A global surge in commodity prices is pushing energy back to the top of law firms’ agendas, especially in Scotland. Sophie Evans finds the top Scots players positioning themselves to profit from fossil fuel and the power of tomorrow
As market dynamics shift from a dearth of lawyers to work on deals to a dearth of work to keep fee earners busy, Scotland’s law firms are thanking their lucky stars for the energy market. The renewed focus on North Sea oil sparked by high prices and lack of supply is certainly serendipitous for the spread of work it is providing to Scotland’s law firms. From health and safety reviews of oil rigs, to advice on decommissioning them, to raising finance for the companies seeking to invest in oil and gas or renewable energy, the business opportunities are varied.
Of the few successful initial public offerings (IPOs) seen in corporate departments of law firms this year, a large proportion has been energy-based. And energy-themed deals are typically much larger than the Scottish average. Big four firm Dundas & Wilson recently acted for Bank of Scotland Integrated Finance, Uberior Integrated and ISS, in a £143m debt and equity structured acquisition of Aberdeen-based subsea company Integrated Subsea Services. And CMS Cameron McKenna advised Abu Dhabi National Energy Company subsidiary TAQA Bratani on a sale and purchase agreement with Shell UK and Esso Exploration and Production to acquire six offshore fields in the North Sea.
This flagship deal is indicative of the appetite for investment in the North Sea, to squeeze the last drops of oil out of the fields. Camerons Aberdeen partner Norman Wisely says oil and gas deal activity in Aberdeen picked up a year ago, although the past four to five years have all been busy. With the oil and gas work representing 90%-95% of the Aberdeen office’s work, Wisely says he does not expect work in the sector to drop off for some time.
Because of this sustained deal activity, Aberdeen continues to be a popular city for law firms to invest in. McGrigors’ hire of the oil and gas team at respected Aberdeen energy specialist Ledingham Chalmers in 2006 has worked well, according to managing partner Richard Masters: “The timing has turned out to be very good; energy is a sector that continues to be active, from North Sea activity through to the Government drive for sustainability”.
Masters, like many of the managing partners at Scotland’s leading firms, identifies Aberdeen as the growth area for McGrigors in Scotland. “Aberdeen has provided a real boost,” he says.
Strength in diversity
Part of the energy attraction is undoubtedly the diversity of disciplines the sector can encompass, meaning many departments are kept busy. But energy aside, Scotland’s firms are keen to stress their breadth and diversity of practices within the firm, with many seeking to broaden their offering and client base over recent years. Dundas & Wilson’s 23% turnover increase for 2007-08 will undoubtedly be hard to match in the coming year, and the firm’s conscious focus on high value deals will put pressure on the firm’s business model. Head of corporate Michael Polson says the trend has switched from an emphasis on transactional to advisory work: “We have to make sure we have as much intelligence as possible in terms of what our clients are looking to do with their businesses. We are not doing anything new as a law firm, but there is a different mix in the proportions of transactional and advisory work we are doing.”
Managing partner Alan Campbell points out that the firm’s reputation in advising on large projects — such as its win of a £4.2bn Forth Crossing project — is a boon to Dundas right now. Public sector investment in transport, water and utilities is forging ahead, creating opportunities for legal advisers.
Harper Macleod chairman Lorne Crerar says the firm’s strategy to diversify the disciplines it has and the sectors it serves is its way of dealing with a challenging economic situation. “Every firm will look at the economic situation differently; the best thing we could have done is to have a diverse client base,” claims Crerar.
During the past 18 months, the 41-partner firm — which this year is celebrating its 20th anniversary — has won a number of public sector clients, giving the firm a balance between public and private that will cushion it from a slump in private sector deals. Winning new clients such as the Highlands and Islands Enterprise, the Government economic development agency for the region (the firm boasts an office in Inverness) and an appointment to take on all the Forestry Commission’s property work are two manifestation’s of Harper Macleod’s diversification strategy. With the Forestry Commission owning 10% of Scottish land, the instructions inevitably stretch into renewable energy — many firms have dedicated, cross-departmental renewables teams to advise clients investing in a sector which is acknowledged to have huge potential north of the border.
As Maclay Murray & Spens managing partner Magnus Swanson points out: “It is the future, not the present — I don’t think it is an overwhelming economic issue for law firms right now.” Maclays’ acquisition of the corporate and real estate team of Aberdeen outfit Iain Smith & Co means the firm’s capacity to advise oil and gas clients who are interested in diversifying into renewables has been significantly strengthened; Maclays’ Aberdeen office now boasts seven partners and 24 laywers in total, from a standing start of one partner in 2003. Like Harper Macleod, Swanson says Maclays has been building its public sector client base, as sectors such as education represent a greater chunk of Scotland’s already public sector-reliant economy.
The rush for renewables
It would be wrong to accuse Scotland’s law firms of jumping on the energy and renewables bandwagon as a means of cushioning the fees blow that firms are taking in other areas; many have credentials stretching back two decades, when the first wind farms and hydro projects were being built in Scotland. And there is a recognition that Scotland needs to stay on the cutting edge of renewable energy innovation, especially as traditional heavy industry continues to decline.
One illustration of this is the world’s first deep water offshore wind farm which is in Scottish waters — part of a project which includes 18 different organisations from six European countries, the so-called DOWNViND (distant offshore wind farms no visual impact in deepwater) project.
Law firms are taking different approaches to cashing in on the renewable energy opportunities, such is the breadth of legal advice needed in this field. For smaller law firms such as 22-partner Gillespie Macandrew, leveraging a renewables practice from its strong private and rural client base makes sense. With many of the firm’s private clients being landowners who need advice on wind farms and other renewable energy projects, managing partner Ian Turnbull says the firm is “actively promoting” its expertise in acting for landowners in this context; private client currently accounts for 60% of its turnover. Gillespies has also acted for huge landowner Alcan on a number of hydro electric schemes, to power the company’s aluminium smelters.
Other firms are taking their expertise beyond Scotland, to the rest of the UK and overseas. For example, McGrigors was recently sole adviser to HSBC on a £30m project financing for the construction of a Durham wind farm.
Spanish energy giant Iberdrola’s acquisition of Scottish Power has seen the company form a spin-off, Iberdrola Renewables — big four firm Shepherd & Wedderburn acts for the spin-off on projects both in Scotland and further afield. “We have been advising on renewable energy deals for 20 years and have around 80 projects under our belt,” says chief executive Patrick Andrews.
“Renewables touches every discipline, from corporate, to finance, to property and construction,” says Andrews. That arguably sums up why law firms like energy deals so much right now — they are a welcome presence in the deal market, providing a steady stream of work in uncertain times.
ScotlandJuly2008
