Quarterly Publication

Document Type : Original Article

Authors

1 Instructor, Private Law Department, Faculty of Law & Political Sciences, Allameh Tabataba'i University, Tehran, Iran, Email: sakhaei.sh@gmail.com

2 Assistant Professor, Private Law Department, Faculty of Law & Political Sciences, Allameh Tabataba'i University, Tehran, Iran, Email: abaskazemi@gmail.com

Abstract

Various types of hazard exist in the upstream oil and gas industry. Therefore, the contracting parties of any petroleum contract always try to reduce the inevitable economic burdens of occurring adverse events arising out of risks in the course of petroleum operation by applying legal approaches such as contractual risk allocation provisions, which can be realized by drafting efficient insurance and indemnity clauses as the subset of risk allocation provisions. Hence, this study addressed the main research question of “What are the necessary parameters for drafting the insurance and indemnity clauses in the main types of upstream petroleum contracts?”. To this end, the mentioned clauses stipulated in the main types of upstream petroleum contracts, including concessions, production sharing, and service contracts of 15 different countries worldwide, in addition to the comparative analysis with the new model of Iranian Petroleum Contract (IPC), are examined. Eventually, the hypothesis of this study verified that there should be several parameters such as liability towards risks, limitation of liability, and exclusions/exemptions for drafting the insurance and indemnity clauses in these contracts, that is, the result and the answer to the research question. Moreover, the comparative analysis of the extracted set of parameters needed to draft these clauses legally, with the related ones in IPC, is conducted. Therefore, the existing contractual shortcomings are detected. After that, the necessary suggestions to resolve them are offered, which can enhance the effectiveness of the upstream petroleum contracts and avoid potential litigation in this regard.

