Energy, Oil & Gas Law

Energy, Oil & Gas Law in Pakistan

An energy project is rarely governed by a single agreement or regulator.

A gas supply arrangement can involve licensing, transportation, pricing and infrastructure issues. An upstream petroleum project may involve exploration rights, concessions, government approvals, environmental obligations, contractors and joint venture arrangements. An LNG transaction can combine import, terminal, storage, regasification, pipeline and supply arrangements.

The commercial documents have to work within that regulatory structure.

Sindh Lawyer provides legal support for energy, oil and gas matters in Pakistan, including regulatory advice, petroleum projects, natural gas, LNG and LPG matters, energy contracts, licences, infrastructure projects, joint ventures, project development and energy-sector disputes.

We work from the transaction outward: first understanding what the project does, who owns it, what is being supplied or transported, which regulator has jurisdiction and where the commercial risk sits.

The Regulatory Structure Matters Before the Contract

In ordinary commercial work, parties often begin with the contract.

Energy projects frequently require the opposite approach.

Before negotiating the commercial arrangement, it may be necessary to establish:

• whether the activity is regulated;
• what licence or authorization is required;
• which regulator or government department has jurisdiction;
• whether infrastructure approvals are necessary;
• how the product may be transported or sold;
• whether tariff or pricing regulation applies;
• what technical standards govern the activity; and
• what environmental or other approvals are required.

OGRA states that its regulatory jurisdiction covers licensed activities across the natural gas, CNG, LPG, LNG and oil sectors, including activities involving pipelines, transmission and distribution, storage, refineries and marketing of petroleum products.

This makes regulatory due diligence an important part of an energy transaction.

Oil & Petroleum Sector Matters

The petroleum supply chain can involve substantially different businesses.

An upstream exploration company does not face the same legal issues as an oil marketing company, refinery, storage operator or petroleum transporter.

Depending on the project, legal work may concern:

exploration and production;

petroleum concessions;

refining;

storage;

transportation;

pipelines;

distribution;

marketing;

supply arrangements; or

petroleum infrastructure.

The legal structure should therefore follow the client's position within the petroleum value chain rather than treating “oil and gas” as one activity.

Upstream Petroleum & Exploration

Exploration and production projects begin with rights to explore for and develop petroleum resources.

Pakistan's longstanding statutory foundation includes the Regulation of Mines and Oil-fields and Mineral Development (Government Control) Act, 1948, which provides for government control over matters connected with mines, oil-fields and mineral development.

Upstream work can involve:

• petroleum exploration rights;
• concessions;
• licences;
• government agreements;
• development arrangements;
• operatorship;
• participating interests;
• assignments;
• joint ventures;
• drilling and field services;
• production arrangements; and
• regulatory approvals.

These transactions require the underlying petroleum right and contractual structure to be considered together.

Petroleum Concessions & Government Approvals

Rights connected with petroleum exploration or development can involve interaction with the relevant federal petroleum authorities.

A proposed acquisition, assignment, restructuring or participation arrangement should therefore be reviewed not only as a commercial transaction but also for any approval or regulatory consequence affecting the underlying petroleum interest.

The commercial agreement should not promise a transfer that cannot legally take effect without required governmental approval.

Joint Operating Agreements

Oil and gas projects frequently involve multiple participants sharing interests in an exploration or production project.

A Joint Operating Agreement can determine how those participants work together.

Important provisions may concern:

• operator appointment;
• participating interests;
• work programmes;
• budgets;
• cash calls;
• voting;
• authorization for expenditure;
• procurement;
• default;
• sole-risk operations;
• information;
• lifting or production arrangements;
• liability;
• insurance;
• assignment; and
• dispute resolution.

Small drafting differences in these provisions can have significant financial consequences over the life of a field.

Farm-In, Farm-Out & Petroleum Interest Transactions

Energy companies may enter or exit petroleum projects through transactions involving participating interests.

