Oil and Gas Law News - Motta, Fernandes Rocha Advogados

Oil and Gas Law News
Newsletter of the International Bar Association Legal Practice Division
VOL 3 NO 1 OCTOBER 2015
IBA ANNUAL CONFERENCE, VIENNA, OCTOBER 2015
The Section on Energy, Environment, Natural Resources and Infrastructure Law
(SEERIL), with the support of the IBA North American Regional Forum, is proud to
present its biennial conference in New York City. The conference will focus on the
critical challenges facing practitioners in mining, oil and gas, power, environment,
water and international construction areas of the law
Biennial Conference of the Section on
Energy, Environment, Natural Resources
and Infrastructure Law 2016
Challenges in the 21st Century:
New Issues on the Horizon
17–20 April 2016, New York, USA
Presenters include internationally recognised experts in the field from private and public practice, academia,
corporate law departments and public interest organisations. In addition, top government lawyers from the
host country will speak.
Topics will include:
• Challenges faced by industry, governments, communities and, in general, stakeholders in the natural resources
industry in the next decade
• Structuring and restructuring projects for the mining, energy, and oil and gas sectors
• The critical role of construction agreements in project development
• Development of an informal law of “best practices” for the industry
• The role of climate change in project development and operation
• Recent developments in litigation affecting the extractive industries and international construction projects
• ‘Sharing the costs and benefits of energy and natural resources developments’, a special presentation
by SEERIL’s Academic Advisory Group of its new book
FOR MORE INFORMATION AND TO REGISTER YOUR INTEREST VISIT
WWW.IBANET.ORG/CONFERENCES/CONF659.ASPX
Contributions to this newsletter are always welcome
and should be sent to the Newsletter Editor at the
address below:
IN THIS ISSUE
From the Chair
4
From the Editor
5
Meet the Officer
6
Committee Officers
7
IBA Annual Conference, Vienna
4–9 October 2015:
our Committee’s sessions
8
Articles
International Bar Association
4th Floor, 10 St Bride Street
London EC4A 4AD
United Kingdom
Tel: +44 (0)20 7842 0090
Fax: +44 (0)20 7842 0091
www.ibanet.org
© International Bar Association 2015.
Falling oil prices: is it possible to revise the
contract price?
11
Mercedes Romero and Luis López
Brazil – the oil industry, sustainable
development and legal certainty
Luiz Gustavo Bezerra
Paul Stockley
Bond Dickinson, London
[email protected]
All rights reserved. No part of this publication may be reproduced or
transmitted in any form or by any means, or stored in any retrieval
system of any nature without the prior permission of the copyright
holder. Application for permission should be made to the Director of
Content at the IBA address.
13
Indonesia’s oil trading arm to be
dissolved
15
Mirza Karim, Karen Mills and Margaret Rose
Towards a new mining code for Senegal 17
Dr Aboubacar Fall
The UK Energy Bill as it relates to the oil
and gas industry
20
Uisdean Vass and Marianne Russell
This newsletter is intended to provide general
information regarding recent developments in oil and
gas law. The views expressed are not necessarily those
of the International Bar Association.
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no substantial alteration to the article will be made without consulting the author.
OIL AND GAS LAW NEWSLETTER OCTOBER 2015
3 FROM THE CHAIR
Giovani Ribeiro
Loss
From the Chair
W
e proudly welcome you to
the October 2015 edition
of the IBA Oil and Gas Law
Committee newsletter.
The goal of the Oil and Gas Law Committee
remains to focus on the most relevant issues
affecting the oil and gas industry by means of
this newsletter and the various IBA meetings.
Both this newsletter and the programme at
the IBA Annual Conference in Vienna (4–9
October 2015) promise to engage important
and valuable debates on the future of the oil
and gas industry.
Currently, the oil and gas industry is facing
challenging times. Given the low oil price,
day-to-day oil and gas legal work is reducing
and the first and second quarters of 2015
have also seen a reduction in oil and gas
M&A activity.
However, considering past industry
experience, it is expected that low oil
prices will eventually lead to an increase
in M&A activity, particularly an increase in
the number of complex transactions: some
recent examples are the Shell–BG and the
Halliburton–Baker Hughes deals.
Our final panel at the IBA Annual
Conference, entitled ‘Update on mergers
and acquisitions in the oil and gas world’, will
touch on this matter, addressing the change
4 of circumstances in the industry, including
oil prices, new regulation on unconventional
resources and decommissioning as well as
judicial recovery/financing issues.
We will also explore other important
debates, as in our opening panel discussion,
‘Recurrent issues in joint operating
agreements’, addressing issues around
the traditional contractual formula versus
different ways of oil and gas exploration.
The ‘Past, present and future of mediation
in the oil and gas industry’ session highlights
another current industry issue, regarding
the trend to avoid litigation or arbitration, in
order to save time, money and energy fighting
legal battles.
Finally, the session entitled ‘Hot topics on
gas supply arrangements’ will discuss possible
changes in the world’s energy matrix due to
geopolitics, new technologies and power games.
We encourage you to join us at the
Committee sessions in Vienna, where there
will be many opportunities to share your views
and questions on these complex issues with
your colleagues from around the world, and
to discuss them with other similarly situated
lawyers who share your interest in these matters.
I hope you will find the articles in this
newsletter informative and my sincere
appreciation goes to all contributors.
INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION
Mattos Filho Veiga
Filho Marrey Jr e
Quiroga Advogados,
Rio de Janeiro
giovaniloss@
mattosfilho.com.br
FROM THE EDITOR
Paul Stockley
Bond Dickinson,
London
paul.stockley@
bonddickinson.com
From the Editor
W
elcome again to the IBA
Oil and Gas Law Committee
Newsletter. What a difference a
year makes!
Last year, when I reflected on the various
challenges and opportunities our everdynamic sector presents, the oil price stood
at something over $100/b; this year, as I
write this letter, it is below $50/b. This is
undoubtedly a major challenge for the
sector, but there have been downturns
before and ours is an industry that has
become skilled at ‘weathering the storm’.
Furthermore, opportunities continue to
arise in the sector such as in unconventionals
and in new jurisdictions opening up to the
market, such as Mexico. Certainly, it has
never been more important for contractors
to focus on technological improvements and
internationalisation.
This year, as the UK celebrates 50 years since
gas was first found in the North Sea, change
continues apace in the UK Continental Shelf
(UKCS) with the new regulator, the Oil and
Gas Authority (OGA) now established (since
1 April 2015) and busy setting out its role in
maximising the economic recovery (MER) of
the remaining UKCS barrels. It sees this role as
three-fold: To Regulate – licensing offshore oil
and gas, onshore oil and gas and carbon capture
and storage; To Influence – industry culture,
commercial behaviour and greater collaboration;
and To Promote – investment in UKCS, value
creation and industry development.
The UK Energy Bill unveiled in July, will, if
enacted in its current form, represent a major
plank in that rapidly evolving UK regulatory
system as it seeks to establish the OGA as
the autonomous regulator, under the broad
control of the UK Government’s Department
of Energy and Climate Change in terms of
matters of national security and/or public
interest; create a new non-binding dispute
resolution system; provide the OGA with
broad power to ensure that petroleum-related
information and samples are preserved;
permit the OGA to attend licensee meetings
bearing on MER; allow the OGA to sanction
infringements of the MER strategy and much
else besides.
Once again we have received some
excellent articles for our newsletter. I would
like to thank those contributors for taking
the time to produce these interesting and
thought-provoking pieces. As always, they
cover a wide range of topics including:
falling oil prices – is it possible to revise the
contract price?; Brazil – the oil industry,
sustainable development and legal certainty;
the dissolution of Indonesia’s oil trading
arm; looking towards a new mining code for
Senegal; and a review of the UK’s Energy Bill,
which, if enacted, will add new provisions
to the Petroleum Act 1998 and is key to the
future of the UKCS.
