NOTICE: The text below was created automatically and may contain errors and differences from the contract's original PDF file. Learn more here PRODUCTION SHARING CONTRACT
SANGAW NORTH BLOCK
THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ
STERLING ENERGY (INTERNATIONAL) LIMITED
TABLF. OF CONTENTS
Article 1 DRF1NII IONS
Article 2 SCOPE OF IIIIC CONTKAC1
Article 3 CONTRACT AREA
Article 4 OKI IONS OF GOVERNMENT PARTICPATION AND THIRD PARTY
Article 5 OPERATOR
Article ft TERM 01 Till-CONTRA!'‘1
Article 7 RELINQUISHMENTS
Article 8 MANAGEMENT COMMIT! I t
Article 9 GUARANTEES
Article 10 MINIMUM EXPLORATION WORK OBI IGATIONS
Article 11 EXPLORATION WORK PROGRAMS AND BUDGETS
Article 12 DISCOVERY AND DEVELOPMENT
Article 13 DEVELOPMENT AND PRODUCITON WORK PROGRAMS AND
Article 14 NATURAL GAS
Article 15 ACCOUNTING AND AUDI TS
Article 16 CON TRACTOR’S RIGHTS AND OBLIGATIONS
Article 17 USE OF LAND AND EXISTING INFRASTRUCTURE
Article 18 ASSISTANCE FROM DIE GOVERNMENT
Article 19 EQUIPMENT 1 AND MATERIALS
Article 20 TITLE! TO THE ASSETS
Article 21 liSt OF THE ASSETS
Article 22 SUBCONTRACTING
Article 23 PI RSONNEL TRAINING AND IKCIINOI OGICAI. ASSISTANCE
Article 24 ROYALTY
Article 25 RECOVERY OF PETROLEUM COSTS
Article 26 SHARING Ol PROFI1 PE 1ROI.LUM
Article 27 VALUATION AND ME 1 THING OF CRUDE OIL AND NATURAL GAS
Article 2K DOMESTIC MARKi: 1 SALI Ol GOVERNMENT SHARE
Article 29 FINANCIAL PROVISIONS
Article 30 CUSTOMS PROVISIONS
Article 31 TAX PROVISIONS
Article 32 BONUSES
Article 33 PIPELINES
Article 34 UNI TISATION
Article 35 LIABILITY AND INSURANCE
Article 36 INFORMATION AND CONFIDENTIAU1Y
Article 37 ENVIRONMENTAL PROVISIONS
Article 31 DECOMMISSIONING
Article 39 ASSIGNMENT AND CHANGE OF CONTROL
Article 40 FORCE MAJEURE
Article 41 WAIVER OF SOVEREIGN IMMl INI 1Y
Article 42 ARBITRATION AND EXPERT l>l 1ERMINATION
Article 43 GOVERNING LAW. FISCAL STABILITY. AMENDMENTS AND
Article 44 NOTICES
Article 45 TERMINATION
Article 46 APPLICATION OF CORRUPTION LAWS
Article 47 EFFECTIVE DATE
Annex A CON 1RACT AREA MAP AND LIST OF COORDINATES
Annex B ACCOUNTING PROCEDURE
PRODUCTION SHARING CONTRACT
I he KURDISTAN REGIONAL COVER'S MEM' OF IRAQ (hereafter referred lo as the
"GOVERNMENT"), duly represented by the Minister of Natural Resources;
STERLING ENERGY (INTERNATIONAL) LIMITED, a company established and
existing under the law s of England, whose registered office is at 5 Chancery Lane, London,
WC2A 1 LO, United Kingdom, duly represented by its Exploration and Technical Director.
Andrew J. (misse.
(A) Hie GOVERNMENT wishes to develop the petroleum wealth of the Kurdistan
Region tas detined 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 Article 112 thereof;
(B) Jn ucconlancc with the Constitution of Iraq, the prevailing law of the Kurdistan
Region is the Kurd.Man Region Law (as defined in this Contract), except with regard
lo a matter wholly within the exclusive jurisdiction of the Government of Iraq;
(O The Natiim.il Assembly of the Kurdistan Region approved the Oil and Gas Law oflhc
Kurdistan Region - Iraq (Law No. 22 of 2007) which law regulates Petroleum
Operations, including production sharing contracts;
• 1 >) The GOVERNMENT intends » present to the National Assembly of the Kurdistan
Reg on a law to authorise the GOVERNMENT, by contract or other authonsatwa.
(i) to exempt investors n long term protects relating to the conduct of petroleum
operations in the Kurdistan Region from Kurdistan Region taxation andor lo
indemnity Mich holders against liability to pay such taxation, and (ii) to guarantee the
stability of the applicable legal, fiscal and economic conditions of such projects.
ability, lo carry out Petroleum Operations in the Contract Area (a» defined in
this Contract) under the terms of this Contract;
(ii) having a record of compliance with the principles of good corporate
(iii) willing to cooperate with the GOVERN.VIEN I' by entering into (hi* Contract,
thereby ussisting 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, I IIE P ARTIES HAVE AGREED AS FOLLOWS
ARTICLE 1 - DEFINITIONS
1.1 Capitalized terms and expressions in this Contract shall have iIk? following meaning,
unless otherwise specified:
Abroad mean* outside oftlte Kurdistan Region and other parts of Iraq
Access Authorisation is defined in Article 17.9.
Account* 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.
Adjacent Contract Area is defined ir Ansk 34.1
Adjustment Date is defined in Ankle 27.6.
Affiliated C ompans of Affiliate means, as regard* an> of the companies or entities
constituting the C ON TRACTOR, a company of other legal entity which:
(a) controls u CONTRACTOR Entity; or
(b) is controlled by a CONTRACTOR Entk>; or
(c) controls or ra controlled by a company or entity which controls a CONTRACTOR
bin shall not include the GOVERNMENT in respect of the Public Company. For the
purpose of this definition, "control" means direct or indirect ownership or control of the
majority of the voting nghts of the applicable entity at its shareholders' meetings or their
Agrml Term* is defined in Article 14.10(a)
Apprarial Area mean* the area defined in Art:clc 12.2
Appraisal Work Program and Budget 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 u geological structure in which Petroleum has been discovered
Arm'*-Length Salt* means sales of Petroleum in freely convertible currencies between
sellers and buyers having no direct or indirect relationship or common interest whatsoever
with each other that could reasonably inllucncc the sales price. Such Arm's- Length Sales
(a) sales between or among any of the CONTRACTOR Entitle* and their respective
(b) rules involving the GOVERNMENT or the Government of Iraq; und
(c) sales involving exchanges ami any transactions not relating to normal commercial
Assets means all land, platforms, pipelines, plant, equipment, machinery, wells, facilities and
all other installations and structures and all Materials and Equipment.
Associated Natural Gas means (i) any Nutural Gas dissolved in Crude Oil under reservoir
conditions and (ii) any residue gas remaining after the extraction of Cnide Oil from a
Audit Request Period is defined in Article 15 %(■)
Available Associated Natural Gas is defined in Article 2S.I.
Asailahle C rude Oil is defined in Article 25 1.
\s ailabk Nod- \«soeialrd Natural C.a» is defined in Article 25.1
Available Petroleum i* 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 (6©:) Fahrenheit and pressure of fourteen point seven (14 7) psi
Budgets means ary budgets prepared by. or on behulf of. the CONTRACTOR pursuant to
this Contract and forming part of ar. Exploration Work Program and Budget and or an
Appraisal Work Program and Budget and/or n Gas Marketing Work Program and Budget
and/or a Development Work Program and Budget and or a Production Work Program and
Calendar Year means u period of twelve (12) consecutive Months, commencing I January
and ending on 31 December of the same year
Chairman is defined in Article 8.1.
Commercial Discovery means n Discovery which is potentially commercial when taking
into account all technical, operational, commercial and financial data collected when earning
out appear! works or similar operations, including recoverable reserves of Petroleum,
sustainable regular production levels and other material technical, operational, commercial
and financial parameters, all in accordance with prudent international petroleum industry
Commercial Production means the production of Petroleum from the Production Area in
accordance with annual Production Work Program and Budget
Constitution of Iraq means the permanent constitution of Iraq approved by the people of
Iraq in the general referendum of 15 October 2005.
Contract means this production sharing contract, including its Annexes A and B that are an
integral hereof as well as any extension, renewal, substitution or amendment of th«
production \harir* contract that ma> be agreed in writing by the Parties n accordance with
Contract Area moans the area described und defined in Annex A attached lo this Contract
and constituting un integral part of dm Contract, nnd any modifications made to that Annex
in accordance with the provisions of this Contract, through amendments, sunender.
withdrawal, extension or otherwise.
Contract Year means u period of twelve (12) consecutive Months starting IVom the Effective
Date oi tiny anniversary of the said Effective Date.
CONTRACTOR includes and co.npr.io each ami all CONTRACTOR Entitle*. together
with any Public Company or Third Party Participant nominated by the GOVERNMENT and
participating m this Contract pursuant to Article 4.
CONTRACTOR l atity means any Person which s U* the time being a component of the
CONTRACTOR, and or any assignee of all or purl of the right* and obligations of such
Person under this Contract in .accordance with Articles 4 and or 39.
Crude Oil means all liquid hydrocarbons m their unprocessed state or obtained from Natural
Gas by condensation or any other means of extraction
< an: defined in Article 31.1
Decommissioning CimIn means nil the costs and expenditures incurred by the
CONTRACTOR when carrying out Decommissioning Operations, including those defined
in the Accounting Procedure.
Decommissioning Operations means any works, together with nil related and auxiliary
activities, for decommissioning and/or removal and'or abandonment and making safe all of
the Assets and site restoration and remediation related thereto in relation to any Production
DccomiiiUsioning Plan is defined in Article 38.7.
Decominfamloninc Reserve Fund is defined in Article 38 ! and includes all contributions
paid into such fund and al! interest accumulated such fund.
Dcilurlllilc Amount is defined in Article 15.12
Delivery Point means the point after extraction, specified in the approved Dev elopment Plan
for n Production Area, at which the Crude Oil, Associated Natural Gas and/or Non-
Assocmicd Natural Gas is metered for tho puiposcs of Article 27 5, valued for the purposes of
Article 27.1 and ready to be tuken and disposed of. consistent with prudent international
petroleum industry practice, and at which a Party ina> acquire title to its share of Petroleum
under this Contract or such other point which may be agreed by the Parties.
Development Costs means nil the costs und expenditures incurred by the CONTRACTOR
when canying out Development Operation*. including those defined in the Accounting
Development Operations means .ill development operations or works conducted in
accordance with a Development Plan up to the Delivery Point with a view to developing a
Production Area, including: drilling of wells, primary and subsequent recovery projects and
pressure maintenance; survey, cngiikviing. building und erecting or laying of production
plants ;uid facilities (including: 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 Pctiolcum); obtaining of such
materials, equipment, machinery, item* and supplies as may be required or expedient lor the
foregoing activities; and all auxiliary operations and .*ctivitics required or expedient lor the
production of Petroleum from the I’reduction Area.
Development Period is defineJ in Article 6.
Development Plan means a plan for development defined in Article 12 8
Development Well means any well dnllcd after the date of approval of the Development
Plan lor the purpose of producing Petroleum, increasing or accelerating production of
Petroleum, including injection wells and dry holes. Any well drilled within a Production Area
shall he deemed a Development WelL
Development Work Program und Budget means the development work program and
budget prepared pursuant to Article 13.2
Diveiivery means a discovery of Petroleum within the limits of the Contract Area resultirg
from Petroleum Operations earned out under this Contract, provided such Petroleum is
recovcrahk ai the surface with a measurable flow utilising techniques used m prudent
international petroleum industry practice.
Dispute is defined in Article 42.1
llollar (I S$) mean* the legal currency (dollar) of the 1/n.ted Suae* of .America (USA).
effective l>ate means the dale on which the conditions referred to in Article 47 have been
F.nx ironnum Fund is defined in Article 23.9.
Equipment and MatciiaU is defined in Article 19.1.
Exploration CnIi means all the costs and expenditure incurred by the CONI RACTOK
when carrying out Exploration Operations. including those defined in the Accoutring
Exploration Operations means any and dll operations conducted with a view to discovering
Petiole am. including any activities accessary to commence operations: any topographical,
hydrographical. geological. geophysical, aenal and other surveys and activities (including
.ntcrprciatitKis. analyses and related studies) to investigate the subsurface for the location of
Petroleum drilling of shot boles, core holes and stratigraphic test holes, spud, drilling,
testing, coring, logging and equipping ol 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 requited or
expedient for the conduct of the foregoing activities.
Exploration Period is defined in Article 6.
Exploration Kriilal is defined in Article 6.3.
Exploration Well means any well drilled for the purpose of confirming a geological
structure or stratigraphic unit in which no Discovery has previously been made by ihe
h lploration Work Program and Budget means the cxpfcwat
prepared pursuant lo .Article I I.I.
I sport < rude Oil is defined in Article 24.2.
Export Nun-Associated Natural C.a» is defined in Article 24.2
Export Petroleum isdclincxl in Article 24.2
First Commercial Declaration Date is defined in Article 4 1
First Production means the inomert when Commercial Production of Crude Oil or Non-
Associ.ricd Namral Gas (as the ease may be) first commerces, by flowing al the rate f«-recast
in the Dcxelopmcnt Plan without interruption for a minimum of forty eight (48) hours
Forte Majeure is defined in Article 402.
lias Do clop men I is defined in Article 14.10.
(las Marketing Coita means all costs and expenditure incurred by the < ONTR ACTOR
when causing out (ms Maikcting Operations, including those defined in the Accounting
Gaft Marketing Operation* means any *xl all of the activities -nd operations contemplated
by Article 14.6.
(.as Marketing Work Program and Budget means the marketing work program and
budget prepared pursuant to Article 14.8.
Government Interest is defined in Article 4 I
Government of Iraq means die Federal Government of the Republic of Iraq, which hold.'
office under the Constitution of Iraq and any minister, ministry, department, sub-division.
authority, council, committee, oi Other constituent element thereof and shall.
limitation, include any corporation owned and or controlled by the any of the foregoing.
International Market Price is defined in Article 27.2.
Iraq means the entirety of the Republic of Iraq, including the Kurdistan Region.
Joint Operating Agreement means any agreement executed by the CONTRACTOR
Knbtics at any time for the purpose of regulating between such entities the terms under which
the Petroleum Operations will be cotvJucicd. which agreement shall be (a) consistent with
prudent international petroleum industry practice; (b) as between such entities, supplementary
to this CootnKt, and (c) consistent w ith the provisions of the Contract
Kurdistan Region me.ms the I edcr.l Region of Kurdistan recognised by ihe C.n*n JOOn of
Iraq and having the same meaning as in the Kurdistan Region Oil and ( .i» I aw
Kurdistan Region l.uw means all staintos. decrees, edicts, codes, orders, rules, ordinances
and regulatioas of the GOVERNMENT or of any other local, municipal, territorial,
provincial, or any other duly constituted governmental authority or agency in the Kurdistan
Kurdistan Region Oil and Cm Law means the Oil nnd
Iraq (law No 22 of 2007) aa the same may he amended
l.aw means all applicable laws including 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.
I XT A is defined in Article 42. 1(b).
LIBOR means the London Inter Bank Offered Rate at which Dollar deposits for one (I)
month arc offered in the inter-hank market in London, as quoted in the Financial l imes of
London for the tiny m question. In the event that such rate is not published in the Financial
Times, it shall mean the London Inter-bunk Offered Rate at which Dollar deposits for one
nx«h are ottered for the nearest day aa quoted by National Westminster Bank pie
Management Committee is dcCricd in Article 8.
Maxima- Ffficieat Rate (“MLR“» a defined ia Article 16 12
Minimum Exploration Obligation* is defined in Article 10.1.
Minimum l-inuncliil Commitment means:
(a) in reaped of the First Sub-Penod, the total of the amounts set out in Articles
10.2(d) ami 10.2(c); and
(b) in respect of this Second Sub-I’eriod, the amount act out in Article 10.1(b).
Month means a calendar month according to (Ik Gregorian calendar.
Natural Gas means all gaseous Petroleum and inerts.
Non-Associated Natural Gas means any Natural Gas which is not any Associated Natural
Notice of Dispute is defined in Article 42 I
Operator means the entity designated by the CONTRACTOR pursuant to Article 5 which,
in the name and on behalf of the COM M AC TOR. shall carry out all Petroleum Operations.
If at any time there exists more than one (I) 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.
Option of Government Participation is defined in .Article 4.1.
Option of I bird Party Participation n defined in Article 4 8.
Parts or Parties means the GOVERNMENT and or each CONTRACTOR Entity and or
Permits means all licence*. permits, consents, authorisations or other permissions, as the
ami ext requires.
Person shall include natural and juristic persons (including corporations nnd governmental
(a) any naturally occurring hydrocarbon in a gaseous or liquid state
(b) any mixture of naturally occurring hydrocarbons in a gaseous or liquid slate; or
(c) any Petroleum (us defined in paragraphs (a) and (b) above) that has been returned to a
Petroleum Costs means till costs and expenditure incurred by the C ON I R ACTOR for the
Petroleum Operations, and which the CONTRACTOR is entitled to recover undei this
Contract and its Accounting Procedure, including Decommissioning Costs, Development
Costs, Exploration Costs. Gas Marketing Costs and Production Costs.
Petroleum Md means u Reserve u or group of Reservoirs within ■ common geological
structure or stratigraphic unit, which may become pan of a Production Area pursuant lo a
Petroleum Operations means all Exploration Operations, Gas Marketing Operations.
Development Operation*. Production Operations and Decommissioning Opcrat.ons. as well
as any other activities or operations directly or indircctl> rebled or connected with the said
operations (including health, safct> and em.ronmcnul operations and activities) and
authorised or contemplated by. or pci formed in accordance with, this Contract
Pipeline Costs is defined in Article 33.5.
Production Area means such areas within the Contract Area designated as .1 production am
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 Discover)
is located arc automatically included in the relevant Production Area.
Production Bonus means any bonus due pursuant to Article 32.3 or 32.4.
Production < outs means all the costs and expenditure incurred by the CONTRACTOR in
carrying out the Production Operations, including those defined in the Accounting Procedure.
Production Operations means any works, together with ail related and auxiliary activities
lor the production of Petroleum from the start of Commercial Production. mchaSng
extraction, injection, stimulation, pumping, treatment. Stonge, engineering, operating,
servicing, repairing, and maintaining any well*, pbru. equipment, pipe; ne*» terminal* and
any other installations and facilities, aid any rrlrfcd operatic** and auxiliary operations, and
storage and transportation of Petroleum from the Production Area to the Delivery Point.
Pruduction Rental is defined in Article 13.10.
Production Work Program and Budget shall mean the production w«wk program sod
budget prepared pursuant to Article 13.6
Profit C rude Oil b defined in Ankle 26 I.
Profit Natural (in 1* defined in .Article 26.1.
Profit Petroleum is defined in Article 26.1.
Proposed Contract M defined in Article 14.10(a)
Public Company means a public company duly registered and incorporated in the KtrdxsUn
Region and regulated by the GOVERNMENT under the Kurdistan Region Oil and Ga® Law.
Puhlk Officer means a civil servant, including a member or employee of a public entity, a
member of the Kurdistan National Assembly or u 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.
Risersoir means a subsurface rock formation containing an individual and separate nuiural
accumulation of producible Petroleum characterised by a single natural pressure system
"R" Parlor is defined in Article 26.4.
Royally is defined in Article 24.
Semester means n period of six (6) consccutisc Months sturting from the firm day of January
or July respectively.
Senior Rcprvscntallse* is defined in Article 42 1(a)
Subcontractor means any entity of any connacting tier providing services nnd/oi
undertaking works relating to the Petroleum Operations directly or indirectly on behalf of. the
CONTRACTOR or any CONTRACTOR Polity
Sub-Period and Sub-Periods arc defined in Article 6.2.
Tax or Taxes mentis all current or future levies, duties. pnymcnLs, charges, impositions,
imposts, withholdings, fees, taxes (including value added lax or other .sales or transaction
based tax. corporation tax, income lax. capital gains tax. stamp duty, land tax. registration
tax. capital and wealth tax. profit lux. dividend lux or withholdings, transfer tax. customs
duties, brunch or permanent establishment lux oi withholding', tax on income from movable
capital and fixed tux on transfers) or contributions payable to or imposed by the
Third Parts Interest is defined in Article 4.8
I bird Parts Participant ts defined in .Article 4.9.
Work Program means any wort, program prepared by. or on behalf of. the
CONI RAC TOR pursuant to this Contract and forming part of an Exploration Work
Program and Budget and/or an Appraisal Work lYogram und Budget and or a (ias Marketing
Work Program and Budget and or a Development Work Program and Budget and'or a
Production Work Program and Budget
Vice-( hairaian is defined in Article 8.1.
1.2 In this Contract, unless the context otherwise requires or is specifically otherwise
(n) headings are to be ignored;
(b) '‘including" and similar words do not imply any limitations;
(c) singular includes plural and vice versa, and
reference to an "Article" is to an article of this Contract ami to u 'Paragraph"
is to a paragraph in the Accounting Procedure.
AH I K l,E 2 - S< OPE OF TOE COMRA< I
2.1 This Contract is a production sluiring 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
I he purpose of this Contract is to define the respective rights nnd obligations of tlic
Parties and the terms and conditions under which the C OM KACTOR shall carry
out all the Petroleum Operations.
By entering into this Contract, tlic GOVERNMENT grants the CONTRACTOR the
exclusive right and authority to conduct all Petroleum OperationH in the Contract Area
as detailed in Article 3.
2.2 Upon the CONTRACTOR , request, the GOVERNMENT shall provide and'or
procure all Permits relating to the Petroleum Operations required by the
COM RACTOK to fulfil its obligations under this Contract, including those relating
to any extension ami renewal periods and including those required by tlic Government
of Iraq. The GOVERNMENT (I) represents nnd warrants to the C ON TRACTOR
that it has not done and has not omitted to do unythmg that would cause the
cancellation or suspension of this Contract or any Permit granted pursuant to this
Contract; and covenants that it will not do, oi omit to do, anything thut would
cause the cancellation or suspension of this ('ontmct or any Permit granted pursuant
to this Contract. For the avoidance of doubt. nothing in this Article shall affect the
rights and obligation* of the Parties pursuant u> Article 43.
2 3 The CONTRACTOR shall conduct all Petroleum Operations within the Contract
Area at its sole cost, risk and peril on hchalf of the GOV ERNMENT. pursuant to this
Contract, including the following operations
(a) I ethnical Services
Implementation of all technical, human and material resources reasonably
required for execution of the Petroleum Operations, in accordance with
prudent international petroleum industry practice.
(b) 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.
(cl \dminivtrathe Sen icrv
Implementation of all appropriate management and administration techniques
for execution ol the Petroleum Operations under this Contract, in accordance
with prudent international petroleum industry practice.
2 4 During the term of this Contract, the CONTRACTOR shall be resp.*nsiNe to the
GOVERNMENT for the conduct of Petroleum Operation* 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 COMRACTOR 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
under this Contract in the event of a Commercial Discovery Recovery of Petroleum
Costs shall occur within the limits provided under Article 25
2.7 During the term of thin Contract. Profit Crude Oil and/or Profit Natural Gas produced
from Petroleum Operations shall be shared between the Panics in accordance with the
provisions of Article 26.
2.8 Por the execution of Petroleum Operations under this Contract, the t,'OMRACI’OR
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 Coctract Area and outside the
Contract .Area toe the cub vtruction, installation, maintenance. operation and
removal of pipelines and other facilities required for the Petroleum
(c) freely use sand, water, electricity und any other natural resources located
inside or outside the Contract Area for the Petroleum Operations.
(d) use any qualified foreign and local peraoend and or Subcontractor* required
for the conduct of Petroleum Operations in accordance with Article* 22 and
23. 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;
Petroleum Operation* in accordance w ith Articles 19, 22 and )0; anJ
(0 freely use land or property belonging to the Kurdistan Region und the
GOVERNMENT will assist the CONTRACTOR with facilitating the use by
the CONTRACTOR of any private property in the Kurdistan Region
AR l l< I K .3 - CONTRACT AREA
The initial Contract Area covers ihc San North Block and extends over an arc a of four
hundred and ninety two square kilometres (492 km*’), as detailed and indicated on the map
attached in Annex A and is delimited by the following coordinates
Point ' Latitude (dee min tee) Longitude (deg min see) \ (niK) 3 miN»
1 ' 35® 23,25“N '44°52T8"E «8R 339 3916 318
2 35° 28'05" N 45- r 504 636 3924 948 |
3 35' 25' 02" N 45’ 06' 17' E 509 4% 3919 304
4 35° 18' 22" N 45° 12' I9"i; 519 410 3907 007 1
S 35° 09' 49’ N 45° 07' 2IT 511 145 3891 192 J
The GOVERNMENT, b> 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
ARTICI I 4 OPTIONS OF GOVERNMENT PARTICIPATION AND THIRD
4.1 ll»c GOVERNMENT dull have the option of participating through a Public
Company in this Contract, in respect of the entire Contract Arc*, ax a
CON TRACTOR Entity. with an undivided interest in the Petroleum Operations
ai; the other rights, duties, obligation* and liabilities of the CONTRACTOR (save as
provided in znc subject to this Article 4) urvlcr this Contract in respect of the Contract
Area, of up to twenty-five per cent (25%). and not less than five per cent (5%) (the
Government InUresl"), such option being referred to herein a>» the “Option of
Government Participation Ihc GO\ KRNMEN T shall be entitled to exercise the
Option of Government Participaiioa by notifying the CONTRACTOR in writing of
such election and the of the Government Interest.
4.2 Ihc GOVERNMENT may exercise the Option of Government ParticipstioD or any
lime in the period commencing on the Effective Date and ending one hundred and
eighty (180) days after the date on which CONTRACTOR declares the fire*
Commercial Discovery (which date of declaration is referred to herein os ihc "First
< «mincrn*l Declaration Date~L by mem inking '.a the CONTRACTOR, in writing,
a Public Company. If the GOVERNMENT docs not notify ihc CONTRACTOR of
such election within such period, the Option of Government Participation shall be
deemed to liavc been waived.
4 3 If the GOVERNMENT exercises the Option of Government Participation in
accordance with Articles 4.1 and 4.2:
(at the effective date of such participation shall be the date of the notice by which
the GOVERNMENT exercises its Option of Government Participation or the
First Commercial Declaration Date, whichever is tlic earlier;
(h> live Public Company shall participate as a CONTRACTOR Entity under this
Conti act from such effective dale, with all its rights, duties, obligations and
liabilities under this Contract, save as provided in and subject to the provisions
or this Article 4;
(c) the Public Company shall not have any liability to the other CONTKACI’OR
Entities to contribute its Government Interest shave of all Petroleum Costs
incurred before the First Commercial Declaration Date and its Government
Interest share of such Petroleum Costs "lull be the responsibility of die other
CONTRACTOR Entities, provided always that such other CONTRACTOR
Entities shall be entitled (through the CONTRACTOR) to recover all such
Petroleum Costs in accordance with Article 25;
(d) if, pursuant to the terms of die Joint Operating Agreement, the Public
Company participates in the development of the Commercial Discovery, it
.shall he liable to the other CONTRACTOR Entities to contribute its
Government Interest share of all Petroleum Costs incurred on oi after the first
Commercial Declaration Daw. with the exception of the Production Uonwscs
referred to in Article 32. and shall be entitled (through the CON I RACTOR)
to recover all such Petroleum Costs in accordance with Article 25. including
the Petroleum Costs which it has reimbursed pursuant to Article 4 3 (c);
(c) if such Option of Government PurtKipaiion is exercised on or after the First
Commercial Declaration l>ate. the Public Company shall, within thirty (30»
days of the date on which the GOVERNMENT notified the
CONTRACTOR of iu elect.<«. reimburse the other CONTRACTOR
Entities for all Petroleum Cow for which it is liable pursuant to Article 4. 3(d)
and which have been UKinred by such other CONTRACTOR Entities on or
after the First Commcreia IXxhi.it.*) Date but prior to and utoluJing the
date of the notice pursuant to which the GOVERNMENT exercises its Option
of Government Participation From the date of such notice, the Public
Company shall pay die Government Interest share of such Petroleum C osts
(0 for the purposes of Article 37 of die Kurdistan Region Oil and tins Low. the
Government Interest so assigned shall be deemed to be held by the
GOVERNMENT and in accordance with the principle in Article 16.13. die
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 liabiliues under this Comma
as a CONTRACTOR Entity and the provisions of Article 4.5 shall apply.
4 4 Ihc Public Company may. at its discretion, assign pan or all of its Government
Interest to a third puny or panics which is another Public Company duly authorised
by the GOVERNMENT, provided that in no event shall a transfer be made which
would result in the transferor or transferee holding levs than a five per cent (5%)
In the event of such an assignment to another Public Company, for tlic purposes of
Article 37 of the Kurdistan Region Oil und Gan I aw. the Government Interest so
•'Mgncd shall deemed to bo held by the GOVERNMEN I' and in accordance with the
principle in Article 16.13, the Public Company to which such Government Interest is
Huns la icd will be individually and separately liable (and not jointly and severally
liable with the other CONTRACTOR I ntuits) to the GOVERNMENT for its
obligations, duties and liabilities under this Contract as a CONTR ACTOR Entity and
the provisions of Article 4 S dull upply.
4.5 Any failure by the Public Company to perform any of its obligations or to satisfy any
of its duties or liabilities under this Contract as a < OV1RACT OR Entity shall not be
considered as a default of the other CONTRACTOR Entities and shall in no case be
invoked by the GOVERNMEN I to terminate this Contract or exercise any other
rights or remedies in respect of such default that muy he available to it
The capacity of a Public Company as a CONTRACTOR Entity, as it may arise
pursuant to die provisions of this Contract, shall in no event cancel o: affect the rights
of the other t ONTRACTOK Entities to seek to settle n dispute or to refer such
dispute to arbitration or expert determination in occoul.mcc with die provisions of
4.6 A Public Company may assign part or all of its Government Interest hi a third part) or
parties (not being a Public Company) and for the avoidance of doubt the provisom of
Articles 39.1. 39.2 and 39.3 dull not apply. Any such assignee shall be jointly and
severally liable with the other CONTRACTOR Entities.
For the avoidance of doubt, following any assignment by a Public Company ol a/) o:
part or all of a < lovomment Interest to a third party which is not a Public C iimpany, in
accordance with the provisions of this Article 4. tlic provisions of Articles 39.1, 39 2
and 39.3 shull upply to any subsequent assignment of such interest.
4 7 Where a Joint Operating Agreement has been executed by the CONTRACTOR
Entities prior to any exercise of the Option of Government Participation pursuant to
this Article 4, the Public Company nominated by the GOVERNMENT shall become
a party to such agreement, with any amendments necessary to be comi'tent with the
principles of this Article 4. Where a Joint Operating Agreement is not in place prioi
to the exercise of tlic Option of Government Participation 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 of
Government Participation and the execution of the Joint Operating Agreement,
comply with .Article 4 14(a) and (b) as if they were provisions of this Contract
TMr«l Party Interest
4.K I he GOVERNMENT shall have the option ot nominating a third party, in reaped ol
the entire Contract Area, as a CONTRACTOR limity, with an undivided intercut In
the Petroleum < >pcrations and nil the other rights, duties, obligations and liabilities of
the CON TRACTOR (save as provided in and subject to this Article 4), under this
Contract in reaped of the Contract Area, of up to twenty per cent (20%) and not less
than five per cent (5%) (the -Third Party Interest"), such option being referred to
herein as the "Option of Third Party Participation ’
4 9 the GOVERNMENT mas exercise the Of*ion ol third Parly Participation at any
time prior to the date eight (8) months following die Effective Date by nominating to
the CON I RAC TOR. in writing, the si/c of the Third Party IntercM and a company
which has adequate resources and capacity to discharge the obligations of a
CONTRACTOR Entity under this Contract and a Joint Operating Agreement in
reaped thereof (such a company to be the “Third Party Participant"). For the
avoidance of doubt, the GOVERNMENT may only exercise the Option ol Third
Party Participation once, in respect of one Third Party Participant, and after such
exercise the resulting Third Party Interest may not be increased under this Article 4.
4.10 If the GOVERNMENT nominates a Third Party Participant pursuant to and in
accordance with Articles 4.8 and 4.9. that Third Parly Partkipanl shall base the Third
4.11 If the GOVERNMENT docs not nominate a Third Pam Participant pursuant to and
in accordance with Articles 4.8 and 4.9 then the Option of Third Party Participation
shall be deemed to have been waived.
4.12 If the Option of Third Party Participation is exercised in accordance with Ankles 4 8
(a) the effective date of such participation shall be the Effective l>*c.
notwithstanding that the exercise of the Option of Third Party Participation
under .Article 4 8 occurs after such date.
(b) the Thud Pam Participant shall, upon rignature of a bitting and enforceable
instrument of assignment and no\ ation m respect of this Contract referred to
in Article 393. (i) pay to the CONTRACTOR, by way of clewed funds to a
bank occounl nominated by the CONTRAC T OR, an amount equivalent to the
proportion of Petroleum Costs incurred by the CONTRACTOR from the
Effective Date up until the date of such payment attributable to the I hird Party
Interest (for the avoidance of doubt, including Petroleum Costs referred to in
Article 4 2 (c), but excluding the Signature Bonus and the Capacity Building
Bonus payable under Ankles 32.1 and 312 respectively): and (ii) from such
dale, the Third Party Participant shall pay the Third Party Interest share of
such Petroleum Costs directly.
(c) upon pavmcnt pursuant to and in accordance with Ankle 4.12(b) and the
execution of the instrument referred to in Article 4 12(b), the Third Party
Participant shall participate as a CONTRACTOR I raity under this Contract
as if it Had been a CONTR ACTOR Entity from the ElTcciivc Date, with all
its nghu. din es, obligations and liabilities under this Contract, and
(d) where a Joint Operating Agreement has been executed by the
CONTRAC TOR Entities pnor to any exercise of the Option of Third Party
Participation pursuant to Article 4.8 and 4.9. the Third Party Participant shall,
upon signature of the instrument referred to in Article 4 12(b), become a party
to such Joint Operaring Agreement on the terms thereof.
(e) If a Joint Operating Agreement is not in place prior to the COVERNMKN T
exercising the Option of Third Party Participation, then the Third Party
Participant and the other CONTRACTOR Entities shall, wiihm a reasonable
period of time, negotiate la good faith a=d enter into a Joint Operating
Agreement and shall during the period between the exercising of the Option of
Third Party Participation and the execution of the Joint Operating Agreement,
comply with Article 4 14(a) and (b) .i% if they were pros isions of this Contract
4 13 Notwithstanding Articles 4.8 lo4.12, il the GOVERNMENT cxerc .-s the Ofrion of
(a) after the GOVERNMENT Inis exercised the «>ption ol Third Party
Participation, the Government Interest shall be assigned under this Artie'e '• t>'
the Public Company by the CONTRACTOR Entities pro rata to i
respective participating interests tuuler this Contract. anJ
(b) prior to the GOVERNMENT exercising the Option of Third Party
Participation, then the Third Party Interest shall be reduced by a percentage so
as to put the other COM RAC TOR Entities (other than the Person bidding
the Govcitunc.it Interest) and the Third Party Participant in the position they
would have been in had the Option of Third Party Participation been exercised
before the Option of Government Participation.
4 14 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
Operaring Agreement shall require the affirmative vote of an agreed
percentage of participating interests held thereunder, which in any event dull
be oot more than seven*) One per cent (75%); and
(b) in the event of a proposed transfer by any CONTRACTOR Entity of pan of a
part Kip* mg interest under such Joint Operaing Agreement, including any
Government Interest or Third Party Interest:
(i) no transfer may be made which would result in the transferor oi
transferee holding levs than a five per cent (5%) participating interest.
(ii) ihc proposed third part' assignee must demonstrate to the reasonable
satisfaction of each of the extant CONTRACTOR Entities that it has
the fmnitcial capability to perform its payment obligations under the
(.’ontract and under the Joint 0|>cr:itinu Agreement; und
(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
5.1 The CONTRACTOR hereby designates Sterling Energy (International) Limited
to act as tlic Operator on behalf of the CONTRACTOR for the execution of tire
Petroleum Operations. Ihc 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 Ihc CONTRACTOR shall submit to the GOVERNMENT for comment any
agreement re guiding or rcgululing the Operator's appointment und its conduct ol
Petroleum Operations on behalf of the CON TRACTOR pursuant to this Contract
prior to execution of such agreement
5.3 In the event of Ihc occurrence of either of the following, the GOVERNMENT muy
require tlic CON TRACTOR to appoint another entity as Operator as soon as is
i a> if an order has been passed in court declaring the bankrupts , liquidation, of
dissolution of the Operator, or
CONTRACT OK or a material proportion thereof, and. a' a result the
CONTRACTOR fails to fulfil its obligations under the Contract
ARTK LE 6 • T» RM Of THE CONTRACT
6.1 This Contract comprises an Exploration Period and a Development Period, as defined
I »pk>r»li9B f»ffjgd
6 2 The Exploration Period shall he for an initial term of five (5) Contract Years,
extendable on a yearly had* (a. provided in Articles 6.5 and 6.6) up to n maximum
period of seven (7) Contract Years, starting from the Effective Date Ihc initial term
of five (5) years shall be subdivided in two (2) sub-periods as follow?
(at an initial sub-pcrxsl of three (3) Contract Years ("First Sub-Period"); and
each a "Sub-Period and collectively "Sab-Petinds".
Il is understood that the right of the CONTRACTOR to accede to the next Sub-
Period ot any extension thereof pursuant to \niclc 6.6 shall be subject to fulfilment of
tlic Mn man Exploration Obligations or minimum work obligations applicable t<> tl>c
prev ioui Sub-Period or extension thereof pursuant lo Article 6.6 (as the case may be).
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 icduccd by relinquishment from time to time pursuant to Article 7. of ten Dollars
(I'SSIO) per square kilometre per Contract Year ("Exploration Rental"). Such
I xptonuion Rental shall be considered as a Petroleum Cos* and shall be recovered by
the ( ON I K \CTOR in accordance with the prov isaoos of Articles 1 and 25
64 If the CONTRACTOR decides not »o enter into the Second Sub-Period, it shall
notify the GOVERNMENT a: least thirty (30) days prior *o the expiry of the first
Sub-Penod and the Exploration Period shall expire at die end of the First Sub-Pcr»«d.
unless the First Sub-Period has been extended pursuant lo Article 6.5 and or Article
6 5 If the CONTRACTOR ha> fulfilled its Minimum Exploration Obligations for a Sub
Period of the Exploration Period but considers that additional work is required prior
(a) to deciding to .submil nit Appraisal Work Program and Budget as provided
under Article 12.2 in respect of it Discovery, or
(b) to deciding to declare u Discovery us a Commercial Discovery in accordance
with Article 12.6 In) or 14.5 (al. which additional work may include the
preparation andor execution of an Appraisal Work Program and Budget a*
provided under Article 12 2 und'or Gu< Marketing Operations.
the CONTRACTOR will automatically be entitled to extensions, each of one (1)
Contract Year, of tlie then current Sub-Period, up ui the end of the maximum
Exploration Period of seven (7) Contract Years, (as provided in Article 6.2) The
CONTRACTOR'S notification of its intention to exercise 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 ease may be).
6.6 Without prejudice to Article 6.5, upon expiry of the initial term of the Exploration
Period, if it considers it has not completed its exploration evaluation of the Contract
Area, the CONTRACTOR shall be entitled to an extension of the Second Sub-
Period, provided it notifies the GOVERNMENT in writing ut least thirty (30) day*
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 (I) Contract
Year. Upon the expiry of such extension, il it considers it has still not completed itv
evaluation of the Contract Area, the < OYI KACTOR xlull be entitled to a fuitlwr
extension of one (1) Contract Year provided that it notifies the GOVERNMENT in
writing at least thirty (30) day* prior to the end of the originul extension I he right of
the CONTRACTOR to accede to the further extension shall be subject to fulfilment
of the minimum work obligations applicable to the original extension.
6.7 Subject to Article 6.4. at any time during the I xploration 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 f xploration
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. whichever is applicable to the then current
6.8 If no Commercial Discovery hua been made at the end of the 1 xploration Period
(including any extensions thereof) this Contract shall terminate.
6.9 If a Discovery is made within the maximum I .xploration Period of wen (7) Contract
Years (as provided in Article 6.2). and if the CON I KACTOR considers ii has not
had time to complete sufficient Cun Marketing Operations to declare the Discovery a
Commercial Discovery pursuant to Article 12.6 (a) or 14.5 (a), the CON I KM 'I OK
shall be entitled to request an extension of the I xploration Period (notwithstanding
the maximum period provided in Article 6.2), provided it so requests the
GOVKRNMKNT in writing at least thirty (30) day s prior to the end of the maximum
Exploration Period, together with a proposal for (las Marketing Operations to he
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 conilden it has still not completed its Gas Marketing Operations relating to such
DtMOVWy. the CONTRACTOR shall he 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 foe Gas Marketing Operations to be undertakes during such extension.
M0 If the CON TRACTOR consider* that a Discovery of Crude Oi; and any Associred
Natural Gas is a Commercial Discovery, the CONTRACTOR >ha]| have the
exclusive right to develop and produce such Commercial Discovery, pursuant to the
terms of this Contract The Development Period for a Commercial Discovery of
Crude Oil and any Associated Natural Gas shall he twenty (20) years commencing on
the declaration of such Commercial Discovery by CONTRACTOR, in accordance
with Article 12.6(a). with an automatic right to a five (5) year extension
6 11 If the CONTRACTOR considers that a Discovery of Kon-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-A«ocuted
Natural Gas shall be twenty (20) years, commencing on the declaration of weh
Commercial Discovery by CONTRACTOR, in axonkmce with Article 12 6 (a) or
.Article 14.5 (a), with an automatic right lo a five (5) year extension.
6 12 If Commercial Production from a Production Area is sail possible at the end of it%
Development Period us defined in Articles 6.10 or 6.11 then, upon its icqueM. the
CONTRACTOR .«lull he entitled to on extension of such Development Period under
the same terms as those provided in this Contract. Such request shall he made in
writing by the COM RAC TOR at least six (6) Months before the end of the said
I lte term of any such extension of tin; Development Period shall lx::
(a) five (5) Years for ('rude Oil and any Associated Natural Gas. and/or
(b) five (5) Yeura for Non-Associated Natural Gas.
6.13 The CONTRACTOR shall have the right to terminate Production Operations for any
Production Area at ar.y time during the term of this Contruct, 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
0|x*rmions for all Production Arcus have terminated.
ARTICLE 7 - RELINQUISHMENTS
7.1 Subject to the provisions of Articles 7.2 and 7.3. the CONTRAC TOR shall surrender
portions of the Contract Arcu a* follows
(a) at the end of ihe initial Sam of the Exploration Period referred to in Article'
twenty fixe per cent (25%) of the net area determined by subtracting ihe
Production Areas from the initial Contract Area;
(b) a the end of die first extension period cricred into under this Contract alter the
end of the initial term of the Exploration Period referred lo m .Article 6 2. an
additional twenty fhc per cent (25%) of the net area determined by subtracting
the Production Areas from the remaining part of the Contract Area, and
(c) at the end of the Exploration Period (including all extensions thereof), all of
the remaining area that is not in a PmdiKtion .Area.
72 For the application of Article 7.1:
(a) any anas already relinquished pursuant to Article 7.4 shall be deducted from
areas to h: surrendered: and
(b) the COMHWTOR 'Hall .xoe the right lo determine the area, shape and
location of the Contract Area to be kept, provided that it dull be in contiguous
7.3 If the relinquishment referred to in Amok 7.1 can only be acmes cd by including part
of a Discovery area, or in the absence of any Discovery area, an Appraisal Area, then
•hesc percentages shal. be reduced to exclude such the Discovery urea or Appraisal
7.4 Dunn*: the Exploration Period, ihc CONTRACTOR may, at the end of each Contract
Year, surrender all or any part of the Contract Area by written notice sent to the
GOVERNMENT at least thirty (30) days in advance of the proposed date of
surrender, subject to the provisions of this Article 7 4. Such voluntary surrenders
during 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 the
surrender of the entire 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 Suh-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
7.6 The boundaries of the portion of the Contract Area to be relinquished by the
CON I RAC1 OR shall be communicated to the GOVERNMENT by written notice
at least thirty (30) days in advance of the relevant date for relinquishment, pursuant to
ARTIC LE 8 - M \NAGEMENT COMMIT! FT
8 1 A Management Committee shall lie established within thirty (30) days following the
Effective Date for the purpose of providing orderly direction of all maners pertaining
to the Petroleum (►peratoes and the Work Programs. Within wih period, each of the
GOVERNMENT and the CONTRACTOR shall by wntten notice nominate its
respective member* of the Management Comp ittix and their deputies.
The Management Committee dial I comprise two (2) members designated by the
GOVERNMENT and mo (2) mcmlw designated by the CONTRACTOR
l puo ten (10) days notice, each of the GOVERNMENT the CONTRACT OR
may substitute any of its members of the Management Committee The chairman of
the Managemert Committee shall be one of die members designated by the
GOVERNMENT (the "Chairman"). The vice chairman of the Management
Committee shall be one of the members designated by the CONTRACTOR (the
"Vice-Chairman"). In the absence of the Chairman, the Vice-Chairman shall chair
Each Party shall have the right to invite a reasonable number of observers as deemed
X.2 llio Manugcmont Committee sluill review, deliberate, decide and give advice,
suggestions and recommendation to the Ponies regarding the following subject
(a) Work Program* and Budgets;
(b) the < ONTRAt'I < >K‘s activity reports,
(c) production levels submitted by the CONTRACTOR, based on prudent
international petroleum industry practice.
(d) Accounts of Petroleum Costs,
(e) procurement procedures for potential Subcontractors, with an estimated sub¬
contract value in excess of ten million Dollars <$ 10,000,000), submitted by
the CONTKACI Olt in accordance with Article 19.3;
(f) Development Plan and budget for each Production Area.
(g) any mutter having a material adverse affect on Petroleum Operations.
(h) any other subject mutter of a matcii.d nature that the Parties arc willing to
X 1 Each ol the GOVERNMENT and the COVIRACTOK dial! have one (I) vote in the
Management Committee. The Management Commit nivii validly deliberate
unless each of the GOVERNMENT and the CONTK \C TOR ii represented by at
lead ooe (I) of its members or its deputy.
The Manugement Committee slial) attempt to reach unanimous ngrcemcni <>n 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 ami attempt to reach a unanimous decision.
Except as provided for in Article 8.4 and Article 8.5. in the event dial no agreement is
reached ot the second meeting, the Chairman shall have the tie-breaking vote
X 4 In die 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, « unanimous
approval is not obtained, ns required pursuant to Article 8.5; then die proposal made
by the CON I It ACTOR shall be deemed adopted by the Management Committee.
8.5 Notwithstanding lire provisions of Article 8.3. and subject to Article 8.4. unanimous
approval of the Management Committee .'hull be required for.
(a) approval of, and any material revision to. any Exploration Work Program and
Budget prepared alter the tiist Commercial Discovery in the Production Area
relating to such Commercial Discovery;
(b) approval of. and any rmficral revision *o. the Development Plan, the
proCKtxo schedule, lifting schedule and Development and Production Work
Programs and Budgets.
(c) cs^Wivhmera of nilct of procedure for the Management Committee;
(d) any insurance issues ov er which the Management Committee has authority.
(e) approval of. and any material revision in. procurement procedures for goods
and'or services, submitted by the CONTRACTOR in accordance with Ankle
I9_3 (unless such procedures have been deemed approved by the Manas email
Committee in accordance with Article 19.3);
submitted by CO.VI K ACTOR in accordance with Ankle 33.3;
(?) approval of a first rate bank in which to place the Decommiiuonmg Reserve
Fuad, in accordance with Article 1* I;
(h) approval of. and any material revision to. any proposed Decommissioning
P’an submitted pursuant to Article 38 7;
(i) approval of, and an) material revision to. on any Decommit*toning Work
Program nnJ Budget or (las Marketing Work Program and Budget.
(j) any Terms of Reference which are required to be prepared and agreed for the
purposes of expert determination, pursuant to Article 42.2;
Ik) approval of any costs in excess often per cent (10%) above any Budget; and
(I) any matter hiving n material advene effect on Petroleum Operations.
8.6 Ordinary meetings of the Management Committee shall take place in the Kurdivtan
Region, alternately at the offices of the GOVERNMENT and those of the
CONTRACTOR, or at any other location agreed between Parties, at least twice ti
Contract Year prior to the dale of the first Commercial Discovery and three limes o
Contract Year thereafter
8 7 Hither the GOVERNMENT or the CONTRACTOR may call an extraordinary
meeting ol the Management Committee to discuss important issues or developments
related to Petroleum Operation*, subject to giving reasonable prior notice, specifying
tire matters to Ik discussed at the meeting, to lire other Party. The Management
Committee may from time to lime make decisions by correspondence provided .ill the
members have indicated their approval of such decisions in such correspondence.
8.8 Unless ut least one (I) member or its deputy of each of the GOVKRNMEN T and the
CON I R ACTOR In present, the Management Committee shall Ik adjourned for a
period mu to exceed eight (K> 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 lx; prepared by the
CONTRACIX)R in accordance with instructions of the Chairman and
communicated to the Parties at least fifteen (15) days prior to tlte date of the meeting
The agenda shall include any subject matter proposed by either the GOVERN Ml N I
or the COM RACTOR Decisions of the Management Committee will be made at
the meetings. 11>c C ON TRACTOR shall be responsible lor preparing and keeping
minutes of the decisions made at the meetings. Copies of such minutes shall be
forwarded to each Party for review and approval. Each Party shall review and
approve such minute* 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 lie deemed to have approved the minute*.
8 10 If required, the Management Committee may request the creation of a technical sub¬
committee or any other sub-committee to assist it. Any such sub-committee shall be
composed of a reasonable number of experts from the GOVERNMENT and the
CONTRACTOR After each meeting, the technical sub-committcc or any other sub¬
committee shall deliver a written report to the Management Committee
X II Any costs and expenditure incurred by the CONTRACTOR for meetings of the
Management Committee or any technical sub-committcc or any other sub-commiucc
shall be considered as Petroleum Costs and shall be recovered by the
C OMR AC TOR in accordance with the provisions of Articles I and 25.
