The oil and gas sector has long been one of the most technically ingenious industries.
Having to adapt to the challenges of the global environment, changing regulation, political agendas and ever-changing oil prices, means it needs strong resilience and a future-looking perspective.
More and more companies are looking to diversity their offering; collaborating on energy projects in order to streamline efficiencies to help tackle climate change, and developing AI is the everyday norm for the sector. Think of the autonomous robots that will be working on offshore oil and gas platforms in the next phase of a groundbreaking project, which will reduce the risks employees are subjected to on platforms.
And innovation isn’t limited to just upstream. The in-house legal function in the sector has changed dramatically over recent years. No more are the days where the legal department was seen as an unnecessary spend. Now legal departments are part of the integral makeup of the business. We see General Counsel sitting in the upper echelons, with many big energy companies having general counsel on their boards and executive teams. They understand that the legal team doesn’t just step in when there is trouble, and all decision making with a legal perspective can help anticipate potential issues down the line.
However, in-house legal teams have tightened in recent years. When oil and gas prices were at their lowest level a few years ago, this led to cutbacks and legal departments suffered. This constraint has had long-lasting effects.
During a period when legal teams were being tightened, workloads were increasing rather than depleting, and this has continued. Companies are now tending to hire lawyers who work on a contract basis to help on specific legal issues, rather than hiring a bigger team full time. But why is that? Here are some of the big issues putting pressure on legal teams.
As touched on earlier, there are many examples of great collaboration on large-scale projects across the oil and gas sector – this has particularly been across decommissioning work in the North Sea, which are high-risk and costly. Many platforms in this region have reached the end of their life-cycle and companies have collaborated in order to make sure the platforms are dismantled safely and effectively. It was estimated that from 2017 to 2025, 349 fields will be decommissioned in the North Sea. This has led to a surge in work for legal teams who have had to draw up contracts for these programmes, with negotiations and prescriptions needed around liability.
However with this increased collaboration, comes government concerns about competition. The Competition and Markets Authority has noted in the past that even if an agreement is OGA sanctioned, it doesn’t necessarily prevent it from falling foul of competition law. So in order to avoid this and play by everyone’s rules legal expertise is needed to navigate this complex area of law. If companies are found to agree to dubious non-compete clauses in contracts, they could face multiple issues.
Many of the major players in this sector operate globally, operating across a number of different jurisdictions, with different laws and different business cultures. With globalisation building closer-working relationships and more alignment in the sector, there is higher scrutiny on companies’ practices across borders. Lawyers are needed to ensure anti-bribery practices are followed, whilst simultaneously abiding by national and international regulations.
These numerous challenges have meant in-house legal teams are under ever-increasing pressure, despite predominantly being small teams within companies. That is why companies are tending to hire more freelance lawyers, who can come in and work on a particular project. This has also suited General Counsel’s tighter budgets, who need to make sure every penny counts. Increased collaboration could bring further legal challenges, as well as opportunities. It will be interesting to see how the in-house legal function will continue to evolve in the future.
Roger Connon is Head of Oil and Gas for Vario from Pinsent Masons