EVALUATING THE LAW AND STATUS OF STABILIZATION CLAUSES RELATING TO EXPLORATION AGREEMENT IN THE NIGERIAN OIL INDUSTRY

Abstract

A source of legal dispute and disagreement between International Oil Companies (IOCs) and the host government has always been the question of contractual continuity in exploration and production agreements (EPAs). While the IOCs are concerned with stability and predictability over the duration of their oil field exploration, host governments prefer more flexible contractual arrangements where the EPAs can achieve the most favorable returns. Over the years, various contractual clauses and provisions have been explored by the contracting parties in order to compromise conflicting interests, and two of these clauses are stabilization and renegotiation clauses. It is on this premise that the aim of this paper is to analyze the implementation and legal implications of stabilization and renegotiation clauses in the petroleum sector, especially as a means of guaranteeing contractual protection. It defines related issues and reflects on issues resulting from the use of these clauses in directing the relationship between the parties. A great deal has been based on stabilization and re-negotiation clauses, their importance in protecting investors, and the preservation of EPA stability. This paper argues that the much-needed efficacy and stability that it purports to provide has not been accomplished by both clauses. Rather, in long-term oil negotiations, they could have potentially done more harm than good and failed to promote productivity and stability. In addition, the paper indicates that renegotiation provisions are a better option and way of preserving stability and efficiency in EPAs, given that the equilibrium of the initial agreement is likely to be disturbed by uncertainty and unexpected future events. As such, this paper will focus on the benefits of renegotiation clauses in the present forms of EPAs and will make a case for renegotiation clauses and establish that for efficiency, maintenance of good relations and preserving the contract in present times, renegotiation clauses serve a far better purpose for both the IOCs and Host government, and that renegotiation should be acknowledged as an integral feature of the foreign investment process