THE SETTLEMENT OF DISPUTES UNDER PETROLEUM Agreements

THE SETTLEMENT OF DISPUTES UNDER PETROLEUM Agreements

legal principles applicable to the construction of modern commercial instruments.”  According to the arbitrator the agreement called”for the application of principles rooted in the good sense and common practice of the generality of civilized nations-  a sort of modern law of nature,”  In the view of Lord Asquith,  although English municipal law was inapplicable as such some of its rules were”so firmly grounded in reason as to form part of this broad part of jurisprudence-this modern law of nature,,14 Decision:  The arbitrator found that the contract included the subsoil of the territorial waters of Abu Dhabi,  but not the subsoil of the continental shelf Ruler of Qatar vs.  International Marine Oil Company Ltd.,  1953 A concession agreement was signed on August 5,  1949 between the Ruler of Qatar the father of the claimant agents of the and respondent.  Under the terms of the agreement,  the company was to pay annually an agreed amount of money.

Object of the Claim:  The crucial question in this arbitration was whether the proper law to be applied in the construction of the principal agreement was Islamic law or the principles of natural justice and equity.  The tribunal observed that there was nothing in he principal or supplemental agreements which shed”clear light upon the intention of the parties on this the view of the referee,  all considerations pointed to the application of Islamic law being the law administered in Qatar).

However,  the refer concluded,  based on the Abu Dhabi award,  that there was”no settled body of legal principles in Qatar applicable to the construction of modem commercial instruments.”  The arbitrator observed that if Islamic law was applicable,  certain parts of the contract would then be”open to the criticism of being invalid.”  In this respect,  the referee added: “I cannot think that the ruler intended Islamic law to apply to a contract upon which he was to receive considerable sums of money,  although Islamic declare that the transaction was wholly or partially void law win held that neither party”intended Islamic law to apply,”  and therefore the agreement was to be governed by the”principles of justice,  16 equity and good conscience Decision:  on the question of whether the fixed annual pa were payable in arrears or in advance,  Sir Alfred Bu held th”they were payable in arrears and subject to the right of die Company to terminate its liability in respect thereof Waller three months’  notice.”

Saudi Arabia vs.  Arabian American Oil Company(Aramco),  1958 On May 29,  1933,  a concession agreement was signed between th Government of the Kingdom of Saudi Arabia and Standard oil Company of California(SOCAL,  later Aramco).  On January 20 1954,  a different agreement was signed between the Government of the Kingdom of Saudi Arabia and Mr.  A.S.  Onassis,  whereby the Saudi Arabian Maritime Tankers Company Ltd.  was to have a right of priority for the transport of oil.  Shortly after Aramco advised that the Saudi tankers would have priority over its tankers for loading Saudi petroleum.  Aramco claimed that the agreement with Mr.  Onassis violated the 1933 concession.  the object of the claim:  The arbitration was to determine whether 1933 concession agreement entitled the company to de preference or priority to national tankers and whether the agreement between the Government the Kingdom of Saudi Arabia and Onassis was in conflict with the Aramco concession No were damages was Legal Issues:  The tribunal observed that Saudi Arabian matters chosen by the as the applicable law”in so far as within the jurisdiction of Saudi Arabia.”

the trend in modern petroleum agreements towards the adoption of institutional arbitration

From the review of the arbitration clauses in the petroleum agreements referred to above particularly agreements one sees that those clauses were generally ad hoe arbitration clauses(as opposed to institutional arbitration).

How there is a trend now in modern petroleum agreements towards the adoption of institutional arbitration.  In the words of one author:  With the growth and refinement of arbitration systems drafters now have available various comprehensive sets of arbitration rules and arbitral institutions that have stood the test time.

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Concept in oil The first Secretary-General of oPEC

The first Secretary-General of oPEC,  explains reasons behind the adoption of the arbitral concept in oil concession Lijn general,  there is considerable international support for the opinion that for the settlement of trade disputes arbitration is preferable to judicial procedure even where domestic differences are concerned,  for reasons which seem to be universally recognized;  arbitration is less rigid,  less costly,  and less dilatory than the normal judicial procedure.

