Thursday, May 7, 2009

Central & South America's Leading Oil and Gas Attorneys Reflect on Reforms and Trends

One of the distinct pleasures of directing the DU graduate program is the opportunity to meet and get acquainted with some of the brightest legal and policy minds in the natural resources sector. Recently I chaired a panel discussion of Central and South American lawyers who discussed oil and gas reforms and new trends in their respective countries.

The afternoon that I -- and the attendees at the Rocky Mountain Mineral Law Foundation International Institute in Buenos Aries -- spent with these individuals was particularly enjoyable and illuminating about the opportunities and challenges in the oil and gas sector in six key Latin American countries. These lawyers -- each an expert in his own country -- represent a wealth of experience and information about what surely will be enormously sought-after opportunities in Central and South America.

I'll talk about the speakers in the alphabetical order of their country-specific presentations:
  • Argentina: Pedro Serrano Espelta is a partner at Marval, O'Farrell & Marial in Buenos Aries. He specializes in corporate law, mergers and acqusitions, shareholders' disputes, and oil and gas. Mr. Serrano Espelta provided a fascinating look at how the Argentine government, through the 2002 mandatory renegotiation of gas licenses, has attempted to make gas companies in Argentina and their shareholders responsible for any damages suffered by the government as a consequence of a series of international arbitration awards. He said, "Making the gas companies grant onerous indemnities as a condition to receive a deserved tariff adjustment is a dangerous proposition. If the indemnities are executed the gas companies could enter into insolvency or bankruptcy and, as a consequence, have their gas licenses terminated. In turn, foreign investors, particularly those that did not consent to the renegotiation agreements and the indemnities, could bring new legal or arbitration proceedings against the government."
  • Brazil: Paulo Valois Pires is a name partner in the Brazilian law firm of Schmidt, Valois, Miranda, Ferreira & Agel. His practice includes representing clients in the oil and gas sectors, platform and pipeline finance and construction, biofuels, and power generation. He has authored or co-authored several books about the oil and gas sector. Mr. Valois spoke about the Brazilian Pre-Salt Layer. Among other things, he pointed out, "Certain different regimes are being considered as alternatives for the current regulatory regime with views of better regulating the exploration of the Pre-Salt Layer. Some of the regulatory regimes being considered are the Norwegian regime, the creation of a new national oil company to contract the exploration of these areas and the adoption of production sharing agreements...The discussions concerning the new regime for the exploration of the Pre-Salt Layer is expected to be the main issue concerning upstream activities in Brazil, and a decision is eagerly awaited by companies still interested in exploring these areas."
  • Chile: Ali Shakhtur S. is the legal director of ENAP E&P and Enap Sipetrol S.A. He has been a frequent speaker about oil and gas matters. He said, "From the business point of view, we have to highlight that there is in fact a new oil and gas market in Chile for international oil companies and therefore a good source of opportunities. There is a great potential and the Special Operating Contract is a government contract with very attractive commercial terms. East of the border -- in Argentina -- we see very interesting basins with a history of success. Some of these proven geological [areas] are being studied and will be replicated in Chile. This is what the activities being now carried out will demonstrate and will probably determine the future of the oil and gas business in Chile."
  • Ecuador: Francisco Roldan is a partner with Perez Bustamante & Ponce in Quito. He is a director of the Chamber of Industries of Pichincha and his practice areas include oil and gas. Mr. Roldan provided an overview of the new Ecuadorian Constitution as well as a reflection on the challenges and corresponding opportunities facing foreign oil and gas producers in his country.
  • Mexico: Juan Manuel Sancho Rodrigo is a partner with Gonzalez Calvillo, S.C. in Mexico City. He has expertise in project finance and corporate issues involving energy projects. He noted that the Mexican Constitution reserves to the government all subsoil rights including hydrocarbon deposits. However, he said, "A new budget regime is in place. Pemex is entitled to invest the excess income it generates and make budget adjustments without the approval of the Ministry of Finance." Additionally, he noted that contractors may in some instances receive additional compensation under three scenarios: (1) savings based on having reduced the time of works performance; (2) benefits from new technologies provided by the contractor; and (3) other causes resulting in a higher profit for Pemex.
  • Venezuela: Miguel I. Rivero Betancourt is a partner in the Caracas firm of Hoet Pelaez Castillo & Duque. He has special expertise in setting up oil companies in Venezuela, including the design and preparation of bidding and negotiation contracts of common use in his country's petroleum industry. He explained that "What has been happening in the regulatory framework of the oil and gas sectors of Venezuela is far more than a simple modification of legal regimes, but rather it is the implementation of a different conceptual framework for the sector as a whole." That being said, however, he went on to point out, "There are significant opportunities arising from this new scenario. We believe that the Venezuelan oil sector will need, more than ever, significant foreign investments to provide technology and capabilities that are diminishing inevitably as a result of the government's policies."

