Iraq

14/01/2003

English

The contract area includes the Chiasorkh, Kifri and Cemcemal fields as set out by the geographic location and coordinates described in Annex A.

PetOil Petroleum and Petroleum Products International Exploration and Production Inc.

Petroleum

The term of the contract shall be deemed to begin on the transfer of operations date and shall continue for a total of 40 consecutive years.

Production Sharing Agreement

PetOil Petroleum and Petroleum Products International Exploration and Production Inc. shall prepare an environmental impact assessment in accordance with the environmental laws.

PetOil Petroleum and Petroleum Products International Exploration and Production Inc. (PetOil Petroleum) shall not be responsible for any environmental condition or damage existing in the contract area prior to the commencement of petroleum operations. In conducting petroleum operations, PetOil Petroleum shall operate according to good oil field practices and use best endeavors to minimize potential disturbances to the environment, including the surface, subsurface, sea, air, flora, fauna, other natural resources an property. The order of priority for actions shall be protection of life, environment and property. PetOil Petroleum shall take all necessary 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 operation which are causing or likely to cause material environmental damage.

PetOil Petroleum and Petroleum Products International Exploration and Production Inc. may utilize the water necessary for the petroleum operations, on the condition that reasonable efforts are taken to minimize potentially adverse effects of irrigation and navigation, and that land, houses and watering places are not adversely affected.

The government shall have the right to audit the books and accounts maintained by PetOil Petroleum and Petroleum Products International Exploration and Production Inc.

PetOil Petroleum and Petroleum Products International Exploration and Production Inc. (PetOil Petroleum), the operator and subcontractors and foreign employees shall be subject to taxes in accordance with the current legislation. PetOil Petroleum, the operator, subcontractors and foreign employees shall be entitled to full and complete exemption from all taxes promulgated after the effective date except as otherwise provided in the contract. It is acknowledged that double tax treaties will have effect to give relief from taxes to, but not limited to, the operator, PetOil Petroleum, foreign subcontractors and foreign employees in accordance with the provisions of such double tax treaties but not otherwise. The government, its successors or assignees, will assumes, pay and discharge, all tax liabilities on behalf of PetOil Petroleum, the operator, subcontractors and their employees during the term of the contract. PetOil Petroleum, including any affiliate, the operator and all subcontractors, shall indemnify the government for all loss or damage suffered by the government arising out of PetOil Petroleum's petroleum operations if such petroleum operation were not in accordance with good oil field practices or applicable laws, rules and regulations and notwithstanding the foregoing, for any loss or damage to the environment or any cultural or national monument arising out of the conduct of the petroleum operations. PetOil Petroleum shall not be liable for any punitive or exemplary damages or any other indirect or inconsequential damages.

Profit petroleum shall be allocated as follows: government - 51%; and PetOil Petroleum and Petroleum Products International Exploration and Production Inc. - 49%.

PetOil Petroleum and Petroleum Products International Exploration and Production Inc. shall be entitled to recover all costs and expenses incurred in the following manner: a) operations expenses will first be recovered from the available petroleum; b) capital expenditure will be recovered from the remaining available petroleum, following the recovery of operations costs, in the percentages below: i) during the phase where available petroleum cannot be exported but only sold in the local market in the Northern Iraq Administration, such phase as determined by the co-ordination committee, 90%; and ii) during the phase where the available petroleum can be exported to other markets, such phase as determined by the co-ordination committee, 80%. To the extent that recoverable costs and expenses exceed the value of all available petroleum in a year, the excess shall be carried forward for recovery in the next year until fully recovered, but in no case after the termination of the contract.

PetOil Petroleum and Petroleum Products International Exploration and Production Inc. (PetOil Petroleum) shall be entitled to bring foreign employees into Northern Iraq Administration in connection with the petroleum operations. PetOil Petroleum, its affiliates, subcontractors, agents or brokers shall enjoy full freedom in the selection and assignment of their employees.

