New Iran's Petroleum Contract “IPC” in comparison with Buy-back and Production Sharing Agreement

Iran's Petroleum Contract “IPC” as a risk service contract, contains some important improvements and features in order to attract foreign investments and know-how to the long-standing oil industry of Iran. However, the views of international oil companies (“IOC”) towards contractual regimes in the oil sector show that they are often not eager to enter into the risk service-prone contracts and therefore, IPC is another alternative and a new opportunity for IOCs to invest in the oil industry in Iran, as compared with Production Sharing Agreement (PSA) and modern concessions. According to the current laws and regulations, adopting PSA in Iran's oil industry is not strictly forbidden from legal point of view. Therefore, using a well-designed PSA, at least for some high risk and cost regions, may ensure the balance of interests between National Iranian Oil Company (“NIOC”) and foreign oil companies, without disrupting the existing IPC's framework. Thus, through JCPOA and removal of the sanctions, the Iranian authorities in the oil industry should be prepared to take more flexible and favorable attitude towards the petroleum contracts in Iran for the benefit of the country in compliance with the applicable laws and regulations. • IPC is a risk service contract that, rather than Buy-backs, has made many improvements to attract oil companies to Iran's long-standing oil industry but is still insufficient to meaningfully alter the pace of foreign investment into the upstream oil industry of Iran compared to common internationally used contract in the world. • International Oil Companies (“IOC”) have raised several objections on various aspects of the IPC claiming that these aspects diminish commercial attractiveness of this model like, inter alia, reserve booking, local content, recovery and payment ceiling, JMC, contractor rather than a partner. • The views of IOCs towards contractual regimes in the oil sector show that they are often not eager to enter into the risk service-prone contracts and therefore, IPC is another alternative and a new opportunity for IOCs to invest in the oil industry in Iran, as compared with Production Sharing Agreement (PSA) and modern concessions. • According to the current laws and regulations, adopting PSA in Iran's oil industry is not strictly forbidden from legal point of view. • Through JCPOA and removal of the sanctions, the Iranian authorities in the oil industry should be prepared to take more flexible and favorable attitude towards the petroleum contracts in Iran for the benefit of the country in compliance with the applicable laws and regulations.