All accounts which are made available to the government shall be prepared in English.
All accounts shall be maintained and prepared in English.
The language to be used in the resolution of disputes including negotiation, mediation, and arbitration shall be English.
The exploration period shall be for an initial term of 5 contract years extendable on a yearly basis up to a maximum period of 7 contract years, starting from the effective date.
The development period for crude oil, any associated natural gas and non-associated natural gas shall be for 20 years commencing on the declaration of such commercial discovery by Sterling Energy, with an automatic right to a 5 year extension.
If commercial production from a production area is still possible at the end of its development period, then Sterling Energy shall upon its request be entitled to an extension of such development period of 5 years for any crude oil and any associated natural gas, and/or 5 years for non associated natural gas.
Sterling Energy shall implement a health, safety and environment program for the purpose of taking control of any blow out or fire which could damage the environment or petroleum field, among other things
During the performance of the petroleum operations, Sterling Energy 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 Region law.
Prior to surrendering a portion of the contract area, Sterling Energy 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, flora and ecosystems, all in accordance with prudent international petroleum industry practice in similar physical and ecological environments. Sterling Energy shall only be responsible for site restoration or environmental damage to the extent that it pertains solely and directly to petroleum operations conducted pursuant to the contract.
Sterling Energy shall take reasonable precautions and measures in accordance with prudent international petroleum industry practice in similar physical and ecological environments to prevent any pollution which may arise directly as a result of the petroleum operations and to protect the environment (fauna and flora), water sources and any other natural resources when carrying out petroleum operations.
Sterling Energy shall, in accordance with prudent international petroleum industry practice in similar physical and ecological environments, respect the preservation of property, agricultural areas, and fisheries, when carrying out petroleum operations.
Sterling Energy shall take reasonable measures to minimize any adverse material impact on national parks and nature reserves which may arise directly as a result of the petroleum operations, in accordance with prudent international petroleum industry practice in similar physical and ecological environments.
Flaring of natural gas is prohibited with the exception of short term flaring for testing or other operational reasons in accordance with prudent international petroleum practice, or with prior authorization of the government, which is not to be unreasonably withheld or delayed.
From the date of first production from the contract area, Sterling Energy shall contribute US$ 100,000 each contract year during the exploration period and US$ 200,000 for each contract year during the development period into the environment fund established by the government for the benefit of the natural environment of the Kurdistan Region.
Sterling Energy has the right to freely use water resources located inside or outside the contract area for the petroleum operations.
Sterling Energy has the right to use any water necessary in the Kurdistan Region for its petroleum operations provided it does not damage any existing irrigation or navigation systems and that land, houses or watering points belonging to third parties are not deprived of their use.
The government shall have the right to request an audit of the accounts with respect to the each calendar year within a period of 2 calendar years following the end of such calendar year; and 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 the above, the government shall have the right to audit the accounts with respect to each calendar year at any time in the case of manifest error or fraud.
A signature bonus of US$ 10 million shall be payable by Sterling Energy to the government within 30 days of the effective date of the contract.
A capacity building bonus of US$ 15 million shall be payable by Sterling Energy to the government within 30 days of the effective date of the contract. Due to work performed by Sterling Energy prior to the effective date of the contract, the capacity building bonus shall be reduced by US$ 5 million.
In the event of a crude oil commercial discovery, Sterling Energy shall pay the government the following relevant crude oil production bonus within 30 days of the following relevant occurrence:
(a) US$ 2 million when the first production of crude oil from the contract area begins;
(b) US$ 5 million when production of crude oil from the contract area reaches a cumulative amount of 10 million barrels of crude oil;
(c) US$ 10 million when production of crude oil from the contract area reaches a cumulative amount of 25 million barrels of crude oil;
(d) US$ 20 million when production of crude oil from the contract area reaches a cumulative amount of 50 million barrels of crude oil.