ARTICLE f - Cl ARAM EES
91 Each CONTRACTOR Entity shall provide the GOV ERNMENT. if so required by
die hirer pursuant to writien notice received by the CONTRACTOR Entity within
thirty (30) day* of the Effective Dale, with a corporate guarantee in a lorm as dull be
agreed in good faith between the GOVERNMENT and each CONTRACTOR
not later than ninety (90) days after the Effective Date, provided that such corporate
guarantee shall be given only b reaped of the Minimum financial Commitment for
the First Sub-Period anc shall expire automatically upon completion of the
performance of the Minimum Exploration Obligations set out in .Article 10.2(d) and
(c) or expenJiture of such Minimum Financial Commitment, whichever is the earner
9.2 Not later than s:\ty (60) days a ft a 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:
(a) the form substantially agreed between the GOVERNMENT and each
CON I RACTOR Entity for the First Sub-Period, if any. subject to making the
changes necessary in order for the corporate guarantee to apply only to the
Second Sub-Period, or
(b) if there is no agreed form, in a form us shall he agreed in good faith between
the GOVERNMENI xnd each < OVIRACTOR Fntity not later than ninety
(90) days after the GOVERNMENT’S notice,
and presided in each ease that such corporate guarantee shall be given only in respect
of the Minimum Financial Commitmcct for the Second Sub-Period and that such
corporate guarantee shall expire automatically upon completion of the pcrfonnancc of
the Minimum Exploration Obligations set out in Article 10.3 (b) or expenditure of
such Minimum Financial Commitment, whichever is the earlier.
9.3 In the event of an assignment by a CONTRACTOR Lotus in accordance with
Article 39. the relevant third parts asazr.ee shall provide the GOVERNMENT, if so
required by the latter pursuant to written nodes 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 laiih between the GOVERNMEN I and such assignee not laser than ninety
(90) days after the effective date of the assignment, provided that such corporate
giraaniee shall be given only m respect of the Minimum Financial Commitment for
the then current Sub-Period, aad shall expire automatically upon completion of the
performance of the Minimum Exploration Obiignti^ns vet out in Articles 10.2(d) and
(e) or Article 10.3(b). as ihc case may he. or expenditure of such Minimum Financial
Commitment, whichever is the earlier.
ARTICLE ID - MINIMUM EXPLORATION WORK OBLIGATIONS
10.1 The CONTRACTOR shall start Exploration Operations within thirty (30) days of
Management Committee approval of the Exploration Work Pn'gum and Budget in
accordance with Article * Ibe CONTRACTOR shall perform geological,
geophysical aoeFor drilling works as provided under Articles 10.2 to 10.3 (the
"Minimum Exploration Obligation*"). If applicable, the said Minimum Exploration
Obligation* 'hall be performed during each Sub-Period in accordance with prudent
international petroleum industry practice.
102 Dunn* the first Sub-Period, the CONTRACTOR shall:
(a) carry out geological and geophysical studies, comprising the following:
(i) the compilation of a technical database;
(ii) the performance of a remote sensing study:
mi) a Field visit to venfy initial geological and geophysical work and remote
sensing results and plan for two dimensional seismic acquisrtion; and
(b) carry out a data search for existing data specific to this Conti act Area,
comprising the following:
(i) well data, if available, for example, electric logs;
(ii) seismic data and gravity data, if as ailablc; and
(iii) reprocess seismic data. if as mlablc;
(c) perform field work comprising structural, stratigraphic and lithologic mapping
(d) acquire, process and interpret two hundred (200) line kilometres of two
dimensional seismic data, committing for this purpose a minimum financial
amount of five million Dollars (US$3,000,000).
Hi. | During the Second Sub-Period, the CON I KACTOK 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 h irst Sub-Period justify the acquisition of further seismic data;
(b) drill one (1) Exploration Well committing for this purpose a minimum
financial amount of five million Dollars (USSS;000.000).
10.4 Notwithstanding tlie provisions in Articles 10.2 to 10.3. for the execution of the
Minimum I xploiation Obligations undei Articles 10.2 to 10.3, it is agreed as follows:
(a) Minimum Exploration Obligations in (he Second Sub-Period shall only .«rrl>
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 subtext to Article 6 4
(b) Subject to Article 10.4 (■), the COM K ACTOK dull be required to meet its
Minimum Exploration Obligation* for the applicable Sub-Period, even if this
entails exceeding the Minimum financial Commitment for such Sub-Penod If
the CONTRACTOR has «tnficd its M nimura Exploration Obligations
without having spent the total Minimum I manual Commitment for such Sub-
Period. it shall be deemed to have satisfied its Minimum Exploration
Obligations for such Sub-Penod
(c> Each Exploration W ell shall he drilled to the depth agreed by tbc Management
C ommittee unless
0) the formation is encountered nt a lesser depth than originally
(ii) basement is encountered at a lesser depth than originally anticipated.
(iii) in the CONTRACTOR’S sole opinion continued drilling of the
relevant hxpluration Well presents a hazard due to the presence of
abnormal or unforeseen conditions.
(iv) insurmountable icehmcal problems are encountered rendering t
(») petroleum formations arc OttXWmd whose penetration requires
laying protective casing that does not enable the depth agreed by the
Management Committee to be reached.
If drilling i» 'topped tor 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 he deemed to have satisfied its
Minimum. I xplotalien Obligations in respect of the Exploradon Well.
(d) Any geological or geophysical work earned call or any seismic data acquired,
processed or interpreted or any Exploration Well drilled or any other ws*k
performed in excess of the Minimum I xpioration Obligations and or any
amounts spent ,n excess of the toUil Minimum Financial Conunitment in any
gisen Sub-Period, shall be carried forward to the next Sub-Period or any
extension period and shall be taken into accou nt to sansfy the Minimum
Exploration Obligations andor the total Minimum Financial Commitment for
such subsequent Sub-Period or extension period.
For the avoidance of doubt, if: (i) :n the First Sub-Pcrxxl the
CONTRACTOR performs any of the Minimum I xpioration Obligations
prescribed for the Second Sub-Period in Ar.iclc 10.3; and (ii) the
CONTRACTOR has not elected to notify Ihc OOVKRNVIE.VT tbut it will
not enter into Ihc Second Sub-Period (in accordance with und subject to
Article 6 4). the performance of such Minimum Exploration Obligations shall
be deemed to satisfy the same Minimum Exploration Obligations for the
ARTICLE. 11 - EXPLORATION WORK PROGRAMS AND III l>(.I I S
III Within forty-five (45) days following the Effective Date, the CONTRACI OR .shall
prepare and submit to ihc Management Committee a proposed work program and
budget relating to Exploration Operations (the "Exploration Work Prognim und
Budget" i for the remainder of the Calendar Year I hereafter. no later than I tht«»hcr
in each Calendar Year, the CONTRACTOR shall submit a proposed Exploration
Work Program and Budget to the Management Committee for the following Calendar
11.2 Each Exploration Work Program and Budget shall include deuiils of, hut not be
limited to, the following:
(.0 work to be undertaken;
(h) materials, goods and equipment to be acquired.
(c) cost estimate of services to be provided, including serv ices by third parties
and/or Affiliated Com pomes of any CONTRACTOR Entity; and
(d) estimated expenditures, broken down by cost centre in accordance with the
Ill Ihc Management Committee shall meet within sixty (60) days following its receipt of
CONTRACTOR'S proposal to examine and approve the Exploration Work Program
.11 id Budget.
11.4 If the GOVERNMENT requests any modification to the Exploration Work Program
and Budget, the Management Committee shall meet to discuss the Exploration Work
Program and Budget and proposed modifications thereto within the sixty (60) day
period referred to in Article 11.3. rhe CONTRACTOR shall communicate its
comments on any such requested modifications to the GOVERNMENT at the
meeting of the Management < ’ommittcc or in writing prior to such meeting.
11.5 Ihc CONTRACTOR hull be authorised to make expenditures not budgeted in an
approved Exploration Work Program and Budget provided that tlvc aggregate amount
of such expenditures slmll 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 d c
Management Committee for the avoidance of doubt nil excess expenditures shall be
recovered by the CONTR ACTOR in accordance with the provisions of Article- I
and 25. provided that any excess expenditure' above the ten per cert (10%) limit dv t
only be rccov erod with the unanimous approval of the Management Committee
11.6 In eases of ctncigency. the CONTRACTOR may incur tucli additional expenditures
us it deems necessary to protect life, environment or property Such additional
expenditures sliall be reported promptly to the Management Committee I or the
avoidance of doubt, such additional expenditure shall be considered Petroleum Costs
and shall be recovered by the CONTRACTOR in accordance with Ihc provisions of
Articles I and 25.
ARTICLE 12 - DISCOVERY AND DEVFXOPMKNI
12.1 If the drilling of an Exploration Well results in a Discovery, the CONTRACTOR
shall notify the GOVERNMENT within forty-eight (4K) hours of completing test'
confirming the presumed existence o! such Discovery or within such longer period ns
CONTRACTOR reasonably requires to determine whether nr not there is a
Discovery. Within thirty (30) days following notification nl the said Discovery, the
( ONTRACTOR shall present to the Management Committee nil 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
12.2 If. pursuant to Article 12.1, the CONTRACTOR considers thul the Discovery has
commercial potential it shall, within ninety (90) days following notification to the
GOVERNMENT of the Discovery, submit un appniisnl program in respect of the
Discovery (the ''Appraisal Work Pragma and Budget') io the Management
Committee The Management Committee shall examine anJ approve the Appraisal
Work Pn*gram and Budget within thirty (30) days of its receipt- If the
GOVERNMENT requests say nxxhficatior to the Appraisal Work Program and
Budget the Management Committee shall meet to discuss the Appraisal Work
Program and Budget and the requested modifications thereto within sixty (60) days
from its receipt of the proposed Appraisal Work Program and Budget The
CONTRACTOR shall communicate its comments on any such requested
modifications to the CONI RNMEN i at the meeting of the Management Committee
in in writing prior to such meeting.
The Appraisal Work Program and Budget shall include lire following:
(a) an appraisal works program and budget, in accordance with prudent
international petroleum industry practice;
(b) an estimated time-frame for completion of appraisal works; and
(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 Arcs").
12.5 If. following a Discovery, s ng acceptable to the 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 daring the
Management Commit ice's review of the Discovery Report provided in accordance
with Article 12.1 or its review of the Appraisal Work Program and Budget
Ihe CONTRACTOR dull be authorised to incur expenditures not budgeted in on
approved Appraisal Work Program and Budget provided that the aggregate amount of
such expenditures shall not exceed ten per cent (10%) of the approved Appraisal
Work Program and Budget in any Calendar Year and provided further that such
excess expenditures shall he reported as soon as is reasonably practicable to the
Management Committee lor the avoidance of dont*. all excess expenditures shall be
recovered by the CONTRACTOR in accordance with the provisions of Articles I
and 25. provided that any excels expenditures above the ten per cent (10%) lim;l shall
only be recovered with the .jsantmous approval of the Management Comm.ttee
12.4 The CONTRACTOR vhill submit a detailed report relating to the Discovery (the
■Appraisal Report”) to the Managcmcnl Committee within ninety (90) days
following completion of the Appraisal Work Program and Budget.
12 5 fhe Appraisal Report shall mciuJe the following
(a) geological conditions;
(b) physical properties of any liquids;
(c) sulphur, sediment and water content;
(d) t> |K? of substances obtained;
(f) production forecast per well; and
12£darat.ion <»f ( umnierdal_l»iM«ii.CQ
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
(b) the CONTR ACTOR has determined that the Discovery is not a Commercial
(c) the CONTRACTOR has determined dial the Discovery is a significant
Discovery, which may beconKr a Commercial Discovery subject to additional
exploration and/or appraisal works within or outside of the Appraisal Area; or
(d) tltc 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
In case the statement of the CONTRAC TOR 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
pursuant to Article 12.6 (a) or Article 14.5 (a), the CONTRACTOR shall submit w
proposed Development Plan to the Management Committee within one hunt I red
eighty (180) days following such declaration. The Development IMun shall be in
accordance with prudent international petroleum industry practice. I xccpt with the
consent of the GOVERNMENT, such Development Plan shall include details of the
following as applicable:
(n) the delimitation of the Production Area, taking into account the results of the
Appraisal Report regarding the importance of the Petroleum Field within the
(b) drilling and completion of Development Wells;
(c) drilling and completion or w ater or Natural Gas injection wells;
(d) laying of gathering pipelines;
(c) installation of .separator. tanks, pumps and any other associated production
and injection facilities for the production;
(I) 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 tlie utilisation of Associated Natural Gas;
(j) training commitment in accordance with Article 23;
(l) all crnitracts and arrangements made or to be made hv 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 tl>e point at which it is to he sold by die
CONTRACTOR and which are relevant to tlie price Jl 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
I ength Sale;
(n) each CONTRACTOR Entity's plans for financing its interest, if .my; and
(o) any other operations not expressly provided for in this Contract but reasonably
necessary for Development Operations. Production Operations and delivery ol
Petroleum produced, in accordance with prudent international petroleum
12.9 11k- Management Committee shall use its best efforts to approve tlie Development
Plan within sixty (60) days after its receipt of such plan The Development Period for
each Commercial Discovery within a Development Plan shall be extended for the
number of days in excess of such sixty (60) day period that it takes for the
Management Committee to approve the Development Plan. The Development Plan
shall be considered approved by the GOVERNMENT if the GOVERNMEN T.
through its representatives on the Mnntigcmcnt Committee, indicates its approval in
12.10 II the GOVERNMENT requests any modifications to the Development Finn, then
Management Committee 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 CON TRACTOR 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 whieh shall then be deemed
approved and adopted.
12.11 If the CONT RACTOR makes several Commercial Discoveries within the Contract
Area each such Commercial Discovery will have a separate Production Area. The
CONTRACTOR shall be entitled lo develop and to produce each Commercial
Discovery and the GOVERNMENT shall provide the appropriate Permits covering
each Production Area. In case the urea covered by the Commercial Discovery extend*
beyond the boundaries of the Contract Area, and to the extent such urea outside the
Contract Area is not the subject of a Petroleum Contract (as defined in the Kurdistan
Region Oil and Gas Law) with .* third party, the provisions of Article 34.2 shall apply.
ART1CI.F. 13 - DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND
13.1 Upon the approval of the Development Plan by the Management Committee, the
CON TRACT OR shall start the Development Operation* for the Commercial
Discovery in accordance with the Development Plan and prudent international
petroleum industry practice.
13.2 Within ninety' (90) days following approval of the Development Plan by the
Management Committee, the CONTRACTOR shall prepare and submit to the
Management Committee a proposed work program and budge! for Development
Operations (the 'Development \Vork Program and Budget') to be carried out in the
Production Area for the duration of the Development Operations. Thereafter, no later
than 1 October :n each Calendar Year, the CONTRACTOR shall submit lo the
Management Committee updates in respect of its Development W ork Program and
Budget. To enable the Management Committee to forecast expenditures, each
Development Work Prcigram and Budget shall include details of the following
(a) works to be carried out;
(b) material and equipment to be acquired by main categories;
(c) type of services to bo provided, distinguishing between third panics and
Affiliated Companies of any CONTRACTOR Entity; and
(d) categories of general and administrative expenditure.
13.3.1 Tile Management Committee shall meet within sixty (60) days following its receipt of
CONTRACTOR'S proposal to examine and approve the Development Work
Program and Budget.
13.3.2 I f any modification to the Development Work Program and Budget is requested by
the GOVERNMENT, the Management Committee shall meet to discuss the
Development Work Program and Budget and proposed modifications thereto within
the sixty (60) days referred to in Article 13.3.1. 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
13.4 The CONTRACTOR shall he 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 in any Calendar Year and provided turthcr
that such excess expenditures shall be reported as soon as is reasonably practicable to
the Management Committee. For the avoidance of doubt, all excess expenditures
shall be recovered by the CONTRACTOR in accordance with the provisions of
Articles I and 25. provided that any excess expenditures above the ten per cent (10%)
limit shall only be recovered with the unanimous upproxal of the Management
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 I and 25.
13.6 No later titan I October of the Calendar Year preceding the estimated commencement
of production pursuant to an approved Development Plan and thereafter no Liter titan
1 October n each Calendar Year, the CONTRACTOR shall prepare and submit to
the Management Committee a proposed work program and budget for Production
Operations (the "Production Work Program and Budget") for the following
Calendar Year I o enable the Management Committee to forecast expenditures, the
Production Work Program and Budget shall include details of the following:
(a) works to be carried out;
(b) materal and equipment to be acquired by main categories;
(c) type of services to he provided, distinguishing between third parlies and
Affiliated Companies of any CONTRACTOR Entity, and
(d) categories of general and administrative expenditure.
13.7 If any modification to the Production Work Program and Budget is requested by the
GOVERNMENT, 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 tiny 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, all excess expenditures shall be
recovered by the CON TRACTOR in accordance with the provisions of Articles 1
and 25. provided that any excess expenditures above the ten per cent (10%)
limit shall only be recovered with the unanimous approval of the Management
! 3.9 In cases of emergency, the CONTRACTOR may incur such additional expenditures
as it deems necessary to protect life, environment or properly. Such additional
expenditures shall he reported promptly to the Management Committee. For the
avoidance of doubt, such additional expenditure dial I be considered Petroleum Costs
and shall be recovered by the CONTRACTOR in accordance with the provisions of
Articles I and 25.
13.10 After the commencement of Commercial Production the CON I RAC I OR shall pay
to the GOVERN MEN T. in arrears, an annual surface rental for the Production Area,
of ten Dollars (US$10) per square kilometre per Contract Year (-Production
Rental”). Such Production Rental siiall be considered as a Petroleum Cos', and shall
be recovered b> the CONTRACTOR in accordance with the pro\ isions of Articles I
\R IICLE 14 - NATURAL GAS
Use for the Petroleum Operations
14.1 lb tnkc 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 CON TRAC TOR on principles materially similar to those contained in
this Contract, including, consistent with the Kurdistan Region Oil and Gas l.uw, more
generous provisions in respect of the recovery of Petroleum Costs and the sharing of
14.2 I he CONTRACTOR may freely use any Natural Gas required for the Petroleum
Operations. If technically and economically justified, the C OYI RA< 'TOR shall in
priority use any Natural Gas for the purpose of enhancing recovery of Crude Oil in
accordance wilh pruccnt international petroleum industry practice as follows.
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 the first practicable deliver)1
point as 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.
I he construction and operation of required facilities as well as the offtake of such
excess Associated Natural Gas by the GOVERNMENT shall occur in accordance
with prudent international petroleum industry practice and shall not Interfere with the
production, lifting and 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 CON TR AC TOR in accordance with the provisions of Articles I 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 (VO) days
following notification thereof by the GOVERNMENT. If live 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 in respect of ail volumes of
Natural Gas expected to He produced, the C OM KACTOR shall be entitled during
the Exploniiion Period and the Development Period to carry out Gas Marketing
14.5 It 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 u» Gas Marketing Operations, it shall carry
out Gas Marketing Operations, it 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
(b) the CONTRACTOR has determined that tlie Discovery is noC a Commerc :il
14.6 For the purpose of this Contract. "Gas Marketing Operations'* means any activity
relating to the marketing of Noo-Associated Natural Gas. including any evaluation to
find ii coimncrciHl market lor such Non-Associated Natural Gas and/or to find a
commercially viable* technical means of extraction of such Non-Associated Natural
(ias 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 ns evaluating the costs of production, transportation and distribution
of the Non-Associated Natural Gun 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
14.8 No later than I October of the Calendar Year preceding the Calendar Year in which
any (his Marketing Operations are due to occur, the* CONTRACTOR shall prepare
and submit to the Management Committee its Gas Marketing Work Program and
Budget for tic following Calendar Year. To cnublc the Management Committee to
forecast expenditures, the (las Marketing Work Program and Budget shall include the
|a) works to be carried out;
(l>) type of services to lx* provided, distinguishing between third parties and
Affiliated companies of any CONTRACTOR Entity;
(c) categories of general and administrative expenditure.
If any modification to the Gas Marketing Work Program and Budget i' requested b>
the GOVERNMENT, the Management Committee shall meet to discuss the Oto
Marketing Work Program and Budget and proposed modifications thereto within
sixty (60) day« from its receipt of the proposed Gas Marketing Work Program and
Budget. ‘IT»c 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 0 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 Gas
Marketing Work Program and budget in any Calendar Year and provided further th.il
Mich excess expenditures shall be reported as soon as reasonably practicable to the
Management Committee. For the avoidance of doubt, all excess expenditures shall be
recovered b> the CONTRACTOR in accordance with the provisions of Articles :
and 25. provided that any excess expenditure above the ten per cent (10%) limit shall
only be recovered with the unanimous approval of the Management Committee.
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
Discovers will only he a Commercial Discovery if certain terms of this Contract ire
amended, it shall be entitled to request amendments to this Contract, with its reasons.
I he GOVERNMENT shall in good fmth give reasonable consideration to the
CONTRACTOR'S proposed amendment and reasons und the Partin shall in good
faith atiempt to agree on the necessary amendments to the Contract. If the Parties are
unable to agree on such amendments, and the Exploration Period expires without the
CONTRACI OR having declared such Discovery to be a Commercial Disco very 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 I xplora'.ion Period, the GOV I UN Ml NT
reaches agreement with any tltird part) lo develop such Discovery (the "Gas
Development"), then the following provisions shall apply:
(a) either before or upon agreement in relation to the Gas Development having
been reached (and whether or not such agreement is recorded in a fully termed
production sharing and/or operating or other like agreement), but before such
agreement is signed (the "Proposed Contract”) (subject only to the rights of
each CONTRACTOR l.ntity to pre-empt such Proposed Contract pursuant to
Article 14.10(b) and such conditions as may be applicable), the
GOVERNMENT shall, as soon as reasomihly practicable after the occurrence
of such circumstances, serve on each of the CONTRACTOR Kathies, a
notice to that effect und shall with such notice provide such information and
main tomu of such agreement us the CONTRACTOR Entities may
reasonably request to determine if they will exercise their rights (the "Agreed
(i) the identity of such third party;
(ii) the effective date of the Proposed Contract;
(iii) the applicable commercial terms, including bonuses, royalties, cost
recovery, profit during, taxation and any other similar terms; and
(iv) all and any maten.il conditions to which the Proposed Contract is
(b) Upon a request from any CONTRACTOR Entity, the GOVERNMENT will
provide all the CONTRACTOR Entities with such further information and
terms as may be reasonably requested by any CONTRACTOR Entity.
Within one hundred and eighty days (180) days after receipt of a notice and
any further information under Article 14.10(a) in relation to a Proposed Contract
each of the CONTRACTOR Entities shall elect either
(i) to enier into the Proposed Contract on the same or substantially similar
terms to the Agreed I emu. 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
and shall serve notice accordingly upon the GOVERNMENT and nil the
( ONTKACTOR Entitle* and in delimit 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
(c) In the event that more than one of the CONTRACTOR Entitles exercises its
rights under Article I4.l0(b)(i) in relation to the Proposed Contract, llien the
GOVERNMENT shall transfer or grant each such CONTRACTOR Entity
an interest in the Proposed Contract upon the Agreed Terms (in accordance
with Article 14.10(b)(i» in the proportions in which their respective
percentage interests bear to the aggregate of their respective percentage
interests under the relevant Joint Operating Agreement (us it applied at the end
of the Exploration Period) or in such other proportions as such
CONTRACTOR Entities shall agree between them.
(d) In the event that one of the CONTRACTOR Entities exercises its rights
under Article 14.10(b)(i) in relation to die Proposed Contract then the
GOVERNMENT shall transfer or grant the whole of the interest in the
Proposed Contract upon the Agreed Terms (in accordance with 14.10(b)(i)) to
such CONTRACTOR Entity.
(c) In the event that none of the CONTRACTOR Entities exercises its rights
undei Article M.IO(bXi) then the GOVERNMENT may enter into the
Proposed Contract on terms no more favourable to its counterparty than the
Agreed Terms and. in such case, the aforesaid rights of pre-emption sluril
thereupon cease to apply in relation to the Proposed 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 CONTRACT OR while producing Petroleum.
14.12 Muring of Natural Gas in the course of activities provided for under this Contract, i»
prohibited except (i) short-term flaring up to twelve (12) Mouths necessary for testing
01 other operational reasons in accordance with prudent international petroleum
industry practice (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), or (ii) with the prior authorisation of the
GOVERNMENT, such authorisation not to be unreasonably withheld or delayed.
Hie 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 tbc Petroleum Operations and .ill
Petroleum Costs (the "Account*"), 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 as a functior 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 (he GOVERNMENT in accordance
with tlic provisions of this Contract shall be prepared in the English language The
Accounts shall he kept in accordance with prudent international petroleum industry
practice 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 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
Petroleum Costs incurred during the said Calendar Year. The summary statement
shall also include a profit calculation pursuant to the provisions of Article 26.
15.3 I he 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
(1>) 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 (n) and
shall have the right to audit the Accounts with respect to each Calendar Year at any
time in the ease of manifest error or fraud.
15.4 lire reasonable cost of retaining an auditor pursuant to Article 15.3 shall he home by
the CONTRACTOR and treated as a Petroleum Cost for the purpose of cost recovers
under Articles I and 25.
15.5 During the Audit Request Period for any Calendar Year but not thereafter, the
GOVERNMENT, acting reasonably and in accordance with prudent international
petroleum industry practice, may request in writing all reasonably available
information and justifications for its audit of Petroleum Costs
15.6 Should die GOVERNMENT consider, on the boa in of duto and information available,
that the CONTRACTOR made a material mistake or there is any irregularity in
respect of the Accounts and considers that any corrections, adjustments or
amendments should be made, the GOVERNMENT' shall make any audit exceptions
in writing and notified to the CONTRACTOR within six (6) Months of the date of
request referred to in Article 15.3.1, and failure to give such written exception within
Mich time shall be deemed to be an acknowledgement of the correctness of the
C< >N 1RACTOR s Accounts.
