1.

Despite the shift from early concession contracts to new and more sophisticated forms of
petroleum arrangements, contemporary oil and gas agreements do not adequately protect
interests of host states and local communities
Critically discuss with reference to concrete developments in international oil and gas contracts
and the problems these contracts leave unaddressed.

INTRODUCTION
In international petroleum arrangements between host Countries and oil companies, each party
has a common goal to make possible the exploitation of the Countrys petroleum resource and
maximize its economic return. The ideal arrangement is seen as one that effectively
accommodates the common as well as the divergent aspirations of both parties. The result of this
is a constant tension from the desire of the host State to retain control over its natural resources
viz viz the expectations of oil companies to maximize the rate of return on its investments with
little or no developmental activities in the local communities. 1 Hence there is always a demand
for an effective legal and regulatory framework with clear and transparent social, legal, policy
and fiscal terms that represents the development of Host State (HS) and Local Communities
(LCs).2
The aim of this essay is to discuss in summary the various developments of oil and gas contracts,
their gradual evolution from relative old forms of petroleum arrangements to modern
arrangements in countries like Indonesia, Brazil, Thailand, and China. The essay will also look at
the innovations and inadequacies of these arraignments and the impact of such inadequacies on
the development of the energy industry, HS and the interest of the LCs. A General appraisal and
possible solutions for the problems discussed will also be attempted in the course of/at the end of
this study.

1Giulio G. Carini, 'Historical Review of International Petroleum Arrangements Oil-Industry

History',(2008) v. 9, no. 1, p. 109-119
2BenardTaverne, An Introduction to The Regulation of The Petroleum Industry Laws, Contracts and Conventions
(Kluwer Law International 1994)pg 7

TRADITIONAL CONCESSION PETROLEUM CONTRACT

This earliest form of petroleum arrangement is an agreement usually from a host Government
that provides an oil company the exclusive right to explore, develop, and market oil and gas in a
defined area for a specific number of years.3 In return for this exclusive right, the terms of the
concession agreement ordinarily require the company to pay tax and royalty rates to the host
country.4 There was little or no development of HS and LCs under this form of contract.This was
in part because the notion of mutuality of interest was not preserved since the concessionaire had
a very large portion of resources accruing from the arrangement. In addition, the method of
production brought about a lot of waste and environmental pollution, undue competition among
the concessionaires, inefficient process of production as against the global demand for oil and
energy.5
During this period, two interrelated issues came to light, namely: concerns for environmental
protection and the preservation of natural resources6 .As a result, the concession system came
under increasing pressure by host-country Governments who increasingly demanded a more
equitable system of sharing the gains from their natural resources. This led to various phases of
renegotiation, nationalization and eventual termination of the concession system as HS strived to
change their relationship with International Oil Companies (IOLs) from concession to
participation, from passive rent collectors to active partners in the total financial benefits, from
simple royalty to equal profit sharing arrangements7.

3 Gordon H. Barrows, Worldwide Concession Contracts and Petroleum Legislation (PennWell

Books 1983) pg 1
4Ibid n3 pg 1
5Bernard Taverne, Petroleum, Industry and Governments: A Study of the Involvement of
Industry and Governments in the Production and Use of Petroleum (3rd ednWolters Kluwer
2013)pg 15-18
6ZhiguoGaoInternational petroleum contracts: current trends and new directions (Kluwer
Academic Publishers1994) p2
7J. E Attwell,'Changing Relationships between Host Countries and International Petroleum
Companies',17 Houston L.R. 1015-19(1980)

Now, it is noteworthy that despite its major defects, the traditional concession regime did play a
role in the provision of Incentive and capital for undertaking the particularly risky and expensive
business of petroleum exploration in what where in those days,remote areas of the world.

