THL_November/December_2012

lawyerVolume 50 – Number 3 November/December 2012

inside...Representing Clients in International Energy Projects

Accommodating Host Governments in International Oil and Gas Transactions

Gulf of Mexico Offshore Transboundary Hydrocarbon Development: Legal Issues Between Mexico & the U.S.

Multidisciplinary and Multinational Issues Raised in Global Offshore Energy Transactions:Expecting the Unexpected

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International Energy Law

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Representing Clients in International Energy Projects By Dewey J. Gonsoulin, Jr., Joshua C. Zive and steven l. DiCkerson

Accommodating Host Governments in International Oil and Gas TransactionsBy thomas J. moore

Gulf of Mexico Offshore Transboundary Hydrocarbon Development: Legal Issues Between Mexico & the U.S. By miriam Grunstein, riCharD mClauGhlin and luis anastaCio GutiérreZ

International Energy Insight

Multidisciplinary and Multinational Issues Raised in Global Offshore Energy Transactions:Expecting the Unexpected By Felisa sanCheZ

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FEAtUREs

The Houston Lawyer (ISSN 0439-660X, U.S.P.S 008-175) is published bimonTHLy by The Houston Bar Association, 1300 First City Tower, 1001 Fannin St., Houston, TX 77002-6715. Periodical postage paid at Houston, Texas. Subscription rate: $12 for members. $25.00 non-members. POSTMASTER: Send address changes to: The Houston Lawyer, 1300 First City Tower, 1001 Fannin, Houston, TX 77002. Telephone: 713-759-1133. All editorial inquiries should be addressed to The Houston Lawyer at the above address. All advertising inquiries should be addressed to: Quantum/SUR, 12818 Willow Centre Dr., Ste. B, Houston, TX 77066, 281-955-2449 ext 16, www.thehoustonlawyer.com, e-mail: [email protected] Views expressed in The Houston Lawyer are those of the authors and do not necessarily reflect the views of the editors or the Houston Bar Association. Publishing of an advertisement does not imply endorsement of any product or service offered. ©The Houston Bar Association, 2012. All rights reserved.

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38President’s messageTwo Special Ways to Give This Holiday Season By Brent Benoit

From the editorGiving More Than Just Legal Services By keri D. Brown

houston lawyers who made a Difference

Committee sPotliGhtAdopt-a-School Committee: Helping Educate the Community’s YouthBy ChanCe mCmillan

a Profile in Professionalism Judge David o. Fraga City of Houston Municipal Court

off the recordLatina Voices: Smart TalkBy anGela l. Dixon

legal trendsState of Texas v. EPA: Limiting the Role of the EPA Under the Clean Air Act By suZanne Chauvin

The Door Opens to Challenge Some Pipeline Claims of Eminent Domain By John s. Gray

media reviewsModern Licensing Law (2011-2012 ed.)reviewed by al harrison

Captain James A. Baker of Houston, 1857-1941reviewed by Bill kroGer

Placement service litigation marketPlace

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Join the houston Bar association’s 100 Club The Houston Bar Association 100 Club is a special category of membership that indicates a commitment to the advancement of the legal

profession and the betterment of the community. The following law firms, corporate legal departments, law schools and government agencies with five or more attorneys have become members of the 100 Club by enrolling 100 percent of their attorneys as members of the HBA.

Firms of 5-24 attorneys Abraham, Watkins, Nichols, Sorrels, Agosto & FriendAdair & Myers PLLC Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing P.C. Ajamie LLP Andrews Myers, P.C.Bair Hilty, P.C.Baker Williams Matthiesen LLP The Bale Law Firm, PLLCBarrett Daffin Frappier Turner & Engel, LLP Bateman/Pugh, PLLC Bell, Ryniker & Letourneau, P.C. Berg & Androphy Bingham, Mann & HouseBlank Rome LLPBrewer & Pritchard PC Buck Keenan LLP Burck, Lapidus, Jackson & Chase, P.C. Bush & Ramirez, L.L.C. Butler I Hailey Caddell & Chapman Cage Hill & Niehaus, L.L.P.Campbell Harrison & Dagley LLP Campbell & Riggs, P.C.Chernosky Smith Ressling & Smith PLLC Christian Smith & Jewell, L.L.P. Connelly • Baker • Wotring LLP Cozen O’Connor Crady, Jewett & McCulley, LLP David Black & Associates De Lange Hudspeth McConnell & Tibbets LLP Devlin Naylor & Turbyfill PLLC Dinkins Kelly Lenox Lamb & Walker, L.L.P. Dobrowski, Larkin & Johnson LLP Dow Golub Remels & Beverly, LLP Doyle Restrepo Harvin & Robbins, L.L.P. Ebanks Horne Rota Moos LLPEdison, McDowell & Hetherington LLP Ellis, Carstarphen, Dougherty & Griggs P.C. Ewing & Jones, PLLCFaubus & Scarborough LLPFernelius Alvarez PLLCFibich Hampton Leebron Briggs Josephson, LLP Fisher, Boyd, Brown & Huguenard, LLPFisher & Phillips LLP Fizer Beck Webster Bentley & Scroggins, P.C.Fleming, Nolen & Jez, L.L.P. Frank, Elmore, Lievens, Chesney & Turet, L.L.P. Fullenweider Wilhite PCFunderburk Funderburk Courtois, LLP Galloway Johnson Tompkins Burr & Smith Germer Gertz, L.L.P. Givens & Johnston PLLCGodwin Lewis PC. Goldstein & Lipski, PLLC Gordon & Rees LLPGreer, Herz & Adams, L.L.P.Hagans Burdine Montgomery & Rustay, P.C.Harris, Hilburn & Sherer

Harrison, Bettis, Staff, McFarland & Weems, L.L.P.Hays McConn Rice & Pickering, P.C. Hicks Thomas LLP Hirsch & Westheimer, P.C. Holm I Bambace LLP Hunton & Williams LLP Jackson Gilmour & Dobbs, PCJackson Lewis LLPJenkins Kamin, L.L.P. Johnson DeLuca Kurisky & Gould, P.C. Johnson Radcliffe Petrov & Bobbitt PLLC Johnson, Trent, West & Taylor, L.L.P.Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L. L. P.Joyce, McFarland + McFarland LLP Kane Russell Coleman & Logan PC Kelly, Sutter & Kendrick, P.C.Kroger | BurrusLeBlanc Bland P.L.L.C.Legge Farrow Kimmitt McGrath & Brown, L.L.P. Linebarger Goggan Blair & Sampson LLP Liskow & Lewis Lorance & Thompson, PC MacIntyre & McCulloch, LLPMcGinnis Lochridge & Kilgore LLPMcGuireWoods LLP McLeod Alexander Powel & Apffel PC MehaffyWeber PCMiller Scamardi & Carraba Mills Shirley L.L.P. Morris Lendais Hollrah & Snowden Munsch Hardt Kopf & Harr, P.C.Murray | Lobb PLLCNathan Sommers Jacobs Ogden, Gibson, Broocks, Longoria & Hall, LLP Ogletree, Deakins, Nash, Smoak & Stewart, P.C.Pagel Davis & Hill PC Perdue Brandon Fielder Collins & Mott Perdue Kidd & Vickery Phelps Dunbar LLP Phillips, Akers & Womac, PCPillsbury Winthrop Shaw Pittman LLP Ramey, Chandler, McKinley & Zito Ramsey & Murray PCRoach & Newton, L.L.P. Roberts Markel Weinberg PC Ross, Banks, May, Cron & Cavin, P.C.Royston, Rayzor, Vickery & Williams, L.L.P. Rusty Hardin & Associates, P.C. Rymer, Moore, Jackson & Echols, P.C.Schiffer Odom Hicks & Johnson PLLC Schirrmeister Diaz-Arrastia Brem LLPSchwartz, Junell, Greenberg & Oathout, LLP Schwartz, Page & Harding L.L.P. Shannon Martin Finkelstein & Alvarado, P.C.Shepherd, Scott, Clawater & Houston, L.L.P.Shipley Snell Montgomery Droog LLP Short Carter Morris, LLPSingleton Cooksey LLP

Smith Murdaugh Little & Bonham, L.L.P. Smyser Kaplan & Veselka, L.L.P.Sprott, Rigby, Newsom, Robbins & Lunceford, P.C.Stevenson & Murray Strong Pipkin Bissell & Ledyard, L.L.P.Stuart & Associates P.C.Sutton McAughan Deaver, PLLC Tekell, Book, Allen & Morris, L.L.P.Thompson & Horton LLP Thompson, Coe, Cousins & Irons, LLP Tucker, Taunton, Snyder & Slade, P.C. Tucker Vaughan Gardner, Barnes & Garcia, P.C.Ware, Jackson, Lee & Chambers, L.L.P. Watt Beckworth Thompson Henneman & Sullivan LLP Weycer Kaplan Pulaski & Zuber, P.C. White Mackillop & Gallant P.C. Williams, Birnberg & Andersen, L.L.P.Williams Kherkher Hart Boundas LLP Williams Morgan & Amerson, P.C. Willingham, Fultz & Cougill, LLP Wilson, Cribbs & Goren, P.C. Wilson, Elser, Moskowitz, Edelman & Dicker Wright Abshire, Attorneys, PC Wright & Close, L.L.P.Yetter Coleman LLP Ytterberg Deery Knull LLPZimmerman, Axelrad, Meyer, Stern & Wise, P.C. Zukowski, Bresenhan & Sinex, L.L.P. Firms of 25-49 attorneys Adams & Reese LLPAkin Gump Strauss Hauer & Feld LLPBaker & McKenzie LLP Beck Redden & Secrest, L.L.P. Beirne, Maynard & Parsons, L.L.P.Chamberlain Hrdlicka White Williams & Aughtry Coats I RoseCokinos Bosien & YoungGibbs & Bruns LLP Greenberg Traurig, LLP Hoover Slovacek LLPJones Day Littler Mendelson, PCOlson & Olson LLPSeyfarth Shaw LLP Firms of 50-100 attorneys Baker Hostetler LLP Gardere Wynne Sewell LLP Jackson Walker L.L.P. Martin, Disiere, Jefferson & Wisdom, L.L.P.Morgan, Lewis & Bockius LLP Porter Hedges LLP Thompson & Knight LLP Winstead PC

Firms of 100+ attorneys Andrews Kurth LLP Baker Botts L.L.P. Bracewell & Giuliani LLP Fulbright & Jaworski L.L.P. Haynes and Boone LLP Locke Lord LLPVinson & Elkins LLP

Corporate legal Departments Anadarko Petroleum Corporation AT&T Texas BP CenterPoint Energy El Paso Corporation Kellogg Brown & Root Inc LyondellBasell IndustriesMAXXAM IncNewfield Exploration CompanyPetrobras America Inc. Plains Exploration & Production Co. Pride International Inc. Rice University S & B Engineers and Constructors, Ltd Sysco Corporation Texas Children’s Hospital Total E&P USA Inc. University of Houston System

law school Faculty South Texas College of Law Thurgood Marshall School of Law University of Houston Law Center Government agencies City of Houston Legal Department Harris County Attorney’s Office Harris County District Attorney’s Office Harris County Domestic Relations OfficeMetropolitan Transit Authority of Harris County TexasPort of Houston Authority of Harris County Texas

We have finally made it to the holiday season. This is my favorite time of the year when I (hopefully) get a chance to take a break

with my family and recharge for the new year. I hope that each of you will get that op-portunity, and that you are making plans to spend time with your family, friends, and loved ones.

The holidays are also a time for us to reflect on and appre-ciate our blessings. I am sure that many of you have a great deal to be thankful for this season. As attorneys in one of the most vibrant legal markets in the world, we have a par-ticular reason to be thankful. This is-sue of our magazine is dedicated to one

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By Brent BenoitLocke Lord LLP

of the fundamental drivers of our legal market: energy.

The energy practice in Houston is not only strong, but it is also inter-national in scope. Houston attorneys representing energy clients may find

themselves involved in matters in the Perm-ian Basin, the Middle East, the North Sea, China, Africa, South America, Canada, or a host of other locations. The breadth and depth of the work and clien-tele make our energy legal market second to none. I hope you enjoy this issue of The Hous-ton Lawyer.

I want to take just a moment to remind you of two upcoming opportunities to give back to a community that has given our legal

profession much. I know in this sea-son that we all receive requests to help

in a wide variety of ways, and I hope you all do as much as you can. But, I hope that you will make a special effort to support two special projects of the HBA that will demonstrate that Hous-ton lawyers care and give back to the community.

First, we are going to join the fight against hunger. You may be surprised to learn that Houston has the one of the highest levels of food insecurity in our nation. Each day some 50,000 indi-viduals go hungry in our communities. While hunger is never acceptable for any person, many of those that go hun-gry are particularly vulnerable popula-tions such as kids and our elderly.

In January, the HBA is supporting the Souper Bowl of Caring, an event arranged around Super Bowl weekend – an event that may be particularly in-teresting this year to our city. We are challenging firms and attorneys to col-lect food and donate money to this ef-fort. Every dollar that you donate can provide three meals thanks to the tre-mendous buying power of our local food relief organizations. So, for $100

Two Special Ways to Give This Holiday

Season

I hope that you will

make a special effort to

support two special

projects of the

HBA that will

demonstrate that

Houston lawyers care

and give back

to the community:

the Souper Bowl of Caring

and Tree Planting

at the Houston

Arboretum.


you can feed a kid for almost an entire year. I hope that you will take that op-portunity.

On January 19, we will be volunteer-ing at the Houston Food Bank. Many of you went to the Houston Food Bank last year as part of our Family Day of Service. For those of you who went, I know you will want to go back. If you did not make it last year, you missed a fantastic experience. Please gather up your friends and volunteer. I hope to see hundreds of you that day packing groceries and preparing other supplies for our hungry citizens.

Second, we are also going to plant trees to try to help our city to continue to recover from the devastating drought in 2011. During that drought we lost 20 percent of our trees — more than 66 million. That is a staggering statistic. Any of you that have visited local parks such as Memorial Park or the Houston Arboretum know firsthand how signifi-cant the damage is. On January 26, we will help replenish the canopy by plant-ing trees at the Houston Arboretum. Our goal is to plant at least 1000 trees, but to do that we need your contribu-tions to buy the trees. Each $10 dona-tion you make will purchase one tree. In addition, I hope that you and your fam-ily will help us plant the trees on Janu-ary 26. This should be a great event for firms, families, church groups, and oth-ers. If you have little ones, bring them. The Houston Arboretum will have ac-tivities for any kids too small to help with planting trees. I look forward to seeing you all there.

To volunteer or contribute to any of these efforts, please contact our offices at 713-759-1133 or visit our website, www.hba.org.

Again, I hope all of you have a very happy holiday season. Enjoy a restful and enjoyable time as we close out the year and ring in a new one. And please take a moment to remember how fortu-nate we all are and consider helping us in these two worthy efforts.

Defending Texans Since 1994Former Assistant United States AttorneyFormer Assistant District AttorneyFounding Member of the National College of DUI Defenseof Counsel Williams Kherkher LLP

Law Office of Ned BarnettGulf Freeway Office: 8441 Gulf Freeway, Suite 600 • Houston, Texas 77017

713-222-6767 • www.nedbarnettlaw.com

Board Certified in Criminal Law by the Texas Board of Legal Specialization

thehoustonlawyer.com november/December 2012 7

Lawyers are at our best when we are volunteer-ing our time or contributing our resources to help those in need. Most HBA members know of the State Bar of Texas’s resolution that members of the Texas Bar should aspire to provide 50 hours of legal services to the poor

each year. HBA members help meet this goal through programs offered through the HBA, including Houston Volunteer Lawyers (formerly Houston Volunteer Law-yers Program) and LegalLine, as well as programs offered through a variety of organizations such as Texas C BAR and Texas Accountants and Lawyers for the Arts.

One of HVL’s more popular programs is the Saturday Legal Clinic, in which volunteer lawyers provide legal ad-vice or intake at a variety of locations throughout Harris County. There is an enormous need for this service and for lawyers to volunteer their time to staff the clinics. At a recent clinic in north Houston, people seeking assistance arrived for the 9 a.m. start time as much as two hours early. HVL employees closed intake by 9:30 a.m., having to turn away anyone who arrived after that time. While the clinic was scheduled to end at noon, volunteer law-yers assisted guests until 1:45 p.m. When all was said and done, volunteer lawyers assisted 109 people.

In addition to our aspirational goal of 50 annual pro bono hours, we also should seek to help our community with non-legal assistance. Most, if not all, of us contrib-ute either financially or in-kind to various charitable or-ganizations in our community. The HBA offers a variety of ways to contribute, including:

• Souper Bowl of Caring: make contributions through January 16 and participate in a day of ser-vice with the Houston Food Bank on January 19

• Habitat for Humanity: Help the HBA build its 16th Habitat house by donating your time or money

• Paul E. Stallings Blood Drive: Have your donation credited to the HBA by giving The Blood Center the code QM07

• Campaign for the Homeless Committee: Donate coats in the fall and children’s clothing and diapers in the spring

• Special Olympics Committee: Donate your time

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By Keri D. BrownBaker Botts L.L.P.

assoCiateeDitors

Julie BarryAttorney at Law

Jill YazijiYaziji Law Firm

to help officiate or manage Special Olympics com-petitions in the Houston area.

Many of the HBA’s programs are child-friendly. And of course, there are a variety of programs outside of those offered through the HBA in which you and your family can participate.

Let’s focus now on this issue, the topic of which is “en-ergy from an international perspective.” Energy explora-tion and production around the world is a topic ripe for discussion and rife with issues. Our authors tackle the topic and enlighten us on the key issues.

