International energy arbitration

What’s it all about?

Oil and gas are amongst the world’s most precious and contentious commodities.  Largely located in politically sensitive areas of the world, countries in which the commodities are located regularly assume an interventionist stance.  At the same time, countries that consume oil and gas, like the UK, are attempting to guarantee security of supply over these dwindling resources and international oil companies are seeking to protect their most valuable assets from contractual interference and expropriation.  In this environment disputes are inevitable and when they occur they can relate to staggering sums of money.

International arbitration is the widely recognised forum for such disputes, whether between states and investors or between companies. The international energy arbitration practitioner will be required to deal with highly sensitive disputes, in all regions of the world, which might require an understanding of a variety of legal systems. 

What is the working culture like in an international energy arbitration team?

Culture varies from law firm to law firm. However, the sophisticated nature of clients requires a specialist understanding of the energy industry.  Advice in relation to high value disputes is regularly requested on an urgent basis, so it is necessary to be “on the ball” all of the time.     

What is the typical makeup of an international energy arbitration practitioner’s client base?

An international energy arbitration practitioner’s client base typically includes: international oil and gas companies (like BP, Shell), national oil and gas companies (like Norway’s Statoil or Russia’s Gazprom), power and electricity supply companies (including wind farm operators and nuclear) (like EDF Energy, National Power), oil exploration companies and oil service companies (such as companies that lease out oil rigs to oil companies, wind turbine manufacturers), investors (banks, private equity) and sovereign states (governments, regulators).

Which other practice areas do you work most closely with?

We regularly work with our drafting colleagues in the wider energy and power team, who have considerable experience in drafting energy related agreements, regulatory regimes and treaties.  Because the majority of our clients’ investments and assets are international, we regularly work alongside lawyers from a variety of different countries, for example, our colleagues in CMS’s Moscow office. The opportunity to work with lawyers from other jurisdictions is one of the most interesting aspects of working for an international law firm.

What skills make a good international energy arbitration practitioner?

To be a good international energy arbitration practitioner you have to have a detailed understanding of international arbitration practice and procedure, principles of international investment law, conflict of laws and a variety of legal systems.  In addition, you need a good understanding of the energy industry and a grasp of the commercial issues underlying that industry. Clients expect practical advice focused on their individual commercial needs.  Arbitrations regularly involve complex economic issues or disputes that are politically sensitive.  This regularly results in the matters on which we advise being subject to detailed reporting and comment in the international press and media. 

What impact has the recession had on your practice area?

The recession has resulted in a significant increase in the number of disputes in the energy industry. A spike in oil and gas prices followed by a substantial realignment has amplified this trend. Together these factors have disrupted the allocation of risk underlying a large number of contracts, creating winners and losers.  In a large number of circumstances, parties have resorted to international arbitration to remedy this reallocation of risk.  It is a very exciting, busy time. 

Which prominent international energy arbitrations has your firm been involved in?

Most international arbitrations are conducted on a confidential basis. However, we have recently acted for:

• An international gas company in an approximately US$4.5 billion UNCITRAL arbitration in London, where the seller was trying to significantly increase the purchase price under an existing long-term agreement.  We currently have 2 similar arbitrations in Geneva, Switzerland.
• An international investor in an approximately US$525 million LCIA arbitration in London relating to oil fields in Iraq, which has some interesting political dynamics.
• An oil services company in parallel proceedings in the English High Court and an ICC arbitration both in London relating to defective materials.
• An international oil rig owner in an US$100 million LCIA arbitration in London against a Middle-Eastern oil company relating to a drilling rig.
• A power company in relation to an Electricity Arbitration Association arbitration arising out of contractual change in law provisions due to the EU emissions trading scheme.
• A Swedish mining company in relation to the operation of an English law option and shareholders agreement, governing gold mining interests in the Russian Federation.

Which phrase is an international energy arbitration practitioner most likely to use and what does it mean?

“Where is the seat?”  This doesn’t mean where has my chair gone, it asks which country the parties have agreed that any arbitration between them will be held in.  This is important, as that country’s arbitration laws will apply to the arbitration.