1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar

Legal impact of a possible referendum on independence for Iraq’s Kurdistan Region

On 7 June, officials in Iraq’s Kurdistan Regional Government (the KRG) announced plans to hold a referendum on independence for the northern Iraqi territory that is already semi-autonomous in practice. While holding such a referendum, let alone declaring independence, would have a range of local and international implications, this article focusses on how the process of declaring statehood might look, what impact it may have on the existing treaty-based, statutory and contractual framework for oil and gas developments in the Kurdistan Region and what purpose a referendum may serve in practice if statehood is not the KRG’s immediate goal.

Before considering these questions, it is worth noting that this is not the first time that the prospect of independence has been raised by the KRG. The President of the Kurdistan Region, Massoud Barzani, instructed members of the Kurdistan National Assembly (the KRG’s legislative arm) to begin preparations for such a vote in 2014. However, these plans were postponed following the capture of Mosul by Islamic State with the explanation that the defeat of Islamic State was the priority.

What are the main challenges to recognition as an independent state?

To be accepted as an independent state, the Kurdistan Region would have to exhibit the necessary characteristics of statehood. Article 1 of the Montevideo Convention sets out the most widely accepted formulation of the criteria of statehood in international law. It provides that the state should possess the following characteristics: a permanent population; a defined territory; a government; and the capacity to enter into relations with other states. Of these, the second and fourth may be the most challenging for the KRG.

Although fully delineated borders are not required, the greater the extent to which the approximate size and shape of the new state is uncertain, the greater the challenge a fledgling state may face in achieving recognition. This issue is particularly relevant to the Kurdistan Region. Since 2014, the Peshmerga have substantially expanded the territory controlled by KRG beyond the boundaries of the three Iraqi governorates formally constituting the Kurdistan Region under Iraq’s constitution. The KRG’s announcement contemplates the inclusion of many of these territories (Sinjar, Khaniqin, Makhmour and Kirkuk) within the scope of the referendum. Control over these territories is a sensitive topic, which was supposed to have been resolved by a referendum under Article 141 of Iraq’s constitution that has never been held, particularly in relation to Kirkuk (where both the KRG and Iraq’s federal government in Baghdad have asserted their authority to grant oil development rights).

These domestic tensions are reflected in regional ones between the Middle East’s big powers that surround the Kurdistan Region and are directly relevant to the KRG’s ability to demonstrate that it has the capacity to enter into relations with other states. While independence for the Kurdistan Region has some supporters, many other states (including all of its direct neighbours, all of whom are home to substantial Kurdish minorities) are fiercely opposed.

The Montevideo Convention’s criteria are not determinative and in reality a number of other legal and factual conditions would dictate the nature and circumstance of any Kurdish secession from Iraq. The extent to which a newly-declared independent Kurdish state would be recognised by major global powers would, of course, be of particular influence.

What would the impact be on international treaties signed by Iraq?

When a state breaks up, a “continuing state” remains a legally identical state despite changes in its territory, and continues automatically to exercise the same rights, obligations and powers under international law.  A “successor state” will not continue automatically to be bound in the same way.

It seems likely that the rest of Iraq would be the continuing state on Kurdish independence (so that its international law position remains unchanged), while a newly independent Kurdistan would be the successor state. The position of an independent Kurdistan in relation to international treaties would therefore likely to be as follows:

  • Treaties creating rights and obligations connected with territory would generally be considered to be automatically binding on an independent Kurdistan.
  • In respect of general treaties of a “law-making” nature to which any state can become a party as of right (including certain international human rights agreements, multilateral environmental agreements), an independent Kurdistan could (should it so wish) simply confirm unilaterally its intention to be bound by way of declaration to the depository of the treaty.
  • For treaties establishing international or inter-governmental organisations, or for other multilateral treaties with particular entry criteria, an independent Kurdistan would have to negotiate the terms of its membership.
  • Succession to bilateral “political” treaties (such as double taxation treaties and bilateral investment agreements) would require the agreement of the other state. This is usually done by way of an exchange of notes, but it can also be an opportunity for the other state to request re-negotiation. Given the level of foreign investment in the Kurdistan region of Iraq, the application or non-application of bilateral investment treaties should be of particular relevance.

