State Pursuit of Sovereignty over Petroleum Resources: An Analysis of Auxiliary Paradigms in International Petroleum Contracts

Abstract

The ownership of petroleum resources and the dialectics of their exploration and exploitation has, ever since, been a subject of international law. State sovereignty has been a factor in delineating the basis of entrepreneurial interactions between Governments of oil producing countries and the Multinational Oil Corporations (MNOCs). While the host Governments aim at maximum development and utilization of their State-owned resources for both domestic revenue and foreign exchange earnings, the MNOCs on the other hand, are ready to part with their risk capital, technological and managerial expertise as well as marketing outlets in the quest for a fair return to their investment. In the relationship between these two, a form of a legal arrangement is imperative to ensure the attainment of their distinct objectives in a mutually acceptable manner. It is this situation that brought about the proliferation of different legal arrangements ranging from traditional Foreign Direct Investment (FDI) in the Concession Agreements that dominated the first part of petroleum extraction regime until the 1950s to the relatively new types of contracts such as Joint Ventures, Participation Agreements, Production Sharing Contracts and Risk Service Agreements. This paper attempts to view the fragile relations that ensue between the Host Governments of oil rich states and the Multinational Oil Corporations (MNOCs) within the prism of international law concept of State Sovereignty over natural resources and the international petroleum contracts and negotiation strategies of the foreign multinationals.