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Baker Botts’ Energy Lawyers Review 2016 and Comment on Outlook for 2017

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HOUSTON, January 12, 2017 - Energy lawyers at Baker Botts, L.L.P., deliver their personal insights on the major energy issues that shaped 2016, and discuss the outlook under the new Trump Administration, including the Secretary of Energy appointment, market trends and policy for 2017. 

Steven Miles - Energy Sector Chair and Head of the Firmwide LNG practice based in Washington, DC 

“In 2016, the natural gas ‘revolution’ and, in particular, the rapidly expanding international seaborne LNG cargo trade, brought benefits to consumers in many countries through lower energy costs, reduced carbon emissions and a cleaner environment. Emerging commercial, legal and technological developments are now enabling governments and companies to develop Floating Storage and Regasification Units (FRSU) and LNG-to-Power projects tailored to their customers’ needs.” 

“During 2017, we expect that the need to meet rising demand for natural gas will remain a compelling driver for continued investment in capital-intensive LNG projects. Investment in new and expanded U.S. LNG liquefaction projects should continue and compete favorably with investment in potential LNG liquefaction projects in East Africa, the Mediterranean, and Asia. However, we will likely also see the development of new commercial models that will tailor supply and pricing to more closely match customer demands. While Mr. Trump has yet to release specifics on his energy policy, his pro-business and reduced-regulatory stance means that exports of natural gas and LNG should receive a favorable response in Washington.” 

Elaine Walsh – Energy Lawyer and Partner based in Washington 

“2016 was marked by continued consolidation among electric and gas companies in the United States and increased participation by private equity investors. The US energy industry is going through a period of significant change, with many companies facing material capital expenditure decisions. Much of our national energy infrastructure is in need of upgrading. Federal and State energy policies and consumer preferences are driving a massive shift away from fossil fuels toward renewable resources. Despite that, renewable generation is facing serious challenges from low gas prices in many regions. In addition, new utility scale renewable generation requires substantial investments in transmission to get generation to load.” 

“In 2017, we expect consolidation to continue, with levels of activity that vary dramatically among industry sectors. Among regulated utilities, it is difficult to see how the level of activity over the past several years can continue, particularly as utilities become larger and spread across different state regulators. Increasing interest rates and higher levels of regulatory scrutiny may create at least modest headwinds.” 

Hamish McArdle - Energy Partner based in London 

“In 2016, the oil and gas sector has gone through one of its most transformative periods in history that has been marked by a period of uncertainty. Oil prices remained low, starting below $27 a barrel in June, but have surged since OPEC and non-OPEC members agreed landmark deals to collectively cut output by 1.7m barrels a day for the first half of 2017, with Saudi Arabia and Russia taking the lion’s share of these cuts. Renewable energy projects gathered pace, particularly in emerging markets, like Egypt, Mexico and Morocco, evidencing their ability to compete with other energy sources. This year also witnessed the outcome of the British referendum on the country’s membership of the EU - Brexit and the US presidential election. Both of events and their unpredictable outcome may have far-reaching implications for energy and climate policy across the EU and internationally. Whilst in the UK, fracking for shale gas looks set to move forward following clear government support and some significant court rulings in support of the activity.” 

“The oil and gas sector is highly resilient and, as we enter 2017, there is a sense of growing optimism with many oil and gas companies expected to turn cash flow positive for the first time since the downturn - having created leaner, more cost efficient and technology enabled businesses, completed non-core disposals, or diversified in response to the sustained low oil price. Goldman Sachs is predicting that the oil price will get close to $60 per barrel in 2017, although the impact on the oil price in 2017 from possible increased US production in response to a high oil price is uncertain. The UK is in the midst of development of its Brexit strategy which should become clearer by March 2017, and we expect to be very active in helping define our clients’ international strategies and advising them in respect of possible changes to EU and UK legislation and policy connected to Brexit.” 

Jason Bennett - Co-Head of the Global Projects Group and Partner based in Houston 

“2016 was a particularly big year for energy news. While many energy companies remain in difficult financial circumstances, 2016 was marked by a strengthening of the oil and gas markets as the year went on, which is a good sign for 2017. Oil and gas producers remain keenly focused on capital spend and the cost of operations, but there was additional momentum for additional drilling and investment as the year went on.” 

“In 2017, we will pay particular attention to energy policy, regulation and legislation developments, as a result of President-Elect, Donald Trump, and his cabinet coming into office on January 20. We expect the Trump administration to be strongly focused on jobs and wage growth, which is a good sign for the oil and gas business, as it is a strong creator of high wage jobs. We expect that the Trump administration will work to remove obstacles to upstream and midstream development in the U.S., which will be greeted with great enthusiasm by the oil and gas business. We expect the renewables industry to continue to expand and to benefit from any support for additional infrastructure in the U.S.” 

Bill Kroger - Co-Chair of Baker Botts’ Energy Litigation Practice and Partner based in Houston 

“The litigation issues of prior years will continue. Foremost will be local community disputes and disruptions of energy projects. What these projects are, what they do, why, how, and facts matter less; tweets and twitters matter more. The federal government is out; the local commission or state agency is in. Pipelines, windfarms, frac jobs, transmission lines, injection wells – all are fair game. These disputes will be less about damages, and more about stopping development.” 

“There will continue to be litigation arising from lower energy prices. The revenue and cost accounts will attract more scrutiny – was the best price obtained? Was a royalty paid on flared gas? Was there a deduction for transportation? These items matters less when prices are high; they count more when prices are low. And enough years have gone by – but not too many – that there is enough at issue to make a claim, without limitation problems. In other words, these claims are ripe.” 

“Quasi-bankruptcies will continue. Debt forbearance is getting old, and days of reckoning are here. The increasing costs and delays of protracted bankruptcies will cause parties to seek other solutions.” 

“Litigation from operations will continue to fall. Fewer rigs mean fewer claims of injuries, spills and exposures. On the other hand, labor and employment claims will continue, although the bulk of the major layoffs are in the past.” 

“In sum, with litigation, the new boss will be the old one, albeit with less federal interference.” 

Baker Botts has played a significant role in the evolution of the energy industry from its earliest days.


 

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Baker Botts is an international law firm of approximately 725 lawyers practicing throughout a network of 14 offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy and technology sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.

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