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PRODUCTION SHARING CONTRACT
ARBAT CONTRACT AREA
KURDISTAN REGION
BETWEEN
THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ
AND
SHAMARAN PETROLEUM B.V.
TABLE OF CONTENTS
PREAMBLE
Article I DEFINITIONS 6
Article 2 SCOPE OF THE CONTRACT 17
Article 3 CONTRACT AREA 19
Article 4 OPTIONS OF GOVERNMENT PARTICIPATION AND 19
THIRD PARTY PARTICIPATION
Article 5 OPERATOR 24
Article 6 TERM OF THE CONTRACT 25
Article 7 RELINQUISHMENTS 28
Article 8 MANAGEMENT COMMITTEE 29
Article 9 GUARANTEES 32
Article 10 MINIMUM EXPLORATION WORK OBLIGATIONS 33
Article 11 EXPLORATION WORK PROGRAMS AND BUDGETS 35
Article 12 DISCOVERY AND DEVELOPMENT 36
Article 13 DEVELOPMENT AND PRODUCTION WORK PROGRAMS 40
AND BUDGETS
Article 14 NATURAL GAS 43
Article 15 ACCOUNTING AND AUDITS 47
Article 16 CONTRACTOR'S RIGHTS AND OBLIGATIONS 49
Article 17 USE OF LAND AND EXISTING INFRASTRUCTURE 53
Article 18 ASSISTANCE FROM THE GOVERNMENT 55
Article 19 EQUIPMENT AND MATERIALS 56
Article 20 TITLE TO THE ASSETS 57
Article 21 USE OF THE ASSETS 57
2
Article 22 SUBCONTRACTING 57
Article 23 PERSONNEL TRAINING AND TECHNOLOGICAL ASSISTANCE 58
Article 24 ROYALTY 60
Article 25 RECOVERY OF PETROLEUM COSTS 62
Article 26 SHARING OF PROFIT PETROLEUM 63
Article 27 VALUATION AND METERING OF CRUDE OIL AND 67
NATURAL GAS
Article 28 DOMESTIC MARKET - SALE OF GOVERNMENT SHAKE 69
Article 29 FINANCIAL PROVISIONS 69
Article 30 CUSTOMS PROVISIONS 71
Article 31 TAX PROVISIONS 72
Article 32 BONUSES AND SHARES ISSUE 74
Article 33 PIPELINES AND/OR OTHER TRANSPORTATION MEANS 76
Article 34 UNITISATION 78
Article 35 LIABILITY AND INSURANCE 79
Article 36 INFORMATION AND CONFIDENTIALITY 82
Article 37 ENVIRONMENTAL PROVISIONS 84
Article 38 DECOMMISSIONING 85
Article 39 ASSIGNMENT AND CHANGE OF CONTROL 87
Article 40 FORCE MAJEURE 89
Article 41 WAIVER OF SOVEREIGN IMMUNITY 90
Article 42 ARBITRATION AND EXPERT DETERM (NATION 90
Article 43 GOVERNING LAW, FISCAL STABILITY. AMENDMENTS 93
AND VALIDITY
Article 44 NOTICES 95
>
Article 45 TERMINATION %
Article 46 CORPORATE AND SOCIAL RESPONSIBILITY AND 98
APPLICATION OP CORRUPTION LAWS
Aiticle 47 EFFECTIVE DATE 99
Annex A CONTRACT AREA MAP AND LIST OF COORDINATES 101
Annex B ACCOUNTING PROCEDURE 102
4
PRODUCTION SHAKING CONTRACT
BETWEEN
Tin KURDISTAN REGIONAL GOVERNMENT 01 IRAQ (hereafter referred lo us ihc
"GOVERNMENT"), duly represented by the Minister of Natural Resources:
AND
SH AIMAK AN PETROLEUM B.V., (currently known as "BUPL International BV") a company
mahlikhcd and existing under the laws of the Netherlands. hav ing a registered office at
AmaluMr ut 3 - 5. 2514 JC. The Hague, the Netherlands, and which is part of the Lundin family
group of companies, duly represented by Keith C. Hill, its Attorney in Fact (hereafter referred to
as **S HAMA KAN").
(licicaftcr referred to as the "CONTRACTOR");
WHEREAS
(A) T he GOVERNMENT wishes to develop the petroleum wealth of the Kurdistan Region
(as defined in this Contract) in a way that achieve* the highest benefit to the people of die
Kurdistan Region and all of Iraq, using the most advanced techniques of market
principles and encouraging investment, consistent with lire Constitution of Iraq Including
Article 112 thereof;
(B) In accordance with the Comntutioa of Iraq, the prevaiBng law of the Kurdistan Region is
■he Kurdistan Region Law (on defined in this Contract), except with regard to a matter
wholly within the exclusive jurisdiction of the Government of Iraq;
(C) The National Assembly of the Kurdistan Region approved the Oil and Ga» Law of the
Kurdistan Region - Iraq (Law No. 22 of 2007) which law regulates Pelroicum
Operations, including production sharing connect*;
(D) The GOVERNMENT intend* to present to Ihc National Assembly of the Kurdistan
Region a law or laws to authorise the GOVERNMENT, by contract or othci
authorisation, to exempt investors in long term projects relating to tltc conduct of
petroleum operations in the Kurdistan Region linni Kurdistan Region taxation, to
indemnify such holders against liability to pay such taxation, and/or to guarantee the
stability of the applicable legal, fiscal and economic conditions of such projects, and
(E) The CONTRACTOR is a company;
(i) with the financial capability, and the technical knowledge and technical ability, to
carry out Petroleum Operations in the Contract Area (as defined in this Conn act)
under the terms of this Contract.
(ii) having a record of compliance with the principle* of good corporaie citizenship;
and
willing to cooperate wuh the GOVERNMENT by entering into this Contract, thereby
assisting the GOVERNMENT to develop the Kurdistan Region petroleum
industry, thereby promoting the economic development of tin* Kurdistan Region
and Iraq and the social welfare of us people.
NOW, THEREFORE. THE PARTIES HAVE AGREED AS FOLLOWS
ART It LK I - DEFINITIONS
I I Capitalised terns and expre'MOm in this Contract shall have the following meaning.
unless otherwise specified.
Abroad incans outside of the Kurdistan Region and other parts of Iraq.
Access Authorisation is defined in Article 17.9.
Accounts is defined in Article 15.1.
Accounting Procedure means ihr Accounting Procedure attached to this Contract as
Annex B and constituting an integral part of this Contract
Adjacent Contract Area is defined in Article 34.1
Adjustment Date is defined in Article 27.6.
Affiliated Company or Affiliate means, as regard* any of the companies or entities
constituting the CONTRACTOR a company or other legal entity which:
(a) controls a CONTRACTOR Entity; or
(b) is controlled by a CONTRAC TOR Entity; c*
(c) controls or is controlled by a company or entity which controls a
CONTRACTOR Entity.
but shall not include the GOVERNMENT in respect of the PuNic Company, lor the
purpose of this definition, control ’ means direct or indirect ownership oi control of the
majority of the voting rights of the applicable entity at its xhareholdci*1 meetings or their
equivalent.
Agreed Terms is defined in Article 14.10(a).
Appraisal Area means the area defined in Article 12.2
6
Appraisal Work Pn^ram and Budget it defined in Anicle 12.2.
Appraisal Report is defined in Anicle 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 l*cn
discovered.
Arm's-Length Sales 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 cookl reasonably influence the sales price. Such Arm’s-
Length Sales shall exclude:
(a) sales between or among any of lire CONTRACTOR Entities and their respective
Affiliates;
(b) sales involving the GOVERNMENT or the Government of Iraq; and
(C) sales involving exchanges and any transactions not relating to normal commercial
practices.
Assets means nil land, platforms, pipelines, plant, equipment, machinery, wells, facilities
and all other installations and structure* and all Materials and Equipment
Associated Natural Gas means (i) any Natural Gas dissolved in Crude Oil under
reservoir conditions and (ii) any residue gas remaining after the extraction of Crude Oil
from a reservoir.
Audit Request Period is defined in Article 15.3(a).
A\tillable Associated Natural Gas is defined in Article 25.1.
Available Crude Oil is defined in Article 25.1.
Available Non-Attociated Natural Gas is defined in Anicle 25.1.
Available Petroleum is defined in Article 25.1.
Barrel means ;i quantity of foriy-two (42) US gnllons as a unit to measure liquid*, at a
temperature of sixty degrees (60") Fahrenheit and pressure of fourteen point seven (14.7)
psi.
Budgets means any budgets prepared by, or on behalf of. the CONTRACTOR pursuant
to this Contract and forming part of an Exploration Work Program and Budget and/or an
Appraisal Work Program and Budget and/or a Gas Marketing Work Program and budget
and/or a Development Work Program and Budget and/or a Production Work Program and
Budget.
7
Calendar Year means a period of twelve (12) consecutive Months, commencing 1
January and ending oc 31 December of the same year.
Capacity Building Bonus u defines! in Article 32.2.
Chairman is defined in Article 8.1.
Commercial Discovery means a Discovery which is potentially commercial when taking
into account all technical, operational, commercial and financial data collected when
carrying out appraisal worts 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 practice.
('ommerdal Production means ihc production of Petroleum from the Production Area
hi accordance with annual Production Wort Program and Budget.
('ninmon Shares is defined in Article 32.3.
< oitjfJtution of Iraq means the permanent constitution of Iraq approved by die people of
Iraq in the general rcfciendum of 15 October 2005
Contract means this product 10a sharing contract, including us Annexes A and B that ore
an integral part hereof. a* well as any extension, renewal, subaimtion or amendment of
Has prodjcticr sharing contract that may be agreed in writing by the Parties m
accordance with Article 43 7
Contract Area means the area described and defined in Annex A audited u this
Contract rad coosntuting an integral port of this Contract, rad ray modifications mode to
that Annex in accordance with the provisions of this Contract, through amendments,
surrender, withdrawal, extension or otherwise.
Contract Year means a penod of twelve (12) cocsecuuve Months starting from the
Effective Date or any anniversary of that date.
CONTRACTOR includes and comprises each and all CONTRACTOR Entities,
including any Third Party Participant nominated by the GOVERNMENT pursuant to
Article 4. and/or any assignee of all or part of the rights and obligations of a
CONTRACTOR Entity under this Contract ui accordance with Article 39. but not
including any holder of the Government Interest.
CONTRACTOR Emits means any Person which :s for the time being a component of
the CONTRACTOR. anVor ray oss.gne* of all or port of the rights and obligations of
such Person under this Contract in accordance with Article >9. but not deluding ray
only owe entity attaining the CONTRACTOR, ray reference m thu Contract to
-the names conKiiotrag the CONTRACTOR or ±e CONTRACTOR Enctn* or
8
similar reference, shall be deemed to mean “the enmy constituting the COVTR ACTOR".
SHAM ARAN and the GOVFRNMF.NT (the GOVERNMENT owning the Thud Party
Interest until a whole or pamJ assignment of such Third Patty Interest pursuant to
Article 4). as the CONTRACTOR Entitles n at the Effective Date, own an undivided
interest in the Petroleum Operation* in respect of the entire Contract Area in the
following percentages at the Effective Date
SIIAMARAN 60%
GOVERNMENT (Third Party Interest) 20%
The balance of the i meres* m Petroleum Operations in res pea of the enure Contract Area,
being twenty per cent (20%). is the Government (merest a* defined in Article 4 I.
« umulative Coats is defined in Article 26 4.
Cumulative Rw roues is defined in Article 26.4.
('rude CMI means all liquid hydrocarbons in their unprocessed state or obtained from
Natural Gas by condensation or any other means of extraction.
DiToinmissimiing Costs neatu all tlse costs and expenditures incurred by the
CONTRACTOR when canying out Dim---nil Operations, including tho«
defined in the Accounting Procedure.
Decommissioning Operations means any works, together with all related and auxiliary
activities, for decommissioning and/or removal and/or abandonment and nuking safe all
of the Assets and site restoration and remediation related thereto in relation to any
Production Area.
Decommissioning Plan is defined in Article 38.7.
Decommissioning Reverse Fund is defined in Article 38.1 and includes all contribution*
paid into such fund and all interest accumulated »uch fund.
Dt-diiiiihlr Amount is defined in Article 35.12.
Delivery Point means the point or points after extraction, specified in the approved
Development Plan for a Production Aren, at which the Crude Oil, Associated Natural Gas
and/or Non-Associated Natural Gas is metered for the purposes of Article 27,5, valued
for the purposes of Article 27.1 and ready to be taken and disposes! of. consistent with
prudent international petroleum industry practice, and at which a Party may acquire title
to its share of Petroleum under this Contract or such other point which may be ugrecd by
the Parties.
1
Development Costs means all the cosis and expenditures incurred by the
CONTRACTOR when carrying out Development Operations, including those defined in
the Accounting Procedure.
Development Operations means all ilevelopincnt operations or works conducted in
accordance with a Development Plan up to the Delivers’ Point with a view to developing
a Production Area, including: drilling of wells; primary and subsequent recovery projects
and pressure maintenance; survey, engineering, building and erecting or laying of
production plants and 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
Petroleum); obtaining of such materials, equipment, machinery, items and supplies as
may he required 01 expedient for the foregoing activities; and all auxiliury operations and
activities required or expedient for ilic production of Petroleum from ll»c Production
Atcu.
Development Period is defined in Article 6.
Development Plan means a plan for development defined in Article 12.8.
Development Well means any well drilled niter the date of approval of the Development
Plan for the purpose of producing Petroleum, increasing or accelerating production of
Petroleum, including injection wells and dry holes. Any well drilled within a Production
Area shall be deemed a Development Well.
Development Work Program and Budget means the development work program and
budget prepared pursuant to Article 13.2.
Discovery means a discovery of Petroleum within the limits of the Contract Area
resulting from Petroleum Operations can led out under this Contract, provided such
Petroleum is recoverable a: the surface with a mea.str.ible flow utilising techniques used
in prudent internalkmuI petroleum industry practice.
Dispute is defined in Article 421.
Dollar (CSS) means tl* legal currency (dollar) of the United States of America (USA).
F.fTective Dale means the dale on which the conditions referred to in Article 47 have
been fulfilled
Ens ironinrnt Fund * defined in Article 23.9.
Equipment and Materials is defined in Article 19.1.
Exploration Costs means all the costs and expenditure incurred by the CONTRACTOR
when carrying out Exploration Operations, including those defined in the Accounting
Procedure.
Exploration Operations means any and all operations conducted with a view to
discovering IVitiulcuin, including; any activities necessary to commence operntions; any
topographicnl, hydrographical, geological, geophysical, aerial ar.d other surveys and
activities (including inierpteiailoiw, .dialyses and related studies) to Investigate the
subsurface for lire location of Petroleum; drilling of shot Iroks. core holes and
stratigraphic lest holes; spud, drilling, testing, coring, logging and equipping of
Exploration Wells or Appraisal Wells; procurement of such services, material,
equipment, machinery, items and supplies as may be required or expedient for the
foregoing activities; and all auxiliary operations and activities required ch expedient for
the conduct of the foregoing activities,
Exploration Period is defined in Aiticlc 6.
Exploration Rental 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 die
CONTRACTOR.
Exploration Work Program and Budget means the exploration work program and
budget prepared pursuant to Article 11 I
Export Crude Oil is defined in Aiticlc 24.2.
Export Non-Associated Natural Gas is defined in Anicie 24 2
Export Petroleum is defined in Article 24.2
First and Second Exploration Wells it defined in Article 10 2 (eX
First Production means the moment when Commercial Production of Crude Oil or Noo-
Associafcd Natural Gas (as the ease may he) first commences, by flowing at the rate
forecast in the Development Plan without interruption for u minimum of forty eight (48)
hours.
First Sub-Period is defined in Article 6.2(a).
Force Majetire is defined ir. Altide 40.2.
Gas Development is defined in Article 14.10
Gas Marketing Costs means all costs .md expenditure incurred by the CONTRACTOR
when carrying out Gas Marketing Operations, including those defined in the Accounting
Procedure.
Gas Marketing Operations means any and all of the activities and operations
contemplated by Article 14 6
II
Gas Marketing Work Program and Budget means the marketing work program and
budget prepared pursuant to Article 14.8.
Government Interest is defined in .Article 4.1.
Government of Iraq means the Federal Government of the Republic of Iraq, which
holds office under the Constitution of Iraq and any minister, ministry, department, sub
division, agency, authority, council, committee, or other constituent element thereof and
shall, without limitation, include any corporation owned and/or controlled by any of the
foregoing.
Initial CONTRACTOR Entities means all CONTRACTOR Entities othei than the
Government owning the Third Parly Interest.
International Market Price iv defined :n Article 27 2
Iraq means the entirety of the Republic of Iraq, including the Kurdistan Region
Joint Operating Agreement mean> any agreement executed by the CONTRACTOR
Entities at any time for the purpose of regulating between such entities the terms under
which the Petroleum Operations wHI be conducted, which agreement shall be: (a)
consistent with prudent international petroleum industry practice; (b) as between such
entities, supplementary to this Contract; and (c) consistent with :hc provisions of the
Contract.
Kurdistan Region means the Federal Region of Kurdistan recognised b> the
Constitution of Iraq and having the same meaning as ’Region' in the Kurdistan Region
Oil and Gas Law.
Kurdistan Region Law means all statutes, decrees, edicts, codes, orders, rules,
ordinances and regulations of live GOVERNMENT or of any other local, municipal,
territorial, province., or any other duly constituted governmental authority or agency in
the Kurdistan Region.
Kurdistan Region Oil and Gas I.*w means the Oil and Gas Law of the Kurdistan
Region - Iraq (Law No. 22 of 2007) as the same may be amended.
Law means all applicable laws including the following: constitutional law. civil iaw\
common law. international law. equity, treaties, statutes, decrees, edicts, codes, orders,
judgements, rules, ordinances and rcgulattoax of any local, municipal, territorial,
provincial, federated, national or any other duly constituted governmental authority or
agency.
LCIA is defined in Article 42.1(b).
LIBOR meanv the London Inter-Bank Offered Rate at which Dollar deposits for one (I)
Month arc offered in the inter-bank market ir. London, as quoted ir the Financial Times
Kg
12 > •
ol London for ihc day in question. In ihe event that such rate is not published in the
Financial Time*, it shall mean the London Inter-bark Offered Rate at which Dollar
deposits for one (I) Month are offered for the nearest day as quoted by National
Wcsiminsicr Bank pic.
Management Committer is defined in Article 8.
Maximum Kirk lent Rate ("MER”) means the daily production rate which (taking into
account Ihe nature of the Reservoirs, standard accepted engineering practices and the
existing producing storage, transportation, loading and other facilities available) achieves
die maximum economic volumetric recovery of Petroleum from a Reservoir without
causing physical damage to the Reservoir such that the recovery factor is maximised. .
Minimum Exploration Obligations is defined in Article 10.1,
Minimum Financial Commitment means:
(a) in respect of the First Sub-Period, the total of the amounts set out in Articles
10.2(d) and 10.2(c); and
(b) in respect of the Second Sub-Period, the amount set out in Article 10.3(b).
Month means u calendar month according to the Gregorian calendar.
Natural Gas means all gaseous Petroleum and inerts.
Non-Associated Natural Gas means any Natural Gas which is not any Associated
Natural Gas.
Notice of Dispute is defined in Article 42.1.
Operator means the entity designated by the CONTRACTOR pursuant to Article 5
which, in the name and on behalf of the CONTRACTOR, shall carry out all Petroleum
Operations. If at any time there exists more than one (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 Third Party Participation is defined in Article 4.6.
Party or Parties means the GOVERNMENT and/oc each CONTRACTOR Entity
and/or the CONTRACTOR
Permits means ail licences, pennies, consents, authorisations or other permissions, as the
context requires.
Person shall include natural and juristic persons (including corporations and
governmental agencies).
13
Petroleum means:
(a) any naturally occumnf hydrocarbon in a gaseous or liquid slaw.
(b) any mixture of naturally occurring hydrocarbons in a gaseous or liquid state; or
(c) any Petroleum (as defined in paragraphs (a) and (b) above) that has been returned
to a Reservoir.
Petroleum Costs means all costa and expenditure incurred by the CONTRACTOR for
the Petroleum Operations, nnd which the CONTRACTOR is entitled to recover under
this Contract and its Accounting Procedure, including, without limitation,
Decommissioning Costs. Development Costs, Exploration Costs. Gas Marketing Costs,
Transportation Costs and Production Costs
Petroleum Field means a Reservoir or group of Reservoirs within a common geological
structure or stratigraphic unit, which may become part of a Production Area pursuant to a
Development Plan.
Petroleum Operations meuns all Exploration Operations. Gas Marketing Operations,
Development Operations. Production Operations and Decommissioning Operations, as
well as any other activities or operations directly or indirectly related or connected with
(lie said operations (including health, safety and environmental operations ard activities)
and authorised or contemplated by. or performed in accordant with, this Contract.
Production Area means such areas within the Contract Area designated as a production
area in an approved Development Plan prepared pursuant to Article 12- For the avoidance
of doubt, all superjacent or subjarer.: strata of die Reservoir in which a Commercial
Discovery is located arc automatically included in the relevant Pro&iction Area
Production Bonus means any bonus due pursuant to Article 32.4 or 32.5.
Production Costs means all ihc 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 all related and auxiliary
activities, for the production of Petroleum from Use start of Commercial Production,
including: extraction, injection, stimulation, pumping, treatment, storage, engineering,
operating, servicing, repairing, and maintaining any wells, plants, equipment, pipelines,
terminals and any other installations and facilities, and any related operations and
auxiliary operations, and storage and transportation of Petroleum from the Production
Area to the Delivery Point
Production Rental is defined in Article 13.10
14
Production Work Program and Rudgrl shall mean the production work program and
budget prepared pursuant to Article 13.6.
Profit ( rude Oil
Profit Natural Gas is defined in Article 26.1.
Profit Petroleum is defined in Article 26 I
Proposed Contract is defined in Article 14.10(a).
Public Company means a public company duly registered acd incorporated in the
Kurdistan Region and regulated by the GOVERNMENT under the Kurdistan Region Oil
and Gas Law and as of the Effective Date, the Public Company is the Kurdivtan
Exploration and Production Company.
Public Officer means a civil servant, including a member or employee of a public entity,
a member of the Kurdistan National Assembly or a member of the GOVERNMENT
Quarter means a period of three (3) consecutive Months starting on the first day of
January. April. July or October respectively.
Reservoir means a subsurface rock formation containing an individual and separate
natural accumulation of producible Petroleum characterised by u single natural pressure
system.
Revenues is defined in Article 26.4.
"R” Factor is defined in Article 26.4
Royally is defined in Article 24
Second Exploration Well is defined in Article 10.3(b)
Second Sub-Period is defined in Article 6.2(b).
Semester means a period ol via (6) consecutive Months starting (tom the first day of
Junuary or July respectively
Senior Representative is defined in Article 42.1(a).
Signature Bonus is defined in Article 32.1
Subcontractor means any entity of any contracting tier providing services and/or
undertaking works relating to live Petroleum Operations directly or indirectly on behalf
of. the CONTRACTOR or any CONTRACTOR Entity.
15
Sub-Period ar.d Sub-Periods x'e defined in Article 6.2.
Tax or Taxes means all current or future levies, duties payments, charges, impositions,
imposts, withholdings, fees, taxes (including value added ux or other sales or transaction
based tax, corporation tax. income tax. capital gains tax. stamp duty, land tax, registration
tax. capital ard wealth tax. profit tax. dividend tax or withholdings, transfer tax. customs
duties, branch or permanent establishment tax or withholdings, tax cn income from
movable capita; and fixed tax oo transfers) or contributions payable to or imposed by the
GOVERNMENT.
Third Exploration "Hi is defined m Attack 103
Third Party Interest is defined in Article 4.6.
Third Parts Participant means the holder of a Third Party Interest
Third Party Terms is defined in Article 39.2.
Transportation Costs is defined in Artick 33 5.
Work Program means any work program prepared by. or on behalf of. the
CONTRACTOR pursuant to this Contras and forming part of an Exploration Wirt
Program and Budget anl'cr an .Appraisal Work Program and Burger and/or a Ga»
Marketing Woik Program and Budget and/or a Development Work Program and Budget
and/or u Production Work Piogram .end Budget
Vice-Chairman is defined m Article 8.1.
In this Contract, unions the context otherwise requires or is specifically otherwise stated
(u) headings are lo be ignored;
(b) ''including" and similar words do not imply any limitations;
(c) singular includes plural and vice versa, and
(d> reference to an "Article" is to an article of this Contract and to a “Paragraph" is to
a paragraph in the Accounting Procedure.
16
ARTICLE 2 - SCOPE OF THE CONTRACT
2.1 This Contract is a prodoctkm-slianng arrangement wiih respect to the Contract Area.
whereby the GOVERNMENT has ihe right, pursuant to the Constitution of Iraq, to
regulate and oversee Petrolctim Operations within the Contract Area.
The purpose of this Contract is to define the respective rights and obligations of tiie
Parties and the terms and conditions under which the CONTRACTOR shall carry out all
the Petroleum Operations.
By entering into this Contract, the GOVERNMENT grants the CONTRACTOR the
exclusive right and authority to conduct all Petroleum Operations in the Contract Aica as
detailed in Article 3.
2.2 Upon the CONTRACTOR’S request, the GOVERNMENT shall provide and/or procure
all Permits relating to the Petroleum Operations required by the CONTRACTOR to
fulfil its obligations under this Contract, including those relating to any extension and
renewal periods and including those required by the Government of Iraq. The
GOVERNMENT (i) represents and warrants to the CON TRACTOR that it has not
done and has not omitted to do anything iliut would cause the cancellation or suspension
of this Contract or any Permit granted under this Article 2.2 or pursuant to this Contract;
and (it) covenants that it will not do. or omit to do. anything dial would cause the
cancellation or suspension of this Contract or any Permit granted under this Article 2.2 or
pursuant to this Contract. For the avoidance of doubt, nothing in this Article shall affect
the rights and obligations of the Parties pursuant to Article 43.
2.3 The CONTRACTOR shall conduct all Petroleum Operations within the Contract Area at
its sole cost, risk ar,d peril on behalf of the GOVERNMENT, pursuant to this Contract,
including the following operations;
(a) Technical Services
Implementation of all technical, human and material resources reasonably
required for execution of the Petroleum Operations, in accordance with pnidcr.;
international petroleum industry practice.
(b> Financial Serv lew
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 CONTR ACTOR Entity shall be
entitled to have recourse to external financing from either its Affiliated
Companies or from any third parties.
17
(c) Administrative Services
Implementation of all appropriate management and administration techniques for
execution of the Petroleum Operations under this Contract, in accordance with
prudent international petroleum industry practice.
2A During the term of this Contract, the CONTRACTOR shall be responsible to the
GOVERNMENT for the conduct of Petroleum Operations within the Contract Area
pursuant to the terms of thus Contract.
2.5 Natural resources other than Petroleum shall be excluded from the scope of this Contract,
even if the CONTRACTOR discovers iny 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 sliull
occur within the limits provided under Article 25.
2.7 During the term of this Contract, Profit Crude Oil and/or Profit Natural Gas produced
from Petiolcum Operations shall be shared between the Parties in accordance with the
provisions of Aiticle 26.
2.8 I-'or the execution of Petroleum Operations under this Contract, the CONTRACTOR
shall have the right to:
(a) freely access and operate within the Contract Area, as well as any facilities
associated with the Petroleum Operations, wherever they may be located;
(b) freely use access roads located within the Contract Area and outside the Contract
Area for the construction, installation, maintenance, operation and removal of
pipelines and other facilities required for the Petroleum Operations:
(c) freely use sand, water, electricity and any other natural resources located inside or
outside the Contract Area for the Petroleum Operations;
(d) use any qualified foreign and local personnel and/or Subcontractors required for
the conduct of Petroleum Operations in accordance with Articles 22 and 23. Any
foreign personnel working in the Kurdistan Region shall require prior
authorisation of the GOVERNMENT {such authorisation not to be unreasonably
delayed or withheld) and the GOVERNMENT shall obtain any authorisation
required by the Government of Iraq;
(e) import any goods, materials, equipment and/or services required for the Petroleum
Operations in accordance with Articles 19. 22 and 30; and
18
(I) freely use land cm property belonging to the Kurdistan Region, and tlie
(GOVERNMENT will assist the CONTRACTOR with facilitating the use by the
CONTRACTOR of any private property in the Kurdistan Region.
ARTNT.K 3 - CONTRACT AREA
The initial Contract Area covers the Arbat area and extends over an area of 97V5 km1, m
detailed and indicated on the map attached in Annex A and is delimited by the following
coordinates:
Pol III Latitude* (deg u> in set) Longitude (deg mm sec) X(ral) V(mN)
A 3541 06 45 30 30 _ 54 5 986 3949 122
B 35 16 33 i 45 51 38 578 264 3903 961
C 35 12 21 45 4647 570 980 3896 145
1) 35 27 32 45 25 00 537 799 3924 011
E 35 33 16 1 45 20 31 531 002 3934 583
F 35 3847 145 25 23 538 285 3944795
The (GOVERNMENT, by execution of (his Contract, hereby validates and approves the
foregoing coordinates of the Contract Area.
The total area of the Contract Area may be reduced only in xcordance *tth the provnicets of
this Contract.
ARTICLE4-GOVERNMENT PARTICIPATION \NI>THIRD PARTY
PARTICIPATION
Government Interest
4.1 Tl»c GOVERNMENT shall participate In this Contract through a Public Company,
effective from the Effective Date in respect of the entire Contract Area with an undivided
intccest in the Petroleum Operations and all (lie other rights, duties, obligations ted
liabilities of the CONTRACTOR (save us provided in and subicct to this Article 4)
under this Contract in respect of the Contract Area, of twenty per cent (20%) (the
"(Government Interest").
4.2 The Public Company shall not have any liability to the CONTRACTOR to contribute ib
Government Interest share of all Petroleum Costs, whenever those Petroleum Costs may
be incurred, and its Government Interval share of such Petroleum Costs shall, until such
lime as the (GOVERNMENT exercises the Option of Third Party Participation, be the
responsibility of all Initial CONTRACTOR Entities, and thereafter shall he the
responsibility of the CONTRACTOR for the duration of this Contract, provided always
that the relevant CONTRACTOR Entitles shall be entitled to recover all such Petroleum
Costs in accordance with Articles I and 25. For the avoidance ot doubt, the Public
19
Company shall contribute its share of Production Bonuses attributable to the Government
Interest and payable pursuant to Articles 32.4 and 32.5.
hot ihe puiposcs of Article 37 of the Kurdistan Region Oil and Gas Law, the Government
interest shall be deemed to be held by die GOVERNMENT and in accordance with the
principle in Article 16.13, the Public Company will be individually and separately liable
(and not jointly and severally liable with the other CONTRACTOR Entities! to the
GOVERNMENT for its obligations, duties and liabilities under this Contract and the
provisions of Article 4.5 shall apply.