Thank you for taking the time to read this
newsletter and for your continuing interest in
the Oil and Gas Law Committee. We hope to
see many of you in Vienna. As an introduction
to our new Chair of the Committee, Giovani
Ribeiro Loss, we have included his insightful
response to the ‘Meet the Officer’ questionnaire
and in his note from the Chair, Giovani has
given us an excellent foretaste of the topics
to be discussed in Vienna. We are once again
reminded that as oil and gas lawyers, whether
in-house or in private practice, we are privileged
to work in such a fascinating sector.
OIL AND GAS LAW NEWSLETTER OCTOBER 2015
5 MEET THE OFFICER
Meet the Officer
Giovani Ribeiro Loss
Chair, Oil and Gas Law Committee
Mattos Filho Veiga Filho Marrey Jr e Quiroga Advogados
[email protected]
How did you get into the law and your area of
practice?
My goal was to work with something that
would allow me to interact with cultures from
different countries. Becoming an oil and
gas lawyer has given me the opportunity to
interact with other cultures and to travel a
lot. This is definitely one of the reasons why I
chose an international law field.
If you were not a lawyer, what would you do?
Probably a banker. I’m very interested in the
transactional work.
What advice would you give to someone new
to being a lawyer?
Planning your career ahead is the key to
achieving your professional goals. It is also
important to understand what additional steps
may allow you to achieve your goals faster.
How has your role changed after the financial
crisis?
During times of economic crisis, clients tend
to reduce costs, particularly by cutting out the
referral of day-to-day work. After the financial
crisis, oil and gas work became increasingly
complex, with clients outsourcing only the
most complex and strategic matters.
6 What area of your work do you enjoy the
most? The least?
I really enjoy the transactional part of the
lawyer’s job, but not the bureaucratic part of it,
such as paperwork and billing hours.
What are the current challenges facing your
area of practice?
The low oil price is undoubtedly the biggest
current challenge of the oil and gas industry.
This leads to a large number of clients
requesting alternative fee arrangements.
What has been the biggest challenge of your
career? How did you overcome it?
The biggest challenge of my career was to
qualify as a lawyer in both New York and
England. I overcame it with a great deal of
hard work and determination to pass both
Bar exams.
What are the ethical issues facing your area of
practice?
There are many inexperienced professionals
who advise clients on subjects they know
little about.
If you could put together a wish list of
changes you would bring about in the
profession, or to your area of practice, what
would you include?
Price of the oil barrel above US$100.00, less
state influence in some countries where that
intervention is excessive and, also, greater
incentives for developing oil and gas markets
that still have potential.
INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION
COMMITTEE OFFICERS
Committee officers
Chair
Publications Officer
Giovani Ribeiro Loss
Mattos Filho Veiga Filho Marrey Jr e Quiroga Advogados,
Rio de Janeiro
[email protected]
Sophie Lamb
Debevoise & Plimpton, London
[email protected]
Newsletter Editor
Vice-Chair
Elisabeth Eljuri
Norton Rose Fulbright, Caracas
[email protected]
Paul Stockley
Bond Dickinson, London
[email protected]
Membership Officer
Vice-Chair
Paul Griffin
Allen & Overy, London
[email protected]
Michael Silver
BHP Billiton, Houston
[email protected]
Corporate Counsel Forum Liaison Officer
Vice-Chair
Paul Stockley
Bond Dickinson, London
[email protected]
Alvaro Rodriguez
Posse Herrera Ruiz, Bogotá
[email protected]
Secretary
Matthias Lang
Bird & Bird, Düsseldorf
[email protected]
OIL AND GAS LAW NEWSLETTER OCTOBER 2015
7 IBA ANNUAL CONFERENCE, VIENNA, 4–9 OCTOBER 2015: OUR FORUM’S SESSIONS
Oil and Gas Law Committee sessions
Monday 0930 – 1230
Tuesday 1430 – 1730
Supply of energy and resources: geopolitical
challenges
Recurrent issues in joint operating agreements
Presented by the Energy, Environment, Natural Resources and
Infrastructure Law Section (SEERIL)
Session Co-Chairs
Jean-André Diaz Total, Paris, France; Secretary, Energy,
Environment, Natural Resources and Infrastructure Law Section
Arent van Wassenaer Allen & Overy, Amsterdam, the Netherlands
World economy and political stability very much depend on supply
of energy and resources. Demand for energy and natural resources is
still growing rapidly. China, as a fast-growing economy, attempts to
take over production of natural resources in Africa on the one hand
and it is restricting the export of its own natural resources, including
rare earth minerals, on the other hand. In the US and Canada,
industry is benefiting from fracking shale gas, whereas European
countries are very reluctant to allow this new technology to be
applied. One of the major issues is the protection of groundwater.
Furthermore, climate change is dramatically affecting the planet and
its people. Thus, many countries are promoting a radical change in
the energy supply away from fossil and nuclear fuels to renewables.
This raises several new issues, such as the need for new transmission
grids for electricity as well as for natural gas. Due to the problems
with the construction of new transmission grids, projects such as
Desertec – where solar power generated in northern Africa shall be
used for Europe’s energy supply – are at threat. Furthermore, political
issues constitute a challenge to the energy supply of developed
countries and industry nations. A recent example is the dispute
between NATO and Russia over the further destiny of Ukraine. In the
past, Russia has cut off or at least drastically reduced the gas supply
to the Ukrainian pipelines, which also serve western Europe. Some
European countries such as Germany are more or less dependent on
Russian gas. This problem could be resolved with the new NABUCCO
Pipeline. However, this project has never materialised.
Presented by the Oil and Gas Law Committee
Session Chair
Luis Alberto Erize Abeledo Gottheil Abogados, Buenos Aires,
Argentina
What happens when a traditional and well-experimented contractual
formula faces an entirely different way of extracting oil and gas?
Joint Operating Agreements (JOAs) systems have been discussed
for decades amid exploration and production regimes with
the government, consisting in production-sharing agreements,
concessions or part of both. The shale oil and gas revamping
techniques look for a substantially different financing system,
requiring a continuity of investment flow to maintain an otherwise
rapidly declining production, without however facing lower risks
than in the other cases of oil and gas production. Rather, the request
for increased infrastructure and logistics, water supplies’ assurance,
Environmental Impact Statement and a solid commitment between
community and oil and gas producers for making it work, poses new
challenges, particularly in the present prices’ roller coaster. Offshore,
deep water (pre-salt) exploration and production presents an entirely
different set of challenges and risks. The new contracts’ grid should
be explored and related issues discussed, such as joint/non-joint
(exclusive) operations, pilot project provisions, reserved capacity, etc.
More than the usual, regulatory changes may pose threats that the
JOA provisions have to consider for an adequate allocation of risks.
Speakers
Doran Doeh Dentons, Moscow, Russian Federation
Marion Kaisinger OMV, Vienna, Austria
Karl Erik Navestad Arntzen De Besche Advokatfirma, Oslo, Norway
Peter Roberts Andrews Kurth (UK), London, England
Paulo Valois Pires LO Baptista – SVMFA, São Paulo, Brazil
William Wood Norton Rose Fulbright, Houston, Texas, USA
ROOM 2.31
Therefore, this session will analyse how the supply of energy and
resources affects economic and political stability and, at the same
time, how such supply is being affected by geopolitical issues.
Speakers
Edward Asscher Royal Asscher Diamonds, Amsterdam, the Netherlands
Suedeen Kelly AkinGump, Washington, DC, USA
Peri Johnson International Atomic Energy Agency, Vienna, Austria
Pascal Laffont International Energy Agency, Paris, France
Francis Perrin Stratégies et Politiques Energétiques, Paris, France
HALL L8
8 INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION
Wednesday 0930 – 1230
Past, present and future of mediation in the
energy, oil and gas industry
Presented by the Mediation Committee and the Oil and Gas Law
Committee
Session Co-Chairs
Jean-André Diaz Total, Paris, France; Secretary, Energy,
FEATURE ARTICLE
Environment, Natural Resources and Infrastructure Law Section
Jawad Sarwana Abraham & Sarwana, Karachi, Pakistan; Senior Vice
Chair, Mediation Committee
Mediation is certainly a hot topic today. The wish to avoid litigation
or arbitration is certainly a major factor in a world where all
parties are seeking to save money and trying to explore avenues
to do business rather than lose time and energy fighting legal
battles. Mediation appears to meet those expectations, but what is
happening on the ground?
