Oil And Gas Laws: Lex Petrolea

Lex Petrola

Lex Petrolea is an increasingly used term in the arbitration in oil and gas laws within the last century. The arbitration case in 1982 became the landmark of Lex Petrolea when international petroleum disputes created a customary rule validated by the oil industry; the law was part of the lex mercertoria which was universal. In 1988, a semi article thesis was brought forth 25 years before which proclaimed an increasing trend in international arbitral awards which relate to the petroleum industry. It created the emergence of the actual Lex Petrolea which forms an institution in the international oil industry. In addition, another recent article clarified the arbitral awards for international gas and oil exploration along with industries in production which established Lex Petrolea in the same capacity as a customary law. It consists of legal rules that adapt to the nature of particular industries and its requirements. Awards and conclusions from disputes among states’ investments as well as arbitration awards formulated the definition of Lex Petrolea. This paper will seek to review the establishment of Lex Petrolea and the influence it has in the international petroleum industry. It will assess if Lex Petrolea is an arranged regime in the petroleum industry which rose as a result of settlement of disputes, legislation of petroleum, and business practices through model contracts and government contracts.

Lex Petrolea mainly comes from court cases, and international arbitration, but other factors such as investment laws from government and industry contracts coming from business practices are part of its formulation. International Arbitration is different from courts as they concur from previous tribunal discussions. However, the decisions incurred do not bound the precedent discussions; but at the same time the context of making decisions is not exclusive or in a vacuum. A counsel makes an argument for the case using precedents while the arbitrator retrieves their arguments from the written awards. Arbitration has a more practical approach in Lex Petrolea as there are more accordance its development. In the commercial and investment world, people need a level of consistency and predictability while making decisions. Therefore, it brings a more precise the meaning of Lex Petrolea as a suitable application which assists in international arbitration applying to the oil and gas industry. It has the largest number of disputes in international commercial disputes and investment disputes involved between different states. Arbitrators need to ensure that they rely on appropriate sources to predict their awards. Treaties, legislations, and contracts undergo testing and interpretation to have an impact in the oil sector. The full scope of Lex Petrolea comes from inclusive disputes coming from the business of oil and gas. There are four kinds of disputes in these sectors

State versus State Disputes

These are disputes that come from boundary causes in oil and gas fields which particularly occur between cross international borders; especially those in the location of maritime waters. Governments participate in these disputes because their powers claim sovereign titles or solve boundary issues with neighboring states. However, oil and gas companies engage indirectly when granting concessions that determine disputed boundary lines.

State Versus Company Disputes

Its other name is State-Investment Disputes and occurs when the government decides to make changes to the original terms of a contract or deal with a company. The other definition is the expropriate of an investment. The investor who also refers to an oil or gas company or a consortium of companies can put out a claim of the contract of the investment. The terms of the contract related to production sharing and risk service agreement or an investment treaty. Most the claims on treaty are now under the bilateral investment treaties (BITs) and others under a multilateral agreement, for example, the Energy Charter.

Company Versus Company Disputes

These international commercial disputes come from oil and gas contracts. Energy companies are the main category covers the two sectors which are the interests holders of oil and gas concessions such as interest buyers and sellers or joint venture participants or interests involved in the production. Some of the agreements involved are:

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• Joint Operation Agreements
• Confidential Agreements
• Unitization Agreements
• Study and Bid Agreements
• Mutual Interest Area Agreements
• Farmount Agreements

The other category includes operation and service contractors who have the following sort of agreements

• Seismic Contracts
• Drilling Service and Well service Agreements
• Processing and Transportation Contracts
• Facilities and Equipment Contracts.

These categories formulate the major sort of disputes in oil and gas companies. These issues undergo through arbitration compared to courts that incorporate international oil and gas businesses.

Individual versus Company Disputes

Individuals can make claims against companies for various reasons. If an individual has an injury, he or she can issue a tort against the enterprise. Common United States jurisdiction has an increasing adoption among other state countries. Some of the cases undergo filing in their US Court within the Tort Statute. Other claims can be under environment claims and human rights. Other jurisdictions create other innovative legal mechanisms. The other type of claims in which individuals make is when the oil and gas companies make an intentional move towards the host government contract. An accompanied joint operating agreement which is a result of tortious action from a third party or by agreement. The last claims can be claims by concerned consultants or agents who demand their payment under the category of agreements for award of a contract by a company or government. There is much arbitration in which companies did not pay their agents over the last 50 years.

