The exploration period is for an initial term of 5 years from the effective date and extendable on a yearly basis up to a maximum term of 7 contract years.
The development period for all commercial discovery of crude oil and gas fields is 20 years beginning on the declaration of a commercial discovery of crude oil by Hess Middle East New Ventures Limited (Hess Middle East) and Petroceltic Kurdistan Limited (Petroceltic).
If commercial production from a production area is still possible upon the expiration of a development period, then Hess middle East and Petroceltic shall be entitled to an automatic extension of such development period under the same terms as contained in the contract. The term of the extension shall be 5 years.
Environmental impact assessment and management plan
Hess Middle East New Ventures Limited and Petroceltic Kurdistan Limited must provide an Environmental Impact Assessment (EIA) together with their development plan and a final EIA not less than 180 days before the scheduled start of decommissioning operations or the scheduled expiration of the contract, whichever is earlier.
Hess Middle East New Ventures Limited and Petroceltic Kurdistan Limited must provide an environmental management and monitoring plan satisfactory in all respects to the government, before the government authorizes the commencement of petroleum operations.
Gas flaring is prohibited except in accordance with an approved work program and applicable permits and in an emergency.
Hess Middle East and Petroceltic shall pay to the government US$ 150,000 within 30 days of the date of this contract and on each annual anniversary of the contract date thereafter during the exploration period and US$ 300,000 on each annual anniversary of the contract date during the development period. The government will credit the payments to the environment fund to be established by the government for the benefit of the natural environment of the Kurdistan region, pursuant to the Kurdistan region Oil and Gas Law.
Hess Middle East and Petroceltic shall carry out petroleum operations, and procure that they are carried out, in such a manner as to:
i) protect the natural environment and ensure petroleum operations result in minimum ecological damage or destruction;
ii) control the flow and prevent 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;
iii) 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 area as the government directs; and
iv) remedy in a timely fashion any damage caused to the natural environment.
The Environmental, Health and Safety (EHS) standards must be no less stringent than those set out in the relevant World Bank group environmental, health and safety guidelines.
Hess Middle East and Petroceltic shall take reasonable measures in accordance with the applicable law, best practices and 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, Hess Middle East New Ventures Limited (Hess Middle East) and Petroceltic Kurdistan Limited (Petroceltic) are 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.
Hess Middle East and Petroceltic 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.
The government is entitled to inspect and audit of Hess Middle East New Ventures Limited (Hess Middle East) and Petroceltic Kurdistan Limited (Petroceltic)'s accounts each calendar 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 the international petroleum industry's accounting practice to undertake or assist in auditing the accounts.
The reasonable cost of retaining the auditor shall be borne by Hess Middles East and Petroceltic and shall be treated as petroleum cost for the purpose of cost recovery.
Hess Middle East New Ventures Limited and Petroceltic Kurdistan Limited shall pay to the government the following bonuses:
1) a signature bonus of US$ 5 million within 30 days of the date of the contract;
2) a capacity building bonus of US$ 135 million within 30 days of the date of the contract;
3) in respect of production of crude oil and natural gas, 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, Hess Middle East New Ventures Limited (Hess Middle East) and Petroceltic Kurdistan Limited (Petroceltic), their affiliates and any subcontractors shall be exempted from all taxes as a result of its income, assets and activities under the contract. The government shall indemnify Hess Middle East and Petroceltic, upon demand, against any liability to pay any taxes assessed or imposed on it which relate to this exemption.
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 Hess Middle East New Ventures Limited (Hess Middle East) and Petroceltic Kurdistan Limited (Petroceltic).
Hess Middle East and Petroceltic shall be subject to income tax on its income from petroleum operations.
Hess Middle East New Ventures Limited and Petroceltic Kurdistan Limited shall pay US$ 1 million to the government within 30 days of the contract date and the government shall apply the funds to fund technological and logistical support to the government in respect of the regulation and administration of the Kurdistan region petroleum sector, which may include procurement by the government of geological computing hardware and software and such other equipment.
Production Share - "Profit Oil features (triggers for variations in split - IRR, factor, production, etc .)
The R factor means a ratio calculated as follows:
R = X/Y (where X is equal to cumulative revenues actually received by Hess Middle East New Ventures Limited (Hess Middle East) and Petroceltic Kurdistan Limited (Petroceltic) and Y is equal to cumulative costs actually incurred by Hess Middle East and Petroceltic).
