New Petroleum Contracts Producing more than Oil

Third, based on Article 3, Section 3 of Iran Petroleum Contract, while contractor operations to extract oil and gas do not create a right of ownership for the contractor, the Oil Ministry covers the contractor’s expenses from two sources: a maximum 50% amount of the extracted commodity (not what is inside the reservoir) and from the revenue generated by selling the commodity in the market, based on the commodity spot price. However, the same described methods of remuneration do not apply to paying the fee to the contractor.

The fee, which is a reward for each barrel of produced oil or each 1,000 cubic meters of natural gas in excess of the agreed-upon depletion base line, is provided through either cash or delivering commodities or a combination of both. This is to encourage the contractor to expand improved oil recovery procedures and enhanced oil recovery techniques that are crucial for maximizing the amount of extracted oil and gas from fields.

Thus, the question is: Could delivering oil or gas to the contractor be a violation of the laws prohibiting the government from sharing ownership of anfal with foreigners?

The answer is simple. Delivery of oil or gas to the contractor in return for the contractor’s services is no different than the Oil Ministry selling the merchandise on the market and paying the contactor from the revenue of that transaction. This is remuneration and not an automatic right of ownership for the contractor as a result of its operations. Therefore, the argument that Iran Petroleum Contract makes the foreign contractor the owner of anfal has no legal basis, since under no circumstances can the contractor claim ownership while getting paid either in the form of cash or commodities by the Oil Ministry.

Regardless of the legal debate, it can be expected that the war of words between the government and Iran Petroleum Contract critics, and particularly those in parliament, will intensify as Iran’s political environment is heating up ahead of the upcoming legislative and Assembly of Experts elections.

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