Arbitration Provisions For International Oil And Gas Agreements

The oil and gas industry is complex, hazardous and capital intensive and all these features make it different from other industries1. There are various different technologies that are involved in the industry that may range from seismic shoot up to drilling and then to the refining of the final product. Since there are so many processes that have to take place, there are huge amounts of costs and profits involved. The different nature of the oil industry then entails an approach that is different from other industries.As mentioned before, the oil and gas industry has many risks involved in it. The higher levels of risk involved then requires the adjustment of contractual risk allocation matrix where indemnity is the main key element2 This means that the contractual agreements that pertain to the oil and gas industry do not accept the standard notion of risk allocation i.e. they deviate from the view that the one who can hold the risks more effectively should be asked to pay for the expenses etc. In fact in oil and gas agreements, a settlement usually arises with the understanding that one party has to pay for the other’s expenses, costs, and claims. This is what the hold harmless clause means.The phenomenon of ‘watching your own side’ is very common in the oil and gas industry because of the presence of the conflicts of interest. The oil and gas industry comprises many contractors, operators, and employees. There are numerous offshore scenarios and so the risk that may be associated with each party may be uneven. Also, the work processes are very labor intensive and there is a great chance of injury. Further, it is often very difficult to put the blame on the different parties because of the hazardous nature of the industry. As a result, owners and participants in the oil and gas sector industry are more likely to enter into agreements that are ‘hold harmless.’