Texas - Law Firms Managing A Global Energy Practice From A Houston Office

Thursday, September 1, 2005 - 01:00

Editor: Please give us a snapshot of your background and describe the practice area of the Houston office of Chadbourne & Parke.

Schumacher: I came to Houston almost a year ago from Northern Virginia where both my wife and I grew up. I went to law school at The George Washington University in Washington DC.

The attorneys in our office practice primarily in the area of infrastructure project development and project finance. Most of the projects on which we have worked are large scale energy projects. Members of our firm's project finance practice group have been involved in energy project financing for almost 20 years now. We have a well-recognized name in the independent power industry, and we continue to play a leading role in providing legal services in that industry. We have seen significant growth more recently in the oil and gas industry, including the LNG industry. We are also very encouraged by our growth in the biofuel industry, including ethanol and, more recently, biodiesel projects. In addition to pure project finance, we're involved in merger and acquisition transactions involving project assets. We opened our office in Houston in order to be closer to the center of the energy industry in the U.S.

Editor: Is the Houston office performing all of Chadbourne's project finance work?

Schumacher: No. Our project finance attorneys are located in a number of different offices throughout the world. Our home office is in New York. In addition to our group in Houston, we have project finance and energy attorneys in Washington, London, Moscow, Warsaw, Kiev, and in our newly opened office in Kazakhstan. We recently opened our office in Kazakhstan to take advantage of significant growth opportunities that we see in the energy industry in Russia and the CIS.

Editor: David, you personally have an illustrious track record in the energy and project finance area. Perhaps you could describe one or two of your projects.

Schumacher: Right now I am working on a significant bond financing of the Freeport LNG receiving terminal in Freeport, Texas. It's a very interesting and challenging project. I also worked recently on the 144A debt financing of the Yam Tethys gas production platform off the coast of Israel, which involved Israeli sponsors taking advantage of the U.S. securities markets to finance the construction of their offshore platform. This facility is very important to Israel because it is one of the few indigenous sources of natural gas in Israel. The project also is one of the key elements to Israel's developing a natural gas transmission and distribution system that would extend throughout the county. We've recently worked on a transaction involving GE and Calpine in which GE acquired certain interests in a project that Calpine was developing in California. This project is going to be used by GE to introduce a new vintage of their gas-turbine technology.

As for others in our office, Todd Alexander and Dan Rogers are working on biofuel projects, including what we believe to be one of the largest biodiesel projects in the U.S. Ethanol is becoming important as a gasoline additive which will allow the gasoline to burn cleaner and more efficiently.

Editor: Are you seeing as a firm that a lot of the project finance work has to do with the energy field?

Schumacher: That form of financing has probably been used more in the energy industry than any other industry that requires the construction of significant infrastructure projects. Because of the capital intensity of most energy projects, it's a viable form of financing in this industry.

Editor: There is an increasing interest in LNG as a source of natural gas. Are you seeing this emerge as a growth area of finance in the global energy area?

Schumacher: Absolutely. In addition to the Freeport LNG project, we've also been assisting SUEZ Energy on their proposed LNG receiving terminal project in the Bahamas. We've also assisted other companies in securing capacity from LNG projects, buying LNG from offshore liquefaction facilities, and working with sponsors on some projects to be developed in various parts of the U.S. LNG is going to be an important energy source for the U.S. for some time. Many studies show that imports of LNG into the U.S. are likely to double if not triple over the next 10-15 years.

Editor: Could you tell us about some of the reservations people have about the risks of having LNG ports close to large cities.

Schumacher: The interesting thing about safety in the LNG industry is that the industry's safety record is being used against it. Until the recent LNG plant explosion in Algeria, there has never been a significant accident involving LNG in the 40 years in which LNG production and shipment has been a viable commercial activity. Thus, experts have no real hard evidence of the harm to health or safety that could be caused by a release of LNG. Most of the dangers surrounding the LNG industry that opponents point to are based on studies that rely on various untested assumptions.

We would point to Japan and Korea as the best evidence of how LNG can be shipped, stored and used safely. The Japanese and Koreans have been heavily reliant on LNG since it became a viable technology. The Japanese and Koreans have terminals in very populated areas. LNG infrastructure is an accepted way of life in those countries. I think that the LNG industry has to do a better job of bringing out the fact that the industry's safety record is phenomenal.

