The Foundation of Oil and Gas Regulation
In Georgia, oil and gas operations, natural hydrogen operations and the processing of oil, the processing of gas or their transportation are carried out in accordance with the Constitution of Georgia, international treaties, the Law on Oil and Gas and other normative acts. The purposes of the law are the creation of a unified legal basis for the development of resources and processing activities, the promotion of investment and the protection of the lawful interests of participating subjects, the building of an effective basis for state regulation, supervision and control, the definition of the basic principles of contracts between the state and the investor, the determination of the functions of the national oil company and of the regulatory body, and the securing of third party access to means of transport. Every condition and requirement proposed for participation in a tender or auction must be grounded on this law and on the Law on Subsoil. For any investor, understanding this architecture is the starting point of every project in the sector.
Ownership of Resources and Sovereign Rights
One of the foundational provisions of the law concerns ownership: the oil and gas resources and the natural hydrogen resources existing in the subsoil of Georgia are the property of the state. The right of ownership of land does not imply the ownership of, or the right to exploit, the resources existing in the subsoil of that land. Georgia possesses the exclusive and sovereign right to explore for and exploit the resources existing on its territory and its continental shelf. The right of ownership of extracted oil, gas and natural hydrogen is determined in accordance with the contract. Extracted status also attaches to oil, gas and natural hydrogen placed in an underground reservoir for storage, whereas resources returned into the reservoir for production purposes are considered part of the reserves and are not deemed extracted. This distinction is decisive for the distribution of production and for tax accounting.
The Forms of Contract
The basic forms of the relationship between the state and the investor are the production sharing agreement, the risk service contract and the service contract; other types of contract are also possible alongside them. The agency is entitled to prepare and to apply model forms of these contracts. The preparation, signature and termination of a contract take place in accordance with the requirements of the law. The results of a tender are deemed cancelled if no contract is concluded within six months of the start of the negotiations, and where other minerals are discovered on the area the investor notifies the agency within 30 days.
The Settlement of Disputes
A dispute arising between the parties to a contract, especially one concerning land or other immovable property, is considered only by a Georgian court according to the location of the property. A dispute connected with the translation of the contract, its legal status, the performance, termination or suspension of its conditions is likewise considered by a Georgian court. However, where the investor is not a citizen of Georgia or a legal person registered in Georgia, a dispute with such an investor may also be considered by international arbitration institutes in accordance with the conditions defined in the contract. For foreign investment this possibility of arbitration is often the decisive choice, and its precise wording should be made during the preparation of the contract rather than after a conflict has arisen.
Regulatory Institutions and Investor Protection
The law creates a system of a regulatory body and a state agency: the right to conduct operations is granted through a tender or an auction, and a contract accompanied by a general licence is concluded with the winner. For the investor, mechanisms of stability and compensation are also provided, matching the investor protection standards entrenched in international practice. The effective application of oil and gas law requires precise knowledge both of the law and of the conditions of the specific contract — which is why legal support at every stage of the project remains an indispensable condition of success.
Frequently Asked Questions on Oil and Gas Law
Who owns the oil and gas in the subsoil?
The state. Ownership of land does not include ownership of, or the right to exploit, the resources in its subsoil, while ownership of extracted production is determined by the contract.
Which forms of contract exist?
Production sharing, risk service and service contracts, alongside other types. The agency is entitled to prepare model forms of these contracts.
Can a dispute be referred to arbitration?
Yes — where the investor is not a Georgian citizen or a legal person registered in Georgia, the dispute may be considered by international arbitration institutes under the conditions defined in the contract. Disputes over land and immovable property fall to the Georgian courts.
What happens when the legislation changes?
The results of a tender are cancelled if no contract is concluded within six months, and the discovery of other minerals must be notified within 30 days.
How We Help on Legal.ge
The Legal.ge team will accompany your oil and gas project legally: we will explain the ownership regime over resources, select the form of contract, prepare dispute settlement clauses including arbitration, and assess the effect of legislative changes on your contract. Contact us with a description of your project.