1.2- The USA's regime: Private party or Federal agencies
are landowners
The regime of the USA is different from the rest of the
property regimes applied by the majority of countries in the world. The
Petroleum Code of Cameroon relating to its oil law for example, in Article 4-1
states that: a natural person or a legal entity, including the owners of the
soil, can not undertake petroleum operations only if it were beforehand
authorized to do it by the State. But in the reality is not the same in the
United States of America. In the USA, the petroleum contracts are signed
between landowners (natural private individuals or the federal agency) whose
lands containing oil, and the companies. Here, the rights to the hydrocarbons
contained in the subsoil belong to owner of the surface of soil. We have to
understand that we are here in front of a system of private property on land
resources29. It means that in the Americans world,
the petroleum contracts are subject to the private law. The negotiation, the
signature and the execution of the contract takes place "in the shade" of a
constitution which respect of the property and contracts is one of the central
principles, keystone of a legal order in which the contracting parties are
equals. This reign of the right more particularly called the "rule of law" also
applies to the contracts with the state for the access to the subsoil of the
American federal lands and offshore provinces: in the common law regime, the
state, as landowner, has in the legal order a similar status as any other
holder of the rights of property, and the contracts which it sign with private
individuals are subjected to the (common) commercial
law30. The problem that reassures or that
brings the credibility to the landowner, private individual or federal agency
when it undertakes is the constitutional sanctification of the Contract freely
negotiated, attested by a legal practice leaned on a administrative power of
coercion.
However, the federal government owns rights to the resources
contained in the subsoil of "Federal lands", as well as those contained on the
seabed of the Continental Shelf (offshore resources).in this system, the access
to the subsoil for the prospecting and or production of hydrocarbons is
conditioned on the signing of a contract with the private owner who has the
rights on the surface where the petroleum is found. Economic decisions from
private individuals have the monopoly on the area covered by their property
rights and decisions of States (with a national monopoly), have in the same way
an important role within the framework of the regulation of the American oil
market. For this reason, you understand that there is no big difference in
nature between a Texan farmer ((holder of the rights of ownership stretching
for example to ten hectares in Oklahoma or to the 1 750 000 km2)) or Saudi in
the kingdom of Saudi Arabia and a Congolese minister of petroleum.
29 You will have more
information in this field within the framework of the formation of the American
oil regime. See R. BRADLEY, Oil, Gas, and Government (1996), p. 59 and the
next. For a general presentation, see J. DEVAUXCHARBONNEL, Droit minier des
hydrocarbures (1987), p. 25-46
30 The legal regulation of the
relationship between State and private individuals in the United States, in
general and in a comparative perspective with the French administrative law.
See L. COHEN-TANUGI, Le droit sans l'Etat (1985), chap. IV («the Law
without the State»)
2. The foreign petroleum company: private party (an alien
= individual or Corporation)
A Foreign Company or foreign corporation is a private legal
entity. It's one of the contracting parties in the petroleum contract. The
petroleum contract is done through a state contract, because it's concluded
between a sovereign state and a foreign private company. The petroleum contract
is concluded between the state and a private petroleum company of foreign
country. Otherwise speaking, a petroleum contract can be concluded only with
one petroleum Company or, jointly, with several business firms of which one is
at least a petroleum company. The same petroleum company may be the holder of
several petroleum contracts. Several business firms of which one is at least a
petroleum company can join for the concluding and of the fulfillment of a
petroleum contract. A petroleum company may also go into the partnership with a
non-petroleum company in the conditions fixed by the petroleum contract, if
only the non-petroleum company holds a minority interest in the consortium
holder of the petroleum contract, and is not
operator31. We can ask ourself the question to
know, legally speaking, of which company or foreign private petroleum company
is about.
A company or petroleum company as defined in the Cameroonian
petroleum code32 is a business firm or a public
utility company justifying technical and financial capacities to carry out
Petroleum Operations, while ensuring environmental protection. It can be either
a Cameroonian, or foreign law, in that case it must have a permanent
establishment and be a registered company and be registered in the movable
credit for the duration of the petroleum Contract and comply with law and
regulations in force on companies in the Republic of Cameroon.