4.3 The Public Company may. at its discretion, assign pan or all of its Government Interest
to a third party or parties which is another Public Company duly authorised by (lie
GOVERNMENT, provided that in no event shall a transfer be made which would result
in the transferor or transferee holding less than a five per cent (5%) participating interest
under this Contract.
In the event of such an assignment to another Public Company, for the purposes of
Article 37 of the Kurdistan Region Oil and Gas Law. the Government Interest so
assigned shall be deemed to be held by the GOVERNMENT and in accordance with the
principle in Article 16.13. the Public C'om|\my to which such Government Interest is
transferred will be individually and separately liable (and not jointly and severally liable
with the other CONTRACTOR Entities) to the GOVERNMENT for Its obligations,
duties and liabilities under this Contract and the provisions of Article shall apply.
4.4 Any failure by the Public Company to perform any of its obligations or to satisfy any of
its duties or liabilities under this Contract shall not be consideicd as a default of the
CONTRACTOR Entities and shall in no case be invoked by the GOVERNMENT to
terminate this Contract or exercise any other rights or remedies in respect of such default
that may be available to it.
The capacity of a Public Company, as it may arise pursuant to the provisions of this
Contract, shall in no event cancel or affect the rights of the CONTRACTOR Entities to
seek to settle a dispute or to refer such dispute to arbitration or expert determination in
accordance with the provisions of Article 42.
4 5 A Public Company may assign part or all of its Government Interest to a third parry or
parties (not being a Public Company) provided that in no event shall a transfer be made
which would result in the transferor or transferee holding less than live per cent (51*)
participating interest under this Contract, and for the avoidance of doubt the provisions of
Articles 39 I. 39.2 and 39.3 shall not apply. Any such assignee shall have the same rights
and responsibilities held by the Public Company prior to the assignment.
For the avoidance of doubt, follow ing any assignment by a Public Company part or all of
a Government Interest to a third party which is not a Public Company, in accordance with
the provisions of this Article 4. the provisions of Articles 39.1. 39 2 and 39.3 shall apply
to any subsequent assignment of such interest.
20
Third Part* Interest
4.6 The GOVERNMENT shall have the option of assigning to a third patty, or third pantos,
in respect of the Contract Area, as a CONTRACTOR Entity or CONTRACTOR
Entities, an undivided interest in the Petroleum Operations in respect of the entire
Contract Area and which option, when exercised, shall assign and novate -II the other
rights, duties, obligations and liabilities of the CONTRACTOR (save as prov Jed tn and
subject to this Article 4). under this Contract, of an aggregate of twenty per cent (20 *)
(the “Third Party Interest"), such option being related to herein us the "Option of
Third Party Participation" Until the later of the exercise of the Option of Third Party
Participation or the assignment by tire GOVERNMENT of the Third Party Interest (or
part thereof) to a Public Company in accordance with Article 4.9, or the expiry of the
twelve (12) Month period contemplated by Article 4.7, the Initial CONTRACTOR
Entities shall undertake all necessar y work under this Contract, provided always that (he
Initial CONTRACTOR Entities shall be entitled (through the CONTRACTOR) to
recover all such Petroleum Costs in accordance with Articles I ar.d 25.
4.7 The GOVERNMENT may exercise the Option of Third Party Participation at any time
prior to the date twelve (12) Months following the Effective Date by notifying the Initial
CONTRACTOR Entities, in writing, of a company which has. or companies which
have, adequate resources and capacity to discharge the obligations of a CONTR \(TOR
Entity under this Contract and * Joint Operating Agreement in respect thereof
4.8 If the GOVERNMENT notifies the Initial CONTRACTOR Entities of a Thiid Patty
Participant in accordance with Article* 4.6 and 4.7, that Third Party Participant shall have
the Third Party Interest or such part of the Third Party Inteiest as the GOVERNMENT
may decide.
4.9 If:
(a) the GOVERNMENT doe* not notify the Initial CONTRACTOR Entities of a
Third Party Participant in accordance with Articles 4.6 and 4.7 for all or part of
the Third Party Interest; and/or
(b) if the Third Party Participant docs not complete the exercise of the option .is
contemplated in Article 4.10 within sixty (60) days following its assignment by
the GOVERNMENT of a Third Party Interest;
then the Third Party Interest and/or that part of the Third Party Interest not assigned by
the GOVERNMENT in accoidancc with Articles 4.6 and 4.7 shall be held by a Pjblic
Company to be identified by the GOVERNMENT, which Public Company shall act as a
Third Party Participant For the avoidance of doubt, for the purposes of this Article 4.9. a
Public Company shall be a wholly-owned entity of the GOV ERNMENT.
21
4.10 If the Option of Thin! Pat ty Participation is exercised in accordance with Articles 4.6 and
4.7, or if the Public Company holds all or part of the Third Party Interest under Article
4.9:
(a) the effective date of such participation shall be the Effective Date,
notwithstanding that the exercise of the Option of Third Party Participation under
Articles 4.6 and 4.7. or the date on which the Public Company acquires the Third
Putty Interest under Article 4.9, occurs after such date;
(b) a Third Party Participant, upon signature of a binding and enforceable instrument
of assignment and novation in respect of this Contract teferred to in Article 39.3,
shall pay lo the Initial CONTRACTOR Entities by way of cleared funds to a
bank account nominated by the Initial CONTRACTOR Entities, an amount
equivalent to the proportion of Petroleum Costs incurred by the Initial
CONTRACTOR Entities as at the date of such payment attributable to the
interest IkUI by such Third Party Participant (which Petroleum Costs, for the
avoidance of doubt, shall not include the Signature Bonus, the Capacity Building
Bonus or the Common Sltares payable or paid, or issuable or issued (as the case
may he) under this Contract) and which payment for the avoidance of doubt, shall
not include any Petroleum Costs attributable to tlx; Government Interest; and
(i) if the Option of Third Party Participation is exercised in accordance with
Articles 4.6 and 4.7. the Initial CONTRACTOR Entities shall, within
fourteen (14) days ot the .H>tific
statement of Petroleum Costs Within thirty (30) days ot the notification,
the GOVERNMENT 'hall prevent the Third Party Participant with a
statement, agreed as between the GOVERNMENT and the Initial
CONTRACTOR Entities of Petroleum Costs Within sixty (60) days of
the notification, the GOVERNMENT shall cause the Third Party
Participant to pay the full amount cue in accordance with this Article
4.10(b);
(ii) if the Public Company holds all or pan of the Third Party Interest under
Article 4.9. the GOVERNMENT shall cause the payment of the amount
due in accordance with this Article 4.10(b) to be made by the Public
Company to the Initial CONTRACTOR Entities within sixty (60) days of
the Public Company acquiring the Third Party Interest under Article 4.9;
(c) upon payment pursuant to and in accordance with Article 4.10(b) and the
execution of the instrument referred to in Article 4.10(b) a Third Party Participant
'hall participate as a CONTRACTOR Entity (or, where * Third Party Participant
constitutes a group of companies, as CONTRACTOR Entities) under this
Contract as if it had been a CONTRACTOR Entity (or as if they had been
CONTRACTOR Entities) from the Effective Date, with all the rights, duties,
obiig.itions and liabilities under this Contract, including the obligation to pay the
relevant pro rata share of any and ail Production Bonuses due at any time under
22
the Contract, and a Third Party Participant shall nor become a CONTRACTOR
Entity until payment pursuant to and In accordance with Article 4 10(b) ami the
execution of the instalment referred to in Article 4.10(b) has been completed; and
Id) where a Joint Operating Agreement hits been executed by the Initial
CONTRACTOR Entities prior to nny exercise of the Option of Third Party
Participation pursuant to Articles 4.6 and 4.7, a Third Party Participant slmlt. upon
signature of the instrument referred to in Article 4.10(b), become a patty or
parties to such Joint Operating Agreement on the terms thereof.
•ill il (lie Public Company shall hold all or part of the Third Party Interest under Article 4.9.
and shall fail to make tire payment referred to in Article 4.10 (b) by the due date of
payment, or if the GOVERNMENT and the Public Comj>any have not completed llic
assignment of all or part of the Third Patty Interest under Article 4.9 w ithin ninety (90)
days of the expiry of the twenty-one (21) Month period contemplated by Article 4.7, then
upon the day following that date the GOVERNMENT will with immediate effect
therefrom take all contractual and procedural measures (enforceable under applicable
low) to procure that:
(a) fitly per cent (50%) of the interest so held by ihc Public Company holding such
Third Party Interest shall, notwithstanding any other Article m this Contract, be
automatically deemed to be assigned and be assigned by such Public Company to
the existing CONTRACTOR Entities. u\l
(b) fifty per cent (50%) of Ihc interest so held by the Public Company holding such
Third Party Interest shall, notwithstanding the provisions of Article 39.2 or any
other Article in this Contract, be automatically deemed to be assigned and be
assigned to that Public Company which holds the Government Interest pursuant to
Article 4.1, ar.d shall for the purposes of this Article 4 be part of the Government
Interest and shall be subject to tltc rights and obligations of Article 4.2 amt (he
other provisions of this Contract relating to the Government Interest
Joint Operating Agreement Provisions
4.12 Any Joint Operating Agreement entered into in relation to this Contract shall be
consistent with the principles of this Article 4 and shall provide as follows
(a) all decisions of any operating committee established under such Joint Operating
Agreement shall require the affirmative vote of an agreed |xrrccntag<* of
participating interests held thereunder, which in any event shall be not more than
sixty per cent (60%) except for chose decisions relating to sole risk operations and
these decisions which, by international operating standards, require unanimity;
and
23
(b) in the event of a proposed transfer by any CONTRACTOR Entity of pan of a
participating interest under such Joint Operating Agreement, including any Thud
Patty Interest;
(i) no transfer may be made which would result in the transferor or transferee
holding less than a five per cent (5%) participating interest;
(ii) the proposed third party assignee must demonstrate to the reasonable
satisfaction of each of the existing CONTRACTOR Entities that it has
the financial capability to perform its payment obligations under the
Contract and under the Joint Operating Agreement; and
(iii) the proposed third party assignee shall enter into an instrument satisfactory
to each of the existing CONTRACTOR Entities so as to assume and to
perform the obligations of the transferor.
Power of Attorney
4.13 Notwithstanding any provision of Article 39. in the even: of the refusal of an Initial
CONTRACTOR Entity to execute any documentation required to complete the
assignment and novation referred to in Articles 4.6 and 4.7. then such Initial
CONTRACTOR Entity irrevocably constitutes and appoints the GOV ERNMENT (or
any other person which at any time during the term of the Contract may be nominated by
the GOVERNMENT) to act alone, and with full power of substitution, as its true and
lawful attorney and agent, with full power and authority in its name, place and stead to
execute, file and record when u> and where required, any and all of such documentation
and hereby ratifies such execution, recording and filing. Each of the Initial
CONTRACTOR Entities confirms that the power of attorney granted is irrevocable and
will survive its insolvency, dissolution, winding-up or bankruptcy and extend to hind its
trustees, administrators, successors and assigns. Eacli of the Initial CONTRACTOR
Entities waives any and all defences which may be available to contest, negate or
disaffirm the action of the GOVERNMENT taken under such power of attorney.
ARTICLE 5-OPERATOR
5.1 Ihe CONTRACTOR hereby designates SHAM ARAN to act ns the Operator on behalf
of the CONTRACTOR for the execution of the Petroleum Operations. The
CONTRACTOR shall at any time have the right to appoint another entity as the
Operator, upon giving the GOVERNMENT not less than thirty (30) days prior written
notice of such appointment.
5.2 The CONTRACTOR shall submit to the GOVERNMENT for comment any agreement
regarding oi regulating the Operator's appointment and its conduct of Petroleum
Operations on behalf of the CONTRACTOR pursuant to this Contract prior to execution
of such agreement including the Joint Operating Agreement.
24
5 3 In the event of the occurrence of either of the following, the GOVERNMENT may
require the CONTRACTOR to appoint another entity as Opcratoi as toon as is
reasonably practicable:
:a) if an order has been passed in court declaring the bankruptcy, liquidation, or
dissolution of the Operator; or
lb) if the Operator terminates the activities under this Contract delegated to it by tlie
CONTRACTOR or a material proportion thereof, and, as a result the
CONTRACTOR fails io fulfil its obligations under the Contract.
ARTICLE 6 - TERM OF THE CONTRACT
6.1 This Contract comprises an Exploration Period and a Development Period, as defined
below:
Exploration Period
6.2 Subject to Article 6.9. the Exploration Period shall be for an initi.il term of five (S>
Contract Years, extendable on a yearly basis (as provided in Articles 6.5 and 6 6) up to ,i
maximum period of seven (7) Contract Years stating from the Effective Date The
initial term of five (5) years shall be subdivided in two (2) sub-period* » follows:
(a) an initial sub-period of three (3) Contract Yeats ("First Sub-Period"); and
(b) a second sub-period of two (2) Contract Years (“Second Sub-Period"),
each a "Sub-Period" and collectively “Sub-Periods".
It is understood that the right of the CONTRACTOR to accede to the next Sub-Pcnod or
any extension thereof pursuant to Article 6.6 shall be subject to fulfilment of the
Minimum Exploration Obligations or minimum work obligations applicable to the
previous Sub-Period or extension thereof punuani to Article 6.6 (as the ease may be).
6.3 During the Exploration Period, the CONTRACTOR shall pay to the GOVERNMENT,
in arrears, an annual suiface rental foi the Contract Area, as may be reduced by
relinquishment from time to time pursuant to Article 7. of ten Dollars (US$10) per square
kilometre per Contract Year ( Exploration Rental ). Such Exploration Rental shall be
considered as a Petroleum Cost and shall be recovered by the CONTRACTOR in
accordance with the provision* of Article* I and 25.
6.4 If the CONTRACTOR decides not to enter into die Second Sub Period, it shall notify
the GOVERNMENT at least thirty (30) days poor to the expiry of the First Sub-Pcnod
and. provided that the data from the First Exploration Well demonstrates to the
CONTRACTOR .King reasonably that there is no reasonable technical case for dulling
the Second Exploration Well in the Contract Area, the Exploration Period shall expire at
25 i /A
the end of the First Sub-Period, unless the First Sub-Period has been extended pursuant to
Article 6.5 and/or Article 6.6.
6.5 If the CONTRACTOR has fulfilled ns Minimum F.xptoiatiun Obligations for a Sub-
Period of the Exploration Period but considers that additional work is required prior.
(a) to deciding to submit an Appraisal Work Program and Budget as provided under
Article 12.2 in respect of a Discovery, or
(b) to deciding to declare a Discovery as a Commercial Discovery in accordance with
Article 12.6(a) or 14.5(a), winch additional work may include the preparation
and/or execution of an Appraisal Work Program and Budget as provided under
Article 12.2 and/or Gas Marketing Operations,
the CONTRACTOR will automatically be entitled to ex ten moos, each of one (I)
Contract Year, o: the then current Sub-Pcr>od. up to the end of the maximum Exploration
Period of seven (7) Contract Yean, (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 poor to the end of the then
current Sub-Penod or the end of the then current extension (as the case may be).
6.6 Without prejudice to Article 6.5. upon expiry of tlx- initial term of :hc Exploration Period,
if it considers it hns no: completed its exploration evaluation of the Contract Area, tlic
CONTRACTOR shall he entitled to an extension of the Second Sub-Period, provided it
notifies Cite GOVERNMENT in writing at least ihiity (30) days prior to the end of such
Sub-Period, together with a proposal for a minimum work obligation for such extension.
Any such extension shall not exceed one (1) Contract Year. Upon the expiry of such
extension, if it considers it has still not completed its evaluation of the Contract Area, the
CONTRACTOR shall be entitled to a further extension of one (I) Contract Year
provided that it notifies the GOVERNMENT in writing at least thirty (30) days prior to
the end of the original extension. The right of the CONTRACTOR to accede to tire
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 Exploration Period, upon thirty (30) days
prior notice to the GOVERNMENT, the CONTRACTOR shall have the right to
withdraw from this Contract provided that the outstanding Minimum Exploration
Obligations relating to the then current Sub-Period have been completed in accordance
with the Contract, or it has paid to the GOVERNMENT the amounts specified in Article
10.2 or Article 10.3, whichever is applicable to the then current Sub-Period.
6.8 If no Commercial Discovery has been made at the end of the Exploration Period
(including any extensions thereof) this Contract shall terminate.
6.9 If a Discovery is made within the maximum Exploration Period of seven (7) Contract
Years (as provided in Article 6.2), and if lire CONTRACTOR considers it has not had
lime io complete sufficient Gas Marketing Operations lo declare the Discovery a
Commercial Discovery pursuant to Article 12.6(a) or 14.5(h), the CONTRACTOR shall
be entitled to request an extension of the Exploration Period (notwithstanding the
maximum period provided in Article 6.2). provided it so request* the GOVERNMENT
in writing at least thirty (30) days prior to the end of the maximum Exploration Period,
together with u proposal foi Gas Marketing Operations to l>c undertaken during such
extension. If granted by the GOVERNMENT, any such extension shall not exceed two
(2) Contract Years. Upon the expiry of such extension, if it considers it has still not
completed its Gas Marketing Operations relating to such Discovery, the
CONTRACTOR shall 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 for Gas
Marketing Operations to be undertaken during such extension.
Devflopinvi.it tyi'K1
6.10 If the CONTRACTOR considers that a Discovery of Crude Oil and any Associated
Natural Oas 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 Crude Oil and any
Associated Natural Gas shall Ire 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 live (5) ye.tr cxtci \:on.
6.11 If the CONTRACTOR considers dial a Discovery of Non-Associated Natural Gas is a
Commercial Discovery, the CONTRACTOR shall have the exclusive right to develop
and produce such Commercial Discovery, pursuant to the terms of this Contract. The
Envelopment Period for a Commercial Discovery of Non Associated Natural Gas shall
be twenty (20) years, commencing on ihe declaration ol such Commercial Discovery by
CONTRACTOR, :n accordance with Article 12.6(a) or Article 14.5(a). with an
automatic right to a five (5) year extension.
6.12 If Commercial Production from a Production Area is still possible at the end of its
Development Period as defined in Articles 6.10 or 6.11 then, upon its request, the
CONTRACTOR shall he entitled to an extension of such Development Period under the
same terms as those provided in this Contract. Such request shall be made in writing by
the CONTRACTOR at least six (6) Months before the end of the said Development
Period.
The term of any such extension of the Development Period shall be:
(a) five (5) Years for Crude Oil and any Associated Natural Gas. and/or
(b) five (5) Years for Non-Associaled Natural Gas.
IXf
6.13 The CONTRACTOR shall have (lie light to terrninutc Production Operations for any
Pioduction Area at any time during the term of this Contract, subject to giving
notice to the GOVERNMENT of at least ninety (90) days. This Contract shall terminate
on the expiry date of the iast Pioduction Aten or when Production Operations for all
Production Areas have terminated.
ARTICLE 7 - RELINQUISHMENTS
7.1 Subject to the provisions of Articles 7.2 and 7.3, the CONTRACTOR shall surrender
portions of the Contract Area as follows:
(a) at the end of the initial term of the Exploration Period referred to in Article 6.2.
twenty five per cent (25%) of the net area determined by subtracting the
Production Areas from the initial Contract Area;
(b) at the end of the fust extension period entered into under this Contract after the
end ol the initial term of the Exploration Period referred to in Article 6.2. an
additional twenty five 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), ah of the
remaining area (hat is not in a Production Area.
7.2 For the application of Article 7.1:
(a) any areas already relinquished pursuant to Article 7.4 shall he deducted from
areas to be surrendered; and
(b) the CONTRACTOR shall have the right to determine the area, shape and
location of the Contract Area to be kept, provided that such surrendered portions
of the Contract Area shall be in contiguous blocks
7.3 If the relinquishment refereed to in Article 7.1 can only be achieved by including part of
an Appraisal Area, then these percentages shall be reduced to exclude such Appraisal
Area
7.4 During the Exploration Period, the CONTRACTOR may at (he 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 (his Article 7.4. Such voluntary surrenders dunng the
Exploration Period shall be deemed equal to Ihe obligatory relinquishments referred to
under Article 7.1. This Contract shall terminate in die event of tlie 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
28
surrender ihc entire Contract Area without having fulfilled the Minimum Exploration
Obligations relating to the then current Sub-Pcnod as provided in Article 10.2 or Article
10.3. Use CONTRACTOR shall pay to the GOVERNMENT the relevant outstanding
amount a* detailed in Ankle 10.2or Anick 10.3, as the ease may be.
The boundaries of the portion of the Contract Area to be relinquished by the
CONTRACTOR shall be communicated to the GOVERNMENT by written notice at
least thirty (30) days in advance of the relevant date for relinquishment, pursuant to
Article 7.1.
ARTICLE H- MANAGEMENT COMMITTEE
A Management Committee shall be established within thirty (30) days following the
Effective Date for the purpose of providing orderly direction of all matters pertaining to
tl»c Petroleum Operations and the Work Programs. Within such period, each of the
GOVERNMENT and the OPERATOR shall by written notice nominate its respective
members of the Management Committee and their deputies.
Tlic Management Committee shall comprise two (2) members designated by the
GOVERNMENT and two (2) members designated by the OPERATOR
Upon ten (10) days notice, each of the GOVERNMENT and the OPERATOR may
substitute any of its members of tlic Management Committee. The cha.rman of the
Management Committee shall be one of the members designated by the
GOVERNMENT (the "Chairman"). The vice-chairman of the Management
Committee shall be one of the members designated by the OPERATOR (the "Vice-
Chairman , In the absence of the Chairman, the Vice-Chairman shall chair the
meeting.
Each Party shall have the right to invite a reasonable number of observers as deemed
necessary to attend the meetings of the Management Committee in a non-voting capacity.
The Management Committee shall review, deliberate, decide and give advice,
suggestions and recommendations to the Parties regarding the following subject mailers
(a) Work Programs and Budgets.
the CONTRACTOR’S activity reports;
international petroleum industry practice;
(d) Accounts of Petroleum Costs;
29
(e) procurement procedures for potential Subcontractors, with an estimated sub¬
contract value in excess of one million Dollars ($1,000,000) submitted by the
CONTRACTOR in accordance with Article 19.3;
(0 Development Plan and Budget for each Production Area;
(g) any matter having u material udverse affect on Petroleum Operations; and
(h) any other subject matter of a materiu! nature that the Parties arc willing to
consider.
8.3 Each of the GOVERNMENT and the OPERATOR shall have one (I) vote in the
Management Committee. The Management Committee cannot validly deliberate unless
each of the GOVERNMENT and the OPERATOR is represented by at least one (1) of
us members or its deputy.
The Management Committee shall attempt to reach unanimous agreement on any subject
matter being submitted. In the event the Management Committee cannot reach
unanimous agreement, a second meeting shall he held within fourteen (14) days to
discuss the same subject matter and attempt to reach a unanimous decision.
Except as provided for in Article 8.4 and Article 8.5, in the event that no agreement is
reached at the second meeting, the Chairman of the meeting shall have the lie-breaking
vote.
8.4 In the event that, during the Exploration Penod, no agreement is reached at the second
meeting of the Management Committee, as provided for in Article 8.3. or unanimous
approval is not obtained, as required pursuant to Article 8.5; then the proposal made by
the OPERATOR 'hall be deemed adopted by the Management Committee-
8.5 Notwithstanding the provisions of Article 8.3, and subject to Article 8.4, unanimous
approval of the Mxnagcmenr Committee shall be required for
(a) approval of. and any material revision to, any Exploration Work Program and
Budget prepared after the first Commercial Discovery in the Production Area
relating to such Commercial Discovery;
(b> approval of, and any material revision to. the Development Plan, the production
schedule, lifting schedule and Development and Production Work Programs and
Budgets;
(c) establishment of rules of procedure for the Management Committee;
(d) .iny insurance issues over which the Management Committee has authority.
(c) approval of. and any material revision to, procurement procedures for goods
and/or services, submitted by the OPERATOR in accordance with Article 19.3
30
(unless such procedures have been deemed approved by the Management
Committee m accordance with Article 19.3);
(I) approval of, and any material revision to, any proposed pipeline project,
submitted by CONTRACTOR in accordance with Article 33.3;
(ft) approval of a first rate bank in which to place the Decommissioning Reserve
Fund, in accordance with Article 38.1;
approval of, and any material revision to. any proposed Decommissioning Plan
submitted pursuant to Article 38.7 on any Decommissioning Work Program and
Budget or Gas Marketing Work Program and Budget;
(i) any Terms of Reference which arc required to be prepared and agreed for the
purposes of expert determination, pursuant to Ankle 422;
0) approval of any coats in excess of ten per cent (10%) above any Budget; and
(k) any matter having u material adverse effect on Petroleum Operations
8.6 Ordinary meetings of the Management Committee shall take plucc in the Kurdistan
Region, alternately at the offices of the GOVERNMENT and those of the OPERATOR,
or at any other location agreed between Parties, at least twice a Contract Year prior to t»»c
date of the first Commercial Discovery and three times a Contract Year thereafter
8.7 Either the GOVERNMENT or the OPERATOR may call an extraordinary meeting of
the Management Committee to discuss important issues or developments rc'atcd to
Petroleum Operanons. subject to giving rtovmablc prior notice, specifying the matters to
he discussed at the meeting, to the other Party The Management Com mi tie* may from
time to time make decisions by correspondence provided al. the members have indicated
their approv al of such decisions ia such correspondence
8 8 Gnlevv at least one (I) member or its deputy of each of the GOVERNMENT aad the
CONTR ACTOR is present, the Management Committee shall be adjourned for a period
not lo exceed eight (8) days. The Part) being present shall then notify the c*her Party of
the new date, time and location for the meeting.
8 9 The agenda for meetings of the Management Committee shall be prepared by the
OPERA I OR in accordance with instructions of the Chairman and communicated to the
Parties at least fifteen (15) days prior to the date of the meeting. The agenda shall include
any subject matter proposed by either the GOVERNMENT or the OPERATOR
Decision* of the Management Committee will I* made at the meetings The
OPERATOR shall be responsible lor preparing ami keeping minutes of the decisions
made at the meetings. Copies of such minutes shall be forwarded to each Party for review
and approval Each Parly shall review and approve such minutes within ten (10) days of
receipt of the droit minutes. A Party who fails to notify in writing it* approval or
KP »
disapproval of such minutes within such ten < 10) days shall be deemed to have approved
the minutes.
8.10 If required, the Management Committee may request the creation of a technical sub¬
committee or any other .sub-committee to usvirt it. Any such sub-committee shall be
composed of a reasonable number of experts from tl»e GOVERNMENT ami the
OPERATOR After each meeting, the technical sub-committee or any oilier sub
committee sliall deliver a written report to the Management Committee.
8.11 Any costs and expenditure Incurred by the CONTRACTOR for meetings of the
Management Committee or any technical sub-committee or any othci sub committee
shall be considered as Petroleum Costs and shall be recovered by the CONTRACTOR
in accordance with the provisions of Articles I and 25.
ARTICLE 9 - GUARANTEES
9.1 Each CONTRACTOR Entity shall provide the GOVERNMENT, if so required by the
luttcr pursuant to written notice received by the CONTRACTOR Entity within thirty
(30) days of the Effective Date, with a corporate guarantee in a form as shall be agreed in
good faith between the GOVERNMENT and each CONTRACTOR Entity not later
than ninety (90) days after the Effective Date, provided that such corporate guarantee
shall he given only in respect ol the Minimum Financial Commitment for the hiv. Sub
Period and shall expire automatically upon completion of the performance of the
Minimum Exploration Obligations set out in Article 10.2(d) and (e) or expenditure of
such Minimum Financial Commitment, whichever is the earlier.
9.2 Not later than sixty (60) days after the commencement of the Second Sub-Period. each
CONTRACTOR Entity shall provide the GOVERNMENT, if so required by the laaer
pursuant to w niter. notice received by the CONTRACTOR Entity within thirty (30) days
of such commencement date, with a corporate guarantee in:
(a) (he form substantially agreed between the GOVERNMENT and each
CONTRACTOR Entity for the First Sub-Period, if any, subject to making the
changes necessary r order for the corporate guarantee to apply oniy to the
Second Sub-Penod. or
(b) if there is no agreed form. ir. a form as shall be agreed in good faith between the
GOVERNMENT and each CONTRACTOR Entity not later than ninety (90)
days after the GOVERNMENT'S notice.
and provided in each caw that such corporate guarantee shall be given only in respect of
the Minimum Financial Commitment for the Second Sub-Period and that such corporate
guarantee shall expire automatically upon completion of the performance of the
Minimum Exploration Obligation' set out in .Article 103(b) or expenditure of such
Minimum Financial Commitment, whichever is the earlier.
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9.3 In the event of an assignment by a CONTRACTOR Entity in accordance with
Article 39. the relevant third party assignee shall provide the GOVERNMENT, if so
required by the latter pursuant to written notice given to Mich assignee within thirty (30)
days of the effective date of the assignment, with a corporate guarantee in the form
agreed pursuant to Article 9.1 or 9.2. as applicable to the then current Sub-Period or, in
the absence of any such agreed form of corporate guarantee, in a form as shall be agreed
in good faith between the GOVERNMENT and such assignee not later than ninety (90)
days after the effective date of the assignment, provided that such corporate guarantee
shall be given only in respect of the Minimum Financial Commitment for (he then cuiicnt
Sub Period, and shall expire automancally upon completion of the performance of the
Minimum Exploration Obligations set out in Articles 10.2(d) and (e) or Ankle 10 3(b).
ns the ease may be. oi expenditure of such Minimum Financial Commitment, whichever
is the earlier
ARTICLE 10 MINIMUM EXPLORATION WORK OHEIGATIONS
10 I The CONTRACTOR ahull start Exploration Operations within thirty (30) days of
Management Committee approval of the Exploration Work Program and Budget in
accordance with Article H The CONTRACTOR shall perform geological, geophysical
and/or drilling works as provided under Articles 10.2 to 10.3 (the Minimum
Exploration Obligations-). If applicable, the said Minimum Exploration Obligations
si mil be performed during each Sub-Period in accordance with prudent international
petroleum industry practice
10.2 During the First Sub Period, the CONTRACTOR shall
(a) cany out geological and gcophyskal studies, comprising the following:
i i) the compilation of a technical database;
(ii) else performance of a remote sensing study; and
(iu) a field visit to ver.fy initial geological and geophysical work and remote
sensing results and plan for two dimensional seismic acquisition;
the following:
(i) well data, if available, for example, electric logs;
(ii) seismic data and gravity data, if available; ami
(iii) icprocevs seismic data, if available;
(c) perform field work comprising structural, stratigraphic and lithologic mapping and
sampling.
