Expert Determination by Glancing at the Economies

Expert Determination

By glancing at the economies and the trading patterns of the world it can be deduced that the investments made in the petroleum business, forms a radical majority; as it involves huge and many a times capital intensive projects. The facts indicate that the conditions, economies and the states that form the parties to the oil and gas contracts change integrally, this variation causes disputes. Energy in today's world is an ultimate source to generate power and accumulate wealth, so this is hereby an urge of the nations to stay involved as active participants in the contracts pertaining to oil and gas development and enrichment. As petroleum sector forms a major portion of the world's investments and consequently the international structure of energy; the affiliated developmental activities often results in wide range of international investment disputes. The major issue that needs timely anticipation is to analyze a company's methodology and competence to resolve conflicts timely. As it has been mentioned that the contracts pertaining to the oil and gas are prone to disputes and there timely resolution generates the goodwill of an organizations investment and corporate standing.

1: Introduction

Dispute in the contract pertaining to the oil and gas is inevitable due to the involvement of huge capital and intellectual properties. Many a times the parties involved in a contract that having an actual dispute select counselors and arbitrators, which serve to facilitate the ongoing dispute among the contracting parties. Keeping the fact in mind that corporations by and large plan and implement operation for devising effective dispute resolution strategies, mainly because of two facts; initially because they need to plan the dispute immediately and secondly because the corporation operate to maximize the profits and at the same time reduce the possible loss that may result as a conflict[footnoteRef:1]. [1: Cummings, S.N. (Ed.). (2003). Oil, Transition and Security in Central Asia. New York: Routledge. Retrieved July 8, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=104242848]

The point of dispute management and its needs elevates once the corporations are in a process of binding themselves in a formal contract pertaining to energy including oil or gas, because; at this point the parties are hoping a dispute free contract and a mutually positive actualization and implementations of that very contract. Owing to the importance of dispute management it is generally advisable for the businesses and corporations that at the time of making a contract they should also decide with the mutual consent the ways rather the acceptable ways by which the contract will be dissolved or the dispute will be settled. In has been observed for long that organization or the contracting parties think over the fact of depute management planning as the last clause while negotiating over the contract details and benefits. The negotiation over dispute resolution clause is depended the discretion of the contracting parties. If the contract is among the international parties than this clause is not discussed as it is not considered ethical to discuss the ends before initiating the final terms of the contract, the organizations operate on an ongoing assumption and considering the facts that calls for the interpretations both the applied as well as the enforced[footnoteRef:2]. But on the other hand while considering the nature of domestically contracting parties; they usually discuss the dispute resolution as the last clause of the negotiations mainly due to the fact that the two parties exist and operate within the similar domains and more precisely face similar challenges and scarcities. Nevertheless once the two international parties came into an international energy contract there is a greater risk involved because if the contract ends up at a dispute than there are equal chances for either of the two parties to get exploited by the unfriendly and hostile laws on an international forum. This is therefore advisable that the companies should come up to a valid point where the disputes will be resolved to avoid all possible intrusions. Hence the dispute planning in the international countries hereby does not include the local courts but the process of dispute management and timely management needs an analysis for the resolutions. [2: Energy and International Law: Development, Litigation, and Regulation. (2001). Texas International Law Journal, 36(1), 1+. Retrieved July 8, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=5037676098]

The chief forms of disputes that pertain to the oil and gas contracts are the state vs. state disputes, company vs. states disputes, company vs. company and in some cases individuals vs. individuals. Energy as a matter of fact is the substance of core interest and it is hereby the first priority of any and all contracting parties to get frequent resolutions pertaining to the oil and gas contracts. Independent profit maximization is a far cry for the countries across the world because the new era of liberal and state trade practices are far ahead to the criterion.