15.7 In respect of any audit exception made by the GOVERNMENT in accordance with
Article 15.6. 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 the CONTRACTOR'* response, notify the CONTRACTOR in
writing of its position on the corrections, adjustments, amendments or comments. If
thereafter there still exists a disagreement between the GOVERNMENT and the
CONTRACTOR the dispute will be settled in accordance with .Article 15.9.
15.8 In addition to the annual statements of Petroleum Costs as provided in Article 15.2.
the CONTRACTOR shall provide the GOVERNMENT with such production
statements and reports, as required pursuant to Article 16.3.
15.9 Any dispute between the Parties under this .Article 15 that cannor be settled amicably
within sixty (60! days of the GOVERNMENT* final notice under Article 157, may
be submitted to an expert on the request of either the GOVERNMENT or the
CONTRACTOR in accordance with the provisions of Article 42.2. Notwithstanding
tbe provisions of Article 42. in this specific instance the decision of the expert shall
not nccessarJy be final and either Party may decide to submit tbe matter to arbitration
m accordance with the provisions of Article 42.1.
ARTICLE 16 - CON I RACTOR S RIGHT'S /AN1> OBL1GAI IONS
16.1 If not done already, within ninety (90) days following the Effective Date, each
CONTRACTOR Entity 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 uny
correspondence addressed to such CONTRACTOR Entity.
( imiliui of Petroleum Operations
16.2 I'hc (.'ONTRACTOR shall cairy out all Petroleum Operations in accordance with the
provisions of this Contract, prudent international petroleum industry practice and
applicable Kurdistan Region Law.
I he 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. Tlic CONTRACTOR and all such
Poisons shall at all times have free access to the Contract Area and any Production
Areas for the purpose of carrying out Petroleum Operations.
Intin illation anil Reports
16.3 The CONTRACTOR sliall provide the GOVERNMENT with periodic data and
activity reports relating to Petroleum Operations Said reports shall include details of
(a) information and data regarding all i xplorution Operations, Development
Operations and Paxhiction Operations (as applicable) performed during the
Calendar Year, including any cuariiles of Petroleum produced and sold;
|b) data and information regarding any transportation facilities bait :tnd
operated by the CON I R \CTOR;
(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 till capital assets acquired for the Petroleum
Operations, indicating the date and price or cost of their acquisition.
Requirement for Petroleum Operations
16.4 The CONTRACTOR may freely use any Petroleum produced within the Contract
Area for the Petroleum Operations
Supervision bv the GOV LKNMEM
16.5 The CONTRACTOR sliall nt nil 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 die
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 peiform such reviews
and verifications. The representatives of the GOVERNMENT shall at all times
comply with tiny safety regulations ini|x>sed by the CONTRACTOR and such
reviews and verifications shall not hinder the smooth progress of the Petroleum
Access to Facilities
16 6 For the perfonnuneo of the Petroleum Operations, the CONTRACTOR, any A Hi I into
of each CONTRACTOR Entity, its and their Subcontractors and the employees,
consultants and agents of each of the foregoing shall at all times be granted lice
access to the Contract Aren 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 die Petroleum Operations
16.7 Upon notice from the GOVERNMEN T, the ('ON TRACTOR shall make available
to a reasonable number of representatives of the GOVERNMENT those of the
CON TRACTOR'S facilities which are necessary to enable such representatives to
perform their tasks related to this Contract and the Kurdistan Region Oil and Gux I aw
including, in eusc of works to lie performed on work sites, transportation,
accommodation and board, under the same conditions as those provided by the
CONTRAC TOR for its own personnel.
Notwithstanding Article 16.8. the GOVERNMENT sliall indemnify and hold
harmless each CONTRACTOR Entity against all losses, damages and liability
arising under any claim, demand, action or proceeding brought or initiated against any
CONTRACTOR Entity by any representative of the GOVERNMENT in
connection with the access to or u*c of the facilities by such representatives.
Loss or Damage
16.8 I he COM RAC I'OR 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.
Intellectual Property Rights
16.9 In its Petroleum Operations, the CON I R \< 'I OR shall respect any patents belonging
to third parties.
16.10 The CONTRACTOR shall as soon as reasonably practicable inform the
GOVERNMENT of any material litigation relating to this Contract.
1611 I he COM RACTOR shall implement a health, safety and environment program and
take necessary measures to ensure hygiene, health and safety of its personnel earn ;ng
out Petroleum Operations in accordance with prudent international petroleum industry
Said measures shall include the following:
(a) supplying first aid and safety equipment for each wo* area and maintaining a
healthy environment for personnel;
(b) reporting to the GOVERNMENT within seventy-two (72) hours of such
accident, any accident where personnel has been injured while engaged in
Petroleum Operations and resulting in such personnel being unable to return lo
(c) implementing a penm;-u>work procedure around hazardous equipment and
(d) providing safe storage areas for explosives, detonators and any other
dangerous products used in the operations;
(c> supplying fire-extinguishing equipment in each work area;
(0 for the purpose of taking control of any blow out or fire which could damage
the environment or Petroleum Field, in accordance with prudent international
petroleum industry practice; und
ig) for the purpose of preventing any involuntary injection of fluids in petroleum
formations and production of ('rude Oil and Natural Gas at rates that do not
conform to prudent international petroleum industry practice.
16.12 Subject to Article 43.2. in the event the production rate of the individual wells und
Reservoir of n Petroleum Field is to be set below the Maximum Efficient Rate
("MUR") for the Reservoir as provided for in the Development Plan as a consequence
of u 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 Aren so affected for a reasonable period of time in order to produce the
Petroleum which would otherwise have already been produced, liad the MER lor the
individual wells and Reservoir of the Petroleum Field been maintained.
16.13 The respective rights, duties, obligations and liabilities of the CONTRACTOR und
die GOVERNMENT under this Contract lire to he understood us being sepurute and
individual and not joint mid 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 The GOVERNMENT and each COM KACTOR 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 ugreement sluill include die
(a) the obligation of the GOVERNMENT und 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
CONTRACI OR Entity regarding entitlements and availability of Petroleum
for lifting by each Party during each lifting period and nominations by each
(c) the right of the Parties to lift any Available Petroleum not scheduled for lifting
and/or not lilted by the other Party during each such lifting period.
16.15 The CONTRACTOR Entities shall sell and iransfer to the GOVERNMENT, upon
wntten request of the GOVERNMENT, any amounts ol Crude Oil that the
GOVERNMENT shall deem necessary to meet Kurdistan Region internal
consumption requirements The sales price of such Crude Oil 'hall be the International
Market Price. The GOVERNMENT sh.ll provide the CONTRACTOR Entities
with not less than six (6) Months' advance written notice of its intention to buy such
Payments shall be made in Dollars and otherwise on terms consistent with prudent
international petroleum industry practice. The < OVI RAC1 OK Entities' obligation
to sell Crude Oil to the GOVERNMENT shall be. with the other operators (including
the GOVERNMENT) then producing in the Kurdistan Region, pro rata to ihcir
respective production rates.
I he provisions of ihis Article 16.15 shall not apply to Non-Associated Natural Gas
AR I If T I 17 - USE OK LAND AND EXISTING INFRASTRUCTURE
17.1 [he GOVERNMENT shall make available to the CONTRACTOR any land or
property n the Kurdistan Region required for the Petroleum Operation*, provided.
however, ihe CONTRACTOR shall nol request to use any such land unless there is a
real need for it. Ihe 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 GOVKRNMKNT. On receipt of such notification:
(a) the GOVKRNMKNT shall determine the amount of compensation to be paid
by the CONTRACTOR to the owner, if occupation will be for a short
(b) the GOVERNMENT shall expropriate the land or property in accordance
with applicable Kurdistan Region Law, if such occupation will he long lasting
or makes it henceforth impossible to resume original usage of «uch land or
property. Any property rights shall be acquired by and recorded n the name
of the GOVERNMENT, hut the CONTRACTOR shall be entitled free u-j
of the land or property for the Petroleum Operations for the entire duration of
The amount of the compensation in Article 17.2(a) shall be fair and reasonable, in
accordance with Article 29 of the Kurdistan Region Oil and Gas Law, and shall take
into account die rights of the owner and any effective use of the land or property by
its owner at the time of occupation by the CONTRACTOR. All reasonable costs,
expenditures and fair and reasonable compensation (a* required pursuant tv Article 29
of the Kurdistan Region Oil and Gas Law) 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 lie 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, cnnal, river, bridge or waterway, any telecommunications
network and any existing pipelines or transportation infrastructure, on Units no less
favourable than those offered to other entities and, unless generally in force, to be
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 uny
transportation and communication facilities installed by the CONTRACTOR. In
such cases, the request shall originate from the Minister of Natural Resources. For the
avoidance of doubt, such costs, expenses or liabilities inclined by the
CONTRACTOR hereunder shall lx- considered Petroleum Costs and sliall be
recovered by the CONTRACTOR in accordance with the provisions of Articles 1
17.5 For its Petroleum Operations, the CONTRACTOR shall have the right in the
units, separation units, sulphur plants unJ any .*thcr facilities or mstallatkaa* lor the
Petroleum Operations. in addition to pipelines, pumping stations, general.**. power
plants, high voltage lines, telephone, radio .uul any oilier telecommunications
system*, a* well as w.irchousev offices, sheds, houses for personnel, hospitals,
schools, premises, dikes, vehicles, mil ways, roods, badges, 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 Tire
COM IkvriOH shall hove the right to select the location for thexe facilities
The COM RAC I OK shall have the nght m die Kurdtstan Region to take or use my
existing irrigation or navigation system* and that land. houses or ssatenng point*
belonging to tliird parties arc not deprived of their use.
17 7 llic COVh RNVIKNT shall have l ho right in the Kuidi*tun Region to build* OfM
and maitiunn roads, railways. aitporU, landing snips. canals, bridges, protection dams,
police stations, military installations, pipelines and Iclccominunicatious network*
Ihc Coilwet Area, provided this d«»es not increase the coots, or compromise or have
results m mrnwd ml or expense for the C ON TRACTOR then, for the avo^ncc
of doubt, such cost and expense shall he considered Petroleum Costs and shall he
recovered hy the CONTRACTOR m accordance with the provision* of Articles I
17 X Cpon request of the ( OMkU'IOK. the 00\ IIKNMENT shall prohibit the
construction of residential or commercial buildings in the vicinity ot facilities used lor
tl« IV.rolcum Open rions Pint may he dec In red dangerous due to the Petroleum
Operations and to prohibit any interference with the use of any facilities required for
the Petroleum Operations.
The GOVERNMENT sliall give ihe CONTRACTOR adequate advance notice of
any Access Authorisation in respect of the Contract Area and shall not grant any
Access Authorisation in respect of the Contract Area until it has taken into account
any submissions made by the CONTRACTOR nor in such a way tliat there :s undue
interference with or hindrance of the rights and activities of the CONTRACTOR.
ARTICLE 18 - ASSISTANCE FROM THE GOVERNMENT
18.1 To tile 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 Entities in, but not limited to, the following areas:
(a) securing any necessary Permits for the use and installation of means of
transportation and communications;
(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 each CONTRACTOR Entity's, its Affiliate'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;
Id) securing any necessary Permits to send AWi>ad documents, dj'.a or simple*
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;
(ft securing any necessary environmental Permits.
(g) obtaining any other Permits requested by any CONTRACTOR Entity for the
(h) access to any existing data anc information, including data and information
relating to the Contract Area held by previous operators or contractors; and
(i) providing all necessary security for Petroleum (iporjlions
18.2 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 lie
charged to the CONTRACTOR and shall be considered Petroleum Costs and shall
be recovered by the CONTRACTOR as Petroleum Costs in accordance with the
pnn isions of Articles 1 and 25.
aim ICLK iy - i:gi ipmknt and materials
19.1 Hit* ('ONTRACTOR shall supply, 1*1 procure the supply of, all material*, equipment,
machinery, spare parts uud any other items or gixids required for the Petroleum
Operations ("Equipment and Materials").
19.2 Said Equipment and Materials shall he provided by the CONTRACTOR in
accordunoc with the relevant Work Programs and Budgets.
19.3 As soon ns possible after the Effective Date, live < ONTRACTOR 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 (o), including the criteria for tender evaluation, which
procedures and criteria shall he in accordance with prudent international petroleum
industry practice. If the Management Committee does not request any modifications
to the procurement procedures within thirty (30) days after receiving such procedures,
the procedures shall be deemed approved by the Management Committee.
19.4 I lie 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
m 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 sliall remain tire property of the CONTRACTOR, the
CONTRACTOR Entities, their Affiliates or their Subcontractor*, as the ease may
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 ol the recovery of the coals of J1 such assets
by the CONTRACTOR, or die 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 ol a CONTRACTOR
Entity or belonging to its or their Subcontractors or its or their employees.
ARTICI .1 21 - USE Ol-THE ASSETS
21.1 Bach CONTRACTOR Entity .shall lave the exclusive right to use. free of any
charge, all Assets described in Article 20, both before and after recovery of the cost of
the same, lot the Petroleum Operations, as well as for any petroleum operations under
other agreements in the Kurdistan Region to which it or tiny 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
( ONTKA<.'TOR'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
ARTICLE 22 SUBCONTRACTING
22.1 I he CONTRACTOR slutll ensure that any Subcontractors it engages have all the
requisite experience and qualifications.
22.2 Hie 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 oilier commercial terms arc. in the CONTRACTOR'S sole opinion, comparable
ir. all material respects with th<«e provided by foreign companies operating in the
international petroleum industry. Such Subcontractors must be bona fide Kurdistan
Region companies not related to any Public Officer, directly or indirectly, and must
have all necessary resources and capacity.
22.3 Selection of Subcontractor* dull 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 lime.
ARTICLE 23 - PERSONNEL, 1 RAINING, AND TECHNOLOGICAL ASSISTANCE
23.1 For the Petroleum Operations, the CONTRACTOR shall give, and shall require its
Subcontractors to give, preference to personnel from the Kurdistan Reg oa and other
parts of Iraq to the extent such personnel hare the technical capability , qualifications,
competence and experience required to perform the wx»rk
23.2 Tic* CONTRACTOR Entities shall give due consideration to the secondment of
GOVERNMENT personnel to the CONTRACTOR Entities' personnel to the
GOVERNMENT during the various phases of the Petroleum Operations. Terms and
conditions lor such secondment shall be mutually agreed by the Parties and any costs
associated therewith shall be considered Petroleum Costs and shall be recovered by
(hr CONTRACTOR in accordance with the provisions of Articles I and 25.
23.3 bach CONTRACTOR Entity and its Affiliates and 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
23.4 I or the first (wo (2) Contract Years, the CONTRACTOR shall provide up to one
hundred thousand Dollars ($100,000) per Contract Year less the cost to be incurred by
the CONTRACTOR during the forthcoming Contract Year in respect of any
secondment under Article 23.2, 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 sliall 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 I and 25.
23 5 In a planned way, in accordance with the provisions of this Article 23.5 and Article
23.6 and 23.7, die CON I RAC TOR 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 Emilies foreign workers
with an equivalent resume 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 die Petroleum Operations, to the extent permitted by
applicable Law anil agreement.' with third parties, and subject to appropriate
25.6 In addition to the requirements of Article 23.1, the recruitment, integration and
training of the CON TRACTOR Entities’ personnel from the Kurdistan Region and
other parts of Iraq shall be planned, which plans shall be submitted to the
Management Committee for its approval. The training plan shall take into
consideration the requirements of Article 23.5 and may include training for the
GOVERNMENT’S personnel. depenJmg on the extent to which the amount allocated
to the training plan, as prescribed by Article 23.7, is available after taking into
consideration the training of the CON TRACTOR Entities Kurdistan Region and
other Iraqi personnel.
Witfcin nine!>' (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, do 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.
217 Ihe training plan referred to in Article 23.6 shall provide for the allocation of the
amount of one hundred and fifty thousand Dollars (USS150,000) for each Contract
Year during the Exploration Period and three hundred thousand Dollars (DSS100.000)
for each Contract Year during the Development Period.
218 I .ich CONTRACTOR shall be responsible for the training costs which it may incur
in respect of the personnel it employs from the Kurdistan Region and other parts of
Iraq. All such costs incurred pursuant to the training plan referred to in Article 23.5
and all other reasonable costs shall be considered as Petroleum Costs and 'lull be
recovered in accordance with the provisions of .Articles 1 and 25. Costs incurred b>
Owe CONTRACTOR for training programs for the GOVERN MEN I'% personnel
shall be borne by the CONTRACTOR only to the extent that they are included in the
CONTRACTOR'S training plan, pursuant to Article 23.6 and shall also be
considered as Petroleum Costs and shall be recovered in accordance with the
provisions of Articles 1 and 25. The cost of all other training programs for the
GOVERNMENT'S personnel shall be the GO\ ERNMEYTs responsibility
The Environment Fund
23.9 From the dale of I it'l Production from the Contract Ami. the ( ONTRAfTOR shall
contribute the amount of one hundred thousand Dollars (UBS 100,000) each Contract
Year during the Exploration Period and two hundred thousand Dollars (LSS200.000)
for each Contract Year during the Development Period into the environment fund
established by the GOVERNMEN T for the benefit of the natural environment of the
Kurdistan Region, pursuant to the Kurdistan Region Oil and Gas Law (the
"Environment Fund"). Such amounts shall be deemed to be Petroleum Costs 3nd
shall be recovered in accordance with Articles I and 25.
23.10 Any expenditure incurred by the CONTRACTOR under this Article 23 shall he
considered Petroleum Costs and shall be recovered in accordance with Articles I and
23.11 Before the end of the first Contract Year, die CONTRACTOR shall provide to the
GOVERNMENT in kind technological and logistical assistance to the Kurd is tan
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 five hundred thousand Dollars (USS500.000). 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 C.'ONTK\(TOK in
accordance with the provisions of Articles I and 25.
ARTICLE 24 - ROY ALTY
24 I I lie CONTRACTOR shall pay lo the GOVERNMENT a portion of Petroleum
produced aiul saved from the Contract Area, as provided in this Article 24 (the
24.2 I he Royalty shall be applied on all Petroleum produced and saved from the Contract
Area which is Crude Oil or Non-Associalcd Natural Gas. except for Petroleum used
in Petroleum Operations, re-injected in a Petroleum Field, lost, llarcd or for Petroleum
that cannot be used or sold and such Crude Oil and Non-Associatcd Natural Gas
(excluding the excepted Petroleum) shall be referred to collectively as "Export
Petroleum" and separately and respectively as "Export Crude Oil" and "Export
24.3 I f 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 shall be
delivered in kind by the CONTRACTOR to the GOVERNMENT at the Delivery
Point. Title und risk of loss of the Royalty paid in kind shall be translate*, at the
Unless the GOVERNMENT requires the Royalty to he paid in kind, by giving the
CONTRACTOR not less than ninety (90) days prior written notice prior lo tin:
commencement of the relevant Quarter, the GOVERNMENT shall be deemed to
have elected to receive the Royalty in full and in cash ior the relevant Quarter.
24 4 I he Royalty due on any Export Petroleum produced and saved in the Contract Area
shall he determined daily by applying the following relevant Royalty rate, to the
Export Crude Oil or to the Export Non-Associatcd Natural Gas (as the ease may be)
produced and saved on that day:
(a) For Export Crude Oil:
the Royalty rate for Export Crude Oil shall be ten percent (10 %). which, for
the avoidance of doubt, shall apply regardless of the guv ity of tlx oil; and
(b) For Export Non-Associated Natural Gas:
the Royally rate for Export Non-Associated Natural Gas shall be ten per cent
24.5 Associated Natural Gas and any other Petroleum shall be exempt front any Royalty
24.6 If. pursuant to Article 243. the GOVERNMENT receives the Royalty in kind, and
pursuant to Article 28. the GOVERNMENT requests assistance loc the sale of all or
port of the Royalty received in kind, each CONTRACTOR Entity shall assist the
GOVERNMENT in selling all or part of such Royalty received in kind (belonging to
the GOVERNMENT) in consideration of a commission per Darrel payable to such
CON I RACTOR Entity, in accordance with Article 28.
24.7 If. pursuant to Article 243. the GOVERNMENT receives the Royalty in cash
(a) any lx port 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-Associaied Natural Gas shall be valued at the actual price
obtained at the Delivery Point under an approved contract, as provided m
(c) the CONTRACTOR shall pay such Royalty each Quarter, in unvars. 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
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 Entities shall be entitled to export freely the volume of
Export Petroleum eoticsponding to the Royalty determined in accordance
with Article 24.4 for the purpose of paying the Royalty in cash.
ARTICLE 25 - RECOVERY OF PI. I KOI I l M 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. he considered as 'AvailableCrude OiT
All Associated Natural Gas produced and saved from the Contract Area, except lor
Associated Natural Gas which is used in Petroleum Operations, re-injected in a
Petroleum Field, lost, flared or cannot be used or sold, shall be considered as
"Available Associated Natural Gas'.
All Export Non-Associatcd Natural Gas produced and saved from the Contract Area
shall, after deduction of any quantities of Export Non-Assacinted Natural Gas due for
Royalty pursuant to Article 24, be considered as 'Available Non-Associatcd Natural
"Available Petroleum" means Available Crude Oil. Available Associated Natural
Gas and Available Non-Associatcd Natural Gas.
25.2 For the purpose of this Article 25:
(a) uny Available Crude Oil shall be valued at the International Market Price
obtained at the Delivery Point, as defined in Article 27.2; and
(h) uny Available Associated Natural Gas and any Available Non-Av-viaicd
Natural (las shall be valued at tlw actual price ob:,lined at the Delivery Point
under an approved contract, as provided in Article 27.3.
25.3 Subject to the provisions ot 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 forty percent (40%) of Available Crude
0:1 (w hich, for the avoidance of doubt, shall apply regardlcvs of llie gravity of the oil)
and Available Associated Natural Gas. produced and saved within any Calendar Year.
Available Crude Oil above this percentage or otherwise not used for the recovery ol
Petroleum Costs shall be Profit Crude Oil.
25.4 Subject to the provisions of this Contract, from First Production in the Contract Area,
the COM R ACTOR shall at all times be entitled to recover all Petroleum Costs
incurred undcT this Contract of up to fifty three percent (53%) of Available Non-
.Associated N.itur.il Gas produced and saved within any Calendar Year. Available
of Petroleum Costs shall be Profit Natural Gas.
25.5 For the application of Article 25.3 and 25.4, the CONTRACTOR shall keep a
detailed account of Petroleum Costs m accordance with the provisions detailed in the
Accounting Procedure. Recovery of Petroleum Costs shall occur- in the following
(u) Production Costs;
(b) Exploration Costs (including appraisal costs and further exploration within the
(c) Gas Marketing Costs;
(d) Development Costs; and
(e) Decommissioning Contributions.
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 Non-
Associated Natural Gas do not allow the CONTRACTOR to recover all its
Petroleum Costs pursuant to this Article 25, the amount of un-rccovercd Petroleum
Costs in such Calendar Year shall be canicd forward indefinitely to the subsequent
Calendar Years until all Petroleum Costs art* fully recovered, but. save ns provided in
Articles 14.10 and 38.4. in no other case after the termination of the Contract.
25.7 The provisions of Articles 27.5 ami 27.6 shall be applied to determine the quantities
of Available Crude Oil and/or Available Non-Associated Nulurul 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 tlie
CONTRACTOR at the Delivery Point. Title and risk of loss of such Available
Petroleum shall be transferred at the Delivery Point.
25.9 liach CONTRAC T OR Entity shall Ire 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. Development Costs and
Production Costs incurred in each Production Area shall be recovered from Available
Petroleum from that Production Area.
25.10 Subject to Article IX.4. for the avoidance of doubt, Petroleum Costs under this
Contract are not recoverable against other contract areas held by the
ART 1CI.K 26 - SHAKING OF PROFIT PETROLEUM
26.1 lJnder 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 I and 25. and
(c) "Profit Natural Cas" means the quantities of Available Non-Associated
Natural Gas produced from the Production Area, after the recovery of
Petroleum Costs in accordance with Articles I 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 ol 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
26.3 To determine the percentage share of Profit Crude Oil aodor Profit Natural Gas to
which the CONTRACTOR is entitled, the "R" Factor shall he calculated in
accordance with .Article 26.4 and shall be applied separately to each Production Area.
26.4 Ihc “R" Factor shall be calculated as follows:
X is equal to Cumulative Revenues actually received by the CON TRACTOR;
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
"Cumulative Costs" means all Exploration Costs and Oas Marketing Costs in the
Contract Area and 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 A for the period from
hirst Production until the end of the Calendar Year in which First Production occur*,
the "1C h'nctor shall be deemed to he loss than one (1).
26.5 I hc share of Profit Petroleum to which the CONTRACTOR shall be entitled from
hirst Production is:
(a) lor 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:
"It" Factor CONTRACTORS % Share of Profit Crude Oil
R> I and
(b) for Profit Natural Oas. equal to the quantities of Non-Associated Natural ('ms
resulting from the application of the relevant percentage »s indicated below to
the daily volume of production of Profit Natural Oas within tlse Production
Area at the corresponding Delivery Point:
"R" Factor CONTRACTOR'S % Share of Profil Natural Gas
R < or - 1 40%
R > 1 and < or = 2.75 40 - J ( 40 - 20) • ( R - I ) / < 2.75 -1)1%
R > 2.75 20%
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 Aiticle 26.4.
