THE EFFECT OF STABILIZATION CLAUSES IN PETROLEUM CONTRACTS IN DEVELOPING COUNTRIES LIKE NIGERIA

Abstract

The petroleum industry is an integral part of Nigeria’s economy since the discovery of oil in commercial quantity in OloibiriBayelsa  State  in  1956.  The  Petroleum  Industry  is  a  very  complex  industry  which  requires  a  lot  of technology and finance to run, developing countries like Nigeria don’t have such capital and technology to run their oil  industry  independently  thereby  forcing  them  to  partner  with  international  oil  companies.  In  a  bid  to  give assurances to the investments of the international oil companies, Stabilisation Clauses are inserted into agreements between  the  parties.  This  work  examines  whether  Stabilisation  Clauses  are  in  anyway  beneficial  to  the  host  state. The work will interrogate the benefit(s) of Stabilisation Clauses to both the international oil companies and the host states. The  methodology adopted is doctrinal, with a qualitative approach for appraising the effect of Stabilisation Clauses  in  petroleum  contracts  in  the  oil  industry.  The  analysis  and  legal  deductive  reasoning  are  based  oninformation  from  primary  and  secondary  sources  such  as  textbooks,  articles  in  journals,  periodicals,  law  reports, legislation and internet sources.In the course of this work it was discovered that Stabilisation Clauses can be used to boost the transfer of technology to developing countries like Nigeria. It was also discovered that the host country could  still  modify  the  terms  of  a  petroleum  contract  even  with  the  presence  of  the  freezing  Stabilisation  Clause which  tend  to  suspend  the  legislative  powers  ofthe  host  state  once  the  contract  has  been  completed.  It  was recommended that the government of host states should always involve experts when dealing with international oil companies as this will give them the opportunity to know the type of StabilisationClauses that exist and the one that best fits their perculiar situation.