ABSTRACT
Perhaps one of the most fundamental and foundational legal principles in the law of contract is ‘pacta sunt servanda’- agreements must be kept. The purpose for this principle amongst other things this is to ensure parties enter into agreements in good faith with the intention of fulfilling their part of the agreement in order to ensure smooth business practice and environment. This principle ensures that a party who furnishes consideration to a contract by altering his position gets his own benefits from the contract thus, different mechanisms and regulatory frameworks have been put in place to provide and ensure a variety of remedies to a party whose rights has been breached.
Petroleum is arguably one of the most sought after commodity in the world, it is the source of revenue and foreign exchange for most developing oil producing countries including Nigeria, the exploration and production of oil and gas involves a lot of complexities, industries and professions, this contributes to the capital intensive nature of oil and gas projects in addition to the advanced technological equipment required for exploration, production and transportation of oil, which span for a long period of time also makes the nature of oil and gas projects and contracts volatile and susceptible to any change in economic policy, availability of renewable alternatives, pricing…, because of the huge risk and capital involved, dispute in most case always arise, thus the efficacy of sanctity of contracts in oil and gas projects is of utmost importance to the parties involved..
Traditionally, litigation was the go-to process for addressing such disputes, however, recent trend shows that international arbitration is gaining grounds. Arbitration is the most effective alternatives to dispute resolution mechanisms, one key factor that gives arbitration a comparative advantage over other method of alternatives to dispute resolution is that arbitral awards are usually binding on both parties, recognized internationally and enforceable by the courts, also the arbitration process is confidential and amicable thus it tends to preserve relationships unlike litigation which is usually adversary in nature. However, Arbitration is not without its problems.
This paper seeks to examine the nature of oil and gas contracts, particularly upstream contracts between a sovereign State and International oil companies and services contractors and how the viability of arbitration by establishing a systemic and uniform arbitration rules is one of the methods that can ensure sanctity of contracts in the oil and gas industry. This paper employs qualitative and comparative analysis of different international arbitration models and foundational arbitral issues-severability of arbitration clauses, choice of law and enforceability of arbitral awards. The writer is of the view that the certainty of this issues will do a great deal in establishing the effectiveness and validity of arbitration in upholding the sanctity of oil and gas contracts, finally this paper recommends a model that can ensure the viability of arbitration clauses thus upholding the sanctity of contracts.
