Part 1: Introduction

It’s been nearly a century since the first oil well was drilled in the city of Masjed-Soleiman in the south-west of the country of Iran. As we may know, the Islamic republic of Iran is one of the richest countries in terms of energy and natural resources (both hydrocarbons and renewable energies) and it’s said to benefit from the biggest aggregated “oil + gas” reserves in the world. Furthermore, vast area of the country, including desert and non-desert, results in a precious opportunity to develop renewable energy plants in order to produce electricity. Although the country is basically still petroleum-depended in many aspects, including financial, political, social, military, …, but legal aspects of these activities had been forgotten so far. Consequently, the efficiency may diminish in this manner.  

Energy law, this novel branch of the law science, has been officially incorporated in the Iranian higher-educational system under the name of “oil and gas law” – both in masters and PHD degree - in 2011 with special attention to petroleum upstream contracts such as concession (traditional/modern), production sharing and service contracts which were used in the petroleum operations in Iran. Fortunately, in the recent years it has drew attention of many legal experts of the country and now it’s considered as the favorite field of study (or activity) for the top law students. It’s obvious that presence of legal experts in energy operations amounts to lowering the risks while increasing the quality and reliability of the activities. A major sector of the energy law which has not been developed significantly yet, is power law. This sector consists of activities related to solar plants, simple power plants, combined cycle power plants, geothermal plants, biomass operations and every business connected to renewable energies. It’s necessary to say it has major common legal aspects comparing to oil and gas law (such as construction, industrial and commercial law).

Part 2: Specifications of the Energy Law

It’s reasonable to allege that these legal specifications arise from the nature of energy activities. One of the unique as well as interesting specifications of the Energy law is integrity and unification of functions. It means that energy related operations are long-term based as well as comprehensive. Consequently, the science of project management plays a major role in this field and therefor it propels the energy role players towards paying special attention to this issue. As an example, LNG operations are mostly famous in the industry as integrated projects where the (sole) contractor renders comprehensive upstream and downstream operations. Generally speaking, by integrity it is meant that in order to render effective superintendence on the energy projects, the operations must not be performed by various partners. For example, Iran petroleum contract (IPC) may be an integrated contract. As the employer authorizes the contractor to execute all exploration, appraisal, development and production tasks under the contractor’s risk and responsibility so as to integrate the activities. It’s the same in the construction contracts where the employer prefers not to have the contractor only as the engineer (E) or the one who procures (P) or constructor (C), but it contracts with intention to delegate all engineering, procurement and construction functions to a sole contractor (EPC).     

Another specification of the energy law is having the government as a constant and principal role player in this area. In more details, there is always a sign of prominent presence of the ministry of energy (in the field of power, electricity and water) and ministry of petroleum in the transactions. They may be one of the parties of the transactions or a regulator regarding the transactions. The reason is that energy goods are of the strategic ones and commercial environment of these goods is not comparable to other fields of commerce. Additionally, Energy resources of Iran (same as many countries) are public assets or in other words, of the public domain, that the government performs control over these resources on behalf of the public. Private persons (both natural and legal) are not capable of having natural resources as their personal property.

Part 3: Different types of energy contracts

Energy contracts may be principally divided into four main divisions; which are:

·        Commercial

·        Industrial

·        Civil

·        Maritime

Commercial contracts include sale and purchase (S&P) contracts, agency contracts, commission agency contracts, investment/financial contracts, transportation contracts (road and railway transportation), supply of goods/services contracts and brokerage contracts and so on. The industrial ones are engineering, procurement, construction, integrated EPC -  EPCTK - EPCM which are possible to be used in both upstream and downstream sectors, BOT, BOO, BOOT, BLT and other contracts in this group. An example of civil contracts is the contracts which are related to construction of roads, or other similar and related constructions in the fields. The last kind of energy contracts is the contracts about oil tankers, LNG tankers and maritime pipelines. Maritime contracts have been differentiated from other modes of commercial and transportation contracts since special rules and regulations govern them.

Part 4: Types of petroleum activities    

It should be noted that based on industry practices (which sometimes becomes incorporated into statutes) the word “petroleum” is considered as a comprehensive word, and therefor comprises both “crude oil” and “natural gas”. Generally, petroleum activities are divided into two major divisions based on the Petroleum Act of Iran passed by the parliament in 2011, which are called upstream and downstream activities. The upstream sector-related activities start with geology, topology, seismic procedures, and after that contain drilling by means of oil rigs, well services, appraisal of fields, development of crude oil/natural gas fields, production phase, processing (physical operations) on hydrocarbons, improved/enhanced oil recovery. The downstream sector comprises of but not limited to gas gathering functions, refining materials i.e. performing chemical operations on previously exploited product and turning it into different materials which are to be used in various industries, transportation of petroleum/petroleum products, trade of the mentioned materials, distribution process and petrochemical operations.

Part 5: Upstream oil contracts in Iran

Historically, in terms of upstream petroleum contracts, as one of the key contracts regarding strategic natural resources, Iran has experienced diverse types of contracts. In the early years, concession contracts were the only choice for the governments (more specifically the monarchs). And in some periods before the Islamic revolution, production sharing contracts were implemented. But after the Islamic revolution, it was the risk service contracts (including buy back contracts and more recently Iran petroleum contract which is called IPC) which became the main method to regulate the commercial relation between the state company (NIOC) and foreign parties.

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