shall be deemed to have occurred in the middle of

the period between last calibration of the equipment that led to normal results and the

calibration evidencing the defect.



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27.9



Any disputes arising under this Article 27 shall be settled by expert determination in

accordance with the provisions of Article 42.2 of this Contract.

ARTICLE 28 – DOMESTIC MARKET - SALE OF GOVERNMENT SHARE



Upon the GOVERNMENT's prior written notice of at least ninety (90) days, the

CONTRACTOR shall provide all reasonably necessary assistance to the GOVERNMENT

for the sale of all or part of the quantities of Crude Oil to which the GOVERNMENT is

entitled, in consideration of a sales commission per barrel to be established with reference to

standard practice in the international petroleum business and to be mutually agreed upon

between the Parties.



ARTICLE 29 - FINANCIAL PROVISIONS

29.1



Payments under this Contract shall be made as follows:



29.1.1 Any payment to be made by the CONTRACTOR to the GOVERNMENT pursuant

to this Contract shall be in Dollars and paid into the bank account duly designated by

the GOVERNMENT in writing and shall be paid within thirty (30) days of the due

date, after which interest compounded monthly at the rate of LIBOR plus two (2)

percentage points shall be applied.

29.1.2 The GOVERNMENT may, at its sole discretion, direct the CONTRACTOR to pay:

(a)



any Royalty in cash due to the GOVERNMENT pursuant to the provisions

of Article 24; and/or



(b)



any proceeds from the sale undertaken by the CONTRACTOR on behalf of

the GOVERNMENT pursuant to Article 28 of any Profit Oil to which the

GOVERNMENT is entitled pursuant to Article 25; and/or



(c)



any Production Bonus,



to a fund for revenue sharing, which may in due course be established by legislation

consistent with the Iraq Constitution, between the Government of Iraq and other

regions (including the Kurdistan Region) and governorates of Iraq. Nothing in this

Article 29.1.2 shall be understood as implying any contractual relationship or other

relationship between the CONTRACTOR and the Government of Iraq and/or the

regions of Iraq (other than the Kurdistan Region) and/or and governorates of Iraq.

29.1.3 Any payment due by the GOVERNMENT to the CONTRACTOR shall be paid in

Dollars to the bank account designated by the CONTRACTOR in writing and shall

be paid within thirty (30) days of the date of invoice, after which interest compounded

monthly at the rate of LIBOR plus two (2) percentage points shall be applied.



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29.2



Any currency conversion to be made under this Contract shall be at the exchange rate

of the Central Bank of Iraq, provided such exchange rate applied to the

CONTRACTOR shall not be less favourable than the rate offered by other private,

commercial or industrial banks in the international market. In the absence of the

Central Bank of Iraq or in the event that the Central Bank of Iraq is unable to provide

the relevant exchange rate, any currency conversion to be made under this Contract

shall be at the exchange rate of a reputable commercial bank carrying on business in

the international market and approved by the Parties.



29.3



The CONTRACTOR shall not realise any gain or loss due to exchange rate

fluctuations and, consequently, any gain or loss resulting from the exchange of

currency shall be either considered as revenue and credited to the Accounts or shall be

considered as a Petroleum Cost and shall be recovered by the CONTRACTOR in

accordance with Articles 1 and 25, as the case may be.



29.4



The CONTRACTOR shall at all times be entitled to freely convert into Dollars or

any other foreign currency any Iraqi dinars received in the framework of the

Petroleum Operations and to freely transfer the same Abroad. The conversion rate

shall be as provided under Article 29.2.



29.5



The CONTRACTOR shall have the right to be paid, receive, keep, transfer and use

Abroad, without any restrictions, all proceeds of its share of Petroleum.



29.6



The CONTRACTOR and its Subcontractors shall have the right to freely open and

maintain bank accounts for Petroleum Operations within or outside the Kurdistan

Region and other parts of Iraq.



29.7



The CONTRACTOR shall have the right to pay in any freely convertible currency

all its financial requirements for the Petroleum Operations and to convert these

currencies to Iraqi dinars in any bank in the Kurdistan Region or other parts of Iraq, at

the same exchange rate as provided under Article 29.2.



29.8



The CONTRACTOR shall have the right, without any restrictions, to freely

repatriate Abroad and to freely dispose of:



29.9



(a)



any proceeds received in the Kurdistan Region or other parts of Iraq from the

sale of Petroleum;



(b)



any proceeds received from other operations and activities carried out under

this Contract in the Kurdistan Region or other parts of Iraq.



The CONTRACTOR shall have the right to pay in any foreign currency its

Subcontractors and its expatriate personnel, either in the Kurdistan Region, other parts

of Iraq, or Abroad. Said Subcontractors and expatriate personnel shall be obliged to

transfer to the Kurdistan Region the amount of foreign currency required for their local

needs and they shall have the right to repatriate the proceeds of the sale of their

belongings in accordance with the regulations in force in the Kurdistan Region.



29.10 The CONTRACTOR’s Subcontractors and their personnel shall equally benefit from

the same rights as the CONTRACTOR and its personnel as regards this Article 29.

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29.11 For the financing of Petroleum Operations, the CONTRACTOR shall have the right

to have recourse to external financing from third parties or from its Affiliated

Companies on an arm’s length basis.



ARTICLE 30 - CUSTOMS PROVISIONS

30.1



All services, material, equipment, goods, consumables and products imported into the

Kurdistan Region and other parts of Iraq by the CONTRACTOR or its Subcontractors

for use or consumption in the Petroleum Operations shall be admitted free and exempt

from any and all customs or other duties, import taxes and any other charges or

impositions on import. The CONTRACTOR and its Subcontractors shall have the

right to re-export from the Kurdistan Region and other parts of Iraq free from all

export taxes, customs or other duties or any other charges or impositions on export

any material, equipment, goods, consumables and products that are no longer required

for the Petroleum Operations, except where title has passed to the GOVERNMENT

in accordance with Article 20, in which case re-export shall be approved by the

Management Committee.



30.2



The CONTRACTOR and its Subcontractors and their personnel shall have the right

to freely import into the Kurdistan Region and other parts of Iraq and re-export from

the Kurdistan Region and other parts of Iraq any personal belongings and furniture free

and exempt from any customs or other duties, import and export taxes and any other

charges or impositions on import or export. The sale in the Kurdistan Region and other

parts of Iraq of personal belongings and furniture of expatriate personnel shall comply

with Kurdistan Region Law.



30.3



Each CONTRACTOR entity shall be entitled to freely export from the Kurdistan

Region and other parts of Iraq, free of any taxes, customs or other duties and other

impositions or charges whatsoever, any Petroleum to which it is entitled pursuant to

the provisions of this Contract.



30.4



The GOVERNMENT shall indemnify the CONTRACTOR for any customs duties

referred to in Articles 30.1, 30.2 or 30.3 that may be levied by the Kurdistan Region or

Government of Iraq or any other government body or court with jurisdiction in any part of

Iraq.



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ARTICLE 31 - TAX PROVISIONS

31.1



Except as expressly provided in this Article 31, and without prejudice to the

exemptions expressly provided for in Article 30 and in this Article 31, each

CONTRACTOR entity and any Subcontractor shall, for the entire duration of this

Contract, be exempt from all other taxes, duties, levies, charges, withholdings and

impositions generally applicable in the Kurdistan Region, as a result of its activities

under this Contract, including but not limited to any taxes on income from movable

capital, any taxes on capital gains, any fixed taxes on transfers as well as all other

current or future taxes duties, levies, charges, withholdings and impositions based or

assessed on income of any kind. The GOVERNMENT shall indemnify each

CONTRACTOR entity upon demand against any liability to pay any taxes, duties, levies,

charges, impositions or withholdings assessed or imposed upon such entity which relate to

any of the exemptions granted by the GOVERNMENT under this Article 31.1, and under

Articles 31.4, 31.5, 31.6 and 31.7.



31.2



Each CONTRACTOR entity shall be subject to corporate income tax as provided in

Article 31.3 below, which shall be deemed to be inclusive and in full and total discharge of

any corporate income tax of each such entity. Payment of the said corporate income tax

shall be made for the entire duration of this Contract directly to the appropriate

Kurdistan Region tax authorities by the GOVERNMENT, for the account of each

CONTRACTOR entity, from the GOVERNMENT’s share of the Profit Petroleum

received pursuant to Article 26.

Each CONTRACTOR entity shall, within sixty (60) days after the end of each tax

year, provide a statement to the appropriate Kurdistan Region tax authorities of the

profits of the CONTRACTOR which are subject to corporate income tax, together

with the amount of corporate income tax due on those profits.

The GOVERNMENT shall, within ninety (90) days after the end of each tax year,

provide the appropriate tax receipts from the appropriate Kurdistan Region tax

authorities to each CONTRACTOR entity certifying the payment of its corporate

income tax, as determined in the said statement, and that such entity has met all its fiscal

obligations in the preceding tax year.



31.3



For the purposes of Article 31.2:

(a)



The rate of corporate income tax to be applied to each CONTRACTOR entity

shall be the applicable rate prescribed in the Law of Taxation, Law No. 4 of 1999,

passed by the parliament of the Kurdistan Region, as may be amended from time

to time or substituted in respect of Petroleum Operations (as defined under the

Kurdistan Region Petroleum Act) by a Petroleum Operations Taxation Act (as

defined under the Kurdistan Region Petroleum Act).



64/112



(b)



The GOVERNMENT and the CONTRACTOR agree that corporate income

tax shall be calculated for each CONTRACTOR entity on its net taxable

profits under the Contract, as calculated in accordance with the provisions

relating thereto in the Accounting Procedure.



31.4



Each CONTRACTOR entity as well as any Subcontractors shall be exempt from any

withholding tax applicable on any payments made to them or by them to or from

Affiliates or third parties, whether inside or outside the Kurdistan Region and/or Iraq,

for the entire duration of this Contract.



31.5



Each CONTRACTOR entity shall be exempt from Additional Profits Tax, as referred to

in Article 44 of the Kurdistan Region Petroleum Act..



31.6



Each CONTRACTOR entity shall be exempt from Surface Tax, as referred to in Article

44 of the Kurdistan Region Petroleum Act .



31.7



Each CONTRACTOR entity shall be exempt from Windfall Profits Taxes, as referred to

in Article 44 of the Kurdistan Region Petroleum Act.



31.8



Each CONTRACTOR entity and any Subcontractor shall be subject to the payment of the

personal income tax and social security contributions for which such entity or

Subcontractor is liable to pay in respect of its employees, pursuant to the Law of Taxation,

Law No. 4 of 1999, passed by the parliament of the Kurdistan Region, in the same

manner as generally applied to all other industries.



31.9



It is acknowledged that Double Tax Treaties will have effect to give relief from taxes to,

but not limited to, the CONTRACTOR, contractor parties, foreign subcontractors and

expatriate employees in accordance with the provisions of such Double Tax Treaties, but

shall not impose an additional burden of taxation.



31.10 Any value added tax (“VAT”) shall be considered as a Petroleum Cost and shall be cost

recovered in accordance with the provisions of Articles 1 and 25.

31.11 Notwithstanding any other provision to the contrary in this Contract, the Parties

acknowledge and agree that the provisions of this Article 31 shall apply individually

and separately to all CONTRACTOR entities under this Contract and that there shall

be no joint and several liability in respect of any liability, duty or obligation referred

to in this Article 31.



ARTICLE 32 - BONUSES

Signature Bonus

32.1



A signature bonus of [ ] Dollars (US$ [ ]) (“Signature Bonus”) shall be payable to

the GOVERNMENT by the CONTRACTOR within thirty (30) days of the

Effective Date.



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Capacity Building Bonus

32.2



A capacity building bonus of [ ] Dollars (US$[ ]) (“Capacity Building Bonus”)

shall be payable to the GOVERNMENT by the CONTRACTOR within thirty (30)

days of the Effective Date.

Production Bonuses



32.3



In the event of a Crude Oil Commercial Discovery, the CONTRACTOR shall pay the

following relevant Crude Oil production bonus to the GOVERNMENT within thirty (30)

days of the following relevant occurrence:

(a)



[ ] Dollars (US $[ ]) when First Production of Crude Oil from the Contract Area

commences;



(b)



[ ] Dollars (US $[ ]) when production of Crude Oil from the Contract Area

reaches a cumulative amount of [ ] million barrels of Crude Oil ([ ] mmbo);

[



([ ])

32.4



]; and



[ ] Dollars (US $[ ]) when production of Crude Oil from the Contract Area

reaches a cumulative amount of [ ] million barrels of Crude Oil ([ ] mmbo).



In the event of a Non-Associated Natural Gas Commercial Discovery, the

CONTRACTOR shall pay the following relevant Non-Associated Natural Gas production

bonus to the GOVERNMENT within thirty (30) days of the following relevant

occurrence:

(a)



[ ] Dollars (US $[ ]) when First Production of Non-Associated Natural Gas from

the Contract Area commences;



(b)



[ ] Dollars (US $[ ]) when production of Non-Associated Natural Gas from the

Contract Area reaches a cumulative amount of [ ] billion cubic feet ([ ] bcf);

[



([ ])



]; and



[ ] Dollars (US $[ ]) when production of Non-Associated Natural Gas from the

Contract Area reaches a cumulative amount of [ ] billion cubic feet ([ ] bcf).



32.5



For the purposes of this Article 32, a Commercial Discovery shall be declared by the

CONTRACTOR to be either a Crude Oil Commercial Discovery or a Non-Associated

Gas Commercial Discovery and under no circumstances shall a production bonus be due

in respect of both Crude Oil and Non-Associated Natural Gas for the same Commercial

Discovery.



32.6



No bonus due pursuant to this Article 32 shall be deemed to be a Petroleum Cost.



66/112



ARTICLE 33 - PIPELINES

33.1



The GOVERNMENT shall obtain any required Permits for the transportation of

Petroleum in the Kurdistan Region and in Iraq, as well as any necessary Permits and

easement rights for the construction of any pipelines and related facilities required for the

Petroleum Operations, as provided in Article 33.2.



33.2



The GOVERNMENT undertakes to transfer to the CONTRACTOR its rights for

transportation of Petroleum by pipeline. The CONTRACTOR shall have the right to

design, construct, operate and maintain pipelines and any related facilities for the

transportation of Petroleum produced under this Contract.



33.3



Prior to the construction of any pipeline and related facilities as provided in Article

33.2, the CONTRACTOR shall submit following information to the Management

Committee:

(a)



proposed pipeline route and related facilities;



(b)



forecasted pipeline flow rate and capacity;



(c)



estimate of financial investment and operating costs of the pipeline and related

facilities;



(d)



proposed financing schedule;



(e)



construction schedule;



(f)



general technical description of the pipeline and related facilities;



(g)



construction plans and tests;



(h)



preventive measures for damage to the environment and third parties; and



(i)



any other information relating to the pipeline project.



The Management Committee shall examine all the above information and shall within

ninety (90) days, approve the proposed pipeline project in accordance with the

provisions of Article 8.5 of this Contract.

33.4



Subject to spare capacity being available and to their Petroleum being compatible,

third parties shall be entitled to transport their Petroleum through any pipeline

constructed by the CONTRACTOR in accordance with this Article 33 on terms to be

agreed between the CONTRACTOR and such third party. Those terms shall be

reasonable commercial terms and shall not discriminate among third party users. The

CONTRACTOR shall always have priority of access to such pipelines.



33.5



To the extent that they are incurred upstream of the Delivery Point, any costs

associated with the design, construction, operation and maintenance of the pipelines

and related facilities by CONTRACTOR under this Article 33 (“Pipeline Costs”)

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

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in accordance with the provisions of Articles 1 and 25.

33.6



The CONTRACTOR shall have the absolute right, without any exceptions and for

the entire duration of this Contract, to use, free of charge, any pipeline and related

facilities constructed by CONTRACTOR under this Article 33 and to transport

Petroleum produced from any Production Area and to operate and maintain any

pipeline and its related facilities, freely and without any additional costs.



33.7



Any tariffs received from third parties for use of any pipeline and related facilities by

CONTRACTOR under this Article 33 shall be applied to the recovery of Petroleum

Costs until all Pipeline Costs have been fully recovered by the CONTRACTOR

pursuant to the provisions of Articles 1 and 25 of this Contract. The GOVERNMENT

shall be entitled to receive any tariffs from third parties for their use of such pipeline

and related facilities when the said Pipeline Costs have been fully recovered by the

CONTRACTOR. The costs associated with providing such transportation services

for third parties shall be considered Pipeline Costs and therefore Petroleum Costs and

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

Articles 1 and 25.



33.8



Upon recovery by the CONTRACTOR of all the Pipeline Costs, the operating and

maintenance costs of any pipeline and its related facilities shall be borne by the

CONTRACTOR and shall be considered Petroleum Costs and shall be recovered by

the CONTRACTOR in accordance with the provisions of Articles 1 and 25.



33.9



The GOVERNMENT shall have the same rights as the CONTRACTOR for use,

free of charge, of any pipeline and related facilities constructed by CONTRACTOR

under this Article 33 for the transportation of the share of Petroleum to which the

GOVERNMENT is entitled under this Contract, provided that where the

GOVERNMENT is participating in its capacity as a CONTRACTOR entity pursuant

to Article 4, it shall be liable for its share of Petroleum Costs.



33.10 The CONTRACTOR shall bear the custody and maintenance of any pipeline and related

facilities constructed by CONTRACTOR under this Article 33 and all risks of

accidental loss or damage to such pipeline and related facilities while they are required for

Petroleum Operations.



ARTICLE 34 – UNITISATION

34.1



In the event a Reservoir extends beyond the Contract Area into an adjacent area which

is the subject of another Petroleum Contract (as defined by the Kurdistan Region

Petroleum Act) (an “Adjacent Contract Area”), or in the event a Reservoir of an

Adjacent Contract Area extends into the Contract Area, the provisions of Article 58,

Section 3 of the Kurdistan Region Petroleum Act shall apply and the GOVERNMENT

shall require the CONTRACTOR and the Contractor of the Adjacent Contract Area

to agree upon a schedule for reaching agreement of the terms of the unitisation of the

Reservoir, which terms shall be based on reliable technical, operational and

economical parameters, all in accordance with standard practice in the international

petroleum industry. In the event that the Minister decides the unitisation pursuant to

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Article 58, Section 3 (b) of the Kurdistan Petroleum Act, and if the CONTRACTOR

does not agree with the Minister’s decision, the CONTRACTOR shall be entitled to

arbitration pursuant to the provisions of Article 42.1.

34.2



In the event that a Reservoir extends beyond the boundaries of the Contract Area into

adjacent an area which is not the subject of another Petroleum Contract (as defined by

the Kurdistan Region Petroleum Act), the GOVERNMENT shall, upon the

CONTRACTOR’s request, take the necessary steps to extend the boundaries of

Contract Area so as to include the entire Reservoir within the Contract Area, provided

that the CONTRACTOR can offer the GOVERNMENT a competitive minimum

work program for such adjacent area.



ARTICLE 35 - LIABILITY AND INSURANCE

Liability

35.1



Subject to the other provisions of this Contract, the CONTRACTOR, in its capacity as

the entity responsible for the execution of the Petroleum Operations within the Contract

Area, shall be liable to third parties to the extent provided under applicable Law for any

losses and damage it may cause to them in conducting the Petroleum Operations, and

shall defend, indemnify and hold harmless the GOVERNMENT with respect to all

claims for such loss or damage.



35.2



The CONTRACTOR shall not be liable to the GOVERNMENT for any damage or loss

or claims of any kind resulting from its conduct of the Petroleum Operations

unless such damage or loss is the result of wilful misconduct or a

material failure to conduct Petroleum Operations in accordance with the terms of this

Contract; provided, however, that such liability cannot result in the event of any

omissions, errors or mistakes committed in good faith by the CONTRACTOR in the

exercise of the powers and authorisations conferred upon the CONTRACTOR by

virtue of this Contract, and further provided that in no event shall the

CONTRACTOR be liable for any indirect or consequential loss or damage

whatsoever or any loss, damages, costs, expenses or liabilities caused (directly or

indirectly) by any of the following arising out of, relating to, or connected with this

Contract or the Petroleum Operations carried out under this Contract: (i) reservoir or

formation damage; (ii) inability to produce, use or dispose of Petroleum; (iii) loss or

deferment of income; (iv) special or punitive damages; or (v) other indirect damages

or losses whether or not similar to the foregoing.



35.3



The CONTRACTOR shall indemnify and hold harmless the GOVERNMENT against

all losses, damages and liability arising under any claim, demand, action or proceeding

brought or instituted against the GOVERNMENT by any employee of the

CONTRACTOR or of any Subcontractor or by any dependent thereof, for personal

injuries, industrial illness, death or damage to personal property sustained in connection

with, related to or arising out of the performance or non-performance of this Contract

regardless of the fault or negligence in whole or in party of any entity or individual.



35.4



Notwithstanding Article 35.1, the GOVERNMENT shall indemnify and hold harmless

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the CONTRACTOR against all losses, damages and liability arising under any claim,

demand, action or proceeding brought or instituted against the CONTRACTOR by any

employee of the GOVERNMENT or of any Public Company or of any subcontractor of

the foregoing or by any dependent of any such employee, for personal injuries, industrial

illness, death or damage to personal property sustained in connection with, related to or

arising out of the performance or non-performance of this Contract regardless of the fault

or negligence in whole or in party of any entity or individual.

35.5



The CONTRACTOR shall take all necessary steps to respond to, and shall promptly

notify the GOVERNMENT of, all emergency and other events (including

explosions, leaks and spills), occurring in relation to the Petroleum Operations which

are causing or likely to cause material environmental damage or material risk to

health and safety. Such notice shall include a summary description of the

circumstances and steps taken and planned by the CONTRACTOR to control and

remedy the situation. The CONTRACTOR shall provide such additional reports to

the GOVERNMENT as are necessary in respect of the effects of such events and the

course of all actions taken to prevent further loss and to mitigate deleterious effects.



35.6



In the event of emergency situations as set out in Article 35.4 above, at the request of the

CONTRACTOR, the GOVERNMENT, without prejudice and in addition to any

indemnification obligations the GOVERNMENT may have, shall assist the

CONTRACTOR, to the extent possible, in any emergency response, remedial or

repair effort by making available any labour, materials and equipment in reasonable

quantities requested by the CONTRACTOR which are not otherwise readily available to

the CONTRACTOR and by facilitating the measures taken by the CONTRACTOR to

bring into the Kurdistan Region personnel, materials and equipment to be used in any such

emergency response or remedial or repair effort. The CONTRACTOR shall reimburse

the GOVERNMENT's reasonable and necessary costs incurred in such efforts, which

reimbursed amounts shall be considered Petroleum Costs and shall be recovered by the

CONTRACTOR in accordance with the provisions of Articles 1 and 25 of this Contract.

Insurance



35.7



In accordance with standard practice in the international petroleum industry, the

CONTRACTOR shall maintain any insurance required by applicable Kurdistan Region

Law, as well as any insurance approved by the Management Committee.

Such insurance policies may cover:

(a)



loss of and damage to material and equipment used in the Petroleum

Operations;



(b)



personal injury, damage to third parties and risks of pollution associated with

Petroleum Operations for reasonable amounts,



within the limits approved by the Management Committee.

35.8



Any insurance policy relating to this Contract shall name the GOVERNMENT as an

additional insured party and shall include a waiver of subrogation protecting the

GOVERNMENT against any claim, loss and damage resulting from any Petroleum

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Operation conducted by or on behalf of the CONTRACTOR under this Contract, to the

extent that the CONTRACTOR is liable for such claim, loss or damage under this

Contract. The CONTRACTOR shall not be liable for and shall not purchase insurance

cover for any claims arising from negligence or wilful misconduct of the

GOVERNMENT or of any Public Company or of any of its or their subcontractors or of

any personnel of any of the foregoing.

35.9



Upon its written request, the GOVERNMENT shall be provided with insurance

certificates, including necessary details, for any insurance policy maintained by the

CONTRACTOR which relates to this Contract.



35.10 The CONTRACTOR shall be responsible for the filing of all claims made under any

insurance policy maintained by CONTRACTOR which relates to this Contract. Any

premiums and payments relating to such insurance policies shall be considered Petroleum

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

of Articles 1 and 25.

35.11 In any insurance policy maintained by the CONTRACTOR which relates to this

Contract, the amount for which the CONTRACTOR itself is liable (the "Deductible

Amount") shall be reasonably determined between the CONTRACTOR and the insurer

and such Deductible Amount shall in the event of any insurance claim be

considered a Petroleum Cost and shall be recovered by the CONTRACTOR in

accordance with the provisions of Articles 1 and 25.



ARTICLE 36 - INFORMATION AND CONFIDENTIALITY

36.1



The CONTRACTOR shall keep all records, data and information relating to the

Petroleum Operations in accordance with the Kurdistan Region Petroleum Act and

standard practice in the international petroleum industry. In addition, it shall provide

the GOVERNMENT with such information and data as it is obliged to provide under

this Contract.



36.2



Upon the GOVERNMENT's written request, the CONTRACTOR shall provide the

GOVERNMENT with samples of any rocks or any other items extracted during the

Petroleum Operations.



36.3



The GOVERNMENT shall have title to all data and information, whether raw, derived,

processed, interpreted or analysed, obtained pursuant to a Contract.



36.4



The CONTRACTOR shall have the right, without any limitation, to send Abroad copies

of all reports and technical data, magnetic tapes and other data relating to the Petroleum

Operations. Magnetic tapes or other data, the original of which must be analysed and

processed Abroad, may be transported out of the Kurdistan Region.



36.5



Any representatives authorised by the GOVERNMENT and notified to the

CONTRACTOR shall, upon reasonable prior written notice, have reasonable access

to any information and data relating to the Contract Area in the possession of the

CONTRACTOR which the CONTRACTOR is obliged to provide to the

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GOVERNMENT pursuant to this Contract. It is understood that, when exercising

such right, the GOVERNMENT shall ensure it does not unduly interfere with or

hinder CONTRACTOR's activities.

36.6



The CONTRACTOR shall provide the GOVERNMENT upon the

GOVERNMENT’s written request with analysis information, reports, tapes or other

data (geological, geophysical, logs, interpretations, drilling reports, etc.) related to the

Petroleum Operations. All available originals shall be transferred to the

GOVERNMENT at the end of this Contract.



36.7



Apart from the exceptions stated in this Article 36, the Parties undertake to keep all

data and information relating to this Contract and the Petroleum Operations

confidential during the entire term of this Contract and not to divulge or disclose such

data or information to third parties without the specific consent of the other Party,

such consent not to be unreasonably withheld or delayed. The foregoing

confidentiality obligation shall not apply to information or data which:



36.8



(a)



is or, through no fault of either Party, becomes part of the public domain;



(b)



is known to the receiving Party at the date of disclosure; or



(c)



is required to be furnished in compliance with any applicable Law, by a

government agency having jurisdiction over a CONTRACTOR entity, by a

court order or any other legal proceedings; or



(d)



is required to be disclosed pursuant to the rules or regulations of any

government or recognised stock exchange having jurisdiction over a

CONTRACTOR entity.



