Mhairi Main Garcia

area which has not yet been delimited and/or potentially neighbours or crosses a
disputed boundary, this will necessitate a more detailed assessment of the risks and
uncertainties involved as a result of the geographical scope of the contract area being
potentially uncertain.
If there is a dispute between the host state and a neighbouring state with a
competing claim over all or part of the territory constituting the contract area, an
assessment must be made of the potential for settling the dispute, taking into
account the political relations between the states concerned, the legal principles that
may be applied (bearing in mind that whilst the International Court of Justice
generally commences any delimitation by applying the equidistance line, the
application of equitable solutions may give rise to a number of possible outcomes)
and the technical difficulties which may be involved in delimiting the boundary in
question. If the matter has been referred to an arbitral tribunal, the International
Court of Justice or other judicial body, this could indicate that it will take a long time
to resolve the dispute; such disputes are generally protracted.
8.2

Contractual safeguards
In addition to general legal and technical due diligence, oil and gas companies
should to the extent possible include safeguards in the relevant contract, whether
it is a concession agreement, production sharing contract or licensing agreement.
These safeguards should aim to protect the company against the adverse
consequences of the contract area falling within a disputed area or of an
unfavourable determination that all or part of the contract area does not lie within
the boundaries of the host state. Although host state governments may be reluctant
to include additional provisions to protect companies, where there is doubt as to the
territorial scope of the contract area, companies should seek to negotiate safeguards
such as the following:
If there is a territorial or boundary dispute which involves the contract area,
there should be no breach of the contract by the company and the host state
should not apply any penalties. This could be included as part of a force
majeure or compensation event mechanism in the contract, or as a separate
relief clause.
If it is determined that all or part of the contract area does not lie within the
boundaries of the host state, the contract should include an indemnity by the
host state indemnifying the company for any losses due to such
circumstances.
The companys obligations, in so far as they are affected or put at risk by a
boundary determination, should be suspended until the matter is resolved.
The contract should remain in full force until the boundary dispute is finally
resolved.

8.3

Activities in disputed waters

Where a boundary is disputed, the Guyana v Suriname arbitration has set out the
parameters within which oil- and gas-related activities may be carried out. The
tribunal found that [I]n the context of activities surrounding hydrocarbon

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