The term of the development and production phase shall extend for a maximum of 25 years from the date discovery was made with the possibility of an extension not to exceed 10 years.
In the case of the designated fields, the duration of the contract shall not exceed 25 years from the effective date.
The exploration phase will consist of an initial exploration period of 4.5 years and two successive extension periods of 2 years each.
Prior to commencing hydrocarbons operations in any designated field or other area of a block outside a designated field, CNPCI Watan Oil and Gas Afghanistan Ltd. shall carry out a baseline environmental assessment to determine the then prevailing situation relating to the environment, social conditions, local communities, farming and wildlife (flora and fauna) in such designated field or other area.
The development program shall include an environmental impact assessment and an environmental management plan, including the measures planned for the protection of the environment, the elimination or the reduction of pollution and the protection and compensation of affected populations if applicable, and the verification of the effectiveness of such measures.
Prior to the commencement of hydrocarbons operations in a designated field or other area of a block outside of a designated field, CNPCI Watan shall undertake and complete a baseline environmental assessment of the designated field or other area consistent with international best practices and applicable laws and noting any existing deficiencies, including any environmental contamination existing in the designated field or other area on or prior to the commencement of hydrocarbons operations.
In the course of the hydrocarbons operations, CNPCI Watan Oil and Gas Afghanistan Ltd. (CNPCI Watan) shall consider, investigate, assess and manage the impact of the hydrocarbons operations on the environment and the socio-economic conditions of any person who might directly be affected.
CNPCI Watan Oil and Gas Afghanistan Ltd. (CNPCI Watan) shall use its best efforts to prevent damage to hydrocarbon and water-bearing strata that are adjacent to a producing formation, and prevent water from entering any strata-bearing hydrocarbons, except where water injection methods are used for enhanced recovery operations or are intended otherwise in accordance with international best practices.
CNPCI Watan shall take all measures in accordance with international best practices to (i) protect the environment such as to minimize any damage to flora and fauna and any other pollution of the environment in accordance with applicable law, (ii) avoid flaring of natural gas unless expressly authorized by the government and (iii) secure the safety, health and welfare of persons engaged in hydrocarbons operations and the public.
CNPCI Watan shall to the extent possible, prevent or mitigate any risks arising from hydrocarbons operations.
CNPCI Watan shall comply with the applicable environmental laws and regulations of Afghanistan.
The government shall, subject to the terms and conditions of an agreement between the parties and the National Environmental Protection Agency to be executed concurrently with this contract, assume responsibility for the rehabilitation of environmental contamination on government owned and private land identified in baseline environmental assessments completed by the contractor and approved by the National Environmental Protection Agency.
In the conduct of the hydrocarbons operations, CNPCI Watan shall comply, and shall require its subcontractors to comply, with any applicable laws and regulations, including the hydrocarbons law and any regulations issued under it, relating to the protection of the environment and the health, safety and welfare of workers and the public.
Furthermore CNPCI Watan shall, upon completion of any hydrocarbons operations, rehabilitate as far as reasonably practicable the environment affected thereby to its natural or predetermined state or to land use.
In addition to the requirements for the protection of the environment as is provided in the environmental management plan approved by the government, CNCPI Watan shall, when carrying out hydrocarbons operations, take all practical measures to:
(a) prevent the pollution of any water well, spring, river, lake or reservoir by the escape of hydrocarbons, drilling fluids, chemical additives or any other waste product or effluent;
(b) where pollution occurs, treat or disperse it in an environmentally acceptable manner;
(c) dispose of all waste liquids used during the drilling of a well in a manner approved by the government;
(d) properly secure permanent installations;
(e) remove all worn, damaged or surplus equipment and supplies, and other rubbish from site to an approved waste disposal site to be reused or recycled if possible; and
(f) on the completion or abandonment of a well, promptly restore the well site and any surrounding area as near to the state existing prior to the conduct of hydrocarbons operations as may practically be done and render that area safe.
When carrying out hydrocarbons operations, CNPCI Watan shall take all practical measures to minimize flaring of any natural gas by re-injecting such natural gas into suitable strata or underground storage in accordance with international best practices or in any other approved scheme. CNPCI Watan shall seek the government’s approval to flare any such gas which cannot be re-injected due to specific reservoir considerations or for other reasons that are accepted internationally or in an approved scheme in line with international best practices. Associated gas may be flared if necessary for the conducting of well and production tests and during any emergency.