Wednesday, May 6, 2009

LLM Graduates and Rocky Mountain Mineral Law Foundation Scholarship Winners

On an annual basis, the Rocky Mountain Mineral Law Foundation recognizes some of the top JD and LLM students worldwide.

Two of the 2007-2008 award winners were students in the DU graduate program.  I met with these two graduates in Buenos Aires recently.

Katia Castillo, on the left, is an assistant general counsel in the Lima, Peru, office of Minera Barrick.  Ms. Castillo graduated in May 2008.

Marina Marti, on the right, is an associate with the Buenos Aires-based firm of Marval, O'Farrell & Mairal.  Ms. Marti graduated in May 2008.

Katia and Marina, who became acquainted in the LLM program, are now friends and professional colleagues.  Last year I was delighted to get to know both of them as students and friends.  In my opinion, they are destined to become two of Latin America's most well-recognized and highly-respected natural resources law attorneys.    

Monday, May 4, 2009

Kansas Governor and Sunflower Electric Power Reach Agreement on Contentious Coal Plant

Kansas Democratic Gov. Mark Parkinson and the Sunflower Electric Power Corp. this afternoon announced agreement on a plan that will allow Sunflower to construct an 895 megawatt coal-fired plant near Holcomb in western Kansas.

In exchange for securing the governor's approval, Sunflower agreed to immediately build a 179 megawatt windfarm, in the near future deploy an additional 39 megawatts of wind power, and construct two transmission lines to allow the electricity to flow outside of Kansas.

The standoff between the state of Kansas and Sunflower had become one of the country's most contentious power plant battles when former Kansas Democratic Gov. Kathleen Sebelius (who was recently confirmed as Secretary of Health and Human Services in the Obama Administration, thus putting into motion the elevation of Mr. Parkinson to governor) ordered the State Department of Health and Environment to deny Sunflower's initial 2007 proposal for a two-unit, 1,400 megawatt coal-fired project because of the increased carbon emissions that would result.

Subsequently, the Republican-dominated Kansas Legislature approved four separate bills that would have allowed the project to go ahead only to see Ms. Sebelius veto each one.

As recently as mid-April, Ms. Sebelius vetoed the fourth bill and said, "What was a bad idea last year is an even worse idea today. Kansas needs legislation that will increase development of our renewable energy resources, increase energy efficiency measures and create good-paying jobs," according to The Kansas City Star ("Sebelius Vetoes Coal Plant Bill for the Fourth Time," April 13, 2009).

However, with Ms. Sebelius out of the way, Sunflower worked with Gov. Parkinson, who interestingly enough was a former chairman of the state Republican Party before he switched parties before 2004 to run with Ms. Sebelius, to reach a deal.

In announcing the agreement, Gov. Parkinson said, "Prior to this agreement, the Legislature was at an impasse on energy issues. With this agreement, we can start to move forward," The Topeka Capital Journal reported ( "Governor Makes Coal Deal," May 4, 2009).

While Sunflower was pleased, local environmentalists were not. Would the deal have been struck had Ms. Sebelius not left Topeka? Probably not. On the other hand, Gov. Parkinson, who has already said he will not run for election in November 2008, apparently looked at the project from a more "flexible perspective" and was willing to reach a deal.

Republican legislators lavished praise on their former state chairman. Could Gov. Parkinson pull an "Arlen Specter" (one of Pennsylvania's two U.S. senators who switched from the Republican to Democratic parties last week) in reverse and switch back to the Republican Party?

Sunday, May 3, 2009

Environmental Impacts New Challenge for Renewables?

The addition of more renewable energy generating capacity into the overall generation portfolio is fraught with many challenges.  But one that is becoming ever clearer is not what you might expect.

In short, are there serious conflicts between the rapid development and deployment of renewables on one hand and adverse environmental impacts associated with them on the other?

This is beginning to play out as the Obama administration seeks to expedite handling permit applications for projects located on federal lands.

A recent page-one Washington Post article ("Renewable Energy's Environmental Paradox," April 16, 2009) explains the challenge:
"One of the biggest challenges renewable-energy projects pose is that they often take up much more land than conventional sources such as coal-fired power plants. A team of scientists, several of whom work for the Nature Conservancy, has written a paper...showing that it can take 300 times as much land to produce a given amount of energy from soy biodiesel as from a nuclear power plant.  Regardless of the climate policy the nation adopts, the paper predicts that by 2030, energy production will occupy an additional 79,537 square miles of land."

And there are other issues as well including projects that might run up against the Endangered Species Act and transmission line siting that would have potentially negative environmental consequences.

Renewable energy is hardly a panacea.  There is a great deal of hard work to be done, but many tremendous opportunities as well.