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(d) acquire, process and interpret approximately three hundred and fifty (350) line
kilometres of two dimensional seismic data within the Contract Area, committing
for this purpose a minimum financial amount of approximately six million Dollars
(USS6.COO.OOO); and
(ct drill two (2) Exploration Wells (the “First and Second Exploration Wells”),
committing for this puipose a minimum financial amount of approximately
twenty million Dollars
10.3 During the Second Sub-Period, the CONTRACTOR shall:
(a) acquire, process and interpret further seismic data (being either two dimensional
or three dimensional), if the CONTRACTOR considers that the results from the
FiiM Exploration Wells justify the acquisition of further seismic data; and
(l>> drill one (I) Exploration Well (the 'Third Exploration Well") committing for this
purpose a minimum financial amount of ten million Dollars (US$10,000,000),
unless the data from the Firs! and Second Exploration Wells demonstrates to the
CONTRACTOR acting reasonably that there is not a reasonable technical case
for drilling the Third Exploration Well in the Contract Area.
10.4 Notwithstanding the provisions in Articles 10.2 to 10.3, for the execution of the
Minimum Exploration Obligations under Articles 10.2 to ’.0.3, it is agreed as follows:
(a) Minimum Exploration Obligations in the Second Sub-Pcnod shall only apply in
the event the CONTRACTOR has not elected to notify the GOVERNMENT
that it will not enter into the Second Sub-Period, in accordance with and subject to
Article 6.4.
(b) Subject to Article 10.4(a). the CONTRACTOR shall be required to meet its
Minimum Exploration Obligations for the applicable Sub-Period, even if this
entails exceeding the Minimum Financial Commitment for such Sub-Period If
the CONTRACTOR has satisfied its Minimum Exploration Obligations without
having spent (he total Minimum Financial Commitment for such Sub-Pcnod. it
•hall be deemed to have satisfied its Minimum Exploration Obligations for such
Sub-Pcnod.
(c) Each Exploration Well shall be drilled to the depth agreed by the Management
Committee unless:
the formation is encountered at a lesser depth than originally anticipated;
:i1 basement is encountered at a lesset depth than originally anticipated;
(iil) in the CONTRACTOR'S sole opinion continued drilling of the relevant
Exploration Well presents a hazard due to the presence of abnormal or
unforeseen conditions;
(iv) insurmountable lechnical problems are encountered rendering ii
impractical to continue drilling with standard equipment: or
(v) petroleum formations arc encountered whose penetration requires laying
protective casing that does not enable the depth agreed by the
Management Committee 10 be reached;
provided, however, that in no event shall Contractor be required to drill an
Exploration Well deeper than three thousand five hundred metres (3.500m).
If drilling is stopped for any of the foregoing reasons, the Exploration W’ell 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 Exploration Obligations in respect of the Exploration Well.
(d) Any geological or geophysical work carried out or any seismic data acquired,
processed or interpreted or any Exploration Weil drilled or any other work
performed in excess of the Minimum Exploration Obligations and/or any amounts
spent in excess of the total Minimum Financial Commitment in any given Sub-
Period. shall be carried forward to the next Sub Period or any extension period
and shall be taken into account to satisfy tire Minimum Exploration Obligations
and/or the total Minimum Financial Commitment for such subsequent Sub-Period
or extension period
(e) For the avoidance of doubt, if: (i) in the Fust Sub-Period, tire CONTRACTOR
performs any of the Minimum Exploration Obligations prescribed for the Second
Sub-Period m Article 10.3; and (ii) the CONTRACTOR has not elected to notify
the GOVERNMENT that it will not enter into the Second Sub Period (in
accordance with and subject to Article 6.4). the performance of such Minimum
Exploration Obligations shall be deemed to satisfy the same Minimum
Exploration Obligation' foe the Second Sub-Period
ARTICLE II - EXPLORATION WORK PROGRAMS AND BUDGETS
11.1 Wkhin fony-five (45) days following the Effective Date, the CONTRACTOR shall
prepare and submit to the Management Committee a proposed work program and budget
relating to Exploration Operations (the ‘ Exploration Work Program and Budget ) for
tire remainder of the Calendar Year. Thereafter, no later than I October in each Calendar
Year, the CONTRACTOR shall submit a proposed Explorution Work Program and
Budget to the Management Committee for the following Calendar Year.
11.2 bach Exploration Work Program and Budget shall include details of. but not be limited
to, the following:
(a) work to be undertaken;
35
H>) materials, goods and equipment to be acquired;
(c) cost estimate of services to be provided, including services by third putties and/or
Affiliated Companies of any CONTRACTOR Entity; and
(d) estimated expenditures, broken down by cost centre in accordance with the
Accounting Procedure.
11.3 The Management Committee shall meet within sixty (60) days following its receipt of
CONTRACTOR'S proposal to examine and approve the Exploration Work Program and
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. The CONTRACTOR shall communicate its comments on any such
requested modifications to the GOVERNMEN T at tlw meeting of die Management
Committee or in writing prior to such meeting.
11.5 The CONTRACTOR shall be authorised to make expenditures not budgeted in an
approved Exploration Work Program and Budget provided that the aggregate amount of
such expenditures shall not exceed ten per cent (10*1) of the approved Exploration Work
Program and Budget in any Calendar Year and provided further that such excevs
expenditures shall be reported as soon as i> 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 1 and 25. provided that
any excess expenditures above the ten pci ceat (10%) limit shall only be recovered with
the unanimous approval of the Management Committee.
11.6 In cases of emergency. I he CONTRACTOR may incur such additional expenditures as it
deems necessary to protect life, environment or property. Such additional expenditures
skill 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 w ith the provisions of Articles I and 25
ARTICLE 12 - DISCOVERY AND DEVELOPMENT
12.1 If the drilling of an Exploration Well results in a Discovery, the CONTRACTOR sliail
notify I be GOVERNMENT within forty-eight (48) hours of completing tests confirming
the presumed existence of such Discovery or within such longer period as the
CONTRACTOR reasonably requires to determine whether or not there is a Discovery.
Within thirty (30) days following notification of the said Discovery, ihc
CON TRACTOR shall present lo the Management Committee all technical data then
available together with its opinion on the commercial potential of the said Discovery (die
Kp
36
'Discover* Report"). The CONTRACTOR shall provide in a timely manner such other
information relating to the Discovery as the GOVERNMENT may reasonably request.
Appraisal Work Program and Budget
12.2 If, pursuant to Article 12.1. the CONTRACTOR considers that the Discovery has
commercial potential it shall, within ninety (90) days following notification to the
GOVERNMENT of the Discovery, submit an appraisal program in respect of the
Discovery (tbc “Appraisal Work Program and Budget') to the Management
Committee. The Management Committee shall examine the Appraisal Work Program and
Budge: within thirty (30) days of is receipt. If the GOVERNMENT requests any
modification to the Appraisal Work Program and Budget, the Management Committee
shall meet to discuss the Appraisal Work Program and Budget and the requested
modifications (hereto within sixty (60) days from its receipt of the proposed Appraisal
Work Program and Budget. The CONTRACTOR sliali 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.
The Appraisal Work Program and Budge: shall include the following
(a) an appraisal works program and budget in accordance with prudent international
petroleum industry practice;
(l>) an estimated time-frame for completion of appraisal works; and
(c> tlic delimitation of the urea to l>r evaluated, (lie surface of which shall not exceed
twice (2 x) the surface of (he geological stiucture or prospect to be appraised (the
“Appraisal Area”).
12.3 If, following a Discovery, a rig 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 during the Management
Committee’s review of die Discovery Report provided in accordance with Article 12.1 or
its review of the Appraisal Work Program and Budget.
The CONTRACTOR shall be authorised to incur expenditures not budgeted in an
approved Appraisal Work Program and Budget provided that die aggregate amount of
such expenditures shall not exceed ten pci cent (10%) of the approved Appraisal Work
Program and Budget in any Calendar Year and provided further that such excess
expenditures shall be reported as soon as is reasonably practicable to the Management
Committer 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 approval of the Management Committee.
Ks
37
Appraisal Report
12.4 The CONTRACTOR shall submit a detailed report relating to the Discovery (die
“Appraisal Rc|>orr) to the Management Committee within ninety (90) days following
completion of the Appraisal Wink Program and Budget.
12.5 The Appraisal Report shall include the following:
la) geological conditions;
(b) physical properties of any liquids;
(c) sulphur, sediment and water content;
(d) type of substances obtained.
(e) Natural Gas composition;
(g) a preliminary cstimnlc ol recoverable reserves.
12.6 Together with its Appraisal Report, the CONTRACTOR shall submit a written
statement to the Management Committee specifying thau
(a) the CONTRACTOR has determined that the Discovery t> a Commercial
Discovery;
(b) the CONTRACTOR has determined that the Discovery is ix>t a Commcrc a
Discovery;
(c) tlie CONTRACTOR has determined that the Discovery is a significant
Discovery, which may become a Commercial Discovery subject to additional
exploration and/or appraisal works within or outside of the Appraisal Area; or
(d) the CONTRACTOR has determined that the Discovery is a significant
Discovery of Non-Associnted Nuturnl Gas. which may become a Commcreial
Discovery subject to Gas Marketing Operations, in accordance with Article 14 5
12.7 In ease the statement of the CONTRACTOR corresponds to Article 12.6(c). (lie
CONTRACTOR shall submit a Woik Program and Budget to the Management
Committee within thirty (30) days following such statement. Any well drilled to evaluate
the s.ml significant Discovery shall be considered an Exploration Well
38
12.8 If '.he Discovery has been declared a Commercial Discoscry by ihe CONTRACTOR
pursuant 10 Article 12.6(a) 01 Article 14.5(a). the- CONTRACTOR shall submit a
proposed Development Plan lo ihe Management Committee within one hundred eighty
(180) days following such declaration. The Development Plan shall be in accordance
with prudent international petroleum industry practice. Except with the consent of the
GOVERNMENT, 'uch Development Plan shall include details of the following .is
applicable:
(a) :be delimitation of il»e Production .Area, taking into account the results of the
Appraisal Report regarding the importance of the Petroleum Field within the
Appraisal Area;
(b) drilling and completion of Development Wells;
(c) drilling and completion of water or Natural Gas injection wells;
(d) laying of gathering pipelines;
(e) installation of separators, tanks, pumps and any ,'thcr associated production and
injection facilities for the production;
(f) treatment and transportation of Petroleum to the processing and storage facilities
onshore or offshore;
(g) laying of export pipelines inside or outside the Contract Area to the storage
facility or Delivery Point;
(h) construction of storage facilities for Petroleum;
(i) plan for the utilisation of Associated Natural Gas;
(j) training commitment in uccorduncc with Article 23;
(k) a preliminary decommissioning and site restoration plan;
(l) all contracts and arrangements made or to be made by the CONTRACTOR for
the sale of Natural Gus;
(m) to the extent available, all contracts and arrangements made or to be made by
Persons in tcspcct of that Natural Gas downstream of the point at which it is to be
sold by the CONTRACTOR and which arc relevant to the price at which (and
other terms on which) it is to be sold by the CONTRACTOR or me otherwise
relevant to the determination of the value of ii for the purposes of this Contract,
but not beyond the point at which it is first disposed of in an Arm's Length Sale;
39
(o) any other operations not expressly provided for in this Contract but reasonably
necessary for Development Operations, Production Operations and delivery of
Petroleum produced, in accoidance with prudent international petroleum industry
practice.
12.9 The Management Committee shall use its best efforts to approve the 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 GOVERNMENT, through its representatives on the
Management Committee, indicates its approval in writing.
12.10 If the GOVERNMENT requests any modifications to the Development Plan, then the
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 CONTRACTOR shall communicate its comments on any
such requested modifications to the GOVERNMENT at such meeting or in writing prior
to such meeting. Any modification approved by the Management Committee at such
meeting or within a further period of thirty days from the date or such meeting shai:
be incorporated into the Development Plan which shall then be deemed approved and
adopted.
12.11 If the CONTRACTOR makes several Commercial Discoveries within the Contract Area
each such Commercial Discovery will have a separate Production Area. The
CONTRACTOR shall be entitled to develop and to produce each Commercial
Discovery and the GOVERNMENT shall provide the appropriate Permits covering each
Production Area In ease the area covered by the Commercial Discovery extends beyond
the boundaries of the Contract Area, and to the extent such area outside the Contract Area
is not the subject of a Petroleum Contract (as denned in the Kurdis^n Region Oil and
Gas Law) with a third party, the provisoes of Article 34.2 shall apply.
ARTICLE 13 • DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND
KUDGKT
13.1 Upon live approval of the Development Plan by the Management Committee, the
CONTRACTOR shall stun the Devclopmcm Operations for the Commercial Discovery
in accordance with the IXvclopmcm Plan and prudent international petroleum industry
practice.
40
13.2 Within ninciy (90) day* following approval of the Development Plan by the Management
Committee, the CONTRACTOR shall prepare and submit 10 the Management
Committee a proposed work program and budget for Development Operations (the
‘ Development Work Program and Budget* to be earned out in the Production Area
for the duration of the Development Operations. Thereafter, no later than I October in
each Calendar Year, the CONTRACTOR shall submit to the Management Committee
updates in respect of its Development Work Program and Budget. To enable the
Management Committee to forecast expenditures, each Development Work Program and
Budget shall include details of the following:
(a) works to lie carried out;
(b) material and equipment to he acquired by main categories;
(c) type of services to be provided, distinguishing between third parties and
Affiliated Companies of any CONTRACTOR Entity; and
(d) categories of general and administrative expenditure.
13.3 If 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 sixty (60) days
from its receipt of the proposed Development Work Program and Budget. Tlie
CONTRACTOR shall communicate its comments on any such requested modifications
to the GOVERNMENT at the meeting of the Management Committee or in writing prior
to such meeting.
13.4 The CONTRACTOR shall be authorised to incur expenditures noi budgeted in an
approved Development Work Program and Budget provided that the aggregate amount of
such expenditures shall not exceed ten per cent (10^) of the approved Development
Work Program and Budget in any Calendar Year and provided further that such excess
expenditures shall be reported as soon as is reasonably practicable to the Management
Committee. For the avoidance of doubt, all excess expenditures shall be recovered by the
CONTRACTOR in accordance with the provisions of .Articles 1 and 25, provided that
any excess expenditures above tfic ten percent (J0%) limit shall only be recovered with
the unanimous approval of the Management Committee.
13.5 In eases of emergency, the ('< >\TR ACTOR 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 he recovered
by the CONTRACTOR in accordance with the provisions of Articles ! and 25.
41
13.6 No later Hum I October of the Calendar Year preceding the estimated commencement of
piodiKUon pursuant to an approved Development Plan and thereafter no later than I
October in 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. To
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;
(l>) material and equipment to be acquired by main categories;
(c) type of services to be provided, distinguishing between third parties and
Affiliated Companies of any CONTRACTOR Entity; and
(d) categories of general and administrative expenditure
13.7 If any modification to (he Production Work Program and Budget is requeued by tire
COVFRNMF.NT. 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
10 the GOVERNMENT a the meeting of the Management Committee or in wnung 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 per cent (10%) of the approved Production Work
Program and Budget in any Calendar Year and provided further that such excess
expenditures shall be reported as soon as reasonably practicable to (he Management
Committee. For the avoidance of doubt, all excess expenditures shall be recovered by the
CONTRACTOR m accordance with the provisions of Articles I 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.
13.9 In eases of emergency, the CONTRACTOR may incur such additional expenditure xt it
deems necessary to protect life, environment or property Such additional expenditures
shall be reported promptly to the Management Committee. For the avoidance of doubt,
such additional expenditure shall be considered Petroleum Costs and shall be recovered
by the CONTRACTOR in accordance with the provisions of Articles 1 and 25.
13 10 After the commencement of Commerce Production the CONTRACTOR shall pay to
the GOVERNMENT, in arrears, an annual surface rental for the Production Area, of one
hundred Dollars (US$100) per square kilometre per Cootnact Year "Production
Rental") Such Production Rental shall be considered as a Petroleum Cost and shall be
42
recovered by Use CONTRACTOR in accordance with ihe provisions of Articles I and
25.
ARTICLE 14 - NATURAL GAS
14.1 To take account of specific conditions relating to Natural Gas and to promote its
development in the Kurdistan Region, the GOVERNMENT will grant specific benefits
to the CONTRACTOR on principles materially similar to those contained in this
Contract, including, consistent with the Kurdistan Region Oi! and Gas Law, and with
terms in respect of the recovery of Petroleum Costs and (lie sharing of Profit Petroleum
that ore more favourable than those in respect of Crude Oil.
14.2 The CONTRACTOR may freely use any Natural Gas required for the Petroleum
Operations. If technically and economically justified, the CONTRACTOR shall have
priority to use any Natural Gas for the purpose of enhancing recovery of Crude Oil in
accordance with prurient international petroleum industry practice and Article 14.
Associated NatuniLGtts
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 3t the first practicable delivery pom;
as agreed between the Parties, free of charge to the GOVERNMENT In such ease, the
GOVERNMENT shall be solely responsible for collecting, treating, compressing and
transporting such Natural Gas from such agreed delivery point and shall be solely liable
for any additional direct and indirect costs associated therewith. The construction and
operation of required facilities as well as the offtake of such excess Associated Natural
Gas by the GOVERNMENT shall occur in accordance with prudent international
petroleum industry practice and shall not interfere with the production, lifting and
transportation of die 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 ar.d shall be recovered by the CONTRACTOR in
accordance with the provisions of Articles I and 25.
In the even: the GOVERNMENT finds a market for Associated Natural Gas. it shall
promptly give written notice to the CONTRACTOR, and ihe CONTRACTOR may
elect to participate in supplying such Associated Natural Gas within ninety (90) days
following notification thereof by the GOVERNMENT If the CON TRACTOR elects to
participate in supplying Associated Natural On to such market, nil expenditures
associated with any necessary facilities shall be paid for by the CON TRACTOR. 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
I and 25.
Non Associated N’nlunil flj|
14.4 Until an approved Natural Gu* sales contract is executed in respect of all volumes of
Natural Gus expected to be produced, the CONTRACTOR shall be emtiled during the
Exploration Period and the Development Period to carry out Gas Marketing Operations.
14.5 If. pursuant to Article 12.6(d), the CONTRACTOR has determined that the Discovery is
a significant Discovery of Non-Associated Natural Gas. which may become a
Commercial Discovery subject to Gas Marketing Operations, it shall cany' out Gas
Marketing Operations, at the end of which :t shall submit a written statement to the
Management Committee specifying that;
(a) the CONTRACTOR has determined that the Discovery is a Commercial
Discovery; or
(b) the CONTRACTOR has determined that the Discovery is not .1 Commercial
Discovery.
14.6 For the purpose of this Contract, "Gas Marketing Operations" means any activity under
this Contract relating to the marketing of Non-Associatcd Natural Gas. including any
evaluation to find a commercial market for such Non-Associatcd Natural Gas and/or to
find a commercially viable technical means of extraction of such Non-Associated Natural
Gas and may include activities related to evaluating the quantities of Non-Associated
Natural Gas to be sold, its quality, the geographic location of potential markets to be
supplied as well as evaluating the costs of production, transportation and distribution of
the Non-Associated Natural Gas from the Delivery Point to the relevant market.
14.7 All costs and expenditure incurred by the CONTRACTOR in the performance of the
activities in relation to the Gas Marketing Operations shall be considered Petroleum
Costs.
14.8 No later than i October of the Calendar Year preceding the Calendar Year in which any
Gas Marketing Operations are due to occur, the CONTRACTOR shall prepare and
submit to the Management Committee iLs Gas Marketing Work Program and Budget for
the following Calendar Year. To enable the Management Committee to forecast
expenditures, the Gas Marketing Work Program and Budget shall include the following:
(u) works to be earned out;
(h) type of services to be provided, distinguishing between third parties and
Affiliated companies of any C'ONTRA( TOR Entity; and
(c) categories of general and administrative expenditure.
If any modification to the Gas Marketing Work Program and Budget is requested by the
GOVERNMENT, the Management Committee shall meet to discuss the Gas Marketing
Work Program and Budget and proposed modifications thereto within sixty (60) days
44
from its receipt of the proposed Gas Marketing Work Program and Budget. The
CONTRACTOR \lull commonica'.e its comments on any such requested modifications
to the GOVERNMENT at the meeting of the Management Committee or in writing prior
io such meeting.
14.9 The CONTRACTOR shall be authorised to incur expenditures not budgeted in an
approved Gas Marketing Work Program and Budge: provided that the aggregate amount
of such expenditure shall not exceed ten per cent (10%) of the approved Gas Marketing
Work Program and Budget in any Calendar Year and provided further that such excess
expenditures shall be repotted as soon as 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 1 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 ’he Non-Associaed Natural Gas Discovery
will only be a Commercial Discovery if certain terms of this Contract are amended, it
shall be entitled to request amendments to this Contrart. with its reasons. Tire
GOVERNMENT shall in good faith give reasonable consideration to the
CONTRACTOR'S proposed amendment and reasons and the Parties shall in good faith
attempt to agree on the necessary amendments to the Contract. If the Parties are unable
to agree oil such amendments, and the Exploration Period expires without the
CONTRACTOR having declared such Discovery to be a Commercial Discovery in
accordance with Article 12.6(a) or Article 14.5(a), and subsequently within a period of
eight (8) years from the end of such Exploration Period, the GOVERNMENT reaches
agreement with any third party to develop such Discovery (the "Gas Development"),
then the following provisions shall apply:
(a) either before or upon agreement in relation io tlic Gas Development having been
reached (and whether or not such agreement is recorded in a fully termed
production sharing and/or updating or other like agreement), but before such
agreement is signed (the "Proposed Contract") (subject only to the rights of each
CONTRACTOR Entity to pre-empt such Proposed Contract pursuant to Article
14.10(b) and such conditions us may be applicable), the GOVERNMENT shall,
as soon ns reasonably practicable after the occurrence of such circumstances,
serve on each of the CONTRACTOR Entities, u notice to that effect and shall
with such notice provide such information and main terms of such agreement as
the CONTRACTOR Entities may reasonably request to determine if they will
exercise their rights (the "Agreed Terms '), including:
(i) the identity of such third party;
fii) the effective date of the Proposed Contract;
45
(iii) ihe applicable commercial terms, including bonuses, royalties, cost
recovery, profit sharing, taxation and any other similar terms; and
(iv) all and an> material conditions to which the Proposed Contract is subject
(b) Upon a request front 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) day?; 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 elec: either
(i) to enter into the Ihoposed Contract on the same or substantially similar
terms to the Agreed Terms, with the right to cost recover all Petroleum
Costs incurred under this Contract against all Petroleum revenues received
under the Proposed Contract, up to any cost recovery limits set out therein;
or
(ii) to waive the aforesaid right of pre-emption in relation to the Proposed
Contract;
and shall serve notice accordingly upor the GOVERNMENT and all the
CONTRACTOR Entities and in default of receipt by the GOVERNMENT of
any such notice within such period of one hundred and eighty (180) slays such
CONTRACTOR Entity shall be deemed conclusively to have served a notice
electing to waive its aforesaid right of pre-emption in relation to the Proposed
Contract.
(c) In the event that more than one of the CONTRACTOR Entities exercises its
rights under Article 14.10(b)(i) in relation to the Proposed Contract, then the
GOVERNMENT shall transfer or gran: each such CONTRACTOR Entity an
interest in the Proposed Contract upon the Agreed Terms (in accordance with
Aitide 14.!0(b)(i)) in the proportions in which their respective percentage
interests bear to the aggregate of iheir respective percentage interests under the
relevant Joint Operating Agreement (as it applied at the end of the Exploration
Period) or in such other proportions as such CONTRACTOR Entities shall agree
between them.
(d) In the event that one of the CONTRACTOR Entities exercises its rights under
Article I4.10(b)(i) in relation to the Proposed Contract then the GOVERNMENT
shall transfer or grant tltc whole of the interest in the Proposed Contract upon the
Agreed Terms (in accoidance with !4.10(b)(i)) to such CONTRACTOR Entity.
(e) In the event that none of the CONTRACTOR Entities exercises its rights under
Article I4.l0(b)(i) then the GOVERNMENT may enter into the Proposed
Contract on terms no more favourable to its counterparty than the Agreed Terms
46
and. in such case, the aforesaid rights of pre-emption shall thereupon cease to
apply in relation to the Proposed Contract.
I4.| | If the pre-emption rights in Article 14.1(1 ate nut exercised and the GOVERNMENT
enters into tlvc Proposed Contract with the third party concerned, die GOVERNMENT
will use its best endeavours to avoid any effect which may hamper the Petroleum
Operations of cite CONTRACTOR while producing Petroleum.
prohibited except (i) short-term flaring up to twelve (12) Months necessary for testing or
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-injccting 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 oi delayed. The
CONTRACTOR shall submit such request to the GOVERNMENT, which shall include
an evaluation of reasonable alternatives to flaring that have been considered along with
information on the amount and quality of Natural Gas involved and the duration of tlvc
requested flaring.
ARTICLE 15-ACCOUN TING AND AUDITS
15.1 The CONTRACTOR shall keep in its offices in the Kurdistan Region copies of all
books and accounts of ail revenues relating lo the Petroleum Operations and all
Petroleum Costs (the "Accounts-}. except during the Exploration Period. when the
CONTRACTOR shall be entitled to keep the Accounts at its headquarter. Abroad. The
Accounts shall reflect in detail expenditure incurred as a function of the quantities anJ
value of Petroleum produced, and shall be kept for a period of five (5) years All
Accounts which are made available to the GOVERNMENT in accordance with the
provisions of this Contract shall be prepared in the English language. The Account' 'hall
be kept in accordance with prudent international petroleum industry practice and in
accordance with die 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 follow ing the end of each Calcrxlar Year, the CONTR ACTOR
-'hall submit to the GOVERNMENT a summary siutcmem of all Petroleum Costs
incurred during the said Calendar Year. The \ummary viatemenl shall also include a
profit calculation pursuant to the provisions of Article 26.
15.3 The GOVERNMENT .'hall have the right:
47
(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 Calendai Year (the
"Audit Request Period"), and
(b) to retain an auditor of international standing familiar with international petroleum
industry accounting practice to undertake or assist the GOVERNMENT to
undcitake the audit.
Notwithstanding paragraphs (a) and (b) of this Ankle 15.3. the GOVERNMENT shall
have the right to audit the Accounts with respect to each Calendar Year at any time in the
cave of manifest error or ftaud.
15.4 The reasonable cost of retaining an auditor pursuant to Article 153 shall be borne by the
CONTRACTOR and treated as a Petroleum Cost for the purpose of cost recovery under
Articles 1 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 wnting all reasonably available information
and justifications for its audit of Petroleum Costs.
15.6 Should the GOVERNMENT consider, on the bavs of data and information available,
that the CONTRACTOR made a material tiustaxc or ’.here iv any irregularity in respect
of the Accounts and considers that any corrections, adjustments or amendments vhtMld be
made, (lie 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, and failure to give such written exception within such time shall be deemed to lie an
acknowledgement of (lie correctness of the CONTRACTOR’S Accounts.
15.7 In respect of any audit exception made by the GOVERNMENT in accordance with
Aniclc 15.6, the CONTRACTOR shall then have sixty (60) days to make necessary
corrections, adjustments or amendments ot to present its comments in writing or request a
meeting with the GOVERNMENT The GOVERNMENT shall within thirty (30) days
of the CONTRACTOR’S response, notify (lie CONTRACTOR in writing of its position
on (lie 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 Patties under this Article 15 that cannot he settled amicably
within sixty (60) days of the GOVERNMENT’S final notice under Article 15.7, may be
submitted to an expert on the request of either the GOVERNMENT or the
CONTRACTOR in accoidancc with the provisions of Article 42.2. Notwithstanding the
48
provision* of Article 42, in this specific instance ihe decision of the expert shall not
necessarily be final and either Party may decide to submit the nutter to arbitration in
accordance with the provisions of Article 42.1.
ARTIC LE 16-CONTRACTOR'S RIGHTS AND OBLIGATIONS
Pvnminyni Kvprixniaiiyr
16.1 If not done olreudy, within ninety (90) days following the Infective l>.tlc, each
CONTRACTOR entity shall open an office and appoint a peimunciit irpicsciilativc in
the KiinliHt.in Region, who may be contacted by the GOVERNMKN I’ with regard to any
matter relating to this Contract and will be entitled to receive any correspondence
addressed to such CONTRACTOR Entity.
16.2 The CONTRACTOR shall carry out all Petroleum Operations in accordance with the
provisions of this Contract, prurient international petroleum industry practice and
applicable Kurdistan Region Law.
Tlic CONTRACTOR shall be responsible for the conduct, management, control and
admimstratum of Petroleum Operations ond shall be entitled to conduct Petroleum
Operations in accordance with the provisions of this Contract. In conducting its
Petroleum Operations, the CONTRACTOR shali hase the right to u*e any Affiliate of
each CONTRACTOR Entity, its and their Subcontractors, and the employees,
consultants, and agents of each of the foregoing. The CONTRACTOR and all such
Persons shall at all times have free access to the Contract Area and any Production Areas
for the purpose of carrying out Petroleum Operations.
Inf.irt.iialionjiiid Ropom
16.3 The CONTRACTOR shall provide the GOVERNMENT with periodic data and activity
reports relating to Petroleum Operations. Said reports shall include details of the
following:
(a) information and data regarding all Exploration Operations, Development
Operations and Production Operations (as applicable) pert.-cmed during the
Calendar Year, including any quantities of Petroleum produced and sold.
(b) data and information regarding any transportation facilities built and operated by
die CONTRACTOR;
(c) a statement specifying the number of personnel, their title, their nationality as well
as a report on any medical services and equipment made available to such
personnel; and
49
(d) a descriptive statement of all capital assets acquired for the Petroleum Operations,
indicating the date and price or cost of their acquisition.
16.4 The CONTRACTOR may ftccly use any Petroleum produced within lire Contract Area
for the Petroleum Operations, including the use of Petroleum or Natural Gas for power
generation.