The energy, oil and gas industry offers a good illustration to try
to explore this inquiry: is mediation used effectively in light of the
types of disputes this sector generates? Is it actually paying out
and working? If so, why can’t we hear more about this Alternative
Dispute Resolution (ADR) and its success in this field? How frequently
can one find such clauses in contracts, including, inter alia,
concession contracts and BITs?
The experience gathered by in-house counsels and counsels for oil
and gas companies, as well as from state agencies, such us OPEC,
dealing with this area, will give the audience a better grasp of the use
of mediation in this industry.
A few practical examples will also be shared by those with unique
insight, to explain how negotiations/mediations actually work
in this sector, whether with a positive or negative outcome.
Equally important is to have some comparative perspectives, with
practitioners coming from regions where those disputes arise or may
arise, including Africa and Asia.
Against this context, the panellists will explore all possible avenues to
improve the use of ADR, notably mediation, in the particular industry
of energy, oil and gas disputes.
This session will also include a mock case. Delgates are encouraged to
read the mock case available on the IBA Annual Conference website.
Speakers
Kehinde Aina Aina Blankson, Lagos, Nigeria
Laurence Burger Landolt & Koch, Geneva, Switzerland; Co-Chair,
State Mediation Subcommittee
Robert Gaitskell QC Keating Chambers, London, England
Sophie Lamb Debevoise & Plimpton, London, England; Publications
Officer, Oil and Gas Law Committee
Benoit Le Bars Lazareff Le Bars, Paris, France
ROOMS 1.61 & 1.62
Thursday 1430 – 1730
Hot topics on gas supply arrangements
Presented by the Oil and Gas Law Committee
The shift of a reacting Saudi Arabia oil policy allowed prices to fall to
rock bottom prices. These scenarios pose crucial options for projects
that are middle-of-the-road, affecting as well gas supply agreements,
gas-to-gas competition, and international pipeline projects, with a
high potential of litigation and negotiation.
Speakers
Paul Bieniawski Zechstein Midstream, The Hague, the Netherlands
Maryna Ilchuk Arzinger, Kiev, Ukraine
Stephan L Jervell Advokatfirmaet Wiersholm, Oslo, Norway
Heinrich Kühnert bpv Hügel Rechtsanwälte, Vienna, Austria
Jeff Makholm NERA Economic Consulting, Boston, Massachusetts,
USA
Humberto Quintas BP Energy do Brasil, São Paulo, Brazil
Elmar Schweers RWE Supply & Trading, Essen, Germany
ROOM 2.15
Friday 0930 – 1230
Update on mergers and acquisitions in the oil
and gas world
Presented by the Oil and Gas Law Committee and the Corporate and
M&A Law Committee
Session Co-Chairs
Michael Coates Shell International Limited, London, England;
Treasurer, Corporate and M&A Law Committee
Giovani Loss Mattos Filho Veiga Filho Marrey Jr e Quiroga
Advogados, Rio de Janeiro, Brazil; Chair, Oil and Gas Law Committee
Oil and gas mergers and acquisitions (M&A) have been affected by
the rapid change of circumstances in the oil and gas industry, which
includes oil prices, new regulation on unconventional resources and
abandonment; and judicial recovery and financing issues.
This panel looks at how law firms and clients are dealing with new
factors impacting oil and gas M&A transactions around the world.
Speakers
Michael Burns Ashurst, London, England; Membership Officer,
United Kingdom Energy Lawyers Group
Emmie Jones Macfarlanes, London, England
Juan MacKenna Carey, Santiago, Chile; Council Member, Energy,
Environment, Natural Resources and Infrastructure Law Section
Olusina Sipasi ǼLEX Legal Practitioners, Lagos, Nigeria
Daniel Szyfman Machado Meyer Advogados, Rio de Janeiro, Brazil
Preben Thomas Willoch Simonsen Vogt Wiig, Oslo, Norway
Andrey Zharskiy ALRUD Law Firm, Moscow, Russian Federation
HALL L4
Session Chair
Matthias Lang Bird & Bird, Dusseldorf, Germany; Secretary, Oil and
Gas Law Committee
The entire energy matrix in the world is subject to significant changes
due to geopolitics, new technologies and power games. The shale
technological revolution altered the energy source balance in the
USA, and this then affected the whole world (by redirecting energy
flows and lower energy global demand). At the same time, tensions
built up with the Ukrainian conflict and through the resulting
sanctions by the EU and USA, posing great uncertainties for natural
gas continuity of supply east to west.
OIL AND GAS LAW NEWSLETTER OCTOBER 2015
9 ANNUAL CONFERENCE OF THE INTERNATIONAL BAR ASSOCIATION
WASHINGTON MARRIOTT WARDMAN PARK, WASHINGTON DC, USA
T
he 2016 IBA Annual Conference will be held in Washington
DC, home to the federal government of the USA and the
three branches of US government – Congress, the President
and the Supreme Court. Washington DC is also an important centre
for international organisations and is home to the International
Monetary Fund and the World Bank. As well as being the political
centre of the USA, Washington DC is home to some spectacular
museums and iconic monuments clustered around the National Mall.
Washington DC will give the 2016 IBA Annual Conference the perfect
blend of opportunities for business, cultural exploration and to develop
a unique set of new contacts. This mix makes Washington DC an ideal
location for the world’s leading conference for international lawyers.
WHAT WILL WASHINGTON DC 2016 OFFER YOU?
• Access to the world’s best networking and business development event
for lawyers – with over 6,000 lawyers and legal professionals attending
from around the world
• Up-to-date knowledge of the key developments in your area of the law
– with nearly 200 working sessions covering all areas of practice
• The opportunity to generate new business with the leading firms from
around the globe
• Up to 25 hours of continuing legal education and continuing
professional development
• A variety of social functions providing ample opportunity to network
and see the city’s famous sights
TO REGISTER YOUR INTEREST:
Visit: www.ibanet.org/Form/IBA2016Washington.aspx
Email: [email protected]
OFFICIAL CORPORATE SUPPORTER
FALLING OIL PRICES: IS IT POSSIBLE TO REVISE THE CONTRACT PRICE?
Mercedes
Romero
Pérez–Llorca, Madrid
mromero@
perezllorca.com
Falling oil prices: is it possible
to revise the contract price?
Luis López
Pérez–Llorca, Madrid
[email protected]
The recent fall in oil prices and the
possible effects on long-term energy
contracts
Some prices of long-term energy contracts
(ie, gas, electricity, steam, etc) are connected
to the oil market. One of the main features
of the oil market during the 1990s was the
relative stability of the long-term oil price.1
However, oil prices have fallen sharply
since the middle of 2014. The fall has
materially affected a wide range of energy
companies, with many players forced to
rethink investments, cost structures and even
business models. In addition, this drop may
have a significant impact on the price agreed
in long-term energy contracts linked to the
oil market.
Therefore, parties to long-term energy
contracts connected to the oil market will need
to determine whether the recent fluctuations
of oil prices have led to a material change
that ought to be reflected in the contractually
agreed price. In these circumstances, some
parties under long-term energy agreements
spanning ten years or more may believe that
the price in their contract does not reflect the
extent of the change in oil price or that the
price is overcompensating for the change. As a
result, either party to the contract may seek to
change the agreed price formula to reflect the
alleged changes in circumstances.2 The parties
usually submit their disputes to arbitration
instead of litigation.
The submission of price revision to
arbitration for confidentiality reasons
In the oil and gas industry, arbitration is a
popular alternative dispute resolution method
given that it offers certain advantages, such as:
• neutrality of the process;3
• neutrality of the forum;4
• degree of autonomy for the parties;5
• the speed of the award;6 and
• the enforceability of the award.
