Editor: Please tell our readers about your background and experience, both in your current role at King & Spalding and as corporate counsel for certain Pacific Rim companies.
Weems: I am the managing partner of King & Spalding's Singapore office and have been there since last year. I spent three years in Dubai as managing partner of our three offices in the Middle East. I am an oil and gas attorney principally and have been with the firm almost 12 years. For most of the '90s, I was an in-house lawyer in Jakarta, Indonesia, where I was heavily involved in liquefied natural gas (LNG) and other projects. Because of my expertise in LNG, I've been asked to represent several companies in the Pacific Rim area, including Australia, Indonesia, Papua New Guinea and Vietnam. I have resided and worked in Southeast Asia for 20 years, so I often get contacted by companies in that area to continue to assist them on various oil and gas matters.
Editor: King & Spalding's Singapore office will serve as a hub for the firm's work in energy and international arbitration throughout the Asia-Pacific region. Please tell us about your focused team of attorneys.
Weems: King & Spalding's office in Singapore is devoted to international arbitration and energy, which is no coincidence given the firm's leadership in these areas. Our Singapore team was chosen specifically for its knowledge of the region and special expertise in the areas of arbitration and oil and gas. For example, our partner Daniel R. Rogers has worked on Indonesian matters for 15 years, and John Savage, a partner in international arbitration, first began residing in Singapore in 2002. In fact, most of our attorneys there have lived in Singapore for several years, which is important because relationships, cultural literacy and knowledge of the region are the keys to ensuring that we continue to be able to provide effective legal advice to our clients.
Editor: I understand there are a number of major arbitrations from various countries on your docket. What are the current trends in energy disputes?
Weems: There are several arbitrations already on the docket and others being considered. Traditionally, the Asian region, and particularly Southeast Asia, was not as litigation-prone as the West; however, developing legal foundations are shifting as many Southeast Asian countries are beginning to realize the effects of their approach to the rule of law. Arbitrations often seek to resolve differences of opinion between governments - which are responsible for the development of the oil and gas resources - and contractors, who are investing the money and have the contractual right to explore for oil and gas.
Editor: Are the majority of arbitrations that you see ones concerning oil and natural gas, or have renewable resources also become an issue?
Weems: Indonesia has vast renewable resources, particularly geothermal, but these are still in the developmental stage. As a result, I am not aware of any recent disputes in this area. Most arbitrations are in the oil and gas area. For example, a few years ago there was a major dispute arising from damage resulting from negligent drilling of a well in Java. There was total loss of control of the well, resulting in substantial damage and the need to evacuate many people from their homes. Similar to the BP situation in the Gulf of Mexico, the dispute focused on whether the contractor had been a reasonable, prudent operator during the drilling process.
Editor: Are there rather stringent rules in these countries about how you drill?
Weems: By and large, the regulations aren't as developed as they are in the West, though they are increasing in number.
Editor: Is there a permitting process and fairly clear title to the properties?
Weems: Yes. Actually, the title to oil and gas property typically belongs to the government. About 50 years ago, Indonesia developed the Production Sharing Contract, which is a mechanism for the government to hire a foreign company to explore and develop hydrocarbon resources in exchange for a share of the petroleum discovered and produced. While the foreign entity - the contractor - makes decisions and operates the day-to-day activities, the government retains overall supervision and control. The contractor incurs costs with an expectation of offsetting proceeds from discovered oil and gas, so a lot of disputes deal with differences of opinion on appropriate cost recovery.The Indonesian government also subsidizes its consumers, which creates issues, for example, when contractors are forced to sell natural gas into the domestic market at substantially lower prices than they could achieve by exporting it.
Editor: What was the process of obtaining governmental approval to establish offices in Singapore?
Weems: Actually, it's very straightforward. We had to provide details about the firm's history and its commitment to having an office in Singapore. We also had to agree to limit our advice to international law rather than questions of local Singapore law.
Editor: Will you be involved in high-level negotiations, such as bilateral investment treaties (BITs) or similar agreements?
Weems: King & Spalding has one of the leading practices in investment treaty arbitrations, so we often work with the results of such negotiations. At the present time, we are not heavily involved in the negotiations of the treaties themselves.
Editor: Do you advise any governments in the Pacific Rim?
Weems: Yes, one of our main clients is the Singapore government with respect to developing their first LNG receiving terminal. For over three years, we've been working closely with agencies, such as the Energy Market Authority, as Singapore's economy gradually shifts from pipeline-imported gas to LNG, which they can receive worldwide.
Editor: Is there a difference in the way you handle governments versus other clients?
Weems: There is a difference working with countries versus corporate clients, though Singapore is unique in having a business-minded government. They are very industry focused, so they understand the dynamics of the oil and gas industry. We advised them about long-term strategies to benefit all gas consumers; thus, we had to look at the issue from the overall Singapore consumer standpoint, not just current buyers of gas. While it required putting on a new hat, on the whole, it wasn't as different as you might think given the government's unique commercial focus.
