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. 

Renewable energy is in a transitionary stage, as investment begins to increase in this area. For example, the international Energy Agency reported that governments and private investors have committed a combined $337 billion to the development and deployment of hydrogen. 

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 2023

  • The UK has imposed sanctions on Russia in response to the invasion of Ukraine. The Russia (Sanctions) Regulation 2022 prohibits the export of energy-related goods to Russia and to a person connected with Russia, irrespective of the product’s end use. There will also be a prohibition on drilling or well testing. With the global increase of the price of oil, there have been attempts to breach such sanctionsFor example, in August 2023, hundreds of oil tankers left Russia to bypass the Western price cap that came into force from December 2022 ($60/barrel for crude, and $100 for diesel), which had been introduced to reduce Russia’s oil revenue.  
  • In 2022 the UK government released its Hydrogen Sector Development Action Plan, outlining its plan to build Hydrogen into the energy economy. In 2021, the Hydrogen Council estimated that investment into the global hydrogen economy will be £500 billion by 2023. The plan highlights the nature and the scale of opportunities across the UK’s Hydrogen economy and focuses on four core areas: Investment; supply chains; jobs and skills; exports. 
  • At the time of writing, there is currently one nuclear power station under construction in the UK, at Hinkley Point C, which began in December 2018. The 3.2 gigawatt plant will provide low-carbon electricity to six million homes. However, the project has been plagued by delays due to COVID-19 and the invasion of Ukraine, but construction started back up this year. Current reports suggest the site may be completed by June 2027, costing around £25 billion. In November 2022, a construction worker was killed in a traffic incident on-site, and another major bus crash occurred in January 2023 on the way to the construction site. 70 workers were on the bus, 27 of whom faced minor injuries while 26 were seriously injured. 
  • With the invasion of Ukraine throwing the global energy system into disarray, Prime Minister Rishi Sunak authorised an £18 million Help for Households information campaign in October 2022 to encourage the general public to save energy. The advice includes technical tips for keeping warm whilst cutting energy use. According to the government, average households could save £160 a year on energy bills if they turn down radiators and reduces boiler temperature by 15 °C. 
  • In 2022’s Autumn Statement, Chancellor Jeremy Hunt stated that the government has recommitted to the £5 billion East-West Rail Link project that links university towns Oxford and Cambridge. At the end of 2022, the Department for Transport also approved plans for a new Cambridge South railway station, which will cost £184 million and may eventually sit on the East-West line. 
  • At the beginning of 2021, transport secretary Grant Shapps announced the government's plans to re-invest into both the North and South railway lines. The investment package includes a £794 million cash commitment, £34 million of which will aid the much-awaited reopening of the Northumberland Line between Newcastle-Upon-Tyne and Ashington. 
  • In 2020, the Oil and Gas Authority signed off on a Southern North Sea (SAC) gas project that will see the development of 410 billion cubic feet of gas reserves across six gas fields. CEO Andrew Hockey has stated: “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).”A new phase of work begun in April 2023 on the Anning and Somerville fields, and phase 2 will see development of the Hodgkin and Lovelace fields. 
  • There have been talks of a new coal mine in Whitehaven, Cumbria, replacing a previous mine that operated between 1916 and 1986The scheme was eventually approved in December 2022, and this decision has faced backlash from environmental campaigners, especially in the light of the government’s 2050 net carbon neutral goal. The High Court recently rejected South Lakes Action on Climate Change (SLACC) and Friends of the Earth’s attempt to stop plans going aheadHowever, supporters of the mine point out that it will create at least 500 new jobs and would reduce the importation of steel from Australia and North America
  • Plans to build a third runway at Heathrow Airport have been delayed since the COVID outbreak. This expansion will mean that the airport can facilitate an extra 260,000 flights a year, creating jobs and growing the economy. However, environmental groups have expressed concerns about the project, as it would affect the UK’s carbon emissions and cause increased air pollution. Locals in the area are also against the proposal due to the noise pollution and demolition of hundreds of homes that would be necessary for the project.
  • Homing in on the industry’s five-year target, a few oil and gas projects are in the works: the Mariner Project, 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. 
  • Both Crossrail and High Speed Two (HS2) faced numerous delays and their final costs are set to come in far above their initial budgetsCrossrail, otherwise known as the Elizabeth Line, was finally completed in May 2023.However, HS2 was recently deemed ‘unachievable’ due to difficulties constructing the line between London, Birmingham and Crewe. HS2 CEO, Mark Thurston, resigned as this news was announced. It is now estimated that it will open between 2029 and 2033 and may cost between £53 and £61 billion. Click here for more information on HS2 and the law. 
  • MPs have struggled to come to a decision regarding the renovation of the Houses of ParliamentAlthough the building is already under construction, its plumbing systems still use Victorian steam engines, the pipes pose a serious fire risk and there’s asbestos running through the entire building. In 2018, parliament had agreed to vacate the building and appoint an external body to run the project, which could take between 19 to 28 years, costing £7bn to £13bn. In 2023, there is still no clear plan of action but, if MPs stay put, the project may take 76 years and could cost a whopping £22bn. 
  • The government has promised to build 40 new hospitals by 2030, which will be backed by a £20bn+ investment in hospital infrastructure. Two hospitals are already finished with five more underway. By the end of 2024, at least 20 will be completed or in construction. As part of this New Hospital Programme, 5 major hospitals will be rebuilt in West Yorkshire, Norfolk, Cambridgeshire, Cheshire and Surrey. 
  • To further support the use of green energy, the UK has banned the sale of halogen lightbulbs. The ban will reduce carbon emissions by 1.26 million tonnes per year. It’s thought LEDs will account for 85% of lightbulbs by 2030.