Turkish Petroleum Law » Ongur Partners

TURKISH PETROLEUM LAW

Law No. 6491

Date of Approval: 30/5/2013

SECTION 1

Objective, Scope, Definitions and Ownership

Objective and Scope

ARTICLE1- (1) The objective of this Law is to provide that the petroleum resources of the Republic of Turkey are rapidly, continuously and effectively explored, developed and produced by preserving the national interests.

(2) This Law covers the terms and procedures regarding the regulation, management, provision of incentives for and auditing of petroleum exploration and production activities in Turkey, as well as the compilation, evaluation and provision of necessary information and data for exploration and production.

Definitions

ARTICLE 2- (1) For the implementation of this law; the following definitions shall apply:

a) Open Area: an area declared to be open for exploration, production or application for these operations in accordance with the provisions of this Law,
b) Exploration: all the facilities of investigation, exploratory drilling and appraisal drilling,
c) Exploration expenses: the expenses made for exploration activities except for expenses of the materials and facilities whose utilization life is more than one year,

ç) Exploration license: a permit which allows for exploration in the area determined under this Law,

d) Exploratory drilling: the drilling of wells for discovery of petroleum,
e) Investigator: an investigation permit holder,
f) Geological investigation: the investigation of a land from the ground or air by topographical, geological, geophysical, geo-chemical, and similar methods to gather data, and the drilling activities for obtaining geological information except for exploratory drilling,
g) Investigation permit: a permit granted by the General Directorate for conducting investigation within a specified area,

ğ) Explorer: an exploration license holder,

h) Minister: the Minister of Energy and Natural Resources,

ı) Ministry: the Ministry of Energy and Natural Resources,

i) Royalty: the share to be given to the State from the petroleum produced,
j) Natural gas: natural hydrocarbons in gaseous state produced or producible from the ground,
k) Development: the drilling of the required number of wells and establishment of surface facilities, transportation lines and storage to develop a petroleum field,
l) General Manager: the General Manager of Petroleum Affairs,
m) General Directorate: the General Directorate of Petroleum Affairs,
n) Crude Oil: natural hydrocarbons in liquid and solid state produced or producible from the ground,
o) Production lease holder: a production lease holder,

ö) Production lease: a permit which allows for production activities to be conducted in the area determined under this Law,

p) Discovery: the finding of a petroleum accumulation that is suitable for production,
r) Utilization right: the leasing of a field and establishment of possible usufruct and using rights on that field,
s) Material: all goods, including petroleum, oil, either crude, in process or finished; equipment, instruments, tools and machinery; means of transportation and all other means and spare parts thereof to be used in petroleum operations,

ş) Joint representative: a representative determined jointly by petroleum right holders, provided that there are several petroleum right holders,

t) Petroleum: means crude oil and natural gas,
u) Petroleum finding: the determination of a petroleum presence during drilling exploration activities,

ü) Petroleum unit: 158,984 liters (one barrel) of crude oil measured at 15.5° C at 1 atmospheric pressure or 1 cubic meter of natural gas measured at 15.5° C at 1 atmospheric pressure,

v) Petroleum right: any of the rights arising from an investigation permit, an exploration license or a production lease,
y) Petroleum operation: exploration, production and sales of the petroleum produced within the country; construction, establishment, and operation of power and water facilities, and pipelines necessary for transportation of the produced petroleum within the field or to a main transmission line or to a refinery close by or necessary for the transportation of natural gas to eligible customers; relevant housing, camping, and all other facilities and equipment necessary for any of the above mentioned operations; and administrative, commercial and financial activities regarding these operations,
z) Petroleum field: a piece of land where existence of petroleum in a quantity suitable for production has been located,
aa) Capital assets: assets included within the economic operations pursuant to the valuation criteria provided under the Tax Procedure Law No. 213 dated 4/01/1961, and those exploration expenses, intangible drilling costs and the expenses for drilling wells which are unproductive for the national economy that the petroleum right holder has charged to capital accounts as an asset in line with the aforesaid Law,
bb) Capital asset base: the value of the capital asset allocated by the petroleum right holder for use in connection with its petroleum operations in Turkey as computed in accordance with the Law No. 213,
cc) Incidental drilling costs: all expenses for labor, fuel, repair and maintenance, haulage, supply, leasing and materials for and incidental to drilling, cleaning, deepening or completing wells or preparations thereof, except for expenses of installations or materials with a physical life of more than one year that are not yet installed or used, or that have a utilization life of more than one year or a salvage value at the end of one year after being installed or put in use,

çç) Dangerous act: an act or negligence during the conduct of a petroleum operation that endangers or is likely to endanger the life, limb or health of a person within the field, and gives rise to environmental pollution, destruction or depredation of properties or places under the Law No. 2863 and dated 21/7/1983 on the Conservation of Cultural and Natural Properties.

dd) Appraisal drilling: a limited number of drilling of wells carried out to determine a petroleum field’s capacity,
ee) Land of Turkey: the territory, inland waters and territorial waters of the Republic of Turkey and further to that, continental shelf and exclusive economic zones whose borders are determined as per the international law,
ff) Cost of drilling and relinquishment of wells that were unproductive for the national economy: expenses made for any physical economic value used or required for the drilling of wells that do not produce of petroleum in economic quantities and incidental drilling costs, except for drilling equipment and similar equipment,
gg) Production: the work of production drilling and development, extraction of petroleum, pre-processing of petroleum, storage of petroleum in the field or in the vicinity of a field, transportation of petroleum to these storages, a transmission line or to a refinery through pipeline or other means,

ğğ) Enhanced recovery method: the achieving additional production by enhanced recovery methods in order to enhance the fluidity of petroleum in the reservoir and/or to increase the decreasing reservoir energy in the production field,

hh) Production field: the petroleum field in the production lease.

ıı) Production drilling: of the drilling of wells for production in the petroleum field.

Ownership

ARTICLE3- (1) Petroleum resources in Turkey are governed by and are at the disposal of the State.

SECTION 2

Districts and Open Fields, and Investigation Permit

Districts and Open Fields

ARTICLE 4 – (1) In accordance with this Law, Turkey is divided into two districts as onshore and offshore. The coastline is the border for the onshore and offshore districts. Offshore is divided into to two parts; inner territorial waters and outer territorial waters. Grant of investigation permits, exploration licenses and production leases, their transfers and time extensions in the outer territorial waters shall be subject to the approval of the Council of Ministers provided that they are not less favorable than the rights determined under Article 5,6 and 8. These districts may partially or thoroughly be closed to exploration and production, modified or re-opened by the decision of the Council of Ministers.

(2)Any decision made in accordance with this Article cannot violate any acquired rights.

(3)The opinions of the relevant public institutions and organizations shall be obtained before any operation is allowed in military restricted zones or security zones.

Investigation Permit

ARTICLE 5 – (1) If the General Directorate finds an application for an investigation permit to be acceptable, it shall grant the required investigation permit within sixty days. The fact that some part of the field for which the investigation permit has been requested is also subject to another investigation permit, an exploration license or a production lease would not preclude the grant of the investigation permit. However, the investigator shall not, without the consent of the other petroleum right holder that is carrying out petroleum operations, enter into drilling sites or places where similar field studies are being carried out. Investigation permit holders shall pay 50 Kurus fee per hectare of the investigation field for once only and the payment methods shall be determined by a by-law. The fee amounts shall be re-determined every year considering the revaluation rate set forth in line with the Law No. 213 for the previous year. The information acquired as a result of the investigation shall also be presented to the General Directorate and the General Directorate shall keep this information confidential for eight years. Other issues agreed between the General Directorate and the applicant, provided they are not contradictory to this Law, shall be set forth in an appendix to the investigation permit. The terms and procedures in this respect shall be set forth in by-law.

SECTION 3

Exploration License, Application and Licensing Procedure, Production Lease

Exploration License

ARTICLE 6 – (1) In accordance with the provisions of this Law, exploration license is issued in an aim to perform exploration activities within the land that the exploration license covers, to undertake investigations around the land covered by the exploration license, to develop the land where petroleum is found and to produce petroleum in these land and to make an application of exploration.

(2) The exploration license shall be based on map sections of scale 1/50.000 for territorial borders and territorial waters. The largest land of license shall be a complete map section with scale 1/50.000. The smallest land of license shall be a complete map section with scale 1/25.000 provided that it is included in the same map section with scale 1/50.000. Land of license shall not exceed the map section with scale 1/50.000 and shall consist of map sections with scale 1/25.000.

(3) Licensing within the boundaries of exclusive economic zones shall be conducted based on the 1 degree land between the lines of one complete degree of latitude and one complete degree of longitude. The largest land of license shall be the land of one degree. The smallest land of license shall be a complete map section with scale 1/100.000 provided that it is included in the land of one degree. Land of license shall not exceed the land of one degree and shall consist of map sections with scale 1/100.000.

(4) Exploration fields shall be bound by straight lines in north-south and east-west direction and the map section borders except for shore, territorial waters or exclusive economic zones and coastal lines. Determination of the borders of these fields, their contiguity to other fields, and their convergence shall conform to the terms and procedures provided by the by-law.

(5) The term of exploration license shall be five years for onshore and eight years for offshore.

(6) If the license holder has fulfilled the work program and submits his work and investment program including at least one drilling and gives a bond corresponding to 2 per cent of the work and investment program, the term of an exploration license may be extended up to two years for onshore and three years for offshore.

(7) If the petroleum right holder who has completed the drilling program within the first extension period, submits a new drilling and investment program and gives the corresponding bond at an amount equal to 2 per cent of the drilling and investment program, the term of his/her exploration license may be extended up to two years for onshore and three years for offshore.

(8) As per the provisions of this Law, the term of an exploration license including extensions made after its initial date of effect shall not exceed nine years for onshore and fourteen years for offshore. However, when the exploration license expires, an additional period up to two years may be provided so that commercial evaluation of petroleum discovery can be made for the lands on which petroleum was discovered.

(9) If the operation period necessary to complete the drilling of an exploration well in an exploration field or to fulfill production tests, if any exceeds the exploration license term, an additional extension up to six months may be granted upon the request of the petroleum right holder.

(10) An explorer is obliged to develop the field and commence production following the discovery made with regard to the exploration license. With respect to produced petroleum, an explorer shall be subject to all the rights and liabilities of a production lease holder.

(11) Lands determined by the General Directorate and which are open to the exploration may be the subject of an exploration license by closing them to applications described in the licensing procedure provided in Article 7 and by going on a public auction. Unless these areas closed to applications are re-opened by the General Directorate, license applications for them shall not be admitted. Terms and procedures of the public auction, the rate of investment bond to be received and bond return, terms and sanctions regarding the petroleum operation shall be stated in the specification before the public auction.

Application and Licensing Procedure

ARTICLE 7 – (1) In the assessment of an application for petroleum right, the conformity of the application to the legislation, financial ability of the applicant, and the feature of the committed business and investment program of fulfilling the purpose of this Law earlier rather than other applications are taken into account. The terms and procedures regarding the assessment of financial ability and business and investment program are prescribed in the by-laws.

(2) Applications for an exploration license shall be made to the General Directorate in line with the provisions of the by-law. The area covered by the first exploration license application for a field available for petroleum exploration shall be announced. The contents of the first application and the following applications shall be kept confidential for ninety days following the announcement date. Applications made within this period and fully covering the same piece of land shall be evaluated together in accordance with paragraph 1. Applications for exploration license made during this period and which partially cover the same land and the applications made for the same land after the expiry of the ninety-day period shall not be taken into consideration. The above provisions shall also apply to applications to be made for a rejected exploration license application field or relinquished or cancelled exploration field made after the decision of rejection, relinquishment or cancellation has been finalized and published in the Official Gazette .Applications taken into evaluation at the end of the ninety-day period shall be finalized by the General Directorate in sixty days at the latest.

(3) For the license application and the demands for time extension, the applicant shall provide a bond corresponding to 2 per cent of the financial investment required for the presented work program. This rate is 1 per cent for the offshore. The amount of the bond corresponding to the annually realized rate of the committed work program shall be returned to the petroleum right holder. Terms and procedures concerning the bond shall be regulated in a by-law.

(4) The bond shall be submitted to the General Directorate within thirty days subsequent to the final decision for the granting or extension of the license. Otherwise, the license shall be cancelled.

(5) Ministry shall be authorized to decide whether bonds will be submitted for fields where no petroleum finding could be detected or for fields where unconventional methods are required. If bonds will be submitted, Ministry shall be entitled to decide on the rate, provided that the rate is not above the rates specified in paragraph 3.

Production lease

ARTICLE 8 – (1) In case of discovery during the exploration, production lease is issued for the exploration and production and for the sale of the produced oil within the duration of the granted production lease. Production lease shall contain the same terms applicable when the exploration lease was granted.

(2) Applications for a production lease shall be made to the General Directorate in line with the provisions of the by-law. The exploration license for the remaining field after the grant of a production lease shall be valid until the end of its term.

(3) Production lease shall be granted for a period of twenty years as of its effective date, depending on the demand of the applicant, by taking into account the work and financial investment programs to be undertaken in accordance with the by-law. Production shall be initiated and activities shall be undertaken in accordance with the program except for force majeure. Otherwise, administrative sanctions provided for in Article 24 of this Law shall be applied. The production license may be extended twice for periods not exceeding ten years at a time, on the condition that the production program annexed to the request for extension is found appropriate.

(4) With the approval of the Minister, fields whose time of production right has expired may be? auctioned for a production lease to be granted. However, the Ministry shall firstly write a letter with a time limit to Turkish Petroleum Corporation asking whether it has a production lease request for this field. On the request of the Turkish Petroleum Corporation, the field shall not be auctioned. All or part of the production area of which the production lease was up for auction maybe pulled back from the auction with the approval of the Minister. Petroleum right holder or holders whose production leases were cancelled as a result of an administrative sanction shall not be re-entitled for the same production lease.

(5) No exploration license or production lease may be granted for a field that is subject to an auction unless the decision for auction is retracted. The fact that a field is auctioned does not require for it to be granted to the highest bidder or for any bid to be accepted. The terms and procedures of the auction shall be determined with a by-law.

(6)Upon request, the production lease holder may be granted with the permit to construct pipelines in order to transport the petroleum produced.

(7) Production lease holders whose production fields are partially or completely included in the same petroleum field may combine their petroleum operations.

SECTION 4

Royalty, and Surface and Water Rights

Royalty

ARTICLE 9 – (1) An explorer or operator shall be liable to pay a Royalty corresponding to one eight of the petroleum produced.

(2) No Royalty shall be collected from the petroleum used in petroleum operations in relation to exploration or production lease.

(3) The carbon dioxide gas produced in petroleum fields may be used in production increasing method.

(4) Petroleum reservoirs to be utilized as underground storage shall not be utilized unless factually or completely depleted and approved by the General Directorate. The operator has priority, if deemed suitable for underground storage area under the responsibility of an operator. No Royalty shall be collected from petroleum that is not producible in the field required for storage. This petroleum may be produced only if permission is taken from the General Directorate and Royalty is paid.

(5) Fields which allow for storage, other energy activities and petroleum production activities to be technically undertaken collectively may be the subject of both petroleum production activities and storage and other energy activities. If it is not possible to undertake the abovementioned activities collectively, the priority shall be determined by the Ministry taking into consideration the vested rights, if any.

(6) Royalty payable by a petroleum producer shall be calculated per barrel, for crude oil produced on a unit of petroleum, based on the market price for local crude oil provided in article 10 of Petroleum Market Law No. 5015 dated 4/12/2003, and for natural gas based on the sales price applied to distribution companies or consumers.

(7) The Royalty is accrued by declaration to the General Directorate until the end of the 20thday of the following month after the production has done and is paid until the end of the month to the tax office where the related party is affiliated in terms of income or corporate tax. If the declaration of Royalty is not made or is under declared, the Royalty is levied for the differences found on the basis of legal measures or concrete evidences. The levied Royalty is taken hundred percent more. If the under declared Royalty is declared per se within following 2 months of the actual time of the declarations by related party, the Royalty is levied fifty per cent more. The Royalty which is not declared in time or under declared and which is increased and levied on the detection of General Directorate or self-declaration of related party, shall be notified to the related party and paid within the one month following the notification. Interest rate to be calculated per to the late fee in accordance with the provisions of the Public Receivables Collection Procedures Law No.6183 dated 21/7/1953 is imposed to the Royalty which is not declared in time for the period from the last day needed to be declared until the date is accrued. Royalty which is not paid in time is preceded and collected by the related tax offices in accordance with the provisions of law No. 6183 upon the notification of General Directorate. Terms and procedures concerning the declaration, assessment, accrual, payment and assessment of Royalty shall be prescribed in the by-law.

(8) Operators, who combined their operations as per Article 8 paragraph 7 above, may pay single Royalty.

(9) Upon the demand of the Ministry, the Royalty may be paid in kind. Terms and procedures pertaining thereto shall be determined in the by-law.

