Introduction
Oil producers often sign investment treaties with foreign investors for the purposes of amelioration of production in their oil fields as a result of insufficient capital and expertise. The volatile nature of petroleum and gas agreements and the potential risks involved elicit caution from both parties before they and after they enter into the agreements. There are a variety of binding contracts that parties make before investing in the oil and gas industry. The most common agreements include production sharing contracts, concession agreements and service contracts. Stability of the agreement is of great importance to both parties especially the investor as they are assured of the protection and safety of their projects. Thus, stabilisations are used, contemporarily, as a mode of attracting foreign investors. A stabilisation clause is a legal risk management instruments applied in most investment contractual agreements. Mato (2012) notes that in the modern times, the oil and gas resources either belong to the government or the oil company. The importance of petroleum as a commodity makes the product lucrative. As a result, any contractual agreements involve huge sums of capital and prolonged agreements that requires some reinforcement. Since the governments or oil companies have the last say on oil fields and are the custodians of the agreement, the investor is, in most cases, left to shoulder much of the risk involved in the agreement. Similarly, the volatile nature of the oil industry, after a profound re-evaluation of the terms of the agreement, the investor may realize the loss they are likely to incur form the agreement and seek to alter the terms of agreement. Stabilisation clauses, therefore, come in handy in the course of the agreement as they help the investors minimise the risks involved in the initial contracts. In general, stabilisation clauses monitor and contribute to fiscal stability during the agreement to protect both parties from potential risks involved in their initial contract. On that note, the following discussion evaluates the functions, aims and mechanisms of operation of stabilisation clauses in petroleum industry agreements.
Types, Functions, and Aims of Stabilisation Clauses