Rechercher sur le site:
Web Memoire Online
Consulter les autres mémoires    Publier un mémoire    Une page au hasard

A study of the legal problems of state contracts

par Odilon Evrard NGOUNDOU
Institute of International Law of Wuhan University
Traductions: Original: fr Source:

précédent sommaire suivant

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.

précédent sommaire suivant

® Memoire Online 2007 - Pour tout problème de consultation ou si vous voulez publier un mémoire: