Oil & Gas Dispute Resolution Paper - Part 2
Oil & Gas Dispute Resolution Paper - Part 2
Oil & Gas Dispute Resolution Paper - Part 2
As mentioned before, primary stakeholders in the oil and gas industry refers to oil and gas
regulatory authorities and citizens of the host oil producing country. More often than nought,
disputes arise between these stakeholders. While these disputes may involve various parties and
When a state enters an investment treaty, their ability to adopt, revise, repeal and enforce
laws, regulations, and policies that affect foreign investors or investments is subject to the
Thus, the most common form is the State versus International Oil Companies (IOCs).
Here, disagreements arise between governments and IOCs with regards to agreements for
petroleum exploration, development and production (PSAs). These disputes often occur
where there are regulatory changes or amendments that has the potential to dilute the
value of the project as earlier assessed by the respective parties; or, where acquisitions or
disposals of interests in projects may be protected. Generally, the options for resolving
disputes like these include ADR mechanisms or litigation in domestic courts. 1 Generally,
these disputes are resolved via provisions contained in the contractual agreement, PSA
and/ or ISDS. The agreements may often require parties to exhaust one or two non-
Production sharing contract for Block, 2012 and Uganda’s 2018 Model Petroleum
exploration Sharing Agreement (MPSA) which will be examined later. The reason why
investors in this sector opt for ADR and intricately stipulates how the process can be
activated and conducted is because they keen to protect their investments. Stakeholders
generally opt for ADR mechanisms because they are more confident that a third party
will be impartial when resolving disputes arising out of their contractual agreements with
the state. If they were to engage in domestic litigation, there is a high probability that the
judge presiding over the matter is going to be a citizen of the host country. Stakeholders
are afraid that these judges will be partial to the host countries when deliberating over
disputes and awarding damages as they would be affiliated with the social and financial
One such case was Chevron Corporation and Texaco Petroleum Company v The
Republic of Ecuador (II)3. Here, the IOCs, Chevron and Texaco challenged an
Ecuadorian court’s decision that Texaco (who later merged with Chevron) was liable for
toxic waste water dumping and oil spills in the Amazon. The arbitration tribunal
considered Ecuador’s 1995 settle agreement obligations with Texaco, which released
them [Texaco] and their affiliates from public environmental claims. They found that the
IOC had already spent millions of dollars in environmental remediation under the said
settlement agreement. They then awarded seventy-seven million, seven hundred thousand
United States Dollars (USD 77.7 million) against Ecuador in favor of the IOC.
3
PCA Case No. 2009-23
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ii. State versus State Disputes
The other form of dispute that may arise is state versus state disputes. While these are
rare, they often ensue where petroleum fields overlap international borders, onshore and
offshore. Alternatively, they can occur in relation to transit fee charges on throughput in
oil and gas pipelines that cross borders. As stipulated before, Chapter VI of the United
Nations Charter provides that member states can utilize, inter alia, negotiation, enquiry,
The Guyana and Venezuela border controversy is particularly applicable to this part of the
paper as the territorial claims by Venezuela extends to offshore oil blocks controlled by
Guyana. The parties to this dispute, participated in Arbitration, negotiation, good offices,
and mediation. A failure to resolve the dispute by these means resulted in Guyana filing
an application to the International Court of Justice to have the matter resolved. While this
matter is still being adjudicated, this is an example of a controversy between two states
who have great interest in exploiting and benefiting from specified oil blocks; and who,
have utilized and adopted various dispute resolution methods to settle the matter. This
example also illustrates the importance of dispute resolution mechanisms, because until
there is a resolution of this controversy, it is unlikely that either states will receive
maximum benefits from the oil blocks located in the area subject to the dispute.
commercial disputes, is another form of dispute that may arise in the oil and gas industry.
In the oil and gas industry, IOCs would often enter into agreements with subcontractors
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for the commercialization of the oil and gas discoveries. 4 These include, inter alia, joint
operations, cost allocations and crude oil transportation and lifting. Where there is an
alleged breach of obligation(s) by either the IOC or subcontractor, this form of dispute
would arise.5
Lastly, disputes may arise between individuals and IOCs. The oil and gas industry has a
reputation of being hazardous to the environment and persons. 6 As such, this form of
intergenerational equity. One such example is the case of Milieudefensie and Others v.
Royal Dutch Shell PLC and Others.7Here, an environmental group by the name of
Organizations sued IOC, Royal Dutch Shell, at the Hague District Court. The claimants
were seeking an order from the court for the IOC to reduce its carbon dioxide emissions
by forty five percent by the year 2030 and to zero by 2050 in accordance with the Paris
Climate Agreement. On the 26th May, 2021 the court granted the order, stipulating that
Royal Dutch Shell, is to reduce its carbon dioxide emissions, inclusive of its own and
end-use emissions, by forty five percent by 2030. While Shell is appealing the decision,
this is a landmark case in demonstrating disputes arising between individuals and IOCs.
4
(n 16) 2
5
Ibid.
6
Ibid.
7
Case number C/09/571932
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Words: 6,389
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