Surface and water rights

ARTICLE 10 – (1) A petroleum right holder may obtain the utilization rights of a land in its exploration license or production lease or in the vicinity, which is required for petroleum operations, by contract if the land is privately owned, by expropriation in case of disagreement or by leasing or obtaining usufruct rights from the Ministry of Finance and recording it on its license if the land is owned by the Treasury or is governed by and at the disposal of the State. Should the utilization right acquired by contract last for a period of more than three years, the land owner or petroleum right holder may request the expropriation of the field under private ownership.

(2) A decision to expropriate for public interest shall be taken by the Ministry upon request. The process shall take place in accordance with the Expropriation Law No. 2942 dated 4/11/1983. Expedited expropriation in accordance with Article 27 of the same Law can be made. In case of an expropriation, the Treasury shall own the expropriated land and the utilization right shall belong to the petroleum right holder who has paid the expropriation fee. In this case, the Ministry of Finance shall grant usufruct right in favor of the petroleum right holder free of charge for the duration of the license or lease period. The utilization rights acquired within the framework of this Article shall continue for the license period as a part of the exploration license or production lease. Upon the cancellation of the exploration license or production lease, expropriation price shall not be returned.

(3) Subject to its compliance with the provisions of other relevant laws and its acquisition of utilization rights, an explorer or an operator shall have the right to search for water in the land included in its exploration license or production lease or in its vicinity, by various methods including drilling and to use the water found and to use other existing water, to the extent needed in its operations, without violating the others’ rights to that water.

(4) Operator, during the petroleum exploration and production activities, shall be liable to conduct and exercise every survey, investigation and research projects in order to ensure the protection of surface, ground, coastline and sea waters in terms of quality and quantity.

(5) Petroleum exploration and operation activities may be carried out in areas deemed forests under the Forestry Law No. 6831 dated 31/8/1956 and which are subject to permit and license, provided that the permissions are obtained in accordance with the relevant legislation and the costs are paid.

(6) If the exploration license or production lease, petroleum right of which is held by an explorer or an operator, is in a neighboring position with another exploration license or production lease, the terms and procedures concerning the distance to the border of neighboring field up to which petroleum operations can be conducted shall be determined in a by-law.

SECTION 5

Relinquishment, Additions to Fields and Removal and Transference of Facilities

ARTICLE 11 – (1) A petroleum right holder may partially or completely relinquish its investigation permit/exploration license; and its production lease by making an application to the General Directorate and by informing any public institution or organization related with the field, if any, at least one month in advance and at least three months in advance, respectively. Any rights arising from the exploration license or the production lease shall expire for the relinquished field on the date of such application. However, work and financial investment programs guaranteed for the whole license shall continue for the not relinquished part. If the petroleum right holder has fulfilled its liabilities by that date, all its obligations shall terminate.

(2) The General Directorate may make additions to the exploration license and production lease in line with this Law, upon an application in this respect. In this case, a new work plan shall be sought in addition to the current plan.

(3) The ownership of any movable or immovable property that is not removed from the land by the petroleum right holder within six months subsequent to the termination of the exploration license and the utilization right of the production lease, whose production finished in economic terms, shall pass to the owner of the land. If the land owner does not accept the transfer of any property on the land, the provisions of paragraph 3 and 4 of Article 22shall apply.

(4) In the event of transference of production lease whose production is ongoing but utilization right has expired, to a new production lease holder, transference of surface facilities on the field shall be determined by an agreement to be concluded between the transferring production lease holder and the transferee three months before the utilization right expires. If the parties fail to reach an agreement, all surface and underground facilities available on the license shall be transferred to the Ministry free of charge on the date of license expiry, provided that no liabilities are imposed. Terms and procedures of transference shall be regulated in a by-law.

SECTION 6

Taxation, Import, Export and Transfers

Taxation

ARTICLE 12 – (1) The sum of the income tax deductions that the petroleum right holder is liable for on its net income and the income tax it is required to withhold on behalf of its shareholders shall not exceed 55 per cent.

(2) The withholding tax to be applied to the limited liable tax payer institutions on payments made from their self-employed income for petroleum exploration operations as per the provisions of this Law, shall be 5 per cent, in accordance with Article 30, paragraph 1, sub-paragraph (b) of the Corporate Tax Law No. 5520 dated 13/6/2006.

(3) For petroleum right holders performing petroleum operations defined under this Law as well as other activities based on general provisions, their petroleum operations shall be monitored on accounting records and taxed separately from their other activities. Two or more petroleum right holders whose principal business activity is the conduct of petroleum operations under this Law shall be subject to taxation separately even if a partnership is established among them.

(4) Article 3, paragraph 3, sub-paragraph (a) of the Law No. 5520 shall not apply to the revenue and profit acquired from petroleum operations.

(5) Except for Royalty, a petroleum right holder’s revenues generated from production in return for the capital that corresponds to its investment in the petroleum operations shall be deemed amortized pursuant to the provisions of Law No. 213 until the recovery of the capital calculated on the current exchange rate for foreign companies which are limited liable tax payers and until the investment amount is turned into an expense through amortization for national companies with full obligations. This rule shall also apply to the amounts remaining from capital that a petroleum right holder has imported in foreign currency in the past years pursuant to Petroleum Law No. 6326 dated 7/3/1954 repealed with this Law, but has not yet been remitted.

(6) Capitalization shall be voluntary for exploration expenses, incidental drilling costs and expenses for the relinquishment and drilling of wells not productive in economical quantities, which were approved by the Ministry. Except for exploration expenses, incidental drilling costs and expenses for the drilling of wells not productive in economical quantities which the petroleum right holder made, expenses of the economic values and expenses for attainment of such economic value and the installments thereon shall be reimbursed by amortization according to the preference of the petroleum right holder either by being recorded as expense or by capitalization. The amortization ratios to be applied on these expenses capitalized by being included in capital account, shall be determined separately for each petroleum field in comparison with Article 316 of the Law No. 213, but jointly by the Ministry and the Ministry of Finance by also taking into account the reserve conditions. However, the cost or the value of a part of the petroleum field assigned to a purpose other than petroleum production and the residual value that the petroleum right holder is entitled to at the end of the petroleum operation, shall be deducted from the amortization ratio.

