Total Investments Exceeding $50B
Our lawyers have structured, negotiated, drafted and advised on the implementation and amendment of investment contracts, associated agreements, processes and documentation, including:
Production Sharing Contracts
Production sharing contracts in the CIS and West Africa, both for oil majors, consortia and independents. This gives us a deep understanding of the commercial, technical and legal requirements of investors, sovereign states and national oil companies, of the many risks to mitigate and the pitfalls to avoid. As with all agreements we deal with, we firmly believe it is crucial for lawyers never to lose sight of the fundamental purpose of a particular contract. For the investors in a production sharing contract, this is to get the hydrocarbons out of the ground, safely, and to sell them for the highest profit possible. We find that, particularly with complex agreements, it is easy for those involved to lose sight of the wood for the trees.
Mutual Assurances Agreements
Mutual guarantees for the performance of subsidiaries' and governmental authorities' obligations amongst investors and sovereign states. Although rarely invoked, mutual assurances agreements offer additional comfort to the investor that the investment agreement works and is enforceable, as drafted. For the sovereign state, mutual assurances agreements are essential as parent company guarantees, where the investment agreement is executed with a special purpose vehicle or other subsidiary of the investor.
Oil Field Acquisition Agreements
Farm-ins, asset sales and sales of shares in licence holders, including both memoranda of understanding and the principal agreements in relation to such acquisitions.
Governmental and Regulatory Approvals
Regulatory approvals and licences. These can have a significant impact on the schedule (and therefore the cost) of a project and, if not fit for purpose, can lead to fines and penalties for their breach. We have worked extensively on ensuring that approvals and licences are issued on time and to a project schedule agreed with the sovereign state.
Risk Minimisation Processes
Internal operator processes for reducing legal exposure. Where approvals (regulatory or contractual) are not issued on time, investors can be faced with the difficult choice of either shutting down operations or continuing to operate without having all necessary approvals in place. We have worked closely with clients to find ways to minimise the risks of claims being brought in the event approvals and licences are not issued on schedule, while also minimising costly impacts on operations and production.
Field Development Plans
Multiple field development plans, both for giant and mid-size oil and gas fields. Although field development plans are drafted by engineers, they represent an area of risk that requires legal review in order to minimise exposure. Principally, we have worked on ensuring that a development plan does not contractually tie the investors to costs, schedules, investments, production levels and processes before these have been finalised.
Numerous investment approvals, both by consortium members and by state authorities, including all steps up to FID and further approvals post-FID.
Both internal operator and external NOC-operator tender procedures. Tender procedures can have a significant impact on the cost, schedule and therefore value of a project. In particular, unrealistic approval processes and approval levels can lead to knock-on delays to the completion of a project, leading to delayed or lost revenues, potentially resulting in the loss of recoverable reserves. A balance is needed between a state's legitimate desire to exercise some degree of control over expenditures that will affect its profit share, and an operator's requirement to be able to move forward with development and operations. As compliance with tender procedures can have a direct impact on the recoverability of costs, it is vital that they contain processes that can realistically be followed. Otherwise, an operator may be faced with the unpalatable choice of either incurring expenditures without all approvals in place - and therefore at some risk to recovery - or delaying expenditures with negative impacts on costs, schedule and production.
Local Content Agreements
Agreements with state authorities and consortia of local sub-contractors for the fostering of local content in the provision of goods and services. While all countries wish to foster their local industries, for developing economies this is especially important. From an investor's point of view, particularly as it assumes much of the risk and potential liability for development and operations, it usually seems easier and safer to use tried and tested suppliers of goods and services that have been used elsewhere in the world. This needs to be balanced against considerations of potential long-term cost savings that can come from fostering local suppliers, and the improvement of relations with the state, which in itself can entail a reduction of risk for the investor.
Data Exchange Agreements
Agreements between different field operators in the same geographical area for the exchange of technical know-how and experience. Care has to be taken not to infringe anti-monopoly regulations and ensure that all confidentiality provisions applicable to the operators are complied with. The benefits of time saved in learning from specific experiences can prove invaluable.
Work Programs and Budgets
Over twenty work programs and budgets ranging in value from US$50M to US$1.8B. Although work programs and budgets are drafted by operators' finance departments, with input from the various user departments, they represent an area of risk that requires legal review in order to minimise exposure. Principally, we have worked on ensuring that a work program and budget does not unnecessarily create actionable obligations for the operator and investors regarding costs, schedules, investments and production levels. We have also extensively advised on the investors' and state's obligations regarding the approval and implementation of work programs and budgets.
