Interview with Nigel Neville Henwood

What are the key risks that the industry is facing? Where are you seeing the most potential for disputes?

The key threats are focused around sovereign risks for operators within frontier jurisdictions. The current high-price environment which, among other things, is prompting fiscal responses such as the UK government’s ‘super profits’ tax is another concern – that will always be an issue, particularly in developing countries. Energy transition and the impact that has on investment and shareholder attitudes is also a high-level risk at present.

How much of an impact is the war in Ukraine likely to have on the oil and gas sector as a source of disputes?

I don’t think the war in Ukraine in itself will have a direct impact on industry disputes, but it is leading to increased activity in other global markets as countries are moving away from Russian oil and gas. This means more interest, more exploration, and higher stakes for these other markets, all of which has the potential to trigger further disputes.

Supply chain issues are a key factor highlighted in this year’s survey. Do you see that as a growing issue – perhaps the main issue – as a trigger for disputes over the year ahead?

Yes, there is certainly a lot of scope for supply chain-related disputes going forward. We’ve already had occasions where we’ve been ready to grant a tender only for a supplier to say ‘hang on a minute, we’re now anticipating rising cost issues in delivering this contract.’ I do therefore expect an increase in disputes around supply chain but in most cases, from my own experience, they tend to be at the lower level.

In which geographical region do you anticipate the biggest rise in disputes over the next few years and why?

I suspect the biggest rise may be in developing markets such as Africa, where we are seeing increased activity and visibility of the oil and gas industry which is often seen as being a real cash cow. Whenever you get regime change in developing markets, there is often a tendency for new governments to question contractual agreements put in place by their predecessors. Many such jurisdictions also operate under state-owned oil and gas companies with what I’d call mandated joint ventures, which are also a potential dispute risk.

What are the most effective methods of managing disputes with contractors?

It’s always been the case that good communication is typically the best solution in managing differences between parties. When these cannot be reconciled, a quick and efficient arbitration can be the best mechanism to avoid issues becoming adversarial. Putting a robust dispute resolution mechanism within the contract and being prepared to follow this through if required is also important.

How do you address potential disputes with states and regulators?

It’s important to ensure there is an effective international arbitration mechanism put in your contract, especially within jurisdictions outside of OECD nations, to avoid being subjected to the local courts in the event of a legal dispute arising. When dealing with state-owned operators this can be a challenge as governments are not always prepared to accept that their own legal system may not be the most suitable in dealing with a potential contractual dispute. You would also hope to secure the protection afforded by multi-lateral investment treaties to smooth over any issues.

How are in-house legal teams addressing dispute risks in today’s climate? Has the approach changed from the last decade?

The one thing the industry has learned over recent decades is that you do not want to end up in court over a dispute. As an industry we have got much better at proactively addressing this risk by entering into early dialogue to avert the potential of disputes escalating.

What involvement do you typically seek from external counsel and in what circumstances would you look to bring them in?

While we understand our business and the legal regime in which we operate, we don’t have the in-house skills required in the event of a dispute that can’t be resolved amicably escalating to a court battle or arbitration. We would therefore rely on the expertise of dispute resolution specialists which is often invaluable in supporting us through this process.