These arrangements may require examination of:

• interest being acquired;
• consideration;
• work commitments;
• historic liabilities;
• abandonment obligations;
• government approval;
• operator consent;
• partner rights;
• conditions precedent;
• warranties; and
• completion mechanics.

Due diligence should cover both the asset and the legal rights through which the asset is held.

Natural Gas Regulation

Pakistan's natural gas sector operates within an OGRA licensing framework.

OGRA's current natural-gas licensing checklist identifies regulated licence categories including:

• sale of natural gas;
• sale of RLNG;
• sale of flare gas;
• transmission of natural gas; and
• distribution of natural gas. 

This distinction matters.

Buying gas for industrial use is legally different from developing infrastructure or undertaking an activity requiring a regulatory licence.

Before structuring a gas project, the proposed activity should therefore be mapped against the applicable regulatory category.

Natural Gas Supply Agreements

A long-term gas supply relationship needs more than a price and quantity.

Depending on the transaction, a gas supply agreement may need to address:

• contracted quantity;
• nominations;
• delivery point;
• gas specifications;
• pressure;
• measurement;
• allocation;
• price;
• invoicing;
• payment security;
• interruption;
• shortfall;
• take-or-pay arrangements;
• force majeure;
• change in law;
• taxes;
• term;
• termination; and
• dispute resolution.

The agreement must also reflect the physical reality of how gas reaches the customer.

A contractual delivery obligation that does not match pipeline capacity or regulatory arrangements can create disputes even when the drafting appears commercially attractive.

LNG & RLNG Projects

LNG transactions involve several stages between the original gas supply and the end consumer.

Depending on the project, the legal structure can involve:

LNG procurement → shipping → terminal → storage → regasification → pipeline → RLNG sale

Each stage can have separate counterparties, risks and regulatory requirements.

Legal work may therefore involve:

• LNG sale and purchase agreements;
• terminal-use arrangements;
• regasification arrangements;
• capacity arrangements;
• RLNG supply;
• transportation;
• storage;
• infrastructure;
• licensing; and
• project agreements.

OGRA expressly includes LNG and RLNG activities within its regulatory framework.

LPG Business & Regulation

LPG projects can involve production, storage, transportation, distribution and marketing.

The contractual framework may include:

• LPG supply;
• storage arrangements;
• transportation;
• distributor agreements;
• dealer arrangements;
• facility agreements;
• equipment;
• insurance;
• safety obligations; and
• regulatory compliance.

Because LPG is a regulated energy product with safety implications, contractual rights cannot be considered independently of applicable licensing and technical requirements.

CNG Sector Matters

CNG businesses operate within another regulated part of Pakistan's gas sector.

Legal issues may concern:

• licences;
• site arrangements;
• supply;
• equipment;
• regulatory compliance;
• transfer or restructuring;
• contractual disputes; and
• regulatory proceedings.

OGRA identifies CNG among the regulated activities for which it exercises licensing and technical oversight.

Oil Marketing & Petroleum Products

The downstream oil sector presents a different set of legal issues.

Oil-sector work may involve:

• marketing;
• storage;
• transportation;
• terminals;
• retail arrangements;
• supply contracts;
• dealer agreements;
• infrastructure;
• product specifications;
• licensing; and
• regulatory compliance.

OGRA states that its oil-sector functions include regulated activities involving refineries, storage, lube-oil blending and marketing of petroleum products, together with technical standards and other regulatory functions.

Refinery & Storage Projects

Refinery and petroleum-storage projects combine regulatory and infrastructure concerns with major commercial commitments.

Before construction or acquisition, legal due diligence may need to examine:

• project company;
• land rights;
• licence position;
• approvals;
• environmental matters;
• feedstock arrangements;
• storage capacity;
• product offtake;
• construction contracts;
• financing;
• insurance; and
• long-term operational agreements.

The sequence matters.

Committing substantial capital before confirming whether the site and proposed activity can obtain the necessary approvals can create avoidable project risk.

Pipelines & Energy Infrastructure

A pipeline is both physical infrastructure and part of a regulated commercial system.

