A study of the legal problems of state contracts

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4- State contract, different from government contract

When the administration signs a contract with a private person, it depend to it power to decide if the contract would contain inordinate clauses of the law of universal application or not. A government contract is characterized by the primacy of public authorities while the state contract refuses such primacy given to the State party by inserting certain clauses which actually neutralize the excessive privileges of the state. In order to shelter themselves from the reconsiderations of the inordinate powers of the State in its various forms that the foreign investor negotiates the inclusion of the specific clauses in State contracts (arbitration clauses, the clause of the Stabilization of law and the applicable law referring, in one form or another, to international law or the general principles of law) that will help him to ensure a legal balance between him and the state. You will note in a state contract, that the addendum "foreign" make a difference with the government contract. The government contract can become considered as a state contract if only the administration represents the government and that the contract that it will sign will be made with "a foreign private person." It's clear that even if in some circumstances the State can be seen as an administration (public administration), a State contract is not a government contract because this expression of State contract was invented by the doctrine just to show us that there is a type of contractual relationship which has its own traits¹⁹. It is known that the procedure for preparation and negotiation of a state contract (here the case of petroleum contracts) takes much time, and all of this is done in most of time within the territory of the host State. And even if any contract signed between the State (or the public administration duly elected by the government) and a foreign private person, within the territory of the host country must be governed by the law of that State, State contract may not be under the influence of the administrative contract. The inclusion of specific clauses to the above mentioned state contracts is sufficient to make this huge difference.

Section 2-The definition of petroleum contract and different types of petroleum contracts

Since petroleum contracts are state contracts in essence, before analyzing the different
kinds of petroleum contracts, we will first discuss about what we call by petroleum contract.

¹⁹ On the relationship between both theories of state contract and the government contract, see P. Weil, Un nouveau champ d'influence pour le droit administratif français : le droit international des contrats , in Ecrits de droit international, p. 303-323.

1- Definition of Petroleum Contracts

Sovereign State Foreign

Oil Company

Sign Contract in Petroleum field

Petroleum Contract

But we are going to discuss about the situation of petroleum contracts, it would be interesting for us to know what the petroleum is. The petroleum can be defined as «a dark thick oil obtained from under the ground, from which various substances including petrol, paraffin and diesel oil are produced». The petroleum is sometimes called «OIL», and the oil is define as a petroleum (= the black oil obtained from under the Earth's surface from which petroleum comes)²⁰. A petroleum contract in the other hand would be defined as a concession contract or a production sharing contract signed between the State and a Holder (i.e. the Oil Company) to perform, exclusively, Research and Exploitation of Hydrocarbons within a perimeter defined within the territory of the host state of petroleum investment.

It would also be important to know what the petroleum contract sets:

a) the area of the Authorization of Research;

b) the minimum program for Research work and corresponding financial commitments that the holder undertakes to carry out for the initial period of the validity of its Authorization of research and for each renewal period;

c) the duration of the Contract and the various periods of validity of the authorization of Research, and the terms for its renewal and its extension, including clauses relating to the reduction of contractual area;

d) obligations concerning a commercial discovery and the development of a commercially exploitable deposit;

²⁰ The electronic Cambridge Advanced Learner's Dictionary, Cambridge University Press 2003, Version 1.0, http://dictionary.cambridge.org

e) the procedures or the terms for the granting of an authorization of exploitation, its various validity periods, the terms for its renewal and its extension;

f) the rights and obligations of contracting parties;

g) programs works and the corresponding projected budgets, as well as methods of controlling their execution;

h) rights and obligations of the holder in the framework of the transportation of extracted hydrocarbons, subject to applicable regulations;

i) ownership rules for the production and its distribution between the contracting parties;

j) the regime of the movable and immovable properties necessary for the achievement of Petroleum Operations, including the conditions of their devolvement to the host state at the end of the contract;

k) provisions for the participation of the State, an institution or public corporation duly appointed for that purpose, to whole or part of the Petroleum Operations, and the rules of the association between the State or public corporation (or public agency) and its co-holders;

l) the obligations relating to training and employment of labor in the host country of petroleum investment;

m) financial terms and the specific accounting rules for Petroleum Operations;

n) obligations for the protection of the environment which come to supplement those provided by the legislation and regulations in force;

o) obligations for the abandoned works of oil deposits and wells to be undertaken before the expiry of the petroleum contract or of the authorization;

p) in the event of continuation of the exploitation by the state, cause of the termination or the expiry of the Petroleum contract, we have to know the principles of the:

- Transfer to the State of the rights and obligations relating thereto in particular, the provision for abandonment of deposits and the contract of services that bind the holder to its employees and subcontractors;

- discharge by the Holder of the remaining residual liabilities;

q) termination terms of the Petroleum contract;

r) stabilization clauses of the economic and tax conditions relating to the profitability of the investments;

s) case of force majeure (or the circumstances beyond one's control);

t) the terms of settlement of disputes, subject to the legislatives and regulations clauses (provisions) in force relating to the resolution of disputes of technical nature.

You'll find some samples of the contents of the model of petroleum Contracts or petroleum laws of some countries in the APPENDIXES or ANNEXES of this thesis.

A Petroleum Contract may be entered into in the form of a production sharing contract, joint venture agreement or other forms of contract²¹.

²¹ Chapter III, Petroleum Contract, Article 15. Such is the case of the Vietnamese petroleum code of 1993

There are several types of basic petroleum contracts: 1 - Licensing/concessionary regimes; 2-the production-sharing contracts; 3 - the contract of participation; 4 -Service contract: risk contracts/fee for service contract; 5-technical assistance contracts; Joint-Venture/back-in contracts.

2-Different types of Petroleum contracts There are many kind of petroleum contracts:

- The oil concession contract: here the State grants the holder of the concession a number of rights for their exploitation and imposes obligations in return. This system, common in France, was not appreciated by the most of developing countries because looking like a survival of colonization;

- The production-sharing contract: here it is an agreement that the petroleum company which has financed all investments for research and development of oil deposit discovered depreciates its expenses by the transfer of a share of the production and is remunerated by receiving a free part of the remaining production;

- The petroleum contract of participation: here the State has a participation at the same time in the capital and the management of the company;

- risk Contracts: here the petroleum company, which operates on behalf of the national company, take responsibility for its the expenditure of research which it is reimbursed only in the event of discovery, with the option to purchase the national company a share of extracted oil, at an advantageous price;

- The technical assistance contracts here, it is a technical assistance within the framework of cooperation. The petroleum company, which lends its support, is reimbursed for its costs, whatever the outcome.