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Oil & Gas: an industry in transition

02 March 2018 | Global
Legal Briefings

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As we move into 2018, there is renewed optimism in the sector. Steady oil prices led to a 50% increase in M&A activity in 2017 compared to 2016 and supported new money deals and refinancings.  The oil and gas industry continues to reshape itself for the next generation with new deal structures, operating models and sources of finance. Companies face new challenges – climate change litigation, cyber security risks and decommissioning disputes. Familiar challenges remain - renegotiation with governments, and joint venture disputes prompted by contrasting balance sheets and risk appetites. There are new opportunities in cleaner energy and in harnessing the benefits of standardisation and digitalisation.

In this series of insights our Energy experts explore the opportunities and legal challenges facing the Oil & Gas industry.

We are proud sponsors of International Petroleum Week and hope to discuss these trends with you at the event and throughout 2018.

We will continue to upload articles which discuss current trends, such as the impact of technology on the sector.

Oil & Gas: an industry in transition

Women in Energy

Following the Women in Energy session at International Petroleum Week, in this article, Nina Bowyer and Rachel Lidgate, partners at Herbert Smith Freehills, reflect on their experiences working in the energy sector and share their views on how greater gender equality can be achieved..

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Cyber security: An increasing concern for oil and gas companies

Cyber security remains in the public eye this year with multiple incidents and vulnerabilities reported. Energy companies are developing and updating their cyber security response plans to reflect the increased legal, operational and technical risks they are facing.

The evolution of the threat has not escaped the attention of governments around the world. 2018 will see the implementation of the Network and Information Security Directive (NISD) as well as the General Data Protection Regulation (GDPR) in the EU. The NISD, which is coming into force in May, will require energy companies to ensure that their network and information systems meet minimum standards of cyber security. In the UK, the National Cyber Security Centre (NCSC) has recently issued detailed guidance on the compliance requirements of NISD.

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New Australian Guideline on Offshore Decommissioning

On 17 January 2018, the Department of Industry, Innovation and Science (Department) released its guideline on the application of the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGSA) to the decommissioning of offshore petroleum infrastructure in Commonwealth waters (Guideline).

In light of the increasing number of major offshore projects entering into or nearing the decommissioning stage, the Guideline provides a timely confirmation of the Department’s view on the current regulatory framework.

The release of this Guideline is an intermediate step ahead of the Department’s discussion paper that will review the policy and regulatory framework for decommissioning in Commonwealth waters expected later this year (2018 Review).

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Disruption in the pipeline: Legal challenges in a digitised oil and gas sector

The oil and gas sector faces a new wave of challenges and opportunities as a result of technological innovation and disruption. Over the coming decades, ever-hastening advances in technology – from machine learning to robotic automation – will have a profound impact on the way that oil and gas reserves are located, extracted, distributed and consumed.

To survive and thrive, oil and gas companies will need to adopt radically new strategies to integrate these new technologies across the value chain whilst continuing to navigate complex regulatory environments, geopolitical risk, disputes and market disruption.

This article considers key legal issues which both incumbent participants and new market entrants will need to navigate effectively in order to succeed in a digitised oil and gas market, be they investors, operators or off-takers.

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London-listed oil and gas: A view for 2018

Having seen significant growth in oil and gas private M&A in 2017, we may see an increase this year in public M&A in the sector in London. In this article, we review public market activity in 2017 and preview corporate governance reforms in 2018.

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Upstream Oil & Gas M&A: Co-operation for innovation

In 2017 we saw a continuation of the upturn in upstream M&A which began in late 2016. The oil & gas industry has been through a sustained period of focus on cost cutting but, as the oil price stabilises, many players are now seeing an opportunity to refocus on growth. In this atmosphere of cautious optimism, they are seeking to rationalise their portfolios in preparation for the coming years – balancing field life, development profile and geopolitical exposure. We think these factors will support the continued upward trend in upstream M&A in 2018.

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Oil & gas disputes: Old infrastructure, new challenges

Through 2017 and, looking ahead to 2018, we have seen a number of trends arising in oil and gas disputes. As infrastructure ages in mature basins such as the North Sea, disputes have arisen in relation to force majeure provisions, maintenance and third party access, and disputes relating to decommissioning are likely to increase. New challenges for energy majors are emerging in the form of class actions, including in relation to climate change in the US courts. An increasing number of group actions are also being brought in the English courts for environmental damage abroad. Meanwhile, the recent trends of LNG and natural gas price review disputes and disputes relating to the low oil price continue but the incidence of drilling rig disputes, particularly post-Transocean Drilling UK Ltd v Providence Resources Plc [2016] EWCA Civ 372, appears to be subsiding.

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North Sea upstream restructurings: lessons from lower for longer

Brent crude’s 18-month slide from above $110bbl to a January 2016 low of under $30bbl led to a number of high-profile North Sea upstream restructurings. This article considers what we can learn from recent cases and how they can inform the approach of companies, lenders, bondholders and restructuring professionals in future cases in the sector.

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Upstream Finance: Stability Shifts the Balance

A period of relatively stable and gradually increasing oil prices in late 2016 and 2017 has led to a significant increase in the number, type and volume of financings in the upstream sector. Several significant acquisitions were signed, backed by underwritten bank finance; new borrowers raised debt for the first time; upstream development financings came to the market; and refinancings, postponed while the oil price was low, could be carried out successfully. 2018 looks likely to hold more of the same. Several years of oil price turmoil have stretched balance sheets to breaking point, but have also driven opportunistic investment and innovation, giving the upstream market variety, albeit coupled with significant complexity, in terms of its potential sources of finance.

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The Tax Context

The last few years of high profile public, media and political attention to international taxation have led to a wholesale revision of the principles which underpin taxation globally, and increasingly also at domestic level. The debate has focussed on the taxation of multinationals, with some emphasis on technology and retail groups (e.g.: Google, Amazon, Apple and Starbucks). But the same considerations are relevant for the extractive industries, and in particular for the oil and gas industry.

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