16 5 The CONTRACTOR shall at all limes provide reasonable assistance as may reasonably
be requested by the GOVERNMENT during ns review and verification of records and
of any other information relating to Petroleum Operation* at the offices, worksites or any
other facilities of the CONTRACTOR.
Upon giving leusonnblc prior notice to the CONTRACTOR, the GOVERNMENT may
send a reasonable number of representatives to the work sites or any other facilities of the
CONTRACTOR in the Kurdistan Region to perform such reviews and verifications. The
representatives of the GOVERNMENT shall at all times comply with any safety
regulations imposed by the CONTRACTOR and such reviews and vcnncaiions shall
not hinder the smooth progress of the Petroleum Operations.
16.6 For the performance of the Petroleum Operations, the CONTRACTOR, any Affiliate of
each CONTRACTOR Entity, its and their Subcontractors and the employees,
consultants and agents of each of the foregoing shall at all times be granted free access to
the Contract Area and to any facilities for the Petroleum Operations located within or
outside of the Contract Area or within or outside the Production Area, for the purpose of
canying out the Petroleum Operations.
16.7 Upon notice from the GOVERNMENT, the CONTRACTOR shall nuke available to a
reasonable numbet of representatives of the GOVERNMENT lho*c of the
CONTRACTOR’S facib’ics which are necessary to enable such representatives to
perform their tasks related to this Contract and the Kurdistan Region Oil and Gas Law
including, in case of works to be performed on work sites transportation, accommodation
and board, under the same conditions as those provided by the CONTRACTOR for its
own personnel
Notwithstanding Aniclc 16.8. the GOVERNMENT shall indemnify and hold harmless
each CONTRA< TOR 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 GOVERNMEN T in connection with the axess to or
use of the facilities by such representatives
I,oss or Dunums
16.8 The CONTRACTOR shall lx- responsible for any loss or damage caused Co third panics
by Its or its Subcontractor* personnel solely and directly resulting from their negligence,
errors or omissions in accordance with applicable Kurdistan Region Law.
16.9 In its Petroleum Operations, the CONTRACTOR shall respect any patents belonging to
third parties
Litigation
16.10 The CONTRACTOR shall as soon as reasonably practicable inform the
GOVERNMENT ol any material litigation relating to this ('ontt.k i
Safety
16.11 The CONTRACTOR shall implement a health, safety and environment program and
take necessary measure* to ensure hygiene, health and safety or its personnel carrying out
Petroleum Operation! in accordance with prudent international petroleum industry
practice
Said measures shall include the follow ing:
(a) supplying first aid and safety equipment for each work area and maintaining a
healthy environment for personnel;
(b) reporting to the GOVERNMENT within icventy-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
work:
(c) implementing a permit-to-work procedure around hazardous equipment and
installations;
(d) providing safe storage areas for explosives, detonator* aaJ any other dangerous
products used in the operations.
(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; and
51
(g) for the purpose of preventing any involuntary iajectioa of fluids in petto leum
formations and production of Crude Oil and Natural Gas at rates that do nut
conform to prudent international petroleum industiy pr*:ticc.
rmlvvtiwaJtoig?
16.12 Subject to Article 43.2. in the event the production rule of the Individual wells and
Reservoir of a Petroleum Field if to be set Ixtlow the Maximum Efficient Rate ("MRR")
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 und equitably among
the various operators (including the GOVERNMENT) then producing in the Kurdistan
Region, pro rata their respective production rules. In such event, the GOVERNMENT
shall grant an extension of the Development Period of any Production Area so affected
for a reasonable period of time in order to produce the Petroleum which would otherwise
have already been produced, had the MRR for the individual wells and Reservoir of the
Petroleum Field been maintained.
Lccal Status
16.13 The respective rights, duties, obligations and liabilities of the CONTRACTOR and the
GOVERNMENT under this Contract are to be understood as being separate and
individual and not joint and several. As between the CONTRACTOR on the one June
and the GOVERNMENT on the ocher hand, the Parties agree that this Contract 'hall not
create and shall no* be deemed to have created a partnership or ocher form of association
between them.
lifting
16.14 The GOVERNMENT and each CONTR ACTOR Emily shall have the right and the
obligation to take in kind and separately sell or otherwise dispose of their respective
shares of Peuoieum. 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 Emily. Such lifting agreement shall include the following
(a) the obligation of the GOVERNMENT and each CONTRACTOR Entity to lift,
regularly throughout each Calendar Year, then share of Petroleum produced from
tire Production Areu;
(b) notification procedures by the Operator to the GOVERNMENT and each
CONTRACTOR Entity regarding entitlements and availability of Petroleum for
lifting by each Party during each lifting period and nominations by each Party;
and
(c) the right of the Paines to lift any Available Petroleum n« scheduled for lifting
and/or not lifted by the other Party during e*h such lifting period.
52
16.15 The CONTRACTOR Entitle* shill sdl and transfer io the GOVERNMENT, upon
•ntten request of the GOVERNMENT. Any amounts of Crude Oil that the
GOVERNMENT shall dean nccesvuy u» meet Kurdistan Region internal consumption
requirement*. The sales price of such Crude Oil shall be the International Market Pnce.
Hie GOVERNMENT shall provide tlie CONTRACTOR Entities with not less than six
(6) Months' advance written notice of its intention to buy such Crude Oil.
Payments shall be made in Dollar* and otherwise on terms consistent with prudent
international petroleum industry practice The CONTRACTOR Entities' obligation to
sell Crude Oil to the GOVERNMENT shall be. with the other contractors and operators
(including the GOVERNMENT) then producing in the Kurdistan Region, pio rata to
their respective production rates.
Hie provisions of this Article 16.15 shall not apply to Non-Associated Natural Gas.
ARTICLE 17 - USE OK LAND AND EXISTING INFRASTRUCTURE
17.1 Tito GOVERNMENT shall make available to the CONTRACTOR at iu request any
IiiikI oi property in the Kurdistan Region required for the Petroleum Operations in the
CONTRACTOR** reasonable opinion The CONTRACTOR .hall have the nght 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 panics, the CONTR ACTOR
shall endeavour to reach amicable agreement with the owners of such land. II such
amicable agreement cannot he reached, the CONTRACTOR shall notify the
GOVERNMENT. On receipt of such tx
(a) the GOVERNMENT 'hall determine the amount of compels*; m to be pe.d by
the CONTRACTOR to the owner, if occupation will be for a short duration, or
applicable Kurdistan Region Law. if such occupation will be long lasting or
makes it henceforth impossible to resume original usage of such land or property
Any property rights shall be .icquired by and recorded in Ihc name of the
GOVERNMENT, but the CONI RACTOR shall be entitled five use ul the lund
or property foi the Petroleum Operations for the entire duration of this Contract
The amount of the compensation in Article 17.2(a) shall be fair and reasonable, in
accordance with Article 29 of the Kurdisian Region Oil and Gas Law. and shall lake into
account the rights of die owner and any effective use of the land or property by its owner
.it the time of occupation by the CONTRACTOR. All reasonable costs, expenditures
.md fair and reasonable compensation (as required pursuant to Article 29 of the Kurdistan
53
Region Oil and Gas Uw) which results from such expropriation shall Ik home by the
CONTRACTOR Foe the avoidance of doubt, such com*, expenses and compensation
incurred by the CONTRACTOR shall be considered Petroleum Costs and shall be
recovered by Ihe CONTRACTOR in accordance with the provision* of Article* 1 and
25.
17.3 For its Petroleum Operations, the CONTRACTOR shall have the right in the Kurdistan
Region to use. subject lo applicable Law. any railway, tramway, rond. airport, landing
field, canal, river, bodge or waterway, any tdecommunxaUom network and any existing
pipelines or transportation infrastructure, on terms do less favourable than those offered
to other entities and. unless generally in force, io be mutually agreed. For the avoidance
of doubt, all costs and expenses related io such use and incurred by the CONTRACTOR
shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR m
accordance with the provisions of Articles I and 25.
17.4 Under national emergencies due to environmental catastroplie or disaster, or internal or
external war. the GOVERNMENT shall have the right to request to use any
transportation and communication facilities installed by the CONTRACTOR. In such
cases, the request shall originate from the Minister of Natural Resources. For the
avoidance of doubt, such cost*, expenses or liabilities incurred by the CONTRACTOR
hereunder shall be considered Petroleum Costs and shall be recovered by the
CONTRACTOR in accordance with the provisions of Articles 1 and 25.
17.5 For its Petroleum Operations, the CONTRACTOR shall have the tight in the Kurdistan
Region to dear land, excavate, drill, bote, construct, erect, place, procure, operate, emit
and discharge, manage and maintain ditches, tanks, wells, trenches, access toads,
excavations, dams, canals, water mains, plants, rexervoh*. basins, storage and disposal
facilities, primary distillation units, extraction and processing units, separation units,
sulphiu 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 .us walehouses,
offices, shed*, houses for personnel, hospitals, schools, premises, dikes, vehicles,
railways, road*, bridges, airlines, airports and any other transportation facilities, garages,
hangars, workshops, foundries, repair shops and any other auxiliary facilities for the
petroleum Operations and. generally, everything which is required for Its performance of
the Petroleum Operations. The CONTRACTOR shall have the right to select the
location for these facilities.
17.6 For ils Petroleum Operations, the CONTRACTOR shall have the nght in the Kurdistan
Region, subject io compliance with applicable Kurdistan Region Law, to remove and uac
the topsoil, fully-grown timber, clay, sand. lime, gypsum, stones (other Hum precious
stones) and other similar substances as required for it* Petroleum Operations.
The CONTRA! TOR shall have the right in the Kurdistan Region to take or use any
water necessary lor the Petroleum Operations provided it does not damage any existing
irrigation or navigation systems and that land, houses or watering points belonging to
54
third parties arc not deprived ol (lieir use
17.7 The GOVERNMENT shall have (he ii^lu in (lie Kurdistan Region to build, operulc and
maintain mails, railways, airports, landing snips, canals, bridges, protection dams, police
Millions, military installations, pipelines and telecommunications networks in ibe
Contract Area, provided tins docs not increase (he costs, or compromise or have n
material adverse effect on the performance ol the Petroleum Operations. It the
construction, operation and maintenance of such facilities by the GOVERNMENT
results in increased cost or expense for the CONTRACTOR then, for the avoidance of
doubt, such cost and expense shall he considered Petroleum Costs and shall be recovered
by the CONTR ACTOR in accordance with the provisions of Articles I and 25.
17.8 Upon request of the CONTRACTOR, the GOVERNMENT shall prohibit the
conMiuciion of residential or commeictal buildings in the vicinity of facilities used for
the Petroleum Operations that may be declared dangerous due to the Petroleum
Operations and to prohibit any interference with the use of any facilities required for the
Petroleum Operations.
17.9 Access to the Contract Area may be granted pursuant to an Access Authorisation, as shall
be defined in, and consistent with, the Kurdistan Region Oil and Gas Law. lo authorised
third parties on reasonable terms and conditions (including coordination), including
Persons authorised to construct, install ami operate structures, facilities and installations,
and to carry out other works, provided that nothing in the Access Authorisation or in this
Article 17.9 authorises the holder to drill a Well or to perform any Petroleum Operations
in Coo tract Area.
The GOVERNMENT shall give the 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 nude by the CONTRACTOR nor in such a way that there is undue
interference with or hindrance of the rights and activines of the CON I RACTOR
ARTICLE 18- ASSISTANCE FROM THE GOVERNMENT
18.1 To the extent allowed by Kurdistan Regior. law and Iraqi law and x the specific request
of the CONTR ACTOR, 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'*, its Affiliate’s and US
Subccniramxs' foreign personnel (including their family members) working in
55
the Kurdistan Region and any other pait of Iraq during tte implementation of this
Contract.
(d) securing uny necessary Permits to send Abroad documents, data or samples for
analysis or pixiccssing for the Petroleum Operations;
(e) relations with federal and local authorities and administrations, including for the
purposes of (he remainder of this Article 18.1;
if) securing any necessary environmental Permits;
Cg) obtaining any other Permits requested by any CONTRACTOR Entity for the
Petroleum Operations;
(h) access to uny existing data and information, including data and information
relating to the Contract Area held by previous operators or contractors; and
(i) providing all necessary security for Petroleum Operations.
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 parlies shall be
charged to the CONTRACTOR and shall he considered Petroleum Costs and shall be
recovered by the CONTRACTOR as Petroleum Costs in accordance with tlw provisions
of Articles i and 25.
ARTICLE 19 - EQUIPMENT AM) M VTERIALS
19.1 n»e CONTRACTOR shall supply, or procure the supply of. all materials, equipment,
machinery, tools, spare pans and any other items or goods required for the Petroleum
Operations Equipment and Materials )
19.2 Said Equipment and Materials shall be provided by the CONTRACTOR in accordance
with the relevant Work Programs and Budgets.
19.3 As soon as possible after the formation of the Management Committee pursuant to
Article 8. the OPERATOR 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 8.5(e), including the
criteria for tender evaluation, which procedures and criteria shall be 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 alter
receiving such procedures, the procedures shall be deemed approved by the Management
Committee.
19.4 The CONTRACTOR shall give priority to Equipment and Materials that are readily
available in the Kurdistan Region and other pans of Iraq to the extent their price, grade.
!
56
quality, quantity, specifications, pure have, delivery and other commercial and technical
term-, arc comparable in all material respect* with those generally available in the
international petroleum industry.
ARTICLE 20 - TITLE TO ASSETS
20.1 During the Exploration Period, any Assets acquired by the CONTRACTOR for the
Petroleum Operations shall remain the property of the CONTRACTOR, the
< ONTRACTOR Entities, their Affiliates or their Subcontractors, as the case may be.
20.2 During the Development Period, subject to Article 21. all Assets acquired by the
CONTRACTOR for the Petroleum Operations shall become the property of the
GOVERNMENT upon the completion of the recovery of the costs of all such Assets by
the CONTRACTOR. o» the end of the Contract, whichever is the earlier.
20.3 The provisions of Article 20.2 shall not apply to any Assets leased by the
CON IRACTOR or belonging to an Affiliated Company of a CONTRACTOR Entity
or belonging to its or their Subcontractors oi its or their employees.
ARTICLE 21 - USE OF THE ASS ITS
21.1 Each CONTRACTOR Entity shall have the exdusivc right to use. free of any charge, all
Avsets described in Article 20. both before anti after recovery of the cost of the same, for
the Petroleum Operations, as well as for any petroleum operations under other
agreements in the Kurdistan Region to which it or any of its Affiliates is a party, provided
that the Petroleum Operaiions take priority The GOVERNMENT agree, not to transfer
or otherwise dispose of any of such Assets without the CONTRACTOR’S prior written
approval.
21 2 The CONTRACTOR may freely move to the Contract Area any Assets from any
relinquished portion of the Contract Area, or from any other area ifl the Kurdistan
Region.
ARTICLE 22-SUBCONTRACTING
22 I Ihc CONTRACTOR shall ensure that any Subcontractors it engages have all the
requisite experience and qualifications.
22.2 The CONTRA (TOR shall give priority to Subcontractors from the Ku id is tail Region
and other parts of Iraq to the extent their competence, rates, experience, reputation,
qualifications, specialties, credii rating and terms of availability, delivery and other
commercial terms are. m the CONTRACTOR'S »ok opinion, comparable in all material
respects with those provided by foreign companies operating in the international
petroleum industry. Such Subcontractors must be bora fide Kurdistan Region companies
57
not relied lo any Public Officer, directly or indirectly. and must have all necessary
resources sr.d capacity.
22.3 Selection of Subcontractors shall take place in accordance with the procurement
procedures submitted by the CONTRACTOR to the Management Committee in
.ncordance with Article 19.3 and approved by the Management Committee.
22 4 The CONTRACTOR shall provide the GOVERNMENT with copies of agreements
entered inio with Subcontractors where their amount exceeds the limit set by the
Management Committee from time lo time.
ARTICLE 23 - PERSONNEL. TRAINING. AND TECHNOLOGICAL A SIC TANCE
23.1 For the Petroleum Operations, the CONTRACTOR shall give, and shall require ib
Subcontractors to give, preference to personnel from the Kurdistan Region and t«her
parts of Iraq to the extent such personnel have the technical capability, qualifications,
competence and experience requited t*» perform the work.
23.2 The CONTRACTOR Entities shall give due consideration to the u\> i.dment of
GOVERNMENT personnel to the CONTRACTOR Fiirifres md of the
CONTRACTOR Emilies' personnel to the GOVERNMENT during the various phases
of the Petroleum Operations. Terms and conditions for such .secondment shall be
mutually agreed by the Parlies and any costs associated therewith shall be considered
Petroleum Costs and shall be recovered by the CONTRACTOR in accotdance with the
provisions of Articles 1 and 25.
23.3 Each 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 individual(s).
23.4 For the first five (5) Contract Years, the CONTRACTOR shall provide two hundred and
fifty thousand Dollars (USS250.000) in advance each Contract Year to the
GOVERNMENT for the recruitment or secondment of personnel, whether from the
Kurdistan Region, other parts of Iraq or Abroad, to the Ministry’ of Natural Resources.
The selection of such personnel shall be at the discretion of the Minister of Natural
Resources. Such costs shall be considered as Petroleum Costs and shall be recovered in
accordance with the provisions of Articles I and 25.
58
23.5 In a planned way, in accordance with the provisions of this Article 23.5 and Articles 23.6
and 23.7, the CONTRACTOR shall train all its personnel from the Kurdistan Region
and other parts of Iraq diiectly or indirectly involved in the Petroleum Operations for the
purpose of improving ihelt knowledge and professional qualifications in order that such
personnel gradually reach the level of knowledge and professional qualification held by
the CONTRAC TOR Entities' foreign workers with an equivalent rdsumd. 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.
23.6 In addition to the requirements of Article 23.1, the recruitment, integration and training of
the CONTRACTOR Entities* personnel from the Kurdistan Region and other pans 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, depending 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 CONTRACTOR Entities’
Kurdistan Region and other Iraqi personnel.
Within ninety <90) days of the Effective Date, the CONTRACTOR shall submit lo the
Management Committee a proposed training plan for the remainder of the Calendar Year.
Thereafter, no later than I October in each Calendar Year, the CONTRACTOR shall
submit a proposed training plan to tire Management Committee for the following
Calendar Year
23.7 The training plan referred to in Article 23.6 shall provide for the allocation to the
GOVERNMENT of the amount of one hundred and fifty thousand Dollars ILSS150.0UO)
in advance for each Contract Year during the Exploration Period and three hundred
thousand Dollars fUSS300.000) in advance for each Contract Year during the Development
Peried.
23.8 Each COM RACTOR Entity shall be responsible for the training costs which it may
incur in respect of the personnel it employ’s from the Kurdistan Region and ocher parts of
Iraq. All such reasonable costs shall be considered as Petroleum Costs and shall be
recovered in accordance with the provisions of Articles I and 25. Costs incurred hy ihc
CONTRACTOR for training programs for the GOVERNMENT'S personnel shall be
home 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 Cosh and shall be recovered in accordance with (he provisions of Articles 1
and 25. The cost of all other training programs for the GOVERNMENT'S personnel
shall be the GOVERNMENT'S responsibility.
Hie En* iron men! fund
23.9 The CONTRACTOR shall contribute the amount of one hundred and fifty thousand
Dollars (US$150,000) in advance each Contract Year during llw Exploration PcihxI aiul
Lluee hundred thousand Dollars (US$300,000) in advance for each Contract Year during
ihe Development Period into the environment fund established by the GOVERNMENT
for the benefit of the natural environment of the Kurdistan Region, pursuant to the
Kurdistan Region Oil and Gas Law (live “Environment Fund"). Such amounts shall be
deemed to be Petroleum Costs and shall he recovered in accordance with Articles I ami
25.
I Vi hnological a
23.10 A technological and logistical assistance payment of one million Dollars (US$1,000,000)
shall he payable to the GOVERNMENT by the CONTRACTOR within thirty (30) .lays
of the Effective Date.
23.11 Any expenditure incurred by the CONTRACTOR under this Article 23 shall be
considered Petroleum Costs and shall be recovered in accordance with Articles I and 25.
ARTICLE 24 -ROYALTY
24.1 The CONTRACTOR shall pay to the GOVERNMENT a portion of Petroleum
produced and saved from the Contract Area, as provided in this Article 24 (the
“Royalty)
24.2 The Royally shall be applied on all Petroleum produced and saved from the Contract
Area which is Crude Oil or Non-Associatcd Natural Gas. except for Petroleum used in
Petroleum Operations, re-injected in a Petroleum Field. lost. Hared or for Petroleum th3t
cannot be used or sold and such Crude Oil and Non-Associated Natural Gas (excluding
the excepted Petroleum) shail be referred to collectively as "Export Petroleum" and
separately ar.d resnectivelv as “Export Crude Oil" and "Export Son-Associated
Natural Gas
24.3 ff payable :n cash, the amount of live 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 Royally rates provided under Article 24.4 shall be delivered in
kind by the CONTRACTOR to the GOVERNMENT at the Delivery Point. Tide and
risk of loss of the Royalty' paid :n kind shall be transferred at the Delivery Point.
Unless the GOVERNMENT requires the Royalty to be paid m kind, by giving the
CONTRACTOR not less than ninety (90) days prior written notice prior to the
commencement of the relevant Quarter, the GOVERNMENT shall be deemed to have
elected to receive the Royalty in full and in cash for the relevant Quarter.
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24.4 The Royalty due on any Export Petroleum produced and saved in the Contract Area shall
be determined daily by applying the following relevant Royalty tale, to the Export Crude
Oil or to the Export Non-Associatod Natural Gas (as the case may be) produced and
saved on Unit day:
(a) For Export Crude Oil:
the Royalty rate for Export Crude Oil shall be ten per cent (10%), which, for the
avoidance of doubt, shall apply regardless of the gravity of tlx* oil; and
(b) For Export Non-Associnted Natural Gas:
the Royalty rate for Export Non-Associatcd Natural Gas shall be ten per cent
(10%).
24.5 Associated Nnroral Gas and any other Petroleum 'hull lx: exempt from any Royalty.
24.6 If. pursuant to Article 24.3, tltc GOVERNMENT receives the Royalty in kind, and
pursuant to Article 28, the GOVERNMENT requests assistance for the sale of all or part
Of the Royalty received in kind, 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 Barrel payable to such
CON TRACTOR Entity, in accoixiancc with Article 28.
24.7 If. putsuant to Article 24.3. the GOVERNMENT receives the Royalty in cash:
(a) any Export Crude Oil shall be valued ai the International Market Price obtained at
the Delivery Point, as defined in Article 27.2;
(b) any Export Non-Associated Nacuial Gas shall be valued at the actual price
obtained at the Delivery Point under an approved contract, as provided in Article
27.3;
(c) the CONTRACTOR shall pay such Royalty each Quaner. in arrears, within
thirty (30) days of the end of each Quarter, and shall calculate the payment due
for the relevant Quarter by reference to the price for the Export 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 sakl Quarter, and
(d) the CONTRACTOR Entities shall be entitled to export freely the volume of
Export Petroleum corresponding to the Royalty determined in accordance with
Article 24 4 for the purpose of paying the Royalty in cash.
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ARTICLE 25 - RECOVERY OF PETROLEUM COSTS
25.1 All Export Crude Oil produced and saved from the Contract Area shall, after deduction of
any s|uantilic> of Export Crude Oil due for Royally pursuant to Article 24. be considered
as “Available Crude Ofl~.
All Associated Natural Gas produced and saved from the Contract Area, except fit
Associated Natural Gas which is used in Petroleum Operations, nr-injcctcd in a
Petroleum Field, lost, flared or cannot be used or sold, shall be considered as “Available
Associated Natural Gan*'
All Export Non-Associated Natural Gas produced and saved from the Contract Area
shall, after deduction of any quantities of Export Non-Associated Natural Gas due for
Royalty pursuant to Article 24, be considered ns “Available Non-Associated Natural
Gas".
“Available Petroleum' means Available Crude Oil. Available Associated Natural Gas
and Available Non-Associaicd Natural Gu>,
25.2 For the purpose of this Article 25:
(a) any Available Crude Oil shall be valued at the International Market Price obtained
at the Delivery Point, as defined in Article 27.2; and
(b) any Available Associated Natural Gas and any Available Non-Associated Natural
Gas shall be valued at the actual price obtained at the Delivery Point under an
approved contract, as provided in Article 27.3.
25.3 Subject to the provisions of this Contract, from the First Production in the Contract Area,
the CONTRACTOR shall a: all nmc» be entitled to recover all Petroleum Costs incurred
under ihi* Contract, of up to forty-fisc per cent (45%) of Available Crude Oil (which, for
the avoidance of doubt, shall apply icgaidlcv* of the gravity of ihc oil) and Available
Associated Natural Gas. produced and saved within any Calendar Year. Available Crude
Oil above ibis percentage or otherwise not used for the recovery of Petroleum Costs shall
be Profit Crode Oil.
25.4 Subject to tbc provision* of this Contract, from First Production in the Contract Area, the
CONTRACTOR shall at all times be entitled u> recover all Petroleum Costs incurred
under this Contract of up to fifty three per cent (53%) of Available Noo-Assoaated
Natural Gas produced and saved within any Calendar Year. Available Non-Associated
Natural Gas above this percentage or otherwise not used for the recovery of Petroleum
Costs shall be Profit Nrurai Gas
25 5 For ihc application of Article 25.3 and 25.4. the CONTRACTOR shall keep a detailed
account of Petroleum Costs in accordance with the provisions detailed in the Accounting
Procedure Recovery' of Petroleum Costs shall occur in the following order
62
(a) Production Costs;
Contract Area);
(c) Cias Marketing Costs;
(d) Development Costs; and
(c) Decommissioning Costs.
25.6 Total recovery of Petroleum Costs during any Calendar Year, expressed in quantities of
Petroleum, shall not exceed the to levant percentages indicated in Articles 25.3 and 25.-1
II in any Calendar Year, the Available Crude Oil and/or Available Non-As'oeiated
Natural Gas do not allow the CONTRACTOR to recover e» its lYtrukrum Costs
pursuant to this Article 25. the amount of un-rccovercd Petroleum Costs in such Calendar
Year shall he carried forward indefinitely to die subsequent Calendar YeaTs until ill
Petroleum Costs are fully recovered, but. vive as 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 and 27.6 shali he applied to determine the quantities of
Available Crude Oil and/or Available Non-Associated Natural Gas due to die
CONTRACTOR for the recovery of its Petroleum Costs
25.8 The quantities of Petroleum corresponding to the share of Available Petroleum due to the
CONTRACTOR for the recovery of its Petroleum Costs shall be delivered to the
CONTRACTOR at the Delivery Point. Title and risk of loss of such Available
Petroleum shall he transferred at the Delivery Point.
25.9 Each CONTRACTOR Entity shall be entitled to receive, lake in kind and to export
freely till Available Petroleum to which it is entitled for recovery of its Petroleum Costs
in accordance with the provisions of this Contract and to retain Abroad any proceeds
from the sale of all such Available Petroleum. Petroleum Costs in each Production Area
shall l>e recovered from Available Petroleum from that Production Area Any Petroleum
Costs incurred in the Contract Area but not in a Production Area, shall be recovered from
Available Petroleum in any Production Area.
25.10 Subject to Article 3K.4, for the avoidance of doubt. Petroleum Costs under this Contract
arc not recoverable against other contract areas held by the CONTRACTOR.
ARTICLE 26 - SHAKING OF PROFIT PETROLEUM
26.1 Under this Contract,
(a) "Profit Petroleum” means Profit Crude Oil and Profit Natural Cias;
63
(b) “Profit Crude Oil” means the quantities of Available Crude Oil and Available
Associated Natural Gas pioduccd from the Production Aren, after the recovery of
Petroleum Costs, in accordance with Articles I and 25; and
(c) "Profit Natural Gas" means the quantities of Available Non-Associatcd Natural
Gas produced from the Production Area, after the recovery of Petroleum Costs in
accordance with Articles 1 and 25.
26.2 Prom Fust Pnxluciion and as and when Petroleum is being produced, the
CONTRACTOR 'hall he entitled to take a percentage share of Profit Crude Oil and/or
Profit Natural Gas. in consideration for its ins-cstment in the Petroleum Operations, which
percentage share shall be determined in accordance with Article 26.5.
26.3 To determine the percentage share of Profit Crude Oil and/or Profit Natural Gas to which
the CONTRACTOR is entitled, the "R” Factor shall Ik- calculated in accordance with
Article 26.4 and .shall he applied separately to each Production Area.
26.4 The “R” Factor shall be calculated as follows:
R a X/Y
where:
X. is equal to Cumulative Revenues actually received by the CONTRACTOR.
Y: is equal to Cumulative Costs actually incurred by the CONTR ACTOR
For the purpose of this Article 26.4:
‘Cumulative Revenues" means total Revenues, as defined below, received by the
CONTRACTOR until the end ol the relevant Semester, determined in accordance with
Article 26.7.
"Revenues- means the total amount actually received by the CONTRACTOR for
recovery of iu Petroleum Costs and its share of Profit Petroleum in the Production Area
-Cumulative Costs" mrans 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 Ankle 26.4, for ibe period from Fust
Production until the end of the Calendar Year in which Fust Production occurs, the "R"
Factor shall be deemed to be less than one (1).
26.5 The share of Profit Petroleum to which the CONTRACTOR shall be entitled from First
Production iv
64
(a) foi Profit Crude Oil. equal to the quantities of Petroleum resulting from the
application of the relevant percentage as indicated below to the daily volume of
production of Profit Crude Oil within the Production Area at the corresponding
Delivery Point:
* R*’ Factor CONTRACTOR'S % Share of Profit Crude Oil
R < or = 1 30%
I < R
R > 2 15%
and
(It) 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 IWivery Point:
•*R” Factor CONTRACTOR'S % Share of Profit Natural Gas
R
I
R > 2.75 18%
26.6 The CONTRACTOR * accounting shull account separately for all component* for the
calculation of “X“ and “Y" values in the formula provided in Article 26.4.
26 7 For each Semester, starting from the l" of January of the Calendar Ycai following the
Calendar Year in which Find Production occur*, 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 he applied dunag a Semester shall be that determined
by applying die Cumulative Revenues actually received and the Cumulative Coos
actually incurred up to and including the Lest day of the preceding Semester
If the CONTRACTOR is unable to calculate the R~ Factor for the relevant Semester
before an allocation of Profit Petroleum for vuch Semester must be made, then the
allocation of Profit Pettoleum for the previous Semester shall be used for the relevant
Semes let. Upon the calculation of the “R" Factor for the relevant Semester.