There is also an argument to say that treaties which reflect generally accepted rules of international law bind a successor state by virtue of the concept of the acquired rights of the inhabitants of the state, although this position is less clear.

What would the impact be on applicable laws?

The bulk of law enacted by Iraq’s federal government is directly applicable in the Kurdistan Region. Where Iraqi law applies in the Kurdistan Region and there is a conflict between that legislation and a KRG law, the KRG law takes precedence, unless the law relates to an area within federal control under the Iraqi constitution. In practice, the law is the same or very similar in many areas, although there are some variations introduced through local implementing regulations. For example, the same Companies Law applies in the Kurdistan Region as the rest of Iraq but there are few restrictions in the Kurdistan Region on the transfer of shares and uses of Representative Offices.

On independence, the KRG would be required to introduce new legislation replacing the Iraqi laws that would no longer automatically apply. While we would expect this to be a fairly mechanical process in most areas, there is a risk that investors could find their position adversely affected by new legislation. That said, there are two factors mitigating this risk that international oil companies which are party to Production Sharing Contracts with the KRG benefit from.

The first of these is that the Kurdistan Oil Law already purports to repeal the application of all other existing Iraqi law, providing that:

no Federal legislation or other law, and no agreement, contract, memorandum of understanding or other Federal instrument shall have application to Petroleum Operations except with the express agreement of the Regional Government and pursuant to the provisions of this Law

In the context of petroleum laws, then, there may not be a large difference to the laws applicable in Kurdistan following independence, given that Iraqi Federal law is already expressly disapplied by Kurdish law.

The other positive is that the terms of the PSCs concluded with the KRG (which the Kurdish state should become a party to upon independence, on which see below) should also provide additional protection to investors against any adverse changes in law consequent upon succession, in the form of a stabilisation clause.

The KRG Model PSC provides at Article 43 that:

If, at any time after the Effective Date, there is any change in the legal, fiscal and/or economic framework under the Kurdistan Region Law or other Law applicable in the Kurdistan Region which detrimentally affects the Contractor, the terms and conditions of the Contract shall be altered so as to restore the Contractor to the same overall economic position as that which Contractor would have been in, had no such change in the legal, fiscal and/or economic framework occurred.

While the definitions of “Kurdistan Region Law” and “Kurdistan Region” are ultimately linked to the Kurdistan region of Iraq as recognised by the Constitution of Iraq, there would be a credible argument that the stabilisation clause would operate to prevent an adverse change in the law following independence, particularly in a situation where the laws currently in force in the KRG would continue to apply upon independence. It is important to note that stablisation provisions in some PSCs entered into more recently are more narrowly drawn so this analysis may not apply in all cases.

What would happen to existing PSCs with the KRG?

The international law doctrine of acquired rights is relevant to this question. At its simplest, the doctrine provides that private rights acquired under existing law do not cease on a change of sovereignty. In relation to property and investments in Kurdistan, this would mean that a new Kurdish state should become a party to agreements entered into with the KRG.

The principle has been consistently recognised by international tribunals and was discussed in particular in a number of cases before the Permanent Court of International Justice in the inter-war years.

There is, however, a considerable amount of uncertainty as to the extent to which the doctrine of acquired rights protects foreign nationals upon succession and some older cases do suggest that a new state may have a degree of discretion over which contractual rights and duties of the old state that it wished to respect.

It should also be noted here that there is no absolute rule to the doctrine and it does not mean that a new sovereign cannot alter or interfere with these rights. For example, expropriation of the property and investments of foreign nationals is permitted under international law, subject to certain conditions particularly with regard to compensation.

