HOUSTON, December 14, 2018 –With 2018 coming to a close, Baker Botts’ energy lawyers discuss key trends to look for in the offshore energy sector in 2019.
Below are a few significant topics to keep an eye on:
- Offshore Comeback. After four years of scaling back from its high in 2014, the offshore energy industry is primed for a comeback starting in 2019 due in large part to increasing demand, lower costs, and lower breakeven prices. With a significant number of new projects being sanctioned and new investments being approved around the world—e.g., Mexico and Guyana—we expect a steady increase of offshore activity over the next few years. More offshore activity brings with it unique litigation and regulatory risks including corporate compliance with anti-corruption statutes, government investigations, environmental regulations, wrongful death and survival claims, and major contract disputes.
- Trump Administration. The Trump Administration has been encouraging investment in offshore energy, including traditional offshore oil and gas drilling as well as offshore wind farms. We are monitoring closely how BOEM and BSEE have been implementing the Administration’s stated policy goals for the offshore energy industry, and we expect significant moves will be made in 2019. For example, back in October, the Trump Administration conditionally approved a plan to drill for oil in offshore Alaska, which, if it happens, will be the first time that oil is produced from federal waters in the Arctic Ocean.
- Volatility of Oil and Gas Prices. The volatility of oil and gas prices, if it continues, could put significant pressure on offshore operators and service companies if they enter into overly optimistic contracts as the offshore energy industry ramps back up. If the prices of oil and gas drop dramatically again for a sustained period of time, then offshore operators and services companies may attempt to shed or renegotiate long-term contracts that may result in litigation.
- Decommissioning Obligations. Regardless of whether the offshore energy does, in fact, stage a comeback, there have been and always will be disputes over offshore decommissioning obligations. There has been a significant amount of litigation over the past several years involving companies that were asked to decommission offshore leases after other companies more recently involved in production activity went bankrupt. Companies making major offshore investments should evaluate upfront the risks associated with partner groups that are common in the offshore energy industry and plan accordingly by, for example, bolstering their indemnification provisions and reducing or eliminating their post-assignment liability.
Baker Botts’ Energy Litigation Practice has handled matters for producers, processors, transporters, distributors and marketers of all forms of energy - oil, natural gas, natural gas liquids, coal and electricity, as well as for the many service companies that support these activities.
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