From the Chair - March 2020
Fieldfisher, London; Chair, IBA Oil and Gas Law Committee
Welcome to the latest edition of our Committee newsletter.
In this edition, we have assembled another series of articles we hope you will find interesting; thanks to Anca Maria Mihailescu, as Publications Officer, for pulling this together.
For my reflections as Chair, all members will be acutely conscious that the oil and gas industry continues to battle numerous challenges – some familiar, others somewhat unexpected.
At the time of writing (early March), the economic and practical impacts of coronavirus on the oil and gas sector continue to play out and are moving at a pace that quickly renders any commentary on the situation out of date.
As readers will be well aware, non-essential meetings, conferences and travel have been cancelled and business-critical functions reorganised to reduce the need for travel or assembly. Wherever possible, we have moved to an industry of remote workers.
This is especially testing for an industry that prides itself on professional communality.
As for the particular impacts on business, there has been a lot of commentary published by legal practitioners on the invocation of force majeure clauses, as a consequence of the coronavirus disruption. So far, there has not been much by way of significant practical evidence of this in the oil and gas sector. In fact, reliance on force majeure clauses may not be the best answer and forward-thinking contract lawyers are urging their clients to consider more practical and pro-active alternatives to enforcing these clauses. That said, as the effects of the virus escalate and governments react with quick-fire policy measures, many may have little option but to take drastic measures.
The implications of the virus for offshore operations are a key concern for many E&P operators, who are facing the prospect of shortages in available onshore/offshore personnel and, potentially, production shut-ins where a lack of personnel causes health and safety compliance concerns.
Self-isolation requirements could also see offshore platforms and rigs becoming impromptu quarantine zones. The threat to international supply chains is also obvious and already having an effect.
Earlier in March, Equinor confirmed that one person at the Martin Linge field in the North Sea had tested positive for coronavirus, resulting in 90 per cent of the 780 personnel being sent back to shore, and there will potentially be many similar incidences.
No doubt all members will continue to closely monitor how the situation unfolds.
Unlike coronavirus, the recent oil price crash will likely set a familiar pattern of events in motion.
The political grandstanding of the main actors is well rehearsed, and those affected will have no choice but to retrench and re-evaluate some business decisions until these actors reach an accord.
In the immediate term, we are likely to see a brake on M&A (in an already dampened deal-making market), major investment decisions and contractor deployment (in the United Kingdom, the last of these also stands to be affected by the introduction of new off-payroll tax rules in April).
On the other hand, if the low price environment persists, we could see an uptick in opportunistic deal activity for those companies with access to capital.
The energy transition
As low-carbon policy making proliferates across the world, oil and gas companies are under pressure to demonstrate their support for reducing carbon emissions emanating, directly and indirectly, from their operations.
A further concern for the industry in the energy transition debate is its ability to attract new talent, given the reactionary rhetoric against fossil fuel companies among younger generations.
Although not widely appreciated by the international media, the oil and gas majors are some of the biggest investors in energy transition technologies and harbour the expertise and financial heft to help deliver on climate goals.
While the challenge the energy transition poses should not be underestimated, the oil and gas sector is well positioned to evolve with and lead this change.
A resilient industry
Following the last major oil price crash in 2014, the global oil and gas industry made huge strides towards putting its house in order, getting better control of costs and improving production efficiency.
Whilst it would be naïve to think that the industry is future proofed (eg, debt levels among some companies are unsustainably high if we were to see a prolonged period of low oil prices), overall efforts from the last crisis should continue to sustain the industry as a whole. Its wealth of skill and ingenuity means many players in this field can hopefully view the current challenges (coronavirus aside) through the lens of opportunity.
Call for papers
We will issue another newsletter ahead of the IBA Annual Conference in Miami later this year. If you would like to put forward an article for inclusion in that edition, please get in touch with Anca directly.
Finally, and not surprisingly, the SEERIL Biennial Conference in Marrkech has unfortunately been postponed due to the impact of the coronavirus but that will be rescheduled, hopefully for later in 2020. In the meantime and all being well, we hope to see you all, or as many of you as possible, in Miami.