In Who’s Who Roundtable, Steven Otillar Discusses Issues Confronting Energy Lawyers
Akin Gump oil and gas partner Steven Otillar participated in a roundtable discussion with Who’s Who Legal to talk about the issues currently facing energy lawyers and their clients.
Speaking about the legislative developments that have affected the focus of his practice, Otillar said, “[O]ne of the most dramatic regulations issued recently relate to offshore oil and gas operations.” He noted that recent offshore well-control and safety regulations in the United States could force many players “out of the market and have a dramatic impact on future offshore activities.” Other regulations, Otillar said, which have received a positive response overall from the industry, could have a big impact on his clients in Mexico, including those ranging from “metering regulations and submission of appraisal and development plans to new bidding rounds, with their attendant tender rules and form contracts that regulate a company’s rights and ability to explore, develop and produce hydrocarbons.”
Responding to a question about an increase in consolidation within the market and whether M&A and restructuring have become a growth area, Otillar noted that the deals being done “are very targeted on oil and gas horizons that can effectively produce returns in the high teens and above, based on current prices.” He said there is likely more than $180 billion of investment capital on the sideline for acquisitions and divestitures (A&D) activity, “waiting for buyers and sellers to finally agree on valuations in the current commodity price environment.”
Otillar said private equity sponsors are playing a key role in the current market and seem to be “out in front of riskier plays such as continued unconventional development in the U.S. and new market entrance into Mexico.” He noted that the first exploration block in Mexico was awarded to private equity-backed entities, and Mexico’s first private retail gasoline operations are backed by private equity sponsors. That said, Otillar added he does not see substantial private equity participation in major infrastructure projects in Mexico due to the lower returns, though the majority of active asset buyers in the space are backed by private equity.
When asked whether he has seen an increase in insolvency/disputes work following the lengthy downturn in crude oil prices, Otillar said filings have increased and already surpass the total number of E&P company filings during the Great Recession. He cited one estimate that “put the amount of equity and debt currently involved in bankruptcy restructurings at almost $34 billion.” He also pointed out that Akin Gump has been involved with most of the U.S. and international insolvency proceedings in the energy space, representing a variety of stakeholders both in court and out of court.
At the same time, however, Otillar said low prices in oil and commodities have created some opportunities with no slowdown in the firm’s work for private equity funds. He thinks sellers will continue to offer non-core assets and use other levers to strengthen their balance sheet. There has also been, according to Otillar, “a significant uptick in purchases and sales through organized and pre-arranged bankruptcy processes,” which can provide benefits to a buyer “to receive assets free and clear of claims and provide the seller with much needed breathing room to handle any defaults under their existing capital structure.”
Finally, regarding current legal competition, Otillar said it’s been fierce in the last several years. Many firms, he said, have been opening up energy practices, particularly in Houston. Since last year, he said there has been pressure “maintaining workflow within certain segments of the industry.” Additionally, “domestic unconventional A&D that kept many firms extremely busy has substantially dried up and has been replaced by financial restructuring and corporate reorganization.”