Commercial Contracts in the International Oil and Gas Industry
This paper aims to turn to the issues associated with long term crude oil contracts concluded between the province and international oil companies in footings of the political hazards investors tend to confront in such contracts every bit good as the hazard of alteration of fortunes brought about non by the act of the parties but instead by the clip. In making so, the efficiency of both stabilisation and renegotiation clauses, as agencies of extenuating these mentioned hazards, are critically examined. It argues that stabilisation clauses are extremely debatable with respect to their cogency and consequence as they would usually conflict with the really good established rule of international jurisprudence of province sovereignty, besides these clauses are limited merely to the alteration of regulative model and does non take into consideration the consequence of alteration of other fortunes which may hold a considerable impact on the parties ‘ duties. Whereas, renegotiation clauses can be utile to cut down the impact of alterations non merely the legal model of the host province but besides other fortunes which are beyond the control of the parties should proper and clear mechanisms and standards for implementing these clauses be provided for within the clause.
It is widely recognized that regulative stableness of any given province is an indispensable component of advancing and encouraging investing in general and to pull and procure the assurance of possible foreign investors in peculiar. [ 1 ] This is surely the instance for energy undertakings where investors are vulnerable to broad assortment of hazards throughout the undertaking ‘s life, given the long continuance and the capital intensive characters of these undertakings. In add-on, the vurnablity of crude oil contracts to the alteration of fortunes, which may be beyond their control such as monetary value fluctuation in the international energy market, can do the contractual agreement that was one time profitable going extremely unwanted a few old ages subsequently. [ 2 ] Not to advert the really fact that one of the parties of these contracts is province or its bureau may good raise the investors concerns that the contractual agreements one time have been secured at the clip of negociating can be disregarded by one-sided province ‘s act subsequently.
Therefore, it has been the inclination of oil and gas investors to seek protection against these hazards by supplying for legal mechanism in the contract in order to extenuate their impact throughout the undertaking period. These legal mechanisms tend to be in the signifier of stableness warrants offered by the province, either stabilisation clauses or renegotiation clauses, every bit good as supplying for arbitration to be the mode of difference declaration. However, while the latter has become a stable and widely recognized clause taking to guarantee the netiaulty and equity of deciding differences originating between the provinces and IOCs, the former has generated much concern over their legal cogency and consequence, merely because of the fact that the chief aim of these clauses is to shackle the province ‘s right to pass and modulate for moderately long period of clip.
It is the purpose of the 2nd chapter to critically analyse the different positions given to stabilisation clauses in bookmans ‘ authorship and the relevant arbitration awards in footings of their legal cogency under both national and international jurisprudence and the extent to which these clauses can forestall the province from exerting its crowned head power within its district. Arguing that the crisp divide among bookmans and arbiters in this respect proves the insufficient and unsure nature of these clauses, which in bends makes the capableness of these clauses to supply absolute protection to oil and gas investor questionable.
Chapter three goes on to farther confirm the decision reached in the 2nd chapter through utilizing the illustration of the Russian crude oil experiment, where the being of stabilisation clauses led to diminishing cooperation between the province and the industry and resulted in interrupting the parties ‘ relationship as the crude oil activities went on, given the fact that the Russian Petroleum Law concerned merely promoting the geographic expedition activities while raising many indispensable facets unregulated with the position that if the oil was to be found, new statute law would be enacted. It is from this chapter where this paper comes to the decision that non merely does stabilisation clauses conflict with the rule of province sovereignty and may good be held invalid as a consequence, but besides these clauses have appeared to be inconsistent with the parties needs to flexible mechanism in order to extenuate the hazard of alterations of fortunes brought about by clip instead than parties Acts of the Apostless.
Finally, chapter four purposes to recommend the recent tendency of infixing renegotiation clauses into oil and gas contracts as the proper mode to extenuate non merely the political hazard of province behaviour but besides other commercial hazards associated with crude oil undertakings, which in the latter instance even the host province can bask the protection offered by this device. On the other manus, this chapter besides recognizes the fact that renegotiation clause may be excessively flexible, and therefore run the hazard of the contract being open-ending. Therefore, this chapter argues that the success of this clause depends, to really big extent, on the specific outlining agreed by the parties and whether a clear mechanism and counsel have been provided to turn to possible differences.
Therefore, this paper argues that the province ‘s right to pass and to modulate should non be capable to dialogue, nor to be used as an inducement for the intent of pulling investing as such committedness is hard to be fulfilled in the long term. Furthermore, stabilisation clauses have proved to be inefficient and hard to foretell every bit good as inconsistent with the parties needs in such a long term contract. Whereas, renegotiation clauses can accomplish the parties ‘ purposes and aims of prolonging the agreed contractual agreements and promoting cooperation needed in long term contracts through flexible legal mechanisms.
1. Primary Beginnings
1.1 Judicial determinations
PreussenElektra instance ( PreussenElektra AG V Schleswag AG ) ECJ C-379/98, European Court studies 2001, I-02099
Stardust Marine instance ( Gallic Republic v Commission of the European Communities ) ECJ C-482/99, European Court studies 2002, I-04397
1.2 European Union secondary statute law
Regulation ( EC ) No 1228/2003 of the European Parliament and of the Council of 26 June 2003 on conditions for entree to the web for cross-border exchanges in electricity, OJ L176/37, 15.07.2003
2. Secondary Beginnings
Cameron P. D. , Legal Aspects of EU Energy Markets, ( Oxford: Oxford University Press, 2005 ) .
Helm D. , Energy, the State, and the Market: British Energy Policy since 1979 ( Oxford: Oxford University Press, 2003 ) .
Hunt S. , Making Competition Work in Electricity ( New York: John Wiley & A ; Sons, Inc. 2002 ) .
Meier, G.M. , Impact of the power-market liberalisation on the operation of CHP-plants – procuring the fight on the territory heat market, 29 ( 4 ) Euroheat and Power/Fernwarme International ( 2000 ) .
Klinge Jacobsen, H. , Fristrup, P. and Munksgaard, J. , Integrated energy markets and changing grades of liberalization: Price links, bundled gross revenues and CHP production exemplified by Northern European experiences, 34 ( 18 ) Energy Policy 3527-3537 ( 2006 ) .
2.3.1 Internet beginnings
European Association for the Promotion of Cogeneration ( GOGEN Europe ) , Financial and Regulatory Support for Cogeneration in EU ( 2007 ) hypertext transfer protocol: //www.cogeneurope.eu/publications/reports_and_studies.htm ( last visited on 31 November 2008 )
Lowe, Ph. , Applying EU Competition Law to the new liberalized energy markets, ( 13 May 2003 ) hypertext transfer protocol: //europa.eu.int/comm/competition/speeches/text/sp2003_012_en.pdf ( last visited on 1 December 2008 )
[ 1 ] L. Cotula, “Reconciling Regulatory Stability and Evolution of Environmental Standards in Investment Contracts: Towards a Rethink of Stabilization Clauses” , Journal of World Energy Law and Business, vol. 1 ( 2008 ) , p164
[ 2 ] P. Thomas, “Evaluating Stabilisation Clause in Venezuela ‘s Strategic Association Agreement for Heavy-Crude Extraction in the Orinoco Belt: The Return of a Forgotten Contractual Risk Reduction Mechanism for the Petroleum Industry” p.1