Geography
In our survey, we asked respondents where they considered there to be the greatest risk of disputes arising across the globe.
The geographic location identified as the one with the highest risk was the UKCS (the view of 31% of all respondents) where supply chain and joint ventures were considered the activities most likely to trigger a dispute. Africa and the Middle East also featured as prominent geographic regions for oil and gas disputes with both regions identified by 18% of respondents. Host states/regulators were seen as the most likely source for disputes in Africa and this is also a key concern, along with issues over joint ventures, within the Middle East.
Europe (outside the UKCS) and Latin America were considered to be the regions with the least risk of oil and gas disputes with only 5% of respondents identifying them in this year’s survey.
The UKCS being perceived as having greater capacity for contentious clashes is consistent with last year’s survey results (which showed the figure as a slightly higher 37%). The reasons given are also consistent with last year’s findings with participants suggesting the contributing factors are: (i) late life assets in a mature basin putting a strain on joint venture relationships and creating misaligned commercial interests due to different equity interests across a hub; (ii) reduced margins available in the mature basin; and (iii) regulator intervention resulting in an alteration of behaviours. A high proportion of our survey respondents also had ongoing operations on the UKCS which is likely to have further impacted on the view that this is a key region for oil and gas sector disputes.
“Late-life assets are putting a strain on joint venture relationships and often parties are misaligned due to different equity across the hub. Whilst they are generally keen to work together to resolve these issues, there do appear to be more and more reaching the legal teams.”
General Counsel of an independent E&P company commenting on UKCS market
Looking to other markets, the perceived risk of disputes arising in Africa has reduced since last year’s survey from 28% to 18%. Respondents pointed to a number of key areas which could be the source of a dispute within Africa: (i) poor governance; (ii) poor contracting discipline; (iii) misalignment with co-venturers; and (iv) a history of disputes with host states concerning concessions and tax.
“Within the African market, disputes frequently arise in relation to oil and gas concessions, JV agreements and tax matters.”
Head of Legal of an independent E&P company
The Middle East is a region where the perception of risk seems on the face of it to have significantly increased in the past year. In last year’s survey, only 9% of respondents perceived the region to be the one presenting the greatest risk for disputes. That figure has doubled this year to 18%, but this increase could be due in part to a greater level of responses from Middle East-based survey participants. Two key issues which our survey participants believed were giving rise to disputes in the Middle East were (i) political instability in certain countries having a knock-on effect with projects and (ii) late payment.
“The unstable political and economic regimes (in the Middle East) mean there is often substantial delays in addressing variation order requests and payments.”
Manager of an E&P supermajor
The 13% of participants that thought that North America posed the greatest risk of disputes were almost unanimous that this was largely due to the litigious culture in the United States and Canada. Other factors identified were the complexity of the market and tighter margins. The fact that the figure was not higher might relate to the geographical reach of those that responded.
“North America is a complex operating environment combined with a greater tendency to revert to lawyers to resolve disagreements, which then become disputes.”
Director of an oil and gas infrastructure owner
Although Asia-Pacific remained a perceived lower-risk market for oil and gas disputes, rising from 4% last year to 10% this year, there were a diverse number of issues that were highlighted by respondents within this region, suggesting a broader range of issues that could drive disputes. These include (i) fluctuating gas and LNG prices; (ii) more aggressive authorities and regulators; (iii) emerging local players taking on ever-increasing roles; and (iv) large-scale construction/projects occurring within the region. The importance of LNG to the Asia-Pacific economy and the significant number of yards constructing vessels in the region were highlighted by respondents as two further issues driving dispute risk.
“More aggressive authorities and regulators as well as emerging ‘local’ players are playing ever-increasing roles.”
Head of Tax of vessel owner commenting on Asia-Pacific market
Concerns about Latin America have fallen from 17% in last year’s survey to 5% this year. Although political instability is cited as a reason for risk, there were no concerns expressed about the maturing of the Brazilian Basin leading to increased disputes (unlike last year).
“Much of Latin America is politically unstable and highly oil dependent.”
In-house legal counsel of an independent E&P company
Europe (outside the UKCS) remains a perceived lower risk, also at 5%. Those citing Europe as a perceptive risk pointed to volatile energy prices and deteriorating relations with Russia. It is anticipated that the continuing war in Ukraine will mean that the perceived risk in Europe will have continued to increase since the survey was closed.
