Energy and Projects

In a nutshell

Energy and projects are two distinct but overlapping areas of law. When combined, they focus on the development, construction and financing of major natural resource (oil/gas, mining), power and infrastructure projects. The construction of pipelines, refineries, mines, power plants and petrochemical plants is a massive business, with high stakes and massive dollar values. Emerging economies are frequently the most hungry for infrastructural improvements, meaning a lawyer's work increasingly takes on an international flavor.

In addition, the projects component of an energy practice consists of both transactional and regulatory work (with regulatory work more prevalent in US domestic projects). There is a clear demarcation between transactional and regulatory work, and lawyers usually specialize in one of the two.

Non-energy projects are all about infrastructure. Typical examples might be road, airports, rail, shipping, telecoms and, most glamorously, sewage and water systems. The work would also include the construction of major multi-investor public buildings such as jails and stadiums. 

"It's always in flux. But never in my long practice has it been in such rapid flux as it is currently. So it's never boring, never static.” — Thomas Eastment, Baker Botts.

What lawyers do

Energy – transactional & regulatory

  • Transactional work can cover anything across M&A, joint ventures, capital markets, private equity, venture capital and project development and finance work.
  • Energy lawyers deal with three types of clients: upstream, midstream and downstream. Upstream businesses deal with getting energy out of the ground – oil, gas, coal, sometimes geothermal. This includes mining and minerals companies. Midstream clients are in the refining, treating and transportation of resources industry and its offshoots. Downstream clients are energy distributors: gas stations, electricity providers, gas companies.
  • Lawyers advise clients on negotiating and drafting agreements related to things like energy projects, the sale of power companies, investment in and development of upstream resources and the financing of various energy investments.
  • Certain states, such as Texas, have a very particular regulatory structure, so lawyers are often called upon to provide clients that are new to the state with regulatory advice on purchases and sales, contracts between companies and users, public authority requirements and licensing.
  • Many firms’ energy work focuses either on infrastructure and construction projects or on representations in front of the Federal Energy Regulatory Commission (FERC). FERC is a US government regulatory agency. It regulates electricity sales, electric rates, hydropower projects, natural gas pricing and oil pipeline rates. Its decisions can be reviewed by federal courts.
  • “I like that it involves public policy. I find that very interesting. I like that what I do will have an effect on a wide variety of people and also that there is a lot of variety in what I do from one day to the next. I can do individual client counseling, I can contest cases and I can be involved in rule-making where policy issues are heavily debated all in one day. I find it interesting to have variety,” says Catherine Webking, partner at Scott Douglas & McConnico.

“Project finance transactions are complicated exercises in risk allocation that take a lot of time and generate lots of paper." — Keith Martin, Chadbourne & Parke

 

Projects 

  • Projects lawyers have three or four types of clients: sponsors/developers who put together the project; financiers (banks, international development agencies, foreign export credit agencies); the provider or contractor (who supplies raw materials or undertakes construction); and sometimes the ‘offtaker’ who purchases the products produced by the project. The most significant roles for lawyers are representing either the sponsors/developers or the financiers.
  • Keith Martin, partner and co-head of the project finance group at Chadbourne & Parke, says: “Project finance transactions are complicated exercises in risk allocation that take a lot of time and generate lots of paper. The complexity is increased by the involvement of different countries and the number of people in different roles – sponsors, senior and subordinated lenders, tax and true equity investors, landowners, offtakers. These are interesting puzzles to put together – they take an ability to listen carefully, spot common ground and solve problems.”
  • The overwhelming majority of international work for projects lawyers is handled in New York – which remains the ‘money center’ for transactions in Latin America. The Energy Policy Act of 2005 created a host of new regulations by which companies in the industry are required to abide. These include loan guarantees for technologies that avoid greenhouse gases, subsidies for alternative energy producers and incentives to drill for oil in the Gulf of Mexico.