(l) if the allocation of Profit Petroleum in the previous Semester and the relevant
Semester is the same, then no adjustment shall be made; and
65
CONTRACTOR shall make any adjustment* to the Panics- respective share* of
Profit Petroleum to restore them to the position '-hat they would has* been ui h*J
the "R“ Faaot fa the relevant Semester been available from the cart of such
Semester.
26.8 If at any time an error occurs in die calculation of the ~R“ Factor, resulting in a Change in
the CONTRACTOR'S percentage share of Piofil Crude Oil and/or Profit Nnlvu.il (ins.
the necessary correction shall he made and any adjustments shall apply from the
Semester in which the error occurred. The Party having benefited from n surplus ol Profit
Petroleum shall surrender such surplus to the othci Party, beginning from the fust day of
the Semester following the Semcxtct 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 share of Profit Petroleum to which such
surrendering Party is entitled. For the avoidance of doubt, if at any time an error occurs in
tire calculation of the "R“ Factor, which docs not result in a clunge in the
CONTRACTOR S percentage share ol Profit Crode Oil and/or Profit Natural 0*». no
correction shall be made.
26.9 The quantities of Profit Petroleum due to Ihc CONTRACTOR shall Ik delivered to lire
CONTRACTOR Entities at the Delivery Point. Title and risk of loss of such Profit
Petroleum shall be transferred to lire CONTRACTOR Entities at the Delivery Point.
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 any
Calendar Year in acccrdorce with Annie 26 5 shall be deemed to include a portion
representing the corporate income to* imposed upon and due by each CONTRACTOR
Entity, and which will be pud directly by the GOV ERNMENT on behalf of each such
entity representing the CONTR ACTOR to the appropriate ux authorizes in accordance
with'Article 31.2. The GOVERNMENT shall provide the CONTRACTOR Entires
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
GOV ERNMENT at the Delivery P»rt. Title and risk of loss of such Profit Petroleum
shall be transferred at the Delivery Point
26.12 At least twenty-one (21) days prior hi CONTRACTOR’* estimated dare of First
Production and. subsequently, thirty (30) days prior to the beginning of each Semester,
the COMRACTOR shall prepare and deliver to the GOVERNMENT a production
program comprising the production forecast for (he next Semester and the forecast of the
(Cs
66
quant:tic.' of Crude Oil and Natural Gas to which each Party shall he entitled during the
said Semester
26-13 Within ninety (90) days following the end of each Calendar Yea, the
CONTRACTOR shall prepare and deliver an annual production report to the
GOVERNMENT, stating the quantities of Crude Oil and Natural Gas to which each
Party in entitled, the quantities of Crude Oil and Natural Gas lifted by each Party and the
resulting over-lift or under-lift position of each Party, pursuant to the lifting agreement
entered into pursuant to Article 16.14.
26.14 Any costs or expenditure incurred by the CONTRACTOR, its Subcontractors or
suppliers relating to the lifting of the GOVERNMENT’S share of Petroleum by the
CONTRACTOR shall not be considered Petroleum Crisis and shall be charged to the
GOVERNMENT according to terms to be mutually agreed between the
CONTRACTOR and the GOVERNMENT.
ARTICLE 27 - VALUATION AND METERING OF CRUDE OIL AND NATURAL GAS
Valuation
27.1 For lire purpose of this Contract, any Crude Oil produced in the Contract Area shall be
valued at the end of each Quarter ai the Delivery Point based on the International Mantel
Price, as defined in Article 27.2.
27.2 The "International Market Price' referred to in Article 27.1 shall be the weighted
average price per Barrel, expressed in Dollars, obtained by the CONTRACTOR at the
Delivery Pom*, 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 referred to in Article 27.2 are Arm's Length Sales If the GOVERNMENT
considers that any such sale of Crude Oil is not on the basis of on Arm\ Length Sale then
the GOVERNMENT has the right to refer the matter to an expert pursuant to Article
42.2.
In the event that there is no lifting of Crude Oil in the relevant Quarter or no Ann's
length 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 Saies
of Crude Oil of the same or similar gravity and quality from oilier production areas sold
in markets competing with Crude Oil produced from the Contract Area, taking into
account gravity and quality differences and transportation ar.d other post Delivery Point
costs.
To determine such price, the Parties shall, prior to the commencement of Production,
agree on a basket of Crude Oil comparable to those produced in the Contract Area and
sold in the international market. Prices obtained shall be adjusted to account for any
67
variation* as quality, specific gravity, sulphur content. transportation coM\. product
yield, seasonal variations in price and demand, general market trends and other terms of
sale
,’7.3 The price of Natural G»s shall be the actual puce obtained at the Delivery Point, (which
may lake into account quantities to lx* sold, quality, geographic location of markets to l>c
supplied as well as costs of production, transportation and distribution of Natural Gas
front 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.
Accounting Statement
27.4 In accordance with this Article 27.4. the GOVERNMENT and the CONTRACTOR
slutlI 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 by the CONTRACTOR Entities during the
preceding Month constituting Arm's Length Sales togethci with corresponding
sale prices;
(b) quantities of Cmdc Oil sold by Cite CONTRACTOR Entities during the
preceding Month that do not fall in the category referred to in paragraph (a)
above, together with sale prices .tpplicd dumg such Month.
(C) inventory in storage belonging to the CONTRACTOR Entities at the beginning
and at the end of the Month, and
(d) quantities of Natural Gas sold by the CONTRACTOR Entities and the
GOV KRNMFVT together with vale pnees realised.
27.5 All Eiport Petroleum shall be rretered at the Delivery Point in accordance with prudent
in:cm_iioral petroleum industry practice and such meters shall be to fiscal meter
standards. All metering equipment shall be installed and operated by the
CONTRACTOR The GOVERNMENT shall. on receipt by the CONTRACTOR it
reasonable prior- written notice, have die right to inspect any such metering equipment
installed by the CONTRACTOR, ns well ns 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
27,0 If any metering equipment is defective, the CON TRACTOR shall use all 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. Ihc "Adjustment Date" shall be the last date that die metering
68
equipment *n known or agreed to have been measuring correctly, or if not known or
agreed, the date that is midway between the date the defect was discovered and the last
date the equipment was known to have measured correctly. The results from the defective
equipment shall he disregarded for the period from the Adjustment Dale until the date the
defective equipment is repaired 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 is ascertainable by verification,
calibration or mathematical calculation; or
(c) if neither method is feasible, then by estimating the volume and/ot 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 shall be settled by expert determination in
accordance with the provisions of Article 42.2.
ARTICLE 28 - SALE OF GOVERNMENT SH ARE
Upon the GOVERNMENT** prior written notice of at le.«u ninety (90) days, each
CONTRACTOR Entity shall provide all reasonably necessary asMstar.ee to the
GOVERNMENT for the calc of all or part of the quantities of Crude Oil to which the
GOVERNMENT is entitled, in consideration of a soles oomm.*ston per Band to he established
with reference to prudent Internationa, petroleum practice and to be mutually agreed upon
between the Parties.
ARTICLE 29 - FINANCIAL PROVISIONS
29.1 Any payment to be made by a CONTRACTOR Entity lo the GOV KKN MENT pursuant
to this Contract shall be in Dollars and shall be offset against any outstanding pay menu
due bv the GOVERNMENT to the CONTRACTOR Entity, or paid uuo the hank
account duly de*igna*d by the GOVERNMENT :n wrung and shall be paid within
thirty (30) days of the due dale, after which interest compounded monthly at the rale of
LIBOR plus two (2) percentage points shall be applied.
29.2 The GOVERNMENT may. at iis sole discretion, direct (lie CON TRACTOR Entities lo
pay:
(a) any Royalty in cusli due to the GOVERNMENT pursuant to the provisions of
Article 24; und/or
69
of the GOVERNMENT pursuant to Aittde 2S of any Crude Oil to which ll>e
GOVERNMENT is entitled pursuant to Article 25; and/or
(c) any Production Bonus.
to a fund for revenue sharing, which may in due course be established by legislation
consistent with the Constitution of Iraq, between the Government of Iraq and other
regions (including die Kurdistan Regain) and governorates of Iraq. Nothing in this Article
20.2 shall be understood as implying any contractual relationship or other relationship
I nr tween the CONTRACTOR and/or any CONTRACTOR Entity and the Government
of Iraq and/or the regions of Iraq (other than the Kurdistan Region) and/or and
governorates of Iraq.
20 3 Any payment due by the GOVERNMENT to a CONTRACTOR Entity shall lie offset
against future payments due by Mich CONTRACTOR Entity to the GOVERNMENT,
or paid in Dollars to the bank account designated by the CONTRACTOR Entity in
writing and shall be paid within thirty (30) days of the date of invoice, after which
interest compounded monthly at (he rate of I.IBOR plus two (2) percentage points shall
lie applied.
29.4 Any currency conversion to be made under this Contract shall be at the exchange rate of
(he Central Bank of Iraq, provided such exchange rate applied to the CON IKACTOK
Entities shall not be less favourable than the rate offered by other private, commercial or
industrial banks in the international market. In the absence of the Central Bank of Iraq or
in the event that the Central Bank of Iraq is unabic to pri'side the relevant exchange rate,
any currency conversion to be made under this Contract shall be at the exchange rate of a
reputable commercial bank carrying on business in the international market and approved
hy the Parties.
29.5 The CONTRACTOR shall not realise any gain or loss due to exchange rale fluctuations
nnd. consequently, any gain or loss resulting from the exchange of currency shall be
cilhci considered as revenue and credited to tlic Accounts or shall be considered as a
Petroleum Cost and shall be recovered by the CONTRACTOR in accordance with
Articles 1 and 25, as the case may be.
29.6 Each CONTRACTOR Entity .shull at all times be entitled to freely convert into Dollars
or any other foreign currency any Iraqi dinars received tn lire framework of the Petroleum
Operations and to freely transfet the sumc Abroad. T he conversion rate shall be as
provided under Article 29.4.
29.7 Each CONTRACTOR Entity shall have the tight to be paid, receive, keep, transfer and
use Abroad, without any restrictions, all proceeds of its share of Petroleum.
70
29.8 Each CONTRACTOR Entity and its Subcontractor* dull have the right to freely open
and maintain bank account* frr Petroleum Operation* within or outside the Kurdistan
Region and other parts of Iraq
29.9 Each CONTRACTOR Entity dull have the right to pay in any freely convertible
currency all it* financial requirements foe the Petroleum Operatic®* and to convert these
currencies to Iraq: dmao in any bank in the Kurdistan Region or other parts of Iraq, at the
same exchange rate as provided under Article 2V 4
29.10 Each CONTRACTOR Entity shall have the right, without any resection*, 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 otbei operation* and activities carried out under this
Contract in the Kurdistan Region or other parts of Iraq.
29.11 Each CONTRACTOR Entity shall have the right to pay ui any foreign currency its
Subcontractors and its expatriate personnel, either ia the Kurdistan Region, other parts of
Iraq, or Abroal Said Subcontractors and expatriate personnel shall he obliged to transfer
to the Kurdistan Region the amount of foreign currency required for their local needs and
Ihcy shall have the right to repatriate the proceeds of the sak of their belongings in
accordance with the regulations in force m the Kurdistan Region
.'9.12 Each CONTRACTOR Entity’s Affiliate*. Subcontiactnrx and their personnel shall
equally benefit from Use Mine 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 have the
right to have rccouisc to external financing from third parties or from its Affiliated
Companies on an aim’s length basis.
ARTICLE JO - CUSTOMS PROVISIONS
30.1 All services, material, equipment, goods, consumables and products imported into the
Kurdistan Region and other parts of Iraq by tlie CONTRACTOR, any CONTRACTOR
Entity, its Affiliates, any Subconiiactor or any agenc of any of the foregoing, for use or
consumption in the Petroleum Operation* shall be admitted free and exempt from any
and aU Taxes on import The CONTRACTOR, any CONTRACTOR Entity. iU
Affiliates, any Subcontractor or any agent of any of the foregoing shall have the right to
re-export from the Kurdistan Kegnwi and other parts of Iraq free from all Taxes on export
any material, equipment, goods, consumables and products that arc no longer rvquued for
the Petroleum Operations, except where title has passed to the GOVERNMENT in
accordance with Article 20. in which cave re-export shall be approved by live
Management Committee.
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30.2 The CONTRACTOR, any CONTRACTOR Entity. its Affiliates, any Subcontractor or
any agent of any of the foregoing, and their personnel (including tlicii family member*)
shall have the right to freely import into the Kurdistan Region and oilier pits of Iraq and
re-export from the Kurdrsun Region and other parts of Iraq any personal belongings and
furniture free and exempt from any Taxes on import or export. The sale in the Kurdistun
Region and oilier pans of Iraq of personal belongings and furniture of expatriate
personnel shall comply with Kurdistan Region Law.
30.3 Each CONTRA! TOR Emily and its Affiliates shall be entitled to freely export from the
Kurdistan Region and other purls of Iraq, free of any Taxes, any Petroleum to which it is
entitled pursuant to the provisions of this Contract
30 4 The GOVERNMENT shall indemnify the CONTRACTOR, any CONTRACTOR
Entity. n» Affiliates, any Subcontractor or any agent of any of the foregoing, and their
personnel (Including their family member*) fot any import or export Taxes referred to in
Articles 30.1.30.2 or 30.3.
ARTICLE 31 - TAX PROVISIONS
31.1 Except as expressly provided in this Article 31. ansi without prejudice to the exemptions
expressly provided for in Article 30 and m Qts Article 31, each CONTRACTOR Entity,
its Affiliates and any Subcontractor shall, for the entire duration of ibis Contract be liable
for applicable Taxes as a result of it* income, assets and activities under this Contract,
however all such Taxes shall be assumed, paid and fully discharged by the
GOVERNMENT on behalf of such entity. The GOVERNMENT shall indemnify each
CONTRACTOR Entity upon demand against any liability to pay any Taxes assessed or
imposed upon such entity which relate to this Article 31.1 or any of the exemption*
granted by the GOVERNMENT under under Articles 31 4 to 31 II
31.2 Each CONTRACTOR Eerily shall be subject to corpceaie income ux on its income
from Petroleum Operations as provided m Article 31 3. which shall be deemed to be
inclusive and in full and total discharge of any Tax on income, receipts, revenues, gams
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 tax
authorities by the GOVERNMENT, for the account of each CONTRACTOR Entity,
from the GOVERNMENT s share of the Profit Petroleum received pursuant to Ankle
26
Each CONTRACTOR Entity shall, wrtbin sixty (60) day* after the cod of each tax year,
provide a Statement to tte appropriate Kurdistan Region tax authorities of its profits
which are subject to corporate income tax. togctlrer with a 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) (Ik appropriate official tax receipts from the
72
appropriate Kurdislun Region lax authorities or oilier relevant authority certifying the
payment of its corporate income lux. an determined in the said statement, .md that such
entity his met all it' l ax obligations in the preceding tax year, and (ii) a copy of any
returr. or other filing made by the (JOVERNMENT in respect of ns payment of
corporate income lax on behalf of such CONTRACTOR Entity.
31.3 For the purposes of Article 31.2:
(a) The rutc of corporate income tux to be applied to each CONTRACTOR Entity
shall he the generally applicable rate prescribed in tlie I-aw of Taxation (Law No.
5 of 1999). passed by the National Assembly of the Kurdistan Region, as may Ik*
amended from time to time or substituted in respect of Petroleum Operations (as
defined under the Kurdislun Region Oil und Gas Law) by a petroleum operations
taxation luw for the Kurdistan Region, but in no esent in excess of forty per cent
(40%) Ihe Parties acknowledge and agree that ut 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 linqi dinar.
(b) The GOVERNMENT and the (CONTRACTOR agree that corporate income tax
.'hull be calculated for each CONTRACTOR Entity on its net taxable profits
under Use Contract, is calculated in accordance with the provisions relating
thereto in the Accounting Procedure.
31.4 Each CONTRACTOR Entity, its Affiliates as well as any Subcontractors shall be
exempt from any withholding tax applicable on any payments made to them or by than
to or from Affiliates or third parties, whether inside or outside the Kurdistan Region
and/or Iraq, for the entire duration of this Contract.
31.5 Each CONTRACTOR Entity and its Affiliates shall be exempt from Additional Profits
Tax. as referred to in Article 40 of the Kurdistan Region Oil and Gas Law or any
successor Tax
31-6 Each CONTRACTOR Entity and its Affiliates shail be exempt from Surface Tax. as
referred to in Article 40 of the Kurdistan Region Oil and Gas Law or any successor Tax
31.7 Each CONTRACTOR Entity and its Affiliates shall be exempt from Windfall Profits
Taxes, as referred to in Article 40 of the Kurdisun Region Oil and Gas Law or any
successor Tax.
31.8 Each CONTR ACTOR Entity and any Subcontractor shall be subject to the payment or
withholding of the persona: income ux and social security avinbutions for which such
emit> or Subcontractor * liable lo pay or withhold in respect of its employees who are
Iraqi nationals, pursuant to the Law of Taxation (Law No. 5 of 1999) passed by the
National Assembly of the Kurdistan Region, as may be amended from time lo time, in die
same manner it the same shall be generally applied to all other industries, except that a
CONTRACTOR Entity or Subcontractor shall not lx- 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 lo give relief from taxes to,
but not limited to. the CON IK ACTOR. CONTRACTOR Entities. Subcontractor 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 tax (“VAT‘1 shall be considered as a Petroleum Cost and shall be cost
recovered in accordance with the provisions of Articles ! and 25
31.11 Any value added tax ("VAT'), 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 I and 25.
31.12 Notwithstanding any other provision to the contrary in ibis Contract, the Panics
acknowledge and agree that the provisions of this Article 31 shall apply individually and
separately to all CONTRACTOR Entities under this Contras and that there shall be no
joint and several liability in respect of any liability, duty or obligation referred to .n this
Article 31.
ARTICLE 32- BONUSES AND SHARES ISSUE
Signatory
32.1 The CONTRACTOR shall, within sixty (60) days of the Effective Date, pay a signature
bonus ol two million, five hundred thousand Dollars (US S2.500.000) ("Signature
Bonus-) to tlie GOVERNMENT
Capacity Building Bonus
32.2 The CONTRACTOR shall, within sixty (60) days of the Effective Date, pay a capacity
building bonus of seventeen million, live hundred thousand Dollars (US$17,500,000)
(“Capacity Building Bonus") to the GOVERNMENT.
32.3.1 SHAM A RAN shall, within sixty (60) days of the Effective Date, piocure the issuance of
thirty-five million (35.000.000) common shares (the “Common Shan*”) in
SHAMARAN PETROLEUM CORP.. the ultimate parent company of SHAMARAN.
in favour of the GOVERNMENT for no further consideration.
32.3.2 If the GOVERNMENT at any time wishes to dispose of any of the Common Shores, (he
GOVERNMENT shall, through the Minister of Natural Resources, provide written
notification to SHAMARAN Where SHAMARAN receives such notification.
SHAMARAN may. within ten (10) days of such notification, elect to purchase, or
74
identify purchaser* lor, the Common Shares of which (he GOVERNMENT wishes 10
dispose, on terms not less favourable to the GOVERNMENT than term* offered by any
third party. For p cater certainty, nothing herein shall prohibit the GOVERNMENT
from periodically selling shares to fund development projects within (he Kurdistan
Region. The GOVERNMENT will use its best efforts to cause the Common Shares to be
voted in favour of mailer* proposed by the management of SHAMARAN at meetings of
shareholder* of SHAMARAN. If required by applicable laws, the GOVERNMENT
will execute, deliver und file or assist SHAMARAN in filing such report*, undertakings
and other documents with rcapect to the Share Issue as may lie required by any securities
commission, stock exchange or other regulatory authority The tramactions
contemplated herein shall he subject to approval of tire TSX Venture Exchange und the
issuance of the Common Shares by SHAMARAN PETROLEUM C’ORP. hereunder
shall be subject to any applicable hold period or other restrictions in accordance with
applicable law and regulation.
PrpdMrtimliumm*
32.4 In the event of a Crude Oil Commercial Discovery, the CONTRACTOR and the holder
of live Government Interest shall pay, pro rata tlw relevant percentage participation
interest in the Contract, tlie following relevant Cmdc Oil Production Bonus to the
GOVERNMENT within thirty (30) days of the following relevant occurrence:
(a) One million Dollars (US$1. 11 in i i ) when First Production of Crude Oil from the
Contract Area
(b) Ten million Dollais (USS 10.000.000) wlvn production of Crude Oil from the
Contract Area reaches a cumulative amount of ten million Barrels of Crude Oil
(10 mmbo);
(c) Fifteen million Dollars (USS: 5.000.000) w hen production of Crude Oil from the
Contract Area reaches a cumulative amount of twenty five million Barrels of
Crude Oil (25 mmbo); and
(d) Twenty-five million Dollars (USS25.000.000) when production of Crude Oil from
the Contract Area reaches a cumulative amount of fifty million Barrels of Crude
Oil (50 mmbo).
32.5 In the event of a Non-Associated Natural Gas Commercial Discovery, (he
CONTRACTOR and the holder of the Government Interest shall pay. pro rau the
relevant percentage panic: pat jot interest m the Contract, the following relevant Noe
Associated Natori Gas Production Boca* to the GOVERNMENT within thirty (30)
days of the following relevant occurrence:
(a) One million Dollars (US$1,000,000) when First Production of Non Associated
Natural Gas from ilsc Contract Area commences;
75
(b) Five million Dollars (US$5,000,000) when production of Non-Associated Natural
Gas from the Contract Area reaches a cumulative amount of ten million bands of
Oil equivalent (10 mmboe);
(c) Ten million Dollars (USS 10.000.000) when production of Non-Associated
Natural tins from the Contract Area reaches a cumulative amount of twenty five
million bands of oil equivalent (25 mmboe); and
Fifteen million Dollnis
Natural Chi' from the Contract Area reaches a cumulative amount of fifty million
barrels of oil equivalent (50 mmboe).
32.6 For the purposes of this Article 32. a Commercial Discovery dull be declared by the
CONTRACTOR to be either a Crude Oil Commercial Diwovciy or a Non-Associntcd
Gas Commercial Discovery and under no circumstances shall a Production Bonus be due
in respect of both Crude Oil and Non-Associated Natural Gas for ihc same Commercial
Discovery.
Bonus cost recovery and puyment
32.7 No bonus or sh.ur Usuc due pursuant to this Article 32 shall be deemed to be a Petroleum
Cost
32.8 Payment by die CONTRACTOR (and. where applicable. the holder of the Government
Interest) of any bonus due pursuant to this Article 32 shall be made in Dollars by wire
transfer to a specified bank account of the GOVERNMENT or by banker’s draft and on
receipt thereof Ihc GOVERNMENT shall forthwith issue a written receipt to ihc
CONTRACTOR duly executed by the Minuter of Natural Resources of the
GOVERNMENT or such «hcr officer of the GOVERNMENT who shall be duly
authorised to issue such receipt under Kurdistan Region Law
ARTICLE 33 - PIPELINES AND OTHER TRANSPORI AT ION MEANS
33.1 The GOVERNMENT shall obtain any required Permits for the transportation by
CONTRACTOR Entities of Petroleum in the Kurdistan Region and in Iraq, as well as
any necessary Permits and easement rights for the construction <»f any pipelines and
ielated facilities andtor the acquisition of. access to ar.d use of any other transportation
means (for example, by trucking or rail transport) and related facilities. required for the
Petroleum Operations, as provided in Article 33.2-
33.2 The GOVERNMENT uajotakes lo transfer to At CONTRACTOR its rights for
transportation of Petroleum by pipeline and/c* other transportation means. The
CONTRACTOR shall have the right to design, construct, operate and maintain pipelines
and any related facilities, and/or to design, acquire, lease, use. operate and maintain other
(ian>portJtion means (for example, by (nicking or rail transport) and any related facilities,
for the transportation of Petroleum produced under this Contract.
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33.3 Piior lo tlie oonsimciion of any pipeline and related facilities and/or the use of any othci
transportation means as provided in Article 33.2. the CONTRACTOR shall submit
following information to the Management Committee:
(a) proposed pipeline and/or oilier transportation route and related facilities;
(b) forecasted pipeline flow rate and capacity and/or forecasted capacity of the other
transportation means;
(c) estimate of financial investment und operating costs of the pipeline and related
facilities and/or other transportation means and related facilities;
(d) proposed financing schedule;
(e) construction schedule;
(0 general technical description of the pipeline and idated facilities and/or other
transportation meant and iclated facilities;
(g) construction plans and tens.
(It) preventive measures for damage to the environment und third panics; and
(i> any other information relating to the pipeline project and/or other transportation.
The Management Committee shall examine all the above information and shall within
ninety (90) days, approve the proposed pipeline and/or other transportation project in
accordance with the provisions of Article 8 5.
33.4 Subject to spare capacity being available and to theu Petroleum being compatible, thud
parties shall be entitled to transport their Petroleum through any pipeline constructed
and/or ocher transportation means acquired, leased or otherwise used by the
CONTRACTOR in accordance with this Article 33 on terms to be agreed between the
CONTRACTOR and such third party. Those terms shall be reasonable commercial
terras and shall not discriminate among ih.rd party users. The CONTRACTOR shall
alw ays have priority of access to such pipelines and/or other transportation means
33.5 To the extent that they are incurred upstream of the Delivery Point, any costs associated
with the design, construction, operation and maintenance of the pipelines and related
facilities, acd/or the design, acquisition, leasing, use. operation and maintenance of the
other transportation means and related facilities, by CONTR ACTOR under this Article
33 (T transportation Costs'"! *hall be considered Petroleum Costs and shall be rceo'eicd
by the CONTRACTOR in accordance with the provisions of Articles I and 25.
33 6 The CONTR ACTOR 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, and/or other transportation means and related facilities aajuued. leased or
77
otherwise used, by CONTRACTOR under this Article 33 and to transport Petroleum
produced from any Production Area and to operate and maintain any pipeline and its
related facilities and/or other transportation means and 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 parties for use of any pipeline and related facilities and/or other transportation
means and related facilities by CONTRACTOR under tins Article 33 shall be applied to
the recovery of Petroleum Costs until all Transportation Costs have been fully recovered
by the CONTRACTOR pursuant to the provisions of Articles 1 and 25 and shall not be
included in income for cotporatc income tax purposes. The GOVERNMENT shall be
entitled to receive any such tariffs from third parties for their use of such pipeline and
related facilities when the said Transportation Costs have been fully recovered by the
CONTRACTOR. The costs associated with providing such transportation services for
third parties up to the Delivery Point shall be considered Transportation Costs and
therefore Petroleum Costs and shall bo recovered by the CONTRACTOR in accordance
with the provisions of Articles I and 25.
33.8 Upon recovery by the CONTRACTOR of all the Transportation Costs, the operating
and maintenance costs of any pipeline and its related facilities and/or other transportation
means and related facilities shall be borne by the CONTRACTOR and shall be
considered Petroleum Costs and shall be recovered by the CONTRACTOR in
accordance with the provisions of Articles ! and 25.
33.9 The GOVERNMENT shall have the same rights as the CONTRACTOR for use. free of
charge, of any pipeline and relaxed facilities constructed and/or other transportation
means and related facilities acquired, leased or otherwise used by CONTRACTOR
under this Article 33 for the transportation of the share of Petroleum to which the
GOVERNMENT is entitled under this Contract up to the Delivery Point, provided that
where the GOVERNMENT is participating in Us capacity as a CONTRACTOR Entity
pursuant to Article 4. ii shall be liable for its share of Petroleum Costs.
33.10 The CONTRACTOR shall bear the cost of operation and maintenance of any pipeline
and related facilities constructed and/or any other transportation means and related
facilities acquired, leased or otherwise used by CONTRACTOR under this Article 33
and all rilks ot accidental loss or damage to such pipeline and related facilities and/or uny
oilier transportation means and related facilities while they arc required for Petroleum
Operations.
ARTICLE 34 - LM 1 ISA 1 ION
34.1 In the event a Reservoir extends beyond the Contract Area into an adjacent urea which is
the subject of another Petroleum Contract (as defined by the Kutdistan Region Oil and
(Jus Law) (an "Adjacent Contract Area"), or in the event a Reservoir of an Adjacent
Contract Area extends into the Contract Area, (lie provisions of Article 47. Paragraph
78
Second of ihc Kurdistan Region Oil and Gas l aw shall apply and the GOVERNMENT
shall require the CONTRACTOR and the conit actor of the Adjacent Contract Area to
agree upon a schedule for reaching agreement of the terms of the unihsation of the
Reservoir, which terms shall l* 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 unitisnlion pursuant to
Article 47. Paragraph Third of the Kurdistan Region Oil and Gas l-iw. and if the
CONTRACTOR does not agree with the decision of the Minister of Natural Resources,
lire 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 (lie
boundaries of the Contract Area into an adjacent area which is not the subject of another
Petroleum Contract (as defined by the Kurdistan Region Oil and Gas Luw>, the
GOVERNMENT shall, upon the CONTRACTOR’S request, take the necessary steps to
extend the boundaries of Contract Area so as to include the entire Reservou w ithin the
Contract Area, provided that the CON TRACTOR can offer the GOVERNMENT a
competitive minimum work program for such adjacent area.
ARTICLE 35 - LIABILITY AND INSURANCE
35.1 Subject to the ocher provisions of this Contract, the CONTRACTOR, a its capacity as
the entity responsible for the execution of the Petroleum Operations within the Contract
Area, shad be liable to third parties to the extent provided under applicable Law for any
losses and damage « may cause to them in conducting the Petroleum Operations, and
dull defend, indemnify and hold harmless the GO\ ERNMENT with respect to all
claims for such loss or damage.
35.2 Notwithstanding the other provisions of this Contract, the CONTRACTOR and the
CONTRACTOR Entities shall not be liable to the GOVERNMENT or the Public
Company or other government agencies, authorities or bodies, courts or political
subdivisions for any damage or loss or claims of any kind resulting from us conduct of
the Petroleum Operations unless such damage or loss is the result of wilful misconduct or
a material failure to conduct Petroleum Operations in accordance with the terms of this
Contract; provided, however, that such liability cannot result in the event of any
omissions, errors or mistakes commuted in good faith by the CONTRACTOR in the
exercise of the powers and authorisations conferred upon the CONTRACTOR by virtue
ol this Contract, and further provided that in no event shall the CONTRACTOR and the
CONTRACTOR Entities be liable for any indirect or consequential loss cr damage
whatsoever or any loss, damages, costs, expenses or liabilities caused (directly or
79
indirectly) by any of the following arising out of, relating to, or connected with this
Contract or the Petroleum Operations carried out under this Contract (i) reservoir or
formation damage, (ii) inability to produce, use or dispose of Petroleum; (tit) loss or
deferment of income; (iv) special or punitive damages; or (v> other indirect damages or
losses whether or not similar to the foregoing.