Nevertheless, the main virtue in this industry
of submitting the dispute to arbitration is
that the proceedings are confidential. Usually
the parties agree to keep the arbitration
proceedings confidential, including all
documents, evidence, orders and awards.7
For this reason, arbitration is seen as
advantageous compared to litigation, which
is usually open to the public, save for a few
exceptional circumstances.8 In relation
to the revision of the contract price, this
confidentiality is critical, given that it prevents
sensitive information being disclosed to
competitors.
Different price revision scenarios and the
possible change in the trend of the rebus
sic stantibus doctrine application
There are two scenarios where a revision
of the formula price of a long-term energy
contract can be requested by a party as a
consequence of a change in circumstances:
• when the parties have provided a price
revision clause in the contract; or
• when the contract is silent.
When the parties have provided a price
revision clause
Parties who are aware that economic
circumstances that serve as the basis for fixing
the contract price may change can agree
on a clause in their contract, providing that
the contract term or the price formula will
be changed, renegotiated or, ultimately, if
such circumstances arise and no agreement
can be reached, submitted to arbitration (or
jurisdiction). This clause can be incorporated
by reference to hardship model clauses or the
parties may decide to draft an ad hoc clause.
Hardship model clauses are based on
provisions provided by international law such
as Article 6.2 of the UNIDROIT Principles or
Article 6.111 of the Principles of European
Contract Law. Hardship clauses typically
recognise that parties must perform their
contractual obligations even if events have
rendered performance more onerous than
would reasonably have been anticipated at the
time of the signing of the contract. However,
where continued performance has become
excessively burdensome due to an event
beyond a party’s reasonable control, which
OIL AND GAS LAW NEWSLETTER OCTOBER 2015
11 FALLING OIL PRICES: IS IT POSSIBLE TO REVISE THE CONTRACT PRICE?
the party could not reasonably have been
expected to have taken into account, the
hardship clause allows the parties to negotiate
alternative contractual terms.9
There is also the possibility for the parties
to agree on an ad hoc clause (different to the
hardship model clause) in which the price
revision only applies when the requirements
set out in the agreed clause are fulfilled.
Hence the parties are free to expressly
exclude specific requirements typically
included in hardship clauses.
In both cases, regardless of whether the
parties have agreed on a hardship clause or an
ad hoc clause according to the general principle
of the literal interpretation of contracts,10 if
the parties have agreed on a price revision
clause, and are willing to revise the price, a
strict interpretation (remaining faithful to the
literal terms agreed by the parties) should
be made in order to determine whether the
changes of circumstances justify a revision of
the price.
does not allow an interpretation beyond the
terms agreed by the parties.
In the past, Spanish courts only applied
rebus sic stantibus doctrine when there was an
extraordinary and unforeseen alteration of the
economic circumstances in which the contract
was based and an exorbitant disproportion
between the parties’ obligations.
Nevertheless, two rulings recently rendered
by the Spanish Supreme Court in 201414
changed this trend. The rulings granted
two requests for a price revision based on
the argument that the economic crisis
constitutes extraordinary and unforeseen
circumstances, which may cause a lack of
equilibrium between the parties’ obligations.
In these rulings the Spanish Supreme Court
reduced the strictness of requirements to
apply this doctrine and accepted that the
economic crisis was unforeseeable and hence
could allow a revision of the price contract,
insofar as it disproportionately affected the
equilibrium between the parties’ obligations.
When the parties have not agreed on a price
revision clause
Conclusion
When the parties have not agreed on a price
revision clause, the majority of national
systems have a rule that allows a change in
circumstances to modify the binding terms
of the contract. This possibility is also known
under the maxim rebus sic stantibus, which
means that the contract remains binding
‘provided that things remain as they are’. The
principle of rebus sic stantibus is a principle
of international law that generally applies if
no revision clause has been provided by the
parties in contracts. The rebus sic stantibus is
said to be a principle of lex mercatoria.11
In a nutshell, in order to apply the rebus
sic stantibus doctrine, the change must be
unforeseen, substantial and fundamental.12
In addition, the change must alter the
equilibrium of the contract (an exorbitant
disproportion between the parties’
obligations). Consequently, ICC awards13
have been rather strict when applying
rebus sic stantibus.
However, the recent developments in the
economic area and oil market may change
this tendency in the next few months. An
example could be found in Spain. Spanish
case law has always been extremely restrictive
in applying the rebus sic stantibus doctrine,
ensuring first and foremost the pacta sunt
servanda principle, which in simple words
12 Two questions are still up in the air:
• Will these cases be applied to the fall in
oil prices?
• Will arbitrators follow this case law?
In the current circumstances, parties
contemplating a potential price review should
consider these recent trends whilst remaining
mindful of the original expectations of their
price review clause. While it is easy to evaluate
what has already occurred, it can be difficult to
foresee if these changes will continue to affect
oil prices and/or gas markets in the future.
In a wider sense, when dealing with long-term
contractual arrangements, it is important to
have clear adjustment standards that take
into account the effects of inflation, currency
fluctuations and changes to the law. For parties
considering a price review, they will need
to consider each of the possible economic
explanations and determine whether they are
significant, lasting changes. The answer may be
worth hundreds of millions of euros.
Notes
1 B Fattouh and P Scaramozzino, ‘Uncertainty,
expectations, and fundamentals: whatever happened
to long-term oil prices?’ (2011) 27(1) Oxford Review of
Economic Policy, 186.
2 J Wilson and W Lowery, ‘“Trigger Happy”: Considering
the requirements of your price review clause’, Inside
Energy & Environment, 15 February 2015.
3 Oil and gas contracts frequently involve parties from
different national jurisdictions.
INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION
BRAZIL – THE OIL INDUSTRY, SUSTAINABLE DEVELOPMENT AND LEGAL CERTAINTY
4 M L Moses, The Principles and Practices of International
Commercial Arbitration (2nd ed, Cambridge University
Press, 2012), 3.
5 H R Dundas, ‘Dispute Resolution in the Oil and Gas
Industry: an Oilman’s Perspective’, (2004) 2(3) Oil, Gas
& Energy Law Intelligence (OGEL), 3.
6 Arbitration takes a relatively shorter time than litigation,
mainly due to the fact that the award is non-appealable
except in exceptional circumstances.
7 V Rajora, ‘Confidentiality in Arbitration’, Social Science
Research Network, 16 March 2010.
8 See A Robb, ‘Confidentiality and Arbitration’, 39 Essex
Street, 5 May 2004.
9 F R Fucci, ‘Hardship and Changed Circumstances
Luiz Gustavo
Bezerra
Motta Fernandes
Rocha Advogados, Rio
de Janeiro
[email protected]
10
11
12
13
14
as Grounds for Adjustment or Non-Performance
of Contracts’, American Bar Association, Section of
International Law, Spring Meeting, April 2006.
Ie, ICC Case No 9812 (1999).
M Mustill, ‘The new Lex Mercatoria: The First TwentyFive years’, [1988] Arbitration International, 86.
Decision of the International Court of Justice, Fisheries
Jurisdiction Case, 2 February 1973.
Ie, ICC Award No 1512 (1971), ICC Award No 6281
(1989), ICC Award No 8486 (1996).
Decisions No 591/2014, 15 October 2014 and No
333/2014, 30 June 2014 of the Spanish Supreme Court,
regarding publicity and hotel management contracts.
Brazil – the oil industry,
sustainable development and
legal certainty
I
t is interesting how global awareness
regarding environmental protection
has progressed over the past decades.
Since the United Nations Conference
on Sustainable Development in 2012, the
concept of sustainable development, forged
by the Brundtland Report in 1987, has
solidified in such a way that it is no longer
possible to think ahead without ensuring
that future generations are also able to
benefit from natural resources. Today, the
environment is recognised for its intrinsic
value and new ways of measuring the wealth
of nations are being discussed, taking into
account nature and the environmental
surroundings that guarantee satisfactory
conditions to human life in our planet.
