It is estimated that in terms of measurement by revenue, the Oil and Gas industry brought in an estimated 5.3 trillion dollars in 2023.1 With such an industry of global significance, it comes with disputes at all levels of the Upstream, Downstream and Midstream Sectors of the Oil and Gas industry.2
In light of this therefore, actors in the oil and gas industry opt for agreed dispute resolution processes personal to their contracts or set by domestic and international conventions, rather than deferring to the national courts and their processes.
FACTORS TO CONSIDER IN OIL AND GAS CONTRACTS
To understand the operation of dispute resolution mechanisms in Oil and Gas Contracts, some matters that should be examined as a precursor to the dispute are the applicable legislation and legal requirement in jurisdictions, the state's regulations and industry guidelines.
With this said, some dispute resolution methods will be discussed.
NEGOTIATION
This means of dispute resolution is mostly the first to be employed. It is a discussion made by disputing parties to reach a mutual agreement.
The first level of negotiation that is employed in the Oil and Gas industry is made at the Operational Level where supervisors on site are brought to the negotiation table to discuss matters that have become contentious.
Where the negotiation of disputes does not work, the negotiation is taken a step further where Senior Management of the actors in the Oil and Gas industry meet to resolve any pending disputes.
MEDIATION
Mediation is the resolution of disputes by a neutral third party. This third party, who is the mediator leads the parties to a resolution by finding middle ground for the parties. The mediation process in Oil and Gas disputes is one that consists of a process akin to the general mediation process.
The first step is characterized by the selection of a mediator of choice by the disputing parties. After the selection of the mediator, a position statement outlining the cause of the dispute, the party's position in the dispute and other relevant information that would aid the mediator in making a decision for the parties is presented by the parties. The mediator then conducts pre-mediation calls to the parties in the dispute. The mediator takes the opportunity to review the position statements and asks relevant questions to ensure that the parties and the mediator are abreast of issues and the various arguments.
From this point, the mediator leads the parties to middle ground, staying neutral the entire time while resolving the dispute that exists between the parties.
MINI-TRIAL
Mostly noted as an expedited trial, it provides a way for parties on different sides of an issue to attempt a settlement that is beneficial for both parties.
The mini-trial comes in different ways however, the form that is the most common involves a panel made up of senior party representatives being high-level executives or managers with the authority to settle disputes on behalf of their company or organization. This representation is necessary because after the decision, the representative ensures that negotiations that occur are properly drafted if there is a mini-trial agreement.
The panel of experts, legal representative and oil and gas firm representatives is chaired by a "Neutral" who is selected by the parties to the dispute. The process of a mini-trial is one that is consisted of brief presentation of each parties' case to a panel made up of senior party representatives with authority to settle.
At the end of the mini-trial, the Neutral issues a non-binding, written opinion. This opinion shows the weakness and strengths based on the case made by the disputing parties and provides a possible outcome for the parties which becomes the means for which the party representatives use to settle.
EXPERT DETERMINATION
Expert Determination is a form of dispute resolution where parties who are disputing appoint an expert to determine their dispute. In most instances, it covers the areas of assessment and valuation. The independent third party is a technical expert who has knowledge of the matter that has become the source of the dispute.
The expert is chosen by all parties and his decision is legally binding and confidential<3.
The process involves instructions that are given to the Expert regarding which information to base the decision on. This is submitted by the disputing parties to the Expert and also submitted to each other.4
Regarding the process to be followed to reach his decision, the expert is not bound by any strict rules except that he should follow the standard or professional conduct regarding the field of dispute, in this case being the body which the expert belongs to.
ARBITRATION
Arbitration, one of the popular means of dispute resolution in the Oil and Gas industry, is a process where a dispute is referred to one or more arbitrators who make a binding decision on a dispute.
Arbitration can be conducted by institutional or ad hoc rules. In ad-hoc arbitration, it is when the disputants choose their own arbitration rules and procedures to suit the dispute that has arisen. On the other hand, the procedures of institutional arbitration is governed by the rules of arbitral institutions such as the London Court of International Arbitration (LCIA).
The Arbitration Process begins by one party giving the other party to the contract a request for arbitration or a notice to arbitrate. After this, a tribunal for the arbitration is formed which in most instances, parties have a say in the arbitrator to be appointed whether it is institutional or ad hoc. Other matters such as dates are agreed upon by the parties and the tribunal and hearing commences soon after. The hearing, consisted of lawyers for the disputing parties put their arguments forward and finally a binding decision is made.
CONCLUSION
The popularity of some of these dispute resolution measures has increased over the past years. The discussed dispute resolution methods can apply to a plethora of disputes including contractual disputes, Joint Venture and Partnership agreement disputes, Expropriation and Nationalization agreement disputes and liability issues, among others.
It is relevant to ensure that the best form of dispute resolution is employed to suit the dispute in whatever form and manner. The end goal should be that all matters are resolved efficiently and finally.
Footnotes
1 https://www.ibisworld.com/global/market-size/global-oil-gas-exploration-production/
2 The Upstream Sector of the Oil and Gas industry pertains to the exploration, location and drilling of oil and natural gas from the offshore and onshore fields. It also pertains to the production of crude oil and natural gas. For the Midstream Sector, it involves the transportation of the Oil and Gas products such as the use of pipelines, rails, trucks and other means of transport. The Downstream Sector pertains to the refinery of the oil and gas products. It entails the crude oil refineries, petrochemical and petroleum products distributors and in some instances the conversion of crude oil into finished products.[2]
3 Kim Lewison, The Interpretation Of Contracts (Sweet & Maxwell 2015).
4 Expert Determination In International Oil & Gas Disputes: The Impact Of Lack Of Harmonization In Reserves Classifications Systems And Uncertainty In Reserve Estimates (Society of Petroleum Engineers 2007).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.