Energy & Infrastructure Blog

Drawing from the knowledge and experience of our 300 lawyer-strong Energy & Infrastructure Practice Group, this blog provides updates and legal analysis on timely issues involving these ever-evolving markets. Bookmark this page and visit frequently or subscribe to our mailing list to keep up with the latest. Inquiries may be directed to editor Brian C. Greene, P.C., or the authors as noted. 

Webinar Recording: Energy Innovation: Outlook, Opportunities and Challenges for U.S. Carbon Capture and Storage Projects Webinar

Significant developments in the technology and economics of carbon capture, usage and storage ("CCUS") have led to increasing interest in this topic among energy professionals. Panelists including Kirkland partners Alexandra Farmer and Scott Cockerham discussed developments in the CCUS industry following the most recent issuance of 45Q tax credit guidance by the IRS, including perspectives on: 

• The global and U.S. outlook for CCUS 
• Recently issued IRS guidance for the 45Q tax credit 
• Investor interest in and key implementation considerations of CCUS 
• Strategies for managing the challenges associated with CCUS, including regulatory requirements, potential liabilities and financial assurances 

To listen to a recording of the event, click here.

FERC Establishes New ROE Policies for Jurisdictional Electric Utilities and Natural Gas and Oil Pipelines

by Brooksany Barrowes, Robert S. Fleishman, Nicholas Gladd and Ammaar Joya

The Federal Energy Regulatory Commission (“FERC”) recently issued two key orders establishing new policies for determining the return on equity (“ROE”) component of the cost-of-service rates charged by FERC-jurisdictional electric utilities, natural gas pipelines and oil pipelines. Both orders signal a departure from the ROE methodologies previously used by the FERC for the respective industries and could significantly impact the earnings of FERC-jurisdictional entities, and the returns ultimately realized by their investors. (Continue reading)

Update: DFC-DPA Loan Picture Comes into Focus; Kodak Gets the First Take

by Brian C. Greene, P.C. and Nathan Santamaria

We covered in June the nascent domestic loan program — administered by the U.S. International Development Finance Corporation (“DFC”) — intended to bolster domestic supply chain weaknesses in light of global trade stresses created by the COVID-19 pandemic. On Tuesday, we got word of the first test case: The Wall Street Journal scooped (and the DFC later confirmed), the execution of a letter of interest by the DFC for a $765 million, 25-year loan to Kodak to bridge the multi-decade photo-chemical expertise of the company into the manufacturing of raw materials used in drug manufacturing.

According to the Journal, China produces the world’s largest supply of active pharmaceutical ingredients used in the manufacture of common medicines, and the U.S., as the world’s largest consumer of such materials, produces only 10% of its domestic needs. According to the DFC, Kodak will by itself be able to produce a quarter of domestic needs after using loan proceeds to retool manufacturing facilities to produce the ingredients. This use of proceeds satisfies the DFC financing condition that the funds be spent to build out the U.S. industrial capabilities strained by the COVID-19 outbreak and response.

Reduced Speed Ahead: New LNG and Interstate Natural Gas Pipeline Facilities Likely To Face Construction Delays Following Recent D.C. Circuit Opinion and FERC Rule

by Brooksany Barrowes, Robert S. Fleishman, Nicholas Gladd and Ammaar Joya

It is likely that a recent D.C. Circuit opinion and the Federal Energy Regulatory Commission’s ("FERC") Order No. 871 will combine to delay construction and ultimately increase the cost of FERC-approved gas pipelines and LNG facilities, which could create uncertainty for project developers and investors. In addition to the implications for LNG and interstate natural gas pipeline proceedings, the opinion could have significant impacts in FERC proceedings under its Federal Power Act jurisdiction. (Continue reading)

The Prospect of a Biden Administration: What Does it Mean for Oil and Gas?

by Brooksany Barrowes, David Castro Jr., P.C., Kevin T. Crews, P.C., Robert S. Fleishman, Chris Heasley, Jonathan E. Kidwell, Anthony Speier, P.C., Paul D. Tanaka, P.C., Tyler Burgess and Madison Erin McMurray