Editor: What is the sequence of permissions one has to follow in order to establish an LNG facility?

Schumacher: The most recent energy bill signed by the President made that clearer. The Federal Energy Regulatory Commission (FERC) is now designated the lead agency in LNG import terminal authorizations and the main source of permitting. While the states and local governments are involved in the permitting process, the federal government takes the lead. The main step is getting the authority from FERC to construct a facility.

Needless to say, the process is time consuming. There have been many well publicized projects that FERC has considered over the last year that had a vocal opposition. The FERC has been under intense scrutiny when a proposed project is brought before it. When determining whether a project is in the public interest, FERC must consider all significant risks of a particular project, both safety and environmental, and to consider all reasonable alternatives. Moreover, FERC must provide other interested federal and state regulatory agencies, as well as individuals, with an opportunity to participate in the consideration of the project. Thus, these projects go though a significant review process before being approved.

Editor: Are there organized groups opposed to bringing in terminals?

Schumacher: Yes. It really depends on the area of the U.S. as to the level of opposition. Here on the Gulf Coast, where there is already a significant amount of energy infrastructure in place, there is very little opposition to projects proposed for this region of the country. In fact, the governor of Louisiana made it very clear that Louisiana welcomes these facilities. Governmental authorities in Texas have taken the same position. However, California and New England are quite different. Almost very day you see an article about opposition to LNG projects from individuals as well as state and local authorities in those areas. For example, the State of Connecticut recently came out strongly against an LNG terminal that will be located in Long Island Sound eleven miles offshore; yet New England faces some of the highest energy prices in the country. It's a very interesting example of how different communities view these types of projects. Experience and history with large scale energy projects is what separates how these different areas of the country approach these projects.

Editor: Your office has been accorded some high accolades by Infrastructure Journal. Could you explain to our readers the basis for this?

Schumacher: Both Chadbourne & Parke and our energy and project finance group have a good reputation in the energy industry, and in particular, the project finance community. So that gives us a brand name here in Houston. In addition, I think we have a good team of lawyers here. I have two outstanding senior colleagues in Houston. My partner Todd Alexander is becoming very well known in the ethanol industry. He is currently working on a number of ethanol projects. Todd also has a long history of working on energy projects throughout the world. Todd will be listed in The Best Lawyers in America 2006 for Project Finance Law. Dan Rogers has worked most of his career on LNG projects. He is very well known in that industry. He also has recently been involved in biodiesel projects. We also have associates working with us that are very good lawyers and have helped to build a fine reputation here in Houston. While there are challenges for a New York firm in competing with well-established Texas firms, we believe we are starting to make a name for ourselves. The brand name, Chadbourne & Parke, is being used to our advantage.

Editor: How long has the Houston office been open?

Schumacher: We opened this particular office in September of 2002. We had a number of clients that were already here; it just made a lot of sense to be closer to them. It's always nice to get that face time and be able to visit with them on short notice. We moved here very soon after the Enron collapse. While that created a doubt in our mind about whether moving to Houston was the right thing, we decided it was still the energy capitol of the U.S. and a good place for our business. The firm believes it was a good decision and hopes we can grow our presence here.

Editor: Are your clients from the Houston area or are they being referred from other offices?

Schumacher: I think it's a mix. For the last couple of transactions on which I've worked, it's clear that we probably wouldn't be working on them if we weren't in Houston. Being in Houston gives us an advantage not only in attracting new clients but also in getting work from existing clients that might have looked elsewhere.

Editor: Why is Houston a desirable venue for other types of commerce?

Schumacher: The energy and petroleum industry are clearly dominant here. This becomes clear when you look at a list of the top public companies located in the Houston area. From the standpoint of legal services, these companies have a need for expertise in a number of areas. In addition to help raising capital, these companies need assistance with commercial litigation and protecting intellectual property rights, to name two. Thus, we believe there are extraordinary opportunities in Houston.

Editor: Because Houston is an international port city, do you find a lot of diversity in Houston among ethnic groups?

Schumacher: One thing most interesting about Houston is its diversity. The area seems very cosmopolitan and sophisticated.

Please email the author at dschumacher@chadbourne.com with questions about this article.