Legal Aspects of Oil & Gas Industry: Contracts and Bargaining Power

This report delves into the legal dimensions of the oil and gas industry, examining the crucial role of contracts in facilitating the sale and purchase of oil, a vital raw material. It explores the formation of contracts between host governments and international oil corporations, highlighting the essential elements of a valid contract, including offer, acceptance, consideration, competency, and writing requirements. The report further analyzes the concept of contractual relationships, emphasizing the legal obligations that arise from these agreements. A significant focus is placed on the concept of relative bargaining power, particularly in situations where oil producers hold a dominant market position, influencing contract terms. The analysis considers how this power dynamic impacts contractual agreements and how the emergence of additional oil producers may affect bargaining power over time.

Legal Aspects of oil & Gas
Industry

Table of Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1..............................................................................................................................3
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
It has been seen that there are many business organisation which could carry business
activities. These organisation have a motive to carry out the all the activities in the procedural
form so that no rights and duties shall be violated. Government has also made several attempts to
protect the activities which has been carried out in an organisation for an example protecting the
rights and duties of employee and managers.(McKendrick, 2014.) One of the most important
activity which has been carried out by the business organisation is making of contract between
the organisation to make the best deal. Such contract has been governed by the contract law in
order to safeguard the interest of parties which are competent to contract. The following project
shall create a understanding of how a contract has been made and about the relationship which
has been coming out of that contract. The project shall try to showcase the skilful knowledge
about contract and various provision of contract law which has been prevailing over international
market for international companies.
QUESTION 1
(Poole, 2016.)A raw material is kind of resource which shall be essential for every
country. Without correct resource and its application it became impossible for the country to
manage all the affairs . One of the most important and essential raw material top be used by
every country is Oil. Oil has been used in various purposed like transportation. The major usage
of Oil has been taken in thBakos, Marotta-Wurgler, Trossen, 2014.e shape of fuel. Oil has been
considered as one of the most important source of energy which helps in various purpose for an
example for running any kind of veichels Oil has been taken as on the important account. In
today's time where the technology has took over so much Oil has been considered as one of the
important raw material as half of the activities are dependent upon it. When the demand of oil
started to grow up gradually in the market many industries has begun to set up. It has been
observed from various sources that from past five years a rapid growth of oil industry has been
seen in the market because there are only few producers of oil and all others are the buyer of oil.
(Hillman, 2012.) It is a well known fact that for carrying out the activity of sale and purchase of
oil a separate market has been set up. The fast growing consumption of oil has occurred in the
Non-Asian Countries as the need of energy and specially. It has been taken into account that
Non-OECD Asian including India and China shall account for around 40 percent of the total

increase in the world oil use. From the estimation it is found that to meet the projected increse in
world oil demand the total petroleum supply is required 2030 to reach 118 million barrels per
day from 80 millions barrels per day as of the year 2003.(Bakos, Marotta-Wurgler, Trossen,
2014.) it can been extracted from the facts that there are many factors which make a frame that
there are several factors which are responsible for the increase of demand of oil which will
contribute towards the world economy nature of this market will be monopoly as there are only
few producers of oil but the number of buyer are more in nature by which the producers have
established a monopoly in the market.(Twigg-Flesner, 2013.) Another activity which has been
carried out by international oil corporation and accounted as one of the most important activity is
making contract between the Host government and the international Oil corporation. As there are
only few producers of oil and many of the countries are buyer of oil then these countries make
contract with the leading countries of oil. For an example Saudi has been the lading producer of
oil by which many other countries make a contract with Saudi in order to import oil
(Cartwright, 2016)a contract is when A voluntary, deliberate, and legally binding agreement
between two or more competent parties. Contract is a branch of the law of obligations in
jurisdictions of the civil law tradition. Contract law concerns the rights and duties that arise from
agreements. Contracts are promises that the law will enforce. A contract needs to have definite
terms that spell out all the details and a clearly defined offer. These specifics are referred to as
the contract's subject. Consider purchasing a used car from a dealer.
All the relationship and transitions we enter are regulated by a contract – whether it’s buying a
house or car, or buying the groceries. Even the relationship between an employer and employee
is governed by a form of contract.
Contracts are mainly governed by state statutory and common (judge-made) law and private law.
(DiMatteo,2013. )Private law principally includes the terms of the agreement between the parties
who are exchanging promises.
Anyone over 18 year old can make contract, and in some circumstance people under 18 can
make a contract agreement too.
Element of contract
1.offer
2.acceptance
3.consideration