Audits of Cost Recovery Accounting
Over 15 cost recovery audits ranging in value from US$19M to US$450M. These typically involve investigating the claims made by the NOC's auditors, defending the operator against such claims in detailed rebuttals of each audit exception, and negotiations with the NOC to resolve the audits. This is often a fact-intensive exercise and may include delving into justifications for expenditures exceeding a budget, justifications for amendments and variations of contracts, and invoice matching exercises to determine which budget and contract amendment a contested expenditure relates to. In this process we work in close co-operation with accountants, technical advisors and operator finance and user departments.
Our experience shows that good record keeping, especially of backup documentation and by way of a process of contemporaneous notes of justifications for operator decisions can prove invaluable during the defence against an audit.
Protection of Cost Recovery
Advice on reducing the risk of audit exceptions. Apart from ensuring that good record keeping is part of the everyday business process, much can be gained from anticipating areas that are susceptible to potential audit exceptions and addressing these either through internal processes, through agreeing in advance with the state authority how such areas are to be addressed, or through preparing in advance for an eventual challenge. We have advised extensively on legal compliance with accounting procedures. Particular care has to be taken when more than one procedure applies to an operation (for instance where separate procedures are contained in a production sharing contract and a joint operating contract).
Cost Control Mechanisms
Procedures for the NOC to exert more control over operator expenditures. With sovereign states increasingly concerned about the impact of costs, systems to give comfort to the state that costs are better understood prior to FID, with less risk of escalation post-FID, are gaining traction. This may involve a reduction in cost adjustment flexibility for the investors, however, if properly managed, such flexibility can be compensated to a large degree if the operator is given greater flexibility in the implementation phase, in terms of freedom to move budget items between years, line items and sub-contractors. Careful attention has to be paid to describing the circumstances under which cost increases are permitted, the timing of FID and the operational freedom afforded to the operator.
Environmental compliance, including gas flaring, wastewater, resettlement of inhabitants outside a sanitary protection zone, environmental inspections and audits, issuance and withdrawal of environmental emissions permits, the application of environmental damages, fees and fines, the retroactive application of legislation, the methodology for the measurement of emissions, and the stability of environmental payments.
Compliance with specific contractual and stabilised tax regimes, and defending such compliance against claims made by tax authorities. We do not, however provide regulatory tax advice.
Compliance with specific contractual and stabilised customs regimes, and defending such compliance against claims made by customs authorities. As with tax compliance, we do not provide regulatory customs advice.
Investor Management Committee Processes
Facilitating agreements amongst foreign investors and between foreign investors and sovereign states in various management committees, affecting all aspects of the development and operation of oil and gas fields. Such committees are core to keeping a development and operation on track and are often the first forum where disputes can be headed-off and resolved before becoming legally formalised. We have helped find and craft numerous compromise agreements that keep a project moving forward, while also ensuring that those same agreements minimise risks of future claims.
Lessons Learnt Reviews
Managing lessons learnt exercises in relation to major projects and ensuring that the collection and implementation of lessons learnt are structured so as to maintain legal privilege. Lessons learnt reviews provide an invaluable tool for reducing future risk for investors generally, and for ongoing projects. If carried out properly, they also represent a means of preserving and passing on knowledge in an industry where the rotation of personnel through regions forms part of the corporate career structure. Such reviews can represent a two-edged sword, as they risk being used by a state to bring a claim against investors, where potential improvements that are identified in the operator's processes could be portrayed as failures to meet the relevant contractual standards of care. Therefore maintaining confidentiality and legal privilege is crucial.
Social and Infrastructure Projects
Numerous agreements for social and infrastructure investments, including schools, theatres, roads, water supply lines and power generation and supply to a local area, amounting in aggregate to over US$500M.
Fair Billing Policy
During the first six months of 2018 we carried out a survey of senior lawyers and general counsels in the oil industry and other industries. As none of these were clients, they were able to be frank.
The level of annoyance with services provided by the law firms was shocking. Most of the grievances boiled down to billing practices - in particular being billed for time that it was felt was unfair to bill for - such as internal law firm briefings, the client educating the firm and the client improving contracts drafted by the firm.
To address these concerns we have implemented a 7-point fair billing policy, under which we do not bill for time spent on these activities. This has been very well received and makes for a much better relationship.