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 PRODUCTION SHARING CONTRACT


AKRI-BIJEEL BLOCK


KURDISTAN REGION








BETWEEN


THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ


AND





KALEGRAN LTD.


TABLE OF CONTENTS


PREAMBLE





Article 1 DEFINITIONS


Article 2 SCOPE OF THE CONTRACT


Article 3 CONTRACT AREA


Article 4 OPTIONS OF GOVERNMENT PARTICIPATION AND THIRD l‘ARl'


PARTICIPATION


Article 5 OPERATOR


Article 6 TERM OF THE CONTRACT


Article 7 RELINQUISHMENTS


Article X MANAGEMENT COMMITTEE


Article 9 GUARANTEES


Article 10 MINIMUM EXPLORATION WORK OBLIGATIONS


Article 11 EXPLORATION WORK PROGRAMS AND BUDGETS


Article 12 DISCOVERY AND DEVELOPMENT


Article 13 DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND


BUDGETS


Article 14 NATURAL GAS


Article 15 ACCOUNTING AND AUDITS


Article 16 CONTRACTOR’S RIGHTS AND OBLIGATIONS


Article 17 USE OF LAND AND EXISTING INFRASTRUCTURE


Article 18 ASSISTANCE FROM THE GOVERNMENT


Article 19 EQUIPMENT AND MATERIALS


.Article 20 TITLE TO THE ASSETS


Article 21 USE OF THE ASSETS


Article 22 SUBCONTRACTING


Article 23 PERSONNEL TRAINING AND TECHNOLOGICAL ASSISTANCE





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Article 24 ROYALTY


Article 25 RECOVERY OF PETROLEUM COSTS


Article 26 SHARING OF PROFIT PETROLEUM


Article 27 VALUATION AND METERING OF CRUDE OIL AND NATURAL GAS


Article 28 DOMESTIC MARKET - SALE OF GOVERNMEN1 SHARE


.Article 29 FINANCIAL PROVISIONS


.Article 30 CUSTOMS PROVISIONS


Article 31 TAX PROVISIONS


Article 32 BONUSES


Article 33 PIPELINES


Article 34 UMTISATION


Article 35 LIABILITY AND INSURANCE


Article 36 INFORMATION AND CONFIDENTIALITY


Article 37 ENVIRONMENTAL PROVISIONS


Article 38 DECOMMISSIONING


Article 39 ASSIGNMENT AND CHANGE OF CONTROL


Article 40 FORCE MAJEURE


Article 41 WAIVER 01 SOVEREIGN IMMUNITY


Article 42 ARBIT RATION AND EXPERT DETERMINATION


Article 43 GOVERNING LAW, FISCAL STABILITY, AMENDMENTS AND


VALIDITY


Article 44 NOTICES


Article 45 TERMINATION


Article 46 APPLICATION OF CORRUPTION LAWS


Article 47 EFFECTIVE DATE


Annex A CONTRACT AREA MAP AND LIST OF COORDINATES


Annex B ACCOUNTING PROCEDURE











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 Annex C MOL PARENT COMPANY GUARANTEE






































































































































4*








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 PRODUCTION SHARING CONTRACT





BETWEEN


The KURDISTAN REGIONAL GOVERNMENT OF IRAQ (hereafter referred to as the


•'GOVERNMENT'), duly represented by the Minister of Natural Resources;


AND


KAI.EGRAN LTD., a company established and existing under the laws of Cyprus with


registration number HE 185662, whose registered office is at II Florinis Street, CITY


FORUM 7"' fioor. 1065 Nicosia. Cyprus, duly represented by the Managing Director,





(hcrcaficr referred to as the "CONTRACTOR")


WHEREAS


(A) The GOVERNMENT wishes to develop the petroleum wealth of the Kurdistan


Region (as defined in this Contract) in a way that achieves the highest benefit to the


people of the Kurdistan Region and all of Iraq, using the most advanced techniques of


market principles and encouraging investment, consistent with the Constitution of


Iraq including Article 112 thereof;


(B) In accordance with the Constitution of Iraq, the prevailing law of the Kuidistan


Region is the Kurdistan Region Law (as defined in this Contract), except with regard


to a matter wholly w ithin the exclusive jurisdiction of the Government of Iraq;


(C) The National Assembly of the Kurdistan Region approved the Oil and Gas Law of the


Kurdistan Region - Iraq (Law No 22 of 2007) which law regulaies Petroleum


Operations, including production sharing contracts;


(D) The GOVERNMENT intends to present to the National Assembly of the Kurdistan


Region a law or laws to authorise the GOVERNMENT, by contract or other


authorisation, to exempt investors in long term projects relating to the conduct of


petroleum operations in the Kurdistan Region from Kurdistan Region taxation, to


indemnity' 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) CONTRACTOR is a wholly owned Affiliate of MOL Hungarian Oil and Gas Pic, an


oil and gas company engaged in crude oil and natural gas exploration and production,


refining and distribution:




(i) with the financial capability, and the technical knowledge and technical


ability, to cam out Petroleum Operations in the Contract Area (as defined in


this Contract) under the terms of this Contract;


(ii) having a record of compliance with the principles of good corporate


citizenship: and





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 (iii) willing to cooperate with the GOVERNMENT by entering into this Contract,


thereby assisting the GOVERNMENT to develop the Kurdistan Region


petroleum industry, thereby promoting the economic development of the


Kurdistan Region and Iraq and the social welfare of its people.





NOW, THEREFORE, THE PARTIES HAVE AGREED AS FOLLOWS


ARTICLE 1 - DEFINITIONS


1.1 Capitalised terms and expressions in this Contract shall have the following meaning,


unless otherwise specified:


Abroad means outside of the Kurdistan Region and other parts oflraq.


Access Authorisation is defined in Article 17.9.


Accounts is defined in Article 15.1.


Accounting Procedure means the Accounting Procedure attached to this Contract as


Annex B and constituting an integral pari 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 regards any of the companies or entities


constituting the CONTRACTOR, a company or ether legal entity which:


(a) controls a CONTRACTOR Entity, or


(b) is controlled by a CONTRACTOR Entity; or


(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 Public Company For the


purpose of this definition, ••control" means direct or indirect ownership or control of


the majority of the voting rights of the applicable entity at its shareholders’ meetings


or their equivalent.


.Agreed Terms is defined in Article 14.10(a).


Appraisal Area means the area defined in Article 12.2.


Appraisal Work Program and Budget is defined in Article 12.2


Appraisal Report is defined in Article 12.4.











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Appraisal Well means a well drilled for the purpose of evaluating the commercial


potential of a geological feature or a geological structure in which Petroleum lias been


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 could reasonably influence the sales price.


Such Arm's* Length Sales shall exclude:


(a) sales between or among any of the CONTRACTOR Entities and their


respective Affiliates;


(b) sales involving the GOVERNMENT or the Government of Iraq; and


(c) soles involving exchanges and any transactions not relating to normal


commercial practices.


Assets means all land, platforms, pipelines, plant, equipment, machinery, wells,





facilities and all other installations and structures and all Materials and Equipment.


Associated Natural Gas means (i) any Natural Gas dissolved in Crude Oil under


reservoir conditions and (ii) any residue gas remaining uAcr the extraction of Crude


Oil from a reservoir.


Audit Request Period is defined in Article 15.1(a).





Available Associated Natural Gas is defined in Article 25.1.


Available Crude Oil is defined in Article 25 1.


Available Non-Associated Natural Gas is defined in Article 25.1.





Available Petroleum is defined in Article 25.1.


Barrel means a quantity of forty-two (42) US gallons as a unit to measure liquids, at a


temperature of sixty degrees (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.


Calendar Year means a period of twelve (12) consecutive Months, commencing I


January and ending on 31 December of the same year.


Chairman is defined in Article 8.1.


Commercial Discovery means a Discovery which is potentially commercial when


taking into account all technical, operational, commercial and financial data collected


when carrying out appraisal works or similar operations, including recoverable


Kf


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reserves of Petroleum, sustainable regulur production levels and other material


technical, operational, commercial and finuncial parameters, all in accordance with


prudent international petroleum industry practice.


Commercial Production means the production Ol Petroleum from the Production


Area in accordance with annual Production Work Program and Budget.


Constitution of Iraq means the permanent constitution of Iraq approved by the


people of Iraq in the general referendum of 15 October 2005.


Contract means this production sharing contract, including its Annexes A and B that


are an integral part hereof, os well as any extension, renewal, substitution or


amendment of this production sharing contract that may be agreed in writing by the


Parties in accordance with Article 43.7.


Contract Area means the area described and defined in Annex A atiached to this


Contract and constituting ar. integral pan of this Contract, and any modifications


made to that Annex in accordance with the prov isions of this Contract, through


amendments, surrender, withdrawal, extension or otherwise


Contract Year means a period of twelve (12) consecutive Months starting from the


Effective Date or any anniversary of the said Effective Date.


CONTRACTOR includes and comprises each and all CONTRACTOR Entities,


including any Public Company or Third Party Participant nominated by the


GOVERNMENT pursuant to Article 4. and. or any assignee of all or part of the rights


and obligations under this Contract in accordance with Article 39.


CONTRACTOR Entity means any Person which is for the time being a component


of the CONTRACTOR and a party to this Contract, and/or any assignee of all or part


of the rights and obligations of such Person under this Contract in accordance with


Article 39.


Crude Oil means all liquid hydrocarbons in their unprocessed state or obtained from


Natural Gas by condensation or any other means of extraction.


Decommissioning C osts means all the costs and expenditures incurred by the


CONTRACTOR when carrying out Decommissioning Operations, including those


defined in the Accounting Procedure.


Decommissioning Operations means any works, together with all related and


auxiliary activities, for decommissioning and/or removal and’or abandonment and


making safe all of the Assets nnd site restoration and remediation related thereto in


relation to any Production Area.


Decommissioning Plan is defined in Article 38.7.


Decommissioning Reserve Fund is defined in Article 38.1 and includes all


contributions paid into such fund and nil interest accumulaicd such fund.


Deductible Amount is defined In Article 35.12.





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Delivery Point means the point after extraction, specified in the approved


Development Plan for a Production Area, at which the Crude Oil. Associated Natural


Can and/or Non-Associated Natural Gas is metered for the purposes of Article 27.7.


valued for the purposes of Article 27.1 and ready to be taken and disposed ol.


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


w hich may be agreed by the Panics.


Development Costs means all the costs and expenditure^ incurred by the


CONTRACTOR when carrying out Development Operations, including those


defined in the Accounting Procedure.


Development Operations means all development operations or works conducted in


accordance with a Development Plan up to the Delivery Point with a view to


dev eloping 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 be required or expedient for the foregoing


activities, and all auxiliary operations and activities required or expedient for the


production of Petroleum from the Prediction Area.


Dev elopment Period is defined in Article 6.


Development Plan means a plan for development defined in Article 12.8.


Development Well means any well drilled after the dale of approval of the


Development Plan for the purpose of producing Petroleum, increasing or accelerating


production of Petroleum, including ir\jcction wells and dry holes Any well drilled


within ii Production Area shall he 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 tltc Contract Area


resulting from Petroleum Operations curried out under this Contract, provided such


Petroleum is recoverable at tltc surface with a measurable How utilising techniques


used in prudent international petroleum industry practice.


Dispute is defined in Article 42.1.


Dollar (USS) means the legul currency (dollar) of the United Slates of America


(USA).


K fleet ive Date means the date on which the conditions referred to in Article 47 have


been fulfilled.


I'.nvironment Fund is defined in Article 23.9.


M(|ui|>111cnt and Materials is defined in Article 19.1.





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Exploration Co.it!* 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 Petroleum, including: any activities necessary to commence operations;


any topographical, hydrographical, geological, geophysical, aerial and other surveys


and activities (including interpretations, analyses and related studies) to investigate


the subsurface tor the location of Petroleum: drilling of shot holes, core holes and


stratigraphic test holes: spud, drilling, testing, coring, logging and equipping of


Exploration Wells or Appraisal Wells; paKurcmcnt of such services, material,


equipment, machinery, items and supplies as may be required or expedient for the


foregoing activities; and ull auxiliary operations and activities required or expedient


for the conduct of the foregoing activities.


Exploration Period is defined in Article 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 the


CONTRACTOR.


Exploration Work Program and Budget means the exploration work program and


budget prepared pursuant to Article 11.1.


Export Crude Oil is defined in Article 24.2.


Export Non-Associated Natural Gas is defined in Article 24.2.


Export Petroleum is defined in Article 24.2.


First Commercial Declaration Date is defined in Article 4.1


First Exploration Well is defined in Article 10.2 (c).


First Production means the moment when Commercial Production of Crude Oil or


Non-Astociated Natural Gas (as the case may be) first commences, by flowing at the


rate forecast in the Development Plan without interruption for a minimum of forty


eight (48) hours.


Force Majeure is defined in Article 40.2.


Gu Development is defined in Article 14.10.


Gih Marketing Costs means all cosis and 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.








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Gas Marketing Work Program and Budget means the marketing work program


ami 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 the any of the foregoing.


International Market Price is defined in Article 27.2.


Iraq means the entirety of the Republic of Iraq, including the Kurdistan Region.


Joint Operating Agreement means any agreement executed by the


CONTRACTOR Entities at any time for die purpose of regulating between such


entities the terms under which the Petroleum Operations will be conducted, which


agreement shall be: (a) based on the AIPN model and consistent with prudent


international petroleum industry practice; (b) as between such entities, supplementary


to this Contract; and (c) consistent with the provisions of the Contract.


Kurdistan Region means the Federal Region of Kurdistan recognised by the


Constitution of Iraq and having the same meaning as ‘Region* in '.he Kurdivtan


Region Oil und Gas Law.


Kurdistan Region Law means all sumacs, decrees, edicts, cedes. orJeis. ru.es.


ordinances and regulations of the GOVERNMENT or of any other local, municipal,


territorial, provincial, or any other duly constituted governmental authority or agcnc>


in the Kurdistan Region


Kurdistan Region Oil and Gas Law means the Oi. 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 law.


common law. international law. equity, treaties, statutes, decrees, edicts, codes,


orders, judgements, rules, ordinances and regulations of any local, municipal,


territorial, provincial, federated, national or any other duly constituted governmental


authority or agencj.


LCIA is defined in Article 42.1(b).


LIBOR means the l.ondon Inter-Bank Offered Rate at which Dollar deposits lor one


(1) month are offered in the inter-bank market m London, as quoted in the Financial


Times of London for the day tn question. In the event that such rate is not published in


the Financial Times, it shall mean the Iondon Inter-bank Offered Rate at which


Dollar deposits for one month are offered for the nearest day as quoted by National


Westminster Bank pic.


Management Committee is defined tn Article 8.


Maximum Efficient Rate (“MER") is defined in Article 16.12.





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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. subject to Article 6.4. 10.2(c); and


(b) in respect of the Second Sub-Penod, the amount set out in Article 103(b).


Month means a caicnda: 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 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 (1) Operator under


this Contract, any reference herein to the term 'Operator' shall he to each Operator


with respect to the pans ol the Contract Area in which such Operator conducts


Petroleum Operations.


Option of Government Participation is defined in Article 4.1


Option of Third Party Participation is defined in Article 4.8.


Party or Parlies means the GOVERNMENT aivi/or each COM RACTOR Entity


and/or the CONTRACTOR.


Permit* means all licences, permits, consents, authorisations or other permissions, as


the context requires.


Person shall include natural and juristic persons (including corporations and


governmental agencies).


Petroleum means:


>a) any naturally occurring hy drocarbon in a gaseous or liquid state;


(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 costs and expenditure incurred by the CONTRACTOR


for the Petroleum Operations, and which the CONTRACTOR is entitled to recover


under this Contract and its Accounting Procedure, including Decommissioning Costs.


Development Costs. Exploration Costs, Gas Marketing Costs and Production Costs





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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 means all Exploration Operations. Cias Marketing Operations.


Development Operations. Production Operations and Decommissioning Operations,


as well as any oilier activities or operations directly or indirectly related or connected


with the said operations (including health, safety and environmental operations and


activities) and authorised or contemplated by. or performed in accordance with, this


Contract.


Pipeline Costs is defined in Article 33.5.


Production Arcs 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 subjacent strata of the Reservoir in


which a Commercial Discovery is located are automatically included in the relevant


Production Area.


Production Bonus means any bonus due pursuant to Article 32.3 or 32.4.


Production Costs means all the costs and expenditure incurred by the


CONTRACTOR in carrying out the Production Operations, including those defined


in the Accounting Procedure.


Production Operation* means any works, together with all related and auxiliary


activities, for the production of Petroleum from the start of Commercial Production,


including: extraction, iqection, 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.


Production Work Program and Budget shall mean the production work program


and budget prepared pursuant to Article 13.6.


Profit Crude Oil is defined in Article 26.1.


Profit Natural Gas is defined in Article 26.1.


Profit Petroleum is defined in Article 26.1.


Proposed Contract is defined in Article 14.10(a).


Public Company means a public company duly registered and incorporated in the


Kurdistan Region and regulated by the GOVERNMENT under the Kurdistan Region


Oil and Gas law.











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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 a single natural


pressure system.


*R" Factor is defined in Article 26.4,


Royalty is defined in Article 24.


Second Exploration Wells is defined in Article 10.3 (b).


Semester means a period of six (6) consecutive Months starling from the first day of


January or July respectively.


Senior Representatives is defined in Article 42.1(a).


Subcontractor means any entity of any contracting tier providing services and or


undertaking works relating to the Petroleum Operations directly or indirectly or.


behalf of. the CONTRACTOR or any CONTRACTOR Entity


Sub-Period and Sub-Periods arc defined in Article 6.2.


Tax or Taxes means all current or future levies, duties, payment., charge


impositions, imposts, withholdings, fees, taxes (including value added tax or other


sales or transaction based tax, corporation tax, income tax. capital gains ta\. stamp


duty, land tax. registration tax. capital and wealth tax, profit tux. dividend tax or


withholdings, transfer tax. customs duties, branch or permanent establishment tax or


withholdings, tax on income from movable capital and fixed tux on transfers) or


contributions payable to or imposed by the GOVERNMENT.


Third Party Interest is defined in Article 4.8.


Third Party Participant is defined in Article 4.9.


Work Program means any work program prepared by. or on behalf of. the


CONTRACTOR pursuant to this Contract and forming port of on Exploration Work


Program and Budget und/or an Appraisal Work Program and Budget and/or n Gas


Marketing Work Program and Budget and/or a Development Work Program and


Budget and/or a Production Work Program and Budget.


Vice-Chairman is defined in Article 8.1.


In this Contract, unless the context otherwise requires or is specifically otherwise


stated:


(a) headings urc to be ignored;





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(b) •'including" and similar words do not imply any limitations:


(c) singular includes plural and vice verso; and


(d) reference to an “Article" is to an article of this Contract and to u Paragraph”


is to a paragraph in the Accounting Procedure.


ARTICLE 2 - SCOPE OF THE < ONTRACT


2.1 'litis Contract is a production-sharing arrangement with respect to the Contract Area,


whereby the GOVERNMENT has the right, pursuant to the Constitution of Iraq, to


regulate and oversee Petroleum Operations within the Contract Area.


I he purpose of this Contract is to define the respective rights and obligations of the


Parties and the terms and conditions under which the CONTRACTOR shall carry out


all the Petroleum Operations.


By entering into this Contract, the GOVERNMENT grunts the CONTRACTOR the


exclusive right and authority to conduct all Petroleum Operations in the Contract Area


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 und renewal periods and including those required by the Cos eminent


of Iraq. The GOVERNMENT (i) represents and warrants to the CONTRACTOR


that it has not done and has not omitted to do anything that would cause the


cancellation or suspension of this Contract or an> Permit granted under this Article


22 or pursuant to this Contract; and (ii) covenants that it will not do. or omit to do.


anything that 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 and 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


prudent international petroleum industry practice.


(b) Financial Serv ices


The responsibility for funding the F.xploration Operations and. in the event of


a Commercial Discovery, Development. Production and Decommissioning


Opcrauoos. pursuant to this Contract.








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For the fuivding of Petroleum Operations, each CONTRACTOR Entity shall


be entitled to have recourse to external financing from either its Affiliated


Companies or from am third parties.


(C) Administrative Services


Implementation of ail appropriate management and administration techniques


for execution of the Petroleum Operations under this Contract, in accordance


with prudent international petroleum industry practice


2.4 During the term of this Contract, the CONTRACTOR shall he responsible to the


GOVERNMENT for the conduct of Petroleum Operations within the Contract Area


pursuant to the terms of this Contract.


2.5 Natural resources other than Petroleum shall be excluded from the scope of this


Contract, ev en if the CONTRACTOR discovers any such resources when executing


its obligations pursuant to this Contract.


2.6 The CONTRACTOR shall only be entitled to recover Petroleum Costs incurred


under this Contract in the event of a Commercial Discovers Recovery of Petroleum


Costs shall occur within the limits prov ided under Article 25.


2.7 During the term of this Contract. Profit ('rude Oil and/or Profit Natural Gas produced


from Petroleum Operations shall be shared between the Parties in accordance with the


provisions of Article 26.


2.8 For 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 ary 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 Aren 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 tlte 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











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 (0 freely use land or property belonging lo the Kurdistan Region, und the


GOVERNMENT will assist the CONTRACTOR with facilitating the use hy


the CONTRACTOR of any privutc property in the Kurdistun Region.














ARTICLE 3 - CONTRACT AREA





The initial Contract Area coven the Akri-Bijeel Block and extends ovc. an area of eight


hundred and eighty nine squurc kilometres (889 km2), as detailed und indicated on the map


attached in Annex A und is delimited by the following coordinates:











roan ••»«-*»* <«•«! *»• a"-* X(«E) ¥<-*>


M) ••«>


A 36 31 58 43 40 49 382 370 4080 837


» 36 46 41 44 04 29 417 438 4070 662


c 36 42 28 44 18 13 437 805 4062 683


D 36 39 02 44 22 23 443 951 4056 300


E 36 34 39 44 15 35 433 758 4048 249


F 36 36 48 44 00 46 411 716 4052 445





C 36 40 33 43 51 12 397 536 4059 522


H 3644 14 43 53 04 400 395 4066 302


36 46 36 43 40 44 382 100 4070 90(1


1





The GOVERNMENT, by execution of this Contract, hereby validates and approves the


foregoing co-ordinates of the Contract Area.





The total area of the Contract Area may be reduced only in accordance with the provisions of


this Contract.








ARTICLE 4 -OPTIONS OF GOVERNMENT PARTICIPATION AND THIRD


PARTY PARTICIPATION











4.1 The GOVERNMENT shall have the option of participiting through a Public


Company in this Contract, in respect of the entire Contract Area, as a


CONTRACTOR Entity, with an undivided interest in the Petroleum Operations and


all the other rights, duties, obligations and liabilities of the CONTRACTOR (save as


provided in and subject to this Article 4) under this Contract in respect of the Contract


Areu. of up to twenty per cent (20%). and not less dian five per cent (5%) (the


“Govcramrnt Interest ’), such option being referred to herein as the Option of


(••vrmmrnt Partkipalioo *. The GOVERNMENT shall be entitled to exercise the


Option of Government Participation by notify ing the CONTRACTOR in writing of


such election and the size of the Government Interest.