If the government reasonably determines that any works or installations erected by CNPCI Watan or any operations conducted by CNPCI Watan endanger or may endanger persons or third party property or cause pollution or harm wildlife or the environment to an unacceptable degree, or are otherwise not in compliance with the provisions of the applicable laws and regulations or of this contract, the government may require CNPCI Watan to take remedial measures within a reasonable period established by the government and to repair any damage to the environment.
The government shall have full and complete access to the contract area at all reasonable times with a right to observe hydrocarbons operations and shall have the right to inspect all accounts, books, records, assets and data kept by CNPCI Watan Oil and Gas Afghanistan Ltd. relating to hydrocarbons operations and this contract, such observations and inspections to be conducted at the expense of the government.
Income tax issues related to hydrocarbons operations are governed by the Income Tax Law of Afghanistan, as amended or replaced and in force from time to time. At the effective date, the prevailing income tax rate in Afghanistan is 20%.
إنتاج حصة - ملامح النفط الربح (مشغلات عن الاختلافات في انقسام - IRR، عامل، إنتاج، ... الخ)
After deduction of the royalty and recovery of the hydrocarbons operations expenditures, the government shall be allocated a portion of the net hydrocarbons produced and saved in any month determined in accordance with the formula set forth below, and the remaining net hydrocarbons after such allocation shall be allocated to CNPCI Watan Oil and Gas Afghanistan Ltd:
If R<1 then P=0%
If 1<R<1.3 then P=50%
If 1.3<R<2.5 then P=70%-[(2.5-R)/(2.5-1.3)] x 20%
If R>2.5 then P=70%
In the above formula:
“P” shall mean the government’s percentage share of net hydrocarbons, valued at the applicable formula price; and
“R” shall mean the cumulative gross contractor revenues up to the end of the month immediately preceding the month in question, divided by the cumulative hydrocarbons operations expenditures incurred up to the end of the month immediately preceding the month in question.
إنتاج حصة - ميزات النفط التكلفة (أساس الحساب، والقيود المفروضة على استرداد التكاليف - على سبيل المثال كنسبة مئوية من الدخل أو الإنتاج، والنفقات الرأسمالية رفع، وما إلى ذلك)
After payment of the royalty, CNPCI Watan Oil and Gas Afghanistan Ltd. (CNPCI Watan) shall be entitled to recover hydrocarbons operations expenditures incurred by retaining and disposing of that amount of such hydrocarbons equal in value to the unrecovered hydrocarbons operations expenditures for that month plus all unrecovered hydrocarbons operations expenditures from prior months. This is provided, however, that for hydrocarbons operations relating to areas other than the designated fields, CNCPI Watan shall only be entitled to recover hydrocarbons operations expenditures from hydrocarbons produced from fields other than the designated fields. All such hydrocarbons operations expenditures shall be recovered without a ceiling in the manner and to the extent provided for in, and subject to, the accounting procedures.
The first 15% of the hydrocarbons produced and saved from the contract area in any month and not used in hydrocarbons operations or flared or re-injected into the contract area shall be allocated to the government as the royalty payable under the Hydrocarbons Law.
CNPCI Watan Oil and Gas Afghanistan Ltd. (CNPCI Watan) agrees to as far as possible employ qualified Afghan nationals in the hydrocarbons operations. CNPCI Watan will require its contractors and subcontractors to do the same. CNPCI Watan undertakes to give priority to Afghan nationals with equivalent qualifications and experience and actively search for Afghan nationals in order to meet the employment obligations established in the prevailing legislation and to gradually replace its expatriate staff with qualified Afghan nationals as they become available. Within 30 days after the end of each year, CNPCI Watan shall submit a written report to the government describing the number of personnel employed, their nationality and their positions.