Notwithstanding the foregoing in Article 36.7, in accordance with standard practice in

the international petroleum industry, such data and information may be disclosed to:

(a)



Affiliates of each CONTRACTOR entity;



(b)



employees, officers and directors of each CONTRACTOR entity and their

respective Affiliated Companies for the purpose of the Petroleum Operations,

subject to each such entity taking customary precautions to ensure such

information is kept confidential;



(c)



consultants or agents retained by any CONTRACTOR entity or its Affiliate

for the purpose of analysing or evaluating information or data;



(d)



banks or financial institutions retained by any CONTRACTOR entity with a

view to financing Petroleum Operations, including any professional

consultants retained by such bank or financial institution;



(e)



bona fide prospective assignees of a participating interest under this Contract

(including any entity with whom a CONTRACTOR entity and/or its Affiliates

are conducting bona fide negotiations directed towards a merger, consolidation or

the sale of a majority of its or an Affiliates shares);

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(f)



prospective or actual Subcontractors and suppliers engaged by a Party where

disclosure of such information is essential to such Subcontractor’s or supplier’s

work for such Party; and



(g)



any other person or entity, upon the prior written approval of the nondisclosing Party,



provided that disclosure shall not be made pursuant to paragraphs (c), (d), (e) and (f),

unless such third party has entered into a confidentiality undertaking.

36.9



Any data and information relating to relinquished or surrendered areas under this

Contract shall become the exclusive property of the GOVERNMENT, who shall

have the right to use same for any purpose, in particular for the purpose of promoting

said areas. The CONTRACTOR shall be entitled to keep copies of such data and

information and to use such data and information for any purpose.



36.10 Subject to the provisions of this Article 36, the CONTRACTOR may not sell nor

exchange any data related to the Petroleum Operations without the approval of the

GOVERNMENT, which approval shall not be unreasonably withheld or delayed

where, in CONTRACTOR’s reasonable opinion, such sale or exchange would

benefit the Petroleum Operations.



ARTICLE 37 - ENVIRONMENTAL PROVISIONS

37.1



During the performance of the Petroleum Operations, the CONTRACTOR shall take

necessary measures to ensure that it, the Operator, its Subcontractors and agents

attend to the protection of the environment and prevention of pollution, in accordance

with standard practice in the international petroleum industry and any applicable

Kurdistan Region Law.



37.2



Prior to surrendering a portion of the Contract Area, the CONTRACTOR shall take

reasonable measures to clean the area to be surrendered in accordance with standard

practice in the international petroleum industry. Such measures shall include, inter

alia, removal of facilities, material and equipment together with reasonable measures

necessary for the preservation of fauna, flora and ecosystems, all in accordance with

generally accepted practice in the international petroleum industry. The

CONTRACTOR shall only be responsible for site restoration or environmental

damage to the extent the same pertains solely and directly to Petroleum Operations

pursuant to this Contract.



37.3



The CONTRACTOR shall take reasonable precautions and measures to prevent any

pollution which may arise directly as a result of the Petroleum Operations and to

protect the environment (fauna and flora), water sources and any other natural

resources when carrying out Petroleum Operations.



37.4



The CONTRACTOR shall respect the preservation of property, agricultural areas,

and fisheries, when carrying out Petroleum Operations.

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37.5



Before starting Exploration Operations within the Contract Area, the

CONTRACTOR shall conduct and submit an environmental impact assessment.

National Parks and Nature Reserve Areas



37.6



The CONTRACTOR shall take all reasonable measures to minimise any adverse

material impact on national parks and nature reserves which may arise directly as a

result of the Petroleum Operations, in accordance with generally accepted

environmental practices in the international petroleum industry.



37.7



The GOVERNMENT: (i) represents and warrants that, on the Effective Date, there

are no national parks, nature reserves or other protected areas located in whole or in

part within the Contract Area where the CONTRACTOR shall not be entitled to

carry out Petroleum Operations and (ii) covenants that during the term of this

Contract will not designate or create or permit the creation of any national parks,

nature reserves or other protected areas, located in whole or in part within the

Contract Area, where the CONTRACTOR is entitled to carry out Petroleum

Operations.

Expenditures



37.8



Any reasonable expenditure incurred by the CONTRACTOR in relation with this

Article 37 shall be deemed Petroleum Costs and shall be recovered by the

CONTRACTOR in accordance with the provisions of Articles 1 and 25.



ARTICLE 38 - DECOMMISSIONING

38.1



To enable the CONTRACTOR to recover the costs associated with future Petroleum

Field decommissioning and site restoration and any other similar expenditure to be

borne by the CONTRACTOR under this Contract, the CONTRACTOR shall have

the right to establish a reserve fund for future decommissioning and site restoration (a

“Decommissioning Reserve Fund”). The Decommissioning Reserve Fund may be

established at any time during the final ten (10) Calendar Years of the term of the

Production Operations of a Petroleum Field but, upon the reasonable request by the

CONTRACTOR, the GOVERNMENT shall allow the CONTRACTOR to

establish such fund over a longer period. Once established, the CONTRACTOR

shall make regular contributions to the Decommissioning Reserve Fund based upon

estimated Petroleum Field decommissioning and site restoration costs in accordance

with standard principles and technical norms generally accepted in the international

petroleum industry, and taking into account interest received and future interest

expected to be earned on the Decommissioning Reserve Fund. Any contributions by

the CONTRACTOR to the Decommissioning Reserve Fund shall be made in Dollars

and shall be deemed Petroleum Costs when paid into the reserve fund, and shall be

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

and 25. Contributions to the Decommissioning Reserve Fund shall be placed with a

first rate bank approved by the Management Committee in accordance with Article

8.5.



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38.2



If, at the end of the term of the Production Operations of the Petroleum Field, the

GOVERNMENT decides to take over production operations in the Petroleum Field:

(i)



the GOVERNMENT shall become liable for its future decommissioning and

site restoration;



(ii)



the contributions and any interest accumulated in the Decommissioning

Reserve Fund, to the extent that such contributions have been recovered as

Petroleum Costs, shall be paid to the GOVERNMENT; and



(iii)



the GOVERNMENT shall release the CONTRACTOR from any obligations

relating to decommissioning and site restoration and shall indemnify the

CONTRACTOR for any costs, liabilities, expenses, claims or obligations

associated therewith.



38.3



If the CONTRACTOR undertakes the Petroleum Field decommissioning and site

restoration works, the contributions and any interest accumulated in the

Decommissioning Reserve Fund shall be paid to the CONTRACTOR and shall be

used for the Petroleum Field Decommissioning Operations. The CONTRACTOR

shall undertake any such Decommissioning Operations in accordance with standard

practice in the international petroleum industry.



38.4



If the Decommissioning Reserve Fund is not sufficient to cover all Decommissioning

Costs for the Petroleum Field, the balance shall be paid by the CONTRACTOR and

may be recovered as Petroleum Costs from any other Production Areas or, if

applicable, from any other area which is the subject of another Petroleum Contract (as

defined by the Kurdistan Region Petroleum Act) of the CONTRACTOR or any of its

Affiliates anywhere in the Kurdistan Region and, to the extent the balance is not

recoverable as aforesaid, such remaining balance shall be paid by the GOVERNMENT.



38.5



If the Decommissioning Reserve Fund exceeds all Decommissioning Costs for the

Petroleum Field, the balance shall be transferred to the GOVERNMENT.



38.6



Any expenditure incurred by the CONTRACTOR in relation with this Article 38,

including but not limited to any contributions to the Decommissioning Reserve Fund,

shall be deemed Petroleum Costs and shall be recovered by the CONTRACTOR in

accordance with the provisions of Articles 1 and 25.



38.7



The CONTRACTOR shall submit the Management Committee for approval in

accordance with Article 8.5 a detailed plan for decommissioning the Production Area

facilities and site restoration (the “Decommissioning Plan”), such Decommissioning

Plan to be submitted no later than twenty four (24) Months prior to the date estimated

by the CONTRACTOR for the end of Commercial Production from the Production

Area.



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ARTICLE 39 – ASSIGNMENT and CHANGE OF CONTROL

Assignment to Affiliates

39.1



Each CONTRACTOR entity shall be free to sell, assign, transfer or otherwise

dispose of all or part of its rights, obligations and interests under this Contract to an

Affiliated Company or to another CONTRACTOR entity with the prior consent of

GOVERNMENT,

which

consent

shall

not

be unreasonably delayed or withheld.

Assignment to Third Parties



39.2



Each CONTRACTOR entity shall have the right to sell, assign, transfer or otherwise

dispose of all or part of its rights and interests under this Contract to any third party

(not being an Affiliated Company or another CONTRACTOR entity) with the prior

consent of GOVERNMENT, which consent shall not be unreasonably delayed or

withheld. Any CONTRACTOR entity proposing to sell, assign, transfer or otherwise

dispose of all or part of its rights and interests under this Contract to any such third

party shall request such consent in writing, which request shall be accompanied by

reasonable evidence of the technical and financial capability of the proposed third

party assignee.



39.3



To be effective, any deed of sale, assignment, transfer or other disposal as provided

under Articles 39.1 or 39.2, the Parties shall enter into a binding and enforceable

instrument of assignment and novation, which shall include an undertaking by such

third party to fulfil any obligations under this Contract.



39.3.1 By way of clarification, and not in limitation of the foregoing provisions of Article 39,

the GOVERNMENT shall not be considered to be acting unreasonably in

withholding consent to any such assignment if the assignment to such proposed

assignee is deemed contrary to the GOVERNMENT's interests, as evidenced in

writing to that effect signed by the the duly authorised representative of the

GOVERNMENT below.

39.4



In the event a CONTRACTOR entity assigns or in any other way transfers its rights

and interests under this Contract, whether in whole or in part, such assignment or

transfer shall not give rise to any tax, imposition or payment whatsoever in the

Kurdistan Region, whether currently existing or which may become applicable in

future.



39.5



The GOVERNMENT may not at any time transfer all its rights and obligations under

this Contract to a Public Company or any other company or entity one hundred

percent (100%) owned by the GOVERNMENT or otherwise, except in respect of its

Government Share (upon exercise of its Option to Participate) in accordance with Article

4.



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Change of Control

39.6



“Change of Control” for the purpose of this Article 39.6 means any direct or indirect

change of Control of a CONTRACTOR entity (whether through merger, sale of

shares or of other equity interests, or otherwise) through a single transaction or series

of transactions, from one or more transferors to one or more transferees, in which the

market value of such entity’s participating interest in this Contract (which shall be as

specified in the Joint Operating Agreement relating to this Contract, or where there is

only one CONTRACTOR entity, one hundred (100%) percent) represents more than

seventy five percent (75%) of the aggregate market value of the assets of such entity

and its Affiliates that are subject to the change in Control. For the purpose of this

definition: “Control” means the means direct or indirect ownership or control of the

majority of the voting rights of the applicable entity at its shareholders’ meetings or

their equivalent; and “market value” shall be determined based upon the amount in

cash a willing buyer would pay a willing seller in an arm’s length transaction.

Each CONTRACTOR entity which is subject to a Change in Control other than to an

Affiliated Company or a CONTRACTOR entity must obtain the prior consent of

GOVERNMENT, which consent shall not be unreasonably delayed or withheld.

A Change in Control shall not give rise to any tax, imposition or payment whatsoever

in the Kurdistan Region, whether currently existing or which may become applicable

in future.



ARTICLE 40 - FORCE MAJEURE

40.1



No delay, default, breach or omission of the CONTRACTOR in the execution of any

of its obligations under this Contract shall be considered a failure to perform this

Contract or be the subject of a dispute if such delay, default, breach or omission is due

to a case of Force Majeure. In such event the CONTRACTOR shall promptly notify

the GOVERNMENT in writing and take all reasonably appropriate measures to

perform its obligations under this Contract to the extent possible. The time resulting

from any such delay or curtailment in the execution of such obligations, increased by

the time necessary to repair any damage resulting from or occurred during such delay

or curtailment, shall be added to any time period provided under this Contract

(including without limitation the Exploration Period and any extension thereto, any SubPeriod and any extension thereto and any Development Period and any extension

thereto). The Parties shall meet as soon as possible after the notification of Force

Majeure with a view to using reasonable endeavours to mitigate the effects thereof.



40.2



For the purpose of this Contract, “Force Majeure” means any event that is

unforeseeable, insurmountable and irresistible, not due to any error or omission by the

CONTRACTOR but due to circumstances beyond its control, which prevents or

impedes execution of all or part of its obligations under this Contract. Such events

shall include but not be limited to following:

(a)



war, whether declared or not, civil war, insurrection, riots, civil commotion,

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terrorism, any other hostile acts, whether internal or external;

(b)



strikes or other labour conflicts;



(c)



accidents or blowouts;



(d)



quarantine restrictions or epidemics;



(e)



any act, event, happening or occurrence due to natural causes, in particular,

but without limitation, floods, storms, cyclones, fires, lightning, or

earthquakes;



(f)



environmental restrictions, which the GOVERNMENT has not notified to the

CONTRACTOR; and



(g)



any acts or orders of GOVERNMENT.



The intention of the Parties is that Force Majeure shall receive the interpretation that

complies most with general principles and practice prevailing in the international

petroleum industry. Force Majeure affecting an Affiliated Company of a

CONTRACTOR entity shall be deemed Force Majeure affecting such

CONTRACTOR entity if the consequence of such Force Majeure prevents the

performance of any of CONTRACTOR's obligations under this Contract.



ARTICLE 41 – WAIVER OF SOVEREIGN IMMUNITY

The GOVERNMENT and any Public Company which may be a CONTRACTOR entity at

any time hereby fully and irrevocably waives any claim to immunity for itself or any of its

assets.

This waiver includes any claim to immunity from:

(a)



any expert determination, mediation, or arbitration proceedings commenced

pursuant to Article 42 this Contract;



(b)



any judicial, administrative or other proceedings to aid the expert

determination, mediation, or arbitration proceedings commenced pursuant to

Article 42 of this Contract;



(c)



any effort to confirm, enforce or execute any decision, settlement, award,

judgment, service of process, execution order or attachment (including prejudgment attachment) that results from an expert determination, mediation,

arbitration or any judicial, administrative or other proceedings commenced

pursuant to this Contract.



