How law firms can navigate the predicted surge in M&A and transactions in the oil and gas industry
ComplianceNovember 04, 2020

How law firms can navigate the predicted surge in M&A and transactions in the oil and gas industry

The oil and gas industry has faced steep challenges in recent years that have only been further compounded by the impacts of the COVID-19 pandemic.  As the demand for energy is correlated to global economic conditions, oil and gas companies that operate in the supply chain are particularly affected by any downturns in the global economy.  When the market price of energy commodities drops drastically, as it has in 2020, it can be almost guaranteed that there will be significant downstream repercussions in the near future.

During this period of continued global uncertainty, access to much-needed capital is expected to be depressed.  In addition, with federal aid unlikely to be forthcoming, many in the smaller to mid-size oil and gas companies are struggling.   

To sum it all up, it’s an industry in turmoil, and the consequences are expected to be far reaching.  In this article, we explore how the oil and gas sector is responding to the crisis and what this means for the law firms who serve them.

How oil and gas companies are reacting to the crisis

To compensate for the global challenges facing the oil and gas industry, many companies are “going lean” and finding ways to improve operational efficiencies by downsizing, selling off or divesting assets, restructuring, or filing for bankruptcy protection.

These circumstances present a unique opportunity for larger more stable players to acquire distressed assets and even their competitors – resulting in a short-lived spike in the incidence of corporate transactions in the near future.  According to PWC, while the first quarter of 2020 saw declining deal activity, potential divestures from assets will be a significant driver of activity for the oil and gas industry with the industry’s structure to look significantly different in 2021 and beyond.

There is also another often-overlooked opportunity that is on the horizon for big oil.  Increased investment in the renewable energy market by the majors is likely to fuel new strategic partnerships, new entity formation, and the acquisition of smaller renewable organizations.  As 2020 has shown that oil and gas commodity prices can be unpredictable, wise players are now looking to diversify into other energy sectors to hedge against future swings in prices.

Why this matters to attorneys

To successfully navigate many of these impending transactions, companies will engage the services of law firms.  From setting up the deal, conducting due diligence, to closing – it can be a complex process.

However, taking on a client in the oil and gas industry on deals such as these requires that law firms have significant resources in place to be able to complete all the necessary work that is required for a successful and compliant transaction.

Unfortunately, most law firms aren’t set up in a way to take on this range and volume of work.  Moreover, with a short-term spike in M&A and transaction activity predicted soon, these firms only have a small window in which to scale their services.  Even if they were able to hire the resources and set up the internal firm infrastructure needed to complete the work, those positions may then be no longer needed and could need to be eliminated once this period of uncertainty and consolidation ends.  This is a key reason why law firms hesitate to take on additional work – and miss out on important revenue-generating opportunities.

If this increase in activity is temporary as predicted, a smarter decision would be for law firms to outsource such activities.  Then once deal levels return to normal, there is no need to scale back the firm and lay off added staff.

CT is the experienced partner you need

To support this increased workload, a trusted service provider like CT Corporation can provide expert support, particularly for time consuming due diligence work. 

Once an offer has been accepted on a global corporate transaction such as in a merger or during an acquisition, an exhaustive due diligence process begins.  Due diligence aims to confirm or correct the acquirer’s assessment of the value of the target company, verify the legal and administrative standing of the organization, and understand how and with whom they do business through a detailed examination and analysis of every aspect of the company’s operations.  A single missing document piece of vital information can have significant impacts on a global deal.

Attorneys assisting clients on global transactions have an added challenge of conducting this work in unfamiliar foreign jurisdictions and obtaining the right document and needed information in an efficient manner.  They must be able to provide as much information as they can about a particular deal to their clients in order to be able to advise their clients with sound recommendations on how best to proceed.

Outsourcing this and other important processes allows your law firm to take on additional work, without the added cost of hiring in-house or full-time staff to complete the support work necessary for a given deal.  More importantly, a partner can be engaged on an as needed ad-hoc basis when and where the workload increases.

During these unpredictable times, you can count on CT Corporation’s expertise and expert support – every step of the way.

Devlin Fisher, Global Sales Support Manager
Global Sales Support Manager
Devlin is the Global Sales Support Manager at CT Corporation. He consults with CT’s global law firm and corporate customers on matters related to global compliance.