In procurement, CNPCI Watan Oil and Gas Afghanistan Ltd. (CNPCI Watan) shall give preference to goods that are produced or available in Afghanistan and services that are rendered by Afghan nationals and companies, provided that such goods and services are similar in quality, quantity and price to imported foreign goods and services and available at the time. CNCPI Watan shall, upon request of the government, develop local preference targets and specific plans to meet such targets. Such plans shall be provided as part of CNPCI Watan’s work programs to be approved by the government and shall include, but not be limited to, timelines, key milestones and formal review dates, a description of potential areas of CNPCI Watan’s business in which to integrate local preferences, and a summary of CNPCI Watan’s local preference initiatives and results, including the then current percentage and sources of Afghan goods and services used in the CNPCI Watan’s hydrocarbons operations.
Locally produced or available equipment, materials and supplies shall be deemed equal in price to imported items if the local cost of such locally produced or available items at CNPCI Watan’s operating base in Afghanistan is not more than 15% higher than the cost of such imported items before customs duties but after transportation and insurance costs have been added.
If, in the course of hydrocarbons operations, CNPCI Watan Oil and Gas Afghanistan Ltd. (CNPCI Watan) finds signs or marks or discovers items of any historical or cultural significance, including fossils and other items included on the archaeological and cultural heritage list, it shall immediately inform the government of the find or discovery. CNCPI Watan undertakes not to remove any of the items mentioned above.
CNCPI Watan undertakes to keep any such items safe on its own account on behalf of the government until they are transported by the relevant authorities. However, in case such transportation is not provided by the government within 60 days of reporting, the subsequent expenses shall be borne by the relevant state authority.
The government shall provide CNPCI Watan a list of the sites of national parks and/or ecological reserves, as well as sites identified as having archaeological and cultural heritage significance, such list to be provided prior to commencement of hydrocarbons operations and to contain available details of the sites, including maps and other pertinent information.
The development program shall include an environmental management plan, including a socio-economic management plan that includes the measures planned for the protection and compensation of affected populations if applicable, and the verification of the effectiveness of such measures.
CNPCI Watan Oil and Gas Afghanistan Ltd. (CNPCI Watan) agrees to as far as possible train and employ qualified Afghan nationals in the hydrocarbons operations and after initial commercial production will undertake the schooling and training of Afghan nationals for staff positions, including administrative and executive management positions. CNPCI Watan will require its contractors and subcontractors to do the same. CNPCI Watan undertakes to give priority to Afghan nationals with equivalent qualifications and experience and actively search for Afghan nationals in order to meet the training and employment obligations established in the prevailing legislation and to gradually replace its expatriate staff with qualified Afghan nationals as they become available. An annual program for training and phasing-in of Afghan nationals shall be established by CNPCI Watan and shall be submitted for approval to the government. Within 30 days after the end of each year, CNPCI Watan shall submit a written report to the government describing the number of personnel employed, their nationality, their positions and the status of training programs for Afghan nationals.
CNPCI Watan shall also be required to establish a program, reasonably satisfactory to the government, to train personnel of the Ministry of Mines to undertake skilled and technical jobs in hydrocarbons operations for the government. Such program shall include provisions for involving representatives of the ministry in the preparation of the work programs and work program budgets.
CNPCI Watan shall expend a minimum of US$ 50,000 in the first year for training. Thereafter the minimum expenditure for training shall be increased by US$ 5,000 annually. All training costs shall be recoverable by CNPCI Watan. All annual training program and budgets shall be consistent with the long range plan and budget.
CNPCI Watan shall also be required to establish a program, reasonably satisfactory to the government, to train personnel of the government to undertake skilled and technical jobs in hydrocarbons operations for the government. Such program shall include provisions for involving representatives of the government in the preparation of the work program and work program budgets.
CNPCI Watan shall expend a minimum of US$ 50,000 in the first year for training. Thereafter the minimum expenditure for training shall be increased by US$ 5,000 annually. All training costs shall be recoverable by CNPCI Watan.
A long range plan and budget for the training programis attached as Exhibit F. All annual training programs and budgets shall be consistent with such long range plan and budget.
The development program shall include detailed proposals for the construction, establishment and operation of all facilities and services for and incidental to the development, extraction, production, storage, transportation, sale and other disposal of hydrocarbons.
The government shall, for the duration of the contract, provide reasonable access to and use of existing infrastructure and facilities in the contract area, at no cost to CNPCI Watan Oil and Gas Afghanistan Ltd. in the case that such infrastructure and facilities are owned by the government.