In the event of a non-associated natural gas commercial discovery, Sterling Energy shall pay the following relevant non-associated natural gas production bonus to the government within 30 days of the following relevant occurrence:
(a) US$ 2 million when first production of non-associated natural gas from the contract area begins
(b) US$ 5 million when production of non-associated natural gas from the contract area reaches a cumulative amount of 10 million barrels of oil equivalent.
(c) US$ 10 million when production of non-associated natural gas from the contract area reaches a cumulative amount of 25 million barrels of oil equivalent; and
(d) US$ 20 million when production of non-associated natural gas from the contract area reaches a cumulative amount of 50 million barrels of oil equivalent.
Except as provided in Art. 31, and without prejudice to the exemptions provided in Art. 30-31, each contractor entity, its affiliates and any subcontractor shall, for the entire duration of the contract be exempt from all taxes as a result of its income, assets, and activities under the contract.
Each contractor entity shall be subject to corporate income tax from its petroleum operations as provided in Art. 31.3 which shall be deemed to be inclusive and in full and total discharge of any tax on income, receipts, revenues, gains or profits of each such entity. Payment of the said corporate income tax shall be made by the government for the account of each contractor entity for the entire duration of this contract from the government's share of the profit petroleum.
The rate of corporate income tax shall be the applicable rate prescribed in the Law of Taxation (Law No. 5 of 1999) as may be amended from time to time or substituted in respect of petroleum operations by a petroleum operations taxation law for the Kurdistan region, but in no event in excess of 40%. At the effective date of the contract the corporate income tax rate is 40% for all net taxable profits in excess of 9 million Iraqi dinar.
Before the end of the first contract year, Sterling Energy shall provide the government in kind technological and logistical assistance to the Kurdistan region petroleum sector, including geological computing hardware and software and such other equipment as the Minister of Natural Resources may require, up to the value of US$ 500,000
Partage de production - Eléments de "Profit Oil" (critères pour la modification du partage, - TRI, facteur "r", niveau de production, etc.)
From first production and as and when petroleum is being produced, Sterling Energy shall be entitled to take a percentage share of profit crude oil and/or profit natural gas, in consideration for its investment in the petroleum operations, which percentage share shall be determined in accordance with Art. 26.5.
To determine the percentage share of profit crude oil and/or profit natural gas to which Sterling Energy is entitled, the "R" factor shall he calculated in accordance with Art. 26.4 and shall be applied separately to each production area.
R = X/Y
where X is equal to the cumulative revenues actually received by Sterling Energy; and
where Y is equal to cumulative costs actually incurred by Sterling Energy
The share of profit petroleum to which Sterling Energy shall be entitled from first production is:
(a) for profit crude oil, equal to the quantities of petroleum resulting from the application of the relevant percentage as indicated below to the daily volume of production of profit crude oil within the production area at the corresponding delivery point:
Where R < or = 1, Sterling Energy's share of the profit crude oil is 30%
Where R > 1 and < or = 2, Sterling Energy's percentage share of profit crude oil is 30 - [ ( 30 - 15 )*( R - 1 ) / ( 2 -1)] %
Where R > 2, Sterling Energy's percentage share of profit crude oil is 15%
And for profit natural gas equal to the quantities of non-associated natural gas resulting from the application of the relevant percentage as indicated below to the daily volume of production of profit natural gas within the production area at the corresponding delivery point:
Where R < or = 1 Sterling Energy's percentage share of profit natural gas is 40%
Where R > 1 and < or = 2.75, Sterling Energy's percentage share of profit natural gas is 40 - [(40 - 20) • (R - 1) / (2.75 - 1)]%
Where R > 2.75 Sterling Energy's percentage share of profit natural gas is 20%
Partage de production - Eléments de "Cost Oil" (base de calcul, limites sur le recouvrement des coûts, e.g. comme % des revenues ou de la production, crédit d'investissement, etc.)
Subject to the provisions of this contract, Sterling Energy shall at all times be entitled to recover all petroleum costs incurred under this contract from the first production in the contract area up to 40% of available crude oil and available associated natural gas produced and saved within any calendar year.
