Concept and Legal Effects of Commercialization of Oil and Gas Fields

Commercialization of oil and gas fields is the connecting link between the exploration stage and development and production, and the final part of the contractor's risk. Proving it leads to the continuation of the contract and reimbursement of the investment, and failure to prove it leads to the end of the contract without reimbursement of expenses. Ambiguity in the concept of commercialization and its similarity with similar concepts, such as the commerciality of the field or commercial production, can be the source of future disputes. The relativity of the concept of commercialization with regard to internal and common fields, oil and gas fields, and on-shore and off-shore fields increases this ambiguity. Therefore, it is necessary to provide a comprehensive, clear and practical definition of field commercialization and its criteria. In addition to proving the technical and economic criteria, the commercialization process of the field requires compliance with formalities. Fulfillment of this technical and economic condition with the proper observance of the formalities has many legal effects which definitely affect the interests and obligations of the parties. This article is written with a descriptive and analytical approach in order to understand the concept and legal effects of commercialization of oil and gas fields. What are the criteria for the commercialization of the field and what are its effects is the main question of the research. The hypothesis of the authors is that commercialization is a relative concept and its criteria are different according to the time and place conditions of each country and from the point of view of the host government and the investor. Considering that no article has been written on this topic so far, the purpose of this research is to investigate and conclude the concept, criteria, formalities and effects of field commercialization with the approach of supporting national interests and localization within the framework of the oil and gas law in Iran. One of the important results of this research is the separation between commercial wells, commerciality of the field, commercialization of the field, production and commercial supply. The commercialization of oil and gas fields has many effects on the rights and obligations of the parties. Including it is possible to determine the period of exploration, development and production, reimbursement of investment and its rate, relinquishment of the contracted area, delivery of the field to the host government in some contracts, conclusion of oil sales contract, the offer of proposed Appraisal Program by IOC and making decision for the participation of the host government in oil operations.