In previous careers, Vinson & Elkins (V&E) lawyers were roustabouts and roughnecks — petroleum engineers, land men and oil tanker dispatchers. They anchored pipelines to the Persian Gulf bed and the Atlantic Ocean floor, to the Alaskan tundra and the
‘Oil in the blood’ is a metaphor that pops up a lot in
Expensive oil may be bad news for the guy filling up at the corner pump, but it powers a strong countercyclical practice at the largest global firms. To the
premier firm for energy in the world.” The Texans’ challenge is to persuade people such as BP’s Bondy — and his counterparts at the newly ascendant national oil companies — to pick lawyers with historical ties to the industry.
To be lord of the oil patch is a prize worth fighting for today. The share of all M&A attributed to the energy, mining, and utility sectors rose from 10% in the first half of 2007 to 30% in the first half of 2008, according to Mergermarket. Much of that is because of mining, but energy M&A maintained a high level of activity under difficult credit conditions. And even the volatile price of oil has not deterred M&A, partly because traders can now buy hedging derivatives, and partly because people in the field agree that oil and gas values will only drop so far. “People have bought into the concept that prices are up and will stay up,” says Michael Dillard of Akin Gump Strauss Hauer & Feld.
But as strong as energy M&A has been, project finance is where the action really happens. According to Infrastructure Journal, the value of oil and gas project financings closed in the first half of 2008 was $143bn (£81.7bn) — 20% more than during the entire year of 2007. “We used to think a megaproject meant $1bn ($750m),” says Eric Silverman, the head of projects at Milbank Tweed Hadley & McCloy. “We’re now clearly in the realm of $10bn (£5.7bn)-plus.”
Since the last oil boom,
Even if English law is now the lingua franca of oil and gas, it is often still spoken with a
In terms of deal flow, V&E routinely sets the pace in global oil and gas M&A, averaging a deal a week throughout 2006 and 2007, according to Thomson. Measured by deal value, Baker Botts took pride of place in 2007 oil and gas M&A, with $45bn (£25.7bn) in deals. Most memorably, Baker helped create the world’s top offshore oil rig supplier in the $17bn (£9.7bn) merger of Transocean with GlobalSantaFe Corporation (Skadden Arps Slate Meagher & Flom represented GlobalSantaFe).
In the first half of 2008, V&E’s deal pace slackened to one deal every 10 days. This was still well ahead of rivals — especially in the
Eight of the top 10 spots were taken by US firms in 2007, compared to only two of the top 10 spots in the first half of this year. By value, Baker Botts’s mantle has been taken by Linklaters, with $24bn (£13.7bn) in announced deals. Notably, Linklaters advised Goldman Sachs on the $14bn (£8bn) hostile bid by BG Group for
When it comes to project finance, the Texans’ boast is even harder to defend. The Texans perennially trail a strong pack of
It was followed by CC, White & Case and Linklaters, which each tallied at least $20bn (£11.4bn) of deals. (Freshfields Bruckhaus Deringer is no longer in the mix, having down-scaled its projects department.)
To be sure, the Texans help to create some of the most complex hydrocarbon projects. The staffing of BP’s Baku-Tbilisi-Ceyhan pipeline in the
“A lot of times you’ll hear a firm call itself an energy firm when really they’re a big-time finance firm.”
Still, the numbers don’t lie, and even the lender-side lawyers in
The Texans know they have some global catch-up to do. Last year, Baker Botts opened in
As the geography of their global expansion suggests, energy law firms see national oil companies (NOCs) as the wave of the future. The so-called NOCs control about 80% of the world’s oil reserves; and, as recent entrants to the dealmaking game, they need outside legal help. Indeed, the contrast in staffing is stark. Giant NOC
PetroChina Company, with its parent China National Petroleum Corporation (CNPC), has only 55 in-house lawyers. Yet Royal Dutch Shell has 750 — even though PetroChina has about double the market capitalisation.
With private equity on the sidelines this year, the bidding on big-ticket oil deals has been left to oil companies. Reserve-rich NOCs are using their cash to diversify globally, while the NOCs of oil-importing nations are desperate to acquire assets. A pair of $5bn (£2.85bn) deals this year exemplify the trends. Abu Dhabi National Energy Company, represented by Latham, bought
A trio of free-spending NOCs are also responsible for much of the world’s project activity. It should come as no surprise that these companies — Saudi Arabian Oil Co (Aramco), Gazprom, and Qatar Petroleum — are among the world’s very largest holders of hydrocarbon reserves.
Last year, White & Case advised Qatar Petroleum and Shell on the final stage of liquefied gas projects with a combined value of $30bn (17bn). Aramco (working with various partners, but always with White & Case) has either closed or announced four vast refinery and petrochemical projects since 2006, with a collective price tag of $50bn (28.5bn). To the north, Gazprom and its partners have even bigger eyes. The first phase of a $20bn Gazprom LNG project on
A few firms are obviously well-positioned to benefit from the NOC bonanza. W&C works with the national companies of Saudi Arabia, Qatar, Nigeria and Indonesia; Shearman with Abu Dhabi, Algeria and Kazakhstan; Thompson & Knight with Kuwait, Angola, South Africa and, especially, Brazil. Cleary advises most of the Latin American NOCs and handled the 2005 Rosneft Oil Company initial public offering.
The magic circle law firms benefit from the NOC trends largely by representing Western oil majors or banks in their sometimes-perilous collaborations in
When it comes to NOC diplomacy, the
This article first appeared in the The American Lawyer, Legal Week's US sister title.
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