Miriam Grunstein, Richard McLaughlin, and Luis Anastacio Gutiérrez discuss the Center for U.S. and Mexican Law at the University of Houston Law Center’s work on a bi-national research project with respect to the development of offshore oil and gas fields in the Gulf of Mexico. Thomas Moore contributes an article on how to best meet the demands of the host country when enter-ing into an oil and gas transaction, with real-life exam-ples from recent transactions in Ghana and Uganda.

Dewey Gonsoulin, Jr., Joshua Zive, and Steven Dicker-son provide a helpful overview and checklist for invest-ing in an energy contract outside the United States. Fe-lisa Sanchez addresses how to handle both the expected and unexpected issues in a global offshore energy trans-action, from the perspective of a transaction to finance construction of a drillship.

Finally, we are pleased to offer a panel article written by David Buck, John Connally IV, David Harrell, Jr., and Kevin Keenan. This article provides a discussion on a variety of international energy topics, including negotia-tions, creditworthiness, addressing regulatory concerns, understanding how the landscape has changed over the past couple of years, and dispute resolution concerns.

This issue would not have come together as nicely as it did without the superb work of Editorial Board members John Gray, Robert Painter, and Jill Yaziji, our guest edi-tors (and volunteer author-wranglers) for this issue, and our thanks go to them for their hard work. As always, if you have any comments regarding this issue or any as-pect of The Houston Lawyer, please let us know. We’re all ears.

Giving More Than Just Legal Services

Angela L. DixonAttorney at Law

Don Rogers Harris County District Attorney’s Office

Robert W. Painter Painter Law Firm PLLC


BOARD OF DIRECTORS

DIRECTORS (2011-2013) Hon. David O. Fraga Jennifer Hasley Neil D. Kelly Daniella D. Landers

DIRECTORS (2012-2014) Alistair B. Dawson Warren W. Harris Brent C. Perry John K. Spiller

EDITORIAl STAFFeditor in Chief

Keri D. Brown

associate editors

Julie Barry Angela L. Dixon Robert W. Painter Don Rogers Jill Yaziji

editorial Board

Erika Anderson Sharon D. Cammack Suzanne Chauvin Melissa Davis Jonathan C.C. Day Sammy Ford IV Polly Graham John S. Gray Stephanie Harp Al Harrison Hon. Dan Hinde Farrah Martinez Chance McMillan Judy L. Ney Jeff Oldham Hon. Josefina Rendon Tamara Stiner Toomer

managing editor

Tara Shockley

HBA OFFICE STAFF

ADvERTISIng SAlESDESIgn & pRODuCTIOn

Quantum/sur12818 Willow Centre, Ste. B, Houston, TX 77066

281.955.2449 • www.quantumsur.com

PublisherLeonel E. Mejía

Production managerMarta M. Mejía

advertisingMary Chavoustie

executive DirectorKay Sim

administrative assistantAshley G. Steininger

administrative assistantBonnie Simmons

receptionist/resource secretaryLucia Valdez

Director of educationLucy Fisher

Continuing legal education assistantAmelia Burt

Communications DirectorTara Shockley

membership and technology services Director Ron Riojas

membership assistant Ariana Ochoa

Committees & events Director Claire Nelson

Committee & events assistantRocio Rubio

Communications/ web DesignerBrooke Benefield

PresidentBrent Benoit

President-electDavid A. Chaumette

First vice PresidentBenny Agosto, Jr.

second vice PresidentTodd M. Frankfort

secretary Laura Gibson

treasurer M. Carter Crow Past PresidentDenise Scofield


By Dewey J. Gonsoulin, Jr., Joshua C. Zive and steven l. DiCkerson

Representing Clients in

International Energy Projects

export control, anti-trust and trade sanction laws);

• Whether the proposed grant or ac-cess to the hydrocarbon resource is legally defensible and unambiguous;

• The mechanisms by which the proj-ect investors will be paid for their investment and whether such mech-anisms can be altered or changed unilaterally by host country laws (for example, changes in host country tax laws);

• Whether there is a danger that proj-ect revenues will become stranded within the host country due to local laws;

• Whether the parties will be able to agree on an appropriate dispute reso-lution provision and a neutral, inter-national venue for such disputes;

• Whether an award will be enforce-able in jurisdictions where the proj-ect and the parties assets are located; and

• Determining whether the proj-ect is structured to ensure that the stakeholders’ interests remain aligned over the life of the project.

This article provides an overview of some of the issues that counsel should analyze in assessing a client’s potential investment and entry into a project in a non-U.S. jurisdiction. Each proposed transaction has its own unique character-istics, and certain issues will play a larger role than others depending on the parties involved and other circumstances. Simi-larly, each transaction may yield its own unique set of challenges.

Risk Analysis and Due Diligence It is critical to the success of the project to properly analyze the various risks of a proposed venture. Risk in a project can take many forms, but perhaps the most important variable in international trans-actions is the effect of political risk.

Political risk includes a laundry list of country-specific concerns like rule of law issues, problems regarding the sanctity of contracts, issues regarding the transpar-

significantly increase the level of com-plexity and require the parties to exam-ine a number of issues that might not be typical considerations for a domestic U.S. transaction.

When representing an international en-ergy company (IOC), an attorney should ask several basic questions before advis-ing the IOC to embark on a non-U.S. en-ergy investment. Initial areas of inquiry should include, at a minimum, the follow-ing:

• Whether the IOC is investing alone, or is acting in conjunction with oth-er IOCs or national oil companies (NOCs);

• If multiple partners are involved, whether appropriate due diligence has been conducted to ensure that all such partners are and will be compli-ant with U.S. and host country laws (e.g., anti-corruption, anti-boycott,

Large scale energy projects are invariably complex because of their multi-faceted nature. Such transactions typically require negotiation and agree-

ment among partners and stakeholders, command tremendous resources, and in-volve substantial risk.

In the United States, the proposed transaction may present challenges with regard to raising capital, securing the industry technology needed to complete and operate the project, navigating com-pliance with the applicable regulatory regime, and maintaining commercial vi-ability. Projects having a longer duration add to the complexity in that they require extensive planning and structuring to en-sure that the project is sustainable over many years to fully maximize the antici-pated project returns. Undertaking such a transaction outside the U.S., however, can

Types of AgreementsOnce the IOC has conducted its due dili-gence and determined to move forward with the proposed transaction, it will obviously want to secure an agreement with its partners and, if applicable, the host country, outlining the particulars of the transaction. Although these core agreements may take many forms, the majority of deals tend to utilize one of the following structures: (1) concessions; (2) production sharing contracts; (3) in-corporated joint ventures; and (4) service contracts.A. ConcessionsIn a concession arrangement, the IOC receives a grant or license from the host country for exploration and development of the hydrocarbon resource. The grant or license provides for direct ownership of the resource by the IOC. The concession typically provides for significant flexibil-ity in how the IOC conducts its business and operates the project. Government oversight of the IOC is usually undertak-en by the NOC or regulatory arm of the host country. B. Production Sharing AgreementsUnder the terms of a production sharing agreement (PSA), the host government retains ownership of the mineral rights, and the IOC enters into a contractor re-lationship. The contractor, which may include multiple parties, is granted the right to explore, develop and produce the hydrocarbons in a specified contract area. The contractor acquires no owner-ship in the hydrocarbons until the hydro-carbons are actually produced. Typically, title to the contractor’s share of the pro-duction is then transferred at a specified delivery point. If the contractor includes more than one company, then the par-ties will often form an unincorporated joint venture via a joint operating agree-ment (JOA). The JOA defines the relative rights and obligations of the joint venture participants in relation to the contractor’s rights and obligations under the PSA.C. Incorporated Joint VenturesAn incorporated joint venture structure usually entails the creation and registra-

tion of a joint venture company (JVC) under host country laws. It is critical in this structure to understand local laws and license requirements in order to en-sure that the joint venture agreement and formation documents fully authorize the JVC to operate and perform all neces-sary tasks and functions to do business in the host country. The JVC must have sufficient scope and license to conduct its business during the full duration of the project. Typically, certain additional in-struments must be consummated in order for the JVC to gain access to the resource. D. Service ContractsUnder a typical service contract arrange-ment, the IOC agrees to conduct specified petroleum operations as a service for the host government or NOC. As in the case of a PSA, the IOC acquires no ownership of petroleum resources in place. Instead, the contractor receives compensation on the project through reimbursement for its expenditures and a fee based on produc-tion (paid in cash or in-kind). The fee may be taxed by the host government.

The forms of agreement described above are the most common, but never presume that there is a great deal of consistency even among agreements of a certain type. Rather, there are many variations of these models and, as is the case with many domestic agreements, each has its own unique provisions. The number, variety and timing of agreements will vary for each international energy project. An IOC must take the time and make the invest-ment necessary to monitor and align all of the various contracts. This may include securing insurance and conforming to local environmental regulations, indus-trial safety standards and labor laws. The time and expense attributable to these items can be substantial but the benefit of avoiding a breach will be well worth it.

Legal Rights to the Resource and Stability of the Host Country As noted above, ownership and access by the IOC to the resource that is the subject of the transaction is a crucial item to ana-lyze in international energy projects. The

ency (or lack thereof) of the applicable judiciary, ownership rights and access to the hydrocarbon resource, stability of the host country, taxation and foreign cur-rency requirements. Additionally, how one invests in the venture and obtains ac-cess to the resource is as critical as how a party exits the venture at the appropriate time. Finally, depending upon the scope of the project, it may be necessary to analyze transit country and point-of-sale country laws. All critical links in the proj-ect’s “value-chain” must be assessed at the outset to ensure that the project is legally and commercially viable.

Understanding the areas in which you intend to conduct due diligence is only half the battle, however. It may also be a challenge to identify reliable sources of information with respect to these is-sues. Fortunately, a number of sources are often available at a macro level in order to gain insight into host country risks. For general information about non-U.S. jurisdictions, U.S. Commerce and State Department websites are useful tools. In addition, a number of fee-based service providers provide due diligence informa-tion on host countries and potential joint venture partners. Several non-govern-mental organizations also monitor and re-port on political and corporate corruption in international development projects.

Notwithstanding these great outside resources, conducting accurate and com-plete due diligence on a non-U.S. project will undoubtedly require utilizing re-sources within the host country. A good starting point is hiring knowledgeable lo-cal counsel in the host country. These ad-visors often play a crucial role in assess-ing political risk in the anticipated host country. It is also important to identify other non-legal sources that are located in the host country. This may be particu-larly challenging in some jurisdictions. Accountants, bankers, university scholars and government officials often provide helpful insight. In addition, a local part-ner may be able to assist in the due dili-gence, if a local partner is involved in the venture.


act the effect of unforeseen changes by creating an obligation on the host gov-ernment to restore the previously agreed upon terms to their prior form (i.e., before such terms were altered by the change in circumstances). Stabilization provisions can be drafted in a number of different ways. For example, “keep whole” provi-sions protect the IOC from “any economic impact” because of changes caused by government action. Alternatively, some agreements may be triggered only if the government undertakes “discriminatory” actions (i.e., laws that apply only to cer-tain projects). Agreement on this impor-tant subject can reduce the level of risks associated with the project and host coun-try.

Profitability IssuesWhen evaluating and negotiating an in-ternational energy project, it is important to understand the variety of ways that rev-enue from a project may be distributed. As is the case with U.S. domestic transac-tions, many international projects require

first step is to identify the legal authority of the counterparty to enter into the trans-action. This may be challenging because the answer may be found in one of myriad possible sources. Constitutional laws and “petroleum legislation” typically govern the ownership and development of natu-ral resources, including the types of con-tracts that may be entered into by the host government. Certain jurisdictions require legislative approval and others may even codify model contracts to be utilized by IOCs. Laws governing ownership may be subsumed in regulations promulgated by governmental agencies or ministries. In addition, executive orders and decrees may also serve as the primary source of authority to enter into contracts. A fur-ther complication may arise where the host country laws and regulations overlap or conflict. Retaining knowledgeable lo-cal counsel is critical to parsing through these various legal authorities and accu-rately assessing the IOC’s ability to access the resource.

Legal authority issues do not go away

once the transaction has commenced, however. Problems can sometimes arise after the basic agreements are executed. At the extreme, some host countries have expropriated the resource after a project becomes successful. More commonly, the commercial viability of the project can di-minish through incremental increases by the host country with respect to regula-tion and taxation of the project. There are a variety of ways to mitigate these risks, but two that are often employed are the use of bilateral investment treaties, and the utilization of stabilization arrange-ments in the foundational agreements that underpin the project.

Investment treaties of the host country often have provisions that protect foreign investors and can serve as a practical mechanism to counter changes in laws that nullify or void terms of the project agreements. It is important to structure the project in a way that ensures that the IOC is positioned to utilize the terms of the applicable treaty. Similarly, stabiliza-tion provisions can be useful to counter-


the payment by the IOC of a royalty to the host country or other owner of the min-eral interest. The amount of revenues to be retained by the IOC will be further re-duced by the amount of operating costs that are incurred. Requirements regard-ing the use of local material, equipment, or labor may significantly impact both the cost and completion date of a project. Customs fees, taxes, licenses, permits, and security may also require further expenditures that can reduce profitabil-ity. Finally, after a project is completed, domestic market obligations imposed by the host country (e.g., requirements that a certain percentage of production be sold locally at a discount to the market price) can impede the long-term viability of a project.

There may be other obstacles to the project even if it is profitable from a rev-enue and expense standpoint. For exam-ple, “exchange controls” may restrict the availability of hard currency, the timing of distributions to U.S. bank accounts, or the rate of exchange. When paired with a

requirement that the IOC retain its profits from the project at a government bank, exchange controls can render a project unfeasible. As an alternative, periodic re-porting to the central bank may be a more viable arrangement.

Dispute ResolutionHaving a proper venue for resolving dis-putes is important in any transaction, but it can be particularly crucial to an IOC transacting business in an international setting. The first question an IOC must ask regarding dispute resolution is whether the local government has an independent, qualified judiciary that would be fair and impartial in a case filed against the host government. An equally important ques-tion is whether the IOC could potentially find qualified, independent representa-tion in the event such a dispute arises. If the answer to either of these questions is unclear, then an administered interna-tional arbitration may be the most appro-priate dispute resolution mechanism.

In such circumstances, the IOC should

determine whether the host government has signed the 1958 New York Conven-tion on the Enforcement of Foreign Arbi-tral Awards. If the host government is not a signatory, then the local judicial system may not recognize or enforce a foreign ar-bitral award. Attorneys should undertake due diligence on past arbitral awards and enforcement by the host country’s judi-ciary. It is equally important to ensure that the parties choose a neutral venue. A particular venue should only be cho-sen if it has an independent judiciary that would deal fairly in any judicial proceed-ings needed to aid the arbitration or to en-force the award. For example, selection of a venue in a country where the judiciary has a history of enjoining arbitration pro-ceedings would not be ideal.

Anti-Bribery LawsInternational energy projects require that U.S. companies work closely with interna-tional partners and agents and will often involve countries that have problems with corruption or bribery. In recent years, en-


anti-bribery.The accounting provisions of the FCPA

apply to all business operations of an is-suer under the Securities Exchange Act of 1934 (Exchange Act), and an issuer that controls more than 50 percent of the stock of a foreign subsidiary is obliged to guar-antee that the subsidiary complies with the FCPA. The FCPA requires that all is-suers “make and keep books, records, and accounts, which, in reasonable detail, ac-curately and fairly reflect the transactions

and disposition of the assets of the issuer.” “Reasonable detail” is defined as the “level of detail . . . as would satisfy prudent offi-cials in the conduct of their own affairs.”1

Most FCPA discussions focus on the anti-bribery provisions of the FCPA. In general, the FCPA makes it illegal to bribe officials of foreign governments for the purpose of obtaining or retaining business, or for the purpose of directing business to another person. The scope of potential FCPA liability is very broad and prohibits companies or individuals from promising, giving or authorizing payments or anything of value to foreign officials for the purpose of corruptly influ-encing those officials as a part of an effort to obtain or retain business or gain an im-proper advantage over competitors. In the context of international energy projects, FCPA problems typically arise because companies can be held liable for the ac-tion of their agents, employees or partners overseas, and in many cases prohibited payments are seen by these individuals as an acceptable or normal local custom. Un-fortunately, just because a payment may be normal in a particular location does not mean that it is legal under the FCPA.

The U.S. is no longer alone when it comes to fighting bribery, and companies involved in international energy projects now need to be aware of the United King-dom’s Bribery Act of 2010, better known as the “U.K. Anti-Bribery Act.” The rel-evant portions of the U.K. Anti-Bribery Act make it a crime under U.K. law for a person to offer, give or promise a finan-cial or other advantage, either directly or through a third party, to a foreign public official where such advantage is not legiti-mately due. The Act also makes it a crime for companies to fail to prevent bribery on their behalf, meaning that companies have an affirmative duty to prevent brib-ery committed by third parties. Impor-tantly, the language of the law applies to all acts of bribery that occur in the U.K., and to any acts of bribery where an of-fending party has a “close connection” to the U.K. For example, U.K. citizens world-wide and companies doing business in the

forcement of anti-bribery laws in the U.S. and abroad has become more common, and running afoul of these laws can re-sult in expensive penalties and criminal imprisonment.

The Foreign Corrupt Practices Act (FCPA), enacted by Congress in 1977, is designed to prevent and penalize ef-forts by U.S. companies to engage in cor-rupt dealings with foreign officials. The FCPA’s prohibitions and mandates focus on two distinct areas: accounting and

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U.K. may be subject to the Act regardless of where the alleged improper conduct oc-curs. Given the breadth of the law, it is im-portant for U.S. companies involved in in-ternational energy projects to ensure that they comply with the U.K. Anti-Bribery Act if they have any arguable connection with the U.K. through partners, agents, or employees.

