The Abu Dhabi oil Experience: Certain Recent Developments International arbitration
The present case were not in themselves unlawful The tribunal concluded that an award declaring that the nationalization laws were ineffective to transfer rights under the concessions would be contrary to the right to nationalize and were practically unenforceable. It was determined that the right for compensation existed and LIAMCO was entitled to it The compensation was calculated by adding claim for value of plant and equipment, loss of concession, interest and costs The decisions in the AMINOIL and Libyan nationalization cases have been published.
Commenting on these and similar arbitration cases, Lord Wilberforce said at an International Law Association(LA) meeting in 1981 arbitrator tow a huge industry concerned with divan between much states and powerful multinationals This meant the people involved In this business are now the foremost law The big bains.
It means that they are making law making the top level from which it will filter down to national domestic the traditional process of domestic Io Professor Richard Bentham makes the following remarks on contribution of the awards in those international arbitration cases to building a new lex Mercator and to providing an appropriate framework for the resolution of disputes arising under petroleum-Arbitration and the law developed from it are essential to maintain and fester world trade, and it is probably not an exaggeration to say that the decisions of arbitral tribunals are at present building a new Mercator a new law for international trade a law which may help to resolve the continuing conflict between the concepts of stent serum on the one hand and”changing circumstances on the other.
Exploration and Production operations , three major operating companies ADCO(onshore), ADMA-OPCO and ZADCO(both offhore)-dominate the oil scene in Abu Dhabi. These three companies are responsible for all exploration, development and production operations in their respective concession areas and account for almost all of Abu Dhabi’s output of oil and gas.
Each party has the right to receive a proportionate share in production. Each party is responsible for the payment of the applicable income tax and royalty on its share. In accordance with the OPEC Formula, the rate of income tax applicable is 85 percent and the royalty is 20 percent to be expended(i.e., to be considered as one of the expenditures of the chargeable party and to be deducted from its gross revenue to determine its net income) The agreement also regulates the technical assistance provided by the parties to the operating company-to avoid instances, as in the past, when almost all the seconders come from one shareholder. It also provides for the creation of advisory committees and for the procedures and schedules for the preparation of operating and capital budgets. The agreement is governed by Abu Dhabi law and disputes are settled by arbitration in Abu Dhabi in accordance with International Chamber of Commerce(ICC) rules and regulations. An annex containing detailed accounting and financial procedures is attached to prevent ambiguities and disputes. Another feature of the implementing agreement is the establishment of different advisory committees t the Board, composed of the representatives of the participants. Initially four such committees were established: the Technical Committee; the Finance Committee; the Contracts and Projects Committee; and the Supply Coordination Committee. ADNOC is involved in the operations of ADMA-oPCO through: its Arab secondees and employees who are working in the company alongside non-Arab foreign secondees and employees nical, akin and policy the these f the The of oil has the pare agree oint s o has in THE ORGANIZATIONAL STRUCTURE oF THE ABU DHABI OIL INDUSTRY Therefore, the implementing agreements discussed above have been satisfactory to all parties concerned and have been realized without any serious difficulties.
The government of Abu Dhabi feels that through these agreements and arrangements it has accomplished its basic objectives: effective control of the production phase of the industry; real participation in the decision-making process; and gaining experience and training for its nationals while securing the contribution of knowledge and expertise from foreign partners. This why, at present, Abu Dhabi’s government appears to be content with the 60 percent participation arrangement and has not been inclined to follow the trend of taking over major operating companies in their entirety, as in Kuwait, Qatar and Saudi Arabia. Developments beyond the Scope of the Major Concessions: ADNOC’s role in exploration and production also involves the development of certain oil fields separately, outside the scope of the operations of the major operating companies. The fields earmarked for development under this arrangement are all offshore and were originally discovered by ADMA and included in its concession.
The need for ADNOC’s involvement arose as a result of the initial reluctance of the foreign partners in ADMA to join these ventures on an equity basis they delayed development on the grounds that the returns under the participation arrangements were insufficient to meet the relatively high investment required to develop these offshore fields. JODCO agreed to join ADNOC in these ventures(retaining an equity share of 12 percent in some). The arrangements concluded that cover these three fields are as follows: Upper zakum Field and the Formation of zADCo An operating company, ZADCO, was created in 1977 to handle the development of this field. The operating company is equally owned by ADNOC and Total(CFP at the time of ZADCO’s creation).
