A Comparative Study of Licensing and Concession Systems
New Horizons in Environmental and Energy Law series
Edited by Tina Hunter
Chapter 1: Petroleum regulation in an international context: The universality of petroleum regulation and the concept of lex petrolea
While energy and resources law is on the one hand national law – sometimes supplemented in the case of regional economic integration as in the European Community – the organisational and contractual practices are greatly affected by the specific technical and economic logistics of the industry. An international ‘lex mercatoria’ of energy and resources law has emerged. Commercial, financing and other contractual practices are often alike, if not identical, all around the globe; with sometimes only scant influence from the idiosyncrasies of national law. The frequent recourse to arbitration tends to enhance the international customary law aspect of energy and resources law. Contractual innovations leapfrog from country to country and over the barriers of different legal systems. Comparative law therefore needs to understand how industry practices and imperatives on the one hand, [and] national law constraints on the other, shape legal instruments and concepts. Petroleum exploration and production activities present complex legal, technical, economic, financial, political and environmental problems. Upstream petroleum activities require considerable financial resources and infrastructure, and involve a high degree of geological and commercial risk. Most of the world’s oil reserves are in developing countries with limited financial resources, infrastructure and technical capabilities, whose governments are unable to bear the risks of exploration and production and thus contract with international oil companies (IOCs) to undertake operations on their behalf. Because these contracts are for very long terms, IOCs are exposed to sovereign risk, that is, the risk of political events that affect petroleum developments.