In addition, it is important to under-stand local anti-corruption laws to ensure full compliance. Most countries have ad-opted anti-corruption laws that prohibit bribery of public officials. For example, all 34 member countries of the Organi-zation for Economic Cooperation and Development (OECD) have adopted the OECD Convention on Combating Brib-ery of Foreign Public Officials in Interna-tional Business Transactions. It should be further noted that several countries may have more stringent prohibitions than the U.S. For example, although facilitating payments under the FCPA may be per-missible, they are prohibited under many host country laws.

Complying with anti-bribery laws can be a complex and difficult task. Accord-ingly, companies should seek and retain expert counsel to assist with this process and take advantage of all available re-sources to fully understand all aspects of the proposed project.

ConclusionHigher commodity prices and improved energy technologies have caused a surge in U.S. domestic producers seeking to undertake large international energy projects. While most of these companies have the expertise necessary to handle such a transaction in the U.S., many of them may underestimate the issues that they will confront upon venturing into another country to close a transaction. The challenges of an international project may appear daunting, but many of the is-sues, if properly identified and assessed at an early stage, can be addressed, and appropriate mitigation measures can be implemented to reduce the perceived risk or exposure.

issues related to international trade and economic sanctions.

Steven L. Dickerson is an attorney with the Exxon Mobil Corporation, where he handles international energy transactions. The views expressed herein are solely those of the author and do not constitute or reflect the opinions or views of Exxon Mobil Corporation.

endnote1. U.S. 15 U.S.C. § 78m(b)(2)(a).

Dewey J. Gonsoulin, Jr. is a partner at Bracewell & Giuliani LLP, where he represents domestic and foreign lending institutions, money center banks, and regional banks in all types of financing transactions. Joshua C. Zive is senior counsel with Bracewell & Giuliani LLP and has a broad background in legislative and regulatory advocacy, campaign finance and ethics laws, strategic communications and

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Accommodating Host

Governmentsin International

Oil and Gas Transactions

a small Ghana private company. At the time that Kosmos acquired its interest in the blocks, the blocks were not consid-ered highly prospective and did not draw substantial interest from the oil majors. After making the finds that proved the Jubilee Field, Kosmos decided to sell its interest and provide a return to its inves-tors rather than raise and invest the con-siderable capital necessary to develop the field. It ran a sales process and ultimately agreed to sell its interests to ExxonMobil, reportedly for $4 billion.

Although the sale to ExxonMobil re-quired consent from Ghana’s govern-ment, the expectation was that it would be difficult for Ghana to withhold its consent because ExxonMobil undeniably had the technical and financial resources to develop the field.2 However, GNPC’s view was very different. It immediately opposed the transaction and stated pub-licly that it was willing to acquire the properties for a “fair price” (although not necessarily for the $4 billion offered by ExxonMobil). This began a yearlong pe-riod of claims and counter claims. One of Ghana’s primary claims was that Kos-mos violated the terms of its petroleum agreement with Ghana by disclosing technical data to potential bidders. Gha-na, like many countries with petroleum agreements, had made all technical data relating to the covered blocks property of the host government. During this pe-riod, GNPC was reported to have entered into negotiations with CNOOC and other potential industry partners to provide fi-nancing for a purchase and resale of Kos-mos’ stake, with GNPC retaining an in-terest and/or receiving other benefits.

Finally, in mid-2010, Kosmos and Exx-onMobil announced the termination of their transaction, and Kosmos subse-quently provided liquidity to its investors through a successful initial public offer-ing on the New York Stock Exchange.

It is not clear whether the Kosmos sale could have been saved if Kosmos and ExxonMobil agreed to restructure the transaction to allow GNPC to receive part of the interest, perhaps on a conces-

sionary basis. A number of other com-panies, including reportedly CNOOC, attempted to negotiate the terms of a transaction that would be acceptable to GNPC; all were unsuccessful.3 However, the Kosmos story is a clear demonstra-tion of the need to consider in advance whether there is enough in the transac-tion for the host government and its state oil company to make the consent process go smoothly, even though the host gov-ernment could have no real substantive objection to the buyer.

Sometimes the sheer magnitude of the seller’s return on its investment makes it hard for the host government to resist making aggressive claims. The financial press reported that the Kosmos share-holders had invested approximately $800 million in Kosmos’ exploration activities in Ghana, and, at a sale price of $4 bil-lion, those shareholders stood to receive a five-fold return on their investment. What the western business press her-alded as a success story demonstrating the acumen of the Kosmos management team and the foresight of its investors was viewed very differently in Ghana. The Ghana press seized on the magnitude of the return as evidence that the country’s newly found oil wealth was being given away to foreign oil companies to the det-riment of the country. The stated view of GNPC was that the transaction was not in the public interest because although Kosmos was entitled to a “fair” price from the host government, it was not entitled to a windfall from an international oil company.

What GNPC’s position ignores is that while a five-fold return to Kosmos’ inves-tors may appear to be a windfall, it rep-resents only part of the net present value of the revenue stream that the owner of the Kosmos interests in the Jubilee Field would expect to receive through devel-opment and production of the field.4

Without expressing a view on whether the financial arrangements in the Kos-mos petroleum agreement were “fair” to Ghana in the first instance, the fact is that by the time of proposed sale to Exxon-

By thomas J. moore

O ne of the more significant and disturbing trends in the international oil and gas mergers and acquisi-tions practice is the insis-

tence by host governments that they ben-efit from the sale of assets, either directly by participating in the acquisition or in-directly through an enhanced tax “take” or the commitment to larger investments by the buyer. In many cases, the demands of the host government have only a weak (or no) legal basis, but they still must be addressed, either because host govern-mental consent is required for the trans-action or because the buyer will need the cooperation of the host government in the future.

The need to meet the demands of the host government, whether or not they are legitimate, has not received the commen-tary that it deserves because buyers and sellers are understandably reluctant to let the accommodations they make become public.1 However, the recent publicity around the attempt by Kosmos Energy to sell its interest in the Jubilee Field in Ghana and the efforts by Tullow Oil to acquire the interests of Heritage Oil in Uganda and to farm out part of those in-terests to the French super major TOTAL and the Chinese state-owned company CNOOC have made public what practi-tioners must deal with in almost every transaction. Indeed, almost every inter-national oil and gas transaction includes negotiations with the host government and the making of accommodations that are often not required by either produc-tion sharing or other concession agree-ments or the host country’s tax or petro-leum statutes.

The Kosmos story is illustrative. Kos-mos, which was funded by private equity investments from Blackstone and War-burg Pincus, acquired exploration rights covering two blocks that were offshore of Ghana. Kosmos’ partners in the blocks were Anadarko and Tullow, along with the Ghana state oil company, GNPC, and


region of Iraq and the other in the Lake Albert region of Uganda. Of the two, de-velopment of the Uganda discovery was potentially the more daunting because it was in a region far from any oil and gas infrastructure, necessitating the develop-ment of an oil pipeline to the East African coast.

After an abortive attempt to merge with Genel Energy, a Turkish oil com-pany, Heritage agreed to sell its Uganda interests to the Italian super major, Eni, for $1.45 billion. However, Tullow, an in-dependent London Stock Exchange listed oil and gas company and a joint interest owner in the Uganda field, exercised its pre-emptive rights under Heritage and Tullow’s joint operating agreement and agreed to acquire Heritage’s interests on the same terms. Because the development of the Uganda field by itself would stretch Tullow’s resources, Tullow agreed to farm out interests in the field to TOTAL and CNOOC.

Whenever a field under development is

Mobil, the exploration risk had largely been eliminated, and what may look like a windfall return on a reactively low risk “developmental” investment was a low probability result on the curve of possible outcomes at the time Kosmos’ investors provided Kosmos with the capital to start its exploration program

The Ghanaian government and GN-PC’s reaction in this regard was telling. When pressed by the United States about the effect of refusing to approve the Exx-onMobil purchase on future investment in Ghana, GNPC made it clear that Kos-mos was welcome to stay in Ghana and earn whatever return it would earn by developing the properties. It is hard to say whether this was posturing because GNPC believed that Kosmos was com-mitted to sell. However, when Kosmos announced that it would provide liquid-ity to its investors and raise development capital through an IPO, the Ghanaian government did not try to stop the IPO, even though it was a change of control

that required governmental approval.5

The reaction by the Ghanaian govern-ment to the proposed Kosmos sale rep-resents the extreme end of the spectrum since there was little reason for Ghana to object to the sale other than GNPC’s desire to share in the perceived “wind-fall.” It does, however, serve as a warning about the dangers of relying on standards of approval such as “not to be unreason-ably withheld” and points out the need to think carefully about how to disclose technical data in a sales process.

The Ugandan government’s reaction to the proposed sale by Heritage Oil of its Lake Albertine Rift discoveries was an example of a more common occurrence that throws into question the efficacy of tax structuring that U.S. and U.K. law-yers often take for granted.

Like Kosmos, Heritage was a relatively small exploration and production com-pany that had the good fortune to make two major finds for which it needed de-velopment funding, one in the Kurdish

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sold at a large premium, the issue arises of whether capital gains tax is payable on the sale in the host country. U.K. and U.S. tax practitioners use a variety of struc-turing devices to avoid capital gains tax, the most common of which is holding the oil and gas interests through a spe-cial purpose vehicle incorporated in a tax-friendly country like the Bahamas or the British Virgin Islands and selling the special purpose vehicle instead of selling the interests themselves. Because the sale of the special purpose vehicle takes place completely outside of the host country, arguably no capital gains tax is payable in the host country, and the tax-friendly country of incorporation imposes no cap-ital gains tax on the sale.6

Although the exact structure of the Heritage sale to Tullow is not public, what is public is that the transaction was carefully structured to avoid capital gains taxes in Uganda. Heritage repeatedly stat-ed in its public filings that it had opinions of tax professionals to the effect that the

transaction triggered no Uganda tax. Not surprisingly, Uganda did not agree with Heritage’s tax analysis and asserted that approximately $435 million of capital gains taxes were payable. It quickly be-came evident that the Uganda govern-ment would not approve the sale unless the tax issue was resolved.

Uganda approved the sale to Tullow on condition of payment of a $121 million “refundable deposit” and $283 million of the sale proceeds were placed in escrow pending the outcome of arbitration of the tax issue in London, which is still pend-ing. During the pendency of that arbitra-tion, the courts in Uganda held that the capital gains taxes were payable. Even if the arbitration in London is successful and holds that no taxes were payable, one can imagine that it will be very difficult to recoup from Uganda the tax payments that were already made.

Uganda continued to hold up its ap-proval of the farm outs to TOTAL and CNOOC. In order to obtain approval of

the farm outs, Tullow finally paid Uganda an additional $283 million on behalf of Heritage’s tax bill and is now litigating with Heritage over the $283 million that was placed in escrow.

The Heritage-Tullow dispute highlights the fact that the structuring that U.K. and U.S. tax practitioners take for granted is often ignored by the host government in situations where governmental consent is needed for the transaction. Host govern-ments are not reluctant to use their con-sent rights as leverage to force a favorable resolution of otherwise weak tax posi-tions, and the seller often has no choice but to acquiesce or abandon the transac-tion altogether.

Governmental consents are not only used to force payment of capital gains taxes. They are also used to force the res-olution of pending tax and cost recovery issues of all kinds. In one recent trans-action in which the author was involved, the government conditioned its consent on the seller’s agreement to guaranty the


payment of taxes being disputed by a pre-vious owner of the property. In another transaction, the seller has resisted re-questing governmental consent under an ambiguous change of control provision for fear of giving the host government an opportunity to re-examine all of the tax positions that the seller took during the years that it owned the property.

The lesson from the problems encoun-tered by Kosmos, Heritage and Tullow is that in today’s time of resource national-ism and host government budget pres-sures, international oil and gas transac-tions must be approached with a sense of economic realism and sellers must understand that no matter how sound their legal positions are, the economic interests of the host government in the transaction have to be recognized. Rec-ognizing this fact of life in advance and considering what can be offered to the host government will facilitate the trans-action and will help avoid unfavorable re-sults. It will also avoid being trapped in a transaction that is attractive only if there is no host government “assessment” that will reduce the net consideration that the seller expects to realize.

An additional lesson is that by an-nouncing the sale without having worked out the conditions that must be satisfied to obtain governmental consent, the seller puts itself in a vulnerable position. Once the seller has announced that it is exiting the host country, it is difficult to reverse course and re-establish good working re-lationships with the host government if the seller terminates the transaction be-cause it is unwilling to meet the host gov-ernment’s conditions for approval.

The danger of considering in advance the accommodations that may need to be made to satisfy the host government is that this often becomes a form of negotiat-ing against one’s self. Even so, early dis-cussions with the host government about the sale process can often be helpful to condition expectations on both sides. In one of the author’s recent transactions, those discussions took the form of show-ing the host government that the buyer


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would support an enhanced development plan that the seller could not afford and the benefits from the enhanced develop-ment plan would exceed the benefits that the host government could hope to obtain by holding up its consent to the transac-tion. But whatever form accommodations take, and regardless of the validity of their legal positions, sellers must recognize that sharing the benefits of the transac-tion with the host government is often a prerequisite to obtaining consent to the transaction, and believing that the host government’s demands can be successful-ly resisted is increasingly unrealistic.

Thomas J. Moore is a partner at Baker Botts L.L.P. His practice focuses on repre-sentation of buyers and sellers of energy assets around the world.7 endnotes1. One should not draw an inference from the lack of

transparency that the accommodations are potentially suspect and violate or are at the edges of violating the Foreign Corrupt Practices Act or other anticorruption legislation. There is nothing wrong with renegotiating the terms of a production-sharing contract or other concession agreement or “voluntarily” agreeing to

pay taxes in order to facilitate a transaction. Although allegations of impropriety were made during the dispute over the Kosmos sale, the allegations related to the acquisition by Kosmos of its interests in Ghana, and not to the sale approval process.

2. Although the petroleum agreement between Kosmos and Ghana is not public, press reports describe it as providing that Ghana’s consent to a transfer was not to be unreasonably withheld. The relevant provisions of the Ghana petroleum law do not set a standard for withholding consent.

3. The author represented two such companies while at a previous firm.

4. The sales price represented only part of the net present value because ExxonMobil expected to receive a return on the price that it agreed to pay and the additional capital that it would have to invest was high enough to meet its own internal investment hurdle rate.

5. Other countries have taken even more aggressive positions outside of the merger and acquisition context. Venezuela’s treatment of international oil companies in its heavy oil region and the Russian treatment of Shell in Sakhalin Island are prime recent examples. In both of these cases, the host government used strong-arm tactics and somewhat dubious legal claims to retroactively “adjust” the economics of the concessions after much of the risk had been eliminated. With the notable exception of ExxonMobil in Venezuela, the international oil companies reluctantly acquiesced because their only alternatives were to leave the countries and rely on arbitration to recapture their investments.

6. Similar offshore sale structures are sometimes used to avoid host governmental consent requirements when production-sharing agreements or applicable law focus on asset transfers and do not clearly require governmental consent in the case of a change of control of the interest owner. Not surprisingly, host governments are increasingly asserting that restrictions on transfer apply to changes of control, regardless of whether that is a fair reading of the contract or statutory provision.

7. The opinions in this article are the opinions of the author and do not necessarily represent the opinions of Baker Botts L.L.P.


Gulf of Mexico Offshore

Transboundary Hydrocarbon

Development: Legal Issues

Between Mexico & the U.S.

T he Center for U.S. and Mexi-can Law at the University of Houston Law Center recently launched a bi-national re-search project, led by two of

the authors of this article, to explore legal and institutional issues relating to the de-velopment of shared offshore oil and gas fields in the Gulf of Mexico (the “Gulf”). Recent hydrocarbon discoveries, mainly on the U.S. side of the Gulf near the mari-time boundary between the two nations, has spurred efforts to find better meth-ods of effectively managing these trans-boundary resources in a cooperative fash-ion. This article examines the substantive provisions and future implications of a recently completed treaty between Mexi-co and the U.S. dealing with the joint de-velopment of hydrocarbons in the mari-time boundary region of the Gulf.

