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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.








32


 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.


33


(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.











60


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.














61


 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.





71


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.








76


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








85


(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.

















113


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





117


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.

















118


 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








119


 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.








121


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:





123


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