Damage evaluation in upstream oil contracts using optimal control theory

Mohammad N. Zangeneh, Fazel M. Farimani and Ali T. Fard

OPEC Energy Review, 2015, vol. 39, issue 3, 266-284

Abstract: The focus of international investment arbitration is mainly to protect the investor. A critically ignored situation in legal analysis is where under an international upstream petroleum contract, the international oil company (IOC) has breached its obligation to efficiently develop an oil field in the hosting country (HC). Although in the economic literature, a few studies have been conducted to do damage evaluation; their methods do not consider the dynamic nature of the oil field development. In this paper, it is assumed that a claim has been filed by the HC against the IOC in an arbitration tribunal to claim the damages caused to an oil field. In order to evaluate the damages, an innovative economic model based on a dynamic optimisation method is being initiated. It could be helpful for the tribunals to grasp an idea as to how the issue of evaluation of the damages will look like when they encounter the claims made by the HC in upstream oil contracts.

Date: 2015
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