Realities of the job

  • This area of law is not widely publicized on legal courses. However, it can be a highly rewarding area of law to work in, as Catherine Webking of Scott Douglas & McConnico explains: “It is certainly not an intuitive area to go into from law school. But what is interesting is that the utility business is ultimately affecting everyone in the States so it is an area that really has a broad impact but is not well-known from law school.”
  • Texas is “the land of opportunity” for energy lawyers focused on US-based projects. Its law schools – most notably the University of Texas – are some of the only ones in the country to provide energy classes. In Texas the energy industry is regulated by the Railroad Commission of Texas. Alaska is the country’s second oil state. With the recent explosion of natural gas (and oil) shale development, many other states have seen increases in energy activity.
  • Work is often international or related to projects overseas, as there is hyperactive development of infrastructure and the energy sector in many economies. “Just look at where development is roaring to find out where we work: China, India, Brazil, Mexico, Indonesia, Peru, the Gulf states. There are giant infrastructure developments there – things are moving much faster than in the developed world.”
  • The international nature of work means lawyers often have to deal with “shaky jurisdictions. Structuring a deal to take into account political risk is very much a part of being an international projects lawyer. And that’s not just in less developed countries – there could be similar issues surrounding a mining deal in California.”
    Working hours can vary greatly across the spectrum of work. While regulatory lawyers often work long hours, their schedule is often more predictable and manageable than that of transactional lawyers.
  • In regulatory and advisory work, new recruits are often placed on contentious cases, as the hands-on approach is considered by many firms to be the best introduction to gaining expertise within the practice area.
  • Energy transactional schedules are far less stable and this area of work may not be ideal for those with responsibilities or hobbies outside the work environment. Litigation work, on the other hand, is more predictable even when working long hours.
  • Transactions can typically last anywhere between six months and three years. In a typical transaction, the partner's role is to manage the workflow and relationship with clients while other team members do the necessary groundwork and work in parallel to ensure the various elements of a deal fall into place.
  • An excellent sense of organization is a must across all areas of energy and projects. It is also important to be comfortable with general administration law, and have good litigation and transactional skills. Eventually, an attorney can specialize in the types of cases they find the most rewarding.
  • Thomas Eastment, head of the energy regulatory group at Baker Botts, tells us: “A nice broad understanding of the key areas of law is crucial. This would include classic energy law but also environmental, finance and general commercial law. The issues we grapple with span all these, so you need to be nimble. The answer is not simply taking an energy course.”
  • Another important skill is being able to handle numbers and technical issues. Catherine Webking says: “I have an engineering undergraduate degree, which was very useful. There is a lot of number crunching to be done and our clients are engineers or accountants so being comfortable with numbers is important.”
    Webking also tells us that the variety of work on offer can be simultaneously stimulating and challenging. There is little repetition and the day will not be monotonous, but gaining an in-depth knowledge in a specific area will take longer: “It is an ever-changing landscape in terms of corporate structures, there is a lot of activity related to companies acquiring other companies or merging with other companies so the clients themselves change quite often.”
  • As it is a relatively small practice area, an attorney in this area will often be co-operating with the same small groups of people. Consequently, your opponent on one deal may become your ally on the next, and so it is important to maintain a professional attitude at all times.
  • Particularly on the transactional side, it is important to be able to gauge what level of detail is sufficient. As Todd Alexander, partner at Norton Rose Fulbright explains: “Unlike being in school where there is no cost to seeking perfection and you can research for as long as you like to write the best article you can, in a firm time is money. You may stop at 90% of the way there, thinking this is efficient, because the extra time doubles the price of the services provided. For half the price you get 90% certainty and sometime juniors struggle with that because they are used to being measured by having gotten the right answer. Perfection is not always what you're looking for.”

 

"The work tends to be extremely varied for many years, even for partners, and that keeps the learning curve very steep for a good part of your career. The challenge is that you don't have the opportunity to repeat transactions and hone your expertise early on, as you might in other areas. It takes longer to become an expert.” — Jonathan GreenMilbank

 

  • The international nature of work means lawyers often have to deal with “shaky jurisdictions. Structuring a deal to take into account political risk is very much a part of being an international projects lawyer. And that’s not just in less developed countries – there could be similar issues surrounding a mining deal in California.”
  • Thomas Eastment tells us: “With so much evolution in the market and government, flexibility is required to solve problems. You can't just look at the last deal or memo for answers to new questions that a client poses. Energy law isn't for someone who wants to feel like, 'I've got all this mastered, now I can use my cookie cutter'.”
  • Eastment continues: “A nice broad understanding of the key areas of law is crucial. This would include classic energy law but also environmental, finance and general commercial law. The issues we grapple with span all these, so you need to be nimble. The answer is not simply taking an energy course.”
  • Jonathan Green, partner and cochair of the project finance group at Milbank, says: “Projects lawyers get the opportunity to do many different transactions without a whole lot of repetition. For young lawyers I think that presents benefits and challenges. The work tends to be extremely varied for many years, even for partners, and that keeps the learning curve very steep for a good part of your career. The challenge is that you don't have the opportunity to repeat transactions and hone your expertise early on, as you might in other areas. It takes longer to become an expert.”

 

Current issues

  • There has been a strong surge of activity in renewable energy as corporations increasingly diversify their energy sources and turn to renewables: “One of the most high profile issues right now is the incorporation of renewable technologies in our market. Customers are able to install their own facilities which then can assist the centralized grid,” says Catherine Webking.
  • Solar energy has seen a particular boost. Todd Alexander of Norton Rose Fulbright tells us he sees this as a major area of growth in the future: “Solar installation costs continue to decline and are now competitive in many markets. Looking forward, solar energy is going to be leading the charge.”
  • Alexander also explains that battery storage is likely to become a significant subject: “The problem with renewable energy is that it is intermittent in nature and not dispatchable. You can't ask for it on demand. There have been continuous improvements in battery storage which would allow all renewable energy to be generated when available and dispatched as needed.”
  • Shale oil exploitation has been a big thing since the 2000s, with a nearly 80% increase from the 2006 levels being reported by the US Energy Information Administration. Although the price of oil and gas is slowing the level of activity in this area, and some smaller companies who got rich quick from the earlier shale boom are now going out of business, this is still seen as a strong area of economic production.
  • Internationally, Brazil, East Africa, Australia and the North Sea are attracting increasing attention. Chinese and Indian companies especially are investing heavily in infrastructure and exploration in these new areas, as well as existing markets. South Africa looks ripe to become a key player in shale gas exploration.
  • On the projects side, there is a lot of current investment in the transmission grid and new projects are being constantly proposed in connection with it.
  • As ever, a change in administration often brings about some level of shift in policy. The Trump administration is expected to place more focus on energy sourced from fossil fuels than the Obama administration, and in that respect bring a level of regulatory predictability in that area.
  • At the same time, renewable energy sectors are currently very strong in terms of economic production and as such it is likely that support for this industry will also be maintained. This is an industry where growth is driven by the decreasing cost of production, and as the cost of renewable energy is constantly significantly declining this will likely remain a very competitive area of the market.

“An incredible sea-change has arisen in the USA from shale oil and gas development. It has transformed the debates about so many issues. There are serious environmental questions posed over the fracking techniques used to develop oil and gas. There's also a concern that by exporting these commodities domestic prices will go up."  Thomas Eastment, Baker Botts.