John Poulsen – Managing Partner Australia & Clare Pope – Energy & Resources Partner, Squire Patton Boggs, Australia
Squire Patton Boggs ranks as one of the top ten law firms in Australia with a strong grasp of the oil and gas market. Managing Partner, John Poulsen, and Partner, Clare Pope, discuss significant market changes in the industry, the value of Perth’s geographic proximity to Asia and being “In the Zone”, as well as their strategic outlooks on how to overcome the underlying challenges of the region’s complex market.
Squire Patton Boggs is a top 10 law firm with 45 offices in 21 countries. The Australia branch of the firm is has been noted as one of the fastest growing firms in Australia, with a 30% increase in staff from August 2014 to August 2015, as well as increasing revenue and profit statistics. What are some of your leading, and most pressing issues brought to the firm seeking advice and facilitation assistance with regards to the Australian oil & gas industry?
John: In 2011 we were the Perth office of a major Australian national firms and we made the decision to ‘go global’ and join forces with Squire-Sanders. Their key interest in combining with us was to expand their global energy and resources practice and to build depth in the Asia Pac region. Squires recognized that Perth is the epicenter of the energy sector in the region.
Clare: Among some of the fundamental issues faced by the industry right now are the cost pressures. Many of the important investment decisions were made at a time when the price of gas were significantly high, and it has dropped off as many companies are about to enter production. As many companies are project-financed, they are now assessing how to bring their costs down and how to make themselves competitive internationally. There is a higher cost base in Australia due to the remoteness of the major projects in comparison with the shale oil revolution in the United States and the proliferation of LNG projects in Louisiana. The key areas where costs have been reduced in Australia are in respect of labour costs, with significant redundancies across the board and downward cost pressure on services companies that provide O&M services to the oil & gas sector.
J: A significant number of oil and gas service providers, many of whom opened up in Perth during the boom times (having provided similar services in the North Sea and Middle East) are now facing tough times. During the boom years, the key issue was the need to ‘get the job done’, whatever the cost. With the completion of the construction phase of major LNG projects and the downturn in price, that dynamic has changed. This paradigm shift is reflected in office vacancy rates in Perth, which during the boom two years ago, were at 3% and now heading to 26%.
Acknowledging the cost pressures that are inducing a large shift in the market, how have you as a firm adopted to these changes?
J: The key advantage of being a large firm is having multiple practice areas, which has been a natural insulator for market changes. Many of the mining and energy sector projects in Western Australia have emerged at time of far more favorable market conditions, which has caused plenty of disputes as the market shifted. We have a highly skilled Construction and Disputes team whose main responsibilities also switched from front-end investment work, for new players coming into the field at that time, unto representing project contractors who are in the midst of disputes with the companies.
In terms of Project Development and Construction, your firm proudly proclaims to represent clients at every phase of a construction project. As the LNG industry in Western Australia is in a transition from the construction phase to the maintenance phase, how have the requests from clients differ given the shift?
C: Price has always been a fundamental issue in the market, but we have also seen a rising demand for fee estimates and caps as that is one of the most efficient means to adjust to pricing pressures. Nonetheless, the typical requests for risk assessments and general legal advice are still pertinent, but the bulk of the requests have been related to pricing as profit margins are being squeezed.
We met some of the most promising Australian juniors, as many of them strive to take advantage of the current low exploration cost to expand their international footprint – mostly in Africa and North America. To what extent are you able to accompany these ambitious companies in their acquisition and expansion?
C: One of the key markets for Australian juniors has been Africa, where a significant part of our work is done. Last year, I personally hosted the Tanzania President’s Dinner, which was a networking event for plethora of Australian juniors and mid-level explorers who had the chance meet with various Ministers. It was a hugely successful event that has the participation of Otto Energy, Woodside and several other major players. The rise in interests for African markets is by sparked by the competitive costs of these jurisdictions compared to the expensive costs in Australian markets. The Australian juniors themselves are very adventurous as to where they want to expand globally.
J: Patton Boggs, with whom Squire Sanders combined two years ago is the number one lobbyist and public policy firm in the US and has many sovereign nations in Africa as clients. What we strive to do is to link the proponents of energy projects in Africa with the relevant government and leverage our expertise to assist in the development of projects. We are also seeing a rise of M&A activity in the oil & gas sector across the globe, particularly in respect to distressed assets, especially from hedge funds who see good buying opportunities as a result of lower prices for oil & gas.