26.7 For each Semester, starting from the 1" of January of tin1 Calendar Year following the
Calendar Year in which Firsi 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 sltall be
that determined by applying the Cumulative Revenues actually received and the
Cumulative Casts actually incurred up to and including the last day of the preceding
If the CONTRACTOR is unable to calculate the "R" Factor for the relevant Semester
before an allocation of Profit Petroleum lor such Semester must be made, then the
allocation of Profit Petroleum for the previous Semester sliall be used for the relevant
Semester Upon the calculation of the "R" Factor for the relevant Semester
(•) if the allocation of Profit Petroleum in the previous Semester and the relevant
Semester is the same, then no adjustment shall be made, and
(b) if the allocation of the Profit Petroleum in the two Semesters is different. then
the CONTRACTOR shall make any adjustments to the Parties' respective
shares of Profil Petroleum to restore them to the position that they would have
been (on a Bands basis) in had the "R* Factor for the relevant Semester been
available from the start of such Semester.
26.8 If at any time an error occurs in the calculation of the "R" Factor, resulting in a
change in the CONTRACTOR’S percentage share of Profit Crude Oil aikl'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 Irom 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 by the Party
receiving the surplus shall not exceed twenty-five per cent (25%) of the dure 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 docs
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 Entities at the Delivery Point Title and risk of loss of such
Profit Petroleum shall be transferred to the C ONTRACTOK Entities at the Delivery
Each CONTRACTOR Entity 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 an>
Calendar Year in accordance with Article 26.5 shall be deemed to include a portion
representing the corporate income tax imposed upon and due by each
CONTRACTOR Entity, and which will be paid directly by the GO'I KYMf NI
on behalf of each such entity representing the CONTRACTOR to the appropriate tax
authorities in accordance with .Article 312. The GOVERNMENT shall provide the
CONTRACTOR Entities with all written documentation and evidence reasonably
required by the CONTRACTOR Entities 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 .it the Delivery Point. Title and risk of loss of such Profit
Petroleum shall he transferred at the Delivery Point.
26.12 At least twenty -one (21) days prior to CONTRACTOR’S estimated date of First
Production and. subsequently, thirty (50) days prior to the beginning of each
Semester, the CONTRACTOR shall prepare and deliver k» the GOVF.RNMKN I
production program comprising the production forecast for the next Semester and the
forecast of the quantities of Crude OH and Natural Oas to which each Party shall Ik*
entitled during the said Semester.
26.13 Within ninety (90) days following the end of ouch Colcndur Year, the
CONTRACTOR shall prepare and delivci 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 Grade Oil and Natural Gas lifted by each Parly 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 sliare of Petroleum by the
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 AM) METERING OF CRUDE OIL AND NATURAL
27.1 For the purpose of this Contract, any Crude Oil produced in the Contract Area shall
be valued ut the end of each Quarter at the Delivery Point bused on the International
Market Price, as defined in Article 27.2.
27.2 The "International Market Price" referred to in Article 27 I shall he the weighted
average price per Darrel, expressed in Dollars, obtained by the CONTRACTOR at
the Delivery Point, by netback if necessary, 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 referral 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
Ann's Length Sule then the GOVERNMENT has the right to refer the matter to an
expert pursuunt to Article 42.2.
In the event that there is no lifting of Crude Oil in the relevant Quarter or no Arm’s
I cnglh Sales, the applicable ’’International Market Price" for such Quarter shall be
the weighted average price per Barrel obtained during that Quarter from Arm's Length
Sales of t rude Oil of the same or similar gmvity and quality from other production
arcus sold in markets competing with Crude Oil produced from the Comract Area,
taking into account gravity and quality and transportation and other post Delivery
To determine such price, the Parties shall, pnor to the commencement of Production,
agree on a basket of Crude Oil comparable to those produced in the C on tract Area ..nd
sold in the international market Prices obtained shall be adjusted to account foe any
variations such as quality, specific gravity, sulphur content, transportation costs,
product yield, seasonal variations in price and demand, general market trends mi
oilier terms of sale.
27.3 I he price of Natural Gas shall be the actual pr.ee obtained at the Delivery Pomi.
(which may take into account quantities to be sold, quality, geographic location of
markets to !>e 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 international petroleum industry practice). The GOVERNMENT shall have
the right to review and approve Natural Gas sales contracts.
27.4 In uocorduncc with this Article 27.4, the C.OVKRNMKNT and the CONTRACTOR
shall establish a statement showing calculations of the value of Petroleum produced
and sold from the Contract Area. Such statement shall include following information:
(a) quantities of Crude Oil sold hy the <'ONTRAC TOR Entitles during the
preceding Month constituting Ann's Length Soles together with corresponding
(b) quantities of Crude- Oil sold by the CONTRACTOR Entities 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 Namral Gas sold by the CONTRACTOR Entities and the
GOVERNMENT together with sale prices realised
27.5 All Export Petroleum shall be metered at the Delivery Point in accordance with
pruden: international penoleum industry practice and such meters shall be to fiscal
meter standards. All metering equipment shall be installed and operated b> 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 prudent international petroleum industry practice.
27.6 11 any metering equipment is defective, the CO.NTR \CTOR shall use ail reasonable
endeavours to repair it within fifteen (15) days or. if deemed necessary by the
CONTRACTOR, replace it as soon ns reasonably practicable from the date the
defect became known. I he "Adjustment Date" shall l>e the last date that the
metering equipment was known to huve been measuring correctly. The results
from the defective equipment shall l>c disregarded for the period from the Adjustment
Date until the date the defective equipment is repuirod or replaced and the
measurement for such period shall be estimated:
(a) if check measuring equipment is installed and registering accurately, then by-
using the measurements recorded by such check measuring equipment;
(b) if check measuring equipment is not installed or not registering accurately,
then by correcting the error if the percentage of error in ascertainable by
verification, calibration or mathematical calculation, or
(c) if neither method is feasible, then by estimating the volume and'or quantity
delivered based on deliveries during the preceding comparable period of time
when the metering equipment was registered accurately.
27.7 Any disputes arising under this Article 27 vail be settled by expert determination in
accordance with the provisions of Article 42.2.
ARTICLE 28 - SALE OF GOVERNMENT SHARE
Upon the GOVERNMENT'S prior written notice of at least ninety (90) days, each
CONTRACTOR Entity shall provide all reasonably necessary assistance to the
GOVERNMENT for the sale of all or pari 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 pnident international petroleum practice and to be mutually
agreed upon between the Parties.
ARTICLE 2') - FINANCIAL PROVISIONS
29 I Any payment to be made by u CONTRACTOR Entity to the GOVERNMENT
pursuant to this Contract shall lx* in Dollars and shall be offset against any
outstanding payments due by the GOVERNMENT to the CONTRACTOR Entity,
nr 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 ot’LIBOR plus two (2) percentage points shall be applied.
29.2 (he GOVERNMENT may, at its sole discretion, direct the CONTRACTOR
Entities to pay:
(a) any Royalty in cash due to the GOVERNMENT pursuant to the provisions
of Article 24; and/or
(b) nny proceeds from the sale unduitaken by the CONTRACTOR Entity on
behalf of the GOVERN MEN I' pursuant to Article 2X of nny Crude Oil to
which the GOVERNMENT is entitled pursuant to Article 25; and/or
(c) any Production Bonus,
to n fund for revenue sharing, which may in due course be established by legislation
consistent with the Constitution of Iraq, between the Government ol Iraq and other
regions (including the Kurdistan Region) and governonites of Iraq. Nothing in this
Article 29,2 shall be understood as implying any contra, luai relationship or other
relationship between the CON TRACTOR andor any CONTRACTOR Entity end
the Government of Iraq and/or the regions of Iraq (other than the Kurdistan Region)
and or and governor!fes of Iraq
29.3 Any payment due by the GOVERNMENT to a CONTRACTOR Entity shall be
offset against future payments due by such CONTRACTOR Entity to the
GOVERNMENT, or paid in IXillars to the bank account designated by
theCON TRACTOR Entity in writing and shall be paid within thirty (30) days of the
date of invoice, after which interest compounded monthly at tlx* rale of LIBOR plus
two (2) percentage points shall be applied
29.4 .Any currency conversion to be nude under tins Contract shall be at the exchange rale
of :hc Central Bank of Iraq, provided such exchange rate applied to the
CONTR ACTOR 1 ntitics shall not be less favourable than die 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 evenl lh.4 the Central Bank of Iraq is unable to
pros *de the relevant exchange rate, any currency conversion to be made under this
Contract shall be at the exchange rale of a reputable commcrc .al bank earn ing on
business in the Internationa! market and approved by rise Panics.
29 5 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 i and 25. as liter case may be.
29.6 Each CONTRACTOR Entity slnill 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. I'he conversion rate
shall be as provided under Article 29.4.
29.7 Each CONTRACTOR Entity shall have the right to be paid, receive, keep, transfer
and use Abroad, without uny restrictions, all proceeds of its share of Petroleum.
29.8 Each CONTRACTOR Entity and its Subcontractors shall have the right to freely
open and maintuin hank accounts for Petroleum Operations within or outside the
Kurdistan Region and other parts of'Iraq.
29.9 Each CONTRACTOR Entity shall have the right to pay in any freely convertible
currency all its financial requirements for die Petroleum Operations and to convert
these currencies to Iraqi dinnis in any bank in lire Kurdistan Region or other parts of
Iraq, at the same exchange rate as provided under Article 29.4
29.10 Each CONTRACTOR Entity shall have the right, without any restrictions, to freely
repatriate Abroad and to freely dispose of:
(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
tins Contract in the Kurdistan Region or other pans of Iraq.
29.11 Each CONTRACTOR Entity shall have the right to pay in any foreign currency its
Subcontractors and its expatriate personnel, either in the Kurdistan Region, other parts
of Iraq, or Abroad. Said Subcontractors and expatriate personnel shall be obliged to
transfer to the Kurdistan Region the amount of foreign currency required for their
local needs and they shall hast the right to repatriate die proceeds of the sale of their
belongings in accordance with the regulations in force in the Kurdistan Region.
29.12 Each CONTRACTOR Entity’s Affiliates, Subcontractors and their personnel shall
equally benefit from the same rights as such CONTRACTOR Entity and its
personnel as regards this Article 29.
29.13 For the financing of Petroleum Operations, each CONTRACTOR Entity shall m\c
the right to have recourse to external financing from third parties or front its Affi i.itcd
Companies on an arm's length basis
ARTICLE M• CUSTOMS PROVISIONS
V) I All services, material,equipment. dv consumable* ;«.nd products imported into the
Kurdisun Reg too and other parts of Iraq by the CONTRACTOR. .my
COM RACTOR Entity. its Affiliates. any Subcontractor or uny agent of uny of the
foregoing, for use or consumption in the Petroleum Operations shall be admitted free
nml exempt from any mid nil Tuxes oil import. The CONTRACTOR, uny
CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of tiny of the
foregoing .shall have the light to iv-exporl from the Kurdistan Region and other pints
of Iraq free from all Taxes on export any material, equipment, goods, consumables
and products that arc no longer required lor 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 Pie CONTRACTOR, any CONTRACTOR Fotity. its Affiliate*, any
or any agent of any of the foregoing, and their personnel (including their lamily
members) shall have the right to freely import into the Kurdistan Region rnd other
I'.irix of Iraq and re-export from the Kurdistan Region and other parts of Iraq nny
personal belongings and furniture free and exempt from nny Taxes on import or
export. The sale in the Kurdistan Region and other parts of Iraq of pers«>nal
belongings and fiimiture of expatriate personnel shall comply with Kurdistan Region
30.3 l och CONTRACTOR Kality and its Affiliate* dial! be entitled to freely export from
tbc Kurdistan Region and other part* of Iraq, free of any Taxes, any Petroleum to
which it is entitled pursuant to the provisions of this Contract.
304 The GOVERNMENT shall mdemmfy the CONTRACTOR, any COVIK AC TOR
Kathy, its Affiliates, any Subconti actor or any agent of any of the foregoing, and
their personnel (including their family members) for any rmport or export run
referred to in Articles 30 1.30.2 or 30.3.
AH I K LI. 31 - I AX 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, its Affiliates and any Subcontractor shall, for the entire
duration of this Contract, be exempt from all Taxes as a result of its income, assets
activities under dus Contract Ihc GOVERNMENT 'hull indemnify each
CONTRACTOR Entity upon demand again* any liability to pay any laxes
a"essed or imposed upon such entity wh eh relate to any of the exemptions granted
by the GOVERNMENT under this Article 31 I. and under -Article* 31 4 ic 31.11.
31.2 Eucli CONTRACTOR Entity shall be subject to corporate income tax on its income
Petroleum Operations as provided in Article 31.3, which shall Ixr deemed to be
inclusive and in full and total discharge of any lax on income, receipts, revenues,
gains or profits
of each such entity. Payment of the said corporate income tax shall be made for the
entire duration of this Contract directly to the official Kurdistan Region lax authorities
by the GOVERNMENT, for the account of each CONTR AC TOR Entity, from the
(GOVERNMENTS share of the Profit Petroleum received pursuant to Article 26.
Each CONTRACTOR Entity shall, within sixty <6<)| days utter the end of each tax
year, provide a statement to the appropriate Kurdistan Region tux authorities of its
profits which arc subject to corporate income tax. together with n calculation of 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 to each CONTRACTOR Entity (i) the appropriate official tax receipts from
the appropriate Kurdistan Region tax authorities or other relevant authority certifying
the puyment of its corporate income tax. as determined in the said statement, und th.:t
such entity has met all its Tax obligations in the preceding tux year, and
any return or other filing made by the GOVERNMENT in respect of its payment of
corporate income tax on behalf of such CONTRACTOR Entity.
31.3 For the purposes of Article 31.2
(a) The rate of corporate income tax to be applied to each ( ON I R AG I OR
Entity’ shall be the applicable rate prescribed in the Law of Taxation (I aw No.
5 of 1999), passed by the National Assembly of the Kurdistan Region, a' n ay
be amended from time to time or substituted in respect of Petroleum
Operations (as defined under the Kurdistan Region Oil and (ias Law) by a
petroleum operations taxation law for lire Kurdistan Region, but in no event :n
excess of forty per cent (40%). The Parties acknowledge and agree that at the
Effective Date of this Contract, the corporate income tax rate is forty per cent
(40%) for all net taxable profits in excess of nine million Iraqi dinar.
(b) The GOVERNMENT and the ( ON TRAC TOR agree that corporate income
tax shall be calculated for each CONTRACTOR Entity on its net taxable
profits under the Contract, as calculated :n accordance with the provisions
relating thereto in the Accounting Procedure.
31 4 Each CONTRAC TOR Entity, its Affiliates as well us 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 Ratify and Rs AfiilLites shall be exempt from Additional
Profits I ax. as referred to in Article 40 of the Kurdistan Region Oil and Gas Law or
any successor Tax
31.6 Each CON fRACTOR h mils and its Affiliates shall be exempt from Surface Tax. as
referred to in Article 40 of the Kurdistan Region Oil and Gas Uw or any successor
31.7 lincli CONTRACTOR Entity und its Alfiliates shall he exempt from Windfall
Profits luxes, as referred to in Article 40 of the Kurdistan Region Oil ar.d Gas Law or
31 .K Each CONTRACTOR Entity and any Subcontractor shall be subject to the payment
or withholding of the personal income lax and social security contributions for which
such entity or Subcontractor is liable to pay or withhold in respect of its employees
urc Iraqi nationals, pursuant to the Law of Taxation (Law No. 4 of 1999) passed by
the National Assembly of the Kurdistan Region, as may be amended from time to
time, in the same manner as the same shall be generally applied to all other industries,
except that a CONTRACTOR Entity or Subcontractor shall not I* liable for such
taxes or contributions with respect to employees of another Person.
31.9 It is acknowledged that double tax treaties will have effect to give relief from taxes to.
Ini! not limited to, the CONTRACTOR, CON I R \< TOR Entities. Subcontractors
and employees and other Persons in accordance with the provisions of such double
tax treaties, but shall not impose an additional burden of taxation
31.10 Any value added lax (“VAT'I. not otherwise recoverable by the CONTRACTOR
under VAT law, shall be considered as a Petroleum Cost and shall be cost recovered
in accordance with the provisions of Articles 1 and 25
31.11 The CONTRACTOR, each CONTRACTOR Entity, their Affiliates and any
Subcontractor shall he exempt with credit from VA T or any other transfer Tax in
respect of Petroleum Operations
31.12 Notwithstanding any other provision to the contrary in this Contract, the Parties
acknowledge and agree that the provisions of this Article 31 shall apply individually
and separately to all CONTRACTOR Entities under this Contract and that there
shall be no joint and several lability n respect of any liability, duty or obligation
referred to in this Article 11
ARTICLE 32 - BONUSES
32.1 A signature bonus of ten million Dollars (US$ 10,000,000) (“Signature Bonus")
shall be payable to the GOVERNMENT by the CONTRACTOR within thirty (30)
•lays of the Effective Date.
Capacity Building Bonus
(a) A capacity building bonus of fifteen million Dollars (US$ 15,000,000) ("Capacity
Building Bonus") shall he payable to the GOVERNMENT by the CONTRACTOR
within thirty (30) days of the Effective Date.
(b) Notwithstanding the provisions of Article 32.2 (a), the GOVERNMENT
acknowledges the work performed by CONTRACTOR prior to the Effective Date of
this Agreement and accordingly agrees that the Capacity Building Honus shall be
reduced by five million Dollars (US$ 5,000,000).
32.3 In the event of a Crede Oil Commercial Discovery, the CONTRACTOR shall pay
the following relevant Crude Oil Production Honus to the GOVERNMENT within
thirty (30) days ot the following relevant occurrence:
(a) Twu million IX.IIars (US S2,000,000) when First Production of Crude Oil
from the Contract Area commences;
(b) Five million Dollars (US S5,000,000) when production of Crude Oil from the
Contract Area reaches a cumulative amount of ten million barrels of Crude Oil
(c) Ten million Dollars (US Sl0.000.000) when production of Crude Oil from the
Contract Area reaches a cumulative amount of twenty five million barrels of
Crude Oil (25 nimbo); and
id) Twenty million Dollars (US S20.000.000) when production of Crude Oil from
tl*e Contract Area reaches a cumulative amount of fifty million barrels of
Crude Oil (50 tnmho).
32.4 In the event of a Non-Associated Natural Gas Commercial Discovery, the
CONTRACTOR shall pay the following relcsunt Noo-Associated Natural Gas
Production Bonus to the GOVERNMENT within thirty (30) Jays of the following
(a) two million Dollars (US S2.000.000) when first Production of Non*
Associated Natural Gas from the Contract Area commences;
(b) five million Dollurc (US $5,000,000) when production of Non-Associated
Natural (ias from (he Contract Area reaches a cumulative amount of ten
million barrels of oil equivalent (10 mmboc);
(c) ten million Dollars (US $10,000,000) when production of Non Associated
Natural (ias from the Contract Area reaches a cumulative amount of twenty
five million barrels of oil equivalent (25 mmboc); and
(d) twenty million Dollars (US $20,000,000) when production of Non-Associated
Natural (ias from the Contract Area reaches a cumulative amount of fifty
million barrels of oil equivalent (50 mmboc).
32.5 For the purposes of this Ar ticle 32, a Commercial Discovery shall be declared by the
CONTRACTOR to Ik either a Crude Oil Commercial Discovery or a Non-
Associated (ias 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,(> No bonus due pursuant to this Article 32 shall be deemed to be a Petroleum Cost.
ARTICLE 33 • PIPELINES
33.1 The GOVERNMENT shall obtain any required Permits for the transportation of
Petroleum in the Kurdistan Region and in Iraq, ns well as any necessary Permits and
easement tights for the construction of any pipelines and related facilities required for
(he Petroleum Operations, as provided in Ankle 33.2.
33.2 The GOVERNMENT undertakes to transfer to the CONTRACTOR its rights for
transportation of Petroleum by pipeline. The CONTR ACTOR shall have the right to
design, construct, operate and maintain pipelines and any related facilities for the
transportation of Petroleum produced under this Contract
33J Prior to the construction of any pipeline and related facilities as provided in Article
33.2. the C ONTRACTOR shall submit following information to the Management
(a) proposed pipeline route and related facilities;
(b) forecasted pipeline How rate and capacity;
(c) estimate of financial investment and operating costs of the pipeline and related
(d) proposed financing schedule;
(c) constntction schedule;
(f) general technical description of the pipeline and related facilities;
(g) construction plans und tests;
(i) any other information relating to the pipeline project.
The Management Committee shall examine all the above information ar.d shall within
ninety (90) days, approve the proposed pipeline project in accordance with the
provisions of Article 8.5.
33.4 Subject to spare capacity being available und to their Petroleum being compatible,
third parties shall be entitled to transport tlicii Petroleum through any pipeline
constructed by the CONTRACTOR in accordance with this Article 33 on terms to lie
agreed between the CONTRACTOR and such third party. Those terms shall he
reasonable commercial terms mid 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
und related facilities by CONTRACTOR under this Article 33 ("Pipeline Costs”)
shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR
in accordance with the provisions of Articles I and 25.
33.6 I he 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 it* related facilities, freely and without any additional costs
33.7 To the extent related to transportation upstream of the Delivery Point, any tariffs
received from third panics for use of any pipeline and related facilities by
CONTRACTOR under this Article 33 shall be applied to the recovery o! Petroleum
Costs until all Pipeline Costs have beer, fully recovered by the CONTRACTOR
pursuant to the provisions of Articles 1 and 25 and shall not be included in income for
corporate income tux purposes. The GOVERNMENT shall be entitled to receive any
such tariffs from third parties for their use of such pipeline and related icilities when
the said Pipeline Com* have been fully recovered by the CONTRACTOR The costs
associated with providing such transportation services for thud parties up to the
Delivery Point shall he considered Pipeline Costs and therefore Petroleum Costs and
shall be recovered by the CONTRACTOR in accordance with the provisions of
Articles I and 25.
33.8 Upon recovery by the C OM RAC TOR of all the Pipeline Costs, the operating and
maintenance costs of any pipeline and its rciaied facilities shall he home by the
( ONTO ACTOR ami shall be considered Petroleum Costs und shall be recovered by
the CONTRACTOR in accordance with the provisions of Articles I and 25.
33.9 The (JOVKKNMEN'I shall have the same rights as the CON TRACTOR for use,
free ol charge, of any pipeline und related facilities constructed by CONTRACTOR
under this Article 33 for the transportation of the share of Petroleum to which the
GOVERNMEN I is entitled under this Contract up to the Delivery Point, provided
that where the GOVERNMENT is participating in its capacity as a CON I RACTOR
Entity pursuant to Article 4. h shall he liable for its share of Petroleum Costs.
3J.I0 The CONTRACTOR shall bear the cost of operation and maintenance of any
pipeline mid 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 lor 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 Oil and Gus l aw) (an "Adjacent Contract Area"), or in the event a
Reservoir of an Adjacent Contract Area extends into the Contract Area, the provisions
of Article 47, Paragraph Second of the Kurdistan Region Oil and Gas Law shall apply
and tile GOVERNMENT shall require the CON TRACTOR and the contractor ol
the Adjaeent 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 prudent
international petroleum industry practice. In the event that the Minister of Natural
Resources decides the unitisation pursuant to Article 47, Paragraph Third of the
Kurdistan Region Oil and Gas Law. and if the CONTRACTOR docs not agree with
the Minister of Natural Resource's decision, the CONTRACTOR shall be entitled to
arbitration pursuant to the provisions of Article 42.1.
34.2 For clarification and the avoidance of doubt and notwithstanding Article 47 of the
Kurdistan Region Oil and Gas Law, in the event that a Reservoir extends beyond the
boundaries of the Contract Area into an adjacent area which is not the subject ol
another Petroleum Contract (as defined by the Kurdistan Region Oil and Gas Law),
the GOVERNMENT shall, upor. 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 AMHYSl RANGE
35.1 Subject to the other provisions of this Contract, the CON IR ACTOR, 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 pmvkled under applicable
Law for any losses and damage it may cause to them in conducting the Petmleum
Operations, and shall defend, indemnify and hold harmless the GOVERNMENT
with respect to all claims for such less or damage.
352 Notwrthstmding the other provisions of this Contract, the COMRACTOR and the
CONTRACTOR Entities shall not be Imhlc to tbr GOVERNMENT o» the Public
Company or .*her government agencies, aulhurities or bodies, courts or political
subdivisions lor 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 tins Contract; prusidcd. however, that such liability cannot result in the
event of any omissions, errors or mistakes committed in good fuith by the
CONTRACTOR in the exercise of the powers and ardiormiions conferred upon the
CONTRACTOR by virtue of this Contract, and further provided ihnl in no event
shall the COINTRACTOR and the CONTRACTOR Entities he liable for an>
indirect or consequential loss or damage whatsoever or any loss, damages, cost*,
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 Operation* earned
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; 01 (v) oilier indirect damages or losses whether or not similar to the
35.3 Hie 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 aguin.st the GOVERNMENT by any employee of
the CONI RACTOR 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
ihw Contract regardless of the faul* or nr^l gcnce in whole or m party ol any entity or
35.4 Notwithstanding Article 35 1. the GOVERNMENT shall indemnify and hold
harmless the CONTRACTOR and the < O NT RACTOR Entities against all losses,
damages and liability arising under any claim, demand, action or proceeding brought
or nstituted against the CONTRACTOR or any CONTRACTOR Entity by any
employee of the GOVERNMENT or of any Public Company or of any subcontractor
of the loregoing 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 nuo-petformancc of this Contract
regardless of the fault or negligence in whole or in pan of any entity or individual.