Oil and gas industry companies and investors should give careful consideration over the next several months to the possibility of not only a Joe Biden presidency, but also a Democratic-controlled Congress — and the resulting impact to their business outlook and strategies. Over the course of the 2020 Democratic presidential primary season, candidates and party leaders have shaped what seems to be an emerging party consensus on oil and natural gas regulation and the approach to be taken to energy policy more generally. (Continue reading)

Carbon Sequestration Tax Credit FAQ #2: How do Tax Credit Transfers Work?

by Scott W. Cockerham

Carbon capture tax credits are normally available to the person who (1) owns the carbon capture equipment and (2) physically or contractually ensures the capture and disposal, injection or utilization of the carbon. The tax code also provides an alternative rule whereby the owner of the carbon capture equipment can elect to transfer the credits to someone that it contracts with to dispose, inject or utilize the carbon (a “carbon offtaker”). (Continue reading)

Four Key Steps to Assessing and Mitigating Climate Risk

by Alexandra N. Farmer and Jennie Morawetz

Energy and infrastructure businesses and investors that tackle climate risk, potentially starting with physical risk, have a significant opportunity to create value by positioning themselves to take advantage of market changes that prioritize climate, in addition to mitigating risk to their investments and assets. In this post, we highlight four key steps to assessing and mitigating climate risk. (Continue reading)

DOE Requests Information to Secure the Bulk-Power System from “Foreign Adversaries”

by Mario Mancuso, P.C., Sanjay José Mullick, Brian C. Greene, P.C. and Jeremy Iloulian

Developers and sponsors have a soon-ending opportunity to make their views known to the U.S. Department of Energy (“DOE”) on its recent Request for Information (“RFI”) “to understand the energy industry’s current practices to identify and mitigate vulnerabilities in the supply chain for components of the bulk-power system (BPS).” Comments responding to the RFI are due by August 7. Later this year, it is expected that DOE will issue proposed rules to regulate this area, and the RFI provides insight into features those rules are likely to contain. (Continue reading)

EPA’s COVID-19 Enforcement Discretion Policy Will Terminate on August 31, 2020 

by Paul D. Tanaka, P.C., Carleigh Trappe Rodriguez and Michael J. Mahoney

On June 29, 2020, the U.S. Environmental Protection Agency (“EPA”) announced that its temporary policy regarding enforcement of environmental legal obligations during the COVID-19 pandemic (the “Enforcement Policy”) will terminate on August 31, 2020. Many companies in the energy and infrastructure space may be impacted by the termination of the Enforcement Policy. Any businesses that have taken advantage of EPA’s enforcement discretion under the Enforcement Policy should be prepared to resume compliance activities in the ordinary course when the Enforcement Policy terminates. (Continue reading)

The USMCA Offers Some Protections for U.S. Investments in Mexico’s Energy Sector

by Mario Mancuso, P.C., Sanjay José Mullick, Carlos A. Moran and Anais Bourbon

On July 1, the United States-Mexico-Canada Agreement (“USMCA”) entered into force, replacing the generation-old North American Free Trade Agreement (“NAFTA”) with a modernized trade agreement. Though the USMCA largely does away with the investor-state dispute settlement mechanism (“ISDS”) that was a central feature of NAFTA, a similar ISDS system is preserved for certain U.S. investments in Mexico’s energy sector. (Continue reading)

Carbon Sequestration Tax Credit FAQ #1: Who is Eligible for the Credit?

by Scott W. Cockerham

This is the first in an ongoing series of blog posts that will answer frequently asked questions about the carbon sequestration tax credit under section 45Q of the Internal Revenue Code. We have seen a significant uptick in interest in carbon capture projects since the release of additional IRS guidance this year, and we hope this series will be useful for those interested in learning more about the carbon capture market. This first post will explain eligibility for the credit. (Continue reading)

 

Special Considerations for Protecting Interests under Water Agreements in Bankruptcy

by Rahul D. Vashi, P.C., Anna G. Rotman, P.C., Chris Heasley, Shubi Arora, P.C., Kenneth A. Young, Fraser F. Wayne and John C. Elkins

To protect the recoupment of upfront investments, it is customary for water midstream companies to attempt to fashion their contracts with exploration & production ("E&P") companies in a manner that insulates their risk in the event an E&P company becomes insolvent and declares bankruptcy. One common method used by the midstream companies to mitigate their risk and protect their investment in the gathering assets is to create (or attempt to create) a dedication of production from the E&P company structured as a covenant that runs with the land (“CRWTL”).

