PESA’s commitment to providing the OFS sector with up-to-date information needed to manage the crisis includes its international chapters. On Monday, Gremela Law LLP hosted a webinar for PESA’s Middle East Chapter on “Dealing with Cost Cuts in the Oil and Gas Industry – Legal & Strategic Considerations” with Dr. Constantin Frank-Fahle, Managing Partner.
Dr. Frank-Fahle, who has previously addressed the chapter on localization issues, opened with an overview of events leading up and causing the oil price crash: severely decreased global demand for oil and negotiations that turned sour at the OPEC+ meeting in March.
CONTRACTS AND CLAUSES
Dr. Frank-Fahle discussed impacts on direct suppliers and how contractual provisions, including hardship and termination clauses, will be felt throughout the global supply chain. When considering contractual provisions, Dr. Frank-Fahle advised being prepared and understanding your company’s pricing structure.
Attendees were encouraged to make sure they understand whether their contracts contain clauses related to price adjustments, since government contracts often do. Though they can provide flexibility, these clauses tend to work best when oil prices increase. Regardless, if no new agreement is reached, the old price remains relevant unless the contract is terminated.
Hardship clauses activate when the performance of contracts is hindered due to unforeseeable events. Like price adjustment provisions, hardship clauses might not be relevant in the current crisis, since oil prices fluctuate and the situation was not unforeseeable.
He reminded listeners to verify their agreements, understand provisions and review their cost structures, including identifying cost saving measures.
An oil price hovering around $25 a barrel has different implications globally – for importers, this will be a “win,” however for countries dependent on oil revenue, long-term infrastructure and government projects will be severely impacted and delayed. Additionally, Dr. Frank-Fahle noted that the relocation and re-globalization of production of goods is certain as countries readjust for future preparedness.
If you are interested in joining PESA’s Middle East Chapter, please reach out to Vice President Government Affairs Tim Tarpley.