The total amount of profit petroleum which will be attributed and allocated to Hess middle East and Petroceltic and the government interest holder from the first production in accordance with their respective participating interests is:
(a) for profit crude oil, an amount equal to the quantities of petroleum resulting from the application of the relevant percentage as indicated below to the daily volume of production of profit crude oil within the contract area at the corresponding delivery point:
R < or = 1: 30%;
1 < R < or = 2.0: 30 – [(30 – 15) x (R – 1) / (2.0 – 1.0)]%;
R > 2.0: 15%; and
(b) for profit gas, equal to the quantities of gas resulting from the application of the relevant percentage as indicated below to the daily volume of production of profit gas within the contract area at the delivery point:
R < or = 1: 38%;
1 < R < or = 2.75: [38 – (38 – 19) x (R – 1) / (2.75 – 1)]%;
R > 2.75: 19%.
Production Share - Cost Oil features (basis of calculation, limits on cost recovery - e.g. as % of revenue or production, capex uplift, etc.)
From the first production, Hess Middle East New Ventures Limited (Hess Middle East) and Petroceltic Kurdistan Limited (Petroceltic) are entitled to recover all petroleum costs from up to 40% of available crude oil within any year.
From the first production, Hess Middle East and Petroceltic are entitled to recover all petroleum costs from up to 50% of available gas within any year.
If in any year, the cost oil or cost gas is not sufficient to allow Hess Middle East and Petroceltic recover all of their petroleum costs for the year, the unrecovered petroleum costs in that year shall be carried forward indefinitely to the subsequent years and charged to cost petroleum until the earlier of full recovery of all petroleum costs or termination of the contract.
The petroleum costs under the contract are not recoverable against other contract areas in the region in which Hess Middle East or Petroceltic 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% in the petroleum operations and all other rights, duties, obligations and liabilities of the contractor.
For the petroleum operations, Hess Middle East New Ventures Limited (Hess Middle East) and Petroceltic Kurdistan Limited (Petroceltic) shall give, and shall require that their subcontractors give, preference to citizens of the Kurdistan region and other parts of Iraq to the extent that such citizens have the technical capability, qualifications, competence and experience required to perform the work, are available at competitive compensation rates, and their employment would not cause Hess Middle East and Petroceltic, their affiliates or subcontractors to violate any law applicable to them.
Hess Middle East and Petroceltic its affiliates and subcontractors shall have the right to hire expatriate personnel where the personnel from the Kurdistan region and other parts of Iraq do not have the required technical capabilities, qualification or experience for the position.
Hess Middle East New Ventures Limited (Hess Middle East) and Petroceltic Kurdistan Limited (Petroceltic) 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, specifications, purchase, delivery and other commercial and technical terms are comparable in all material respects with those otherwise available to them.
Hess Middle East and Petroceltic 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 capability, availability, delivery and other commercial terms are, in their sole opinion, comparable in all material respects with those provided by foreign companies operating in the international petroleum industry and will not cause Hess Middle East and Petroceltic or their affiliates to violate any law applicable to them, including corrupt practices laws.
A subcontractor will not qualify as being from the Kurdistan region and other parts of Iraq unless it is organized under the applicable law or the laws of Iraq, domiciled in Iraq and majority owned and controlled by citizens of the Kurdistan region or Iraq.
Hess Middle East New Ventures Limited (Hess Middle East) and Petroceltic Kurdistan Limited (Petroceltic) shall give reasonable consideration to the secondment of government personnel to Hess Middle East and Petroceltic and the secondment of Hess Middle East and Petroceltic’s 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.
For the first 5 contract years, Hess Middle East and Petroceltic shall pay US$ 250,000 to the government within 20 days of the contract date and on each anniversary of the contract date 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 considered as petroleum cost.
Hess Middle East and Petroceltic 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 their expatriate personnel with an equivalent résumé. The training shall include the transfer of knowledge of petroleum technology and other 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.
For training, Hess Middle East and Petroceltic shall pay the government US$ 150,000 for each contract year during the exploration period and US$ 300,000 for each contract year during the development period.
For its petroleum operations, Hess Middle East New Ventures Limited (Hess Middle East) and Petroceltic Kurdistan Limited (Petroceltic) 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 pipeline or transportation infrastructure, on terms no less favorable than those offered to other persons and, unless generally in force, to be agreed.
In the conduct of petroleum operation, Hess Middle East and Petroceltic have the right in the Kurdistan region, subject to compliance with applicable Kurdistan region law and EHS standards, 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 unit, 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, as 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.
Hess Middle East and Petroceltic are entitled to design, construct, operate and maintain pipelines and any related facilities for the transportation of petroleum produced under this contract.
Hess Middle East and Petroceltic are 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.