35.3 The CONTRACTOR shall indemnify and hold harmless the GOVERNMENT against
all losses, damages and liability arising under any claim, demand, action or proceeding
brought or instituted against the GOVERNMENT by any employee ol the
CONTRACTOR or of any Subcontractor or by any dependent thereof, for personal
injuries, industrial illness, death or damage to personal property sustained in connection
with, relaied to or arising out of the performance m non-performance of this Contract
regardless of the fault or negligence in whole or in party of any entity or individual.
35.4 Notwithstanding Article 35.1. the GOVERNMENT shall indemnify and hold harmless
the CONTRACTOR and the CONTRACTOR Entities against all losses, damages and
liability arising under any claim, demand, action or proceeding brought or instituted
against the CONTRACTOR or any CONTRACTOR Entity by any employee of the
GOV ERNMENT or of any Public Company or of any subcontractor of the foregoing or
by any dependent of any such employee, for personal injuries, industrial illness, death or
damage to personal property sustained in connection with, related to or arising out of the
performance or non-performance of this Contr*:t regardless of the fault or negligence in
whole or in part of any entity or individual.
35.5 The CONTRACTOR shall take all necessary steps to respond to. and dull promptly
notify the GOVERNMENT of. .ill emergency and other events (including explosions,
leaks and spills), occurring in relation lo the Petroleum Operations which ate causing or
likely to cause material environmental damage or material risk to health and safety. Such
notice shall include a summary description of the circumstances and steps taken and
planned by the CONTRACTOR to control and remedy the situation. The
CONTRACTOR shall provide such additional reports to the GOVERNMENT as arc
reasonably necessary in respect of the ofTccts of such events and the course of all actions
taken to prevent further loss and lo mitigate deleterious effects.
35.6 In tl»c event of emergency situations ns set out in Article 35.4 . at the request of the
CONTRACTOR, the GOVERNMENT, without prejudice and in addition to any
indemnification obligations the GOVERNMENT may have, shall assist the
CONTRACTOR, to the extent possible, in any emergency response, remedial or repair
effort by making available any labour, materials and equipment in reasonable quantities
requested by the CONTRACTOR which arc not otherwise readily available to the
CONTRACTOR and by facilitating the measures taken by ihc CONTRACTOR to
bring into the Kurdistan Region pcreonncl, materials and equipment to be used in any
such emergency response or remedial or repair effort. The CONTRACTOR shall
reimbuise the GOVERNMENT'S reasonable and necessary costs inclined in such
efforts, which reimbuiscd amounts shall lie considered Petroleum Costs and shall be
80
recovered by the CONTRACTOR in accordance with the provisions of Articles I and
25.
35.7 I he GOVERNMENT shall indemnify and hold harmless the CONTRACT OK and cash
CONTRACTOR Entity from and again*! all coals (including legal com*) expenses,
losses, damages ami liability which such Fenton 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.
Insurance
35.8 In accordance with prudent international petroleum industry practice, each
CONTRACTOR Entity 'hall maintain any insurance required by applicable Kurdistan
Region Law. as well as any insurance approved by the Management Committee
Such insurance policies may cover
(a) loss of and damage to material und equipment used in the Petroleum Operations;
and
(b) pctsonal 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 tins Contract shall name the GOVERNMENT *\ an
additional insured party and shall include a waiver of subrogation protecting the
GOVERNMENT again*: any claim, loss and damage resulting from any Petroleum
Operation conducted by or on behalf of the CONTRACTOR under this Contract, to the
extent that the CONTRACTOR is liable for such claim, loss or damage under this
Contract Tr«r CONTRACTOR shall rot be liable for and shall ncr purchase insurance
cover for any claims arising from negligence or wilful misconduct of the
GOVERNMENT or of any Public Company or of any of it* or their subcontracts* c* «»f
any personnel of any of the foregoing
35.10 Upon its winter request, the GOVERNMENT shall be provided with insurance
certificate*, including necessary details, for any insurance policy maintained by ihc
CONTRACTOR which relates to this Contract.
35.11 Each CONTRACTOR Entity shall lx- responsible for the 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 shall be
considered Petroleum Costs and shall be recovered by the CONTRACTOR in
accordance with cite provisions of Articles I and 25.
35.12 In any insurance policy maintained by a CONTRACTOR Entity which relates to this
Contract, the amount for which the CONTRACTOR itself is liable (the "Deductible
Amount”) slull be reasonably determined between the CONTRACTOR Entity and the
81
insurer and such Deductible Amount shall in the event of any insurance claim be
considered a Petroleum Cost and shall Ik recovered by the CONTRACTOR in
accordance with the provisions of Articles I and 25.
ARTICLE 36 - INFORMATION AND CONFIDENTIALITY
36.1 The CONTRACTOR shall keep all records, data and information relating to the
Petroleum Operations in accordance with the Kurdistan Region Oil anil Gas Law and
prudent international petroleum industry practice. In addition, it shall provide the
GOVERNMENT with such information and data as it is obliged to provide under this
Contract.
36.2 Upon the GOVERNMENT'S written request, the CONTRACTOR shall provide the
GOVERNMENT with samples of any rocks or any other items extracted during the
Petroleum Operations.
36.3 Tlic GOVERNMENT shall have title to all data and information, whether raw, derived,
processed, interpreted or analysed, obtained pursuant to this Contract.
36.- Each CONTRACTOR Entity shall have the right, without any lumiali.n. to send
Abroad copies of all reports and technical data, magnetic tapes and other data relating to
the Petroleum Operations Magnetic tapes or other data, the original of which must be
analysed and processed Abroad, may be transported out of the Kurdistan Region.
36.5 Any representatives authorised by the GOVERNMENT and notified to the
CONTRACTOR shall, upon reasonable prior written notice, have reasonable access to
any information and data relating to the Contract Area in the possession of the
CONTRACTOR which the CONTRACTOR is obliged to provide to the
GOVERNMENT puisuant to this Conti act. Ii is understood that, when exercising such
right, the GOVERNMENT shall ensure it docs not unduly interfere with or hinder the
CONTRACTOR'' rights and activities.
36.6 The CONTRACTOR shall provide the GOVERNMENT upon the GOVERNMENT s
written request any analysis information, reports, tapes or other data (geological,
geophysical, logs, interpretations, drilling reports, etc.) related to the Petroleum
Operations :n the possession of the CONTRACTOR. All available originals of such data
shall be transferred to the GOVERNMENT at the end of this Contract-
36.7 Apart from the exceptions stated in this Article 36. Ihc Parties undertake to keep all data
and informal on relating to this Contract and the Petroleum Operations confidential
during the enure term of this Contract and not to divulge or disclose such data or
information to third panics without the specific consent of the other Panics, -such consent
not to be unreasonably w ithheld or delayed. Tne foregoing confidentiality obligation shall
not apply to information or data which:
(a) is or. through no fault of anv Party, becomes part of the public domain.
K.S
(b) w known lo the recipient at the date of disclosure;
(c) is required to be furnished in compliance with any applicable Law. by a
government agency having juavdiction over a CONTRACTOR Entity, by a
court order or any other legal proceedings; or
is required to be disclosed pursuant to the roles or regulations of any government
or recognised stock exchange having jurisdiction over a CONTRACTOR Entity.
36.8 Notwithstanding the foregoing in Article 36.7. in accordance with piudent international
petroleum industry practice, such data and information may he disclosed to:
(n) Affiliates of each CONTRACTOR Entity;
O') employees, officers and directors of each CONTRA (TOR Entity and their
respective Affiliated Companies for the purpose of live Petroleum 0|>cratiotis,
subject to each such entity taking customary precaution* to ensure such
information is kept confidential;
(c) consultants or agents retained by any CONTRACTOR Entity or it* Affiliates for
the purpo*c of analysing or evaluating information or data;
(d) banks or financial iastitutions retained by any CON TRACTOR Entity or its
Affilintc* with a view to financing Petroleum Operation*, including any
professional consultants retained by such bank or fin.mc.4l insiituuoo;
(c) b.*ui fid* 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 'jpplicr's
work for such Patty; and
(g) any other Person or entity, upon the prior written approval of the non-discloMng
Parties,
provided that disclosure shall not be made pursuant to paragraphs (c), (d). (e) and (0.
unless such third party ha* entered into a confidentiality undertaking.
369 Any data and informal KM relating lo relinquished or surrendered ureas under this
Contract shall become ihe exclusive property of the GOVERNMENT, who shall have
ihe nght to use same fot any purpose, in particular for the purpose of promoting said
areas. Each CONTRACTOR Entity shall he entitled to keep copies of such data and
information and lo use such data and information for any purpose.
83
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
37.1 During the performance of the Petroleum Operations, the CONTRACTOR shall take
reasonable measures to ensure that it, the Operator, its Subcontractors and agents attend
to the protection of lire 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.
37.2 Pnor to surrendering a portion of the Contract Area, tfe 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, materia: 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 The CONTRACTOR shall
only be responsible for site restoration or environmental damage to the extent the same
peitains solely and directly to Petroleum Operations conducted pursuant to this Contract.
37.3 The CONTRACTOR shall take reasonable precautions and measures in accordance w ith
prudent international petroleum industry practice in similar physical and ecological
environments to prevent any pollution which may arise directly us 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 prudent international petroleum Industry
practice in similai physical and ecological environments, respect the preservation of
property, agricultural areas, and fisheries, when carrying out Petroleum Operations.
37.5 The CONTRACTOR shall conduct and submit an environmental impact assessment to
the GOVERNMENT within six (6) months alter live Effective Date.
National Parks and Nature Reserve Areas
37.6 The CONTRACTOR shall take reasonable measures to minimise any udveise material
impact on national parks ar.d 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.
37.7 The GOVERNMENT: (i) represents and warrants that, on the Effective Date, there are
no national parks, nature reserves or other protected areas located in whole or in part
within the Contract Area where the CONTRACTOR shall not be entitled to carry out
Petroleum Operations and (ii) covenants that during the term of this Contract will not
designate or create or permit the creation of any national parks, nature reserves or other
protected areas, loealed in whole or in part w ithin ihe Contiaci Area
BMflMtiiaig
37.8 Any reasonable expenditure incurred by the CONTRACTOR in relation with this
Article 37 shail be deemed Petroleum Costs and shall be recovered by the
CONTRACTOR in accoixlance with the provisions of Articles 1 and 25.
37.9 The CONTRACTOR is not responsible for any pre-existing environmental conditions or
nny acts of unrelated third parties, including in respect of any pre-existing wells in the
Contract Area.
ARTK I K 38 - DECOMMISSIONING
38.1 To enable the CONTRACTOR to recover the cost.' associated with future Contract Area
Decommissioning Operations under this Contract, the CONTRACTOR shall have the
right to establish a reserve fund for future decommissioning and site restoration (a
“Decommissioning Reserve Fund ’). The Decommissioning Restive Fund may he
established at any time during the final ten (10) Calendar Years of Hie term of the
Production Operations of a Production Area but. upon the reasonable request by the
CONTRACTOR, die GOVERNMENT shall allow the CONTRACTOR to establish
such fund over a longer period. Once established, the CONTRACTOR shall make
regular contributions to the Decommissioning Reserve Fund based upon estimated
Petroleum Field decommissioning and site restoration costs in accordance with prudent
international petroleum industry practice, and taking into account intciot received and
future interest expected to be earned on the Decommissioning Reserve Fund Any
contributions by the CONTRACTOR to the Decommissioning Reserve Fund 'lull be
nude in Dollars and shail be deemed Petroleum Costs when paid into the reserve fund,
and shall be recovered by the CONTRACTOR in accordance with the provisions of
Articles 1 and 25. Contributions to the Decommissioning Reserve Fund 'hall be plused
with a first rate bank approved by the Management Committee in accordance with Article
8.5.
38.2 If. at the end of the term ot the Production Operations of the Production Area, the
GOVERNMENT decides to take over production operations in the Production Area
(a) the GOVERNMENT shall become liable for its future Decommissioning
Operations;
(b) the contributions and any interest accumulated in the Decommissioning Reserve
Fund, to the extent that such contribution' liave been recovered as Petroleum
Costs, shall be paid to the GOVERNMENT; and
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(c) the GOVERNMENT shall release the CONTRACTOR and the
CONTRACTOR Entities front any obligations relating to Decommissioning
Operations and shall indemnify the CONTRACTOR and the CONTRACTOR
Entitles for any costs, liabilities, expenses, claims or obligations associated
therewith.
38.3 If the CONTRACTOR undertakes the Production Area Decommissioning Operations,
the contributions and any interest accumulated in the Decommissioning Reserve Fund
shall be paid to the CONTRACTOR and shall be used for the Decommissioning
Operations. The CONTRACTOR shall undenuke any such Decommissioning
Operations in accordance with prudent international petroleum industry practice in
similar physical and ecological environments.
38.4 If the Decommissioning Reserve Fund is paid to the CONTRACTOR and the
Decommissioning Reserve Fund is not sufficient to cover all Decommissioning Costs for
the Contract Area, the balance shall he paid by the CONTRACTOR and may be
recovered, if applicable, by the CONTRACTOR Entities or any of their Affiliate# from
any other area which is the subject of another Petroleum Contract (ns defined by the
Kurdistan Region Oil and Gas latw) anywhere in the Kurdistan Region and, to (he extent
the balance is not recoverable as aforesaid, such remaining balance shall be paid by the
GOVERNMENT to (he CONTRACTOR.
38.5 Tf the Decommissioning Reserve Fund is paid to the CONTRACTOR and the
Decommissioning Reserve Fund exceeds all Decommissioning Costs for the Contract
Area, the balance shall be transferred to the GOVERNMENT.
38 6 Any expenditure incurred by the CONTRACTOR in relation with this Article 38.
including any contributions to the Decommissioning Reserve Fund, shall be deemed
Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with the
provisions of Articles I and 25.
38.7 The CONTRACTOR shall submit to the Management Committee for approval in
accordance with Article 8.5 a detailed plan for decommissioning the Contract Area
facilities and site restoration (the "Decomtntaaioning Plan"), such Decommissioning
Plan to be submined no later than twenty four (24) Months prior to the dote estimated by
the CONTRACTOR for I he end of Commercial Production from the Contract Area.
The Management Committee shall provide com menu, if any. on the Decommissioning
Plan within ninety (90) days after receipt The CONTRACTOR'S completion of the
Decommissioning Operations in accordance, in all material respects, with the
Decommissioning Plan for a Production Area approved by the Management Committee
shall satisfy all of the CONTRACTOR’S obligation* with respect to the performance of
Decommissioning Operations for such Production Area. In ihe event the
GOVERNMENT does not agree that Decommissioning Operations for a Production
Area were earned out in accordance with the approved Decommissioning Plan, it must
advise the CONTRACTOR within six (6) months of the CONTRACTOR’S completion
of such operations.
ARTICLE 39 - ASSIGNMENT AND CH ANGE OF CONTROL
Assignment In Affiliates
39.1 Each CONTRACTOR Emily shall he (tee to sell, assign, transfer or otherwise dispose
of nil 01 part of its rights, obligations and interests under this Contract to an Affiliated
Company or to another CONTRACTOR Entity with tire prior consent of the
GOVERNMENT, which consent shall not he unreasonably delayed or withheld.
Aysign.ittjUlo Third P«rlk>
39.2 Each CONTRACTOR Entity shall have the right to sell, assign, transfer or otherwise
dispose of nil or pnrt of its rights and interests under this Contract to any third party (not
being an Affiliated Company or another CONTRACTOR Entity) with the prior consent
of GOVERNMENT, and each other CONTRACTOR Entity (if any) which consent
shall not be unreasonably delayed or withheld. Any CONTRACTOR Entity proposing
to sell, assign, transfer or otherwise dispose of all or part of its rights and interests under
this Contract to any such third party shall request such consent in writing, which request
Shall be accompanied by reasonable evidence of the technical and financial capability of
the pioposcd third patty assignee. In the event that the Third Party Participant with a
Third Party Interest subject to Article 4.8 proposes to sell, assign, transfer or otherwise
dispose of all or pan of such Third P.uty Intcicst to a Person that is not an Affiliate, such
Third Party Participant shall fust offer to sell the Third Party Interest on terms that are at
least as favourable as the terms upon which the Third Patty Interest (or part thereof) has
been offered to the interested Person ‘ Third Party Terms' ) to both the Other
CONTRACTOR Entity (or. if applicable. CONTRACTOR Entities) and to the
GOVERNMENT, in the proportions in which their respective percentage interests bear
to the aggregate of their respective percentage interests under this Contract or in such
other proportions as such CONTRACTOR Entities and the GOVERNMENT, as
applicable, shall agree between them. In the event that the relevant CONTRACTOR
Entities and the GOVERNMENT elect to purchase less than all of the Third Party
Interest under this Article 39 2. the Third Party Participant may sell, assign, transfer or
otherwise dispose of all or part of such Third Party Interest to a Person that is not an
Affiliate on terms no more favourable to its counterparty than the Third Party Terms and.
in such ease, the aforesaid rights of pre-emption shall thereupon cease to apply in relation
to the Thud Party Interest.
39.3 In order for any deed of sale, assignment, transfer or other disposal as provided under
Articles 39.1 or 39.2 to be effective, the Parties and the relevant third party, if any. shall
enter into a binding and enforceable instrument of assignment and novation, which shall
include an undertaking by the transferee Of assignee to fulfil the obligations under this
Contract which correspond to the interest transferred or assigned.
39.4 By way of clarification, and not in limitation of the foregoing provisions of this Article
39. the GOVERNMENT shall not be considered to be acting unreasonably in
withholding consent to any such assignment if the assignment to such proposed assignee
87 p
is deemed contrary to the GOVERNMENT'* interests, as evidenced in writing to that
effect signed by the duly authorised representative of the GOVERNMENT below
39.5 Jr. the event a CONTRACTOR Entity assigns or in any other way transfers its rights and
interests under this Contract. including through the exercise of the Option of Third Party
Participation, whether in whole or in part, such assignment or transfer shall not give nsc
to any Tax. including on the consideration paid or received or on the income or gain
therefrom.
39.6 The GOVERNMENT may not at any time transfer any or aU its rights and obligations
under Uus Contract to any Person, including to u Public Company or any other company
or entity, except in accordance with Article 4.
39.7 Notwithstanding anything to the contrary in Article 39. in no event shall a transfer l>c
made pursuant to Article 39 which would result in the transferor or transferee holding
less than a five pci cent (5%) participating interest under this Contract.
Ch«"IK 9f Cvpiiol
39.7 "Change of Control" for the purpose of this Article 39.7 means any direct or indirect
change of the identity to the Person who Controls a CONTRACTOR Entity (whether
through merger, sale of shares or of other equity interests, or otherwise) through a single
transaction or series of transactions, from one or more transferors to one or mote
transferees, in which the market value of such entity's participating interest (which
participating interest shall be as specified in the Joint Operating Agreement relating to
this Contract, or where there is only one CONTR ACTOR Entity, one hundred percent
(100%) in this Contract represents more than seventy five per cen: (75%) of the
aggregate market value of the assets of such entity and its Affiliates that arc subject to the
Change in Control. For the purpose of this definition: "Control" means the direct or
indirect ownership or control of the majority of the voting rights of the applicable entity
at its shareholders’ meetings or their equivalent; and “market value” shall be determined
based upon the amount in cash a willing buyer would pay a willing seller in an Aim's
Length transaction.
Each CONTRACTOR Entity which is or anticipates with a reasonable degree of
certainty that it will be subject to a Change in Control, other than to an Affiliated
Company or .« CONTRACTOR Entity, shall notify the GOVERNMENT as soon as
practicable after it becomes aware of the Change in Control or anticipated Change in
Control and request Jie consent of GOVERNMENT, which consent shall not be
unreasonably delayed or withheld.
A Change in Control shall not give rise to any Tax including on the consideration paid or
received or on tbc income or gain therefrom.
88
ARTICLE 40 - FORCE MAJEURE
40.1 No delay, default, breach or omission of the CONTRACTOR in the execution of any of
its obligation* under this Contract shall be considered a failure to perform this Contract or
be the subject of .1 dispute if such delay, default, breach or omission is due to 11 case of
Force Mujcute. In such event the CONTRACTOR shall promptly notify the
GOVERNMENT In writing and take all reasonably appropriate measures to pcrfoim its
obligations under this Contract to the extent possible. The time resulting from any such
delay or curtailment in the execution of such obligations, increased by the lime necessary
to repair any damage resulting from or occurred during such delay or curtailment, shall
be 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 as soon as
possible after (lie notification of Force Majeure with a view to using reasonable
endeavours to mitigate the effects thereof.
40.2 For the purpose of this Contract, “Force Majeure" means any event that is
unforeseeable, insurmountable and irresistible, not due to any error or omission by the
CONTRACTOR but due to circumstances beyond its control, which prevents or
impedes execution of all 01 part of its obligations under this Contract. Such events shall
include the following.
(a) war. whether declared or not. civil war. insurrection, riots, civil commotion,
terrorism, any other hostile acts, whether internal or external:
(b) strikes or other labour conflicts;
(c) accidents or blowouts;
(d) quarantine restrictions or epidemics;
(c) any act, event, happening 01 occurrence due to natural causes, in particular, but
without limitation, floods, storms, cyclones, fires, lightning, or earthquakes;
(f) environmental restrictions, which the GOVERNMENT has not notified to the
CONTRACTOR;
(e> except in respect of the GOVERNMENT and/or any Public Company which
may be a CONTRACTOR Entity, any acts or orders of the GOVERNMENT,
any minister, ministry, department, sub-division, agency, authority, council,
committee, or oiher constituent clement thereof, any corporation owned and/or
controlled by the any of the foregoing; and
(h) any acts or orders of any other government claiming or asserting jurisdiction over
the subject matter of this Contract, any minister, ministry', department, sub-
division, agency, authority, council, committee, or other constituent element
tliereof. or any corporation ow ned and/or controlled by ary of the foregoing.
40.3 Tl»c imention of the Parties is lhai Force Majcurc shall receive the imctprctaiion that
complies most with prudent international petroleum industry practice. Force Majeurc
affecting a CONTRACTOR Entity or an Affiliated Company of a CONTRACTOR
Entity shall be deemed Force Majcurc affecting the COM R ACTOR if the consequence
of such Force Majcurc prevents the performance of any of the CONTRACTOR’S
obligations under this Contract.
ARTICLE 41 - WAIVER OF SOVEREIGN IMMUNITY
The GOVERNMENT and any Public Company which may be a CONTRACTOR Entity tit any¬
time hereby fully and irrevocably waives any claim to immunity for itself or any of its assets.
This waiver includes any claim to immunity from:
(a) any expert determination, mediation, or arbitration proceedings commenced pursuant to
Article 42;
(b) any judicial, administrative or other proceedings to aid the expert determination,
mediation, or arbitration piocccdings commenced pursuant to Ank le 42; and
(c) any effort to confirm, enforce or execute any decision, settlement, award, judgment,
service of process, execution order or attachment (including pre-judgment attachment)
that revulis from an expert determination, mediation, arbitration or any judicial,
administrative or other proceedings commenced pursuant to this Contract.
ARTICLE 42 - ARBITRATION AND EXPERT DETERMINATION
Negotiation. Mediation mid Arbitration
42.1 For the purpose of this Article 42.1. -Dispute" shall mean any dispute, controversy or
claim (of any and every kind or type, whether based on contract, tort, statute, regulation
or otherwise) arising out of. relating to, or connected with this Contract or the operations
carried out under this Contract, including any dispute as the construction, existence,
validity, interpretation, enforceability, breach or termination of this Contract, which
arises between the Parties (or between any one or more entities constituting the
CONTRACTOR and the GOVERNMENT).
In the event of a Dispute, the pjrties to the Dispute shall use their reasonable endeavours
to negotiate promptly in good faith a mutually acceptable resolution of such Dispute.
Subject to tl*c provisions of Article 42.2. a Party who desires to submit a Dispute for
resolution which has not been promptly resolved as aforesaid shall commence the dispute
90
resolution process by providing ihe other parties to the Dispute written notice of the
Dispute (“Notice of Dispute"). The Notice of Dispute shall identify the parties to the
Dispute, shall contain a brief statement of the nature of the Dispute and the relief
requested and shall request negotiations among Senior Representatives.
00 In the event that any Notice of Dispute is given in accordance with this Article
42.1, the parties to the Dispute shall first seek settlement of the dispute by
negotiation between Senior Representatives "Senior Representative" means any
individual who has authority to negotiate ihr settlement of the Dispute for a party
to the Dispute, which for the GOVERNMENT shall mean the Minister of
Natural Resources. Within thirty (30) days after the date of delivery of the Notice
of Dispute, the Senior Representatives representing the parties to the Dispute shall
meet at a mutually acceptable date, time nnd place to exchange relevant
information in an attempt to resolve the Dispute. If a Senior Representative
intends to be accompanied at the meeting by a legal adviser, each other party shall
be given written notice of such intention and its Senior Representative may also
be accompanied at the meeting by a legal adviser.
(b) If the Dispute cannot be resolved by negotiation in accordance with Article 42.1
(a) within sixty (60) days after the date of the receipt by each parly to lire Dispute
of the Notice of Dispute or such further period as the parties to the Dispute may
agree in writing, any party to the Dispute may seek settlement of the dispute by
mediation in accordance with the London Court of International Arbitration
CLCIA") Mediation Procedure, which Procedure shall be deemed to be
incorporated by reference into this Article, and tlie parties to such Dispute shall
submit to such mediation procedure.
(c) If the Depute is not settled within the earlier of (A) sixty (60) days of the
appointment of the mediator, or such further period as the panics to the Dispute
may otherwise agree in writing under the mediation procedure under Article 42.1
(b) . and (B) one hundred and twenty (120) days after Che delivery of the Dispute
Notice, any party to the Dispute may refer the Dispute to. and seek final
resolution by. arbitration under the LCIA Rules, which Rules shall be deemed to
be incorporated by reference into this Article
(i) Any arbitration shall be conducted by ihree (3) arbitrators.
(ii) If the parties to the Dispute arc the GOVERNMENT and ail the
CONTRACTOR Entities. the GOVERNMENT and the
CONTRACTOR shall each appoint one < I) arbitrator If the parties to the
Dispute are the GOVERNMENT and more than one. but not all the
CONTRACTOR Entities, the GOVERNMENT shall appoint one (1)
arbitrator and such CONTRACTOR Entities shall uppoint one (1)
arbitrator. If the parties to the Dispute arc the GOVERNMENT and one
CONTRACTOR Entity, the GOVERNMENT and such
CONTRACTOR Entity shall each appoint one (I) arbitrator.
91
(m) In any event. Ihe iwo arbitral.** *o appointed shall, in good faith. u*e a.I
reasonable endeavour* to agice on the appointment of the third aibitialof.
who will ebau the arbitral tribunal. In case of failure to appoint an
s.-btuaior or to agree on the appointment of the third arbitrator. Ktiles of
the LCIA shall apply.
(vl) Arbitration shall take place in London. England. The language to be used
in any prior negotiation, mediation and in the arbitration shall be English.
During the arbitiaiion |*occduic ;ind until the u-u .il dcci'i i tlx- INitic*
shall continue to pcrf.'im ihcir obligation* and lake no action* that would
impair the Contract. The aibitral award may be enforced by any court of
competent jurisdiction, including in the Kurdistan Region Any award
shall be expressed in Dollar*.
(v) Tire Parties agree that the arbitral award shall be final and not subject to
any appeal, including to the Count of England oo issues of Law.
(vi) With respect to any matter referred to arbitration under Article 43.4. the
arbitral tribunal shall have the authority to amend this Contract to restore
tl»c economic position referred to in Article 43J.
ttMlVf t IMeiniinatjuM
42.2 Any disagreement between the Parties rclaimg to Articles 15.9. 27 2 and 27 7. as well .»
Uy dtogreemeat the Parties agree to refer k> an expert, shall be submitted to an expert.
The Management Committee shall prepare and agree appeoprate terms of reference
relating to a disagreement to be submitted to the expert, in accordance wiih Arttcle 8.5
(Term* of Reference ). as soon as possible after the Effective Date.
(a) The disagreement shall be submitted to an expert appointed by mutual agreement
of the Parties within thirty (30) days following the date of preparation and
agreement of the Terms of Reference by the Management Committee If the
Parties cannot agree on the choice of the expert within such thirty (30) day period,
at the request of either Party, the expert shall be appointed by the Pres idem of the
Energy Institute in London. England Any expert appointed must have the
necessary qualification* for reviewing and deciding on the subject matter of the
disagreement.
(b) The duties of the expert shall be slated in tlic Terms of Reference prepared and
agreed by the Management Committee. The Management Committee shall
promptly provide the expert with the ugreed Term* of Reference relating to the
disagreement. Each Party shall have the right to give to the expert in writing any
information which it considers useful, provided it doc* so within forty-live (45)
day* after the expert’s appointment Such information shall he provided to the
other Party at the same time and such other Party shall be entitled to provide
comments on such information to the first Party ar.d the expert within thirty (30)
92
days after receiving such information. The expeit shall have the right to review
and verify any information lie deems useful to assist him in his review of the
disagreement.
(c) The expert shall tender his decision within forty-five (45) days of his reco pt 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 and shall
not be subject to any appeal, except in the case of manifest error, fraud or
malpractice. Any costs and expenses associated with the expert determination
shall be shared equally between the Parties.
42.3 No negotiation, mediation, arbitration or expeit determination procedure under this
Article 42 shall exempt the Parties from fulfilling their respective legal and/or contractual
obligations.
ARTICLE 43 - GOVERNING LAW, FISCAL STABILITY. AMENDMENTS, AND
VALIDITY
Governing Law
43.1 Tills Contract, including any dispute arising therefrom, thereunder or in relation thereto
and the agreement to arbitrate in Article 42, shall be governed by English law (except any
rule of English law which would refer the matter to another jurisdiction), together with
any relevant rales, customs and practices of international law. as well us by principles and
practice generally accepted in petroleum producing countries and in the international
petroleum industry.
