Uisdean Vass, Partner, Bond Dickinson, UK
Uisdean Vass, Partner at Bond Dickinson speaks to EnergyBoardroom about the services the legal firm can offer to clients, regulatory reform in the UKCS and the legal mechanisms surrounding decommissioning in the North Sea.
Could you start by giving us a brief introduction to Bond Dickinson, its role within the oil and gas industry and what attributes you consider makes the firm a prominent actor within the oil and gas sector?
Bond Dickinson is a new actor- the result of the merger of two large English firms. These were Bond Pearce, from the SW of England and London which had a very strong oil and gas unit and Dickinson Dees which was very prominent in the NE of England.
It is around the 33rd largest firm in the UK in terms of turnover, and has inherited Bond Pearce’s Aberdeen base with regard to oil and gas work. Five senior lawyers (including myself) joined this this practice from Maclay, Murray and Spens, bringing oil and gas, local corporate, local banking and local real estate expertise to Bond Dickinson. The new combined practice has one of the largest groups of E&P experienced lawyers in the country. Bond Dickinson is the only UK practice which has the North East of Scotland and North East England as major hubs of activity.
The firm has a great deal of international experience and its offering in oil and gas is particularly strong.
How do you see your client portfolio and the nature of your work changing as the North Sea matures?
We would hopefully see more new entrants coming to the North Sea. There is likely to be a process where the supermajors retreat from some of the more marginal fields. Developments on the lines of Sir Ian Wood’s report will also hopefully encourage better economic recovery from the North Sea. This will mean that more companies should be drawn to the market. Confident of Bond Dickinson’s abilities, we would expect to benefit from this growth.
At the same time, the firm is eager to expand its financial involvement in the oil and gas business, and is working to this end in capital markets, private equity and banking.
Internationally the practice has a strong focus on Africa at the moment, and to a lesser extent the Middle East. ‘Client stables’ are the focus- places like Texas, Louisiana, Alberta, Norway and the Far East.
To what extent is Bond Dickinson seeing any changes in the trends of acquisition at the moment?
It is important to break the market up into exploration and production (E & P)and oil services when discussing this issue. With high oil prices, a strong market exists for corporate acquisition internationally. Expansion ‘by the drill bit’ as it were is obviously a very positive route to growth if a company can manage it. But buying good production projects is not always the easiest task.
You find that far eastern companies like Taqa are coming into the UKCS looking for old production assets to gain access to a stable western domain. It is apparent that Aberdeen service companies are a tremendous focus for acquisition due to their excellent products and services.
Decommissioning; as assets get older, what is your practice doing to give clients up to date advice and do you consider that the decommissioning rules are overly complex?
Decommissioning has two aspects; firstly the provision of security for the decommissioning of assets, typically an E & P activity. The decommissioning relief deeds, which began to be issued last year have been greeted by the industry most positively. Decommissioning security requirements can hurt deals, making them more difficult. Many companies are very conservative when it comes to security.
The second part of decommissioning is contracting; to actually undertake the work. This is a cutting edge area at the moment, given that there have been relatively few decommissioning processes undertaken. The legalities of this, the forms of the contracts- even the physical risks of the projects are as yet, poorly understood. This will be an area of big business -20 to 30 billion GPB over the next 20 or so years.
The higher the oil price, however, the more value that will be derived from production and the longer the price stays high, the longer incentives will remain to produce smaller quantities. As decommissioning is delayed, the more likely it is that new finds will be tied into existing infrastructure, extending asset life even further.
Do you think the North Sea is a litigious environment?
Of course, there are reported cases –though not commonly- of litigation between companies in the North Sea. Arbitration is available with regard to many contracts, though by no means all; it is hard to know whether arbitration is happening, because it is confidential.
Sir Ian Wood has suggested that the North Sea is very adversarial, and perhaps that is correct. Lots of money rides in offshore petroleum deals. In such circumstances, companies readily consider litigation. Bond Dickinson would not serve our clients well if our lawyers took positions which are radical and aggressive. That of course, must be said in context, because there will be times that the client’s interests need to be robustly advanced.
Do you think that the allowances system, which is overly bespoke, with allowances for heavy oil, and other allowances for West of Shetland areas is overly complex?
I do not think that the current system of allowances is confusing for companies. The regulations are reasonably clear, and companies can establish the circumstances they fall under with relative ease. Sir Ian Wood’s report raised the fact that some commentators, looking at the basin holistically, felt there was too much of a fiscal patchwork. Others did not agree, stating that the allowances have been instrumental in improving the current production curve. It is of note that many of new fields coming onstream have incentivized by tax allowances.
What are the principal legislative hurdles to development of unconventional gas?
Unconventional gas and onshore operations both face problems where horizontal well drilling is occurring. In 1934, naturally occurring petroleum in the subsurface was vested in Crown. Additionally, there was a provision in the 1934 Act allowing licensees to acquire land rights if necessary. These are called ‘ancillary rights’. Seemingly, at the time, it was not possible to drill directional wells, but as the years rolled on the legislation was amended and the ancillary rights laws were tied into 1960’s legislation meant to deal with hard mining.
In a case called Star Energy vs Bocardo. Star Energy acquired surface land rights, and from this site, they drilled directionally under their neighbour’s land. Their neighbour enquired as to the activities of Star Energy, and was told the company was not engaged with his land. However, some years later, said landowner discovered this not to be the case, and brought suit for trespass. He was successful, and awarded a royalty of nine percent. This went as far as the supreme court. Whilst the higher courts changed the rate of compensation, they agreed there had been a trespass.
This means that the petroleum legislation has not removed a landowners’ right to the subsurface, even though “her Majesty” has the right to ‘drill bore and get’ petroleum as a monopoly which is then licensed out. The landowner has the right to object, should a well pass under his land. This creates a problem as mile long horizontal wells for unconventional gas pass under many landowners’ properties. Accordingly, obtaining authorization from hundreds, even thousands of landowners represents a hugely challenging prospect.
The new Infrastructure and Growth Bill should address this issue.
What might be the implications of Scottish independence for oil and gas legislation, and the wider industry?
Bond Dickinson has been considering the issue carefully, and giving a number of presentations on the matter. Continued analysis is required given that it is such a complex matter. However, whatever the result is, there will be significant changes in Scotland. There only certainty is that it will be a time of change. I think that a united oil industry will continue to function whichever result is returned.
Given that the legal world hinges so much on individual reputation, what are you, and Bond Dickinson doing more widely to grow the reputation of this firm?
We are bringing a new name to the market, particularly our key markets, Aberdeen, London and the North East of England, as well as the key jurisdictions including Norway, Lousiana, Texas, Alberta and France. Targeted seminars, interviews and our quarterly newsletter further demonstrate our competence and abilities to a wider audience.