Challenges in a US$80 world

United Kingdom

Following OPEC’s publication of its World Oil Outlook on 6 November 2014, and recent falls in oil prices to around US$80 a barrel, it is apparent that there will be a number of legal pressure points in the next 12 months. This is reinforced by the reported pressures on independent producers in a number of jurisdictions, including on the UKCS. These pressures will increase further if, as JP Morgan have recently suggested, prices fall further, to as low as US$65 in January 2015.

It is important for industry participants and other stakeholders to have legal strategies in place to deal with marketplace changes.

CMS is advising in a number of high profile distressed situations and disputes triggered by falling oil prices and instability in the market. As highlighted in the Financial Times (p11, “How low can it go?”) on 8 November, the UK, Angola and Brazil are particularly vulnerable to price movements and CMS is advising in all of these locations, including from Brazil where the office recently celebrated its fifth anniversary.

CMS is currently advising:

  • OSX Brasil’s asset-owning subsidiaries on the restructuring of c.US$2bn financial indebtedness;
  • On JOA/PSC defaults and disputes caused by changes in projected returns;
  • Operators and Participants in fields that are becoming uneconomic;
  • Participants where their co-Participants cannot raise development and operational funding;
  • Decommissioning cost issues;
  • FPSO owners where their charterer cannot afford the day rate due to the falling oil price;
  • Creditors affected by O/W Bunker’s insolvency, which in part appears to have been caused by failures in addressing oil hedging risk;
  • Insolvent Participants and Operators;
  • Grantors of guarantees for legacy projects.

Please click here for CMS’ thoughts on the ten things you can do today to protect your position.

We will be hosting a seminar in early 2015 to explore these issues in more detail. We will be sending out invitations shortly but if you wish to pre-register your interest in attending, please contact Sue Hall (sue.hall@cms-cmck.com).

CMS is the leading firm in the Oil & Gas sector and has highly regarded Energy Disputes and Restructuring and Insolvency practices. Please click here to see the jurisdictions where we have advised on projects and transactions in the sector.