Intercontinental Oil & Gas Subsidiary Signs 1.596 Billion Yuan Iraq Oil Field Resumption Contract; Multiple Risks Require Vigilance

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Recently, Intercontinental Oil & Gas Co., Ltd. (Securities Code: 600759; Stock Abbreviation: Intercontinental Oil & Gas) released an announcement stating that its wholly owned subsidiary, Enkai Petroleum and Natural Gas Co., Ltd. (hereinafter referred to as “NK Petroleum”), has signed a “Naft Khana Oilfield Workover Project Engineering, Procurement, Construction, Operation and Maintenance (EPCOM) Contract” with Huayou Huibop Technology Co., Ltd. (hereinafter referred to as “Huibop”). The total contract value is USD 225,218,000.00, which is approximately RMB 1.596 billion.

Overview of the Contract Signing and Counterparty

The announcement shows that NK Petroleum, as the operator of the Naft Khana oilfield in Iraq, officially signed the contract with Huibop on February 2, 2026. The contract effective date is backdated to December 1, 2025.

Huibop, the counterparty, has the legal representative Lu Wei. Its registered capital is RMB 133,372.0072 million. Its incorporation date is October 7, 1998. Its principal business covers oil and gas engineering and services (EPCC), environmental engineering and services, and oil and gas resource development and utilization. There is no related-party relationship between Huibop and Intercontinental Oil & Gas, NK Petroleum, the company’s controlling shareholder, or its actual controller.

Main Contents of the Contract

Contract Subject Matter and Scope

The subject matter of this contract is the EPCOM services for the Naft Khana oilfield workover project in Iraq, specifically including two major parts: EPC engineering services and O&M operation and maintenance services. The EPC engineering services involve inspection, assessment, and repair of existing oilfield facilities, renovation of the Central Processing Facility (CPF) and construction of the gas processing unit, upgrades to oilfield surface facilities (FSF), construction of supporting power plants and the contractor’s residential area, as well as the procurement, installation, and commissioning of related equipment. The O&M operation and maintenance services provide 3 years of facility operation, daily maintenance, safety management, and production support after the EPC engineering temporary acceptance.

Contract Amount and Settlement

The total contract amount is USD 225,218,000. Of this, the major portion corresponds to the EPC engineering, while the remaining portion corresponds to subsequent operation and maintenance services. For settlement, the EPC engineering payment is made based on engineering milestone progress. Each time a milestone node is completed, after Huibop submits compliant invoices and acceptance documentation, NK Petroleum pays the corresponding amount via USD telegraphic transfer within 90 calendar days. The O&M service fees are settled based on monthly operating results. After Huibop submits a service confirmation letter and invoices, payment is made within 60 calendar days.

Performance Period and Key Milestones

Core Rights and Obligations of Both Parties

NK Petroleum (Party A) has rights including leading the acceptance of engineering quality/schedule, designating EPC detailed design subcontractors, and terminating the contract and deducting performance guarantees if the other party fails to perform, among others. At the same time, NK Petroleum must make milestone payments, assist Huibop in办理 Iraq import permits/customs clearance, and provide basic oilfield operation data. Huibop (Party B) has the right to apply for payment by milestones. In case of schedule extension due to reasons attributable to Party A or force majeure, it may apply for extension of the工期. Its obligations include ensuring that the EPC engineering meets international petroleum industry standards (Best Industry Practice), undertaking the employment of local labor in Iraq/security/taxes and fees, and submitting the quality assurance plan and completion/commissioning documents.

Performance Assurance and Breach Liability

As for the guarantee mechanism, Huibop must submit a performance bond of “10% of the EPC amount” within 30 days after the contract becomes effective (valid until temporary acceptance). Before temporary acceptance, it must submit a “10% of the EPC amount” quality guarantee bond (valid until final acceptance). With respect to breach liability, if Huibop completes the EPC late, it will pay liquidated damages at “0.2% of the EPC amount per day” (capped at no more than 10% of the EPC amount). The contract also sets out various other scenarios that constitute a subcontractor’s breach in detail. If NK Petroleum pays late, it will not exempt Huibop from its construction obligations, and Huibop must advance funds to ensure the project’s progress.

