Power brokers

As all eyes turn to energy as the safe hedge in a turbulent market, there is no doubt that the sector’s general counsel are in an excellent bargaining position

In terms of legal spend, an energy company is a particularly lucrative client. To begin with, the acquisitive nature of these cash-rich corporates means that transactional advice is clearly a must. Also, as the recent BP oil spill all too effectively demonstrated, the high-risk nature of the industry provides a fair flow of environmental and litigation instructions too.

Then there’s the day-to-day work: maintaining global IP portfolios; assisting with construction issues; and all the other minor but important matters that keep global corporations ticking over. Even those minor matters are a valuable source of instructions because, of course, one of the most attractive features of being a preferred legal adviser to an energy company is that the largest players are global giants. One simple internal policy change could provide enough cross-practice work to keep a whole full-service law firm busy for months.

Unfortunately for law firms, most oil majors already have efficient, top-class teams at their permanent disposal. For example at Shell, regulatory specialist Peter Rees QC heads a global legal team of 1,000 people, meaning few opportunities for external counsel. However, as a company that operates across 90 countries, with a turnover of $470.2bn, even Shell’s slim pickings have the potential to provide meaty mandates.

Unfortunately for law firms, most oil majors already have efficient, top-class teams at their permanent disposal.

The figures speak for themselves. In 2011, the energy, mining and natural resources sector recorded $557.1bn worth of deals globally according to mergermarket, up 3.6% on the $537.7bn posted in 2010. It also accounted for 25.6% of global deals in 2011, giving it the biggest share of M&A deals globally and making it the most active sector. Significantly, the industry looks set to remain robust, following a 9.5% increase in the value of energy deals to $44.6bn in Q1 of 2012 – up from $40.7bn in Q1 of 2011.

It’s no wonder, then, that oil and gas corporates make up five of the world’s top ten largest companies, according to data compiled by the Financial Times for its FT Global 500 table. If we branch out to include the electricity, oil equipment and services and chemical industries, then those sectors account for 23 out of the world’s largest 100 companies. On size alone it’s clear that general counsel (GCs) at energy companies will hold considerable sway in terms of legal purchasing power.

Indeed, several energy GCs are among the most high-profile names in the in-house world. Topping the list in terms of fame (both inside and outside the legal sphere) is undoubtedly Rupert Bondy, who has been fighting fires at BP since the Gulf of Mexico oil spill in April 2010, which saw the US state bring a negligence claim against the company.

Sharing the limelight is Rees, who made the leap in-house after a very distinguished private practice career at Norton Rose and Debevoise & Plimpton. We canvassed the opinion of lawyers in the legal market’s top energy law firms to uncover the five leading (excuse the pun) powerbrokers in the energy in-house world. We have then turned to the five most popular candidates and asked them for their views on the private practice market.

 

François Graux International Power

General Counsel and Company Secretary

After eight years with Suez, there is no doubt that François Graux has earned his stripes. He has steered the company through two headline-grabbing mergers, the first with Gaz de France in 2008 and an ongoing second with International Power, to see it become part of the world’s largest independent utility company. Looking back over his 15-year career as an in-house lawyer, one deal stands out.

‘All deals require the highest level of attention and legal support but the combination between GDF SUEZ and International Power, and the current proposed buyout of the 30% shareholding still publicly listed, are transactions of a particular magnitude and interest,’ says Graux.

As name-making mergers go, the union between GDF SUEZ and International Power is undoubtedly a game changer. In 2010, GDF confirmed that it would take a 70% stake in UK-based International Power through a reverse takeover, which saw the partially state-owned French group inject its assets into the new company. The deal involved an 18-month ‘lock-up’ clause, which has now expired, leaving GDF SUEZ free to complete the tie-up. In April 2012, following a rejected bid of 390 pence a share, GDF confirmed it would be taking full ownership of International Power after an offer of 428 pence a share was accepted – valuing the company at £22.8bn.

It’s not all sexy transactional work though. ‘As business lawyers, our daily challenge is to be business facilitators and guardians of the interests of the company at the same time,’ says Graux. ‘Dealing with regulatory uncertainty is at the heart of our mission and is a fundamental driver for the energy sector.’

