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Geography: Complex environments deliver financial rewards but higher risks

Risk profile, technical and regulatory complexity and financial constraint naturally all heighten the potential for disputes. The CMS Oil and Gas Disputes Survey suggests that two types of geographic locations bring with them an increased risk of disputes.

First, mature basins where: (i) exploration and production (E&P) is more technically challenging; (ii) projects are financially marginal compared to less mature ‘mega fields’ with a long remaining life; and (iii) there is a proliferation of medium sized oil companies with fewer relationships to maintain elsewhere. These mature basins are reported as having a greater capacity to raise contentious clashes.

United Kingdom has the highest chance of energy disputes arising

There are likely many contributing factors. The United Kingdom Continental Shelf (UKCS) is one of the three geographic locations that represents the highest chance of a dispute arising, according to The CMS Oil and Gas Disputes Survey participants. A high proportion of respondents have operations in the UKCS region and our data indicates that a significant number of these see it as high risk.

As the market has matured and with hydrocarbon reserves diminishing in more mature fields, operators have been forced into deeper waters where E&P is more technically complex and expensive. If workscopes require to be adapted because projects do not unfold as anticipated on the ground, cost overruns can quickly become a real concern and the chance of a dispute heightens, both with contractors trying to work to tight budgets and co-venturers required to fund what may be cutting edge or marginal projects.

The profile of asset ownership in the UKCS has also changed over time. The UKCS region is now inhabited, in part, by smaller and medium sized independent players looking to develop and maximise recovery from smaller or mature interests. These oil companies are often are financed and structured in a way that is very different from the super-majors that traditionally dominated the UKCS.

Latin America - elevated danger of arising oil and gas disputes

Latin America contains another mature basin that respondents to The CMS Oil and Gas Disputes Survey identified as having an elevated danger of arising disputes. For example, offshore Brazil is a demanding region for oil and gas players given the maturity of elements of the basin and with E&P gradually moving into deeper waters. With a need for large offshore platforms, and other offshore assets such as floating production storage and offloading (FPSO) vessels, and floating storage regasification unit (FSRU) vessels, the industry faces considerably greater expense in undertaking projects than onshore basins such as the Middle East, where E&P can be significantly simpler and cheaper.

Africa - raised risk profile for oil and gas activities

Africa is a geographic location also identified as generally having a raised risk profile and it seems likely that is for very different reasons. Our data indicates that, amongst those who operate in the region, it is considered an even higher risk than UKCS and Latin America. Factors that are likely to drive that concern are numerous: in parts of sub-Saharan Africa, there is an evolving regulatory landscape as oil and gas E&P activity is relatively new compared with other regions of the globe (or other parts of Africa). That means that the technical understanding of the conditions in which E&P activity is undertaken is not as complete as it is in more mature basins, so that there are not always ‘tried and tested’ answers to fall back on. Economic nationalism, populism and local content laws are also a feature in parts of the continent, though of course these do not apply to every jurisdiction and it would be wrong to suggest that the risk is constant across all areas.

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Phillip Ashley
Phillip Ashley

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