Energy and projects

In a nutshell

Texas oilEnergy 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, Norton Rose Fulbright

 

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 Norton Rose Fulbright, 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.”
  • 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.”

 

"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

June 2018

  • Todd Alexander sees solar energy as a major area of growth in the future as "solar installation costs continue to decline and are now competitive in many markets. Looking forward, solar energy is going to be leading the charge.” However many have expressed concern that President Trump's decision to place a 30% tariff on foreign-made solar cells and modules could damage one of the fast-growing segments of the US economy.
  • 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.” Making headway in this field, Elon Musk's Tesla completed construction of the Hornsdale Power Reserve in December 2017, South Australia adjacent to a 99 turbine wind farm. Promoted as the world's largest lithium-ion battery, the battery system uses the same storage system found in Tesla's cars to store energy from the nearby wind farm.
  • Proponents of the delayed Keystone XL pipeline received good news when President Trump approved the $8 billion project. Doubts persist about the plan's financial viability amid volatile oil prices and concerns about energy dependence; alarm bells rang after the pipeline leaked 210,000 gallons of oil in South Dakota in November 2017, further undermining the project's green credentials.
  • Recent drilling and fracking developments, in conjunction with the lift of the ban on oil exports in 2015, mean the USA is set to become a net oil exporter within the decade – a forecast very much in line with President Trump's 'America First' energy agenda.
  • 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.
  • Estimates by BP predict that global energy demands will have increased by 35% by 2035. The report predicts that oil demand will continue to grow albeit at a slower pace, while natural gas will meet a much larger percentage of our demands.
  • China, one of the world's biggest consumers of fossil fuels, is now leading the way in the realm of renewable energy. A report by the Institute for Energy Economics and Financial Analysis (IEEFA) estimates that in 2017, China's total investment in clean energy projects was $44 billion, a $12 billion increase from 2016.
  • The Belt and Road Initiative, first unveiled by China in 2013, is set to be one of the largest infrastructure projects in history – the aim being to create a modern day Silk Road connecting Asia with rest of the world. Estimates indicate that projects in Asia alone will require investments of $1.7 trillion a year through to 2030. The Chinese government expects trade with countries along BRI routes to exceed $2.5 trillion a year within the next decade.
  • In July 2017, France’s Total signed a deal with Tehran to develop phase 11 of Iran’s South Pars, the world’s largest gas field. This mark's the first major Western energy investment in the Iranian market since UN sanctions on the country were lifted.

“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.