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ARTICLE 42 - ARBITRATION AND EXPERT DETERMINATION

Negotiation, Mediation and Arbitration

42.1



For the purpose of this Article 42.1, “Dispute” shall mean any dispute, controversy or

claim (of any and every kind or type, whether based on contract, tort, statute,

regulation or otherwise) arising out of, relating to, or connected with this Contract or

the operations carried out under this Contract, including without limitation any

dispute as the construction, existence, validity, interpretation, enforceability, breach or

termination of this Contract, which arises between the Parties (or between any one or

more entities constituting the CONTRACTOR and the GOVERNMENT).

In the event of a Dispute, the parties to the Dispute shall use their reasonable

endeavours to negotiate promptly in good faith a mutually acceptable resolution of

such Dispute

Subject to the provisions of Article 42.2 of this Contract, a Party who desires to

submit a Dispute for resolution which has not been promptly resolved as aforesaid

shall commence the dispute resolution process by providing the other parties to the

Dispute written notice of the Dispute (“Notice of Dispute”). The Notice of Dispute

shall identify the parties to the Dispute, shall contain a brief statement of the nature of

the Dispute and the relief requested and shall request negotiations among Senior

Representatives.

(a)



In the event that any Notice of Dispute is given in accordance with this Article

42.1, the parties to the Dispute shall first seek settlement of the dispute by

negotiation between Senior Representatives. “Senior Representative” means

any individual who has authority to negotiate the settlement of the Dispute for a

party to the Dispute, which for the GOVERNMENT shall mean the Minister of

Natural Resources. Within thirty (30) days after the date of the receipt by each

party to the Dispute of the Notice of Dispute, the Senior Representatives

representing the parties to the Dispute shall meet at a mutually acceptable date,

time and place to exchange relevant information in an attempt to resolve the

Dispute. If a Senior Representative intends to be accompanied at the meeting by

a legal adviser, each other party shall be given written notice of such intention

and its Senior Representative may also be accompanied at the meeting by a legal

adviser.



(b)



If the Dispute cannot be resolved by negotiation in accordance with Article 42.1

(a) within sixty (60) days after the date of the receipt by each party to the Dispute

of the Notice of Dispute or such further period as the parties to the Dispute may

agree in writing, any party to the Dispute may seek settlement of the dispute by

mediation in accordance with the London Court of International Arbitration

(LCIA) Mediation Procedure, which Procedure shall be deemed to be

incorporated by reference into this Article, and the parties to such Dispute

shall submit to such mediation procedure.



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(c)



If the Dispute is not settled by mediation in accordance with Article 42.1 (b)

within sixty (60) days of the appointment of the mediator, or such further

period as the parties to the Dispute may otherwise agree in writing, any party

to the Dispute may refer the Dispute to, and seek final resolution by, arbitration

under the LCIA Rules, which Rules shall be deemed to be incorporated by

reference into this Article.

(i)



Any arbitration shall be conducted by three (3) arbitrators.



(ii)



If the parties to the Dispute are the GOVERNMENT and all the

CONTRACTOR entities, the GOVERNMENT and the

CONTRACTOR shall each appoint one (1) arbitrator. If the parties to

the Dispute are the GOVERNMENT and more than one, but not all

the CONTRACTOR entities, the GOVERNMENT shall appoint one

(1) arbitrator and such CONTRACTOR entities shall appoint one (1)

arbitrator. If the parties to the Dispute are the GOVERNMENT and

one CONTRACTOR entity, the GOVERNMENT and such

CONTRACTOR entity shall each appoint one (1) arbitrator.



(iii)



In any event, the two arbitrators so appointed shall, in good faith, use

all reasonable endeavours to agree on the appointment of the third

arbitrator, who will chair the arbitral tribunal. In case of failure to

appoint an arbitrator or to agree on the appointment of the third

arbitrator, Rules of the LCIA shall apply.



(vi)



Arbitration shall take place in London, England. The language to be

used in any prior negotiation, mediation and in the arbitration shall be

English. During the arbitration procedure and until the arbitral

decision, no Party or CONTRACTOR entity shall act in a manner that

may affect the rights of the other Party or other CONTRACTOR

entities under this Contract. The arbitral award may be enforced by any

court of competent jurisdiction, including in the Kurdistan Region.

Any award shall be expressed in Dollars.



(v)



The Parties agree that the arbitral award shall be final and not subject

to any appeal.



Expert Determination

42.2



Any disagreement between the Parties relating to Articles 15.5, 27.2 and 27.9 of this

Contract, as well as any disagreement the Parties agree to refer to an expert, shall be

submitted to an expert. The Management Committee shall prepare and agree

appropriate terms of reference relating to the disagreement to be submitted to the

expert, in accordance with Article 8.5 (“Terms of Reference”).

(a)



The disagreement shall be submitted to an expert appointed by mutual

agreement of the Parties within thirty (30) days following the date of

preparation and agreement of the Terms of Reference by the Management

Committee. If the Parties cannot agree on the choice of the expert within such

thirty (30) day period, at the request of either Party, the expert shall be

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appointed by the President of the Energy Institute in London, England. Any

expert appointed must have the necessary qualifications for reviewing and

deciding on the subject matter of the disagreement.

(b)



The duties of the expert shall be stated in the Terms of Reference prepared and

agreed by the Management Committee. The Management Committee shall

promptly provide the expert with the agreed terms of reference relating to the

disagreement. Each Party shall have the right to give to the expert in writing

any information which it considers useful. The expert shall have the right to

review and verify any information he deems useful to assist him in his review

of the disagreement.



(c)



The expert shall render his decision within forty-five (45) days of his receipt

of the Terms of Reference and the information referred to in Article 42.2.

Subject to the provisions of Article 15.5 of this Contract, any decision of the

expert shall be final and shall not be subject to any appeal, except in the case

of manifest error, fraud or malpractice. Any costs and expenses associated

with the expert determination shall be shared equally between the Parties.



General

42.3



No negotiation, mediation, arbitration or expert determination procedure under this

Article 42 shall exempt the Parties from fulfilling their respective legal and/or

contractual obligations.



ARTICLE 43 - GOVERNING LAW, FISCAL STABILITY AND AMENDMENTS

Governing Law

43.1



This Contract, including any dispute arising therefrom, thereunder or in relation

thereto, shall be governed by English law (except any rule of English law which

would refer the matter to another jurisdiction), together with any relevant rules,

customs and practices of international law, as well as by principles and practice

generally accepted in petroleum producing countries and in the international

petroleum industry.



Fiscal Stability

43.2



The obligations of the CONTRACTOR resulting from this Contract shall not be

aggravated by the GOVERNMENT and the general and overall equilibrium between

the Parties under this Contract shall not be affected in a substantial and lasting

manner.



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43.3



The GOVERNMENT guarantees to the CONTRACTOR, for the entire duration of

this Contract, that it will maintain the stability of the fiscal and economic conditions

of this Contract, as they result from this Contract and as they result from the laws and

regulations in force on the date of signature of this Contract. The CONTRACTOR

has entered into this Contract on the basis of the legal, fiscal and economic framework

prevailing at the Effective Date. If, at any time after the Effective Date, there is any

change in the legal, fiscal and/or economic framework under the Kurdistan Region

Law or other Law applicable in the Kurdistan Region which detrimentally affects the

CONTRACTOR, the terms and conditions of the Contract shall be altered so as to

restore the CONTRACTOR to the same overall economic position as that which

CONTRACTOR would have been in, had no such change in the legal, fiscal and/or

economic framework occurred.



43.4



If the CONTRACTOR believes that its economic position has been detrimentally

affected as provided in Article 43.3, upon the CONTRACTOR's written request, the

Parties shall meet to agree on any necessary measures or making any appropriate

amendments to the terms of this Contract with a view to re-establishing the economic

equilibrium between the Parties and restoring the CONTRACTOR to the position it

was in prior to the occurrence of the change having such detrimental effect. Should

the Parties be unable to agree on the merit of amending this Contract and/or on any

amendments to be made to this Contract within ninety (90) days of CONTRACTOR’s

request (or such other period as may be agreed by the Parties), the CONTRACTOR

may refer the matter in dispute to arbitration as provided in Article 42.1.



43.5



Without prejudice to the generality of the foregoing, the CONTRACTOR shall be

entitled to request the benefit of any future changes to the petroleum legislation or any

other legislation complementing, amending or replacing it.



43.6



The Parties agree to cooperate in all possible ways with a view to fully achieving the

objectives of this Contract. The GOVERNMENT shall facilitate the performance of

the Petroleum Operations by promptly granting to the CONTRACTOR any

necessary authorisation, permit, licence or access right and making available any

existing facilities and services with a view to the Parties obtaining maximum mutual

benefit from the Contract.

Amendments



43.7



Except as provided in Article 47, any amendment to this Contract shall be the subject

of a formal amendment, duly approved in writing by the Parties and subject to the

same conditions of validity as this Contract.



43.8



This Contract constitutes the entire agreement of the Parties and supersedes any and

all prior understandings or agreements in respect of the subject matter of this Contract.



43.9



Unless otherwise expressly stated elsewhere in this Contract, no failure or delay of

any Party to exercise any right, power or remedy under this Contract shall operate as a

waiver thereof; nor shall any single or partial exercise of any such right, power or

remedy preclude any other or future exercise thereof or the exercise of any other right,

power or remedy.



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Validity

43.10 As signatory to this Contract for and on behalf of the GOVERNMENT, the Ministry of

Natural Resources in the Kurdistan Region hereby represents that it approves this

Contract for the purposes of the Kurdistan Region Petroleum Act, when it enters into

force.



ARTICLE 44 - NOTICES

44.1



All notices, demands, instructions, waivers, consents or other communications to be

provided pursuant to this Contract shall be in writing in English, shall be effective

upon receipt, and shall be sent by receipted hand delivery or by email (followed by

delivery by reputable international air courier company with an establishment in Erbil

in the Federal Region of Kurdistan) to the following addresses:

To the GOVERNMENT:

Attention:

His Excellency the Minister of Natural Resources

Address:

Ministry of Natural Resources

Kurdistan Regional Government

Erbil, Kurdistan

Email:

To the CONTRACTOR:

Attention: [INSERT DETAILS]

Address:

Email:

A notice delivered by email (followed by air courier) shall, save for manifest error, be

deemed to have been delivered upon its transmission by email.



44.2



The above address and/or designated representative of any of the Parties may be

changed on giving ten (10) days prior notice to the other Party delivered pursuant to

Article 44.1.



ARTICLE 45 - TERMINATION

45.1 Subject to the provisions of Article 45.5, the GOVERNMENT shall have the right to

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terminate this Contract in the event the CONTRACTOR:

(a)



fails to meet a material financial obligation expressly stated in this Contract; or



(b)



during the First Sub-Period does not carry out drilling and seismic acquisition,

as detailed in Article 10.2 or, during the Second Sub-Period (or earlier), does

not carry out drilling and seismic acquisition, as detailed in Article 10.3; or



(c)



interrupts Production for a period of more than ninety (90) consecutive days with

no cause or justification acceptable in accordance with this Contract (including

Force Majeure) or under normal international petroleum industry practice; or

(d) intentionally extracts or produces any mineral which is not covered by the

object of this Contract, unless such extraction or production is expressly

authorised or unavoidable as a result of operations carried out in accordance

with accepted international petroleum industry practice; or



(e)



if the CONTRACTOR comprises solely one entity, is declared bankrupt in

accordance with applicable Law; or



(f)



wilfully refuses to abide by negotiation, mediation, arbitration or expert decision

under Article 42 of this Contract.



45.2



The GOVERNMENT may also terminate the Contract only in respect of one

CONTRACTOR entity if such entity is subject to a Change of Control which has been

completed without having obtained the prior required authorisation from the

GOVERNMENT in accordance with Article 39.6.



45.3



At any time prior to the Development Period, the CONTRACTOR shall have the right

to terminate this Contract by surrendering the entire Contract Area in accordance with the

provisions of Article 7 of this Contract.



45.4



During the Development Period, the CONTRACTOR shall have the right to

terminate this Contract at any time by surrendering all Production Areas, provided its

then current obligations have been satisfied in accordance with this Contract.



45.5



If the GOVERNMENT intends to exercise its right to terminate this Contract

pursuant to Article 45.1, it shall first comply with the following provisions:

(a)



(b)



The GOVERNMENT shall notify the CONTRACTOR of its intention to

terminate this Contract stating the reasons for such termination and requesting

the latter:

(i)



to remedy the default within three (3) months; or



(ii)



to propose acceptable compensation.



If, by then end of the said three (3) month period referred to in Article 45.4 (a),

the GOVERNMENT is not satisfied, it shall notify the CONTACTOR in

writing that the Contract shall be terminated from the termination date detailed

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in such notice. This Contract shall terminate on such termination date unless

the CONTRACTOR issues a notice of dispute as provided under Article 42

of this Contract, in which case this Contract shall remain in force until a final

settlement of the dispute has been reached in accordance with the dispute

resolution provisions of Article 41 of this Contract.

The foregoing provisions of this Article 45.4 are subject to the proviso that, in case of

a dispute where there has been breach of this Contract which has been submitted to

arbitration pursuant to Article 42 of this Contract, the GOVERNMENT shall not be

entitled to exercise its right to terminate this Contract prior to a decision regarding the

dispute having been rendered by the arbitration tribunal.

45.6



If the GOVERNMENT terminates this Contract pursuant to the provisions of Articles

45.1 and 45.5, the CONTRACTOR shall lose all its rights and interests under this

Contract.



ARTICLE 46 - APPLICATION OF CORRUPTION LAWS

46.1



If this Contract is reasonably proven to have been obtained in violation of Kurdistan

Region Law concerning corruption, this Contract is void ab initio.



46.2



If the CONTRACTOR is at any time reasonably proven to be in breach of Kurdistan

Region Law concerning corruption, the CONTRACTOR may lose this Contract or part

of the Contract.



