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2.4.4.1 Regime for Risk Allocation in Indonesia

© 2024, Edinburgh University Press, Edinburgh

© 2024, Edinburgh University Press, Edinburgh

Chapters in this book

  1. Frontmatter i
  2. Contents v
  3. Acknowledgments xii
  4. Preface xiii
  5. Foreword xv
  6. Table of Cases xvii
  7. Table of Instruments xxi
  8. Abbreviations xxiii
  9. Chapter 1 Risk Allocation in the Offshore Energy Industry: An Overview
  10. 1.0 General Introduction and Background 1
  11. 1.1 Understanding the Concepts of Risk and Risk Allocation 4
  12. 1.2 Risk and Related Concepts
  13. 1.2.1 Risk and Uncertainty 5
  14. 1.2.2 Risk and Probability 6
  15. 1.3 Risk Ca tegorisation 7
  16. 1.4 Scholastic Perspectives on Risk 10
  17. 1.5 Other Approaches to Risk
  18. 1.5.1 The Judicial Approach 12
  19. 1.5.2 The Legislative Approach 12
  20. 1.5.3 The Economic Approach 13
  21. 1.6 Essential Concepts in the Discussion about Risks
  22. 1.6.1 Risk Management 14
  23. 1.6.2 Risk Aversion 14
  24. 1.6.3 Risk Allocation 15
  25. 1.6.4 Risk Mitigation 16
  26. 1.6.5 Contractual Risk Allocation in the Oil Industry 16
  27. 1.7 Conceptual Understanding and Usage of Terms
  28. 1.7.1 Negligence and Gross Negligence 17
  29. 1.7.2 Human Rights and Environment 19
  30. 1.7.3 Sustainability 20
  31. 1.7.4 Distributive Justice 21
  32. 1.7.5 Freedom of Contract 22
  33. 1.7.6 Public Policy 23
  34. 1.8 Essential Terms in a Contract Matrix
  35. 1.8.1 Co-Venturers 23
  36. 1.8.2 Operator 25
  37. 1.8.3 Contractor 26
  38. 1.8.4 Subcontractor 27
  39. 1.9 Purpose and Objective of the Book 28
  40. 1.10 Me thodology and Structure of the Book 28
  41. Chapter 2 The Context of Offshore Petroleum Drilling Operations and Risk Allocation
  42. 2.0 Introduction 31
  43. 2.1 O ffshore Petroleum Exploration 31
  44. 2.2 Drilling Contracts
  45. 2.2.1 Daywork/Day Rate Contract 35
  46. 2.2.2 Footage Contract 35
  47. 2.2.3 Turnkey Contract 36
  48. 2.3 Allocating Risks in the Oil and Gas Industry 36
  49. 2.4 Contractual Risk Allocation in Specific Jurisdictions
  50. 2.4.1 United Kingdom
  51. 2.4.1.1 United Kingdom Model Contracts 40
  52. 2.4.1.2 Analysis of the United Kingdom Mutual Indemnification Practice 44
  53. 2.4.2 United States of America
  54. 2.4.2.1 Model Contract for Risk Allocation in the United States 46
  55. 2.4.3 Nigeria
  56. 2.4.3.1 Standard Form Contracts for Drilling in Nigeria 53
  57. 2.4.3.2 Risk Allocation in Drilling Contracts in Nigeria 53
  58. 2.4.4 Indonesia
  59. 2.4.4.1 Regime for Risk Allocation in Indonesia 59
  60. 2.4.4.2 Risk Allocation in Indonesian Production Sharing Contract Forms 61
  61. 2.4.4.3 Risk Allocation in Operator and Contractor Private Drilling Contracts in Indonesia 62
  62. 2.5 Changing Perceptions of Risk Allocation 64
  63. 2.6 Risk Allocation Tools in Oil and Gas Contracts
  64. 2.6.1 Mutual Indemnity Agreements 66
  65. 2.6.2 Hold Harmless Clauses 68
  66. 2.6.3 Mutual Indemnity and Hold Harmless Provisions in Context 69
  67. 2.6.4 Exclusion and Limitation of Liability Clauses
  68. 2.6.4.1 Exclusion Clauses 70
  69. 2.6.4.2 Limitation of Liability Clauses 71
  70. 2.7 Rationales for Risk Allocation in Oil and Gas Contracts
  71. 2.7.1 Industry Practice Rationale 72
  72. 2.7.2 Doctrine of Tradition 72
  73. 2.7.3 Best Knowledge Doctrine 73
  74. 2.7.4 ‘Clay Feet’ Doctrine 73
  75. 2.7.5 Accountability Doctrine 74
  76. 2.7.6 Rationale Founded on Legal/Economic Considerations 74
  77. 2.7.7 The Party in the Best Position to Bear the Risk 74
  78. 2.7.8 Overall Efficiency Rationale 75
  79. 2.7.9 Economic Benefit Rationale 76
  80. 2.7.10 Foreseeability Rationale 76
  81. 2.7.11 Other Rationales 77
  82. 2.8 Regulatory Interventions in Risk Allocation
  83. 2.8.1 Anti-Indemnity Legislation 78
  84. 2.8.2 Indemnification in Texas
