Oil & Gas

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By John Balsdon and Matthew Brown

By Way of Background

Gas to power (G2P) projects provide an effective solution to power shortages around the globe. As the global demand for power continues to rise, outstripping supply in many nations across the world, existing power generation facilities cannot meet the needs of fast-growing economies and available domestic fuel sources are in many of those economies declining.  G2P has the potential to deliver cleaner, more accessible energy to power the engine of global growth, and the next generation of G2P projects will likely underpin a new era in energy production.

G2P projects span the full energy value chain — covering gas production, treatment, transport and power generation. More than 50 G2P projects have been announced across the globe, and countries continue to announce new innovative programmes. Ghana and Chile are among the countries that have recently implemented G2P projects. And the Philippines, Indonesia, and Vietnam are among those likely to turn to G2P to satisfy their future energy needs.

By Jörn Kassow and Patrick Braasch

At the G20 Summit in Hangzhou, China, in September 2016, the G20 leaders reaffirmed their commitment to rationalise and phase-out inefficient fossil fuel subsidies that encourage wasteful consumption over the medium term, while recognising the need to support the poor. This is not exactly new – similar commitments have been included in past summit communiques. Expectations are growing, however, that a time limit for ending fossil fuel subsidies will be agreed at the 2017 Summit in Hamburg, Germany.

By Simon Tysoe

For many years, US and UK M&A practices have differed in their use of material adverse change clauses (MACs) in sale and purchase documents. Common, even ubiquitous in the US, these clauses, which permit a buyer to refuse to close upon the occurrence of events detrimental to the target, remain a rarity in SPAs on this side of the Atlantic. However, oil and gas transactions, especially those involving upstream assets, prove an exception to this rule.

MnAViewsMAC imageAug2016The differences between US and UK practices are most apparent in private deals. MACs remain rare in UK practice but are more common in oil and gas deals, with around a third of private upstream deals having a MAC. Even within oil and gas practice, however, US sale and purchase arrangements are much more likely to contain MACs than UK documents. The drafting tends to be different too. US MACs are often general in nature, covering events with an adverse financial or operational impact. This broad introduction is typically subject to a number of carve-outs, such as general economic conditions and market conditions, and general economic, regulatory, or political conditions or changes.

By Paul Davies and Simon Tysoe

Sustained investment in offshore platforms and production installations has been critical in securing the UK’s energy supply. Despite ongoing oil price volatility, in 2016 and 2017 £3-4 billion of capital per year is envisioned for new developments in the UK continental shelf (“UKCS”). Such developments are expected to sustain production for decades, not only to meet rising energy demand, but to maximise significant project investment. Falling industry costs and improvements in efficiency have led to a decline in the operating costs of oil and gas installations – the Oil & Gas UK’s Economic Report 2015 anticipates expenditure on existing assets to drop to £2.1 billion by the end of 2016, representing a 22% decrease from the previous year.

Yet, notwithstanding cost optimisation, as oil and gas fields near depletion and therefore become unproductive, installations need to be retired or recycled. Removal requires substantial investment – expenditures of £2 billion are forecast by 2018, up from £1 billion in 2014 – to undertake the decommissioning of approximately 50 fields by 2018. More significantly, current mid-point estimates for UKCS decommissioning to 2050 is £47 billion, with a substantial portion of this being funded through tax-relief. Consequently, on 30 June 2016, the Oil and Gas Authority (OGA) published the UK’s Oil and Gas Decommissioning Strategy. The OGA, tasked with maximising economic recovery of the oil and gas lifecycle, will also issue accompanying delivery programmes to detail how decommissioning will be achieved.

By Simon Tysoe

Prior to the recent collapse in oil values, prices existed at over $100 a barrel for over three years. It made the economics of oil exploration, production and sale comparatively straightforward, but embedded costs into the industry.

More recently, a dip in demand and Saudi Arabia’s decision to maintain its production levels saw prices plunge to below $40, making it uneconomical for many oil producers to continue exploration and production. All sub-sectors of the industry have raced to reduce cost and right-size their businesses. New terminologies such as ‘Fit for 50’ circulated as oil majors adjusted themselves to the new reality.

By Jonathan Hew

A recent High Court judgment has highlighted the importance of carefully drafting arbitration agreements and the difficulties of challenging arbitral awards on public policy grounds. In National Iranian Oil Company v Crescent Petroleum Company International Ltd & Anor [2016] EWHC 510 (Comm), Mr Justice Burton commented on the following aspects of arbitration law and public policy: