• Demonstrate a good understanding of the substantive rules of international law applicable to the oil and gas industry
• Evaluate the key principles of contract formation in international commercial transactions and key international law principles and trends in the oil and gas sector
• Assess the effectiveness of international law in addressing the environmental impact of oil exploration and exploitation
• Demonstrate a critical understanding of the importance of oil and gas law as a distinct subject, studied in a practical and commercial context.
As and when oil and gas in the form of natural resources is discovered in a country, the government the government goes through a lot of excitement and at the same time, the oil company which undertakes to deal with the resource, puts in a lot of efforts to understand the legal, technical and commercial aspects that are related to develop this field. The initial challenge is put forth when the negotiation starts. In this essay, we shall thrive to identify the key areas on which the government primarily focuses while the negotiation process goes on. We shall throw light on the basic concepts that should be taken under consideration by the government, the environmental structure that should be kept in mind and the time horizon (Alcantara, 2013).
When the nations become aware of the existence of this natural resource, they become very happy. But, as soon as they move towards setting up the industry that uses it as the raw material, it gets exposed to the underlying dangers that are associated with it along with the restraints on reality that range on financial constraints, commercial challenges, political issues and incapability to transform the large resources that are taken from the underground into a liquid asset known as cash (Brooks and Odiorne, 1984). The first round of challenges are seen when the negotiation process starts. In most of the situations, the resource rich nations grab the active participation of the international companies in order to give a profitable turn to their existing resources. But, the moment they start entering into negotiations with the companies, they see that the international market holders possess a much more exposure in this field and enjoy better financial status along with superior degree of knowledge while they deal with the contracts.
The oil companies generally have hatred towards immoderate and theoretical investigations. Considering the large number of dry wells they go through, and the losses they undergo because of the out-of –pocket expenditures, they fail to easily recoup the same (Taylor, 2005). Thus, they ultimately rely on the belief that the home government might strive to give them some amount of success by generating help. This help may be either political of financial in various forms. While entering into negotiations, they make adjustments in their procedures while undergoing the negotiations which remain in accordance to the political environment of the country (Crockett, 2003). The attitude adhered to while the negotiation takes place is usually uncompromising, self-protective and feisty.
The most important issues that arise during any negotiation process are classified into two groups. One of them deals with the conflict zone where the company is situated and the entire process in which the recruitments shall be made is taken in this part itself (Nyden, Vitasek and Frydlinger, 2015). This conflict zone faces the maximum effort. The issues that are in concern generally happen to be either technical or commercial. The second issue deals with those factors that happen based on those instances which get neglected when the negotiation process takes place. The factors are usually characterised under environmental issues, social matters, or economic and political concerns (Tracy, 2013).
Let us now probe into the various concerns that take place with the locals of a particular area when a oil contract is negotiated. When an oil company is set up, the owners very soon realise that the land where they intend to set up their company is questioned by the locals and the indigenous communities who were the original owners of the land. They put forward their claims to mitigate their spoils of the loss of the land and demand for job offers and compensations from the company (Wilson, 2004). These demands require special attention in the entire negotiating process and hence, they should be handled and resolved by a proper amount of domestic process and political influence. Speaking generally, oil contracts are large negotiation contracts because all the terms and conditions in the contract are simple inclusions that are concluded in the process of negotiation. The process generally does not have difference from the bidding situations. Gradually, the issues that are discussed take up a complex pattern over the time. The final result that is derived is incorporated in the contract through negotiation (Radon, 2012).
Once the matter with the locals is sorted out, issues related to cost matters start taking place. This is because the market structure is something which changes continuously and so do the improbabilities in the field of research. Often dry holes may be dug up and as such the entire process undergoes massive losses (Zartman and Spector, 2013). Hence, during this time of the process, it becomes very important that the negotiators should try to gather a working knowledge of the entire process and inculcate the methods of effective time and resource management. While this stage in the negotiation process is reached, a stage comes when one should be very patient while just a moment later another situation arises when one needs to rush. Thus, we can say here that time is one of the most essential elements to exercise proper control and get what is wanted. The principal aim is to maximise returns and minimise losses keeping in mind the probable ones that too without hurting the economy of the nation in any way. Thus, the vital requirement here is that the pressure exerted from both the political ends as well as the corporate restructure are equally important to be handled judiciously (Crump, 2011).
Further difficulties arise while individuals try to frame the proper negotiating team. It is very important for the negotiators to have a proper strategy while they do the negotiations. Hence getting hold of able negotiators is very important. These negotiators have a basic responsibility to differentiate the factors that are negotiable from those factors which are not negotiable. All this must be done to stretch profits to the maximum level and reduce the ongoing losses. Investors in the oil companies owe allegiance and require that due diligence and legal qualifications should be satisfied by the negotiators while framing the contract. There are certain countries which remain comparatively new in getting hold of this sector. They generally thrive towards earning more and more profits and in this process fail to understand that they basically lack in the technical and financial expertise to attain heights in this field. In order to satisfy this requirement, nations very often require to get help from the outside countries in getting proper advice from them so that the pool of issues that generally arise from the negotiation process can be dealt with in greater ease (Jones Gill LLP, 2015). There are also high chances of falling under conflict of interest issues while the same in question.
On one side, regulatory power is exercised by the government to promote public interest, at the same time, on the other hand, in order to develop and foster an environment which provides a positive aspect towards foreign investments which promotes the economy of the nation and at the same time gives a step by step rise in the employment sector as well. This provides the further grounds to develop opportunities where research and exploration can be further looked into deeply (Druckman, 2001).
At this venture, it is necessary for the private actors to work together in joint association with the public agents. The difference of opinion which arises as discussed under the previous heading becomes easy to manage in countries like Canada or Norway that are advanced in this field as compared to in nations which are comparatively new here (Oil-gas-leases.com, 2015).
The transaction calculate likewise experiences an imperative that is identified with the variables that are time delicate. These time components are essentially dependant on the cost of oil in the country which thusly relies on upon the political and monetary circumstance of the host nation. The desires that are kept by the host nation are given shape by the transactions when they envision and give every one of the progressions that are predictable and unforeseeable. While surrounding the agreement, the moderators need to solely construct their discourse with respect to the different requirements of time that emerge all the while. The expense administration, the value changes, the residential conditions affecting the value changes, and so on gets to be significant purposes of exchange. The arranging process accordingly obliges that certain solidness conditions ought to be all around examined and joined in the understanding that will have the ability to dispose of contractually the typical element changes which continue occurring in the general public and in this manner at long last prompt change in the determinants of the managing components of the oil organizations (Kennedy, Benson and McMillan, 1982). The oil organizations can depend on these conditions for a compass of five to seven years so that the regulations identified with assessment, money and business concessions stay under the control of the organization.
The gatherings while going into the agreement ought to additionally keep a fitting look out for the precariousness that lies in the legitimate segment. It is a no doubt understood wonders that the more insecure the lawful system in a nation is, the more requests are made by the organizations. These requests can be settled by having a decent handle over the dealing force.
The time concern in general society private clash can be well settles by the arbitrators in an accommodated manner. The principle of law dependability must be surely known by them and the mediators ought to take a dynamic part in comprehension that they can’t occupy the enthusiasm of either gathering (Smith, 2009). They ought to identify with the requests of both the financial specialists and additionally the administration and flourish towards making an approach in which the most extreme benefit can be earned by the speculators while the greatest income advantages are earned by the legislature. This harmonization can thus prompt a superior system to continue with the further procedures as talked about in the future.
The moderators while drafting the agreement ought to keep up straightforwardness in the transaction process. It truth be told fortifies the hands of a mediator while he drafts the agreement. The oil organization as being what is indicated has a place with the country considering the way that the characteristic stores are gathered from the area inside. The more straightforward the whole assertion remains, the more open approval is accomplished by it once negotiated (Radon, 2012). The term straightforwardness in this connection basically implies that all matters identified with the terms of the oil contract and the instalments that should be made are communicated in open terms keeping up the mystery of the non disclosable data and competitive innovations. The oil organizations are obliged to secure their instalments in the shareholdings which are comprehensive without bounds negative episodes that may emerge in light of the savagery amongst the general population or common interruption in the general public or even under stable calls for nationalization (powerdriverbasin.org, 2015).
