Risk Allocation in the Oil and Gas Industry

The oil and gas industry involves colossal capital investment. It is capital intensive, volatile and replete with risks. Risk allocation as the term implies, is the mechanism of risk apportionment among the key players in the oil and gas industry. The paper tried to evaluate how risks are shared under the various types of oil and gas agreements such as Joint Venture Agreement (JVA), Productions Sharing Contract (PSC) and Risk Sharing Contract (RSC) between the National Oil Company (NNPC) for Nigeria and the International Oil Company (IOC) like Shell BP. This paper also appraised how the liability of the parties to an oil and gas contract can be limited through the insertion of certain clauses into the contract between NOCs and IOCs. Consequently, the paper adopted a doctrinal research method to consider the various documentary evidences available and did a comparative analysis of the practice of risk allocation in the oil and gas industry in Nigeria and other jurisdictions such as United Kingdom, United States of America, Australia and Canada. The paper concluded that risks allocation between NOCs and IOCs is absolutely necessary in view of the humongous capital involved in oil and gas exploration, exploitation and production contracts. The paper recommended that risk allocation in oil and gas contracts between NOCs and IOCs should be taken serious because it determines return on investments, the GDP, revenue and foreign reserves of a country