Liz Hardwick, General Counsel Asia Pacific – DOF Subsea and Vice Chair Subsea Energy Australia (SEA)
Our past shapes the future. The subsea (oil & gas) industry is moving through a major market transition. As we approach the ‘upswing’ it will be imperative to retain the lessons from the downturn, because being ‘ready’ will reward the brave and those who have stood the test of time.
I moved from a law practice to the subsea industry when I joined DOF Subsea over ten years ago. Working for a Norwegian company and managing the legal department in Asia Pacific has synchronized my background in law, history and international politics. The subsea industry has fueled my passion for law, teaching, and travel: I have never looked back. I have met many interesting and talented people, shared a few laughs along the way and negotiated my way through literally hundreds of contracts.
Times have changed. The subsea industry has evolved, so too has the complexity of contracts. Ten years ago it was not unheard of for contracts to be finalized on a gentleman’s handshake or in the ‘backroom’. Today, contracts play a vital role in managing a company’s profitability and risk profile. The increasingly competitive market, shift in liability regime, budget cuts and project cost blowouts have forced businesses to really focus on the contractual terms on the table.
The ‘long and short’ is well-crafted contracts contribute to a project’s success or failure, therefore, impact positively or negatively on the balance sheet and most importantly, a company’s ability to survive or bust. So, from a legal perspective of contract management, here are three key lessons I take from the downturn into the future:
LESSON ONE: Risk maybe manageable but liability is a killer.
Increasing the contractual knowledge within a company is vital. Understanding the balance between managing your company’s risk profile, insurance program and uninsured risks is critical.
There is growing pressure on all levels of the supply chain to take on higher levels of risks. Market conditions mean operators and contractors move to pass more risks down to subcontractors and suppliers. The standard subsea industry knock-4-knock indemnity regime has been diluted significantly over the last couple of years.
The question is whether this new market shift in the indemnity regime is sustainable for most companies? The shift in the indemnity regime has seen subcontractors / suppliers take on higher risks in the value of property in their care, custody and control, accepting uncovered liability for pollution and uncapped consequential loss caused by gross negligence or willful misconduct. The impact on the changes to the contractual terms and higher indemnity exposure are often misunderstood. Most insurance programs are not designed to take on such risks. I often question from a legal perspective how sustainable this will be in the long term.
A contractual indemnity is only as good as the indemnifier’s ability to honor it. The party who has been assigned that indemnity must have the financial means to be able to satisfy its indemnity obligations. The indemnity regime and the insurance program should go hand-in-hand to ensure that there is no potential gap. Failure to hold any or adequate insurance to cover the financial exposure of any indemnity obligation (e.g. loss or damage to property / pollution / injury or death of personnel) may financially ruin a company or turn a profitable project into a loss.
LESSON TWO: Regulatory compliance is complex and here to stay.
It is important to navigate the increasingly complex regulatory world of cross border transactions. Pay attention to new requirements, they are here to stay.
The finance industry has been dealing with regulatory compliance for years. The subsea industry is catching up. Regulatory compliance is becoming a complex area and prominent focal point for most companies working in multiple jurisdictions. The trend is for countries across the region, to focus on protecting their resources and retaining the wealth and knowledge in their country.
While it has been standard for many contracts to refer to local content or legal requirements, for many years such requirements were not necessarily enforceable. Again, times have changed. What may be a one line throw away in a contract in relation to say international tax laws, business licenses, bribery and corruption, trade compliance, safety cases, flag or cabotage rules, are often the most time consuming, complex and costly aspect of getting the project up and running.
LESSON THREE: It pays to continuously educate oneself and stay connected.
Engagement, collaboration and education are the cornerstone to keeping up with the changes and being one step ahead. Being contractually savvy will help your company survive into the future.
Much can be leant from seeking out good role models and sharing information. Even as a lawyer, who always needs to win the argument I continuously seek to learn. It is important to ask questions and respect the wealth of knowledge around the table.
As the industry changes, it is the role of associations like Subsea Energy Australia to help their members enter or expand their own supply chains. Organisations like SEA are driven by the collective experience of professionals wishing to improve a current industry paradigm. Going forwards, SEA will continue to host events that provide commercial awareness training and I encourage anyone wanting to learn more about contracts and how to stay ahead of the game in this market, to attend an SEA course.
Liz Hardwick is the general counsel and company secretary for the DOF group in Asia Pacific, a leading Norwegian multidisciplinary subsea service provider to the oil & gas industry worldwide.
Liz has extensive experience working in private practice and in-house. In her current position she manages the Asia Pacific legal team covering legal services, crisis management, corporate advisory, compliance, company secretarial, supply chain management, insurances, and strategy and risk management for a diverse range of projects globally. In any one day, Liz’s team will provide assistance to various corporate projects operating in Australia, Singapore, Philippines, Malaysia, Indonesia, Houston, Aberdeen or Bergen (Norway).
Liz is an accomplished lecturer and the facilitator of several commercial awareness courses designed for the DOF Academy, which are presented worldwide. Liz is a mentor and former committee member of the Association of Corporate Counsel Perth chapter and currently sits on the Subsea Energy Australia board.