43.2 Hie obligations of the CONTRACTOR in respect of this 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.
43.3 The GOVERNMENT guarantees to the CONTRACTOR, for the entile duration of this
Contract, that it will maintain the stability of the legal, fiscal mid economic conditions of
this Contiact. as they result from this Contract and as they icstili from the laws and
regulations in force on the date of signature of this Contract. The CONTRACTOR has
entered into this Contract on the basis of the legal, fiscal and economic framework
prevailing at the Effective Dale. If. at any time after the Effective Date, there is any
change in the legal, fiscal and/or economic framework under the Kurdistan Region Law
or other Law applicable in or to the Kurdistan Region which detrimentally affects the
CONTRACTOR, 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 the CONTRACTOR, the CONTRACTOR Entities and any other Person
93
entitled to benefit under (ha Conti jet to the same overall ccunormc position (taking into
account home country laics) as that which such Person would have hern in. had no such
change ic the legal, fiscal and/o» economic framework occurred
43.4 If the CONTRACTOR behest* that its economic position, or the economic portion of a
CONTRACTOR Erlity or any other Person entitled to benefits under this Contract, has
been detrimentally affected as presided in Article 43 3. upon the CONTRACTOR'S
written request, the Parties shall meet to igree on any necessary measures or making any
appropriate amendments to the terms of this Contract to re establishing the equilibrium
between the Parties and restoring the CONTRACTOR. \k CONTRACTOR Entities or
any other Person entitled to benefits under this Contract to the position (taking into
account home country taxes) it w as in prior to die 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 Contiact within ninety (90) days
of the CONTRACTOR S request (or such other period as tnay be agreed by the Parlies),
the CONTRACTOR may refer the matter in dispute to arbitration as provided in Article
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 complementing, amending or replacing it
43 6 Tlie Panics agicc to cooperate m all possible ways with a view to fully achieving ‘he
objectives of this Contract. The GOVERNMENT shall facilitate the performance of the
Petroleum Operations by promptly granting to the CONTRACTOR any necessary
authorisation, permit. licence or access right and making available any existing futilities
and services with a view to the Parties obtaining maximum mutual benefit from the
Contract.
Amendments
43.7 Any amendment to this Contract shall be the subject ol 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 ha* the right and
authority to waive the application of the provisions of this Contract on a casc-by case
basis w ithout laving to fulfil the conditions of validity of this Contract.
43.8 This Contract constitutes the entire agreement of the Parties and supersede* any and all
prof understandings or agreements in respect of the subject matter of this Contract.
43 9 Cities* otherwise expressly sta^d ebewhere in this Contract, no failure or delay of any
Party to exercise any right, power or remedy under this Contract shall operate as a waiver
thereof, nee shall any single or paraai exercise of ary such right. power or remedy
preclude »y other or future exerc-.se thereof or the exercise of any other right, power or
remedy
94
Validity
43.10 As signatories to this Contract fix and on behalf of the GOVERNMENT, the Ministry of
Natural Resources in the Kurdistan Region and the Regional Council for the Oil and Gas
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 Law.
ARTICLE 44 -NOTICES
44.1 All notices, demands, instructions, waivers, consents or other communications to be
provided pursuant to this Contract shall be in writing in English, shall be effective upon
receipt and shall be sent by receipted hand delivery or by email (followed by delivery by
reputable international air courier company with an establishment in Hrbil in the
Kurdistan Region) to the following addresses:
To the GOVERNMENT
Attention:
His Excellency the Minister of Natural Resources
Address:
Ministry of Natural Resources
Kurdistan Regional Government
Erbil. Kurdistan Region
Email: mnrW krgoil.com
To the CONTRACTOR:
SHAMARAN
Attention: Keith C. Hill
Address: 2101 - 885 West Georgia Street. Vancouver. Canada V6C 3E8
95
Phone: + 1 604 6897842
Facsimile: +1 604 689 4250
Email: khiliCfnamdo.com
A notice delivered by email (followed by air courier) shall, save lor manifest error, be
deemed to have been delivered upon its transmission by email.
44 2 The above address and/or designated representative of any of the Parties may be changed
on giving ten (10) days prior notice to the other Party delivered pursuant to Article 44 I
ARTICLE 45 - TERMINATION
45.) Subject to the provisions of Article 45.5, the GOVERNMENT shall have the right to
terminate this Contract in tltc event the CONTRACTOR:
(a) fails to meet a material financial obligation expressly stated in this Contract; or
(b) during the First Sub-Period does not carry out drilling and seismic acquisition, as
detailed in Article 10.2 or, during the Second Sub Period (or earlier), does not
carry out drilling and seismic acquisition, as detailed in Article 10.3; or
(c) interrupts Production for a penod of more than ninety (90) consecutive days with
no cause or justification acceptable in accordance with this Contract or unde:
prudent international petroleum industry practice, it being recognised that Force
Majcuic is an acceptable justification for such mtciuiptions; or
(d) intentionally extracts or produces any mineral which is not covered by the object
of this Contract, unless such extraction or production is expressly authorised or
unavoidable ax a result of operations caned out in accordance with prudent
international petroleum industry practice;
(c) if the CONTRACTOR comprises solely one entity, is declared bankrupt in
accordance with applicable Law; or
(0 wilfully refuses to abide by negotiation, mediation, arbitration or expert decision
under Article 42.
45.2 The GOVERNMENT may also terminate the Contract only in respect of one
CONTRACTOR Entity if such entity is subject to a Change of Control for which the
GOVERNMENT has not given its authorisation in accordance with Article 39.7.
96
45.3 At any lime prior 10 the Development Period, the CONTRACTOR shall have the light
to terminate this Contract by surrendering the entire Contract Area in accordance with the
provisions of Article 7.
45.4 During the Development Period, the CONTRACTOR shall have the right to terminate
this Contract ut any time by surrendering all Production Areas, provided its then current
obligations have been satisfied in accoidance with this Contract.
45.5 If ilie GOVERNMENT intends to exercise its right to terminate this Contract pursuant to
Article 45.1, it shall first comply with the following provisions:
(a) The GOVERNMENT shall notify the CONTRACTOR of its intention to
terminate this Contract stating the reasons for such termination and requesting ihc
lattcn
(i) to remedy the default; or
(ii) to propose acceptable compensation
(b) If. within three (3) Months after the notice referral to in Article 45.5(a), the
CONTRACTOR has not remedial the situation complained ol by the
GOVERNMENT to its satisfaction or offered compensation acceptable to the
GOVERNMENT in each caw acting reasonably, the GOVERNMENT shall
notify the CONTRACTOR in writing that the Contract shall be terminated from
the termination date detailed in such notice This Contract shall terminate on such
termination dale unless the CONTRACTOR issues a notice of dispute as
provided under Article 42. in which case this Contract shall remain in force until a
final settlement of ihc dispute has been reached in accordance with the dispute
resolution provisions of Article 42.
The foregoing provisions of this Article 45.5 urc subject to tine proviso that. ir. case of a
dispute where there has been breach of this Control which has been submitted to dispute
resolution pursuant to Article 42. the GOVERNMENT sh2ll not be entitled to exercise
its right to terminate this Contract prior to a final determination under Article 42 in
favour of the GOVERNMENT.
45.6 If the GOVERNMENT terminates this Contract pursuant to the provisions of .Articles
45.1 and 45.5. the CONTRACTOR -Kail lose all H> rights and interests under this
Contract. Notwithstanding the foregoing, the provisions of Articles 14.10. the second
paragraph of 16.7. 30. 31. 35.1.35.3. 35.4. 35.7. 36. 38.2(c), 41,42,43.1 to43.6 and 46.6
shall survive the termination or expiry of this Contiacl.
45 7 If a CONTRACTOR Entity breaches Article 46 4 or 46.5 the GOVERNMENT or
another CONTRACTOR Entity may terminate this Contract in respect of the first
C ONTRACTOR Entity
97
45.8 It ihc Conuaci is terminated under Article 45.2 or 45.7, the interest of the relevant
CONTR ACTOR Emily shall be transferred to the other CONTRACTOR Entities in the
proportions in which their respective percentage interests bear to the aggregate of their
rapcaivc pcrcer,i*gc interests under the relevant Joint Operating Agrrcmeni oi in such
other proportion* av such CONTRACTOR Entities shall agree between them for the
tnailci value thereof (us such icrm is defined in Article 39.7). Such transfer shall not
give rise to any Tux including on the consideration paid or received or on the income or
gam therefrom.
45.9 If SHAM A KAN does not satisfy its obligations under Articles 32.1, 32.2 and 32.3 by the
date which is sixty (60) days following the Effective Date, then this Contract
iiulnmillcfllly and Immediately terminates and each of the CONTRACTOR and the
GOVERNMENT shall lose all its rights and interests under this Contract,
ARTICLE 46 - ( OKPOKATF. AND SOCIAL RESPONSIBILITY AND APPLICATION
OF CORRUPTION LAWS
46.1 With respect to this Contract and the operations conducted under and pursuant to this
Contract, the Parties confirm their mutual commitment to the goal of promoting respect
for and compliance with human rights principles, including those set forth :r. the
Universal Declaration of Human Rights, the United Nations Baste Principles on the Use
of Force and Firearms by Law Enforcement Officials. United Nations Code of Conduct
for Law Enforcement Officials, and in a manner consistent with the law* of the Kurdistan
Region and Iraq and the Voluntary Principles on Security and Human Right*, being those
principles for oil and miring companies developed by the United State* and the United
Kingdom governments as a result of discuss ions with companies and nongovernmental
organization* a* published December 20. 2000.
46 2 With respect to this Contract and the operations to be conducted under and pursuant to
this Contract, the Parlies confirm their mutual tespect for the goal* of the Extractive
Induslties Transparency Initiative and in particular the goal of creating a standard for
revenue transparency in the oil, ga* and mineral sectors.
46.3 If ihi* Contract is reasonably proven to have been obtained in violation of Kurdistan
Region Law concerning corruption, this Contract is void ab initio.
46.4 Each COYTR ACTOR Entity agree* that if it is. at any tune, reasonably proven to be in
breach of Kurdivun Region Law concern mg corruption the provision* of .Article 45.7
apply
46J Each CONTRACTOR Entity and the GOVERNMENT agree* to comply with the
United Stale* Foreign Corrupt Practices Act. ns ameaJed from time to time
46.6 Any Party in breach of Article 46 5 agree* that it shall be liable to the other Parties for
98
any losses, expenses and damage ii may cause lo (hem as a result of breach Article 46.5,
and shall defend, indemnify and hold harmless such Parties with respect to all claims for
such lass, expense or damage.
ARTICLE 47 - EFFECTIVE DATE
This Contract shall become effective ana be binding on the Parties upon the signature of the
Contract by tlie duly authorised representatives of the GOVERNMENT and the
CONTRACTOR, as provided below.
99
Entered inio in three (3) originals in Eibil, the Kurdistan Region on
I oc «lk KURDISTAN REGIONAL GOVERNMENT
By: l+rfrLt--
Nechirvan Bar/ani Ashti Hawrami
Prime Minister Minister of Natural Resources
Kurdistan Regional Government Kurdistan Regional Government
On behalf of the Regional Council On behalf of the Ministry of Natural
for the Oil and Gas Affairs of Resources in the Kurdistan Region
the Kurdistan Region - Iraq
For CONTRACTOR
SIIAMARAN PETROLEUM B.V.
(currently known as “BBPL International BV”)
Keith C. Hill
Attorney in Fact
Signature Page for Production Sharing Contract
ANNKXA
Map Showing Coordinates of Arbat Contracl Area Corner Points
101
ANNEXE
ACCOUNTING procedure
PARAGRAPH I GENERAL PROVISIONS
1.1 Purpose
To classify expenditures, define further Petroleum Costs (in addition to those defined as
such in the Articles of live Contract), and prescribe the manner in which the
CONTRACTOR'S Accounts shall be prepared and approved.
1.2 Definitions
Words and phrases to which a meaning lus been assigned in Article I or other Articles of
the Contract shall have the same meaning when used in this Annex.
1.3 Inconsistency
In the event of any inconsistency or conflict between the provisions of this Annex and the
Oliver provisions of the Contract, then tire other provisions >: the Contmct shall prevail
1.4 Accounting Records and Reports
1.4.1 The CONTRACTOR shall maintain the Accounts in accordance with Article 15.1 and in
accordance with this Accounting Procedure, including in accordance with the charts of
Accounts agreed under Paragraph 1.4.2.
1.4.2 Within sixty (60) days of the Effective Date, the CONTRACTOR shall submit to and
discuss with the GOVERNMENT a proposed outline of charts of Accounts, which
outline shall be in accordance with generally accepted standards and recognized
accounting systems and consistent with normal pcroleum industry practice and
procedures. Within ninety (90) days of receiving the above submission, the
GOVERNMENT shall cither provide written notification of its appr-v.i of the proposal
or request in writing revisions to the proposai. Within one hundred and eighty (180) days
after the Effective Date, the CONTRACTOR and the GOVERNMENT shall agree on
the outline of c hints of Accounts which shall describe the basis of the accounting system
and procedures to lie developed and used under this Contract. Following such agreement,
the CONTRACTOR shall expeditiously prepare and provide the GOVERNMENT with
formal copies of the comprehensive charts of Accounts and manuals related to flic
accounting, recording and reporting functions, and procedures which are. and shall be,
observed under the Contract.
102
1.4.3 Notwithstanding the generality of the foregoing, the CONTRACTOR shall make regular
Statements relating to the Petroleum Operation*. These Statements are as shown:
(a) Production Statement (as indicated in Paragraph 6).
(b) Value of Product ion and Pricing Statement (us indicated in Paragraph 7).
(c) Cost Recovery and Share Account Statement (as indicated in Paragraph »).
(d) Statement of Expenditures and Receipts (as indicated in Paragraph 9).
(e) Final End-of-Ycm Statement {as Indicated in Paragraph 10).
(0 Budget Statement (as indicated in Paragraph 12).
1.4.4 All reports and statements shall be prepared in accordance with the Contract, Kuidlstan
Region l.nw, and where there are no relevant provisions of either of these, in accordance
with prudent international petroleum industry practice.
1.5 Language and Units of Account
All Accounts shall be maintained and prepared in the English language and shall be
recorded in Dollars. Where necessary for clarification, the CONTRACTOR may also
maintain Accounts in other currencies.
1.6 Audit and Inspection Rights of the GOVERNMENT
In addition to the provisions of Articles 15.3 to 15.7 and 15.9. the following provisions
shall apply to any audit carried oul in accordance with Anides 15.3 to 15.7:
1.6.1 For purposes of auditing, '.he GOVERNMENT, acting reasonably and in accordance
with prudent international petroleum industry practice, may examine and verify, at
reasonable times upon reasonable prior written notice to the CONTRACTOR, all
charges and credits relating to the Petroleum Operations, such as books of account,
accounting entries, material records and inventories, vouchers, payrolls, invoices and any
other documents, correspondence and records including electronic records reasonably
considered necessary by the GOVERNMENT to audit and verify the charges and
credits, values and treatments.
1.6.2 Furthermore, the auditors shall have the right in connection with such audit, to visit and
inspect at reasonable times, all vile*, plants, facilities, warehouses and offices of the
CONTRACTOR directly or indirectly serving the Petroleum Operations and to question
personnel associated with those Petroleum Operation'
I -6-3 Where the GOVERNMENT requires verification of charges made by an Affiliated
Company of the CONTRACTOR the GOVERNMENT shall have ihe right to obtain
an audit certificate for such changes from an micm.nion.illy recognized firm of public
103
accountants acceptable to both the GOVERNMENT and the CONTRACTOR, which
may be the CONTRACTOR’S statutory auditor
1.6.4 All agreed adjustment* resulting from an audit shall be promptly mace in the
CONTRACTOR’.' Accounts and any consequential adjustments to payments due to the
CONTRACTOR or to the GOVERNMENT, as the case may be. shall be made
promptly.
1.6.4 When issues arc outstanding with respect to an audit, the CONTRACTOR shall
maintain the relevant documents and permit inspection thereof until tbc issue is resolved.
1.7 Payment*
Unless a* otherwise provided in Article 24. Article 29 or other Articles of the Contract
1.7.1 All payment* between the Parties shall, unless otherwise agreed, be in Dollars and be
nude through a bank designated in writing by each receiving party; and all sums due
under the Contract shall be paid within thirty (30) days following tire end of the Month in
which the obligation to make such payment occurred.
1.7.2 All .sums due by one pmty to the other under the Contract shall, for each day such sums
ate overdue, bear interest compounded monthly at LIBOR pins two percent (2%).
I.H Currency Exchange Kates
In addition to the provisions of Article 29. the following provisions shall apply to any
exchanges of currency carried oc: in accordance with Article 29.
1.8.1 Amounts received and Petrol cum Casts incurred, shall be convened from other
currencies into Dollars in accordance with the CONTRACTOR’S usual accounting
procedures which shall reflect generally accepted accounting practices in the international
petroleum industry, and with reference to exchange rates obtained in accordance with
Article 29.
1.9 Accrual Basis and Reports
All book* and Accounts shall be prepared on an accrual basis in accordance with
generally accepted accounting principles used in the international petroleum industry.
1.10 Value* and Treatment*
Values and treatments proposed by the CONTRACTOR relating to all Petroleum Costs
shall be subject to challenge by the GOVERNMENT in the course of audit to ensure that
they arc in accordance with the provisions of this Accounting Procedure
104
PARAGRAPH 2 - CLASSIFICATION. DEFINITION AND ALLOCATION OF COSTS
AND EXPENSES
2.1 Segregation of Cotb and Expenses
Petroleum Costs shall be segregated in accordance with the purpose' for which such
Petroleum Costs are made. The purposes which shall qualify are:
(a) those which have been included in the approved Work Program and Budget for
the year in which the Costs and Expenditures arc made;
(b) expenditure* incurred in eases of emergency as set out in Articles 11.7, 13.5. 13.9
35.5.35.6 and any other Articles of the 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 and allocated as set out below.
2.2 Exploration Costs
Exploration Costs are all direct and allocated indirect costs and expenditure' incurred in
earning out the Exploration Operations, including all direct and allocated indirect costs
and expenditures incurred in the search foi Petroleum in an area which is. or was at the
time when such costs and expenses were incurred, part of the Contract Area irx !uding
2 2.1 Aerial, geophysical, geochemi.... paleontological, geological, topographical and 'ci'mic
surveys and studies and their inierprcta’.ion ami purchased geological and geophysical
information.
2.2.2 Stratigraphic test hole drilling and water well drilling.
2.2.3 labour, materials, supplies, and services used in drilling and formation lestirg of wells
with the object of finding Petroleum or Appraisal Wells excluding any costs of the
subsequent completion of such well' as producing wells.
2 2.4 Facilities lo the extent used :n support of the purposes described in Paragraph* 221.
2.2.2 and 2.2-3. including access rtwds.
2.2 5 That portion erf all service expenditures and that pertioa of ali general and adnvmoralise
expenditures direct]> attributable to F.xpkira:.oo Coats or allocated thereto oc a con';stem
and cquiuble basis.
2.2.6 Any other expenditures incurred in the search for and appraisal of Petroleum after the
Effective Date and not othcrw ixe covered under this Paragraph 22.
105
2.3 Gas Marki-ling < 'osts
Gas Marketing Costs are all direct and allocated indirect costs and expenditures incurred
in carrying out Gas Marketing Operations and include that portion of all .service
expenditures and that portion of all general and administrative expenditures directly
attributable to Gas Marketing Costs or allocated thereto on a consistent and equitable
basis.
2.4 Development Coat*
Development Cost' .we .ill direct and allocated indirect costs and cxpendiiuics incurred in
carrying out Development Operations including all direct and allocated indirect costs and
expenditures incurred in:
2.4.1 Drilling wells which me completed as producing wells and drilling wells for purposes of
producing from a Petroleum reservoir. whether these wells are dry or producing and
drilling wells for the injection of water or gas to enhance recovery of Petroleum.
2.4.2 Completing wells by way of installation of casing or equipment or otherwise after a well
has been drilled for the purpose of bringing the well into use as a producing well or » a
well for the injection of w ater or gas to enhance recovery of Petroleum.
2.4.3 The costs of Petroleum production, transport and storage facilities such as pipelines. How
lines, ptoduction and treatment units, wellhead equipment, subsurface equipment,
enhanced recovery systems. Petroleum storage facilities, and access roads for production
activities.
2.4.4 Engineering and design studies for the wells and facilities referred to in Paragraphs 2.4. J,
2.4.2 and 2.4.3.
And including that portion of all service expenditures and that portion of all general and
administrative expenditures directly attributable to Development Costs or allocated
thereto on a consistent and equitable basis; and any other expenditure incurred in the
Development Operations and not otherwise covered under Paragraph 2.3.
2.5 Production Costs
Production Costs arc al! direct and allocated indirect cost* and expenditures incurred in
carrying out Production Operations, including all direct and allocated indirect co*t* and
expenses incurred in Petroleum Operations after hirst Production which are other than
Exploration Costs. Gas Murketing Costs. Development Costs and Decommissioning
Com*. Production Costs include that portion of all service expenditures and that portion
of all general and administrative expenditures directly attributable to Production Costs or
allocated thereto on u consistent and equitable basis.
106
2.6 (
Dccommi5sioaing Costs arc all direct and allocated indirect costs and expenditure
incurred in wnymg out Decomnuvvionmf Operations aad include i!ul portion of ail
service expenditures and that poction of all general and administrative expenditures
directly attributable to Decommissioning Costs or allocated thereto on a consistent and
equitable basis, and the Decommissioning Resetse Fund shall be determined on such
basis, in advance of incurring such costs, as provided in Article 38 and. for the purposes
of cost recovery, the contribution* to the Decommissioning Reserve Fund shall be
recovered in accordance with Article 38
2.7 Service Expenditures
Service expenditures are expenditures tn support of Petroleum Operations including
warehouses, vehicles, motorized rolling equipment, aircraft, fire and security stations,
workshops, water and sewerage plants, power plants, housing, community and
recreational fncililics and furniture, tools and equipment used in these activities Service
expenditures in any Calendar Year sludl include tlie costs incurred in such year to
purchase and/or construct the said facilities ns well ns the 2nr.ua! costs of maintaining and
operating tlie vime. All service expenditures shall be regularly allocated as specified in
Paragraph* 2.2.5, 2.3. 2.4. 2.5 and 2,6 to hxploration Costs. Gas Marketing Costs.
Development Costs. Production Costs and Decommissioning Costs respectively and shall
be separately shown under each of these categories. Where set vice expenditures arc
made in respect of shared facilities, the basis of allocation of costs to Petroleum
Operations shall be consistent and equitable and shall be specified.
2.8 General and Administrative Expenditure*
General and administrative expenditures are
2 8 1 All mam office, field office and general administrative expenditures in the Kurdistan
Region including supervisory, accounting, procurement and employee relations service*.
2 8 2 Where the CONTRACTOR u an Affiliate of a group of companies whose headquarters
is Abroad (a "Foreign CONTRACTOR"), an annual overhead charge vhall he made for
services rendered (excluding the direct expenditures as referred in Paragraph 3 1.2.
any Affiliate of the Foreign CONTRACTOR outside the Kurdistan Region io support
and nidiugc Petroleum Operations under the Contract, or where the CONTRACTOR,
not being a Foreign CONTRACTOR draws upon the services of an Affiliate within the
Kurdistan Region, an annual overhead charge shall be made for services rendered
(excluding the direct expenditures ns referred in Paragraphs 3.l.2.(o) and (b)) by such
Affiliate to support and manage Petroleum Operations under the Contract ("Parent
Conipunv Overhead").
Parent Company Overhead will be deemed to cover the actual cost (being salaries, wage*
and labour burden, employee benefit.', travel, hotel and other normally reimbursable
107
expenses paid by the Affiliate of a CONTRACTOR in accordance with its standard
personnel policy in force in the relevant period, provision of office accommodation and
provision of services reasonably necessary for operation and maintaining such staff
offices) incurred lor services tendered by (hose functions of CONTRACTOR'S
Affiliate, such as, but not limited to. international production headquarters, international
exploration headquarters, treasury, payroll, taxation, insurance, legal, communications,
computer services, controllers, personnel, executive administrative management, research
and development, central engineering and process engineering which:
(a) cannot, without unreasonable effort and/or expenditure or without the release of
confidential data proprietary to any of the CONTRACTOR'S Affiliates, be
charged under any other section of this Annex; and
(o) are properly allocable to Petroleum Operations under the Contract. Ii is
understood, however, that ser vices performed by the departments listed above and
other corporate departments which directly benefit Petroleum Operations under
the Contract shall be charged as direct costs in accordance with Paragraph 3.
In respect of the costs of the CONTRACTOR’S Parent Company Overhead, as described
above, the CONTRACTOR shall charge monthly to Petroleum Operations an amount
equal to the total of the following:
2.8.2.1 Exploration Overhead
The CONTRACTOR shall be entitled to an annual charge based on a sliding scale
percentage and charged monthly to Petroleum Operations. The basis for applying this
percentage shall be the total of Exploration Costs and Gas Marketing Costs during each
Calendar Year (exclusive of this Exploration Overhead) or traction thereof less
expenditures which have been subjected to the two (2) per cent fee. referred to in
Paragraph 3.1.8(b). The sliding scale percentage shall be the following:
For the first four million Dollars (USS4.000.000) four per cent (4%)
For the next four million Dollars (US$4,000,000) three per cent (3%)
Over eight million Dollars (USSS,000,000) two per cent (2%)
The foregoing percentages may be reviewed but not more often than annually, and any
approved appropriate adjustment shall be made, if necessary, prospectively.
2.8 2.2 Development. Production and Decommissioning Operations Overhead
The overhead rates applicable to Development. Production and Decommissioning
Operations shall be agreed between the Parties in due course and shall incorporate the
following guidelines:
108
(i) The CONTRACTOR’S charges must be charged as direct charges whenever
possible. Overhead charges exist only to compensate die CONTRACTOR’*
Affiliates for costs which aic properly allocable to Petroleum Operations under
die Contract but which cannot, without unreasonable effort and/or release of
confidential data proprietary to the CONTRACTOR'S Affiliates, be charged
under any other section. Overhead costs arc billed monthly. Overhead must lie
commensurate with services rendered and based on actual cost studies but may
not exceed an amount calculated as a percentage of certain annual expenditures
excluding Bxplorttfion Costs and
(b) That percentage as well as the types of expenditures, which affect overhead and
those, which do not. shall be agreed among the Parties.
(c) The maximum percentage rates may be revised by mutual agreement not more
often than annually. The initial maximum percentage rates and the types of
expenditures to which they apply shall he agreed as soon as the Parties possess
reasonably reliable cost estimates for the relevant Production Area.
(d) Overhead charges are not subject to audit by GOVERNMKNT.
(c) The CON TRACTOR shall upon request furnish at the end of each relevant
Calendar Year to the GOVERNMENT u confirmation by its statutory auditor
that the overhead costs actually charged do not duplicate any other charges and
that the method used in allocating overhead to Petroleum Operations hereunder as
opposed to other activities u reasonable and in accordance with generally
accepted accounting practices.
(f) The CONTRACTOR must budget for overhead charges.
18 3 All general and administrative expenditures shall be regularly alkxaied as specified in
Paragraphs 115. 23. 14. 15 and 2.6 to Exploration Cos^. Gas Marketing Costs.
Development Costs. Production Costs and Decommissioning Costs respectively and shall
be separately shown under each of these categories.
PARAGRAPH 3- COSTS. EXPENSES. EXPENDITURES AND CREDITS OF HIT.
CONTRACTOR
3.1 Costs Recoverable Without Further Approval or the GOVERNMEN T
Petroleum Costs incurred by the CONTRACTOR pursuant to the Contract as classified
under the headings referred to in Paragraph 2 shall be recoverable for the purpose of
Article 25 of the Contract (except to the extent provided in Paragraph 4 or elsewhere in
this Annex), subject to audit as provided for :n Article 15 aad in Paraguph 1.6.
109
3 1 I SuifacC Right*.
All direct costs necessary for the acquisition, renewal or relinquishment of surface right*
acquued and maintained in force for the purpose* of the Contract.
3.1.2 1 abour and Associated Labour Costs
i a) The CONTRACTOR » locally recruited employees based in the Kurdistan
Region: Costs of .ill CONTRACTOR'S locally recruited employee* wl»o arc
directly engaged in the conduct of Petroleum Operations under the Contract in the
Kurdistan Region. Such coats 'hall include the costs of salaries, wages, bonuses,
overtime, employee benefit* and GOVERNMENT benefits for employee* and
levies imposed on (lie CONTRACTOR as an employer, transportation and
relocation costs within the Kurdistan Region of the employee and such member*
of the employee's faintly (limited to spou.se and dependent children) as requited
by law or customary practice in the Kurdistan Region. If such employee* are
engaged in other octivitic* in the Kurdistan Region, in addition to Petroleum
Operations, the cost of such employees shall be apportioned on a time sheet basis
according to sound and acceptable accounting principles.
(b) Assigned Personnel: Costs of salaries and wages including bonuses of the
CONTRACTOR’S employees directly engaged in the conduct of the Pairoleum
Operations unde; die Contract, whether temporarily or permanently assigned,
irrespective of the location of such employee*, it being understood that in the case
of those personnel only a portion of whose time is wholly dedicated to Petroleum
Operations under the Contract, only that pro-rata portion of applicable salaries,
wages, and other costs as delineated in Paragraph* 3.1.2(c), (d). (c). (0 and (*).
shall be charged and the basis of such pro-rata allocation shall be specified.
(c) The CONTRACTOR'S cost* regarding holiday, vacation, sickness and disability
benefits and living and housing and other customary allowances applicable to the
salaries and wages chargeable under Paragraph 3.1 2(b).
(d) Expenses or contributions made pursuant to assessments or obligations imposed
under Law which are applicable to the CONTRACTOR'S cost of salaries and
wages chargeable under Paragraph 3.1.2(b).
(e) The CONTRACTOR'S cost of established plans for employees' group life
insurance, hospitalization, pension, stock purchases, savings, bonus, and other
benefit plans of a like nature customarily granted to the CONTRACTOR'S
employees, provided however that such costs are in accordance with generally
accepted standards in the international petroleum industry, applicable to salaries
and wages chargeable to Petroleum Operations under Paragraph 3.1.2(b).
(0 Actual transportation and travel expenses of employees of CONTRACTOR,
including those made for travel and relocation of the expatriate employees.
110
including their families and pcuon.il effects, assigned to the Kurdistan Region
whose salaries and wages arc chargeable to Petroleum Operations under
Paragraph 3.1.2(b).
Actual transportation expenses of expatriate personnel transferred to Petroleum
Operations from their country of origin shall be charged to the Petroleum Operations.
