Originally intended to prevent black people from voting in the US (if a person’s grandfather was not permitted to vote, neither was he). The term has come to refer to the fact that certain laws may not be applicable in certain circumstances due to preexisting facts.

In the context of resource contracts, a stabilization clause seeks to address a party’s concerns that the state may, in the future, reverse policies upon which the agreement was entered into, for example, the petroleum laws or taxation regime. The clause attempts to maintain the original contract equilibrium.

Thus, O&G companies who work in developing countries often seek the grandfathering of regulations, tax treaties, etc. or namely a state guarantee that they will not suffer unduly if regulations change . The stabilization clause in fact restricts a future government’s ability to change tax rates or pass any new law which affects the oil and gas company’s profits