JWELB Overview
A rapid read overview of the articles in this issue:National oil companies and international oil companies in the Middle East: Under the shadow of government and the resource nationalism cycle (see p 5)
Prof. Paul Stevens
This paper considers the cyclical nature of relations between host governments and companies in the context of obsolescing bargain and resource nationalism. As part of this analysis, it considers the rise of national oil companies and current attitudes to such companies. It also focuses on the exogenous and endogenous drivers of resource nationalism and their effect on the combatants and the outcome of the consequent battles in an historical context. This paper concludes that because of the role of oil prices in the process, the cycle in the past had been self-feeding and will continue to be so.
Changing fiscal landscape (see p 31)
Daniel Johnston
These days oil company and government relationships are under intense pressure and in a state-of-flux. With increased competition, dwindling prospectivity in most non-frontier basins and rampant nationalistic and/or fiscal pressures, companies are having an identity crisis.
During the 1980s and 1990s oil companies had a difficult time making money exploring for hydrocarbons. At the same time most governments were dissatisfied with the level of exploration and development activity in their countries.
Average government take worldwide at the end of the 1990s was too high for ‘average’ prospectivity or geological potential. Certainly many countries modified and/or improved their terms over the years particularly during the late 1990s, but relative to the declining prospectivity, as geological basins matured and field-size distribution expectations declined, the fiscal improvements rarely kept pace.
Much of the inspiration for today’s petroleum fiscal systems came from the price shock of the mid-1970s, yet paradoxically few systems were adequately crafted for today’s price shock. This is one of the reasons why there is so much fiscal/legislative action these last few years. There are other reasons too of course and this paper explores various situations around the world.
Crafting future agreements with the right combination of stability and progressivity is one of the industry’s important challenges.
Renegotiating acquired rights in the oil and gas industries: Industry and political cycles meet the rule of law (see p 55)
Thomas W. Wälde
This paper examines how the rule of law (ie respect for acquired proprietary and contractual rights) stands up to the pressures for change engendered by the cyclical nature of the resources industries. It explains two relevant and related cycles: an economic cycle which is particularly pronounced and involves the keen promotion of investment at the bottom of the price cycle with a considerable lessening of that need as the cycle moves upwards, and a political cycle which starts with inviting foreign investment in a time of economic crisis and subsequent reform and which ends with the heavily politicised rejection of the presence of foreign interests in a country’s natural resources. Although none of the legal instruments, embodied in national investment laws, host state–investor or state enterprise–investor contracts and bilateral and multilateral investment treaties is fully capable of insulating the investment from the economic and political pressures of the cycle, they provide for some smoothening out of inevitable adaptations of long-term investment arrangements to strong external pressure. The study concludes by raising questions over the entry of major new players (in particular China) into the international ‘rule of law’ system and links sustainable development and climate change with the ‘rule of law’ and the legal security now required.
Stabilization and adaptation in oil and gas investments (see p 98)
Piero Bernardini
It is important for the private party to include stabilization and/or adaptation clauses in contracts with a public entity in the field of petroleum activities.
After outlining the different objectives of each clause, the paper deals with the conditions for a stabilization clause to be valid as a limitation to the State’s sovereign prerogatives.
An adaptation clause is a private law undertaking to compensate the private party for the economic prejudice caused by legislation, triggering a renegotiation under contractual conditions and procedure. Triggering events, effect and objective of the renegotiation are often defined in general terms, to the risk of uncertainty.
To ensure its effectiveness, an adaptation clause should indicate the consequences of a failure of the renegotiation, specifically whether the contract is to continue or if it should be deemed terminated. Failing such an indication, the governing law shall apply. The role of the international arbitrator is essential to determine the destiny of the contract and to adjust the contractual equilibrium to account for the changed circumstances, provided particular power is expressly conferred. The power of an International Centre for Settlement of Investment Disputes (ICSID) arbitrator in this regard is to be verified.
The paper annexes samples of adaptation clauses.
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Related articles in J World Energy Law Bus:
- Changing fiscal landscape
- Daniel Johnston
J World Energy Law Bus 2008 1: 31-54.[Extract] [FREE Full Text] - National oil companies and international oil companies in the Middle East: Under the shadow of government and the resource nationalism cycle
- Paul Stevens
J World Energy Law Bus 2008 1: 5-30.[Extract] [FREE Full Text] - Renegotiating acquired rights in the oil and gas industries: Industry and political cycles meet the rule of law
- Thomas W. Wälde
J World Energy Law Bus 2008 1: 55-97.[Extract] [FREE Full Text] - Stabilization and adaptation in oil and gas investments
- Piero Bernardini
J World Energy Law Bus 2008 1: 98-112.[Extract] [FREE Full Text]
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