Alireza Taghipour; Mommad Mehdi Hajian; Garshasb Khazaeni; Javad Kashani; Atefeh Taklif
Abstract
With the change in policy by the Iranian Ministry of Petroleum in 2017 to outsource the operation and maintenance of oil and gas units to the private sector, the O&M outsourcing contract framework has drawn more attention than ever.This study first explores the current state of O&M contracts, ...
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With the change in policy by the Iranian Ministry of Petroleum in 2017 to outsource the operation and maintenance of oil and gas units to the private sector, the O&M outsourcing contract framework has drawn more attention than ever.This study first explores the current state of O&M contracts, in conjunction with the laws and regulations, and wraps up that the Ministry of Petroleum has an inherent duty to comprehensively outsourcing these operations to the private sector. The next step points out that the vast majority of Operation contracts, which are always claimed as O&M contracts, are basically manpower contracts.The next step is to categorize these contracts into two categories: independent and integrated. This study divided independent categories into seven categories: Manpower, Inspection, Package-based, Indexed packages, Hybrid, and Full Coverage. In opposed to the current method of making independent O&M contracts in the oil and gas industry, the results showed that optimal O&M outsourcing takes place through integrated contracts in which the operation is a partial part of that contract. Furthermore, a review of the framework of integrated upstream contracts, particularly the Iranian Upstream Petroleum Contract (IPC), and some types of integrated downstream contracts, such as the EPC+O&M and the FIDIC DBO model, conclusively demonstrates that "Build Operation and Transfer" and "Rehabilitate, Operate, Transfer" contracts are one of the most effective methods of outsourcing these operations.Introduction In the oil and gas sector, physical assets such as refineries, pipelines, and processing plants are essential for a stable energy supply. Increasing operational costs and production demands have prompted companies to outsource maintenance to the private sector. Efficient asset management is crucial for cost optimization, safety compliance, and reducing downtime, while strategic outsourcing can mitigate risks and enhance operational efficiency. This study examines optimal contract frameworks for outsourcing, particularly in the context of Iran's recent initiatives to enhance asset value through integrated management aligned with global standards. Although previous research supports the viability of outsourcing, significant gaps remain in contract models, cost structures, and execution quality, especially regarding Operations and Maintenance (O&M) contracts in the hydrocarbon industry. This research focuses on developing optimal O&M contract frameworks for the post-feasibility privatization phase, confronting the specific confidentiality challenges of the sector.Research MethodologyThis applied-descriptive study utilized a mixed-methods approach, integrating document analysis of over 35 Operations and Maintenance (O&M) contracts, including IPC, Buyback, PPP, and BOT agreements, with in-depth interviews involving more than 30 experts from NIOC subsidiaries, Oil and Gas companies, and E&P contractors. Additionally, focus group discussions with representatives from the Ministry of Energy enriched the data collection process. For the analysis of upstream contracts, we reviewed four active IPC and two buyback agreements, while infrastructure projects were assessed using simulated ROT frameworks, such as the revitalization of Bibi Hakimeh EPC project.Results and DiscussionAs shown in Figure 1, these are divided into independent and integrated outsourcing models. Independent O&M contracts split into partial and full-scope agreements, exemplified by rotating equipment maintenance in oilfields. Full-coverage contracts encompass entire facilities through seven risk/reward tiers: a) Resource provision b) Inspection c) Package-based d) Indexed packages e) Performance-based f) Hybrid (product-service-resources) g) Phased implementation.Figure 1:O&M Contract Classification Key FindingsMajor outsourcing barriers include distrust of private sector, resistance to change, and workforce social implications.O&M contracts require customized approaches; standardized frameworks should evolve from operational experience rather than being imposed uniformly.Integrated contracts (BOT, ROT, EPC+O&M) demonstrate superior operational outcomes compared to standalone O&M agreements, particularly when operational alignment begins early.Full-scope contracts should be risk-stratified across seven implementation models (resource provision, inspection, package-based, etc.), though current practice in oil/gas sectors overly relies on labor-supply arrangements.Hybrid contract structures focusing on service procurement (vs. manpower supply) are recommended for optimal operational flexibility.ConclusionAging infrastructure and high operational costs in oil & gas processing plants, combined with limited government budgets and organizational inefficiencies, highlight the critical need for performance-based integrated models. The Rehabilitate-Operate-Transfer (ROT) approach proves particularly effective by:○ Maintaining private-sector ownership until operational transfer, creating self-regulating quality control○ Eliminating the need for complex KPIs through built-in asset preservation incentives○ Ensuring production reliability while modernizing critical facilitiesAcknowledgmentsWe thank Majid Habibi (Servak Azar), Mohammad Kazem Rajabali Pourcharmi (Ministry of Petroleum), Amir Abbas Shokourian (Rampco), and Mohammad Eghbali & Reza Mohammadi Ardehali (NIGC) for their expert insights.
