The Role of Stability and Renegotiation in Transnational Petroleum Agreements

Stability of existing agreements is the major means of investment protection at the disposal of multinational oil companies. This is achieved by inserting stabilization clauses to ensure that future changes in policy or legislation of the host country does not affect the existing agreement. Multinational oil companies are nevertheless confronted by the reality that stabilization clauses do not in fact provide the requisite immunity against host government action. On the part of host countries, it is recognized that their right to enjoy maximum benefits and to avoid adverse consequences from the exploitation of petroleum cannot be compromised on the ground that stability is an express term of the agreement. Therefore, renegotiation in the event of a fundamental change of circumstances surrounding the agreement appears to be a viable option for both parties to a petroleum agreement. Hence, this research examines the twin concepts of stability and renegotiation and their significance in international petroleum contracts.