How Linklaters handles energy and natural resources in the low carbon age
This article was first published on the Linklaters Alumni Portal
"We are seeing rapid changes in the use of oil and gas across the economies in which we operate. In Western Europe, for example, electrification of cars will have a dramatic effect on fossil fuel consumption over the next few years." - Matt Keats - Projects Partner
The rise of relatively low-cost shale resources on one side and the accelerating move towards renewable resources in the developed world on the other have given the major players of the oil & gas market plenty of food for thought. When Carl-Henric Svanberg, Chairman of BP, suggested recently that "the consumption of oil will slow and eventually peak over the next 20 years", he was far from being alarmist. Svanberg was merely articulating the challenge facing not only international oil and gas businesses but also the law firms that advise them. The need for specialised, innovative thinking from lawyers in this sector is greater than ever.
Fossil fuels still account for more than 85% of the world's energy consumption but regulatory pressures, the competitive nature of renewable energy prices and recent shifts in the supply-demand mix (and consequently a drop in price) have forced a change in thinking from oil and gas majors and super-majors. The investment by companies such as Total in solar power and battery-makers or Statoil in the offshore wind industry reflect the new thinking that transition to a low carbon world need not impede the delivery of good financial results.
In this most political and global of sectors, Linklaters' breadth of practice and depth of expertise in the various specialisms that comprise it continue to make the firm one of the most obvious ports of call for clients in the sector. "The global aspect does play to our strengths" agrees Matt Keats, London-based Projects partner. "In global energy and Projects terms, our practice has always been holistic, covering the full spectrum from upstream oil and gas exploration and production through midstream LNG, transportation and petrochemicals to conventional power and renewables. We are seeing rapid changes in the use of oil and gas across the economies in which we operate. In Western Europe, for example, electrification of cars will have a dramatic effect on fossil fuel consumption over the next few years. Those changes are not uniform however and electrification of transport infrastructure in some emerging economies will be unrealistic for at least a generation."
"The increasingly tight regulatory framework around the world has thrown up a lot of arbitrations on matters such as gas prices, but we are seeing that clients are trying to simplify their contracts to avoid disputes." - Daniella Strik - Dispute Resolution Partner
It needs emphasising that Linklaters' oil and gas expertise is not merely transactional. On the contentious side, too, the firm is renowned for guiding clients through a changing environment of disputes. "As some gas fields diminish and may be decommissioned in due course, we see new types of disputes in that area" explains Amsterdam-based partner Daniella Strik, whose litigation and arbitration practice has covered a wide variety of energy cases. "The increasingly tight regulatory framework around the world has thrown up a lot of arbitrations on matters such as gas prices, but we are seeing that clients are trying to simplify their contracts to avoid disputes. In Spain, we see bi-lateral treaty claims giving rise to litigation in relation to solar energy. Meanwhile, litigation is increasing across Europe in the climate change context. In the Netherlands, NGOs have successfully initiated climate change litigation against the Dutch State. There is a concern that this success may lead to similar litigation against companies. As a firm, we are well equipped to handle all contentious possibilities."
As the sector itself continues to transform and develop so too does the client base. Both the owners and funders of oil and gas assets have shifted and this change shows no sign of waning. "Although we continue to enjoy acting for both asset developers and their financiers we are seeing changes in the identity of both groups" says Matt Keats. "On the funding side Government support, in the form of Export Credit and Multi-Lateral Agencies, is often at the cornerstone of any major financing with funding from Asia, particularly China, increasingly seen as a key feature of deals in certain jurisdictions." Some of these opportunities arise from Linklaters' existing track record, as Daniella Strik points out: "Very often, we find ourselves acting for new owners of oil or gas assets after a divestment has taken place."
All this activity in the oil and gas world is taking place at a time when regulatory considerations in the industry are more vital than ever. "Clients want a long-term assessment of the regulatory landscape in this sector and an overall sense of how the trajectory is driving us towards a lower-carbon economy" London-based Corporate Partner Chris Staples observes. "In a sense, all of us who specialise in this sector need to be regulatory lawyers to some extent these days" confirms Matt Keats. "The way we organise ourselves at Linklaters ensures that we have regulatory experts in every practice area and our expertise covers everything from clean air requirements to the new sanctions regimes, including those imposed on Russia."
"The price of oil, which is obviously a political consideration as much as an economic one, is still what drives the oil and gas market." - Chris Staples - Corporate Partner
Mention of Russia is a reminder of how essential it remains for oil and gas lawyers to keep their political antennae finely tuned in the service of their client. "Understanding the underlying political landscape is essential and clients frequently seek our views on how a rapidly evolving political environment might impact the feasibility of a particular transaction" Matt Keats notes. "It goes with the territory in a sector that's as geo-politically influenced as ever by the rush for resources in the developing world, energy nationalism and much more besides." "The price of oil, which is obviously a political consideration as much as an economic one, is still what drives the oil and gas market" adds Chris Staples. "The rise of renewables has put pressure on the price in recent years and the recent stabilisation – whether you regard it as a low one or not depends on your point of view – is probably the new normal. The days of US$100 barrels of oil have, in all likelihood, gone for good, but as the oil majors have realised, there are still plenty of opportunities to be pursued for years to come."
It is possible to exaggerate the potential decline of oil and gas in the medium and long-term future. The number of cars on the world's roads, to take one example, is forecast to double in the next 15 years, with the electrical share of that market rising appreciably but still likely to stand at a single-digit percentage figure. "Alternative energy is rightly here to stay and oil and gas companies will undoubtedly continue to look into ways of gaining access to those markets, but, while they do so, they'll still be seeking to top up their conventional reserves" Matt Keats concludes. "There is still a lot of life in oil and gas and a role for law firms such as ours to help shape the continued development and transformation of that market."