With decreasing production from Mexico’s easily accessible onshore and offshore hydrocarbon fields, and with growing demand in the United States for more drilling in the Gulf, technological advances in exploration and exploitation (i.e., the use or recovery of natural re-sources) have led to drilling further into the Gulf and into ever deeper waters, at least on the U.S. side.1 Experts estimate that between 3 and 15 billion barrels of oil may be recoverable in the deepwa-ter area of the Gulf that is open to U.S. exploitation, making it the biggest U.S. discovery since Prudhoe Bay in Alaska nearly 40 years ago.2 Meanwhile, Mexico has estimated 30 billion recoverable bar-rels on its side of the maritime border.3

PEMEX, the Mexican national oil com-pany that holds a monopoly on oil and gas production, has lacked the technol-ogy and financing to carry out deepwater oil and gas exploration, and as a result the Mexican side of the Gulf remains largely unexplored. By contrast, sig-nificant quantities of hydrocarbons are currently being produced on the U.S. side

By miriam Grunstein, riCharD mClauGhlin and luis anastaCio GutiérreZ

the possibility for the development of co-operative agreements outside the frame-work established in the Agreement.10 The application of the Agreement is limited in scope to those reservoirs that extend beyond the maritime boundary of the countries and are entirely located beyond nine nautical miles of the coastline of any party.11 If any of its provisions require the modification of a U.S. license existing be-fore notification of the Agreement’s rati-fication, then those provisions will not apply to that license.12

Reporting Requirements and Information SharingArticle 4 of the Agreement sets up sev-eral reporting requirements for activities conducted near the maritime boundary. Generally, written notice must be pro-vided if either party is aware of the ex-istence of a transboundary reservoir or if a licensee has submitted an exploration plan within three nautical miles of the boundary.13 If a licensee has submitted a plan for “Development” or “Produc-tion” of an area within three miles of the boundary, parties must go beyond just a written notice and must provide the plan to the other party.14

Determining the Existence of a Transboundary ReservoirArticle 5 sets up the framework for de-termining whether a transboundary res-ervoir exists. The Agreement requires the parties to consult with each other in order to determine the existence of a transboundary reservoir and to share rel-evant geological information provided by their licensees that determine whether a transboundary reservoir exists.15 In case the parties fail to reach an agreement on the existence of a transboundary reser-voir, then Article 5, in conjunction with others, sets up the framework in which the determination may be made by a Joint Commission16 or Expert Determination.17

Unitization Chapter 2 deals with the exploration and exploitation of a transboundary reser-

government from authorizing direct ex-ploitation and production of hydrocar-bons by private companies from foreign countries, other than through service contracts.5 In 2008, Mexico passed re-forms to federal law in an attempt to re-move some of the restrictions that limit private contracting. Calls for further re-forms surfaced in the context of the re-cent presidential elections, but incoming President-elect Enrique Peña Nieto faces difficult political obstacles to passing the necessary constitutional reforms to al-low international oil companies to drill within Mexican boundaries.

Despite the dramatic differences in their regulatory regimes, on February 20, 2012, the United States and Mexico successfully negotiated an international agreement designed to establish a collab-orative relationship for joint development of transboundary reservoirs. Officially known as the “Agreement between the United States of America and the United Mexican States Concerning Transbound-ary Hydrocarbon Reservoirs in the Gulf of Mexico” (the “Agreement”), it ad-dresses transboundary reservoirs and at-tempts to set up a unitization framework for their efficient and equitable exploita-tion, although it leaves many details for future negotiation.6

The Agreement will enter into force pending its ratification by the U.S. Sen-ate and the establishment of internal regulations regarding permits and licens-es for U.S. operators to carry it out.7 Sig-nificantly more thorough legal and regu-latory reform is needed in Mexico before the Agreement can be effectively imple-mented. Once implemented, however, the Agreement will terminate the mora-torium on drilling in the Western Gap, which was implemented by the Western Gap Treaty on June 9, 2000.8

The Scope of the AgreementMade up of seven chapters and twenty-five articles, the Agreement seeks to, “en-courage the establishment of cooperative agreements based primarily on the prin-ciples of unitization.”9 It also leaves open

of the maritime boundary in a number of widely dispersed deepwater plays in the Gulf. The Mexican and U.S. governments have expressed concern over the poten-tial production of oil and gas in an area known alternatively as the Perdido Fold-belt or Alaminos Canyon Region, locat-ed about 150 miles east of Brownsville, Texas. Commercial production in this region has caused unease, particularly in Mexico, because of the possible exis-tence of hydrocarbon reservoirs that may straddle the existing maritime boundary between the two nations, referred to as transboundary reservoirs. While there is no conclusive evidence proving the pres-ence of transboundary deposits, the mere possibility that production on the U.S. side of the boundary may siphon oil from Mexico triggered a series of diplomatic negotiations at the highest levels to ad-dress these concerns.

The first diplomatic negotiations re-sulted in the execution of the “Treaty between the Government of the United States of America and the Government of the United Mexican States on the de-limitation of the Continental Shelf in the Western Gulf of Mexico beyond 200 nautical miles,” in 2000.4 This treaty, known as the “Western Gap Treaty,” first acknowledged the possible existence of transboundary reservoirs and established a ten year drilling moratorium in a “buf-fer zone” of 2.8 nautical miles measured from each country’s side of the maritime border. The moratorium, while prohib-iting exploration and production until 2011, allowed both countries to exchange information and to prepare a strategy for dealing with possibly existing trans-boundary reservoirs.

Unfortunately, a cooperative solution has not been easy to negotiate or reach. One of the greatest challenges in estab-lishing a regime for joint exploration and exploitation of possible shared petroleum resources in the Gulf is the stark differ-ence between the two countries’ petro-leum legal regimes. In Mexico, not only is there a state monopoly of the oil industry; but its constitution prevents the Mexican


voir or unit and explains the emphasis on the principle of unitization. Article 6 requires that any joint exploration or ex-ploitation of a transboundary reservoir pursuant to a unitization agreement must be approved by both the U.S. and Mexico. In addition, the parties’ executive agen-cies are required to make a joint determi-nation estimating the amount of recover-able hydrocarbons in the transboundary reservoir and the amount on either side of the maritime boundary.18 Along with this estimate, the parties must jointly de-termine the associated allocation of pro-duction19 and, in case of disagreement, the question will be submitted to Expert Determination.20

Although it highly encourages unitiza-tion, the Agreement permits a licensee to proceed with exploitation of a trans-boundary reservoir without having to unitize. If either party does not approve a licensee’s unitization proposal or if any licensee fails to sign a unitization agree-ment after it has been approved, then either nation may authorize its licensee

to proceed with the exploitation of the reservoir.21 The non-unitizing licensee, however, will, among other things, still be subject to the determination of allo-cation of production mentioned above and required to share production data on a monthly basis.22 It has been widely opined that, in order for unitization to legally occur in Mexico, the nation’s con-stitution will need to be amended.23

Cooperation and Facilitating Access to FacilitiesThe Agreement calls for the parties to facilitate cooperation between the licens-ees in carrying out the exploration and exploitation of a transboundary unit,24 which includes access to facilities near the maritime boundary for those workers participating in activities related to the transboundary unit.25

Dispute ResolutionThe Agreement also establishes three primary mechanisms for resolving dis-putes: a Joint Commission, arbitration,

and expert determinations. The Agree-ment establishes the Joint Commission as the competent body that will exam-ine any dispute or matter referred to it by the executive agencies relating to the interpretation and implementation of the Agreement.26

In addition to the Joint Commission, the Agreement encourages consultations between the two parties and allows for nonbinding mediation. If disputes are not resolved through consultations or me-diations and are not resolvable through Expert Determinations pursuant to the Agreement, either party may choose to refer the dispute to arbitration pursuant Article 17.27 The details of arbitration are left to the Joint Commission to decide.28 However, the Agreement does suggest that any arbitration decision will not be final, since “[t]he Joint Commission will have 30 days in which to consider the final recommendation in any arbitration instituted pursuant to Article 17. If the Joint Commission is unable to resolve any remaining differences within that time, the dispute will be returned to the parties.”29

As is customary in oil and gas con-tracts, the Agreement calls for expert de-terminations in settling certain disputes; and although it leaves many of the details on how these determinations will work to the Joint Commission, it does set up a temporary mechanism for expert deter-minations and describes what issues may be submitted to such determination.30 One of the most interesting aspects con-cerning expert determinations is that un-like arbitration, they shall be considered final and binding on the parties.31

InspectionsThe Agreement also allows for inspec-tions by both parties in their respective offshore facilities. The details of when these inspections can take place, as well as under what procedures and circum-stances, are not specified in the Agree-ment and further regulation in this matter will be necessary for adequate implementation.32 The Agreement does,

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however, set up a procedure in which inspectors from one country can request that the other party cease activities in case of emergencies where there is a risk of loss to life, serious bodily injury or damage to the environment.33

Safety and Environmental ProtectionArticle 10 of the Agreement contains rather broad language concerning safety and environmental protection. It is some-what insufficient, as it does not estab-lish any specific environmental or safety regulations and instead provides general language about adopting common stan-dards and requirements whose adequacy and compatibility is yet to be seen.34 As is recurrent in this Agreement, it leaves the development of specific procedures for the implementation of this Article to a later time.35

TerminationThe Agreement states that it can be ter-minated either by mutual agreement or by either country at any time via written

notice within a specified time period.36 Interestingly, in the event of termination the two countries must begin consulta-tions to develop a new agreement ad-dressing transboundary reservoirs.37

ConclusionAs is readily apparent from this brief article, offshore transboundary hydro-carbon exploitation triggers a broad range of legal and policy challenges. The Agreement, while a positive first step, is as notable for what it lacks as for what it contains. Clearly, both nations intended to leave some areas of ambiguity that could be later developed through nego-tiations or state practice. Nonetheless, legitimate questions exist as to whether Mexico’s current constitutional and legal framework will allow this Agreement to be carried out in a successful manner.38 Similarily, the U.S. has never been a party to an international agreement to jointly develop hydrocarbon resources that ex-tend across international boundaries.39 Consequently, it will have to develop a

completely new regulatory structure ca-pable of governing the unique set of is-sues common to international unitiza-tion agreements.

It is with these and other unanswered questions in mind that the Center for U.S. and Mexican Law undertakes its bi-national research project in phases over the next two to three years. The first phase will address the following top-ics: (1) background and sources of legal principles governing shared hydrocar-bon resources, including an inventory of existing international unitization ef-forts; (2) economic, geologic and envi-ronmental reasons for cooperation; (3) challenges that the U.S. and Mexico will have to address before engaging in joint development activities; (4) possibilities for cooperation based on an analysis of the existing agreement; and (5) legal gaps and conflicts that need to be modified or improved in both nations to enhance a potential unitization agreement in the Gulf. This research report will serve as the foundation for a workshop that brings


together U.S. and Mexican members of government, the legal profession, indus-try, nongovernmental organizations and academia to determine the most effective steps toward developing architecture for strengthened cooperation and effective management of shared hydrocarbon re-sources in the Gulf.

Dr. Miriam Grunstein is Professor of Law at CIDE University in Mexico City. Dr. Richard McLaughlin is Endowed Chair for Marine Policy and Law at the Harte Re-search Institute for Gulf of Mexico Studies (HRI) at Texas A&M University–Corpus Christi.

Luis Anastacio Gutiérrez is a 2012 graduate of the University of Houston Law Center and has served as a legal intern at the Mexican Foreign Ministry. endnotes1. Michelle Michot Foss & Miranda Wainberg, Mexico’s

Upstream Commercial Frameworks: Consequences and Implications, 3 OGEL at 5 (2012), available at www.ogel.org.

2. Huw Thomas, Hard to Reach, OIL & GAS NEXT GENERATION, Sept. 5, 2012, available at http://www.ngoilgas.com/article/Hard-to-reach/.

3. In the past few months, Mexico began drilling its ultra-deep water wells Trión (with a drilling depth of 2550 meters) and Supremus (with a drilling depth of 2890 meters). Technological limitations within Pemex previously made it impossible to drill beyond 500 meters.

4. Treaty Between the Government of the United States of America and the Government of the United Mexican States on the Delimitation of the Continental Shelf in the Western Gulf of Mexico Beyond 200 Nautical Miles, June 9, 2000, U.S.-Mex., S. TREATY DOC. NO. 106-39 (2000).

5. Constitución Política de los Estados Unidos Mexicanos [Mexican Constitution] art. 27, as amended, Diario Oficial de la Federación, 5 Febrero de 1917 (Mex.).

6. Agreement Between the United States of America and the United Mexican States Concerning Transboundary Hydrocarbon Reservoirs in the Gulf of Mexico, U.S.-Mex., art. 20, Feb. 20, 2012, available at http://www.state.gov/documents/organization/185467.pdf (hereinafter “Agreement on Transboundary Reservoirs”).

7. Id. art. 22. The Mexican Senate ratified the treaty on April 12, 2012; however, the U.S. Senate has not yet ratified the Agreement as of the date of publication of this article.

8. Id. at art. 24. 9. Id. at Preamble. Unitization allows for the joint development

of a common reservoir whose geologic structure extends through the property of several mineral tract owners. Through collaboration rather than competition, the development of the unitized field is carried out by a single operator which allows for greater efficiency in the drilling and production of the reservoir.

10. Id.11. Id. at art. 1.12. Id. 13. Id. at art. 4.14. Id. at art. 4(2)(f).15. Id. at arts. 5(1), 4(2)(a), 4(2)(d). 16. Id. at art. 5(2).17. Id. at art. 14(6).18. Id., at art. 7(2)(b).

19. Id. 20. Id. at art. 7(3).21. Id. at art. 7(5). 22. Id.23. See Miriam Grunstein, Unitized We Stand, Divided We

Fall: A Mexican Response to Karla Urdanteta’s Analysis of Transboundary Petroleum Reservoirs in the Deep Waters of the Gulf of Mexico, 33 HOUS. J. OF INT’L LAW 345, 365 (2011); Miguel Ángel González Félix and Lourdes Melgar, México, más allá de la Reforma Energética. Una solución práctica: Yacimientos Transfronterizos de Gas y Petróleo [ México, Beyond Energy Reform. A Practical Solution: Transboundary Oil and Gas Reservoirs], Cuadernos del Consejo Mexicano de Asuntos Internacionales, (México DF.: COMEXI, April, 2008, I) available at http://www.consejomexicano.org/download.php?f=d7bf229a5280598d111a0ae26c180762 .

24. Agreement on Transboundary Reservoirs, supra note 6, at art. 12(1).

25. Id. at art. 12(3)26. Id. at art. 14(5).27. Id. at art. 15(2).28. Id. at art. 17.29. Id. at art. 14(7).30. Id. at art. 16.31. Id. at art. 16(9).32. Id. at art. 18(2).33. Id. at art. 18(5). 34. Id. at art. 19(1).35. Id. at art. 19(2).36. Id. at art. 23(1).37. Id. at art. 23(3).38. Miriam Grunstein, Unitized We Stand, Divided We Fall:

A Mexican Response to Karla Urdanteta’s Analysis of Transboundary Petroleum Reservoirs in the Deep Waters of the Gulf of Mexico, 33 HOUS. J. OF INT’L LAW 345, 365 (2011).

39. Richard J. McLaughlin, Hydrocarbon Development in the Ultra-Deepwater Boundary Region of the Gulf of Mexico: Time to Reexamine a Comprehensive U.S.-Mexico Cooperation Agreement, 39 OCEAN DEV. & OCEAN LAW 1, 21-22 (2008).

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Program each year, and to increase that goal each year. For more information contact Kay Sim at (713) 759-1133.

large Firm ChampionsAndrews Kurth LLP

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A s the world grapples with the joint issues of rapidly increasing energy demand and the global nature of the energy industry and its im-

portance to national and international security, Houston’s historical competence in energy legal issues is playing a critical role as energy law becomes more inter-national. Today, HBA members are lever-aging a century of experience, and the world’s largest pool of industry expertise and resources, to create and facilitate in-ternational energy transactions.

For this reason, The Houston Lawyer ap-proached four HBA members who prac-

International Energy Insight

David C. Buck

John B. Connally IV

David E. Harrell, Jr

Kevin D. Keenan


look as far as their arbitration clause. All too often, parties cobble together a last-minute arbitration provision that later proves unworkable, increases costs, delays resolution, or hampers enforcement of any arbitration award. Instead, parties should craft arbitration clauses that produce mandatory consequences for the parties, mitigate the possibility of state courts in-tervening in the process, and allow for an efficient and rapid procedure leading to a judicially-enforceable award.

One common mistake that parties make is that they draft arbitration clauses that are too narrow. They simply fail to capture all of the potential disputes that might arise out of a commercial relationship. If the parties intend to have a narrowly-applied dispute resolution procedure, then careful drafting is important, but it is equally important to make sure that the provision matches the parties’ collective (and independent) expectations.

Parties also frequently fail to designate the seat of arbitration. The seat of arbitra-tion provides, among other things, the procedural law for the arbitration. While parties often pick convenient or exotic locations for their arbitrations, they fail to appreciate that they can agree to hold their hearings anywhere they want. The seat of arbitration is essential to minimiz-ing court intervention in the process, so proper selection is important for keeping the arbitration on track. Parties should also confirm that their chosen seat of arbi-tration is in a country that has signed the New York Convention, which provides the primary international convention govern-ing the enforcement of international ar-bitration agreements and awards. While arbitration awards are often more easily enforceable than state and federal court judgments, that ease of enforcement falls by the wayside when it is issued in a seat that has not acceded to the Convention.

Parties also often fail to select a lan-guage for the arbitration, which leads to future wrangling, or end up proceeding in multiple languages. While witnesses may testify in their native language, parties are well-advised to select a specific language,

oil & gas transaction: • Are there any restrictions on foreign

participation in exploration and pro-duction?

• Are there requirements for govern-mental or private local participation in the enterprise?

• Are there limitations on percentage of foreign ownership?

• Does the projected enterprise require formal governmental approval in ad-vance or some form of license; and, if so, what governmental agency re-ceives and/or approves the applica-tion?

• Must a concession agreement or pro-duction sharing contract be obtained in order to exploit natural resources and, if so, for what period and under what conditions?

• What types of restrictions will be im-posed on the use or disposition of as-sets covered by the concession?

• Are there any restrictions on repatria-tion of investments and remission of earnings?

• Is local currency freely convertible to U.S. dollars or another common cur-rency?

• How do foreign exchange regulations affect repatriation of earnings?

The answers to all of these questions, among others, will have a significant im-pact on the strategy ultimately employed to undertake exploration and production activities in a foreign jurisdiction. Not to ask them could be fatal to the viability of the project.

THL: What advice would you give to cli-ents who are concerned about resolving disputes that might arise in their interna-tional transactions? David E. Harrell, Jr.: Parties’ preference for arbitration versus litigation has followed a pendulum swing over the last decade, based on their most recent experience with each form of dispute resolution. In international transactions, however, arbi-tration has remained the preferred mode of dispute resolution. To improve their ex-periences, the parties typically need only

tice international energy law and who graciously agreed to share their knowl-edge and experiences with our readers.