ARTICLE 47 - GOVERNMENT REVIEW

47.1



This Contract may be reviewed by the GOVERNMENT and amended by the

GOVERNMENT to the extent necessary to ensure that, with respect to the criteria of

probity and the criteria of commerciality which the Republic of Iraq Oil and Gas Law

may expressly require shall apply to all petroleum contracts in all parts of Iraq outside

the Kurdistan Region:

(a)



there is no material inconsistency between this Contract and such criteria of

probity; and



(b)



there is no overall material inconsistency between this Contract and such

criteria of commerciality,



(the “Purpose”).

47.2



Within sixty (60) days of the entry into force of the Republic of Iraq Oil and Gas Law,

the GOVERNMENT may notify the CONTRACTOR in writing of any

amendments that the GOVERNMENT considers necessary for the Purpose,

accompanied by the reasons for its decision and the proposed form of such

amendment. If the CONTRACTOR receives no such notification within such

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period, the GOVERNMENT shall be deemed to have reviewed this Contract and

required no amendments and the provisions of Article 43.7 shall apply without the

exception referred to therein in respect of this Article 47.

47.3



The CONTRACTOR may, within thirty (30) days of receiving such a notification,

respond to the proposed amendments in writing. The GOVERNMENT shall

consider any such response and shall, within sixty (60) days of the notification,

further notify the CONTRACTOR in writing of any decision to amend the Contract

or decision not to amend, accompanied by the reasons for its decision and, if different

from the original proposed form of amendment, its revised proposed form of such

amendment. If the GOVERNMENT’s decision notified to CONTRACTOR is not

to amend, the GOVERNMENT shall be deemed to have reviewed this Contract and

required no amendments and the provisions of Article 43.7 shall apply without the

exception referred to therein in respect of this Article 47.



47.4



If the GOVERNMENT’s decision notified to CONTRACTOR pursuant to Article

47.3 is to amend and the CONTRACTOR agrees with the GOVERNMENT’s

decision, the GOVERNMENT and the CONTRACTOR shall use their reasonable

endeavours to agree in good faith the form of, and approve in writing such

amendment within thirty (30) days. In the absence of such approval within such

period, the provisions of 47.5 shall apply.



47.5



If the GOVERNMENT’s decision notified to CONTRACTOR pursuant to Article

47.3 is to amend and the CONTRACTOR does not agree with the

GOVERNMENT’s decision, this Contract shall be deemed to have been so amended

on the date of notification of the GOVERNMENT's decision to amend the Contract

by the form of amendment accompanying such notice but without prejudice to the

application of Articles 43.2 through 43.6. The effective date of amendment will be

deemed to be the date of notification of the GOVERNMENT's decision to amend the

Contract.



ARTICLE 48 - EFFECTIVE DATE

This Contract shall become effective and be binding on the Parties when both of the

following conditions have been satisfied:

(a)



the signature of the Contract by the duly authorised representatives of the

GOVERNMENT and the CONTRACTOR, as provided below; and



(b)



the ratification of the Contract by the Prime Minister of the Kurdistan Region, on

behalf of the Kurdistan Region Council of Ministers, which shall be given by notice

in writing to the CONTRACTOR in the form attached in Annex C and shall be

effective upon the date of such notice.



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Entered into in three (3) originals in Erbil, the Kurdistan Region on



For the KURDISTAN REGIONAL For [ ]

GOVERNMENT



Minister of Natural Resources



Director



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2007.



ANNEX A

Map showing coordinates of [ ] Block corner points



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ANNEX B

ACCOUNTING PROCEDURE

PARAGRAPH I

GENERAL PROVISIONS

1.1

Purpose

To classify expenditures, define further Petroleum Costs (in addition to those defined as such

in the Articles of the Contract), and prescribe the manner in which the CONTRACTOR's

Accounts shall be prepared and approved.

1.2

Definitions

Words and phrases to which a meaning has been assigned in Article 1 or other Articles of the

Contract shall have the same meaning when used in this Annex.

1.3

Inconsistency

In the event of any inconsistency or conflict between the provisions of this Annex and the

other provisions of the Contract, then the other provisions of the Contract shall prevail.

1.4



Accounting Records and Reports



1.4.1 The Contractor shall maintain the Accounts in accordance with Article 15.1 and in

accordance with this Accounting Procedure, including in accordance with the charts of

accounts agreed under Paragraph 1.4.2 below.

1.4.2 Within sixty (60) days of the Effective Date, the CONTRACTOR shall submit to and

discuss with the GOVERNMENT a proposed outline of charts of Accounts, which outline

shall be in accordance with generally accepted standards and recognized accounting systems

and consistent with normal petroleum industry practice and procedures. Within ninety (90)

days of receiving the above submission, the GOVERNMENT shall either provide written

notification of its approval of the proposal or request in writing revisions to the proposal.

Within one hundred and eighty (180) days after the Effective Date, the CONTRACTOR and

the GOVERNMENT shall agree on the outline of charts of Accounts which shall describe

the basis of the accounting system and procedures to be developed and used under this

Contract. Following such agreement, the CONTRACTOR shall expeditiously prepare and

provide the GOVERNMENT with formal copies of the comprehensive charts of Accounts

and manuals related to the accounting, recording and reporting functions, and procedures

which are, and shall be, observed under the Contract.

1.4.3 Notwithstanding the generality of the foregoing, the CONTRACTOR shall make

regular Statements relating to the Petroleum Operations. These Statements are as shown:

a)



Production Statement (as indicated in Paragraph 6 of this Annex).



b)



Value of Production and Pricing Statement (as indicated in Paragraph 7 of this

Annex).



c)



Cost Recovery and Share Account Statement (as indicated in Paragraph 8 of

this Annex).



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d)



Statement of Expenditures and Receipts (as indicated in Paragraph 9 of this

Annex).



e)



Final End-of-Year Statement (as indicated in Paragraph 10 of this Annex).



f)



Budget Statement (as indicated in Paragraph 12 of this Annex).



1.4.4 All reports and statements shall be prepared in accordance with the Contract,

Kurdistan Region Law, and where there are no relevant provisions of either of these, in

accordance with generally accepted practices in the international petroleum industry.

1.5

Language and Units of Account

All Accounts shall be maintained and prepared in the English language and shall be recorded

in Dollars. Where necessary for clarification, the CONTRACTOR may also maintain

Accounts in other currencies.

1.6

Audit and Inspection Rights of the GOVERNMENT

In addition to the provisions of Article 15.3 and 15.5, the following provisions shall apply to

any audit carried out in accordance with Article 15.3:

1.6.1: For purposes of auditing, the GOVERNMENT, acting reasonably and in accordance

with generally accepted international petroleum industry practice, may examine and verify, at

reasonable times upon reasonable prior written notice to the CONTRACTOR, all charges

and credits relating to the Petroleum Operations, such as books of account, accounting

entries, material records and inventories, vouchers, payrolls, invoices and any other

documents, correspondence and records including electronic records reasonably considered

necessary by the GOVERNMENT to audit and verify the charges and credits, values and

treatments.

1.6.2 Furthermore, the auditors shall have the right in connection with such audit, to visit

and inspect at reasonable times, all sites, plants, facilities, warehouses and offices of the

CONTRACTOR directly or indirectly serving the Petroleum Operations and to question

personnel associated with those Petroleum Operations.

1.6.3 Where the GOVERNMENT requires verification of charges made by an Affiliated

Company of the CONTRACTOR, the GOVERNMENT shall have the right to obtain an

audit certificate from an internationally recognized firm of public accountants acceptable to

both the GOVERNMENT and the CONTRACTOR, which may be the CONTRACTOR's

statutory auditor.

1.6.4 All agreed adjustments resulting from an audit shall be promptly made in the

CONTRACTOR's Accounts and any consequential adjustments to payments due to the

CONTRACTOR or to the GOVERNMENT, as the case may be, shall be made promptly.

1.6.4 When issues are outstanding with respect to an audit, the CONTRACTOR shall

maintain the relevant documents and permit inspection thereof until the issue is resolved.

1.7



Payments



Unless as otherwise provided in Article 24, Article 29 or other Articles of the Contract:

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1.7.1 All payments between the Parties shall, unless otherwise agreed, be in Dollars and be

made through a bank designated in writing by each receiving party; and all sums due under

the Contract shall be paid within thirty (30) days following the end of the month in which the

obligation to make such payment occurred.

1.7.2 All sums due by one party to the other under the Contract shall, for each day such

sums are overdue, bear interest compounded monthly at LIBOR plus two percent (2%).

1.8



Currency Exchange Rates



In addition to the provisions of Article 29, the following provisions shall apply to any

exchanges of currency carried out in accordance with Article 29:

1.8.1 Amounts received and Petroleum Costs incurred, shall be converted from other

currencies into Dollars in accordance with the CONTRACTOR’s usual accounting

procedures which shall reflect generally accepted accounting practices in the international

petroleum industry, and with reference to exchange rates obtained in accordance with Article

29.

1.9



Accrual Basis, Cash Flow Basis and Reports



All books and accounts shall be prepared on an accrual basis. Revenues shall be attributed to

the accounting period in which they are earned, and Petroleum Costs shall be attributed to the

accounting period in which they are incurred, without the need to distinguish whether cash is

recovered or disbursed in connection with a particular transaction. Petroleum Costs shall be

deemed to have been incurred, in the case of physical items, in the accounting period when

title thereto passes to the CONTRACTOR, and in the case of services, in the accounting

period when such services are performed.

1.10



Values and Treatments



Values and treatments proposed by the CONTRACTOR relating to all Petroleum Costs shall

be subject to challenge by the GOVERNMENT in the course of audit to ensure that they are

in accordance with the provisions of this Accounting Procedure.

PARAGRAPH 2

CLASSIFICATION, DEFINITION AND ALLOCATION OF

COSTS AND EXPENSES

2.1

Segregation of Costs and Expenses

Petroleum Costs shall be segregated in accordance with the purposes for which such

Petroleum Costs are made. The purposes which shall qualify are:

(a)

(b)

(c)



those which have been included in the approved Work Program and Budget

for the year in which the Costs and Expenditures are made;

expenditures incurred in cases of emergency as set out in Articles 11.7, 13.5,

13.9 35.5, 35.6 and any other Articles of the Contract;

any other purposes agreed in the Articles of the Contract; and

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(d)



other items which have been agreed by the Parties from time to time.



All Petroleum Costs recoverable under Paragraph 3 relating to Petroleum Operations shall be

classified, defined and allocated as set out below.

2.2.



Exploration Costs



Exploration Costs are all direct and allocated indirect costs and expenditures incurred in

carrying out the Exploration Operations, including but not limited to all direct and allocated

indirect costs and expenditures incurred in the search for Petroleum in an area which is, or

was at the time when such costs and expenses were incurred, part of the Contract Area

including:

2.2.1 Aerial, geophysical, geochemical, paleontological, geological, topographical and

seismic surveys and studies and their interpretation.

2.2.2 Stratigraphic test hole drilling and water well drilling.

2.2.3 Labour, materials, supplies, and services used in drilling wells with the object of

finding Petroleum or Appraisal wells excluding any costs of the subsequent completion of

such wells as producing wells.

2.2.4 Facilities to the extent used in support of the purposes described in Paragraphs 2.2.1,

2.2.2 and 2.2.3 above, including access roads and purchased geological and geophysical

information, all separately identified.

2.2.5 That portion of all Service Expenditures and that portion of all General and

Administrative Expenditures directly attributable to Exploration Costs or allocated thereto on

a consistent and equitable basis.

2.2.6 Any other expenditures incurred in the search for and appraisal of Petroleum after the

Effective Date and not otherwise covered under Paragraph 2.2.

2.3



Gas Marketing Costs



Gas Marketing Costs are all direct and allocated indirect costs and expenditures incurred in

carrying out Gas Marketing Operations and include that portion of all Service Expenditures

and that portion of all General and Administrative Expenditures directly attributable to Gas

Marketing Costs or allocated thereto on a consistent and equitable basis.

2.4



Development Costs



Development Costs are all direct and allocated indirect costs and expenditures incurred in

carrying out Development Operations including but not limited to all direct and allocated

indirect costs and expenditures incurred in:

2.4.1 Drilling wells which are completed as producing wells and drilling wells for purposes

of producing from a Petroleum reservoir, whether these wells are dry or producing and

drilling wells for the injection of water or gas to enhance recovery of Petroleum.



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2.4.2 Completing wells by way of installation of casing or equipment or otherwise after a

well has been drilled for the purpose of bringing the well into use as a producing well or as a

well for the injection of water or gas to enhance recovery of Petroleum.

2.4.3 The costs of Petroleum production, transport and storage facilities such as pipelines,

flow lines, production and treatment units, wellhead equipment, subsurface equipment,

enhanced recovery systems, Petroleum storage facilities, and access roads for production

activities.

2.4.4 Engineering and design studies for the wells and facilities referred to in Paragraphs

2.4.1, 2.4.2 and 2.4.3.

And including that portion of all Service Expenditures and that portion of all General and

Administrative Expenditures directly attributable to Development Costs or allocated thereto

on a consistent and equitable basis; and any other expenditure incurred in the Development

Operations and not otherwise covered under Paragraph 2.3.

2.5



Production Costs



Production Costs are all direct and allocated indirect costs and expenditures incurred in

carrying out Production Operations, including but not limited to all direct and allocated

indirect costs and expenses incurred in Petroleum Operations after First Production which are

other than Exploration Costs, Gas Marketing Costs, Development Costs and

Decommissioning Contributions. Production Costs include that portion of all Service

Expenditures and that portion of all General and Administrative Expenditures directly

attributable to Production Costs or allocated thereto on a consistent and equitable basis.

2.6



Decommissioning Costs



Decommissioning Costs are all direct and allocated indirect costs and expenditures incurred

in carrying out Decommissioning Operations and include that portion of all Service

Expenditures and that portion of all General and Administrative Expenditures directly

attributable to Decommissioning Costs or allocated thereto on a consistent and equitable

basis, and the Decommissioning Reserve Fund shall be determined on such basis, in advance

of incurring such costs, as provided in Article 38 and, for the purposes of cost recovery, the

contributions to the Decommissioning Reserve Fund shall be recovered in accordance with

Article 38.

