Iraq

26/07/2011

The piramagrun contract area is as detailed and indicated on the map attached in Annex A

Repsol YPF Oriente Medio S.A.

Piramagrun Block

Piramagrun Block

Petroleum

Ministry of Natural Resources, Kurdistan Regional Government

The exploration period is for a base term of 5 contract years from the effective date and extendable on a yearly basis up to a maximum period of 7 contract years. The development period for all commercial discoveries of crude oil is 20 years from the date of the first declaration of commercial discovery and 20 years for all gas fields. If commercial production from a production area is still possible at the end of the development period, Repsol YPF Oriente Medio will be entitled to an automatic extension. The term of any such extension shall be 5 years.

Production Sharing Contract

Repsol YPF Oriente Medio must provide an environmental impact assessment (EIA) report together with its development plan and a final EIA not less than 180 days before the scheduled start of decommissioning operations or the scheduled expiration of this contract, whichever is earlier.

Repsol YPF Oriente Medio must provide an environmental management and monitoring plan satisfactory in all respects to the government, before the government authorizes the commencement of petroleum operations.

Flaring of natural gas is prohibited except in accordance with an approved work program and applicable permits or in an emergency. Repsol YPF Oriente Medio (Repsol) shall pay US$ 150,000 in advance each contract year during the exploration period and US$ 300,000 in advance 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. Repsol shall carry out petroleum operations, and procure that they are carried out, in such a manner to: i. protect the natural environment and ensure that petroleum operations result in minimum ecological damage or destruction; ii. control the flow and prevent the waste or escape of petroleum, water or any product used in or derived by processing petroleum; iii. prevent the escape of any mixture of water or drilling fluid with petroleum; iv. prevent damage to petroleum-bearing strata in or outside the contract area; and v. except with the consent of the government, keep separate each reservoir discovered in the contract area, and such of the sources of water discovered in the contract area as the government directs. Repsol shall take reasonable measures, in accordance with the applicable law, best practices and the EHS standards in similar physical and ecological environments, to minimize any adverse material impact on national parks and natural reserves which may arise directly as a result of petroleum operations.

For the petroleum operation, Repsol YPF Oriente is entitled to use water belonging to the public domain by prior agreement with the relevant authorities and on payment of the generally prevailing charge for such resource in the locality of use.

The government is entitled to inspect and audit Repsol YPF Oriente Medio's accounts with regard to each year at any time within a period of 5 years following the end of such year. The government is also entitled to appoint an auditor of international standing familiar with international petroleum industry accounting practice to undertake or assist the government with respect to any audit. Repsol shall pay all costs and fees of any auditor appointed by the government for this purpose and this cost shall be recoverable.

Repsol YPF Oriente Medio (Repsol) shall pay a capacity building bonus of US$ 65 million within 30 days of the effective date. In respect of production of crude oil and natural gas, Repsol shall pay to the government the following production bonuses within 30 days of the following relevant occurrence: a) US$ 2.5 million on the first production; b) US$ 5 million when production reaches a cumulative amount of 10 million barrels of crude oil and natural gas BOE; c) US$ 10 million when production reaches a cumulative amount of 25 million barrels of crude oil and natural gas BOE; and d) US$ 20 million when production reaches a cumulative amount of 50 million barrels of crude oil and natural gas BOE.

For the entire duration of the contract, Repsol YPF Oriente Medio (Repsol), its affiliates and any subcontractors shall be exempt from all taxes as a result of its income, assets and activities under the contract. The government shall indemnify Repsol upon demand and against any liability to pay any taxes assessed or imposed upon it relating to this exemption. Repsol shall be subject to income tax on its income from petroleum operations.

The government is not entitled to increase the share of profit petroleum to which it is entitled in any year because of the government's payment of income taxes on behalf of Repsol YPF Oriente Medio

As at the effective date, the income tax rate for companies under Kurdistan law is 15% of taxable income

Repsol YPF Oriente Medio shall promptly provide to the government such technological and logistical assistance as the Minister of natural resources may require, up to the value of US$ 1 million, including geological computing hardware and software and such other equipment.