Editor: Given that Singapore resembles a corporation more than we might imagine, how does your strategy change when you're representing another country's government?
Weems: We haven't represented governments in other parts of the region because we typically represent clients who are opposite the government. In general, government agencies are restricted in their view of the world and not commercially focused. Government officials tend to be political appointees who are more concerned with how decisions affect their political careers than with doing the right thing from a commercial standpoint. It takes a special skill to ensure that governmental officials take the time to look at the oil and gas project's viability and not simply adopt a nationalistic standpoint.
Editor: Indonesia's state energy firm, Pertamina, was very visible in the news several years ago. How did you find working with them compared to working with the government of Singapore?
Weems: I worked closely with Pertamina for most of the '90s.Similar to the Singapore government, Pertamina senior executives were involved in the LNG business for much of their careers and could make informed decisions. Since Indonesia passed the Oil and Gas Law of 2001, creating a new government agency that supervises from afar, government appointees don't tend to have the industry background required to make key decisions. This lack of experience has been, in many instances, detrimental to further development of the Indonesian oil and gas industry.
Editor: Some years ago, there was a feeling in this country that LNG should not be brought too close to shore. Has that fear completely abated?
Weems: There has never been a fatality from a maritime accident in LNG, and the U.S. has been shipping LNG from Alaska since the '60s. In part, fears stemmed from a genuine misunderstanding about the safety record of LNG - the gas industry did not have a good lobby - but people also opposed facilities in their area because of possible negative effects on real estate values.
Editor: Mitsubishi Corp. recently announced that it will invest $2.8 billion in Indonesia's LNG project. What are your thoughts about Indonesia as a viable place to expand corporate investment in emerging economies?
Weems: Indonesia can be an attractive and viable place for corporate investment. The economy is on the right track but still developing, so investors have to pick the right industries. U.S. investment in Indonesia's oil and gas industry has enjoyed considerable success, but it requires a long-term approach and willingness to abide by government requirements with respect to maintaining a strong national component to the workforce. U.S. companies can't overly rely on an expatriate workforce, as the Indonesian government wants transfers of knowledge that benefit its people in the long term. It's a win-win if you're willing to develop your own business in a manner that improves the Indonesian economy. Indonesia encourages foreign investment more than ever, but U.S. companies should be aware that corruption remains an issue, unfortunately.
Editor: What role will renewable resources play in Indonesia's future and in the creation of foreign investment opportunities for U.S. corporations?
Weems: With the possible exception of geothermal, renewables are not the best option for big investments. I don't anticipate that wind or biofuels will play a central role, and, in general, capital is a real limitation in Indonesia. Who wants to invest the money or time required to find partners when traditional oil, gas, coal and mining investments are easier and more reliably profitable? Absent a commitment by the government to set up structures that facilitate investment, people will have to be very patient if they wish to develop Indonesian renewable energy ventures.
Editor: You will co-chair the Institute for Energy Law's 62nd annual oil and gas law conference. Please tell our readers about King & Spalding's thought leadership in this arena.
Weems: For many years, King & Spalding has been a leading participant in this conference, which is the oldest continuously held CLE event in the United States. As co-chair for this year's event, I helped develop an agenda that focuses on cutting-edge issues in litigation, regulatory, transactional, alternative, environmental, international and oilfield services. We discussed offshore development in the Gulf of Mexico, including regulatory hurdles, protections and their associated liabilities and how to plan for continuing offshore developments, government investigations and force majeure events. One hot topic was shale gas development - the revolution in U.S. gas resources - how it will be developed and regulated and how inexperienced U.S. regions will manage transactions associated with this kind of unconventional gas development.
Editor: Is LNG one of the bright spots in our future in terms of energy sources, and do we have the necessary infrastructure in place?
Weems: It remains to be seen. Many believe that the U.S. will start exporting gas as LNG from Gulf of Mexico terminals that originally were established as import terminals. King & Spalding represented most of the developers of those import terminals, so we're now actively involved in project development of many of the North American LNG export projects.For the moment, there is some uncertainty about whether the U.S. government will allow plentiful gas resources to be exported to a variety of countries. The current industry consensus is that there is sufficient infrastructure to transport gas to receiving terminals; however, we still have to build liquefaction facilities, and unwavering regulatory support is critical. Also, there is a concern about whether prices will remain low and sustain the critical arbitrage to justify exports. The idea is to have the traditionally higher prices in Europe or Asia versus the relatively low U.S. price due to plentiful supplies, thereby offsetting the cost of liquefying and shipping the gas. Joining misconceptions about the safety of natural gas are concerns about whether the resource really exists to such a great extent that we can actually start exporting in large volumes. The emerging position is that exporting will benefit the U.S., but given the switch from the need to import to having an excess to be exported, an educational effort may be required before politicians take full advantage of the opportunity.