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Ewan Neilson, Partner & Head of Energy, Stronachs, UK

Ewan Neilson, Partner and Head of Energy Stronachs, discusses what sets Stronachs Energy practice apart from that of large international law firms, decommissioning, and the transaction market for the UKCS.


Can you start by giving a brief introduction to the firm and why Stronachs is interesting for the market?

We are one of the few local independent firms with a substantial upstream oil and gas practice. This oil and gas practice is a large part of our business; we represent medium and small sized operators both in the North Sea and overseas and also undertake a lot of work in the technology and service sectors. As such, we see the oil industry in the round.  Our rounded experience is highlighted in our contributions to The Technical and Legal Guide to the UK Oil and Gas Industry and the 3-volume Technical and Legal Guide to Hydrocarbons (which I co-edited).

We believe that outside of Houston, Aberdeen offers one of the biggest pools of expertise in the world, especially on the operational side as the city has a high concentration of geologists, geophysicists, and drillers for its small size. This high concentration of talent in a small geographical area makes Aberdeen a strong oil and gas hub.

Many of our clients have grown from being local businesses to becoming more global players, and we are trying to travel with them. They will thus have a presence in Africa, the Middle East for services and technology, Singapore, and Australia through to China.

In your view what have been the investment trends in the Aberdeen market over the years?

Since 1964, the year when the first licenses were issued, expertise has come to Aberdeen from abroad to help develop the local oil and gas industry. Over the years, the city has seen waves of different people investing and bringing technology, know-how, and skills. As such, Aberdeen has grown over the past 50 years into a hub that has benefited from the expertise of all of these different people.

At the moment, South East Asian companies are investing in Aberdeen and, over the next few years, we are going to see even more developments with South East Asia, both in terms of upstream, technology, and services.

In the oil and gas industry, which is very internationalized, what sets Stronachs apart as a law firm from large international law firms?

On the ground in Aberdeen, we have a large, very integrated team, and we are able to interact with specialists in Aberdeen and abroad. We really play on this integrated model, being a niche boutique practice.

People have suggested mergers and acquisitions with us over the years, but we believe that we can do international work from Aberdeen and from a small office in London, maintaining only this local presence. We complete this international work in conjunction with similar players in other parts of the globe who share the same view and have the same small boutique model as us. We have chosen to keep our independence and control over the way we build and grow rather than becoming part of a very large international law firm and losing control to a headquarters in London, New York, or elsewhere.

Overall, we do a lot of business in the UKCS, Denmark, Norway, the Netherlands, Poland, South East Asia, and Africa. Our international business is driven from Aberdeen and also from a new office in London. There is going to be huge investment in oil and gas worldwide, as the world population and demand for better living standards increase. BP Statistical Reports have shown year on year that demand for oil and gas will go up, and supply has to meet demand. Whichever jurisdiction you are in, you are facing the same challenges: security of supply for local market, trying to access technology and developing the resources you have.

You recently opened an office in London. How would you describe London’s positioning as compared to Aberdeen in the oil and gas industry, and what is the role of your new London office?

We only have a very nominal, unmanned office in London. However, we intend to grow this office as London is currently a leading international financial centre where East meets West. London is a central meeting point to do business and to raise finance, whereas Aberdeen is an operational centre. A large part of our business in Aberdeen involves advising those who are exporting goods and services to other parts of the world. This business is doing well and will grow over the years.

In terms of decommissioning, do you recognize the concern that the major challenge in decommissioning is understanding what is required by legislation and correctly interpreting these rules and regulations? How are you advising your clients in regard to decommissioning?

We have leading decommissioning experts on our team, such as James Downie. James is highly skilled in advising on decommissioning security issues and he is on the Oil & Gas UK panel of advisers who are currently drafting the UK’s first industry standard decommissioning agreement.

Over the past few years, UK government, DECC, and industry have worked together to obtain more certainty on decommissioning tax relief for companies. Stronachs’ clients have already voiced a lot of interest in decommissioning, asking what their legal obligations are and looking at the detail of the process. They are also interested in how Scottish independence might affect decommissioning obligations and tax relief for decommissioning.

