Dispute Resolution Mechanisms in the Petroleum Sector

10. Key Policy Considerations

Anticipation of the possibility of a dispute is essential in the oil and gas sector, as this will allow the investor and the host state to be prepared to seek the best cure. It is generally argued that many disagreements in oil and gas are settled before initiating legal processes, or if that occurs, they may be settled via negotiations or before they reach the stage of an arbitral award during the arbitration.

As part of this forward-looking approach, it is important to explicitly select a choice of law and the method and forum for dispute resolution (for instance, whether arbitration or courts) when negotiating petroleum contracts and when dealing with NOCs, preferably at an early stage of negotiation. The same goes for choice of venue or seat (as this determines the procedural law or arbitration or lex arbitri).

In petroleum transactions, the host state and NOC may insist on their national law, which may have gaps that can be mitigated under the contract. Commonly, a neutral state’s law is chosen for the most effective resolution of disputes, such as the laws of England/ Wales, or in some cases, the laws of Texas (USA) or Alberta (Canada) as their jurisdictions have a comprehensive body of petroleum law. The state also needs to make an effective waiver of its sovereign immunity.

A check list for guiding policy makers regarding issues to be considered when deciding the right form of dispute settlement is provided below: