International Oil and Gas Arbitration

Arbitrating International Petroleum Disputes: an Analysis of Key Substantive Law Issues

by Dr. Zeyad A. Alqurashi

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arbitrating international petroleum disputes: an analysis of key substantive law issues

ABSTRACT

The exploration and development of oil and gas in developing countries have often been conducted by international oil companies rather than the countries themselves. International petroleum companies and host governments and/or governmental agencies conclude agreements for this purpose. Such agreements have over time retained certain fundamental characteristics. They involve large, complex and risky investments. They involve a relationship between a host government and/or governmental agency and a foreign private company. In addition, due to the strategic importance of petroleum to both consumers and producers, such agreements have always been politically charged. These characteristics help to understand why international petroleum agreements have almost always provided for arbitration as a method for the settlement of disputes.

Over the past thirty years, an increasing number of international arbitral awards relating to the petroleum industry have been published. This jurisprudence provides the source material from which customary law may be drawn. The issues raised and decided in this jurisprudence are many and diverse. They are both procedural and substantive law issues. This research addresses specific substantive law issues pertaining to investment protection and examines how this jurisprudence has dealt with them. The study identifies and categorises the issues with each issue discussed on a case-by-case basis. It analyses the cases by examining the contentions of the parties and the tribunals' awards in order to provide an exposition of the issues discussed along with the factual context of each issue in which it was raised and decided. In addition, the work provides an understanding of the notions and rationale underlying the legal practices reflected in the arbitral jurisprudence.

The work is divided into five chapters and each chapter deals with a separate issue. Chapter one provides an examination of the evolution of international petroleum agreements followed by a brief discussion of the major petroleum arrangements in existence today. The legal nature of international petroleum agreements is also examined in this chapter. Chapter two and chapter four examine the question of direct and indirect expropriation. They discuss this ultimate host state control mechanism and its legitimate-as distinguished from its illegitimate-exercise. In chapter three the legal requirements for a lawful taking and the response of the petroleum arbitral practice to the areas of conflict arising out of the limitations on the state's right to take foreign property are examined. Chapter three addresses the question of what kind of interference short of outright expropriation constitutes expropriation. The chapter studies how this question has been addressed by the international arbitral practice relating to the petroleum industry. Chapter four addresses the question of the validity and efficacy of stabilisation clauses. It also examines to what extent such clauses can ensure that the contract will not be altered by a state legislative or regulatory action and the response of the petroleum arbitral practice to the question of stabilisation clauses. Chapter five discusses the issue of the renegotiation of international petroleum agreements when the contractual equilibrium changes due to unforeseen circumstances. It examines among other things the contribution of the petroleum arbitral practice to the concept of renegotiation.

The Structure of the Study

The study is presented in seven chapters. The significance of the study, objectives, scope of the study and the methodology are delineated in the introduction. Chapter one serves as a background to the study and introduces the subject of international petroleum agreements and their legal nature.

Chapter two examines the question of the risk faced by the foreign investor that the state may take all or a portion of the investor's property located in the host country. The aim of chapter three and chapter four is to examine the ultimate host state control mechanism over petroleum companies working within its territory and its legitimate - as distinguished from its illegitimate - exercise. The legal requirements for a lawful taking under international law are also discussed. This discussion is followed by an analysis the response of the petroleum arbitral practice to the areas of conflict arising out of the limitations on the state's right to take foreign property under international law.

Chapter three scrutinises the question of state measures affecting foreign investment in an indirect manner. This question has become increasingly prominent for a number of reasons laid down in the chapter. The chapter examines the question of what kind of interference short of outright expropriation constitutes expropriation and how this question has been addressed by the international arbitral practice relating to the petroleum industry. A number of recent non-petroleum arbitral awards were also discussed in this chapter.

The fourth and fifth chapters study the provisions inserted into individual petroleum agreements in order to eliminate the risk of state interference mentioned above. In particular, the two chapters address, among other thing, the question of the validity and efficacy of such provisions. The validity and effect of stabilisation clauses is examined in chapter four. The latter question is studied against both national law and international law. Finally the chapter addresses the question of how the effect of stabilisation clauses as articulated by the petroleum arbitral practice.

In chapter five the question of renegotiation clauses is examined. A number of issues relevant to the question of the renegotiation of international petroleum agreements are dealt with in this chapter. Such issues include: the question of how such clauses can contribute to the stability of the international petroleum agreements; problem areas of the renegotiation clauses; the renegotiation in the absence of a renegotiation clause and other related issues. This is followed by an examination of the effect of such clauses as articulated by the petroleum arbitral practice.

TABLE OF CONTENTS

CHAPTER ONE: DEVELOPMENT AND NATURE OF INTERNATIONAL PETROLEUM AGREEMENTS

CHAPTER TWO : DIRECT EXPROPRIATION AND THE INTERNATIONAL PETROLEUM INDUSTRY

CHAPTER THREE : INDIRECT EXPROPRIATION AND THE INTERNATIOAL PETROLEUM INDUSTRY

CHAPTER FOUR : STABILISATION CLAUSES AND INTERNATIONAL PETROLEUM AGREEMENTS

CHAPTER FIVE: RENEGOTIATION OF INTERNATIONAL PETROLEUM AGREEMENTS

Published: January 2005
Pages: 340
Price: 225 Euro

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