Sustainability Issues in Petroleum Contracting

Sustainability issues in petroleum contracting
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Introduction
Since the introduction of the industrial revolution, oil has been the source of energy to
many companies, thus has facilitated direct and indirect development in most facets of the
economies across the world. While the world is enjoying the commercial benefits of the
petroleum industry, numerous problems are associated with the operations that when not
successfully sustained, then the probability of the existence of life is reduced to the minimum
level1. Petroleum industry operations are environmental intrusive in nature thus resulting
innumerous environmental problems throughout the operationscycle from the upstream to
downstream stages2.Being a natural resource, petroleum is subjected to the diminishing law,
since the key stages include: exploration; development;production and abandonment. At the last
stage, the resource cannot be renewed, thus without proper strategies, the countries with different
resources will be unsustainable3.
Petroleum contract
According to the expert, large natural resource extraction projects such as building,
operating financingamongothers are classified under the single category ‘petroleum contract’.
1Zhivov, Alexander M., Michael Case, Richard Liesen, Jacques Kimman, and Wendy Broers.“Energy
Master Planning Towards Net-Zero Energy Communities/Campuses.” ASHRAE Transactions120, no. 1
(January 2014): 114–29. http://search.ebscohost.com/login.aspx?
direct=true&db=aph&AN=96045416&site=ehost-live.
2Birch, Kean. 2016. “Materiality and Sustainability Transitions: Integrating Climate Change in Transport
Infrastructure in Ontario, Canada.” Prometheus 34 (3): 191–206. doi:10.1080/08109028.2017.1331612.
3Sutthichaimethee, Pruethsan, and KuskanaKubaha. 2018. “The Efficiency of Long-Term Forecasting
Model on Final Energy Consumption in Thailand’s Petroleum Industries Sector: Enriching the LT-
ARIMAXS Model under a Sustainability Policy.” Energies (19961073) 11 (8): N.PAG.
doi:10.3390/en11082063.

The petroleum contracten compasses numerous stakeholders such as the government of the host
countries, engineering firms, transportation firms, community, financialinstitutions among many
others. Over the past, petroleum contracts were drafted with crude oil in mind, and the pattern
has continued to dominate the current petroleum contracts4. The petroleumoperations are
classified either under the onshore or the offshore and contain different contract. The offshore
operations tend to be more expensivethan the onshore due to the facilities and the structures that
are required. For example, deep-water drilling is too expensive than shallow water drilling that is
common in the onshore, thus the former has differentcontract5. The petroleum contracts are
awarded to cover the natural resources with an aim of sustainable exploitation. Generally, the
petroleum contracts are awarded under three main categories:Competitive bid that provides
thecontract to the winningbidder; Ad hoc negotiations thatrequire an investor to ask for a
particular land to explore after direct contractual agreement; first-come-first-served.
There are three different typesof petroleum constructs: concession, production Sharing
Contract, and Service Contract. The concessions form the oldest form of cornstarchdeveloped
in1800 in the United States is based on landownership. The concract denotes that the landowner
has right on the element below the earth thus when a land is granted to a company, the natural
4Shebubakar, Arina N. 2015. “International Agreement or Private Agreement? Uplift Policy in
Oil and Gas Taxation in Production Sharing Contracts between Foreign Contractors and the
Indonesian Government.” Journal of East Asia & International Law 8 (2): 393–411.
doi:10.14330/jeail.2015.8.2.05.
5Sanders, Mark, Kristen Parrish, and Shankar Earni. 2013. “Savings to Sustainability: Application of a
Novel Approach to Delivering a Sustainable Built Environment.” Journal of Architectural Engineering 19
(3): 156–63. doi:10.1061/(ASCE)AE.1943-5568.0000119.