Import and Export

ARTICLE 13 – (1) Import or delivery of all the materials, equipment, fuel, and land, sea and air transportation vehicles approved by the General Directorate, excluding the materials related with the construction, erection and operation of its buildings or installation and equipment and its administrative activities, by a petroleum right holder itself, a representative or a contractor recognized by the General Directorate and on his behalf, and its administrative activities for the petroleum operations in Turkey, shall be exempt from customs duty, conducted transactions shall be exempt from charges and issued papers shall be exempt from stamp duty. However, the Council of Ministers may decide and determine, by issuing a list which of the materials shall be exempt from customs duty or subject to customs and other import taxes and duties, a detailed itemized list of articles produced or manufactured in Turkey, the quality, the quantity and the availability of which are similar to imported articles. These lists shall become effective as of the publication date on the Official Gazette. However, materials, the import of which were requested by an application submitted to the General Directorate prior to the date a list was published, shall be subject to the exemption if they are imported within one year following the effective date of the list. Drilling towers and equipment obtained in this respect may be used for geothermal activities, which are beyond the scope of this Law, subsequent to the application of the petroleum right holder and approval by the Ministry.

(2) A conformity assessment of Turkish Standards Institute marking shall not be sought for materials a petroleum right holder has imported to use in petroleum operations that were approved by the General Directorate.

(3) The exemption provided in the foregoing paragraphs shall continue in case of transfer of such materials with the permission of the General Directorate from a petroleum right holder to another petroleum right holder to be used in its petroleum operations. If the related materials are transferred for an activity not considered petroleum operation for use or sale within Turkey, then they shall be subject to all taxes and dues applicable during the importation or internal usage, which are effective on the transfer date. Except for materials having a physical life of less than one year, the transfer of other materials shall be made using values determined by value assessment at the time of transfer or exportation.

(4) If ten years has passed as of the date of entry into Turkey of materials imported exempt from customs and other import tax and duties, the petroleum right holder that has imported or transferred these materials shall have all possessory rights over them.

(5) Materials imported for petroleum operations may be exported with the permission of the General Directorate.

Transfers

ARTICLE 14 – (1) Materials imported for use in petroleum operations, cash funds and other properties shall be registered by the General Directorate. A petroleum right holder may, on application to the General Directorate, transfer abroad, tax free, either in cash or in kind, its cash funds and rights thereto, and other properties included in the capital assets provided it puts aside the sum required for the payment of any taxes, duties, fees, rentals and Royalties owing but unpaid to the State.

(2) To be set off against its capital, a petroleum right holder may at all times apply for a transfer. Upon having completed the transfer of its capital, it may transfer other transferable net properties quarterly within the current year. For set off operations, a transfer declaration shall be given following the submission of the corporate tax declaration.

(3) A petroleum right holder can keep abroad the foreign currency generated from the export of the petroleum. This amount shall be offset against the remittance of the capital imported to Turkey and the transfer of net values exceeding this.

(4) Terms and procedures concerning the inclusion of revenues generated by the petroleum right holder through activities other than petroleum operations into its capital, demands for transfer and allocation of foreign currency to be taken abroad under the scope of this article shall be determined in a by-law.

SECTION 7

Employment of Foreign Personnel, Force Majeure and Permissions to Be Taken from Other Institutions

Employment of Foreign Personnel

ARTICLE 15 – (1) A petroleum right holder may employ expatriate professionals for petroleum operations in Turkey for a maximum of 6 months with the assent of the Ministry and the residence permit for work purposes to be issued by the Ministry of Interior Affairs, without prejudice to the provisions of specific laws and provided that foreigners and the employees realize the obligations stemming from other laws and by being exempt from the provisions of Law on Foreigner’s Work Permits No. 4817 dated 27/2/2003. If the duration of employment exceeds six months necessary permits shall be taken as per the Law No. 4817.

Force Majeure

ARTICLE 16 – (1) Natural disasters and state of war shall suspend and deter for equal terms the rights and obligations of the petroleum right holder to the extent they affect its petroleum operations.

Permissions to Be Taken from Other Institutions

ARTICLE 17 – (1)

If an application to the General Directorate contains any matter corresponding to the realm of authority of other state institutions and organizations, the permission of the related institution and organization shall be taken before the decision. Related public institutions and organizations shall assess these demands primarily and urgently and shall conclude in thirty days.

SECTION 8

Notification, Records, Reports, Notices, Monitoring and Audit, Objection and Litigation

Notification

ARTICLE 18 – (1) Any individual applying for a right under this Law shall be obliged to declare their addresses in Turkey. No investigation permit, exploration license or production lease shall be granted to those who have not provided addresses.

(2) The investigator, explorer and operator shall be obliged to inform the General Directorate of the resident representative or the joint representative and its legal address in Turkey within thirty days following the grant of the investigation permit, exploration license or production lease, as well as any change of its legal address. These matters shall be registered in the petroleum register. Any notifications served upon the resident representative and/or the joint representative at the address registered in the petroleum register shall be deemed made to petroleum right holder. Notifications shall be made in accordance with the Notifications Law No. 7201 dated 11.02.1959.

Records, Reports, Notices, Monitoring and Audit

ARTICLE 19 – (1) The petroleum right holder shall keep and submit to the General Directorate records, accounts, information, documents and samples related to the petroleum operations in line with the period, form and quality stipulated in the by-law.

