Energy Contracts Face Shock Test, Arbitration Experts Warn
At a panel titled Across the Energy Sector: Disputes, Contracts and the Issues that Matter, speakers examined problems ranging from long-term supply agreements and sanctions to investment protection, decommissioning and damages.
Drafting under the spotlight
Timothy Smyth, partner at Boies Schiller Flexner LLP, cited the fight over Chevron's acquisition of Hess as proof that the precise wording of a contract can decide the outcome of a major energy deal.
At the heart of that dispute was a claim by ExxonMobil that the transaction triggered pre-emption rights under a joint operating agreement covering Hess's stake in the Stabroek Block in Guyana.
The case showed that change-of-control clauses must be drafted tightly enough to cover different types of corporate transactions, Smyth said.
"The important thing to note here, I think, for practitioners and for participants in the energy sector is a lesson on contract drafting," he said.
Smyth also stressed the rising importance of price-review mechanisms in long-term gas contracts, noting that major geopolitical shocks in recent years have sharply disrupted energy markets. Were he drafting a contract now, he added, he would build in provisions for price review and reopening to deal with large market shifts.
Murat Erbilen, senior partner at Lexist, said recent LNG disputes showed how contractual assumptions can become pivotal when markets move dramatically.
Tribunals, he said, generally look at how the parties allocated risk and what mechanisms their agreements contain, rather than rewriting contracts because a deal's economics have shifted.
Erbilen also flagged decommissioning as a growing source of long-term risk, especially for oil and gas assets, where obligations can surface decades after signing.
"The lesson is simple: decommissioning should be treated as a core part of the project's risk allocation from day one," he said.
Protecting energy investments
Paul Hinks, CEO and co-founder of Symbion, focused on the risks investors face in Africa, including disputes between utilities and governments.
Drawing on his company's experience, Hinks said businesses should weigh not only arbitration clauses in their contracts but also the investment treaty protections available when structuring a deal. Bilateral investment treaties and access to investor-state arbitration can offer extra leverage when enforcing contractual rights alone proves difficult, he said.
Basar Sahin, general manager of ICM Consulting Ltd., said companies often start preparing for arbitration only after a dispute has already escalated. That can create serious evidentiary problems, he said, particularly when firms have not kept contemporaneous project records, served contractual notices or preserved technical and financial data.
"When contracts lack strict notification enforcement, precise technical specifications and mandatory data transparency, informal workarounds replace real-time documentation," Sahin said.
Damages and treaty shifts
The panel also tackled how damages are calculated in energy disputes, including lost profits and the effect of volatile commodity prices.
Tribunals tend to concentrate on a project's commercial realities, such as its operating history, prospects and comparable projects, Smyth said. The date chosen to value damages can substantially change awards when commodity prices have swung sharply, he added.
Erbilen said developments around the Energy Charter Treaty (ECT) are pushing investors toward a wider mix of safeguards, including bilateral investment treaties, contractual arbitration clauses and political risk insurance.
"The end of the ECT era in parts of Europe does not mean the end of investment protection for energy projects," he said.
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