Apart from the individual interests of the contracting parties the state can also hold a due right in taking a counterfeiting action against or in favor of particular oil and gas or all energy related contracts. The contracts related to the energy including oil as well as gas are mainly devised to enhance the standing of the state and to attract the campaign contributors and the primary constituents. The point or argument is the settlement of the disputes of the parties so that the interest of the contract can be maintained and even on the occasion of intrusions and divergence of the main clauses of the contract the dispute planning tool is utilized[footnoteRef:3]. [3: If Britain Has Flouted Justice and Decency to Feather Its Nest in a Squalid Deal with Gaddafi, the Scandal Will Know No Bounds. (2009, August 24). The Daily Mail (London, England), p. 14. Retrieved July 8, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=5031913187]

The contract laws pertaining to the contract of energy including gas and oil shall be discussed in this paper. The paper will also describe the methods of resolution of contract with a special emphasis on the expert determination in settling the disputes pertaining to oil and gas. Out of different methods that are utilized to settle the disputes of contract the method of utilizing the expert determination is focused throughout the paper.

2: Overview of experts' determination in oil and gas contracts

As per the contracts pertaining to the oil and gas agreements the resolution is expected to be attained by the following methods

Negotiation

Mediation

Expert determination

Arbitration

Litigation

Throughout the course of this paper the importance and significances of the Expert determination will be highlighted by emphasizing the circumstances that justifies the usage of the expert determination to settle the disputed pertaining to oil and gas contracts by means of various circumstances.

2.1 Definition of Expert Determination

Expert determination is defined in various contexts

Expert determination is a traditionally customary structure of dispute resolution appealed when there in an absence of the originate dispute in which the parties have defined positions that need to be subjected to arbitration, but rather both parties are in agreement that there is a need for an evaluation.

Another definition claims it to be process whereby a neutral expert is nominated under the terms of the contract in order to resolve a conflict with an accord of the agreed upon terms at the time of the contract. But the important fact about this expert says that the decision and the command of this agreed upon expert should be abided by from either of the two parties. Due to the conforming and abiding nature of this decision made by the expert that fact needs to be acknowledged that special attention has been paid on the selection criterion of this expert.

Expert determination is also defined as a process whereby an independent third party enters with the mutual consent in to the contract and serves as the expert over the issue resulting in dispute, the point argued by this definition is that the third party enters as an expert and not as an arbitrator or a judge and hereby either of the two parties cannot claim over the finality of the decision made by the expert.

Expert determination can be finally defined as a process whereby the disputing parties present their argument along with the proofs to a dispute resolution professional, this specialized independent expert is chosen on the basis of his qualifications in the particular field that pertains to that vey dispute, as discussed the an expert determination for an oil and gas dispute would be expected to be of a similar background who understands the basic requirements and technicalities of that field.

It has been recorded that the process of expert determination has taken its roots from the process of Early Neutral Evaluation. The basic discretion between the expert determination and the Early Neutral Evaluation is chiefly about the finality of the decision made by the expert. In the expert determination the disputing parties are bound to abide by the decision made by the expert but in the Early Neural Evaluation the opinion of the expert is just considered as a direction to negotiate the dispute[footnoteRef:4]. [4: Lenczowski, G. (1997). The Caspian Oil and Gas Basin: A New Source of Wealth?. Middle East Policy, 5(1), 111-119. Retrieved July 8, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=96545771]

2.2 Why Use Expert Determination in the Oil and Gas Contracts

The use of expert determination is advocated as a valid tool for the contracts pertaining to the oil and gas sector because expert determination is used widely in the economic valuation, surveys or more precisely the technical assessments in the disputes that originates in the oil and gas sector. The decision of the expert in this case is considered non-enforceable as a mediation award but rather the decision is utilized as an arbitration and is bind by the presence of law. The basic requirements of the expert determination in the oil and gas contract require the written agreement of the parties so that the expert can evaluate the requirements and the points of the contracting parties can be evaluated. The cumulative effectiveness of the expert determination process is when there are matters that pertain to both; the available facts and the stance of law being disputed. As a matter of fact the process of expert determination is not widely adapted for the resolution of the international disputes and the usage of this resolution tool is limited till by the narrow technical grounds and sound specific decision making and expert opinion. A number of international organizations, such as the ICC International Centre for Expertise, provide lists of experts and administered services in this area[footnoteRef:5]

[5: Magnus, R.H., & Naby, E. (1998). Afghanistan: Mullah, Marx, and Mujahid. Boulder, CO: Westview Press. Retrieved July 8, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=9060442]

2.2.1 Experts as values

It is expected from the third party entrant that is the expert to maintain the ethical criterion f the contract. Expert as values implies to the unbiased and pure decision made by the expert.

2.2.2 Experts as witness

Expert that has been appointed for the process of expert determination can be a witness to the breach of the contract from either of the two parties. This implies that at times the fact might not be considered that if an expert is a qualified individual or not, but the more reasonable encounter with the expert under this situation is that this person who has been nominated as an expert has been a direct witness of an unlawful breach in the contact by either of the two parties so under this situation the expert can also be a constituent witness of an event at hand.

2.2.3 Experts as Dispute Resolver

An expert is primarily a dispute resolver because the entire process of expert determination is the process whereby the disputing parties present their argument along with the proofs to a dispute resolution professional, this specialized independent expert is chosen on the basis of his qualifications in the particular field that pertains to that vey dispute, as discussed the an expert determination for an oil and gas dispute would be expected to be of a similar background who understands the basic requirements and technicalities of that field.

an independent third party enters with the mutual consent in to the contract and serves as the expert over the issue resulting in dispute, the point argued by this definition is that the third party enters as an expert and not as an arbitrator or a judge and hereby either of the two parties cannot claim over the finality of the decision made by the expert[footnoteRef:6] [6: Marcel, V. (2002, November). Oily Business. The World Today, 58, 8+. Retrieved July 8, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=5035355149]

2.3 Appointment of experts

The expert in the oil and gas agreement is indeed appointed on the basis of the following traits

Experience

Experience has a key role to play in appointing an expert for the process of expert determination. As a matter of fact only an experienced individual who has an exposure in the oil and gas industry would be able to pay attention to the details and hereby make decisions. As the finality of this decision cannot be contested so the parties urge to appoint an experienced individual for opinion making as an expert.

Qualification

The qualification of the expert is the second important trait that demands immediate consideration for an individual being appointed as an expert.

Background

The background of the oil and gas expert determination expert needs to be of the similar field that is he should as well belong to the oil and gas rather the energy field.

The similarity of field

The expert should match the field of oil and gas so that the contractors of the disputed contract can easily rely on the decisions made by him.

Independent

The third party is required to be independent as this third party is responsible for make to make a decision and direct the negotiation or even at times mediation among the disputing entities in oil and gas contract.

Legality of acts

The expert should be legally recognized as a professional to be an expert.

Candid decision making

The decision making from the expert is characterized to be made as an unbiased and non-factious individual[footnoteRef:7]. [7: Robinson, R.D. (Ed.). (1987). Direct Foreign Investment: Costs and Benefits. New York: Praeger. Retrieved July 8, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=29033122]

2.4 Procedure for Expert Determination

The procedure of expert determination is a combination of the following steps

Appointment of the expert

Keeping in view the above traits of expert a third party is involved to settle te dispute between the contracting parties.

The hearings

The appointed third party ensures to form a clear understanding about the agenda of each of the party in a contract. The basic reason of executing the hearings is that the expert is expected to make decisions that cover all the details and the valid agenda of the contact.

Decision making

Decision making is the chief task of the expert determination and the process of expert determination but as a matter of fact the process of expert determination lasts to a point where a permanent solution to the dispute and other disputes of the similar type among the same parties.