Furthermore,  persons who invest capital on a large scale in a foreign country feel more secure having an assurance that,  if a dispute arose between them and the host country,  they would not be subject to the strict legal system of the country.  of which they are often ignorant and which they may fear may be applied with less than complete impartiality in cases involving foreigners well known that petroleum investments require large amounts of capital and advanced technology and that the element of risk,  which is usually borne by the foreign oil company,  is very high.

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The Settlement of Disputes under Petroleum Agreements general rule

The Settlement of Disputes under Petroleum Agreements general rule

Oil concessions in the Middle East dictate that s a disputes between the and the producing country which cannot be settled by negotiation or mutual agreement should be resolved by a This provision appeared in the text of the first oil concession granted in the Middle East in 1901 to the D’Arcy Exploration Company by the Persian government and has appeared in most concession agreements concluded since.  Arbitration is more attractive to its proponents in the business community including in domestic disputes than other methods of dispute resolution(e.g.,  judicial litigation)  as it can be quicker cheaper,  less formal and offer more privacy than litigation.

It also allows the parties to control the course of the proceedings and to choose the law which is to be applied,  based on the particular characteristics of the dispute.  In cases of disputes that include an international element,  the is yet another advantage arbitration secures a neutral venue for the settlement of disputes and a rally appointed tribunal,  independent from the national court of either party tribunal,  As a result of this requirement of neutrality of venue and assumes even greater significance when a company has entered into a relationship a foreign as in an oil Concession with gov a state in that party which lodges a claim against state’s own courts may fear that the ruling will not be .

Likewise,  states are generally reluctant to agree to in courts of countries other than their own the c 0 concessionaire’s country)  Fuad Rouhani,  the first Secretary-General of oPEC,  explains reasons behind the adoption of the arbitrator concept in oil concession Lijn general,  there is considerable international support for the opinion that for the settlement of trade disputes arbitration is preferable to judicial procedure even where domestic differences are concerned,  for reasons which seem to be universally recognized;  arbitration is less rigid,  less costly,  and less dilatory than the normal judicial procedure.

Furthermore,  persons who invest capital on a large scale in a foreign country feel more secure having an assurance that,  if a dispute arose between them and the host country,  they would not be subject to the strict legal system of the country of which they are often ignorant and which they may fear may be applied with less than complete impartiality in cases involving foreigners well known that petroleum investments require large amounts of capital and advanced technology and that the element of risk,  which is usually borne by the foreign oil company,  is very high.

On the other hand,  petroleum resources and their development are of vital importance to the economic growth of the country,  often representing the cornerstone of the i country’s economic development.  Furthermore,  petroleum strategically important for both consuming and pro countries,  which explains why Petroleum Agreements general rule have often beef politically charged in the past.  Collectively,  these indicate that international arbitration is the most appropriate method for the settlement of disputes which arise government of a producing country national oil company(or its and a foreign oil concessionaire.

Tax system APPLICABLE TO PETROLEUM Operations

 Tax system APPLICABLE TO PETROLEUM Operations

It is clear from the wording of this letter that this”fixed post-tax relief to the shareholders of ADM enue competitiveness of their oil operations in Abu Dhabi.

independent of the calculation of Abu Dhabi quite and should therefore,  affect the basis of taxation.  This special treatment w later extended to ADPC and the”fixed margin”  gradually in until it reached its present amount of s1.00 per barrel.

Fixing the Price of oil for Tax or Other Purposes The old-style concession agreements stipulated a payment of royalty charges on each ton of oil produced,  regardless of its sal price or the profit realized from it,  indicating that governments were not really interested in the price at which the oil was sold.

Then,  in 1950-1951,  certain oil producing countries in the Middle East(Saudi Arabia,  Iraq and Kuwait)  adopted the profit sharing principle(Abu Dhabi adopted the same principle in 1966)  According to this principle,  the host government’s share moved ed royalty per unit of production or export to 50 percent of the net company profit based on posted prices.  When the  financial arrangement was adopted,  the host countries became directly affected by the posted price(which was a tax reference used for the calculation of the companies’  profits and did n always reflect market realities).

In that period,  until the 1970s,  the posted prices of and companies crude oil were by the alone without any consultation with the host countries.  February 1959,  the oil companies decided,  without Middle he governments concerned,  to the price of Eastern oil by cut about 18 cents per barrel.  In f the spite o companies action they went on 960 by an average of about 9 recognized Continue reading