Legal Challenges of Using Production Sharing Contracts in the Iranian Oil and Gas Industry

According to the part III, paragraph "d" of Article 3 of the Duties and Powers of the Ministry of Petroleum Act approved in 1391, to attract domestic and foreign investments for development of hydrocarbon fields with the priority of shared fields through the design of new models, including partnership with local and foreign investors and contractors, without transferring ownership of oil and gas reservoirs and production standards have been considered as parts of duties and powers of Ministry of Petroleum. The evolution of upstream contracts in oil and gas industry shows that participation has four main forms: production sharing agreements (contracts) (PSA/C), profit sharing agreements, joint venture contracts (JVC) and join operation agreements (JOA). So the word (participation) which has been used in the Duties and Powers of the Ministry of Petroleum Act does not tell us which kind of participation is intended. Moreover, if we assume this word refers to production sharing, it will have contradiction with the illegality of transfer of ownership of oil and gas in reservoirs because the ownership of reservoirs is indirectly transferred to the foreign petroleum company through ownership of production over the wellhead or delivery points or exporting point. Moreover, it contradicts other rules such as the article 3 of amendment of petroleum law approved in 1390 and article 129 of Fifth Five Year Plan as well.