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.