CNPCI Watan Oil and Gas Afghanistan (CNPCI Watan) shall engage one or more internationally recognized, unaffiliated third parties through a competitive bidding process to provide at least 60% of the well tests and at least 60% of the wireline logs within the designated fields for the first 2 years.
In marketing any part of its share of the liquid hydrocarbons produced and saved from the contract area, CNPCI Watan shall give preference to purchases by Afghan nationals and companies, provided that such purchases are at prices that are not less than the price for arm’s-length sales or not less than the formula price.
Out of the total quantity of natural gas to which CNPCI Watan is entitled in each year, the government may elect to take a quantity to meet its internal consumption requirements. CNPCI Watan shall be obliged to provide and supply to the government such quantities on a prorated basis with all other producing contractors, provided that if CNPCI Watan has committed volumes of natural gas to purchasers under long term sales contracts, such volumes shall be excluded
from the amounts that might be available to the government for internal consumption and provided that CNPCI Watan shall have no obligation to pay for any infrastructure necessary to transport, process or deliver natural gas to the government.
If a field is designated within the contract area and such field extends beyond the contract area to other areas of Afghanistan over which other parties have the right to conduct exploration, development and production operations, the government may require that the development of the field and the production of hydrocarbons be carried out in collaboration with the other contractors. The same rule shall be applicable if deposits of hydrocarbons within the contract area, although not equivalent to a commercial discovery if developed alone, would be deemed to be a commercial discovery if developed with those parts of the deposits that extend to areas controlled by other contractors.
Out of the total quantity of liquid hydrocarbons production to which CNPCI Watan is entitled in each year, the government may elect to take a quantity of liquid hydrocarbons, of the gravity, grade and quality of its choice, that the government requires to satisfy the requirements of internal consumption
in Afghanistan for the year.
The government shall endeavor to provide adequate security within the contract area and any other areas in Afghanistan in which hydrocarbons operations or operations related thereto are conducted, including during travel to and from such areas. However, in the event that CNPCI Watan Oil and Gas Afghanistan Ltd. (CNPCI Watan), in its reasonable opinion, considers the security provided for its personnel is inconsistent with its health, safety and environmental policies, international best practices or inadequate to allow hydrocarbons operations to be conducted safely and without threat to life, both the government and CNPCI Watan hereby agree supplementary security measures shall be implemented by CNPCI Watan, as the case may be, including, but not limited to, the engagement of competent private security providers licensed to operate in Afghanistan. These costs are to be considered hydrocarbons operations expenditures if included in an approved work program and work program budget. Such arrangements shall be revised from time to time in response to changes in security conditions, subject to an international independent third party conducting a security review.
CNPCI Watan Oil and Gas Afghanistan Ltd. (CNPCI Watan) undertakes to carry out and comply with the work commitments established by the minimum exploration program. The amount estimated to be expended by CNPCI Watan in conducting the minimum exploration program is set forth in Exhibit H.
CNPCI Watan shall perform the following minimum exploration operations:
- During the initial exploration period: 300 kilometers of 2D seismic and drill 3 wells.
- During the first extension period: 300 kilometers of 2D seismic and drill 3 wells.
- During the second extension period: 300 kilometers of 2D seismic and drill 3 wells.
For purposes of calculating of the amount of the financial guarantee required, each kilometer of 2D seismic survey shall be deemed to have a value of US$ 30,000; each square kilometer of 3D seismic survey shall be deemed equivalent to 3 kilometers of 2D seismic survey; and each exploration well shall be drilled to the hauterivian horizon and shall be deemed to have a value of
US$ 2 million.
