Journal of Research and Development in Comparative Law

Journal of Research and Development in Comparative Law

Farmout of all or part of the concession (working interests) of an upstream oil and gas contract (Comparative study of Iranian and international legal systems)

Articles in Press

Document Type : scientific research paper

Authors
Alireza Soori 1
Hamid Reza Nikbakht 2
1 Shahid Beheshti University
2 shahid beheshti university
10.22034/law.2025.2068510.1687
Abstract
In the oil and gas industry of many countries, one of the most common methods used for exploration, drilling, production, exploitation or increasing the exploitation rate, as well as partial investment, is the farmout of all or part of the benefits of the main contract operation to a third party (usually specialized oil companies or domestic or foreign retail investors). The farmout of interests in exchange for performing operations or activities specified in an upstream oil and gas contract, or providing capital, is in the form of an agreement between the farmor (main contractor or owner of interests) and the farmee (sub-contractor or investor). Although this type of farmout is common in most oil-rich countries, in Iran, despite the oil and gas industry's urgent need for it to provide financial resources and related technology, it has not been popular with the industry due to its cultural, historical-political background, and the existence of legal obstacles in the upstream area of the oil and gas industry. While the method of farmout of interests has features that make it more suitable and more acceptable compared to other conventional methods of transferring rights and contracts, such as outsourcing, sale, lease, partnership, shareholding, or assignment of contract that may be considered. However, examining the laws and patterns of upstream oil contracts reveals Traditionally challenges such as impossibility of farmout the exploitation sector due to the prohibition of obtaining the possession of oil fields and their reserves, The legislator's approach in the recent oil industry law (Law on Duties and Authorities of the Ministry of Petroleum, approved in 2012) as well as the decree of General Conditions, Structure and Model of Upstream Oil and Gas Contracts approved by the Council of Ministers in 2016 (IPC) and its amendment approved in 2023, has made the acceptance of farmout agreements clearer and easier by observing certain considerations, and this attitude is considered a positive development and evolution.

Accordingly, this article examines the possibility and manner of farmout the benefits and activities of an upstream oil and gas contract to the farmee through a farmout agreement.
Keywords
Farmout of working interests
Oil and gas upstream contract
Decree of general conditions stracture and contracts model
farmor
farmee

Subjects

  1. Ahmadnejad, Mansour, Zainal-Abedin, Mustafa, Afshar, Ehsan, 2018, An Introduction to Outsourcing Contracts in the Iranian Oil Industry, Scientific Journal of Oil and Gas Exploration and Production, 154, 37. (In persian)
  2. alijani, M. and Joneydi, L. (2020). Risk Allocation in Contracts of Public Private Partnership. Journal of Research and Development in Comparative Law, 3(8), 93-118. doi: 10.22034/law.2021.521769.1023. (In persian)
  3. Amani, Masoud, 2014, International Oil Contract Law, 2nd edition, Tehran, Imam Sadigh University Press. (In persian)
  4. Brister, Austin, 2014, Farmout Agreement: the Basics, Negotiations and Motivation, Oil and Gas Law Digest, Farmout Definition Investopedia, 19.
  5. Claude Duval, Honore Le Leuch, Andre Pertuzio, 2011, International Petroleum Exploration and Exploitation Agreements, Legal and Economic Aspects.
  6. J. Derrick, 2009, Farm-outs, in Geoffrey Picton-Turbervill (ed.), Oil and Gas: A Practical Handbook.
  7. Derakhshan, Masoud, 2014, Oil contracts from the perspective of sustainable production and increased production: A resistance economy approach, Bi-Quarterly Scientific Research Journal of Islamic Economic Studies, 2, 9. (In persian)
  8. Ebrahimi, S. N. and Eini, M. (2018). The Freedom of Contract Principle and Its Limitations in Upstream Oil Contracts Based on TEFCEL Model. Journal of Research and Development in Comparative Law, 1(1), 11-49. doi: 10.22034/law.2018.239491. (In persian)
  9. Ebrahimi, Seyed Nasrallah and Ghasemi, Saeideh, 2019, Legal-contractual requirements for maximum use of domestic production and service capacity in upstream oil and gas industry projects, first edition, Tehran, Tehran University Press. (In persian)
  10. Ebrahimi, Seyed Nasrallah and Kohannejad, Ruhollah, 2016, Legal challenges of using partnership contracts in oil and gas industry production, Strategy Quarterly, 79, 14. (In persian)
  11. Eduardo G. Pereira, Madeleine J. Lewis, 2017, Conditions Precedent in Farmout Agreements – An Overview, College of Law Qatar University, 3, 282.
  12. Haddad, Javad and Hosseinzadeh, Hamid, 2016, Similar Contracts for Construction, Consulting, Investment (National, Transnational, International), First Edition, Tehran, Dadgostar Publishing. (In persian)
  13. Hemingway, Richard W., 1985, the Farmout Agreement: A Story Short but Not Always Sweet. Natural Resources & Environment, 2, 52.
  14. Idzik, Benjamin, 2022, the Trouble with Farmouts: The Problem of the Innocent, Nonperforming Farmee, Catholic University Law Review, 71, 830.
  15. Katouzian, Amir Naser, 2015, Civil Law in the Current Legal System, 26th edition, Tehran, Mizan Publications. (In persian)
  16. Katouzian, Amir Naser, 2016, Introductory Course in Civil Law, Lessons from Certain Contracts, 25th edition, Tehran, Ganj Danesh Publications. (In persian)
  17. Kendor P., Jones, 2014, Something Old, Something New: The Evolving Farmout Agreement, Washburn Law Journal, 477-478.
  18. Khodaverdi, Ruhollah and Zohreh Bojnourdi, Ehsan, 2010, Outsourcing Strategy; Benefits, Problems and Challenges, Specialized Quarterly Journal of Parks and Growth Centers, 25, 3. (In persian)
  19. Iranpour, Farhad, 2014, Legal Analysis of Oil Contracts, First Edition, Tehran, Rokhdad Nou Publications. (In persian)
  20. Lowe, John, 1999, Recent Significant Cases Affecting Farmout Agreements, 50th Oil and Gas Institute, Matthew Bender, 1999, SMU Dedman School of Law Legal Studies Research, 298.
  21. Moghadam, Isa, 2007, Contract Transfer, Law Quarterly, Journal of the Faculty of Law and Political Sciences, 4, 4-2. (In persian)
  22. Mousavi, Seyed Hassan, 2019, Legal analysis of the service contract model in the upstream sector of the Iranian oil and gas industry, with emphasis on the new IPC contract model, Ganj Danesh Publications. (In persian)
  23. Movahed, Mohammad Ali, 1997, Oil contracts after a 20-year delay, Energy Economics, 3, 7. (In persian)
  24. Nikbakht, Hamid Reza and Arian, Mohammad, 2014, Designing new contractual models for the development of Iran's hydrocarbon fields: A review and critique of the new law of the Ministry of Oil, Legal Research Quarterly, 71, 29-1. (In persian)
  25. Nikbakht feyni, H. , Asadolahnejad ranjbar, A. and Maqsoul Gharehbagh, M. (2025). FIDIC Dispute Board Model as an Effective Mechanism for Resolving Disputes in Contracting Agreements. Research and Development in Public Law, 1(2), 398-438. doi: 10.22034/jrpl.2025.2047346.1125. (In persian)
  26. Nikbakht, Hamid Reza, Bagheri, Mahmoud, Ghorbani, Elahe, 2018, Comparative study of the contractual framework of cross-selling and the Iranian Petroleum Contract (IPC) regarding property rights, recognition of reserves and financial regime, Energy Law Studies, 2, 11. (In persian)
  27. Nikbakht, Hamid Reza and Mousavi, Seyed Hassan, 2015, Principles and Structure of the New Model of Iranian Oil Contracts, Quarterly Journal of Legal Research, 72, 27. (In persian)
  28. Nikbakht, Hamid Reza and Mousavi, Seyed Hassan, 2014, General conditions, structure and model of upstream oil and gas contracts (legal review of the amendments made in the Cabinet Resolution), Quarterly Journal of Legal Research, 82, 16. (In persian)
  29. Pereira G. E., Lewis J. M., 2017, Conditions Precedent in Farmout Agreements – An Overview, International Review of Law, 3, 6.
  30. Sattariasmaroud, Hatef, Shiravi, Abdolhossein, 2024, Explanation and Analysis of Farm-Out Agreement and Feasibility of Exploiting it in Upstream Oil and Gas Contracts in Iran, Petroleum Business Review, 8, 45.
  31. Shirvi, Abdolhossein, 1402, Oil and Gas Law, 6th edition, Tehran, Mizan Publications. (In persian)
  32. Shokoohi, Mohammad Reza, Soleimani, Mahsa, Sheikh Nejad Moghaddam, Rasoul, Katabi, Ayeh, 2016, Comparative comparison of the efficiency of the financial regime of mutual sales contracts and modern Iranian oil contracts, Iranian Energy Economics Research Journal, 20, 21. (In persian)
  33. Taghipour, Alireza, Hajian, Mohammad Mehdi, Khazaini, Garshasb, Kashani, Javad, Tklif, Atefeh, 2019, Operation, Maintenance and Repair (O&M) Contracts in the Iranian Oil and Gas Industry, Iranian Energy Economics Research Journal, 45, 8. (In persian)
Journal of Research and Development in Comparative Law

Articles in Press, Accepted Manuscript
Available Online from 02 September 2025