I lie GOVERNMENT may exercise the Option of Government Participation at any


4.2


lime in tltc period commencing on the Effective Date and ending one hundred and





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>L


eighty (180) days after the date on which CONTRACTOR declare* the lint


Commercial Discover)' (which date of declaration is referred to herein as the ' First


Commercial Declaration Date"), by nominating to the CONTRACTOR, in writing,


a Public Company. If the GOVERNMENT does not notify the CONTRACTOR of


such election within such period, the Option of Government Participation shall be


deemed to have been waived, save for in relation to any pre-emption rights to


participate that may he granted pursuant to Article 19.2


4.3 If the GOVERNMENT exercises the Option of Government Participation in


accordance with Articles 4.1 and 4.2:


(a) the effective dutc of such participation shull be the date of the notice by which


the GOVERNMENT exercises its Option of Government Participation or the


First Commercial Declaration Date, whichever is the earlier;


(b) the Public Company shall participate as a CONTRACT OR Entity under this


Contract from such effective date, with all its rights, duties, obligations and


liabilities under this Contract, save as provided in and subject to the provisions


of this Article 4;


(c) the Public Company shall not have any liability to the other CONTRACTOR


Entities to contribute its Government Interest share of ull Petroleum Costs


incurred before the First Commercial Declaration Date and its Government


Interest share of such Petroleum Costs shall be the responsibility of the other


CONTRACTOR Entities, provided always that such other CONTRACTOR


Entities shall be entitled (through the CONTRACTOR) to recover all such


Petroleum Costs in accordatvce with Article 23;


(d) if. pursuant to the terms of the Joint Operating Agreement, the Public


Company participates in the development of the Commercial Discovery, it


shall be liable to the other CONTRACTOR Entities to contribute its


Government Interest share of all Petroleum Costs incurred on or after the First


Commercial Declaration Date, with the exception of the Production Bonuses


referred to in Article 32. and shall be entitled (through the CONTRACTOR)


to recover all such Petroleum Costs in accordance with Article 23. including


the Petroleum Costs which it has reimbursed pursuant to Article 4.3 (e);


(e) if such Option of Government Participation is exercised on or after the First


Commercial Declaration Date, the Public Company shall, within thirty (30)


days of the date on which the GOVERNMENT notified the


CONTRACTOR of its election, reimburse the other CONTR \CTOR


Entities for all Petroleum Costs for wiiich it is liable pursuant to Article 4. 3(d)


and which have been incurred by such other CONTRACTOR Entities on or


after the First Commercial Declaration Date but prior to and including the


date of ibe notice pursuant to which the GOVERNMENT exercises its Option


of Government Participation. From the date of such notice, the Public


Company shall pay the Government Interest share of such Petroleum Costs


directly; arvJ


(0 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








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GOVERNMENT and in accordance with the principle in Article 16.13, the


Public Company will be individually and separately liable (and not jotntly and


severally liable with the other CONTRACTOR Entities) to the


GOVERNMENT for its obligations, duties and liabilities under this Contract


as a CONTRACTOR Entity and the prov isions of Article 4.5 shall apply.


4.4 The Public Company may. at its discretion, assign part or all of its Government


Interest to a third party or parties which is another Public Company duly authorised


by the GOVERNMENT, provided that in no event shall a transfer be made which


would result in the transferor or transferee holding less than a five per cent (5%)


participating interest.


In the event of such an alignment to another Public Company, for tl»c purposes of


Article 37 of the Kurdistan Region Oil and Gas Law. the Government Interest so


assigned shall deemed to be held by rhe GO\ ERNMEN r and in accordance w h the


principle in Article 16.13. the Public Company to which such Government Interest is


transferred will be individually and separately liable (and not jointly and several!'


liable with the other CONTRACTOR Entities) to the GOVERNMENT for its


obligations, duties and liabilities under this Contract ns a CONTRACTOR Entity an,:


the provisions of Article 4.5 shall apply.


4.5 Any failure by the Public Company to perform any of its obligations or to satisfy any


of its duties or liabilities under this Contract us u CONTRACTOR I unity »ludl not be


considered as a default of the other CONTRACTOR Entities and shall in no ease 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.


Hie capacity of a Public Company as a CONTRACTOR Entity, as it may arise


pursuant to the provisions of this Contract, shall in no event cancel or affect the rights


of the other CONTRACTOR Entities to seek to settle a dispute or to refer such


dispute to arbitration or expen determination in accordance with the provisions of


Article 42.


4.6 A Public Company may assign pan or all of its Government Interest to a third party or


parties (not being a Public Company) and for the avoidance of doubt the provisions of


Articles 39.1, 392 and 393 shall not apply. Any such assignee shall be jointly and


severally liable with the other CONTRACTOR Entities.


Eor the avoidance of doubt, following any assignment by a Public Company of all or


part or all of a Gov ernment Interest to a third party w hich 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.


4.7 Where a Joint Operating Agreement has been executed by the CONTRACTOR


Entities prior to any exercise of the Option of Government Participation pursuant to


this Article 4. the Public Company nominated by the GOVERNMENT shall become


a party to such agreement, with any amendments accessary to be consistent with the


principles of this Article 4. Where a Joint Operating Agreement is not in place prior


to the exercise of the Option of Government Participation pursuant to this Article 4.


the Public Company and the other CONTRACTOR Entities shall, within a


reasonable period of time, negotiate in good faith and enter into a Joint Operating





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 Agreement and shall during the period between the exercising of the Option of


Government Participation and the execution of the Joint Operating Agreement,


comply with Article 4.14(a) and (b) as if they were provisions of this Contract.








Third Party Interest


4.8 The GOVERNMENT shall have the option of nominating a third party, in respect of


the Contract Area, as a CONTRACTOR Entity, with an undivided interest in the


Petroleum Operations in respect of the entire Contract Area and all the other rights,


duties, obligations and liabilities of the CONTRACTOR (save as provided in and


subject to this Article 4), under this Contract, of up to twenty per cent (20%) and not


less than five per cent (5%) (the "Third Party Interest”), such option being referred


to herein as the "Option of Third Parly Participation".


4.9 I he GOVERNMENT may exercise the Option of Third Party Participation at any


time prior to the date twelve (12) months following the Effective Date by nominating


to the CONTRACTOR, in writing, the size of the Third Party Interest and a


nominated company which has adequate resources and capacity to discharge the


obligations of a CONTRACTOR Entity under this Contract and a Joint Operating


Agreement in respect thereof.


Before the expiry of a period of eight (S) months (such pcri.xl commencing upon the


Effective Date) the Parlies shall have caused to have commenced, and prior :o the


expiry of the twelve (12) month period following the Effective Date. have fully


completed, an investigation carried out into such nominated company in respect of.


and accordance w ith, the standards and requirements of the United States Federal Law


Foreign Corrupt Practices Act of 1977 (as may be amended from time to time), and


the Parties, acting reasonably, shall be fully satisfied with the results of such


investigation. In the event that the Parties arc so satisfied, the nominated company


shall become the Third Party Participant upon the execution or novation of the Join:


Operating Agreement.


For the avoidance of doubt, the GOVERNMENT may only exercise the Option of


Third Party Participation once, and after such exercise the resulting Third Party


Interest may not be increased under this Article 4. However, in the event that the


nominated company does not fulfil the criteria set out in this Article 4.9. the


GOVERNMENT shall:


(a) have the option, upon the formal rejection of a nomination, to nominate a


second company (such company no: to be an Affiliate of any previously


nominated company) and the criteria set out in this Article 4.9 shall be applied


to such second company, provided that the twelve <12» month period set out ir.


this Article 4.9 shall continue to run from the Effective Dale aid shall not be


postponed, re-started or in any other way altered, and




(acting reasonably) fulfil the criteria set out in this Article 4.9. nominate, and


the CONTRACTOR shall accept, a Public Company ss the Third Party


Participant.








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 For (he avoidance of doubt, for the purposes of this Article 4.9. a Public Company


shall be a wholly-owned entity of the GOVERNMENT.





4.10 If the GOVERNMENT nominates a Third Party Participant pursuant to and in


accordance with Articles 4 8 and 4.9, that Third Party Participant shall have the Third


Party Interest.


4.11 If the GOVERNMENT docs not nominate a Third Patty Participant pursuant to and


in accordance with Articles 4.8 and 4.9 then the Option of Third Party Participation


shall he deemed to have been waived.


4.12 If the Option of Third Party Participation is exercised in accordance with Articles 4.8


and 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 Article 4.8 occurs after such date;




instrument of assignment and novation in respect of this Contract referred to in


Article 39.3. puy to the CONTRACTOR, by way of cleared funds to a bank


account nominated by the CONTRACTOR, an amount equivalent to the


proportion of Petroleum Costs incurred by the CONTRACTOR until the date


of such payment attributable to the Third Party Interest (which Petroleum


Costs, for the avoidance of doubt, shall include bonuses payable under this


Contract);


(c) upon payment pursuant to and in accordance with Article 4.12(b) and the


execution of the instrument referred to in Article 4.12(b), the Ihird Party


Participant shall participate as a CONTRACTOR Entity under this Contract


as if it had been a CONTRACTOR Entity from the Effective Date, with all


its rights, duties, obligations and liabilities under this Contract: and


(d) where a Joint Operating Agreement has been executed by the


CONTRACTOR Entities prior to any exercise of the Option of Third Party


Participation pursuant to Article 4.8 and 4.9. the Third Party Participant shall,


upon signature of the instrument referred to in Article 4.12(b). become a party


to such Joint Operating Agreement on the terms thereof.


(e) If a Joint Operating Agreement is not in place pnor to the GOVERNMENT


exercising the Option of Third Party Participation, then the Third Party


Participant and the other CONTRACTOR Entities shall, within a reasonable


period of time, negotiate in good feith and enter into a Joint Operating


Agreement and shall during the period between the exercising of the Option of


Third Party Participation and the execution of the Joint Operating Agreement,


comply with Article 4.14(a) and (b) as if they were provisions Ol'this Contract.




to satisfy any of its duties or liabilities under this Contract as a


CONTRACTOR Entity shall not be considered .is a default of the other


CONTRAC TOR Entities and shall in no case be invoked by the








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 GOVERNMENT to terminate this Contract or exercise any other rights or


remedies in respect of such default dial may be available to it.


(g) The Iliird Party Participant shall provide to the GOVERNMENT a guarantee


covering itx Participating Interest share of all obligations under this Contract


upon the execution or novation of the Joint Operating Agreement, and the


guarantee provided by MOL shall be decreased accordingly.








Order of Exorcising Options


4 13 Notwithstanding Articles 4.8 to 4.12. if the GOVERNMENT exercises the Option of


Government Participation:


(o) after the GOVERNMENT has exercised the Option of Third Party


Participation, the Government Interest shall be assigned under this Article 4 to


the Public Company by the CONTRACTOR Entities pro rata to their


respective participating interests under this Contract; and


(b) prior to the GOVERNMENT exercising the Option of third Party


Participation, then the Third Party Interest shall be reduced by a percentage so


os to put the other CONTRACTOR Entities (other than the Person holding


the (kivemment Interest) and the Third Party Participant in the position they


would have been in had the Option of Third Party Participation been exercised


before the Option of Government Participation.


Joint Operating Agreement Provisions


4.14 Any Joint Operating Agreement entered into in relation to this Contract shall be


consistent with the principles of this Article 4 and shall provide as follows:


(a) all decisions of any operating committee established under such Joint


Operating Agreement shall require the affirmative vote of an agreed


percentage of participating interests held thereunder, which in any ev ent shall


he not more than seventy five per cent (75%); and


(b) in the event of a proposed transfer by any CONTRACTOR Entity of part of a


participating interest under such Joint Operating Agreement, including any


Government Interest or Third Party 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 extan! 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 extant CONTRACTOR Entities so as to


assume and to perform the obligations of the transferor.





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 ARTICLE 5 - OPERATOR





5.1 The CONTRACTOR hereby designates KALEGRAN LTD. to act as the Operator on


behalf of the CONTRACTOR for the execution of the Petroleum Operations. I he


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 or 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.


5.3 In the event of the occurrence of either of the following, the GOVERNMENT may


require the CONTRACTOR to appoint another entity as Operator as soon as is


reasonably practicable:


(a) if an order has been passed in court declaring the bankruptcy, liquidation, or


dissolution of the Operator: or


(b) if the Operator terminates the activities under this Contract delegated to it by


the CONTRACTOR or a material proportion thereof, and. as a result the


CONTRACTOR fails to 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 rhe Exploration Period shall be for an initial term of five (5) Contract Years,


extendable on a yearly basis (as provided in Articles 6 5 and 6.6) up to a maximum


period of seven (7) Contract Years starling from the Effective Date The initial term


of five (5) years shall be subdivided in two (2) sub-periods as follows


(a) an initial sub-period of three (3) Contract Years ("First Sub-Period "): and




each a "Sub-Period” and collectively "Sub-Periods”.


It is understood that the right of the CON TRACTOR to accede to the next Sub-


Period or any extension thereof pursuant to Article 6.6 shall be subject to fulfilment of





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the Minimum Exploration Obligations or minimum work obligations applicable to the


previous Sub-Period or extension thereof pursuant to Article 6.6 (as the ease may be).


63 During the Exploration Period, the CONTRACTOR shall pay to the


GOVERNMEN T, in arrears, an annual surlace rental for the Contract Area, as ma>


be reduced by relinquishment from time to time pursuant to Article 7, often 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 provisions of Articles 1 and 25.


6.4 At least thirty (30) days prior to the end of ihc 18th month from the Effective Date,


the CONTRACTOR shall notify the GOVERNMENT of its election to commit to


the drilling of the optional First Exploration Well, or to withdraw from the First Sub-


Period without any further financial or work obligation, provided thut the data from the


seismic acquisition demonstrates that there was no viable prospect delineated for


drilling the First Exploration Well in the Contract Area.


If the CONTRACTOR decides not to enter into the Second Sub-Period, it shall


notify the GOVERNMENT at least thirty (30) days prior to the expiry of the First


Sub-Period and. provided that the data from the First Exploration Well demonstrates


that there is no reasonable technical case for drilling the Second Exploration Well in


the Contract Area, the Exploration Period shall expire at the end of die 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 lias fulfilled its Minimum Exploration Obligations for a Sub-


Period of the Exploration Period but considers that additional work is required prior


(a) to deciding to 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). which additional work may include the


preparation aadfor execution of an Appraisal Work Program and Budget as


provided under Article 123 and or Gas Marketing Operations.


the CONTRACTOR will automatically be entitled to extensions, each of one (I)


Contract Year, of the then current Sub-Period, up to the end of the maximum


Exploration Period of seven (7) Contract Years, (as provided in Article 6.2). The


CONTRACTOR'S notification of its intention to exercise such extension and its


duration shall he submitted in writing to the GOV ERNMENT at least thirty (30)


days prior to the end of the then current Sub-Period or the end of the then current


extension (as the case may be).


6.6 Without prejudice to Article 6.5. upon expiry of the initial term of the Exploration


Period. if it considers it has not completed its exploration evaluation of the Contract


Area, the CONTRACTOR shall be entitled to an extension of the Second Sub-


Period, provided it notifies the GOVERNMENT in writing at least thirty (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





24/119


evaluation of the Contract .Area, the CONTRACTOR shall be entitled to a fuithcr


extension of one (1) 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 the further extension shall be subject to fulfilment


of the minimum work obligations applicable to the original extension.


6.7 Subject to Article 6.4. at any time during the 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 lias 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 II no Commercial Discovery has been made at the end ol 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 the CONTRACTOR considers it has not


had time to complete sufficient Gas Marketing Operations to declare the Discovery a


Commercial Discovery pursuant to Article 12.6(a) or 14.5(a), the CONTRACTOR


shall Ik entitled to request an extension of the Exploration Period (notwithstanding


the maximum period provided in Article 6.2). provided it so requests the


GOVERNMENT in writing at least thirty (30) days prior to the end of the maximum


Exploration Period, together with a proposal for Gas Marketing Operations to be


undertaken during such extension. If granted by the GOVERNMENT. an> 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 be 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.


Development Period


6.10 If the CONTRACTOR considers that a Discovery of Crude Oil and any Associated


Natural Gas is a Commercial Discovery, the CONTRACTOR shall have the


exclusive right to develop and produce such Commercial Discovery , pursuant to the


terms of this Contract The Development Period for a Commercial Discovery of


Crude Oil and any Associated Natural Gas shall be twenty (20) years commencing on


the declaration of such Commercial Discovery by CONTRACTOR in accordance


with Article 12.6(a). with an automatic right to a five (5) year extension.


6.11 If the CONTRACTOR considers that a Discovery of Non-Associated Natural Gas is


a Commercial Discovery, the CONTRACTOR shall have ihc exclusive right to


develop and produce such Commercial Discovery, pursuant to the terms of this


Contract. The Development Period for a Commercial Discovery of Non-Associated


Natural Gas shall be twenty (20) years, commencing on the declaration of such


Commercial Discovery by CONTRACTOR in accordance with Article 12.6(a) or


Article 14.5(a). with an automatic right to a five (5) yeai extension.








25/119


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 be 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 ihe Development Period shall be:


(a) five (5) Years for Crude Oil and any Associated Namr.il Gnv and'or


(b) five (5) Years for Non-Associated Natural Ga<


6.13 The CONTRACTOR shall have the right to terminate Production Opcrati m tor any


Production 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 last Production Area 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 any


Production Areas and any Appro val Areas from she initial Contract Area.


(b) at the end of the first extension peril d entered into under this Contract after


the end of the initial term of the Exploration Period referred to n Article 6.2


an additional twenty five per cent (25%) of the net area determined b>


subtracting any Production Arens and any Appraisal Areas from the remaining


pan of the Contract Area; and


(c) at the end of the Exploration Period (including all extensions thereof), all of


the remaining area that is not in n Production Area or an Appraisal Area.


7.2 For the application of Article 7.1:


(a) any areas already relinquished pursuant to Article 7.4 shall be deducted frem


areas to be surrendered; and


(b) the CONTRACTOR shall have the right to determine the area, shape and


location of the Contract Arett to be kept, provided that such surrendered


portions of the Contract Area shall be in contiguous blocks.


7.3 If the relinquishment referred 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.











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7.4 During the Exploration Period, the CONTRACTOR may ut the end of each Contract


Year surrender all or any part of the Contract Area by written notice sent to the


GOVERNMENT at least thirty (30) days in advance of the proposed date of


surrender, subject to the provisions of this Article 7.4. Such voluntary surrenders


during the Exploration Period shall be deemed equal to the obligator)' relinquishments


referred to under Article 7.1. This Contract shall terminate in the event of the


surrender of the entire Contract Area.


7.5 No surrender provided under Article 7.4 shall exempt the CONTRACTOR from its


outstanding obligations under this Contract. In the evert the CONTRACTOR elects


to surrender the entire Contract Area without having fulfilled the Minimum


Exploration Obligations relating to the then current Sub-Period as provided in Article


10.2 or Article 10.3, the CONTRACTOR shall pay to the GOVERNMENT the


relevant outstanding amount as detailed in Article 10.2 or Article 10.3, as the case


may be.


7.6 1'he 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 8-MANAGEMENT COMMITTEE


8.1 A Management Committee sliall be established within thirty (30) days following the


Effective Date for the purpose of providing orderly direction of all matters pertaining


to the Petroleum Operations and the Work Programs. Within such period, each of the


GOVERNMENT and the CONTRACTOR shall by wTinen notice nominate its


respective members of the Management Committee and their deputies.


The Management Committee shall comprise two (2) members designated b> the


GOVERNMENT and two (2) members designated by the CONTRACTOR


Upon ten (10) days notice, each of the GOVERNMENT and the CONTRACTOR


may substitute any of its members of the Management Committee. I’he chairman 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 CONTRA( I OK (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.


8.2 The Vlanagcmcnt Committee shall review, deliberate, decide and give advice,


suggestions and recommendations to the Parlies regarding the following subject


matters:


(a) Work Programs and Budgets:


(b) the CONTRACTOR S activity reports;





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 (C) production levels submitted by the CONTRACTOR, based on prudent


international petroleum industry practice,







(e) procurement procedures for potential Subcontractors, submitted by the


CONTRACTOR in accordance with Article 19.3;





(0 Development Plan and Budget for each Production Area;


(g) any matter having a material adverse affect on Petroleum Operations:





(h) any other subject matter of a material nature that the Parties arc willing to


consider





8.3 Each of the GOVERNMENT and the CONTRACTOR shall have one (1) vote in


the Management Committee. The Management Committee cannot validly deliberate


union each of the GOVERNMENT and the CON TRACTOR iv reprinted by at


least one (1) of its member* 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 be held within fourteen (14) days


to discuss the sume subject matter and attempt to reach a unanimous decmon.





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 shall have the tie-breaking vote.





8.4 In the event that, during the Exploration Period, no agreement is reached at the second


meeting of the Management Comnir.ee, 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 CONTRACTOR shall be deemed adopted by the Management Committee.





8.5 Notwithstanding the previsions of Article 8.3. and subject to Article 8.4. unanimous


approval of the Management 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) any 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 CONTRACTOR in accordance with Article


19.3 (unless such procedures have been deemed approved by the Management


Committee in accordance with Article 19.3):





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(0 approval of, and any material revision to, any proposed pipeline project,


submitted by CONTRACTOR in accordance with Article 33.3;


(g) approval of a first rate bank in which to place the Decommissioning Reserve


l und, in accordance with Article 38.1;


(h) 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 Article 42.2;


(j) approval of any costs in excess of ten per cent (10°/«) above any Budget; and


(k) any mutter having a material adverse clTcct on Petroleum Operations.


8.6 Ordinary meetings of the Management Committee shall take place in tire Kurdistan


Region, alternately at the offices of the GOVERNMKNT and those of the


COIN IRAC TOR, or at any other location agreed between Parties, at least twice a


Contract Year prior to the date of the first Commercial Discovery and three times a


Contract Year thereafter.


8.7 Either the GOVERNMENT or the CONTRACTOR may call an extraordinary


meeting of the Management Committee to discuss important issues or developments


related to Petroleum Operations, subject to giving reasonable prior notice, specifying


the matters to be discussed at the meeting, to the other Party. The Management


Committee may from time to time make decisions by correspondence provided all the


members have indicated their approval of such decisions in such correspondence.


8 * Unless at least one (1) member or its deputy of each of the GOVERNMENT and the


CONTRACTOR is present, the Management Committee shall be adjourned for a


period not to exceed eight (8) days The Party being present shall then notify the other


Party of the new date, time and location for the meeting.


8 9 live agenda for meetings of the Management Committee shall be prepared by the


CONTRACTOR in accordance with initructions 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


CONTRACTOR. Decisions of the Management Committee will be made at the


meetings. The CONTRACTOR shall be responsible for preparing and keeping


minutes of the decisions made at the meetings. Copies of such minutes shall be


forwarded to each Party for review and approval. Each Party shall review and


approve such minutes within ten (10) days of receipt of the draft minutes. A Party


who fails to notify in writing its approval or disapproval of such minutes within such


ten (TO) days shall be deemed to hav e approved the minutes.


8.10 If required, the Management Committee may request the creation of a technical sub¬


committee or any other sub-committcc to assist it. Any such sub-committee shall be


composed of a reasonable number of experts from the GOVERNMENT and the











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 CON TRACTOR. After each meeting, the technical sub-committee or any other sub¬


committee slull 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 other sub-committee


shall be considered as Petroleum Costs and shall be recovered by the


CONTRACTOR in accordance with the provisions of Articles 1 and 25.














ARTICLE 9 - GUARANTEES


Parent company undertaking


9.1 KAI.FORAN I 1*0. provides to the GOVERNMENT, with effect from the i flretive


Date, un undertaking from MOL Hungarian Oil and Gas Pic in respect of the of


KALEGRAN LTD as a CON TRACTOR Entity and Operator to enable it to meet its


payment obligations under this Contract m the form att*:hcd in Annex C as Parent


Company Guarantee.


9.2 Each CONTRACTOR Entity shall provide the GOVERNMENT, if so required by


the latter pursuant to written notice received by the CONTRACTOR Entity within


thirty (30) days of 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 be given onl> ;n respect of the Minimum Financial


Commitment set forth in Article 10.2 (d) for the First Sub-Period and shall expire


automatically upon completion of the performance of the Minimum Exploration


Obligations set out in Article 10.2(d) or expenditure of such Minimum Financial


Commitment, whichever is the earlier.


9.3 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 latter pursuant to written notice received by the CONTRACTOR Entity within


thirty (30) days of such commencement date, with a corporate guarantee in:


(a) the form substantially agreed between the GOVERNMENT and each


CONTRACTOR Entity for the First Sub-Period, if any, subject to making the


changes necessary in order lor the corporate guarantee to apply only to (lie


Second Sub-Period, or


(b) if there is no agreed form, 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 GOVERNMENT’S notice.


and provided in each case 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 Obligations set out in Article 10.3 (b) or expenditure of


such Minimum Financial Commitment, whichever is the earlier.





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9.4 In ihe 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 such assignee within thirty


(30) days of the Effective Date, with a corporate guarantee in the form agreed


pursuant to Article 92 or 9.3, 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 iatcr than ninety


(90) days after the effective date of the assignment, provided that such corporate


guarantee shall be giver, only in respect of the Minimum Financial Commitment for


the then current Sub-Period, and shall expire automatically upon completion of the


performance of the Minimum Exploration Obligations set out in Articles 102(d) and


(e) or Article 10.3(b). as the case may be. or expenditure of such Minimum Financial


Commitment, whichev er is the earlier.


ARTICLE 10 - MINIMUM EXPLORATION WORK OBLIGATIONS


10.1 The CONTRACTOR shall start Exploration Operations within thirty (30) days of


Management Committee approval of the Exploration Work Program and Budget in


accordance with Article 8. The CONTRACTOR shall perform geological,


geophysical and/or drilling works as provided under Articles 10.2 to 10.3 (the


"Minimum Fxploratioa Obligations-). If applicable, the said Minimum Exploration


Obligations shall be performed during each Sub-Period in accordance with piudcn:


international petroleum industry practice.