35 5 I he CONTRACTOR shall take all necessary steps to respond to. and shall promptly
notify the GOVERNMENT of. all emergency and other events (including
explosion*, leaks and Spills), occurring in relation to the Petroleum Operations which
arc causing or likely to cause material environmental damage or malcral nsk to
health and safely. Such notice shall include a summary description ol the
circumstances and step* taken and planned by the CONTRACTOR to control and
remedy the situation The CONTRACTOR shall provide such additional reports to
the GOVERNMENT as are reasonably necessary in respect of the efTed* of »uch
events and the course of all action* taken to prevent further loss and to mitigate
35.6 as set out in Article 35 4. at the
< ONTRACTOR, the GOVERNMENT. without prejudice and in additioa » an}
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 i:i reasonable
quantities requested by the CONTRACTOR which arc 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.
I’he 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 w ith the previsions of Articles 1 and 25.
35.7 The GOVERNMENT shall indemnify and hold harmless the CONTRACTOR and
each CONTRACTOR Entity from and against all costs (including legal costs)
expenses, losses, damages and liability which such Person may suffer or incur, or may
result from such Person being denied, hindered or prevented from fully exercising its
rights or taking the full benefit of Articles 29.4. and 29.6 to 29.11.
35.8 In accordance with prudent international petroleum industry practice,
each CONTRACTOR Entity shall maintain any insurance rcquirc
Kurdistan Region Law. as well as any insurance approved by the Management
Such insurance policies may cover:
(a) loss of and damage to materia] and equipment used in the Petroleum
(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.
35.9 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
Operation conducted by or on behalf of the CONTR ACTOR 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.
35.10 Upon its written request, the GOVERNMENT shall lx- provided with insurance
certificates, including necessary details, for any insurance policy maintained by the
CONTRACTOR which relates to this Contract
35.11 Each CONTRACTOR Entity shall be responsible for ihe filing of all claims made
under any insurance policy maintained by such CONTRACTOR Entity which
relates to this Contract Any premiums and payments relating to such insurance
policies s,|all be considered Petroleum Costs and shall be recovered by the
('ON TRACTOR in accoidance with the provisions of Articles I and 25.
35.12 In any insurance policy maintained by a CONTRACTOR Entity which relates to
this C ontract, the amount for which the CONTRACTOR itself is liable (the
"Deductible Amount") shall be reasonably determined between the
CONTRACTOR Entity and the insurer and such Deductible Amount shall in the
event of any insurance claim be considered a Petroleum Cost and dull be recovered
by the CONTRACTOR in accordance with the provisions of Articles 1 and 25
ARTICLE 36 - INFORMATION AND CONFIDENT! M l I Y
3i'.l The CONTRACTOR shall keep all records, data and information relating to the
Petroleum Operanons in accordance with the Kurdistan Region Oil and Cias Ian and
prudent international petroleum industry practice. In addition, it shall provide the
GOVERNMENT with such information and data us it is obliged to provide i.oder
36.2 Upon the GOVERNMENTS written request, the CON TRACTOR shall provide the
GOVERNMENT with samples of any rocks or any other items extracted durmg the
36.3 The GOVERNMENT shall have title to all data and information, whether raw.
derived, processed, interpreted or analysed, obtained pursuant to this Contract.
36.4 Each CONTRACTOR Entity shall have the right, without any limitation, to send
Abroad copies of all reports and technical data, magnetic tapes and other data relating
to the Petroleum Operations. Magnetic tapes or other data, the original 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
CON TRACTOR 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
GOVERNMENT pursuant to this Contract. It is understood that, when exercising
such right, the GOVERNMENT slutll ensure it does not unduly interfere with or
hinder the CONTRAt TOR's rights and activities.
36.6 The CONTRACTOR shall provide the GOVERNMENT upon die
GOVERNMENT'S written request any analysis information, reports, tapes or other
data (geological, geophysical, logs, interpretations, drilling reports, etc.) related to the
Petroleum Operations in the possession of the CONTRACTOR. All available
originals of such data shall be transferred to the GOVERNMENT at the end of this
Apart from the exceptions stated in this Ankle 36. the Parties undertake to keep al!
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 Parties,
such consent not to be unreasonably withheld or delayed. The foregoing
confidentiality obligation shall not apply to information or data which
(a) is or, through no fault of any Party, becomes part of the public domain;
(b) i> known to the recipient at the date of doe losure; or
(c) is required to be furnished in compliance with any applicable Law. by a
government agency having jurisdiction over a CONTRACTOR Katity, by a
court order or any other legal proceedings; or
id) is required (o be disclosed pursuant to the rules or regulations of any
government or recognised slock exchange having jurisdiction over a
Notwithstanding the foregoing in Article 36.7, in accordance with prudent
international petroleum industry practice, such data and information may be disclosed
(a) Affiliates of each CONTRACTOR Entity;
0>) employees, officers and director* of each CONTRACTOR Entity ,md 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 CONTRAC TOR Entity or its Affiliates
for the purpose of analysing or evaluating information or data;
(d) banks or financial institutions retained by any CON TRACTOR Entity or its
Affiliates with a view to financing Petroleum Operations, including any
professional consultants retained by such Kink or financial institution;
(C) 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 material portion of its or an Affiliates shares);
(I) prospective or actual Subcontractors and suppliers engaged by a Party where
disclosure of such information is essential to such Subcontractor's or supplier's
work for such Party; and
(g) any other Person or entity, upon the prior written approval of the non¬
provided that disclosure shall not be made pursuant to paragraphs (c), (d), (c) and (t).
unless such third party has entered into a confidentiality undertaking.
36.9 Any data and information relating to relinquished or surrendered areas under this
Contnid 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. Each CONTRACTOR Entity shall be entitled to keep copies of such data
and information and to use such data and information for any purpose.
36.10 Subject to the provisions of this Article 36. the CONTRACTOR may not sell nor
exchange any data related to the Petroleum Operations without the approval of the
GOVERNMENT, which approval shall not be unreasonably withheld or delayed
where, in the CONTRACTOR'S reasonable opinion, such sale or exchange would
benefit the Petroleum Operations.
ARTICLE .37 - ENVIRONMENTAL PROVISIONS
37 I Du ring the performance of the Petroleum Operations, the CON! K ACTOR shall take
reasonable measures to ensure that it, the Operator, its Subcontractors and agents
attend to the protection of the environment and prevention of pollution, in accordance
with prudent international petroleum industry practice in similar physical and
ecological environments and any then applicable Kurdistan Regain I.aw
37.2 Prior to surrendering a portion of the Contract Area, the CONTRACTOR shall take
reasonable measures to abandon the area to be surrendered in accordance with
prudent international petroleum industry practice in similar physical and
ecological environments Such measures shall include removal or closure in place of
facilities, material and equipment together with reasonable measures necessary for the
preservation of fauna. It ora and ecosystems, all in accordance with prudent
international petroleum industry practice in similar physical and ecological
environments. The CONTRACTOR shall only be responsible for site restoration or
environmental damage to the extent the vjmc pertains solely and directly to Petroleum
Operations conducted pursuant to this Contract.
37.3 Hie CONTRACTOR shall take reasonable precautions and measures in accordance
with prudent international petroleum industry practice in similar physical and
ecological environments to prevent uny pollution which muy 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, in accordance with prodent international petroleum
industry practice in similar physical and ecological environments, respect the
preservation of properly, agricultural areas, and fisheries, when carrying out
37.5 The CONTRACTOR shall conduct and submit an environmental impact assessment
ro the GOVERNMENT within six (6) months after the Effective Date
W...... l>i»lks Mlld Nature Res>,rv,‘ Areas
37.<> The CONTRACTOR shall lake reasonable measures lo minimise any nJvcrsc
material impact on national parks and nature reserves which may arise directly as j
result of the Petroleum Operations, in accordance with prudent international
petroleum industry practice in similar physical and ecological environments.
37 7 The GOVERNMENT: (i) represents and warrants that, on die filleclive Date, lliere
arc 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
37.8 Any reasonable expenditure incurred by the CONTRACTOR in relation with this
Article 37 shall be deemed Petroleum Costs ami shall be recovered by the
CONTRACTOR in accordance with the provisions of Articles I and 25.
37 9 The CONTRACTOR is not responsible for any pre-existing environmental
conditions or any acts of unrelated third parties.
ARTICLE 38 - DECOMMISSIONING
38 I To enable the CONTRACTOR to recover the costs associated with future Contract
Area Decommissioning Operations under thus Contract, the CONTRACTOR shall
have the right to establish a reserve fund for future decommissioning and site
restoration (a "Decommissioning Reserve I und"). Ihc 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 Production Area but. upon the reasonable
request by the CONTRACTOR, the GOVERNMENT shall allow the
CONTRACTOR to establish such fund over a longer period. Once established, the
CONTRACTOR shall nuke regular contributions to the Decommissioning Reserve
Fund based upon estimated Petroleum Field decommissioning and site restoration
costs in accordance with prudent intem.ittonal petroleum industry practice, and taking
into account interest received and future interest expected to be earned on iIk
Decommissioning Reserve Fund ('Decommissioning Contributions"). Any
Decommissioning 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 I and 25. Decommissioning Contributions
lo the Decommissioning Reserve Fund shall be placed with a first rate bank approved
by the Management Committee in accordance with Article 8.5.
38.2 If. at ihc end of the term of the Producooo Operations ol the Production Area, the
GOVERNMK NT deckles to take overproduction operation* in the Production Area:
Lhc GOVERNMENT shill become luke frit its future Decommissioning
Reserve Fund, to the extent that such contributions have been recovered as
Petroleum Costs, shall be paid to the GOVERNMENT; and
(iit) the GOVERNMENT shall release the CONTRACTOR and the
CONTRACTOR Entities from any obligations relating to Decommissioning
Operations and shall indemnify the CONTRACTOR and the
CONTRACTOR Entities lor any costs, liabilities, expenses, claims or
obligation' associated therewith.
38.3 If ihc CONTRACTOR undertakes the Petroleum Area Decommissioning
Opetntions. the contributions and any interest accumulated in the Decommissioning
Reserve Fund slull be paid to the CONTRACTOR and shall be used for the
Decommissioning Operations. The CONTRACTOR shall undertake any such
Decommissioning Operations in accordance with prudent intcraationa] petroleum
industry practice in similar physical and ecological environments.
38.4 If the Decommissioning Reserve Fund is paid to Ihc CONTRACTOR and the
Decommissioning Reserve Fund is not sufficient to cover nil I Xxommissiomng Costs
for the Production Area, the bailee shall be paid by the CONTR \CTOR a»J may
be recovered as Petroleum Costs from any other Production Aren* or. if applicable, by
the CONTRACTOR Entities or any of their Affiliates from any other area which i>
the subject of another Petroleum Contract (as defined by the Kurdistan Region Oil
and Cias I-aw) anywhere in the Kurdndan Region and. to the extent the balance is not
recoverable as aforesaid, such remaning balance shall be paid by the
GOVERNMENT to the CONTRACTOR
38.5 If Ihc Decommissioning Reserve Fund is paid to the CONTRACTOR and the
Decommissioning Reserve Fund exceeds all Decommissioning Costs for the Contract
Area, the balance sludl be trarofcmd to the GOV t KNMEYT.
38.6 Any expenditure incurred by the CONTRACTOR in relation with this Article 38.
including any contributions to the Decommissioning Reserve I und. shall be deemed
Petroleum Costs and shall be recovered by the CON IRACTOR in accordance with
the provisions of Articles I und 25.
38.7 The CONTRAC FOR shall submit to 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
Aren Die Management Committee shall provide comments, if any. on the
Decommissioning Plan within ninety (90) days alter receipt. The CONTRACTOR'"
completion of the Decommissioning Operations in accordance, in all material
respectv with ’.he Decommissioning Plan Tor a Production Area approved b> the
Marjgcmcni Committor shall satisfy all of the CONTRACTOR’, obligation* win
respect to the performance of Decommissioning Operation* for such Production Area.
In the event the CON ERNMEN I' docs not agree that Decommissioning Operations
for a Production Area were corned out in accordance with the approved
Decommission,ng Plan, it men advise the CONTRACTOR within sit (6) month, of
CON IK AC TOR*, completion of such operations.
ART1C IT J9 • ASSIC.NMFN I AND CHANGE Of CON I KOI.
AsiimpieiU to Afnilwlf.
39.1 Each CONTRACTOR Entity shall be free to sell assign, transfer or otherwise
dispose of nil 01 pmi ol its rights, obligations and interests under this Contract to an
Affiliated Company 01 to nnolhci CONTRACTOR Entity will) the prior consent ol
the GOVERN MEN!. which consent shall not be unreasonably delayed or withheld.
39.2 Each CONTRACTOR Entity .lull have the right to veil, assign, transfer or
otherwise dispose of all or pail of its rights and interests under this Conuact to any
third party (not being an Affiliated C om|»n> or another CONTRACTOR Entity)
with the prior consent of GOVERNMENT. which coasent shall not be unreasonably
delavcd ur withheld Any C ONTRACTOR Entity prop.-.'* to seif awga. transfer
Of otherwise Aspnse of all or part of its rig*, and waett«s wsicr dn* Contract to any
such third patty sh.fi re^uesi sadt consent to wTmnr^whKh ryt dvaH^hc
proposed third put) assignee.
39 3 In order lot any deed of sale. assignment. transfer or ocher du^wsaJ a* provided imdcr
Article* 3V I or 39.2 to he effective, the Parties and the relevant third party, if any,
■lull enter into a binding and enforceable instrument of assignment and novation,
which dial I include an undertaking by the transferee or assignee to fulfil the
obligations under thu Contract which conv't'-av.l to live interest transferred or
39.4 ||y way of clarification, and not in limitation of the foregoing provisions of this
Article 19. the GOVERNMENT shall not be considered to he acting unreasonably in
withholding consent to any such assignment if tlte assignment to such proposed third
patty assignee is dev mod contrary to the GOVE RNMRNTi interests, as evidenced
In wnting to that ellccl signed by the duly authorised representative of the
39.5 In the event a COM R \C TOR Entity assigns or in any other way transfers its nghts
and interests under thu Contract, mchaiing through the esercise of the Option of
Government Participation or the Optioc of Hurd Party Participation, whether in
whofc or in put. web assignment or transfer shall am give iw to my I ax. mci odmg
on thr consideration poid or received or cm ibe income or gam there fun
39.6 I he GOVERNMENT may not at any time transfer my or ail iu rights aifci
obligate i**Jct this Contract to any Person, including lo a PuN* Company or an>
other company or entity, except in accordance with Article 4
39.7 "( hangc of Control" for the purpose of this .Article 39.7 mama any direct or indirect
change of the identity to the Person who Control* a CONTRACTOR Entity
(whether through merger, sale of shares or of other equity interests, or otherwise)
tluough a single transaction or scries of transaction*. from one oi more transferors to
one or more transferees, in which the market value of such entity’s participating
interest (which shall he a» specified in the Joint Operating Agreement relating to rha
Contract, or where there isoohooc CONTRACTOR Entity one hindred (100NI
per cent) in dm C ontract represents more than seventy five per cert (75%) of the
aggregate market value of the assets of *uch entity and Ha Affiliates that are subject to
the C hange >n Control For the purpose of this definition -Control" mom the direct
or indirect ownership or condo! of the majority of the voting rights of the applicable
entity at its shareholders meetings ot then equivalent. and "market value" shall be
(Icletmiitcd based ii|h»ii (lie amount in cash a willing buyer would pay a willing seller
in on Ann's Length transaction.
Each CONTRACTOR I nliiy which is or anticipates with a reasonable degree ol
certainty that it will Ik* subject in a Change in Control, other than to nn Affiliated
Compunv or a CONTRACTOR Entity, shall notify the GOVERNMENT as soon as
practicable after it becomes aware of the Clucgc .a Control or ---wipated Change in
Control and request the creiscd of GOA ERNMFNT. which consent shall not Ik
unremoaibly delayed or withheld.
A Change m Control shall mo* give rue lo aay lax including on the comodcretion paid
or received or on the income or gain therefrom.
ARTfCl.R 40 - FORCE MA IM RF
40 I No delay. default, breach or omission of the CON TRACTOR in the cxecuuon of any
of its obligations under this Contract shall be considered a failure lo perform this
Contract or he the subject ol a dispute if such delay, default, breach or omission is due
to a case of l;orcc Vlujcurc In such event the CON I K ACTOR dull promptly notify
the GOVERNMENT in writing and take all reasonably appropriate measures lo
perform its obiigallons under this Contract to the extent possible Hie time resulting
from tiny such delay or curtailment in the execution of such obligations, increased by
the time necessary lo repair ntty damage resulting from m occurred during such delay
or curtailment, shall he added to any lime period provided under this Contract
(including the Exploration Period and any extension thereto, any Sub-Period and any
extension thereto and any Development Period and any extension thereto). The
Parties shall meet a< soon as possible utter the notification of Force Majeure with u
view to using reasonable endeavours to mitigate the effects thereof.
40J For the purpose of this Contract "Fare* Majrarr" means any event ihai n
CONTRACTOR but due to cAWMnn beyond ** control. wh«h prevents or
impedo cxccutk*) of all or of its obfiajbnni under th«s Contract Such or*
dull inebdr the follow**:
(a| war. whether declared or not. civil war. insurrection, riot*, civil commotion,
terrorism, any other hostile acts, whether internal or external;
• <) my act. event, happening or occurrence due to natural cause*, in particular,
but without limitation, floods, storms, cyclones, Arcs, lightning, or
(0 environmental restrictions, which the (JOVERNMEM lues not notified to tlie
(g) any acts or orders of GOVERNMENT.
(b) any acts or orders of am other government claiming or aliening jurisdiction
the vnfapxt naar of this ( c
element thereof; or any corporation owned and'or controlled by any ol the
40 3 I he mention of the Panics is &ai Force Mujeure ‘hall receive the interprctaii.-r that
complies most with pmder*. international petroleum industry practice. Force Moprurc
affecting a CONTRACTOR ! m«> or on Affiliated Company of a CONTRA* 10H
Kniity shall he deemed Force Mtyeiite affecting the CONTRACTOR il the
consequence of such Force Mujeure prevents the performance of tiny ol the
C’OM R ACI OR'h obligation* under this Contract
ARTIf I F 41 - WAIN I R OF SON I Kl It.N IMMI MIN
is! 1 JON F RNMENT and any Public C be a CONTRACTOR l atiry
me hereby fully and irrevocably waive* any or any of r
vaiver includes any claim to immunity fWun:
(.i) any expert determination, mediation, or arbitration proceedings commenced
pursuant to Article 42;
(b) any judicial, administrative or other proceeding! u> »id the expert
determination, mediation, or arbitration proceeding* commenced pursuant to
Article 42; and
(c) any effort to confirm, enforce or execute any decision, settlement, award,
judgment, service of process, execution order or augment (uxlixi ng pre-
judgment attachment) that results from an expert determination, mediation,
arbitration or an) judicial, administrative ot other proceedings commenced
pursuant to this Contract
ARTICLE 42 -ARBITRATION AND EXPERI DITERMINATION
42.1 l or the purpose of this Article 42.1. "Dispute" shall mean any dispute, controversy
or claim (of any and every Lind or type, whether based on contract, l<*n. statute,
regulation or oihciwi.se) arising out of. relating to. or connected with this Contract or
the operations carried out under this Contract, including any dispute ns the
construction, existence, validity, interpretation, enforceability, breach or termination
of tint Contract, which arise* between the Parties (or between any one or more
entities constituting the CONTRACTOR and the GOVERNMENT).
In the event of u Dispute, the partita 10 the Dispute shall use their reasonable
endeavours to negotiate promptly in good faith a mutually acceptable resolution of
Subject to the provisions of Article 42 2. a Party who desires to submit a Dispute foe
resolution which has nut been promptly revolved as aforesaid dull commence the
dispute resolution process by providing the other parties to the Dispute written notice
of the Dispel* ("Notice of Dispute”). Ihc Notice of Dispute shall identity the parties
to the Dispute, shall contain a brief statement of the nature of the Dispute ai*l 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 vha'l first seek settlement of the dbptoe by
negotiation between Senior Representatives "Senior Representative" means
.my individual who hav authority to negotiate the settlement of the Dispute for
a party to the Dispute, which for toe GOVERNMENT shall mean the
Minister of Natural Resources. Within thirty (30) days after the dale of
delivery of the Notice o! Dispute, the Senior Representatives representing the
parties to the Dispute dull 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 mecung by a legal
adviser, each other party dial! be given written notice of such intention and its
Senior Representative may also be accompanied at Ihc meeting hy a legal
(b) II the Dispute ennnot be resolved by negotiation in accordance with Article
•42.1 (a) within sixty (60) days alter 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 lntcn»atk*nal
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.
(c) If the Dispute is not settled within the earlier of (A) sixty (60) days of the
appointment of the mediator, or such further period as the parties to the
Dispute may otherwise agree in writing under the mediation procedure under
Artrclc 42.1 (b). und (B) one hundred and twenty (120) days after the delivery
of the Dispute Notice, any party to the Dispute may refer the Dispute to, and
seek final resolution by, arbitrotion uihIci the LCIA Rules, which Rules shall
he deemed to Ik- incorporated by reference Into this Article.
(i) Any arbilnihon shall he conducted by three (3) arbitrators.
(ii) If the parties to the Dispute are the GOVERNMENT and all the
CONTRACTOR Entitles, the GOVERNMENT and the
CONTRAC I < >l< shall each appoint one (1) arbitrator. If the parties to
the Dispute arc the GOVERNMEN I' and more than one, but not all
the CONTRACTOR Entities, the GOVERNMENT shall appoint
one (1) arbitrator and such CONTRACTOR Entities shall appoint
one (I) arbitrator. If the parties lo the Dispute are the
GOVERNMENT und occ CONTRACTOR hnlity. the
GOVERNMENT and such CONTRACTOR Entity shall **h
appoint one < 1) arbitrator.
(iii) In any event, the two arbitrauxs 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. Ihc language to be
used in any prior negotiation. mcdiXioti and in the arbitration shall be
English. During the arbitratton procedure and until the arbitral
decision, the Parties shall continue to perform that obligaikws and
take no actions that would impam the 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) rhe Parties agree that 'die arbitral award shall be final and not subject
to «iy appeal, including to the Courts of England on kvici of l aw.
(vt) Vk ith respect to any mancr referred to arbitration under Article 43.4.
the arbitral tribunal shall have the authority to amend this Contract to
restore the economic position referred to in Article 43.3.
42.2 Any disagreement between the Parlies relating to Articles 15.9,27.2 mid 27.9, as well
as any disagreement the Parties agree lo refer to an expert, shall be submittal 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 (Terns or Krfcrence").
(a) The disagreement shall be submitted lo an expert appointed by mutual
agreement of the Parties within thirty 00) days following the date of
preparation and agreement of the 1 emus of Reference by the Management
Committee. If the Pnrtics cannot agree on the choice of the expert within such
thirty (30) day period, at the request of either Party, the expert shall be
appointed by the President of the Energy Institute in London, l-nglond. Any
expert appointed must haw the necessary qualifications for reviewing and
deciding on the subject matter of the disagreement
(b) I he duties of the expert shall be stated in the Terms of Reference prepnred 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 h> give to the expert in
writing any information which it consider useful, provided it docs so within
forty-five (45) days after the expert's appointment. Such information shall be
provided to the othci Party at the same time and such other Party shall be
entitled to provide comments on such information to the lint Putty and the
expert within thirty (30) days after receiving such information I he expert
shall haw the right to review and verify any information he deems useful lo
assist him ir his review of the disagreement
(c) The expert shall render hi% decision within forty-five (45) days of he receqx
of the Terms of Reference and the information referred to in Article 42 2
Subject to the provisions of Article 15.9. any decision of the expert shall be
final anc shall not be .subject lo any appeal, except in the case ol manifest
error, fraud or malpractice Any costs and expenses associated with ihc expert
determination shall be shared equally between the Parties.
413 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 4.3 - GOVERNING LAW, FISCAL STABILN V AND AMENDMENTS
43.1 Th it Contract, including am dispute arising there from, thereunder or in refanen
thereto and the agreement to arbitrate m Article 42. shall be governed b> English hw
(except any rule of English law which would refer the matter to another jurisdiction),
together with an> relevant nxics. 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.
I i\cal Stability
43 2 The obligations of the CONTRACTOR in respect of this Contract shall no! be
changed by the GOVERN MIN r and the general and overall equilibrium between
the Parties under this Contract dull not be affected in a substantial and lasting
43 3 The GOVERNMENT guarantees to the CONI KACTOR. lor the enure duration of
this Contract, that it will maintain the stability of the legal, fiscal and economic
conditions of this Contract, as they result from this Contract and as they remit from
the laws and regulations in ft tee on the date of signature ol this Contract The
( (>\TRACTOR flM entered into this Contract on the basis of (he legal, fiscal and
economic framework prevailing at the Effective Date If. .it any time utter the
Effective Date, there is any change in the legal, fiscal and/or economic framework
under the Kurdistan Region Law or other Law applicable tn or to the Kurdistan
Region which detrimentally affects the CONTRACTOR. Use CONTRACTOR
Entities or tiny other Person entitled to benefits under this Contract, the terms and
conditions of the Contract sltall be altered so as to restore the CONTRACTOR, the
CONTRACTOR Entitles and any other Person entitled to benefits under this
Contract to the some overall economic position (taking into account home country*
taxes) as that which such Person would ha\e been in, had no such change in the legal,
fiscal and/or economic framework occurred.
