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Key Takeaways | The Growth of Early Stage Technology Company Investment and Development in Energy and Oil and Gas

by and | Dec 16, 2021 | , , ,

How is technology affecting the energy industry? In the latest webinar in the Energy Transition series, McDermott Will & Emery Partner Parker A. Lee hosted Shawn Helms, co-head of McDermott’s Technology and Outsourcing Practice Group, Nadine Herrwerth, managing director at TWTG, and BJ Walker, managing director at Tudor, Pickering, Holt & Co for a 30-minute discussion where they opined on the current and future impact technology plays on conventional and renewable energy companies.

Below are key takeaways from the webinar:

1. Industrial Internet of Things (I-IOT). I-IOT products and services can be used to improve site safety and efficiency. I-IOT products have the capability to monitor equipment, such as valves and temperature sensors on machinery, and record data on external dashboards for analysis and alerting. Through the use of data analysis, data gathered by I-IOT products can identify trends, build models and detect future equipment failure. As a result, I-IOT products and services can increase the efficiency, reliability and safety of equipment.

Though the application of I-IOT devices is relatively new to the industry, these products are capable of being retrofitted to established and already operational sites.

2. Technology Companies and Energy. While technology companies are large consumers of energy output, they can also provide significant insights and intelligence in regard to energy use and production. Synergies between technology and energy industries are continuously evolving and providing improvements in energy investments, efficiencies and reliability. For example, drones are capable of leveraging artificial intelligence to increase efficiency and consistency of equipment monitoring and inspections, particularly equipment that is located in remote areas (such as offshore).

3. Investor Focus on the Energy Space. An important theme in the oil and gas industry is the recent focus on transforming the industry to a generator of cashflow. In attracting new investors to the energy industry, particularly as new technologies are introduced, investors should know there is typically a longer wait period to receive a return on investment than what a general investor would commonly expect. In addition to general investors, technology companies are investing in renewable energy sources for purposes of environmental responsibility and in order to power their own enterprise. It is expected that this trend will continue to grow in energy intensive areas, such as the cryptocurrency space.

4. Technology in Traditional Oil and Gas. Although not widely appreciated, the oil and gas industry has always been heavily reliant on technology and an area where revolutionary technologies are developed—and that is certainly the case today. Because oil and gas professionals are proficient with, and conversant in, the application of new technologies, look to those professionals to be industry leaders in the energy transition as new businesses and products are developed.

To access past webinars in this series and to begin receiving Energy updates, including invitations to the webinar series, please click here.



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Key Takeaways | Legislative Update on Renewable Energy Tax Incentives

by and | Nov 18, 2021 | , , ,

On November 17, McDermott Partners Philip Tingle and Heather Cooper were joined by Bill Parsons, COO of the American Council on Renewable Energy (ACORE), for a discussion on recent legislative activity regarding renewable energy tax incentives and how it will affect current tax credits as well as those in the center of the renewables space.

Below are key takeaways from the webinar:

1. Negotiations surrounding the Build Back Better Act and progress regarding the substance of the bill have been moving at a rapid pace. Despite some uncertainties, the hope is that something will be passed before year-end—and the tax credits component is likely to look very similar to the current proposal.

2. A shift in thinking has taken place in US Congress, specifically, the clean energy tax regime is now seen as a credible driver in achieving the Biden administration’s decarbonization and climate goals.

3. Industry participants are assessing whether the direct pay component of the Build Back Better Act will dramatically change the tax equity market. Several factors will determine how direct pay will affect said market, including the timing of payments, Internal Revenue Service (IRS) scrutiny, availability of depreciation and tax basis step-ups, permissiveness of waivers, congressional oversight and the proposed minimum book tax.

To access past webinars in this series and to begin receiving Energy updates, including invitations to the webinar series, please click here.



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Key Takeaways | Lender Outlook on the Debt Financing of Renewables and Transactions

by and | Nov 4, 2021 | , ,

During the latest webinar in our Energy Transition series, McDermott Partners Robert da Silva Ashley and John Bridge hosted Paul Pace, SVP and team leader at KeyBank, and Andrew Chen, managing director at CIT, to discuss the current outlook of leading lenders in the US renewables and transactions space. More specifically, they focused on lender outlook regarding the state of debt market support for the growing range of renewable power generation and clean energy infrastructure projects.

Below are key takeaways from the webinar:

1. The financing market for renewable projects remains extremely competitive, compressing pricing for lenders and driving innovations in financing structures with credit increasingly given to shorter tenured power purchased agreements (PPAs) and earlier merchant tails.