MODERN CONCESSION PETROLEUM CONTRACT

A good example of a modern concession is the Thailand Modern Concession Contract (MCC)
which provided that petroleum resources belong to the state of Thailand and that no person can
explore for, or produce petroleum in any area, whether such area is owned by him or not, except
by virtue of a concession8.The rights conceded to a concessionaire include every right to
petroleum operation, including the right to own and use land both within and beyond the
concession area, but exclude refining.9 One significant contribution of this contract to the
development of the HS and LCs is the provision for its interest through special clauses like the
sole risk clause under which the government has the right to require the concessionaire to
expedite the production in its reserved area should the country have a need for petroleum to
foster its economic development. Under this same MCC was the special advantage clause, where
the concessionaire is required to furnish the government with a number of 'special advantages'
usually in the form of scholarships, grants, social and welfare benefits'.10
This contract has some advantages over the traditional concession and contributed to the
economy of HS with other significant provisions like: Signature bonus; all concessionaires are
obliged, as a rule to pay an agreed amount of money to the Government upon signing the
contract. However, some inadequacies were recorded in the Thai contractual provisions on and
practice of environmental protection which shows several weaknesses. The concession system
provides little more than the traditional requirement of "good environmental protection''. Neither
precautionary and anticipatory approaches nor substantive preventive measures for
environmental hazards were provided for under the contract. Even the nominal penalty charge set
8The regulation of the petroleum industry in Brazil.law no.9478 of August 6, 1997.
http://www.anp.gov.br/brasil-rounds/round1/Docs/LDOC01_en
9Ibid n6 pg 33
10 Ibid n6 pg 54-55

by the petroleum Act suggests a rather casual attitude towards environmental responsibility and
this constituted a major detriment to the development of the HC and LCs under the contract and
stands as a major defect in the arrangement11.
In an attempt to make some innovations to this form of contract, the Brazilian Government
introduced the Modern Concession Regime in 1997 under which it had some innovations on the
environment. Under this provision, after concessions are granted in the bid rounds,
concessionaires must obtain the environmental licenses for the specific exploration, production
and development activities they intend to carry out from the competent environmental agency
regarding environmental liability. The Brazilian Constitution stipulates that the person or
company responsible for any activity harmful to the environment may be subject to three spheres
of liability, which include: civil, administrative or criminal. Furthermore, these spheres of
liability are concurrent, and a party in default may be liable on all three levels at once 12.
However, due to political will and the inefficiency of related Government Agencies the
implementation of this provision did not materialize significantly and thus no basic contribution
to the development of the nation state is on record as at the time of writing this article.
PRODUCTION SHARING CONTRACTS AND STATE DEVELOPMENT
The introduction of the production sharing contracts (PSC) promised greater development of the
HS and LCs because of its provision on ownership of petroleum product and the sharing formula
which made social and economic development to be expected. Its legal nature can be
summarized as: risk with the rights to share. 13The contract is a native Indonesian thinking
based on the concept of the owners of natural resources engaging a third party as a contractor.
As enshrined in its constitution and elaborated in its basic petroleum law, Indonesia's basic
philosophy is that the natural resources are owned, controlled and developed by the State for the
11 Ibid n6 pg 48
12Luiz Antonio Lemos and Luis Antonio Menezes, ''Overview of Brazilian Petroleum
Regimes''(OGEL Vol.11 issue 5,October 2013) pg 9 http://www.ogel.org/ Accessed 17
December,2013
13 Ibid n6 pg 100-102

