Renegotiating acquired rights in the oil and gas industries: Industry and political cycles meet the rule of law

(, T.W. Wälde

doi:10.1093/jwelb/jwn005

Cited by 92 publications

(22 citation statements)

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“…3. The country has three choices: expropriate immediately at cost μ, take the contractual payment y( p), or enter into renegotiation at time cost η (Waelde, 2008, points out that the time and litigation costs of renegotiations are high). 4.…”

Section: Expropriation Under the Optimal Contractmentioning

confidence: 99%

“…It may be uncomfortable and risky for an IOC to directly discuss the issue of potential future expropriation with a foreign government. This may signal a lack of trust: "The government … will send out only positive signals so that excessive attention to the political risk at the tail-end of the investment cycle may appear inappropriate and likely to poison the relationship" (Waelde, 2008). Similarly, under asymmetric information, a government may not want to address the risk of future unfavorable regime changes.…”

Section: F Possible Reasons For the Linearity Of Real-world Contractsmentioning

confidence: 99%

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Resource Extraction Contracts Under Threat of Expropriation: Theory and Evidence

Stroebel

Benthem

2013

The Review of Economics and Statistics

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We use fiscal data on 2,468 oil extraction agreements in 38 countries to study tax contracts between resourcerich countries and independent oil companies. We analyze why expropriations occur and what determines the degree of oil price exposure of host countries. With asymmetric information about a country's expropriation cost, even optimal contracts feature expropriations. Near linearity in the oil price of real-world hydrocarbon contracts also helps to explain expropriations. We show theoretically and verify empirically that oil price insurance provided by tax contracts is increasing in a country's cost of expropriation and decreasing in its production expertise. The timing of actual expropriations is consistent with our model. Disciplines Business | Economics | Public Affairs, Public Policy and Public AdministrationThis journal article is available at ScholarlyCommons: http://repository.upenn.edu/bepp_papers/140 RESOURCE EXTRACTION CONTRACTS UNDER THREAT OF EXPROPRIATION: THEORY AND EVIDENCE Johannes Stroebel and Arthur van Benthem*Abstract-We use fiscal data on 2,468 oil extraction agreements in 38 countries to study tax contracts between resource-rich countries and independent oil companies. We analyze why expropriations occur and what determines the degree of oil price exposure of host countries. With asymmetric information about a country's expropriation cost, even optimal contracts feature expropriations. Near linearity in the oil price of real-world hydrocarbon contracts also helps to explain expropriations. We show theoretically and verify empirically that oil price insurance provided by tax contracts is increasing in a country's cost of expropriation and decreasing in its production expertise. The timing of actual expropriations is consistent with our model.

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Section: Expropriation Under the Optimal Contractmentioning

confidence: 99%

Section: F Possible Reasons For the Linearity Of Real-world Contractsmentioning

confidence: 99%

Resource Extraction Contracts Under Threat of Expropriation: Theory and Evidence

Stroebel

Benthem

2013

The Review of Economics and Statistics

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“…Their mandatory nature may either be expressly stated or inferred by way of interpretation. In definition, the concept that a rule is mandatory implies that the rule is not subject to contradiction even by way of an agreement in that it is a legal rule that is in all cases binding and cannot be departed from despite having an agreement between the parties concerned [1]. Mandatory LC requirements are often linked to the conditions for the entry and continued operation of the investment [5].…”

Section: Statutorymentioning

confidence: 99%

“…", to which he concludes that renegotiation demands are prevalent where states view the lack of a balanced internal system. Hence the need to revise frameworks to achieve a politically and legally acceptable outcome for the host state [1], exemplifies the present scenario in the oil and gas sectors, with national governments reintroducing national strategies aimed at the long-term sustainability of the industry by prioritizing the social and economic benefits of petroleum extraction [2]. This has been undertaken amidst the successful implementation of socio-economic goals using legal and regulatory frameworks in Norway [3].…”

Section: Introductionmentioning

confidence: 99%

Rules of Engagement: A Review of Regulatory Instruments Designed to Promote and Secure Local Content Requirements in the Oil and Gas Sector

Asiago

2017

Resources

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Abstract:Regulatory interventions, such as Local Content (LC) requirements, have been incorporated to counter market forces to maximise petroleum revenues. This has been undertaken with the hypothesis that the governments of petroleum-producing countries depend heavily on petroleum sectors for development, yet energy markets inadequately allocate these resources. Thus, governments revise existing, and often out-of-date, petroleum laws and introduce new petroleum legislation to specifically promote socio-economic objectives. This article explores the key legislative instruments of LC as developed and implemented in the oil and gas sectors both from developed and developing countries' perspectives. In assessing the overall policy approach, this article evaluates instruments used to secure Local Content requirements in the oil and gas industry. In conclusion, governments must identify appropriate frameworks that consider the political and regulatory challenge of striking a balance between incentivising upstream investors and fulfilling national interests, such as creating jobs.

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“…During a period of high oil prices, during which time large rents can be earned, the phenomenon of resource nationalism comes to the surface, as it is a by-product of high prices (Wälde, 2008). This state of affairs corresponds to Wilson's model of the politics of the world oil market -the petropolitical cycle (PPC) (Wilson, 1986;Wilson, 1987).…”

Section: Introductionmentioning

confidence: 99%

Bargaining Model for the International Oil Industry

Vivoda

2011

Bus. polit.

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This paper establishes a model for analyzing the dynamics of the host state-international oil company (IOC) bargaining relationship. Theoretically, the model advances our ability to investigate bargaining dynamics between host states, oil companies and other stakeholders in the oil industry. It is a sophisticated mechanism which identifies the complex array of relationships and bargains within which the host state-IOC bargaining relationship is nested. The model builds on and leverages the key contributions of earlier bargaining models. It enables us to integrate relevant ideas from existing scholarship on host state-MNC bargaining while also taking into account other actors and bargains at domestic and international levels that affect bargaining between an IOC and a host state. Practically, the model will help actors choose strategies more systematically, leading to higher relative bargaining power that may translate to preferable bargaining outcomes.

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Renegotiating acquired rights in the oil and gas industries: Industry and political cycles meet the rule of law

Cited by 92 publications

References 0 publications

Resource Extraction Contracts Under Threat of Expropriation: Theory and Evidence

Resource Extraction Contracts Under Threat of Expropriation: Theory and Evidence

Rules of Engagement: A Review of Regulatory Instruments Designed to Promote and Secure Local Content Requirements in the Oil and Gas Sector

Bargaining Model for the International Oil Industry

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