David C. Buck is a partner at Andrews Kurth LLP, where his practice focuses extensively on corporate and securi-ties, emphasizing transactional and governance matters. John B. Connally IV is a partner at Vin-son & Elkins LLP, where his practice involves representing domestic and international clients in a variety of en-ergy matters, mergers and acquisitions, project development and finance trans-actions.

David E. Harrell, Jr. is a partner and In-ternational Arbitration Practice Group Leader at Locke Lord LLP, where he focuses on energy and commercial liti-gation, and land use/permitting litiga-tion.

Kevin D. Keenan is a partner at Baker Botts L.L.P., where he focuses on com-mercial transactions primarily related to the purchase, sale and transporta-tion of hydrocarbons by public and pri-vate entities.

THL: When considering a cross-border energy project, what are some of the key questions that project counsel should ask at the outset?Kevin D. Keenan: A lawyer cannot hope to understand the context in which a deal is being negotiated unless she asks the right questions and implements an exhaustive inquiry before crafting an effective strat-egy for implementing a project with her client. Below are a few of the many ques-tions that a prudent lawyer would ask in a cross-border energy deal before beginning to form a strategy for the client. There are many more additional questions that must also be answered, depending on the trans-action itself, the countries involved, the client, the counterparty, and various other factors. For now, consider the following questions in the context of an upstream


dures. Fukushima has led to the Japanese government, buoyed by the compara-tive strength of the yen, to back a major program of outbound investments in the natural resources sector by its utilities and trading houses with the aim of enhancing security of supply in light of the reduced dependability of nuclear power.

Nonetheless, the two seismic shifts in the industry that have probably had the greatest impact on the majority of our clients over the last few years are, argu-ably, not directly related to the events mentioned above. First, without a doubt, the U.S. shale boom has had a profound effect not only on our U.S. client base but also on a number of our international, and particularly Asian, clients. The expanded deployment of horizontal drilling and hy-draulic fracturing techniques in the U.S., which has in turn led to the rapid rise in production of shale gas and oil trapped in complex and difficult-to-reach reservoirs, has revolutionized the industry. It has also allowed the U.S. to start transitioning from being the largest net importer of gas to a potential net exporter, while simulta-neously reducing its dependency on ex-pensive crude shipments. Although U.S. shale gas is widely seen as a positive for the U.S., the companies that helped devel-op the North American shale plays have to some extent become victims of their own success in that the large volumes of gas that have been produced have caused a gas glut which has placed downward pres-sures on U.S. Henry Hub gas prices. This is a trend that has not been lost on certain Asian countries looking for cheap and re-liable natural resources. This brings us to the second factor.

Second, over the last decade, state-owned national oil companies (NOCs) have become increasingly important play-ers in the global oil and gas markets. Driv-en by their desire to address the rampant demand for energy in their domestic mar-kets, the past few years have witnessed a distinct uptick in the outbound invest-ment activity of Asian NOCs in particular, many of which have become top-tier com-petitors in the acquisition and develop-

available in a well-administered arbitra-tion. For example, parties often adopt federal rules of procedure, which argu-ably makes them subject to e-discovery requirements, depositions, document production, and other pre-trial discovery devices. Instead, they should simply se-lect the arbitral institution that best meets their needs, examine its model clauses, and decide if any changes are warranted. If parties are unable to decide whether any changes would make their particular arbi-tration better, then they may well be better off making no changes at all.

In summary, clients should draft arbitra-tion clauses that fit their particular needs, rather than simply throwing in an arbitra-tion clause at the last minute. They should decide whether to use an administering body, and what qualifications they want in an arbitrator (perhaps most importantly, the often-overlooked ability to effectively administer and manage an arbitration). They should carefully select the seat of ar-bitration to ensure an enforceable award, while minimizing the risk of state interfer-ence. They should avoid inadvertently add-ing procedural devices to their arbitration clause that will hamper the process. And, finally, they should appreciate that arbitra-tion is, by design, a different creature from litigation, so as to minimize the setbacks of choosing a mechanism of dispute reso-lution that they do not understand.

THL: How have your clients’ concerns changed over the last couple of years?John B. Connally IV: Over the last couple of years, and as a result of new technologies and the emergence of various players onto the world stage, there has been a funda-mental transformation in the international energy sector. Events at Fukushima in Ja-pan, on the Deepwater Horizon rig in the Gulf of Mexico, and those that contributed to the Arab Spring and the global financial crisis, have each played a part in re-config-uring our clients’ attitudes and concerns. For example, Deepwater Horizon has, among other things, forced policy-makers and companies to review the Health Safety and Environment regulations and proce-

translate documents into that language, provide interpreters for the witnesses if needed, and avoid the cost, delay, and con-fusion inherent in proceeding in multiple languages.

Parties should consider whether they prefer to have an arbitral institution ad-minister their arbitration, or simply select arbitrators and governing rules, and let the arbitrators both resolve the dispute and provide the administrative oversight for the arbitration. While arbitral institutions provide experience and efficiency and let arbitrators focus on resolving the com-mercial dispute, those institutions do add cost to the arbitration. If parties elect to ap-point an institution to administer the arbi-tration, their options include the London Court of International Arbitration, the In-ternational Centre for Dispute Resolution, the International Chamber of Commerce, and other regional providers that handle international disputes, including those in Stockholm, Hong Kong, and Dubai. Once the parties agree upon an institution, then they should review that institution’s recommended arbitration provision and avoid straying too far afield from what that organization recommends for language appointing that organization to administer the dispute.

Another common error arises in the appointment of arbitrators. While parties often seek technical expertise, their desire to identify that expertise can cause them either to limit the field too much or ulti-mately retain technical expertise at the cost of dispute management skills. Ulti-mately, a trained arbitrator can keep the arbitration on track and save money, so parties are well advised to select arbitra-tors who can in turn identify and retain experts with the technical expertise re-quired for the specific dispute.

Finally, in their pursuit for the “perfect” arbitration clause, parties sometimes build in numerous procedural devices, vary the language of institutional clauses, and ulti-mately suffer from “litigation envy.” They will adopt a particular court’s evidentiary or procedural rules, thereby sacrificing some of the efficiencies and cost-savings

30 July/august 2012 thehoustonlawyer.com

ment of new and existing hydrocarbon re-serves. The emergence of the Asian NOCs has presented a challenge to the previous-ly dominant Western NOCs. At the same time, it has thrown up some interesting opportunities to collaborate on joint ven-tures or partnership deals, a trend that is now more prevalent for the Asian NOCs than the outright acquisition model. The appetite for joint ventures, particularly in North America’s unconventional mar-ket, is borne in part out of NOC interest in exporting unconventional technologies but it also favors the North American part-ners who gain capital, often in the form of a drilling carry, at a time when there are constraints on traditional credit lines and capital markets.

In sum, the last few years have been a time of immense change in the interna-tional energy markets, colored in large part by the factors mentioned above, and leading to the shift in the attitudes, agen-das and strategies of our clients.

THL: In addressing creditworthiness issues

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with Chinese entities, what is the principal risk today in accepting from such entities a third-party payment guarantee? Kevin D. Keenan: A third-party payment guarantee issued by a People’s Republic of China (PRC) domiciled guarantor to a foreign party (Guarantee) is subject to the approval and registration requirements stipulated under Chinese law. These re-quirements form part of the PRC foreign exchange control regime administered by the State Administration of Foreign Ex-change (SAFE). Failure to comply with SAFE requirements could render a Guar-antee unenforceable under Chinese law. Additionally, any inaccuracy in the infor-mation submitted for SAFE approval and registration, or submission of incomplete information, could negatively affect a ben-eficiary’s right to collect under an other-wise properly authorized Guarantee.

All Guarantees must comply with the statutory requirements imposed by the PRC Security Law. According to the Se-curity Law and implementing rules and regulations of the People’s Bank of China

and SAFE, guarantors are required, prior to issuance of a Guarantee, to submit an application along with supporting infor-mation and documents to SAFE for ap-proval. If SAFE approves the Guarantee, it will issue an official reply stating the terms of its approval, including a stated guaran-teed amount. With approval in hand, the Guarantee can now be issued. Within 15 days after execution of a SAFE-approved Guarantee, the guarantor is required to submit an application to SAFE for registra-tion of the Guarantee. Upon registration, SAFE will affix its official seal on the reg-istration form and assign to the Guarantee a registration and file number.

While this all sounds simple and straight-forward, there are many pitfalls for the unwary. First, special care must be taken to ensure that the guarantor actu-ally obtains approval and registration of the Guarantee. Without it, the value of the Guarantee is illusory. Second, a beneficia-ry must ensure the guarantor includes in the SAFE approval and registration forms an accurate description of the guaranteed

thehoustonlawyer.com July/august 2012 31

a confidential basis. Although Treasury Department regulations created a volun-tary system of notification by parties to an acquisition, firms generally notify vol-untarily because the regulations stipulate that foreign acquisitions subject to the Exon-Florio review process that do not notify CFUIS remain indefinitely subject to divestment or other appropriate actions by the President.

CFIUS has factored into a number of energy transactions, including mere con-cerns about delays and potential nega-tive outcomes from a CFIUS review that appear to have derailed CNOOC’s bid for Unocal, in 2005, and factored into the Unocal board’s decision to accept a lower offer from another bidder. Most recently, in 2012, the Ralls Corporation, a Chinese-owned wind farm developer, was subject to a CFIUS order that effectively requires it to unwind its acquisition of four wind farm projects in Oregon. Ralls filed suit against CFIUS in September 2012.

Ownership of Offshore Federal Oil and Gas Leases. Oil and gas leases covering the OCS are issued by the U.S. Department of the Interior, Bureau of Ocean Energy Management (BOEM), formerly known as the Minerals Management Service, pursu-ant to The Outer Continental Shelf Lands Act (OCSLA)1 and the regulations pro-mulgated thereunder. Oil and gas leases issued pursuant to OCSLA may be held only by: “(1) Citizens and nationals of the United States, (2) aliens lawfully admit-ted for permanent residence in the United States..., (3) private, public or municipal corporations organized under the laws of the United States or of any State or of the District of Columbia or territory thereof, or (4) associations of such citizens, na-tionals, resident aliens, or private, public, or municipal corporations, States, or po-litical subdivisions of States.”2

The implementing regulations do not expressly address ownership of leases by limited liability companies or partner-ships. However, the BOEM recognizes ownership of federal offshore leases by partnerships and limited liability compa-

latory issues that are specific to foreign investments in oil and gas-related assets located in the United States.

Foreign Control Via Mergers, Acquisi-tions and Takeovers--CFIUS Review. The Committee on Foreign Investment in the United States (CFIUS) is an inter-agency committee chaired by the Secretary of the Treasury. CFIUS has authority to review a transaction that allows or could result in a foreign person controlling a U.S. business that is deemed a national security interest, which includes major energy assets. This authority is derived from the Exon-Florio provision of the Defense Production Act, which was adopted by Congress in 1988, amid concerns over foreign acquisitions of U.S. companies. Exon-Florio authorizes the President of the United States to block proposed or pending foreign acquisitions by “persons engaged in interstate com-merce in the United States” that threaten to impair national security. Subsequent congressional legislation, in 1992, direct-ed that this process be applied “in any in-stance in which an entity controlled by or acting on behalf of a foreign government seeks to engage in any merger, acquisi-tion, or takeover which could result in control of a person engaged in interstate commerce in the United States that could affect the national security of the United States.”

Control is defined as “the power, di-rect or indirect, whether or not exercised, through the ownership of a majority or a dominant minority of the total outstand-ing voting interest in an entity, board representation, proxy voting, a special share, contractual arrangements, formal or informal arrangements to act in con-cert, or other means, to determine, direct, or decide important matters affecting an entity.” In addition, control under Exon-Florio also includes negative control or veto rights; thus, it may be sufficient to find foreign control when a foreign person has the power to block certain important corporate actions.

The CFIUS review process is admin-istered by the Treasury Department on

obligations and guaranteed amount. With-out an accurate description, the amount payable to the beneficiary could be limit-ed. In some Guarantees it may not be pos-sible to specify a guaranteed amount, par-ticularly if such amount can only be deter-mined at the time a guaranteed obligation is breached. In this situation, Article 17 of the Notice on Questions in the Administra-tion of Granting of Security to Foreign Par-ties by Entities in China, promulgated by SAFE on July 30, 2010, permits applicants for SAFE approval and registration to omit an exact guaranteed amount in favor of a more general “reference guaranteed amount”—an amount having the great-est relevance to the guaranteed payment obligations under the Guarantee. And here lies the biggest potential problem. Unless the application for SAFE registra-tion and approval makes clear that the actual guaranteed amount may, depend-ing on the facts and circumstances of any breach of guaranteed obligations, exceed the reference guaranteed amount, there is a risk that SAFE could interpret the refer-ence guaranteed amount as the maximum amount available to the beneficiary un-der the Guarantee. Because enforcement of the Guarantee is ultimately subject to SAFE’s verification and approval, failure to make this clear could significantly un-dermine the security obtained within the four corners of a Guarantee.

In summary, beneficiaries under a Guar-antee should take extra care to ensure that (1) SAFE approval and registration is ob-tained, (2) the guaranteed obligations are clearly and accurately represented in the SAFE approval and registration forms, and (3) the SAFE approval and registra-tion process does not undermine the ben-eficiary’s right to fully collect under the Guarantee as contemplated by the parties.

THL: When advising foreign investors on oil and gas-related investments in assets located in the United States, what are some of the principal regulatory issues?David C. Buck: In addition to U.S. tax and antitrust considerations, foreign investors should be aware of three significant regu-


dressed prior to marketing and selling any asset which will involve structuring the sale to reduce the effect of any identified risks (including possibly testing the SOE’s attitude before the asset is marketed) and then seeking to apportion any risk in the sale contract.

The second big concern is bribery and corruption, of which the energy industry is a prime target, but also unsurprisingly a key target for enforcement. Therefore, al-though frequently a sensitive issue in ne-gotiations with any SOE or local partner, this is an issue that any energy company doing business in any market, but partic-ularly in non-OECD countries, needs to be aware of and monitor from the outset. While many international energy compa-nies now have detailed and comprehen-sive compliance policies and procedures, these cannot cater to every scenario and often clients negotiating against SOEs will look to mitigate the risk of running afoul of the relevant international and local an-ti-bribery laws by a number of measures. These measures might include undertak-ing a thorough due diligence exercise (in-cluding a degree of specific integrity due diligence) into how the asset came into the possession of the granting authority. This exercise can take time but would be beneficial in the long run. Combined with this, clients look for specific contractual anti-corruption undertakings, representa-tions and warranties (with an appropriate sovereign immunity waiver provisions and detailed dispute resolution provisions providing for a neutral forum in which to bring any claim), and for rigorous compli-ance policies and procedures to be put in place and actively policed (which might include an element of training for the cli-ent by the SOE).

endnotes1. 43 U.S.C. § 1331.2. 30 C.F.R § 256.35(b)(2011).3. See U.S. Department of the Interior Minerals

Management Service (Gulf of Mexico Region), OCS Report MMS 2001-076, Outer Continental Shelf Oil and Gas Leasing Procedures Guidelines at 7-9 (October 2001) (“BOEM Leasing Guidelines”).

4. 30 U.S.C. 181 et seq.5. 30 U.S.C. 351-359.6. 30 U.S.C. 181.

concerns and how can those concerns be addressed?John B. Connally IV: Two of the biggest and most frequent concerns for our clients when negotiating contracts with SOEs in the energy sector, particularly in develop-ing jurisdictions, are (1) the threat of gov-ernment intervention, and (2) the fear of bribery and corruption.

Government intervention tends to fall into one of three categories: legitimate, quasi-legitimate and unlawful. For exam-ple, in a petroleum project, legitimate in-tervention might take the form of restric-tions on assignment or change of control documented in the relevant production-sharing contract or underlying petroleum law. This exists for legitimate reasons but may hamper an investor monetizing its assets. Quasi-legitimate intervention would include lawful but one-sided pro-visions such as disproportionate transfer taxes, excessive fiscal/royalty regimes or SOE-friendly pre-emption rights (all of which can affect an asset’s value). Unlaw-ful intervention would include any of the above practices, where such rights do not validly exist or are rights that are unilater-ally created or modified with retroactive effect. Unlawful government interven-tion can even lead to the outright expro-priation of assets. When addressing these concerns in the majority of emerging mar-kets, it is rarely possible to extinguish risk altogether (particularly in relation to un-lawful interventions, although this would have negative consequences for the SOE and potential future inbound investment).

As a consequence, the possibility of government intervention becomes a ques-tion of risk mitigation. This can take the form of clarifying any uncertainties in the drafting, if possible, prior to executing the underlying documents, including stabili-zation provisions (if permitted) that are likely to be enforceable; it can also include structuring the investment to address concerns (for example, on assignment), and agreeing to the means for resolving disputes in a forum that is not likely to automatically favor the SOE. A second phase of risk mitigation will need to be ad-

nies, as associations of citizens or corpo-rations, so long as each partner or mem-ber, as applicable, of the lessee is itself authorized to hold federal offshore leases (e.g., is a citizen, national, permanent resi-dent, domestic corporation).3 While a for-eign entity may not directly own federal offshore leases, it may indirectly own such leases through ownership of the stock of a U.S. domestic corporation that either di-rectly owns the leases or that owns mem-bership interests or partnership interests in an entity that owns the leases.

Before the BOEM will approve the issu-ance or transfer of an offshore lease, the prospective lessee must qualify with the BOEM to hold offshore leases and obtain a GOM qualification number.

