Territorial Disputes

In June, I looked at the longstanding sovereignty dispute over the Falklands Islands (Malvinas) on the occasion of the 30-year anniversary of the 1982 war. I revisit this topic today to examine the question of investor protection in areas where sovereignty is disputed, taking the Falklands (Malvinas) as an example. The promise of an oil boom in the South Atlantic has prompted several companies listed in London, including Falkland Oil and Gas, Borders and Southern Petroleum, Rockhopper, Desire Petroleum and Argos Resources, to survey the area. They obtained exploration licenses from the Falklands administration in 2011, which drew strong criticism from Argentina. Shareholders in these inherently risky ventures may wonder whether they have any legal protections should the sovereignty dispute intensify. The sovereignty dispute adds an additional layer of uncertainty for the companies engaged in exploratory drilling and their shareholders, aside from the uncertainty on how much oil, if any, will ultimately be discovered. The listing prospectuses of the companies concerned all mention the pending sovereignty dispute as a risk factor, but likely underplayed its importance. For example, the…