In addition to the usual day-to-day regulatory pressures, which are part and parcel of being a major player in the energy industry, Graux has also had to handle the inevitable political burden that comes with being a partially state-owned entity. This was evident in 2006 when SUEZ merged with GDF. At the time, the French government owned over 80% of GDF and the merger became victim to serious political posturing, with the Left fearing it would lose all hope of curbing escalating power costs. Nevertheless, the company got its way, and a new law was passed in 2007 to authorise the privatisation of GDF. The government still owns around 35% of the company, which makes value for money not only important but essential when instructing external counsel.

‘We look for availability, reliability and the highest quality, all at competitive rates,’ confirms Graux. ‘Experience of the sector is clearly important. Conflicts of interest, alternative fee arrangements and additional services provided by the firm also guide our decision making.’

The company’s preferred law firms are Clifford Chance, Linklaters and Shearman & Sterling, but as a member of the GDF SUEZ Group, it also instructs firms from the GDF SUEZ panel. Selected by Paris-based group general counsel Sandra Lagumina, the panel has not been completely finalised yet but is understood to also include French firm Bredin Prat. ‘Fundamentally, we want law firms to stick to their commitments, which includes fee arrangements,’ adds Graux.

A view from the market: ‘François was appointed new GC in February 2011 and oversaw the reverse takeover of 70% of International Power by GDF SUEZ. The group continues to expand so he will be involved in many deals in future’ – Matthew Williams, global co-head of the energy industry group at Hogan Lovells.

 

Rupert Bondy BP

Group General Counsel

Few general counsel are as well-known outside their industry as Rupert Bondy at BP. Following the Deepwater Horizon explosion in the Gulf of Mexico in 2010, which led to the largest oil spill in US history, BP has been subject to an enormous amount of global scrutiny. Bondy has sat squarely in the driving seat of the company’s risk management strategy, effectively steering its emergency response from the beginning of the incident through to the eventual financial settlement.

The consensus is that few in-house lawyers could have responded so assuredly to what former White House energy adviser Carol Browner called the ‘worst environmental disaster the US has faced’.

‘For some, Rupert wasn’t the obvious choice for BP at the time of his appointment,’ says oil and gas specialist Paul Griffin. Formerly Herbert Smith’s BP relationship partner, Griffin moved to Allen & Overy in 2010. ‘Although he was very experienced, it wasn’t on the energy side – he was with SmithKline Beecham (later GlaxoSmithKline) for 13 years.’

Griffin says that Bondy adapted quickly to the role and his experience in working for dual-listed companies, as well as his abilities in dispute and crisis management learnt during his stint at a global pharmaceutical giant, served him well. ‘Nobody could have anticipated how much litigation the role would involve, particularly US-based litigation,’ adds Griffin. ‘His background ended up being completely appropriate for the job; he has shone at BP.’

‘Rupert must have faced the toughest challenges of any GC and has expertly applied both his oil industry knowledge and judgement for BP.’

The US government held BP and its partners responsible for the spill and as the damage caused by the oil leak extended to marine and wildlife habitats, the regional fishing industry and even tourism, it created huge potential for litigation. To manage the process, BP set up a $30bn compensation fund for approximately one million claims. Although originally a corporate lawyer – he began his career in the M&A department at Morrison & Foerster and then Lovells before moving to SmithKline Beecham in 1995 – Bondy has demonstrated that he is more than adept at managing the legal function from a contentious angle. However, most would consider him more than just a lawyer.

‘Bondy is one of the main examples of a legal director that operates in a secretarial rather than GC role,’ says Griffin.

Showing the extent of his immersion in the commercial running of the company, Bondy has done far more than co-ordinate legal strategy – although some might say that handling that task alone when shouldering such a mammoth legal liability would be more than enough work for one man. In addition to analysing the legal implications, he has also been a key figure in the PR fight to defend the reputation of the beleaguered UK-based oil and gas major. His name has appeared in the pages of newspapers across the world, from The Telegraph to The New York Times.

A view from the market: ‘Rupert must have faced the toughest challenges of any GC and has expertly applied both his oil industry knowledge and judgement for BP’ – Penelope Warne, head of oil and gas, CMS Cameron McKenna.