element below the specified land is under the control of the company6. The PSC and service
contracts, unlike the concessions, does not grant the company the owner of the natural element
under the land thus states is the rightful owner of the resources identified below the ground and
must contact the company to explore the resources. Through the system nature, where the
partiesconsult one another, the revenues are shared thus the term sharing.
Sustainability issues
Sustainable issues encompass all factors that are met during the operation of the
petroleum industry such as political, economicand social that affects the development of the
industry. These issues most of them occur during the contracting between the parties:
Company,government,and the society7.
Environmental sustainalility issues
Environmental degradation by the petroleum operations activities directly affects the
sustainability of the petroleum industries and the type and contactawarding in differentcountries
of the world. Most of the envelopment petroleum problems occur in the exploration, production
and transportationstages that have resulted innegativeexternalities to both the human being and
6 Nassiri, Parvin, Rasoul Yarahmadi, Pari Shafaei Gholami, Abdolamir Hamidi, and
Roksana Mirkazemi. 2016. “Health, Safety, and Environmental Management System
Operation in Contracting Companies: A Case Study.” Archives of Environmental &
Occupational Health 71 (3): 178–85. doi:10.1080/19338244.2015.1096758.
7Birch, Kean. 2016. “Materiality and Sustainability Transitions: Integrating Climate Change in Transport
Infrastructure in Ontario, Canada.” Prometheus 34 (3): 191–206. doi:10.1080/08109028.2017.1331612.

the wildlife8. There are numerous environmental effects that result from the petroleum industry
activities both in the local and the global level9. The nature of the impacts differs with the nature
of the activities such as exploration, transportation, and usage10. During the explorations, such as
drilling of the ground, numerous negative activities such as seismic actions, noise, vibrations and
dust cause disturbance to the vegetation, wildlife, and the human being. These activities result in
an exposition of dangerous chemicals such as hydrocarbons that increase the greenhouse gases,
the salinity of the water, thus resulting in poor health status, diseases and even death. At the
transportation stage, some of the risky happenings include petroleum spillage on the roads and
water systems as aresult of an accidental collision of thevehicle, oil leakage from the broken
pipes, thus causing serious damages to the vegetation and water system11.
At the processing of the petroleum, there ishazardous waste generated on both the water
and the sludge contains toxic substances such as toluene, benzene among other air pollutants
such as carbon dioxide. These emissions cause seriousdisease such as breathingsystems sickness
8Ahn, Changbum, Feniosky Peña-Mora, SangHyun Lee, and Carlos A. Arboleda. 2013. “Consideration of
the Environmental Cost in Construction Contracting for Public Works: And Bidding Methods.” Journal of
Management in Engineering 29 (1): 86–94. doi:10.1061/(ASCE)ME.1943-5479.0000124.
9Nassiri, Parvin, RasoulYarahmadi, PariShafaeiGholami, AbdolamirHamidi, and RoksanaMirkazemi.
2016. “Health, Safety, and Environmental Management System Operation in Contracting Companies: A
Case Study.” Archives of Environmental & Occupational Health 71 (3): 178–85.
doi:10.1080/19338244.2015.1096758.
10Upadhyay, V. P., Shahida P. Quazi, and H. Tynsong. 2017. “Environmental Safeguards.” Current
Science (00113891) 113 (11): 2069–72. http://search.ebscohost.com/login.aspx?
direct=true&db=aph&AN=126675975&site=ehost-live
11Agarwal, Ramesh K. 2013. “Sustainable Ground Transportation - Review of Technologies, Challenges
and Opportunities.” International Journal of Energy & Environment 4 (6): 1061–78.
http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=102419354&site=ehost-live

among people12.The above environmental petroleum industry effects have impacted on the
international petroleum organizations and various governmentsto poses serious requirement on
the petroleum industry to curb the negative impacts on the environment. The strategies target
reduction of hazardous wastes, emissions, proper transportation and rehabilitation of the
production sites; majorly to make the petroleum industry.
In case of such occurrences that affect the environment, there are different models
designed by differentcountries to address the emergencies. For example, the Iraq Model of
Technical Service Contract denotes that “ in case of the occurrence such as oil spillage on the
environment, the operator is required to inform ROC and the contractor shall immediately apply
the relevant contingencies measures to restore the impacts to the normalcy using the Best
International Petroleum Industry Practices’. On the same note, the Ghanian Model of Petroleum
Agreement denotes that” if the petroleum operations results into any form of environmental
pollution that has detrimental effect on, human, water, plant,animal life; the contractor is
required to act promptly in accordance to the accepted Petroleum Industry practice to remove
any damage and restore the status”. Comparing just the two models, it is clear that both have
common trend and demand requiring the restoration of the environment, however, the policies
fail to address how the cost is incurred; for example who pays the expenses incurred during the
image resolution13.
12Tasciotti, Luca, Didier Alejo, Andrés Romero, and Andrés Romero. 2016. “Oil Industry and
Road Traffic Fatalities in Contemporary Colombia.” International Journal of Injury Control &
Safety Promotion23 (4): 362–72. doi:10.1080/17457300.2015.1047863.