Contractual Risk Allocation in Petroleum Industry -“Knock-for-Knock” as a model

Abstract

Contracting parties under petroleum contracts profoundly seek to abandon common law’s position regarding the allocation of the risks. Under the common law, whoever violates a contractual obligation, or any specific legal obligation liable to the fault committed, and therefore the affected party must be compensated. However, this is not always the case within petroleum industry, where risks are related to the party who is able to control these risks. In this regard, the parties use the contract to reduce the probability of risk or control the consequences of such a risk. The arrangement is usually made between operator and contractor under oilfield service contracts or between the parties under the Joint Operating Agreement. This paper discusses the contractual risk allocation in the petroleum industry concerning the practice of “knock-for-knock”.

Keywords

• Petroleum industry
• Risk allocation
• Indemnity
• Liability
• Joint operating agreement
• Operator