DISPUTES IN THE OIL & GAS SECTOR
CD: To what extent have you seen a recent rise in disputes across the oil & gas sector? Why does the sector seem to be a fertile ground for commercial conflict?
Maxwell: Various characteristics inherent in the structure of the industry make conflict more likely. Significant capital commitment is made in exploration and production (E&P) at an early stage, prior to a lengthy period of uncertainty before the extent of return can be established. During this time, volatility in the oil price can wreak havoc with the economics of the investment. Risks and rewards are typically shared in joint ventures and investments are frequently cross-border. Perhaps most relevant is the size and strategic importance of the assets at stake and the frequent involvement of governments, which can increase pressure on all participants. We have seen an increase in conflict between contractual counterparties in certain areas of the sector but the translation of this into a significantly greater number of disputes that go on to be fought in active proceedings has not yet materialised.
Grieger: There has been a flood of disputes in the oil & gas sector. The reason is self-evident: the fall in global oil prices has led to the cancellation of many projects and contracts. Although the parties have tried to negotiate to reduce their own losses, the fact is that in some cases there has not been any openness for a fair negotiation. At least in Mexico, PEMEX adjusted its budget and cancelled many contracts. At the same time, and as a strategy to gain time and put pressure on contractors, PEMEX has refused to negotiate fair settlements, leaving the contractors with no option other than to explore potential litigation to recover some of the losses they have suffered.
Oct-Dec 2016 issue
Ince & Co LLP
Von Wobeser y Sierra, S.C.