Bob Ruddiman Senior Partner and Sector Head for Energy and Natural Resources, Pinsent Masons LLP, UK
Senior Partner and Sector Head of Energy and Natural Resources at Pinsent Masons LLP considers the effects of currency fluctuation, the proposals of the Wood Review, and the greatest threat that faces the UKCS.
Professor Kemp at Aberdeen University said cost inflation is one of the biggest threats in the North Sea. However, Phil Murray at Petrotechnics refuted this, saying that inefficiency is the bigger threat. In your opinion, what is the greater threat for the oil and gas industry?
Inefficiency is an element of cost inflation. The oil and gas industry has struggled to produce future generations of industry specialists, which has created a short supply of qualified people, and so, lacking people with the relevant qualifications, companies begin recruiting from within. The need for people put against rising costs can only lead to one conclusion: employment costs will rise. A way to combat rising salaries is to implement effective training programs as a means to encourage people into the industry. Additionally, successive UK governments have not had a long-term energy policy. Without such a policy, an industry with high capital expenditure and ongoing operational expenditure cannot run effectively. A long term plan is necessary and if the industry had greater clarity of government policy of hydrocarbons over successive governments, the industry can do more to identify requirements to recruit, train and retain.
The Wood Review has offered many suggestions that have been widely accepted by the government and industry including the creation of an arm’s length tripartite regulator. To what extent do you think this regulator will guarantee simpler regulation?
This answer depends on several factors. These factors include who the chief regulator is, the team that supports the chief regulator, and the interaction between the regulatory team and the industry. The Wood Review has set the tone to maximize economic recovery and consider the needs of all stakeholders. Significant players on the UKCS will play a fundamental role in creating an environment where an overlap of self-interest and the greater good leads to a mutually beneficial outcome. A lot of historic investments have been made and how you recognize historic investments in the context of future use of assets and infrastructure is challenging as different companies take different views. I think the Wood Review helps but it cannot solve all problems, as the industry needs leaders to step forward and enforce a plan of action. Leadership, especially where the tone may be set from the top, needs to transcend seniority and generations across the supply chain and through the operator community.
The Wood Review also proposed an increased need for collaboration; is Pinsent Masons in a position where it can foster more productive collaboration than other law firms who lack this experience?
There are two types of lawyers: lawyers who work to interpret the rules and push boundaries to find solutions and lawyers who adhere to the absolute letter of every rule and find “problems”. Given the right instructions and experience to challenge what the real legal needs actually are, good lawyers can work as part of a team to achieve real results. If you give a lawyer an instruction, you will get different responses from these two types of lawyers but in the end there needs to be leadership from lawyers who are not afraid to exercise this type of leadership.
In recent months the pound has become stronger while the dollar weakens. This currency fluctuation should lead to some financial action from the industry’s leaders. What effects do you expect this will have on the oil and gas industry? Could this be a particularly ripe time for mergers and acquisitions?
Currency fluctuation will bring about some oddities with purchasing power. It will positively and negatively impact earnings in terms of straight exchange but also in terms of a company’s operational currency, which affects their ability to work across markets. The dollar is the currency of the oil industry. The massive growth of shale and unconventional hydrocarbons has had an impact on the actual supply of hydrocarbons and dollar dominated oil services. Companies who are too heavily sterling orientated might have a problem because they will be pushed close to the edge of the market. Recently, Schlumberger, Halliburton, and Baker Hughes all exceeded analyst expectations by posting strong results all in dollar earnings.
Pinsent Masons teamed up with E.ON UK in a unique collaboration that led to Pinsent Masons’ recognition as ‘Energy and Natural Resources Team of the Year’ in February. What about this partnership was so unique and what effects does it have on the market? As a leader in the field, what was your role in this achievement?
There is a large difference between declaring something as innovative and proving it to be innovative. Our partnership with E.ON UK is the result of a lengthy discussion of their legal needs and a proactive effort to understand the past and future demand for legal services. Pinsent Masons interacted with E.ON UK’s legal team to determine commercial interests moving forward and arrange which work will be done in-house and which work will be outsourced to us.
Frankly, Pinsent Masons had to move away from a traditional model of assessing its client’s needs and instead look at their requirements in a completely different way. Law firms entrench themselves in one mindset as to billable hours which can be counterproductive in certain areas. We were able to create a new approach by considering all possibilities in a broad context. This logic helped Pinsent Masons engineer the way we do work within precommitted categories. The award recognized the innovative way we approached our partnership with E.ON and other companies. With the way the world has changed over the last five to six years, law firms must consider the future and how to maintain a sustainable law firm. The key to maintaining a sustainable law firm is to be driven by what will work best for clients. Pinsent Masons moves the conversation from perception to reality with a culture that embraces a sensible response to challenges.
DNV GL recently released a report which anticipates tougher competition, and uncertain oil and gas prices for 2014. What makes Pinsent Masons the preferred partner to help companies navigate this uncertainty?
Pinsent Masons has an ABC of three core values: “approachable, bold and connected”. The firm has exposure to diverse cultures across our presence in the UK, Europe, Asia, and the Middle East. We understand the challenges our global clients face because we ourselves face those same challenges as a service provider. Pinsent Masons rises to the challenge of uncertainties in the supply and demand pricing of energy and other needs required by our clients. One thing we have learned since the financial crisis is the dynamism of the world and the consistent need to prepare for the unexpected. Fortunately, we do boast an international footprint, we have access to resources, and we have a solid understanding of energy market activities.
In my experience, the industry has fostered a need for collaboration in the past ten years. Ten years ago, every component of the energy industry would emphasize their supremacy in the energy supply chain. For example, the nuclear lobby would argue for more nuclear power, the hydrocarbon lobby would explain that everything is driven by hydrocarbons, and the diaspora of exciting renewables would detail a better future. Today, all components recognize the benefits of coexisting. The UK is in the midst of a debate about energy supply in the wake of the Ukrainian crisis. People are asking questions about our supply chain and are realizing that we are quite exposed to foreign circumstances. A collaborative industry can lead to a more efficient use of domestic resources.
How does Pinsent Masons tread the line between caution and venture?
The classic lawyer’s opening line is to identify the problem. This is a good start because clients need to know that their legal advisers know how to identify the biggest risks. However, the key to a great lawyer is to act and find solutions to these risks. Let us take an analogy of a doctor’s surgery where there is a waiting room and a room of people recently seen by the doctor. If a patient in that second room said “I had a session with the doctor today and he’s told me what the problem is”, they have left the first room lacking a cure. The same logic applies in lawyers finding solutions to client’s problems; a remedy is required too. Lawyers who are risk averse struggle with these actions for various reasons; perhaps it is their law training or perhaps not fully understanding the industry. Committing to action is easier said than done, particularly if you train risk averse lawyers, who in turn cannot help the client. The key is in understanding how to mitigate risk and finding solutions that provide value.
What is the outlook for Pinsent Masons in the oil and gas industry for the next five years?
Pinsent Masons is excited about the future. Energy is at the heart of global geopolitics, industry and society. Oil & Gas is a critical element of that and we have a strong client base and an international strength that is in tune with the requirements of the sector.