Stewart Perry talks to Diane Hughes about the rise of
arbitration and insolvencies in the oil & gas sector and the
risks of international trade.
Downsizing, M&A and international disputes: A forensic
accountant's view of the oil & gas market
STEWART: I know you've a large team of
advisers focussed on the oil & gas sector at the moment. What
are they mostly engaged on?
DIANE: My colleagues are engaged in a wide
range of activities in this sector. Whilst the oil price hit a
seven month high this month, there is little optimism for the rest
of 2016 and, therefore, much continued uncertainty across the value
chain. Company side, we are advising on cost structure
improvements, whether through operating and overhead cost reduction
or procurement and outsourcing strategies. We are also seeing
transaction activity, in particular selling out of non-core
Another busy area is disputes. It is hard to discern trends, but
certainly parties appear in general to be seeking to avoid
obligations, resulting in claims through both litigation and
STEWART: We're busy in those areas too,
especially the disputes work. Have you noticed a significant
increase in requests for forensic accountants from clients in the
DIANE: We are seeing a rise in companies
prepared to contemplate litigation with an early focus on the
potential economic benefits. These potential disputes are varied in
origin but definitely have been driven by the fact that the sector
is stressed. One noticeable feature in the oil & gas sector is
that the quantum of damages tends to be a big number.
Recently, we've been engaged in several investment treaty
arbitrations. These have been related to situations in countries in
Eastern Europe, Asia and Africa. I'm sure that you are fully
aware that businesses in the oil & gas sector are based in, or
trade through and with, countries with unstable regimes. Where you
have contracts being awarded by governments in these regimes, those
contracts are more prone to getting cancelled, simply not honoured
or unilaterally re-negotiated, particularly if the government
suddenly changes. Big sums of money are involved, often because of
the large up-front investment required prior to generating returns
and these investors end up as claimants.
I think the uptick in arbitration is largely because so many
transactions in the oil & gas market are based on cross-border
contracts. This is increasingly so because of saturation in
national markets. The USA is a good example of this; refineries
which traditionally might have just sold in-country, have been
forced to start trading internationally by virtue of the increase
in alternative fuels and the fracking boom in the USA. The
refineries may not have deep experience in international trade. If
contracts with new non-local partners are not properly honoured, in
performance or payment terms, then for the first time, they've
got international issues.
STEWART: In your experience, are the people
that are investing in these foreign countries, and the people
having to go internationally for the first time, all looking at
contracts with arbitration provisions?
DIANE: I believe so, yes. Lately, the disputes
in which AlixPartners has been engaged in have been arbitrated. My
partners are currently, or have been most recently, involved in
arbitrations in London, Paris, Switzerland and Singapore.
ESMA published a revised set of Q&As on EMIR on 11 February, the eve of the EMIR transaction reporting go-live date. They include updates and new guidance in several areas, including transaction reporting.
In June 2014 the UK Government released its ‘finalised policy positions for implementation of the electricity market reform’ programme, which it frames as the ‘biggest reform to the electricity sector since its privatisation’.
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