Oil Price Drop

Our client base involved in the oil and gas industry are dealing with the shock of the unexpected significant drop in oil prices this week.

Most of our clients are not producers and many of them are oil field service companies. They often feel a lack of ability to prepare for the almost inevitable practical difficulties that follow when the price drops. What steps, if any, can companies in this position take, to prepare for the commercial behaviour of upstream producers that usually follows in this environment?

The first self-help remedy is to know exactly what your contractual position is. What rights do you have? While it could conceivably be better to restructure a contract or even restructure payment terms in certain circumstances, you should do that from a position of knowledge, knowing what your rights are.

Court action is sometimes necessary, and the numbers of actions often rise in the oil and gas industry when there is sudden shock. However, if possible oil companies should look at whether an abbreviated arbitration or mediation may be a worthwhile quicker route to at least trying to establish whether consensus can be built or not?

Secondly companies need to have an appreciation of their commercial position in the market relative to the client or customer. Where are the negotiation levers? What levers are likely to build consensus? What is it that can be done to best economically protect the business?

In difficult times, good advice is important.  BBM have market leading expertise in advising on distress situations, whether domestically in the UK or with cross-border elements. 

Get in touch to arrange a no-obligation discussion about how we can help your business.