Steven Otillar Speaks with Texas Lawyer Regarding Impact of Volatile Economic Environment on Energy Companies

Steven Otillar, a partner in Akin Gump’s oil and gas practice, has been featured in the Texas Lawyer article “Legal Strategies for Tough Times in the Energy Sector,” in which he discussed strategies for advising energy-related clients in today’s volatile economic environment. The article follows a panel this past summer on international upstream energy held at the University of Texas School of Law in which Otillar participated.

In response to a question about any insights he had regarding the use of indemnity clauses and other contractual language in connection with energy partnerships or joint ventures to protect clients, Otillar said indemnity clauses are often used “as well as dispute resolution provisions, representations and warranties, and similar language.” In addition to due diligence, he indicated that he and his colleagues use “representations and warranties of the parties to determine the extent of known liabilities. These are backed up with default and indemnity provisions, which are typically capped with various thresholds and baskets to limit overall exposure and to avoid de minimis claims.”

Otillar noted that rep and warranty insurance is used to help limit any residual risk when selling assets. It is also important, he added, “to consider decommissioning liability when buying or selling energy assets.”

Otillar also discussed operator removal and/or replacement for energy clients, noting that protecting a project from out-of-market contracts an operator may have secured in prior years is “vital.” He said he tends to focus on “the financial viability, not just insolvency of the operator. If an insolvency clause is only triggered by an actual bankruptcy filing, as opposed to an earlier stage of insolvency, it may be too late.”

Finally, Otillar offered some other legal strategies he shares with clients that are trying to survive and thrive in today’s challenging business environment. From the corporate perspective, he suggests being “realistic when assessing the company's overall financial health; examine and understand the obligations of management and the board in this challenging price environment.” From the operational side, he said one key “is to review all service and supply agreements to provide leverage to accompany price reduction negotiations.”

With regard to project development, Otillar suggests focusing on “the legal technicalities that often get overlooked in a high-price envirnment where speed of execution and the ability to get to first-oil took precedence. Closely examining change order requests and ensuring compliance with applicable processes in the original agreements have yielded significant savings for several clients already.”