Pipeline projects can raise issues involving:

• route and land;
• rights of way;
• construction;
• transmission;
• access;
• capacity;
• metering;
• operation and maintenance;
• safety;
• environmental obligations;
• tariffs;
• third-party arrangements; and
• regulatory approvals.

OGRA's regulatory functions expressly extend to pipeline construction and natural-gas transmission and distribution networks.

Land, Right-of-Way & Project Sites

Energy infrastructure depends on physical access to land.

A project may require legal arrangements for:

• acquisition;
• lease;
• easements;
• right of way;
• access roads;
• pipeline corridors;
• utility connections;
• temporary construction access; or
• project facilities.

Title and access should be investigated early.

An engineering design can become commercially unusable if the project does not have adequate legal rights over the land through which the infrastructure must pass.

EPC & Construction Contracts

Large energy projects commonly require engineering, procurement and construction arrangements.

An EPC contract may address:

• scope;
• design responsibility;
• procurement;
• construction;
• project schedule;
• performance testing;
• commissioning;
• warranties;
• delay damages;
• performance damages;
• variation;
• payment;
• security;
• insurance;
• force majeure;
• termination; and
• dispute resolution.

For energy infrastructure, technical schedules are not merely attachments.

They form part of the risk allocation and should be reviewed alongside the legal terms.

Operations & Maintenance Agreements

After construction, a project enters a different risk phase.

Operations and Maintenance agreements may address:

• operating standards;
• staffing;
• maintenance;
• performance;
• outages;
• spare parts;
• safety;
• reporting;
• environmental requirements;
• liability;
• insurance; and
• emergency procedures.

The O&M structure should align with the regulatory obligations of the licensed or responsible project entity.

Offtake & Long-Term Supply Agreements

Many energy investments depend on a predictable buyer.

An offtake agreement may therefore be central to project bankability.

Important commercial questions include:

How much must the buyer take?

How is the price determined?

What happens if supply is unavailable?

What happens if the buyer cannot take delivery?

How does change in law affect the economics?

What security supports payment?

What events allow termination?

These questions should be resolved in the contract rather than left to commercial expectations.

Energy Project Due Diligence

Acquiring an energy business requires more than ordinary corporate due diligence.

The legal review should follow the asset.

For example, an oil or gas project may require review of:

• licences;
• concessions;
• project agreements;
• government approvals;
• land;
• infrastructure rights;
• environmental approvals;
• supply agreements;
• offtake;
• material contracts;
• financing;
• litigation;
• regulatory correspondence;
• insurance;
• abandonment obligations; and
• change-of-control requirements.

The most important question is often not “Does the company own this asset?”

It is “Does the company have the legal and regulatory rights required to continue operating this asset after the transaction?”

Regulatory Notices & OGRA Proceedings

Energy businesses can receive notices, directions or other regulatory communications.

Before responding, determine:

1. which licence or regulated activity is involved;
2. what requirement is alleged to have been breached;
3. what technical or commercial record exists;
4. whether corrective action is possible;
5. what response deadline applies; and
6. what consequences may follow.

OGRA states that its functions include licensing, enforcement of technical standards and resolution of complaints and disputes involving licensees.

A regulatory response should therefore be based on the licence conditions, applicable rules and factual record rather than a generic legal reply.

Environmental & Safety Compliance

Energy projects inherently interact with environmental, health and safety considerations.

Depending on the project, legal issues may involve:

• environmental approvals;
• environmental impact assessment;
• emissions;
• waste;
• hazardous materials;
• spills;
• occupational safety;
• emergency response;
• remediation; and
• decommissioning.

These obligations should be addressed during project planning, not after construction.

Environmental liability can also become important in acquisitions because historic operational problems may remain relevant after ownership changes.

Decommissioning & Abandonment

Energy assets have an end-of-life phase.

Oil and gas projects may eventually require:

• well abandonment;
• facility removal;
• site restoration;
• environmental remediation;
• financial provisioning; and
• allocation of historic liabilities.

These obligations can become especially important when interests are transferred late in a project's productive life.