Subject to the provisions of this contract, Sterling Energy shall at all times be entitled to recover all petroleum costs incurred under this contract from the first production in the contract area up to 53% of available non-associated natural gas produced and saved within any calendar year.
Restrictions sur les transactions avec les parties liées
For the financing of petroleum operations, each contractor entity shall have the right to have recourse to external financing from its affiliated companies on an arm's length basis.
The charges for professional, administrative, technical or scientific services provided by any affiliates of Sterling Energy shall not exceed those prevailing if performed by non-affiliated third parties, taking into account the quality and availability of such services.
The cost of the use of equipment and facilities owned and furnished by Sterling Energy's affiliates shall be charged at rates commensurate with the cost of ownership and operation, provided that such rates shall not exceed those currently prevailing for the supply of like equipment and facilities on comparable terms in the area where the petroleum operations are being conducted and shall be on an arm's length basis. The equipment and facilities shall exclude major investment items such as (but not limited to) drilling rigs, producing platforms, oil treating facilities, oil and gas loading and transportation systems, storage and terminal facilities and other major facilities, rates for which shall be subject to separate agreement with the government.
Material purchased from or sold to affiliates of Sterling Energy or transferred from other activities of Sterling Energy shall be valued and charged at the prices specified in 3.1.8(d)(i)-(iii).
The royalty due on any export petroleum produced and saved in the contract area shall be determined daily by applying the following relevant royalty rate to the export crude oil or to the export non-associated natural gas produced and saved on that day:
the royalty rate for export crude oil shall be 10% which shall apply regardless of the gravity of the oil, and the royalty rate for export non-associated natural gas shall be 10%.
Associated natural gas and any other petroleum shall be exempt from any royalty.
The government shall have the option of participating in the contract through a public company, in respect of the entire contract area, as a contractor entity with an undivided interest in the petroleum operations and all the other rights, duties, obligations and liabilities of Sterling Energy (save as provided in and subject to this Art. 4) under the contract in respect of the contract area, of up to 25% and not less than 5%.
The government may exercise the option of government participation at any time in the period commencing on the effective date and ending 180 days after the date on which Sterling Energy declares the first commercial discovery.
The public company may, at its discretion, assign part or all of its government interest to a third party or parties which is another public company duly authorized by the government, provided that in no event shall a transfer be made which would result in the transferor or transferee holding less than a 5% participating interest.
Sterling Energy shall give, and shall require its subcontractors to give, preference to personnel from the Kurdistan region and other parts of Iraq to the extent such personnel have the technical capability, qualifications, competence and experience required.
The 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.
For the first 2 contract years Sterling Energy shall provide up to US$ 100,000 per contract year (less the cost to be incurred by Sterling Energy during the forthcoming contract year in respect of any secondment), in advance of each contract year to the government for recruitment or secondment of personnel, whether from the Kurdistan region or other parts of Iraq or abroad, to the Ministry of Natural Resources.
Sterling Energy shall, in a planned way, 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 entities' 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 the petroleum operations, to the extent permitted by applicable law and agreements with third parties, and subject to appropriate confidentiality agreements.
Sterling Energy shall give priority to subcontractors from the Kurdistan region and other parts of Iraq to the extent that their competence, rates, experience, reputation, qualifications, specialties, credit rating and terms of availability, delivery and other commercial terms are, in Sterling Energy's sole opinion, comparable in all material respects with services provided by foreign companies operating in the international petroleum industry.
Sterling Energy shall give priority to equipment and materials that are readily available in the Kurdistan region and other parts of Iraq to the extent their price, grade, quality, quantity, specifications, purchase, delivery and other commercial and technical terms are comparable in all material respects with those generally available in the international petroleum industry
In the Kurdistan Region Sterling Energy shall have the right to use, subject to applicable law, any railway, tramway, road, airport, landing field, canal, river, bridge or waterway, any telecommunications network and any existing pipelines or transportation infrastructure for its petroleum operations on terms no less favorable than those offered to other entities and, unless generally in force, to be mutually agreed.
