International arbitration of petroleum disputes

This thesis is concerned with the international arbitration of petroleum disputes arising within long term contractual relationships for the exploration, production and development of petroleum, between host countries and foreign oil companies. This relationship is inherently unstable since the underlying objectives of the two parties are not only different but are also, at times, conflicting. Host countries are interested in making use of foreign investment to develop their natural resources for the benefit of national economic progress, while foreign companies are generally profit-motivated and interested in maximising their investment with the least risk. The lengthy duration of these agreements makes them particularly vulnerable to the impact of political or economic influences which are unpredictable at the time of the agreements' conclusion, such as changes in oil prices, and international politics and events. In such complex relationships, disputes are inevitable. When such a relationship falls apart, the parties may choose to resolve their disputes by negotiation, litigation or arbitration. If the parties have not chosen arbitration to settle their contractual disputes, and negotiations are unsuccessful, litigation will result. However, because of the State party's unwillingness to submit itself to the court of another State and the private party's fear of the presumed partially of the host State's court, parties often choose arbitration. The extremely conflicting attitudes towards the appropriate method for petroleum dispute resolution have resulted in arbitration becoming a practical option due to the necessity to compromise in such situations. Therefore, the investigation principally focuses on whether arbitration can satisfy the needs and expectations of both parties for profit, security, protection and stability, as well as ensure fairness and justice. In order to reach satisfactory conclusions, the thesis is divided into seven chapters. Chapter One introduces the subject and outlines the key issues that will be dealt with in the thesis. Chapter Two describes the historical evolution of agreement that have dealt with the exploration and development of petroleum, from the early concessions in the Arabian Gulf and North African Countries to the modern arrangements. This Chapter also discusses the legal nature of petroleum agreements in order to show whether such agreements are in the nature of public or private law. In Chapter Three the hostile attitude of developing countries towards the arbitration of petroleum disputes is explored. This Chapter also looks into the reasons behind the enthusiasm of oil companies in favouring arbitration as a method of settling petroleum disputes. Chapter Four examines the formal and substantial requirements for the validity of arbitration agreements. It also discusses the law governing arbitration agreements, and closes with an investigation of the doctrine of the severability of the arbitration agreement. Chapter Five critically examines the law applicable to the substantive issues and to arbitration procedures. Chapter Six deals with the enforcement of an arbitral award made against a State or State entity. This Chapter examines the doctrines of sovereign immunity and act of state, and the extent to which they can prevent enforcement of foreign arbitral awards made against a State. Chapter Seven summarises the major findings of the study.