Under the doctrine of acquired rights, a party with rights under a contact with the KRG would continue to hold rights under the contract as against a new independent Kurdish state. There is a risk that the KRG could use a declaration of independence to reopen contractual provisions that it particularly objected to, which may be more relevant to some of the older and more generous PSCs, although we expect that the KRG would generally be anxious to assure investors that their contractual rights would continue to be respected.

What is really going on?

The KRG’s aspirations for independence should not be underestimated. However, the legal and, perhaps more importantly, the political hurdles it faces are significant. With this in mind, it is possible that the KRG’s short term purpose in calling a referendum on independence in the coming months is to strengthen the KRG’s hand in the negotiation of a new political settlement with Baghdad that may follow the recapture of Mosul. The two layers of government have, over the years, agreed several short-term compromises on the management of Iraq’s oil resources. The trend has generally been a movement towards increasing autonomy for the KRG. It is not unreasonable to expect that trend to continue. A solid deal could potentially unlock the Kurdistan Region’s production potential for existing and future investors, at least in the medium term. Whether that deal can be reached probably depends as much on the outcome of discussions about the position of Kirkuk (and who controls the local hydrocarbon reserves) as it does on the possibility of future independence for the Kurdistan Region.

Legal impact of a possible referendum on independence for Iraq’s Kurdistan Region

Extractives companies’ human rights records ranked in Benchmark study

Developments continue apace in human rights responsibilities for businesses. We are seeing persistent implementation of new reporting requirements across EU jurisdictions and beyond, judgments of national courts and international tribunals holding corporations to ever stricter account for their responsibilities in this area and UN negotiations continuing for a global treaty imposing binding international law obligations on businesses.  Staying ahead of the field in this area is crucial.

While the responsibilities imposed by the UN Guiding Principles on Business and Human Rights (the UNGPs) are not in themselves legally binding, governments’ expectations that companies will step up in this area have been made clear through National Action Plans, parliamentary enquiries and the introduction of “hard” legal requirements, such as under the Modern Slavery Act in the UK.

Now, the Corporate Human Rights Benchmark (CHRB) has ranked 98 of the largest publicly traded companies globally on 100 human rights indicators, focusing on the Extractives, Agricultural and Apparel industries.  These areas were specifically selected because of the high human rights risks they carry, the extent of previous work on the issue, and global economic significance.  41 Extractives companies featured.

The CHRB is a collaboration between investors and a number of business and human rights NGOs. It has emphasised this is a pilot assessment and welcomes input on the methodology used.  The study was compiled from publicly available information, with the selected companies also having the opportunity to submit information to the CHRB.  Companies were given scores for the measures they are taking across six themes, grounded in the framework of the UNGPs:

  • Governance and policy commitments.
  • Embedding respect and human rights due diligence.
  • Remedies and grievance mechanisms.
  • Performance: Company human rights practices.
  • Performance: Responses to serious allegations.
  • Transparency.

The selected companies were then banded according to their overall percentage score.  The performance-related criteria carried greater weight than the policy-based heads, with “Embedding respect and human rights due diligence” and “Company human rights practices” counting for 25% and 20% respectively.

Results skew significantly to the lower bands

There was a wide spread in the participants’ performance, with a small number of clear leaders emerging. No company scored above the 60-69% band, with only three companies falling within that band.  A further three scored 50-59% and 12 scored 40-49%.  48 companies fell within the 20-29% band.

Of the companies in the top band, two were in the Extractives sector; a further six Extractives companies fell within the 40-49% band; 19 scored 20-29% and five were found to trail at less than 19%.

The generally low scores across the three industries may be explained by the fact that the impact of some businesses’ human rights processes may still be filtering through. We should expect that in future years the authors of the survey will adopt a more stringent approach and subject low-scoring businesses to greater criticism.

Gap between policies and performance

On the whole, companies tended to perform more strongly on policy commitments, high-level governance arrangements and the early stages of due diligence. They performed less well on actions such as tracking responses to risks, assessing the effectiveness of their actions, remedying harms and undertaking specific practices linked to key industry risks.  There is often a mismatch between board level measures and their granular implementation, as well as between public responses to serious allegations and taking appropriate action.

Of the Extractives companies surveyed, only six companies scored were given a zero score for their policy commitments, whereas this was the case for 17 companies for “Embedding respect and human rights due diligence” and nine for “Company human rights practices”.

On the policy side, some Extractives companies scored points for emerging practices such as regular discussion at board level of the company’s human rights commitments, linking at least one board member’s incentives to aspects of the human rights policy, and committing not to interfere with activities of human rights defenders, even where their campaigns target the company.

In terms of implementation, some participants explained how human rights risks are integrated into their broader risk management systems, how they monitored their commitments across their global operations and business relationships, and how they had systems in place for identifying and engaging with those potentially affected by their operations.

Companies were also scored for their practices in relation to selected human rights specific to each industry. Those in which the Extractives participants featured included freedom of association and collective bargaining, health and safety, land acquisition, water and sanitation and the rights of indigenous people.

Conclusion

The significant interest in the CHRB since it began its work is unsurprising given it provides an opportunity to demonstrate commitment and progress in this area vis-à-vis competitors. The pilot methodology will be refined and ultimately the CHRB will be produced on an annual basis for the top 500 companies globally.  We expect it to contribute to the continued drive of companies across all sectors to proactively manage human rights risks in their own operations and through their expectations of their business partners.

Extractives companies’ human rights records ranked in Benchmark study

Sanctions in Energy: Russia and Iran

US and EU sanctions related to Russia and Iran have a direct and targeted impact on the energy sector. The sanctions regimes against Russia and Iran differ substantially and seem to be moving in different directions. In this article, we explore the challenges facing US and EU energy companies seeking to operate in Russia and Iran.

Brief overview of energy related sanctions against Russia

US Sanctions

Since March 2014, the US has imposed an increasingly strict set of sanctions against Russian and Ukrainian individuals and companies. These sanctions generally fall into four categories: a list of blocked persons and entities, identified as Specially Designated Nationals, or SDNs; much more limited restrictions for specified Russian banks, oil companies and technology companies, identified as a Sectoral Sanctions Identification List or SSI List; export controls; and a full commercial embargo of Crimea. These sanctions are imposed pursuant to several Executive Orders promulgated by President Obama and the Ukraine-Related Sanctions Regulations[1]. US Persons—defined as US citizens and permanent residents, entities organized under US jurisdictions, and persons physically in the United States—must comply.

The US has designated as SDNs a number of key government and military officials (both Russian and from the former Ukrainian Government), individuals with close ties to the Russian Government, and Russian and Crimean entities[2]. US Persons are generally prohibited from transacting with any of these blocked persons, and must freeze such blocked persons’ property in their possession, custody, or control. These SDNs are also banned from traveling to the US. In comparison with the SSI List, SDNs targeted inter alia leaders of the Russian oil companies.

According to SSI List and its related OFAC’s Directives, the following activities by a US Person or within the United States related to oil companies are prohibited, except to the extent provided by law or unless licensed or otherwise authorized by the Office of Foreign Assets Control: the provision, exportation, or re-exportation, directly or indirectly, of goods, services (except for financial services), or technology in support of exploration or production for deep-water, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation, or in a maritime area claimed by the Russian Federation and extending from its territory, and that involve any person determined to be subject to this Directive, its property, or its interests in property. The prohibition on the exportation of services includes, for example, drilling services, geophysical services, geological services, logistical services, management services, modeling capabilities, and mapping technologies[3]. The SSI List includes, among others, Russia’s largest energy companies.

EU sanctions

The US and EU sanctions are largely aligned. Like the US, the EU has also adopted sanctions that block persons, restrict financing, limit certain exports, and broadly prohibit trade with Crimea. EU persons—EU citizens and permanent residents, entities organized in EU member states and persons physically in the European Union—must comply.

