Stability in petroleum contracts:
: rhetoric and reality. (Lessons from the experiences of selected developing countries and economies in transition (1980-2002

  • Abdullah Al Faruque

    Student thesis: Doctoral ThesisDoctor of Philosophy


    The discourse on stability of petroleum contracts revolves around how to resoh, e the
    tension between the sovereign right to regulate the petroleum industry and the necessity
    to protect the legitimate interests of foreign investors. The irreversible nature of
    investment in the petroleum sector, the long pay back period in petroleum contracts, and
    the political and commercial risks inherent in petroleum projects necessitates stability
    over the life of the contract as an essential condition for achieving economic interests
    for the main players in the petroleum industry. The stability of a petroleum contract
    involves a complex interaction of the legal, economic and political environment in the
    host country in which it operates and is profoundly shaped by the interplay between
    internal and external factors governing the petroleum industry.
    The aim of the thesis is to examine and analyse the recent trends on stability of
    the petroleum contract in developing countries and economies in transition. Perception
    of petroleum as a finite, non-renewable resource and the attendant public interest
    dimension embedded in the contractual arrangements for its exploitation makes the
    petroleum industry a highly regulated and historically popular area of state intervention.
    Petroleum contracts are also vulnerable to various kinds of change of circumstances,
    which can disturb the economic equilibrium of contracts. Stability mechanisms in legal,
    contractual and economic forms are needed to counter these political, fiscal and
    commercial risks in petroleum contracts.The study observes that over the last two decades, the fierce competition among
    the developing countries and economies in transition for attracting foreign investment in
    natural resources exploration and the end of their radical nationalistic feelings and
    hostile attitude towards foreign investment have persuaded them to provide favourable
    conditions in petroleum contracts for the petroleum companies. The study finds that the
    petroleum contracts in these countries during this period have been marked by increased
    stability guarantees, greater flexibility in fiscal terms and increased efforts of the parties
    to make provisions for renegotiation and adaptation of the contract in changing
    circumstances to maintain stability in the contract and to attract foreign investment in
    petroleum projects.
    The growing concerns about negative environmental impact and consequently
    regulatory and liability risks by the host states have appeared as a significant political
    risk factor to the petroleum companies. Similarly, host communities' hostile actions
    spurred by negative social impact of petroleum operations and human rights violations
    at various stages of petroleum development can pose a threat to stability and to the
    economic viability of petroleum projects.
    The study emphasises that integration of environmental and social concerns in
    petroleum development, assessment of environmental and social impacts, consultation
    with key stakeholders in the project design and implementation, equitable distribution
    of economic benefits from the project, respect for human rights of the host community
    in petroleum exploitation are all seen as key issues to be addressed in order to reduce
    negative impacts from project, and to enhance stability of the projects. A clearly defined
    role for the government and company in the area of social responsibility is needed to
    reduce much of the uncertainty about the allocation of responsibilities that they should
    Date of Award2005
    Original languageEnglish
    SupervisorPeter Cameron (Supervisor)


    • Petroleum contracts

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