10.2 During the First Sub-Period, the CONTRACTOR shall:


(a) carry out geological and geophysical studies, comprising the following:


(i) the compilation of a technical database;


(ii) the performance of a remote sensing study:


(iii> a field visit to verify initial geological und geophysical work and


remote sensing results and plan for two dimensional seismic


acquisition; and


(b) carry out a data search for existing data specific to this Contract Aren,


comprising the following:


(i) well data, if available, for example, electric logs;


(ii) seismic data and gravity data, if available: and


(lii) reprocess seismic data, if available;


(c) perform field work comprising structural, stratigraphic and lithologic mapping


and sampling;


(d) acquire, process and interpret two hundred (200) line kilometres of two


dimensional seismic data within the Contract Area, committing for this








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purpose a minimum financial amount of six million Dollars (US J>6,000,000);


and


(e) subject to Article 6.4. drill one (1) optional Exploration Well (the First


Exploration Well"), committing for this purpose a minimum financial amount


of nineteen million Dollars (USS 19.000.000).


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 First Exploration Well justify the acquisition of further


seismic data; and


(b) drill one (I) Exploration or Appraisal Well (the "Second Exploration Well”)


committing for this purpose a minimum financial amount of four million


Dollars (USS4.000.000), unless the data from the First Exploration Well


demonstrates that there is not a reasonable technical case for drilling the


Second I Exploration Wells 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 10.3. it is agreed as follows








(a) Minimum Exploration Obligations in respect of the second half of the Firs; Sub


Period shall only apply in tlK event the CONTRACTOR has elected to notify the


GOVERNMENT that it a ill undertake the drilling obligation in accordance with


and subject to the first paragraph of Article 6.4.


(b) Minimum Exploration Obligations in the Second Sub-Period shall only apply





in the event the CONTRACTOR has not elected to notify the


GOV ERNMENT that it will not enter into the Second Sub-Period, in


accordance with and subject to Article 6 4.


(c) 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 the total Minimum Financial Commitment for such Sub-


Period. it shall be deemed to have satisfied its Minimum Exploration


Obligations for such Sub-Period.





id) Each Exploration Well shall be drilled to the depth agreed by the Management


Committee unless:


(i) the formation is encountered at a lesser depth than originallv


anticipated;


(ii) basement is encountered at a lesser depth than originally anticipated.











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 (iii) in the CONTRACTOR'* lolc opinion continued drilling of the


relevant Exploration Well presents a hazard due to the presence of


abnormal or unforeseen conditions:





(iv) insurmountable technical problems are encountered rendering it


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 to he reached


If drilling is slopped for any of the foregoing reasons, the Exploration Wei!


shull be deemed to have been drilled to the depth agreed by the Management


Committee and the CONTRACTOR shall be deemed to have satisfied its


Minimum Exploration Obligations in respect of the Exploration Well.


(c) Any geological or geophysical work carried out or any seismic data acquired,





processed or interpreted or any Exploration Well drilled or any other work


pcrfomicd 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 he carried forward to the next Sub-Period or any


extension period and shall be taken into account to satisfy the Minimum


Exploration Obligation* and/or the total Minimum Financial Commitment for


such subsequent Sub-Period or extension period.


(0 For the avoidance of doubt, if: (i) in the First Sub-Period, the


CONTRACTOR performs any of the Minimum Explora.ion Obligations


prescribed for the Second Sub-Period in Article 10.3; and (ii) the


CONTRACTOR has not elected to notify the GOVERNMENT Out 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 Obligations for the


Second Sub-Period.





ARTICLE II - EXPLORATION WORK PROGRAMS AND BUDGETS


11.1 Within forty-five (45) days following the Effective Date, the CONTRACTOR shah


prepare and submit to the Management Committee a proposed work program and


budget relating to Exploration Operations (the “Exploration Work Program and


Budget ) for the remainder of the Calendar Year. Thereafter, no later than I October


in each Calendar Year, the CONTRACTOR shall submit a proposed Exploration


Work Program and Budget to the Management Committee for the following Calendar


Year


11-2 Each Exploration Work Program and Budget shall include derails of. but not be


limited to. the following:


(a) work lo be undertaken;


(b) materials, goods and equipment to be acquired;








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(c) CO* estimate of services to be provided, including services by third parties


and/or Affiliated Companies of any CONTRACTOR Entity; and


(d) estimated expenditures, broken down by cost centre in accordance with the


Accounting Procedure.


113 TV 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 GOVERNMENT at the


meeting of the Management Committee or in writing prior to such meeting


11.5 The CON TRACTOR 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%) of the approved Exploration


Work Program and Budget in any Calendar Year and provided further that such


excess expenditures shall be reported as soon us is reasonably practicable to the


Management Committee. For the avoidance of doubt all excess expenditures shall be


recovered by the CONTRAC TOR in accordance with the provisions of Articles 1


and 25. provided that any excess expenditures above the ten per cent (10%) limit shall


only be recovered with the unanimous approval of the Management Committee.


11.6 In cases of emergency, die CONTRACTOR may incur such additional expenditures


as it deems necessary' to protect life, environment or property. Such additional


expenditures shall be reported promptly to the Management Committee. For the


avoidance of doubt, such additional expenditure shall be considered Petroleum Costs


and shall be recovered by' the CONTRACTOR in accordance with the provisions of


Articles 1 and 25


ARTICLE 12 - DISCOVERY AND DEVELOPMENT


12.1 If the drilling of an Exploration Well results in a Discovery , the CONTRACTOR


shall notify the GOVERNMENT within forty-eight (48) hours of completing tests


confirming the presumed existence of such Discovery or within such longer period as


•die CON IRACTOR reasonably requires to determine whether or not there is a


Discovery. Within thirty (30) days following notification of the said Discovery , the


CONTRACTOR shall present to the Management Committee all technical data then


available together with its opinion on the commercial potential of the said Discovery


(the “Discovery Report ") T>ie OONTRAfTOR shall provide in a timely manner


such other information relating to the Discovery as the GOVERNMENT may


reasonably request.














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12.2 If, pursuant to Article 12.1. the CONTRACTOR considers that the Discover) 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 (the "Appraisal Work Program and Budget ) to the Management


Committee. The Management Committee shall examine the Appraisal Work Program


and Budget within thirty (50) days of its rcccipi 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 thereto within sixty (60) days from its receipt of the proposed


Appraisal Work Program and Budget. The CONTRACTOR shall communicate its


comments on any such requested modifications to the GOVERNMENT at the


meeting of the Management Committee or in writing prior to such meeting.


The Appraisal Work Program and Budget shall include the following:


(a) an appraisal works program and budget, in accordance with prudent


international petroleum industry practice:


(b) an estimated time-frame for completion of appraisal works; and


(c) the delimitation of the area to be evaluated, the surface of which shall not


exceed twice (2 x) the surface of the geological structure or prospect to be


appraised (the “Appraisal 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 ant


Appraisal Well deemed necessary by the CONTRACTOR before or during the


Management Committee's review of the 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 the aggregate amount of


such expenditures shall not exceed ten per cent (10%) of the approved Appraisal


Work Program and Budget in any Calendar Year and provided further that such


excess expenditures shall be reported as soon as is reasonably practicable to the


Management Committee. For the avoidance of doubt, all excess expenditures shall be


recovered by the CONTRACTOR in accordance with the provisions of Articles I


and 25. provided that any excess expenditures above the ten percent (10%) limit shall


only be recovered with the unanimous approval of the Management Committee.





Appraisal Renorf


12.4 The CONTRACTOR shall submit a detailed report relating to the Discovery (the


"Appraisal Report* ) to the Management Committee within ninety (90) days


following completion of the Appraisal Work Program and Budget.


12.5 The Appraisal Report shall include the following:


(a) geological conditions;





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 (b) physical properties of any liquids;


(c) sulphur, sediment and water content;





(d) type of substances obtained;


(c) Natural Gas composition;





(0 production forecast per well; and










12.6 Together with its Appraisal Report the CONTRACTOR shall submit a written


statement to the Management Committee specifying that:


(a) the CONTRACTOR has determined that the Discovery is a Commercial


Discovery;


(b) the CONTRACTOR has determined that the Discovery is not a Commercial


Discovery;


(c) the CONTRACTOR has determined that the Discovery is a sigitificant


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 signifies:


Discovery of Non-Associatcd Natural Gas. which may become a Commercial


Discovery subject to (ias Marketing Operations, in accordance with


Article 14.5.


12.7 In cose the statement of the CONTRACTOR corresponds to Article 12.6(c). the


CONTRACTOR shall submit a Work Program and Budget to the Management


Committee within thirty (30) days following such statement. Any well drilled to


evaluate the said significant Discovery shall be considered an Exploration Well.





Development Plan


12.8 If the Discovery has been declared a Commercial Discovery by the CONTKAC TOR


pursuant to Article 12.6(a) or Article 14.5(a). the CONTRACTOR shall submit a


proposed Development Plan to the Management Committee within one hundred


eighty (180) days following such declaration. The Development Plan shall be ir.


accordance with prudent international petroleum industry practice. Except with the


consent of the GOVERNMENT, such Development Plan shall include details of the


following as applicable;


(a) the delimitation of the 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 Dc\elopment Wells;








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(c) drilling and completion of water or Natural Gas injection wells;


(d) laying of gathering pipelines;


(e) installation of separators, tanks, pumps and any other associated production


and injection facilities for the production;


(0 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 accordance 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 ofNanmd Gas:


tm) to the extent available, all contracts and arrangements made or to be made by


Persons in respect of that Natural Gas downstream of the point at which it is to


be sold by the CONTRACTOR and which are relevant to the price at which


(and other terms on which) it is to be sold by the CONTRACTOR or are


otherwise relevant to the determination of the value of it for the purposes of


this Contract, hut not beyond the point at which it is first disposed of in an


Arm’s Length Sulc;


(n) each CONTRACTOR Emily's plans for financing its interest, if any; and


(o) any other operations not expressly provided for in this Contract but reasonably


necessary lor Development Operations. Production Operations and delivery of


Petroleum produced, in accordance with prudent international petroleum


industry practice.


12.9 I'hc Management Committee shall use its best efforts to approve the Development


Plan w ithin 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 tokos for the


Management Committee to approve the Development Plan. The Development Plan


shall be considered approved by the GOVERNMENT if the GOVERNMENT,


through iis 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





37/119


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 (30) days from the date ot such


meeting shall 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. I he


CONTRACTOR shill be entitled to develop and to produce each Commercial


Discovery and the GOVERNMENT shall provide the appropriate Permits covering


each Production Aren. 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 ol a Petroleum Contract (as defined in the Kurdistan


Region Oil and Gas Law) with a third party, the provisions of Article 34.2 shall apply.














ARTICLE 13 - DEVELOPMENT AND PRODUCTION WORK PROGRAMS AND


BUDGET





13.1 Upon the approval of the Development Plan by the Management Committee, the


CONTRACTOR shull start the Development Operations for the Commercial


Discovery in accordance with the Development Plan and prudent international


petroleum industry practice.


Appro* al of Development Works Program and Budget


13.2 Within ninety (90) days following approval of the Development Plan by the


Management Committee, the CONTRACTOR shall prepare and submit to the


Management Committee a proposed work program and budget for Development


Operations (the “Development Work Program and Budget") to he carried out in the


Production Area for the duration of the Dev elopment Operations fhereafter. no later


than 1 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) w orks to be carried out;


(b) 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.


13.3 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





38/119


sixty (60) days from its receipt of the proposed Development Work Program and


Budget. The CONTRACTOR shall communicate its comments on any such


requested modifications to the GOVERNMENT at the meeting of the Management


Committee or in writing prior to such meeting.


13.4 The CONTRACTOR shall be authorised to incur expenditures not budgeted in an


approved Development Work Program and Budget provided that the aggregate


amount of such expenditures shall not exceed ten 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


slutll be recovered by the CONTRACTOR in accordance with the provisions of


Articles 1 and 25, provided that any excess expenditures above the ten per cent (10%)


limit shall only be recovered with the unanimous approval of the Management


Committee.


13.5 In eases of emergency, the CONTRACTOR may incur such additional expenditures


us it deems necessary to protect life, environment or property. Such additional


expenditures shall be reported promptly to the Management Committee. For the


avoidance of doubt, such additional expenditure shall be considered Petroleum Costs


and shall be recovered by the CONTRACTOR in accordance with the provisions of


Articles I and 25.


13.6 No later than I October of the Calendar Year preceding the estimated commencement


of production pursuant to an approved Development Plan and thereafter no later than


I October in each Calendar Year, the CONTRACTOR shall prepare and sabmi: to


the Management Committee a proposed work program and budget f.»r Production


Operations (the "Production Work Program and Budget ') for she following


Calendar Y«or. fo enable the Management Committee to forecast expenditures, the


Production Work Program and Budget shall include details of the following.


(a) works to be carried out;


(b) material and equipment to be acquired by main categories;




Affiliated Companies of any CONTRACTOR Entity; and


(d) categories of general and administrative expenditure.


13.7 If any modification to the Production Work Program and Budget is requested by the


GOVERNMENT, the Management Committee shall meet to discuss the Production


Work Program and Budget and proposed modifications thereto within sixty (60) days


from its receipt of the proposed Production Work Program und Budget. The


CONTRACTOR shall communicate its comments on any such requested


modifications to the GOVERNMENT at the meeting of the Management Committee


or in writing prior to such meeting.











39/119


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 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


und 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 cases of emergency, the CONTRACTOR may incur such additional expenditure


as it deems necessary to protect life, environment or property. Such additional


expenditures shall be reported promptly to the Management Committee. For the


avoidance of doubt, such additional expenditure shall be considered Petroleum Costs


and shall be recovered by the CONTRACTOR in accordance with the provisions of


Articles 1 and 25.


13.10 After the commencement of Commercial 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 Contract Year


("Production Rental”) Such Production Rental shall Ik considered as a Petroleum


Cost and shall be recovered by the CONTRACTOR in accordance with the


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


benefit* to the CONTRACTOR on principles materially similar to those contained in


this Contract, including, consistent with the Kurdistan Region Oil and Gas Law. more


generous provisions in respect of the recovery of Petroleum Costs and the snaring of


Profit Petroleum than in respect of Crude Oil.


14.2 The CON TRACTOR may freely use any Natural Gas required for the Petroleum


Operations. If technically and economically justified, the CONTRACTOR shall in


priority use any Natural Gas for the purpose of enhancing recovery of Crude Oil in


accordance with prudent international petroleum industry practice as follows.





Associated Natmal til*


14.3 Any excess Associated Natural Gas produced that is neither used in the Petroleum


Operation* nor developed and sold by the CONTRACTOR shall, upon the


GOVERNMENT'S written request, be transferred at the first practicable delivery


point as agreed between the Parties, free of charge to the GOVERNMENT. In such


case, the GOVERNMENT shall Ik solely responsible for collecting, treating,


compressing and transporting such Natural Gas from such agreed delivery point und


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








40/119


excess Associated Natural Gas by the GOVERNMENT shall occur in accordance


with prudent international petroleum industry practice and shall not interfere with the


production, lifting and transportation of the Crude Oil by the CONTRACTOR. For


the avoidance of doubt, all expenditure incurred by the CONTRACTOR up to such


agreed delivery point shall be considered Petroleum Costs and shall be recovered by


the CONTRACTOR in accordance with the provisions of Articles 1 and 25.


In the event the GOVERNMENT finds a market for Associated Natural Gas. it shall


promptly give written notice to the CONTRACTOR, and the CONTRACTOR may


elect to participate in supplying such Associated Natural Gas within ninety (90) days


following notification thereof by the GOVERNMENT. If the CONTRACTOR


elects to participate in supplying Associated Natural Gas to such market, .til


expenditures associated with any necessary facilities shall be paid for by the


CONTRACTOR. For the avoidance of doubt, such expenditure incurred shall be


considered Petroleum Costs and shull be recovered by the CONTRACTOR in


accordance with the provisions of Articles 1 and 25.


Non Assocjajyd Natural Gas


14.4 Until an approved Natural Gas sales contract is executed in respect of all volumes of


Natural Gas expected to be produced, the CONTRACTOR shall be entitled 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-Associatcd Natural Gas. which may


become a Commercial Discovery subject to Gas Marketing Operations, it shall earn


out Gas Marketing Operations, at the end of which it shall submit a written statement


to the Management Committee specifying that:


(a) the CONTRACTOR has determined that the Discovery is a Commercial


Discovery ; or


(b) the CONTRACTOR has determined that the Discovery is not a 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-Associaied Natural Gas


including any evaluation to find a commercial market for such Son-Associated


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 he 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 die


activities in relation to the Gas Marketing Operations shall be considered Petroleum


Costs.











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14.8 No later than 1 October of the Calendar Year preceding the Calendar Year in which


any Gas Marketing Operations are doe to occur, the CONTRACTOR shall prepure


and submit to the Management Committee its 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:


(a) work* to he carried out


(b) type of services to be provided, distinguishing between third parties and


AtTiliatcd companies of any CONTRACTOR 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 k> discuss the Ga»


Marketing Work Program and Budget and proposed modifications thereto within sixty


(60) days from its receipt of the proposed Gas Marketing Work Program and Budget


The CONTRACTOR shall communicate its comments on any such requested


modifications to tit GOVERNMENT at the meeting of the Management Committee


or in writing prior to such meeting


14.9 The CONTRACTOR shall be authorised to incur expenditures not budgeted in ac


approved Gas Marketing Work Program and Budget provided that the aggregate


amount of such expenditure dull 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 reported 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 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.


14.10 If any Non-Associated Natural Gas is discovered within the Contract Area, and the


CONTRACTOR reasonably considers that the Non-Associatcd Natural Gas


Discovery will only be a Commercial Discovery if certain terms of this Contract arc


amended, it shall be entitled to request amendments to this Contract, with its reasons.


The 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 arc


unable to agree on 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 pcriiKl


of eight (8) years from the end of such Exploration Period, the GOVERNMENT


reaches agreement with any tliiid party to develop such Discovery (the "Gas


Development"), then the following provisions shall apply:


(a) cither before or upon agreement in relation lo the Gas Development having


been reached (and whether or not such agreement is recorded in a fully termed


production sharing and/or operating or other like agreement), but before such


agreement is signed (the “Proposed Con tract**) (subject only to the rights of


each CONTRACTOR Entity to pre-empt such Proposed Contract pursuant to


Article 14.10(b) and such conditions as may be applicablcX the


GOVERNMENT shall, as soon us reasonably practicable after the occurrence


of such circumstances, serve on each of the CONTRACTOR Entities, a


notice lo that effect and shall with such notice provide such information and


main terms of such agreement us 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;


(ii) the effective date of the Proposed Contract;


(iii) the applicable commercial terms, including bonuses, royalties, cost


recovery, profit sharing, taxation and any other similar terms; and


(iv) all and any material conditions to which the Proposed Contract is


subject.


(b) Upon a request from any CONTRACTOR Entity, the GOVERNMENT will


provide all the CONTRACTOR Entities with such further information and


terms as may be reasonably requested by any CONTRACTOR Entity.


Within one hundred and eighty days (180) days after receipt of a notice and


any further information under Article 14.10(a) in relation to a Proposed


Contract each of the CONTRACTOR Entities shall elect cither:


(i) to enter into the Proposed Contract on the same or substantially simila:


terms to the Agreed Terras, 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 upon the GOVERNMENT and all the


CONTRACTOR Entities and in default of receipt by the GOVERNMENT


of any such ivticc within such period of one hundred and eighty (180) days


such CONTRACTOR Entity shall be deemed conclusively to have saved 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 l4.10(bXi) in relation to the Proposed Contract, then the


GOVERNMENT shall transfer or grant each such CONTRACTOR Entity


an interest in the Proposed Contract upon the Agreed Terms (in accordance


with Article 14.10(bXi)) in the proportions in which their respective


percentage interests bear to the aggregate of their 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


CON TRACTOR Entities shall agree between them.








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(

under Article 14.IO(b)(i) in relation to the Proposed Contract then the


GOVERNMENT shall transfer or grant the whole of the interest in the


Proposed Contract upon the Agreed Terms (in accordance with !4.10(bXi)) to


such CONTRACTOR Entity.


(e) In the event that none of the CONTRACTOR Entities exercises its rights


under Article 14.10(bXi) then the GOVERNMENT may enter into the


Proposed Contract on terms no more favourable to its counterparty than the


Agreed Terms and. in such case, the aforesaid rights of pre-emption shall


thereupon ccasc to apply in relation to the Proposed Contract.


14.11 If the pre-emption rights in Article 14.10 are not exercised and the GOVERNMENT


enters into the Proposed Contract with the third party concerned, the


GOVERNMENT will use its best endeavours to ovoid any clt'cct which may hamper


the Petroleum Operations of the CONTRACTOR while producing Petroleum.


Flaring


14.12 Flaring of Natural Gas in the course of activities provided for under this Contract, is


prohibited except (i) short-term liming up to twelve (12) Months necessary for testing


or other operational reasons in accordance with prudent international petroleum


industry practice (which shall include the Haring of Associated Natural Gas to the


extent the CONTRACTOR considers that redirecting Associated Natural Gas is nut


justified technically and economically and provided the GOVERNMENT decides


not to take such Associated Natural Gas), or (ii) with the pri.-r authorisation of the


GOVERNMENT, such authorisation not to be unreasonably withheld or delayed.


The CONTRACTOR shall submit such request to the GOVERNMENT, which shall


include an c\aluation of reasonable alternatives to flaring that have been considered


along with information on the amount and quality of Natural Gas involved and the


duration of the requested flaring





ARTICLE 15 - ACCOUNTING AND AUDITS


15.1 The CONTRACTOR shall keep in its offices in the Kurdistan Region copies of all


books and accounts of all revenues relating to the Petroleum Operations and all


Petroleum Costs (the Accounts'*), except during the Exploration Period, when the


CON TRACTOR shall be entitled to keep the Accounts at its headquarters Abroad.


The Accounts shall reflect in detail expenditure incurred as a function of the


quantities and value of Petroleum produced, and shall be kept for a period of five (5)


years All Accounts which are made available to the GOVERNMENT in accordance


with the provisions of this Contract shall be prepared in the English language. The


Accounts shall be kept in accordance with prudent international petroleum industry


practice and in accordance with the provisions of the Accounting Procedure. The


Accounts shall be kept in Dollars, which shall be the reference currency for the


purposes of this Contract.


15.2 Within ninety (90) days following the end of each Calendar Year, the


CONTRACTOR shall submit to the GOVERNMENT a summary statement of all











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Petroleum Costs incurred during the said Calendar Year. The summary statement


shall also include a profit calculation pursuant to the provisions of Article 26.


15.3 The GOVERNMENT shall have the right:


(a) to request an audit of the Accounts with respect to each Calendar Year within


a period of two (2) Calendar Years following the end of such Calendar Year


(the "Audit Request Period ’); and


(b) to retain an auditor of international standing familiar with international


petroleum industry accounting practice to undertake or assist the


GOVERNMENT to undertake the audit.


Notwithstanding paragraphs (a) and (b) of this Article 15.3, the GOVERNMENT


shall have the right to audit the Accounts with respect to each Calendar Year at any


time in the case of manifest error or fraud.


15.4 I'he reasonable cost of retaining an auditor pursuant to Article 15.3 shall he home by


the CONTRACTOR and treated as a Petroleum Cost for the purpose of cost recovery


under Articles 1 and 25.


15.5 During the Audit Request Period for any Calendar Year but not thereafter, the


GOVERNMENT, ucting reasonably and in accordance with prudent international


petroleum industry practice, may request in writing all reasonably available


information and justifications for its audit of Petroleum Costs.


15.6 Should the GOVERNMENT consider, on the basis of data and information available,


that the CONTRACTOR made a material mistake or there is any irregularity in


respect of the Accounts and considers that any corrections, adjustments or


amendments should be made, the GOVERNMENT shall make any audit exceptions


in writing and notified lo the CONTRACTOR within six (6) Months of the date of


request refereed to in Article 15.3. and failure to give such written exception within


such time shall be deemed to be an acknowledgement of the correctness of the


CONTRACTOR'S Accounts.


15.7 In respect of any audit exception made by the GOVERN MENT in accordance with


.Article 15.6, the CONTRACTOR shall then have sixty (60) days to make necessary


corrections, adjustments or amendments or to present its comments in writing or


request a meeting with the GOVERNMENT, The GOVERNMENT shall within


thirty (30) days of the COM RACTORs response, notify the CONTRACTOR in


writing of its position on the corrections, adjustments, amendments or comments. If


thereafter there still exists a disagreement between the GOVERNMENT and the


CONTRACTOR, the dispute will be settled m accordance with Article 15 9


15 8 In addition to the annual statement* of Petroleum Cost* a* provided in Article 15.2.


the CONTRACTOR shall provide the GOVERNMENT with such production


statements and reports, as required pursuant to Article 16.3.


15.9 Any dispute between the Parties under this Article 15 that cannot be 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








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 CONTRACTOR in accordance with the provisions of Article 42.2. Notwithstanding


the provisions of Article 42. in this specific instance the decision of the expen shall


not necessarily be final and either Party may decide to submit the matter to arbitration


in accordance with the provisions of Article 42.1.





ARTICLE 16 - CONTRACTOR’S RIGHTS AND OBLIGATIONS


Permanent Representative


16.1 If not done already, within ninety (90) days following the Effective Date, each


CONTRACTOR Entity shall open an office and appoint a permanent representative


in the Kurdistan Region, who may he contacted by the GOVERNMENT with regard


to any matter relating to this Contract and will he entitled to receive any


correspondence addressed to such CONTRACTOR Entity.


conduit ..f Pytrokmn Qi>crmi».n»


16.2 Hie CONTRACTOR shall carry out all Petroleum Operations in accordance with the


provisions of this Contract, prudent international petroleum industry practice and


applicable Kurdistan Region Law.


The CONTRACTOR shall be responsible for the conduct, management, control and


administration of Petroleum Operations and shall he entitled to conduct Petroleum


Operations in accordance with the provisions of this Contract. In conducting its


Petroleum Operations, the CONTRACTOR shall hove the right to use any Affiliate


of each CONTRACTOR Entity, its and their Subcontractors, and the employees,


consultants, and agents of each of the foregoing. The CONTRACT OR and all such


Persons shall at all times ha\c free access to the Contract Area and any Production


Areas for the purpose of carrying out Petroleum Operations.





Information and Report*


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) performed during the


Calendar Year, including any quantities of Petroleum produced and sold:


(b) data and information regarding any transportation facilities built and operated


hy the CONTRACTOR


(c) a statement specifying the number of personnel, their title, their nationality as


well us u report on any medical services and equipment made available to such


personnel; and


(d) a descriptive statement of all capital assets acquired for the Petroleum


Operations, indicating the date and price or cost of their acquisition.








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Requirement for Petroleum Operations





16.4 The CONTRACTOR may freely use any Petroleum produced within the Contruct


Area for the Petroleum Operations.


Supervision by..the GOVERNMENT


16.5 The CONTRACTOR shall at all tunes provide reasonable assistance as inuy


reasonably be requested by the GOVERNMENT during its review and verification


of records and of any other information relating to Petroleum Operations at the


offices, worksites or any other facilities of the CONTRACTOR


Upon giving reasonable prior notice to the CONTRACTOR, the GOVFRNMEN'I


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 verifications shall not hinder the smooth progress of the Petroleum


Operations.


Access to Facilities


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 carry ing out the Petroleum Operations.





I se of Facilities


16.7 Upon notice from the GOVERNMENT, the CONTRACTOR shall make available


to a reasonable number of representatives of the GOVERNMENT those of the


CONTRACTOR* facilities which are necessary to enable such representatives to


perform their tasks related to this Contract and the Kurdistan Region Oil and Oat l aw


including, in case of works to be performed on work sites, transportation,


accommodation and board, under the same conditions as those prov ided by the


CONTRACTOR for its own personnel.


Notwithstanding Article 16 8. the GOVERNMENT shall indemnify and Isold


harmless each CONTRACTOR Entity against all losses, damages and liability


arising under any claim, demand, action or proceeding brought or initiated against any


CONTRACTOR Entity by any representative of the GOVERNMENT in connection


with the access to or use of the facilities by such representatives.


I oss or n_amage


16.8 The CONTRACTOR shall be responsible for any loss or damage caused to third


parties by its or its Subcontractors personnel solely and directly resulting from their


negligence. error* or omissions in accordance with applicable Kurdistan Region Law.











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Intellectual Property Right*


16.9 In its Petroleum Operations, the CONTRACTOR shall respect any patents belonging


to third parties.








16.10 The CONTRACTOR shull as soon as reasonably practicable inform the


GOVERNMENT of Any material litigation relating to this Contract.





Safety


16.11 The CON TRACTOR shall implement a health, safety and environment program and


take necessary measures to ensure hygiene, health and safety of its personnel carry ing


out Petroleum Operations in accordance with prudent international petroleum industry


practice.


Said measures shall include the following:





(a) supplying first aid and safety equipment for each work area and maintaining a


healthy environment for personnel;


(b) reporting to the GOVERNMENT within seventy-two (72) hours of such


accident, any accident where personnel has been injured while engaged in


Petroleum Operations and resulting in such personnel being unable to return to


work;


(c) implementing a permit-to-work procedure around h.i/.irdous equipment and


installations;


(d) providing safe storage areas for explosives, detonators and any other





dangerous products used in the operations;


(e) supply ing fire-extinguishing equipment in each work area,


(0 for the purpose of taking control of any blow out or fire which could damage





the environment or Petroleum Field, in accordance with prudent international


petroleum industry practice, and


(g) for the purpose of prev enting any involuntary injection of fluids in petroleum





formations and production of Crude Oil and Natural Gas at rates that do not


conform to prudent international petroleum industry practice.





Production Rales


16.12 Subject to Article 43.2. in the event the production rate of the individual wells and


Reservoir of a Petroleum Field is to be set below the Maximum Efficient Rate


("MER") for the Reservoir, as presided for in the Development Plan, as a


consequence of a decision by the GOVERNMENT or any federal or international


regulatory body, the GOVERNMENT undertakes to allocate any such reduction


fairly and equitably among the various operators (including the GOVERNMENT


then producing in the Kurdistan Region, pro rata their respective production rales. In





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such event, the GOVERNMENT shull grunt 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 MER for


the individual wells and Reservoir of the Petroleum Field been maintained.


Status


16.13 I'hc respective rights, duties, obligations and liabilities of the CONTRACTOR and


the GOVERNMENT under this Contract arc to he understood as being separate and


individual and not joint and several. The Parties ngree that this Contract shall not


crcutc and shall not be deemed to have created a partnership or other form of


association between them.





Lifting


16.14 The GOVERNMENT and each CONTRACTOR Entity vh.ll have the right and the


obligation to take in kind and separately sell or otherwise dispose of their respective


shares of Petroleum Upon approval of the Development Plan, the Parties shall meet


as soon as practicable to reach a detailed agreement governing the lifting of Petroleum


by each such CONTRACTOR Enrity. Such lifting agreement shall include the


following:


(a) the obligation of the GOVERNMENT and each CONTRACTOR Entity to


lift, regularly throughout each Calendar Year, their share of Petroleum


produced from the Production Area.




CONTRACTOR Entity regarding entitlements and availability ol Petroleum


tor lifting by each Parry during each lilting period and nominations by each


Party; and


(c) the right of the Parties to lift any Available Petroleum not scheduled for lifting


and'or not lifted by the other Party during each such lifting period











16.15 The CONTRACTOR Entities shall sell and transfer to the GOVERNMENT, upon


written request of the GOVERNMENT, uny amounts of Crude Oil that the


GOVERNMENT shall deem necessary to meet Kurdistan Region internal


consumption requirements. The sales price of such Crude Oil shall be the


International Market Price. The GOVERNMENT shall provide the


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 Dollars and otherwise on terms consistent with pnident


international petroleum industry practice. The CONTRACTOR Entities’ obligation


to sell Crude Oil to the GOVERNMENT shall be. with the other operators (including


the GOVERNMENT) then producing in the Kurdistan Region, pro rata to their


respective production rates.


The provisions of this Article 16.15 shall not apply to Non-Associated Natural Gas.








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 ARTICLE 17-USE OF LAND AND EXISTING INFRASTRUCTURE





17.1 The GOVERNMENT shall make available to the CONTRACTOR any land or


property in the Kurdistan Region required for the Petroleum Operations; provided,


however, the CONTRACTOR shall not request to use any such land unless there is a


real need for it. The CONTRACTOR shall have the right to build and maintaia


above and below ground, any facilities required for the Petroleum Operations.


17.2 If it becomes necessary' for conduct of the Petroleum Operations to occupy and use


any land or property in the Kurdistan Region belonging to third parties, the


CONTRACTOR shall endeavour to reach amicable agreement with the owners of


such land. If such amicable agreement cannot be reached, the CONTRACTOR shall


notify the GOVERNMENT. On receipt of such notification:


la) the GOVERNMENT shall determine the amount of compensation to be paid


by the CONTRACTOR to the owner, if occupation will be for a short


duration; or


(b) the GOVERNMENT shall expropriate the land or property in accordance


with applicable Kurdistan Region l aw. if such occupation will be long lasting


or makes it henceforth impossible to resume originnl usage of such land or


property. Any property rights shall be ucquircd by and recorded in the name


of the GOVERNMENT, but live CONTRACTOR ahull be entitled free use


of the land or property for the Petroleum Operations for the entire duration of


this C ontract.


lhe amount of the compensation in Article 17.2(a) shall be fair and reasonable, in


accordance with Article 29 of the Kurdistan Region Oii and Gas Law. and shall take


into account the rights of the owner and any effective use of the land or property by


its owner at the time of occupation by the CONTRACTOR. Ail reasonable costs,


expenditures and fair and reasonable compensation (as required pursuant to Article 29


of the Kurdistan Region Oil and Gas Law) which results from such expropriation


shall be borne by the CONTRACTOR. For the avoidance of doubt such costs,


expenses and compensation incurred by the CONTRACTOR shall be considered


Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with


the provisions of Articles 1 and 25.


17.3 For its Petroleum Operations, the CONTRACTOR shall have the right in the


Kurdistan Region to use. subject to applicable Law. any railway, tramway, road,


airport, landing field, canal, river, bridge or waterway, any telecommunications


network and any existing pipelines or transportation infrastructure, on terms no less


favourable than those offered to other entities and. unless generally in force, to be


mutually agrecd


17.4 Under national emergencies due lo environmental catastrophe or disaster, or internal


or external war. the GOVERNMENT shall have the right to request to use any


transportation and communication facilities installed by the CONTRACTOR. In


such cases, the request shall originate from the Minister of Natural Resources. For the


avoidance of doubt, sucb costs, expenses or liabilities incurred by the


CONTRACTOR hereunder shall be considered Petroleum Costs and shall be








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 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 right in the


Kurdistan Region to clear land, excavate, drill, bore, construct, erect, place, procure,


operate, emit and discharge, manage and maintain ditches, tanks, wells, trenches,


access roads, excavations, dams, canals, water mains, plants, reservoirs, basins,


storage and disposal facilities, primary distillation units, extraction and processing


units, separation units, sulphur plants and any other facilities or installations for the


Petroleum Operations, in addition to pipelines, pumping stations, generators, power


plants, high voltage lines, telephone, radio and any other telecommunications systems,


us well as warehouses, offices, sheds, houses for personnel, hospitals, schools,


premises, dikes, vehicles, railways, roads, bridges, airlines, airports and any other


transportation facilities, garages, hangars, workshops, foundries, repair shops and any


Other auxiliary facilities for the Petroleum Operations 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 its Petroleum Operations, the CONTRAC TOR shall have the right in the


Kurdistan Region, subject to compliance with applicable Kurdistan Region Law. to


remove and use the topsoil, fully-grown timber, clay, sand, lime, gypsum, stones


(other than precious stones) and other similar substances us required for its Petroleum


Operations.


The CONTRACTOR shall have the right in the Kurdistan Region to take or use any


water necessary' for the Petroleum Operations provided it does not damage any


existing irrigation or navigation systems and that land, houses or watering points


belonging to third parties are not deprived of their use.


17.7 The GOVERNMENT dull have the right in the Kurdistan Region to build, operate


and maintain roads, railways, airports, landing strips, canals, bridges, protection dams,


police canons, military installations, pipelines and telecommunications networks in


the Contract Area, provided this does not increase the costs, or com prom im: or have a


material adverse effect on the performance of the Petroleum Operations. If 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 be considered Petroleum Costs and shall be


recovered by the CONTRACTOR in accordance with the provisions of Articles 1


and 25.


17.K Upon request of the CONTRACTOR, the GOVERNMENT shall prohibit the


construction of residential or commercial 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. to


authorised third parties on reasonable terms and conditions (including coordination),


including Persons authorised to construct, install and operate structures, facilities and


installations, and to carry out other works, provided that nothing in the Access





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Authorisation or in this Article 17.9 authorises the holder to drill a Well or to perform


any Petroleum Operations in Contract Area.


I7ic GOVERNMENT shall give the CONTRACTOR adequate advance notice of


an)' Access Authorisation in respect of the Contract Area and shall not grant any


Access Authorisation in respect of the Contract Area until it has taken into account


any submissions made by the CONTRACTOR nor in such a way that -.here is .indue


interference with or hindrance of the rights and activities of the CONTRACTOR


ARTICLE 18- ASSISTANCE FROM THE GOVERNMENT


18.1 To the extent allowed by Kurdistan Region Law and Iraqi law- and ;it the specific


request of the CONTRACTOR, the GOVERNMENT shall take all necessary steps


to assist the CONTRACTOR Entities in. but not limited to. the following arcus:


(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 und exit visas, work and residence permits as well as any other


administrative Permits for each CONTRACTOR Entity’s, its Affiliate's and


its Subcontractors foreign personnel (including their family members!


working in the Kurdistan Region and any other part of Iraq during the


implementation of this Contract;


(d) securing any necessary Permits to send Abroad documents, data or samples for


analysis or processing for the Petroleum Operations;


(c) relations with federal and local authorities and administrations, including for


the purposes of the remainder of this Article 18.1;


(0 securing any necessary environmental Permits;


(g) obtaining any other Permits requested by any CON TRACTOR Entity tor the


Petroleum Operations;


(h) access to any 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 parties shall be


charged io the CONTRACTOR and shall be considered Petroleum Costs and shall be


recovered by the CONTRACTOR as Petroleum Cost! in accordance with the


provisions of Articles 1 and 25.


ARTICLE 19- EQUIPMENT AND MATERIALS








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 19.1 l ive CONTRACTOR shall supply, or procure ihe supply of. all materials, equipment,


machinery, tools, spore parts 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 us possible after the Effective Dale, the CONTRACTOR shall provide ihe


Management Committee w ith a copy of its procedures for procurement of Equipment


and Materials and/or services for the Petroleum Operations as required by the


provisions of Article 8.2 (c), 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 after receiving such procedures,


the procedures shall be deemed approved by the Management Committee.


19.4 Ihe CON TRACTOR shall give priority to Equipment and Matcnals that are readily





available in the Kurdistan Region and other parts of Iraq to the extent their price,


grade, quality, quantity, specifications, purchase, delivery and other commercial and


technical terms arc comparable in all material respects 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


CONTRACTOR Entities, their Affiliates or their Subcontractors, as the ease may be.


20.2 During the Desclopment 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, or 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


CONTRACTOR or belonging to an Affiliated Company of a CONTRACTOR


Entity or belonging to its or their Subcontractors or its or their employees.











ARTICLE 21 - USE OF THE ASSETS





21.1 Each CONTRACTOR Entity shall have the exclusive right to use. free of any


charge, all Assets described in -Article 20. both before and after recovery ol 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 Operations take priority. The GOVERNMENT agrees


not to transfer or otherwise dispose of any of such Assets without the


CONTRACTOR’S prior written approval.


Kr





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Hf





21.2 I’hc CONTRACTOR may freely move to the Contract Area any Assets from any


relinquished portion of the Contract Area, or from any other area in the Kurdistan


Region.





ARTICLE 22 - SUBCONTRACTING


22.1 I ho COM KACTOR shall ensure that any Subcontractors it engages have all the


requisite experience and qualifications.


22.2 The CONTRACTOR shall give priority to Subcontractors from the Kurdistan


Region and other parts of Iraq to the extent their competence, rates, experience,


reputation, qualifications, specialties, credit rating and terms of availability, delivery


and other commercial terms are. in the CONTRACTOR'S sole opinion, comparable


in ull material respects with those provided by foreign companies operating in the


international petroleum industry. Such Subcontractors must be bona fide Kunlistan


Region companies not related to any Public Officer, directly or indirectly, and must


have all necessary resources and capacity.


22.3 Selection of Subcontractors shall take place in accordance with the procurement


procedures submitted by the CONTRACTOR to the Management Committee in


accordance with Article 19.3 and upproved by the Management Committee.


22.4 Ihe CONTRACTOR shall provide the GOVERNMENT with copies of agreements


entered into with Subcontractors, where their amount exceeds the limit set by the


Management Committee from time to time.








ARTICLE 23 - PERSONNEL. TRAINING, AND TECHNOLOGICAL ASSISTANCE


Personnel





23.1 For the Petroleum Operations, the CONTRACTOR shall give, and shall require its


Subcontractors to give, preference to personnel from the Kurdistan Region and other


parts of Iraq to the extent such personnel have the technical capability, qualification'


competence and experience required to perform the work.


23.2 The CONTRACTOR Entities shall give due consideration to the secondment of


GOVERNMENT personnel to the CONTRACTOR Entities and of the


CONTRACTOR Entities' personnel to the GOVERNMENT during the various


phases of the Petroleum Operations. Terms and conditions for such secondment shall


be mutually agreed by the Panics and any costs associated therewith shall be


considered Petroleum Costs and shall be recovered by the CONTRACTOR in


accordance with the provisions of Articles 1 and 25.


23.3 Each CONTRACTOR Emily and its Affiliates and Subcontractor; shall have the


right to hire foreign personnel whenever the personnel from the Kurdistan Region and


other pans 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








54/119


 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 up to two


hundred and fifty thousand Dollars (US$250,0l>0) 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 he 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 1 and 25.





Training


23.5 In u 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 directly or indirectly involved in the Petroleum


Operations for the purpose of improving their knowledge and professional


qualifications in order that such personnel gradually reach the level of know ledge and


professional qualification held by the CONTRACTOR Entities' foreign workers


with an equivalent resume1. 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 und 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 parts of Iraq shall be planned, which plans shall he 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 to


the Management Committee a proposed training plan for the remainder of the


Calendar Year. Thereafter, no later than 1 October in each Calendar Year, the


CONTRACTOR shall submit a proposed training plan to the Management


Committee for the following Calendar Year.


23.7 The training plan referred to in Article 23.6 shall provide for the allocation of the





amount of one himdrcd and fifty thousand Dollars (USS150.000) for each Contract


Year during the Exploration Period and three hundred thousand Dollars (I SS 300.000)


for each Contract Year during the Development Period.


23.8 Each CONTRACTOR Entity shall be responsible fee the training costs which it may


incur in respect of the personnel it employs from the Kurdistan Region and other parts


of Iraq. All such reasonable costs shall be considered as Petroleum Costs and shall he


recovered in accordance with the provisions of Articles 1 and 25. Costs incurred by





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vjj\T


the CONTRACTOR for training programs for the GOVERNMENT'S personnel


shall be borne by the CONTRACTOR only to the extent that they are included in the


CONTRACTOR'S training plan, pursuant to Article 23.6 and shall also be


considered as Petroleum Costs and shall be recovered in accordance with the


provisions of Articles 1 and 25. The cost of ail other training programs for the


GOVERNMENT’S pereonnel shall be the GOVERNMENT’S responsibility.


Thy Knvin>nmw« Fund


23.9 From the date of First Production from the Contract Aren, the CONTRACTOR shall


contribute the amount of one hundred and fifty Dollars (US$150.000) each Contract


Year during the Exploration Period and three hundred thousand Dollars (US$300,000)


for each Contract Year during the Development Period into the environment fund


established by the GOVERNMENT for the benefit of the natural environment of the


Kurdistan Region, pursuant to the Kurdistan Region Oil and Gas law (the


"Environment Fund"). Such amounts shall be deemed to be Petroleum Costs and


shall he recovered in accordance with Articles 1 and 25.


23.10 Any expenditure incurred by the CONTRACTOR under this Article 23 shall lx*


considered Petroleum Costs and shall he recovered in accordance with Articles I and


25.








23.11 Before the end of the first Contract Year, the CONTRACTOR -'hall provide to the


GOVERNMENT in kind technological and logistical assistance to die Kurdistan


Region petroleum sector, including geological computing hardware and software and


such other equipment as the Minister of Natural Resources may require, up to the


value of one million Dollars (USS 1.000.000). The form of such assistance shall be


mutually agreed by the Parties and any costs associated therewith shall be considered


Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with


the provisions of Articles 1 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 Royalty shall be applied on all Petroleum produced and saved from the Contract


Area which is Crude Oil or Non-Associated Natural Gas. except for Petroleum used in


Petroleum Operations, re-injected in a Petroleum Field, lost, flared or for Petroleum


that cannot be used or sold and such Crude Oil and Non-Associated Natural Gas


(excluding the excepted Petroleum) shall be referred to collectively as "Export


Petroleum ' and separately and respectively as “Export Crude Oil" and “Export


Non-Associated Natural Gas".


24.3 If payable in cash, the amount of the Royalty calculated by applying the Royalty rates


prov ided under Article 24.4 shall be paid by the CONTRACTOR as directed by the


GOVERNMENT, in accordance with Article 24.7.





5&'I19


If payable in kind, the quantity of Export Petroleum corresponding to the Royalty and


calculated by applying the Royalty rates provided under Article 24.4 shall be


delivered in kind by the CONTRACTOR to the GOVERNMENT at the Delivery


Point. Title and risk of loss of the Royalty paid in kind shall be transferred at the


Delivery Point.


Unless the GOVERNMENT requires the Royalty to be paid in kind, by giving the


CONTRACTOR nol 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.


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 Royally rate, to the


Export Crude Oil or to the Export Non-Associated Natural Cias (as the case may be)


produced and saved on that 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 the oil; and


(b) For Export Non-Associated Natural Gas:


the Royalty rate for Export Non-Associated Natural Gas shall be ten per cent


(10%).


24.5 Associated Natural Gas and any other Petroleum shall be exempt from any Royalty.


24.6 If. pursuant to Article 24.3, the GOVERNMENT receives the Royalty in kind, and


pursuant to Article 2*. 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


CONTRACTOR Entity, in accordance with Article 28.


24.7 If. pursuant to Article 24.3. the GOVERNMENT receives the Royalty in cash:


(a) any Export Crude Oil shall be valued at the International Market Price


obtained at the Delivery Point, as defined in Article 27.2.


(b) any Export Non-Associated Natural Gas shall be valued at the actual price


obtained at the Delivery Point under an approved contract, as provided in


.Article 27 J;


(c) the CONTRACTOR shall pay such Royalty each Quarter, 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 Royally due on the Export Petroleum, determined in


accordance with Article 24.4. for the said Quarter; and











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 (d) the CONTRACTOR Emilies 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.





ARTICLE 25 - RECOVERY OF PETROLEUM COSTS


25.1 All Export Crude Oil produced and saved from the Contract Area shall, after


deduction of uny quantities of Export Crude Oil due for Royalty pursuant to Article


24. be considered as "Available Crude Oil”.


All Associated Natural Gas produced and saved from the Contract Area, except for


Associated Natural Gas which is used in Petroleum Operations, re-injected in a


Petroleum Field, lost, flared or cannot be used or sold, shall be considered as


"Available Associated Natural Gas”.


All Export Non-Associatcd Natural Gas produced and saved from the Contract Area


shall, after deduction of any quantities of Export Non-Associated Natural Gas due for


Royalty pursuant to Article 24, be considered as "Available Non-Associated Natural


Gas"


‘Available Petroleum" means Available Crude Oil. Available Associated Natural


Gas and Available Non-Associated Natural Gas.


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 PoinL as defined in Article 27.2: ar.J


(b) any Available Associated Natural Gas and any Available Non-Associated


Natural Gas shall be valued ai the actual price obtained at the Delivery Poin:


under an approved contract, as provided in .Article 27.3.


25.3 Subject to the provisions of this Contract, from the First Product on ir. the Contract


Area, the CONTRACTOR shall at all times be entitled to recover all Petroleum


Costs incurred under this Contract, of up to forty three per cent (43%) of Available


Crude Oil (which, for the avoidance of doubt, shall apply regardless of the gravity of


the oil) and Available Associated Natural Gas, produced and saved within any


Calendar Year. Available Crude Oil above this percentage or otherwise not used for


the recovery of Petroleum Costs shall be Profit Crude Oil.


25.4 Subject to the provisions of this Contract, from First Production in the Contract Aren,


the CONTRACTOR shall at all times be entitled to recover all Petroleum Costs


incurred under this Contract of up to fifty three per cent (53%) of Available Non-


Associated 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 he Profit Natural Gas.


25.5 For the application of Article 25.3 and 25.4, the CONTRACTOR shall keep a


detailed account of Petroleum Costs in accordance with the provisions detailed in the


Accounting Procedure. Recovery of Petroleum Costs shall occur in the following


order:





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(a) Production Costs;


(b) Exploration Costs (including appraisal costs and further exploration within the


Contract Area);


(c) (ilia Marketing Costs;


(d) Development Costs; and


(e) Decommissioning Costs.


25.6 Total recovery of Petroleum Costs during any Calendar Year, expressed In quantities


of Petroleum, shall not exceed the relevant percentages indicated in Articles 25.3 and


25.4 If in any Calendar Year, the Available Crude Oil and/or Available Non-


Aaaociatad Natural Gas do not allow the CONTRACTOR to recover all its


Petroleum Costs pursuant to this Article 25, the amount of uiv recovered Petroleum


Costs in such Calendar Year shall he carried forward indefinitely to thr uihscqucnt


Calendar Years until all Petroleum Costs ore fully recovered, but. save as provided in


Articles 14.10 and 38.4, in no other case after the termination of the Contract


25.7 Ihe provisions of Articles 27.5 and 27.6 shall be applied to determine tl«c quantities


of Available Crude Oil and/or AvadaMe Non-Associated Natural Gaa due to the


CONTRACTOR for the recovery of its Petroieun 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 be transferred at the Delivery Point


25.9 Each CONTRACTOR Entity sluill be entitled to receive, take in kind and to export


freely all Available Petroleum to which it is entitled for recovery of its Petroleum


Coats 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 be recovered from Available Petroleum from that Production


Area.


25.10 Subject to Article 38.4. for the avoidance of doubt. Petroleum Costa under this


Ctmlrucl urc not recoverable ugainst other contract arena hold by the


CONTRACTOR.





ARTICLE 26 - SHARING OF PROFIT PETROLEUM


26.1 Under this Contract


(a) “Profit Petroleum' means Profit Crude Oil and Profit Naiural (ins.


(b) ‘ Profit Crude OU” means the quantities of Available Crude Oil and


Available Associated Natural Gas produced from the Production Area, after


the recovery of Petroleum Costs, in accordance with Articles I nnd 25; und











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(c) “Profit Natural Gas- means the quantities of Available Non-Associatcd


Natural Gas produced from the Production Area, after die recovery of


Petroleum Costs in accordance with Articles 1 aixl 25.


26.2 From First Production and as and when Petroleum is being produced, the


CONTRACTOR shall be entitled to take a percentage share of Profit Crude Oil


andor Profit Natural Gas, in consideration for its investment 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 be calculated in


accordance with Article 26.4 and shall be applied separately to each Production Area.


26.4 The “R" Factor shall be calculated as follows:


R-X/Y


where:


X: is equal to Cumulative Revenues actually received by the CON I RACTOR;


Y: is equal to Cumulative Costs actually incurred by the CONTRACTOR, from


the date of the signature of this Contract.


For the purpose of this Article 26.4:


'Cumulative Revenues” means total Revenues, as defined below, received by the


CONTRACTOR until the end of the relevant Semester, determined -n accordance


with Article 26.7.


“Revenaes" means the total amount actually received by the CONTRACTOR for


recovery of its Petroleum Costs and its share of Profit Petroleum in the Production


Area.


"Cumulative Costs” means all Petroleum Costs in the Production Area, actually


incurred by the CONTRACTOR until the end of the relevant Semester, determined


in accordance with Article 26.7.


Notwithstanding the foregoing provisions of this Article 26.4. for the period from


First Production until the end of the Calendar Year in which First Production occurs,


the *'R” Factor shall be deemed to be less than one (1).


26.5 Phc share of Profit Petroleum to which the CONTRACTOR shall be entitled from


Finn Production is:


(n> for Profit Crude Oil, equal to the quantities ol 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:








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 -R" Factor CONTRACTOR*. % Share of Profit Crnde Oil





R < or ■ I 32%


I < R< or -2 32 -(32 16) • (R -1)/(2 - I)





R > 2 16%


and





(b) for Profit Natural Gas, equal to the quantities of Non-Associated Natural Gas


resulting from the application of the rdeMint percentage as indicated below to


the daily volume of production of Profit Natural Gas within the Production


Area at the corresponding Delivery Point:





“R" Factor CONTRACTOR*. % Share of Profit Natural Ga.


R < or - 1 38%





I < R

R > 2.75 20%





20.6 The CONTRACTOR'S accounting shall account separately for all components for


the calculation of "X" and **Y” values in the formula provided in Article 26.4


26.7 For each Semester, starting from the 1“ of January of the Calendar Year following the


( .ilcndar Year in which First Production occurs, the CON | R vCTOR 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 dunng a Semester shall be


that determined by applying the Cumulative Revenues actually received and the


Cumulative Costs actually incurred up to and including the lust 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 such Semester must lie made,


then the allocation of Profit Petroleum tor the previous Semester shall be used for the


relevant Semester. Upon the calculation of the “R~ Factor for the relevant Semester


(a) if the allocation of Profit Petroleum in the previous Semester and the relevant


Semester is the same, then no adjustment shall be made, and


(b) if the allocation of the Profit Petroleum in the two Semesters is different, then





the CONTRACTOR shall make any adjustments to the Panics' respective


shares of Profit Petroleum to restore them to the position lhat they would have


been in lud the “R“ Factor for the relevant Semester been available from the


start of such Semester.


26.8 If at any time an error occurs m the calculation of the ~R~ Factor, resulting in a


change in the CONTRACTOR'S percentage share of Profit C rude Oil and/or Profit


Natural Gas, the necessary correction shall be made and any adjustments shall apply


from the Semester in which the error occurred. The Party having benefited from a





61/119 *<£





surplus of Profit Petroleum shall surrender such surplus to the other Party, beginning


from the first day of the Semester following the Semester in which tire error was


recognised However, each lifting of Petroleum relating to such error by the Parly


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 the calculation of the “R” Factor, which does not result


in a change in the ( ONTRACTOR’s percentage share of Profit Crude Oil and/or


Profit Natural Gas. no correction shall be made.


26.9 I'hc quantities of Profit Petroleum due to the CONTRACTOR shall be delivered to


the CONTRACTOR Entities at the Delivery Point. Title and risk of loss of such


Profit Petroleum shall be transferred to the CONTRACTOR Entities at the Delivery


Point.


I itch COM RAC l OR F.ntity shall be entitled to receive, take in kind and to export


freely its share of Profit Petroleum in accordance with the provisions of this Contrac:


and to retain Abroad any proceeds from the sale of all such Profit Petroleum.


26.10 I he share of the Profit Petroleum to which the GOVERNMENT is entitled in any


Calendar Year in accordance with Article 26.5 shall be deemed to include a portion


representing the corporate income tax imposed upon and due by each


CONTRACTOR Entity, and which will be paid directly by the GOVERNMENT on


behalf of each such entity representing the CONTRACTOR to the appropriate tax


authorities in accordance with Ankle 31.2. The GOVERNMENT shall provide die


CONTRACTOR Emir.es 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. II The quantities of Profit Petroleum due to the GOVERNMENT shall be delivered to


the GOVERNMENT at the Delivery Point. I itle and risk of loss of such Profit


Petroleum shall be transferred at the Delivery Point.


26.12 At least twenty-one (21) days prior to CONTRACTOR’S estimated date of First


Production and, subsequently, thirty (30) days prior to the beginning of each


Semester, the CONTRACTOR shall prepare and deliver to the GOVERNMENT a


production program comprising the production forecast for the next Semester and the


forecast of the quantities of Crude Oil and Natural Gas to which each Party shall In-


entitled during the said Semester.


26.13 Within ninety (9(1) days following the end of each Calendar Year, the


CONTRACTOR shall prepare and deliver an annual production report to the


GOVERNMENT, stating live quantities of Crude Oil and Natural Gas to which each


Patty is entitled, the quantities of Crude Oil and Natural Gas lifted by each Party and


tltc 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 tltc lifting of the GOVERNMENT’S share of Petroleum by the


CONTRACTOR shall not be considered Petroleum Costs and shall be charged to the


GOVERNMENT according to terms to be mutually agreed between the


CONTRACTOR and the GOVERNMENT.


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 ARTICLE 27 - VALUATION AND METERING OF CRUDE OIL AND NATURAL


GAS





Valuation


27.1 For the purpose of this Contract, any Crude Oil produced in the Contract Area shall be


valued at the end of each Quarter at the Delivery Point based on the International


Market 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 Point, by netback if necessary taking account of expenses between the


Delivery Point and the actual point of sale, during the Quarter ending on the date of


valuation for Amt’s Ixngth Sales of Crude Oil.


Tlx: CONTRACTOR shall provide evidence to the GOVERNMENT that the sales


of Crude Oil referred to in Article 272 are Ann's Length Sales. If the


GOVERNMENT considers that any such sale of Crude Oil is not on the basis of an


Arm's Length Sale then the GOVERNMENT has the right to refer the matter to an


expert pursuant to Article 422.


In the event that there is no lifting of Crude Oil in the relev ant Quarter or no Arm'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


Ixngth Sales of Crude Oil of the same or similar gravity and quality from other


production areas sold in markets competing with Crude Oil produred from the


Contract Area, taking into account gravity and quality differences and transportation


and other post Delivery’ Point costs.


To determine such price, the Parties shall, pror 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 he adjusted to account for any


variations such as quality, specific gravity, sulphur content, transportation costs,


product yield, seasonal variations in price and demand, general market trends and


other terms of sale.


27.3 The price of Natural Gas shall be the actual price obtained at the Delivery Point,


(which may take into account quantities to be sold, quality, geographic location of


markets to be supplied as well as costs of production, transportation and distribution


of Natural Gas from the Delivery Point to the relevant market, in accordance with


standard international petroleum industry practice). The GOVERNMENT shall have


the right to review- and approve Natural Gas sales contracts





Accounting Slstrmcnl





27.4 In accordance with this Article 27.4. the GOVERNMENT and the CONTRACTOR


shall establish a statement showing calculations of the value of Petroleum produced


and sold from the Contract Area Such statement shall include following information:

















63/119


(a) quantities of Crude Oil sold by the CONTRACTOR Entities during the


preceding Month constituting Arm's Length Sales together with corresponding


sale prices;


(b) quantities of Crude Oil sold by the CONTRACTOR Entities during the


preceding Month that do not fall in the category referred to in paragraph (a*


above, together with sale prices applied during such Month:


(c) inventory in storage belonging to the CONTRACTOR Entities at the


beginning and at the end of the Month; and


(d) quantities of Natural Gas sold by the CONTRACTOR Entities and the


GOVERNMENT together with sale prices realised.


Mctcriag


27.5 All Export Petroleum shall be metered at the Delivery Point in accordance with


prudent international 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


of reasonable prior written notice, have the right to inspect any such metering


equipment installed by the CONTRACTOR, as well as all relevant documents and


supporting information reasonably necessary to validate the accuracy of such


metering. All metering equipment shall be subject to periodic technical inspections ic


accordance with prudent international petroleum industry practice.


27.6 If any metering equipment is defective, the CONTRACTOR shall use all reasonable


endeavours to repair it within fifteen (15) days or. if deemed necessary by the


CONTRACTOR, replace it as soon as reasonably practicable from the date the


defect became known. The “Adjustment Date" shall lx* the last date that the


metering equipment was 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. I he results


from the defective equipment shall be disregarded for the period from the Adjustment


Date until the date the defective equipment is repaired or replaced and the


measurement for such period ihull 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




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 Ailiclc 27 shall be settled by expert determination in


accordance with the provisions of Article 42.2.








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 ARTICLE 28 - SALE OF GOVERNMENT SHARE





Upon the GOVERNMENT’S prior written notice of at least ninety 90) days, each


CONTRACTOR Entity shall provide all reasonably necessary assistance to the


GOVERNMENT for the sale of all or part of the quantities of Crude Oil to which the


GOVERNMENT is entitled, in consideration of a sales commission jxt Barrel to be


established with reference to prudent international 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 to the GOVERNMENT





pursuant to this Contract shall be in Dollars and shall be offset against any


outstanding payments due by the GOVERNMENT to the CONTRACTOR Entity,


or paid into the bank account duly designated bv the GOVERNMENT in writing and


shall be paid within thirty (30) days of die due date, after which interest compounded


monthly at the rate of LIBOR phis two (2) percentage points shall be applied.


29.2 Ihe GOVERNMENT may, at its sole discretion, direct the CONTRACTOR





Entities to pay:


(a) any Royalty in cash due to the GOVERNMENT pursuant to the provisions of


Article 24; and/or


(b) any proceeds from the sale undertaken by ’.he CONTRACTOR Entity on


behalf of the GOVERNMENT pursuant to .Article 28 of any Cmdc Oi. to


which the 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 the Kurdistan Region) and govemorates of Iraq. Nothing in this


Article 29,2 shall be understood as implying any contractual relationship or other


relationship between 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 govemorates of Iraq.


29.3 Any payment due by the GOVERNMENT to a CONTRACTOR Entity shall be


offset against future payments due by such CONTRACTOR Entity to the


GOVERNMENT, or paid in Dollars to the bank account designated by the


CONTRACTOR Entity in writing and shall be paid within thirty (30) days of the


dute of invoice, after which interest compounded monthly at the rate of I.IBOR plus


two (2) percentage points shall be applied.


29.4 Any currency conversion to be made under this Contract shall be at the exchange rate


of the Central Bunk of Iraq, provided such exchange rate applied to the


CONTRACTOR Entities shull not be less favourable than the rate offered by other


private, commercial or industrial banks in tltc international market. In the absence of


the Central Bank of Iraq or in the event that the Central Bank of Iraq is unable to


provide the relevant exchange rate, any currency conversion to be made under this





65/119








vW


Contract ahull be at the exchange rate of a reputable commercial bank carrying on


business in tire international market and approved by the Parties.


29.5 The CONTRACTOR shall not realise any gain or loss due to exchange rate


fluctuations and. consequently, any gain or loss resulting from the exchange of


currency shall be either considered as revenue and credited to the Accounts or shall be


considered as a Petroleum Cost and shall be recovered by the CONTRACTOR in


accordance with Articles 1 and 25, as the case may he.


29.6 Each CONTRACTOR Entity shall at all times be entitled to freely convert into


Dollars or any other foreign currency any Iraqi dinars received in the framework of


the Petroleum Operations and to freely transfer the same Abroad. The conversion rate


shall be as provided under Article 29.4.


29.7 Eucll CONTRACTOR Entity shall have the right to be paid, receive, keep, transfer


and use Abroad, without any restrictions, all proceeds of its share of Petroleum.


29.8 Each CON TRACTOR Entity and its Subcontractors shall have the right to freely


open and maintain hank accounts for Petroleum Operations within or outside the


Kurdistan Region and other parts of Iraq.


29.9 Each CONTRACTOR Entity shall have the right to pay in any freely convertible


currency all its financial requirements for the Petroleum Operations and to convert


these currencies to Iraqi dinars in any bank in the Kurdistan Region or other parts of


Iraq, at the same exchange rule us provided under Article 29.4.


29.10 Each CONTRACTOR Entity shail have the right without any restrictions, to freely


repatriate Abroad and to freely dispose of


(a) any proceeds received in the Kurdistan Region or other parts of Iraq from the


sale of Petroleum;


(b) any proceeds received from other operations and activities carried out under


this Contract in the Kurdistan Region or other parts of Iraq.


29.11 Each CONTRACTOR Emily shall have the right to pay in any foreign currency its


Subcontractors and its expatriate personnel either in the Kurdistan Region, other part'


of Iraq, or Abroad. Said Subcontractors and expatriate personnel shall be obliged u


transfer to the Kurdistan Region the amount of foreign currency required for their


local needs and they shall have the right to repatriate the proceeds of the sale of their


belongings in accordance with the regulations in force in the Kurdistan Region.


29.12 Each CONTRACTOR Entity’s Affiliates, Subcontractors and their personnel shall


equally benefit from the same rights as such CONTRACTOR Entity and its


personnel as regards this Article 29.


29.13 For the financing of Petroleum Operations, each CONTRACTOR Entity shall have


the right to have recourse to external financing from third parties or from its Affiliated


Companies on an arm's length basis.





ARTICLE 30 - CUSTOMS PROVISIONS








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 30.1 All services. malcriaL equipment, goods, consumables and products imported into the


Kurd:sun Region and other pans of Iraq by the CONTRACTOR, any


CONTRACTOR Entity , its Affiliates, any Subcontractor or any agent of any of the


foregoing, for use or consumption in the Petroleum Operations shall be admitted free


and exempt from any and all Taxes on import. The CONTRACTOR, any


CONTRACTOR Entity, its Affiliates, any Subcontractor or any agent of any of the


foregoing shall have the right to re-export from the Kurdistan Region and other pans


of Iraq free from all Taxes on export any material, equipment, goods, consumables


and products that are no longer required for the Petroleum Operations, except where


title has passed to the GOVERNMENT in accordance with Article 20. in which case


re-export shall be approved by the Management Committee.


30.2 The CONTRACTOR, any CONTRACTOR Entity, its Affiliates, any Subcontractor


or any agent of any of the foregoing, and their personnel (including their family


members) shall have the right to freely import into the Kurdistan Region and other


parts of Iraq and re-export from the Kurdisar. Region and other parts of Iraq any


personal belongings and furniture free and exempl from any Taxes on import or


export. The sale in the Kurdistan Region and other parts of Iraq of personal


belongings and furniture of expatriate personnel shall comply with Kurdistan Region


Law.


30.3 Each CONTRACTOR Entity and its Affiliates shall be entitled to freely export from





the Kurdistan Region and other parts 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, its Affiliates, any Subcontractor or any agent of any of the foregoine. and their


personnel (including their family members) for any import or export I axes referred to


in Articles 30.1, 30.2 or 30 3.


ARTICLE31-TAX PROVISIONS





31.1 Except as expressly provided in this Article 31, and without prejudice to the


exemptions expressly provided for in Article 30 and in this Article 31. each


CONTRACTOR Entity, its Affiliates and any Subcontractor shall, for the entire


duration of this Contract, be exempt from all Taxes as a result o: its income, assets


and activities under this Contract. The GOVERNMENT shall indemnify each


CONTRACTOR Entity upon demand against any liability to pay m> Taxes assessed


or imposed upon such entity which relate to any of the exemptions granted by the


GOVERNMENT under this Article 31.1. and under Articles 31 4 to 31 11


31.2 Each CONTRACTOR Entity shall be subject io corporate inc. me tax on its income


from Petroleum Operations as provided in Article 313. which shall be deemed to be


inclusive and in full and lolal discharge of any Tax on income, receipts, revenues,


gains or profits of each such entity. Payment of the said corponnc 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 ol each COM RACTOR


Entity, from the GOVERNMENT S share of the Profit Petroleum received pursuant


to Article 26.








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sJ^


 Each CONTRACTOR Entity shall, within sixty (60) days after the end of each tax


year, provide a statement to the appropriate Kurdistan Region tax authorities of its


profits which arc subject to corporate income ux. together with a calculation of the


amount of corporate income tax due on those profits.


rhe GOVERN MEN I shall, wnthtn ninety (90) days after the end of each tax year,





provide to each CONTRACTOR Entity (i) the appropriate official tax receipts front


the appropriate Kurdistan Region tax authorities or other relevant authority certifying


the payment of its corporate income tax. as determined in the said statement, and that


such entity has met all its Tax obligations in the preceding tax year, and (ii) a copy of


any return or other filing mode by the GOVERNMENT in respect of its payment of


corporate income tax on behalf of such CONTRACTOR Entity.





31.3 For the purposes of Article 31.2:


(a) The rate of corporate income tax to be applied to each CONTRACTOR


Entity shall be the generally applicable rate prescribed in the Law of Taxation


(Law No. 5 of 1999). passed by the National Assembly of the Kurdistan


Region, as may be amended from time to time or substituted in respect of


Petroleum Operations (ns defined under the Kurdistan Region Oil and Cinv


Law) by a petroleum operations taxation law for the Kurdistan Region, but in


no event in excess of forty per cent (40%). The Parties acknowledge and agree


that ut the I effective Date of this Contract, the corporate income tax rate is


forty per cent (40%) for all net taxable profits in excess of nine million Iraqi


dinar.


(b) The GOVERNMENT and the CONTRACTOR agree that corporate income


ux shall be calculated for each CONTRACTOR Entity on its net taxable


profits under the Contract as calculated m 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 oo any payments made to them or by


them to or front 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 IIX, 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 shall be exempt from Surface Tax. as


referred to in Article 40 of the Kurdistan Region Oil and Gas Uw 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 Kurdistan Region Oil and Gas Law or any


successor Tax.


31.8 Each CONTRACTOR Entity and any Subcontractor shall be subject to the payment


or withholding of the personal income tax and social security contributions for which


such entity or Subcontractor is liable to pay or withhold :n respect of its employ ees





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vs bo arc Iraqi nationals, pursuant to the Law of Taxation (Law So. 4 of 1999) passed


by the National Assembly of the Kurdistan Region, as may be amended from time to


time, in the same manner as the same shall be generally applied to all other industries,


except that a CONTRACTOR Entity or Subcontractor shall not be liable for such


taxes or contributions with respect to employees of another Person.


31.9 It is acknowledged that double tax treaties will have effect to give relief from taxes to.


bui not limited to, the CONTRACTOR. CONTRACTOR Entities. Subcontractors


and employees and other Persons in accordance with the provisions of such double


tax treaties, but shall not impose an additional burden of taxation.


31.10 Any value added tax (“VAT*) shall be considered as a Petroleum Cost and shall be


cost recovered in accordance with the provisions of Articles 1 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 1 and 25.


31.12 Notwithstanding any other provision to the contrary' in this Contract, the Panics


acknowledge and agree that the provisions of this Article 31 shall apply individually


and separately to all CONTRACTOR Entities under this Contract and that there dull


be no joint and several liability in respect of any liability, duty or obligation referred


to in this Article 31.








ARTICLE 32 - BONUSES


SliwMurv


32.1 A signature bonus of ten million Dollars (US$ 10,000,000) (“Signature Bonos'*) shall


be payable to the GOVERNMKNI by the CON TRACTOR within thirty (30) days


of the Effective Date.


Capacity Building Itonw


32.2 A capacity building bonus of fifteen millionDollars (US$15.000.000) ("Capacity


Building Bobus") shall be payable to the GOVERNMENT by the CONTRACTOR


within thirty (30) days of the Effective Date.








32.3 In the event of u Crude Oil Commercial Discovery, the CONTRACTOR .'hull pay


the following relevant Crude Oil Production Bonus to the GOVERNMENT within


thirty (30) days of the following relevant occurrence:





(a) lwo million five hundred thousand Dollars (US $2,500,000) when First


Production of Crude Oil from the Contract Area commences;





five million Dollars (US $5,000,000) when production of Crude Oil from the


Contract Area reaches a cumulative amount of ten million Barrels of Crude


Oil (10 mmbo):








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(c) Icn million Dollars (US $10,000,000) when 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 million Dollars (US $20,000,000) when production of Crude Oil from


the Contract Area reaches a cumulative amount of fifty million Barrels of


Crude Oil (50 mmbo).


32.4 In the event of a Non-Associated Natural Gas Commercial Discovery, the


CONTRACTOR shall pay the following relevant Non-Associated Natural Cms


Production Bonus to the GOVERNMENT within thirty (30) days of the following


relevant occurrence:


(a) two million five hundred thousand Dollars (US S2.500.000) when First


Production of Non-Associated Natural Gas from the Contract Area


commences;


(b) live million Dollars (US $5,000,000) when production of Non-Associated


Natural Gas from the Contract Area reaches a cumulative amount of ten


million barrels of oil equivalent (10 mmboe);


(c) ten million Dollars (US $10,000,000) when production .'f Non-Associated


Natural Gas from the Contract Area reaches a cumulat vc amount of twenty-


live million barrels of oil equivalent (25 mmboe). and


(d) twenty million Dollars (US $20,000,000) when production of Non-Associated


Natural Gas from the Contract Area reaches a cumulative amount of fifty


million bands of oil equivalent (50 mmboe).


32.5 For the purposes of this Article 32, a Commercial Discovery shall be declared by the


CONTRACTOR to be either a Crude Oil Commercial Discovery or a Non-


Associated 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 the


same Commercial Discovery-.





