How Contractual Risk Allocation Provisions of Oil and Gas Contracts Have Been or May Be interpreted by an English Court – A Case Study of Some Model Offshore Drilling Rig Contracts Developed in the United Kingdom, Canada and the United States of America

This study is an examination of how English courts have approached, or are likely to approach and therefore, the effectiveness ofattempts by the parties to oil and gas contracts to allocate risks arising from the activities which form the subject matter of their respective contracts inter se.The study utilises petroleum industry standard form offshore drilling contracts in the United Kingdom, Canada and the United States of America as the context for this analysis, and examines the risks associated with drilling and other incidental operations, in the light of catastrophic events such as the Macondo disaster in the Gulf of Mexico and the Montara disaster in the Timor Sea.y Drawing from the Economic Theory of Law espoused by Richard Posner, which correlates market behaviour, resource allocation and the legal system, and so conceptualises risk from a cost and utility perspective, the study will show that it is actually the economic consequences of the occurrence of an event that are being allocated, and that the entire notion of risk allocation is a determination of how the economic cost of the occurrence of the particular consequence will be borne by the parties to the contract.The study will conclude with a comparative analysis of risk allocation in the different model contracts, and an opinion on the success/effectiveness of the model contracts, as tools used by parties for risk allocation inter se, in response to the challenges created by legislative and judicial intervention.Justification for this opinion will be given, with reference to relevant case law and statutes in the different jurisdictions.Recommendations will be made on how the risk allocation structure can be improved, either by reference to other approaches the parties could adopt, or by clarifying ambiguities in the current xxxi approach (where applicable), and proposing a balance in the instances in which, from the study's perspective, the allocation formula is skewed, either due to the imbalance of power between the parties or by the interference of external forces such as the courts and legislature.2 rancorous and one-sided, with an outcome that leaves at least one party feeling that it has just been left with the rough end of the stick.This is dependent on factors such as the balance of power between the parties, prevailing market/economic conditions, and affiliation of parties to drilling associations.The scenario is further complicated by the influence of external factors outside the parties' control, such as the applicable law in the jurisdiction of choice of the parties, or the jurisdiction to which the contract is subject, as a matter of law.Add to this the role of the courts, which is evident in pronouncements made on the subject matter, which have sometimes resulted in situations in which parties have been left picking up pieces of their contracts, bearing the full brunt of risks previously thought to be properly allocated to the other party.At the heart of every contract is the expectation that its contents will be enforced in line with the 'intention' of the parties.The principle of freedom of contract is recognised in common law, and as Atiyah 3 argues, this arose from equating free market economy with contract law principles, which then provided the platform upon which individuals could trade among themselves based on their preferred terms and conditions.4 However, this freedom has been curtailed by judicial intervention and relevant principles of law, which for instance, subject contract terms and conditions to the reasonable man's test of interpretation, 5 as well as to the principles of substantive justice.6 As internal and external factors continually interfere with the way in which parties have allocated risk in the contract, parties have responded by resorting to petroleum industry model contracts 3 Atiyah, P. S. (1979) The Rise and Fall of Freedom of Contract.

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