The government shall provide or otherwise procure access to PetOil Petroleum and Petroleum Products International Exploration and Production Inc. (PetOil Petroleum) to all existing facilities and infrastructures in the area owned by the government for the purpose of carrying out petroleum operations. Such access shall be on terms as regards access and tariffs, no less favorable than those offered to tother persons, in addition, in any case within the petroleum law. Subject to the prior approval by the co-ordination committee and the prior consent or permit from any necessary local administration or governmental bodies or government and relevant landowners, PetOil Petroleum shall have the right to clear the land, to dig, pierce, drill, construct, erect, locate, supply, operate, manage and maintain pits, tanks, wells, trenches, excavations, dams, canals, water pipes, factories, reservoirs, basins, maritime storage facilities and such primary distillation units, separating units for first oil extraction, sulphur factories and other petroleum producing installations, as well as pipelines, pumping stations, generator units, power plants, high voltage lines, telephone, telegraph, radio and other means of communication (including satellite communications system), plants, warehouses, offices, shelters, personnel housing, hospitals, schools, premises, underwater piers and other installations, means of transportation, roads, bridges and other means of transportation, garages, hangers, workshops, maintenance and repair shops and all auxiliary services which are necessary or useful to the petroleum operations or related to them and, more generally, everything that is or could become necessary or accessory to carrying out the petroleum operations but in accordance with current legislation. PetOil Petroleum shall have the right to use existing pipeline and terminal facilities belonging to or under the control of the government.

PetOil Petroleum and Petroleum Products International Exploration and Production Inc. (PetOil Petroleum) shall submit a work program and budget to the co-ordination committee for approval. PetOil Petroleum may incur expenditures in excess of the approved budget or expenditures outside the budget in carrying out the approved work program provided that the objectives in the approved work program are not substantially changed: a) in carrying out an approved budget, PetOil Petroleum may, if necessary, incur excess expenditures of no more that 10% of the approved budget in any specified budgetary category. b) for the efficient, and as required, operative performance of the petroleum operations, PetOil Petroleum may, without approval, undertake certain individual projects which are not included in the work program and budget for a maximum expenditure of US $100,000 but shall report to the committee for confirmation within 10 days of incurring this expense. c) excess expenditures shall not exceed 5% of the approved or modified total budget for the year. If the excess is expected to be in excess of 5%, PetOil Petroleum shall present its reasons therefor to the committee and obtain approval prior to incurring such expenditure. Petroleum operations will only be performed in accordance with the approved or modified work program and budget otherwise they will not be deemed to be costs and expenses and would not be recoverable.

The parties hereby consent to submit to the International Centre for Settlement of Investment Disputes for the settlement by arbitration of any dispute pursuant to the Convention on the Settlement of Investment Disputes. The parties agree that although PetOil Petroleum and Petroleum Products International Exploration and Production Inc. is a national of the Republic of Turkey, it shall be treated as a national of the Northern Iraq Administration for the purpose of the convention. The arbitral tribunal shall consist of 3 arbitrators and the seat of the arbitration will be in London. The arbitration shall be conducted in English language. The contract shall be interpreted by the general principles of the current legislation and the laws of England as are in force at the effective date. If these principles are in conflict, English law shall prevail.

The parties agree that all information and data acquired or obtained by any party in respect of the petroleum operations shall be considered confidential and shall be kept confidential and not be disclosed during the term to any person not a party to the contract, except: a) disclosure to an affiliate, provided such affiliate maintains confidentiality; b) disclosure to a governmental agency or other entity when required by the contract; c) disclosure required to be made in compliance with any applicable law or regulations, or pursuant to any legal proceedings or any court order binding on a party; d) disclosure to prospective or actual subcontractors, consultants, attorneys employed by any party where disclosure is essential to their work; e) disclosure to a bon fide prospective transferee; f) disclosure to a bank or other financial institution to the extent appropriate to a party arranging for funding; and g) disclosure of information which becomes a part of the public domain through no fault of a party.

The contract shall be interpreted by the general principles of the current legislation and the laws of England as are in force at the effective date. If these principles are in conflict, English law shall prevail.

The Northern Iraq Administration agrees and commits to PetOil Petroleum and Petroleum Products International Exploration and Production Inc. (PetOil Petroleum) to maintain the stability of the legal, tax, financial, mining's, customs and economic import and export conditions of the contract for the duration of the contract. The government also represents and warrants that it has received the approval of the elected parliament of the Northern Iraq Administration, which authorizes the government to enter into the contract. If at any time after the signing of the contract there is a change in the applicable laws, regulations or other provisions effecting current legislation which to a material degree adversely affects the economic position of PetOil Petroleum, the terms and conditions of the contract shall be altered to restore PetOil Petroleum to the same overall economic position as that which it would have been had the contract been given full force and effect without amendment. If PetOil Petroleum believes that its economic position has been adversely affected under the contract, it may give notice to the government describing how its position has been affected and the parties shall thereafter promptly meet with a view to reaching an agreement on the remedial action to be taken.