43.4 rf the CONTRA* fOK believes that its economic position, or the economic position
of a C'ONTRAC I OK Entity or any other Person entitled to benefits under this
Contract, has been detrimentally affected as provided in Article 43.3. upon the
CON I KACTOR'* written request, the Parties shall meet to agree on any necessary
measures or making any nppmpriate amendments to the terms of this Contract to re¬
establishing the equilibrium between the Parties and restoring the CONTRACTOR,
the CONTRA* TOR Entitles or any other Person entitled to benefits under this
Contract 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 the 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 Ankle 42.1, without the necessity of first referring the matter to
negotiation and mediation.
43.5 Without prejudice to the generality of the foregoing, the CONTRACTOR shall be
entitled to the benefit of any future changes to the petroleum legislation or any other
legislation complcmeniing. ameoding 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 fact hate the performance of
the Petroleum Operations by promptly granting to the CONTRACTOR any
necessary authorisation, permit, licence or access light and making available any
existing facilities and services with a view to the Parties obtaining maximum mutual
benefit from the Contract.
43.7 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. Notwithstanding the foregoing, the GOVERNMENT has the right and
authority to waive the application of the provisions of this Contract on a
case-by-c use basis without having to fulfil the conditions of validity of this Contract.
43.8 This Contract constitutes the entire agreement of the Parties and supersedes any and
all prior understanding! or agreements in respect of the subject matter of tins
43.9 Unless otherwise expressly stated elsewhere in this Contract no failure or delay of
any Party to exercise any light, power or remedy under this Contract shall operate a-> t
waiver thereof; nor shall any single or partial exercise of any such nghL power or
remedy preclude any other or filture exercise thereof or the exercise of any other right
power or remedy.
43.10 As signatories to this Contract for and on behalf of the GOVERNMENT, the
Ministry of Natural Resources in the Kurdistan Region and the Regional Council for
the Oil and (ias Affairs of the Kurdistan Region - Iraq hereby represent that they
agree and approve this Contract for the purposes of the Kurdistan Region Oil and Gas
ARTICLE 44 - NOTICES
44.1 All notices, demands, instructions, waivers, consents or other communications to he
provided pursuant to this Contract sKdl he in writing in English, shall be effective
upon receipt, and shall be sent by receipted hand delivery tv by email (followed b>
delivery by reputable micmatwnai air courier empany with an establishment in Eibil
in the Kurdistan Region) to the foil.-wing *khexve»:
To the GOVERNMENT:
His Excellency the Mincer of Natural Resources
Ministry of Natural Resources
Kurdistan Regional Government
To the CONTRACTOR: Sterling Energy (
Allention: Exploration & Technical Director
5 Chancery l.ane. London,
WC2A I LG.
Email: agrossc@sterlingcncrgyuk io n
A notice delivered by email (followed by an courier) shall, vivc tor manifest error, he
deemed to liave been dcliscrcd upon its transmission by email.
44 2 Ihe above address and or designated representative of an> of the Parties may be
changed on giving ten (10) days prior notice to the other Parties delivered pursui t to
Article 44 |.
ARTICLE 45 - TERMINATION
45.1 Subject lo the provisions of Article 45.5. the GOVERNMENT shall have the right U>
•emunale this Contract in the event the CONTRACTOR:
(a) fails to meet a material financial obligation expressly stated in this Contract;
(b) during *J»e I irst Sub-Pcn«xl docs 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 anJ seismic acquisition as detailed m Article 10J; or
no cause or justification acceptable in accordance with this Contract or under
prudent internal:oral petroleum industry practice, it being recognised that
Force Mai on re is an acceptable justification for such interruptions; or
(d) intentionally extracts or produces any mineral which is n.n covered by the
object of tins Contract, unless such extraction or production is expressly
authorised or unavoidable us a result of operations carried out in accordance
with prudent international petroleum industry practice; or
(c) if the CONTRACTOR comprises solely one entity, is declined bankrupt in
accordance with applicable Law; or
(0 wilfully refuses to abide by negotiation, mediation, arbitration or expert
decision under Article 42.
45.2 rhe GOVERNMENT may also terminate the Contract only in respect of one
CON TRACTOR Entity if such entity is subject to a Change of Control for which
the GOVERNMENT has not given its authorisation in accordance with Article 39.7.
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 hi accordance
w ith the provisions of Article 7.
45.4 During the Development Period, the CONTRACTOR shall have the right to
terminate tins Contract at any time by surrendering nil Production Areas, provided its
then current obligations have been satisfied in accordance with this Contract
45.5 If the GOVERNMENT ixatis lo exercise .?s right to terminate this Contract
pursuant to Article 45.1. it shall first comply with the following provisions
(a) The GOVERNMENT shall notify the CON TRACTOR ol ns intention to
terminate this Contract dating the reasons lor such termination and requesting
l i) to remedy the default, or
(ii) to propose acceptable compensation
(b) If. within three (3> Months alter the notice referred lo in Article 45.5(a), the
CONTRACTOR has not remedied the situation complained of by the
GO\ I KVMEYT to its utoiactioa or offered compensation acceptable to
GOVERNMENT m each case acting reasonably, the GOV ERNMKVT shall
notify the CONTACTOR in writing that the Contract shall be terminated
from the termination date detailed in such notice Ihis C'oninwi dull tcunimie
on such termination dale unless the CONTRACTOR issues a notice of
dispute as provided under Article 42. in which ease this Contract shall remain
in force unri! a final settlement of the dispute has been reached in accordance
w ith the dispute resolution provisions of Article 42.
The foregoing provisions of this Article 45.5 are subject to the proviso that, in care of
a dispute where there has been breach of this ('ontruct which h.is Kvii \ ibmittcd to
dispute resolution pummnl lo Article 42, iIk GOVERNMENT shall no! tv entitled
to exorcise its right lo terminate this Contract prior to a final determination under
Article 42 in favour or the GOVERNMENT.
45.6 If the GOVERNMENT terminates this Contract pursuant to the provisions of Articles
45.1 iukl 45.5, the C ONTRACTOR shall lose all its rights and interests under this
Contract Notwithstanding the foregoing, the provisions of Articles 14.10, 16.7. 30.
31. 35 1. 35.2. 35 3, 35 4. 35.7. 38.2, 41. 42. and 43.1 to 43.6 shall survive the
termination or expiry of this Contract.
45.7 If a CONTRACTOR Entity breaches Article 46.1 or 46.2 the
GOVERNMENT or another C ONTRACTOR Entity may terminate this Contract in
respect ..I tIk first CONTRACTOR Entity.
45 8 If the Contract is terminated under Article 45.2 or 45.7 in respect of a
COVTR \CTOR Emily, the .meres: of the relevant CONTRACTOR Entity shall
be trainfeued to the other COM RACTOR Entities in the proportions in which thei-
respective percentage ntcrcsts bear to the aggregate of their respective percentage
interests under the relevant Joint Operating Agreement or in such other proportions as
such CONTRACTOR Entities shall agree between them for the market value
thereof (as vt^h icnn is defined in Article 39.7k Such transfer shall not give rise lo
ary Tax including or the consideration paid or received or oo the income or gain
AR rIt I E 40 - APPLICATION OF ((IRRUPTION LAWS
46.1 If this Contract U reasonably proven to have been obtained in violation of Kurdistan
Region law concerning corruption, this. Contract is void ob initio
46.2 Bach CONTRACTOR Entity agrees that if it is, ut any time, reasonably proven to be
in breach of Kurdistan Region Law concerning corruption the provisions of Article
ARTICLE 47 - EFFECT IVE DATE
I his Contract shall become effective and be binding on the Parties upon ihc signature of the
Contract by the duly authorised representative* of the GOVERNMENT and the
CON TRACTOR, as provided below.
Entered into in four (4) originals in Erbii. the Kurdistan Region on'O November. 2007.
I or the Kl R 1)1 STAN REGIONAL GOVERNMENT
Prime Minister Minister of Natural Resources Kurdistan
Kurdistan Regional Government Regional Government
On behalf of the Regional Council On behalf of the Ministry of Natural
tor the Oil and Gas Affairs of the Resources in the Kurdistan Region
Kurdistan Region Iraq
I or each CONTRACTOR Entity
STERLING ENERGY (IN I KRNAIIONAL) LIMN ED
Andrew J. Grosse
Exploration and Technical Director
Map showing coordinates of Sanguw North Block corner points
Point Latitude (deg min sec) Longitude (deg min seel X (rat) V «n\) ~\
|1 1 35° 23’ 25- N___ 44" 52' 18" E 488 339 3916 338
| - jj io u} n *f? UJ IN tl jy^*f T*t©
3_ 35° 25’ 02" N 45“ 06' 17" E 509 4% 3919 304
4 35° 18' 22" N _ 45" 12' 49"E 519 410 3907 007 |
5 35* 09' 49" N 45® 07 21"E 511 145 3891 192
\< <.LH.MIMi pkck uh kk
PARAGRAPH I-GENERAL PROVISIONS
To classify expcndinm-.N, define further Petroleum Costs (in addition to those defined
ns micIi in the Articles of the Contract), and prescribe the manner in which the
CONTRACTOR'S Accounts shall he prepared and approved.
Words and phrases to which u meaning lues been assigned in Article i or other
Articles of the Contract shall have the same meaning when used in tilts Annex.
In the event of any inconsistency or conflict between the provisions of this Annex and
the other provisions of the Contract, th.cn the other provisions of the Contract shall
1.4 Accounting Records and Reports
1.4.1 Ihc CON IK ACTOR shall maintain the Account* tn accordance with Article 15 1
and m accordance with this Accounting Procedure, including in accordance with the
charts of Accounts agreed under Paragraph 1.4.2
1.42 Withm sixty (60) days of the Effective Dale, the CONTRACTOR shall submit to and
diMuts with the GOV ERNMENT a proposed out ne of chart* 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
GOVERNMENI shall either provide written notification of its approval of the
proposal or request n writing revisions to the proposal U ilhin one hundred and
eighty (ISO) days after the Effective Date, the COM KACTOR and the
GOVERNMENT shall agree on the outline of charts of Accounts which shall
describe the basis of the accounting system and procedmcs to he developed and used
under this Contract Following such agreement, the CONTRACTOR shall
expeditiously prepare and provide the GO\ ERNMI NT with formal copies of the
comprehensive charts of Accounts and manual* related to the accounting, recording
and reporting functions, and procedures which are. and dull be. observed under the
1.4.3 Notwithstanding the generality of Ihc foregoing, the CONTRACTOR shall male
regular Statements relating to the Petroleum Operations These Statement* are a*
ii) Production Statement (as indicated in Paragraph 6).
h) Value of Production and Pricing Statement (as indicated in Paragraph 7)
c) Cos* Recovery and Share Account Statement (as indicated in Paragraph 8).
d> Statement of Expenditures and Receipts (as indicated in Paragraph'/).
e) Final End-of-Ycar Statement (as Indicated in Paragraph 10).
f) Budget Statement (us indicated in Paragraph 12)
1.4.4 All icpints and statements shall he prepared in accordance with the Contract.
Kurdistan Region Law, and where there are no relevant provisions of either of these,
in accordance with prudent International petroleum industry practice.
1.5 Language and Uaits of Account
All Accounts shall be maintained ami prepared in the English language and shall be
recorded in Dollars. Wheic necessary lor clarification, the CONTRACTOR may
also maintain Accounts m other currencies.
1.6 Audit and Inspection Rights «f the GOVERNMENT
In addition to the provisions of Article 15.3 (o 15.7 and 15.9. the following provisions shall
apply to any audit carried out in accordance with Articles 15 1 to 15.7:
1.6.1 For pu.T*>*cs of audnng. the GOV ERNMI'VT, acting fc*v*rjhly ard in accordance
with prudent micm.itlonal petroleum industry practice, may examine and verily, at
reasonable time' upon reasonable prior wrinen notkv to the C OM RAC'I OR. all
charges and credits relating to the Petroleum Operations, such as hooks 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 wriiy the
charges and credits, values and treatments
1.62 Furthermore, the auditors shall base the right in connection with such audit, to visit
and inspect at reasonable limes, all sites, plants, facilities, warehouses aird offices of
the CONTRACTOR directly or indirectly serving the Petroleum Operations and to
question personnel associated with th»wc Petroleum Operations
1.6J Where the GOVERNMENT requro verification of charges made by an Affiliated
Company of the < OMRACTOR. the GOVERN Ml NT shall have the right to
obtain an audit certificate for such changes from an internationally recognized (inn of
public accountant.* acceptable to both the GOVERNMENT and the
CON I RACIOR which may be the CONTRACTOR'S statutory auditor.
1.6.4 All agreed adjustments resulting from an such shall he promptly made in the
C OVI K V< I OR\ Accounts and anv consequential adjustments to payments due to
the COM R ACTOR nr to the GOVERNMENT, as the case may be. shall be made
I 6 5 When bmn are outstanding with respect to an audit, the CONTRACTOR dull
nuir-tiin the relevant documents ami permn inspection thereof until the issue is
tales as otherwise provided in Article 24. Article 29 oc other Articles of the
1.7.1 All payments between the Parties shall, unless otherwise ugracd, bo in Dollars and be
made through a bonk designated in writing by each receiving parly; 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 olhu under the Contract shall, for each day such
sums are overdue, bear interest compounded monthly ut UBOk plus two per cent
1.8 Currency Exchange Kates
In addition to the provisions of Article 2'>. the following provisions dull apply to any
exchanges of currency earned out in accordance with Article 29
1.8.1 Amounts received and Petroleum Costs incurred, shall Ik converted from othei
currencies into Dollars In accordance with the CONTRACTOR’S usu.il accounting
procedures which shall reflect generally accepted accounting practice* in the
inieirehonal petroleum industry. and with reference to exchange rates obtained in
accordance with Article 29
1.9 Accrual Bsvia, Cavh How Hash and Reports
All books and Accoonts shall be prepared on ai accrual basis in accordance with
generally mccptcd accounting principles used in the international petroleum industry.
1.10 Values and Treatment*
Values and treatments proposed b) the CONTRACTOR relating to all Petroleum
Costs shall be subject to challenge by the GOVERNMENT in the course of audit to
ensure thut they arc in accordance with the provisions of this Accounting Procedure.
PARAGRAPH 2 - CLASS1KICAI ION, DKFINI NON AM) ALLOCATION OF
COSTS AND EXPENSES
2.1 Segregation of Costs and Expenses
Petroleum Costs shall he segregated in accordance with the purposes for which such
Petroleum Costs are made. The purposes which shall qualify are
(a) those which have been included in the approved Wort. Program and Budget
for the year in which the C osts und I xpenditures arc made;
(h) expenditures incurred in ease* of emergency ns set out in Articles 11.7, 13.5,
1.1.9 126.96.36.199 and any other Articles of Cite Contract;
(c) any other purposes agreed in the Articles of the Contract, and
(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 he
classified, defined ami n I located as set out below
2.2. Exploration ( hxts
Exploration Costs are all direct ami allocated indirect costs tuid expenditures incurred
in carrying out tltc Exploration Operations, including all direct and all
costs and expenditures incurred in the search foe Petroleum in an area whxh is. or was
at the time when such costs and expenses were incurred, pan of the Contract Area
22 I Aerial, geophysical, geochemical. pakuntoiogx'aJ. geological, topographical and
seismic surveys and studies ami their mcrprctaioo and purchased geological and
2.2.2 Stratigraphic test hole drilling and **«cr well drilling
223 labour, materials, supplies and services used m drilling wells with the object of
finding Petroleum or .Appraisal Wells excluding any costs of die 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 I.
2.2 2 and 2.2.3. including access road'
2.2.5 Thai portion of all Service Expenditures and that portion of all General and
Administrative Expenditures directly attributable to Exploration Costs or allocated
tlicreU) 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 this Paragraph 22.
2J (»■* Markrtiog Carts
G» Marketing Costs arc all dtreel and allocated indirect costs and expenditures
incurred in carrying out Gas Marketing Operations and include lint portion of all
Service Expenditure* and that purtion of all General and Administrative Expenditures
directly attributable to (ias Marketing Costs or allocated thereto on a consistent and
2.4 Development ( osts
Development Costs nre all direct and allocated indirect costs and expenditures
incurred in carrying out Development Operations including all direct ar.d tdlocatcd
indirect costs and expenditures incurred in:
2.4.1 Drilling well* which arc completed ns producing wells and drilling wells foi purposes
of producing from a Petroleum reservoir, whdltci llicxc wells me dry or producing
and drilling wells for the in jection of water or gas to enhance recovuiy of Petroleum.
2.4.2 Completing wells by way of installation of casing oi equipment or otherwise after a
well hi»x heen 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 com* ol Petroleum production, transport and storage facilities such as pipelines,
flow line*, production and treatment units, wellhead equipment, subsurface
equipment, enhanced recovery systems. Petroleum s^yra^c facilities. »nd accevv roads
244 Eagincenog wd design snxhcs fcr the weUs and be line* referred to ■ Paragraph.
And including that portion of all Service Expend, tares and that portion of all General
and Administrative Expenditures directly attributable In Development Costs or
allocated thereto on u consistent and equitable basis; and any other expenditure
incurred in the Development Operations and not otherwise covered under Paragraph
15 Pn-duciirti C uts
in cunying out Production Operations, including all direct mid allocated Indirect costs
;uid expenses incurred m Petroleum Operations aftci I irvt Production which are other
than Exploration Cosu. Gas Marketing Costs. Development Costs and
portion ol all Service
I xpcndiiurcv and that portion of all General and Administrative Expenditure* directly
attributable to Production Costs or allocated thereto on a consistent and cquhabk
2.6 Ikcoinmi'Moninj: f«U
Decommissioning Co* are all direct and J located indirect costs and expenditures
incurred in carrying out Decommissioning Operations and include that portion of all
Service Expenditures and that portion ol all General and Administrative I xpenditnres
directly attributable to Decommissioning Costs or allocated theicio on a consistent
and equitable basis, and the Decommissioning Reserve Fund shall be determined on
such basis, in advance of incurring such com*, as provided in Article 3* and. for the
purposes of cost recovery , the contributions to the Decommi'sioning Reserve Find
dial he recovered in accordance with Article 31.
2.7 Service Expenditures
Service Expenditures are expenditures in support of Petroleum Operations including
warehouses, vehicles, nolonroi 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 F..\penditurcs ir. 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 Paragraph* 22 5. 2 3, 2.4. 25 and 2.6 to Exploration Costs,
Gas Marketing Cc*ti. Development C orns. Production Costs and Decotrr . z oning
Costs respectively and shall be separately shown under c*h of these emegooes.
Whcrc Serv ice Expenditures arc made in rasped of shared facilities, the basis of
allocation of costs to Petroleum Operations shall be consistent and equitable and sha
2.8 General and Administrative Expenditures
General and Administrative Expenditures ore:
2.8.1 All mtiin office, field office and general administrative expenditures in the Kuidisian
Region including 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 "I oreiga C OM RACTOR"), an annual overhead charge
shall be made for services rendered (excluding the direct expenditure* av referred in
Paragraph 3 1.2.(b» by any Affiliate of the Foreign CONTRACTOR outside the
Kurdistan Region to support and manage Petroleum Operations under the Contract, or
where the CONTRACTOR, not being a Foreign CONTRACTOR draws upon the
services of an Affiliate within the Kurdistan Region, an annual overhead charge shall
he made for service* rendered (excluding the direct expenditures a* referred in
Paragraphs 3.1.2.(a) and (b>) 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 CONTR AC TOR in acowdancv with
its standard personnel policy ia force in the relevant period, provision of office
accommodation and provision of services reasonably necessary for operation and
CONTRACTOR’S Alllliatc. such as. hut not limited to, international pioduction
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 uml'or expenditure or without the release
of confidenti.il data proprietary to any of the CONTRACTOR’S Affiliate*. he
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 department* which directly benefit Petroleum Operations
under tike Contract shall he charged as direct costs in accordance with
In respect of the costs of the CONTRACTOR’S Parent Company Overhead, as
described above, the CONTRACTOR shall charge monthly to Petroleum Operations
on amount equal to the total of the follow ing:
2.K.2.1 Exploration Overhead
Ihe CONTRACTOR shall he entitled to an uiiiiuul charge based on a sliding seals
percentage and charged monthly to Petroleum Operations I he basis for applying this
percentage shall he the total of Exploration Costs and Cu> Marketing < .- . during
each Calendar Year (exclusive of this Exploration Overhead) or fraction tbeicof less
expenditures which base been subjected to the two (2) per cent fee. refereed to in
Paragraph 3.1.8(b) The sluing scale percentage shall be the following:
For the first lour million Dollars (USS4.000.000) four per cent (4S) For the
next four million Dollar. (USS4.000.000) three per cent (3%)Ov ct eight
million Dollars (l.SS*.000.000) twx> per cent (2%)
Ihe foregoing percentages mas be resiewed but not more often than annually, and
any approved appropriate adjustment shall be made, if necessary, prospectively
188.8.131.52 Development. Production and Decommissioning Operations Overhead
Ihe overhead rales applicable to IX-velopment. Production and Dccommiuioninc
Operations shall be agreed between the Parties x due counc aid shall incorporate the
(a) The CONTRACT OK’s charges must be charged as direct charges whenever
possible. Overhead charges exist only to compensate the CONTRACTOR s
AITi hates for costs which arc properly allocable to Petroleum Operation*
under the Contract but which cannot, without unreasonable efTort andor
release of confidential dn proprietary io the CONTRACTOR’S Affiliates be
charged under any other see ike Overhead costs are billed monthly.
Overhead must be commensurate with services rendered and hosed on actual
cost studies but may not exceed an amount calculated as a percentage of
certain annual expenditure* excluding Txploratioa Costs and
(b) That percentage as weii as the types of expenditures, which affect overhead
and those, which do not. shall be agreed among the Panics.
(c) I lie maximum percentage rates may be revised by mutual agreement not more
often than annually. The initial maximum percentage rates and the types of
expend;tuics to which they apply shall be agreed as soon as the Panics possess
reasonably reliable cost estimates lor the relevant Production Area
(d) Overhead charges are not subject to uudil by (GOVERNMENT
(c) The CONI RACTOR 'hall upon request fumilh at the end of each relevant
Calendar Year to the GOVERNMENT a confirmation by its statutory auditor
dun the overhead costs actually charged do not duplicate any other charges
and that the method used in allocating overhead to Petroleum Operations
hereunder us opposed to other activities is reasonable und in accordance with
generally accepted accounting practices.
(f) The CON TRACTOR 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 und
sliail Ik separately shown under each of these categories,
y NR NGR M il 3 - COS rs. EXPENSES. EXPENDITURES AND ( REDIIS Of Mil
3.1 Costs Recoverable \Vithout farther Approval of the GOVERN MEN T
Petroleum Costs incurved 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 Conirar. (except lo the extent provided b Paragraph 4 or
elsewhere in dm Annex), subject to audit as provided for m Article 15 and in
All direst coals necessary for the acquisition, renewal or relinquishment of surface
right' acquired and maintained in force for the purpose* of the Contract
5 ; 2 Lagtu: arid Associated UivxCggS
a) The CONTRACTOR'S locally re cruised employees based in the Kiudistan
Rex*m Co»u» of al! CONTRACTORS locally recroitcd employees who are
directly engaged in the conduct ot Petroleum Operations under die Contract in
the Kurdistan Region Such costs shall include the cost' of salaries wages,
bonuses, overtime, employee benefit* and GOVERNMENT benefits for
emplujiia and Icvw imposed on ihc CONTRACTOR as an empk
trampi station and relocation cost' within the Kurdistan Region of the
employee and such member, of the employee's family (limited to spouse and
dependent children) as required by law or customary practice in the Kurdistan
Region. If such empUnccs are engaged in other activities in the Kurdistan
Regain, in addition to Petroleum Operations, the cost of such employees shall
be app.Kti.mcd on a time sheet bns:» according to sound and acceptable
b) Aisif’neJ Ptrumnei. 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 employ ees, it being understood
that m the ease 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 saUr.es. wages, and other costs as delineated in
Paragraphs 3.1.2(c). (d). (c). (0 and (g). shall be charged and the basis of such
pro-raia 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 irdcr Paragraph V1 2(b).
d) Fxpenses or contributions made pursue* to asaownents or obligation*
imposed under Law which are applicable to the < ONTRACTOR’s cost ol
salaries and wages chargeable under Paragraph 1 I 2(b).
e) Ihc CONTRACTOR i cv t of oaahlrshed plans for employees’ group life
insurance. h'pi’a.izaaon, pension, slock purchases, savings, bonus, and other
benefit plans of u like nature customarily granted to the CONTRACTOR'
employees, provided however that such costs are in accordance with generally
accepted Standards in the international petroleum industry, applicable to
salaries anJ wages chargeable to Petroleum Operations under Paragraph
f) Actual transportation and travel expenses of employees of CON TR \CTOR
including those made for travel and relocation of the expatriate employee*,
including their families and personal effects, assigned to the Kurdistan Region
whose salaries and wages are chargeable to Petroleum Operations under
Actual transportation expense* of expatriate personnel transferred to Petroleum
Operations from their country of origin shall he charged in the Petroleum Operations
Transportation expense* of personnel transferred frxmi Petroleum Opcrutions to a
country other than the country of their origin shall not be charged to the Petroleum
Operations. I ranxpofiat.cn cost ax used in this section shall mean the cost of freight
and pavent’er service, meals, hotels, insurance and other expenditures related to
vacation and transfer travel and authorized under the i OM’RACTOR’s standard
personnel policies Ihe C'ONTRACTOR shall ensure that all expenditure' related to
transportation costs are equitably allocated to the activities, which luxe benefited
from the personnel concerned.
g) Returnable personal expenses of personnel whose salaries and wages are
chargeable lo Petroleum Operations under Paragraph 3.1.2(b) and for which
expense* such pentane! ore reimbursed under the CONTRACTOR'S
an equitable basil.
