Oil industry legal disputes on the rise amid 'energy trilemma'

Legal experts have highlighted an “energy trilemma” as a key factor increasing the risk of disputes within the oil and gas industry.

A new report by law firm CMS examines how the impact of increasing social and regulatory pressure for the oil industry to drive sustainability, combined with emerging energy security and affordability issues, primarily prompted by the war in Ukraine, are increasing the potential for legal disputes.

The survey found that the energy trilemma was at the heart of many existing disputes with strong potential for it to create further issues for operators going forward.

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CMS’ study is based on the views of more than 50 senior legal managers and in-house counsel covering all regions of the global oil and gas industry.

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In terms of specific activities increasing the risk of disputes across the industry, the survey identified joint ventures as the biggest global threat, with the risk especially acute in Europe, the Middle East and Africa (EMEA), where it was ranked as the leading dispute-triggering threat.

Joint ventures were ranked as the second-place risk within the UK Continental Shelf (UKCS) area, where respondents pointed to supply chain issues as being the biggest threat to the industry.

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Climate change and net zero court actions instigated by shareholders, investors or activists were once again seen as a core dispute risk area, particularly within the UKCS region where half the survey respondents saw this as a potential threat.

Projects, dealings with host states and regulators, as well as oil and oil product sales were also identified as key areas of risk for potential legal actions across the industry in the latest survey.

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Valerie Allan is an Aberdeen-based partner and energy disputes and regulatory specialist at CMS.

Valerie Allan, an Aberdeen-based partner and energy disputes and regulatory specialist at CMS, said: “Our survey has shown that once again joint ventures, supply chain issues and projects remain key areas of risk for possible legal actions across the industry. The increasing focus on net zero is also a significant factor as we continue to see rising numbers of climate change-related disputes in many parts of the globe, and especially within regions like the UKCS.

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“Oil and gas industry legal teams will undoubtedly be looking to further develop a proactive approach in managing these risks and a deeper understanding of how they specifically relate to differing global markets,” she added. “Effective engagement with governments and regulators is also identified as essential in understanding their perspective on the energy trilemma and ensuring that companies’ actions will be acceptable under the regulatory regime.”

Phillip Ashley, a London-based partner on CMS’s energy team, said: “The global oil and gas industry currently finds itself at the centre of an energy trilemma as it seeks to transition towards sustainability whilst ensuring security and affordability of supply remain intact.

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“Getting to grips with these three challenges simultaneously is extremely difficult, especially at a time when the cheap and, until recently, widely-used source of Russian gas is being phased out across Europe. As highlighted by the respondents of this year’s survey, this perfect storm is increasingly serving as a central driver for risk across the industry.”

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