Bonus cost recovery and payment


32.6 No bonus due pursuant to this Article 32 shall be deemed to be a Petroleum Cost


32.7 Payment to the CONTRACTOR 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 the GOVERNMENT shall forthwith issue


a written receipt to the CONTRACTOR duly executed by the Minister of Natural


Resources of the GOVERNMENT or such other officer of the GOVERNMENT


who shall be duly authorised to issue such receipt under Kurdistan Region Law








ARTICLE 33-PIPELINES


33.1 The GOVERNMENT shall obtain any required Permits for the transportation of


Petroleum in the Kurdistan Region and in Iraq, as well as any necessary Permits and





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casement rights for the construction of any pipelines and related facilities required for


the Petroleum Operations, as provided in Article 33.2


33.2 Hie GOVERNMENT undertakes to transfer to the CONTRACTOR its rights for


transportation of Petroleum by pipeline. 'I he CONTRACTOR shall have the right to


design, construct, operate and maintain pipelines and any related facilities for the


transportation of Petroleum produced under this Contract.


33.3 Prior to the construction of any pipeline and related facilities as provided in Article


33.2. the CONTRACTOR shall submit following information to the Management


Committee:


(a) proposed pipeline route and related facilities;


(b) forecasted pipeline How rate and capacity;


(c) estimate of financial investment and operating costs of the pipeline and related


facilities;


(d) proposed financing schedule;


(c) construction schedule;


(0 general technical description of the pipeline and related facilities;




(h) preventive measures for damage to the environment and third parties; and


(i) any other information relating to the pipeline project


The Management Committee shall examine all the above information and shall within


ninety (90) days, approve the proposed pipeline project in accordance with the


provisions of Article 8.5.


33.4 Subject to spare capacity being available and to their Petroleum being compatible,


third parties shall be entitled to transport their Petroleum through any pipeline


constructed by the CON TRACTOR in accordance with this Article 33 on terms to be


agreed between the CONTRACTOR and such third party. Those terms shall be


reasonable commercial terms and shall not discriminate among third party users. The


CONTRACTOR shall always have priority of access to such pipelines


33.5 To the extent that they are incurred upstream of the Delivery Point, any costs


associated with the design, construction, operation and maintenance of the pipelines


and related facilities by CONTRACTOR under this Article 33 (“Pipeline Coats*)


shall be considered Petroleum Costs and shall be recovered by the CONTRACTOR


in accordance with the provisions of Articles 1 and 25.


33.6 The CONTRACTOR shall have the absolute right, without any exceptions and for


the entire duration of this Contract, to use, tree of charge, any pipeline and related


facilities constructed by CONTRACTOR under this Article 33 and to transport





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Petroleum produced from any Production Area and to operate and maintain any


pipeline and its related facilities, freely and without an> additional costs.


33.7 To the extent related to irnns|x>rtuiion upstream of the Delivery Point, any tariffs


received from third parties lor use of any pipeline and related facilities by


CONTRACTOR under this Article 33 shall be applied to the recovery of Petroleum


Costs until all Pipeline Costs have been fully recovered by the CONTRACTOR


pursuant to the provision* of Articles 1 and 25 and shall not be included in income for


corporate 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 Pipeline Costs hove 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 Pipeline Costs and therefore Petroleum Costs and


shall be recovered by the CONTRACTOR in accordance with the provisions of


Articles I and 25.


33.8 Upon recovery by the CONTRACTOR of all the Pipeline Costs, the operating and


maintenance costs of any pipeline and its related facilities shall be home by the


CONTRACTOR and shall he considered Petroleum Costs and shall be recovered by


the CONTRACTOR in accordance with the provisions of Articles 1 and 25.


33.9 11k GOVERNMENT shall have the same rights as the CONTRACTOR for use.


free of charge, of any pipeline and related facilities constructed 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 Deliver)' Point, provided


that where the GOVERNMENT is participating in its capacity as a CONTRACTOR


Entity pursuant to Article 4. it 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 by CONTRACTOR under this Article 33


and all risks of accidental loss or damage to such pipeline and related facilities while


thc> arc required for Petroleum Operations.


ARTICLE 34 - LMTISATION


34.1 In the event a Reservoir extends beyond the Contract Area into an adjacent area which


:s the subject of another Petroleum Contract (as defined by the Kurdistan Region Oil


and Gas Law) (an "Adjacent Contract Area-), or in the event a Reservoir of an


Adjacent Contract Area extends into the Contract Area, the provisions of Article 47.


Paragraph Second of the Kurdistan Region Oil and Gas Law shall apply and the


GOVERNMENT shall require the CONTRACTOR and the contractor of the


Vdjaccnl Contract .Area to agree upon a schedule for reaching agreement of the terms


of the unitisation of the Reservoir, which terms shall be based on reliable technical,


operational and economical parameters, all ia accordance with piudem inlcnuiiouai


petroleum industry practice. In the event that the Minister of Natural Resources


decides the unitisation pursuant to Article 47. Paragraph Third of the Kurdistan


Region Oil and Gas Law. and if the CONTRACTOR docs not agree with the


decision of the Minister of Natural Resources, the CONTRACTOR shall be entitled


to arbitration pursuant to the provisions of Article 42.1.








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34.2 For clarification and the avoidance of doubt and notwithstanding Article 47 of the


Kurdistan Region Oil and Gas Law, in the event that a Reservoir extends beyond the


boundaries of the Contract Area into an adjacent area which is not the subject of


another Petroleum Contract las defined by the Kurdistan Region Oil and Gas Law),


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 Reservoir


within the Contract Area, provided that the CONTRACTOR can offer the


GOVERNMENT it competitive minimum work program for such adjacent area.


ARTICLE 35 - LIABILITY AND INSURANCE





Liability


35.1 Subject to the other provisions of this Contract, the CONTRACTOR, in its capacity


as the entity responsible for the execution of the Petroleum Operations within the


Contract Area, shall be liable to third parties to the extent provided under applicable


Law for any losses and damage it may cause to them in conducting the Petroleum


Operations, and shall defend, indemnify and hold harmless the GOVERNMENT


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 he liable to the GOVERNMENT or the Public


Company or other government agencies, authorities or bodies, courts or political


subdivisions lor any damage or loss or claims of any kind resulting from its conduct


of live 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 committed in good faith by the


CONTRACTOR in the exercise of the powers and authorisations conferred upon the


CONTRACTOR by virtue of this Contract, and further provided that in no event


shall the CONTRACTOR and the CONTRACTOR Entities be liable for any


indirect or consequential loss or damage whatsoever or any loss, damages, costs,


expenses or liabilities caused (directly or indirectly) by any of the following arising


out of. relating to. or connected with this Contract or the Petroleum Operations carried


out under this Contract (i) reservoir or formation damage; (ii) inability to produce,


use or dispose of Petroleum; (tii) 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 loiaes. damages and liability arising under any claim, demand, action or


proceeding brought or instituted against the GOVERNMENT b> any employee o:'


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, related to or arising out of the performance or 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 I ntitics against all losses.





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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 GOVERNMENT 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-performmee of this Contract


regardless of the fault or negligence in whole or in part of any entity or Individual.


35.5 The CONTRACTOR shall take all necexvary steps to respond to. and shall promptly


notify the GOVERNMENT of. all emergency and other events (including


explosions, leaks and spills), occurring in relation to the Petroleum Operations which


arc 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 are reasonably necessary in respect of the effects of such


events and the course of all actions taken to prevent further loss and to mitij.itc


deleterious effects.


.35.6 In the event of emergency situations as set out in Article 35.4 . at the request of the


CONTRACTOR, the GOVERNMENT, without prejudice and in addinon to any


indemnification obligations the GOVERNMENT mi) have, shall a»i't the


( ONTRACTOR, 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 the


CONTRACTOR to bring into the Kurdistan Region personnel materials and


equipment to be used in any such emergency response or remedial or repair effort


The CONTRACTOR shall reimburse the GOVERNMENT*s reasonable and


necessary costs incurred in such efforts, which reimbursed amounts shall be


considered Petroleum Costs and shall \x recovered by the CONTRACTOR in


accordance with the provisions of Articles 1 and 23.


35.7 The GOVERNMENT shall indemnify and hold harmless the CONTRACTOR and


each CONTRACTOR Entity from and against all costs (including legal costs)


expenses, losses, damages and liability which such Person may suffer or incur, or


may result from such Person being denied, hindered or prevented from fully


exercising its rights or taking the full benefit of Articles 29.4, and 29.6 to 29.11.





Insurance


35.8 In accordance with prudent international petroleum industry practice, each


CONTRACTOR Entity shall maintain any insurance required by applicable


Kurdistan Region Law. as well as any insurance approved by the Managemen:


Commicee.


Such insurance policies may cover.


(a) loss of and damage to material and equipment used in the Petroleum


Operations: and








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(b) personal injury, damage to third panics and risks of pollution associated with


Petroleum Operations for reasonable amounts, within the limits approved by


the Management Committee.


35.9 Any insurance policy relating to this Contract shall name the GOVERN MEN I as an


additional insured party and shall include a waiver of subrogation protecting the


GOVERNMENT against any claim, loss and damage resulting from any Petroleum


Operation conducted by or on behalf of the CONTRACTOR under this Contract, to


the extent that the CONTRACTOR is liable for such claim, loss or damage under


this Contract. The CONTRACTOR shall not be liable for and shall not purchase


insurance cover for any claims arising from negligence or wilful misconduct of the


GOVERNMENT or of any Public Company or of any of its or their subcontractors


or of any personnel of any of the foregoing.


35.10 Upon its written request, the GOVERNMENT shall be provided with insurance


certificates, including necessary details, for any insurance policy maintained by the


CONTRACTOR which relates to this Contract.


35.11 Each CONTRACTOR Entity shall be responsible for 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 Costa and shall be recovered by the CONTRACTOR in


accordance with the provisions of Articles 1 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


Amoaat") shall be reasonably determined between the CONTRACTOR Entity and


the insurer and such Deductible Amount shall in the event of any insurance claim be


considered a Petroleum Cost and shall he 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 tl»c Kurdistan Region Oil and Gas Law and


prudent international petroleum industry practice In addition, h shall provide the


GOVERNMENT with su:h 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 The GOVERNMENT shall have title to all data and information, whether raw.


derived, processed, interpreted or analysed, obtained pursuant to this Contract.


36.4 Each CONTRACTOR Entity shall have the right, without any limitation, to send


Abroad copies of all reports and technical data, magnetic tapes und other Jala 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.








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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 daia relating to the Contract Area in the possession of the


CONTRACTOR which the CONTRACTOR is obliged to provide to the


GOVERNMENT pursuant to this Contract It is understood that, when exercising


such right the GOVERNMENT shall ensure it does not unduly nterfere with or


hinder the CONTRACTOR'S rights and activities.


366 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 in 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 A pan from the exceptions stated in this Article 36. the Parties undertake to keep all


data and information relating to this Contract and the Petroleum Operations


confidential during the entire term of ihis Contract and not to divulge or disclose such


data or information to third parties without the specific consent of the other Parties,


such consent not to be unreasonably withheld or delayed. The foregoing


confidentiality obligation shall not apply to information or data which:





(a) is or. through no fault of any Party, becomes part of the public domain.


(b) is known to the recipient at the dale of disclosure;


(c) is required to be furnished in compliance with any applicable Law. by a


government agency having jurisdiction over a CONTRACTOR Entity, by a


court order or any other legal proceedings; or


(d) is required to be disclosed pursuant to the rules or regulations of any


government or recognised stock exchange having jurisdiction over a


CONTRACTOR Entity.


36.K Notwithstanding the foregoing in Article 36.7, in accordance with prudent


international petroleum industry practice, such data and information may be disclosed


to:


(a) Affiliates of each CONTRACTOR Entity;


(b) employees, officers and directors of each CONTRACTOR Entity and their


respective Affiliated Companies for the purpose of the Petroleum Operations,


subject to each such entity taking customary precautions to ensure such


information is kept confidential:


(c) consultants or agents retained by any CONTRACTOR Entity or its Affiliates


for the purpose of analysing or evaluating information or data;


(d) banks or financial institutions retained by any CONTRACTOR Entity or its


Affiliates with n view to financing Petroleum Operations, including any


professional consultants retained by such bank or financial institution;








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(e) bona fide prospective assignees of a participating interest under this Contract


(including any entity with whom a CONTRACTOR Entity and/or its


Affiliates arc conducting bona fide negotiations directed towards a merger,


consolidation or the sale of a material portion of its or an Affiliates shares);


(0 prospective or actual Subcontractors and suppliers engaged by a Party where


disclosure of such information is essential to such Subcontractor's or


supplier s uori for su:h Party: and


(g) any other Person or entity, upon the prior written approval of the non¬


disclosing Parties.


provided that disclosure shall not be made pursuant to paragraphs (c), (d). (c) and (0.


unless such third party has entered ink* a confidentiality undertaking.


36.9 Any data and information relating to relinquished or surrendered areas under this


Contract shall become the exclusive property of the GOVERNMENT, who shall


have the right to use same for any purpose, in particular for the purpose of promoting


said areas. Each CONTRACTOR Entity shall be entitled to keep copies of such data


and information and to use such data and information for any purpose.


36.10 Subject to the provisions of til s Article *6. 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.











AK riCLE 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 the environment and prevention of pollution, in accordance


with prudent international petroleum industry practice in similar physical and


ecological environments and any then applicable Kurdistan Region Law.


37.2 Prior to surrendering u portion of the Coniract Area, the CONTRACTOR shall take


reasonable measures to abandon the urea to be surrendered in accordance with prudent


international petroleum industry practice in similar physical and ecological


environments. Such measures shall include removal or closure in place of facilities,


material and equipment together with reasonable measures necessary for the


preservation of fauna, flora and ecosystems, all in accordance with prudent


international petroleum industry practice in similar physical and ecological


environments. The CONTRACTOR shall only be responsible for site restoration or


environmental damage to the extent the same pertains solely and directly to Petroleum


Operations conducted pursuant to this Contract.


37.3 The CONTRACTOR shall take reasonable precautions and measures in accordance


with prudent international petroleum industry practice in similar physical and


ecological environments to prevent any pollution which may arise directly as a result





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 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 similar 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 after the Effective Date.








37.6 The CONTRACTOR shall uke reasonable measures to minimise any adverse


material impact on national parks and nature reserves which may arise directly as a


result of the Petroleum Operations, in accordance with prudent international


petroleum industry’ practice in similar physical and ecological environments.


37.7 The GOVERNMENT: (i) represents and warrants that, on the Effective Date, there


arc no national parks, nature reserves or other protected areas located in whole or in


pan within the Contract Area where the CONTRACTOR shall not be entitled to


carry out Petroleum Operations and (ii) covenants that during the term of this


Contract will not designate or create or permit the creation of any national parks,


nature reserves or other protected areas, located in whole or in part within the


Contract Area.


F-HwisiiUiaa


37.8 Any reasonable expenditure incurred by the CONTRACTOR in rd.uu hi with his


Article 37 shall be deemed Petroleum Costs and shall be recovered by the


CONTRACTOR in accordance with the provisions of Articles 1 and 25.





Pre-existing (.oiidijjon>


37.9 The CONTRACTOR is not responsible for any pre-existing env ironmenta:


conditions or any acts of unrelated third parties


ARTICLE 38 - DECOMMISSIONING


38.1 To enable the CONTRACTOR to recover the costs associated with future Contract


Area Decommissioning Operations under this Contract, the CONTRACTOR shall


have the tight to establish a reserve fund for future decommissioning and site


restoration (a " Decommission lag Reserve Fuad"). The Decommissioning Reserve


Fund may be established at any time during the final ten (10) Calendar Years of the


term of the Production Operation* of a Production Area but. upon the reasonable


request by the CONTRACTOR, the GOVERNMENT shall allow the


CONTRACTOR to establish such fund over a longer period. Once established, the


CONTRACTOR shall 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 interest received and future interest expected to be earned on the





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 Decommissioning Reserve Fund. Any contributions by the CONTRACTOR to the


Decommissioning Reserve Fund 'lull be made in Dollars and shall be deemed


Petroleum Costs when paid into the reserve fund, and shall be recovered by the


CONTRACTOR in accordance with the provisions of Articles I and 25.


Contributions to the Decommissioning Reserve I’und shull be placed with a first rate


bank approved by the Management Committee in accordance with Article 8.5.


38.2 If. at the end of the lenn of the Production Operations of the Production Area, the


GOVERNMENT decides to tnke 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 contributions have been recovered as


Petroleum Costs, shall be paid to the GOVERNMENT; and


(c) the GOVERNMENT shall release the CONTRACTOR and the


CONTRACTOR Entities from any obligations relating to Decommissioning


Operations and shall indemnify the CONTRACTOR and the


CONTRACTOR Entities 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 undertake any sue!


l>ecommissiomng 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 be paid by the CONTRACTOR and may be


recovered, if applicable, by the CONTRACTOR Entities or any of their Affiliates


from any other area which is the subject of another Petroleum Contract (as defined by


the Kurdistan Region Oil and Gas Law) anywhere in the Kurdistan Region and. to the


extent the balance is not recoverable as aforesaid, such remaining balance shall be


paid by the GOVERNMENT to the CONTRACTOR.


38.5 If the Decommissioning Reserve Fund is paid to the CONTRACTOR and the


Decommissioning Reserv e Fund exceeds all Decommissioning Costs for the Contract


Area, the balance shall be transferred to the GOVERNMENT.


38 f» Any expenditure incurred by the CONTRACTOR in relation with this Article 38


including any contributions to the Decommissioning Reserv e Fund, shall be deemed


Petroleum Costs and shall be recovered by the CONTRACTOR in accordance with


the provisions of Articles 1 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 Decommissioning Plan"), such IXcommissioning





iAT


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>)»


 Plan to be submined no later than twenty four (24) Month* prior to the date estimated


by the CONTRACTOR for the end of Commercial Production from the Contract


Area. The Management Committee shall provide comments, if any, on the


Decommissioning Plan within ninety (90) days alter 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 obligations with


respect to the performance of Decommissioning Operations for such Production Area.


In the event the GOVERNMENT docs not agree that Decommissioning Operations


for a Production Area were carried out in accordance with the approved


Decommissioning Plan, it must advise the CONTRACTOR within six (6) months of


CONTRACTOR'S completion of such operations.





ARTICLE 39-ASSIGNMENT AM) ( HANOI. OK CONTROL





.Assignment to Affiliates


39.1 Each CONTRACTOR Entity shall be free to sell, assign, transfer or otherwise


dispose of all or part of its rights, obligations and interests under this Contract to an


Affiliated Company or to another CONTRACTOR Entity with the prior consent of


the GOVERNMENT, which consent shall not be unreasonably delayed or withheld.


Assignment to.Thjrd Parties


39.2 Each CONTRACTOR Entity aholl have the right to sell, assign, transfer or otherwise


dis|>osc of all or part of its rights and interests under this Contract to any tfurd 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 surh consent in


writing, which request shall be accompanied by reasonable evidence of the technical


and financial capability of the proposed third party 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 otherw ise dispose of all or part of such Third Party interest to a


Person that is not an .Affiliate, such Third Parts Participant shall first offer to both the


other CONTRACTOR Entity (or, if applicable, CONTRACTOR Entities) and to


the GOVERNMENT pre-emption rights in relation to such Third Party Interest, or


part thereof. Such pre-emption rights shall be offered on terms that are at least as


favourable as the terms upon which the Third Party Interest (or part thereof) has been


offered to the interested Person. Any option by the GOVERNMENT to utilise such


pre-emption rights shall be subject to the maximum participation limit imposed upon


a Go* eminent Interest by .Article 4.1 Furthermore, any sale, assignment, transfer or


other disposal by the Third Party Participant shall be subject to the minimum


participation requirements imposed upon the Third Party Participant by .Article 4.8.


unless such sale, assignment, transfer or other disposal is of the entire Third Party


Interest taken pursuant to Article 4 8.


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.





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 shall enter into a binding and enforceable instrument of assignment and novation,


which shall include an undertaking by the transferee or 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 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 In 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


Government Participation or the Option of Third Party Participation, whether in


whole or in part, such assignment or transfer shall not give rise 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 all its rights and


obligations under this Contract to any Person, including to a Public Company or any


other company or entity, except in accordance with Article 4.











Change of Control


39.7 'Change of Control" for the purpose of this Article 39.7 means any direct of 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


more transferees, in which the market value of such entity’s participating interest


(which shall be as specified in the Joint Operating Agreement relating to this


Contract, or where there is only one CONTRACTOR Entity, one hundred per cent


(100%) in this Contract represents more than seventy five per cent (75%) of the


aggregate market value of the assets of such entity and its Affiliates that are 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 Arm’s Length transaction.





Each CONTRACTOR Entity which is or anticipates with a reasonable degree of


certainty that it will be subject to a Charge in Control, other than to an Affiliated


Company or a CONTRACTOR Entity, shall notify the GOVERNMENT as soon as


practicable after it becomes aware of the Change in Control or anticipated Change in


Control und request the 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 the income or gain therefrom.








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oji/-


 ARTICLE 40 FORCE MAJEIIRE





40.1 No delay, default, breach or omission of the CONTRACTOR in the execution of any


of its obligations under this Contract shall be considered a failure to perform this


Contract or be the subject of a dispute if such delay, default, breach or omission is due


to a case of Force Majeure In such event the CONTRACTOR shall promptly notify


the GOVERNMENT in writing and take all reasonably appropriate measures to


perform its obligations under (hit Contract to the extent possible. The time resulting


from any such delay or curtailment in the execution of such obligations, increased by


the time necessary to repair any damage resulting from or occurred during such delay


or curtailment, shall be added to any time 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 Paries


shall meet as soon as possible alter the 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 Majenre" 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 presents or


impedes execution of all or 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 conflict;


(c) accidents or blowouts;


(d) quarantine restrictions or epidemics;


(e) any act. event, happening or occurrence due to nanral causes, in particular,


bui without limitation, floods, storms, cyclones, fires, lightning, or


earthquakes:


(0 environmental restrictions, which the GOVERNMENT has rot notified to the


CONTRACTOR


lg) 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 other constituent element thereof, any


corporation owned and/or controlled by the any of the foregoing; and


(h) any nets 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 thereof, or any corporation owned and/or controlled by any of the


foregoing.











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40.3 The intention of the Parties is that Force Majeure shall receive the interpretation that


complies roost with prudent international petroleum industry practice. Force Majeure


affecting a CONTRACTOR Entity or an Affiliated Company oft CONTRACTOR


Entity shall be deemed Force Majeure affecting the CONTRACTOR if the


consequence of such Force Majeure pre\ems 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 a:


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 dcictmination. mediation, or arbitration proceedings commenced pursuant


to Article 42;


(b) any judicial, administrative or other proceedings to aid the expert determination,


mediation, or arbitration proceedings commenced pursuant to Article 42. and


(c) any effort to confirm, enforce or execute any decision, settlement, award, judgment,


service of process, execution order or attachment (including pre-judgment attachment)


that results 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 and Arbitration


42.1 For the purpose of this Article 42.1. “Dispate” 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 Panics (or between any one or more


entities constituting the CONTRACTOR and the GOVERNMENT)


In the event of a Dispute, the parties to the Dispute shall use their reasonable


endeavours to negotiate promptly in good faith a mutually acceptable resolution of


such Dispute.








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Subject to the provisions of Article 42.2, a Party who desires to submit a Dispute for


resolution which has not been promptly resolved us aforesaid shall commence the


dispute resolution process by providing the other |>arties to the Dispute written notice


of the Dispute (“Notice of Dispute"’). The Notice of Dispute shall identity 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.


(a) 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 the settlement of the Dispute lor


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


panics to the Dispute shall meet at a mutually acceptable date, time and place


to exchange relevant information in an attempt to resolve the Dispute. If a


Senior Representative intends to be accompanied at the 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.


(I>) If tlsc 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 party to the


Dispute of the Notice of Dispute or such further period us the parties to the


Dispute may agree in writing, any party to the Dispute ma> seek settlement o:


the dispute by mediation in accordance with the London Court of International


Arbitration (“LCIA") Mediation Procedure, which Procedure shall be deemed


to be incorporated by reference into this Article, and the parties to such


Dispiuc shall submit to such mediation procedure.


(c) If the Dispute is not settled within the earlier of (A) sixty (60) days of the


appointment of the mediator, or such further period as tit panic* to the


Dispute may otherwise agree in wiiting under the mediation procedure under


Article 42.1 (b). and (B) one hundred and twenty (120) days alter the 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.




