Oil & gas counsel burning bright

With oil prices continuing to hover near record levels and all-important exploration costs running into the billions of dollars in the ultra-competitive global industry, it should come as no surprise that in-house counsel in the oil and gas sector are pumped about the work they’re doing.

There are multi-dimensional challenges, both in the upstream (the production and exploration end of things) and in the downstream (the refining and retail sales side).

Sean McMaster, executive vice president, general counsel, and chief compliance officer at TransCanada Pipelines Ltd., says the Calgary-based company has never had as many initiatives on the go as it does in early 2008. They include projects in pipelines and energy, liquefied natural gas, and gas storage throughout North America. All told, the company has invested “tens of billions” of dollars into them. Its Alaska pipeline alone is worth between $25 billion and $40 billion, he says.

McMaster says TransCanada’s in-house team of 60 lawyers is juggling a wide range of duties, including financings, regulatory work, and contract negotiations.

“Pretty much everything we do is very capital-intensive, and we’ve got to come up with financing for those projects. We’re one of the more active capital-markets participants. We continuously have to raise more money and pay out the old money. We have $25 billion in debt, that’s more than many countries,” he says.
McMaster says there’s no sign of the workload letting up anytime soon, either.

“Our lawyers have been going full-out for a couple of years now and they’ve got two-plus years of going full-out to look forward to,” he says.

McMaster says its lawyers get involved in major projects virtually from their inception and work on them throughout their entire lifespan. From development through to construction and operations, that could mean a 20- or 30-year connection.

“You become quite attached to your projects because you work on them from the beginning. Whether it’s delivering gas to homes in Ontario when it’s minus 30 or keeping the lights on in markets from Alberta to Ontario to New England, it’s quite a satisfying feeling,” he says.

The in-house legal team is just as occupied over at Shell Canada Ltd. David Brinley, general counsel and company secretary for the Calgary-based integrated petroleum firm, says its 45 lawyers currently have a “huge swath” of legal work on their desks with large projects in different phases of development. They’re busy doing regulatory applications, environmental work, negotiating arrangements with contractors and construction firms, and acquiring land.

He says Shell’s large retail presence in particular — it has about 1,600 stations in every province except Newfoundland and Labrador — requires a significant amount of land and lease work. It’s a dynamic network, he says, because stations are being added in or taken out at any given time. He says there is also a lot of environmental work to do in terms of keeping the stations, which contain many potentially dangerous products, clean.

The marketing regulations and truth-in-advertising rules differ from province to province on the retail side, he adds, all of which poses an exciting challenge for lawyers, he says.

“Every market is a little different. Canada is a big country and there’s a broad scope of work. The downstream work is closer to the everyday public. The brand and reputational issues are quite important. That’s the face of Shell to Canadians. It’s relatively high-profile work. You get everyday people going in and out of those stations,”

he says.

Brinley says Shell also has to ensure it maintains positive relationships with various First Nations when exploring and producing oil.

“Most of the time it’s complying with Canadian law, which requires us to have discussions with those groups beforehand if we’re going to conduct activities that impact traditional lifestyles,” he says.

Despite the fact Alberta’s government announced a controversial new royalty structure in the fall that would increase its take from the oil and gas sector by more than $1.4 billion, the fallout has yet to reach the legal level, he notes.

Brinley says one of the great things about being part of a sophisticated legal department with global operations is the opportunity to work around the world.

“There is international demand for Canadian lawyers because they come from a sophisticated legal market. They’ve seen the entire range of legal activities, from litigation to regulation. They will always have value on the international legal market,” he says.

Rick Beingessner, vice president and general counsel of oil and gas exploration company Nexen Inc., agrees and says its 34 lawyers aren’t confined to working out of its Calgary head office.

In fact, it has lawyers doing service contracts and government relations in Yemen; four more working on its North Sea projects out of London, England; and another three in Dallas, working on its Gulf of Mexico projects.

Five of its 34 lawyers are currently dedicated to the Long Lake oil sands project in Fort McMurray, Alta., a $6.1-billion project of which it is a 50-per-cent partner, he says. They are currently charged with negotiating service and operational contracts with drilling and piping companies.

“We’re buying big pipes and valves — the pots and pans of a project,” he says.

Beingessner says his team spends a fair amount of time on the corporate governance side to make sure it’s as transparent as possible with the money at its disposal.

“Our corporate governance group ensures we have the proper governance structures in place, with the right people with the right skill sets. A lot of the shareholder groups are interested in director and executive compensation,” he says.

Beingessner says he believes Canada is slightly ahead of the U.S. when it comes to best practices in this all-important area, including having as many independent directors as possible.

“We think it’s part of the sustainable approach we bring. We want to make sure we act with integrity and follow codes of conduct. It makes it much more difficult to do business, but we think companies that pursue best practices deliver better financial results [than those that don’t],” he says.

Beingessner says Nexen is continuously scouring the globe for new opportunities, and the technical and labour-intensive nature of drilling — it recently dug a 8.8-kilometre-deep well in the Gulf of Mexico, its deepest ever — means expenses are sky-high and rising.

“The shortage of skilled labour and the cost of equipment are increasing all the time. Trying to be as efficient as we can is a challenge. It’s just so competitive and costly; it can delay your timing [of projects],” he says.

In fact, Beingessner says it wouldn’t necessarily be a bad thing if the oil and gas sector were to come off its torrid pace in the not-too-distant future. That would bring down some of the prices it has to pay and ease the contractual terms it has had to “tolerate” the last few years.

“The overheated sector we’ve seen has made our costs go up and forced us to accept contractual provisions that ordinarily we wouldn’t want to accept,” he says. Nexen's in-house team also works with its operations department when it looks at new technologies to lower emissions, for example, he says.

“We have to invest in the technology to see if we can limit that. Instead of sending it up the smokestack, we’re looking at trying to pump it back into the ground. That’s an evolving technology. We’re helping draft the contracts to get the expertise for the services and carbon-emission-reduction credits too,” he says.
Being a public company also brings its fair share of work and challenges.

McMaster says because TransCanada’s shares are listed on both the Toronto and New York stock exchanges, its lawyers have to ensure the company, which has a market capitalization of about $25 billion, is compliant with rules and regulations on both sides of the border. The scandals at Enron and WorldCom have ensured that securities, corporate governance, and compliance work is increasingly complicated.

“The regulators are keeping a close watch on what we do,” he says.

Despite the large in-house teams in the oil and gas sector, one thing they won’t handle on their own is litigation.
“We monitor it closely. Each litigation is unique. We don’t have a lot of it and it would be fairly expensive and inefficient to have that expertise in-house,” Beingessner says.

Brinley adds Shell follows the same approach and has substantial relationships with outside firms to handle litigation.

“That will always be necessary. Litigation is very difficult to staff in-house. It’s quite intermittent. You never know when it’s coming or when it’s going to end. It’s very labour-intensive,” he said.

Brinley said managing relationships with outside counsel can be tricky, particularly in Calgary, which has a relatively small legal market.

“It can be tough to find counsel that doesn’t have a conflict. It takes a lot of time to preserve a relationship from those conflicts. Outside counsel costs have been rising too, so we make sure we have the right balance of in-house and outside counsel on any particular project,” he says. IH

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