benefit of the people. So under PSC, title to oil and gas either in its geological state or at any
stage of production is vested in the state. Legally, the PSC does not grant the contractor any
rights to petroleum in the contract area, except the right to receive an allocation of production for
risks assumed and services rendered and this was its major advantage over the concession
contract14.
However, for several years now the implementation of the PSC in Indonesia has been plagued by
various problems, resulting in low levels of development of the State and LCs. 15 One of such
shortcomings of the contract is its environmental provision which despite the increased
awareness, a variety of problems impeded the successful implementation of the environmental
policies and regulations. First, most of Indonesia's environmental Acts 'generally take the form of
a statement of principles and requirements, without laying down regulatory machinery.16
Secondly, environmental legislation was often unclear as to the division of responsibility among
the institutions involved. Thirdly, the environmental agency is only assigned a coordinating role,
Fourthly many regional decision makers such as Governors and provincial assemblies favour
economic development over environmental protection for short-term benefits. Fifthly the general
lack of funds, technology, and qualified personnel.17It is pertinent to note that ecological
problems remained a major hindrance to the development of HS and LCs under this contract as
legal environmental provisions were generally neither sound nor clearly spelt out in operational
terms.For instance, the phrase 'extensive pollution' in the contract is quite vague and open to
many interpretations. It appears that the contractor assumes no responsibility unless his
operations have caused 'extensive pollution' thus the LCs still suffer the hazards of
environmental pollution as only clean up exercises are carried out occasionally18. A proactive
14MadjediHasan'' Indonesia's Petroleum Contract Under Rising Resource Nationalism
Environment '' (OGEL Vol. 11 issue 5, October 2013) pg 3-5.http://www.ogel.org/ Accessed 17
December, 2013
15 Ibid pg 6
16R. Cribb, "The Policy of Pollution Control I Indonesia", (1990)30 Asian Survey 1126 cited in
footnote n6 pg. 96
17 Ibid n6 pg 97
18 Ibid n6 pg 97

environmental legislation is suggested if the Government is committed to the development of the

State and LCs.
Another fundamental reason why this contract did not contribute to the development of the HS
and LCs is perhaps the management of the contract itself. Legally, management was vested in
Pertamina (State Oil and Gas Mining Enterprise) and the contractor is responsible only for the
execution of the extraction. In practice, Pertamina does not possess sufficient capacity to achieve
the aim of full managerial control over all aspects of the operation and the authority to approve
companies' work programs remains a somewhat token one. In fact it is the contractor who retains
effective control despite management clause and their priority was the returns they can maximize
and not contribution to the HS and LCs. Thus development of the State couldnt be achieved
because management clauses only created an 'appearance of domestic control'19
Like the management clauses, the indonesianization provision which was the provision to
employ and train Indonesians was largely ineffective due to its nature in the contract as a general
commitment rather than been a biding social corporate responsibility20.
Presently, the outlook for the petroleum sector in Indonesia is becoming increasingly uncertain
given dwindling oil reserves in the country's maturing fields. The decline is mainly a result of the
slow pace of exploration and development for the past decade, which could be exacerbated by an
increasingly uncertain regulatory environment as resource nationalism creeps into the
government's policy towards the sector. The country is henceforth laying more emphasis on
resource nationalism as some of the commercial PSC will soon expire, under the declining
production trend. Faced with increasing domestic consumption, and in an attempt to renew the
expiring PSC the Government of Indonesia is now forming Joint Venture Agreements with IOCs
in other to sustain the development of the state21
The Case of Brazil
19Robert Fabrikant, 'Production-sharing contract in Indonesian Petroleum Industry', (1975) 16
Harrv. Int'l L.J pg.303-51
20Ibid n6 pg 102
21 Ibid 14 pg 7

In 2010, Brazil passed a law which created the Petroleum Sharing Agreement (PSA, which is the
same as PSC in Indonesia) regime to rule the contracts under pre-salt and strategic areas.
Although the Brazilian PSA was inspired by the traditional model, this contractual arrangement
has acquired particular features in Brazil, which unlike the Indonesian industry focuses more on
how to enhance the development of the state. After launching a public consultation allowing
different players from the industry to suggest changes and amendments to the agreement first
published in July 2013, the National Petroleum Agency (ANP) in September 2013, made
available the final version of the Brazilian PSA and its tender protocol. 22 Under the PSA, the
contractor is required to pay a signature bonus to the Government at the time of signing the
agreement. This fixed amount is aimed at generating more revenue for the State and to do this
were two state-controlled companies Petrobras as contractor, and the Pr-Sal Petrleo SA
(PPSA) representing the Federal Government interests and managing the PSA.
Apart from the operational and commercial risks that were involved in the activities of the PSA
regime, which the Government worked hard to reduce, another issue of concern was political
risks. Among the mechanisms to mitigate these risks are stabilization and renegotiation
clauses.23These clauses provide simply that the legislation at the time of the contract will rule the
whole agreement, whereby the contract must be changed only by mutual consent 24. However the
PSA and the ANP are yet to embrace and implement these provisions as at the time of writing
this essay.
Domestic market obligation which obliges the contractors to attend to the domestic demand for
oil, by selling a certain percentage of its share in oil within the national market is one major
contribution to the HS as observed in the contract. However certain provisions in the contract
obviously appeared as hindrances to the development of the HC. These include: contractor's
22Felipe Martins Reis 'Brazilian Production Sharing Agreements: A Critical Approach ' (OGEL
Vol 11 issue 5 October 2013) pg 19 http://www.ogel.org/.
23Ibid pg 31
24 Paul E. Comeaux and N. Stephan Kinsella Reducing Political Risk in Developing Countries:
Bilateral Investment Treaties, Stabilization Clauses, and MIGA & OPIC Investment Insurance
(1994) New York Law School Journal of International and Comparative Law pg 33