In this scenario, the energy sector should
less and less be seen as dissociated from the
environment. The feasibility of any energy
project must undergo a detailed assessment
of its environmental impact. In the oil
industry there are several instances where
environmental challenges have become legal
issues and environmental law ends up being
seen as an obstacle. Environmental law in the
oil industry must be seen through the lense
of sustainable development, considered by
the Brazilian Supreme Court as the ‘factor for
reaching a fair balance between economy and
ecology’. This is the only possible way to solve
some of the legal dilemmas faced by players
in the oil industry nowadays.
One of the most challenging matters is civil
liability for environmental pollution, not only
for the oil and energy industries, but for every
activity involving environmental risks and
a high level of natural resource utilisation.
The extent of civil liability for environmental
pollution was outlined in a classic judgement
by Minister Herman Benjamin, of the
Brazilian Superior Court of Justice, which
states that:
‘for the purpose of verifying the chain of
causality regarding a given environmental
damage, polluter is everyone who does it,
who does not prevent it when was supposed
to, who allows it to be done, who does not
care that other people do, who pays for
another person to do it, and who benefits
from it when others do it’.
The comprehensiveness that our high
courts have been granting to the concept
of polluter and to the configuration of the
chain of causality to impose civil liability (eg,
the obligation to clean up or compensate
environmental pollution) results in severe
legal uncertainty, not only for those who
conduct high-risk activities, but also for
all those who are part of the supply chain,
including their financiers. Would it be
possible to apply this theory to impose civil
liability on those who finance such an activity?
On the same theme, it is important to
note that the Brazilian environmental
liability framework is based on the Federal
OIL AND GAS LAW NEWSLETTER OCTOBER 2015
13 BRAZIL – THE OIL INDUSTRY, SUSTAINABLE DEVELOPMENT AND LEGAL CERTAINTY
Constitution, which states that ‘activities that
are harmful to the environment shall subject
violators, whether individuals or companies,
to criminal and administrative sanctions,
regardless of the obligation to repair
the damage caused’. Hence, the Federal
Constitution provides for environmental
liability in three distinct fields: civil,
administrative and criminal.
Furthermore, administrative liability is
often mistaken for civil liability, as agents
in charge of environmental enforcement
seem to be unaware of their fundamental
difference. The first is repressive by nature,
in absolute opposition to the reparatory
nature of the latter. This mistake results in
administrative sanctions (eg, fines) being
imposed as if they were bound to a strict
and several liability scheme, which they are
certainly not.
Another huge challenge is to find limits
to the application of the precautionary
principle, which states that even when one
is scientifically uncertain about potential
impacts of an activity or technology, preventive
measures must be adopted to stop them
occurring. However, it turns out that both
public prosecutors and judges alike apply this
principle indiscriminately, misrepresenting its
purposes. Authorised activities are interrupted
and environmental permits are suspended,
all because the said principle is commonly
used as an escape valve, ignoring the fact that
sustainable development is also part of the
same legal framework.
The aim here is not to reject the
precautionary principle, effectively present
in the Brazilian legal framework and whose
importance is undeniable, particularly
in an industry that is always dealing with
environmental risk management. Our
purpose is to think over the disrupted
application of this principle, which must be
tempered by proportionality and reasonability.
Unfortunately, we believe this will only occur
when our judiciary is prepared to apply
environmental law in all its complexity.
As a matter of fact, this chaotic use of the
precautionary principle tends to result in
the judicialisation of environmental issues,
especially those related to environmental
permitting. This gives rise to another
challenge: to turn environmental permitting
processes into something more rational,
efficient and predictable.
In connection with such a challenge, we
should celebrate the enactment, in late 2011,
of the Environmental Authority Act (EAA),
14 which sets the guidelines for the cooperation
between the Union, states and municipalities
regarding their joint authority for executing
administrative measures towards the
protection of the environment.
Besides setting guidelines for cooperation,
the EAA, based on objective criteria, assigns
responsibilities to each one of the federative
entities concerned with environmental
permitting proceedings, listing the cases
in which each entity will be in charge of
conducting the proceedings. Thereby, the
EAA definitively states that environmental
permitting proceedings must take place
at one federative level only. In addition, it
introduces what some already consider a
new principle of Brazilian environmental
law: the principle of the ‘licenser-overseer’,
which, briefly, means that the entity with the
obligation to conduct the environmental
permitting of a given activity is the one
primarily responsible for inspecting the same.
We do know that the EAA will not solve all
conflicts of authority related to environmental
permitting or inspection, but the
long-awaited law already takes the legal
certainty for activities in the oil industry to
another level, from upstream to downstream,
covering all of its production chain, including
service providers. This is even more true with
the recent publication of the EAA Regulation
Decree, in late April 2015.
Staying with environmental permitting,
another challenging trend is the use of
alternative environmental impact assessment
methods. In Brazil, over the past decades,
environmental impact assessment studies
were conducted for individual projects only
and the so-called ‘estudo de impacto ambiental’
(environmental impact assessment) and
‘relatório de impacto ambiental’ (environmental
impact report) are the most remarkable,
complex and controversial of them. However,
recently, whether by imposition or by
requirements from public prosecutors, these
assessments are beginning to be implemented
during the planning stages, seeking to
evaluate the cumulative and strategic
impacts of several activities considered
together. Examples of this new kind of
environmental assessment include Strategic
Environmental Assessment, Integrated
Environmental Assessment and Sedimentary
Area Environmental Assessment. In view
of the multiplication of such assessments,
it is expected that the environmental
permitting of specific projects will become
more rational, since a baseline will already
INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION
INDONESIA’S OIL TRADING ARM TO BE DISSOLVED
exist for the understanding, for instance, of
the environmental sensitivities of a certain
sedimentary area. Nonetheless, there will be
much discussion before the consolidation of
these new studies. Indeed, Public Prosecutors’
Offices have already obtained injunctions
to halt activities until such assessments are
approved by environmental agencies.
If, on the one hand, legal certainty is
pursued by the oil and gas industry, on
the other hand the industry is still failing
to grasp with precision the extent of the
environmental impact related to new
technologies, such as fracking. Due to that
dichotomy, fracking is the subject of a bill
under scrutiny by the Brazilian Congress
seeking to establish a five-year moratorium
on the technique, and also of several
public civil actions in some states. Likewise,
Mirza Karim
KarimSyah Law Firm,
Jakarta
mirza.karim@
karimsyah.com
there are no well-defined solutions to fight
climate change challenges.
Legal environmental matters in
connection with the oil industry are certainly
challenging. This article only indicates
some of the major dilemmas, among many,
faced by companies dedicated to oil and
gas exploration or the distribution of their
consumer products. Today, environmental
considerations permeate the formulation
of public policies, and the notion of
development is only complete through
sustainable development. Environment and
sustainability should not be perceived as
costs to corporate activities, but rather as
great opportunities. Companies with such
vision, that structure themselves for the
decades of the green economy to come, will
surely be in a privileged position.
Indonesia’s oil trading arm to
be dissolved
Karen Mills
KarimSyah Law Firm,
Jakarta
[email protected]
Margaret Rose
KarimSyah Law Firm,
Jakarta
margaret.rose@
karimsyah.com
N
ews in Indonesia’s energy sector
lately has been focused on
Pertamina’s intention to halt the
operation of its Singapore-based
subsidiariy, Pertamina Energy Trading
Limited (Petral), as well as efforts to
liquidate Petral’s subsidiaries, Pertamina
Energy Services Pte Limited (PES) and
Zambesi Investments Limited (ZIL). The
announcement was made at the Ministry
of State Owned Companies’ offices on 13
May 2015 by the new President Director of
Pertamina, Dwi Soetjipto, along with the
President Commissioner of Pertamina, Tanri
Abeng, Minister of State Owned Companies,
Rini Soemarno, and Minister of Energy and
Mineral Resources, Sudirman Said. The role
of Petral has, on and off, been the subject of
debate in the energy sector for many years
as the company, which handles oil imports
from Singapore, was seen as being beneficial
to certain oil brokers, but not to the nation.
Efficiency and transparency in oil supply
procurement were seen to be compromised in
using Pertamina’s own intermediary.
