A Comparative Analysis of Accounting Procedures in Iran's Upstream Oil and Gas Contracts and the Model Accounting Guidelines of International Petroleum Associations in Joint Operating Agreements

Ebrahimi, Seyed Nasrollah; Hosseinzadeh, Ehsan; Farahzadi, Ali

doi:10.22050/pbr.2025.507347.1384

A Comparative Analysis of Accounting Procedures in Iran's Upstream Oil and Gas Contracts and the Model Accounting Guidelines of International Petroleum Associations in Joint Operating Agreements

Document Type : Original Article

Authors

seyed nasrollah Ebrahimi ¹

Ehsan Hosseinzadeh ²

Ali Farahzadi ²

¹ Associate Professor, Department of Private and Islamic Law, Faculty of Law and Political Science, University of Tehran, Tehran, Iran.

² MA. Student in Oil and Gas Law, Tehran University, Tehran, Iran.

https://doi.org/10.22050/pbr.2025.507347.1384

Abstract

One of the main challenges for the regulators of oil contracts in Iran is the financial and taxation system and the auditing procedures of oil contracts. This issue has, even after the Islamic Revolution and until today, always been one of the concerns of oil stakeholders, especially in Iran. Nowadays with the selection of the service contract format as the only approved contractual template in upstream oil operations, oil companies, acting as contractors, carry out the investment in oil operations and, if the contractual objectives are achieved, are entitled not only to the reimbursement of costs but also to receive fees. Based on the principle of “no profit, no loss” and in order to prevent the contractor from unjustly benefiting by overstating incurred expenses, the parties classify the costs and, using accounting and auditing principles, stipulate the definitions, instances, and calculations methods of the costs, and so forth. Given Iran’s growing need to conclude Joint Operating Agreements (JOAs) aimed at facilitating technology transfer through enhanced reservoir recovery by assigning operational responsibilities to an Iranian operating company while maintaining the contractor’s overall responsibility it is essential to revise and adapt Iran’s accounting and auditing procedures to align with the specific requirements of such agreements. In this regard, the model accounting procedures published by international petroleum associations can serve as effective and practical benchmarks for reform.

Highlights

Introduces new cost classification in Iran’s upstream oil contracts for transparency
Compares local accounting methods with global standards for joint operations
Enhances cost clarity via “no profit, no loss” reimbursement principles
Proposes practical solutions to curb overhead costs and auditing disputes

Keywords

Accounting Procedures

Categories of Expenses in Upstream Contracts

Financial System

Capital Expenditure

Operating Cost

Subjects

Law Studies

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