exemption from compliance on local content provision, contractor's freedom to export without
duties, and the non-provision for a mechanism of dispute resolution in theabsence of a particular
Law in the governing contract. The consequence of this is that Local communities who suffer
from the adverse effect of petroleum production cannot seek redress against the International Oil
Companies (IOCs) instead the contract only recognized the need for conciliatory measures
which must be observed before submitting a conflict to the international arbitration, a provision
that is detrimental both to the enforcement of breach of fundamental human rights occasioned by
petroleum exploration, and a total relegation of the development of domestic judicial system.25
Though it may be argued that the transfer of the infrastructure to the HS at the end of the contract
under PSA is a contribution to the development of HS, it is pertinent to note that as the contractor
is entitled to recover the costs incurred with its activities upon the PSA(cost oil), which includes
those related to building, acquiring and decommissioning the infrastructure, the loss of the
ownership of installations may not represent an issue to the contractor thus the development of
the HC and LC is not realized in this regard26
RISK SERVICE CONTRACT AND STATE DEVELOPMET
Under the risk service contract which has been used in countries like Brazil, the contractor
provides the entire risk capital for exploration and production, and where there is no discovery
the contract ceases to exist with no obligation on either party.27 Where there is a commercial
discovery and subsequent development leading to the production of petroleum, the contractor is
entitled to recover (with interest) its funding and to recover additional compensation in cash (not
in production).28 Its legal title is risk without oil. This is slightly opposed to the pure service
contract which is a simple contract of service. Under this arrangement, risks and costs are borne
by the state. The contractor is in turn paid a flat fee for its services, as stipulated in the contract

25 Ibid Pg 34
26Ibid n22 pg. 37
27YinkaOmorogbe, Oil and Gas in Nigeria (Malthouse Press 2003)pg 33
28Ibid n5 pg 124

between the state and the oil company.29 The contractor is under the obligation to carry out the
exploration, development and production operations, and the host Government may take control
of productions from the date of commencement of production.30One legal consequence flowing
from this arrangement is that the oil company or contractor has no right or any claim to the
petroleum discovered as it is paid for the services rendered and this appears a major contribution
to the development of the HS.
The RSC also contributes to the development of States in the sense that it is the first arrangement
in history that assures conceding countries the maximum national control over petroleum
Development with as little foreign involvement as possible. This certainly constitutes a major
improvement over other current petroleum agreements. 31 It is thus favoured by those developing
countries who place greater emphasis on the ownership of natural resources and national
independence because it relegates the foreign company to the role of a mere contractor providing
services, with neither the right to the service area nor title to oil production except the
entitlement to buy back some crude oil.32
Under the Brazilian RSCs, Petrobras (Brazilian Petroleum Corporation) whose aim is to achieve
self-sufficiency in oil production and refinery capacity, takes over and conducts all production
operations after development by contractors. In this regards, it is probably right to suggest that
Petrobras bears more responsibility towards sustainable development of the state and local
communities than do the service contractors. In fact, in an effort to immediately reduce its
dependency on oil imports, the Government increased domestic production by exploiting
existing fields at a production rate that exceeds production norms though this practice has been
29YinkaOmorogbe and Peter Oniemola"property rights in Oil and Gas Under Domanial
Regimes in Barry Barton and others (eds) Property and the Law in Energy and Natural
Resources(OUP 2010) pg 9
30Maxwell Gidado, 'Petroleum Development Contracts with the Multinationals Oil Corporations
in Nigeria' (1999) pg 119 cited in footnote n29
31 Ibid n6 pg 138
32J A C Neto, Risk-bearing Service Contracts in Brazil: An Overview,Diplomathesis,University
of Dundee,May 1983 pg 117(cited in footnote n6 pg 139

