The theory of flexible investment contracts in upstream sector of oil

دانشنامه حقوق اقتصادی

Article 1, Volume 26, Issue 16, December 2019, Pages 1-24   

Document Type: Scientific research

DOI: 10.22067/le.v26i15.65309

Author

ali mohammad hakimian^*

reaserch institute of Hazeh and University

Abstract

International arbitrators to determine the law governing oil investment contracts believe in opinions and theories to explain their nature and the enforcement of the law even in cases where the parties have identified the predominant law which suggests their compliance with purely theoretical classic or academic revised opinions. Apparently one cannot bound to a fixed theory on the nature of foreign investment contracts in oil upstream sector. Each contract is created under its own terms and in a specific legal system, taking into account the needs of the parties and the prevailing economic conditions. Usually, during the pre-contract negotiations, the parties are informed of the amount of need, conditions and economic situation of the other party and, accordingly, follow the process of concluding the contract. In determining the nature, the extent of the role of each of these cases must be determined. Therefore, in this paper, in contrast to the various doctrines about the nature of these contracts, the theory of "flexible contracts" is presented. Thus, the view of oil contracts in a spectrum of nature rather than a specific nature compatible with any contract can be surveyed and explained. This flexibility is not abandoned, and it has a leg within the regulatory order of the host state. This theory can, by examining the legal and economic factors that compel the parties to conclude a contract, not only to capitalize on the legal issue based on the external realities of the market but also to reduce the impact of noneconomic factors.
Research Method
The research method used in this study is the description and examination of the prevalent theories with an analytical approach along with the critique of these theories. And considering all the basic and effective elements in the nature of upstream sector of oil contracts, through a logical standpoint to the status of capital exporting countries and host countries of capital, the theory of Mokhtar or the preferred theory has become rationally investigated.
Results and Discussions
Need of oil-rich countries for capital, management and technology services and modern technology of major oil companies (For more information, see: Library of the Institute for International Studies on Energy, 2001: Vol. 3: 645-601) and the readiness of oil companies to invest in huge oil resources and contribute to those resources to reduce the seller's risk and the use of high investment benefits in energy sources, the oil-rich countries and major international oil companies have been compelled to conclude major contracts in the upstream sector of oil. These treaties have raised serious developments in international law. All of which seeks to play the role in demanding the financial rights derived from contracts concluded between the companies (transnational corporations or multinationals) and the state institutions of the host countries. In some cases, these relationships lead to differences between the parties and, consequently, refer to the official arbitration centers or issue case judgments (Mohebbi, 1995: 385-446). The judges had to determine the nature of the contracts to resolve the legal disputes so that they can find a lawsuit verdict. These legal conflicts have occurred in cases of confiscation, nationalization or unilateral termination of the contract (Mohebbi, 1996: 9-70). The contracting states, referring to principles such as "the principle of self-determination", which many lawyers consider it as the most fundamental principles of the jus cogens (Tunkin, 1957: 208) and also the famous principle of "the permanent right of nations to rely on all resources of underground wealth and economic activities"; the principles that were repeatedly expressed and emphasized in the resolutions of the General Assembly and some other United Nations organs, especially paragraph 1 of Article 2 of the Charter of the Rights and Duties of the Countries which make their works being legitimate (Alidoosti Shahraki, 1990). Large oil companies did not remain silent. In response, they put forward ideas such as the theory of the acquired rights and "the principle of pacta sunt servanda" which is more or less a theoretical basis for foreign companies to be entitled to compensation in exchange for expropriation (Sonarajah, 1986: 171). Investigating the claims of the parties and their legal reasons gave rise to different opinions about the nature of these contracts between the international arbitrators. This difference between the judges of the internal courts of the host country of the capital at the stage of consideration or execution of arbitration judgments created different opinions which also spread to academic legal circles. Some in this legal battle have tried to support the countries that own oil and gas reserves. And others who have become more popular in their views have argued for the benefit of large oil companies. Having regarded the state of the capital exporting countries and host countries of capital, the author should adopt the theory of flexible oil contracts in upstream sector of oil.
Conclusions & Suggestions
Having major oil companies with advanced management and technical services and their ability to explore, develop, produce and extract oil with high standards and Maximum Efficient Recovery (MER) will encourage them to conclude a contract with the host government. The high cost of doing these things is not usually either in the capacity of the host government or the host government prefers to spend its finances on infrastructure that does not encourage the private sector. The host government's strategy and its need for modern international oil companies and the acceptance of the cost of the project by them will make the host government of the capital that owns the oil reservoirs to award concessions to the opposite side. On the other hand, the host countries, by developing a legal regime that meets the needs of the country, tries to guide the foreign investor to the realization of the goals that his legal regime is based on. The realization of this goal is another factor that compels the capitalist countries to award the international contractor. The fact that these contracts are for the satisfaction of the public interest of the host country and that the government may take action to change or terminate it is accepted by the investment companies which is also accepted in international arbitration judgments; But the signing of the contract by the managing director of the state company and approval by the parliament or the Council of Ministers or without the involvement of the representatives of the government is effective in interpreting the contract and the lack of consideration of its legal effects may lead to irreparable damage. It seems that, given the degree of awarding advantage by the host country or the contracting party, which is based on the analysis of the terms of the contract, in particular the terms and conditions contained therein, and the type of contract that may be of a concession, partnership or service, the nature of the contract may be clarified. Therefore, given that each contract is in certain circumstances, it can be said that for foreign investment contracts in the upstream sector of oil, one can not give a firm view of their nature. Each contract is created under its own conditions and in a particular legal system, and the extent of the role of each of the aforementioned principles in determining its nature should be examined. Therefore, the author termed this idea as "the theory of flexible contracts", in order to examine the nature of the matter in accordance with its principles and its own context. This nature can benefit from the broad spectrum of private domestic contracts or public-to-international contracts.

Keywords

Keywords: upstream section; foreign investment flexible contract; legal regimes; legal doctrines

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