Any dispute, controversy or claim arising out of or relating to this contract which shall not be determined by mutual agreement within 45 days from the date on which the existence of a dispute is notified in writing by one party to the other shall be settled by arbitration initiated by either party by submission to the International Centre for Settlement of Investment Disputes (ICSID) pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of other States as of March 18, 1965 (ICSID Convention) and the arbitration rules promulgated. For the avoidance of doubt, the government expressly consents to the submission of any dispute which may arise under this contract to ICSID for settlement by arbitration in accordance with Article 25 (1) of the ICSID Convention. CNPCI Watan Oil and Gas Afghanistan Ltd. (CNPCI Watan) shall be treated as a national of a state other than Afghanistan. The number of arbitrators shall be three. The arbitration shall be conducted in the English language. The place of arbitration shall be London, England. The award rendered shall be final and conclusive. Judgment on the award rendered may be entered in any court having jurisdiction or application may be made in such court for a judicial acceptance of the award and an order of enforcement, as the case may be. As far as practicable, both CNPCI Watan and the government shall continue to implement this contract during pendency of any dispute. The government waives any rights it may have now or in the future to claim sovereign immunity for itself or any of its assets to the fullest extent permitted by the laws of any applicable jurisdiction.
All original data resulting from hydrocarbons operations shall not be disclosed to third parties by the government prior to relinquishment of the area to which they relate, or prior to the end of the exploration phase if such area is not sooner relinquished. This is provided, however, that the government may make copies available to professional consultants, legal counsel, accountants, underwriters, lenders and such government entities as may need to be made aware of or have the right to require disclosure.
CNPCI Watan Oil and Gas Afghanistan Ltd. (CNPCI Watan) shall not disclose the data to any third parties without the government’s prior written consent, provided, however, that CNPCI Watan may make copies available to professional consultants, legal counsel, accountants, underwriters, lenders, its affiliated entities and contractors and subcontractors of CNPCI Watan and such government entities as may need to be made aware or have the right to require disclosure. Any data that are disclosed by the government or CNPCI Watan to third parties pursuant to this shall be disclosed on terms that ensure that the data are treated as confidential by the recipient.
The government shall have the right to keep a copy of this contract in the hydrocarbons register, publish and keep publicly available and distribute to provincial offices such information and reports on the contract, related documents and CNPCI Watan as is required pursuant to the Hydrocarbons Law, any regulations issued and internationally accepted norms relating to transparency in the extractive industries, including production and financial data concerning all revenues from income taxes, production shares, royalties, fees and other taxes and other direct or indirect economic benefits received by the government and all amounts paid by CNPCI Watan under or in relation to this contract.
If such information concerns technical devices, production methods, business analyses and calculations and any other industrial and trade secrets and are of such a nature that others may exploit them in their own business activities, the government may approve that such information may rightfully be subject to confidentiality for a certain period of time.
All press releases and information intended to be reported to news media relating to the contracting and/or contract execution and/or hydrocarbons operations shall be subject to prior mutual approval of both the government and CNPCI Watan. The government may without CNPCI Watan’s consent report to news media or other public sources any information that the government is required by law to report and shall notify CNPCI Watan of the information it reports prior to such reporting if reasonably practicable.
This contract shall be governed by, construed under, and interpreted in accordance with, the laws of Afghanistan, as such laws may be amended from time to time
The treatment accorded to CNPCI Watan Oil and Gas Afghanistan Ltd. by Afghanistan shall not be less favorable than the treatment required to be accorded by Afghanistan to foreign investors under applicable law.
CNPCI Watan Oil and Gas Afghanistan Ltd. (CNPCI Watan) agrees that its taxable income shall be subject to an income tax rate of 30% stabilized for the remaining period of this contract.
The government acknowledges and agrees that CNPCI Watan has entered into this contract in reliance on the government’s representation that the revenues generated from hydrocarbons operations for CNPCI Watan’s account shall only be subject to income tax once in Afghanistan. The government represents that either CNPCI Watan shall be liable to pay income tax on such revenue or the owners of CNPCI Watan shall be liable to pay income tax on such revenue in accordance with applicable laws. If at any time after the effective date, there is any change in the legal, fiscal and/or economic framework applicable to the contract (or the interpretation thereof) which results in CNPCI Watan and the owners of CNPCI Watan both being liable to pay income tax on such revenue, the terms and conditions of this contract shall be altered so as to restore CNPCI Watan and the owners of CNPCI Watan to the same overall economic position as that which such person would have been in, had no such change in the legal fiscal and/or economic framework occurred. If CNPCI Watan believes that its economic position, or the economic position of its owners, has been detrimentally affected herein by a change or interpretation of law that results in a double taxation of income, upon the CNPCI Watan’s written request, the parties shall meet to agree on any necessary measure to resolve the issue.