Core dispute risks facing oil and gas companies
Last year’s CMS Oil and Gas Disputes Survey recorded a high level of concern about the potential for climate activism and net zero protests to lead to court actions. Those concerns remain firmly intact this year.
More than half of respondents said the UKCS was the geographical region where we would most likely see climate change and net zero court actions instigated by shareholders, investors or activists. As profit margins become tighter in the region, and public pressure in relation to the ‘net zero’ agenda increases, there are concerns that this will drive an increase in the number of disputes.
“Net zero uncertainties are either stretching or minimising economic benefits and pushing operators to fight battles they’d otherwise settle.”
UKCS-focused in-house legal counsel of an international oil and gas company
Just under 30% of respondents said the risk of climate activism and net zero actions is highest in Europe and 15% felt North America would be the region where they would most likely occur. Less than 4% thought Africa would be the hotbed for these type of court actions while the other geographical regions did not register.
Protestor disruption to worksites, both offshore and onshore, was a further concern for the UKCS. Nearly half thought this would be an issue for the UKCS while a quarter thought it could be a challenge for the European oil and gas market.
Unsurprisingly, given its geographical proximity, Russia’s invasion into Ukraine is already a key area of concern within the European market. The combination of both the Ukraine crisis and Russian sanctions has already significantly impacted the industry’s operations in the continent and seems likely to become a major source of industry disputes going forward, as the industry in that region faces sharply focused trilemma challenges.
Disputes arising from employee claims were also identified as a major threat for the UKCS as well as the North American market, perhaps reflecting the extent of employee protections available in those areas. Tax disputes are a further concern for the UKCS with 28% of respondents saying they were likely to arise there while 20% said these were most likely to impact on Africa’s oil and gas sector. The African market was described by one of our respondents as one that is impacted by “poor governance, poor contracting discipline, and a willingness to litigate.”
The potential for class action lawsuits was seen as a particular issue for North America with 68% of participants saying that was the region where they were most likely to arise – of course, that is a region with a long history of actions of that nature and a number of survey respondents cited the “litigious nature of the U.S. and Canada” as a core concern that could drive disputes within this market.
