What is Petroleum Arbitration

What is Arbitration of Oil and Gas?

Last 25 years have witnessed an increase in number of international arbitral awards pertaining to the petroleum industry. While a few notable Oil and Gas related disputes have reached the convential courts, international arbitration still remains the favoured dispute resolution mechanism.

Petroleum disputes are broadly divided into three categories:

• Petroleum Disputes between investors and the host state;
• Petroleum Disputes between investors; and disputes between investors (typically via the operator) and
• Third parties Petroleum Disputes (e.g., oilfield services providers, insurers).

Each category gives rise to unique issues. Complexity of dispute may vary depending upon hosts of other reasons.

Petroleum Arbitration has been described as a private process which commences with the agreement of parties to an existing, or potential, dispute to submit that dispute related tp oil, gas and other hydrocarbons for decision by a tribunal of one or more arbitrators.

International Arbitration in Petroleum Industry

Internationally Arbitration is being widely used in the oil and gas industry and the UNCITRAL Rules are being adopted more often in oil industry arbitrations.

Factors which contribute to the use of arbitration as a tool for dispute resolution in international agreements in the petroleum industry broadly includes:

1) Owin to the technical nature of the industry domain knowledge is needed for resolution of disputes.

2) Contracts are drafted by professional advisers and dispute are anticipated owing to risks involved.

3) Operations of multinational Petroleum companies are often global and as such favour arbitration for dispute resolution.

Nature of disputes under Petroleum Arbitration

Disputes in the oil and gas sector could arise as a result of multifarious reasons-

• environmental claims;
• shareholder value related issues,
• regulatory issues,
• trade restriction among others,
• fluctation in Foreign Currency rates,
• price variation in product due to external reasons,
• breach of delivery timelines due to war or environmental reasons.

Contracts in the oil and gas industry more often do involve individual foreign parties.  It could be an individual, an agency representing a state or even a NOC.

Recourse to a conventional court to redress any contractual disputes between these parties would mean that, the national court would be a foreign court to the other party.

These courts have their own rules; formalities and procedure designed to deal with domestic issues and may not have the competence and experience to handle complex international cases.  The language of these courts may not be the language of the contract and hence cannot be used to settle such international energy disputes.