Projects and energy

In a nutshell

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.

If a firm has an energy practice, most of its work will likely 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. 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, and while this is a growing area of practice it remains relatively small. Power and utilities, and environment/regulatory are two other areas which are often considered to fall under the energy/projects umbrella.

Projects and Energy

What lawyers do

  • 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.
  • 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 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 can run for years, involving multidisciplinary legal work spanning finance, regulatory permissions, construction, employment law and much more. This practice area requires lawyers who enjoy the challenge of creating a complex scheme and figuring out all its possibilities and pitfalls.
  • 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 deal-making 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

October 2020

  • Post-lockdown, transport secretary Grant Shapps announced that approximately £2 billion of fresh funding has been allocated to infrastructure projects across the UK to boost the market. The fund will help towards upgrading roads and railways as well as emphasising cycling and walking.
  • In the early days of Covid-19, the offshore industry was hit hard with the drop in oil’s value and the price war. Estimates suggested up to 20% of the offshore workforce could be laid off and staffing cuts may remain in place until 2021. The Oil and Gas Authority has signed off on a southern North Sea gas project that will see the development of 410 billion cubic feet of gas reserves across six southern North Sea gas fields. Independent Oil and Gas’s Andrew Hockey states: “This innovative low-carbon project, re-using previously decommissioned infrastructure to develop otherwise stranded domestic gas resources, is a definitive example of maximising economic recovery (MER).”
  • Homing in on the industry’s five-year target, a few oil and gas projects are in the works: the Mariner Project, Fawley Refinery, Western Isles Project and the Rosebank Project. The $7 billion Mariner Project is on the larger side and is expected to produce more than 300 million barrels of oil over the next 30 years. Production started in August 2019 in the North Sea, providing jobs to more than 700 people onshore and offshore.
  • Current large-scale rail projects in the UK include Crossrail and High Speed Two (HS2). Both have faced numerous delays and their final costs are set to come in far above their initial budgets: at the time of publication, Crossrail's full line opening looked to be delayed until 2023. Check out our website for a full evaluation of HS2 as an example of projects law in action.
  • The gradual revival of the UK’s solar energy market has included the planning approval of a 350-megawatt solar project on Cleve Hill in Kent. Completion is set for 2022, with construction beginning in spring 2021, and the development is being managed by Hive Energy and Wirsol. Despite being notorious for grey skies, the UK has experienced an increase in sunny days between 2013 and 2017.
  • The government’s plans ease planning legislation, announced in July 2020, pave a smoother path to construct large batteries to store renewable energy from solar and wind farms across the UK. This change comes at a great time to aid projects such as Cleve Hill, which may involve a considerable amount of battery storage. Minister for Energy and Clean Growth Kwasi Kwarteng noted that “removing barriers in the planning system will help us build bigger and more powerful batteries, creating more green-collar jobs and a smarter electricity network.” This is yet another development towards achieving the 2050 target; plus, the enhancement of the UK’s electricity grid and integration of low-carbon power could save the energy system up to £40 billion.
  • Nuclear projects were on the up as of 2019 but the market now faces not only rising costs and cheaper renewables, but domestic opposition and rocky relations between London and China which have affected the progression of certain projects. At present, only the Hinkley Point C project looks set to go ahead.
  • 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 electricity generated by coal has dropped considerably. In 2017 more electricity was generated by renewable and nuclear sources than by coal and gas for the first time, and the UK set a record coal-free run in 2020 after going two months without burning any coal for energy production.