- Oil and gas tie-ups should remain at the forefront of energy dealmaking
- Decreased returns on green energy projects may slow their development
Lawyers see energy deals moving full steam ahead as the incoming Trump administration likely removes environmental brakes and eases antitrust regulation.
Bumper oil and gas deals that already make up the bulk of the energy sector will be made easier and faster with lighter antitrust scrutiny, according to practitioners in the field.
“We would expect dealmaking to be easier with regulations and personnel that are viewed as more supportive of consolidation and raising capital and therefore make it more attractive to be a US publicly traded company,” said Hillary Holmes, co-chair of Gibson, Dunn & Crutcher’s capital markets practice group and member of the firm’s executive committee. “All of this will support activity and growth in many sectors of the energy industry.”
Gibson Dunn, which has an office in Houston, last year was the top legal adviser on global energy M&A deals, according to Bloomberg data. Kirkland & Ellis, Wachtell Lipton Rosen & Katz, and Vinson & Elkins are leading the charge through the first three quarters of this year.
Lawyers expect the Federal Trade Commission to issue fewer second requests, or bids for further information, in Donald Trump’s second administration. Those requests may add several months to deal timelines, or prevent them from closing.
“The second requests we saw in the energy space and the settlements, ultimately none of them were about substantive antitrust issues within the M&A transactions,” said Lande Spottswood, a Houston-based partner at Vinson & Elkins.
“This was really just slowing down deals—and creating millions and millions of dollars in costs every month they were pending—to not identify a substantive antitrust concern. I don’t think you saw that as much in some other industries,” Spottswood said.
Lawyers may also see exits through the public markets rise in the energy sector. The broader capital markets have been sluggish, hitting a decade low last year with $91.7 billion worth of IPOs, with the number of transactions—1,430—hitting the lowest mark since 2013, according to Bloomberg data.
“We should see a resurgence of IPOs and less trepidation when evaluating M&A opportunities,” said Gibson Dunn’s Holmes.
Lawyers also predict a potential uptick in the need for legal guidance in “regulatory compliance, environmental, and general corporate and transactional work surrounding asset sales,” said Christopher Cottrell, a Houston-based partner at Seyfarth Shaw.
Lawyers may also see contracts related to drilling, transportation and service agreements “become increasingly complex as parties try to navigate potential changes in tax structures and international trade policies,” he said.
Tax Credits in Jeopardy?
With a surge in oil and gas may come a reduction in clean energy. Green projects became a hot spot for lawyers working on M&A, as did the formation of several large funds that raised dedicated pools of capital towards energy transition initiatives. Such projects, fueled by tax incentives provided by the IRA have led to a flurry of activity. Large private credit funds were raised by Brookfield Asset Management, Blackstone, TPG, KKR, and others.
“A number of larger white shoe law firms who did not historically have big energy practices have tried to shift into renewables over the last year,” said Zach Crowley, a partner at Clean Energy Counsel, a firm made of ex Big Law partners, dedicated to renewable energy work.
Trump has dubbed renewable energy “the green new scam” and speculation of de-prioritization of climate-related policies sparked a dip in shares of renewable power firms Wednesday.
On the chopping block may be some of the tax incentives found in the Inflation Reduction Act, a push for solutions to climate change and technology advancements, lawyers say.
If there are repeals of certain tax credits, the returns on some renewable projects will decrease, and as a result of those decreased returns, some investors with high costs of capital will need to exit the market, Crowley said. That could include Big Law firms.
“I think you will see more [law] firms shifting away from renewables because they’re not really committed to the outcome of developing these projects, they’re committed to the profits,” said Crowley.
But it may be too soon to rule off activity in renewables. If Republicans do not wind up with control of the House of Representatives, there is minimal threat to the IRA.
“Even if the Republicans wind up with control of both houses of Congress, it is important to understand that many of the incentives under the IRA are popular, even in red states,” said Michael Cannon, a Dallas-based tax partner at Gibson Dunn. Those states house several projects and jobs associated with renewables, he said.
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