While there are differences between the US and EU sanctions, these are more of a degree than of a kind. For example, the EU and US do not block an identical set of individuals and entities, but the implications for those blocked persons are the same: a visa ban (for individuals) and a freezing of all assets[4]. Notably for EU companies in the energy sector, EU sanctions prohibit the provision of loans or investment services to Crimean companies, ban exports of goods and technology and prohibit the provision of technical assistance, brokering, construction, or engineering services, in the energy sector and in the prospecting for, and exploration and production of oil, gas, and mineral resources, to any Crimean entity, or for use in Crimea. Contracts signed prior to 20 September 2014 are exempted[5].

Brief overview of energy related sanctions against Iran

On 14 July 2015, the “P5+1” working group (China, France, Germany, Russia, the UK and the US) reached a landmark agreement with the Government of Iran to adopt the Joint Comprehensive Plan of Action (the JCPOA). Under the JCPOA, the P5+1 agreed to implement broad UN, US and EU sanctions relief in exchange for Iran’s ongoing compliance with a number of nuclear-related measures. This sanctions relief will occur in two phases: (1) when the International Atomic Energy Agency (the IAEA) verifies Iran’s compliance with nuclear-related measures, which occurred on 16 January 2016; and (2) when the IAEA, together with the UN Security Council, confirms that Iran’s nuclear materials are being used for peaceful activities, or 18 October 2023, whichever is sooner[6].

US Sanctions

Most of the US sanctions that are suspended—both in the first and second phases—are extraterritorial, i.e., they apply to non-US Persons who do business with Iran. US companies seeking to engage the Iranian market, therefore, need to be aware of the limits of US sanctions relief under the JCPOA, namely:

1. US Persons generally remain prohibited from doing business with Iran. The JCPOA will not lift the general commercial embargo which prohibits US Persons from doing business with Iran, except for certain sales of civilian commercial aircraft to Iran, imports of Iranian-origin carpets and foodstuffs.
2. US companies’ overseas subsidiaries will be licensed to transact with Iran under OFAC’s General License H. The JCPOA will license overseas subsidiaries of US entities for activities consistent with the agreement. However, the licensing methodology and the definition of “overseas subsidiaries” are not described and remain to be clarified.
3. Other US sanctions including those related to counter-terrorism or human rights-related sanctions asserting extraterritorial application[7] will remain in place.
4. On 7 October 2016, OFAC issued updated guidance on several issues. The issues addressed include banking transactions with Iranian banks; dollar-denominated transactions; acceptable due diligence standards; and part-ownership of Iranian companies by entities who remain on the SDN list[8].

With regard to Iran’s vast oil and gas reserves, the first phase of relief will mean the US will no longer sanction non-US Persons who engage in transactions with Iran’s energy, shipping and shipbuilding sectors, or port operations[9]. Nor will the US any longer sanction non-US persons who invest in Iran’s oil, gas and petrochemical sectors; purchase, sell, transport, or market oil, gas and petrochemicals from Iran; export, sell or provide refined petroleum products and petrochemical products to Iran; or otherwise transact with Iran’s energy sector including Naftiran Intertrade Company, National Iranian Oil Company and National Iranian Tanker Company, and associated services[10]. Non-nuclear-related sanctions still remain in place on all companies and persons, regardless of nationality, who seek to do business with any Iranian people or entities which remain on the SDN List.

EU sanctions

EU sanctions relief is far more expansive. Unlike the US, the EU will allow its companies to invest directly in Iran and transact with Iranian persons. EU member states have agreed to terminate or suspend all “economic and financial sanctions” against Iran[11]. As a result of the first phase of sanctions relief under the JCPOA, EU persons are permitted to trade in Iranian crude oil and petroleum products, natural gas and petrochemical products, as well as related financing. Similarly, the sale, supply or transfer of equipment and technology, as well as the provision of technical assistance and training in this sector are permitted. In addition, EU Persons are free to grant financial loans or credit and to participate in joint ventures with any Iranian persons engaged in the oil, gas and petrochemical sectors in Iran or elsewhere.

Implications for energy companies

While the US and EU have both imposed a number of sanctions on Russia that aim directly to constrain investment in Russia’s energy sector—and in particular its future oil development—there are a number of reasons why Russia’s energy sector may possibly continue to attract US and European investment.

To begin with, US and EU sanctions are (thus far) narrowly targeted. Unless specifically prohibited, Russia’s economy, including its energy sector, is fully open to investment. Second, the sanctions against Russia could be lifted, if the situation in Eastern Ukraine and Crimea develops in certain directions. Finally, US and EU companies are more familiar with Russia and Russian business practices in comparison to Iran, a country where numerous other compliance and other business risks are encountered.

During the first phase of sanctions relief under the JCPOA, which began on 16 January 2016, EU energy companies and the overseas subsidiaries (again yet to be defined) of US energy companies will now have the opportunity to engage Iran’s vastly underdeveloped energy sector. It is estimated that the country will need hundreds of billions of dollars of investment to restore its petroleum fields and then further develop them. EU and the overseas subsidiaries of US companies seeking to engage Iran should therefore be prepared to understand and implement an updated sanctions compliance program that ensures they do not inadvertently risk breach of the ongoing EU and US sanctions. These companies will need to also actively monitor Iran’s compliance as determined by the IAEA and the JCPOA Committee, as a breach may trigger a mandatory wind-down and withdrawal.

The same is not true with regard to the remaining US sanctions against Iran, for example, which would require approval by the US Congress. Moreover, critically, the JCPOA provides for UN, US and EU sanctions to “snapback.” This means that while many companies may now be allowed to invest in Iran, they will face the prospect of having to wind down their operations in the event that Iran is found to have breached the JCPOA[12].

“We note that other countries, including Canada, also continue to maintain sanctions against Iran that go beyond the limited sanctions imposed by the UN. To the extent there is any connection to such other countries in particular transactions, country-specific sanctions compliance advice should also be sought.”


[1]31 CFR Part 589.
[2]Executive Orders of the President of the US on “Blocking Property of Certain Persons Contributing to the Situation in Ukraine,” No 13660 dated 6 March, 2014 and No 13661 as of 19 March 2014 “Blocking Property of Additional Persons Contributing to the Situation in Ukraine,” Section 1, 19 December 2014. As a result of blocking sanctions, all property and interests of designated persons which are within (or may come into) the possession and control of any US individual or entity (which extends to a foreign branch of a US entity) are blocked, and an entry into the US of designated persons is suspended.
[3]Directive 4 under Executive Order 13662 of the Office of Foreign Assets Control as of 12 September 2014.
[4]The Council of the European Union, giving force to its Decision 2014/145/CFSP authorizing travel restrictions and the freezing of funds and economic resources of certain individuals believed to have been responsible for actions “which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine“ (“designated individuals”), adopted Council Regulation (EU) No. 269/2014 of 17 March 2014.
[5]US and EU embargo Crimea, and US adopts new Ukraine sanctions law, 29 December 2014.
[6]The second phase of sanctions relief is eight years after “Adoption Day,” defined as 18 October 2015. See http://www.state.gov/secretary/remarks/2015/10/248311.htm
[7]Executive Order of the President of the US on “Blocking the Property and Suspending Entry Into the United States of Certain Persons With Respect to Grave Human Rights Abuses by the Governments of Iran and Syria via Information Technology” No. 13606 dated 22 April 2012.
[8]https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20161007_33.aspx
[9]Iran Freedom and Counter-Proliferation Act as of 2012, Section 1244(c)(1),(d).
[10]President Obama directs key US agencies to prepare for sanctions waivers under the JCPOA, 21 October 2015 and The Joint Comprehensive Plan of Action: A First Look, 17 July 2015.
[11]In the second step, on Transition Day, the EU will seek to terminate the sanctions suspended in the first step and terminate EU proliferation-related sanctions. As such, EU proliferation-related sanctions, among some other measures, will remain in place for eight years after Implementation Day.
[12]Special thanks to former Managing Associate of Dentons US LLP, Mr. Kenyon Weaver, for his contribution to this article.
Sanctions in Energy: Russia and Iran

