Law firms in the Asia-Pacific region may see a significant benefit as government-linked investment vehicles target energy assets in an effort to supply Asian markets.
Recent deals have seen such funds – sometimes in partnership with private equity firms – invest billions in energy assets.
“We’ve been seeing this trend,” said Dennis Barsky, a Singapore-based partner at Jones Day, “driven in part by the availability of attractive oil and gas assets in the U.S.”
Barsky was one of the partners who led the Jones Day team in advising Temasek Holdings on its investment in Venari Resources, an early-stage exploration company focused on deep-water oil and gas in the Gulf of Mexico. Temasek was part of a consortium that invested a total of $1.125 billion in the company.
Natural gas prices have fallen dramatically in the U.S. in recent years, largely as a result of fracking, an extraction technique that made large quantities of previously inaccessible natural gas available to the market. The resulting glut has driven natural gas prices in the North American market to ten-year lows. In contrast, natural gas in Asia has been trading at up to seven times the North American prices, according to Reuters.
“While Asia-based investment funds have historically focused their resource investments in Asian assets, the increased supply of natural gas in the U.S., and the prospect of the U.S. becoming an energy exporter is an interesting trend that is starting to drive investment into the U.S.,” said Barsky.
Currently, the U.S. lacks the infrastructure to export significant levels of natural gas to overseas markets where demand is high. This, combined with a relatively weak dollar, is creating opportunities for infrastructure projects and arbitrage.
A case in point is a $468 million investment by Temasek and private equity fund RRJ Capital in U.S.-based Cheniere Energy, which Jones Day also advised on. Cheniere will use the funding to build the country’s first liquefied natural gas (LNG) export plant at Sabine Pass in Louisiana. The parties are also discussing a partnership to develop LNG sales, marketing, and trading relationships in Asian markets.
Recently, Slaughter and May advised Thailand’s national petroleum exploration and production company, PTT Exploration & Production (PTTEP), in its acquisition of Africa-focused Cove Energy as part of the efforts to secure energy to power the country’s economy. PTTEP outbid Royal Dutch Shell’s offer of $1.8 billion for Cove.
Meanwhile, India has revived plans to create a sovereign wealth fund specifically targeted at investing in energy assets. Initially mooted last year as a $10 billion fund aimed at buying energy assets abroad to feed domestic demand, plans for the “Strategic Energy Fund” stalled last year amid concerns from India’s central bank regarding funding such a venture through the country’s foreign exchange reserves, according to Reuters. However, the Indian Express reported in April that the government is now in the planning stages for the fund.
Investing in foreign energy assets may pose specific legal challenges for the parties involved.
For example, firms investing in U.S. energy assets must be particularly cognizant of U.S. regulatory developments. “Investors are increasingly cautious from a liability perspective following the 2010 BP oil spill in the Gulf of Mexico, and the related legal fallout,” said Barsky. ALB
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