Report on Petroleum and Oil and Gas Enterprises

Added on - 17 Dec 2019

  • 25

    pages

  • 9249

    words

  • 85

    views

  • 0

    downloads

Showing pages 1 to 6 of 25 pages
An analysis of the Efficacy of Stabilisation andRenegotiation Clausesas Tools for the Management ofthe Regulatory and Contractual Framework inTransnational Petroleum Agreements
TABLE OF CONTENTINTRODUCTION...........................................................................................................................31. How effective are stabilisation and renegotiation clauses over host countries sovereignty inProduction Sharing Agreements (PSAs)?..............................................................................32. Which of the two clauses are more realistic and enforceable in regard to the interest ofIOC’s and host countries?......................................................................................................73. Have stabilisation clauses and renegotiation clauses satisfy the quest for the maintenance ofthe contractual and regulatory framework of production sharing agreements?...................114. How have drafters of PSAs view renegotiation clauses as the most practical means ofachieving the balance of interests between the IOC and the host country?.........................135. Which clause is the most effective mechanism in the management of the contractual andregulatory framework of a PSA?..........................................................................................15CONCLUSION..............................................................................................................................15REFERENCES..............................................................................................................................17
INTRODUCTIONA significant governance of regulative and contractual framework is referred to be animportant consideration of almost all sorts of organisations who are operating in the embodiedcontext of globalisation. It is thereby important for them to maintain a considerable format ofoperation where they fulfil all legislative norms and standards of work. It is also due to a leadinggap among the formulated criterion of host countries and international nations. This creates amore complex nature of work for the organisations that are continually referring to broaden theiractive existence in the outer regions (Boix and Svolik, 2013). The below report is also basedupon a similar consideration of petroleum and oil and gas enterprises where they often tends toget into the agreements of product sharing. This involves a prior involvement of more than oneregion where the commodities are being shared among two or more states. It hereby getsessential for the establishments to espouse the legal clauses of both host country an internationalnation with a balanced perception of commencing the work operations. It is with a crucialdeliberation of obviating any sort of conflict among the framed clauses of both the states with agreater role of stabilisation and renegotiation in it.1. How effective are stabilisation and renegotiation clauses over host countries sovereignty inProduction Sharing Agreements (PSAs)?Concept of PSAProduct sharing agreements also known as PSA refers to such customary type ofcontracts that are usually signed among the governmental parties and the higher associate bodiesof oil and gas or petroleum organisations. These type of firms represents as resource extractionentities with a leading concern of the quantity of the shared resources. These agreements werefirstly proposed in the early years of 1950 in the region called Bolivia that is a leading country inthe Central region of South America (Dickinson, 2014). This afterwards shifted to the region ofIndonesia in the subsequent years of 1960's. It is presently being used in two most profoundlocators of Middle East and Central Asia where, in these type of contracts the regimental partiesof a nation tends to reward the oil companies for their executed activities of production andexpedition, etc. It is where the oil and gas ventures are hereby required to bear the risk ofmaterial and fiscal means of the enterprises who has explored to develop an ultimate productionof the requisite content.
This generates a factual existence of cost oil wherein on acquiring success from the aboveapplied tactic of production, the companies are hereby permitted to utilise the monetary fundsthat has been generated from the produced resources like oil to retrieve their functional expensesand other working assets (Zhang, Fu, Li and Xu, 2012). However, it is with yet anotherimpulsive content of the unexpended fiscal where the remaining amount termed as profit oils isbeing divided among the ventures and their respective governmental parties. Herein, it has beenidentified that most of the PSA's suffers with varied rate of production and price structures of thecompanies at an international level that conflicts with the stipulated cost of their domicilecountries.This in turn affect the production share of the ventures where it is an assumptive nature ofPSA's where such contractual terms are beneficial to those regimental parties of the nation whoare reflecting a deficit expertise in production (Govindan and Popiuc, 2014). This necessitatesthem to develop more capitalised resources to fetch a liable interest of international enterprises toconfigure the identified outlook of production. It is thence considered as a profitable deal amongthe establishments with a simultaneous assumption of risks for the involved oil and gas firms init. Stabilisation and renegotiation are the two imperative clauses that play a greater role in suchcontractual dealings among the firms with an apparent distinction in both.Stabilisation clauseStabilisation clause has a greater significance in the lives of international capitalistswhere they utilize this article to diminish any sort of political hazards or harms, etc. It is asignificant tool of assessment that largely aids the petroleum industries to detect the internationalmeasures of business with a clear depiction of their separate environmental constituents (Daviesand Oliveri, 2014). It is therefore a splendid tool for the host countries who are attempting toconfigure themselves in the extraneous marketplaces that reflects a wider scope of enhancement.With an analogous reference to it, the international petroleum industries require a long terminvestment of funds that postulates an intensive necessity of capital funds. Such type ofsituations in turn represents the vulnerable state of the investors.It is where in case their domicile governmental parties takes a unilateral approach andresultantly alters some accorded standards into their life-time agreements. This increases the riskof the investors where they may not acquire the stipulated scale of profitability from such suddenmodifications into the previous conformity of the capitalists on whose basis they have united to
