Research Handbooks in International Law series
Edited by Kim Talus
Chapter 5: In search of investment stability
Long-term contracts have always been a common feature of the legal landscape in the international petroleum industry. The same could be said for certain other industries, whether energy-related or not. However, this industry is probably unique in its history of vulnerability to expropriation of its assets and forced renegotiation of its contracts. From Mexico in the 1930s to Venezuela and Ecuador in the early years of this century via the Middle East in the 1970s, conflict between oil companies and host governments has been on a very large scale and has led to some of the most bitter, protracted legal disputes in international law, with sums at stake that have been without precedent. In the field of tax disputes, the claims involving governments and investors have mushroomed in recent years as governments have sought to capture the effects of high commodity prices or improve their fiscal systems in line with the growing complexities of international taxation and risks of losses due to tax avoidance schemes. At a more mundane level, any deal which appeared fair when petroleum resources were merely a prospect will often appear unreasonably unbalanced in favour of the company if the geology turns out to yield petroleum subsequently in commercial quantities. Given this vulnerability to swings of fortune and the frequency with which investment is made by foreign companies rather than domestic ones, the search for long-term contract stability has been a constant preoccupation of internationally operating oil companies.
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