Hydrocarbons are, and will continue to be, key to a successful energy transition. Global demand will continue to rise as oil and gas remain critical components in the broad mix of solutions required to satisfy the world's growing energy needs, accelerated by supply and demand, higher commodity prices, market volatility and historical underinvestment.

Against this backdrop, the Middle East Region has positioned itself as a cornerstone of world energy security, and the largest integrated energy companies are investing in the development of new and existing fields at unprecedented scale and speed. As demand for development in the Middle East continues at pace, there is also corresponding demand for the development of reliable contracting principles and market standards to provide a clear and consistent framework for the commercial and contractual relationships that will underpin and sustain this growth. In the face of these demands, we look at certain common law contracting principles and market standards that have originated and evolved within the United Kingdom Continental Shelf (UKCS) and the North Americas, and consider how it should not be assumed that they can be imported and applied seamlessly into the civil law jurisdictions in the Middle East.

As the global petroleum industry has evolved, so to have certain model contracts and uniform contracting principles in two mature hydrocarbon jurisdictions, the United Kingdom and the North Americas. Over the course of time, these contracting models have been applied, adapted and relied upon by host country governments, operators and contractors in an attempt to regulate the highly complex risk and revenue relationships involved in the exploration, production and operation of oil and gas basins.

The UKCS, long recognised as an oil and gas centre of excellence, is the birthplace of standardised oil and gas industry contracts, originally developed under the CRINE initiative and now administered by LOGIC. The contracting community in the offshore environment of the UKCS has long looked to the protections of doctrines enshrined in a deep body of English case law precedent such as the industry wide mutual hold harmless indemnity regime. In the Americas, similar model contracting principles have emerged under the auspices of the IADC model forms and latterly the AIEN with its rich history rooted in Houston's upstream oil sector. Progressively developed by subject matter experts, these model contracts have been widely relied upon in the energy industry by all forms of market participants as the basis for executing some of the largest oil and gas projects in the world.

However, looking to the Middle East, where some of the largest reserves in the world remain to be developed in countries like Saudi Arabia, Iraq, the United Arab Emirates, Qatar and Kuwait, it is ill-advised to assume that model contract standards well settled in the UK can be seamlessly imported and assimilated into upstream oilfield services agreements in the civil law jurisdictions of the Arabian Gulf. This is a significant concern because, with certain exceptions, Middle Eastern legal systems are founded upon principles of civil law which are codified and derived from Egyptian law, which was in turn heavily influenced by the French legal system. Though jurisprudence is young in legal terms, legal scholars and judicial authority are clear that certain foreign / common law concepts are alien to civil law. And while most civil law legal systems in the Middle East recognise that contracting parties enjoy freedom of contract, certain common law concepts are not codified under these civil law systems.

Extraction, production and operation of hydrocarbons is an inherently high risk endeavour. One of the primary imperatives of parties contracting in the oil and gas industry is to clearly regulate, delineate and assign risk allocation with as much certainty as possible. Notwithstanding what is contractually agreed, where market participants conducting petroleum operations in the Middle East are importing common law concepts into upstream oilfield services contracts, and where the governing law chosen by the parties is a civil law legal system, there remains a residual risk that a tribunal or court may adjudicate outcomes which are different to the common intention of the parties on the basis of the disparity between legal principles.

At Brodies Middle East LLP, our highly experienced energy team offers clients the benefit of a deep understanding of the Middle East Region's specific oil and gas industry practices, combined with the benefit of a long association with the UKCS by virtue of our Scotland headquarters. As such, we are well placed to provide the subject matter expertise necessary for projects and transactions bringing oil and gas products to market in the Middle East.

Contributors

Greg May

Partner