widely criticised for its violation of general rules in the international petroleum industry. It shows
the 'overzealous attitude' of Governments' commitment to the development of the State. 33
However, Brazil like many other developing countries has severe ecological damage and
environmental problems of immense proportions, many interest groups and Governments
Agencies have traditionally favoured economic development over environmental protection,
which is often compromised.There are several reasons for this. Perhaps the most important is that
there has been a lack of political will to protect the environment. For some Brazilians, many
conservation areas and national parks exist only on paper.''34Petrobras and its contractors are
unleashed in their petroleum and services operations. In many instances, explorations begin
without any prior environmental impact assessments, and there is no environmental monitoring
throughout the operations.35.
It is important to note that the corporate environmental image and performance of Petrobras,
which takes over production after a field has been developed, is no better than its Foreign
Service contractors. In fact, Petrobras has been accused of being the country's "major polluter'. It
has been responsible for 65 oil spills since 1983 and has been fined on more than 31 separate
occasions for environmental pollution or inadequate pollution controls36
RSC should have included some acceptable environmental protection provisions and
enforceable social corporate responsibility for Petrobras. In view of these defects, it seems fair to
say that the risk service contract has no effective provisions on environmental protection and that
foreign contractors have operated under no specific environmental obligations except the cleanup responsibility and thus has no outstanding development to the development of HS and LCs in
this regard37.
33 Ibid n6 pg 138
34 Ibid n6 pg 138-140
35 Ibid n6 pg137
36 Ibid n6 pg 137
37Ibid n12 pg 14

JOINT VENTURE AGREEMENT AND STATE DEVELOPMENT

Under the joint venture agreement, the state acquires participatory interests in exploration,
development, marketing, export and production taking place within its territories. 38 Usually the
participation and the extent of the rights are negotiated between the state and the oil companies.
Each partner in the joint venture contributes to the cost and shares the benefit or losses in
accordance with its proportionate equity interest in the partnership.39
The participation relationship is governed by other agreements, which coexist with the
fundamental contract.40 JOA allows oil companies to come together to mitigate their risks and
share in the outlays required for capital-intensive exploration, development and production
activities and this stands to be its major advantage over all other forms of contracts.41
The sole risk venture is one in which one has failed to obtain the pass mark in the Operating
Committee, yet wishes to go ahead. A non-consent project, by contrast is none which succeeds in
obtaining the pass mark in the Operating Committee, but where the outvoted minority
nevertheless elect not to participate in the proposed project. Both sole risk and non-consent
clauses are in the very real sense inimical to the very purpose of a joint venture: mutual decisionmaking with the aim of sharing of risk, cost and production42
The most important duty of all members of a JOA is to provide funds when requested under a
cash call. However the provision of forfeiture clause in a JOA viz viz the duty inhibits the intent
and purpose of the contract and general contribution to the HS and LCs. This is premised on the
fact that if a party defaults he loses his rights and forfeits his interest to the non-defaulting

38Ibid n5 pg 362
39A. Oshineye, Petroleum Industry in Nigeria: An Overview (2000) 4 MPJFIL 325 at 235-44
cited in footnote n29
40 Ibid n2 pg 138
41Greg Gordon, John Patterson, Emresenmez (eds), Oil and gas law: current practice and emerging trends
(Dundee, Dundee University Press 2011) pg. 359

