Oil and gas projects involve large investment that leads to projects which often involves government and multi parties have significant interests.
This article addresses some typical contracts and the likely dispute that may arise. It also address the challenging issues that may be faced in resolving such disputes.
- Production Sharing Contract (PSC). Government of the state in which the bloc is situated and partners who are investing in the project usually enters into a contract called Production Sharing Contract (PSC). The PSC sets out commercial obligations between the government and partners such as the kind of work the partners agree to undertake, the amount of money to be recovered if hydrocarbons are discovered. Disputes may arise from (i) the required work partners are required to undertake, or (ii) the declaration of force majeuur by parties, (iii) recovery of cost by partners and (iv) the sharing formula for the hydrocarbons.
- Joint Operating Agreement (JOA). This is an agreement between partners. This contains detailed works on how work would be conducted on the bloc. This also include the approval processes for most of the decisions and the basis on which the operator would conduct the work done for the partners. The disputes that may arise in JOA will be relate to (i) approval of work programmes, (ii) cost recovery and charges made to the joint account by the operator, (iii) payment of cash calls and invoices and (iv) sole risk work.
- Farm -in Agreement. Farm-in agreements are usually used to implement a broad range of transactions and are used to transfer interest in bloc and introduce new partner. The likely dispute may arise from (i) payment of consideration, representation and warranties given by the vendor, (ii) fulfilment of conditions relating to approvals from regulators, (iii) pulling out by a party due to economic changes.
- Throughput Agreement. Parties may enter Throughput Agreement with refineries, processing facilities, liquefaction trains to facilitate the sale of the hydrocarbon. Dispute may arise from the miscalculation of the volume of hydrocarbon supplied.
Oil and gas projects are built on a number of contracts and which often are multi parties and disputes are likely to arise from each of the contract that may have great effect on the projects. However, it is now a common practice that most of the contracts usually contain arbitration clause in order to resolve the dispute without having to recourse to the long and technical processes of the court room.