Ownership of Onshore Federal Oil and Gas Leases. The U.S. Department of the Interior, Bureau of Land Management (BLM) administers federal leases for oil and gas available for lease pursuant to, among other acts, the Mineral Lands Leas-ing Act of 19204 (MLLA) and the Mineral Leasing Act for Acquired Lands of 1947.5 The MLLA covers, among other miner-als, leases of oil and gas excluding lands acquired under other acts subsequent to February 25, 1920 and lands within the naval petroleum reserves (NPR). Persons making offers under the MLLA are re-quired to be citizens of the United States, associations of such citizens, corporations organized under the laws of the United States or of any state or any territory there-of, or municipalities.6 As with the BOEM, the BLM interprets “an association of such citizens” to include partnerships, limited liability companies and trusts, provided each of its partners, members or benefi-ciaries are U.S. citizens, corporations or other qualified persons.

The above are only a few of the most significant regulatory issues that foreign investors in oil and gas-related assets must be aware of when investing in the U.S.

THL: When negotiating contracts with state-owned entities (SOEs) in developing jurisdictions, what are a client’s biggest


Multidisciplinary and Multinational Issues Raised in Global Offshore

Energy Transactions:

Expecting the

Unexpected

O scar Wilde once said, “To expect the unexpected shows a thoroughly mod-ern intellect.” As most lawyers know, even the

simplest transaction or case is rarely an easy, straight road. It is much more likely to be filled with bumps, turns, twists and curves that were never considered initial-ly. The number of unexpected events that could arise in the context of a complex international transaction is even greater. As the energy market has moved to a global scale, the number of potential complications for an energy transaction has escalated greatly. Now parties must potentially consider the effects of laws of several jurisdictions rather than a single body of law. These laws may not work seamlessly together. In addition to the legal considerations, parties must also consider cultural and logistical issues in structuring the transaction. Within an international energy transaction, the role of the lawyers involved has also expand-ed to try to anticipate all possible future risks and potential roadblocks in several jurisdictions. When the unexpected does occur, lawyers and their clients must be ready to efficiently handle the curveball that has been thrown at them and to adapt as needed.

International energy transactions are multi-jurisdictional by their very nature. The involvement of several countries’ laws and cultures increases the risk and uncertainty associated with these trans-actions. While assessing all the typical legal risks and issues raised in any large scale transaction, the legal team in an in-ternational energy transaction will need to review the laws of various countries as well as the effects of logistics during the course of the transaction. These are the types of issues that the parties will ex-pect to affect the transaction.

How to Handle the UnexpectedThe unexpected can arise in the planning

By Felisa sanCheZ

in the U.S., Luxembourg and Hungary to establish the ownership structure for the drillship. In determining the appropriate ownership structure, the owner will also review the requirements of any country in which the drillship will operate as well as the tax implications of the operations in that country.

The lenders will also review, as part of the due diligence process, the contrac-tual and legal obligations of the drillship owner, both during and after construc-tion. Because the collateral package will include the revenue streams of the proj-ect after it has begun operations, this should include not only a review of the construction contract but also any appli-cable drilling contract, services contract, management contract and any other ma-terial contracts that will affect the vessel while it is operating.

The owner at this time will have also decided where the drillship will be reg-istered. Drillships and semi-submersible drilling rigs are considered to be vessels and as such must be registered under a country’s flag. The drillship owner will need to review the registration require-ments of the flags that it is considering to ensure that the vessel and the subsidiary that will own the drillship meets the re-quirements of the flag. In this situation, the drillship owner has opted to register the drillship in the Bahamas once con-struction has been completed. Attorneys for both the drillship owner and the lend-ers will need to review the requirements for obtaining and perfecting a ship mort-gage on the drillship in the Bahamas as well as the documentation required to register the vessel upon completion of the construction. Hungarian and Luxem-bourg counsel are asked to confirm that no requirements of their legal systems will present or delay registration of the drillship under the Bahamas’ flag or the perfection of the security interest to be created by the Bahamas’ ship mortgage.

At this point, to shape the loan agree-ment’s covenants, the lenders will also begin to consider other potential areas of law that may affect the drillship opera-

asset designed to move across the global waters. In reviewing our model transac-tion, we will review both the process of planning for expected issues as well as handling potential unexpected issues that could arise.

Model Transaction – Construction Financing of a DrillshipA U.S. drilling company enters into a project finance loan to fund the delivery of a new drillship. The drillship is being built in a shipyard in South Korea and is scheduled for delivery shortly with an expected price of $550 million. Once the construction of the drillship is complet-ed, the U.S. drilling company intends for the drillship to work in the Gulf of Mexi-co under a contract with an international oil company, but the drillship is likely to be utilized outside the Gulf of Mexico as well. The drillship owner has elected to use an ownership structure where the drillship will be owned by the Luxem-bourg branch of a Hungarian subsidiary of the company. The lead arrangers for the loan will be a New York bank, a Chi-nese bank and a Norwegian bank.

Planning for the ExpectedTo minimize unexpected results as the transaction progresses, it is important that both the legal and business teams conduct a thorough review of all aspects of the project and the potentially applica-ble laws and that they develop a thorough plan for the transaction. This early stage will map out the expectations of the par-ties. During this stage, it is useful to draw upon the team’s prior experience and in-formation obtained in order to minimize the occurrence of unexpected events as the transaction progresses.

The lawyers and clients in this hypo-thetical transaction will have certain standard considerations that will be ad-dressed early in the transaction, such as corporate, tax, regulatory and contrac-tual obligations. At the time of seeking financing, the drillship owner should have already completed a thorough re-view of applicable tax and corporate law

of the transaction or the execution of the transaction and anywhere in between. A new development that was not antici-pated by the parties can occur when a lo-cal law requirement is not expected, or it can happen if a party to the transaction is not able to complete its intended role. But how does one plan for the unexpected in an international energy transaction?

1. Assess the situation. The first step should always be to stop and assess the new development. How will the unexpected event affect the intended project and timeline? Is there a high risk associated with the new develop-ment? Educate the necessary parties on the issue before rushing to make a decision. 2. Generate and evaluate your options. Based on the information obtained, what is the best possible outcome? What resources are available to reach this outcome? With this information, lay out the options that are available to resolve the issue.

3. Execute the best option. Once the parties have decided which option is best, develop a plan to institute the new direction. Communicate with those needed to resolve the situation.

While this is simple enough in theory, the application of this process to the re-alities of a transaction will best demon-strate the effectiveness of this approach. In order to demonstrate the effects of the unexpected events that may occur during an international transaction, consider the model transaction described below in-volving the financing of a drillship. Most shipping finance transactions are inter-national in nature. The financing of ships that travel the world in connection with the offshore energy sector is undertaken by banks all over the world for borrow-ers from different countries, and not only for ship owners within their own coun-try. The operation of ships in the inter-national energy market is also by defini-tion international as a ship is typically an


parties hammer out last-minute details. Parties in any international energy trans-action will need to coordinate across time zones around the world as well as small administrative details of local law that were previously not considered. They will have to handle unexpected delays in funding and negotiate with third parties to cooperate with the requirements of the loan agreement.

Considering our hypothetical, as the parties prepare for closing and begin to discuss the timing of funding and clos-ing, it becomes clear that the parties have differing expectations and needs. The drillship owner will want to ensure that the money is available for payment to the shipyard in South Korea as soon as possible once construction has been completed so it may take delivery of the drillship. The shipyard requires payment in full at least two business days before releasing the documents transferring title to the new owner. Meanwhile, the lenders expect that their security interests will be perfected in the drillship as the primary asset before they make funds available to the borrower. The Bahamas Maritime Au-thority will not record a mortgage on the drillship until after the drillship has been officially registered with it. However, the Bahamas will not register the drillship until the shipyard delivers the original documents transferring title to the drill-ship owner, which as mentioned above, the shipyard is not willing to do until it has been paid.

Step One – Assessment. First, the par-ties review the above and discuss the concerns that have arisen. The shipyard is requiring funds in advance, but the lenders do not want to forward $500 million two days before they will have a security interest in the primary asset. The parties discuss requirements with the shipyard, the lenders and the Baha-mas ship registry.Step Two – Evaluation of Options. After consultation with the lead banks, there appears to be a few options. The sim-plest option is for the drillship owner to negotiate with the shipyard to waive

three months advance notice of a new jurisdiction or change in structure in order to permit them time to review the local laws and to perfect security in-terests in the new ownership structure and contractual arrangements. The bor-rowers propose that they deliver docu-ments perfecting the security interests that are required in any new structure within one month of a new structure being implemented, but will do so in advance when possible. As the drilling contract contains a much shorter notice period for potential new assignments, the lender’s three month advance no-tice is considered unworkable. Howev-er, the lenders are not willing to accept the risk associated with the borrower’s proposals. Step Three – Execution. A solution is reached where a list of certain juris-dictions are approved in advance with only two weeks required prior to effect-ing a change of title or ownership. The drillship owner would need to present proposed drafts of security instruments when they provide notice, along with certain other requirements, to reassure the lenders that their security in the vessel remains in place and the risk of the new jurisdiction has been mitigated.

While the unexpected announcement of diverting the drillship to Malaysia may have initially raised serious concerns, the parties are able to reach a solution that is workable for the parties. During the anal-ysis of this new development, the lenders also learn significant information regard-ing the operations and risk management strategies that are useful to understand-ing the borrower’s business.

Handling Unexpected Logistical Issues As the loan begins to move toward clos-ing, the parties will begin to focus on the logistics of funding and closing. This is the point when unexpected developments frequently come to light as the parties begin discussing the actual mechanics required for closing. A complex finance deal becomes even more complex as the

tion. These may include environmental regulations where the drillship will be operating, vessel operating requirements, bribery and corruption risks and insur-ance.

It should be clear that the laws of sev-eral jurisdictions have been considered beyond simply the law governing the loan agreement and the corporate law of the parties to the loan agreement. In addition to U.S. counsel and Hungary and Luxem-bourg, the parties have considered issues potentially arising under South Korean law and Bahamas law. The parties have engaged counsel with experience in these types of finance transactions who have been able to identify many of the issues that may arise and address them preemp-tively.

Handling Unexpected Legal IssuesDuring the drafting of the loan docu-mentation, the attorneys for the parties negotiate the covenants aimed at protect-ing the lenders during the course of the loan. One proposed covenant restricts the transfer of title of the drillship or changes to the ownership structure. To date, the parties have conducted extensive reviews of the applicable laws to drillships oper-ating in the U.S. Gulf of Mexico. During the course of negotiations, the drillship owner receives word from the oil com-pany that the vessel may be directed to Malaysia for a project, and potentially to other sites as well, before proceeding to the Gulf of Mexico. It also becomes ap-parent that the ownership and chartering structure for the drillship may change to comply with the laws of certain jurisdic-tions and the true international nature of the drillship becomes apparent.

Step One – Assessment. The lenders re-view the structure of the loan and the requirements of the primary lenders. They discuss with the drillship owner the potential locations for operations and also request descriptions of similar situations in the typical operations of their business.Step Two – Evaluation of Options. Ini-tially, lenders request that they receive


pling of the potential unexpected issues that can arise in any energy transaction. The rapidly moving energy industry re-quires that attorneys and their clients be able to respond quickly to legal and lo-gistical issues as they arise. These could be anything from major changes of law following the Deepwater Horizon/Ma-condo incident to obscure local law re-quirements to original documents being lost in transit to executives being stuck in traffic jams. Many of these same prin-ciples in the analysis above could apply to acquisitions or financing of many other international energy assets such as power plants, pipelines, drilling contract negotiations and offshore service provid-ers. Attorneys engaged in these transac-tions must be prepared to expect the un-expected.

Felisa Sanchez is a senior attorney with Gardere Wynne Sewell LLP, where she focuses on corporate, energy and maritime finance transactions.

time funds are released into the South Korean bank account for the shipyard and the mortgage is filed. They agree that the mortgage is to be recorded as soon as possible after funding. Thus, once the drillship owner has complied with all other conditions of the loan, the lenders will wire funds to the ship-yard, allowing it to transfer title to the drillship owner. The drillship can then be registered, with the mortgage re-corded immediately after in the Hong Kong office of the Bahamas Maritime Authority within hours of the wires be-ing initiated.

The above is not the preferred ideal situation for either the lenders or the shipyard. Yet, the parties have created a solution that will protect the interests of the parties who have made concessions, while allowing the funding to proceed.

SummaryThe above examples are but a small sam-

the two-day requirement. Another op-tion is to fund the requested amounts into an escrow account in Hong Kong, which would not be released until clos-ing. An additional option is for the lend-ers to rely on a collateral assignment of the drillship owner’s rights in the con-struction contract to protect their inter-est until a mortgage can be placed on the drillship. After initial discussions with the shipyard, it becomes apparent that the shipyard is not willing to waive receipt of an advance payment nor is it willing to use an escrow account. How-ever, the shipyard is willing to reduce the timeframe so that funds must only be received prior to delivery but may be the same day as delivery of the drillship. Step Three – Execution. The parties decide to have the lenders fund on the day of delivery to the shipyard. In order to protect their interests, the lenders decide to accept an assignment of the construction contract as interim secu-rity for the brief period between the

One of the biggest and most ben-eficial changes in our community in the last 60 years has been the end of governmentally enforced racial

discrimination. Within the lifetimes of many readers of this journal, public facilities, housing and our schools have become places all of our citizens have access.

Weldon Berry and Francis Williams worked tirelessly for most of their careers to achieve their goal of ending segregation of our schools and achieving equal opportunity education for all. After the 1954 opinion of Brown v. Topeka Board of Education, the Houston Independent School District decided that they would take no action to desegregate schools, preferring the term “deliberate” over the word “speed” in the holding of the case. Berry was a first year

lawyer and Williams was a fifth year lawyer when they filed Ross v. Rogers in the court of U.S. District Judge Ben Connally in 1955. It would become, both figuratively and liter-ally, the case of their careers. Working pro bono and with-out any expectation of collecting a fee, they worked tirelessly to try the case and, after a trial and appeal, to enforce rulings made ordering integration of Houston Public Schools. The case would not become final until 1981. Neither received a

fee until Berry (and only Berry) received $75,000.00 in 1985, his only compensa-tion for 30 years of work.

Their work has made a difference for every child that has attended a pub-lic school in Houston in the last half cen-tury. They improved

the quality of our schools and made them plac-es where all children can find the opportunity to make the American Dream a reality. In so doing, they improved the future of our entire community.

Houston Lawyers Who Made a Difference The Integrators:

Weldon Berry & Francis Williams


commIttEE spotLIght

Every HBA committee’s central aim is to give back or provide assistance to the community, ordinarily by providing legal advice or assistance. Some HBA

committees, however, function to give back to the community in non-tradition-al ways, and one such committee is the Adopt-a-School Committee, the purpose of which is sharing non-legal knowledge with children.

The committee, now celebrating its 20-year anniversary, currently maintains a partnership with B.C. Elmore Middle School, an “at risk school” in the North Forest Independent School District, to improve the quality of education for stu-dents there and provide support for that district. The committee accomplishes this by implementing educational pro-grams, providing school supplies, and recruiting volunteers for weekly tutoring and other projects. This year the com-mittee is also planning various other ac-tivities for the students, including a field trip to the Houston Museum of Natural Science, a performance in front of the entire school, and “Reading Incentive” parties to reward students who complete successful tests on books they read with educational prizes, pizza, and candy.

The committee urgently needs volun-teer tutors in the areas of math and Eng-lish so it can meet its goal of providing at least 20 tutors a week to the school to en-able every student there to have the priv-ilege of working one-on-one with a tu-tor. The volunteer tutors will meet in the school’s library every Wednesday from

noon to one o’clock to assist sixth grade students. HBA mem-bers who are willing and able to volunteer to tutor the students will be welcome.

Hon. David Fraga, a Houston munici-pal judge, currently chairs the committee. Anyone who is inter-ested in volunteering to tutor or otherwise wants to obtain more information about the committee may con-tact Claire Nelson, the committee’s HBA liaison, by telephone at (713) 759-1133, or by email at [email protected]. The com-mittee gladly accepts donations of money and school supplies, which should be mailed or delivered to the HBA office at 1001 Fannin, Suite 1300, Houston, Texas 77002.

Chance A. McMillan is an associate with Thomas N. Thurlow & Associates in Houston, Texas. His practice is dedicated to personal injury and civil litiga-tion.

Adopt-a-School Committee:

Helping Educate the Community’s Youth

By ChanCe mCmillan

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The Hon. David Fraga, municipal judge for the City of Houston, chairs the Adopt A School Committee. He is shown with students at the HBA’s October Reading Incentive Party.

Students earn the opportunity to choose books to take home by par-ticipating in the Reading Incentive Program.

Chandria Jackson of Powers & Frost speaks to students about the importance of reading and education.


A ProfileIn pRoFEssIonALIsm

JuDGe DaviD o. FraGaCity of Houston Municipal Courts

Duty, honor, and commitment to our community and legal profession are words that many attorneys live by. Our law license states that we are entitled to serve as an Attorney and Counselor of

Law, which I, as well as others, do not take light-ly. The legal profession promotes what is just and right by advocating for those who cannot advocate for themselves. We do this either as individuals or through legal firms. Our profession has and always will be in the forefront of change in our society.

When the Houston Bar Association was created in 1870, one the goals was to “uphold the honor and dignity of the profession by providing charitable and legal services to all and to promote professional eth-ics among its members through education.”