While the classification of a midstream agreement as a CRWTL has been tested in recent bankruptcies in the oil and gas context, water disposal and gathering agreements (“Water Agreements”) with similar language have not been tested and there is reason to believe that such agreements may be treated differently than their oil and gas counterparts. We discuss certain issues and considerations that are specific to Water Agreements and may affect whether such a Water Agreement is determined to contain a CRWTL that cannot be rejected under the Bankruptcy Code. (Continue reading)

Additional OSHA Guidance Addresses Uncertainties Regarding COVID-19 Recordkeeping and Face Coverings

by Paul D. Tanaka, P.C., Toby Chun and Michael J. Mahoney

OSHA has recently issued additional guidance that helps resolve uncertainties regarding certain issues that businesses have faced during the COVID-19 pandemic. OSHA makes clear that all employers with recordkeeping obligations, including those in the energy and infrastructure industries, must make work-relatedness determinations for confirmed cases of COVID-19 and must record such cases when it is more likely than not that exposure in the workplace caused a particular case of COVID-19.

OSHA’s guidance regarding the use of face coverings in the workplace clarifies that OSHA does not consider cloth face coverings to be personal protective equipment (“PPE”) and therefore the requirements of OSHA’s PPE Standard do not apply to them. Energy and infrastructure employers must consider this guidance as they return to work. (Continue reading)

Recent Trends in Mexico's Upstream Sector

by Chris Heasley and Carlos A. Moran

Following the 2013 Energy Reform allowing private and foreign investment across the energy value chain for the first time in 75 years, the Mexican National Hydrocarbons Commission (“CNH”) awarded 107 oil and gas exploration and production contracts (“E&P Contracts”) to 73 companies from 20 countries. This trend ended when President Andrés Manuel López Obrador (commonly known as “AMLO”) took office in December 2018. Since taking office, the AMLO administration has not awarded a single E&P Contract; however, there have been some recent hints that this could change in the near future. (Continue reading)

President Trump Signs Executive Order to Expedite Infrastructure Projects Due to Economic Emergency

by Carleigh Trappe Rodriguez and Michelle Sliwinski

On June 4, 2020, President Trump signed an executive order requiring federal agencies to fast-track infrastructure projects and to take certain other actions to facilitate the nation’s economic recovery from the COVID-19 emergency. In particular, the executive order requires federal agencies to use emergency provisions under the National Environmental Policy Act (“NEPA”) and other federal environmental laws to waive or bypass certain environmental review requirements.

This streamlined environmental review process under NEPA and other federal environmental laws would likely lead to faster approval for infrastructure and energy development projects; however, the executive order is expected to be challenged in court. (Continue reading)

Applying for Royalty Relief from BLM or BSEE

by Rahul D. Vashi, P.C., Chris Heasley and Justin W. Clune

In response to the economic conditions created by historically low commodity prices and conditions resulting from the COVID-19 pandemic, increased attention has been given to the royalty relief programs offered to oil and gas companies by the U.S. Department of the Interior (“DOI”) through its branches, the Bureau of Land Management (“BLM”), and the Bureau of Safety and Environmental Enforcement (“BSEE”) and the Bureau of Ocean Energy Management (“BOEM”).

While DOI has not implemented a comprehensive royalty relief plan for all lessees of federal oil and gas leases, it has committed to continuing to offer royalty relief on an individual basis using existing options available to lessees of federal oil and gas leases. The following describes the royalty relief mechanisms available to federal oil and gas lessees under BLM, BSEE and BOEM administration, respectively, including the application and approval process. (Continue reading)

Kirkland has nearly 300 lawyers in our Energy & Infrastructure Practice Group. We represent public and private companies, financial institutions, and private equity firms and hedge funds in cutting-edge transactions in the upstream, midstream, downstream, water, power (conventional and renewable), infrastructure and services sectors, and our attorneys have decades of experience advising clients in these sectors throughout the life-cycle of the underlying assets. Our attorneys collectively cover all of the practice areas necessary to drive successful outcomes for our clients in these transactions and engagements, including corporate M&A, private equity, fund formation, capital markets, debt and project finance, restructuring, litigation, tax, environmental, real estate and energy regulatory practices, among others.