2. Current supply chain delays and inflationary pressures are creating significant stress. Solar panels and other major equipment are stuck in ports and sharp rises in project costs (insurance, labor wages, operations and maintenance, etc.) are starting to have a noticeable effect on the viability of certain project developments.

3. Lenders have been leaning heavily on client relationships with established track records of successful project developments, strong financial footing and credibility with industry counterparties helping to navigate the current challenges.

4. Environmental, Social and Governance (ESG) remains a focus for banking institutions driven by regulatory and environmental factors.

To access past webinars in this series and to begin receiving Energy updates, including invitations to the webinar series, please click here.



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Does the ADP in Your LNG SPA Meet Your Needs?

by | Oct 28, 2021 | , ,

It’s that time of year again when the sellers and buyers of many of the world’s long-term liquefied natural gas (LNG) sales and purchase agreements (SPAs) must agree on the Annual Delivery Programme (ADP). In past years, this has typically been a mildly contentious process where both parties’ operations teams discuss, haggle and settle on an LNG delivery programme that roughly meets both parties’ needs. The discussions are framed by the terms of the applicable SPA but guided by cooperation and the goodwill generally found in long-term buyer-seller LNG relationships. Lawyers tend not to be involved. However, this is not the case this year.

With a global gas/LNG shortage and spot prices reaching record highs, there is a huge discrepancy between long-term LNG and spot LNG prices. At the time of drafting this article, Platts JKM is quoted at US$ 33.85 / MMBtu and Title Transfer Facility (TTF) is quoted at US$ 32.15/ MMBtu for January 2022 delivery. However, a long-term LNG SPA at a relatively good LNG price of 13.5% Brent would be at US$11.34/MMBtu with Brent at US$ 84/ bbl. An approximate US$ 20 / MMBtu difference or, for a mid-range LNG cargo size of 3,800,000 MMBtu, a US$76 million difference per cargo.

With this level of price difference, every cargo is vital. For sellers, any cargo that can be delivered spot rather than under a term SPA can provide significantly greater profits, and the converse is true for buyers. Many LNG buyers have recently adopted a strategy of buying a significant proportion of their LNG demand on a term basis but with spot purchases covering demand growth and swing. For these buyers, ensuring as many of their (currently lower priced) term cargoes arrive during the high demand, high cost winter months with lower price summer spot purchases making up any annual demand shortfall can significantly reduce their weighted average LNG purchase price.

The early long-term SPAs were developed for a point-to-point trade, often with a fleet of ships sailing continuously between a loading terminal and one or two particular receiving terminals serving a single SPA. Discussions on an ADP were relatively simple with both parties strongly incentivised to align delivery windows to reduce shipping and demurrage costs and ensure sufficient LNG supplies. But if the parties could not agree on a delivery programme, typically the seller had the final say.

However, the LNG industry has changed significantly since those early days, particularly with the advent of portfolio traders, diversion clauses (with or without profit sharing elements), upward and downward quantity tolerance and, most importantly, the spot market: all driving a more flexible, efficient and commercial LNG market. As the LNG market has developed, so has the drafting of the ADP provisions, with buyers increasingly wanting to set firmer delivery windows and have stronger rights for Upward Quantity Tolerance (UQT), Make-up and Make-Good cargoes.

So how does the gulf between spot and term prices and the development of LNG SPAs impact the ongoing ADP discussions? Instead of coordinated [...]

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Key Takeaways | Conventional Energy Companies Pivot to Renewables

by and | Oct 20, 2021 | ,

How will traditional energy companies compete as the world transitions to renewable energy? In the latest webinar in our Energy Transition series, McDermott Will & Emery Partner Jack Langlois hosted Philip Tingle, global co-head of McDermott’s Energy and Project Finance Practice Group, and Michael Hanson, managing director of energy transition at Truist Securities, to answer exactly that. During the 30-minute discussion, they assessed the future for conventional energy companies, including key issues surrounding decarbonization and current tax credit frameworks.

Below are key takeaways from the webinar:

1. Timeline and Decision-Making. There is a broad divergence of views in how quickly the transition to renewable energy will happen, but changes in law and policy could accelerate that timeline. Conventional energy companies are taking small steps to get acclimated to new renewable opportunities because there are multiple factors they need to consider before deciding whether to enter into the renewable energy space: Strategic fit, materiality, profitability and risk. Many conventional energy companies that have successfully pivoted to renewable opportunities have done so by reutilizing their existing assets.

2. Carbon Capture. Carbon capture is often a strategic fit for oil and gas companies. However, companies, investors and banks are still struggling with the profitability of carbon capture because without government incentive, carbon capture is not profitable. The current incentive structures do not compel a sufficient amount of activity because they only compensate capture equipment owners, leaving out all the necessary downstream affiliates. Until this business model is corrected, banks especially will struggle with how to finance carbon capture.

3. Reconciliation Bill. Carbon capture incentives may be around for a while longer. In the reconciliation bill, there is a provision that would extend the Section 45Q carbon capture tax credit through the year 2032. However, the bill would also modify the tax credit to provide for wage and apprenticeship requirements. Companies will need to find ways to assure financing parties that they have met these additional requirements. If they can accomplish this, the extension period will allow greater opportunities for conventional energy companies to enter the space.

To access past webinars in this series and to begin receiving Energy updates, including invitations to the webinar series, please click here.



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An Update on Wind Farm Development along the US Coastline

by , and | Oct 15, 2021 | , ,

On October 13, 2021, during a speech at American Clean Power’s Offshore WINDPOWER Conference & Exhibition, US Department of the Interior Secretary Deb Haaland announced a path forward for future offshore wind leasing along the US coastline. This announcement supports the Biden administration’s goal to install 30 gigawatts of offshore wind energy by 2030 and comes approximately five months after the Biden administration approved the 800 megawatt Vineyard Wind Project.

“The Interior Department is laying out an ambitious roadmap as we advance the Administration’s plans to confront climate change, create good-paying jobs, and accelerate the nation’s transition to a cleaner energy future,” Secretary Haaland said. As part of this roadmap, Secretary Haaland also announced plans for the Bureau of Ocean Energy Management (BOEM) to potentially offer up to seven new offshore lease sales by 2025 in the Gulf of Maine, New York Bight, Central Atlantic, Gulf of Mexico and offshore the Carolinas, California and Oregon.

Secretary Haaland shared that the Interior Department’s “timetable provides two crucial ingredients for success: increased certainty and transparency. Together, we will meet our clean energy goals while addressing the needs of other ocean users and potentially impacted communities. We have big goals to achieve a clean energy economy and [the Department of] Interior is meeting the moment.”

BOEM Director Amanda Lefton advised, “[w]e are working to facilitate a pipeline of projects that will establish confidence for the offshore wind industry…At the same time, we want to reduce potential conflicts as much as we can while meeting the Administration’s goal to deploy 30 gigawatts of offshore wind by 2030. This means we will engage early and often with all stakeholders prior to identifying new Wind Energy Areas.”

As we move closer to 2030, industry investors and developers should expect to see a steady increase of offshore wind activity due to the recent announcements and the Investment Tax Credit for projects that will start construction before 2026.



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Key Takeaways | The Latest Merger Control Developments under the Biden Administration

by , and | Oct 14, 2021 | , , , ,

The Biden administration has placed an emphasis on antitrust enforcement that will create meaningful implications for future transactions, as well as those already consummated. In this webinar, hosted by McDermott Will & Emery partners Kevin Brophy and Lesli Esposito and associate Matt Evola, learn who the new leaders at the Federal Trade Commission (FTC) and US Department of Justice (DOJ) Antitrust Division are and how their approach to antitrust enforcement is already changing merger review process.

Below are key takeaways from the webinar: 1. Antitrust Agency Personnel Changes. The FTC and the DOJ Antitrust Division have recently seen leadership changes. At the FTC, US President Joe Biden appointed Lina Khan to chair, and she’s already making headlines for her efforts to “modernize” merger assessments. Chairwoman Khan has indicated that she wants the FTC to focus on addressing the “rampant consolidation” that has resulted in dominant firms across markets. She has also advocated for a holistic approach to identifying harms, a focus on power asymmetries and a need for the agency to be forward-looking. The changes she has implemented have significantly impacted merger review. At the DOJ, President Biden appointed Jonathan Kanter, who has not yet taken office but is also expected to take an aggressive approach to enforcement, to lead the Antitrust Division. 2. President Biden’s Executive Order on Antitrust. In a July executive order, President Biden indicated that antitrust enforcement would be a top priority for his administration. The order calls for a whole-of-government approach, encompassing 72 initiatives directed at more than 12 separate agencies. The order directed the FTC and the DOJ to vigorously enforce the antitrust laws by toughening the review of future mergers and revisiting anticompetitive mergers that went unchallenged. 3. Policy Changes with Practical Implications. The FTC has been especially active in announcing new policies and procedures that will likely extend the merger review timeline and open previously consummated transactions to further scrutiny. Among these changes are:

