Oil & Gas Q&A with Nick Davis & Bree Taylor – Memery Crystal LLP

In this Q&A Nick Davis and Bree Taylor of Memery Crystall LLP, analyse the current trends, challenges and opportunities facing the Oil & Gas sector.
 
Nick Davis is a Corporate Partner and heads the firm’s Natural Resources Team and recently acted for Gulf Keystone Petroleum Limited on its move from AIM to the Main Market. Bree Taylor is Head of Dispute Resolution and recently acted for Mediterranean Oil & Gas Plc on its successful defence of a fraud claim brought by Leni Gas & Oil Plc.
 
Memery Crystal LLP is an independent law firm of trusted, commercially aware advisers with a reputation for providing high quality, value adding advice to businesses and individuals.
 
Summarise the current trends or recent regulatory changes in your jurisdiction.
 
Bree Taylor (‘BT’):  One of the biggest trends in the O&G sector in the UK is the development of the shale gas supply chain, which has been estimated to be worth £33 billion to the UK economy and 64,000 jobs.  The opportunity presented by onshore shale gas resources ticks all the boxes for the Government in terms of “sustainable development” (a concept used in Government policy) and providing what the main regulatory body (DECC) see as a safe, secure and future-proof supply of energy for the UK.   Newly announced Government initiatives include: a) funding for new exploration/production technology; b) improved infrastructure; and c) new guidance on environmental risk assessment at an early stage.
 
Can you outline the attractions and challenges of investing in your jurisdiction?
 
Nick Davis (‘ND’):  Stringent environmental regulations continue to present a challenge to developing onshore and offshore projects in the UK, as do rising costs and low capital efficiency and productivity, particularly in the North Sea.  However, there have been a number of notable Government initiatives to attract investment.  Onshore explorers are incentivised by a reduced tax rate on early profits (30% from 62%) and an allowance on taxable profits for 75% of capital spend. These incentives are particularly designed to encourage early investment in the exploration for shale gas in the UK.  Tax breaks have also been announced recently to help unlock up to £6bn of investment in offshore oil wells.
 
Given the fast pace of change and an increased sensitivity to litigation risk, is there a greater emphasis on due diligence?
 
BT:  Buyers of assets in the oil and gas sector are very wary of pending and/or ongoing legal disputes and the due diligence into these is becoming increasingly thorough.  This might flow from an increased sensitivity to litigation risk from a political/PR point of view or it might flow from concerns over legal costs (including the potential for substantial adverse costs orders) in the English Courts. 
 
What regulations and procedures need to be put into place to ensure that 2013 is less of a PR disaster for the oil & natural gas industry?
 
BT:  It is difficult to think of any case example where increased regulation has assisted in industry PR for anything more than the very short term.  Those operating in the industry will have seen time and time again how it is often the loudest protest (albeit not the most well informed one) that gets all the media attention.  A number of industry leaders have recognised the need for increased transparency and dialogue with stakeholders.  And operators do not need the government to lead on regulation in order to develop best standards and practices, as per, for example, the UK industry’s best practices guide to shale well operations published in February 2013 with input from regulatory bodies.
 
Oil theft costs Nigeria lost revenue of $6 billion a year and it is estimated that oil theft exceeds 180,000 barrels of oil per day. This is just one highlighted case of a serious issue throughout the oil industry. To what extent can an organisation better protect their assets?
 
ND:  Organisations can better protect their assets by partnering up and developing close corporate social responsibility policies with the local community.  By including the community in social projects – and indeed by employing residents in security and other business roles – the community will be much less incentivised to steal given that they benefit from the revenue.
 
What countries currently offer the best opportunities for foreign investment?
 
ND:  We are seeing a significant amount of exploration and development money being spent in Africa and the Middle East.  In particular, we are assisting companies in Kurdistan and Nigeria which seem to provide a relatively safe and secure legal system and a defined underexplored hydrocarbon environment.
 
Nick Davis is a Corporate Partner at London-based Memery Crystal LLP and heads the firm’s Natural Resources Team.  He specialises in corporate transactions, including flotations on AIM and the Official List, as well as acquisitions and disposals of public and private companies.  He recently acted for Gulf Keystone Petroleum Limited on its move from AIM to the Main Market.
 
Nick can be contacted by phone on +44 (0)20 7400 3215 or alternatively via email at ndavis@memerycrystal.com
 
Bree Taylor is Head of Dispute Resolution at London-based Memery Crystal LLP.  She is a specialist in company and shareholder disputes, fraud and misfeasance claims.  She has acted for claimants in worldwide asset tracing actions and has also defended both companies and individuals in misrepresentation cases.  She recently acted for Mediterranean Oil & Gas Plc on its successful defence of a fraud claim brought by Leni Gas & Oil Plc.
 
Bree can be contacted by phone on +44 (0)20 7400 5834 or alternatively via email at btaylor@memerycrystal.com