  85. 2.8.2.1 Texas Express Negligence Rule 79
  86. 2.8.2.2 Texas Anti-Indemnity Statute 80
  87. 2.8.3 Indemnification in Louisiana 81
  88. 2.8.4 Unfair Contracts Terms Act 1977 83
  89. 2.8.5 Contracts (Rights of Third Parties) Act 1999 85
  90. 2.9 Conclusion 86
  91. Chapter 3 Conceptual Considerations in Risk Allocation in the Offshore Energy Industry
  92. 3.0 Introduction 87
  93. 3.1 Concept of Freedom of Contract 87
  94. 3.2 Limit of the Freedom of Contract
  95. 3.2.1 Commodification 90
  96. 3.2.2 Externalities 90
  97. 3.3 Public Policy and the Freedom of Contract in Risk Allocation
  98. 3.3.1 What Is Public Policy? 91
  99. 3.3.2 Public Policy – An Unruly Horse? 95
  100. 3.3.3 Public Policy and the Exercise of the Freedom of Contract 97
  101. 3.3.4 Public Policy and Risk Allocation behind the Veil of Ignorance
  102. 3.3.4.1 Conceptual Understanding of the Veil of Ignorance 100
  103. 3.3.4.2 Hypothetical Risk Allocation behind the Veil of Ignorance in the Hydrocarbon Industry 102
  104. 3.3.4.3 Assessing the Veil of Ignorance in Gross Negligence Cases 103
  105. 3.4 Sustainability Dimensions in Risk Allocation
  106. 3.4.1 Concept of Sustainability 105
  107. 3.4.2 Aspects of Sustainability
  108. 3.4.2.1 Environmental Aspect 107
  109. 3.4.2.2 Social Aspect 109
  110. 3.4.2.3 Economic Aspect 109
  111. 3.4.3 Sustainability Risks 110
  112. 3.4.4 Why Is Sustainability Essential to the Offshore Petroleum Industry?
  113. 3.4.4.1 Reputation Risk Management 111
  114. 3.4.4.2 A Way of Securing the Social Licence to Operate 113
  115. 3.4.4.3 A Strategy to Maximise Environmental and Social Performance 114
  116. 3.4.5 Sustainability in Risk Allocation in the Oil and Gas Industry 115
  117. 3.5 Distributive Justice in Risk Allocation
  118. 3.5.1 What Is Justice? 116
  119. 3.5.2 Distinctions in Justice
  120. 3.5.2.1 Conservative versus Reformative Justice 118
  121. 3.5.2.2 Substantive versus Procedural Justice 120
  122. 3.5.2.3 Comparative versus Non-Comparative Justice 121
  123. 3.5.2.4 Corrective versus Distributive Justice 122
  124. 3.5.3 Types of Justice
  125. 3.5.3.1 Distributive Justice 123
  126. 3.5.3.2 Procedural Justice 124
  127. 3.5.3.3 Retributive Justice 125
  128. 3.5.3.4 Restorative Justice 126
  129. 3.6 Distributive Justice: Concept, Dimensions and Essence
  130. 3.6.1 Context 127
  131. 3.6.2 Rawls’s Distributive Justice Perspective 128
  132. 3.6.3 Nozick’s Distributive Justice Perspective 129
  133. 3.6.4 Keating’s Distributive Justice Perspective 131
  134. 3.6.5 Theoretical Elements of Keating’s Distributive Justice
  135. 3.6.5.1 Fairness 134
  136. 3.6.5.2 Proportionality 136
  137. 3.6.5.3 Mutual Benefit 138
  138. 3.6.6 Why Is Distributive Justice Essential in Risk Allocation? 139
  139. 3.7 Distributive Justice and Private Law
  140. 3.7.1 Contract Law and Tort as Vehicles of Distribution 141
  141. 3.8 Distributive Justice: A Practical Element in Allocating the Risk of Gross Negligence 146
  142. 3.9 Conclusion 146
  143. Chapter 4 Causation and Gross Negligence in Risk Allocation
  144. 4.0 Introduction 148
  145. 4.1 Causation and Liability
  146. 4.1.1 Causation: Meaning and Legal Foundation 148
  147. 4.1.2 Causation and Liability for Grossly Negligent Conduct 150
  148. 4.2 Gross Negligence: Context and Dimensions
  149. 4.2.1 Gross Negligence – A sui generis Liability? 151
  150. 4.2.2 A Historical Perspective on Gross Negligence 151
  151. 4.2.3 Varying the Standard of Care in Negligence 153
  152. 4.2.4 Contextualising the Meaning of Gross Negligence
  153. 4.2.4.1 Regime of Gross Negligence in the United States 155
  154. 4.2.4.2 Regime of Gross Negligence in the United Kingdom 158
  155. 4.2.4.3 Gross Negligence: Perspective of the United Kingdom Courts 159
  156. 4.3 Wilful Misconduct 161
  157. 4.4 Challenges Associated with Managi ng and Allocating Gross Negligence Risk