Transportation expenses ol personnel transferred from Petroleum Operations to a country
other than the country of their origin shall not be charged to the Petroleum Operations
Transportation cost as used in this section shall mean the cost of freight and passenger
service, meals, hotels. Insurance and other expenditure' related to vacation and transfer
travel and authorized under the CONTRACTORS «. ndard personnel policies The
CONTRACTOR shall ensure that ill expenditure' related to transportation costs rc
equitably allocated to the activities, which hive benefited from the personnel concerned.
(g) Reasonable personal expenses of personnel whose salaries and wages are
chargeable to Petroleum Operations under Paragraph 3.1.2(b) and for which
expenses such |>m->n:H:l arc reimbursed under the CONTRACTOR’S standard
personnel policies. In the event such expenses are not wholly attributable to
Petroleum Operations, the Petroleum Operation* shall be charged with only the
applicable portion thereof, which shall be determined on an equitable basis.
I he cost of transportation of employees, equipment, materials and suites other than as
provided in Paragraph 3.1.2(0 necessary for Use conduct of the Petroleum Operation'
under the Contract along with other related costs such as. but not limited to. import
duties, customs fees, unloading charges, dock fees, and inland and ocean freight charges.
3.1.4 ('barges for Services
(a) Third Parties
The actual costs of contract services, services of piofessionai consultants, utilities,
and other services necessary for the conduct of the Petroleum Operations under
the Contract performed by third patties other than an Affiliate of (lie
CONTRACTOR.
(b) Affiliates of the CON TRA ( TOR
(i) Professional and Administrative Services Expenses: cost of
professional and administrative services provided by any Affiliates of the
CONTRACTOR for the direct benefit of Petroleum Operations,
including services provided by the production, exploration, legal,
procurement, financial, insurance, accounting and computer services
divisions other than those covered by paragraphs 3.1.4 (b) (ii). 3.1.6 and
3.1.8 (b) which CONTRACTOR may use in lieu of having its own
employees. Such chaigcs shall reflect the cost of providing their services.
Ill
Such charges shall noc include any element of pcofll and shall be no more
or less favourable ihan similar charges for other operations c.uned on by
the CONTRACTOR and its Affiliates. The chargcoul rate shall include
all costs inclined by Affiliates incidental to the employment of such
personnel including all Labour and Associated Labour Costs and the cost
of maintaining and operating offices and providing all support services for
such personnel Costs of travel of such personnel in respect of Petroleum
Operations will he directly charged The charges for such services shall
not exceed those prevailing if performed by non-Affiliutcd third parties,
inking into account the quality and availability of such services. Where the
wort is performed outside the home office base of such personnel, the
daily rate shall be charged from the date such personnel leave the home
office base where they usually woik up to their return thereto, including
days which are not working days in the location where tlic work is
performed, excluding any holiday entitlements derived by such personnel
lioni their employment at their home office b,i\c.
(II) Scientific or Technical Personnel cost of scientific or technical
personnel services provided by any Affiliate of the CONTRACTOR for
the direct benefit of Petroleum Operations, which cost shall be charged or.
a cost of service basis and slull not include any element of profit. The
chargeout rate shall include all cosis incurred by Affiliate* incidental to
the employment of such personnel including all Labour and Associated
Labour Costs and the cost of maintaining and operating offices and
providing all support services for such personnel costs of travel of such
personnel in respect of Petroleum Operations will be directly charged
The charges for such services shall not exceed those prevailing if
performed by non-affiliatcd third panics, taking into account the quality
and ava:lability of such services. Unless the work to be done by such
personnel is covered by an approved Work Program and Budget, the
CONTRACTOR shall not authorize work by such personnel without
approval of the GOVERNMENT.
(ill) Equipment and facilities: use of equipment and facilities owned and
furnished by the CONTRACTOR'* Affiliates, at rates commensurate
with the cost of ownership and operation; provided, however, that such
rates shall not exceed those currently prevailing for the supply of like
equipment and facilities on comparable terms in the area where tbc
Petroleum Operations arc being conducted and shall be on an arm’s length
basis On the request of the GOVERNMENT, the CONTRACTOR shall
provide the GOVERNMENT with evidence of such rales being cm an
arm's length basis. (If the GOVERNMENT consider that any such rate
is not on an arm's length basis then the GOVERNMENT has the right to
refer the matter to an expert pursuant to Aiticlc 42.2 of the Contract). The
equipment and facilities referred to herein dull exclude major investment
items such as (but not limited to) dulling rigs, producing platforms, oil
112
treating facilities, oil and gas loading and transportation systems, storage
and terminal facilities and other major facilities, rates few which shall be
subject to separate agreement with the GOVERNMENT.
3.15 Cfl uinimii'
Cost of acquiring, leasing, installing, operating, repairing and maintaining
communication systems including radio and microwave facilities within and between the
Contract Area and the CONTRACTOR s nearest base facility
3.16 Facilities
Net cost to the CONTRACTOR of establishing, maintaining and operating any office,
sub-office, warehouse, housing or other facility directly serving the Petroleum
Operations. If any such facility services more than one contract area the net costs thereof
shall be allocated oa ar. equitable basis in accordance with prudent international
petroleum industry practice.
3.1.7 i*.mt ent
(a) Costs incurred in the Contract Area as a result of legislation for archeological
and geophysical surveys relating to identification and protection of cultural sites
or resources;
(b) Costs incurred in environmental or ecological surveys requited by regulatory
authorities, including an environmental impact assessment commissioned
pursuant to Article 37.5 of the Contract and any other costs incurred in complying
with the requirements of Article 37;
(c> Costs to provide or huve available pollution containment and removal equipment;
(cl) Costs of actual control and cleanup of oil spills, and of such further
responsibilities resulting therefrom as may be required by applicable laws and
regulations;
(c) Costs of restoration of the operating environment incurred pursuunt to an
approved scheme prepared in accordance with Article 38 of the Contract;
(0 Any costs incurred for the decommissioning of facilities and site restoration,
including any related activity required by the GOVERNMENT or 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 are made.
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3 I S MiilVliul WdJawiMfflttCpfls
Costs of materials and supplies, equipment, machines, tools and any otlter goods of a
.similar nature used or consumed in Petroleum Operations subject to the following:
(a) Acquisition - the CONTRACTOR shall only supply or purchase materials for
use in Petroleum Operations that may lie used in the foreseeable future. The
accumulation of surplus stocks and inventory shall be avoided so far as is
reasonably practical and consistent with efficient and economical operations.
Inventory levels shall, however, take into account the time lag for replacement,
emergency needs, weather conditions affecting operations and sitnilur
considerations.
(b) Components of costs, arm's length transactions except as otltcrwisc provided
in paragraph 3.1.8(d), material purchased by the CONTRACTOR ;n arm's length
transactions in the open market for use in the Petroleum Operations under the
Contract shall l>e valued to include invoice price less trade and cash discounts (if
any), licence fees, purchase and procurement fees plus freight and forwarding
charges between point of supply and point of shipment, freight to pent of
destination, insurance, taxes, customs duties, consular fees, excise taxes, other
items chargeable against imported materials and. where applicable, handling and
transportation excuses from point of importation to warehouse or operating site
Where an Affiliate of the CONTRACTOR has arranged the purchase,
coordinated the forwarding and expediting effort, its costs should not exceed
those currently prevailing in normal arm's length transactions on the open market
and in any case shall not exceed a fee equal to two per cent (2%) of the value of
the materials added to the cost of the materials purchased.
(c) Accounting - such material costs shall be charged to the accounting records and
books in accordance with the "First in. First Out" (FIFO) method;
(d) Material purchased from or sold to Affiliates of the CONTRACTOR or
transferred from other activities of the CONTRACTOR to or from Petroleum
Operations under this Contract shall be valued and charged or credited at the
pnees specified in Paragraphs 3.l.8(d)(i), 3.1.8(d)(ii) and 3.1-S(dK*ii):
fi) New material, including used new material moved from inventory
(Condition “A"), shall be valued at the current international net price
which shall not exceed the price prevailing :n normal arm's length
transitions in the open market.
(ii) Used material (Conditions ‘B”, “C" and “D";
(A) Material which is in sound and serviceable condition ar,d is
suitable for re-use without reconditioning shall be classified as
Condition "B" and priced at seventy five per cent (75%) of the
current price of new material defined in Paragraph 3.1.8(U)(i);
(B> Material which cannot be classified as Condition "B" bill which
aftei reconditioning will be further serviceable for its original
function shall be classified as Condition “C and priced at not
more than fifty per cent (50%) of the current price of new material
as defined in Paragraph 3.1,8(d)(i). The cost of reconditioning shall
be charged to the reconditioned material provided that the value of
Condition "C" material plus the cost of reconditioning do not
exceed the value of Condition "B" material;
(C) Material which cannot be classified as Condition “B" oi Condition
“C" shall lie classified as Condition "l»” and priced at a value
commensurate with its use by the CONTRACTOR It material is
not fit foi use by the CONTRACTOR it shall he disposed of as
junk.
(iii) Material involving erection costs shall be charged at the applicable
condition percentage of the current knockcd-down price of new material
as defined in Paragraph 3.1 -8(
(iv) When the use of material is temporary and its service to the Petroleum
Operations under the Contract docs not justify the reduction in price as
provided for in paragraph 3. l.8.(dMiiXb). such material shall be priced on
a basis that will result in a net charge to the accounts under the Contract
consistent with the value of the service rendered.
(v) Premium prices - whenever material is not readily obtainable at published
or listed prices because of national emergencies, strikes ot other unusuai
causes over which the. CONTRACTOR has no control, the
CONTRACTOR may charge Petroleum Operations for the required
material at the CONTRACTOR'S actual cost incurred in providing such
material, in making it suitublc for use, and in moving it to the Contract
Area; provided notice in writing is furnished to the GOVERNMENT of
live proposed charge prior to charging Petroleum Operations for such
material and the GOVERNMENT shall have the right to challenge the
transaction on audit.
(vi) Warranty of material fumi\ltcd by the CONTRACTOR - the
CONTRACTOR does no* warrant the material furnished. In case of
defective material, credit shall not be passed to Petroleum Operations until
adjustment has been received by the CONTRACTOR from the
manufacturers of the material or their agents.
(vii) Adjustments arising from material inventories conducted in accordance
with Paragraph 5.2.
c) Equipment of ihc CONTRACTOR charged at rates not to exceed the average
commercial rales of non-affiiiaied third parties for equipment, facilities,
installations and utilities for use in the area where the same are used. On request,
the CONTRACTOR shall furnish a list of rates and the basis of application.
Such rates shall be revised when found to be cither excessive or insufficient, but
not more than once every six (6) Months.
Drilling tools and other equipment lost in the hole or damaged beyond repair may
be charged ut replacement cost less depreciation plus transportation costs to
deliver like equipment to the location where used.
10 Use of leased or hired machinery and/or equipment in the Petroleum Operations
shall be charged at full cost to the CONTRACTOR. This may include
mobilisation and de-mobilisation charges, lease and hire fees, as well as other
contractual cosis.
All rentals of every kind and nature levied by any GOVERNMENT and all Taxes
imposed in connection with the CONTRACTOR'S assets, income or activities under the
Contract and paid directly by the CONTRACTOR or any CONTRACTOR Entity (wive
whore the contrary is expressly provided in the Contract) with the exception of Taxes
described in Article 31.2) and bonus payments made under Article 32.
If the CONTRACTOR, any CONTRACTOR Emily or any of its Affiliated Companies
is subject to income or withholding tax as a result of services performed at cost for the
Petroleum Operations under the Contract, its charges for such services may be increased
by the amount required to cover such taxes (grossed up) including faxes on such gross up
3.1.10
Insurance premiums anc costs incurred for insurance carried for the benefit of the
Petroleum Operations provided that such insurance is customary, affords prudent
protection against risk and is ai a premium no higher than that charged on a competitive
basis by insurance companies which are no* Affiliated Companies of the
CONTRACTOR Except in cases of failure to insure where insurance coverage is
required pursuant to the Contract, actual costs and losses incurred shall be recoverable to
the extern 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 :n the Contract Area resulting from damages or losses incurred
by fire, flood, storm, theft, accident or such other cause.
116 p
3 111
All reasonable costs and expenses resulting from the handling, investigating, asserting,
defending, or settling of any ciaim or legal action necessary or expedient for the
procuring, perfecting, retention and protection of the Contract Area, and in defending or
prosecuting lawsuits involving the Contract Area or any third party claim arising out of
the Petroleum Operations under the Contract, or sums paid in respect of legal services
necessary for the protection of the joint interest of the GOVERNMENT and the
CONTRACTOR shall be recoverable. Such expenditures shall include attorney's fees,
court costs, arbitration costs, costs of investigation, and procurement of evidence and
amounts paid in settlement or satisfaction of any such litigation and claims provided such
costs are not coveted elsewhere in the Annex. Where legal services arc rendered in such
matters by salaried or regularly retained lawyers of the CON TRACTOR or an Affiliated
Company of the CONTRACTOR, such compensation shall be included instead under
Paragraph 3.1.2 or 3.1.4(b) as applicable.
3.1.12 Claims
Expenditures made in the settlement or satisfaction of any loss, claim, damage,
judgement or other expense arising out of or relating to Petroleum Operations, except as
may otherwise be covered elsewhere in the Annex.
3.1.13 Training Costs
All costs and expenses incurred by the CONTRACTOR :n the training of its employees
engaged in Petroleum Operations under the Contract.
3.1.14
The costs described in Paragraph 2.8.1 and the charge described in Paragraph 28.2.
3.1.15
Charges and fee* by the banks for money transfers, payments and foreign exchange
transactions, as well as currency exchange losses incurred by the CONTRACTOR ;n
connection with the Petroleum Operations.
3.1.16 Other Expenditures
Other reasonable expenditures not covered or dealt with in the foregoing provisions of
Paragraph 3 which are necessarily incurred by the CONTRACTOR for the propet.
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 below shall be
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credited to the Account* under the Contract for the purpose* of Article 25 of the
Contract:
3.2,1 The proceeds of any insurance oi claim 01 ludiuul awards in connection with Petroleum
Operations under the Contract 01 any assets charged to the Accounts under the Contract
where sue It operations or assets have been insured and the premium charged to the
Accounts under the Contract.
3 2 2 l egal casts charged to the accounts under Paragraph 3.1.11 and subsequently recovered
by the CONTRACTOR
3.2.3 Revenue received from third partic* for the use of property or assets the cost of which has
been charged to the Accounts under the Contract.
3.2 4 Any adjustment received by the CONTRACTOR from the suppliers/manufacturers or
(heir agents in connection with a defective material die cost of which was previously
charged by the CONTRACTOR to the Accounts under the Contract.
3.2.5 Rentals, refunds, including refunds of taxes paid, or other credits received by the
CONTRACTOR which apply to any charge which has been made to the Accounts under
tlie Contract, but excluding any award granted to the CONTRACTOR under arbitration
or expert proceedings.
3.2.6 Ciims originally charged to tlie Accounts under the Contract for materials subsequently
exported from the Kurd:*un Region or transferred to another Contract Area within the
Kurdistan Region.
3.2.7 Proceeds from the sale or exchange by the CONTRACTOR of plant or facilities used in
Petroleum Operations the acquisition costa of which have been charged to the Account*
under the Contract
3.2.8 Proceeds derived from the sale or license of any intellectual property the development
costs of which were incurred pursuant to and are recoverable under the Contract.
3.2.9 Proceeds derived from the sale, exchange, leave, hire, transfer or disposal in any manner
whatsoever of any other :tcm the coat* of which have been charged to Petroleum
Operations.
3.3 Duplication of Charges and Credits
Notwithstanding any provision to tlie contrary In this Accounting Procedure, there shall
lie nti duplication of charges or credits to Uk* Accounts under the Contract.
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PARAGRAPH 4 - COSTS AND EXPENSES NOT TO BE TREATED AS
RECOVERABLE
The folk**mg coss and expenditures noi be included in ihc Petrokum Cask recoverable
under Attide 25:
4.1 Taxes on income or profit paid to any GOVERNMENT authority except taxes anJ
duties that may be included in the coos of material arvd equipment purchased for the
Petroleum Operations;
4.2. Any paytr.cn: made to the GOVERNMENT by reason of the failure of the
CONTRACTOR to fulfil its Minimum Exploration Obligations in respect of the relevant
Sub-Period under the Contract.
4.3 The cost of any letter of guarantee, if any. required under the Contract;
4.4 The bonuses set out in Article 32 of the Contract;
45 Costs of marketing or transportation of Petroleum beyond the Delivery Point (excluding
Gas Marketing Costs);
4.6 Attorney's fees and other costs of proceedings in connection with arbitration under
Article 42 of Ihc Contract or iiucmati.ma!ly recognised independent expert determination
as provided in the Contract Of 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 die Petroleum Costs entered into
by ihc CONTRACTOR with third parties or Affiliated Companies;
4.K Any accounting provision for depreciation andfor amortisation, excluding any
adjustments in value pursuant to Paragraph 3.1.8;
-1.9 Dividends, repayment of equity or repayment of intercompany loans;
•1,10 l ines and penalties imposed under Law.
PARAGRAPH 5 - RECORDS AND VALUATION OF ASSETS
5.1 Records
The CONTRACTOR shall maintain detailed records of property in use for Petroleum
Operations under the Contract in accordance with prudent international petroleum
industry practice for exploration and production activities.
5.2 Inventories
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Inventories of property in use in Petroleum Operations shall be taken at reasonable
intervals but at least once a year with respect to movable assets and once every three (3)
years with respect to immovable assets. The CONTRACTOR shall give the
(SOVKRNMENT at least thirty (30) days written notice of its intention to take such
inventory und the GOVERNMENT shall have the right to be represented when such
inventory is taken.
Failure of the GOVERNMENT to be represented at an inventory shall hind the
GOVERNMENT to accept the Inventory taken by ihc CONTRACTOR
The CONTRACTOR shall clearly inform GOVERNMENT about the principles upon
which valuation of the inventory has been based. The CONTRACTOR shall make
every effort to provide to the GOVERNMENT a full report on such inventory within
thirty (30) days of Ihc taking of the inventory. When an assignment of rights under the
Contract takes place the CONTRACTOR may. at the request of the assignee, lake a
special inventory provided lhat the costs of such inventory are borne by the assignee.
PARAGRAPH 6- PRODUCTION STATEMENT
6.1 Production Information
Without prejudice lo the rights and obligations of the Parties undo Article 16 of the
Contract, from the date of First Production from the Contract Area the CONTRACT OR
shall submit a monthly production statement to the GOVERNMENT showing the
following information separately for each producing Develop men! Area and in aggregate
for the Contract Area:
6.1.1 The quantity of Crude Oil prodared and saved
6 I 2 The quality characteristics of such Crude Od produced ar.d saved.
6 I 3 The quantity of Natural Gas produced and saved.
6 1.4 The quality characteristics of such Natural Gas produced and saved.
6.1.5 'Ihe quantities of Crude Oil and Natural G» used for the purposes of carrying on drilling
and production operations and pumping to held storage.
6 I 6 Ihc quantities of Crude Oil and Natural Gas unavoidably lost.
6.1.7 The quantities of Natural Gas flared and vented
6.1A The sue of Petroleum stocks bdd at the beginning of the calendar Month in question
6.1.9 The size of PetreSeum stocks held * the end of the calendar Month in question
6.1.10 The quantities of Narinl Gas reinjected into the Reservoir.
120
6.1 It In respect of ihe Contract Area as a whole, the quantities of Petroleum transferred at the
Measurement Point. All quantities shown ir. this Statement shall be expressed in both
volumetric terms (Barrels of oil and cubic meters of gas) and in weight (metric tonnes).
6.2 Submission of Production Statement
The Production Statement for each calendar Month shall be submitted to the
GOVERNMENT no later than ten (10) days after the end of such calendar Month.
PARAGRAPH 7 - VALUE OF PRODUCTION AND PRICING STATEMENT
7.1 Vnliie of Production and Pricing Statement Information
The CONTRACTOR shall, for the purposes of Article 25 of the Contract, prepare a
statement providing calculations of the value of Crude Oil produced and saved during
each Quarter.
This “Value of Production and Pricing .Statement" shall contain the following
information:
7.1.1 The quantities and prices realized therefor by the CONTRACTOR in respect of vales of
Natural Gas and Crude Oil delivered to third parties made during the Quarter in question
7.1.2 The quantities and prices realized therefor by the CONTRACTOR in resped of sales
Natural Gas and Crude Oil delivered during the Quarter in question, other titan to Thud
Parties
7.2 Submission of Value of Production and Pricing Statement
The Value of Production and Pricing Statement lor each Quarter shall he submitted to the
GOVERNMENT not Inter titan twenty-one (21) day* after the end of such Quarter.
PARAGRAPH 8- COST RECOVERY AND SHARE ACCOUNT STATEMENT
8.1 Cost Recovery Statement
The CONTRACTOR shall prepare with respect to each Quarter a Cost Recovery
Statement containing the following information:*
8.1.1 Recoverable Petroleum Costs carried forward from the previous Quarter, if any.
8.1.2 Recoscrablc Petroleum Costs for the Quarter in question.
8.1.3 Credits under the Contract for tire Quarter in question.
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8.1.4 Toial Recoverable Petroleum Cost.' for the Quarter in question (Paragraph 8.1.1 plus
Paragraph 8.1.2, net of Paragraph 8.1 3 >.
8.1.5 Quantity and value of Petroleum applied to cost recovery pursuant to Article 25 taken by
the CONTRACTOR for the Quarter in question.
8.1.6 Amount of recoverable Petroleum Costs to l>c carried forward into the next Quarter
(Paragraph 8.1.4 net of Paragraph 8.1.5).
8.2. Cumulative Production Statement
The CONTRACTOR shall prepare with respect to each Quarter a Cumulative
Production Statement containing the following information:
8.2.1 Tlie cumulative production position at the end of the Quarter preceding the Quarter in
question.
8.2.2 Production of Export Petroleum for the Quarter in question.
8.2.4 The cumulative production position at the end of :hc Quarter in question.
8.2.5 The amount of Petroleum applied to Royalty pursuant to Article 24. com recovery
pursuant to Article 25 and Profu Petroleum pursuant to Article 26 taken by the
GOVERNMENT and by the CONTRACTOR, respectively, during the Quarter in
question.
8.2.6 The forecast of production and (tie 'hare of Petroleum . applied to Royalty pursuant to
Article 24, cast recovery pursuant to Article 25 and Profit Oil pursuant to Article 26 due
to the GOVERNMENT and to the CONTRACTOR, respectively, for the next
succeeding Quarter.
8.3 Preparation and Submission of Cost Recovery and Cumulative Production
Statements
8.3.1 Provisional Cost Rccoveiy and Cumulative Production Statements, containing estimated
information where necessary, shall be submitted by the CONTRACTOR on the last day
of each Quarter for the purposes of Article 25 of the Contract.
8.3.2 Final quarterly Cost Recovery and Cumulative Production Statements shall be submitted
within thirty (30) days of the end of the Quarter in question.
8.4 Annual Statement
For the purposes of Article 25 of the Contract, an Annual Cost recovery and Cumulative
Production Statement shall be submitted within ninety (90) days of the end of each Year.
The Annual Statement shall contain the categories of information listed in Paragraphs 8.1
and 8.2 for the Year in question, separated into the Quarters of the Year in question and
showing ihe cumulative positions at the er.d of the Year in question with respect to
cumulative uniecovered Petroleum Costs and Cumulative Production.
PARAGRAPH 9 - STATEMENT OF EXPENDITURE AND RECEIPTS
9.1 The CONTRACTOR shall prepare with respect to each Quarter a Statement of
Expenditure and Receipts under the Contract. The Statement will distinguish between
Exploration Costs, Gas Marketing Costs. Development Costs, Production Costs and
Decommissioning Costs and will identify major items of expenditures within these
categories The Statement will show the following:
9.1.1 Actual expenditures and receipts for the Quarter in question.
9.1.2 Cumulative expenditure and receipts for the budget Calendar Year in question.
9.1.3 Latest forecast cumulative expenditures at the Calendar Year end.
9.1.4 Variations between budget forecast and latest forecast and explanations thereof.
9.2 The Statement of E\|)cridiiure and Receipts of each Quarter shail be submitted to the
GOVERNMENT no later than thirty (30) days after the end of such Quarter.
PARAGRAPH tO FINAL FNDOF-YEAR STAI IMF NT
The CONTRACTOR will prepare a Final End-of-Year Statement The Statement will contain
information as provided in tbc Production Statement, Value of Production and Pricing Statement.
Cost Recovery and Cumulative Production Statements .ind Statement of Expenditures and
Receipts but will be based on actual quantities of Petroleum produced and expenses incurred.
This Statement will be used «o make any adjustments that are necessary to the payments made by
the CONTRACTOR under the Contract. The Final End-of-Ycar Statement of each Calendar
Year shall be submitted to the GOVERNMENT within ninety (90) days of the end of such
Calendar Year.
PARAGRAPH II-AUDITS
Each such report and statement provided for in Paragraph 6 throe >;h 10 'hall be considered true
and correct, unless the GOVERNMENT raises an exception thereto within !hc timeframe and
under the process set out in Article 15 of the Contract.
PARAGRAPH 12 - ANNUAL WORK PROGRAM AND BUDGET
1 l.l Each annual Work Program and Budget to be prepared in accordance with Articles 11. 12
and 14 of the Contract, in respect of Exploration Costs, Gas Marketing Costs.
Development Costs and Production Costs respectively will show the following:
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11.1.1 Forecast expenditures for the budget Calendar Year in question including u quarterly
classification of such expenditures.
11.1.2 Cumulative expenditures to the end of said budget Calendar Year,
11.1.3 A schedule showing the most important individual items of Development Costs (if
applicable) for said budget Year.
PARAGRAPH 13 - CONTRACTOR ENTITY INCOME I AX COMPUTATION
13.1 For the purpose of Ankle 31.3(b) of the Contract, the net taxable profits of each
CONTRACTOR Entity from all the Petroleum Operations earned out under litis
Contract. shall be calculutcd in accordance with this Paragraph
13.2 Each CONTRACTOR Entity shall maintain for each Calendar Year separate Accounts
with respect to the Petroleum Operations which shall be used, inter alia, to establish a
profit und loss account and a balance sheet which will show else results of the Petroleum
Operations earned out m such Calendar Year as well as the assets und liabilities assigned
or directly related (hereto. The profit and loss account will he maintained under the
uccruul method of accounting.
13J For purposes of determining the net taxable profits of each CONTRACTOR Entity for
corporate income tax purposes
13.3.1 the profit and lots account of such CONTRACTOR Entity shall be credited w«th the
following
(a) if the Royalty is paid in cash pursuant lo Article 24. revenues arising from the
disposal of Royalty volumes as recorded in such entity’* Accounts and
determined in accordance w ith the provisions of Article 24;
(b) revenues arising from the disposal of any Available Petroleum to which such
entity is entitled for recovery of k» Petroleum Costs as recorded in its Accounts
and determined in accordance with the provisions of Article 23;
(c) revenues from the disposal of any Profit Petroleum to which such entity is entitled
under Article 26 as is recorded in us Accounts and determined in accordance with
tlie 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.
(e) any exchange gains realised or other financial income earned by such entity in
connection with the Petroleum Operations;
I3J.2 the profit and low account for such CONTRACTOR Entity shall be debited with all
charges incurred for the purpose* of the Petroleum Operations whcdier incurred inside or
outside the Kurdiuar. Region, which charge* shall include the following:
ta> in addtion to the charges specifically set forth below in this Paragraph, all other
Petroleum Costs, including the costs of supplies, personae! and manpower
exper »
with the Petroleum Costs;
• b> if the Royally is paid in cash pursuant to Article 24, Royalty payments made and
a* recorded in such entity's Accounts and determined in accordance with the
provisions of Article 24;
(c) General and administrative expenditure* related to the Petroleum Operation*
performed under this Contract;
(i) capital expenditures incurred by ihe CONTRACTOR for the purpose* of
ihe Petroleum Operate «n* thill be depreciated or. a reducing balance basis.
(11) the depreciation rate*, which shall be applicable from the Calendar Year
during which such capital expenditures are incurred, or from the Calendar
Year dunng which the assets cotrcsponding to said v.upial cxpcndnurr>
arc put into normal service, whichever is later, for the first Calendar Year
in question and for each subsequent Calendai Year, arc as follows:
Nature of the capital asset to be depreciated Annual depreciation Kate
Permanent buildings 10.0%
Temporary buildings 20.0%
Office and home furniture and fixtures 20.0%
Productive wells 20.0%
Production and delivery equipment 20.0%
Drilling equipment 20.0%
Pipelines 20.0%
Automotive equipment 20.0%
125
ps
Marine and aviation equipment 20.0%
All other capital assets 20.0'*.
(e) Exploration Costs (which for the avoidance of doubt include appraisal
expenditures) shall be deductible on a reducing balance basis at die rule of 20%
per annum.
(0 interest and fees paid to creditors of the CONTRACTOR, tor tlieir actual
amount;
(g) losses of Assets resulting from destruction or damage, assets which arc 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;
(h) any other costs, expenses, losses or charges directly related to the Petroleum
Operations, including exchange losses realised in connection with the Petroleum
Operations as well ns the bonuses provided in Article 32, die Exploration Rental
provided in Article 6.3, the Production Rental provided in Article 13.10. the
allocation to training, provided in Article 23.7 and the allocation to the
Environment Fund provided in Article 23.9. the costs specified in Articles 23.11.
38.1 and 38.6 and transportation and marketing cO'ts beyond the Delivery Point;
(i) the amount of non-offset losses relating to the previous Calendar Years, which
shall be earned forward for an indefinite period until full settlement of said losses
or termination of this Contract;
13.3.3. the net profit of such CONTRACTOR Entity shall be equal to the difference between all
the amounts credited and all the amounts debited in the profit and loss account; and
(a) if this amount is negative, it shall cccsutute a loss.
(b) if the amount is positive, it shall be grossed up to take account of the fact that
such entity's corporate income tax is being settled out of the GOVERNMENT’S
share of the Profit Petroleum in accordance with Article 31.2. by applying the
following formula in order to provide such entity’s net taxable profits for
corporate income tax purposes;
Net Taxable Net Profits/
Profile
13.4 For purposes of determining each CON TRACTOR Entity’s liability to corporate income
tax for a lax year in respect of the Petroleum Operations carried out under this Contract.
ifs 126
the net taxable profits (if any) for such tax year shall be multiplied by the applicable r
of corporate income tax, as provided in Article 31.3(a).
127