make investment of funds (Orefice and Rocha, 2014). As a result to which, the investors in suchsituations have demanded for a contractual assurance as a mean to mitigate such riskypossessions in their long term agreements. However, due to certain dynamic traits of oil andpetroleum industries this proposed stabilisation clause do not reflect an effective nature ofexistence and often tends to conflict with the solutions required to protect the long termagreements of the investors.Political risks are hereby referred to be a major risky occurrence where a prior incursionof stabilisation clause can be apparently seen in the developing countries like Ghana. It is wherea recent discovery of oil in some of its pivotal regions is postulated to be a leading reason behindattracting more number of international investors (Frank, 2015). It is thence a clause that will beinserted in the agreements among the International Oil Companies (IOC), Host States (HS) or theNational Oil Company (NOC). This will be based upon a prior consideration of handling thepertinent issues that are existent due to any changed perception of law in the HS to intervene intheir lifetime projections. In context to which, there exists total three distinct classifications ofstabilisation clauses that are termed as freezing clause, economic equilibrium clause and hybridclause.The foremost clause of stabilisation called freezing is to fix the accepted terms of acontracts among the investors where any changed standards will not be applicable to their agreednorms. Another clause of economic equilibrium is to defend the excessive costs of the projectsthat have been formulated before any applicable changes in law (Ray, 2013). It is with a primeresponsibility of the host government to reimburse the cost to the investors that are required to beundertaken due to any changed procedural. The eventual clause of hybrid is referred to be anamalgamated set of the preceding clauses with a substantial petition of compensation in it.However, it is with an additive consideration of exempting the international investors to bear anychanged policies that has been undertaken after signing off the long term deal.These stabilisation clauses therefore has a latent impact upon the foreign investors with aprior benefit to the host contrives to attract more number of international investors towards them.Beside this, these clauses together prevent the host nations to frame requisite measures forprotecting the elementary rights of their citizens that together obligate them to implement suchfederal laws that can also be enforced outside one's own political unit (Heede, 2014). However,stabilisation clauses are not configured as an assistive mean for the domicile investors who are
supposed to obtain less beneficial terms as compared to the foreign capitalists. As a result towhich, it has also been criticized by varied international human rights establishments who hasreferred it to put a price tag on the individuals by exempting them either implicitly or explicitly.With reference to which, the proposed projects of the foreign investors do not abide by the lawsof human rights.Renegotiation clauseIt is referred to be yet another preferential clause in the legal constitution where this typeof provision encourages the investors to get back on the table of negotiation to bargain theaccepted norms in case they are referring to change any of its stipulations. It is however with aprime intervention of the regimental parties of the nation to discourse upon any proposed set ofchanges in the preceding agreement among them (Jasimuddin and Maniruzzaman, 2016). Theprovision of renegotiation is thereby referred to create a balancing percept among theinternational investors and host governmental bodies where it tries to defend the liable interest ofboth these parties. These types of clauses are stated to be a useful tool in the contracts made forinternational investments that takes place between the two leading parties of government andprivate entities.It is basically due to its long term nature of composition where it takes a legitimate periodfor the extended time. Such longer acquisition of its continuance equally impacts upon theirsocial, political and economic surrounding with some extremist changes in it. It is with a leadingcontext of their existent economic stipulation where the prevalent environment drasticallymodify their economic benefits that are supposed to be gained from the agreed norms andstandards (Cruz and Marques, 2013). This tends to dissolve the entire visualization of thecapitalists that they have anticipated from the accepted flow of agreement. A principle usage ofrenegotiation clause has significantly gained its importance in the developmental agreements thattakes place in the petroleum industries. With reference to which, these renegotiation clauses arestated as an appropriate alternative tool that can be used in the place of the conventional formatof stabilisation.It is where such negotiation clause can largely assists the involved set of parties toaccommodate as per the proposed set of changes in their existent agreements by not referring toan entire modification of it. It is the most flexible tool of agreement that rigorously allow theparties to make considerable changes in their existing agreements to correspond with the
desklib-logo
You’re reading a preview
card-image

To View Complete Document

Become a Desklib Library Member.
Subscribe to our plans

Unlock This Document