3. Petroleum legislation
A host state needs to regulate petroleum activities in its jurisdiction and develop strategic policies to develop its resources. This often involves specialist legislation, i.e. a petroleum, natural gas or hydrocarbons law, which operates with other relevant legislation such as fiscal laws and investment laws. Any specialist legislation needs to also comply with the state’s constitution, which may contain provisions relevant for hydrocarbon operations. For instance, a resource-rich state’s constitution may contain principles on expropriation in the public interest and compensation (i.e. Norwegian constitution), or provide rules on ownership. Other examples are the constitutions of both Ghana and Bolivia, which vest ownership of their respective states’ natural resources with their people.
Typical approaches to designing a petroleum legal framework
Three approaches are typically used in to design a legal framework to regulate the upstream sector:
In the first category, a host state’s petroleum law or act regulates key stakeholders’ responsibilities and license terms in comprehensive detail and they are non-negotiable. This is the preferred route for most European Union member states, the US and Australia, as well as most Latin American states.
The second approach is usually used by developing states where petroleum legislation is very general or does not exist at all, and this gives the host states utmost flexibility in negotiations.
The hybrid approach uses the country’s petroleum law as guidance in drafting detailed international instruments such as pipeline agreements, and for preparing bids and licenses.