Relationships between host countries and foreign oil and gas companies

It is undeniable that the oil and gas industry is the  largest and most crucial industry in the world.  An important issue for the continued growth of this crucial sector is the  development and implementation of legal policies that can further streamline the oil and gas industries. These should touch on legal tussles that range from international boundary disputes, sharing agreements between host countries and foreign oil and gas companies. It is prudent to pinpoint that an appropriate regulatory and contractual legal environment should be provided to realize growth.

We cannot conclusively deny or embrace the idea that governments with natural resources like oil and gas ‘concede’ control or sovereign rights over their countries’ natural resources to foreign oil companies. Both foreign oil companies and the host governments stand to benefit from the exploitation of such resources. Just like other resources exploitations that are ever becoming complex, the oil and gas industry face daunting challenges especially on how the mother countries and foreign companies that deal in oil and gas relate. Extractive industries should therefore be handled with a lot of care so as to minimize conflicts. Understanding should be fostered if all stakeholders in the oil and gas industries to benefit tremendously.

Legal Aspects of Oil and Gas Industries

There are a plethora of legal aspects that govern the oil and gas industries. These legal aspects range from international boundary disputes, sharing agreements between host countries and the oil manufacturing companies as well as the risks that emanate from international sanctions. Therefore the oil and gas industries provide a challenging environment to operate

A number of vexing questions have been asked in an endeavor to respond on the issue on whether host governments ‘concedes’ control or sovereign rights over their countries’ natural resources to foreign oil companies. In most countries, especially in Africa, the role of exploiting the minerals and other natural resources has been solely been a preserve of foreign companies. The driving force for these companies has been the fact that such companies have the necessary manpower, infrastructure and financial muscles to exploit these resources. It is prudent to ppinpoint that such companies have therefore severally  denied the host nations  some basic sovereign rights to  fully manage and benefit from their resources.

Granted, the challenges that face  oil and gas industries  in developing countries  especially in Africa are not only diverse but also numerous. Such hiccups include fraud, immense corruption as well as poor infrastructure and inadequate skilled manpower.

The oil and gas industries among African countries continue to showcase substantial growth especially in countries that have traditionally been known to be major powerhouses in the production of gas and oil. These countries include Nigeria, Egypt, Libya and Algeria data shows that Africa alone boats of having a reservoir of natural gas amounting to f 502 trillion cubic feet (Tcf)

For a long time the challenges that have faced the  companies  and the host countries in the oil and  gas sector have remained largely the same for substantial long period of time. The top three challenges are the versatile and uncertain regulatory framework, corruption coupled with poor physical infrastructure. One major reason that has been forwarded as an explanation to  why many host countries  are unable to fully control their natural resources especially gas and oil is the fact that the companies  rely on their own cash flows  to fund  their respective businesses.

On the issue about safety, health and safety of the environment, the host countries have been left at the mercy of the companies that have been tasked with manufacturing of oil and gas products. In the process of extracting for the precious products, the environment is depleted and the citizens of the host countries are also exposed to an avalanche of health hazards.  The health hazards could be physical and they also have the potential to causes ailments and diseases that have gravious and injurious repercussions on other citizens (Birnie, Boyle &  Redgwell 2009).

It is also necessary to pinpoint that the old tested approaches on the relationship between the government of the host countries and the foreign companies that have been tasked with drilling and manufacture of oil and gas face lots of challenges. It is necessary to establish a systematic and objective approach on how to relate and conduct business with such governments. The companies require adequate knowledge of the host country. It is crucial that the foreign countries, establish a broad network of relationships, coordinate with all stakeholders and be dynamic enough to adapt to changes that might occur

Governments and foreign companies that deal with oil and gas have significant roles that are geared towards sustaining growth and developments in various countries especially in the gas and oil sector. Many countries both in the developing and developed nations have several stringent laws and regulations that pose major challenges for companies and international investors to manage.It is therefore necessary that operational planning needs to be carefully and objectively  established in order to  sustain  noticeable growth in the oil and gas sector.

It is noteworthy to highlight that in the contemporary society’s oil and gas industries have prioritized to engage the host countries on various platforms especially economic and environmental so as to empower the host countries in the management of their resources. It is has  become a role of foreign companies to realize the bitter fact that   natural resources should benefit the host countries more than they benefit themselves. Therefore a consultative approach has been harnessed in order to boost the relationship between these two entities.

It is important that both new and already established foreign companies that deal in the processing of oil and gas industries endeavor to look for opportunities to facilitate that they operate efficiently and effectively. To realize the harmonious co existence, the foreign as well as multinational companies must reduce the costs of production and engage all stakeholders through operational excellence. One hindrance that has been pointed out as major obstacle to peaceful coexistence between the companies and that host nations is insufficient planning (Turbervill, 2011).