(2) When necessary, the Ministry shall audit petroleum operations by its own staff members or by the staff of other public institutions and organizations. Petroleum right holder shall be obliged to cooperate with those on duty as they execute their authority under this paragraph. The terms and conditions regarding this issue shall be determined by by-law.

(3) An explorer shall inform the General Directorate regarding any petroleum findings or discovery. The timing and type of the notification shall be described in the by-law.

(4) Data and information regarding the wells that were drilled within the exploration license field, and geophysical, detailed geological and laboratory information and data shall be disclosed at the end of the license period; data and information regarding appraisal wells that were drilled within the production lease field shall be disclosed at the end of five years following the effective date of these leases; and information obtained within the scope of the investigation permit shall be disclosed at the end of eight years. Special provisions of the Law No. 213 shall be reserved. General technical, financial and geological information, well locations, drilling cross-sections, protection pipe records and general production and sales figures shall not be regarded as confidential information.

(5) The General Directorate shall carry out the domestic and international marketing and sales of the information and data disclosed pursuant to paragraph 4. Relevant terms and procedures shall be provided by by-law.

(6) The General Directorate shall procure the necessary services for the storage, submission to relevant persons, promotion and marketing of the data obtained as a result of the petroleum operation. To this end, revenues generated as a result of the marketing of petroleum data shall be deposited in the account of central accountancy unit of Ministry to be recorded as revenue to general budget.

Objection and Litigation

ARTICLE 20 -(1)All objections related to the disagreements to occur between applicants or right holders regarding all the rights taken or to be taken in accordance with the provisions of this Law shall be concluded by Ministry.

(2) Litigations to be declared against the decisions effecting of the rights emanating from the investigation permit, exploration license and production license, application received by Ministry shall be heard at State of Council as the court of first instance.

SECTION 9

Registration and Announcement

ARTICLE 21 – (1) The General Directorate shall keep a petroleum register .Issues below shall be recorded to the petroleum register in accordance with the terms of the by-law:

a) All applications for investigation permit, exploration license and production lease which are in compliance with this Law,
b) Any investigation permit, exploration license and production leases granted and amendments thereto; the termination of these licenses and investigation permits in any way,
c) Any rights granted on exploration licenses, production leases or any petroleum rights arising therefrom and the operator appointed as per the agreement to be concluded by companies which are joint holders of the petroleum right in exploration license or production lease and to be approved by the General Directorate,

ç) Any transfers of exploration licenses, production leases or the petroleum rights arising therefrom, or any conditions or limitations on any of the following,

d) Other issues stated in the by-law to be recorded in the petroleum register,

(2) The applications for approval and registration of the matters set forth under sub-paragraphs (c) and (ç) shall be primarily evaluated by the General Directorate and concluded within sixty days of the application date. Registration provisions of other laws shall not apply to the matters to be recorded in the petroleum register. The procedures for an application to hold a petroleum right, the nature and scope of the documents to be annexed to the application, and how the petroleum registry records would be kept, amended and deleted shall be governed by by-law. An application, report or document that is not compliant with the by-law cannot secure any rights for the party submitting it.

(3) The General Directorate shall publish in the Official Gazette; any determination or modification of petroleum districts; declaration, modification and closing of open areas; decisions regarding applications except for those related with investigation permits; grant, amendment, transfer, termination of an exploration license or production lease; other rights and restrictions on exploration licenses or production leases; and any other issues that are required to be published per the legislation. Subject to any provisions of this Law or the by-law imposing specific requirements for service of notice, publication in the Official Gazette shall be deemed proper service of notice. Announcement of final decisions regarding the petroleum right at Official Gazette within fifteen days is compulsory.

(4) The date of publication of any matter announced on the Official Gazette, unless otherwise specified therein, shall be deemed to be the effective date of that matter. The commencement, extension, amendment, transfer or termination of exploration license or production lease shall be effective on the date of their publication for those who have not been notified otherwise.

(5) Exploration licenses and production leases and petroleum rights arising therefrom, and any one of those petroleum rights related to any portion of an exploration license or production lease, upon registration in the petroleum registry, shall be subject to agreements regarding the sales and pledge and similar contracts over immovable property in accordance with this Law.

(6) The owner of a right, which is duly registered and entails the use of a petroleum right, shall enjoy the petroleum rights and be subject to the obligations of a petroleum right holder in proportion its right. The shareholders of an interest in exploration license or production lease or any of the petroleum rights arising therefrom shall enjoy the rights and incur the liabilities provided by this Law in proportion to their interests.

(7) Except for foreclosures and preliminary injunctions, no right and condition referred to in sub-paragraphs (c) and (ç) of the first paragraph shall be enforceable against the General Directorate or third parties unless it has been approved and registered in the petroleum register by the General Directorate.

(8) Petroleum rights to which the paragraphs 5 and 6 would be applicable and the provisions regarding the effects on other right holders and shareholders of a failure of any right holders, shareholders or representatives mentioned in the sixth paragraph in fulfillment of its responsibilities shall be determined by by-law.

(9) Any share transfer transaction which may change the control of capital of a petroleum right holder registered by the General Directorate shall be subject to the preliminary approval of the Ministry. Terms and procedures pertaining thereto shall be regulated in a by-law.

SECTION 10

Prohibitions and Special Provisions, Administrative Fines, and Administrative Measures

Prohibitions and special provisions

ARTICLE 22 – (1) No petroleum operation may be conducted unless an investigation permit, an exploration license or a production lease is granted in accordance with this Law.

(2) Any rights obtained according to any other Law cannot authorize the holder thereof to conduct any petroleum operations.

(3) The petroleum right holder who has concluded petroleum operations shall be liable to return the land to its former condition. Terms and procedures concerning this liability shall be determined by a by-law.

(4) The petroleum right holder shall be liable to compensate all the damages incurred to the owner and the possessor of the land, to the land itself, and to the facilities there, and any loss of product or the operational profits that the mentioned person is deprived of.