 

 

Andrew Carr Sellafield

Head of Legal Services

Andrew Carr, Sellafield’s head of legal services, is one of the UK’s foremost nuclear specialists and one of the biggest names in the in-house community. Carr remains modest about the pressures of the role, but there’s no doubt it’s a tough gig.

Few industries have experienced the dramatic swings and roundabouts of the nuclear sector. Calder Hall, the first commercial nuclear power station in the UK, was connected to the grid in 1956 and the fickle nature of energy policy has seen nuclear power either loved or loathed ever since. In 2008, for example, the government gave the go-ahead for a new generation of power plants, only for the Fukushima disaster to stall the country’s much-heralded nuclear renaissance. Sellafield sits at the vanguard of the country’s nuclear programme: home to Calder Hall, among other legacy plants, it is now a major centre for decommissioning.

‘While in the nuclear energy cycle, we’re clearly in a different position to an operating power station,’ says Carr. ‘But clearly success at Sellafield will support the success of broader nuclear safety. We’re very concerned and always have been, about how to manage spent fuel and how to manage waste products. I would like to think that success in our programmes supports success in public opinion towards the future of nuclear programmes.’

In a sector as heavily regulated as nuclear, it is important for Carr that external counsel understand the unique demands and precedents of the industry. The company has an annual legal spend of between £750,000 and £1m, subject to a lot of variability, but the 12-strong in-house team is more than capable of handling environmental, property, regulatory and employment matters by itself.

When it comes to managing the legal function, Carr is emphatic on one point and that is transparency.

‘We have a three-stage rule,’ says Carr. ‘When we need specialist knowledge and expertise on a key piece of regulation, such as a new point of law for example, then we’ll go to specialist counsel. Also, we’ll occasionally seek legal advice outside the UK. We also use external counsel to help manage the peaks, while we handle the troughs – although there aren’t that many troughs to be honest!’

When it comes to managing the legal function, Carr is emphatic on one point and that is transparency. ‘We have very tight processes in terms of how we manage outsourcing work,’ he says. ‘We have a strict and standardised procedure in terms of clarity around quotes: we need to understand and review the quote to ensure we’re satisfied the bills we’re receiving, and the advice that we’re getting, match up to provide value for money.’

Indeed, Sellafield requires complete discipline from law firms. No quote can be exceeded without prior permission and bills will not get paid unless firms get back to the client and explain why.

‘So in a sense, we don’t necessarily expect innovative approaches on cost from external law firms as we use rates that have been competed, but what we do expect is compliance with the processes that we apply,’ says Carr.

A view from the market: ‘Andrew combines the instincts of a first-rate litigator with a strong commercial background and approach. He is also steeped in the industry and has a genuine passion for the company for which he works’ – Jonathan Isted,  environmental specialist and joint head of consumer healthcare at Freshfields Bruckhaus Deringer.

 

Graham Martin Tullow Oil

General counsel and company secretary

One of the energy lawyers canvassed told LB: ‘If you cut Graham Martin he would bleed Tullow Oil.’ Hyperbole aside, there is no doubt that the longevity of Martin’s partnership with the company is impressive.

Even before joining the London-based oil and gas exploration company in 2004, Martin regularly advised Tullow: he was originally at Dickson Minto and later Vinson & Elkins – two firms that still enjoy good relationships with the company. Martin’s association with Tullow goes back as far as the company’s foundation in 1985, which awards him enviable insight into the commercial development of the emerging oil giant. So when asked to choose which deals have been his career highlights, he has a difficult job whittling them down.

‘All of our corporate acquisitions have been interesting, and good fun to work on, but the acquisitions of Energy Africa (2004) and Hardman Resources (2007) stand out for me as step-change deals in Tullow’s history – both deals gave us access to great people as well as assets,’ he says. ‘Closing the sales of our assets in Uganda to Total and CNOOC (China National Offshore Oil Corporation), which took over 24 months, was probably the most challenging deal we worked on.’

In 2011, Tullow instructed global oil and gas specialist Vinson & Elkins to advise on its headline $2.9bn sale of stakes in three oil projects in Uganda, a mammoth deal that showed just how far the company had come. In 2004, the year that Martin joined, the group more than doubled in size following a $1bn spend on various investments and acquisitions. The major highlight however, was the discovery of the Jubilee field in offshore Ghana in 2007 – its largest-ever find. Tullow has come a long way and it now has a market capitalisation of £13.12bn but as Martin points out, it’s not all plain sailing.