The coil of transportation of employees, equipment, materials and supplies other than
as provided in Paragraph 3.1.2.(1) necessary for the conduct of the Petroleum
Operations under the Contract along with other related costs such as, hut not limited
to, import ditties, customs fees, unloading charges, dock lees, and inland and ocean
3.1.4 Charges for Services
a) Third Parties
The actual costs ol contract services, services of professional consultants,
utilities, and other services necessary for the conduct of the Petroleum
Operations under the Contract perforated by third parties other than an
Affiliate ol da < OVTRACTOR
b) Affiliates of the < 'ONTRACTOR
Profi'twul isd Admiantrame Srnin* liprntn cost of
(ONTRACTOR lor the direct benefit of Petroleum Operabons.
including sen ices provided by the production. exploration. legal,
procurement, financi.il. insurance, accounting and computer services
divitioiM other than those covered by paragraphs 3.1 4 (b) (ii). 3.1.6
and 3 I * (b) which CONTRACTOR nuy u< in lieu of having in
own employees. Such charges shall retkxt the cost of providing their
services. Such charges dull not include any element of profit and shall
be no more or kss favourable than similar charges foi other operations
earned on by die CON I K \(TOK and its Affiliates. The chargeout
rate shall include all costs incurred by Affiliates incidental to tlic
employ mem of such personnel including all 1 abour and Associated
Labour Costs and the cost ol maintaining and operating offices and
providing all support services for such personnel Com* of travel of
such personnel in respect «»f Petroleum Operations will be directly
charged I he charge' for such services shall not exceed those
prevailing if performed by noo-Affiliated third parties. taking into
account the qualkv md afrnhMIfey of »*h vervvee* Where the work n
performed ouewe the home ofT« hue of such personnel. foe laity
rale shall be charged from foe date such personnel leave foe home
office base where they tniulfy work up to their return thereto, including
days which are not working days in the location where the work is
perform*!, excluding any holiday cntillcmenls derived by such
personnel from their employment at their home office bone.
ii) Sclent!fk nr Technical Personnel cost of scientific or technical personnel
Kokc' 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 dull not mclude any element of profit The chargcout rate
shall include all costs incurred by Affiliates incidental to the employment of
such personnel including all l-abour and Associated Labour Coats and the cost
of maintaining and operating offices and providing all support services for
such personnel coil* of travel of such personnel in respect of Petroleum
Operations will be directly charged. The charges foe such service* dull not
exceed those prevailing it performed by noo-affiUated third patties, 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,
tlie CONTRACTOR shall not authorize work by such personnel without
approval .if the GOVERNMENT.
iii) Equipment and facilities: use of equipment and facilities owned and
funmhed by the CON IR ACT OK's Affiliates, at rates commensurate with the
cost of ownership and operation; provided, however, that such rules shall nol
exceed those currently prevailing for the supply of like equipment and
facilities on computable 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
(JOVERNMI NT. the CONTRACTOR shall provide the GOVERNMENT
with evidence of such rates being on an aim’s length basis. (If the
GOV ERNMENT considers that any such rale 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 inwsunent items such as (but not limited lo) drilling rigs,
producing platforms, oil treating facilities, oil and gav loading and
transpo nation systems, storage and terminal facilities and other major
facilities, rates for which shall be subject to separate agreement with the
Cost of acquiring, leasing. installing. operating, repairing and maintaining
commjmcaTion systems including radio anJ microwave facilities within and between
the Contract Area and the CONTRACTOR S nearest base facility
3 1.6 Office -ind Miscellaneous Facilities
Net 0.11 to the CONTRAt TOR of establishing, maintaining and operating any
office, sub-office, warehouse, homing or other facility directly serving the Petroleum
Operations If any such facility service more than one contract area the net cost'
thereof shall be allocated on an equitable basis :n accordance with prudent
international petroleum indu-try practice.
3.1.7 Ecological and Environment
a) Costs incurred in the Contract Area as a result of legislation lor archaeological
and geophysical surveys reluting 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 ami any other costs incurred in
complying with the requirements of Article 37;
c) Costs to provide or have available pollution containment und removal
d> Costs of actual control and cleanup of oil spills, and of sixh funber
responsibilities resulting therefrom as may be required by applicable laws and
e) Costs of restoration of the operating environment incurred pursuant to an
approved scheme prepared in accordance with Article 38 of the Contract;
0 Any cost* incurred for the decommissioning of facilities and site rest oral ion.
including any related activity required by the GOVERN MINI of other
competent authority or by the Contract; and
g) Any contributions made by the CONTRACTOR to the Decommissioning
Reserve Fund in accordance with Article 38, when such contributions arc
3.1.8 Mfttcri.il and Equipment Cvtls
Costs of materials and supplies, equipment, machines, tools and any other goods of a
similm nature used or consumed in Petroleum Operations subject to the following;
a| Acquisition • tlic <'()N I RACTOR shall only su;»ply or purchase materials for
use in Petroleum Operations that may be used in the foreseeable future Ihc
accumulation of surplus stocks and inventory 'hall be avoided so far as is
reasonably practical anJ consistent with efficient ami economical operations.
Inventory levels shall, however, take into account the time lag for replacement,
emergency needs, weather conditions affecting oporutions and similar
b) Components of costs, arm’s length transactions - except as otherwise
provided in paragraph 3.1 8(d) . material purchased by the CONTRACTOR
in arm's length transactions in (he open market for u*c in the Petroleum
Operations under the Contract shall be valued to include invoice pnee less
trade and cash discounts (if any), licence fees, purchase and procurement fees
plua 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 Irom point of
importation to warehouse or operating site. Where an Affiliate of the
CONTRACTOR lw arranged the purchase, coordinated the forwarding and
expediting effort, its co-ts should not exceed those currently prevailing in
normal arm’s length transaction* on the open market and in any case shall ac*
exceed a fee equal to two percent (2%) of the value of the malemls added to
the cost of the material* purchased
c) Accountin'* - such m.ncnal 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 C OVJRACTOR to or from Petroleum
Operations under this Contract shall be valued and charged or credited at the
prices specified in Paragraphs 3-18(dHi) 3.1 *
I) New material, including uw:d new material moved from inventory
(Condition V). shall be valued ut tl»c current international net price
which shall not exceed the price prevailing in norma! arm' lengtii
transactions in the open market
ii) l fsed material (Conditions ’B'. "C" and "D";
u) Material which is in sound and serviceable condition and is
suitable for re-use without reconditioning shull be classified ax
Condition "B" and priced ut seventy five percent (75%) o: the
current price Ol new material defined in Paragraph 3 I 8
b) Material which cannot be classified as Condition ‘B* bet which
after reconditioning will be further serviceable for its original
function shall be classified as Condition 'C‘ and pneed at rot
more than fifty percent (50%) of the current price of new
material a* defined n 3 I 8
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) Material which cannot be classified as Condition “B" or
Condition "C* shall be classified as Condition ’D* and priced at
a value commensurate with u* use by the CONTRACTOR If
material is not fit foi use by the CONTRACTOR it shall be
disposed of as junk.
iu) Material involving erection costs shall be charged ax the applicable
condition percentage of the current knocked-down pnee of new
material as defined ir. Paragraph 3 1 m J*i).
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 (dXiiXb). such material shall be priced
On a basis that will result in u net charge to the accounts undei the
Contract consistent with the value ol the service rendered.
v) Premium prices - whenever mulcrUI is not readily obtainable at
published or listed prices because o! national emergencies, strikes 01
other unusual causes over which Ihc 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 lor 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 ami the GOVERNMENT shali have the
right to challenge the transaction on audit.
vi) Warranty of material Airmailed by the CONTRACTOR - the
CONTRACTOR docs not wunuiil the material furnished. In ease of
defective material, credit shall not be passed to Petroleum Operations
until adjustment hits been received by the CONTRACTOR from tlx
manufacturers of the material or their agents.
vii) Adjustments arising from material inventories conducted in accordance
with Paragraph 5.2.
e) I Equipment of the CONTRACTOR charged at rales not to exceed ihc average
commercial rates of non affiliated third parties for equipment, facilities,
installations and utilities lor use in the area where the same are used On
request, the CONTRACTOR shall finish a list of met and the basis of
affixation Such rales diall be revised when found to he other excessive
orinsufficicni, bui not more than once every six (6) Months
Drilling tools and other equipment lost tn the hole or damaged beyond repair
ma> he charged at replacement cost less depreciation plus tramponation costs
to deliver like equipment to the locaion where wed
0 fse of leased or hired machinery and or equipment in the Petroleum
Operations shall he charged at Ail! cost to the CONTRACTOR. This may
include mobilisation and de-mobilisation charges, lease and hire tees, as well
as other contractual costs.
3.1.9 Rentals and Taxes
All rental, of every kind and nature levied by any GOVERN MEN I and all Taxes
imposed in connection with the CONTRACTOR', assets, income or activities under
the Contract and pa.d directly by the CONTRACTOR or any CONTRACTOR
Entity (save where the contrary is expressly provided in the Contract) with the
exception ofTaxes described in Article 31.2) and bonus payments made under Article
If the CONTRACTOR, any CONTRACTOR Entity or any of its Affiliated
Companies is subject to income or withholding tax us a result of services performed at
cost for the Petroleum Operations under the Contract, its charges for such services
may be iik teased by the amount required to cover such taxes (grossed up) including
taxes on such gross up
3.1.101 psucspcc ffld l«ie
Insurance premiums and cost* incurred for insurance carried for the benefit of the
Petroleum Operations provided that such insurance is customary, affords prudent
protection against risk jikI iv ut a premium no higher than that charged on a
competitive basis by insurance companies which are not Affiliated Companies of the
('ONI RAC I OK. Ixccpt in cases of failure to insure where insurance coverage i'
required pursuant to the Contract, actual costs and losses incurred shall Ik 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 repair and
replacement of property in the Contract Area resulting from danuges or losses
incurred by fire, flood, storm, theft, accident or such other cause
3.1 II LegalExpenses
All reasonable costs and expenses resulting from the handling, investigating,
asserting, defending, or settling of any claim or legal action necessary or expedient lor
the procuring, perfecting, retention and protection of the Contract Area, .uid in
defending or prosecuting lawsuits involving the Contract Area or any third party
claim wising out of the Petroleum Operations under the Contract, or sums paid in
respect ot legal services necessary for the protection of the joint interest of the
GOVERNMENT ami the < ONTRACTOR shall lie recoverable. Such expenditures
dull include attorney's fees, court costs, arbitration costs, costs of investigation, and
procurement of evidence and an* Hints pa.d in settlement or satisfaction of any such
litigation and claims provided such costs arc not covered elsewhere m the Annex.
Where legal services arc rendered in such matter* 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) as
3.1.12 Cla inis
Expenditures made in the settlement or satisfaction of any loss, claim, damage,
judgement or other expense arising oat of or rtbiing to Petroleum Operations, except
as may otherwise be covered ebrwhere m the Annex
.All costs and expenses incurred by the CONTRACTOR in the training of its
employee* engaged in Petroleum Operations under the Coo tract
3.1 U (jy pcral and Administrative Costs
Die costs described in Paragraph 2 8.1 and the charge described in Paragraph 2 * 2
Charges and fees hy the banks for money transfers, payments and foreign exchange
transactions, as well us currency exchange losses incurred by the CONTRACTOR in
connection with the Petroleum Operations.
1 I 16 ()\he r Expenditures
Other reasonable expenditures not covered or dealt with in ihc foregoing provisions of
Paragraph 3 which arc necessarily incurred by the CONTRACTOR lor die 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 the items listed Mow shall be
credited to the Accounts under the Contract for the purpose* of Article 25 of the
3.2.1 The proceed* of any insurance or claim or judicial awards in connection with
Petroleum Operations under the Contract or any assets cluugcd to Ihc Accounts under
the Contract where such operations or assets have been insured are: the prem;;
charged to the Accounts under the Contract
12.2 Legal cost* charged to the accounts under Paragraph 3.1.11 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 u-v.cr the ( onlract.
3 2.4 Any adjustment received by the CON I K \C"IOR fnwn the suppliers manufacturers
or their agents in connection with a defective material the cost of which was
previously charged hy the CON I RAC'TOR in the Account* under the Contract
3 2 5 Rentals, refunds. including refunds of taxes paid, or other credit* received by the
CONTRACTOR which apply to any charge which has been made to the Accounts
under the Contract, hut excluding any award grunted to the CONTRACTOR under
arbitration or expert proceedings.
3.2.6 Costs originally charged to the Accounts under die 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 b\ the < OMRACTOR 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 die development
casts of which were incurred pursuant to and are recoverable under the Contract
3.2.9 Proceed* derived from the sale, exchange, lease, bin:, transfer or disposal in any
manner whatsoever of uny other item the costs of which have been charged to
3.3 Diiplicnrioii of ( hui g*\ anil Credits
Notwithstanding any provision to the contrary in this Accounting Procedure, there
shall he no duplication of charges or credits to the Accounts under the Contract
PARAGRAPH 4-COSTS AND EXPENSES NOT TO III I HP A I El) AS
Iltc following costs and expenditures shall not be included in the Petroleum Costs
recoverable under Article 23:
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
4.2. Any payment made to the GOVERNMENT by reason of the failure of the
CONTRACTOR to fulfil its Minimum Exploration Obligations in respect ol the
relevant Sub-Period under the Contract.
4.3. The cost of any letter of guarantee, if any, required under the Contrast;
4 4 The bonuses set out in Article 52 of the C ontract.
4.5. Costs of marketing or transportation of Petroleum beyond the Delivery Point
(excluding Cias 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.
4.7 Any interests, fees, costs and expenses paid by the CONTRACTOR for loans and
any other form of financing or advances for the financing of the Petroleum Costs
entered into by ihc CONTRACTOR with thud parties or Affiliated Companies.
4.8 Any accounting provision for depreciation and'or amortisation, excluding any
adjustments in value pursuant to Paragraph 3.1.*;
4.9 Dividends, repayment of equity cr repayment of intercompany loins.
4 10 t tncs and penalties imposed under I^w
PARAGRAPH 5-RECORDS ANI) VALUATION OF ASSETS
I he CONTRACTOR shall maintain detailed records of property in use for
Petroleum Operations under the Contract in accordance with prudent international
petroleum industry practice lor exploration and production activities.
Inventories of property in use in Petroleum Operations shall be taken at reasonable
intervals hut at least once n year with respect to movable assets and once every three
(3) years with respect to immovable assets The CONTRACTOR shall give the
GOVERNMKPf I at least thirty (30) days written notice of it* intention to take such
inventory and the GOVKKNMKN f shall have the right to he represented wl*cn »t*h
inventory is taken.
Failure of the GOVERNMENT to he represented at an inventory ’‘hall bind the
GOVEKNMKNI to accept the inventory taken by the CONTRACTOR
Hie CONTRACTOR shall clearly inform GOVERNMENT about the principles
upon which valuation of the inventory has been based.
Hie CONTRACTOR shall make every cllbrt to provide to the GOVERNMENT a
full report on sueh inventory within thirty (30) days of the taking of the inventory.
When an assignment of rights under the Contract takes place the CONTR AC TOR
may. at the request of the assignee, ukc a special inventory pros . Jed that the cosh of
such inventory arc home by the ajs.gnce.
PARAGRAPH 6- PROD1CTION M Aik Ml NT
6 1 Production Information
Without prejudice to the right' 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 »uiem*nt to the
GOVERN'!! NT the following i (.fruition separatels for each pn- King
Dev ei opine nt Area and in aggregate for die Contract Area
6.1 I The quantity of Crude Oil produced and saved.
6.1.2 The quality characteristics of such Crude Oil produced and saved
6 1.3 1 he quantity of Natural Gas produced and saved.
6-1.4 1 he quality characteristics of such Natural Gas produced and saved
615 The quantities of Crude Oil and Natural tms used for the purposes of carrying on
drilling and production operations and pumping to field storage
L- 113 120
6.1.6 1 he quantities of Crude Oil and Natural Cos unavoidably lost.
6.1.7 The quantities of Natural Gas flared and vented.
6.1 K The si/e of Petroleum stocks held at the (vanning of the calendar Month in question.
6.1.9 I he size of Petroleum stocks held at the end of the calendar Month in question
6 1.10 Ihe quantities of Natural Gas reinjected into die Reservoir.
6 1.11 In respect of the Contract Area us a whole, the quantities of Petroleum transferred at
the Measurement Point. All quantities shown in this Statement shall he expressed in
both volumetric terms (Panels of oil imtl cubic meters of gas) and in weight (metric
6.2 Submission of Production Statement
The Production Statement foi each calendar Month shall he submitted to the
GOVERNMI N f no later than ten (10) days after the end of such calendar Month.
PARAGRAPH 7 - V AM f OK PRODUCTION' AND PRICING STATEMENT
7.1 Value of Production and Pricing Statement Information
The CONTRACTOR ‘hall, for the purposes of Article 25 of the Contract prepare a
statement providing calculations of 'die value of Crude Oil produced and saved during
This "Value of Production and Pricing Statement* shall contain the following
7 |.l The quantities ami prices realized therefor by the CONTRACTOR in respect of
sales of Natural Gas and Crude (hi delivered to third panic* made during the (porter
7.12 The quantities und 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
7.2 Submission of \ aluc of Prodaction and Pricing Statement
The Value of Production and Pricing Statement for each Quartet shall be sabnutted to
the GOVERNMENT not later than twenty-one (21) days offer the end of such
PARAGRAPH N ( OST RECOVERV AM) SHARK A( COI M STATEMKNi
X.l Cant Recovery Statement
I he CONTRACTOR shall prepare with respect to each Quarter a Cost Recovery Statement
containing the following information:*
8.1! Recoverable Petroleum Costs curried 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 (Paragraph 8.1.1 plus
Paragraph 8.1.2. net of Paragraph 8.1 .1)
8.1.5 Quantity and value of Petroleum applied to cost recovery pursuant u> Article 25 taken
by the CONTRACTOR for the Quarter in question
8.1. ft Amount of recoverable Petroleum Costs to be carried forward into tlx- next Quarter
(Paragraph 8.1.4 net of Paragraph 8 1.5).
8.2. Cumulative Pml action Statement
The CONTRACTOR shall prepare writ respect to each Quarter a Cumulative
Production Statement containing the following information:*
8 2 ; The cumulative production position «t the end of the Quarter preceding the Quarter in
8 2 2 Production of I xport Petroleum for the Quarter in question.
8 2 4 I he cumulative production position at the end of the Quarter in question.
8.2.5 Ilie amount of Petroleum applied to Royalty pursuant to Article 24, cost recovery
pursuant to Article 25 and Profit Petroleum pursuant to Article 26 taken by the
GOVERNMENT «nd by the CONTRACTOR, respectively, during the Quarter in
82.6 The forecast of production and the share of Petroleum applied to Royalty pursuant to
Article 24, cost recovery pursuant lo Article 25 and Profit Oil pursuant to Article 26
due to the GOVERNMENT and to tire CONTRACTOR, respectively, for the next
8J rrrparatioB and Subnotion of Gnf Recovery and < umul.liu Production
8.3.1 Provisional Cost Rreovery and Cumulative Production Statements. containing
otimatcJ Lrionnatioo where nccexvirv. shall be submittal by the COM KAfTOR
on the l.iit day of each Quarter for the purposes of Article 25 of the Contract
8.3.2 Final quarterly Cost Recovery and Cumulative Production Statements ahull be
Mibmillcd within thirty (30) days of the end of the Quarter in question.
M Annual statement
For the purpose* of Article 25 of the Contract, an Annual Cost recovery and Cumulative
Production Statement shall he submitted within ninety (‘MM days of the end of each Year
The Annual Statement shall contain the categories ol information listed in Paragraphs X.l and
8.2 for the Year in question, separated into the Quarters ol the Yeur 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-STACEMENT OF EXPEND!WRK AND RET HPIS
*> 1 The CON I RAC I OR dull prejurc with respect to c*h Quarter a Statement of
Expenditure and Receipts under the Contract. The Statement will distinguish between
Exploration Costs. Gas Marketing Costs l>exekipmcnt Costs, Production Costs and
Decommissioning Costs and will identify major items of expenditures within these
categories. Ihc State mail will show the following:
9.1.1 Actual expenditures and receipt* for the <>*rter m question.
9.12 Cunvj’ative expenditure and receipts for the budget Calendar Year in question
9.1.3 Latest forecast cumulative expenditure* ai the Calendar Year end.
9.1.4 VarubuRs between budget forecast and latest forecast and explanations thereof.
9.2 The Statement of Expenditure and Receipts of each Quarter shall he submitted to the
GOVERNMENT no later than thirty (30) days aria the end of such Quarter.
PARAGRAPH 10 - FINAL END-OK-YEAR STATEMEN I
The CONTRACTOR will prepare a Final fct>d-of-Ycar Statement. I he Stalcmcni will
coniuin mlbrmauon us provided in (he Production Statement, Value of Production and
Pricing Statement, Cost Recovery anil Cumulative Production Statements and Statement of
Expenditures and Receipts hut will he based on actual quantities of Petroleum produced and
expenses incurred This Statement will be used to make any adjustments dial 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
(00) days of the end of such Calendar Year.
PARAGRAPH II - A1 D1TS
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 AND BE DO Tl
11.1 Each annual Work Program and Budget to be prepared in accordance with Articles
II, 12 and 14 of the Contract, in respect of Exploration Costs. Gas Marketing Costs
Development Costs and Production Costs respectively mil show the Idlfowing -
1 l.l.l F orcca\t expenditures for the budget Calendar Year in question including a quarterly
clavsitk at ion of such expenditures
1112 Cuntulativ c expenditures to the end of said budget Calendar Year
11.1.3 A schedule showing the most important individual items of lYcvelopmcnl Costs (if
applicable) for vaid budget Year.
PAR\(.KAPII 13 - CONTRACTOR ENTITY INCOME TAX COMPI F \TION
Dl For the purpose of Article 31.3 (b) of the Contract, the net taxable profit* of each
CONTRACTOR Entity from all the Petroleum Operabon* earned out under this
Contract, shall he 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 he used, inter id hi. to
establish a profit and km account and a balance sheet which will show the results of
the Petroleum Operation* carried out in such Calendar Year as well as the assets and
liabilities assigned or directly related thereto The profit and loss account will be
maintained under the accrual method of accounting.
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
a I it the Royalty is paid in cash pursuant to Article 24. revenues arising from the
disposal of Royally volumes ns recorded in such entity's Accounts and
•letcrmined in accordance with the provisions of Article 24:
h) revenues arising from the disposal of any Available Petroleum to which such
entity is entitled tor recovery of its Petroleum Costs as recorded in its
Accounts and determined in accoidnncc with the provisions of Article 25;
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 those arising from the disposal of related Petroleum substances, or
from the treatment, storage and transportation of products for third parties,
c) 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 shi’.! bo d.b u-.lih ail
charges incurred for the purposes of the Petroleum Operations whether inclined inside
or outside the Kurdistan Region, which charges shall include the following
a) in addition to the charges specifically set forth below in this Paragraph, all ofer
Petroleum Costs, including Ur- 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. Royally payment* made
and as recorded in such entity’s Accounts and drxrmined in accordance with the
provisions of Article 24;
c) General and Administrative Expenditures related to the Petroleum Operations
performed under the Contract:
d) depreciation of capita! expenditure in accordance with the following provisions:
(i) capital expenditure-, incurred by the CONTRACT OK lor the purposes of rhe
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 arc
pul into noima! service, whichever is bier, for the fir* Calender Year in
question and for each subsequent Calendar Year, are as follows:
Nature of the capital Annual depreciation Kale
Permanent buildings 10.0%
1 emporary buildings 20 0%
Office and home furniture and 20.0%
Productive wells 20.0%
Production and delivery equipment 20.0%
Drilling equipment 20.0%
Automotive equipment 20.0%
Marine and aviation equipment 20.0%
All other capita! assets 20.0%
e) Exploration Costs (which for the avoidance of doubt include appraisal
expenditures) shall be deductible on it reducing balance basis at the rate of 20%
ft interest and fees paid lo creditors of the CONTRACTOR, for their actual
K> losses o! Assets resulting fioni destruction or damage, assets which are renounced
or abandoned during the year, assets which are transferred under Article 20 2,
bad debts, indemnities paid to third parties as compensation for damage;
any other costs, expenses, losses ot charges directly related to the Petroleum
Operations, including cxi i igc losses realised n connecrion with the Petroleum
Operations as well as the bonuses provided in Article 32. the Explontioa Rental
provided in Article 6.3, die Production Rental provided in Article 13 10. the
allocation to training, provided in Article 23.7 and the allocation to the
Environment Kurd provided in Article 23.9, the costs specified in Articles 23.1!.
38.1 and 38.6 and transportation and marketing costs beyond the Delivery P.iint;
tbc amount of noo-offset losses relating to the previous Calendar Yean, which
shall he earned forward for an indefinite period until full settlement of said losses
or termination of this Contract.
13.3J. the net profit of such CONTRACTOR Entity shall he equal to the difference
between all the amounts credited and all the amounts debited in tl»c profit and loss
a) if this amount n negative, it shall constitute a hiss
h) if the amount ih 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* 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 lor corporate income tax purposes:
Net 1 stable Net Profit* / (UNI • Applicable Rate of Corporate Income Tat )
13.4 For purposes of determining each CONTRACTOR Entity’s liability to corporate
income tax for a tax year in respect of tin- Petroleum Operations carried out under this
Contract, the net taxable profits (if uny) for such tax year shall he multiplied by the
applicable rate of corporate income tax, as provided in Article 31.3(a).