UPDATE 1-Cutbacks by resource firms to spark disputes with governments -report
* Arbitration cases in oil/gas soared tenfold in decade to 2010
* Firms, governments struggle over proceeds as prices fluctuate
LONDON, Nov 28 (Reuters) - Disputes between resource groups and governments are likely to keep increasing as commodity prices fall and companies slash spending on new projects, according to a report by London-based think-tank Chatham House.
The world's biggest mining group, BHP Billiton plans to cut capital spending in its current fiscal year by about a quarter to $16 billion.
"Things are tight, this is the reality... countries will need to increasingly compete for the funds and provide stability for investors," Nick Allen, vice president of compliance at BHP, told a panel discussion at Chatham House.
Over the first decade of this century, international arbitration cases between companies and governments in the oil and gas sector shot up tenfold compared with the previous decade, while those in mining increased nearly fourfold, the report said.
While many disputes are spurred by conflicts over how to split profits from mines and oil wells, popular discontent can rise when populations fail to see benefits of operations and are kept in the dark about the deals.
"We've been through the wringer, we've been to the gates of hell," Allen said, adding that BHP now has tough procedures to ensure it communicates with all stakeholders on new projects.
"We recognise, certainly because of our bitter experience, the importance of making sure people on the ground know what is going on."
Disputes increased during periods of high prices as many governments felt they were not getting a fair share of profits, but the current slump in commodity prices has not dampened the tension.
The price of copper is down by nearly a third since touching a record $10,045 a tonne in 2011 and gold has tumbled 35 percent since hitting a record $1,920 an ounce the same year.
Chilean copper producer Antofagasta and Canada's Barrick Gold have gone to international arbitration to demand compensation after abandoning hope of mining the Reko Diq copper and gold project in Pakistan's poorest region of Baluchistan, where the provincial government refused a licence for the venture.
In the energy sector, Argentina last year seized Repsol's majority stake in energy company YPF, but the Spanish company is expected this week to accept what sources close to the board said was a preliminary $5 billion compensation offer from Argentina.
"Higher prices have brought more disputes but the converse may not be true - falling prices could add more fuel to the fire," Paul Stevens, distinguished fellow at Chatham House and lead author of the report, said in a statement.
Companies increasingly face "use-it-or-lose-it" ultimatums from governments if they seek to delay or scale back projects in uncertain markets, he said.
The report suggests that contracts between firms and governments should be more flexible with built-in mechanisms for changing market conditions, such as sliding royalty scales.
"The idea has been around for a long-time and some countries are already practising this, such as Chile, but if you take a global view, best practice in many countries is not being applied today," Jaakko Kooroshy, a research fellow at Chatham House and an author of the report, told Reuters.
"A lot of countries flip-flop between policies, which makes it very difficult for investors to know what they're getting themselves into."
While many countries need to increase their institutional capacity, the private sector is also lacking, said David Rice, former policy unit director at energy group BP Plc and senior associate at the University of Cambridge.
"Companies are often weaker than they realise -- in political awareness... in development skills, communication skills."