Firms in the oil and gas sector are at increasing risk of falling into legal disputes as a “perfect storm” of pressure has formed around the industry.
The latest Oil and Gas Disputes Survey from legal firm CMS has identified an “energy trilemma” in which the drive to sustainability, the need for energy security, and affordability issues are raising the likelihood of conflict with regulators, shareholders, consumers and industry partners.
Based on responses from more than 50 senior legal managers from all regions of the global industry, these factors were found to be at the heart of many existing disputes with strong potential to create further issues going forward.
“Getting to grips with these three challenges simultaneously is extremely difficult, especially at a time when the cheap and until recently widely-used source of Russian gas is being phased out across Europe,” CMS partner Phillip Ashley said.
“As highlighted by the respondents of this year’s [survey], this perfect storm is increasingly serving as a central driver for risk across the industry.”
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Joint ventures were identified as the biggest global threat, with the risks posed by these deemed to be particularly high in Europe, the Middle East and Africa.
However, joint ventures only came in second place among operators on the UK Continental Shelf (UKCS), where supply chain issues were deemed the most likely source of legal disputes. Climate change and net zero court actions by shareholders, investors or activists were also seen as a core risk area, particularly within the UKCS where half of survey respondents saw this as a potential threat.
Projects, dealing with host states and regulators, and oil product sales were also identified as areas for potential legal action.
Valerie Allan, energy disputes and regulatory specialist at CMS, said legal teams within the industry need to be proactive in effectively engaging with government authorities to ensure their actions are acceptable under the regimes in which they operate.
“Our survey has shown that once again joint ventures, supply chain issues and projects remain key areas of risk for possible legal actions across the industry,” she said. “The increasing focus on net zero is also a significant factor as we continue to see rising numbers of climate change-related disputes in many parts of the globe, and especially within regions like the UKCS.”
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