Generally, the contract of an oil agreement can be framed in any one of the following ways as listed below:
In these sorts of understandings, the organizations hold the rights to investigate, fare, create or offer the oil that they remove for a predefined period in a predetermined region that is stipulated in the contract. This sort of contract obliges an extraordinary part of the expert specialists and skill turns into an essential. There are sure business drawbacks identified with the matter as the whole structure to a great extent lays on offering (Khong, 1986).
This sort of a contract lays on the rule that the responsibility for oil that is extricated is basically laying on the nationals of the nation and is not a property of the private gatherings that are identified with the investigation work. The money related and operational dangers which are connected with the work are in any capacity borne by the oil organization (Radon, 2012). This sort of an agreement puts the legislature under a bigger weight as they get to be obliged to impart the benefits earned to the host private gatherings and in the meantime, they get to be obligated to focus as to balance the benefit making alongside the authorization methodology in the earth keeping pace with the regulations set forth.
This emerges when two or more diverse gatherings meet up to seek after a joint undertaking. This is pretty much taking into account the premise of an organization and subsequently requires fitting distribution of assets, successful administration, relieving the monetary dangers related and understanding the obligations that are hidden with it. For the most part Joint ventures happen to be a bad dream for the moderator’s as it obliges quite a while to arrange the arrangement (Radon, 2012).
This sort of understandings gives particular undertaking or administrations to which representatives are contracted. The foremen get a settled instalment that is to a great extent in light of the revelation of the oil or the cost of the oil. The key principals that look for consideration and choice making force lay on the hands of the legislature (Brown, 1975).
The very important issues that should be kept in mind are given are given as under (Brister, 2013):
Alcantara, C. (2013). Negotiating the deal. Toronto [Ont.]: University of Toronto Press.
Brister, A. (2013). Farmout Agreements: The Basics, Negotiations and Motivations – Oil and Gas Law Digest. [online] Oil and Gas Law Digest. Available at: https://www.oilandgaslawdigest.com/primers/farmout-agreements-basics-negotiations-motivations/ [Accessed 6 Jul. 2015].
Brooks, E. and Odiorne, G. (1984). Managing by negotiations. New York: Van Nostrand Reinhold Co.
Brown, R. (1975). An analysis of alternative Mideastern oil agreements. McLean, VA: Decisions and Designs.
Crockett, P. (2003). How to negotiate effectively. BMJ, 326(7385), pp.49Sa-49.
Crump, L. (2011). Negotiation Process and Negotiation Context. International Negotiation, 16(2), pp.197-227.
Druckman, (2001). Negotiation and Identity: Implications for Negotiation Theory.International Negotiation, 6(2), pp.281-291.
Jones Gill LLP, (2015). Negotiation, Review and Drafting of Oil and Gas Agreements – Jones Gill LLP. [online] Available at: https://jonesgill.com/oil-and-gas-agreements/ [Accessed 6 Jul. 2015].
Kennedy, G., Benson, J. and McMillan, J. (1982). Managing negotiations. Englewood Cliffs, N.J.: Prentice-Hall.
Khong, C. (1986). The politics of oil in Indonesia. Cambridge [Cambridgeshire]: Cambridge University Press.
Nixon, P. (2005). Negotiation. Singapore: Wiley.
Nyden, J., Vitasek, K. and Frydlinger, D. (n.d.). Getting to we.
Oil-gas-leases.com, (2015). Oil and Gas Lease Negotiation. [online] Available at: https://www.oil-gas-leases.com/oil-gas-lease-negotiation.html [Accessed 6 Jul. 2015].
powerdriverbasin.org. (2015). [online] Available at: https://www.powderriverbasin.org/assets/Uploads/files/Oil–Gas/TipsforNegotiatingOilandGasLeaseandSurfaceUseAgreements1.pdf [Accessed 6 Jul. 2015].
Radon, J. (2012). How To Negotiate An Oil Agreement. Cambodia Review, pp.89-113.
Smith, R. (2009). Negotiating environment and science. Washington, DC: Resources for the Future.
Taylor, M. (2005). Negotiation. Oxford, UK: Oxford University Press.
Tracy, B. (2013). Negotiation. New York: American Management Association.
Wilson, E. (2004). WRPMD 1999. Reston, Va.: American Society of Civil Engineers.
Zartman, I. and Spector, B. (2013). Post-Agreement Negotiating within Multilateral Regimes. International Negotiation, 18(3), pp.325-332.
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