4.competency and capacity
5.writing requirement
1.offer- offer is basically very important element of contract. This is first element of contract. In
order to create a valid contract, there must be a 'lawful offer' by one party and 'lawful acceptance'
of the same by the other party. If no time limit is specified, an offer is valid for a reasonable
length of time before the offer or can revoke or cancel it.(Vogenauer, 2013.)
2. Acceptance-There is no contact if offer is not accepted by second party.
There is no contract unless and until the offer is accepted by the person to whom the offer is
addressed Acceptance is normally made orally or in writing, but if the contract allows that the
acceptance and performance of contractual duties are to be carried out simultaneously, then
acceptance can also be made by conduct. For example, when a supplier receives your cheque,
that supplier may immediately deliver the goods to you without saying or writing anything.
3.consideration-consideration is a concept devised by English common law, and is required for
simple contracts, but not for special contracts. Consideration is known as quid pro-quo or
something in return. It may be cash, kind, act or abstinence and may be in past, present or future.
It should be unlawful, immoral and against the public policy.
4.competency and capacity-(Busch, 2013.) for a valid contract the parties to a contract must have
capacity I.e competence to inter into the contract. Each contractual party must be a "competent
person" having legal capacity. Every person is presumed to have capacity to contract but there
are certain persons whose age, condition or status renders them incapable of binding themselves
by a contract.
5.writing requirement-Not every contract need be in writing to be valid and binding on both
parties. But nearly every state legislature has enacted a body of law that identifies certain types
of contracts that must be in writing to be enforceable. In legal parlance this body of law is called
the statute of frauds.(Smits, 2013) A contract is often evidenced in writing or by deed, but a valid
contract may be made orally or even by conduct.
When a contract has been made between the parties then the relation which has been extracted
from these contract is known as contractual relationship for an example if UK wants to purchase
Oil from Saudi because it is the top country in producing the oil then UK has to make a contract
with Saudi. In that case UK government has to form a contract of buying oil from the
international oil corporation in that case the relation which has been established between the host

government of UK and international Oil corporation like Saudi then such relation shall be
entitled as contractual relation. It is very important when a contract has been established between
such big entities than a contractual relation has been carried out between the parties because out
of this contractual relation legal obligation shall fall onto the parties.(Abdi, Aulakh, 2012.) There
are certain situation in which there is possibility that a contract may breach which will break a
contractual relation between the host government and the international oil corporation. Such
breach in the contractual relation will result into rise of legal liabilities on the parties. Another
concept which has been introduced in making of contractual relationship between an
international oil corporation and host government is concept of relative bargaining power. The
ability of the party or the power of the party in a certain situation or in a contract by which the
parties exert influence each other.(Shapiro,Pearse, 2012) If the situation comes when both the
parties who have been into a contract came onto a equal footing debate then they will have
bargaining power. When the production of oil has been in its initial stage many contract has been
made with the application of relative barging power. Such situation comes because of one main
reason that is as there are only few producers of oil and many buyers and then the contract has
been made between such countries, a force has been created by either of the party to influence
other. For an example Saudi is the one largest producer of Oil by which demands from many
countries has been raised and many countries have been looking forward to make a contract with
Saudi. In that case Saudi has a power to make a force and influence the provisions of contract
which can effect the other party also. While the contract has been made it is a possibility that
some provisions can be made which are in the favour of Saudi. This situation prevailing is a
perfect example of relative bargaining power when the contract has been made between the
international oil corporation and any country.(Cappelli, Keller, 2013.) The concept of relative
bargaining plays a very important and crucial rule for all the person who wants to buy or
purchase oil. As it has been seen very clearly that there are many buyers of oil and only leading
producers of oil by which a biased form of contract can be formed and it is very obvious fact that
every country shall be needing Oil because it is one of the mist important and essential raw
material which is considered as the most demanding fuel so the demand of oil will get raise
every other year and the concept of relative barging will always be present while any country or
international corporation will make a contract. A contractual relationship is always based upon
the consent of the parties but with the indulgent of bargaining power it became impossible that

parties can without any force put their consent over a contract. But with the time there are many
other producers who are dealing with the export of oil.(Bar-Gill, Ben-Shahar, 2014.) So it will be
beneficial for all those countries who are importing oil to make contract with other countries as
there will be more producers there will be more options for the country to make contract. For an
example earlier only Saudi was an option for all the countries who are looking forward to
establish a contractual relation with international oil corporation but with the time, to reduce
concept of relative barging, contractual relationship has been started building with other leading
oil producing countries too.(Marotta-Wurgler, 2012.)
CONCLUSION
It can be concluded from the above project that Oil has been considered as one of the
most used and demanded raw material by most of the country. It is that kind of raw material
which work as a key principle for all the countries as half of the activity which has been carried
out by the country is dependent upon oil. Project makes a further discussion towards a
establishment of contract between host government and international oil corporation. It has
discussed in the project that the relation which is extracted from contract is known as contractual
relation and a new concept of relative bargaining has also been discussed in the project. Hence
the project is the group study of establishment of contractual relationship between the partries in
context to relative bargaining power.

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