To be more precise in this thesis, we think that the
definition of the foreign private company or the foreign private petroleum
company or again the foreign private petroleum corporation within the framework
of petroleum contracts studied in the state contracts should be defined as a
business company or a public utility company justifying technical and financial
capacities to carry out Petroleum Operations (while ensuring environmental
protection).
Since we are addressing this problem in the doctrine of state
contracts, the contracting foreign company is more often a private individual
and not by classical assimilation. With the Contracting State, the private
foreign company is in an unequal position. It's about a real legal inequality
much more than economic or financial because it is important to know that
foreign companies, multinational and transnational corporations are often more
powerful than the developing States with whom they enter into a contract. On
the one hand, a sovereign power with the general powers: the State, on the
other hand, a private party getting it power from the only contractual
commitments of the other party: the foreign company or the alien corporation.
With regard to the legal status of the two contractors, it must be said that
the state contract is
31 Article 7 of Law No. 99/013 of
Petroleum Code on December 22, 1999. You'll find the Cameroonian oil code in
the annexes or appendices of this thesis.
32 Law No. 99/013 of Petroleum
Code on December 22, 1999.
based on a foot and a half, because it is the product of two
legal subjects of a different nature and getting their legal existence and
capacity from two completely different legal orders.
For this reason, I'll invite you to not confuse State body to
a foreign private company. In the past, and even now, we noticed that there was
and there are some circumstances in the shape of private legal presentation or
even of the legal assemblies open to criticism which masked and often mask the
presence of a state or States in private foreign corporation. These companies
have been and may also include public utility of state bodies whose capital is
held entirely or mainly by the State. Such a "private alien" or such alien
corporations thanks to by the law that governs their activities is often under
the influence of the owner and often the only shareholder which is, in fact,
the state. The case of NIOC (National Iranian oil Company) in the years 1960 is
a concrete example. This company, being a body of private law and operating
under the regime of private law was often assimilated to the Iranian state by
taking some commitments functions relating to the State i.e. here commitments
such as «no legislative or administrative measures will cancel or modify
the agreement without the consent of the other party» and such commitments
can be made only by the State itself in the framework of state contracts signed
by the Government. Such a confusion or such an inappropriate mixture of fact
and law can not be accepted in the framework of state contracts that we are
discussing about. The cause of the refusal of this hypothesis is that if there
were a dispute, for example, between this agency and the contracting State, the
State of origin of the foreign company could not, if necessary, exercise
diplomatic protection for this agency in question, but should act for itself as
a state directly affected in its own rights.
2-Various stages of negotiation of the petroleum
contract
The petroleum contract is negotiated and signed between a
state (owner of mining and natural resources contained in its subsoil), and a
company or foreign private petroleum companies. This company is seen as an
investor. The petroleum contract is first a petroleum
project33 before becoming what it is. The
achievement of a petroleum project includes four stages (the negotiation,
research, exploitation and marketing) even if in general we are only talking
about three of them (research, exploitation and marketing.). We have to tell
you that what interests us among these four steps, it is the petroleum
negotiation. The petroleum negotiation pursues the signing of a contract and
its accounting annex for the achievement of the petroleum project. The
contracting parties can appreciate the Contract according to the appropriate
objectives that they are pursuing. Generally speaking for companies, the
objectives are financial (financial profitability, value at share, discounted
present value, etc.). For the State or States, they are not always financial;
they may vary according to, on the one hand to the weight of its population,
and on the other hand to the importance of its petroleum reserves.
33 Information gathered during
a seminar on petroleum negotiation held from 19 to 29 July 2005 in Brazzaville
(the Republic of Congo), with as topic: "Contracts and petroleum taxation". Led
by the deputy of the Republic of Congo, Sylvestre Ossiala, Director of Cabinet
Gulf of Guinea Petroleum Strategies (GGPS), this seminar has resorted to a
number of terms of petroleum field, but especially on the various stages of
petroleum negotiation.
