Oil & Gas Dispute Resolution Paper - Part 2

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DISPUTES IN THE OIL AND GAS INDUSTRY

As mentioned before, primary stakeholders in the oil and gas industry refers to oil and gas

companies, host states and communities, governments, financial institutions, investors,

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

take different forms, the following are the most common:

i. State versus International Oil Companies

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

state’s obligations under that treaty.

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-

decisional resolution techniques before they can pursue arbitration.2


1
‘Dispute Resolution in the Oil and Gas Industry: The Case of Uganda’ (Cristal Energy Series 2019) p 2
2
Moore and Pierce (n 3) p 410
This structure was adopted in the Guyana and Exxon PSA 2016, Trinidad and Tobago

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

undercurrent of the host country.

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,

mediation, conciliation, arbitration, or adjudication in the International Court of Justice.

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.

iii. International Oil Companies and Company Disputes

International Oil Companies and Company disputes, also referred to as international

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

iv. Individuals versus International Oil Companies (IOCs)

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

dispute often arises in relation to concerns about sustainable development and

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

Milieudefensie (Friends of the Earth, Netherlands) along with other Non-Governmental

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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