In national emergencies due to environmental catastrophe or disaster, or internal or external war, the government shall have the right to request to use any transportation and communication facilities installed by Sterling Energy.
In the Kurdistan region Sterling Energy shall have the right to clear land, excavate, drill, bore, construct, erect, place, procure, operate, emit and discharge, manage and maintain ditches, tanks, wells, trenches, access roads, excavations, dams, canals, water mains, plants, reservoirs, basins, storage and disposal facilities, primary distillation units, extraction and processing units, separation units, sulphur plants and any other facilities or installations for the petroleum operations, in addition to pipelines, pumping stations, generators, power plants, high voltage lines, telephone, radio and any other telecommunications systems as well as warehouses, offices, sheds, houses for personnel, hospitals, schools, premises, dikes, vehicles, railways, roads, bridges, airlines, airports and any other transportation facilities, garages, hangars, workshops, foundries, repair shops and any other auxiliary facilities for the petroleum operations, an generally, everything which is required for its performance of the petroleum operations. Sterling Energy shall have the right to select the location for these facilities.
In the Kurdistan region the government shall have the right to build, operate and maintain roads, railways, airports, landing strips, canals, bridges, protection dams, police stations, military installations, pipelines and telecommunications networks in the contract area, provided it does not increase the costs, or compromise or have a material adverse effect on the performance of the petroleum operations. If it does increase the cost or expense for Sterling Energy, such cost shall be considered a petroleum cost and shall be recoverable by Sterling Energy.
Subject to spare capacity being available and to their petroleum being compatible, third parties shall be entitled to transport their petroleum through any pipeline constructed by Sterling Energy in accordance with Art. 33 on reasonable commercial terms to be agreed between Sterling Energy and the third party that shall not discriminate among third party users. Sterling Energy shall always have priority of access to such pipelines.
The contractor entities shall sell and transfer to the government, upon written request of the government, any amounts of crude oil that the government shall deem necessary to meet Kurdistan region internal consumption requirements.
If the contract is reasonably proven to have been obtained in violation of Kurdistan region law concerning corruption, the contract is void from the beginning (void ab initio). Each contractor entity agrees that if it is, at any time, reasonably proven to be in breach of Kurdistan region law concerning corruption, the provisions of 45.7 apply.
Sterling Energy shall start exploration operations within 30 days of management committee approval of the exploration work plan and budget. Sterling Energy shall perform geological, geophysical and/or drilling works as provided under Articles 10.2 to 10.3.
During the first sub-period, Sterling Energy 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;
(iii) a field visit to verify initial geological and geophysical work and remote sensing results and plan for two dimensional seismic acquisition; and
(b) carry out a data search for existing data specific to the contract area, comprising the following:
(i) well data, if available, for example, electric logs;
(ii) seismic data and gravity data, if available; and
(iii) reprocess seismic data if available;
(c) perform field work comprising structural, stratigraphic and lithologic mapping and sampling;
(d) acquire, process and interpret two hundred 200 line kilometres of 2 dimensional seismic data, committing for this purpose a minimum financial amount of five million Dollars (US$ 3,000,000). [NB: discrepancy between word and numerical amounts].
During the second sub-period, Sterling Energy shall:
(a) acquire, process and interpret further seismic data (being either 2 dimensional or 3 dimensional), if Sterling Energy considers that the results from the first sub-period justify the acquisition of further seismic data; and
(b) drill 1 exploration well committing for this purpose a minimum financial amount of US$ 5 million.
The government and any public company which may be a contractor entity at any time fully and irrevocably waives any claim to immunity for itself or any of its assets.
In the event of a dispute, the government and Sterling Energy shall use their reasonable endeavors to negotiate promptly and in good faith a mutually acceptable resolution of such dispute.
