Tuesday, February 3, 2015

How the Price of Oil is Affecting Litigation

Historically litigation experiences the same high and lows of oil prices. Oil prices impact cash flow and that in turn, can impact a company's P&L. But the decrease in exploration or operations doesn't mean all litigation is drying up- in fact, different kinds of litigation is most likely ramping up.

For instance, lower oil prices may force some companies to be in breach of obligations because a project does not meet economic realities or the cost of development may be too high to meet lease commitments, or debt may become due that cannot be paid amounting to increased legal services needed to address delinquent accounts.

The need for legal services to address these issues can already be seen by comparing oil and gas disputes filed in Harris County District Courts in the first two weeks of January 2014 compared with the first two weeks of this year. There were 5 times more disputes filed in this timeframe in 2015 than in 2014.  Historical trends with over-leveraged companies also indicate bankruptcies and related litigation is also on the rise.

The downturn in pricing may also force some companies to look for more value in terms of their legal spend.   Now would be an excellent time for forward-thinking attorneys to market their value to clients who may need these particular services in the near future.

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