2.7



Service Expenditures



Service Expenditures are expenditures in support of Petroleum Operations including

warehouses, vehicles, motorized rolling equipment, aircraft, fire and security stations,

workshops, water and sewerage plants, power plants, housing, community and recreational

facilities and furniture, tools and equipment used in these activities. Service Expenditures in

any Calendar Year shall include the costs incurred in such year to purchase and/or construct

the said facilities as well as the annual costs of maintaining and operating the same. All

Service Expenditures shall be regularly allocated as specified in Paragraphs 2.2.5, 2.3, 2.4,

2.5 and 2.6 to Exploration Costs, Gas Marketing Costs, Development Costs, Production Costs

and Decommissioning Costs respectively and shall be separately shown under each of these

categories. Where Service Expenditures are made in respect of shared facilities, the basis of

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allocation of costs to Petroleum Operations shall be consistent and equitable and shall be

specified.

2.8



General and Administrative Expenditures



General and Administrative Expenditures are:

2.8.1 All main office, field office and general administrative expenditures in the Kurdistan

Region including but not limited to supervisory, accounting and employee relations services.

2.8.2 Where the CONTRACTOR is an Affiliate of a group of companies whose

headquarters is Abroad (a “Foreign CONTRACTOR”), an annual overhead charge shall be

made for services rendered (excluding the direct expenditures as referred in Paragraph

3.1.2.(b) below) by any Affiliate of the Foreign CONTRACTOR outside the Kurdistan

Region to support and manage Petroleum Operations under the Contract, or where the

CONTRACTOR, not being a Foreign CONTRACTOR draws upon the services of an

Affiliate within the Kurdistan Region, an annual overhead charge shall be made for services

rendered (excluding the direct expenditures as referred in Paragraphs 3.1.2.(a) and (b) below)

by such Affiliate to support and manage Petroleum Operations under the Contract (“Parent

Company Overhead”).

Parent Company Overhead will be deemed to cover the actual cost (being salaries, wages and

labour burden, employee benefits, travel, hotel and other normally reimbursable expenses

paid by the Affiliate of a CONTRACTOR in accordance with its standard personnel policy

in force in the relevant period, provision of office accommodation and provision of services

reasonably necessary for operation and maintaining such staff offices) incurred for services

rendered by those functions of CONTRACTOR's Affiliate, such as, but not limited to,

international production headquarters, international exploration headquarters, treasury,

payroll, taxation, insurance, legal, communications, computer services, controllers, personnel,

executive administrative management, research and development, central engineering and

process engineering which:

a)



cannot, without unreasonable effort and/or expenditure or without the release

of confidential data proprietary to any of the CONTRACTOR's Affiliates, be

charged under any other section of this Annex; and



b)



are properly allocable to Petroleum Operations under the Contract. It is

understood, however, that services performed by the departments listed above

and other corporate departments which directly benefit Petroleum Operations

under the Contract shall be charged as direct costs in accordance with

Paragraph 3 of this Annex.



In respect of the costs of the CONTRACTOR's Parent Company Overhead, as described

above, the CONTRACTOR shall charge monthly to Petroleum Operations an amount equal

to the total of the following:

2.8.2.1 Exploration Overhead

The CONTRACTOR shall be entitled to an annual charge based on a sliding scale

percentage and charged monthly to Petroleum Operations. The basis for applying this

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percentage shall be the total of Exploration Costs and Gas Marketing Costs during each

Calendar Year (exclusive of this Exploration Overhead) or fraction thereof less expenditures

which have been subjected to the two (2) percent fee, referred to in Paragraph 3.1.8(b). The

sliding scale percentage shall be the following:

For the first four million Dollars ($4,000,000) four percent (4%)

For the next four million Dollars ($4,000,000) three percent (3%)

Over eight million Dollars ($8,000,000) two percent (2%)

The foregoing percentages may be reviewed but not more often than annually, and any

approved appropriate adjustment shall be made, if necessary, prospectively.

2.8.2.2 Development, Production and Decommissioning Operations Overhead

The overhead rates applicable to Development, Production and Decommissioning Operations

shall be agreed between the Parties in due course and shall incorporate the following

guidelines:

a)



The CONTRACTOR's charges must be charged as direct charges whenever

possible. Overhead charges exist only to compensate the CONTRACTOR's

Affiliates for costs which are properly allocable to Petroleum Operations

under the Contract but which cannot, without unreasonable effort and/or

release of confidential data proprietary to the CONTRACTOR's Affiliates, be

charged under any other section. Overhead costs are billed monthly.

Overhead must be commensurate with services rendered and based on actual

cost studies but may not exceed an amount calculated as a percentage of

certain annual expenditures excluding Exploration Costs and Gas Marketing

Costs. That percentage as well as the types of expenditures, which affect

overhead and those, which do not, shall be agreed among the Parties.



b)



The maximum percentage rates may be revised by mutual agreement not more

often than annually. The initial maximum percentage rates and the types of

expenditures to which they apply shall be agreed as soon as the Parties possess

reasonably reliable cost estimates for the relevant Production Area.



c)



Overhead charges are not subject to audit by GOVERNMENT.



d)



The CONTRACTOR shall upon request furnish at the end of each relevant

Calendar Year to the GOVERNMENT a confirmation by its statutory auditor

that the overhead costs actually charged do not duplicate any other charges

and that the method used in allocating overhead to Petroleum Operations

hereunder as opposed to other activities is reasonable and in accordance with

generally accepted accounting practices.



e)



The CONTRACTOR must budget for overhead charges.



2.8.3 All General and Administrative Expenditures shall be regularly allocated as specified

in Paragraphs 2.2.5, 2.3, 2.4, 2.5 and 2.6 to Exploration Costs, Gas Marketing Costs,

Development Costs, Production Costs and Decommissioning Costs respectively and shall be

separately shown under each of these categories.



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PARAGRAPH 3

COSTS, EXPENSES, EXPENDITURES AND CREDITS

OF THE CONTRACTOR

3.1

Costs Recoverable Without Further Approval of the GOVERNMENT

Petroleum Costs incurred by the CONTRACTOR pursuant to the Contract as classified

under the headings referred to in Paragraph 2 shall be recoverable for the purpose of Article

25 of the Contract (except to the extent provided in Paragraph 4 or elsewhere in this Annex),

subject to audit as provided for in Article 15 and in Paragraph 1.6.

3.1.1 Surface Rights

All direct costs necessary for the acquisition, renewal or relinquishment of surface rights

acquired and maintained in force for the purposes of the Contract.

3.1.2 Labour and Associated Labour Costs

a)



The CONTRACTOR's locally recruited employees based in the Kurdistan

Region: Costs of all CONTRACTOR's locally recruited employees who are

directly engaged in the conduct of Petroleum Operations under the Contract in

the Kurdistan Region. Such costs shall include the costs of employee benefits

and GOVERNMENT benefits for employees and levies imposed on the

CONTRACTOR as an employer, transportation and relocation costs within

the Kurdistan Region of the employee and such members of the employee's

family (limited to spouse and dependent children) as required by law or

customary practice in the Kurdistan Region. If such employees are engaged in

other activities in the Kurdistan Region, in addition to Petroleum Operations,

the cost of such employees shall be apportioned on a time sheet basis

according to sound and acceptable accounting principles.



b)



Assigned Personnel: Costs of salaries and wages including bonuses of the

CONTRACTOR's employees directly engaged in the conduct of the

Petroleum Operations under the Contract, whether temporarily or permanently

assigned, irrespective of the location of such employees, it being understood

that in the case of those personnel only a portion of whose time is wholly

dedicated to Petroleum Operations under the Contract, only that pro-rata

portion of applicable salaries, wages, and other costs as delineated in

Paragraphs 3.1.2(c), (d), (e), (f) and (g), shall be charged and the basis of such

pro-rata allocation shall be specified.



c)



The CONTRACTOR's costs regarding holiday, vacation, sickness and

disability benefits and living and housing and other customary allowances

applicable to the salaries and wages chargeable under Paragraph 3.1.2.(b)

above.



d)



Expenses or contributions made pursuant to assessments or obligations

imposed under Law which are applicable to the CONTRACTOR's cost of

salaries and wages chargeable under Paragraph 3.1.2.(b) above.



e)



The CONTRACTOR's cost of established plans for employees' group life

insurance, hospitalization, pension, stock purchases, savings, bonus, and other

benefit plans of a like nature customarily granted to the CONTRACTOR's

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employees, provided however that such costs are in accordance with generally

accepted standards in the international petroleum industry, applicable to

salaries and wages chargeable to Petroleum Operations under Paragraph

3.1.2.(b) above.

f)



Actual transportation and travel expenses of employees of CONTRACTOR,

including those made for travel and relocation of the expatriate employees,

including their families and personal effects, assigned to the Kurdistan Region

whose salaries and wages are chargeable to Petroleum Operations under

Paragraph 3.1.2.(b) above.



Actual transportation expenses of expatriate personnel transferred to Petroleum Operations

from their country of origin shall be charged to the Petroleum Operations. Transportation

expenses of personnel transferred from Petroleum Operations to a country other than the

country of their origin shall not be charged to the Petroleum Operations. Transportation cost

as used in this section shall mean the cost of freight and passenger service, meals, hotels,

insurance and other expenditures related to vacation and transfer travel and authorized under

the CONTRACTOR's standard personnel policies. The CONTRACTOR shall ensure that

all expenditures related to transportation costs are equitably allocated to the activities, which

have benefited from the personnel concerned.

g)



Reasonable personal expenses of personnel whose salaries and wages are

chargeable to Petroleum Operations under Paragraph 3.1.2(b) above and for

which expenses such personnel are reimbursed under the CONTRACTOR's

standard personnel policies. In the event such expenses are not wholly

attributable to Petroleum Operations, the Petroleum Operations shall be

charged with only the applicable portion thereof, which shall be determined on

an equitable basis.



3.1.3 Transportation and Employee Relocation Costs

The cost of transportation of employees, equipment, materials and supplies other than as

provided in Paragraph 3.1.2.(f) necessary for the conduct of the Petroleum Operations under

the Contract along with other related costs such as, but not limited to, import duties, customs

fees, unloading charges, dock fees, and inland and ocean freight charges.

3.1.4 Charges for Services

a)



Third Parties

The actual costs of contract services, services of professional consultants,

utilities, and other services necessary for the conduct of the Petroleum

Operations under the Contract performed by third parties other than an

Affiliate of the CONTRACTOR.



b)



Affiliates of the CONTRACTOR

i)



Professional and Administrative Services Expenses: cost of

professional and administrative services provided by any Affiliates of

the CONTRACTOR for the direct benefit of Petroleum Operations,

including but not limited to services provided by the Production,

Exploration, Legal, Procurement, Financial, Insurance, Accounting and

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Computer Services Divisions other than those covered by paragraphs

3.1.4 (b) (ii), 3.1.6 and 3.1.8 (b) which CONTRACTOR may use in

lieu of having its own employees. Such charges shall reflect the cost of

providing their services. Such charges shall not include any element of

profit and shall be no more or less favourable than similar charges for

other operations carried on by the CONTRACTOR and its Affiliates.

The chargeout rate shall include all costs incurred by Affiliates

incidental to the employment of such personnel including all Labour

and Associated Labour Costs and the cost of maintaining and operating

offices and providing all support services for such personnel. Costs of

travel of such personnel in respect of Petroleum Operations will be

directly charged. The charges for such services shall not exceed those

prevailing if performed by non-Affiliated third parties, taking into

account the quality and availability of such services. Where the work is

performed outside the home office base of such personnel, the daily

rate shall be charged from the date such personnel leave the home

office base where they usually work up to their return thereto,

including days which are not working days in the location where the

work is performed, excluding any holiday entitlements derived by such

personnel from their employment at their home office base.

ii)



Scientific or Technical Personnel: cost of scientific or technical personnel

services provided by any Affiliate of the CONTRACTOR for the direct

benefit of Petroleum Operations, which cost shall be charged on a cost of

service basis and shall not include any element of profit. The chargeout rate

shall include all costs incurred by Affiliates incidental to the employment of

such personnel including all Labour and Associated Labour Costs and the cost

of maintaining and operating offices and providing all support services for

such personnel Costs of travel of such personnel in respect of Petroleum

Operations will be directly charged. The charges for such services shall not

exceed those prevailing if performed by non-affiliated third parties, taking into

account the quality and availability of such services. Unless the work to be

done by such personnel is covered by an approved Work Program and Budget,

the CONTRACTOR shall not authorize work by such personnel without

approval of the GOVERNMENT.



iii)



Equipment and facilities: use of equipment and facilities owned and

furnished by the CONTRACTOR's Affiliates, at rates commensurate with the

cost of ownership and operation; provided, however, that such rates shall not

exceed those currently prevailing for the supply of like equipment and

facilities on comparable terms in the area where the Petroleum Operations are

being conducted and shall be on an arm’s length basis. On the request of the

Government, the CONTRACTOR shall provide the GOVERNMENT with

evidence of such rates being on an arm’s length basis.

(If the

GOVERNMENT considers that any such rate is not on an arm’s length basis

then the GOVERNMENT has the right to refer the matter to an expert pursuant

to Article 42.2 of the Contract). The equipment and facilities referred to herein

shall exclude major investment items such as (but not limited to) drilling rigs,

producing platforms, oil treating facilities, oil and gas loading and

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transportation systems, storage and terminal facilities and other major

facilities, rates for which shall be subject to separate agreement with the

GOVERNMENT.

3.1.5 Communications

Cost of acquiring, leasing, installing, operating, repairing and maintaining communication

systems including radio and microwave facilities between the Contract Area and the

CONTRACTOR's nearest base facility.

