Projects and Energy

In a nutshell

 

Projects

Projects lawyers work hand in hand with finance and corporate lawyers to enable complex construction, redevelopment and infrastructure projects to come to fruition. A few City firms and the largest US practices dominate the biggest international projects, but there’s work countrywide. Many projects relate to the energy sector (see below), while road, rail and telecoms infrastructure projects are also big business. UK lawyers also work on overseas natural resources and mining projects, while domestically waste and utilities projects provide work for many regional firms. The Private Finance Initiative (PFI) – an aspect of Public Private Partnerships (PPP) – has also been an important source of work. PFI introduced private funding and management into areas that were previously public sector domains.

Some law firms consistently represent project companies, usually through a ‘special purpose vehicle’ (SPV) established to build, own and operate the end result of the project. Often the project company is a joint venture between various ‘sponsor’ companies. An SPV could also be partially owned by a government body or banks. Other firms consistently represent organisations which commission projects. Then there are the firms that act purely on the finance side for banks, guarantors, export credit agencies, governments and international funding agencies.

Energy

If a firm has an energy practice, most of its work will be based around oil and gas. This breaks down into upstream and downstream work. Upstream refers to the locating and exploiting of oil and gas fields (think 'drill, baby, drill' and you get the picture). Downstream refers to everything related to transport, processing and distribution – pipelines, refineries, petrol stations, etc. Many firms that do energy work trumpet their renewable energy and climate change expertise, but at any firm this will be a very small practice area. Power and utilities, and environment/regulatory are two other areas which are often considered to fall under the energy/projects umbrella.

What lawyers do

 

Projects

  • The work of an energy or projects lawyer mirrors that of a corporate lawyer – drafting, due diligence, getting parties to sign agreements – with several added layers of complexity.
  • There are several components to any project: financing, development and (often) subsequent litigation. Lawyers usually specialise in one of these areas, although they do overlap.
  • The field also encompasses specialists in areas like construction, real estate, planning, telecoms, healthcare and the public sector.
  • The financing of a project is riskier for lenders than other transactions are, as there is no collateral to act as security for the loan. For this reason risk is often spread across several stakeholders including the SPV, shareholders, the contractor, supplier, etc. The agreements which govern the relationship between the parties are the primary domain of lawyers acting for the project company.
  • Lawyers who act for lenders check over all project documentation, paying attention to the risks the lender is exposed to. Site visits and meetings on location are common.

Energy

  • Internationally, energy lawyers work on the contracts and licences agreed between international energy companies, governments and local companies. The upstream component of energy work often involves governments as they have the exclusive rights to certain natural resources.
  • Domestically, lawyers often interact with the Department for Business, Energy & Industrial Strategy. Energy is a highly regulated sector, and there are many government programmes and stimuli to encourage certain types of energy projects. EU regulations also frequently come into play.
  • Some energy lawyers work on energy infrastructure projects, but usually an energy lawyer is someone who works on contracts and agreements over (oil and gas) resources already being tapped. For example, they might produce so-called Production Sharing Agreements, which detail which proportion of profits go to different parties.
  • Because energy companies have very deep pockets, many energy financings happen without the need for a loan (this is called 'off-balance-sheet financing').
  • Disputes in the energy sector are often resolved through arbitration, particularly when they have an international element to them (which is often).

Realities of the job

  • Projects require lawyers who enjoy the challenge of creating a complex scheme and figuring out all its possibilities and pitfalls. Projects can run for years, involving multidisciplinary legal work spanning finance, regulatory permissions, construction, employment law and much more.
  • The value of transactions can vary from a few million pounds for projects to build domestic waste plants to deals worth billions to exploit massive oil fields. You have to get your head around these big numbers and understand what they actually mean: often the sum of money involved is the (potential) value of a joint venture or natural resource deposit. One of the things projects lawyers like about their job is that the product of their dealmaking is tangible: they can usually watch a mine, bridge or oil refinery being built before their eyes.
  • The world's energy resources have helpfully positioned themselves in some of the world's most politically unstable or dubious countries (Venezuela, Russia, Saudi Arabia, Iraq, Iran, Nigeria, etc). This adds an extra layer of interest and intrigue to many transactions. For example, the due diligence on building a diamond mine in West Africa might involve consideration of how many AK-47s and armoured personnel carriers the mine will need to operate.

Current issues

  • The UK's last deep coal mine Kellingley Colliery in North Yorkshire closed just before Christmas of 2015. Since then, the proportion of the UK's coal generated electricity has dropped considerably: output decreased to 16% in the first quarter of 2016 (down 9% on the same period in 2015) while the second quarter of the year saw the proportion of coal generated energy hit zero for the first time since 1882. Much of the UK's coal energy production has been replaced by the rise of renewable energy and shale gas.
  • Fossil fuels have taken a further hit as the value of oil has rapidly decreased, falling from $115 per barrel in 2014 to $27 per barrel in 2016, its lowest level in over ten years. Many oil companies have scaled back or suspended exploration and production projects, which means less activity for lawyers in this area, especially on the upstream side.
  • Government funding cuts and an increasing focus on shale gas have put the brakes on recent considerable growth in the renewable energy sector. MPs approved fracking under national parks in late 2015, while in 2016 Third Energy's North Yorkshire fracking proposal became the first successful fracking application in five years.
  • Nuclear projects are on the up as the UK's current nuclear power plants near obsolescence. Plans include three reactors in Cumbria and the possibility of building several mini nuclear power plants across the country. However, Hinkley Point C, the first of the planned reactors, has been hit by a series of delays and set backs including spiralling costs and trade union challenges. Funding was finally approved by lead financiers EDF in July 2016 but the project was almost immediately put on hold once again when the UK government postponed its decision to approve the power plant until later in the year.
  • In March 2016 the government announced plans to invest £100 billion in infrastructure by 2021; add in private investment too and this number is expected to rise to £425 billion. Major UK infrastructure projects include the controversial HS2 rail project, the extension of the London Underground's Northern Line to Battersea, the electrification of the Midland Mainline and TransPennine routes, and Crossrail. Meanwhile, the approval of the third runway at Heathrow hangs in the balance after Boris Johnson's departure from office.
  • PFI/PPP is also now being seen as an exportable model, and law firms are taking it cross-border. Africa is highlighted as a potential region for this work, and some believe that the Middle East will become an active area in PPP thanks to falling oil prices.