(ii) If the parties to the Dispute are the GOVERNMENT and all the


CONTRACTOR Entities, the GOVERNMENT and the


CONTRACTOR shall each appoint one (I) arbitrator. If the parties to


the Dispute arc the GOVERNMENT and more than one. but not all


the CONTRACTOR I ntities, the GOVERNMENT shall appoint


one (I) arbitrator and such CONTRACTOR Entities shall appoint one


(1) arbitrator. If the parties to the Dispute are the GOVERNMENT


and one CONTRACTOR Entity, the GOVERNMENT and such


CONTRACTOR Entity shall each appoint one (I) arbitrator.











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(iii) In any event, the two arbitrators so appointed shall, in good faith, use


all reasonable endeavours to agree on the appointment of the third


arbitrator, who will chair the arbitral tribunal. In case of failure to


appoint an arbitrator or to agree on the appointment of the third


arbitrator. Rules of the LCIA shall apply.


(vi) Arbitration sliall take place in London, England. The language to he


used in any prior negotiation. mediation and in the arbitration shall he


English. During the arbitration procedure and until the arbitral


decision, the Parties shall continue to perform their obligations and


take no actions that would impair the Contract. The arbitral award may


bo enforced by any court of competent jurisdiction, including in the


Kurdistan Region. Any award shall be expressed in Dollars.





(v) I he Parties agree that the arbitral award shall be final and not subject


to any appeal, including to the Courts of England on 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 the economic position referred to in Article 43.3.





Finer! Determination


42.2 Any disagreement between the Porlioa relating to Articles 15.9.27.2 and 27.9. as well





.is any disagreement the Parties agree to refer to an expert, shall be submitted to un


expert. The Management Committee shall prepare and agree appropriate terms cl


reference relating to the disagreement to be submitted to the expert, in accordance


with Article 8.5 ("Terms of Reference-), as soon as possible alter 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 President of the Energy Institute in London. England. Any


expert appointed must have the necessary qualifications for reviewing and


deciding on the subject matter of the disagreement.


(b) The duties of the expert shall be stated in the Terms of Reference prepared and


agreed by the Management Committee. The Management Committee shall


promptly provide the expert with the agreed Terms of Reference relating to the


disagreement Each Party shall have the right to give to the expert in writing


any information which it considers useful, provided it docs so within forty-five


(45) days after the expert's appointment. Such information shall be provided


to the other Pony at the same time and such other Party shall be entitled to


provide comments on such information to the first Party and the expert within


thirty (30) days alter receiving such information. The expert shall have the


right to review and v erify any information he deems useful to assist him in his


review of the disagreement








Kf


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(c) The expert shall render his decision within forty-five (45) days of his receipt


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.


General


42.3 N'o negotiation, mediation, arbitration or expert determination procedure under this


Article 42 shall exempt the Parties from fulfilling their respective legal and/or


contractual obligations.




















ARTICLE 43 - GOVERNING LAW. FISCAL STABILITY AND AMENDMENTS











43.1 Hus Contract, including any dispute arising therefrom, thereunder or in relation


thereto and the agreement to arbitrate in Article 42. shall be governed by English aw


(except any rule of English law which would refer the matter to another jurisdiction),


together with any relevant rules, customs and practices of international law. as wel as


hy principles and practice generally accepted in petroleum producing countries arte ir.


the international petroleum industry.





Fi.scal Stability


43.2 The 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 entire duration of


this Contract, that it will maintain the stability of the legal, fiscal and economic


conditions of this Contract, as they result from this Contract and as they result 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 Date. 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 lo 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 entitled to benefits under this


Contract to the same overall economic position (taking into account home country








86/119


 taxes) as that which such Person would have been in, had no such change in the legal,


fiscal und/or economic framework occurred.





43.4 If the CONTRACTOR believes that its economic position, or the economic position


of a CONTRACTOR Hntity or any other Person entitled to benefits under this


Contract, has been detrimentally affected as provided in Article 43.3, upon the


CONTRACTOR’S written request, the Parties shall meet to agree 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,


the CONTRACTOR Entities or any other Person entitled to benefits under this


Contract to the position (taking into account home country taxes) it was in prior to the


occurrence of the change having such detrimental effect. Should the Parties be unable


to agree on the merit of amending this Contract and/or on any amendments to be


made to this Contract within ninety (90) days of the CONTRACTOR’S request (or


such other period as may be agreed by the Parties), the CONTRACTOR may refer


the matter in dispute to arbitration as provided in 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 lire benefit of any future changes to the petroleum legislation or any other


legislation complementing, amending or replacing it.


43.6 rhe Parties agree to cooperate In all possible ways with a view to fully adiicvmg the


objectives of this Contract l he GOVERNMENT shall facilitate the performance o:


the Petroleum Operations by promptly granting to the CONTRACTOR any


necessary authorisation permit, licence or access right and making available any


existing facilities 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 of a formal amendment duly


approved in writing by the Parties and subject to the same conditions of validity as


this Contract. Notwithstanding the foregoing, the GOVERN.MEN I has die right and


authority to waive the application of its rights under the pros isi. ns of this Contract on


a case-by-case basis without having to fulfil the conditions of validity of this Contract


43.8 This Contract constitutes the entire agreement of the Parties and supersedes any and


all prior understandings or agreements in respect of the subject matter of this


Contract.


43.9 Unless otherwise expressly stated elsewhere in this Contract, no failure or delay of


any Party to exercise any right, power or remedy under this Contract shall operate ns a


waiver thereof; nor shall any single or partial exercise of any such right, power or


remedy preclude any oilier or luiure exercise thereof or the exercise of any other right,


power or remedy.


Validity


43.10 As signatories to this Contract for and on behalf of the GOVERNMENT the


Ministry of Natural Resources in the Kurdistan Region and the Regional Council for





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 the Oil and Gns 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. i All notices, demands, instructions, waivers, consents or other communications to I*


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 hy reputable international air courier company with an establishment in Frbil


in the Kurdistan Region) to the following addresses:


To the GOVERNMENT:


Attention:


I lis Excellency the Minister of Natural Resources


Add r mi:


Ministry of Natural Resources


Kurdistan Regional Government


Erbil, Kurdistan














To the CONTRACTOR





Attention:


Director


KALEGRAS Ltd.





Address:


11 Honnis Street. CITY FORUM 7* floor. 1065 Nicosia. Cyprus





with a copy to:





MOL Hungarian Oil and Gas Pic.


18 Oktdbcr Huszonhamtodika Street


1117 Budapest. Hungary


Attn, to: Mr. Attila Somfai


Email:














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 Fax No. (36 1)464 4768








A notice delivered by email (followed by air courier) shall, save for 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 Panics may be


changed on giving ten (10) days prior notice to the other Party delivered pursuant to


Article 44.1.


ARTICLE 45 TERMINATION


45.1 Subject to the provisions of Article 45.5. the GOVERNMENT shall have the right to


terminate this Contract in the event the CONTRACTOR:


(a) fails to meet a material financial obligation expressly stated in this Contract: or


(b) by the end of the First Sub-Period docs not carry out drilling and seismic


acquisition, as detailed in Article 10.2 or. by the end of 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 period of more than ninety (00) consecutive days


with no cause or justification acceptable in accordance with this Contract or


under prudent intemutional petroleum industry practice, it being recognised


that Force Majeure is an acceptable justification for such interruption*, 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 as a result of operations earned 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 foe which the


GOVERN MF.NT has not given its authorisation in accordance with Article 39.7.


45.3 At any time prior to the Development Period, the CONTRACTOR shall have the


right to terminate this Contract by surrendering the entire Contract Area in accordance


with the provisions of Article 7.


45.4 During the Development Period, the CONTRACTOR shall have the right to


terminate this Contract at any time by surrendering all Production Areas, provided its


then current obligations have been satisfied in accordance with this Contract.





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45.5 If I lie GOVERNMENT intends to exercise its right to terminate this Contract


pursuant to Article 45.1, it shall lirst comply with the following provisions:


(a) I he GOVERNMEN I shall notify the CONTRACTOR of its intention to


terminate this Contract stating the reasons for such termination and requesting


the latter:


(i) 10 remedy the default: or


(ii) to propose acceptable compensation.


(h) If. within three (3) Months after the notice referred to in Article 45 5(a), the


CONTRACTOR has not remedied the situation complained of by the


GOVERNMENT to its satisfaction or offered compensation acceptable to die


GOVERNMENT in each ease acting reasonably, the GOVERNMENT shall


notify the CONTACTOR in writing that the Contract shall he terminated


from the termination date detailed in such notice. This Contract shall terminate


on such termination date unless the CONTRACTOR issues a notice of


dispute as provided under Article 42. in which ease this Contract shall remain


in force until a final settlement of the dispute has been reached in accordance


with tile dispute resolution provisions of Article 42


I'hc foregoing provisions of this Article 45.5 arc subject to the proviso that, in case of


u dispute where there has been breach of this Contract which has been submitted to


dispute resolution pursuant to Article 42. the GOVERNMENT shall 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 shall lose all its rights and interests


under this Contract. Notwithstanding the foregoing, the pros is ions of Articles 14.10.


16 7. 30. 31. 35.1. 35.3. 35.4. 35.7. 36. 38.2(c), 41,42. 43.1 to 43.6 shall survive the


termination or expiry of this Contract.


45.7 If a CONTRACTOR Entity breaches Article 46.1 or 46.2 the GOVERNMENT or


another CONTRACTOR Entity may terminate this Contract in respect of the first


CONTRACTOR Entity .


45.8 If the GOVERNMENT breaches Article 43.3 or 43.4 the CONTRACTOR may


terminate this Contract.


45.9 If the Contract is terminated under Article 45.2 or 45.7. the interest of the relevant


CONTRACTOR Entity shall be transferred to the other CONTRACTOR Entities in


the proportions in which their respective percentage interests bear to the aggregate of


their respective percentage interests under the relevant Joint Operating Agreement or


in such other proportions as such CONTRACTOR Entities shall agree between them


for tlic market value thereof (as such term is defined in Article 39.7). Such transfer


shall not give rise to any Tax including on the consideration paid or received or on the


income or gain therefrom.











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 ARTICLE 46 - APPLICATION OF CORRUPTION LANS S





46.1 If this Contract is determined by the final decision of an arbitral tribunal to have been


obtained in violation of Kurdistan Region Law concerning corruption, the


GOVERNMENT shall have the right to terminate this Contract


46.2 bach CONTRACTOR Entity agrees that if it is, at any time, determined by the final


decision of an arbitral tribunal to be in breach of Kurdistan Region Law concerning


corruption the prov isions of Article 45.7 apply.











ARTICLE 47-EFFECTIVE DATE


1 his Contract shall become effective and be binding on the Parties upon the signature of the


Contract by the duly authorised representatives of the GOVERNMENT and the


CON TRACTOR, as provided below.































































































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 i


Filtered into in four (4) originals in Eibil. the Kurdistan Region on.

















2007.





For the KURDISTAN REGIONAL GOVERNMENT


















































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





KAI.EGRAN l-TI).











By:





Dr. Ferenc Fark.is Dr. Zoltfo Bailed


By Power of Attorney By Power of Attorney



























































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 Sq. Km. Akri - Bijeel





Easting Northing Longitude Latitude












































G44 14




















nn w


 ANNEX B





ACCOUNTING PROCEDURE














PARAGRAPH 1 - GENERAL PROVISIONS





1.1 Purpose


To classify expenditures, define further Petroleum Costs (:n addition to th we defined


as such in the Articles of the Contract), and prescribe the manner in which the


CONTRACTOR'S Accounts shall be prepared and .improved


1.2 Definitions





Words and phrases to which a meaning has 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 other provisions of the Contract, then the other provisions of ti c Contract shal.


prevail.





1.4 Accounting Records and Reports


1.4.1 I he 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.





1.42 Within sixty (60) day* 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 petroleum industry practice and


procedures. Within ninety (90) days of receiving the above submission, the


GOVERNMENT shall cither provide written notification of its approval of the


proposal or request in writing revisions to the proposal. Within one hundred and


eighty (180) days after the Effective Date, the CONTRACTOR and the


GOVERNMENT shall agree on the outline of charts of Accounts which shall


describe the basis of the accounting system and procedures to be developed and u*ed


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 the accounting, recording


and reporting functions, and procedures which are. and shall be. observed under the


Contract





1.4.3 Notwithstanding the generality of the foregoing, the CONTRACTOR shall make


regular Statements relating to the Petroleum Operations. These Statement' are a%


shown:


(a) Production Statement (as indicated in Paragraph 6).


(b) Value of Production and Pricing Statement (as indicated in Paragraph 7).


(c) Cost Recovery and Share Account Statement (as indicated in Paragraph 8).


(d) Statement of Expenditures and Receipts (as indicated in Paragraph 9).


(c) I inal End-of-Year 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.


Kurdistan Region Law. and where there are no relevant provisions of either of these,


in accordance with prudent international petroleum industry practice.


1.5 Language and 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 out in accordance with Article' 15 '• to


15.7:


1.6.1 For purposes of auditing, the 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, pas-rolls, invoices and


any other documents, correspondence and records including electronic records


reasonably considered necessary by the GON'ERNMENT to audit and verity 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 ai reasonable times, all sites, plants, facilities, warehouses and offices of


the CONTRACTOR directly or indirectly serving the Petroleum Operations and to


question personnel associated with those Petroleum Operations.


1.6.3 Where the GOVERNMENT requires verification of charges made by an Affiliated


Company of the CONTRACTOR, the GOVERNMENT shall have the right to


obtain an audit cenificatc for such changes from an internationally recognized firm of


public accountants acceptable to both the GOVERNMENT and the


CONTRACTOR, which may be the CONTRACTOR'S satutory auditor.


1.6.4 .All agreed adjustments resulting from an audit shall be promptly made in the


CONTRACTOR'? Accounts and any consequential adjustments to payments due to


the CONTRACTOR or to the GOVERNMENT, as the ease may be. shall be made


promptly.


Kr


1.6.4 When issues arc outstanding with respect to an audit, the CONTRACTOR shall


maintain the relevant documents and permit inspection thereof until the issue is


resolved.


1.7 Pa> meats


( r.lcss as otherwise provided in Ankle 24. Article 29 or other Articles of the


Contract:


1.7.1 All payments between the Parties shall, unless otherwise agreed, be tn Dollars and be


made through a bank designated in writing by each receiving party; and all sums due


under the Contract shall be paid within thirty (?0) days following the end of the


Month in which the obligation to make such payment occurred.


1.7.2 All sums due by one party to the other under the Contract shall, for caeh day such


sums uic overdue, bcur interest compounded monthly at 1.1BOR plus two per cent


(2%).


1.8 Currency Exchange Kates


In addition to the provisions of Article 29. the following provisions shall apply to any


exchanges of currency carried out in accordance with Article 29:


1.8.1 Amounts received and Petroleum Costs incurred, shall be converted from other


currencies into Dollars in accordance with the CONTRACTOR'* 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, Cash Flow Basb and Reports


All books and Accounts shall be prepared on an accrual basis in accordance with


generally accepted accounting principles used in the international petroleum industry.


1.10 Values and Treatments


Values and treatments proposed by the CONTRACTOR relating to all Petroleum


Costs shall be subject to challenge by the GOVFRN'MFNT in the course of audit to


ensure that they are in accordance with the pros isions of this Accounting Procedure.








PARAGRAPH 2-CLASSIFICATION, DEFINITION AND ALLOC ATION OF


COSTS AND EXPENSES





2.1 Segregation of Costs and Expenses


Petroleum Costs shall be segregated in accordance with the purposes for which such


Petroleum Costs are made. The purposes which shall qualify arc


(a) those which have been included in the approved Work Program and Budget


for the y ear in which the Costs and Expenditures are made;


(b) expenditures inclined 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 ha\e been agreed by the Parties from time to time.


All Petroleum Costs recoverable under Paragraph 3 relating to Petroleum Operations


shall be classified, defined and allocated as set out below.


2.2. Exploration Costs


Exploration Costs are all direct and allocated indirect costs and expenditures incurred


in carrying out the Exploration Operations, including all direct and allocated indirect


costs und expenditures incurred in the search for Petroleum in an area which is, or wus


at the time when such costs and expenses were incurred, part of the Contract Area


Including:


2.2.1 Aerial, geophysical, geochemical, paleontological, geological, topographical and


seismic surveys and studies and their interpretation and purchased geological and


geophysical information.


2.2.2 Stratigraphic test hole drilling and water well drilling.


2.2.3 Labour, materials, supplies, and sendees used in drilling and formation testing of


wells with the object of finding Petroleum or Appraisal Wells excluding any costs of


the subsequent completion of such wells as producing wells.


2.2.4 Facilities to the extent used in support of the purposes described in Paragraphs 2.2.1.


2.2.2 aixl 2.23. including access roads.


2.2.5 That portion of all service expenditures and that portion of all general and


administrative expenditures directly attributable to Exploration Costs or allocated


thereto on a consistent and equitable basis.


23.6 Any other expenditures incurred in the search for and appraisal of Petroleum after the


Effective Date and not otherwise covered under this Paragraph 23.


23 Gas Marketing Costs


Gas Marketing Costs arc all direct and allocated indirect costs and expenditures


incurred in carrying out Gas Marketing Operations and include that portion of all


service expenditures aivd 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 C osts


Development Costs are nil direct and allocated indirect costs and expenditures


incurred in carrying out Development Operations including all direct and allocated


indirect costs and expenditures incurred in:


2.4.1 Drilling wells which arc completed ns producing wells and drilling wells for purposes


of producing from a Petroleum reservoir, whether these wells arc 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 as a well for the injection of water or gas to enhance recovery of Petroleum.


2.4.1 I hc costs of Petroleum production, transport and storage facilities such as pipelines,


tlow lines, production and treatment units, wellhead equipment subsurface


equipment, enhanced recovery systems, Petroleum storage facilities, and access roads


for production activities.


2.4.4 hnginccring and design studies for the wells and facilities referred to in Paragraphs


2.4.1.2.4.2 and 2.4.3.


And including that portion of all service expenditures and that portion of all general


.ind administrative expenditures directly attributable to Development Costs or


allocated thereto on a consistent and equitable basis; and any olher expenditure


incurred in the Development Operations and not otherwise covered under


Paragraph 2.3.


2.5 Production Costs


Production Costs are all direct and allocated indirect costs and expenditures incurred


in carrying out Production Operations, including all direct and allocated indirect costs


and expenses incurred in Petroleum Operations after First Production which arc other


than hx pi oration Costs. Gas Marketing Costs. Development Costs and


Decommissioning Costs. 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 a consistent and equitable


basis.





2.6 DecommiMioninR Costa


Decommissioning Costs are all direct and allocated indirect costs and expenditures


incurred in carrying out Decommissioning Operations and include that portion of all


service expenditures and that portion of all general and administrative expenditures


directly attributable to Decommissioning Costs or allocated thereto on a consistent


and equitable basis, and the Decommissioning Reserve 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 contributions to the Decommissioning Reserve Fund


shall be recovered in accordance with Article 38


2.7 Service Expenditure*


Service expenditures are expenditures in support of Petroleum Operations including


warehouses, vehicles, motorized rolling equipment, aircraft, fire and security stations,


workshops, walcr and sewerage plants, power plants, housing, community and


recreational facilities and furniture, tools and equipment used in these activities.


Service expenditures in any Calendar Year shall include the costs incurred in such


year lo purchase and/or construct the said facilities as well as the annual costs of


maintaining and operating the same. All service expenditures shall be regularly


allocated as specified in Paragraphs 2.2.5. 2.3. 2.4. 2.5 and 2.6 to Exploration Costs,


Gus Marketing Costs, Development Costs, Production Costs and Decommissioning


Costs respectively and shall be separately shown under each of these categories


Where service expenditures are 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 Expenditures


General and administrative expenditures are:


2.8.1 All main office, field office and general administrative expenditures in the Kurdistan


Region including supervisory, accounting, procurement and employee relations


services.


2.X.2 Where the CONTRACTOR is an Affiliate of a group of companies whose


headquarters is Abroad (a "Foreign CONTRACTOR"), an annual overhead charge


shall be made for services rendered (excluding the direct expenditures as referred in


Paragraph 3.l.2.(b» by any Affiliate of the Foreign CONTRACTOR outside the


Kurdistan Region to support and manage Petroleum Operations under the Contract, or


where the CONTRACTOR, not being a Foreign CONTRACTOR draws upon the


services of on Affiliate within the Kurdistan Region, an annual overheud charge shall


Ik made for services rendered (excluding the direct expenditures as referred in


Paragraphs 3.1.2.(a) and

Operations under the Contract ("Parent Company Overhead ).


Parent Company Overhead will be deemed to cover the actual cost (being saiar.es.


wages and labour burden, employee benefits, travel, hotel and other normally


reimbursable expeases 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 for serv ices rendered by those 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


(b) arc properly allocable to Petroleum Operations under the Contract- It is


understood, however, that services performed by tlx 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


.in amount equal to the total of the following:


2.8.2.1 Exploration Overhead


l ive ( ONTKACTOR shall be entitled to an annual charge based on a sliding scale


percentage and charged monthly to Petroleum Operations. 1 he 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 fraction 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 (US$4,000,000) four per cent (4%)


For the next four million Dollars (US$4,000,000) three per cent (3%)


Over eight million Dollars (US$8,000,000) two percent (2%)


Five 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


(Tie overhead rates applicable to Development, Production and Decommissioning


Operations shall be agreed between the Parties in due course and shall incorporate the


following guidelines:


(a) The CONTRACTOR'S charges must be charged as direct charges whenever


possible. Overhead charges exist only to compensate the CONTRACTOR'S


Affiliates for costs which arc properly allocable to Petroleum Operations


under the 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 are billed monthly.


Overhead must be commensurate with services rendered and based cm actual


cost studies but may not exceed an amount calculated as a percentage of


certain annual expenditures excluding Exploration Costs and


(b) That percentage us well as the types of expenditures, which affect overhead


und those, which do not, shall be agreed among the Parties.


(c) The maximum percentage rates may be revised by mutual agreement not m re


often than annually, fhc initial maximum percentage rates and the types of


expenditures to which they upply shall be agreed us soon as the Parties possess


reasonably reliable cost estimates for the relevant Production Area.


(d) Overhead charges are not subject to audit by GOVERNMENT.


(e) I hc COM RACTOR shall upon request furnish at the end of each relevant


Calendar Year to the GOVERNMENT a 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 lo other activities is reasonable and in accordance with


generally accepted accounting practices.





(0 The CONTRACTOR must budget for overhead charges,


2.8.3 All general and administratis e expenditures shall be regularly allocated as specified in


Paragraphs 222.5, 2.3, 2.4. 2.5 and 2.6 to Exploration Costs, 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 THE


CONTRACTOR





3.1 Costs Recoverable Without Further Approval of the GOVERNMENT


Petroleum Costs incurred by the CONTRACTOR pursuant to the Contract as


classified under tte headings referred to in Paragraph 2 shall be reco\crablc 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 in Article 15 and in


Paragraph 1.6.


3.1.1 Surface Rights


All direct costs necessary for the acquisition, renewal or relinquishment of surface


rights acquired and maintained in force for the purposes of the Contract.





3.1.2 Lflfep-MT-Cfias





(a) The CONTRACTOR'S locally recruited employees based in the Kurdistan


Region: Costs of all CONTRACTOR'S locally recruited employees who are


directly engaged in the conduct of Petroleum Operations under the Contract in


the Kurdistan Region Such costs shall include the costs of salaries, wages,


bonuses, overtime, employee benefits and GOVERNMENT benefits for


employees and levies imposed on the CONTRACTOR as an employer,


transportation and relocation costs within the Kurdistan Region of the


employee and such members of the employee's family (limited to spouse and


dependent children) as required by law or customary practice in the Kundistan


Region. If such employees are engaged in other activities in the Kundistan


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 ol the


Petroleum Operations under the Contract, whether temporarily or permanently


assigned, irrespective of the location of such employees, 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 us delineated in


Paragraphs 3.1.2(c). (d), (c), (I) and (g). shall be charged and the basis of such


pro-rata allocation shall be specified.


 (c) The CONTRACTOR'S costs regarding holiday, vacation, sickness and


disability benefits and living and housing and other customary allowances


applicable to the salaries and wages chargeable 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) 1’he 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 arc in accordance with generally


accepted standards in the international petroleum industry, applicable to


salaries and wages cltargeable to Petroleum Operations under


Paragraph 3.1.2(b).


(I) Actual transportation and travel expenses of employees of CONTRACTOR,


including those made for travel and relocation of the expatriate employees,


including their families and personal effects, assigned to the Kurdistan Region


whose salaries and wages are chargeable to Petroleum Operations under


Paragraph 3.1.2(h).


Actual transportation expenses of expatriate personnel transferred to Petroleum


Operations from their country of origin shall be charged to the Petroleum Operations.


Transportation expenses of personnel transferred front Petroleum Operations to a


country other titan 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 expenditures related to


vacation and transfer travel and authorized under the CONTRACTOR s standard


personnel policies. The CONTRACTOR shall ensure that all expenditures related to


transportation costs are equitably allocated to the activities, which have benefited


from the personnel concerned.


(g) Reasonable personal expenses of personnel whose salaries and wages arc


chargeable to Petroleum Operations under Paragraph 3.1.2(b) and for which


expenses such personnel are reimbursed under the CONTRACTOR’S


standard personnel policies. In the event such expenses are not wholly


attributable to Petroleum Operations, the Petroleum Operations shall be


charged with only the applicable portion thereof, which shall be determined on


an equitable basis.





3.1.3 Relocation Costs





The cost of transportation of employees, equipment, materials and supplies other than


as provided in Paragraph 3.1.2(f) necessary for the conduct of the Petroleum


Operations 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 gfrarycs lor Services





(n) Third Parlies





The actual costs of contract services, services of professional consultants,


utilities, and other services necessary for the conduct of the Petroleum


Operations under the Contract performed by third parties other than an


Affiliate of the CONTRACTOR.


(b) A/riliaies of the CONTRA CTOR





(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 charges shall reflect the cost of providing their


services. Such charges shall not include any element of profit and shall


be no more or less favourable than similar charges for other operations


carried on by the CONTRACTOR and its Affiliates Ihc chargeout


rate shall include all costs incurred by Affiliates incidental to the


employment of such personnel including all Labour and Associated


Labour Costs and die cost of maintaining and operating offices and


providing all support services for such personnel C.'sts o: 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-Affiliated third parties, taking into


account the quality and availability of such services Where the work 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 work up to their return thereto,


including days which arc not working days in the location where the


work is performed, excluding any holiday entitlements derived by such


personnel from their employment at their home office base.





(ii) Scientific or Technical Personnel: cost of scientific or technical


personnel services prov ided by any Affiliate of the CONTRACTOR


for the direct benefit of Petroleum Operations, which cost shall be


charged on a cost of service basis and shall not include any element of


profit. The chargeout rate shall include all costs incurred by Affiliates


incidental to the employment of such personnel including all Labour


and Associated I-tbour Costs and the cost of maintaining and op>eraiing


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-affiliated third parties, taking into


account the quality and availability of such services Unless the work


to be done by such personnel is covered by an appro\ cd Work Program


and Budget, the CONTRACTOR shall not authorize work by such


personnel without approval of the GOVERNMENT.


(iii) Equipment and facilities: use of equipment and facilities owned and


famished by the CONTRACTOR'S 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 the


Petroleum Operations are 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 rates being on an arm's length basis. (If the GOVERNMENT


considers tliat 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 Article 42.2 of the Contract), fhc equipment und facilities


referred to herein shall exclude major investment items such as (but


not limited to) drilling rigs, producing platforms, oil treating facilities,


oil and gas loading and transportation systems, storage and terminal


facilities and other major facilities, rates for which shall he subject to


separate agreement with the GOVERNMENT.


3.1.5 Cftnmiwimttigiia


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








Net cost to the CONTRACTOR of establishing, maintaining and operating an>


office, sub-office, warehouse, housing or other facility directly sen ing the Petroleum


Operations. If any such facility services more than one contract area the net costs


thereof shall be allocated on an equitable basis in accordance with prudent


international petroleum industry practice.








(a) Costs incurred in the Contract Area as a result of legislation for archaeological


and geophysical surveys relating to identification and protection of cultural


sites or resources:


(b) Costs incurred in environmental or ecological surveys required by regulatory





authorities, including an environmental impact assessment commissioned


pursuant to Article 37.5 of the Contract and any other costs incurred in


complying with the requirements of Article 37;





(c) Costs to provide or have available pollution containment and removal


equipment:


 (d) Costs of actual control und 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 pursuant to an


approved scheme prepared in accordance with Article 38 of the Contract;





(0 Any cosis incurred for ihc decommissioning of facilities and sile 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.





3.1.8





Costs of materials and supplies, equipment, machines, tools and any other 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 be used in the foreseeable future.


The accumulation of surplus Mocks 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


similar considerations.







provided in paragraph 3.1.8(d). material purchased by Ihc CONTRACTOR


in arm's length transactions in the open market for use in the Petroleum.


Operations under the Contract shall be valued to include invoice price less


trade and cash discounts (if any). licence fees, purchase and procurement fees


plu* freight and forwarding charges between point of supply and point of


shipment, freight to port of destination, insurance, taxes, customs duties,


consular fees, excise taxes, other items chargeable against imported materials


and, where applicable, handling and transportation expenses 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 ease 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 record*


and books in accordance with the "First in, First Out” (FIFO) method;







transferred from other activities of the CONTRACTOR to or from Petroleum


Operations under this Contract shall be valued and charged or credited at the


prices specified in Paragraphs 3.1.8(dXi). 3.1.8(d)(ii) and 3.1.8(dK«ii):


(i) New material, including used new material moved from inventor)'


(Condition "A"), shall be valued at the current international net price


which shall not exceed the price prevailing in normal arm's length


transactions in the open market.


(ti) Used material (Conditions "B", "C and "D";


(A) Material which is in sound and serviceable condition and 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(dXi);


(B) Material which cannot be classified as Condition “B" but which


after 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” or


Condition **C” shall be classified as Condition "D" and priced


at a value commensurate with its use by the CONTRACTOR.


If material is not lit for use by the CONTRACTOR it shall be


disposed of as junk.


(iii) Material involving erection costs shall be charged at the applicable


condition percentage of the current knocked-down price of new


material as defined in Paragraph 3.1.8(dXi) •


(iv) When the use of material is temporary and its serv ice to the Petroleum


Operations under the Contract does not justify’ the reduction in price a*


provided for in paragraph 3.1.8.(dXii)(b), 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 pnees because of national emergencies, strikes or


other unusual 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 suitable for use. and in moving it


to the Contract Area; provided notice in writing is furnished to the


GOVERNMENT of the proposed charge prior to charging Petroleum


Operations for such material and the GOVERNMENT shall have the


right to challenge the transaction on audit.


(vi) Warranty of material furnished by the CONTRACTOR - the


CONTRACTOR docs not warrant the material furnished In ease 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.


(e) Equipment of the CONTRACTOR charged at rates not to exceed the average


commercial rates of non-affiliated 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 either 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 at replacement cost less depreciation plus transportation costs


to deliver like equipment to the location where used.


(f) 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 costs.


3.1.9 Rentals and Taxes





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 (save where 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 Entity or any of its Affiliated


Companies is subject to income or w ithholding 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


taxes on such gross up.


3.1.10 Insurance and Losses


Insurance premiums and costs incurred for insurance carried for the benefit of the


Petroleum Operations provided that such insurance is customary, affords pmdent


protection against risk and is at a premium no higher than that charged on a


competitive basis by insurance companies which arc not 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 recov erable


to the extent not made good by insurance unless such losses result solely from an act


of wilful misconduct by the CONTRACTOR Such costs may include repair and


replacement of property in the Contract Area resulting from damages or losses


incurred by fire, flood, storm, thefl. accident or such other cause


3.1.11 Legal Expenses





All reasonable coils and expenses resulting from the handling, investigating,


asserting, defending, or settling of any claim 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 he 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 covered elsewhere in die Annex.


Where legal services arc rendered in such matters by salaried or regularly retained


lawyers ol the CON I KA< I OK or an Affiliated Company of the C ONTRACTOR,


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 otlicrwisc be covered elsewhere in the Annex.








All costs and expenses incurred by the CONTRACTOR in the training of it*


employees engaged in Petroleum Operations under the Cor tract


3.1.14 General and Administrative Costs


I he costs described in Paragraph 2.8.1 and the charge described in Paragraph 2.8.2


3.1.15 Bank:nc Cnarees and Currency Exchange Losses


Charges and fees by the banks for money transfers, payments and foreign exchange


transactions, as well as currency exchange losses incurred by the CONTRACTOR in


connection with the Petroleum Operations.


3.1.16 Other Expenditures


Other reasonable expenditures not covered or dealt with in the foregoing provision* of


Paragraph 3 which are necessarily incurred by the CONTRACTOR for die proper,


economical and efficient conduct of Petroleum Operations.


3J Credit tndcr the Contract


rhe proceeds, other than the proceeds from the sale of Petroleum received from


Petroleum Operations under the Contract, including the items listed below shall be


credited to the Accounts under the Contract for the purposes of Article 25 of the


Contract:


3.2.1 The proceeds of any insurance or claim or judicial awards in connection with


Petroleum Operations under the Contract or an> assets charged to U»c Accounts under


the Contract where such operations or assets have been insured and the premia


charged to the Accounts under the Contract.


32.2 Legal costs charged to the accounts under Paragraph 3.1.11 and subsequently


recovered by the CONTRACTOR


3.2.3 Rev enue received from third parties 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 their agents in connection with a defective material the 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 the Contract, but excluding any award granted to the CONTRACTOR under


arbitration or expert proceedings.


3.2.6 Costs originally charged to the Accounts under the Contract for materials


subsequently exported from the Kurdistan Region or transferred to another Contract


Area w ithin 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 costs of which have been charged to the


Accounts under the Contract.


3.2.8 Proceeds derived from the sac 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 vale, exchange, lease, hire, transfer or disposal in any


manner whatsoever of any other item the costs of which have been charged to


Petroleum Operations.


33 Duplication of Charges and Credits


Notwithstanding any provision to the contrary in this Accounting Procedure, there


shall be no duplication of charges or credits to the Accounts under the Contract.





PARAGRAPH 4 - COSTS AND EXPENSES NOT TO BE TREATED AS


RECOVERABLE


The following costs and expenditures shall not be included in the Petroleum Costs


recoverable under Article 25:


4.1. Taxes on income or profit paid to any GOVERNMENT authority except taxes and


duties that may be included in the costs of material and equipment purchased for the


Petroleum Operations:


 4.2. Any payment made to the GOVERNMENT by reason of the failure of the


CONTRACTOR to fulfil it' Minimum Exploration Obligations in respect of the


relevant Sub-Period under the Contract.


4.3. I he com of any letter of guarantee, if any. required under the Contract;


4.4 The bonuses set out in Article 32 of the Contract;


4.5. 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 the Contract or internationally recognised independent expert


determination as provided in the Contract or this Accounting Procedure;


4.7 Any interests, fees, costs and expenses paid by the CONTRACTOR for loans and


any other form of financing or advances for the financing of the Petroleum Costs


entered into by the CONTRACTOR with third parties or Affiliated Companies:


4.8 Any accounting provision for depreciation and/or amortisation, excluding any


adjustments in value pursuant to Paragraph 3.1.8;


4.9 Dividends, repayment of equity or repayment of intercompany loans:





4.10 Fines and penalties imposed under Law.


PARAGRAPH 5 - RECORDS AND VALUATION OF ASSETS





5.1 Records


The CONTRACTOR shall maintain detailed records of properly in use for


Petroleum Operations under the Contract in accordance with prudent international


petroleum industry practice for exploration and production activities.


5.2 ln\ calories





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


GOVERNMENT at least thirty (30) days written notice of its intention to take such


inventory and 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 bind the


GOVERNMENT to accept the inventory taken by the 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 lull report on such inventory


within thirty (30) days of the taking of the inventory. When an assignment of rights


under the Contract takes place the CONTRACTOR may. at the request of the











ar


 assignee, take a special inventory provided that the costs of such inventor)' arc borne


by the assignee.





PARAGRAPH 6 - PRODUCTION STATEMENT


6.1 Production Information


Without prejudice to the rights and obligations of the Parties under Article 16 of the


Contract, from the date of First Production from the Contract Area the


CONTRACTOR shall submit a monthly production statement to the


GOVERNMENT showing the following information separately for each producing


Development Area and in aggregate for the Contract Area:


6.1.1 The quantity of Crude Oil produced and saved.


6.1.2 Hie quality characteristics of such Crude Oil produced and saved.


6.1.3 llic quantity of Nutural Gas produced and saved.


6.1.4 rite quality characteristics of such Natural Gas produced and saved.


6.1.5 I he quantities of Crude Oil and Natural Gas used for the purposes of carrying on


drilling and production operations and pumping to field storage.


6.1.6 rhe quantities of Crude Oil and Natural Gas unavoidably lost


6.1.7 The quantities of Natural Gas flared and vented.


6.1.8 The size of Petroleum stocks held at the beginning of the calendar Month in question.


6.1.9 The size of Petroleum slocks held at the end of the calendar Month in question.


6.1.10 The quantities of Natural Gas reinjected into the Reservoir


6.1.11 In respect of the Contract Area as a whole, the quantities of Petroleum transferred a:


the Measurement Point. All quantities shown in this Statement shall be expressed in


both volumetric terms (Bands 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 OE PRODUCTION AND PRICING STATEMENT


7.1


Value 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


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


sales of Natural Gas and Crude Oil delivered to third parties made during the Quarter


m question.


7.1.2 The quantities and prices realized therefor by the CONTRACTOR in respect of sales


of Natural Gas and Crude Oil delivered during the Quarter in question, other than to


Third Parties.


7.2 Submission of Value of Production and Pricing Statement


The Value of Production and Pricing Statement for each Quarter shall be submitted to


the GOVERNMENT not later than twenty-one (21) days after the end of such


Quarter.


PARAGRAPH 8 - COST RECOVERY AND SHARE ACCOUNT STATEMENT


8.1 Cost Recover}' Statement


I he CONTRACTOR shall prepare with respect lo each Quarter a Cost Recover)


Statement containing the following information:-


8.1.1 Recoverable Petroleum Costs carried forward from the previous Quarter, if any


8.1.2 Recoverable Petroleum Costs for the Quarter in question.


8.1.3 Credits under the Contract for the Quarter in question


8.1.4 Total Recoverable Petroleum Cost* for the Quarter in question (Paragraph 8 1.1 plus


Paragraph 8.1.2. net of Paragraph 8.1.3).


8.1.5 Quamit) 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 recov erable Petroleum Costs to be 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 The 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.


822.4 The cumulative production position at the end of the Quarter in question.


8.2.5 The amount of Petroleum applied to Royalty pursuant to Article 24, cost recovery


pursuant to Article 25 and Profit Petroleum pursuant to Article 26 taken by the


GOVERNMENT and by the CONTRACTOR, respectively, during the Quurtcr in


question.


8.2.6 I he forecast of production and the share of Petroleum applied to Royalty pursuant to


Article 24. cost recovery pursuant to Article 25 and Profit Oil pursuant to Article 26


due lo the GOVERNMENT and to the CONTRACTOR, respectively, for the nexl


succeeding Quarter.


NT Preparation and Submission of Cost Recovery and Cumulative Production


Statements


8.3.1 Provisional Cost Recovery and Cumulative Production Statements, containing


estimated information where necessary, shall be submitted by the CONTRACTOR


on the last day of each Quurtcr for the purposes of Article 25 of the Contract.


8.3.2 Final quarterly C ost 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 tltc Year in question and showing the cumulative positions at the end of the Year in


question with respect to cumulative unrecovered Petroleum Costs and Cumulative


Production





PARAGRAPH 9 - STATEMENT OF EXPENDITURE AND RECEIPTS


9.1 TTk 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.


9.12 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 Expenditure and Receipts of each Quarter shall be submitted to the


GOVERNMENT no later than thirty (30) days after the end of such Quarter.


 PARAGRAPH 10 - FINAL END-OF-YEAR STATEMENT





The CONTRACTOR will prepare a Final End-of-Ycar Statement. The Staiement will


contain information as provided in the Production Statement. Value of Production and


Pricing Statement. Cost Recovery and Cumulative Production Statements and Statement of


Expenditures and Receipts but will be based on actual quantities of Petroleum produced and


expenses incurred. This Statement will be used to make any adiustments that are necessary to


tte payments made by the CONTRACTOR under the Contract Ihe Final End-cf-Year


Statement of each Calendar Year shall be submined to the GOVERNMENT within ninety


(90) days of the end of such Calendar Year.








PARAGRAPH 11-AUDITS


Each such report and statement provided for in Paragraph 6 through 10 shall be considered


true and correct, unless the GOVERNMENT raises an exception thereto within the


timeframe and under the process set out in Article 15 of the Contract


PARAGRAPH 12 - ANNUAL WORK PROGRAM AND BUDGET


11.1 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:


If.1.1 Forecast expenditures for the budget Calendar Year in question including a quarterly


classification of such expenditures


11.12 Cumulative expenditures to the end of said budget Calendar Year.


11.1 3 A schedule showing the nio%« important individual items of Development Costs (if


applicable) for said budget Year.





PARAGRAPH 13-CON I RAC 1 OK ENTITY INCOME TAX COMPUTATION


13.1 For the purpose of Article 31.3(b) of the Contract, the net taxable profits of each


CONTRACTOR F.ntity from all the Petroleum Operations carried out under this


Contract, shall be calculated in accordance with this Paragraph.


13.2 Each CONTRACTOR Entity shall maintain for each Calendar Year separate


Accounts with respect to the Petroleum Operations which shall be used, inter alia, to


establish a profit and loss account and a balance sheet which will show the results of


the Petroleum Operations carried out in such Calendar Year as well as the assets and


liabilities assigned or directly related thereto. The profit and loss account will be


maintained under the accrual method of accounting.


13.3 For purposes of determining the net livable profits of each CONTRACTOR Entity


for corporate income tax purposes:


13.3.1 the profit and loss account of such CONTRACTOR Entity shall be credited with the


following:


(a) if the Royalty i# paid in cash pursuant to Article 24. revenues arising from the


disposal of Royalty volumes os recorded in such entity's Accounts and


determined in accordance with the provisions of Article 24;


(b) revenues anstng from the disposal of any Available Petroleum to which such


entity is entitled for recovery of its Petroleum Costs as recorded in its


Accounts and determined in accordance with the provisions of Article 25;


(c) rev enues from the disposal of any Profit Petroleum to which such entity is


entitled under Article 26 as is recorded in its Accounts and determined in


accordance with the provisions of Article 26;


(d) any other revenues or proceeds directly connected to the Petroleum Operations


including those arising from the disposal of related Petroleum substances, or


from the treatment, storage and transportation of products for third parties;


(c) any exchange gains realised or other flnunciul income earned by such entity in


connection with the Petroleum Operations;


13.3.2 the profit and loss account for such CONTRACTOR Entity shall be debited with all


charges incurred for the purposes of the Petroleum Operations whether incurred inside


or outside the Kurdistan Region, which charges shall include the following:


(a) in addition to the charges specifically set forth below in this Paragraph, all


other Petroleum Costs, including the costs of supplies, personnel and


manpower expenses, und the cost of services provided to the


CONTRACTOR in connection with the Petroleum Coils;


(b) if the Royalty is paid in cash pursuant to Ankle 24, Royalty payments made


and as recorded in such entity 's Accounts and determined in accordance with


the provisions of Article 24;


(c) General and administrative expenditures related to the Petroleum Operations


performed under this Contract


(d) depreciation of capital expenditure in accordance with the following


provisions:


(i) capital expenditures incurred by the CONTRACTOR for the purposes


of the Petroleum Operations shall be depreciated on a reducing balance


basis.


(ii) the depreciation rates, which shall be applicable from the Calendar


Year during which such capital expenditures arc incurred, or from the


Calendar Year during which die assets corresponding to said capital


expenditures are put into normal service, whichever is later, for the


first Calendar Year in question and for each subsequent Calendar Year,


are as follows-


 Nature of the capital asset to he depreciated Annual depreciation Hate








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%


Marine and aviation equipment 20.0%





All other capital asset' 20.0%











(c) Exploration Costs (which for the avoidance of doubt include appraisal


expenditures) shall be deductible on a reducing balance basis at the rate of


20% per annum.


(I) interest and fees paid to creditors of the CONTRACTOR for their actual


amount;


(g) losses of Assets resulting from destruction or damage, ussets which are


renounced or abandoned during the year, assets which are transferred under


Article 20.2, bad debts, indemnities paid to third parties as compensation for


damage;


(h) an) other costs, expenses, losses or charges directly related to the Petroleum


Operations, including exchange losses realised in connection with the


Petroleum Operations as well as the bonuses provided in Article 32, the


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


costs beyond the Delivery Point;


(i) the amount of non-offset losses relating to the previous Calendar Year', which


shall be carried forward for an indefinite period until full settlement of said


losses or termination of this Contract;


13.33. ihc 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 constitute 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 sealed out of the


GOVERNMENT'S share of the Profit Petroleum in accordance with Article


31 2. by applying the following formula in order lo provide such entity's net


taxable profits for corporate income tax purposes:





Net Taxable Net Profits/


Profits -








13.4 For purposes of determining each CONTRACTOR Entity 's liability to corporate


income tax for a tax year in respect of the Petroleum Operations carried out under this


Contract, the net taxable profits (if any) for such tax year shall \x multiplied by the


applicable rate of corpora I c income tax. as provided in Article 31.3(a)


 ANSEXC


PARENT COMPANY GUARANTEE








GIVEN PURSUANT TO ARTICLE 9











A Production Sharing Contract (hereafter ‘Contract") in,respect of Petroleum Operations


relating to Block Akii-Bijccl in Kurdistan was executed onb.f.J.7^ro^-.?r... 2007 between


the Kurdistan Regions! Government of Iraq (hereafter “GOVERNMENT"), represented


by the Minister of Natural Resources, and KALF.GRAN Ltd., a company incorporated and


existing under the laws of Cyprus with its address at 11 Florinis Street, CITY FORUM 7"


lloor, 1065 Nicosia, Cyprus (hereafter referred to as "the CONTRACTOR").





1. MOL Hungarian Oil and Gas Pic., a company incorporated under the laws of the


Republic of Hungary and having its registered office at 1117 Budapest, Oktdbcr


huszonharmadika u. 18. Hungary (hereinafter referred to as the "COMPANY”),


being the ultimate parent company of die CONTRACTOR, hereby undertakes to


provide CONTRACTOR with ull funds necessary for the CONTRACTOR to fulfil


all its payment obligations under the Contract up to the amount of five million Dollars


(US$ 5.000.00ft) in accordance with Article 9.1 of the Contract (hereinafter referred


to as "Guarantee 1 “).


2. In fulfilment of the COMPANY’S obligation under Article 9.2 of the Contract, the


maximum amount to be guaranteed by the Company shall be CONTRACTOR'S


participating interest share of the six million Dollars (USS6.000.000) Minimum


Financial Commitment which shall be reduced automatically on a quarterly basis by


the amount of money spent for exploration operations confirmed by written statement


of the GOVERNMENT signed by an authorized representative, in which it is stated


that the GOVERNMENT acknowledges the reduction of the guarantee by the


executed amount of the Minimum Exploration Obligation and states the outstanding


amount of the guarantee. In case no such statement is issued by the GOVERNMENT


within fifteen (15) days of receipt of the CONTRACTOR’S request, the reduction of


the guarantee amount shall be deemed to be automatically acknowledged by the


GOVERNMENT, (hereinafter to as “Guarantee 2.")





3. Should the CONTRACTOR assign part of its participating interest share n the


Contract with the approval of the GOVERNMENT, each Guarantee provided by the


COMPANY shall be automatically reduced to the CONTRACTOR’S participating


interest share in the Contract following the assignment.


4. The Guarantees shall not be interpreted as cumulative obligations, and shall not


pertain to any obligations, liability or loss for which the GOVERNMENT receives


other compensation.





5. Each Guarantee shall enter into force as of the Effective Date (as defined in the


Contract) and the Guarantee I shall remain in force until the earlier of (a) termination











&





 of the Contract or (b) 2032; and Guarantee 2 shall remain in force for live initial


eighteen (18) months of the First Sub Period of the Exploration Period.


6, Terms defined in the Contract shall hove the same meanings in this Guarantee.





7. I his Guarantee shall be governed by. subject, to and construed and interpreted in


accordance with the substantive laws of England.


8 Any dispute between the GOVERNMENT and the COMPANY regarding this


Guarantee which cannot be settled amicably between them within three months shall


he submitted to and finally settled by arbitration in accordance with the Contract,


mututia mutandis.








MOL HUNGARIAN OIL AND GAS PIC.











By: Dr. Ferenc Fmkas








Title: SeniorVicc President








By Dr. Zoltan Benko





Title: Vice President

































































ujo-