You should be aware that the signing of a petroleum contract
establishing a legal relationship between the contracting parties shall be
subjected to three basic principles: the mutual interests; trust, spirit of
fairness. But despite these three points, a petroleum company must know that
the negotiation of a contract is never sat on the kindness or altruism.
If the negotiators of one of the contracting parties are
inefficient, the risks of a contract to be out of their favor can not be ruled
out, that's the reason that the company must choose a good or some competent
negotiators who know and who must have as mission to:
*Convince, hold and try to curb any natural inclination
towards cheating or deceit because the petroleum contract aims rather the
long-term, mutual interests, the cooperation within the framework of a Win-Win
strategy where everyone wins. The petroleum contract in a nutshell can't be
pulled out.
*To talk and not to debate while being having with them their
Terms of Reference (TOR) that defines and which must list the preference
interval of the aimed objectives in order of importance. A negotiator must know
that the way of negotiating with the Europeans, Americans, Chinese or Japanese
is not the same. You can have a successful negotiation if both contracting
parties really want to negotiate.
In view of this situation, we can ask ourself the question to
know how each contracting party (government and petroleum companies) get ready
for a successful petroleum negotiation.
2.1-Preparation of the negotiation of petroleum contract
by the State
A petroleum contract is negotiated and signed on behalf of the
State, by the Government or any public corporation or institution mandated for
this purpose, and by the legal representative of the claimants. The petroleum
contract can enter into force only after the signing by the contracting
parties. A State which grants the rights of access of its resources must always
well get ready before starting any negotiation with a foreign private company.
The approach is quite simple. When a letter of intent (LOI) is addressed by a
petroleum company to an oil-producing country for the acquisition of a permit,
the country resort often to its skilled negotiators. They must meet the
following conditions:
- To have the mastery of the constitution of their country and
be familiar with the provisions of the Code of hydrocarbons. The operator
interested by the licence should present his last balance sheet, to demonstrate
its ability to make work its subcontractors, avoid the freezing of permits by
the attempts of transfer to other companies with the potential risks of the
waste of time for Countries in the increase of rate of exploration, etc. To
master the legal provisions concerning the dispatch to the State of accounting
documents on the rights of the collection (pick-up), cost recovery, the
statistics of production, stock status, the level of excess of the fields of
production, etc.;
- To have the mastery of the techniques of international law that
is to say to arbitration
procedures in expensive cost in time, labour relations between
the state and corporations. To favour and master the techniques of mediation,
of «minitrial» (the intervention of big
excutives conflicting parties), of the gentlemen
agreement;
- To have the knowledge of the different types of petroleum
contracts and financial and economic terms to negotiate (cost-stop, excess,
high price threshold (windfall profit caused by the smile of God), etc.) the
petroleum prices and areas of tension, the qualities of crude (API degree), the
knowledge in the world (the increase of request and use of substitutes, etc.) -
To have the knowledge of the various parties in the global market as well as
their strengths and weaknesses , etc.;
- To have knowledges in the petroleum field (technically and
economically speaking), the proficiency in English, the computer, the world
map, the technique of working in a multidisciplinary team, etc.,
- To master the "best practices" of international audits, of
international conferences, of the World Bank;
- to master the techniques for economic calculation, updating,
methods of taking a decision (a simple method does not give a good solution;
all methods do not lead to the same results; all the methods have weaknesses
and advantages; everything project is as a person, according to the angle, it
is never the same thing, that's justifying of course the importance of the
objectives followed by everyone). There are several ways to explore the portage
of the state owned firm and reimbursement of advances accounts; factors
influencing the life of the fields, the risk of trivialization; pitfalls of the
excess associated with the permit; Work program and the coverage of the country
against the abandonment of licence.
