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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
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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.
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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).
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(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.
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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.
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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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