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Boundary Disputes

In oil exploration, there have been many underlying maritime borders that run across the globe have an uncertainty especially those that which have exploration within different regions. The impact of Lex Petroloea makes this category of disputes fall under the international public law. However, some look at it as an esoteric activity and the number of experts involved the field operations having a small number. Both land and maritime disputes have the same the same interests over the control of natural resources of finding in oceans and seas. The United Nations Convention on the Law of the Sea plays the greatest role of as a law that deals with maritime boundaries and most of its provisions are factored in customary international law. Main forums that formulate a resolution for international border disputes are the International Tribunal for the International Tribunal for the Law and Sea and the International Court of Justice. The ICJ issued more than 50 awards while the ITLOS has a pending boundary case. Ad hoc arbitrations among states have their results kept confidentially, and the awards from the cases foster the customary international law in delimiting sovereign boundaries. Over the time, there is now sufficient evidence in creating clarification in demarcating a boundary, but states and tribunals need to have creativity in establishing boundaries. Their literature in the body of limitations is extensive which includes the comprehensive study of the American Society of International Law which forms the International State Boundaries. A proficient understanding in the introduction of the establishment of international boundaries and its impact on oil and gas companies which is under the publication of Association of International Petroleum Negotiators. Investment State Disputes claim that most published arbitration awards adopted Lex Petrolea in solving state investment disputes. Institutional rules such as that of the International Center for Settlement of International Disputes (ICSID) have their publications available to the public domain. Two of these cases rely on Lex Petrolea by Doak Bishop and Tom Childs. These cases established a Lex Petrolea which on the larger scale became a customary international law to make dealings between the state and private investors. Oil and gas businesses are some of the most active and global companies in which the industry makes significant investments with sophisticated, intensive and long life in nature. All parties involved whether it is governments, companies, people or circumstances can make constant changes which can give rise to misunderstandings hence disputes. The influence of Lex Petrolea is significant in state disputes. The first Lex Petrolea article lays out the behavior of investors and government in 1998 in which most awards came from BIT claims; there were no awards before 1998. From then was one award which deals with expropriation and nationalization of assets. The post awards after the period had to deal claims relating to the changes in the State’s fiscal regime like creeping expropriation in which none of the awards before 1998 made such claims. The observations and highlights of Lex Petrolea flow into state investment disputes.

Criticism behind Lex Petrolea

Oil and gas are in a fluid state in exploration, and therefore its underground migration has a responsibility towards exploitation which creates significant problems adjoining rights holders in their deposits. The incentives and aims of owners of gas and oil rights as well have those involved in exploitation want maximum recovery which translates to maximum profit. The content of their contracts contain exploitation rights and the arrangements for awards. A high degree resource risk includes the adaptation of risk sharing practices, especially in the joint venture. Within the early years of oil exploration in the United States undertook one-tenth share in the projects compared to a whole one. The huge cost of exploration at the offshore insinuates that even large companies should also work in the same way. The high profile of oil and gas explorations has particular arrangements that pertain to post-production controls such as input controls and local supply investments. The offshore production contains highly critical safety risks for occupational and environmental health.

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In the dispute claims by El Kosheri, Childs, Bishops and De Jesus, their followers criticized the Lex Petrolea in its qualification of concept which claimed similar characteristics of its mother content lex mercatoria. Various practitioners and scholars of arbitration of international dispute settlement argue that the autonomous nature of lex mercatoria and its free development by arbitrators subjects its awards to the national law to enforce it; therefore, giving a probable cause for its uncertainty. The conceptualization of lex mercatoria in a state system of law bears no footing in considerations related to public policy. Some comments attenuate that Lex Petrolea gives an occasional exception towards the regular use of a legal system to govern arbitrations which are not normal in encountering compared to a national system of law. About a national legal system, Lex Petrolea has a limited scope and may not challenge the law of the heart in a host State. A recent, comprehensive review of the development of Lex Petrolea as in in the references compared to the general legal history of the international oil industry concluded that Lex Petrolea preconcept itself as a simple idea, but there are no particular scope and parameters to ascertain conceptual incoherence as addressed by Alex Wawryk. There is no rigorous definition and in actual terms and it does not completely resonate with the industry. The idea of Lex Petrolea has flaws in its uncertainty, and the terms should not have a submission in the industry.

The sparse consideration in the literature of Lex Petrolea gives suggestions in the term of users which fall into two broad groups labeled as “soft” and “hard” or “normative” and “descriptive”. The soft group derives from contributions of Talus, Martina, Roberts, and Bonnefoy who describe Lex Petrolea as a concept that allows a bundle of resources that associate to the petroleum industry to draw binding obligations. The aspect focuses on the standard features and a factual consequence of the oil rules in both the public and private sectors which develop a pure national source to transact a transnational experience which precedents its specific national requirements. Due to the known fact, there has been a significant development in the last 40 years in providing efforts that model petroleum contracts; the authors of this concept do have a regard to doing nothing different. Devaux when he underlined the general principles of the mining law and its applications 40 years ago. It was the natural legal consequences that formulated the characteristics of the international petroleum industry and established the petroleum law. Wawryk also made the same claim as he identified the general principles of the petroleum mining law and its particular applications. Some play out the nature of the oil and gas enterprise as an obstruction by using a bad Latin name which could also use a normal English one such as “Translational Petroleum Law.” Wawyk also attenuated to the resonance of retention even among sophisticated lawyers. Today, not bearing a Latin word does not preclude a legal advancement or if so, the perception would be to misuse the language. While Professor El Kosheri sought a Latin term applying Lex Mercatoria, he proposed The Hague Academy and arbitrators in Kuwait; he forgot that mercatorius attains towards merchants and it is a Latin adjective which changes which agree with the feminine Lex. Petroleum is not an adjective, but a noun formed from the Latin word Petrus and Oleum found in 1558. Making an article of petroleum would make it petrolearius hence the word Lex Petrolearia, and therefore Lex Petrolea is a grammatical error as described in the first attempt of the law in 1975. The clumsy coinage of the name should not have regard towards being a substitution for good or bad Latin, or the substitution of the Latin Name towards the term transnational petroleum law brings anything of worth. The Lex Petrolea though can also receive perception of obscuring the actual risks that represent itself through its ideas.

The soft and hard usage of Lex Petrolea provides an insistence of a binding rule; however, it has differences in the extension of binding in itself. Anglophone commentators such as De Jesus and arbitration specialists, Childs, Bishop, and Bowman put their attention on arbitration awards to be the binding factor in Lex Petroloea. The awards stream from various sources such as the contract of own parties as well as the general principles of law, systems of law and bilateral investment treaties. It also includes the law of contracts which can abide by the national law. Such affirmations have the impact of determining whether a nation has a legislative or has inefficient regulatory acts or requirement to make compensation payment. They do not make any impositions in the relationship between the state regulation and the state of company contract. It also does not make any determinations on how Lex Petrolea makes an impact on the relationship. Bowman made an analysis saying the embodiment of rules attenuates a risk compromise in oil field practice which gives rise to significant issues.

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In the production and exploration contract between the state contract and an international company, the parties can agree that the practice is subject to a legal system with principles and rules to comply with other than the state domestic law. It requires the company to perform its operations with a good oil field practice and the powers conferred should be under domestic legislation; which is not about the contract or environmental and occupational safety as imposed operational requirements. The factors laid out have the objective of a good oil field practice when in the real terms; they do provide inconsistency with compliance to a good oil field practice. With the contract provision that requires compliance; the government can choose to revoke the contract if claims of consistency are put out by the company and demonstrated to the satisfaction of an arbitral tribunal. The confusion lies in whether the Lex Petrolea gives an alleged status of a good oil field practice to make regulatory requirements unlawful or revoke an illegal practice. The status ascribes to the absence of a contractual reference to good oil field practice but should the standards invoke to inconsistent state regulations? At the same time, if there are no consequential actions implemented, does the issue translate to matters that clarify wording in the contractual clause or the actual presence of a “freeing” clause or actuate an imposition timing of regulatory requirements. It questions the validity of Lex Petrolea in its character to a good oilfield practice. The uncertainty of the pernicious effects of Lex Petrolea brings out its hard version which can allow ambitious claims to permeate as such declared by De Jesus. He accords Lex Petrolea as a legal order of a transnational community of law that is independent of a national and international law and the rules bind participants in the allocated community as applied to individual cases revealed by international arbitrators. The autonomy of the Lex Petrolea does not, however, mean that falls out of the scope of rules and national law. The contrast to that is that lawyers can use the precept of Lex Petrolea to make a preference provision to a national law that is an inconsistency with the general principles and practice of good oil practice. De Jesus states that as an arbitrator applies a contract law of the parties involved; he or she can impose a heteronomous power in the agreement that grants the authority. It can apply rules that confer to the contract in itself or object to Lex Petrolea. In the conception of the matter such arbitrators can attain a significant amount of discretion which can accord to Lex Petrolea with other legal orders apart from the general ones that satisfy the interests of the transnational petroleum society. If a person acclaims that the formulation of a legal order in a law-finding that is discretional through private decision makers and makes the values of democracy and the rule of law repugnant, then De Jesus, a proclamation to that would be to serve the regulatory needs of the particular transnational petroleum community. The community as a notion receives justification within its argument by a coordinative thought that the companies, resource owners, and operators have a combined aim of producing petroleum. The perception of such a community establishing its law sets a pluralist thinking of law, and for the legislation to have autonomy, they need their system of enforcement. It can pose similar to the Law Merchants in merchant courts who underlie enforcement mechanisms such as trade boycotts and fairs exclusions. In contemporary terms, perhaps the same can refer to the modern Italian communities who have their systems of rules and justice. The alleged rules of Lex Petrolea have no independent mechanisms of enforcement and arbitrations only administer a settlement of dispute procedure. The national legal systems are separate and can only abide by the obligations set by the state and the international treaty law. Arbitration also indicates the breaking down of the business relationship between the international oil company and the state.

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