Navigating Complexities in Cross-Border Offshore Energy Contracts

The offshore energy sector has always been a key driver of global commerce, with projects and their supply chains often straddling multiple jurisdictions. It is not abnormal for a development project to have hundreds of suppliers and sub-suppliers across dozens of countries all supplying services and equipment towards the end project. While the opportunities are immense, the complexities of cross-border contracts can be daunting. From regulatory compliance to logistics, risk and title transfer and tax considerations, understanding the nuances of contract and risk structures is essential for successful project execution.

Here we cover just a few areas of potential risk which warrant focus when putting your contract together.

The Jurisdictional Challenge

One of the most significant hurdles in cross-border contracting is navigating the diverse legal and regulatory frameworks of multiple countries. Offshore energy projects frequently involve a host country, the contractor’s home country, and potentially several others along the supply chain. Each jurisdiction brings unique requirements:

• Regulatory Compliance: Local content requirements, import / export requirements, environmental permits, and operational approvals can vary widely.
• Tax Implications: Double taxation treaties and withholding taxes must be carefully considered along with contractual and corporate structures to maximise efficiency and avoid unexpected financial exposure.
• Sanctions and Trade Restrictions: Geopolitical developments can affect contract execution and legality and can lead to significant supply chain impacts and risk.

Drafting for Success

Well-structured contracts are the backbone of any successful cross-border project. To mitigate risks:

• Choice of Law and Arbitration Clauses: Specify governing law and ideally choose a neutral litigation / arbitration venue to resolve disputes efficiently and ensure strong “rule of law” application.
• Risk Allocation: It is important to clearly define liabilities, indemnities, and limitations to avoid ambiguity. Identify likely project changes and impacts and consider who is best placed to carry the risks. It may not always be most appropriate to seek to offload risk. Sometimes choosing to carry the risk and ensure strong mitigation and risk management can be a better approach, depending on capabilities, pricing impacts, priorities and other critical drivers.
• Force Majeure Provisions: The last 4-5 years have caused us all to become more conversant on FM clauses and we have seen large swings in what is acceptable to customers. In a world of increasing change and unpredictability, it is important to consider carefully how to account for unforeseen geopolitical, natural and other disruptions.

Managing Operational Risks

Operational challenges are equally critical. From supply chain delivery to workforce mobilization, cross-border projects demand meticulous planning:

• Supply Chain Resilience: Ensure contracts with suppliers account for potential delays due to customs or political instability. Consider to what extent customer and supplier contracts need to be “back to back” and where the risk gaps are.
• Building partnerships: It is worth spending time and cost to ensure strong due diligence on potential partners. It is also important to understand your counterparty’s drivers and priorities rather than simply expecting them to honour your own.  Seek to identify, understand and respect local customs and business practices in order to build stronger partnerships.

Conclusion

Cross-border offshore energy contracts require careful navigation of legal, financial, and operational complexities. With over two decades of experience in the international energy sector, I have seen proactive risk identification and management together with appropriate contracting structures and robust drafting can ensure challenges are met head-on and managed proactively. For businesses operating in this space, the challenges and risks are part of doing business. Managing them well can be the difference between a successful contract and a loss-making venture.

To discuss any of the points raised further, please contact a member of our Corporate law team here.

The information and opinions contained in this blog are for information only.  They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice.  Before acting on any information contained in this blog, please seek solicitor’s advice from Gilson Gray.