  • The suspension of early termination for the 30-day Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) waiting period: Early termination has always been discretionary, but the FTC’s Premerger Notification Office has suspended early termination in 2021 with no resumption in sight.
  • Warning letters sent at the conclusion of the HSR Act waiting period: These “close at your own risk” letters indicate that while the waiting period has concluded, the agencies may challenge the transaction post-closing.
  • Increased requests for “pull-and-refiles”: This process restarts the HSR Act waiting period, granting agencies an additional 30 days to review a transaction, and are being requested at an increasing rate.
  • Procedural and timing changes aligning the FTC with the DOJ: Changes made at the FTC are bringing the agencies into alignment on certain procedures for second requests, and these changes are likely to extend the timeline required for responding to second requests.

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Key Takeaways | How Solar Industry Leaders are Addressing and Overcoming the US–China Trade War

by | Oct 7, 2021 | , ,

The US-China trade war has caused a significant impact on the solar industry, and that impact is expected to grow. In this webinar, learn how solar industry leaders are handling the effects of the US–China trade war and how they are preparing for the future.

Our first webinar of this series featured McDermott Will & Emery partner Carl Fleming, Pine Gate Renewables Director of Regulatory Affairs Brett White, Vice President of Construction James Froelicher and Assistant General Counsel Jess Cheney.

Below are key takeaways from the webinar:

1. Withholding Release Order. The US Customs and Border Protection (CBP) issued a withholding release order (WRO) against Hoshine Silicon Industry Co. Ltd., a company located in China’s Xinjiang Uyghur Autonomous Region wherein all silica-based products made by Hoshine and its subsidiaries are to be detained at all US ports of entry. Because of this WRO, manufacturers have been moving outside of the Xinjiang Uyghur Autonomous Region in order to avoid being subject to it.

There have been numerous detentions of silica-based products at multiple ports across the United States, and it is expected that the detention of materials will continue. In order to combat this, suppliers and industry leaders are presenting documentation to show that the materials are not being produced from forced labor or Hoshine and its subsidiaries.

Although the WRO was expected to cause significant disruption, it is not having as large of an impact as feared because many suppliers had already left the Xinjiang Uyghur Autonomous Region.

2. Anti-Dumping and Countervailing Petition. Anti-Dumping and Countervailing Petitions filed in August 2021 requested that the US Department of Commerce (DOC) include additional tariffs against solar panel imports from Malaysia, Thailand and Vietnam. The petitioners requested additional tariffs ranging from 50% – 250%. The DOC has yet to decide whether to investigate based on the petition, however, the impacts of the petition are already being felt with disruptions to the supply chain. If the DOC were to investigate, the solar industry would likely see a severe slowing of projects in 2022 and 2023 as neither suppliers nor developers are willing to bear the economic risk of the potential tariffs.

3. The DOC and the Biden Administration. The DOC and the Biden administration are expected to make decisions regarding tariffs, as well as anti-dumping and countervailing duties, that will directly affect the solar materials supply chain.

The Biden administration hopes to increase the domestic supply of solar materials, however, domestic manufacturers currently only produce approximately 25% of the overall demand for solar materials. As a result, the solar industry cannot immediately divert to purchasing solar materials from domestic manufacturers as the supply simply is not available. As an incentive to increase domestic manufacturing, solar industry leaders hope tax credits can be offered to companies that manufacture solar materials.

The Biden administration is expected to decide whether the 18% tariff on imported solar panels [...]

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International News: Spotlight on the Energy Industry

by , , , , , , , , , , , , and | Oct 5, 2021 | , , , , ,

US RENEWABLES: INVESTMENT OPPORTUNITIES PERSIST IN UNCONVENTIONAL PLACES

Christopher Gladbach | Seth B. Doughty

Apart from a few challenges, the sellers’ market in renewable energy is accelerating under the Biden administration, leading international investors to seek opportunities in non-traditional investments. Read more.

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THE US $2.3 TRILLION AMERICAN JOBS INFRASTRUCTURE PLAN

Elle Hayes | Dominique J. Torsiello | Carl J. Fleming | Ranajoy Basu

In March this year, US President Joe Biden unveiled the American Jobs Plan, the first of a two-part infrastructure package to revive the economy after the COVID-19 pandemic and the second stage of President Biden’s “Build Back Better” agenda. Read more.