‘The key issue currently affecting our business is the general global economic uncertainty and the effect that has on the investment climate,’ he says. ‘While the oil and gas sector is not in recession, macro-economic risks remain unusually high.’

‘The key issue currently affecting our business is the general global economic uncertainty and the effect that has on the investment climate

Luckily few companies are as well hedged in terms of geographical diversification. Tullow boasts exploration and production assets in 23 countries, spanning Africa, Europe, South Asia and South America – the nature of the industry ensuring it is particularly well positioned in emerging markets. As law firms try to make themselves more attractive to multinationals by rushing into new jurisdictions and jockeying to form the most extensive international networks, Martin is perfectly placed to comment on which cross-border method is most helpful. Does Martin prefer to instruct firms with a broad foreign network or a local firm that is able to refer him to the best independent player in each region? Despite the importance firms place on ‘seamless international service’ it seems that Martin looks for a more bespoke approach.

‘It has always been horses for courses for us,’ he says. ‘We use who we think is best placed to advise on a particular matter in a particular jurisdiction.’

A view from the market: ‘Graham Martin seems to me to fit the classic GC profile of being both a lawyer and a businessman. He has helped to grow the business from its days as an oil and gas minnow to where it is now: a FTSE 100 company and a household name’ – Alexander Msimang, London managing partner at Vinson & Elkins.

 

Peter Rees QC Royal Dutch Shell

Legal Director

In 2010 Shell’s legal director of seven years retired, leaving big shoes to fill. Beat Hess’ market profile made it crucial to hire a heavy hitter to replace him: a commercial lawyer with a good reputation and someone who could multitask. The company turned to arbitration specialist Peter Rees QC.

A construction lawyer by trade, Rees began his career at Norton Rose. He rose to global head of dispute resolution before attracting the attention of Debevoise & Plimpton’s London office, which he joined in 2006 to help build the litigation department. There, his highly active advocacy practice got him noticed and he was made QC in 2009. A mere year later Shell made the call to invite him to run their 1,000-strong legal function.

There is no doubt it was a timely appointment. As risk management climbs up the corporate agenda, the company has become increasingly vulnerable to litigation. Shell’s size and its industry profile make it an obvious target.

‘Groundless litigation and thoughtless legislation are a challenge for a large company such as Shell,’ says Rees. ‘Shell is seen as a deep pocket by litigants in parts of the world where it is still too easy to bring claims without substance and at no cost risk. On the legislation side, there seems to be an increasing tendency to push legislation through, without taking the time necessary to consider properly whether such legislation will have the desired effect or be capable of proper implementation.’

In that light, Rees was the perfect choice to help guide the company through the regulatory mire. To help him, Rees has a very focused method of outsourcing legal work inherited from Hess.

‘Rees’ appointment reflects the renewed focus on regulation and compliance, which has become a critical area for the super majors.’

‘My predecessor created a global panel system for our major, global work consisting of Clifford Chance and Allen & Overy for corporate transactions, Simmons & Simmons for projects, Hogan Lovells for disputes and Jones Day for antitrust,’ says Rees. ‘What I have learned, however, is that far more major deals can be handled entirely by in-house lawyers than I ever thought possible – and that is what we do with the vast majority of our transactional work.’

Shell boasts lawyers in more than 40 countries, and with operations in more than 80 countries it regularly uses a large number of other law firms around the world. This international perspective gifts Rees with an ability to compare and contrast legal services, and he has a clear view of what he expects.

‘I think law firm marketing could be more focused – there is a tendency to add you to every mailing list for every briefing a firm sends out. It should be more practical in approach,’ he says. ‘More generally, law firms need to understand precisely what a client needs rather than assuming what it needs and project manage its lawyers to provide more predictability in billing.’

A view from the market: ‘Rees’ appointment reflects the renewed focus on regulation and compliance, which has become a critical area for the super majors – especially following the Macondo incident and key new legislation such as the UK Bribery Act. He doesn’t compromise on quality and is generally perceived by the market as a very safe pair of hands into which to entrust the highly prized Shell brand’ – Greg Hammond, transactional energy partner at Akin Gump Strauss Hauer & Feld. LB