However, the 50-50 ratio applies only to decisions since Total does not have an equity share . ADNOC initially retained an 88 percent equity interest in venture while JoDCo and continues to hold as equit receiving a similar proportion of production and contributing the same percentage of required of its e early 2005, ADNOC agreed to sell 28 percent interest in this field to the US group ExxonMobil. interest was thus reduced to 60 percent, while retained 12 percent.) Umm Al Dalkh Field and the Creation of UDECO The agreement for the development of Umm Al-Dalk h field w finalized in September 1978. As part of the agreement, ADNOC and JoDCo established a 50-50 joint operating company-Umm Al-Dalkh Development Company(UDECO) to handle management and operational decisions.
JODCO, which holds a 12 percent equity stake in the venture, has the right to lift ll percent of crude production as equity oil and a further 20 percent for a determined period at ADNOC’s standard price, terms and conditions for crude oil sales. Dalma. Satah and Jarnain Fields An agreement was reached in July 1990 between ADNOC and JoDCo for the development of these three offshore fields wh were previously included in the ADMA concession. ADNOC’s Prospecting Licenses: In April 1980 the Executive Council of Abu Dhabi granted ADNO( exclusive rights to the exploration and development of hy in five blocks(two onshore and three offshore) within exp areas that were not covered by any existing petroleum agre h these areas ADNoc has the right to carry out all the operation activities constitut control impo national Dhabi’s first-han resultant increase Explora As men(onshore oil Scent explorat concess oil and In vi the ope about discover operations In 2 of small of Abu Dhabi capacity of at the operate of DNOC handle holds a lift 12 ms and C and which activities contained in its establishing law. The decision of 1980 constituted a major step forward in the state’s efforts to ensure more control over its national oil industry. and was undoubtedly an important milestone in ADNOC’s development It provided the national company with the opportunity to strengthen its grip on Abu Dhabi’s oil industry, consolidate its operations and gain invaluable first-hand experience of exploration and production operations. The resultant exploration program adopted by ADNOC led to a substantial increase in proven oil and gas reserves in the country.
The event that the requisite majority is not obtained in favor of any capital expenditure project, the government may nevertheless go ahead with such project and shall put up the whole of the related expenditures and enjoy the whole of the related benefits.
Operations are conducted on behalf of the parties by an operating company incorporated in Abu Dhabi under Abu Dhabi law of its capital, 60 percent is held by ADNOc and 40 percent by ADMA. This new agreement improved upon those before it by immediately giving the host country the majority of the equity in the venture, which granted the national company a preponderant role in the management and running of operations although the 75 percent majority required for passing important decisions by the JMC provides an effective veto to the foreign partners.
A sound assessment of this agreement should not, however, be based solely on the provisions it contains, but on the manner in which participation is effectively implemented and more specifically on: (1) the manner in which the national company exercises its right to market its equity share; and(2) the contents of the implementing agreement and the status and functioning of the operating company created. Abu Dhabi provides an interesting model of a successful implementing agreement concluded within the framework of a participation agreement. The preparation and negotiation of the required implementing agreements with ADPC and ADMA took much longer than expected. The agreement concluded with ADCo took four years to be finalized and was not signed until September 1978; the agreement with ADMA was concluded in April 1977. The main provisions of the implementing agreement with ADMA, which are still in effect, are as follows: operations are conducted on behalf of the parties by a profit operating company(called ADMA-OPCo) Inco in Abu Dhabi and governed by the laws of the emirate. Th principal office of the company is in Abu Dhabi there ADMA, as interim operator, undertook to transfer to Abu D all documents, accounting records and papers pertain in operations in Abu Dhabi(previously kept in London from w operations were directed). Sixty percent of the capital of is held by ADNOC and 40 percent by th ADMA shareholders. ADMA-OPCO has a Board of Directors to manage its affairs composed of five members nominated by ADNOC and one nominated by each of the three shareholders in ADMA. The Chairman of the Board and the General Manager of the Company are chosen from among ADNOC’s candidates. According to Article VI(a) of the Articles of Association of ADMA-OPCO, the resolutions of the Board relating to routine management issues are taken by a simple majority of three, which must include the two members from ADNOC. By contrast, matters of policy come within the jurisdiction of the JMC as described above and thus require a 75 percent majority In selecting contractors, preference is given to national contractors and contracting companies, provided they are technically qualified and their prices do not exceed their competitors’ prices by more than 10 percent; a similar priority is given to national retailers when purchasing goods and materials. The company undertakes to follow an active policy of hiring personnel in order to ensure the development of its own staff(instead of almost complete reliance on the seconders of one of the partners, as was once the case). When recruiting, the company must abide by the government’s policy.