2.5 Enforcing and Challenging an Expert Determination Decision

An independent third party enters with the mutual consent in to the contract and serves as the expert over the issue resulting in dispute, the point argued by this definition is that the third party enters as an expert and not as an arbitrator or a judge and hereby either of the two parties cannot claim over the finality of the decision made by the expert. But once we consider the basic discretion between the expert determination and the Early Neutral Evaluation is chiefly about the finality of the decision made by the expert. In the expert determination the disputing parties are bound to abide by the decision made by the expert but in the Early Neural Evaluation the opinion of the expert is just considered as a direction to negotiate the dispute. Hence a few contracts that utilize the expert discretion reserve the right to contest the decision by a legal suit.

2.6 Expert Determinations Compared To International Arbitration

The expert determination and the arbitration are differentiated mainly by three ways:

The first point that advocates the difference between the expert determination and the arbitration is the method of selection of an arbitrator and the expert in the dispute resolution for oil and gas sector. Because an arbitrator id chosen and hired to execute a judicial activities whereas the expert can be a legally recognized or not recognized entity. The other difference between the two is that an arbitrator is always an individual, whereas the expert can be an independent individual or an organization. Arbitration is a legally binding contract whereas expert determination decision is rarely contested for a requalification.

3: When might an expert determination is used in disputes between parties in oil and gas contracts

Expert determination is one of the most advisable methods and tools that are used to resolve the conflicts of the oil and gas contracts.

The following models advocate the usage the expert determination is the oil and gas contracts.

3.1 2002 AIPN Model Form International Operating Agreement

AIPN Model Form International Operating Agreement for the year 2002 is mainly considered as an international operating agreement that deals mainly in four basic areas including the accounting procedures, the contract areas, the insurance and the lifting procedures of the AIPN. The AIPN models forms for the international operating agreements mainly encompasses the 20 articles

Article 1 definitions

Article 2 effective date and term

Article 3 scope

Article 4 operator

Article 5 operating committee

Article 6 work programs and budgets

Article 7 operations by less than all parties

Article 8 default

Article 9 disposition of production

Article 10 abandonment

Article 11 surrender, extensions and renewals

Article 12 transfer of interest or rights and changes in control

Article 13 withdrawal from agreement

Article 14 relationship of parties and tax

Article 15 venture information - confidentiality - intellectual property

Article 16 force majeure

Article 17 notices

Article 18 applicable law - dispute resolution - waiver of sovereign immunity

Article 19 allocation of cost & profit hydrocarbons

Article 20 general provisions

The entire 20 articles as explained under the AIPN have played a significant role in adhering to minimize the disputes among the contracting parties in an international contract. The organizations like Amoco (UK) Exploration Co v Amerada Hess Ltd., Shell UK Ltd. v Enterprise Oil Plc, Nestle Production Ltd. v Shell UK Ltd. have actively used the devised tools and articles of the AIPN so as to resolve the relevant conflicts that pertains to the international oil and gas agreements[footnoteRef:8]. [8: Yamashiro, J.P. (2002). Privatising Culture: Corporate Art Intervention since the 1980s. Afterimage, 30(2), 17. Retrieved July 8, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=5000656707]

3.2 Gas Sales Agreement

The gas sales agreements deal in a numbers of clauses that are discussed as per the formal gas sales agreement. The agreement of gas sales agreement covers the following provision.

Term

Quality

Price term

Delivery obligations

Take or Pay obligation

Delivery points

Gas quality

The description of each of these provisions is given below

Term

Term refers to the duration of the Gas Sales Agreement this duration or the term can be as small as one day or could be as extensive as the entire economic life of the gas producing field. But while considering International gas agreements, especially where a gas development project will have a limited number of potential customers, the terms could reach 20 or 30 years.

Quality

At large there are two main divisions of volume commitment contracts that pertains to the oil and gas agreement namely

The deletion contracts

As per the depletion contracts that are also known as the output contracts, the producing company dedicates the entire production from a particular field or reserve to a buyer.

