The Work

April 19, 2010 6:11 PM

Firms Power Up On Big Energy Deals

Posted by Julie Triedman

It's smokin' out there.

That's what lawyers at a half-dozen of the largest energy transactional firms tell The Am Law Daily. With roughly a dozen billion-plus energy-related deals announced in just the past month and a half, including deals involving oil and gas, power, and oil services companies, many firms are seeing their energy-linked M&A and capital markets practices suddenly firing on all eight cylinders.

"Things really started rocking and rolling the second half of last year," says Baker Botts M&A partner Kelly Rose, who represents Mariner Energy on its $2.7 billion announced sale to Apache Corporation, reported here Thursday. "They've just continued to get busier," she says.

The league tables confirm the ground-level view. Thomson Reuters reported that first-quarter M&A was up 18 percent worldwide over a year earlier, powered largely by energy deals.

The season unofficially kicked off in December, with the $41 billion Exxon Mobil Corporation acquisition of Texas natural gas company XTO Energy Inc.; Skadden, Arps, Slate, Meagher & Flom and Davis Polk & Wardwell handled that deal. Skadden in particular has seen a surge of energy deals, subsequently representing Allegheny Energy, Inc., in its $4.7 billion acquisition by FirstEnergy Corp., and RRI Energy Inc. in its merger with Mirant Corp. ranked Skadden top in deal volume, with $52.7 billion in announced energy deals since January 2009.

The dealmaking picked up steam in April. In just the past week alone, there have been five deals worth nearly $12 billion. The beneficiaries have mostly been the major Texas corporate firms, which have traditionally had a lock on much of the upstream exploration and production deals. But a few Wall Street firms are getting a big share of the work, too.

Top of the Texas heap this past month may be Vinson & Elkins, which advised Devon Energy Corporation in a $7 billion deal (reported here), a $450 million sale for oil and gas giant BG Group plc (reported here), and a $1.7 billion oil shale deal. Also going gangbusters is Baker Botts, which had nine announced energy deals in the past 15 months, according to (paid subscription only)--the most among the Texas firms.

Houston-based lawyers say that work related to energy Master Limited Partnerships (MLPs) has been particularly consuming. MLPs, which are publicly traded vehicles for investment in midstream or oil and gas assets, are extremely hot with investors right now, because they offer returns (and tax breaks) that other kinds of investments can't match, lawyers say. And the MLPs are spinning off a lot of work as they acquire assets, seek financing, and raise cash in public stock offerings.

While Houston firms tend to dominate MLP and upstream work, Latham & Watkins has emerged as a new contender, with a jump in energy M&A and capital markets work since the firm opened a Houston office early this year. Latham's Houston team includes well-known practitioners in the energy transactional area recruited from Baker Botts, Vinson & Elkins, and Akin Gump Strauss Hauer & Feld. The office, which now includes 18 to 19 lawyers, surpassed first-quarter revenue targets by the greatest margin of any of the firm's offices globally, according to Michael Dillard, who joined from Akin Gump in January. "Latham did a tremendous job of attracting top attorneys," says a partner at a rival Houston firm. "This is a very, very tough market to crack."

New York's Wachtell, Lipton, Rosen & Katz is also seeing more power and oil services deals. The M&A powerhouse has been on three energy deals in the past month (representing power company Mirant in its $1.6 billion merger with RRI, reported here; Atlas Energy in a $1.7 billion joint venture with India's Reliance Industries, reported here; and Consol Energy's $3.48 billion acquisition of Dominion Resources's oil and gas assets, reported here). Wachtell was also a lead in the biggest oil-related deal of 2010 so far, oil services company Schlumberger Ltd.'s $11 billion buyout of a rival, Smith International. In each case, the companies Wachtell represented were longtime clients of the firm.

Many lawyers say they expect the frenetic deal pace to continue for the next six to nine months, as long as commodity prices hold steady. And because debt covenants are often triggered by corporate change of control, notes Haynes and Boone corporate partner William Nelson, deals now are likely to spin off more legal work down the line, when acquirors must return to capital markets to refinance the debt they took on in the spate of acquisitions. 

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