42Ibid pg 391

members43. The consequences of this is that should the non-defaulting member fail to acquire the
defaulters interest, the JOA will usually provide that operations be abandoned, the licence
surrendered and decommissioning(if appropriate )commenced, with each party remaining liable
pro rata for its share of the decommissioning costs. 44 This self-determination and unreliable
tenure of the JOA makes it unreliable for the sustainable development of HS and LCs.
Although the contractual provisions regarding forfeiture of licence interest on default are very
clear, there has always been some concern within the industry as to whether such a forfeiture
clause could be enforceable in court if default should occur in the production phase of the
operations45.This is because in these circumstances the defaulting party would lose everything
after having already incurred a substantial expenditure towards the joint operations. This again
makes the contract 'unattractive'.Given that the whole purpose of a joint venture is the joint
sharing of costs and liabilities, it is only reasonable that some sort of sanction be applied to
defaulting parties instead of defeating the very purpose of the contract via strict adherence to the
clause.46
CHINESE HYBRID CONTRACT
The Chinese Hybrid Contract (HC), however, does have unique characteristics when compared
with other contractual arrangements. The most striking feature is its ''four-in-one'' nature. It
incorporates aspects of almost all other prototype arrangements. While including the mixed legal
nature of Concession, Risk service Joint venture, and Production sharing, the dominant structure
of the contract is, in essence, the Joint Venture.47 Although not interpreted in either the contract
law or the HC itself, the term 'equality and mutual benefits 'presumably implies a guarantee of

43Ibid pg 392
44 Ibid 392 greg
45G Willoughby,"Forfeiture of Interest in Joint Operating Agreement" (1985)3 JENRL 256-265
46Ibid n41 pg 393
47 Ibid n6 pg 196

the legitimate rights and interests of both sides as well as an equitable share of returns between
the parties..48Its legal nature is risk with title to share management and production.
Its inadequacies however are seen in the introduction of a sophisticated environmental protection
system which beyond doubt is a distinctive feature of the Chinese HC. In theory, it constitutes a
substantial improvement over many, if not all, existing agreements in developing countries. In
practice, however, its legal significance has been offset by its poor implementation, and
enforcement and this result in little or no contribution to the general development of the host
State.49

GENERAL OVERVIEW OF PETROLEUM ARRANGEMNT CONTRACTS

Ownership of Resources under the contracts
As has been seen above, every petroleum arrangement has an element that denies the HS and
LCs basic development either from the form of the contract itself or from its operation or
implementation by the Government Agencies. A fundamental feature in most contracts that
hinders HS and LCs development is the arrangement is the ownership and control of resources
between central Government and Constituent parts which often results in such things as: serious
displacement/disruption of indigenous peoples, and armed conflicts between the host populations
which have serious social-economical consequences.50 For example, the constitution recognised
that natural resources were to be used for the benefit of the people of Indonesia however the
percentage of benefit for indigenous people was very small.What they rather got in return was
severe environmental pollution51.

48 Ibid pg197
49 Ibid pg 198
50George S Akpan, Host state legal and policy responses to resource control claims by host
communities: implications for investment in natural resources sector pg 285
51Ibid pg 291

There is need to review the laws that govern the desire for excessive increased revenue for
Government and the laws on climate change, conservation of petroleum resources and stability
clause on environmental protection laws. According to professor Sornarajah, the strategy of
investors has been to negate environmental laws through stabilization clauses in the contract
which seek to freeze such controls at the time of entry and exclude the application of later
improvements on environmental standards to the investment. 52 Bearing in mind the fact that the
stabilization clause involves a conflict between 'the legislative sovereignty and public interest of
the state party and the long term viability of the contractual relationship, the host state must take
into consideration the giving up of its sovereignty for stabilization.53
Fiscal Policy in the Contract
Another improperly addressed feature in the above contracts is the fiscal policy in the contacts.
The best fiscal terms are terms that optimize the pace of development, and encourage IOCs to
carry out voluntarily sustained active work programs that ensure the application of the best
possible technology to the active development of the petroleum resources and preservation of the
environment. Many nations still have fixed cost oil limits in PSCs. The implication of this during
fluctuating oil price is that HS are likely to have a lower income when prices are high, it is
advisable to make the cost limit a function of the oil or gas price based on a sliding scale
formula. For instance, at US $ 20 per barrel the cost limit could be 50% and at US $ 100 it could
be 15%, while at $ 200 per barrel it could be 10%. This would ensure that the Government
receives its fair share, regardless of the quality of the administration and at the same time if
prices go up, it can still maintain sustainable development of State and LCs. 54Also most RSC
models are all based on fees that are not sensitive to the oil prices or gas prices. This exposes
Governments to the risk. If fixed services fees are agreed to under high oil prices they become a
52M Sornarajah the international law on foreign investment(2nd ed,2004,Cambridge: Cambridge
university press
53I Brownlie, Principles of Public International Law,6thedn(Oxford: Oxford University Press,
2003),526
54 Pedro van Meurs 'Maximizing the value of government revenues from upstream petroleum
arrangements under high oil prices' A discussion document on June 7, 2008 ,pg 31
http://www.krg.org/uploads/documents/Maximising_the_value_of_Government_Revenues__200
8_06_30_h14m8s56.doc