  158. 4.4.1 Challenge of Defining Gross Negligence 162
  159. 4.4.2 Varied Standards of Proof for Gross Negligence Cases 164
  160. 4.4.3 Limited Application of Gross Negligence: Not a Term of Art 165
  161. 4.4.4 Limited Statutory Provision for Gross Negligence in Petroleum Regulations 168
  162. 4.4.5 Limited Insurance Coverage 168
  163. 4.5 A Working Definition of Gross Negligence in Offshore Drilling Contracts 169
  164. 4.6 Gross Negligence: Examining the Test for Corporate Responsibility in Offshore Drilling Operations 172
  165. 4.7 Conclusion 175
  166. Chapter 5 Guiding Principles for Effective Risk Allocation in Gross Negligence Cases
  167. 5.0 Introduction 176
  168. 5.1 Guiding Principles
  169. 5.1.1 Public Policy Principle 177
  170. 5.1.2 Human Rights Principle 178
  171. 5.1.3 Sustainability Principle 181
  172. 5.1.4 Distributive Justice Principle 182
  173. 5.2 An Ada ptable Framework for Risk Allocation in Gross Negligence Cases : Strategies for Mainstreaming Liability
  174. 5.2.1 Regulatory Strategy 183
  175. 5.2.2 Contractual Strategy
  176. 5.2.2.1 Liability Subject to the Proportion of Benefit 187
  177. 5.2.2.2 Indemnity 187
  178. 5.2.3 Implications of Rethinking the Contractual Strategy 188
  179. 5.3 Conclusion 191
  180. Chapter 6 Practical and Institutional Frameworks and Insurance Coverage for Implementing Risk Allocation in Gross Negligence Cases
  181. 6.0 Introduction 192
  182. 6.1 Institutional Framework
  183. 6.1.1 Coordination 194
  184. 6.1.2 Training and Capacity Building 195
  185. 6.1.3 Institutional Interoperability 195
  186. 6.2 Insurance and Other Coverage Options in the Oil and Gas Industry
  187. 6.2.1 Insurance and Financial Coverage in the Oil and Gas Industry 197
  188. 6.2.2 Liability Protection Schemes for the Offshore Oil Industry
  189. 6.2.2.1 Offshore Pollution Liability Association Limited Scheme 198
  190. 6.2.2.2 Oil Insurance Limited 200
  191. 6.2.2.3 Oil Casualty Insurance Limited 201
  192. 6.2.2.4 Offshore Energy Insurance Cover 201
  193. 6.2.3 Types of Offshore Energy Insurance
  194. 6.2.3.1 Coverage for Damage to Offshore Facilities 202
  195. 6.2.3.2 Operator’s Extra Expense 203
  196. 6.2.3.3 Excess Liability Insurance 203
  197. 6.2.3.4 Loss of Production Income Insurance 204
  198. 6.2.3.5 Protection and Indemnity Insurance Coverage 204
  199. 6.3 Insurance Coverage and Gross Negligence 205
  200. 6.4 Aligning Insurance with the Public Policy and Distributive Justice Objectives 207
  201. 6.5 Applicable Insurance Practice in Gross Negligence Cases
  202. 6.5.1 An Additional Insured Provision in Insurance Policies 208
  203. 6.5.2 Status of an Additional Insured 210
  204. 6.6 Financial Assurance Mechanisms/Strategies to Cover Pollution Liability
  205. 6.6.1 Available Financial Assurance Tools
  206. 6.6.1.1 Pooling 213
  207. 6.6.1.2 Insurance 214
  208. 6.6.1.3 Self-Insurance 214
  209. 6.6.1.4 Capital Market 215
  210. 6.6.2 Are Financial Assurance Mechanisms Fulfilling Their Purpose? 216
  211. 6.6.3 Financial Assurance Tools and Gross Negligence Situations 219
  212. 6.7 Regulatory Reforms for Effective Allocation of Gross Negligence Risk 220
  213. 6.8 Conclusion 221
  214. Chapter 7 A Summary for Stakeholders
  215. 7.0 Introduction 222
  216. 7.1 A Dynamic Approach to Risk Allocation in the Oil Industry 222
  217. 7.2 A Distributive Outcome
  218. 7.2.1 A Distributive Outcome through Capped Liability in Gross Negligence Cases 225
  219. 7.2.2 Policy and Regulatory Direction for a Distributive Outcome 226
  220. 7.3 A Strategy to Overcome the Limitations in Allocating Gross Negligence Risk
  221. 7.3.1 Statutory Control 230
  222. 7.3.2 Statutory Harmonisation 230
  223. 7.3.3 Judicial Decisions and Harmonisation 231
  224. 7.4 Conclusion 232
  225. Bibliography 233
  226. Index 259
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