Common supply contracts

In contrast, supply contracts entrust the seller to supply a fixed volume of gas to the buyer for fixed term, typically 20 to 25 years. The seller is responsible for sourcing the gas, either from its own reserves or from third parties, if its own reserves are inadequate to fulfill the obligations.

Price term

Another important provision of the gas sales agreement is the price term. As a matter of fact gas can be compared with the price of the gas must be considered at par with the alternative tools in the market place in a way that all the parties that are responsible up to the final step of the contract. The pricing term is again divided into two types

Fixed pricing

The fixed pricing term is a characteristic feature of the short-term contract as per the gas sales agreement. In the fixed pricing contract a predetermined set and negotiated price for the entire contract. A fixed price as a matter of fact is with an escalator is a fixed price that changes by a certain percentage every year or other specified time frame to reflect an inflator or an index of a known variable.

Floating floating price refers to the variable price this implies that the price of the gas throughout the period of contract is subjected to change with respect to the environmental and economic fluctuations. The most popular and unbiased way to apply the change pertaining to the gas sales agreement is the newspaper quotations. In this case, the contracts are revalued every month or every week according to the reported prices.

But yet as a matter of fact the prices weather they are fixed or floating for a given gas sales agreement may also be limited to a maximum ceiling price or a minimum floor price for the term of the contract. It is generally advisable that the international contracts pertaining to the oil and gas agreements should maintain a combination of the fixed and floating pricing terms[footnoteRef:9]. [9: Amoco (UK) Exploration Co v Amerada Hess Ltd.]

Delivery Obligations

The delivery obligation of the gas and other fuel agreements are generally in either of the two phases the firm or the flexible. Firm delivery refers to a compulsion by the producing company or seller to ensure to deliver the particular required quantities over the term of the contract. If the delivery compulsion is not fulfilled, the seller may be obliged to pay damages or cover the costs of alternate fuels used by the buyer. As a matter of fact as per the flexible delivery it obligates the producing company to make attempts to fulfill the delivery obligation but does not require fulfillment of all the delivery obligations. Depending on the economic conditions and related environment the delivery term

Take or Pay Obligation

The mainstream of the take or pay obligation is given by the premise that states that it has to be the obligation of the buyer to pay for the required quantity or rather the contracted quantity. The take or pay obligation also takes into account the situation whereby if the buyer is unable or fails to take the gas supplied by the seller. The seller generally use the take or pay obligation with respect to the buyer to guarantee a predictable minimum cash flow, and financial institutions involved in the gas field or pipeline development may require these obligations as a condition for financing.

Delivery points

Gas as a matter of fact is usually considered hard and at some times really difficult to transport it has been for this reason at the delivery points are designated as the physical locations where the gas is delivered to the buyer. This physical location can be at the gate of the power pant the produces gas or could be a hub city indeed. At the time of making a contract the contracting parties specify the physical location of attainment of gas resources for he given time and price.

Gas Quality

The key provision of the gas sales agreement pertains to the gas sales agreement is the quality of the gas, the charter clearly states that specified quality of gas including maximum and minimum heating values in Btu/MMcf units. Maximum levels of impurities like oxygen, CO2, SOx, and NOx; the delivery pressure; and water vapor content of the gas are particularly important in specifying the quality of oil and gas. And the breach to this charter can result in the cancellation of the contract and even the weaver pay or buy obligation.

3.3 Unitization, Cross-Border Unitization and Joint Development Agreement

The chief forms of disputes that pertain to the oil and gas contracts are the state vs. state disputes, company vs. states disputes, company vs. company and in some cases individuals vs. individuals. Energy as a matter of fact is the substance of core interest and it is hereby the first priority of any and all contracting parties to get frequent resolutions pertaining to the oil and gas contracts. Independent profit maximization as a matter of fact is the far cry for the countries across the world because the new era of liberal and state trade practices are far ahead to the criterion.