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Wikborg Rein: Fierce disputes to follow oil plunge

Following the drop in the oil price, the budget cuts rolled in at energy companies. Then came the layoffs at suppliers and now come court cases over contracts signed during the skyrocketing of the oil price, with the potential of bringing fierce disputes, according to Norway's biggest law firm.

Statoil
Photo: Statoil

SINGAPORE

There has yet to be a big number of major court cases following the oil price's surprising dive to the current level. But according to Norway's biggest law firm, Wikborg Rein, which has offices in numerous countries around the world, the countdown has begun to a dispute over loads of contracts signed during the skyrocketing of the oil price.

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At the end of the year, partner Steffen Pedersen expects that there will be filed several cases in a dispute which could be even more fierce than what was seen after the decline in the shipping industry in 2008.

Steffen Pedersen, who works for Wikborg Rein in Singapore, was overall pretty pessimistic in his assessment of the prospects for the oil and gas industry, which he presented at the Sea Asia conference in Singapore on Wednesday.

Banks pulling out

"The drop in the oil price will have significant consequences for the whole market. The banks have pulled out from many projects and left a portion of the market open to new players such as equity funds. So far we have not seen a lot of disputes but this is just the eye of the storm. At the end of 2015 and in the beginning of next year, we will be seeing a whole lot of disputes over companies that can't live up to their commitments. These disputes, as we'll see, will involve a lot of money and they will be fierce," said Steffen Pedersen.

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He explained that Wikborg Rein had already handled the first dispute for a Brazilian customer, but there are many more in the pipeline because many companies will try to exit the current contracts in order to negotiate better conditions.

"The dispute will be worse than following the collapse that we saw after the shipping crisis of 2008. And some of the cases that we are concerned with today stem from back then. The cases that are coming due to the oil plunge will be huge and could take even longer than what we have experienced in shipping before," he said.

Moves to low-price countries

Among the customers in the energy sector, the Norwegian law firm has experienced several parties considering moving activities to cheaper countries to save on costs. In practice, the plans have concerned moving activities from Singapore to India.

The low oil prices had put pressure on the value of the whole oil sector, which on the other hand could lead to a wave of takeovers because the price is suddenly manageable for investors. This has already been seen recently and there will definitely be more examples going forward, he said.

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At the same time, there is a strategical interest in some Asian countries such as China from the governments to both maintain and develop the oil and gas sector further, without taking into account that the global market calls for a reduction of activities, Steffen Pedersen pointed out.

Among other participants on the panel for the future prospects of the offshore sector, several parties pointed to the fact that there is still a ways off before the energy sector has adapted to the new situation. This was, for example, the case for Vivek Seth, Chief Executive Officer of Halul Offshore, Qatar.

"There will be more bloodbath this year," he said.

Viggo Pedersen, Offshore Marine Director at Clifford Capital, believed that both 2015 and 2016 will be tough for the offshore sector. After this there may be a light at the end of the tunnel, was his assessment.

"We have yet to see a real consolidation of the industry. The pressure has not been high enough. It will take more before you see a consolidation that makes sense," he said.

Oil companies scrutinizing suppliers to cut costs

Maersk Supply Service under daily pressure from customers

Report: Norwegian offshore carriers lose 4.2 percent this year

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