(5) Investigation permits, exploration licenses and production leases may be granted to capital companies or legal entities established as capital companies in accordance with a foreign state’s legislation provided that they are in compliance with the principles of this Law.

(6) Rights provided by this Law shall not entitle its holder to enter in or be at any place where the entrance or presence is prohibited under any other law.

(7) Petroleum right holder shall not commit or permit another to commit a dangerous act directly or indirectly during his petroleum operation. Petroleum right holder may install the required facilities and equipment for the petroleum operation under the license provided that it does not disrupt the lives of local people, harm the environment or the nature or endanger them.

(8) Presentation of bonds to meet any loss and damages that may arise during operations, prior to obtaining the petroleum right is mandatory. Bonds per hectare shall be five ten thousandth of the investigation permit duty for investigation permits, one thousandth of the exploration license duty for exploration licenses and five thousandth of the production lease duty for the production lease. Council of Ministers shall have the authority to increase or decrease this rate by 50 per cent. The petroleum right holder shall match the re-determined bond amount within two months.

(9) If a condition arises that threatens a petroleum operation, the petroleum right holder shall notify the General Directorate and other petroleum right holders whose operations may be adversely affected, providing information about the nature of the threat and the measures taken to overcome it. In the event the General Directorate considers the measures that have been taken or that are to be to be taken to be insufficient, it may request the petroleum right holder to take additional measures.

(10) Non-state owned legal entities obtaining petroleum rights would be subject to the provisions of Turkish Commercial Code No. 6102 dated 13/1/2011. Non-state owned legal entities to obtain petroleum rights in Turkey and that are capital companies in accordance with a foreign country’s legislation shall be deemed residents in Turkey with respect to their activities in Turkey for the purposes of the legislation regarding the protection of the value of Turkish Lira.

(11) Matter of in which distance the petroleum operation to be made at borders, military forbidden zones, historical sites and residential areas shall be prescribed with a by-law.

(12) Petroleum right holders shall be entitled to export 35% for the onshore and 45% for the offshore of the total of the crude oil or natural gas produced in the fields discovered after 1 January 1980 as crude oil or petroleum products; the remaining per cent and the total of the crude oil and natural gas produced in the fields discovered before 1 January 1980 as well as the petroleum products shall be reserved for the country. The Council of Ministers shall have the authority to regulate the procedures and principles on the redetermination and implementation of these ratios.

Administrative Fines

ARTICLE 23- (1) If acts prohibited under this Law do not legally entail a heavier penalty, an administrative fine shall be imposed according to the provisions of this Article. Administrative fines or administrative sanctions imposed under this Law shall not prevent the application of other provisions of this Law. Penalties and measures imposed in accordance with this Law shall not prevent the application of other laws.

(2) As per this Law;

a) If serious and irreparable damage has been made due to a dangerous act, a fine of 500,000 Turkish Liras shall be imposed,
b) If a dangerous act has been conducted during petroleum operations, 350,000 Turkish Liras fine shall be imposed. If the dangerous act is not prevented within the period of time allowed 50,000 Turkish Liras fine shall apply for each day until the dangerous act is corrected,
c) Those who conduct petroleum operations without an exploration license or a production lease, shall be subject to a fine of 250,000 Turkish Liras,

ç) Those who conduct investigations without an investigation permit and exploration license shall be subject to a fine of 100,000 Turkish Liras,

d) Those who impede the use of any right granted or fulfillment of the duty by any personnel appointed to ensure enforcement of the law, shall be imposed a fine of 50,000 Turkish Liras,
e) Those who made unrealistic declarations in their applications shall be imposed a fine of 50,000 Turkish Liras,
f) Those who fail to submit the required information and documents on time twice in one calendar year or those who fail to send the required information and documentation completely shall be imposed a fine of 10,000 Turkish Liras. In the event that this situation occurs more than twice in the same calendar year, an administrative fine of 10,000 Turkish Liras shall be imposed for each repetition,

(3) Administrative fines given as per this Law shall be paid within one month after its notification.

(4) Actions against the administrative fines imposed by the General Directorate may be taken in 30 days at administrative courts.

Administrative Measures

ARTICLE 24 – (1) Revenues generated and petroleum obtained as a result of petroleum operations conducted without an exploration license or production lease shall be confiscated and the property rights pertaining thereto shall be transferred to the State as per the Code of Misdemeanor Law, No. 5326 dated 30/3/2005 and the Law No. 5015.

(2) If the General Directorate determines that a dangerous act has been conducted during petroleum operations and related activities, petroleum operations shall be suspended except for those conducted for petroleum sales and prevention of the dangerous act. If the dangerous act is not prevented within a period of time allowed by the General Directorate, the General Directorate shall take measures to prevent dangerous act and restore and compensate its damages by charging the cost to the petroleum right holder. To this end, firstly the bond provided in Article 22, paragraph 8 shall be used. This used part of the bond shall be reinstated by the petroleum right holder within two months. If the petroleum right holder fails to reinstate the bond within two months, the amount which has not been paid shall be increased by 10 per cent per month. If the petroleum right holder fails to reinstate the bond within a year, his investigation permit, exploration license or production lease shall be terminated.

(3) If a petroleum right holder does not comply with a provision of this Law, a by-law, an investigation permit, an exploration license or a production lease, he shall be warned to comply with the necessary conditions. It shall be notified that in case of non-compliance, the related petroleum right will be terminated within a period of ninety days. If the General Directorate determines that an additional extension is needed for the petroleum right holder to comply with the provisions at the end of ninety-day period, an additional extension not exceeding sixty days shall be granted. If he fails to comply with the conditions at the end of this period, his permit or license shall be terminated.

(4) If the Royalty stated in Article 9, paragraph 1 is not paid to the relevant tax office two times subsequently and three times totally within a year, exploration license or production lease shall be terminated.