Hess Middle East and Petroceltic have no right and are 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.
Subject to available capacity, tie-in agreements and pipeline crude oil minimum quality specifications, Hess Middle East New Ventures Limited (Hess Middle East) and Petroceltic Kurdistan Limited (Petroceltic) shall permit third parties to transport their petroleum through any crude oil pipeline constructed by Hess Middle East and Petroceltic on terms to be agreed between Hess Middle East and Petroceltic and the third party. Those terms must be reasonable commercial terms and shall not discriminate among third party users. Hess Middle East, Petroceltic and the government shall always have priority of access to such pipelines.
All tariff and other payments to Hess Middle East and Petroceltic 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.
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.
Hess Middle East New Ventures Limited and Petroceltic Kurdistan Limited shall sell and deliver to the government, upon written request of the government, any amounts of crude oil that the government shall deem necessary to meet Kurdistan region internal consumption requirements.
Concurrently with the signing of the contract, Hess Middle East New Ventures Limited (Hess Middle East) and Petroceltic Kurdistan Limited (Petroceltic) shall deliver to the government a joint and several payments guarantee of their ultimate parent companies issued with respect to tits payment obligations.
During the first sub-period, Hess Middles East and Petroceltic 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;
(b) perform field work comprising structural, stratigraphic and lithologic mapping and sampling;
(c) acquire, process and interpret 500 lines kilometers of 2 or 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, and commit for this purpose a minimum financial amount of US$ 40 million.
During the second sub-period, Hess Middles East and Petroceltic shall:
(a) acquire, process and interpret further seismic data (being either 2 or 3 dimensional), if Hess Middles East and Petroceltic 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, and commit for this purpose a minimum financial amount of US$ 40 million, unless the data from the first exploration well demonstrate that there is no reasonable technical case for drilling the second exploration well.
If a dispute arises under the contract, the parties shall first seek to settle the dispute by negotiation between senior representatives. 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. If the dispute is not settled by mediation, the dispute may be referred to arbitration in accordance with the LCIA rules.
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 shall 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 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 government agency having jurisdiction over Hess Middle East New Ventures Limited (Hess Middle East) or Petroceltic Kurdistan Limited (Petroceltic), or by a court order or any legal proceedings with jurisdiction over each party or an affiliate;
4) disclosure required pursuant to the rules and regulations of any government or recognized stock exchange having jurisdiction over Hess Middle East or Petroceltic or their affiliates.
In accordance with best practices, confidential information may be disclosed to:
1) Hess Middle East or Petroceltic’s affiliates, employees, officers, directors for the purpose of the petroleum operations and subject to Hess Middle East or Petroceltic ensuring that customary precautions to keep the information confidential is taken;
2) consultants or agents retained by Hess Middle East or Petroceltic or their affiliates for the purpose of analyzing or evaluating information;
3) banks or other financial institutions, including any such consultants retained by the banks, retained by Hess Middle East or Petroceltic or their affiliate for the purpose of financing the petroleum operations.
4) bona fide prospective assignees of a participating interest under the contract;
5) prospective or actual subcontractors engaged by a party; and
6) any other person with the prior written approval of the non-disclosing party.
Provided that disclosure shall not be made unless the third party has entered into a confidentiality undertaking.
Hess Middle East and Petroceltic may not sell or exchange any data relating to the petroleum operations without the approval of the government which shall not be unreasonably withheld or delayed where in Hess Middle East or Petroceltic’s opinion such sale or exchange would benefit the petroleum operations.
The government, Hess Middle East and Petroceltic affirm their ongoing commitment and and adherence to the principles and criteria of the Extractive Industries Transparency Initiative.
Prior to the contract, Hess Middle East and Petroceltic delivered aa confidential and pre-contractual understandings agreement, which continues in accordance with its terms and is not impaired by this contract, except as expressly set forth herein.
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 parties under the contract as they result from the applicable law in force on the effective date for the entire duration of the contract.
Hess Middle East New Ventures Limited (Hess Middle East) and Petroceltic Kurdistan Limited (Petroceltic) acknowledge that the government has advised that it may propose laws which could have a beneficial or detrimental effect upon their fiscal position, 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 will not entitle Hess Middle East or Petroceltic to any rights to any alteration to the terms of the contract.
If at any time after the effective date there is any change to regional tax laws in force on the effective date and Hess Middle east or Petroceltic’s fiscal position under the contract is materially, either beneficially or detrimentally, affected by such change then Hess Middle east or Petroceltic and the government shall negotiate to alter the terms of the contract to place Hess Middle east or Petroceltic 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.