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, telecom and, most glamorously, sewerage 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 which 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 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 projects 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 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 and things are moving exponentially faster in those countries.”
- 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 when working outside the US – “there could be similar issues surrounding a mining deal in California.”
- Working hours can vary greatly across the spectrum. 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, senior counsel 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 cooperating 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 co-chair of the project, energy and infrastructure 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.”
- 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.'”
"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 Green, Milbank
- President Biden banned all imports of Russian oil, gas and coal in March 2022 as part of sanctions package, following Putin’s invasion of Ukraine.
- Energy companies around the world, like Shell, have also pulled out from the Russian oil and gas market, closing all service stations in the country.
- It should be noted that just 3% of the States’ oil imports are Russian - the vast majority comes from Canada. Nonetheless, Russia is still the second largest oil exporter in the world: with several countries halting their Russian energy imports, there is concern that the strain on reserves could lead to global inflation.
- The pandemic saw global energy prices hit record lows as demand dropped off, but retail process for gasoline and diesel drastically increased following the invasion of Ukraine: the price of gasoline rose from $3.53 to $4.32 per gallon between the end of February and the first two weeks of March.
- Deloitte reported that in 2019, total investment dollars for infrastructure and real assets reached $81.73 billion. The report found that for equity investors in infrastructure projects, the reduced cost of debt would translate into an increase of equity return for infrastructure project investors. Commentators widely suggest that productive infrastructure spending will be required globally after pandemic-induced recessions.
- Renewable energy markets continue to demonstrate commercial viability, with Deloitte finding in 2020 that the share of renewables in 2020 had “exceeded that of coal in generation for 153 days compared with 39 days in 2019.”
- The election of President Joe Biden changed the federal approach to energy use. Eschewing the scepticism of his predecessor, Biden has rejoined the Paris Climate Accord, signed a whole spate of executive orders – such as banning drilling for oil and gas on federal land and scrapping fossil fuel subsidies – and invested $2 trillion in clean energy. His administration seeks to decarbonize by 2035 in accordance with its net zero emissions by 2050.
- On the first day of his presidency, Biden issued an executive order cancelling the controversial $8 billion Keystone XL pipeline. The project aimed to pump 830,000 barrels of oil products from Canada across 1,200 miles of US land and indigenous territories every day
- The SOO Green HDVC Link isan example of a project required to help fulfil the new administration’s climate ambitions. SOO aims to transport renewable energy underground (similar to fiber optic networks) and use high-voltage direct current transmission lines along existing railroads.
- Battery storage is also widely discussed as a key component in the fight going forward. Grid-scale battery storage is rapidly growing in America, with a number of facilities currently being built. The world’s largest battery energy storage system in Monterey County, California, began operating in December 2020. The system is currently at 300MW/1,200MWh meaning that for now – as companies compete for the title – it is the largest operational battery storage project.
- Todd Alexander explains that battery storage is 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.” The current largest lithium ion battery storage facility is in Australia, at the Hornsdale Power Reserve where Elon Musk’s Tesla activated a 100-megawatt battery in 2017. Musk famously bet that the facility would be built within 100 days of the contract being signed, and that the battery would be free if not. It was built in 63 days. The facility is operated by French renewable energy producer, Neoen. In November 2019, Neoen revealed it will increase the Hornsdale site’s storage and output by 50%. The South Australian government will give a total cash injection of AUD58 million (USD33.4 million in March 2020) to the expansion.
- If you think that’s impressive, Musk has even bigger plans in the pipeline. In February 2020, Tesla and California’s utility, PG&E, were given the go-ahead to create the biggest battery power plant in the world, on the Moss Landing site in California. The 1.2 GWh project will be a whopping ten times the capacity of Hornsdale.
- Babcock Ranch in Florida is the US’s first – and only – solar-powered town. The community was built in 2018 and generates 1.5 megawatts from 700,000 solar panels. The 18,000-acre town boasts commercial buildings, pools, homes, a restaurant, a coffee shop, a juice bar, a charter school and a shopping centre.
- China’s Belt and Road Initiative, first unveiled in 2013, is tipped to be one of the largest infrastructure projects in history. Its aim is to create a modern-day Silk Road connecting Asia with the globe. The pandemic halted much of the project’s progress in 2020 – reports from Beijing found 30-40% of BRI projects had been affected. China is also realigning its focus in line with its net-zero emissions target by 2060 and an increasing focus on sustainable, digital, and health-related projects in BRI after ecological criticisms have been levelled at BRI projects, such as deforestation along the Pan Borneo Highway. Reports detail that early 2020 saw nearly 3,000 BRI-linked projects launched, totaling close to $4 trillion.
- In 2018, former California governor Jerry Brown set the green ball rolling by instating a law that commits the state to being clean energy only (sourced from renewables or emission-free) by 2045. The state is home to many cities infamous for their traffic jams, so the policy aims to improve urbanites’ health. By summer 2021, three other states had committed to similar goals: Oregon has planned for 100% clean energy use by 2040, whilst New Jersey aims to do the same by 2050. Massachusetts will source 40% of its electricity from clean energy by 2030. These states, in addition to Connecticut, Nevada, New York and Virginia, set energy storage targets to supplement wind and solar energy generation[RL1] .
- Senators introduced ‘The Sunshine Protection Act’ in 2019, which aims to permanently use DST across the US. DST was first introduced on a nationwide basis during WW1 in a bid to curb energy consumption; if it was lighter for longer, people wouldn’t need to turn the lights on as early. This mandate was reintroduced by President Nixon in the 70s due to the energy crisis, but was dropped after 10 months due to public dissatisfaction.According to research conducted by the Department of Transport in 1975, energy consumption only decreased by 1%. One possible explanation for this is that if it’s dark for longer in the morning, people will turn the lights on sooner, which simply shifts the amount of energy being used to earlier in the day, rather than curbing it altogether. The senate unanimously passed the bill in March 2022; if Congress also passes the bill, DST will be standardised across the country around November 2023.
“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