In Perth, we have often heard the benefit of being “In the Zone” meaning sharing the same time zone as some of the world’s fastest growing economies including China, India, and Indonesia. Squire Patton Boggs is no exception to touting this unique proximity. In what capacity has your firm conducted legal services for issues in the Oil and Gas sector related with such countries?
J: The University of Western Australia launched the “In The Zone” program about six years ago to build business in the regions spanning through the countries located in the same time zone and we were one of the founding partners of the program. Some of the largest and fastest growing economies are located ‘In the Zone’, such as China, Japan, Korea, Vietnam and Singapore. Our focus in this area is doing ‘outward bound’ work from countries such as China and Korea. We have a strong focus on outward bound work from China and to service that we have full Chinese-capability lawyers and translators based in Perth.
What elements have proven to be of greatest concern in China-Australian relations?
J: The foreign investment regime has changed. Any Chinese company that is ‘state owned’ requires Foreign Investment Review Board approval no matter what the amount of the investment is. There have been some proposed investments in Australian projects by Chinese SOE’s that have been rejected in the context of being contrary to the Australian ‘national interest’. Another area of recent change to the Foreign Investment Review Board approval process has been the significant increase in the fee payable when approval has been sought. What was once a ‘nominal fee’ is now substantial and can depending on the value of the investment, be over A$100 K. Another area of concern is purely from the sense of understanding how to do business in Australia in general and maneuvering the concerns of wanting Chinese labor.
What is interesting about Chinese SOEs is that they are typically conglomerates which are involved in several industries such as transport, logistics, financial services, insurance and infrastructure and not just oil & gas. Therefore, it is challenging to isolate them as purely oil and gas players given that conglomerates need to be evaluated according to the entire portfolio of investments with a more holistic approach.
A very impressive aspect in Australia has been the nation’s very strong commitment to the environment. Squire Patton Boggs boasts one of the largest and best-regarded practices in the world for Environmental, Safety & Health practice. Regarding Australia specifically in the context of the Oil and Gas industry, what have you found to be some of your most prominent cases in your Environmental, Safety & Health practice in Perth?
J: Our practice in the oil & gas sector ranges from the advisory stage of project planning and development to the operational phases. We were involved in advising Tokyo Gas in respect to their interest in Chevron’s Gorgon LNG project. One aspect of that advice related to the environmental issues of the project being developed in a fragile environment. At the beginning of the project, there were significant environmental risks that Tokyo Gas needed to be aware of. One of the issue with the project was the concern for the sea turtles nesting areas as the flood lighting of the LNG plant affected the turtles from coming onshore to lay their eggs. The environmental compliance solution was to erect ‘black out curtains’ around the nesting sites. We also very active in the Occupational of Health and Safety advisory space in respect to which there are very stringent laws in Australia. This is compounded by the Federal/State regulations, federal which regulate offshore facilities and State which regulate onshore facilities. We assist our oil & gas clients in navigating through these issues.
C: From the industry’s perspective, it is right to have environmental and occupational laws in place. However, one of the ironic criticisms that Australia faces is that it has far too many environmental protocols. Some projects need to have hundreds of permits in order to gain approval. Nonetheless, it is irrefutable that the regulations in Australia are necessary and are highly regarded internationally. The challenge lies in getting the proper balance that is optimal for everyone.
Mr. Poulsen, you played a very significant role to turn the company into what it is today. In just over two years, you played a key role in the merger between Squire Sanders and Patton Boggs LLP, forming Squire Patton Boggs, positioning it not only as a major Australian law firm, but a top ten global law firm as well. With an extremely wide array of expertise in the oil and gas field, how do you plan to further develop the energy practice of the firm to meet the evolving and arising challenges of your oil and gas clients?
J: In the global sense, the only way to move forward in the oil and gas industry is to have a mobile team around the world who have the skillset and competencies that are transferrable globally. We opt for a labor force with an international background as oil and gas is an industry that is highly interconnected. For example, we have a strong regulatory team in Washington for LNG pipelines who are doing a significant amount of work for projects in Mexico, despite not having an office there. We leverage different expertise in order to follow the cyclicality of the market.