Dispute Resolution

Disputes should first be resolved through friendly negotiation. If negotiation fails, either party may submit the dispute to the Hong Kong International Arbitration Centre (HKIAC) for arbitration in accordance with its rules. The seat of arbitration is Hong Kong. The arbitration language is English. English and Wales law applies.

Impact on the Company

Intercontinental Oil & Gas states that this contract is an important project for the company’s restart/repairs in the Iraq oil and gas sector. It will help enhance the company’s end-to-end service capability for overseas oilfield operations and consolidate the company’s market layout in the Middle East. This transaction will not affect the company’s business and operational independence.

Risk Warning

Although the contract has positive significance for the company’s development, it still faces multiple risks:

International Environmental Risk

Geopolitical conditions in the Middle East, Iraq’s political situation, and policy changes may affect project progress or increase compliance costs.

Risk of Project Schedule Delays

If force majeure factors occur, leading to disruptions in the supply chain, delayed delivery of critical equipment, labor issues, and other problems, the project may not be completed for temporary acceptance on schedule. The company will actively urge Huibop to推进 the project in accordance with the contract, and coordinate to resolve the risk of schedule delays.

Foreign Exchange Fluctuation Risk

This contract uses USD settlement. It is affected by various factors such as the global economy and macroeconomic policies, resulting in a high degree of uncertainty regarding fluctuations in the USD-to-RMB exchange rate. The company will pay close attention to changes in the exchange rate market and reasonably arrange the timing of foreign currency conversion and settlement.

Regional Risk

According to the “National Risk Analysis Report” released by China Export & Credit Insurance Corporation (Sinosure) on October 16, 2025, Iraq’s overall national risk level is high risk. For the Diayala Province where the NK project is located, Sinosure has higher underwriting requirements for this region. Safety assurance plans and high-level payment protection must be in place. The company will closely monitor regional risks in this area and implement effective security measures to ensure the smooth construction and commissioning of the project.

Payment Risks Before Recoverable Costs Are Implementable

By the end of 2025, the NK project has 12 contracts under execution, with a total contract amount of USD 319 million. By the end of 2025, the NK project’s total expenditures are USD 70 million. The NK project’s estimated funding needs for 2026 are USD 96.7 million. Pursuant to the company’s agreement with the Iraqi government, the NK project’s operation model is a cost-recovery plus profit-sharing model. Before reaching the target production volume, cost recovery cannot be initiated. However, the company must pay Huibop in accordance with project progress. Therefore, before reaching production levels at which cost recovery can be initiated, the company needs to rely on its own funds or self-raised funds to pay for engineering costs, which involves certain payment risks. The company will address payment pressure through existing project operations, deep value/efficiency improvement, and other financing channels.

Payment Risks After Recoverable Costs Are Implementable

After the aging oilfield reaches the target production volume and cost recovery is initiated, recoverable costs accumulated in the early stage will be submitted for invoicing reimbursement on a quarterly basis. Payment will be made through the entitlement to lift and sell oil. However, the cost recovery amount must be recognized and calculated by the Iraqi government. There are risks related to the audit timeline, proportion limits, and differences in amount confirmation. In addition, the entitlement to lift and sell oil requires cash to flow back after sales. If cash flow recovery in the period is insufficient or the company’s overall liquidity is affected, it may affect the timely payment of engineering fees. The company will strengthen communication with the Iraqi government, accelerate the cost recovery cycle, and strengthen cash allocation and control.

Crude Oil Monetization Risk

The company appoints an affiliated party, GEOJADE RESOURCES PTE. LTD. (GRL), as the exclusive crude oil sales agent in Iraq. GRL was established in August 2024 with limited operating history. Its crude oil trading business is affected by multiple factors including fluctuations in international oil prices and changes in market supply and demand, and there is a risk of commercial performance failure. If GRL is unable to pay the crude oil trading payment on time and in full, it will affect the cash flow and construction progress of the Iraqi project. The company will continue to monitor the status of the counterparty and improve internal control and risk management mechanisms.

Intercontinental Oil & Gas states that it will closely monitor the contract’s performance and fulfill information disclosure obligations in a timely manner. At the same time, the company’s management sincerely apologizes to the广大 investors for failing to fulfill the information disclosure obligations in a timely manner regarding the signing of this contract. Investors are advised to invest rationally and pay attention to investment risks.

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