2.2-Preparation of the negotiation of petroleum contract
by the Petroleum Company
If a State in the process of preparation of negotiation must
use its experts in this area, the company also can do the same. This means that
when an oil producing country launches a bid invitation for a licence to be
granted, the petroleum company, through its experts, before expressing its
intention must have or inquire about a certain significant number of
information such as:
- legal and fiscal information:
here, the code of hydrocarbons is a main document to assess
the level of cost-stop, the terms of payment of royalty, the control of
exchange, the payment of subcontractors, refusal clauses of the licence of
exploitation etc. The company must develop mandatory terms to be included in
the contract and its accounting annex to be negotiated. He must also master the
different legal provisions against future violations that the host state can
commit. It must master the courts domain, the courts to settle a dispute. He
must have knowledge on international arbitration courts to resolve any disputes
that may arise.
- Information on labour law:
The Company is still concerned about the strikes and work
stoppages in the country.
- Geological information:
The geologist technician must be questioned on the POS, i.e.
on the possibilities for discovery or success («possibilities of
success»),and that after examining the seismic data acquired from
companies such as Rock-All and in the datarooms (which gives some ideas on the
presumptions of success). The technician of reservoir and of the judgment works
to optimize the production and to determine the profit of the production. The
technician of the Development (investment man) based on the valuation
techniques of investment aimed at statistical data and experience, evaluates
the costs of the installations (cost estimation).
- Economic Information:
The department "economy and planning" of the company must give
rather precise information on the forecast of the price of the barrel on the
long term. The department of evaluation determines the profitability of the
project through internal rate of return (IRR) and net present value (NPV).
According to the importance of the project, the company may be required to
identify the suitable person-resources.
If each contracting party must resort to its experts
to negotiate the petroleum contract, we can ask ourself the question to know in
which moment the petroleum contract is good. This is also an important
question which going to attract our attention. To answer you, we think that a
contract is certainly good when it meets these requirements:
The contract must be sensitive to changes in prices, of the
production and changes in the sharing of profil-oil, of the excess-oil, the
starting date of the threshold of the high prices. This aspect is generally
taken into account by the R-factor (Colombia, Venezuela, and Libya). The
contract, however, is stable, i.e. that the government can not unilaterally
change, but it is not static.
What is finally the R-factor technique?
Well this is a making-decision technique applied mainly in
Colombia, Libya and Venezuela. Basically, it is defined as follows:
R-factor = cumulative income on the cumulative expenditures.
If: R =1 Government 50% and Corporation 50%. R = 1 means that
the companies have recovered their investments and we understand clearly that
the sharing of the remaining production is made from equal (50-50).
If: 1 R = Government75% and Corporation 25%. After recovering
the double of Leers investment, the sharing is done to the advantage of the
Government. From the formula of R-factor, it is deduced that when prices raise
or when the costs are brought down, we can meet quickly R = 1 or R = 2; any
advantageous thing for the Government. On the contrary, when the situation is
bad, international companies are protected. Finally, this method of R-factor is
very sensitive to changes of the production, of the prices and the costs, thus
making the contract flexible and not fixed or static.
Chapter II- The special clauses contained in the State
contracts and petroleum contracts
A petroleum company which signs a petroleum contract with any
State, holder of oil resources in his subsoil, seek ways and means to
negotiate, thanks to the clause of applicable of law, in the national or
international law, the insertion of certain clauses which could safeguard their
interests against the breach of contract by the contracting State. These
clauses include: stabilization clause, the clause of intangibility, the
arbitration clause and the international arbitration clause. Both contracting
parties could negotiate these clauses by common consensus. But in this
subsection, what is very interesting here are the first four above mentioned
clauses that we will try to analyze in a detailed way i.e. stabilization
clause, the intangibility clause, the arbitration clause and the international
arbitration clause. The case of the national stabilized law as part of the
choice of applicable law would be discussed in the second part of this memory.
We must not ignore that even when negotiating a petroleum contract, the parties
can negotiate the clause of applicable law in the contract. But generally
speaking, we know that the applicable law in this kind of petroleum contract
between a sovereign state and a foreign private petroleum company remains the
law of the host country of the investment because we know that not any state in
this world will be able to accept a petroleum contract signed in its territory
be governed by the law of another country. However, the applicable law in case
of disputes can be either the law of the host state or generally speaking
international law according to the will of the contracting parties.
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