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Legal finance for the energy sector

May 21, 2024
Liz Bigham
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The energy sector is particularly exposed to shifts in global politics and economics, high infrastructure costs and fluctuations in supply and demand. The sector faces complex issues such as dry wells, time-consuming extraction and distribution activities and complicated contractual arrangements involving multiple partners, including governments. As a result, the energy industry is a natural hotbed for disputes.  

Expensive and risky commercial litigation and arbitration may affect energy businesses’ ability to maintain optimal positioning and may thwart or even cannibalize other needs. Given these challenges, the energy industry is increasingly utilizing legal finance.  

 

Insights from recent research into energy dispute dynamics 

Burford recently conducted research into economic impacts on different industries and their litigation portfolios. For senior in-house lawyers and finance leaders at companies in the energy sector, the key takeaways were:  

  • Energy companies spent more on litigation and arbitration in 2023 than the industry average 

  • A third of energy company legal and finance leaders say they already have a robust affirmative recovery program in place, nearly twice as many as the average across industries 

  • 70% of energy companies expect an increase in the use of legal finance over the coming years 

  • 63% of energy companies say they are likely to use monetization as a form of legal finance in the next few years, making them among the most likely to adopt this solution

 

How legal finance is used in the energy sector  

At its core, legal finance enables businesses in the energy sector to maximize their recoveries in commercial disputes and to ensure they can fully leverage their legal assets.  

There are numerous ways energy businesses can leverage legal finance to generate value from their litigation and arbitration assets—without impacting control of their disputes.  

  • Fund claims and recoveries: Burford takes on the financial burden of paying lawyers to pursue meritorious high-value claims, allowing businesses to pursue meritorious cases without incurring upfront costs.   

  • Eliminate downside risk: Legal finance provided by Burford is non-recourse, meaning that the investment and return are contingent on a successful outcome. This allows businesses to lock in guaranteed minimum returns and shift legal risk off their books.  

  • Manage cash flow: Burford can accelerate expected entitlements from pending claims and awards, providing companies with the flexibility to time cash flows according to their desired schedules, enhancing liquidity and working capital.  

  • Identify opportunities: Leveraging proprietary data and industry-leading insights, Burford can assist legal teams in setting priorities for their commercial litigation and arbitration portfolios. This helps businesses identify the most valuable claims and allocate resources effectively.  

  • Manage exposure: Burford can provide a hedge for litigation risk in the company’s portfolio. This allows businesses to mitigate the potential financial impact of litigation and protect their interests. 

  • Enforce judgments: Through funded enforcement and asset recovery, Burford can help businesses transform unenforced judgments and non-performing loans into cash. 

 

 

Case study  

Former partners of an oil trading company were involved in a contracts dispute after two of the three partners failed to share profits resulting from a venture involving oil activities in Iraq. The plaintiff had hired lawyers from a major US law firm (including the head of the firm’s global litigation department) to face off against his ex-partner, a high-profile Florida billionaire. The case eventually went to trial, and the plaintiff won a significant jury verdict which was then affirmed by the Florida Supreme Court—along with a further $10 million in interest and costs. But the billionaire defendant did not comply with the court order to pay the judgment. Instead, using phalanxes of lawyers and multi-jurisdictional structuring, he did his best to avoid paying while going on openly living in his mansion and flying in his private jet. 

In the beginning, Burford provided financing to cover litigation costs throughout the duration of the trial. Then, when the defendant made it clear that he had no intention of paying the judgment against him, Burford’s asset recovery team mounted its own multi-jurisdictional offense, following the money trail and using its strategic and tactical expertise to freeze and seize assets. Our work took us all over the world, from Dubai to Venezuela. Burford litigated, froze assets or forced intermediate entities into receivership or bankruptcy in England, the Bahamas, Canada, Florida, Texas, Delaware and Cyprus. The defendant tried to stay one step ahead by moving assets around the world, even as Burford showed up with court orders against secret safety deposit boxes in high-end London hotels and planes on private airstrips. 

After several years of pursuit, the pressure Burford brought to bear was too much, and the defendant gave in, resulting in an almost total recovery for the plaintiff. With the combination of legal finance and asset recovery expertise, plaintiffs facing recalcitrant debtors no longer have to choose between spending substantial sums on enforcement activities or giving up.