For me, decommissioning comprises two aspects. Decommissioning means that old plant and fields have to be decommissioned. However, this activity also opens up opportunities for others to re-visit these fields and to use new technology and innovation to exploit remaining potential. Decommissioning is a two-part process, which will probably also happen in other parts of the world.

The oil and gas world may be splitting up into provinces such as the UKCS, characterized by smaller mature fields with up to 25 million barrels per field, and provinces with larger deepwater fields that are relatively unexplored. The two types of province will develop differently over time, but there are opportunities at both ends of the market. I personally find the smaller end with the marginal fields to be very interesting because there are huge opportunities for new developments over the next 40-50 years thanks to new innovations and technologies. Decommissioning can be part of the process of allowing that to happen.

The UK government will fast-track the implementation of retired businessman Sir Ian Wood’s recommendations for maximising the UK’s remaining offshore oil and gas resources. This will include setting up a new regulator to oversee the industry. From your perspective, how will this regulator bring the industry forward, and what is the new reality for companies operating in the UKCS?

A strong regulator will fast track field development and perhaps give more guidance in terms of resolving field disputes since partnership alignment can be one of the major issues in the UKCS. This regulator will provide strong guidance in the areas of tariffing, sharing resources, and collaboration.  Finally, a strong regulator will help attract new investment in the UKCS, which is lacking at the moment. Overall, the keyword is collaboration. All sides have bought into Sir Ian Wood’s concept, and people have a common interest in implementing his recommendations.

Stronachs also has an office in Inverness, the capital of the Highlands. The Scottish government and associations such as Energy North want to create more opportunities for the oil and gas industry across the Highlands and the Islands. How do you see geographic demand in the oil and gas industry evolve over time?

Our Inverness office has 10 employees and our Aberdeen office has 110 including consultants. Our upstream oil and gas practice is based in Aberdeen and London, but we also represent major service sector clients in the oil & gas industry based in Aberdeen and in Inverness. However, Stronachs does not see a major new upstream oil & gas hub developing in Inverness itself, at least at the present time. Inverness, for example, only has a very small airport, whereas Aberdeen has a very good airport that connects to major European energy hubs. The world, and the oil and gas industry, is now organized in hubs. Norway has Oslo, Stavanger, and Bergen, whereas at the moment the UK has only Aberdeen and London.

How has the transaction market been shaping up in Scotland over 2013?

On the upstream side, there are a lot of sale mandates. Stronachs, for example, was involved in a major purchase mandate when we acted for Alpha Petroleum in the acquisition of ATP, which was completed in February 2014 through a Creditors Voluntary Arrangement in the UK and a Chapter 11 Bankruptcy in the US.

The UKCS upstream industry is currently going through a structural change. In a couple of years’ time, we will be able to look back and see this change, but this change is less clear at the present as we are passing through it.

In terms of technology, there is a thirst for new technology, whereas in the area of services, there have been many mergers and acquisitions, especially around the big capex expenditure, which will most likely decline over the next few years.

There will be some consolidation in the value chain, but this is really more trading of businesses. We will see a number of new start-ups and new businesses, with some consolidation sales on the other side. This is a cyclical process, and we have seen this cycle repeating itself over the past thirty years.

At the moment, there is probably less available equity and debt capital for small and medium sized businesses. These businesses are thus trying to find new ways of accessing capital, whereas large companies are going straight to the bond market where they can access high levels of cheap capital. In terms of provision of capital and cost of capital, perhaps we will see a change that will help the province change itself.

How do you see the oil and gas industry evolve over the next five years?

I see some change in the upstream side. There are a lot of sale mandates at the moment and a lot of opportunities to buy and to bring in new innovations. I see South East Asian companies coming in and investing, as well as a small group of independent companies trying to develop.

On the service side, Aberdeen is very entrepreneurial, and we always have engineers coming in with new ideas and building up service companies. This will continue. Demand for oil and gas worldwide will continue, and, from a security of supply point of view, oil and gas will be here for the next 40-50 years.

With an extensive portfolio of foreign clients and having advised on transactions around the world, what have been some of your proudest moments as a partner of this firm?

I am proud that the firm has managed to remain independent and to develop. I am also proud that very high-quality people are joining the business wishing to contribute to its continued growth and success.  Our work on complex and high value international projects highlights that there is lots of excitement to be had in this industry.


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