The R factor shall be calculated as follows: R = (x/y) where x = cumulative revenues and y = cumulative costs. The total amount of profit petroleum which shall be attributed and allocated to Repsol YPF Oriente Medio (Repsol) and the government interest holders from the first production in accordance with their respective participating interests is: a) for profit oil - an amount equal to the quantities of petroleum resulting from the application of the relevant percentage to the daily volume of production of profit oil within the contract area at the corresponding delivery point: R < or = 1: 32% 1 < R < or = 2.25: 32 – [(32 – 16) x (R – 1) / (2.25 – 1)]% R > 2.25: 16% b) for profit gas equal to the quantities of gas resulting from the application of the relevant percentage to the daily volume of production of profit gas within the contract area at the corresponding delivery point: R < or = 1: 38% 1 < R < or = 2.75: 32 – [(38 – 19) x (R – 1) / (2.75 – 1)]% R > 2.75: 19%

Subject to accounting procedures, from the first production in the contract area and thereafter from all production areas, Repsol YPF Oriente Medio (Repsol) is entitled to recover all petroleum costs from up to 40% of available crude oil within a year. Subject to accounting procedures, from the first production from any production area and thereafter from all production areas, Repsol is entitled to recover all petroleum costs from up to 50% of available gas within a year. Petroleum cost is not recoverable against other areas or region in which Repsol is a party to a production sharing contract or has any other interest.

The royalty daily shall be calculated by applying the following rate to the royalty petroleum produced and saved on that day. For royalty crude oil - 10% For royalty gas - 10%

The government has a participating interest of 20% of the petroleum operations and all other rights, duties, and obligations of Repsol YPF Oriente Medio (Repsol). No holder of all or any of the government interest, including the government in such capacity, is a contractor or has any obligation or liability to Repsol, including any obligation or liability to contribute any share of the petroleum costs and any other obligation arising out of or related to the petroleum operation. No default or failure to perform of a government interest holder may be considered a breach of this contract by Repsol or invoked by the government to terminate this contract.

For the petroleum operation, Repsol YPF Oriente Medio (Repsol) shall give, and shall require that its subcontractors give, preference to citizens of the Kurdistan region and other parts of Iraq to the extent that such citizen has the technical capability, qualifications, competence and experience required to perform the work, are available at competitive compensation rates, and their employment would not cause it, any of its affiliates or subcontractors, to violate any law applicable to it. Repsol, its affiliates and subcontractors shall have the right to hire expatriate personnel whenever the personnel from the Kurdistan region and other parts of Iraq do not have the required technical capabilities, qualification or experience for the position. If such foreign personnel and/or a member of their family engage in activities which breach any Kurdistan law, Repsol shall, at the request of the management committee, take necessary steps to repatriate such individual.

Repsol YPF Oriente Medio (Repsol) shall give priority to assets and material that are readily available in the Kurdistan region and other parts of Iraq to the extent that their price, grade, quality, quantity, specifications, purchase, delivery and other commercial and technical terms are comparable in all material respects with those otherwise available to it. Repsol shall give priority to subcontractors from the Kurdistan region and other parts of Iraq to the extent their competence, rates, experience, reputation, qualifications, specialties, financial capacity, availability, delivery and other commercial terms are, in its sole opinion, comparable in all material respects with those provided by foreign companies operating in the international petroleum industry and will not cause Repsol to violate any law applicable to it, including corrupt practices laws. A subcontractor would not qualify as from Kurdistan region and other parts of Iraq unless it is organized under the applicable law or the law of Iraq, domiciled in Iraq, and majority owned and controlled by citizens of the Kurdistan region or Iraq.