Petral’s history
In 1968, Indonesia’s three state oil
companies, Pertamin, Permina and Permigan
were merged into Pertamina. In the same
year Pertamina joined with a number of
United States investors to form the Perta
Group to perform marketing activities for
Pertamina’s oil and gas products in the
US. The Perta Group, which consisted of
Perta Oil Marketing Limited (established in
the Bahamas and based in Wanchai, Hong
Kong) and Perta Oil Marketing Corporation
(established in California and operating in
the US) commenced activities in 1972. Then,
in 1978, a major reorganisation replaced the
Bahamas company with a Hong Kong entity,
Perta Oil Marketing Limited. The Perta
Group continued to stand as intermediary
between Pertamina and its offshore suppliers
and customers throughout the period of
Suharto’s rule continuing, as Petral, to the
present day.
Established during the ‘New Order’ reign
of Suharto, the Petra Group was owned in
OIL AND GAS LAW NEWSLETTER OCTOBER 2015
15 INDONESIA’S OIL TRADING ARM TO BE DISSOLVED
the majority by Pertamina with Suharto’s
youngest son and one of Suharto’s unoffical
business partners holding minority interests.
It was, and still is, suspected to be utilised for
these personal interests and also for those
of an ‘oil and gas mafia’ of various current
and former officials and business persons,
together with at least one Singapore player.
The evolving rumours have it that more
than half of the oil imported into Indonesia
was controlled by or connected with this
‘oil and gas mafia’. Despite the remarkable
losses inflicted on the state as a result, no
investigation had ever been undertaken into
these practices, until now.
Pertamina took over the Perta Group in
1997 when Suharto stepped down, but the
unofficial interests of those connected with
that former President remained in place.
Then in 2001 the name of the Perta Group
was changed to Pertamina Energy Trading
Limited (Petral), and it was incorporated in
Hong Kong, although it maintained its head
office in Singapore. (For ease of reference the
term ‘Petral’ shall, in the remainder of this
article, refer both to the Perta Group and to
the later legal entity, Petral.)
Petral has two wholly owned subsidiaries:
• Pertamina Energy Services Pte Limited
(PES), formerly Perta Oil Services Pte Ltd,
established in Singapore in 1992. PES’s
role is to carry out marketing activities for
oil, oil products and petro-chemicals; and
• Zambesi Investments Limited (ZIL),
established in Hong Kong in 1979.
ZIL’s role is to perform non-oil business
development and investment.
Indonesia was a net oil exporter and
a member of OPEC at the time of the
establishment of Petral, which was positioned
by Pertamina as its international trading and
marketing arm. Oil and gas were still the
major source of foreign exchange revenue
and/or state’s revenue in the State Budget.
Petral’s establishment was made in line with
Pertamina’s policy to increase trading and
marketing functions. Petral’s main business
was crude oil exports and imports and
refinery products. Petral also performed
trading activities of oil and derivative products
originating from other countries in the Asia
Pacific region, Europe, the Middle East,
Africa and other regions. However, the
decrease in oil production along with the
rapid increase of oil consumption in 2003
created more demand, which needed to
be covered by oil imports. As Indonesia’s
status shifted from net exporter to net
16 importer, Petral remained the trading arm of
Pertamina, and it also acquired an additional
function of ‘procurement agent’ for crude
oil and fuel oil, the function of which was
believed to provide more opportunities
for the enrichment of some of the players
involved from the start.
The problem
Indonesia’s high demand for fuel oil caused
a rapid increase in the business of Petral,
Pertamina’s sole authorised seller and
purchaser of crude and fuel oil. Yet, Petral
did not perform any actual transaction with
third parties; Petral’s official role was only
as ‘tender administrator’, thus it could be
characterised as a trading company. Nor
was it able to perform any transaction at
the Platts Window Market (Singapore Oil
Exchange), since Petral did not physically
possess any products. Yet, Petral was able to
set both buying and selling prices, but with no
transparency or accountability.
Under Indonesia’s new president, a shortterm Oil and Gas Governance Reform Team
(RTKM) was established to regulate some of
the problems in the sector. Its Chair, Faisal
Basri, noted Petral’s manipulation of the
oil supply through oil companies owned
by foreign governments or national oil
companies (NOCs). Many of the NOCs that
were successful in their tenders possessed
no oil of their own, and needed to acquire
products from other parties. The Minister
of Energy and Mineral Resources, Sudirman
Said, also revealed the existence of suspicious
cartel practices in Singapore and a number
of other unclear practices in Petral’s fuel
oil procurement process. As long as Petral
continues to act as Pertamina’s trading arm, it
is inevitable that the ‘oil mafia’ will continue
to drain funds from the state treasury for
their own benefit.
Dissolution of Petral
The dissolution of Petral was endorsed by
Sudirman Said, although he also stated that
the final say must be Pertamina’s. On 13 May
2015, Pertamina officialy terminated the
entire operation of Petral and its subsidiaries
and announced that Petral and these
subsidiaries are to be liquidated by April 2016
at the latest. Such action is widely recognised
as a much-needed clean-up effort, with
many pointing out that Petral has long been
infamous for being ‘the nest of the oil and
INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION
TOWARDS A NEW MINING CODE FOR SENEGAL
gas mafia’. The current President Director of
Pertamina, Dwi Soetjipto, stated that Petral’s
business activities, especially those related to
crude oil and fuel oil imports and refinery
products, will now be fully performed by
Pertamina’s own integrated supply chain
(ISC). There is no need for an agent. In fact,
many of these activities have gradually been
performed by ISC since early this year. Petral’s
assets will also be transfered to Pertamina.
During the past three months, since ISC took
over Petral’s business activities, Pertamina has
already managed to save US$22m, as reported
by Sudirman Said to Indonesia’s new President,
Joko Widodo, adding to the view of prior
missappropriation by Petral. Both the Ministry
and Pertamina also intend to perform full
financial and legal audits to examine Petral’s
business track record, prior to its liquidation.
However, Indonesia’s government may have
difficulty in performing such investigations,
particularly if they are to be performed by
Indonesia’s Supreme Audit Agency (BPK),
Dr Aboubacar
Fall
Geni & Kebe, Dakar
[email protected]
because Petral is a Hong Kong legal entity,
based in Singapore, not an Indonesian one.
It is hoped that Petral’s dissolution will
eliminate the payment of agency fees and
other questionable practices in the oil and
gas sector. Through ISC, Pertamina will
be able to negotiate prices directly with
suppliers. Pertamina’s decision to disband
Petral is commendable. Ever since Ibnu
Soetowo, the first President of Pertamina,
almost bankrupted the nation through
questionable financing transactions in 1978,
efforts to clean up Indonesia’s largest
state-owned entity have proved unsuccessful.
After the fall of Suharto, Pertamina itself
was cleaned up and is now operating in a
transparent manner; and now, finally, its
subsidiaries are receiving proper scrutiny
as well. A fully transparent oil and gas
industry will certainly spell not only a
welcome increase in state revenue, but also
a more attractive energy sector for investors,
domestic and foreign alike.
Towards a new mining code
for Senegal
T
he process of revising the 2003 Mining
Code (which remains in force) began
in November 2012. Indeed, right
after his election, and despite the low
prices on the international mining market,
the President of Senegal, who is a geologist
engineer by training and has served as
Minister of Mining and Geology, decided to
introduce new mining legislation.
The objective of this decision was to attract
more foreign investment in order to drive
economic growth in Senegal and increase
the contribution of the mining sector to
the country’s gross domestic product. It is
noteworthy that mining has been selected as
one of the main priority sectors of the Plan
for an Emerging Senegal (PSE), designed and
strongly supported by the President.
Context
Parallel to this decision to revise the
current legislation, a presidential
decree established the Commission for
the Revision of Mining Contracts and
the Mining Code, which is exclusively
composed of representatives of public
institutions (the government, parliament
and the Economic and Social Council).
