Feasibility of Contract Termination in Case of Economic Imbalance in Upstream Oil and Gas Contracts

Abstract

Upstream oil and gas contracts are among the most significant contracts, encompassing technical, economic, and other aspects. Their long-term and continuous nature, the necessity of substantial expenditures, the uncertainty of reservoir and market behavior, high risks and uncertainties, complexity, and multidimensional nature of the contracted commodity, along with the involvement of multiple private, state, and multinational actors, all contribute to increasing the risks associated with these contracts. The occurrence of unforeseen events may lead to changes and economic imbalance in the contract. The aim of this study is to assess the feasibility of contract termination and its consequences in cases of economic imbalance. This research is conducted using a descriptive-analytical method. Findings indicate that in oil contracts, the grounds for termination by the contractor or partner and the host government or the national oil company are specified separately. In these cases, the termination rights of the state party far exceed those of the foreign investor. The foreign investor, having made significant investments in the project, is generally unwilling to terminate the contract and bear its heavy consequences. Consequently, after the termination of the contract, the relationships, rights, and obligations of the parties do not completely cease, and the parties remain obligated to fulfill their duties even after the contract’s termination in accordance with the contract terms and industry customs.