Oil and Gas Management

Oil and Gas Management

Permanent sovereignty over natural resources is an established standard of international law which authorizes states to exercise exclusive jurisdiction on natural resources and environment within their national boundaries. This this is a principle that has acquired a great relevance and has been used as a basis of justifying acts of states in their business relations with foreign investors. Although the principle is accepted in International Law, its application is unlimited in scope. In 1950, it emerged as a principle of International Law and essentially applied to natural resources of the hydrocarbon family (Walde and Ndi). This assured states the rights to freely use and exploit their natural resources unimpeded. The principle of permanent sovereignty has become the same with nationalization of foreign assets (Otto). This paper discusses the role this principle has played in the evolution of host state agreements (HSAs) between oil producing states and international oil companies (IOCs).

This question is of prime relevance because investment in Oil and Gas industry attracts investors and this will remain so if hydrocarbon commodities remain to be of a high value. Multinational oil companies (MOCs) and International oil companies (IOCs) are given exploitation permits to develop natural resources in foreign countries often (Otto). These permits are embodied in contractual agreements that have Stabilization Clauses. These clauses are designed to preserve the economic interests of foreign investors.

To expropriate means to acquire assets that are foreign-owned into public ownership and be managed by the expropriating host state. Expropriation can also be done to transfer ownership to a third person other than the state. Taking of foreign properties is determined by the policies of the host state. Policy measures of a host state with temporary effect on the property rights of an investor will be insufficient to make a claim of regulatory taking of foreign property. Contrastingly, policy measures that considerably or completely reduce the economic benefit which accrues to a foreign investor under an investment agreement will constitute a regulatory taking. Expropriate is important because in the circumstance of economic challenges, the natural expectation will be the elimination of barriers to free flow of both local and international investment.

Why should countries engage in nationalization of foreign property in the presence of obvious adverse implications? The reason for the agitation for economic self-determination was the unequal economic relation between established and developing countries. The general opinion amongst these developing states was that the legal arrangements for the exploitation of their natural resources by foreign states were not favorable and had the capability to cut off their economic advancement. Taking of foreign property by host states