3.1.6 Office and Miscellaneous Facilities

Net cost to CONTRACTOR of establishing, maintaining and operating any office, suboffice, warehouse, housing or other facility directly serving the Petroleum Operations. If any

such facility services more than one contract area the net costs thereof shall be allocated on

an equitable basis in accordance with generally accepted practice and procedures in the

international petroleum industry.

3.1.7 Ecological and Environment

a)



Costs incurred in the Contract Area as a result of legislation for archaeological

and geophysical surveys relating to identification and protection of cultural

sites or resources;



b)



Costs incurred in environmental or ecological surveys required by regulatory

authorities, including an environmental impact assessment commissioned

pursuant to Article 37.5 of the Contract and any other costs incurred in

complying with the requirements of Article 37;



c)



Costs to provide or have available pollution containment and removal

equipment;



d)



Costs of actual control and cleanup of oil spills, and of such further

responsibilities resulting therefrom as may be required by applicable laws and

regulations;



e)



Costs of restoration of the operating environment incurred pursuant to an

approved scheme prepared in accordance with Article 38 of the Contract; and



f)



Any costs incurred for the decommissioning of facilities and site restoration,

including any related activity required by GOVERNMENT or other

competent authority or by the Contract;



g)



any contributions made by the CONTRACTOR to the Decommissioning

Reserve Fund in accordance with Article 38, when such contributions are

made.



3.1.8 Material and Equipment Costs



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Costs of materials and supplies, equipment, machines, tools and any other goods of a similar

nature used or consumed in Petroleum Operations subject to the following:

a)



Acquisition - the CONTRACTOR shall only supply or purchase materials

for use in Petroleum Operations that may be used in the foreseeable future.

The accumulation of surplus stocks and inventory shall be avoided so far as is

reasonably practical and consistent with efficient and economical operations.

Inventory levels shall, however, take into account the time lag for replacement,

emergency needs, weather conditions affecting operations and similar

considerations.



b)



Components of costs, arm's length transactions - except as otherwise

provided in paragraph 3.1.8(d) below, material purchased by the

CONTRACTOR in arm's length transactions in the open market for use in the

Petroleum Operations under the Contract shall be valued to include invoice

price less trade and cash discounts (if any), licence fees, purchase and

procurement fees plus freight and forwarding charges between point of supply

and point of shipment, freight to port of destination, insurance, taxes, customs

duties, consular fees, excise taxes, other items chargeable against imported

materials and, where applicable, handling and transportation expenses from

point of importation to warehouse or operating site. Where an Affiliate of the

CONTRACTOR has arranged the purchase, coordinated the forwarding and

expediting effort, its costs should not exceed those currently prevailing in

normal arm’s length transactions on the open market and in any case shall not

exceed a fee equal to two percent (2%) of the value of the materials added to

the cost of the materials purchased.



c)



Accounting - such material costs shall be charged to the accounting records

and books in accordance with the "First in, First Out" (FIFO) method;



d)



Material purchased from or sold to Affiliates of the CONTRACTOR or

transferred from other activities of the CONTRACTOR to or from Petroleum

Operations under this Contract shall be valued and charged or credited at the

prices specified in Paragraphs 3.1.8.(d).(i), 3.1.8.(d).(ii) and 3.1.8.(d).(iii)

hereof:

i)



New material, including used new material moved from inventory

(Condition "A"), shall be valued at the current international net price

which shall not exceed the price prevailing in normal arm's length

transactions in the open market.



ii)



Used material (Conditions "B", "C" and "D";

a)



Material which is in sound and serviceable condition and is

suitable for re-use without reconditioning shall be classified as

Condition "B" and priced at seventy five percent (75%) of the

current price of new material defined in Paragraph 3.1.8(d).(i);



b)



Material which cannot be classified as Condition "B" but which

after reconditioning will be further serviceable for its original

function shall be classified as Condition "C" and priced at not

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more than fifty percent (50%) of the current price of new

material as defined in 3.1.8(d).(i) above. The cost of

reconditioning shall be charged to the reconditioned material

provided that the value of Condition “C” material plus the cost

of reconditioning do not exceed the value of Condition "B"

material;

c)



e)



Material which cannot be classified as Condition "B" or

Condition "C" shall be classified as Condition "D" and priced at

a value commensurate with its use by CONTRACTOR. If

material is not fit for use by the CONTRACTOR it shall be

disposed of as junk.



iii)



Material involving erection costs shall be charged at the applicable

condition percentage of the current knocked-down price of new

material as defined in Paragraph 3.1.8.(d).(i) above.



iv)



When the use of material is temporary and its service to the Petroleum

Operations under the Contract does not justify the reduction in price as

provided for in paragraph 3.1.8.(d).(ii).(b) hereof, such material shall

be priced on a basis that will result in a net charge to the accounts

under the Contract consistent with the value of the service rendered.



v)



Premium prices - whenever material is not readily obtainable at

published or listed prices because of national emergencies, strikes or

other unusual causes over which the CONTRACTOR has no control,

the CONTRACTOR may charge Petroleum Operations for the

required material at the CONTRACTOR's actual cost incurred in

providing such material, in making it suitable for use, and in moving it

to the Contract Area; provided notice in writing is furnished to the

GOVERNMENT of the proposed charge prior to charging Petroleum

Operations for such material and the GOVERNMENT shall have the

right to challenge the transaction on audit.



vi)



Warranty of material furnished by the CONTRACTOR - the

CONTRACTOR does not warrant the material furnished. In case of

defective material, credit shall not be passed to Petroleum Operations

until adjustment has been received by the CONTRACTOR from the

manufacturers of the material or their agents.



vii)



Adjustments arising from material inventories conducted in accordance

with Paragraph 5.2.



Equipment of the CONTRACTOR charged at rates not to exceed the average

commercial rates of non-affiliated third parties for equipment, facilities,

installations and utilities for use in the area where the same are used. On

request, the CONTRACTOR shall furnish a list of rates and the basis of

application. Such rates shall be revised when found to be either excessive or

insufficient, but not more than once every six (6) months.



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Drilling tools and other equipment lost in the hole or damaged beyond repair

may be charged at replacement cost less depreciation plus transportation costs

to deliver like equipment to the location where used.

f)



Use of leased or hired machinery and/or equipment in the Petroleum

Operations shall be charged at full cost to the CONTRACTOR. This may

include, but is not limited to mobilisation and de-mobilisation charges, lease

and hire fees, as well as other contractual costs.



3.1.9 Rentals, Duties and Other Assessments

All rentals, taxes, levies, duties, charges, fees, contributions and any other assessments and

charges of every kind and nature levied by any GOVERNMENT or taxing authority in

connection with the CONTRACTOR's activities under the Contract and paid directly by the

CONTRACTOR (save where the contrary is expressly provided in the Contract) with the

exception of taxes upon the income or profits of the CONTRACTOR or any

CONTRACTOR Party, and bonus payments made under Article 32.

If the CONTRACTOR or any of its Affiliated Companies is subject to income or

withholding tax as a result of services performed at cost for the Petroleum Operations under

the Contract, its charges for such services may be increased by the amount required to cover

such taxes (grossed up).

3.1.10 Insurance and Losses

Insurance premiums and costs incurred for insurance carried for the benefit of the Petroleum

Operations provided that such insurance is customary, affords prudent protection against risk

and is at a premium no higher than that charged on a competitive basis by insurance

companies which are not Affiliated Companies of the CONTRACTOR. Except in cases of

failure to insure where insurance coverage is required pursuant to the Contract, actual costs

and losses incurred shall be recoverable to the extent not made good by insurance unless such

losses result solely from an act of wilful misconduct by the CONTRACTOR. Such costs

may include, but are not limited to, repair and replacement of property in the Contract Area

resulting from damages or losses incurred by fire, flood, storm, theft, accident or such other

cause

3.1.11 Legal Expenses

All reasonable costs and expenses resulting from the handling, investigating, asserting,

defending, or settling of any claim or legal action necessary or expedient for the procuring,

perfecting, retention and protection of the Contract Area, and in defending or prosecuting

lawsuits involving the Contract Area or any third party claim arising out of the Petroleum

Operations under the Contract, or sums paid in respect of legal services necessary for the

protection of the joint interest of the GOVERNMENT and the CONTRACTOR shall be

recoverable. Such expenditures shall include, without limitation, attorney's fees, court costs,

arbitration costs, costs of investigation, and procurement of evidence and amounts paid in

settlement or satisfaction of any such litigation and claims provided such costs are not

covered elsewhere in the Annex. Where legal services are rendered in such matters by

salaried or regularly retained lawyers of the CONTRACTOR or an Affiliated Company of

the CONTRACTOR, such compensation shall be included instead under Paragraph 3.1.2 or

3.1.4(b) above as applicable.

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3.1.12 Claims

Expenditures made in the settlement or satisfaction of any loss, claim, damage, judgement or

other expense arising out of or relating to Petroleum Operations, except as may otherwise be

covered elsewhere in the Annex.

3.1.13 Training Costs

All costs and expenses incurred by the CONTRACTOR in the training of its Kurdistan

Regional employees engaged in Petroleum Operations under the Contract.

3.1.14 General and Administrative Costs

The costs described in Paragraph 2.6.1 and the charge described in Paragraph 2.6.2 of this

Annex.

3.1.15 Banking Charges and Currency Exchange Losses

Charges and fees by the banks for money transfers, payments and foreign exchange

transactions, as well as currency exchange losses incurred by the CONTRACTOR in

connection with the Petroleum Operations.

3.1.16 Other Expenditures

Other reasonable expenditures not covered or dealt with in the foregoing provisions of

Paragraph 3 herein which are necessarily incurred by the CONTRACTOR for the proper,

economical and efficient conduct of Petroleum Operations.

3.2



Credit Under the Contract



The proceeds, other than the proceeds from the sale of Petroleum received from Petroleum

Operations under the Contract, including but not limited to the items listed below shall be

credited to the Accounts under the Contract for the purposes of Article 25 of the Contract:

3.2.1 The proceeds of any insurance or claim or judicial awards in connection with

Petroleum Operations under the Contract or any assets charged to the accounts under the

Contract where such operations or assets have been insured and the premia charged to the

Accounts under the Contract.

3.2.2 Legal costs charged to the accounts under Paragraph 3.1.11 of this Annex and

subsequently recovered by the CONTRACTOR.

3.2.3 Revenue received from third parties for the use of property or assets the cost of which

has been charged to the Accounts under the Contract.

3.2.4 Any adjustment received by the CONTRACTOR from the suppliers/manufacturers

or their agents in connection with a defective material the cost of which was previously

charged by the CONTRACTOR to the Accounts under the Contract.



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3.2.5 Rentals, refunds, including refunds of taxes paid, or other credits received by the

CONTRACTOR which apply to any charge which has been made to the Accounts under the

Contract, but excluding any award granted to the CONTRACTOR under arbitration or

expert proceedings.

3.2.6 Prices originally charged to the Accounts under the Contract for materials

subsequently exported from the Kurdistan Region or transferred to another Contract Area

within the Kurdistan Region.

3.2.7 Proceeds from the sale or exchange by the CONTRACTOR of plant or facilities used

in Petroleum Operations the acquisition costs of which have been charged to the accounts

under the Contract.

3.2.8 Proceeds derived from the sale or license of any intellectual property the development

costs of which were incurred pursuant to the Contract.

3.2.9 Proceeds derived from the sale, exchange, lease, hire, transfer or disposal in any

manner whatsoever of any other item the costs of which have been charged to Petroleum

Operations.

3.3

Duplication of Charges and Credits

Notwithstanding any provision to the contrary in this Accounting Procedure, there shall be no

duplication of charges or credits to the accounts under the Contract.

PARAGRAPH 4

COSTS AND EXPENSES NOT TO BE TREATED AS RECOVERABLE

The following costs and expenditures shall not be included in the Petroleum Costs

recoverable under Article 25:–

4.1. Taxes on income or profit paid to any GOVERNMENT authority except taxes and

duties that may be included in the costs of material and equipment purchased for the

Petroleum Operations;

4.2. Any payment made to the GOVERNMENT by reason of the failure of the

CONTRACTOR to fulfill its Minimum Exploration Obligations in respect of the relevant

Sub-Period under the Contract.

4.3.



The cost of any letter of guarantee, if any, required under the Contract;



4.4



The bonuses set out in Article 32 of the Contract;



4.5. Costs of marketing or transportation of Petroleum beyond the Delivery Point

(excluding Gas Marketing Costs);

4.6. Attorney’s fees and other costs of proceedings in connection with arbitration under

Article 42 of the Contract or internationally recognised independent expert determination as

provided in the Contract or this Accounting Procedure;



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4.7

Any interests, fees, costs and agios paid by the CONTRACTOR for loans and any

other form of financing or advances for the financing of the Petroleum Costs entered into by

the CONTRACTOR with third parties or Affiliated Companies;

4.8

Any accounting provision for depreciation and/or amortisation, excluding any

adjustments in value pursuant to Paragraph 3.1.8;

4.9

4.10



Dividends, repayment of equity or repayment of intercompany loans;

Fines and penalties imposed under Law.

PARAGRAPH 5

RECORDS AND VALUATION OF ASSETS



5.1



Records



The CONTRACTOR shall maintain detailed records of property in use for Petroleum

Operations under the Contract in accordance with normal practice in exploration and

production activities of the international petroleum industry.

5.2



Inventories



Inventories of property in use in Petroleum Operations shall be taken at reasonable intervals

but at least once a year with respect to movable assets and once every three (3) years with

respect to immovable assets. The CONTRACTOR shall give the GOVERNMENT at least

thirty (30) days written notice of its intention to take such inventory and the

GOVERNMENT shall have the right to be represented when such inventory is taken.

Failure of the GOVERNMENT to be represented at an inventory shall bind the

GOVERNMENT to accept the inventory taken by the CONTRACTOR.

The CONTRACTOR shall clearly inform GOVERNMENT the principles upon which

valuation of the inventory has been based. The CONTRACTOR shall make every effort to

provide to the GOVERNMENT a full report on such inventory within thirty (30) days of the

taking of the inventory. When an assignment of rights under the Contract takes place the

CONTRACTOR may, at the request of the assignee, take a special inventory provided that

the costs of such inventory are borne by the assignee.

PARAGRAPH 6

PRODUCTION STATEMENT

6.1

Production Information

Without prejudice to the rights and obligations of the Parties under Article 16 of the Contract,

from the date of First Production from the Contract Area the CONTRACTOR shall submit a

monthly production statement to the GOVERNMENT showing the following information

separately for each producing Development Area and in aggregate for the Contract Area:

6.1.1 The quantity of Crude Oil produced and saved.

6.1.2 The quality characteristics of such Crude Oil produced and saved.

6.1.3 The quantity of Natural Gas produced and saved.

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6.1.4 The quality characteristics of such Natural Gas produced and saved.

6.1.5 The quantities of Crude Oil and Natural Gas used for the purposes of carrying on

drilling and production operations and pumping to field storage.

6.1.6 The quantities of Crude Oil and Natural Gas unavoidably lost.

6.1.7 The quantities of Natural Gas flared and vented.

6.1.8 The size of Petroleum stocks held at the beginning of the calendar month in question.

6.1.9 The size of Petroleum stocks held at the end of the calendar month in question.

6.1.10 The quantities of Natural Gas reinjected into the Petroleum Reservoir.

6.1.11 In respect of the Contract Area as a whole, the quantities of Petroleum transferred at

the Measurement Point. All quantities shown in this Statement shall be expressed in both

volumetric terms (barrels of oil and cubic meters of gas) and in weight (metric tonnes).

6.2

Submission of Production Statement

The Production Statement for each calendar month shall be submitted to the

GOVERNMENT no later than ten (10) days after the end of such calendar month.

PARAGRAPH 7

VALUE OF PRODUCTION AND PRICING STATEMENT

7.1

Value of Production and Pricing Statement Information

The CONTRACTOR shall, for the purposes of Article 25 of the Contract, prepare a

statement providing calculations of the value of Crude Oil produced and saved during each

Quarter.

This “Value of Production and Pricing Statement” shall contain the following information:

7.1.1 The quantities and prices realized therefor by the CONTRACTOR in respect of

sales of Natural Gas and Crude Oil delivered to Third Parties made during the Quarter in

question.

7.1.2 The quantities and prices realized therefor by the CONTRACTOR in respect of sales

of Natural Gas and Crude Oil delivered during the Quarter in question, other than to Third

Parties.

7.2

Submission of Value of Production and Pricing Statement

The Value of Production and Pricing Statement for each Quarter shall be submitted to the

GOVERNMENT not later than twenty-one (21) days after the end of such Quarter.



106/112



PARAGRAPH 8

COST RECOVERY AND SHARE ACCOUNT STATEMENT

8.1



Cost Recovery Statement



The CONTRACTOR shall prepare with respect to each Quarter a Cost Recovery Statement

containing the following information:8.1.1 Recoverable Petroleum Costs carried forward from the previous Quarter, if any.

8.1.2 Recoverable Petroleum Costs for the Quarter in question.

8.1.3 Credits under the Contract for the Quarter in question.

8.1.4 Total Recoverable Petroleum Costs for the Quarter in question (Subparagraph 8.1.1

plus Subparagraph 8.1.2 above, net of Subparagraph 8.1.3 above).

8.1.5 Quantity and value of Petroleum applied to cost recovery pursuant to Article 25 taken

by the CONTRACTOR for the Quarter in question.

8.1.6 Amount of recoverable Petroleum Costs to be carried forward into the next Quarter

(Subparagraph 8.1.4 net of Subparagraph 8.1.5 above).

8.2.



Cumulative Production Statement



The CONTRACTOR shall prepare with respect to each Quarter a Cumulative Production

Statement containing the following information:8.2.1 The cumulative production position at the end of the Quarter preceding the Quarter in

question.

8.2.2 Production of Export Crude Oil for the Quarter in question.

8.2.4 The cumulative production position at the end of the Quarter in question.

8.2.5 The amount of Petroleum applied to Royalty pursuant to Article 24, cost recovery

pursuant to Article 25 and Profit Oil pursuant to Article 26 taken by the GOVERNMENT

and by the CONTRACTOR, respectively, during the Quarter in question.

8.2.6 The forecast of production and the share of Petroleum applied to Royalty pursuant to

Article 24, cost recovery pursuant to Article 25 and Profit Oil pursuant to Article 26 due to

the GOVERNMENT and to the CONTRACTOR, respectively, for the next succeeding

Quarter.

8.3

Preparation and Submission of Cost Recovery and Cumulative Production

Statements

8.3.1 Provisional Cost Recovery and Cumulative Production Statements, containing

estimated information where necessary, shall be submitted by the CONTRACTOR on the

last day of each Quarter for the purposes of Article 25 of the Contract.

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8.3.2 Final quarterly Cost Recovery and Cumulative Production Statements shall be

submitted within thirty (30) days of the end of the Quarter in question.

8.4



Annual Statement



For the purposes of Article 25 of the Contract, an Annual Cost recovery and Cumulative

Production Statement shall be submitted within ninety (90) days of the end of each Year.

The Annual Statement shall contain the categories of information listed in Subparagraphs 8.1

and 8.2 for the Year in question, separated into the Quarters of the Year in question and

showing the cumulative positions at the end of the Year in question with respect to

cumulative unrecovered Petroleum Costs and Cumulative Production.

PARAGRAPH 9

STATEMENT OF EXPENDITURE AND RECEIPTS

9.1

The CONTRACTOR shall prepare with respect to each Calendar Quarter a

Statement of Expenditure and Receipts under the Contract. The Statement will distinguish

between Exploration Costs, Gas Marketing Costs, Development Costs Production Costs and

Decommissioning Costs and will identify major items of expenditures within these

categories. The Statement will show the following:

9.1.1 Actual expenditures and receipts for the Quarter in question.

9.1.2 Cumulative expenditure and receipts for the budget Year in question.

9.1.3 Latest forecast cumulative expenditures at the Year end.

9.1.4 Variations between budget forecast and latest forecast and explanations thereof.

9.2

The Statement of Expenditure and Receipts of each Calendar Quarter shall be

submitted to the GOVERNMENT no later than thirty (30) days after the end of such

Quarter.

PARAGRAPH 10

FINAL END-OF- YEAR STATEMENT

The CONTRACTOR will prepare a Final End-of-Year Statement. The Statement will

contain information as provided in the Production Statement, Value of Production and

Pricing Statement, Cost Recovery and Cumulative Production Statements and Statement of

Expenditures and Receipts but will be based on actual quantities of Petroleum produced and

expenses incurred. This Statement will be used to make any adjustments that are necessary to

the payments made by the CONTRACTOR under the Contract. The Final End-of-Year

Statement of each Calendar Year shall be submitted to the GOVERNMENT within ninety

(90) days of the end of such Calendar Year.



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PARAGRAPH 11

AUDITS

Each such report and statement provided for in Paragraph 6 through 10 shall be considered

true and correct, unless the GOVERNMENT raises an exception thereto within the

timeframe and under the process set out in Article 15 of the Contract.

PARAGRAPH 12

ANNUAL WORK PROGRAM BUDGET

11.1 Each annual Work Program Budget to be prepared in accordance with Articles 11, 12

and 14 of the Contract, in respect of Exploration Costs, Gas Marketing Costs, Development

Costs and Production Costs respectively will show the following:11.1.1 Forecast expenditures for the budget Year in question including a quarterly

classification of such expenditures.

11.1.2 Cumulative expenditures to the end of said budget Year.

11.1.3 A schedule showing the most important individual items of Development Costs (if

applicable) for said budget Year.



PARAGRAPH 13

CONTRACTOR INCOME TAX COMPUTATION

13.1 For the purpose of Article 31.3 (b) of the Contract, the net taxable profits of each

CONTRACTOR entity from all the Petroleum Operations carried out in the Kurdistan

Region under this Contract, shall be calculated in accordance with this Paragraph.

13.2 Each CONTRACTOR entity shall maintain for each Calendar Year separate

accounts with respect to the Petroleum Operations which shall be used, inter alia, to establish

a profit and loss account and a balance sheet which will show the results of the Petroleum

Operations carried out in such Calendar Year as well as the assets and liabilities assigned or

directly related thereto.

13.3 For purposes of determining the net taxable profits of each CONTRACTOR entity

for corporate income tax purposes,

13.3.1 the profit and loss account of such CONTRACTOR entity shall be credited with the

following:

a)



if the Royalty is paid in cash pursuant to Article 24, revenues arising from the

disposal of Royalty volumes as recorded in such entity’s accounts and determined

in accordance with the provisions of Article 24;



b)



revenues arising from the disposal of any Available Petroleum to which such

entity is entitled for recovery of its Petroleum Costs as recorded in its accounts

and determined in accordance with the provisions of Article 25;

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c)



revenues from the disposal of any Profit Petroleum to which such entity is entitled

under Article 26 as is recorded in its accounts and determined in accordance with

the provisions of Article 26;



d)



any other revenues or proceeds directly connected to the Petroleum Operations

including, inter alia, those arising from the disposal of related Petroleum

substances, or from the treatment, storage and transportation of products for third

parties;



e)



any exchange gains realised or other financial income earned by such entity in

connection with the Petroleum Operations;



13.3.2. the profit and loss account for such CONTRACTOR entity shall be debited with all

charges necessarily incurred for the purposes of the Petroleum Operations with respect to

the Calendar Year concerned and determined in accordance with the Accounting

Procedure, which charges shall include, inter alia, the following:

a)



in addition to the charges specifically set forth below in this Paragraph, all other

Petroleum Costs, including the costs of supplies, personnel and manpower

expenses, and the cost of services provided to the CONTRACTOR in connection

with the Petroleum Costs;



b)



if the Royalty is paid in cash pursuant to Article 24, Royalty payments made and

as recorded in such entity’s accounts and determined in accordance with the

provisions of Article 24;



c)



General and Administrative Expenditures related to the Petroleum Operations

performed under this Contract;



d)



depreciation of capital expenditure in accordance with the following provisions:

(i) Capital expenditures incurred by the CONTRACTOR and necessary for the

Petroleum Operations shall be depreciated on a reducing balance basis.

(ii) The depreciation rates, which shall be applicable from the Calendar Year

during which such capital expenditures are incurred, or from the Calendar

Year during which the assets corresponding to said capital expenditures are

put into normal service, whichever is later, pro rata temporis for the first

Calendar Year in question, are as follows:

Nature of the capital asset to

be depreciated

Permanent buildings

Temporary buildings

Office and home furniture and fixtures

Productive wells

Production and delivery equipment

Drilling equipment

Pipelines

Automotive equipment

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Annual depreciation

Rate

10.0%

20.0%

20.0%

20.0%

20.0%

20.0%

20.0%

20.0%



Marine and aviation equipment

All other capital assets



20.0%

20.0%



e)



Exploration Costs (which for the avoidance of doubt include appraisal

expenditures) shall be deductible on a reducing balance basis at the rate of 20%

per annum.



f)



interest and fees paid to creditors of the CONTRACTOR, for their actual

amount, subject to the limits specified in the Accounting Procedure;



g)



losses of Assets resulting from destruction or damage, assets which are renounced

or abandoned during the year, bad debts, indemnities paid to third parties as

compensation for damage;



h)



any other losses or charges directly related to the Petroleum Operations, including

exchange losses realised in connection with the Petroleum Operations as well as

the bonuses provided in Article 32, the Exploration Rental provided in Article 6.3,

the Production Rental provided in Article 13.10, the allocation to training,

provided in Article 23.6 and .the allocation to the Environment Fund provided in

Article 23.8;



i)



the amount of non-offset losses relating to the previous Calendar Years, until full

settlement of said losses or termination of this Contract;



13.3.3. the net profit of such CONTRACTOR entity shall be equal to the difference between

all the amounts credited and all the amounts debited in the profit and loss account; and

a)



if this amount is negative, it shall constitute a loss.



b)



if the amount is positive, it shall be grossed up to take account of the fact that such

entity’s corporate income tax is being settled out of the GOVERNMENT’s share

of the Profit Petroleum in accordance with Article 31.2, by applying the following

formula in order to provide such entity’s net taxable profits for corporate income

tax purposes:



Net Taxable Profits

=



Net Profits /



(100 - Applicable Rate of Corporate Income Tax )

100



13.4 For purposes of determining each CONTRACTOR entity’s liability to corporate

income tax for a tax year in respect of the Petroleum Operations carried out under this

Contract, the net taxable profits (if any) for such tax year shall be multiplied by the applicable

rate of corporate income tax, as provided in Article 31.3 (a). The Parties acknowledge and

agree that at the Effective Date of this Contract, this is forty percent (40%)for all net taxable

profits in excess of nine million Iraqi Dinar.



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Annex C

GOVERNMENT AUTHORISATION

[Office of HE The Prime Minister of the Federal Region of Kurdistan]

Dated …………….2007

To:



[ ].



For the Attention of the Chief Executive Officer

Gentlemen:

Production Sharing Contract dated ………………2007 between the KRG and [ ] for [ ]

Block

On behalf of the Council of Ministers of the Kurdistan Regional Government (the "KRG"), it

is my pleasure to confirm the following:

1.



The KRG welcomes and appreciates the commitment to the Federal Region of

Kurdistan by [ ].



2.



The Council of Ministers confirms and ratifies the execution of the Contract by His

Excellency [ ], Minister of Natural Resources.



3.



The KRG will take all appropriate measures to uphold the Contract as a legal

instrument throughout the Republic of Iraq and throughout the term of the Contract.



Yours faithfully,



[ ]

Prime Minister



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