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Oil Industry Legal Disputes Surge as Margins are Squeezed

Date: 3 Aug 2010

The changing face of business relationships in the North Sea oil and gas industry is leading to an increasing number of legal disputes as margins are squeezed. Sums of money which might have been deemed almost insignificant by the oil majors may now be vital for the new players. Such is the rise in demand in the sector for experts in commercial dispute resolution that Tom Beezer, a partner in the national law firm Bond Pearce, has moved north of the border to work out of their Aberdeen office on such cases.

'The nature of the disputes has changed,' he said. 'Years ago all the majors were in bed together in many different scenarios and yes, they had disputes, but they resolved them at some commercial level because they were involved with each other in so many circumstances elsewhere. With new entrants coming into the North Sea you can have smaller operators who don't necessarily have the same interconnected relationships and they are quicker to take action to protect their interests.

'Because they are smaller, the loss of £2 million could be a show stopper for some companies. The changing face of ownership interests in the North Sea means disputes are more hard fought rather than settled at a commercial level before they ever see the light of day. Lawyers are now more likely to be pulled in far earlier as the disputes are escalated when in the past they may have traded off against each other.

'But it is not all about money, it is about relationships. Many of the old relationships have been broken up and there is diversity not just in the size of companies but also in the way they now operate. There is a different breed of operator and co-venturer in the North Sea now. They are more aggressive by necessity. They are squeezing value. If you are arguing over £2 million it may be a significant outlay for a smaller player - but for a major it may not be material. Even projects which are costing hundreds of millions are now much more marginal and are being squeezed by potential disputes.

'Fields are getting smaller and the companies are getting smaller but the costs are continuing to rise which is squeezing the rate of return and leading to more aggressive action when any disputes do arise. Whereas before companies may have avoided legal action, they now look upon the cost as an investment.'

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