Repsol YPF Oriente Medio (Repsol) shall give reasonable consideration to the secondment of government personnel to it and the secondment of the its personnel to the government during the various phases of the petroleum operations. The parties shall agree on the terms, conditions and associated costs of the secondment. Repsol shall train all its personnel from Kurdistan and other parts of Iraq directly or indirectly involved in the petroleum operations to improve their knowledge and professional qualification to the same level as that of its expatriate personnel with an equivalent resumé. The training shall include the transfer of knowledge of petroleum technology and the necessary management experience to enable the local personnel apply advanced and appropriate technology in the petroleum operations to the extent permitted by law and agreements with third parties, and subject to appropriate confidentiality agreements. The recruitment, integration and training of the Repsol's local personnel shall be provided in a plan submitted to the management committee for approval. The training plan shall allocate US$ 150,000 for each contract year during the exploration period and US$ 300,000 for each contract year during the development period. All reasonable training expenses shall be recoverable. Repsol shall pay US$ 250,000 to the government in advance each contract year for the recruitment of personnel whether from the Kurdistan region, other parts of Iraq or abroad to the Ministry of Natural resources. This cost shall be recoverable.

For its petroleum operations, Repsol YPF Oriente Medio (Repsol) 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 telecommunication network and any existing pipelines or transportation infrastructure, on terms no less favorable than those offered to other persons and, unless generally in force, to be agreed. The government shall have the right in the Kurdistan region, to build, operate and maintain roads, railways, airports, landing strips, canals, bridges, protection dams, police stations, military installations, pipelines and telecommunication networks in the contract area, provided this does not increase the costs, compromise or have a material adverse effect on the performance of the petroleum operations. Under national emergencies due to 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 Repsol. Repsol is entitled to design, construct, operate and maintain pipelines and any related facilities in the Kurdistan region for the transportation of petroleum produced under this contract. Repsol has no right and is not authorized to construct natural gas pipelines except in accordance with an agreed domestic gas plan or an agreed gas export plan and related approved development plan. Repsol is not authorized to construct any pipelines for the transportation of natural gas to the market except in accordance with a gas export plan or a domestic gas plan and the applicable approved development plan and approved work plan and budget.

Subject to available capacity, tie-in agreements and pipeline crude oil minimum quality specifications, Repsol YPF Oriente Medio (Repsol) shall permit third parties to transport their petroleum through any crude oil pipeline constructed by it on terms to be agreed between the contractor and such third party. Those terms shall be reasonable commercial terms and shall not discriminate among potential third party users. Repsol and the government shall always have priority to access such pipelines. All tariffs and other payments to Repsol from third parties for use of any pipeline and related facilities shall be applied to the recovery of petroleum costs until all pipeline costs have been fully recovered by Repsol.

It shall be the policy of the government to ensure that natural gas is first made available to satisfy the consumption requirements and needs of the people of Iraq, determine and control exports of natural gas produced in the region, and act, directly or indirectly, through a designated affiliate of the government or other designee as the aggregator of all natural gas produced in the region for export. Repsol YPF Oriente Medio shall sell and deliver to the government, upon written request of the government, any amounts of crude oil that the government shall request to meet Kurdistan region internal consumption requirements

Repsol YPF Oriente Medio (Repsol) shall provide the government, unless waived, with a payment guarantee of its parent company, Repsol YPF S.A for payment obligations in each sub-period. During the first sub-period, Repsol shall: (A) carry out geological and geophysical studies, comprising: (i) the compilation of a technical database; (ii) the performance of a remote sensing study; and (iii) a field visit to verify initial geological and geophysical work and remote sensing results and plan for 2 dimensional seismic acquisition; and (B) perform field work comprising structural, stratigraphic and lithologic mapping and sampling; (C) acquire, process and interpret 150 line kilometers of 2 dimensional seismic data, or a 3 dimensional seismic data program by agreement between the parties, committing for this purpose a minimum financial amount consistent with best practices and commensurate with market conditions in the Kurdistan region for seismic services; and (D) drill 1 exploration well, including testing and coring as appropriate, committing for this purpose a minimum financial amount of US$ 15 million. During the second sub-period, Repsol shall: (A) acquire, process and interpret further seismic data (being either 2 dimensional or 3 dimensional) if it considers that the results from the first exploration well justify the acquisition of further seismic data; and, (B) drill 1 exploration well, including testing and coring as appropriate committing for this purpose a minimum financial amount of US$ 15 million, unless the data from the first exploration well demonstrates that there is not a reasonable technical case for drilling the second exploration well in the contract area.

The parties shall first seek to settle any dispute by negotiation between senior representatives. Senior representatives are individuals who have authority to negotiate the settlement on behalf of the parties. If the dispute cannot be settled by negotiation, the dispute may be referred to mediation in accordance with the London Court of International Arbitration (LCIA) mediation procedure which is deemed incorporated in the contract by reference. If the dispute is not settled by mediation, the dispute may be referred to arbitration in accordance with the LCIA rules which is incorporated in the contract by reference for final determination. No dispute is subject to decision by any court and the government specifically does not submit to the jurisdiction of any court outside the Kurdistan region. The arbitration shall be held in London, England and shall be conducted in English. The arbitration shall be heard by 3 arbitrators. The parties agree that the arbitral award will be final and not subject to any appeal including an appeal to the English courts on issues of law. Each party fully and irrevocably waive any claim to immunity for itself or any of its assets. This waiver includes any claim to immunity from any expert determination, mediation, arbitration, enforcement of any decision, settlement, award or judgment or the service of processes.

The parties undertake to keep all data and information relating to the contract and the petroleum operations confidential during the entire term of the contract and to refrain from disclosing such information to third parties without the specific consent of the other party. The confidentiality obligation does not apply to: 1) information which is, or through no fault of the parties becomes, a part of the public domain; 2) information which is known to the recipient at the date of disclosure; 3) information disclosed in compliance with any applicable law, by a competent governmental authority having jurisdiction over such party or its affiliates, or by a court order or any legal proceedings; 4) disclosure required pursuant to the rules and regulations of any government or recognized stock exchange having jurisdiction over Repsol YPF Oriente Medio (Repsol). In accordance with best practices, confidential information may be disclosed to: 1) Repsol's affiliates, employees, officers, directors for the purpose of the petroleum operations and subject to Repsol ensuring that customary precautions to keep the information confidential is taken; 2) consultants or agents retained by Repsol or its affiliates for the purpose of analyzing or evaluating information (such disclosure shall not be made unless the third party has entered into a confidentiality undertaking); 3) banks or other financial institutions, including any such consultants retained by the banks, engaged by Repsol or its affiliate for the purpose of financing the petroleum operations (such disclosure shall not be made unless the third party has entered into a confidentiality undertaking); 4) bona fide prospective assignees of a participating interest under the contract (such disclosure shall not be made unless the third party has entered into a confidentiality undertaking); 5) prospective or actual subcontractors engaged by a party (such disclosure shall not be made unless the third party has entered into a confidentiality undertaking); and 6) any other person with the prior written approval of the non-disclosing party. Subject to the contract, Repsol is precluded from engaging in the sale or exchange of any data relating to the petroleum operations without the approval of the government which shall not be unreasonably withheld or delayed where in Repsol's opinion such sale or exchange would benefit the petroleum operation.

The governing law is English law. Except in respect of the government interest holders, no term of the contract is enforceable under the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to the contract.

The government shall maintain the stability of the fiscal conditions of the contract as they result from the applicable law in force as at the effective date for the entire duration of the contract. Repsol YPF Oriente Medio (Repsol) acknowledges that the government has advised it may propose laws which could have a beneficial or detrimental effect upon the fiscal position of Repsol, including laws the primary purpose of which may be: a) the protection of the environment to the standards of the European Union;  b) the promotion of the health and safety of citizens of the Kurdistan Region to the standards of the European Union;  c) the promotion of the health and safety of personnel engaged In Petroleum Operations to the standards of the European Union;  d) the regulation of hazardous substances, including the transportation and disposal thereof, to the standards of the European Union; e) decommissioning of petroleum facilities, including Wells and refineries, to the standards of the European Union and Alberta, Canada;  f) regulation of pipelines; and  g) the regulation of companies. The introduction of such laws would not entitle Repsol to any rights to any alteration to the terms of this Contract. If at any time after the effective date there is any change to regional tax laws in force on the effective date and Repsol’s fiscal position under the contract is materially,  either beneficially or detrimentally, affected by such change then Repsol and the government shall negotiate to alter the terms of the contract to place Repsol in the same overall economic position (taking into account home country taxes) as that which it would have been  without any change. The government would under no circumstances be liable to any person for any consequential or indirect losses because of any change in the tax laws.