Iran Issues Pre-qualification for Upstream Tenders

Iran is said to be targeting an increase in oil production from 3.85 to 4 million barrels per day by the end of 2016. Iran is also hoping to start export of a new heavy oil, called West Karun, and which is expected to compete with Iraq’s Basra Heavy crude, which has gained a significant market with US and Asian refiners since its launch in 2015.

Iran’s new upstream contract, the Iran Petroleum Contract (IPC), was delayed by parliamentary amendments but is now scheduled for launch in January 2017. The State-owned National Iranian Oil Company (NIOC) has already signed up an IPC with local firm, Persia Oil and Gas Development Company, which is one of eight Iranian contractors authorised to team up with international joint venture partners. Whilst Iran’s production costs may be rock bottom, foreign investment (and currently foreign exchange) is needed to deliver scale and speed of development.

NIOC (on behalf of Iran’s Ministry of Petroleum) has published its “Pre-qualification Questionnaire for Exploration and Production Oil and Gas Companies,” to be completed by 19.11.16 in order for NIOC to publish a “Long List” of qualified applicants on 7.12.16. This list is intended to be valid for two years as a pre-requisite for participating in upstream tenders. NIOC intends to then invite a short-list of qualified applicants from the long list, depending on project type (Short List).

Long List applicants will be scored according to typical technical and financial criteria but with some additional emphasis seemingly echoing NIOC’s objectives, including “scale” and “internationality”. The greatest score (25%) is allocated under the heading “Reliability” to credit ratings. Whilst it seems unusual to delegate financial capability diligence simply to reliance on a third party credit rating agencies, it does reduce the internal resources needed to sift financial data. That said, a number of those with credit ratings (and by definition, public equity or debt) may not yet have the appetite for Iranian investments, whilst those privately funded entrepreneurs and companies with strong balance sheets, may not seemingly participate, assuming that NIOC doesn’t choose to deal with non-compliant applicants.

“Scale” is assessed in terms of production rates and wells drilled over the last three years, with technical capability assessed over the same period and broken down into experience type including conventional and fractured operations, and improved and enhanced oil recovery. Choosing the last three years of oil pricing where some operations may be moth-balled etc. may be significant, but given that it is unclear as to how applicants may be assessed competitively, this is perhaps academic, provided a minimum threshold is demonstrated.

“Internationality” is judged against an “applicant’s headquarters’ business and/or registration place” which is seemingly designed to allow some flexibility to avoid being disadvantaged by a tax headquarters and otherwise to make the best of an organisation’s international operations, and possibly from more than one headquarters, if one takes a literal interpretation of the punctuation.

For the purposes of the Short List, applicants are “requested” to specify their “priorities and interested fields” and whether they wish to act as operator or non-operator. This clearly allows room for judgement versus competitors as to whether applicants would wish to share their commercial position at the outset.

It seems likely that most of the credit-rated applicants who would qualify, are already known to NIOC / have registered their interest more or less formally. The collation of extra data should enable NIOC to take into account preferences, but to grade applicants and to allocate tender opportunities in a manner perceived as transparent and which tends to avoid the dominance of any particular constituencies. Whilst the application of such process could be regarded as a short-term disincentive to some with an incumbent position, it could also be used to justify the favouring of incumbents, safe in the knowledge that the market was tested first. Otherwise, such process is likely to be regarded more generally as a welcome codification of what is expected to be a hotly-contested new market for lower cost developments.

, , , , , , , , ,

Iran Issues Pre-qualification for Upstream Tenders