generous bonus to the service contractors when the prices are low at the detriment of the HS who
will be starved of revenue for its development.
A principle of sound fiscal design is to ensure that under all circumstances the investor has a
strong interest in being efficient. This means that the fiscal design should be such that more
efficient IOCs who give regards to modern means of exploration, energy and environmental
conservation should make higher profits than a less efficient IOCs. In other words, the fiscal
design should not give the same profits to all investors regardless of whether they are efficient or
not55. Government should avoid contracts that provide for comprehensive fiscal stability.56
Roles of National Oil Companies
For sustainable development of HS and LCs, National oil companies (NOCs) should be more
involved in the exploration, development and production of oil and gas in many different ways in
modern petroleum contracts.
An important economic argument for direct NOC involvement is that the nation can become an
investor through them consequence make the profits associated with these operations. In this way
the resource wealth can be retained the development of the HS and LCs, rather than facing the
fact that significant profits would be repatriated to the home countries of the various
IOCs.57Another advantage of NOC is in the area of judicial claims by LCs. It is always easier for
local communities to claim social corporate responsibilities, ecological and human rights breech
from NOCs than IOCs.this is because the local courts often have jurisdiction in these matters. 58
CONCLUSION

55 Ibid n54 Pg. 42

56 Ibid n54 pg 49
57 Ibid n54 pg 44
58 Paul Stevens, National oil Companies and international Oil Companies in the Middle East:
Under the Shadow of Government and the Resource Nationalism Cycle (2008) 1 Journal of
World Energy Law & Business 5. http://jwelb.oxfordjournals.org/content/1/1/5.extract

While the original concession agreement was not mutually acceptable because of its onesidedness, the modern petroleum contracts are not entirely satisfactory either, due to the very
extensive involvement of Governments or failures to reconcile economic advantage with
establishing sustainable development.59 In the final analysis, the objective of international
petroleum agreements should always be the balance of fairness in the representation of the
interests of the parties.In this regard,the overall development of the host state and local
communities should be a priority for all parties. It has to be a fair and equitable contract, both to
the host country and to the oil companies.60
A balance should be necessarily drawn between environmental pollution, economic development
and the development of the local communities especially through social corporate
responsibilities of IOLs who should not regard environmental obligations as extra burdens on
their exploration cost.61 The environmental impact assessment(EIA) should be encouraged. 62This
will increase the business value which is lost where a company gives insufficient attention to
environmental, social, and governance issues including the impact of operations on indigenous
people.
With the growing international concerns on climate change, host Statesmust seek to retain the
competence to legislate on issues pertaining to their environment as well as imposeinternationalstandard obligations and if need be, recourse to investment arbitration tribunals.63

BIBLOGRAPHY
59Ibid n6 pg 207
60Ibid n6pg 2
61Ibid n6 pg 2
62Louis.L Bono, 'The Implementation of the EC Directive on Environmental Impact
Assessments with the English Planning System: a Refinement of the NEPA process comment',
(1991) 9(1)PaceEnvtl . L Rev. pg155-86
63Peter D Cameron international energy investment law, the pursuit of stability (oxford
university press 2010)pg 368. http://digitalcommons.pace.edu/pelr/vol9/iss1/4

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