The mandate of the Commission is two-fold:
• revisit existing mining contracts; and
• revise the current legislation in order to
bring about important changes including:
­– the reinforcement of local developmentrelated provisions;
– the deadlines on starting work plan
implementation; and
– the increase of transparency obligations
on the title holders as well as the Senegal
government.
In that respect, it should be emphasised
that Senegal has recently embarked in the
Extractive Industries Transparency Initiative
(EITI).
These changes derived from
recommendations formulated from different
OIL AND GAS LAW NEWSLETTER OCTOBER 2015
17 TOWARDS A NEW MINING CODE FOR SENEGAL
sources, including a World Bank-funded study
on the ‘Diagnostic of the Legal and Fiscal
Framework of the Senegal Mining Sector’ and
other stakeholders (including the input from
the Commission for the Revision of Mining
Contracts and the Mining Code) and the
public consultations held across the country.
The overall objective of future mining
legislation is to increase the revenues to the
government and the local communities from
the mining sector, while still keeping the
investor-friendly incentives offered in the
current 2003 legislation.
In terms of scope of application ratione
temporis, it must be noted that companies that
have already acquired a mining title in Senegal
will still be bound by the mining law that was
in force at the time they were issued. In other
words, there will be no retroactivity once the
future legislation is enacted.
The main innovations contained in the
future mining legislation
Future typology of mining titles
The distinction introduced by the current
mining legislation between ‘mine permit’
and ‘mine concession’ led to confusion
in the mind of investors who called for a
simplification in this matter. The future
legislation will now distinguish between ‘small
mine permit’ and ‘mining permit’.
A small mine permit will be limited to
a daily treatment capacity of 500 tons of
minerals and a mining area of 500 hectares.
Regarding the mining permit, there will be
no limitation on the scale of operations the
title holder will be able to conduct.
The future mining law will allow investors
to apply for a semi-mechanised mining
authorisation, which is designed to cover
artisanal mning operations over a maximum
of 50 hectares.
Further, the notion of concession minière
(mining concession) has been replaced by
that of permit d’exploitation (exploitation
permit), which the drafters have considered
to be legally more explicit. It is important to
emphasise that current mining concessions
will continue to be governed by the 2003
Mining Law until their expiration dates.
The term ‘exploitation permit’ will be used
for mining agreements issued after entry
into force of the new Mining Law. The
name change does not therefore result in
legal consequences.
18 Timeframe for the validity of mining titles
The future mining law will grant the small mine
permit holder an initial term of five years instead
of three years under the current legislation.
These five years may be renewed for three years
at a time without limit to the number of renewals.
Mining permit holders will enjoy an initial
term of between five and 15 years, depending
on the targeted mineral reserves and the
investment required. Mining permits will
be renewable as many times as necessary
until the end of production. It is noteworthy
that under the current legislation, a mining
concession could be granted for up to 25 years.
Once a mining permit is granted, the
investor can negotiate a mining agreement
under the condition that the agreement:
• is published on the Ministry of Mining and
Trade website after execution;
• does not contradict the provisions of the
future mining law, but may supplement
them; and
• sets out the rights and obligations of the
parties, including the stability of the legal
conditions under which the mining title
was granted.
Ownership of mining titles
The future mining law will remove the
restriction clause under which foreign
investors cannot own 100 per cent of the
shares in a Senegalese mining company, but
the mining title will still have to be held by a
company registered in Senegal.
New changes in fiscal revenues
These changes relate to fees, royalties and taxes.
Fees
Regarding fees, it should be noted that under
the future mining code, the entry fees for
research permits, semi-mechanised mining
authorisations and quarry permits will be
increased, but not substantially. The same
applies to small mine permits and mine permits.
Royalties
With respect to royalties, the future legislation
will introduce an annual surface royalty
payable by all title holders, including holders
of research permits and quarry permits. The
annual surface royalty will be calculated per
hectare or square kilometre:
INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION
TOWARDS A NEW MINING CODE FOR SENEGAL
• FCFA 2,500 per hectare for a small mine
permit; and
• FCFA 250,000 per square kilometre for a
mining permit.
Taxes
Under the future law, mining companies will
no longer have to resort to the mining code
for information regarding fiscal and custom
regimes applicable to their project. Indeed,
all tax provisions included in the current
legislation, except the mining tax, will be
transferred to the General Tax Code (Code
général des impots).
While the mining tax has not been
transferred, its application has been revised
in order to make all mining activities
subject to a trimestrial mining tax levied
on the market value of the commercialised
product. The rate of trimestrial mining
tax will be increased based on the type of
substance being mined. Below are some
examples:
Iron Ore
Phosphate
– concentrate
3.5%
– processed
1.5%
– calcium-aluminate
5%
– chalk phosphate
6.5%
Gold
5%
Other assigned substances
3%
Tax relief
Changes will also take place with regard to
various tax benefits contained in the current
legislation. For example, during the period
commencing on the date of entry into force
of the mining permit (or small mine permit),
and ending on the first date of the commercial
production (called the investment period),
the mining title holder will be exempt from
all taxes and fees, including VAT and COSEC
port charges. However, despite these changes,
some taxes have been maintained, such as
stastical royalty, community solidarity levy and
community levy, among others.
Mining title holders will no longer be
exempted from the payment of export taxes
in relation to products mined within the area
of their mining permit.
It is noteworthy that the abovementioned
provisions will be applicable jointly with any
other applicable taxes and tax exemptions
contained in the General Tax Code.
Introduction of the Production Sharing
Agreement (PSA)
Under the future mining law, the state will
be given the possibility of entering into a
production sharing agreement with a mining
company. Under such an agreement, the
mining company is given the exclusive right
to research, develop and exploit a mine in a
particular area and recover the costs incurred
from the proceeds of the sale of the product.
The remaining profits from the sale of the
product will be split between the State and the
mining company. Each PSA will provide the
detail of the contractual arrangement between
the parties. It is important to emphasise that
the mining production under the PSA will not
be subject to the above-mentioned trimestrial
mining tax.
Contribution to local development
In order to promote the social and economic
development of local communities living
in mining areas, the future legislation will
make it mandatory for mining title holders
to contribute annually to a local fund. The
amount of the contribution will be specified
in each title holder’s mining agreement.
New compulsory obligations for mining
title holders
Contrary to the current mining code, the
future legislation will impose on research
permit and small mine permit holders
the requirement to provide a guarantee
as security for the cost of rehabilitating
their research area or their mining site. A
joint ministerial order from the Ministry of
Mines and Industry and the Ministry for the
Environment will provide the details of the
guarantee to be posted.
The current obligation for the mining
permit holder to establish a trust account with
a local bank and deposit the funds that will
be used for the rehabilitation of the mine site
will continue under the future mining code.
In addition to rehabilitation obligations,
all mining title holders will specifically be
required to:
• respect, protect and implement human
rights in areas affected by mining
operations;
• respect the provisions of the Forestry Code
where the mining title has been granted
over a ‘classified forest zone’; and
• respect the principles and obligations
OIL AND GAS LAW NEWSLETTER OCTOBER 2015
19 THE UK ENERGY BILL AS IT RELATES TO THE OIL AND GAS INDUSTRY
under the EITI, such as declaring all
payments to the state to the national
EITI authorities, including social
development payments.
New sanctions for mining title holders
The future mining code will prescribe a
great number of infractions and sanctions
including, but not limited to:
• non-payment of taxes;
• not beginning work programmes within
the agreed timeframes;
• irregularities in documentation or failure
to provide requested documentation;
• illegal mining activity and theft of mine
substances;
• illegal storage, transport or sale of mineral
substances;
• fraud; and
• health and safety violations.
New audit and transparency requirements
In addition to being bound by their
commitments regarding the EITI, the state
and mining companies will be subject to
more stringent audit and transparency
obligations. For example, the state will be free
to appoint an independent firm to audit the
accounts, facilities, infrastructure, systems and
procedures of any mining company.
Further, there will no longer be
confidentiality regarding the publication of
all mining revenues due to the state. The state
will be compelled to make public all contracts
and related financial statements.
