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Through thick and thin: Arab Spring may not affect oil firms

Through thick and thin: Arab Spring may not affect oil firms

While oil companies remain vigilant, most are not worried about the effects of Arab Spring and are positioning themselves for regime change and inevitable losses, according to a Reuters report.

June 16, 2011 2:15 by



POTENTIAL FOR LOSS STILL

In addition, many countries have signed bilateral investment treaties, known as BITs, which commit them to protect foreign investments in their territories.

“There are close to 3,000 of these treaties in existence,” Sinclair said.

These will help deter unilateral moves against companies, but they will not protect companies against all losses. International litigation can drag on for decades, during which opportunities are lost, said Harry Clark, partner at Dewey & LeBoeuf. This suggests companies might agree to unfavourable contract changes that would not be upheld in court.

Also oil companies can face a big financial hit if instability delays production.

“The oil industry values everything in net present value terms … (and) because you are pushing things out, on a discounted cash flow basis, that will erode value,” said Quin.

BP and other companies have suspended operations in Libya, while French oil major Total said it lost production at one field in Yemen due to the conflict there.

Sajjad said Gulfsands’ operations in Syria were unaffected, but the conflict could create difficulties in importing equipment there and in other countries — especially if new sanctions are imposed against governments fighting revolts.

There is little companies can do to limit such losses.

Yet some executives say the problems thrown up by the Arab Spring simply reflect the intrinsic nature of the oil business.

“It is always like that in exploration, you can always face different kinds of issues…This is part of life for an oil and gas company,” said Total head of strategy Jean-Jacques Mosconi. (Additional reporting by Stephen Jewkes in Milan, Jonathan Gleave in Madrid, editing by Jane Baird)



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