Today, the Houston Bar Association through its members achieves these goals by providing legal services for our veterans, people affected by hur-

ricanes and forest fires, hospitalized children, and those who cannot afford legal representation. We do this through our committees and sections in con-junction with the HBA’s Houston Volunteer Law-yers. Additionally, members serve the community through other activities such as providing financial support and physical labor in the building of homes through Habitat, and through visiting area schools to read and educate young people on issues such as substance abuse, jury service and law as a career. These activities not only serve our community, but also promote our legal profession to those who do not have access.

When I was young, I informed my parents that I wanted to be an attorney. My parents only asked of me that I become an attorney who cares about people and the profession. Every day I honor their request. I am so proud to be a member of what I

believe is the best profession.


oFF thE REcoRd

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By anGela l. Dixon

When Sofia Adrogué was approached four years ago by Minerva Pérez, an award-winning broadcast journalist and long time television anchor, with the idea of co-hosting and co-pro-ducing a show, she did not know what was in

store for her and the impact it would make on the community. “Minerva Pérez was the mistress of ceremonies at a Greater Houston Women Resource Center Annual Luncheon where I was the keynote speaker,” Sofia said. “She had an idea for a show and was perform-ing due diligence as to potential co-hosts. She felt my style would work well for what she envisioned.”

Sofia and Mi-nerva ultimately agreed to create a mainstream show addressing universal topics that would focus on substantive, topical, intellectual, and social smart talk. The result was lATInA vOICES: SMART TAlK, a 30-minute in-novative, English language, half-hour television and internet-streamed talk show with a Latina perspective.

lATInA vOICES: SMART TAlK addresses politics, busi-ness, pop culture, health trends, entertainment, women’s is-sues and other newsworthy and timely topics of value to profes-sional Latinos and the mainstream audience. “Our mission is to empower, educate, engage and enlighten with SMART TAlK

our diverse community, locally and nationally,” Sofia said. She and Minerva host the show with occasional guest hosts adding to the mix. “It is important to us that we develop quality topics for our viewers that matter to all,” according to Sofia. “We have discussed everything—from human trafficking, healthcare, homelessness, and immigration to gun control.”

Also, for Sofia and Minerva, given our economic times, ad-vocating for innovative ways for survival and the creation of

an entrepreneur-ial spirit is criti-cal. “We want the viewers to have something tan-gible and posi-tive to take away from the show that could affect their lives for the better,” she said. “Our topics are the commu-nity’s topics and we strive to be reflective of the diversity we have in Houston and its concomitant needs and inter-ests.”

The show has its own studio and is currently filmed at the HTV headquarters. The show is written and researched by So-fia and Minerva. They meet quarterly to decide on topics and find experts for the show. “We have our SMART TAlK seg-ment, followed often by a business segment or a human interest story.,” Sofia said. “We aim for inspirational, educational topics of interest to all.”

The pair has interviewed many notables including, among others, former U.S. Attorney General Alberto Gonzales; Olym-pic medalists Diana, Steven and Mark Lopez; Olympic bronze

Latina Voices: Smart Talk

The View with a Latina Perspective


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medalist Marlen Esparza; Federal Judge Vanessa Gilmore; the first female Har-ris County District Attorney Pat Lykos; and the first female Texas Supreme Court Justice Ruby Kless Sondock. So-fia formed such a bond with Esparza, as well as the Lopez family, that she trav-eled to London for the 2012 Olympics to support their endeavors.

Asked about a particular heartfelt in-terview, Sofia recalls with fondness her interview with Elena Davis, founder of I Am Waters Foundation. Davis, almost homeless as a child, later became a su-permodel who ultimately founded and funded an organization that helps the homeless, physically and emotionally. “All of our guests provide significant in-spiration,” Sofia said. “There is a com-mon thread among them; most have dealt with adversity and have been able to succeed and move forward despite the odds.”

SMART TAlK does not leave anyone out. It even includes a segment called SMART TIMES where i-reports from students are featured—journalism of the 21st century kind. “Social media is very popular among the younger genera-tion where anyone can memorialize and be a journalist,” Sofia said.

As a member of the law firm of Looper Reed & McGraw, P.C., Sofia has a full workload handling complex commercial litigation and multi-party proceedings in state and federal courts, but she has found a way to balance her firm practice with her other endeavors because of her strong desire to give back to the com-munity. “The reason this works is be-cause we have a passion for education; we appreciate and embrace cultural and ethnic diversity and want to see others succeed.” According to Sofia, “our au-diences are cognizant of our belief that one should never forget who she is and where he comes from.”

In addition to being a prolific writer and speaker and mother of three chil-dren, Sofia dedicates significant resourc-es and time to several charitable orga-nizations, and she has served or serves on a number of boards including the American Leadership Forum Houston, Girls Incorporated of Greater Houston, the Memorial Hermann Foundation, the Museum of Fine Arts Houston, Theatre Under the Stars, and the United Way of Greater Houston.

“There is a running theme of empow-ering others in all that I do,” explained Sofia. “As women, we have to support

each other. We can engage and educate and ideally inspire and that is what we try to do.” Sofia and Minerva want the show to transcend borders, cultures and time zones with their diverse national and international perspectives. They be-lieve they serve as a paradigm of our na-tion’s burgeoning diversity. “Our nation and our city are becoming more hetero-geneous,” said Sofia. “We, like others, are bullish on Houston and our country as we empower all members of a multi-ethnic society.”

lATInA vOICES: SMART TAlK can be seen on PBS Channel 8 on Sundays at 2:30 p.m.; Houston Channel 11 KHOU at 5:30 a.m. on Sundays; Victoria on Satur-days at 12:30 p.m.; and Beaumont KBTV Channel 4 on Saturdays at 12:30p.m. The show is also streamed on http://www.ht vhouston.net/. For more information on lATInA vOICES and to view past seg-ments, visit the website at http://www.latinavoices.com or follow the show on Facebook, Twitter and YouTube.

Angela L. Dixon is an attorney with a civil practice, focusing on wills and probate, landlord/tenant disputes, and personal injury law. She is an associate editor for The Houston Lawyer.


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State of Texas v.EPA: Limiting the Role of the EPA Under the Clean Air Act By suZanne Chauvin

Citing federalism principles, the Fifth Circuit Court of Appeals recently held that the EPA over-stepped its bounds in disap-proving a Texas air permitting

program. In State of Texas v. U.S. Environmen-tal Protection Agency, the court held that the EPA’s rejection of the Texas plan was arbitrary and capricious, and exceeded the EPA’s statu-tory authority under the Clean Air Act.1 The Court also chastised the EPA for waiting 16 years to disapprove the Texas plan, a delay that unraveled 140 permits Texas had provisionally granted in the interim. The opinion confirms the Clean Air Act’s regulatory framework by which the EPA sets the emission standards by which the states formulate detailed plans for implementing those standards.

Under the Clean Air Act (the “Act”), each state must prepare and administer a State Im-plementation Plan (SIP) outlining the state’s pollution control strategy for achieving air quality standards. Every SIP must include a New Source Review (NSR) scheme for permit-ting all new, stationary pollution sources. The NSR scheme consists of Major New Source Re-view and Minor New Source Review programs, which apply based on the amount of regulated contaminant to be emitted by a new facility.

States have broad discretion in preparing their SIPs. As long as a SIP meets the statutory criteria of the Clean Air Act, the EPA must ap-prove it. The Act requires the EPA to review and either approve or disapprove of any SIP or SIP revision within 18 months of its submis-sion.

In November 1994, Texas submitted a Flex-ible Permit Program (Program) to the EPA in connection with its Minor NSR regime. The EPA delayed consideration of the Program for more than a decade, and only took formal ac-tion as part of a settlement after industry repre-sentatives brought a lawsuit in 2008 to compel the EPA either to approve or disapprove the Program.

The EPA issued a formal disapproval of the Flexible Permit Program on July 15, 2010, nearly 16 years after the initial submission. With its disapproval of the Program, the EPA took the position that every Texas facility with a flexible permit could face fines or other en-forcement action regardless of whether actual emissions levels complied with the Clean Air Act. The State of Texas and industry represen-tatives challenged the EPA’s ruling and sought to set it aside.

Reviewing the ruling under the Administra-tive Review Act, a divided panel rejected every reason given by the EPA for disapproving the Texas SIP. First, the EPA had argued that major sources might use the Flexible Permit Program to evade Major New Source Review, because the SIP did not explicitly state that the Program did not apply to major source construction or modification. In rejecting this argument, the Court noted that the Texas Administrative Code provisions containing the SIP affirmative-ly required compliance with Major New Source Review. Therefore, on its face, the Program did not allow major sources to evade Major NSR. With Judge Jolly writing for the major-ity, the court found that the EPA’s rejection was based only on its own “preference for a differ-ent drafting style,” and that the EPA had im-properly encroached into a role the Clean Air Act had assigned to the states. “A state’s ‘broad responsibility regarding the means’ to achieve better air quality would be hollow indeed if the state were not even responsible for its own sen-tence structure.”2

The Court next addressed the EPA’s second reason for rejecting the Program: that the Texas regulations contained inadequate monitoring, recordkeeping and recording (MRR) provi-sions. The EPA had disapproved the MRR pro-

visions as conferring too much discretion on the Director of the Texas Commission for En-vironmental Quality, and for being too vague. The EPA, however, had previously approved nearly identical MRR provisions regarding director discretion in other Texas Minor NSR provisions and in a recent Georgia SIP. Further, EPA’s objection that the MRR provisions were too vague was not based on any standard in the Clean Air Act. The Court denied the EPA’s second ground for disapproving the Texas SIP, stating “[w]e find that the EPA’s action... is inconsistent with the principles of coopera-tive federalism that are an essential part of the CAA.”3

Finally, the Court addressed the EPA’s third reason for disapproving the Program: that the methodology for calculating each emissions cap was not sufficiently clear and replicable, making it difficult to hold permit holders ac-countable for complying with their emissions caps. The Court found that the EPA’s replicabil-ity requirement was not contained in the Clean Air Act. Furthermore, even if replicability were required, a third party could determine the caps based on information found in the permit application. Finding that the EPA’s objections were not based on Clean Air Act standards, the court held that the EPA acted arbitrarily and capriciously, and in excess of its statutory au-thority.

State of Texas v. EPA is only one of a num-ber of recent cases holding that the EPA over-reached its regulatory authority.4 Given the current political and economic climate, we can expect to see additional challenges to EPA ac-tions.

Suzanne R. Chauvin is a partner in the Houston office of Strong Pipkin Bissell & Ledyard, L.L.P. Her litigation practice includes commercial, environmental, and products liability matters in state and federal courts. She is a member of the Defense Research Institute and is a Fellow of Litigation Counsel of America.

endnotes1. No. 10-60614, 2012 WL 3264558 (5th Cir. August 13, 2012).

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2. Id. at *10.3. Id. at *13.4. See, e.g., Luminant Generation Co., L.L.C. v. U.S. E.P.A., 675

F.3d 917 (5th Cir. 2012); National Mining Ass’n v. Jackson, 10-1220, 11-0295, 11-0446, 11-0447, 2012 WL 3090245 (D.D.C. July 31, 2012).

The Door Opens to Challenge Some Pipeline Claims of Eminent Domain By John s. Gray

In Texas, if an entity intends to operate a common carrier pipeline or as an energy transporter, moving substances for other companies, it is authorized by law to take private property through the use of the

state’s eminent domain laws.1 If, however, the pipeline moves only the entity’s substances through it, then eminent domain does not ap-ply. How has the Texas Railroad Commission (“TRC”) determined which proposed pipe-lines will be operated as common carrier pipe-lines? It asks companies to check a box on a single-page pipeline permit application declar-ing the pipeline’s common-carrier status. Al-though that system may seem simplistic and easy to manipulate, it has a substantial built in safeguard. The person who signs the applica-tion does so with the threat of criminal penal-ties looming for anyone found making a false application.2 A false application finding is a felony, punishable by a two to five year prison sentence, a fine of not more than $10,000, or both.3 Yet, this deterrent was neither consid-ered nor addressed in a recent Texas Supreme Court Opinion which held that “[m]erely registering as a common carrier does not... bar owners from contesting in court whether a planned pipeline meets the statutory requirements. Nothing in Texas law leaves landowners so vulnerable to unconstitutional

private takings.”4 If the Court considered the criminal penalty

for making a false application in its analysis, it apparently did not think much of its deterrent effect. The Texas Supreme Court clearly found the use of a “self-declaration” to obtain emi-nent domain authority to be troubling. Justice Don Willet, writing for the court, said, “Pri-vate property cannot be imperiled with such nonchalance, via an irrefutable presumption created by checking a certain box on a one-page government form. Our Constitution de-mands far more.”5

According to the Denbury Court, whenever private companies are vested with the power of eminent domain, “that authority is subject to special scrutiny by the courts” because Ar-ticle 1, Section 17 of the Texas Constitution prohibits the taking of property for private use.6 Moreover, the Court found that TRC’s current administrative process for granting permits to private companies that include state-sanctioned eminent domain power to be unconstitutional because it is done with-out conducting a hearing and without giving notice to affected landowners.7 To bolster its position, the Denbury opinion reiterates that it is the courts (and not the TRC) that ultimately determine property rights and whether a par-ticular use is a public use.8

After all the posturing, the Denbury Court gets to the heart of its concern; the possibil-ity of gaming TRC’s permitting process. The facts appear to show that Denbury owned and operated a naturally occurring CO2 reserve in Mississippi and sought to build a pipeline from its reserve to an oil field in Texas to sell CO2 for use in its tertiary operations. When it submitted its application, Denbury checked the box proclaiming it was a common carrier and another box stating that the substance it was carrying (the CO2) was “[o]wned by others and transported for a fee.” Although Denbury was only planning to carry its own CO2, it argued that to obtain common-carrier status under Texas law, it is sufficient to sim-ply declare that others can use its pipeline. The Texas Supreme Court disagreed. It found that the statutory language required the pipeline to

actually be operated for the public. The mere possibility that the public may use the pipe-line at some time in the future is not enough. Where there is no “reasonable probability” that anyone other than the pipeline owner will use the pipeline, then it is not a common car-rier pipeline.9 Under this evidence, Denbury was unable to establish its common-carrier pipeline status as a matter of law.

This is the second Denbury opinion; the Texas Supreme Court issued it initial opinion in August 2011. That opinion elicited an out-cry of concern that it would have a chilling effect on the ability to build new pipelines to keep pace with Texas’ growing and evolving energy industry. After the filing of numerous amicus curiae briefs by the industry, the Texas Supreme Court denied Denbury’s motion for rehearing, but withdrew its opinion substitut-ing it with a slightly revised opinion that makes it clear that a pipeline owner should be allowed to offer evidence of contracts with customers it expects to enter into in the future to estab-lish “a reasonable probability must exist that the pipeline will at some point after construc-tion serve the public. ...” Similarly, the court dashed hopes that the decision would provide another means by which groups can challenge projects such as the Keystone XL pipeline in northeast Texas by limiting its holding to CO2 and hydrogen pipelines.10

John Gray is a partner in the environmental section of Gardere Wynne Sewell and a mem-ber of The Houston Lawyer editorial board.

endnotes1. See TEX. GOV. CODE ANN. § 2206.001(c)(7).2. Toward the bottom of Form T-4, Application for Permit

to Operate a Pipeline in Texas, it states: “I, declare under penalties prescribed in Sec. 91.143, Texas Natural Resources Code, that I am authorized to make this report, that this report was prepared by me or under my supervision and direction, and that data and facts stated therein are true, correct, and complete, to the best of my knowledge.”

3. TEX. NAT. RES. CODE ANN. § 91.143(b) (2007).4. Texas Rice Land Partners v. Denbury Green Pipeline-Texas,

363 S.W.3d 192, 195 (Tex. 2012).5. Id. at 199.6. Id. at 197.7. Id. at 199-200.8. Denbury Green, 363 S.W.3d at 198.9. Id. at 202-03.10. Id. at 202n.28.


Modern Licensing Law (2011-2012 ed.) By raymond t. nimmer & Jeff C. Dodd west Publishing: softbound (2 volumes) reviewed by al harrison

M odern Licensing Law, a two-volume treatise by Nimmer and Dodd, delivers an in-comparably comprehensive analysis of licensing law, not

only encompassing intellectual property rights— patents, copyright, trademarks and trade secrets—but also virtually all facets of computer and information law. The authors elucidate myriad licensing issues through in-depth references to applicable statutes, case law, and evolving legal practice. They note, for instance, that many modern licenses, par-ticularly online or database licenses, work primarily to limit the use of digital informa-tion or information products, by having us-ers agree to abstain from disparaging the reputation of the online service or corrupting or infecting digital information, rather than focus on the intellectual property or other property rights manifest in such products or information. Attorneys who have been seeking legal analysis and practical guidance around licensing issues will readily recognize the unique presentation delivered by the au-thors of Modern Licensing Law, who cleverly superimpose fundamental property law and contract law onto the licensing landscape, colored with public policy principles.

This book’s exhaustive content can be largely attributed to the synergy between the academic knowledge and the exten-sive practical experience of its two authors. Raymond T. Nimmer is Dean and Leonard Childs Professor of Law at the University of Houston Law Center; and Jeff C. Dodd is a partner with Andrews Kurth LLP, practicing intellectual property, technology, and elec-tronic commerce and communications law in Houston and Austin.

The first volume introduces the licensing law landscape, with illustrative licenses im-plicating patents, trademarks, trade secrets, proprietary online information and content, and property rights. The associated legal analysis includes passive versus active licens-es, conditional and limited licenses, exclusive licenses, and concomitant contract-forma-tion issues. The authors provide guidance and insights into choice-of-law and jurisdic-tional issues, and into interpreting licenses of varying scope using a plethora of exemplary license language and special-purpose clauses. After discussing warranties and interrelated licensor and licensee duties, the authors fo-cus upon implied licenses as a function of course of conduct, contractual language con-struction, and licenses that are implied as a matter of law.