Keywords

Main Subjects

Anderson, R. (2008). Certificates of Insurance” and “Additional Insured” Coverage - Maximize Value and Avoid Pitfalls, The John Liner Review, 22(2)), at pp. 87–91.
Asgari, M. M., Sadeghi Shahdani, M., and Seiflou, S. (2017). Designing Oil Risk Securities Based on Risk Transferring Insurance-Linked Securities. Islamic Finance Research Bi-quarterly Journal, 6(2), 193–224.
Badiru, A. B., and Osisanya, S. O. (2016). Project management for the oil and gas industry: a world-system approach. CRC Press.
Cambridge Dictionary. https://dictionary.cambridge.org/dictionary/english/clause. (Last accessed at: 27.01.2021).
Coates, J. C. (2012). Allocating risk through contract: Evidence from M&A and policy implications. Harvard John M. Olin Discussion Paper Series Discussion Paper No. 729.
David Sharp, Upstream and Offshore Energy Insurance, First Published 2009, Witherbys Insurance, ISBN 978-1856093514.
Dike, S., and Chigonu, J. E. (2020). Risk Allocation in the Oil and Gas Industry. Journal of Private Law, 5(1).
Ewold, F. (1991). Insurance and risk. The Foucault effect: Studies in governmentality, 197210. Pp. 201–202.
Gordon, G. (2011). Contribution, indemnification, and exclusion: Farstad in the supreme court. Edinburgh Law Review, 15, 259.
Gordon, G. W. (2011). Risk Allocation in Oil and Gas Contracts. In Oil and Gas Law: Current Practice and Emerging Trends. Dundee University Press, pp. 443–497.
Henry N. Onukwube, Fidelis O. Achi, with the title of “Risk allocation in oil exploration contracts in Nigeria, Department of Building, University of Lagos, Akoka, Yaba, Lagos, Nigeria.
Hewitt, T. (2008). Who is to blame? Allocating liability in upstream project contracts. Journal of Energy and Natural Resources Law, 26(2), pp 177–206.
Kaarbo, J. and Beasley, R. K. (1999) ‘A Practical Guide to the Comparative Case Study Method in Politically Psychology’, Political Psychology, 20(2), at pp. 369–391.
Kearney McWilliams and Davis. (2018). Risk Allocation in Upstream Oil and Gas Contracts. https://www.kmd.law/articles/2018/january/risk-allocation-in-upstream-oil-and-gas-contract/
Martin, E. A., and Law, J. (Eds.). (2009). Oxford dictionary of law. Oxford University Press.
Moller, L., (2016) Contractual Risk Management, in Robert Gordon University.
Oloumi, H. R., and Hajmohammad Jafar, A. (2017). Analysis of Risk Allocation of Blowout and Kick in Offshore Drilling Contracts and‎ Insurance Coverage of those Risks. Journal of Researches Energy Law Studies, 3(1), 57–79.
Patson Wilbroad, A. (2014). Risk Allocation in Oil and Gas Service Contracts. LAP Lambert Academic Publishing.
Peddycord, Shawn M., (2019) Contract risk allocation, Available at: https://www.peddycordlaw.com/contract-risk-allocation
Pickvance, C. ‘The Four Varieties of Comparative Analysis: The Case of Environmental Regulation’, Conference on Small and Large-N Comparative Solutions, University of Sussex, U.K., 22–23 September 2005 University of Sussex, UK.
Pipattanapiwong, J. (2004). Development of Multi-party Risk and Uncertainty Management Process for an Infrastructure Project, Ph.D. dissertation, Kochi University of Technology.
Sadeghi Shahdani, M., Askari, M. M., Imani, M., and Maleki Nejad, A. (2017). Juridical Survey of Enforcement of Oil Contractors to Ensure Oil and Gas Wells. Iranian Journal of Insurance Research, 32(2), 85–106.
Shiravi, A. (2020). Oil and Gas Law, Tehran. Mizan legal foundation, Tehran.
Syahrir, M. S. (2004). Liability and Risk Control Through Effective Clauses in Oil and Gas Service Contracts (Presentation). Oil, Gas, and Energy Law Journal (OGEL), 2(5).
Thornsjo, D. O. and Hasan, N. B. (2007). Contractual Risk Management: Considerations When Allocating Third-party Liability Risk. Johnson and Condon, P.A. at pp. 1–68.
Van der Merwe, S. W. J. (1970). The concept of insurance and the insurance contract. The Comparative and International Law Journal of Southern Africa, at pp. 149–167.
Vaughan, E. J., and Vaughan, T. (2007). Fundamentals of risk and insurance. John Wiley & Sons.
Wang, A. (2016). Indemnity Clauses: Understanding the Basics. Available at: http://www.shakelaw.com/blog/indemnity-clauses-understanding-basics/ (Last accessed at: 18.03.2021).
Zaghloul, R., and Hartman, F. (2002). Construction contracts and risk allocation. In Proceedings of the Project Management Institute Annual Seminars and Symposium, San Antonio, TX. Newtown Square.
Zahari, W. Z. (2015, June). An Empirical Study on the Contractual Risk Allocation and Indemnity and Hold Harmless Clauses in the Oilfield Service Contracts in Malaysia. In Paper Proceedings of second International Conference on Interdisciplinary Legal Studies (ICILS).
Zahari, W. Z. (2017). A comparative analysis on the enforceability of knock-for-knock indemnities in Thailand and the United Kingdom. Journal of Malaysian and Comparative Law, 44(1), 33–42.
Zulhafiz, W. M. (2017b). On the contractual risk allocation in oil and gas projects. The Law Review, (2), 168.
Zulhafiz, W. M. (2017c). Recent trends in the allocation of risk post-Macondo: The growing tension between oil and gas standard forms of contract and contractual practice. International Energy Law Review, (5), 170.
Zulhafiz, W. M. (2018). Perception of contractual risk allocation in the oil and gas contracts in Malaysia. International Journal of Trade and Global Markets, 11(1–2), 127–137.
Zulhafiz, W. M., and Bin Abdul Rahman, N. (2020). Unfair risk allocation in oil and gas upstream service contracts in Malaysia: the necessity for oilfield anti-indemnity act. International Journal of Business and Society, 21, p.179.
List of petroleum contracts
License for exploration and production of hydrocarbons, Iceland, No. 2014/01. ORKUSTOFNUN, National Energy Authority.
Model Concession contract for exploration and production of oil and natural gas signed between Brazilian National Agency of Petroleum, Natural Gas and Biofuels – ANP, Brazil 2013.
Model Petroleum concession agreement for Onshore, The president of the Islamic Republic of Pakistan, 2009.
The Republic of the Gambia, Petroleum (exploration, development, and production) License, between; The Republic of the Gambia, represented for these purposes by the minister of petroleum and CAMAC Energy A5 (Gambia) Ltd. With its registered office in George Town, Grand Cayman block A5, Dated May 24, 2012.
Contract between The State and Mohave Oil and Gas Corporation for petroleum exploration, development, and production rights in the concession area denominated on August 3, 2007, on the premises of the Direcção-Geral de Energia e Geologia in Lisbon.
Model Producing Oil Technical Service Contract (“PFTSC”), The Republic of Iraq, April 23.
Risk services agreement between Sociedade Nacional de Combustíveis de Angola- Empresa Pública (Sonangol, E.P.) and CIE Angola Block 9 Ltd. Sonangol Pesquisa e Produção, S.A. Nazaki Oil and Gáz, S.A. and Alper Oil, Lda in the Area of Block 9/09. 9 June 1976.
The Specific services contract for development, production, and upgrading of crude oil in block 20 (Pungarayacu Oil Field) in the Ecuadorian Amazon Region, October 8, 2008.
Technical Services Agreement between Petróleo Brasileiro S.A. Petrobras and Imperial Petroleum Recovery Corporation, 2009.
Federative Republic of Brazil Production sharing contract for exploration and production of oil and natural gas/2013 The Ministry of Mining and Energy MME. The Brazilian National Agency of Petroleum, Natural Gas and Biofuels-ANP.
Production sharing contract between sociedade nacional de combustíveis de Angola, empresa pública - (sonangol, e.p.) and cie angola block 20 ltd. Sonangol pesquisa e produção, s.a. bp exploration angola (kwanza benguela) limited.
Production sharing contract for The Joint Petroleum Development Area, JPDA, October 30, 2006, Australia.
Amended production sharing contract national petroleum limited and The State of Georgia represented by The State Agency for the regulation of oil and gas and the Joint Stock National Oil Company Saknavtobi May 2001.
Production sharing contract between the Government of India and Oil India Ltd. And Geoglobal Resources (Barbados) Inc. With respect to the contract area identified as Block; RJ-ONN-2004/2.
The Government of The United Republic of Tanzania, Tanzania Petroleum Development Corporation - and - Pan African Energy Tanzania Limited, Production Sharing Agreement, relating to the SONGO SONGO Gas field Dar ES Salaam, Tanzania Dated as of October 11, 2001.
Exploration and production sharing agreement between joint exploration-exploitation and petroleum Services Company and Canadian Superior Energy Inc. August 2008, Great Socialist People’s Libyan Arab Jamahiriya.
Exploration and Production-Sharing Contract for Hydrocarbons between Republic of Sacha (Yakut) and Russian Federation on the one hand and The Sacha –Austrian Joint Venture TAKT on the other hand. June 1991.
Agreement on the exploration, development, and production sharing for the Shah Deniz prospective area in the Azerbaijan sector of the Caspian Sea between the State Oil Company of the Azerbaijan Republic and BP, June 4, 1996.