An acquisition price that ignores abandonment exposure may not reflect the real economic cost of the asset.

Energy Project Financing

Energy projects are capital intensive.

Financing may involve lenders, sponsors, government entities, contractors, operators and offtakers.

Legal work can include review of:

• financing conditions;
• project contracts;
• security arrangements;
• direct agreements;
• assignment rights;
• insurance;
• termination compensation;
• lender protections; and
• regulatory approvals.

A bankable project requires its commercial contracts to operate together.

The financing documents cannot compensate for an underlying project agreement that leaves fundamental revenue or regulatory risks unresolved.

Energy Contract Disputes

Energy disputes often involve technically complex facts.

Common disputes can concern:

• supply shortages;
• quality;
• measurement;
• pricing;
• payment;
• construction delays;
• performance testing;
• force majeure;
• change in law;
• termination;
• regulatory action;
• joint venture obligations; or
• infrastructure access.

Before starting proceedings, the technical record and contract should be examined together.

An engineering issue cannot always be solved by reading only the legal clauses.

Arbitration in Energy Projects

Large energy and infrastructure contracts frequently contain negotiated dispute-resolution provisions.

Depending on the contract, a dispute may proceed through:

• negotiation;
• expert determination;
• dispute board;
• arbitration; or
• court proceedings.

The governing law, seat, institution, appointment mechanism and scope of the arbitration clause should be reviewed before a dispute arises.

For substantial arbitration work, internally link this page to your Arbitration & Mediation service rather than duplicating the entire arbitration service here.

What We Review Before an Energy Transaction

For an initial project review, we may ask for:

• project summary;
• corporate structure;
• licences;
• concessions;
• government approvals;
• regulator correspondence;
• petroleum rights;
• land documents;
• joint venture agreements;
• supply agreements;
• transportation arrangements;
• EPC contracts;
• O&M agreements;
• offtake agreements;
• financing documents;
• environmental approvals;
• insurance;
• existing disputes; and
• proposed transaction documents.

For an acquisition, also provide information concerning historic liabilities and any change-of-control or consent requirements.

Legal Framework for Energy, Oil & Gas in Pakistan

Pakistan's energy sector operates through several overlapping legal and regulatory regimes rather than one universal “Energy Act.”

For regulated downstream oil and gas activities, OGRA plays a central role. Its stated jurisdiction includes natural gas, CNG, LPG, LNG and oil-sector activities and extends to licensing, technical standards and specified pricing and dispute functions.

Natural-gas activities operate under the OGRA framework and relevant licensing rules and federal policies. OGRA's current licensing guidance identifies sale, transmission and distribution activities within this system.

For petroleum and oil-field development, the statutory framework also includes the Regulation of Mines and Oil-fields and Mineral Development (Government Control) Act, 1948 and the rules, policies, licences and concession arrangements operating under the petroleum regime.

Electric-power projects have a separate regulatory framework and should be considered under the applicable NEPRA regime rather than assuming that OGRA regulates every form of energy.

The correct legal framework therefore begins with a simple question:

What part of the energy value chain does the project occupy?

Only then should the applicable licence, regulator, transaction documents and compliance obligations be determined.

Energy Law is Ultimately About Allocating Project Risk

An energy project can run for decades.

During that period, commodity prices change, governments change, laws change, infrastructure fails, demand fluctuates and commercial counterparties change.

A useful energy contract cannot predict every event.

It can, however, answer who bears the consequences when those events occur.

That is why we approach energy matters through regulation, project structure and commercial risk together.

Sindh Lawyer assists clients in developing, documenting and protecting energy-sector transactions with that longer project lifecycle in mind.

Planning an Energy, Oil or Gas Project in Pakistan?

For a new project, send us a short description explaining the product, location, proposed activity, counterparties and intended commercial model.

For an existing project or dispute, provide the licence or concession, relevant agreement, regulatory correspondence and a short chronology.

This allows the legal review to begin with the actual project rather than a generic energy-law checklist.