Once the licensing landscape has been de-fined in the first volume, the second volume then addresses the issue of breach, its appro-priate remedies, and the limitations imposed on the basis of contract law principals as well as antitrust principles. The authors then ana-lyze the nexus between contemporary licens-ing and bankruptcy issues, secured financing and asset logistics.

To illustrate the extent and depth of the authors’ collective wisdom and experience, consider the interesting discussion of a “na-ked” trademark license and goodwill associ-ated with trademark assignments. Typically, a trademark imbues the mark owner with rights that include preventing others from us-ing it in a manner tending to cause confusion or mistake among consumers as to the source of the products or services. As such, the au-thors argue that a trademark license should preferably establish an environment in which consistent quality is inherently sustained via control over the nature and quality of the products or services. Under circumstances in which a licensor fails to retain and to exercise prerequisite quality control, the license is des-ignated as being “naked”—which may result in invalidity and unenforceability thereof. To avoid this anomaly, the authors emphasize that trademark licenses should contain qual-

ity control provisions and language requiring that care be taken to assure that such quality controls are actually exercised. Even though a trademark license may contain adequate quality control provisions that are rigorously executed, the authors illustrate that the li-cense could still be invalidated if it purports to assign trademark rights without also as-signing attendant goodwill and any related business interests.

This treatment of trademark licenses is typical of the insightful and thorough treat-ment of many other aspects and applications of the modern licensing process. Thus, Mod-ern Licensing Law effectively integrates virtu-ally every aspect of law that impacts licensing issues and, in so doing, enables attorneys to appreciate and apply its principles and rec-ommended practices to recurring contem-porary commercial transactions involving intellectual property, computer, and informa-tion assets. In addition to accessing a treasure trove of practical licensing wisdom in this hardcopy treatise, the book is also accessible online via Westlaw.

Al Harrison is a patent attorney practicing intellectual property law with Harrison Law Office, P.C. He is a member of The Houston Lawyer Editorial Board.

Captain James A. Baker of Houston, 1857-1941 By Dr. kate sayen kirklandtexas a&m university Press, 2012

reviewed by Bill kroGer

A few months ago, Bob Downie in the Baker Botts Library brought me on a cart a large stack of dusty, worn financial journals and led-gers found in boxes in an offsite

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storage facility for the firm. Some of these journals date back to the 1870s. I decided to spend time trying to understand what they were, and how they explained the econom-ics of the practice of law several generations ago. As I sorted the journals into stacks, I re-alized that six huge journals captured six de-cades of the personal financial investments and transactions of Captain James A. Baker, one of the people most responsible for the development and growth of the modern City of Houston. Unlike other Houston civic and political leaders like Jesse Jones, for ex-ample, Captain James A. Baker’s accomplish-ments were rooted in his education, train-ing and experience as a Texas lawyer, in-cluding a stint in the 1930s as president of the Houston Bar, all of which makes this bi-ography of particular relevance to The Hous-ton Lawyer’s readers.

I took one of these ledgers home to study, but grew exhausted trying to understand the hundreds of transactions Captain Bak-er made every year, from personal loans to stock investments, to the purchase and sales of real estate and other assets. He invested in what he knew best–the people and insti-tutions of Houston, while at the same time leading the largest law firm in the state, overseeing the creation of Rice University, and running one of the major commercial banks and trust companies in Texas of the time. His energy, and the breadth and depth of his areas of interests, are reminiscent of Teddy Roosevelt, his contemporary.

Dr. Kate Sayen Kirkland has now written the first biography of this amazing Houston lawyer; and it is a joy to read. She explains how Captain Baker came of age in the pe-riod immediately after the Civil War, and with his father and certain other leading fig-

ures of the age, particularly William Marsh Rice, built many of the institutions that have become an essential part of the Houston landscape, including Rice University, the Houston Club, the Houston Country Club, Memorial Park, and Glenwood Cemetery, among others.

Dr. Kirkland describes in detail the well-known story of how an unscrupulous lawyer conspired with William March Rice’s valet to forge Rice’s will and then kill him; Cap-tain Baker was instrumental in investigating this sequence of events, which ensured that

the bulk of Rice’s fortune would be available for the development of Rice University. She also de-scribes lesser known but equally important stories about Captain Baker’s involvement with Rice University during the early years of its establishment, as well as his leadership of Houston banks and his law firm.

Dr. Kirkland’s biography also provides many examples of the qualities of Captain Baker’s char-acter that made him such a re-spected lawyer. She elaborates on his excellent judgment, business intuition, composure under pres-

sure, work ethic, and sense of humor. Those qualities, in addition to his adeptness at handling difficult personalities, including some of his clients and law partners, are what allowed both Rice University and his firm to grow and thrive over time.

Finally, Dr. Kirkland discusses how Cap-tain Baker remained active in his commu-nity and law firm throughout his life. He practiced law for 64 years, made important contributions, and handled substantial mat-ters, during most of that time. He was always willing to learn new things and undertake new adventures, as reflected by the wide va-riety of investments and organizations that captured his attention.

I have learned that it is useful to read some historical works backwards, starting with the footnotes. Dr. Kirkland startled

me with her discovery and use of original source materials, many of which have never been published before. She spent hours re-viewing Captain Baker’s personal papers and historical records of his law firm. Most of the correspondence between Captain Baker and other leading figures of the City will come as a complete revelation to the reader, espe-cially for the years between 1890 and 1920. She also found wonderful old photographs–I feel as if I could write an essay just on the photograph of Captain Baker’s law office from the 1890s that appears on page 66. Is that a bearskin rug on the floor? Or an ar-ticle on those large, seemingly unorganized stacks of paper on his desk that look like ones on many of our desks today!

Captain James A. Baker of Houston, 1857-1941 is a “must read” for Houston lawyers. We live in challenging times for the profes-sion. But they pale in comparison to the times in which Captain Baker practiced, which included Reconstruction, two World Wars, the Great Depression, and numerous smaller financial panics. If you work hard and stay out of politics, as Captain Baker famously remarked, success will come your way. Dr. Kirkland has fully captured this re-markable life in this well-written and won-derfully-illustrated biography.

Bill Kroger is a partner at Baker Botts L.L.P., where he practices energy litigation. He is a past chair of the Houston Bar Foundation and is the current chair of the Texas Supreme Court Historical Court Records Task Force. Kroger also serves as a member of the Texas State Library and Archives Commission Local Government Records Storage Task Force.

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2012 harvest party UnderwritersThe Houston Bar Association and the Houston Bar Foundation would like to thank all those who underwrote

the 63rd Harvest party. The generosity of our underwriters directly improves the lives of people in our community who could not otherwise afford or obtain access to justice.

Coats RoseCokinos, Bosien & Young, P.C.Connelly•Baker•Wotring LLPEnergy Transfer Partners L.P.Energy XXIEOG Resources, Inc.Fisher, Boyd, Brown & Huguenard LLP FTI ConsultingHBA Federal Practice SectionHBA Labor & Employment SectionHewlett-Packard Co.Hogan Lovells US LLPHunton & Williams LLPLegge, Farrow, Kimmitt, McGrath & Brown L.L.P.Martin, Disiere, Jefferson & Wisdom, L.L.P.McGuire Woods LLPMcKool Smith, PCNoble Energy, Inc.Pillsbury Winthrop Shaw Pittman LLPPlains All American Pipeline, L.P.Rusty Hardin & Associates, P.C.Schwartz Junell Greenberg & Oathout, L.L.P.Sedgwick, LLPSkadden, Arps, Slate, Meagher & Flom LLPStoneTurn GroupStrasburger & Price, LLPTekell, Book, Allen & Morris, L.L.P.The Lanier Law Firm

$2,000HBA Oil, Gas & Mineral Law Section

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$800Night Court 2013 - Law of Ages

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5080 SEEKIng ASSOCIATE lEgAl COunSEl for Hous-ton public pension fund. Ap-prox. 4 years’ experience with retirement plans, employee benefits, administrative law, institutional investing or Texas local government law required. Background checks and drug testing. EOE.

5094 ESTATE plAnnIng – pROBATE ATTORnEY. SugAR lAnD. Board certi-fied attorney, 33 year Houston area practice serving Harris/Fort Bend counties, seeking associate attorney with ad-vanced estate planning and probate experience.

PlaCement PoliCyThe Placement Service will assist HBA members by co-ordinating placement between attorneys and law firms. The service is available to HBA members and provides a convenient process for locating or filling positions.

1. To place an ad, attorneys and law firms must com-plete a registration record. Once registration is complete, your position wanted or available will be registered with the placement service for six months. If at the end of the six-month period you have not found or filled your position, it will be your responsibility to re-register with the service in writing.2. If you are registered, resumes will be sent out under their assigned code numbers. Once a firm has reviewed the resumes, they are to contact the placement office with the numbers they are interested in pursuing. The placement coordinator will then contact the attorney, give him/her some background information on the in-quiring firm, and the attorney will then let the coordi-nator know if he/she wishes personal information to be released to the firm. This process will insure maximum confidentiality and get the information to the firms and attorneys in the most expedient manner.3. In order to promote the efficiency. Please notiFy the PlaCement CoorDinator oF any Position FounD or FilleD.4. To reply for a position available, send a letter to Pplacement Coordinator at the Houston Bar Association, 1300 First City tower, 1001 Fannin st., houston, tx 77002 or e-mail Brooke Benefield at [email protected]. Include the code number and a resume for each position. The resume will be forwarded to the firm or company. Your resume will not be sent to your previous or current employers.

PlaCement DeaDlines Jan. 1 Jan./Feb. Issue Mar. 1 March/April Issue May 1 May/June Issue July 1 July/August Issue Sept. 1 Sept./Oct. Issue Nov. 1 Nov./Dec. IssueIf you need information about the Lawyer Placement Ser-vice, please contact hBa, placement coordinator, at the HBA office, 713-759-1133.

2062 very Experienced Trial Attorney intimately familiar with the mechanics and op-eration of the Commercial Mortgage Backed Securities (CMBS) industry, including the securitization process of commercial loans and the du-ties and responsibilities of Mortgage loan Originators/Depositors, underwriters of REMIC Trusts, Rating Agen-cies, Trustees, Servicers and Special Servicers. looking for in-house position.

2066 2008 graduate of uni-versity of Texas law, licensed in Texas with interest in civil litigation, and especially la-bor and employment. Summa cum laude B.A. in political science from Middlebury College. Worked for Texas Supreme Court during law school. Strongest assets are

positions wantedpositions Available

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Enhance your

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advantage.

www.hba.org

If you need information about the Lawyer Placement Service, please

contact hBa, placement coordinator, at the HBA office:

713-759-1133

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analytical, research, and writing skills. looking for permanent position or temp-to-perm opportunity.


HOUSTON /MUSEUM DISTRICT

Newly remodeled Historic Home, minutes from the Court House. On-site Management, receptionist, three conference rooms, kitchen, small library, telephone system, in-ternet access, copier, fax and free parking. Several offices available.

Call 713-840-1840

ExECuTIvE OFFICE SpACE AvAIlABlE:

Starting at $700 per month. Ame-nities include: 2 conference rooms; maid and reception services; full kitchen. Heights Boulevard address.

Broker/owner. 713-880-4700

3 offices available in Frost Bank Building, Bellaire and West Loop. 15X16, 15X12, and 10X12. Conference room, secretarial space, kitchen, copier/scanner/fax. No cover. No minimum. 713-665-7000

MIDTOWN – 3000 SMITHSublease with established law firm, partner office (20 X 12) with attached assistant office (13 X 12). Use of amenities, re-ception area, kitchen, confer-ence room, free covered parking.

Call: 713-524-2400.

Houston office space for sub-lease (near Greenway Plaza in-side 610 Loop). Up to 3 large window offices, 1 large interior office, 1 assistant station avail-able. Full Kitchen. Free Park-ing. Can lease one office or entire suite. Furnished or Unfurnished.

Call 832-236-7047.

Former art gallery on Colquitt Street (near Richmond and Kirby) converted to law offices has one large furnished office (partner size with marble conference table and leather chairs) and one or two fur-nished secretarial stations available. Numerous amenities, including conference rooms, full kitchen, use of copier and postage machine, and up to three lines and voice mail on existing phone system. 12 to 28 foot ceilings. Non-smokers only. Call MaeLissa Lipman at

713-840-9600.

Business Firm Seeks Two Partners. Small AV-rated business firm in The Woodlands positioned for growth, seeks two self-sustaining attorneys to complement practice. Prior ex-perience in a boutique, midsized or large firm with a record of advance-ment and strong academic record required. Must be team-oriented and willing to be active in firm marketing. Open regarding practice areas, but prefer corporate, real es-tate, intellectual property, employee benefits, commercial litigation, and estate planning. Compensa-tion based on individual productiv-ity and firm referrals. Firm is also willing to consider opportunities with another firm seeking to grow or establish an office in The Wood-lands. All inquiries held in strictest

confidence. Please reply to [email protected]

AV Rated Firm Seeks Of Counsel Attorneys. AV-rated law firm in greater Houston area seeks expe-rienced, accomplished attorneys interested in a virtual of counsel ar-rangement to grow or supplement their existing practices. Firm has strong web presence and of counsel attorneys are listed on firms’ web-site. Successful candidates will have developed expertise in a particular practice area, received training at an AV-rated firm, and have a good academic record. Practice areas of interest include family law, personal injury, fiduciary litigation, corpo-rate, real estate, intellectual prop-erty, employee benefits, and com-mercial litigation. Compensation

based on business referred between of counsel attorney and firm mem-bers. Firm is also interested in self-sufficient candidates who want an office with the firm. Please reply to

[email protected]

Ticket and DWI defense, traf-fic warrant removal, DPS license hearings, occupational driver’s licenses, and driver’s license issues. Robert W. Eutsler.

www.TheTicketAttorney.comTel. 713-464-6461.

RIVER OAKS TOWERKirby & Richmond. 5 - Family Law Attorneys sharing offices has 2 office space 10’ X 11’ available for sublease. Amenities include conference room, local and long distance telephone, private voice-mail, high speed internet T2 Speed, printer, copier, fax, Lexis Nexis, ProDoc, filing and pick up for Court documents, and full kitchen. Accounting Services are available at an extra charge. Great working and collaborative environment.

Call Philip: 713-208-2222

HOUSTON/ 610 LOOP NORTH- Fully- renovated office, small firm subleasing two large window of-fices, plus inside/office/conference room, fully furnished, phone, in-ternet and receptionist included in rate. Separate door entry. Full use of rest of suite/ kitchen/large con-ference room, copier, free parking garage. $750.00 per office suite.

CALL 713-621-8588.

HWY 59-HOUSTON/SUGAR LANDTwo exterior window office spaces for lease with receptionist includ-ed. Secretarial space also available. Shared large reception area, kitch-en, conference room and phone system. Conveniently located on Highway 59 South near Memo-rial Hermann Hospital and halfway between Houston and Sugar Land.

$650.00. Call 713-553-0195.

Heights/I-10 - Beautifully remod-eled 2-story building just minutes from Downtown Houston now of-fering executive legal offices with access to conference rooms, a full-time receptionist, Wi-Fi/phone/in-ternet included, starting as low as $700/month with short term leases available. Please call 713-861-3595.

Great office space at 1601 Wes-theimer at Mandell, minutes from downtown Houston. Rent includes shared access to two conference rooms, kitchens, internet, cable, phones with VM, all utilities, part-time receptionist. Window offices ranging from $400-$1,000 per month with no long-term com-mitment. Please call Mark Kidd at

713-968-4601 for information.

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For classifieds advertising, please contact:

Mary [email protected] 281.955.2449 ext.13

Specializing in Financial Fraud, Asset Discovery, Due Diligence, Background,

and White Collar Criminal Matters.

Serving Corporate and Legal Communities Worldwide with the utmost discretion.

Our offices are staffed by professional intelligence specialists with experience

garnered from premier international government agencies.

2323 South Shepherd, Suite 920713.520.9191 • [email protected]

www.noukasintel.com

positions Available

the HBA serves you


www.hba.org


gary lane13710 treebank lanehouston, texas 77070tel: 281.894.8608cell: [email protected]

marketing communications

Tel. 281.440.3665

Fax 281.440.4936

[email protected]

www.defifiberglass.com

Arthur Braren

P.O. Box 90575

Houston

Texas 77290

Office: (936)628-1210Cell: (713)805-5720Fax: (936)[email protected]

SheronR.“Sam”SheppardCo-owner / president

3101Highway59N.Shepherd,TX77371WyVac,Inc.|Texas|USA

1,000full color business cards

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281-955-2448 ext.11

[email protected]

The Houston Lawyer 0 4 3 9 6 6 0 X Sept. 30, 2012

Bi-monthly 6 $12

Houston Bar Association, 1001 Fannin, Suite 1300, Houston, Tara ShockleyHarris County, Texas 77002-6715 713-759-1133

Houston Bar Association, 1001 Fannin, Suite 1300, Houston, Harris County, Texas 77002-6715

Houston Bar Association, 1001 Fannin, Suite 1300, Houston, Harris County, Texas 77002-6715

There is no staff editor for this publication

Tara Shockley, Houston Bar Association, 1001 Fannin, Suite 1300, Houston, Harris County, Texas 77002-6715

Houston Bar Association 1001 Fannin, Suite 1300, Houston, TX 77002-6715

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The Houston Lawyer July-August 2012

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10,060 10,048

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180 183

725 728

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0 0 905 911 11,625 11,621 175 179 11,800 11,800

92.21% 92.16%

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