In our briefing “Fluctuating Oil Prices: Contractual Pressure Points and Lessons Learnt” published in January 2016, we examined how low oil prices could cause difficulties as companies scaled back on exploration or sought to back out of their commitments under Joint Operating Agreements (“JOAs”) and what issues needed to be considered in view of defaults by joint venture (“JV”) members.
Price volatility has been a constant headline, but now for the opposite reason, namely the relatively high price of oil. With the change in tide, parties may have to consider what this situation means for existing or new contractual arrangements. This briefing will address some solutions to common JOA, JV and production sharing contract (“PSC”) issues, together with an update on our view of construction disputes.
Following the prolonged period of low-priced oil, market commentators spoke of the “new normal”, i.e. a market where low prices would remain a perennial constant.
Pundits referred to the shale oil revolution as providing an effective “glass ceiling” on oil prices, precluding a return to the heady days where Brent remained priced above US$100bbls.
Since our 2016 briefing, many of our predictions have turned out to be true. Numerous projects stalled and development plans were moth-balled or cancelled. The FPSO market stagnated and the outlook was bleak. During this period, Watson Farley & Williams (“WFW”) was engaged in disputes/arbitrations relating to a variety of matters, including: (1) FPSO conversion delays; (2) oil field valuations; (3) cancelled FPSO charters; (4) cancelled FPSO conversions; (5) oil rig construction defaults/cancellations; and (6) PSC commitment disputes.