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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
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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.
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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
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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
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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.
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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
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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
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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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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.
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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
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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:
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(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
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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
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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-