In order to reduce conflicts between the various interested parties especially   the host governments and the multinational companies that deal with manufacture and production of oil and gas have created a policy to include locals in the day to day running of operations in such companies .A case to note is the fact that most companies have implemented the policy of integrating the locals in the management of the companies. Over 70 percent of the foreign companies   have acknowledged that by inculcating skills knowledge from the locals will assist in mitigating conflicts (Turbervill, 2011). This initiative has proven to being the panacea for the poor relationship that has existed between these parties.

Over the past decades companies involved in the oil and gas industries have appreciated the need to include stakeholders and members of the local communities in which they operate. This has gone a long way to reduce the friction and suspicion that that people from the host countries might have over the operations and activities of the foreign companies in drilling of oil and processing of gas products. Each and every country is bestowed with sovereign rights over its natural resources. Every government therefore has a basic prerogative of guarding and safeguarding these rights so that they benefit the country and the citizenry at large. Most countries therefore have taken up the measures to nationalize the oil and gas sectors in their respective countries. All these efforts are particularly intended to grant the host of their resources and profit the nations. According to international law, nationalization is regarded as the sovereign right of nations. But is it sufficient to contribute to diversification and development?

From time immemorial, the developing countries have depended on the production and export of the primary commodities and the control of ownership of natural resources. Many of the countries that depend on oil and gas products aspire to rapidly develop and industrialize from the proceeds that emanate from the exportation of their natural resources. Therefore the decision to nationalize these resources is earmarked to curb domination of the economy by foreign companies that have signed contracts with the host governments to prospect and manufacture oil and gas products (Alramahi, 2013).

It is sad to state that industrialization alone has not been sufficient in putting the host countries in a position to wholesomely be in control of their natural resources especially oil and gas products. it is undeniable to argue that that one effective way to spur growth and accelerate development is to  drastically increase revenue and stabilize foreign exchange. That is earned from export of primary commodities that are inclusive of oil and products. Scholars argue that increased revenue collection that is specifically received from the exportation of gas and oil products has led to the tremendous rise of “rentier states” and “governmentalism”, rather than developmental states, particularly in oil exporting countries of the Middle East.

The revenues accrued from exportation of the oil products goes directly to the government. This situation causes a ripple effect in a number of ways. Firstly since the revenue goes directly to the government, there is drastic reduction in levies and taxation..This also affects the desire to seek for the votes from the citizens. This cumulates in a situation where the citizens in the long run have little or no control on how the government allocates resources. The governments therefore become not only autocratic but also corrupt by harboring vested interest in the provision of  services to the citizenry.

When the people are dissatisfied with the way the government handles their natural resources necessitated by is the risk of mal-distribution of income across the country, the people  became dissatisfied and there is the potential for social explosion as witnessed in Iran  in  1970 during shahs time that culminated  to a mega revolution ( Greg Gordon, Paterson & Usenmez, 2011).

There have also been reported cases where foreign companies have been accused of mistreating employees of host nations. The mistreatments have been in the form of forced labour, longer working hours, meager wages that are given to the employees. In many cases although the host countries have trussed to intervene and ameliorate such complications, situations have not improved at all. In fact some employees have been killed or incapacitated by during the operations of these companies. In most cases the host government has been unwilling to legally take actions against these foreign companies because of the economic benefits the country benefits.

It is important to point out that the relationship between the host nations  and foreign companies tasked with working in the oil and gas industry It has been said that host governments ‘concedes’ control or sovereign rights over their countries’ natural resources to foreign oil companies has not been a rosy affair at all. Cases of breach of contracts and termination of contracts have characterized these relationships. In some cases conflicts have ensued and led to international arbitration. With the desire to rubber stamp their dominance and sovereignty, the host government do not allow the foreign oil and gas companies to overshadow the presence and efforts of the governments.

Conclusion

It is undeniable that both the host countries and the prospective companies that deal in oil and gas play a crucial role in the extraction and processing of oil and gas into finished products. It is also prudent to note that the relationship that exists between host countries and foreign oil and gas companies is not only cordial but at times also quite tumultuous with lots of challenges. In the contemporary world, the host nations have worked tirelessly a enacted a plethora of legal frameworks to dispel the notion of over dominance by foreign companies. The initial attempts by oil companies to bulldoze other countries in mining of oil and gas has been thwarted. There is an understanding that the local inhabitants should be given opportunity to participate in the extraction and processing of their resources. This not only earns such locals some income but makes them proud participants of their countries economy and growth. Foreign companies nowadays are liberal and such are not only participatory but also democratic in their operations.

 

Read more on the legal aspects of the oil and gas industry

 

References

International Law and the Environment, Patricia Birnie, Alan Boyle, Catherine Redgwell, OUP Oxford; 3 edition 2009

Oil and Gas Law in the UK, Dr Mohammad Alramahi,  Bloomsbury Professional Publications 2013 edition

Oil and Gas Law: Current Practice and Emerging Trends [Paperback]    Greg Gordon, John Paterson, EmreUsenmez, Dundee University Press; 2nd Edition 2011

Oil and Gas: A Practical Handbook, Geoffrey Picton-Turbervill

Publisher: Globe Law and Business, 2009 edition