If a dispute cannot be resolved by negotiation, within 60 days after the date of the receipt of the notice of dispute by each party to the dispute or within another time frame agreed to by the parties to the dispute in writing, any party to the dispute may seek settlement of the dispute by mediation in accordance with the London Court of International Arbitration (LCIA) Mediation Procedure.
If the dispute is not resolved within the earlier of:
(a) 60 days of the appointment of a mediator or such other period of time the parties to the dispute may agree in writing in accordance with the mediation procedure or;
(b) 120 days after the delivery of the notice of dispute either party to the dispute may refer the dispute to, and seek final resolution by, arbitration under the LCIA rules.
Any arbitration shall be conducted by 3 arbitrators in London, England.
The parties agree that any arbitral award shall be final and binding and shall not be subject to any appeal, including to the Courts of England on issues of law.
Apart from the exceptions stated in this Art. 36. the parties undertake to keep all data and information relating to the contract and the petroleum operations confidential during the entire term of the 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) is known to the recipient at the date of disclosure; or
(c) is required to be furnished in compliance with any applicable law by a government agency having jurisdiction over a contractor entity, by a court order or any other legal proceedings; or
(d) is required to be disclosed pursuant to the rules or regulations of any government or recognized stock exchange having jurisdiction over a contractor entity.
Notwithstanding the above, in accordance with prudent international petroleum industry practice, such data may be disclosed to:
(a) affiliates of each contractor entity;
(b) employees, officers and directors of each contractor entity and their respective affiliated companies for the purpose of petroleum operations, subject to each entity taking customary precautions to ensure such information is kept confidential;
(c) consultants or agents retained by any contractor entity or its affiliates for the purpose of anlayzing or evaluating information or data;
(d) banks or financial institutions retained by any contractor entity or its affiliates with a view to financing petroleum operations, including any professional consultants retained by such bank or financial institution;
(e) bona fide prospective assignees of a participating interest under the 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);
(f) prospective or actual subcontractors and suppliers engaged by a party where
disclosure of such information is essential to such subcontractor's or supplier's work for such party; and
(g) any other person or entity, upon the prior written approval of the non-disclosing parties,
provided that disclosure shall not be made pursuant to paragraphs (c), (d), (e) and (f),unless such third party has entered into a confidentiality undertaking.
The contract, including any disputes arising out of the contract, and the agreement to arbitrate contained in Art. 42 shall be governed by English law (except where any English law refers the matter to another jurisdiction), together with relevant rules, customs, and practices of international law, as well as by principles and practice generally accepted in petroleum producing countries and in the international petroleum industry
The obligations of Sterling Energy in respect of the contract shall not be changed by the government and the general and overall equilibrium between the parties under this contract shall not be affected in a substantial and lasting manner.
The government guarantees Sterling Energy, for the entire duration of the contract, that it will maintain the stability of the legal, fiscal and economic conditions of the contract, as they result from the contract and as they result from the laws and regulations in force on the date of signature of the contract. If at any time after the effective date of the contract, there is any change in the legal, fiscal and/or economic framework under the Kurdistan Region law or other law applicable in or to the Kurdistan Region which detrimentally affects Sterling Energy, the contractor entities or any other person entitled to benefits under this contract, the terms and conditions of the contract shall be altered so as to restore Sterling Energy, the contractor entitles and any other person entitled to benefits under this contract to the same overall economic position (taking into account home country taxes) that such person would have been in, had no such change in the legal, fiscal and/or economic framework occurred.
If Sterling Energy believes that its economic position, or the economic position of a contractor entity or any other person entitled to benefits under this contract, has been detrimentally affected as provided above, upon Sterling Energy's written request, the parties shall meet to agree on any necessary measures or making any appropriate amendments to the terms of the contract to re-establishing the equilibrium between the parties and restoring Sterling Energy, the contractor 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 90 days of the contractor's request (or such other period as may be agreed by the parties), Sterling Energy may refer the matter in dispute to arbitration as provided in Art. 42.1, without the necessity of first referring the matter to negotiation and mediation.