(5) In the event of the following;

a) If the exploration license or production lease holder fails compensate the owner and the possessor of the land on which his operations are conducted, for all damages to the land and any loss of product or the operational profits that the mentioned person is deprived of,
b) If the investigation permits, exploration license and production lease holder enters a place where entrance or presence is prohibited under this Law or any other law,
c) When condition arises that threatens a petroleum operation, if the petroleum right holder fails to notify immediately the General Directorate and other petroleum right holders whose operations may be adversely affected, providing information about the nature of the threat and the measures taken to overcome it, depending on the nature of the act, the petroleum right holder shall be notified that petroleum operations may be suspended by providing a period of ninety days or his permit and license may be terminated directly. If the petroleum right holder fails to pay the due amount within ninety days, the General Directorate may suspend the petroleum operations for a period no less than ninety no more than one hundred eighty days or directly terminate the petroleum right.

(6) Except for the force majeure stated hereby, the amount of the bond provided as per Article 7, paragraph 4, equal to the rate of investment amount, which corresponds to the annual non-actualized part of the work program, within total investment amount shall be registered as revenue. If the presented work program is not actualized for two years in a row, the bond shall be registered as revenue and the license shall be terminated.

(7) Except for the force majeure, if no production has been initiated with respect to a production lease within one year or an on-going production is halted, the General Directorate shall ask for the launch of production according to the program within one hundred eighty days. If the production lease holder fails to provide a reasonable excuse for failing to start the production at the end of this period, the General Directorate shall provide another one hundred eighty days. If production fails to start at the end of this period, the license shall be terminated.

(8) Decisions to terminate investigation permits, exploration licenses and production leases shall be taken by the Minister. Upon termination, petroleum right holder’s rights on the terminated permit or license shall also terminate.

SECTION 11

Miscellaneous Provisions

By-Law

ARTICLE 25 – (1) Terms and procedures related to the implementation of this Law shall be prescribed with by-law issued by the Ministry.

Incentives

ARTICLE 26 – (1) The incentives to be given for the investments of the petroleum right owners shall be determined by the Council of Ministers.

Amended and Abolished Provisions

ARTICLE 27 – (1) The Law No. 815 and dated 19/4/1926 concerning the Marine Shipping on Turkey’s Coasts (Cabotage) and Doing Business and Trading within the Limits of Turkey’s Ports and Territorial Waters has been amended as follows;

a) the sentence below was added to the Article 3, paragraph 1

“However, petroleum right owner who are foreigners also can perform petroleum exploration and production facilities within Turkish territorial waters.

b) In the Article 4, paragraph 1, the phrase: “of the sea vessels are used in petroleum exploration and production facilities” was added after the phrase: “of the foreign rescue ships”.

(2) Petroleum Law No. 6326 dated 7/3/1954 was abolished. The references to Law No. 6326 in the other legislation shall be deemed to be made to this Law.

(3) The paragraph below was added to “IV-Papers on Commercial and Civic Procedures” under Appendix 2 of the Stamp Tax Law No. 488 dated 01.07.1964.

“42. Papers drafted by the petroleum right holders regarding petroleum exploration and production activities performed within the scope of the Turkish Petroleum Law.”

(4) The following paragraph was added after Article 4, paragraph 4, sub-paragraph (b) paragraph 4 of Natural Gas Market Law No. 4646 dated 18/4/2001.

“Local and foreign petroleum right holders and Turkey branches of foreign companies established and producing natural gas shall be granted with the wholesale license to market and export the natural gas they produce to wholesalers, exporters, distribution companies or free consumers, and storage requirement shall not be sought.”

(5) The sub-paragraph below was added in the Article 7, paragraph 1, sub-paragraph 3 of the Private Consumption Tax Law No. 4760 dated 06.06.2002.

“c) The initial acquisition of materials listed with GTIP numbers 8701.20, 87.04, 87.05, 87.09 in the list no (II) to be used exclusively for petroleum exploration activities,”

SECTION 12

Temporary and Final Provisions

Vested Rights

TEMPORARY ARTICLE 1 – (1) Rights and liabilities arising from exploration licenses and production leases obtained prior to the enactment of this Law shall be applicable until the date of expiry of the license and lease. Rights and liabilities stated in the present production leases of the Turkish Petroleum Corporation shall be applicable until the end of the production.

(2) If any demand is received within one year subsequent to the entry into force of this Law, borders of existing exploration licenses shall be adjusted as per the Law hereby and the right holder shall be provided with a new exploration license. Related terms and procedures shall be regulated in a by-law.

(3) The pipeline permits of the petroleum right holders obtained for transportation of their own petroleum within the scope of repealed Law No. 6326 shall be attached in the production leases.

(4) Exploration license applications shall not be accepted within one year subsequent to the publication of this Law.

Operations not finalized

TEMPORARY ARTICLE 2 – (1) The projects which began before the date of entry into force of this Act and started or ongoing projects in relation to a document under the Law No. 6326 repealed by this Law, the import, export and expropriation rights will continue to be in force until the completion of the work.

Regulatory Actions

TEMPORARY ARTICLE 3 – (1) The by-laws referred to in Article 25 in this Law shall be put into force within six months. Until the issuance of these by-laws present arrangements that are not contrary to the provisions of this Law shall continue to apply.

Training Obligation

TEMPORARY ARTICLE 4 – (1) The training obligations that have been identified by General Directorate before the date of entry into force of this Law shall be carried out by the operators within 5 years according to the provisions of Law No.6326 repealed by this Law and the provisions of other related legislation. The Ministry shall be authorized to extend that period.

Effectiveness

ARTICLE 28 – (1) This Law shall be effective as of its publication date.

Execution

ARTICLE 29 – (2) The provisions of this Law shall be executed by the Council of Ministers.