Two weeks ago we wrote about a number of energy firms that had established branch offices in western Pennsylvania to take advantage of growth opportunities in the Marcellus Shale. This week, energy news is once again at the forefront with the blockbuster announcement of Kinder Morgan’s acquisition of El Paso Corporation for $21.1 billion, one of the largest energy deals ever recorded. Tapping into the boom in natural gas drilling and production from shale, the transaction will create the largest midstream energy company in North America and will make Kinder Morgan the largest pipeline company in the United States. In another recent deal, Energy Transfer Equity and pipeline operator Southern Union Company agreed to merge in July. International players are also targeting North America. On Monday, Statoil of Norway agreed to buy Brigham Exploration Company for $4.4 billion, gaining access to the “tight” oil plays in the Williston Basin in North Dakota and Montana.
What does this mean for law firms? First of all, it means that energy transactions are dominating the deal landscape and they are therefore a top priority at many law firms. Despite the economic slowdown, investment in the energy sector shows no signs of letting up. For the first nine months of 2011, energy was the most active sector in corporate mergers and acquisitions, garnering 17.2% of announced deals worldwide, according to Thomson Reuters. In the U.S., energy deals also led in the first nine months of 2011, totalling $167.7 billion, a 20.2% share of U.S. M&A activity, and a 12.1% increase compared to last year.
Secondly, energy work is a major driver of strategic direction at law firms. A new article by Mark McAteer and Michael Northcott in the October issue of Legal Business (subscription required), illuminates how law firms are responding to trends in the industry and positioning themselves for success. For now at least, energy is king,” proclaim the authors. ””[I]t is an inescapable fact that clients of the energy practices at some of the world’s largest law firms have dictated global growth strategies.” The authors argue that firms of “any size” are now taking energy seriously and that regardless of whether or not the firm has a longstanding practice in the sector, energy is driving the strategy of law firms.
Recent examples abound, including:
- Latham & Watkins opened an office in Houston in January of last year, which the firm described as a “key part of our firm’s strategy to develop a leading international energy practice.” The office has since grown to 45 transactional lawyers. Legal Business reports that the firm has played a role in four of the ten largest energy deals of 2011 thus far.
- On October 1st, Squire, Sanders & Dempsey added 80+ Perth-based lawyers from Minter Ellison giving the firm a focus on mining and energy-related work in Australia.
- Norton Rose, which had already combined with Deacons Australia in 2010 and both Ogilvy Renault in Canada and Deneys Reitz in South Africa in 2011 – three natural resources-driven mergers – announced a new combination with Canada’s Macleod Dixon two weeks ago. When it becomes effective in January, the firm will have more than 200 energy lawyers and more than 200 mining lawyers worldwide. Quoted in Legal Business, Nicholas Pincott, energy partner at Norton Rose says, “Energy has always been a key plank of what we do. Our growth goes hand in hand with the locations where things are picking up.”
But is this phenomenon for real or are firms simply “jumping aboard the energy bandwagon?” According to Penelope Warne, head of the energy practice at CMS Cameron McKenna, “Every firm seems to have a cosmetic energy practice but if some were honest, they would say that they do not actually practice energy law.” Other lawyers feel that the real threat to established players will come from firms in China, Russia, Brazil and India, many of which are becoming increasingly more sophisticated.
One thing is clear. There appears to be no slow down in sight for energy mandates. How well firms prosper (or not) will be determined not only by market conditions, but by how well they know their own practice strengths and weaknesses or in other words, how well they know themselves.
Posted by Marianne Purzycki