The Relevance of Stabilisation Clauses In Oil & Gas Investment Treaty Arbitrations - Chapter 04 - Leading Practitioners’ Guide to International Oil & Gas Arbitration

Author(s):

Sophie J. Lamb

Aimee-Jane Lee

Page Count:

36 pages

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Published:

August, 2015

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I. INTRODUCTION

Investors prize stability—none more so than those involved in

extractive industries, including oil and gas. This chapter examines the

role of stabilisation clauses in these long-term investments and, in

particular, considers how such clauses have been deployed in the

context of oil and gas investment treaty arbitrations.

Oil and gas projects crave a long-term stable and predictable

investment environment. They are typically very long-term; involve

huge initial capital expenditure; are subject to substantial production

and price uncertainty; and are often located in jurisdictions that are

perceived to have a high political risk. More generally, the extraction

of natural resources is often a politically sensitive topic and in the

event of regime change it is often one of the first sectors to face and

succumb to calls for radical overhaul.

Stabilisation clauses seek to mitigate some of these risks by

creating contractual limitations on the extent to which a state can

later revisit the original investment proposition to the commercial or

financial detriment of the investor. Stabilisation clauses operate to

fix for a defined period, vis-à-vis the investor, the legislative and

regulatory framework prevailing at the time of contract and upon

which the project’s feasibility and economics were premised, whether

by precluding the changes altogether (which is rare), by automatically

disapplying the new laws to the agreement or by requiring

compensation or offsetting measures, features which may themselves

dis-incentivise a state from taking these actions.