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RECENT DEVELOPMENTS IN THE SOUTH EAST ASIA RENEWABLES MARKET

Ignatius K. Hwang | Merrick White

Despite considerable challenges, South East Asia is pulling out all the stops to transition to primarily renewable energy in the coming years. Read more.

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GREEN AMMONIA: AT THE INTERSECTION OF PETROCHEMICALS AND THE ENERGY TRANSITION

John Bridge | Parker A. Lee

As the world seeks to transition to a lower carbon economy, replacing traditional hydrocarbon-based transport fuels in the automobile, aviation, and shipping industries will be important. Read more.

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CLEAN ENERGY EMPLOYERS ARE THE NEW TARGET FOR ORGANISED LABOUR

Ellen M. Bronchetti | Ron Holland | Saniya Ahmed

Employers in the clean energy sector should be prepared to consider how changes to the US labour landscape are likely to impact their workforce. Read more.

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COMPETITION POLICY AND THE EUROPEAN GREEN DEAL: A PATHWAY TOWARDS CLEAN ENERGY AND ENERGY EFFICIENCY

Hendrik Viaene | David Henry | Karolien Van der Putten

EU competition rules—particularly State aid, merger control, and antitrust rules—are playing a key role in supporting the goals of the European Green Deal. Read more.

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NOT YET THE END FOR HYDROCARBONS

Merrick White

There has there been significant activity in the Asian upstream market this year. Who is buying mature oil fields, and why? Read more.

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ENGLISH HIGH COURT SANCTIONS RESTRUCTURING OF DTEK GROUP

Mark Fennessy | Sunay Radia | Alexander Andronikou

The recent restructuring of DTEK Group provides guidance regarding the English High Court’s position on challenges to the international effectiveness of schemes of arrangement and/or restructuring plans post-Brexit. Read more.

View the full issue here.



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Five Key Takeaways from the Green Transportation Panel at the US and UK Climate Change Business Forum

by | Oct 1, 2021 | , , ,

On September 22, 2021, partner Edward Zaelke moderated a panel on green transportation at the US Embassy in London during the US and UK Climate Change Business Forum, Winning the Race to Zero: Journey to COP26. Panel guests included Richard Currie, Senior Director of Public Affairs for UPS; Jamie Heywood, Regional General Manager, Northern & Eastern Europe for Uber, a representative from a large e-commerce company and Lilli Matson, Chief Safety Health & Environment Officer for Transport for London. The discussion provided remarkable insights into how these three major companies and a forward-looking transportation agency of one of the world’s largest cities are approaching the climate challenge before them. A challenge that Philip T. Reeker, former ambassador of the Bureau of European and Eurasian Affairs, noted in his closing remarks, quoting a proverb, “If you don’t change course, you will likely get to where you are heading.” Steps to change course was the focus of this invitation-only conference and, in the area of green transportation, this panel left the audience with a number of key takeaways.

  1. What’s abundantly clear is that UPS, Uber and many e-commerce companies are fully committed and have set aggressive goals to have their operations reach net zero carbon or carbon neutrality. For example, Uber seeks to electrify its fleet of vehicles in London by 2025 and in the United States by 2030. The e-commerce company on the panel is a significant purchaser of green power and seeks to achieve net zero carbon by 2040. UPS, which operates delivery vehicles and also runs a fleet of long haul trucks and its own airplanes, has set near-term goals of carbon reduction and a target of being carbon neutral by 2050.
  2. London is demonstrating a local commitment to climate change that can serve as an example for other cities around the world. Transport for London, which operates the “Tube” subway system (among its other duties), is the largest user of power in London and currently in negotiation for power purchase agreements for renewable power for its operations. In addition to encouraging use of its rapid transit system, the city bought electric buses, required that all new licensed cabs be electric, created clean air zones and congestion zones to encourage electric vehicles and greatly expanded the bike lanes on roadways throughout London.
  3. Uber, UPS and many e-commerce companies view vehicle electrification for local routes as a key to meeting their climate goals. Uber, with more than 45,000 private commercial drivers in the London area alone, is aggressively meeting the challenge. It has developed an “electric vehicle bank” for each of its drivers, where a portion of each fare goes into a savings account to help the driver replace its present vehicle with an electric vehicle. Uber customers can also request Uber Green at no additional charge. Additionally, since many of its drivers live in the suburbs where less than a third of them have off-street parking, Uber is working with the local government to create [...]

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