Conclusion
In revising its mining legislation, Senegal is
following the trend currently observed in
West Africa aimed at increasing state revenues
to boost its GDP, introducing more stringent
social and environmental safeguards,
and improving the social and economic
conditions of local communities residing in
the areas of the mining site.
The draft legislation is before Parliament
and should finally be adopted as law before
the end of the year.
The UK Energy Bill as it relates
to the oil and gas industry
Uisdean Vass
Bond Dickinson,
Aberdeen
uisdean.vass@
bonddickinson.com
Marianne Russell
T
he UK Energy Bill 2015 (the ‘Bill’),
published in July, has been widely
anticipated because it draws together
the recommendations set out in
the Wood Review and seeks to overhaul the
regulatory system to allow the transfer of
functions from the Department of Energy
and Climate Change (DECC) to the Oil and
Gas Authority (OGA) to enable the OGA
to regulate, influence and promote the UK
Continental Shelf (UKCS). To do this, the
OGA will be provided with significant new
powers to assist it in its new role, the key
provisions of which are discussed below.
20 Context
Section 41 of the Infrastructure Act 2015
introduced the concept of maximising
economic recovery of UK petroleum
(MER) into the Petroleum Act 1998. MER
became ‘the principal objective’ and it is
intended that it will be achieved through
development, construction, deployment
and use of equipment within the industry,
together with collaboration between
licensees, operators, owners of infrastructure
and persons planning and carrying out the
commissioning of infrastructure
INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION
Bond Dickinson,
Aberdeen
marianne.russell@
bonddickinson.com
THE UK ENERGY BILL AS IT RELATES TO THE OIL AND GAS INDUSTRY
(the ‘MER parties’). MER has not been
defined; it is envisaged that the Secretary
of State will produce a ‘strategy’ to enable
this objective to be met. The strategy will
go out for consultation this autumn. It will
be interesting to see the strategy and how
it will apply to the MER parties, whether it
will govern the relationship solely between a
party and the OGA or, as would be expected,
it applies horizontally to a MER party’s
relationship with other MER parties.
The OGA
The OGA will be expected to have regard to
five factors when exercising its powers:
• minimising future public expenditure;
• security of supply for the UK energy sector;
• collaboration between the government
and other persons who carry out relevant
activities (related to the exploration,
production and decommissioning of oil
and gas facilities);
• encouraging innovation in technology and
working practices; and
• maintaining a stable system of regulation
that encourages investment.
These are all admirable and relevant
considerations, but it may be difficult to
achieve a balance in practice. No guidance
is given as to whether the OGA is required
to consider all five factors with equal
weight or whether one factor should be
considered to be more important than
another. In considering the interests of
two parties, what is commercially viable for
one will not necessarily be viable for the
other, and it is questionable whether the
OGA could require a party to commit to
capital expenditure or compel a party to
do something that it would not otherwise
be inclined to do. Companies in a joint
venture will be required to account to
their shareholders and, therefore, it may
be difficult to reconcile their individual
fiduciary duties with the government’s
MER objective.
New powers for the OGA
Sanctions
DECC, as the regulator, was unable to be as
effective as it might have wished to be partly
because of its essential inability to require
companies to take action. The Bill seeks to
resolve this by providing the OGA with a
powerful tool in the form of sanctions.
Essentially, if an entity has failed to comply
with a petroleum-related requirement, that is:
• the duty to act in accordance with the
Section 41 strategy;
• a term or condition of an offshore
licence; or
• a requirement imposed by a provision
under the Bill that is sanctionable,
the OGA can potentially levy a sanction in
the form of: (1) an enforcement notice; (2)
a financial penalty notice; (3) a revocation
notice; or (4) an operator removal notice.
With respect to all the sanctions, the
OGA must specify the petroleum-related
requirement and provide details of the
failure to comply. The enforcement notice
must provide details of the actions required
for compliance and provide any directions,
including measures that must be taken and
the date on which compliance must occur
(a party can appeal against a sanction).
Similarly, the financial penalty notice must
specify the actions required to rectify the
breach. In addition, a fine can be levied of up
to £1m per occurrence (this could potentially
be increased to £5m if the Secretary of State
elects to amend the regulations).
The most powerful sanction will be the
revocation of a company’s interest in the
licence because all rights will then cease on
the revocation date. Both revocation and
operator removal will clearly have an impact
on the remaining licensees. The OGA will be
required to publish guidelines on its intended
use of financial penalties so that parties
are aware of the potential consequences
of their actions. It is noteworthy that there
is no similar requirement with respect
to revocation, which is the more serious
sanction.
Before the OGA can issue a sanction, it must
first issue a sanction warning notice that alerts
the relevant party to the problem and affords it
the opportunity to rectify the issue and present
its case to the OGA. However, a sanction notice
(with the exception of an enforcement notice)
can be issued even where the breach has been
remedied, and it is within the OGA’s discretion
to issue the notice solely to one party or jointly
to other relevant parties.
It is anticipated that these powers,
contained in sections 37 to 56 of the Bill, will
be watched closely because the industry will
be keen to see the approach the OGA takes
in practice. The sanctions have the potential
to be a useful tool and a valuable deterrent
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21 THE UK ENERGY BILL AS IT RELATES TO THE OIL AND GAS INDUSTRY
to discourage certain types of behaviour.
However, if the sanctions are applied too
heavily then they may discourage investment.
Disputes
The Bill allows a relevant MER party to refer
a qualifying dispute (a dispute with respect to
issues relating to the qualifying objective (MER)
or activities carried out under a licence) to the
OGA. The OGA can also decide, on its own
initiative, to consider a dispute.
Dispute has not been defined and,
therefore, it is not clear whether a formal
dispute would be required, for which there
is a cause of action in contemplation of
litigation, or whether a mere disagreement
would suffice. If the OGA accepts the
reference then, in considering how the
dispute should be resolved, the OGA should
seek to achieve an economically viable
solution for the parties. However, what may
be economically viable for one party will not
necessarily be economically viable for the
other. In addition, these dispute resolution
provisions have the potential to cut across
contractual dispute resolution procedures,
which have been agreed between the parties,
and it is not clear how they would work in the
situation where litigation had already been
commenced in court.
Additional obligations for licensees and
other relevant parties
Meetings
The Bill provides that the OGA should be
notified, in writing, in advance of relevant
meetings between two or more relevant
parties. This is likely to capture operational
and technical meetings, and may also
include less formal meetings. This obligation
to notify the OGA of such meetings falls on
all relevant parties (including employees that
know or ought to know a relevant meeting
is taking place) and, therefore, in order
to discharge that duty, it is likely that all
22 participants will be required to notify the
OGA. This is likely to lead to the OGA being
inundated with a plethora of paperwork
because the notice should be accompanied
with copies of all relevant materials that are
to be considered at the meeting. It may be
difficult to ascertain which meetings the
OGA will prioritise.
The OGA will have the opportunity to send
a representative to attend such meetings, as
it deems appropriate. Alternatively, where
the OGA declines to attend (perhaps due to
unavailability of resource or appropriately
qualified personnel), the OGA is entitled to
be provided with information following the
conclusion of the meeting.
Information and Sampling
A licensee must prepare an information
and samples plan if there is a licence event
in contemplation, such as a transfer or
surrender of rights, or a licence expires or is
revoked; such an information and samples
plan must then be agreed with the OGA.
The OGA may submit a notice to the
licensee to require it to provide information.
This requirement is wide-reaching, and
information protected by legal privilege
is the only information that is expressly
excluded. This has the potential to be
onerous on a licensee and could include
information that is valuable or commercially
sensitive. The OGA can use the information
to prepare general reports and it may,
in certain circumstances, disclose the
information to the general public.
Conclusion
While there may still be uncertainty with
respect to the interrelationship between MER
and the strategy and how the OGA will seek to
apply this in practice, there is certainly little
doubt that the proposed changes will be
far-reaching and are much needed for the
future of the UK oil and gas industry.
INTERNATIONAL BAR ASSOCIATION LEGAL PRACTICE DIVISION