Energy exportation is a booming area for Australia and law firms are feeling the work heat up. However, waning reserves are predicted and, to keep pace with demand, reforms in the energy sector are on the agenda. Lauren Scott reports

When it was announced in August last year that an Australian
 consortium was the winning bidder in the hard-fought contest to supply China's first liquefied natural gas (LNG) project in Guangdong province, the prime minister was among the first to publicly offer his congratulations. As the country's single largest export deal, worth an estimated A$25bn over 25 years, it was a win worth celebrating.

It was also a boon for firms. Minter Ellison acted as advisers to Australia LNG (ALNG), the marketing arm of the successful consortium, the North West Shelf Venture, which was in turn advised by Freehills. The consortium members included Woodside Energy, BHP Billiton, BP Developments, Chevron Texaco, Japan Australia LNG and Shell Development. Phillips Fox, in conjunction with UK firm Denton Wilde Sapte, advised the China National Offshore Oil Company on the deal, including negotiating for it to take a stake in the venture.

Then, early in 2003, the federal government's long-awaited ratification of the Timor Sea Treaty finally became a reality, opening the door to multi-billion dollar development of the Bayu-Undan gas field 500kms northwest of Darwin. Again, good news for firms. Mark Spain, partner-in-charge of Clayton Utz's Darwin office, told ALB in May he expected an increase in property, construction and general commercial work on the back of Bayu-Undan related projects. And although Cridlands managing partner Richard Giles claimed most major work would drift to the larger firms on the eastern seaboard, he acknowledged there would be "direct spin off" work for local firms. One billion dollars has already been invested in building extraction rigs in the gas fielda and Darwin's Wickham Point peninsula will be transformed into a A$1.5bn LNG processing plant over the next three years.

More recently, new oil discoveries in the Cooper Basin in South Australia - one of the country's oldest oil and gas regions - have sparked renewed investor interest, with a number of fledgling exploration companies positioning themselves to take advantage of potential windfall discoveries. In the minerals sector, surging base metal prices - particularly for gold and nickel - are also creating a favourable climate for investment and in turn, work for resources lawyers.

Energy crisis
Heightened investor interest combined with new exploration activity has a positive impact on Australia's balance of trade. Among OECD countries, Australia is a significant net energy exporter. Coal is the main export commodity, followed by crude oil and LNG, of which the country is the third largest exporter in the Asia-Pacific. According to the Australian Bureau of Statistics, energy product exports contributed around 16% towards the country's total export earnings in 1998-99. And although a period of flat growth followed, deals such as the China LNG supply contract have provided a significant balance-of-trade boost.

Given this export capacity, it seems ironic that Australia may be staring down the barrel of an energy supply crisis. But this is exactly what some industry observers are predicting.

Unlike many countries, Australia relies mainly on domestic sources to meet its energy needs. This self-sufficiency, however, is expected to halve by 2010 from 80% to 40%. According to the Australian Bureau of Agricultural and Resource Economics (ABARE), energy consumption grew by around 1.4% in 2000-01. Oil and gas are the main energy sources consumed in Australia - accounting for more than half of total consumption - with coal making up the balance. Investment in energy intensive infrastructure, mainly in the minerals processing and electricity generation sectors, has dramatically increased consumption, particularly of natural gas. Meanwhile, consumption of traditional sources of energy, such as wood waste and bagasse, has continued to decline, while renewable energy sources such as biogas and solar presently account for less than 7% of total consumption.

Australia is increasingly reliant on imported crude oil for its energy needs, a fact ABARE highlights in its Australian Energy Outlook to 2019-20. Although the country has significant oil reserves, the federal Department of Industry, Tourism, and Resources estimates that usage is outpacing discovery at a rate of three times. This has led to industry predictions that unless new discoveries are made, Australia may have as little as 10 years of oil supply left. Although increasing amounts of oil are being sourced from the Carnarvon and Bonaparte basins, they have not been enough to keep up with demand, although companies such as BHP Billiton Petroleum are actively looking to expand their oil and gas exploration activities in these regions. The recent Cooper Basin discoveries have also no doubt served to buoy expectations for the sufficiency of future reserves.

Energy market reform
Australia's situation has not gone unnoticed by the international community. In its 2002 energy market analysis, the US government's Energy Information Administration identifies declining domestic oil production, coupled with a "rapidly expanding economy", as the key drivers of a potential crisis in the next decade. The EIA also points to a lack of foreign investor interest, an "undersized" natural gas market and barriers to electricity transmission across the country as being behind domestic calls for a new long-term energy strategy.

That energy strategy has yet to be fully implemented, but it is in train. A Council of Australian Governments (COAG) meeting on 8 June 2001 kick-started the reform process, acknowledging the need to address the country's energy problems - and the benefits, both social and economic, of an open and competitive energy market.

Australia's electricity industry is central to energy market reform. It has already undergone major change since 1996, with the creation of the National Electricity Market (NEM) and the privatisation and disaggregation of state-owned electricity utilities. Firms have been major beneficiaries of these regulatory changes. When the South Australian government privatised ETSA, it appointed Allens Arthur Robinson as its key legal adviser (overlooking local firms, which sparked rumblings of discontent) to handle the work, including drafting a new regulatory and legislative framework. The Victorian government also sold and long-term leased its electricity utilities, and Allens continues to advise it on electricity and gas reform.

Parer Review recommendations
The Parer Energy Market Review, a COAG initiative, was charged with developing a medium- to long-term strategy for Australia's energy markets. The four-member panel chaired by Warwick Parer, presented its draft report last year. The independent review of energy market direction: towards a truly national and efficient energy market contains a number of recommendations considered key to creating a favourable investment (and regulatory) climate so Australia can meet its future energy needs. The Parer Review Committee claims that full implementation of its recommendations by 2005 would increase Australia's real GDP by A$8.3bn in five-year net present value terms to 2010. ABARE estimates that electricity sector reforms would alone deliver more than A$21bn in economic benefits between 1995 and 2010.

Among Parer's recommendations is the creation of a new independent energy industry regulator, which most industry players support in principle. While the COAG was expected to ratify the proposal at its August meeting, it failed to do so after a state government walk-out over the Commonwealth's stance on health sector funding.

Nonetheless, talks are on foot over ways to move the proposal forward without formal COAG endorsement. If a new regulator does come into being, it is expected to generate billions of dollars of electricity sector investment, principally in generation and transmission infrastructure.

Clayton Utz partner Simon Truskett says the firm has been following the Parer Review process with "great interest". "It remains to be seen which recommendations are implemented, and to what extent they are modified prior to implementation," he says, "given the extensive impact they will have not only on industry participants, state governments and existing regulatory bodies [but also] the national economy."

Allens Arthur Robinson energy partner Grant Anderson says the firm is not expecting the reform process to generate any real work until the Parer recommendations are implemented. "Some things are happening, but it's going to be a long and protracted process," he says. "Once governments have made decisions, we will get a lot of work. Any time there's regulatory change, it's always good for the legal profession." The firm advised a number of industry participants on submissions to the Review and has since provided advice on an ad hoc basis to regulators and government on various aspects of the reform proposals.

Another Parer recommendation includes the establishment of a national emissions trading scheme, which had been placed on hold pending the federal government's review of its Mandatory Renewable Energy Target [see box on page 31], which has now been completed. Anderson says it could take up to three years to put such a scheme in place, given the amount of industry consultation required. "National emissions trading has political and industry issues associated with it and that will take a long time to resolve," he says. The proposal for a single national electricity regulator will also take time to get up. "People are talking six months," says Anderson. "I think it will take longer than that." Proposed changes to the Gas Access Code will also create advisory work for firms, as will proposals for NEMMCO to auction off firm financial transmission rights.

Renewable energy - the way of the future

Predictions of an energy crisis and concerns over global warming have generated a new wave of interest in alternative energy sources. Renewable energy refers to any energy source that can be used without depleting its reserves and includes solar, wind, water and biomass (organic matter).

In line with global efforts to increase the use of renewable energy, the federal government introduced a Mandatory Renewable Energy Target, which began on 1 April 2001. The aim is to generate 5% of the country's power needs from renewable energy sources by 2010. The Renewable Energy (Electricity) Act 2000 requires the generation of 9500 gigawatt hours of extra renewable electricity per year - enough power to meet the residential electricity needs of four million people.

A number of firms are involved in advising on renewable energy-related projects.

Clayton Utz

• Advising Origin Energy on its participation in the Yambuk and Challicum Hills wind farms, including documenting the original arrangements under which Origin will purchase the renewable energy certificates and 'green rights' associated with the projects, as well as the arrangements for taking a 50% share in the projects
• Advised in relation to Integral Energy's participation in the Hampton Park windfarm in NSW; also advised on Integral's Solar for Schools initiative and other solar electricity generation projects
• Acting for NSW Sugar in relation to its participation in a JV to build, own and operate generation units fuelled by bagasse, cane trash and other renewable fuel at each of its mill-sites

Allens Arthur Robinson

• Acted for BNP Paribas as lead arranger of A$166m of debt financing for the A$200m two-stage development of the Bonney 1 Windfarm Project, Victoria, the first transmission level wind farm in Australia, by Babcock & Brown and National Power Partners. The wind farm has a first stage capacity of 80MW and a second of 122MW
• Acted for the financiers (ANZ and Westpac) to the Pacific Hydro Challicum Hills wind farm project situated near Ararat in Victoria. The wind farm comprises 35 turbines of 1.5MW each

Minter Ellison

• Acting for Pacific Hydro Limited in the first major wind farm project financing in Australia. The structure provides for the progressive roll out at Portland and other sites of A$500-600m of wind farms, and is based on the financing structure created by Minter Ellison for Duke Energy International's financing of its Australian gas pipeline assets; the firm has also advised Pacific Hydro on all aspects of its 18MW wind farm at Codrington, Victoria, including construction, regulatory, and renewable energy certificate and electricity purchase contracts
• Acting for TrustPower, a New Zealand wind farm and hydro generator, in relation to setting up a business in Australia and developing a number of wind farm sites in Victoria and South Australia, including corporate, finance and tax issues
• Advising Tarong Energy on land access and project development issues for their Starfish Hill Wind Farm in South Australia
• Advised Comalco on the impact of the Federal government's Renewable Energy (Electricity) Bill and assisted it in preparing a submission to the Senate Committee

Major deals: utilities (electricity)

Victorian government (Energy Policy Division, Dept of Natural Resources & Environment)
Phillips Fox negotiated structure, documentation and closing of this special power payment scheme - a government regulatory scheme to rebate A$118m to country electricity consumers via payments to host retailers over the 2002-03 financial year to compensate for distribution tariff rises.

National Electricity Code Administrator - Australian Transmission Pricing Regime
Phillips Fox advised NECA on the design and implementation of this National Electricity Market Transmission Pricing Regime, within a three-month period. The regime applies to prices and charges payable by all generators and consumers for use of the high voltage electricity transmission system in the NEM.

National Electricity Code Administrator - Macquarie code breach prosecution
Phillips Fox advised NECA on its successful prosecution of Macquarie Generation for breaching the re-bidding rules under the National Electricity Code and National Electricity Law - the first prosecution against an electricity generator for breaching market rules. The National Electricity Tribunal upheld NECA's case for breach.
Western Power Corporation - Access regime
Mallesons acted for Western Power on the development of the current Western Australia access regime found in the Electricity Transmission Regulations and the Electricity Distribution Regulations; the firm is also representing Western Power on its process for procuring new generation capacity for the South West Interconnected System (Stages 1 and 2).

Powercor - Victorian Electricity Distribution price re-set
Phillips Fox advised Powercor in relation to appealing aspects of the ORG's 2001 Distribution Pricing Determination, the first regulatory price reset in Australia.

Ergon Energy - Moranbah Generation Project
Phillips Fox advised on the first Gas Supply Agreement for coal seam methane supply for a base load generation facility.

Enertrade/Transfield/CH4 joint venture - Townsville power station project
Mallesons acted for Transfield Townsville Pty Ltd in relation to its successful bid, as part of an Enertrade-led consortium, for the right to develop base load generating capacity in North Queensland. This A$100m project involves the expansion and conversion of Tranfield Townsville's existing jet-fuelled peak load generator to a gas-fired base load generator.

Mallesons advised Transfield in relation to the bid and, upon the consortium being awarded an exclusive mandate by the Queensland government, all aspects of the project, including the negotiation of a new power purchase agreement with Enertrade, an EPC contract for the expansion and conversion and the refinancing of the power station to accommodate the development.
Phillips Fox advised on facilitation arrangements for a gas pipeline to Townsville from the Bowen Basin gas fields.

CKI-HKE A$1.55bn Citipower
acquisition
Mallesons advised Cheung Kong Infrastructure - Hong Kong Electric on the A$1.55bn acquisition of the electricity retail and regulated network businesses of Citipower in Victoria, and the sale of the retail business to Origin Energy.

Investment in exploration  - a recovery?

Expenditure on mineral exploration has fallen to its lowest level in 20 years. But there are signs of a turnaround. ALB reports

On 24 May 2002, the Federal minister for tourism, industry and
 resources called an inquiry into barriers to increased investment in mineral and petroleum exploration in Australia. It received more than 100 submissions.

Australia has the third largest minerals sector by value globally, according to the Minerals Council of Australia, contributing an estimated A$500bn to the economy over the past 20 years.

In 2001-02, the minerals and minerals-processing sector accounted for around A$41bn of Australia's total export revenues, a figure that is expected to increase. The mining sector also contributes on a social level, through job creation and the development of regional towns and associated infrastructure.

But the last decade has seen a growing number of impediments to exploration investment. Since 1996-97, expenditure on mineral exploration has fallen to its lowest level in 20 years.

M&A activity has dominated the sector (witness Rio Tinto's takeover of CRA, Alcoa's A$3.8bn takeover of rival Alumax, Newmont's US$9bn three-way takeover of Normandy and Franco-Nevada), while fewer junior companies (those with a market capitalisation less than A$30m) have listed on the ASX.

A lack of tax incentives, tougher competition for investment capital, and environmental and other approval processes have combined to make exploration a riskier proposition. The introduction of the Native Title Act 1993 saw a decline in the number of exploration permits granted, as companies struggled with the prospect of a time-consuming and expensive negotiation process.

But there are signs of a turnaround. The conclusion of native title agreements in relation to the Cooper Basin - enabling the South Australian government to issue new exploration licences - combined with recent oil discoveries has revived flagging interest in the region.
Investors are getting behind companies such as Beach Petroleum, Stuart Petroleum, Cooper Energy and Innamincka Petroleum, which are leading the exploration charge. The federal government has also shown signs of responding to calls for incentives for investors in resources companies, particularly junior explorers.

In the minerals sector, rising base metal prices - particularly for nickel and gold - have also sent investors into a frenzy. Demand for nickel and iron ore is particularly strong from China, a situation investors are keen to exploit. WMC Resources Limited recently signed a A$1bn nickel supply agreement with China's largest nickel producer, Jinchuan Group Limited.

Well-known resources lawyer Michael Hunt of Perth-based Hunt & Humphry says it is an "exciting time" for the mining and resources industry. "You go to a cocktail party and people are starting to talk about gold shares and oil shares," he says. "Now that gold prices and nickel prices have rocketed, I expect there'll be an increase in investment by way of exploration but you still have the access problem."

While describing the outcome of the Cooper Basin negotiations as "terrific - very positive", Hunt says native title remains a "serious barrier to investment" in exploration in Western Australia. "Not because the oil and gas and mining industry objects to native title," says Hunt. "The issue is they can't get access. It's a big issue here. It mightn't be so big in other states." WA's legislative requirements for negotiation hinder rather than help the exploration cause. "I think the legislation is one of the principal problems we've got - because it requires us to go through a very complex, complicated procedure for native title. We'd be better to have direct negotiations."

Ewan Vickery - a partner at Minter Ellison in Adelaide who led the four-year negotiation of the Cooper Basin native title agreements under the Commonwealth Native Title Act -suggests the South Australian government's approach to negotiations has made the process smoother for all parties. "We've been able to run commercial type negotiations separately with the government in parallel," he says.

Since 1996, 80% of Vickery's practice has been devoted to native title negotiations. Vickery says South Australia is the only state to have its own "methodology" for conducting negotiations over access to mineral tenements only, Part IX B of the state's Mining Act. This provides investors with a level of comfort. "If people want to go out and explore for minerals and petroleum, they need to know before they invest that if they find something, they have a free path to recoup that investment."

The increasing level of exploration in the Cooper Basin - a region Vickery describes as "hot property" - is also generating a lot of secondary activity as exploration companies strike up deals between themselves and with investors, which in turn is creating work for lawyers.

Vickery predicts there will be even greater activity in the region. "We're on the cusp of a boom up there and it all started from the state government resolving to close Santos [Limited's] monopoly and open it up to competitive tender." Stuart Petroleum, for example, has struck oil gold with its Warrior well, which Vickery describes as a "real beauty". "I don't think most of the smart money in the east has woken up to it yet," he says. "The timing is right to attract capital to it and the number of oil wells to be drilled in the next 12 months is quite large."

Hunt, who conducted a review of WA's mining laws back in 1983, says about one quarter of his practice is devoted to native title negotiations. His main focus at present is upstream work - which embraces exploration, production and investment - in connection with gold and nickel projects. This includes negotiations with vendors and joint venturers in relation to land tenure acquisition, documenting sale, option and JV agreements, negotiations with government as to title and land access, and native title negotiations.

In addition to upstream work, Hunt is acting on a number of IPOs. "There are a number of new floats coming out now on the junior exploration side of the industry. Of course, that's a lot of work for lawyers." He is also involved in a number of offshore projects, in countries such as Iraq and Ghana.

Hunt says the difficulty in gaining access to land - as well as low base metal prices - has been a key factor in declining exploration and investment. While the Cooper Basin negotiations "sounded like a good win-win situation for everyone", there was a downside. "It did take a while and required a great deal of money and a great deal of devotion of people's time and resources to it," he says.

Another major factor impacting exploration investment comes down to simple supply and demand. Although oil and gas needs generally remain constant, Hunt says this is not the case with other resources. "The problem with other commodities is you get a window of opportunity and then the price changes. You've got to act when the market says you're going to be able to sell your product."

Vickery detects the beginning of a new investment cycle. He says the global downturn in exploration was due in part to an over-supply of principal commodities such as nickel and iron ore, which also saw major players pull back their expenditure and investors sink their money into dot-coms in favour of taking a risk on junior explorers."The global industry adjusted to reduced rates of consumption. This has been a five- to 10-year process. Now there's an uptake in demand, particularly from China."

Mike McDonald - founding partner of McDonald Steed in Adelaide and a former general counsel of Delhi Petroleum - agrees that a number of factors have contributed to declining investment in mineral and petroleum exploration. Most of McDonald's resources work relates to operational mining projects or mining projects in the planning stage, and includes JV establishment, contract preparation and negotiation, statutory approvals, government liaison, contract and tenement administration and dispute resolution services.

McDonald says acquisitions by international mining houses of smaller Australian exploration and mining companies has "lessened the number of opportunities for investment by Australians in Australian mining projects", while the cost of accessing land for exploration has also "significantly increased".

But the federal government may be addressing some of these issues. "I am aware of industry moves to lobby federal government to implement incentives for investors in resources companies (particularly junior explorers) and of recent Federal government indications that some called-for incentive may be forthcoming."
South Australia in particular suffers from a lack of investment, with "comparatively few active mineral production operations and few production tenements granted in recent years".

McDonald says the current Labor government's proposals to increase government royalties, phase out the concept of multiple land use and introduce new conservation and environmental controls that will reduce the amount of land available for mining are "not conducive to encouraging an increase in exploration activity".

Major deals: privatisation

AlintaGas privatisation
Allens Arthur Robinson advised the winning bidders, Utilicorp (USA) and United Energy, in connection with the tender for the cornerstone shareholding and subsequent IPO privatisation of AlintaGas, the principal Western Australian gas distributor and retailer.
Jon Carson of Blake Dawson Waldron was the Western Australian government's principal legal adviser on the privatisation, successfully completed in 2000.

Major deals: resource sector

Shanghai Baosteel's A$7bn JV with Hamersley Iron
Blake Dawson Waldron advised Shanghai Baosteel, China's largest steel maker, on its 20-year JV with Rio Tinto subsidiary Hamersley Iron to develop two iron ore mines in Pilbara, Western Australia. The JV, signed in June 2002, was billed as the largest-ever resources deal signed between Australia and China. Allens Arthur Robinson's Perth office represented Hamersley Iron. The JV will sell a total of 200m tonnes of iron ore products to Baosteel, at a rate of approximately 10m tonnes - or A$350m - a year, over the 20-year life of the JV.
Led by partner Martin Kudnig, a team drawn from Blakes' Perth and Shanghai offices advised Shanghai Baosteel on all Australian law aspects of the transaction. Nic Tole was the lead partner in Allens' Perth office advising Hamersley.

Separately, Freehills is advising Hamersley Iron on the development of its new Eastern Ranges mine as part of the JV.

Cooper Basin native title negotiations
Minter Ellison (led by Ewan Vickery out of Adelaide) was involved as lead negotiator in the Cooper Basin series of native title negotiations, which resulted in as many as 36 agreements. The negotiations spanned more than four years, and involved Aboriginal claimant groups and their legal advisers, Aboriginal representative bodies, and the South Australian government, as well as 12 Australian and international petroleum industry companies.
As a result of the negotiations, the SA government has issued almost 30 new exploration licences for petroleum.

Wyong coal project
Minter Ellison has been advising BHP Billiton on the preliminary planning for a major underground coal project in NSW, with an estimated value of A$500m.

Hope Downs A$1.4bn iron ore venture
Clayton Utz in Perth is representing Hope Downs, a joint venture between Kumba of South Africa and Hancock of Western Australia, on its A$1.4bn iron ore venture in the northwest of Western Australia. The project will involve development of a large-scale iron ore mine and related railroad and port infrastructure

Pohang Iron & Steel Co's A$1.2bn JV with BHP Billiton
Freehills Perth office represented Pohang Iron & Steel Co on its JV with BHP Billiton to develop an iron ore mine in the Pilbara region of Western Australia. Partners Kyu Bang, Kevin O'Sullivan and Justin Little led a team in advising on the deal between April 2001 and 2002, with final agreements executed on 3 April 2002. Mallesons advised BHP Billiton Iron Ore. The deal represented the first equity mining JV entered into by a Korean steel producer.

Major deals: resource sector takeovers

Newmont's US$9bn three-way takeover of Normandy and Franco-Nevada
In what was a hotly contested bid, Newmont edged out rival Anglogold to seal this US$9bn deal, completed 26 February 2002, and significantly elevating it in the ranks of mining industry players globally.

Gilbert + Tobin partners Garry Besson and Gary Lawler led the team acting for Newmont, while Allens Arthur Robinson partner Peter Cameron was the firm's lead partner advising Normandy Mining Limited.

Mallesons Stephen Jaques partners Ian Cochrane, Geoff Rogers, Alison Lansley and Greg Golding represented Franco-Nevada, with Freehills' Rodd Levy acting for bidding competitor Anglogold.
The takeover was achieved through a three-way merger between Newmont, Normandy and Franco-Nevada akin to a Scheme of Arrangement. It involved the first test in Australia of break fees and 'no shop' arrangements before the Takeover Panel.

Xstrata plc's US$2.5bn acquisition of Glencore coal interests
Xstrata's acquisition of the Australian and South African coal businesses of Glencore International AG catapulted it into the big league of thermal coal producers, alongside Rio Tinto, BHP Billiton, Alcoa and Anglo American.

The deal - the second largest of 2002 - involved complex cross-border issues. In addition to the acquisition of the coal businesses, it involved the merger of Xstrata AG and Xstrata plc under the Swiss Code of Obligations, the syndication of a new US$1.4bn loan facility, and a global offering of Xstrata plc ordinary shares listed on the London and Swiss stock exchanges.

Mallesons Stephen Jaques partners Nick Pappas and Richard Marshall led a team from the firm in working closely with Xstrata plc's UK legal advisers on the UK listing particulars and US$1.4bn finance facility. Clayton Utz partner Graham Taylor led the firm's team advising Xstrata AG. Freshfields acted for Xstrata plc, Xstrata (Scheiz) AG (Switzerland) and Xstrata South Africa. JP Morgan was financial adviser to Xstrata AG and Xstrata plc in relation to the acquisition and merger, and as sponsor to Xstrata plc in connection with its admission to the Official List of the UK Listing Authority.

Rio Tinto's A$3.5bn takeover of North Limited
This A$3.5bn hostile takeover was the largest unsolicited resources takeover in Australia. Allens Arthur Robinson advised Rio Tinto on takeover/securities law issues, as well as multi-jurisdictional resources law and regulatory issues raised by North Limited.

Mongoose's hostile takeover bid for Ananconda
Clayton Utz advised Ananconda Nickel Limited in defending an attempted takeover by Mongoose Pty Ltd, a subsidiary of MatlinPatterson Global Opportunities Partners LP, including dealing with 19 applications before the Takeovers Panel.

North Limited's West Angela iron ore mine and A$900m facilities upgrade
Freehills has advised North Limited, part of the Rio Tinto Group, in connection with the construction and commissioning of the new 20mtpa iron ore mine at West Angelas, and the $900m upgrade of its port facilities.

Harmony Gold's takeover of Abelle Limited
Clayton Utz advised Harmony Gold (Australia) Pty Limited, one of the world's largest gold producers and the third largest in South Africa, on its successful takeover offer for Abelle Limited. As part of the deal, Harmony agreed (subject to shareholder approval, which was granted in April 2003) to subscribe for 35m ordinary shares in Abelle for A$0.75 per share to fund the Abelle's ongoing operations. Clayton Utz claims the transaction was novel in that shareholder approval of a placement to the bidder was obtained during the course of the transaction.

BHP Billiton: a legal perspective

BHP Billiton recently announced its first full-year results. Sales of iron ore and coking coal into China have been one of the biggest earners for the business. CEO Chip Goodyear has indicated that he expects this to result in increased "cross-selling" into the region of commodities such as nickel for stainless steel production, and copper.

What legal work has been associated with these sales and how is this being handled internally and externally?
Legal approval is required for all major contracts, including sales contracts.
Nearly all this work is undertaken by internal lawyers; for example our Perth-based lawyers have been heavily involved in large iron ore sales negotiations in recent times, including deals with China and Korea.
We have lawyers in Singapore and The Hague who support our global marketing function for all our products.

The company is transacting an increasing amount of business with China. What is your experience of Chinese law firms and their handling of negotiations, from a cultural perspective?
We have had internal lawyers negotiating deals in China on a regular basis since the 1980s on, for example, minerals exploration deals as well as sales. Recently, our lawyers have been heavily involved in sales of LNG, iron ore and coal to China.

The Chinese legal system is still developing and lawyers are not used in commercial deals there in the same way as in Australia. However, we now find highly skilled lawyers working internally for our Chinese customers, although their role is narrower than the broad commercial and legal contribution we would expect from our own team.

We found in the LNG deal, which is novel and very large in value terms, that the Chinese buyers are using a large UK firm, with UK and Chinese lawyers from that firm undertaking the work. We have supplemented our internal lawyers (and those of our joint venturers) with lawyers from Australian firms mainly, based in Hong Kong. These Australian firms have their own Chinese lawyers in addition to Australians.

You have indicated that you expect regulatory issues to increasingly occupy the BHP Billiton legal team. BHP recently brought five large new commodity projects on stream, with another 14 projects involving capital expenditure of more than US$3bn expected to begin production in the next five years. What regulatory issues, if any, are associated with these projects and how are these being handled?
Our internal lawyers are routinely involved in governance and compliance work across the company. This includes ensuring compliance with our Business Conduct Guide, with competition laws and specific local laws governing each project.

In addition, we are heavily involved with the Mining Charter, associated legislation and black empowerment issues in South Africa.

New oil and gas field developments are expected to underpin BHP Billiton's production growth this year. What legal work does this involve?
The legal work for new oil and gas field development is primarily contract driven. Since BHP Billiton's oil and gas field developments are offshore with some at very deep-water depths, facilities for the operation and production from the fields must be engineered, constructed and installed. Therefore, contracts for such activities must be drafted and negotiated with reputable, experienced firms.
The legal team is heavily involved in the entire process working with each asset development team to ensure that the company and its partners' interests, the safety of personnel and the environment are all protected.

In addition, legal personnel may be involved in dealings with host government regulatory bodies concerning concession, permit and license issues as well as in connection with fiscal and reporting matters.

There has been a fair degree of M&A activity in the energy and resources sector. What is the significance of this?
Our internal lawyers work on a day-to-day basis with our M&A specialists, who constantly look for opportunities.

We often complete smaller transactions internally, but always use external firms for larger M&A transactions, due to the specialised skills needed and the intensity of the workload.

You use Allens Arthur Robinson, Blake Dawson Waldron, Mallesons Stephen Jaques and Minter Ellison in Australia. What specific expertise do these firms offer and is there scope for smaller firms to secure work from you?
Each of the mentioned firms offers a broad range of services in respect of named areas of legal work that we generate. It is hard to be specific - we make our choice based on the principle of seeking the best available person for each transaction.

There is scope, from time to time, for other firms to become involved in specialist matters such as complex litigation, maritime law, work cover matters and so on.

Major deals: energy supply and project development

North West Shelf Venture's A$25bn LNG contract to China
Minter Ellison represented Australia LNG (ALNG), the marketing arm of the North West Shelf Venture - a consortium comprising Woodside Energy, BHP Billiton, BP Developments, Chevron Texaco, Japan Australia LNG and Shell Development - on its A$25bn winning bid to supply three million tonnes of liquefied natural gas to southern China over 25 years. It is Australia's largest single export deal.

Freehills advised the North West Shelf Venture on amendments to the joint venture documents to admit China National Offshore Oil Company as a seventh member of the consortium, the sale of an equity interest in the gas reserves and tariffing arrangements for LNG processing and production. Phillips Fox was Australian law adviser to CNOOC on the deal, including negotiations for it to take an interest in the Venture.

Origin Energy gas supply agreements with AGL
Freehills (Peter Rose) represented Santos Limited and Clayton Utz (led by Melbourne-based energy and resources head Andrew Smith) advised Origin Energy in relation to approximately A$3bn in agreements for the long-term supply of gas to AGL by two Santos operated joint ventures in the Cooper Basin. Allens Arthur Robinson (David Maloney) advised AGL. Freehills advised Santos - the operator of and largest equity-holder in each venture - in relation to the negotiation and drafting of the gas sale agreements and also advised the joint venture parties on the completion aspects of the deal. The agreements were signed in December 2002. Other companies involved in the sale were Delhi Petroleum (a subsidiary of ExxonMobil), Novus Petroleum and Basin Oil.

CalEnergy A$450m BassGas Project
Freehills has advised CalEnergy Gas (Australia) Limited in connection with the development of the A$450m BassGas Project (Yolla), including all commercial and financing arrangements.
Clayton Utz is also advising Origin Energy in relation to the project, including in connection with obtaining environmental and governmental approvals, construction risk, insurance risk, native title and related property issues. The project involves the construction of an unmanned platform in Bass Strait, a 100km underwater pipeline to the Victorian coast, a new processing plant onshore and further distribution pipelines for products.

Bayu-Undan Project
Freehills has been advising ConocoPhillips as operator of Australia's second LNG project - the Bayu-Undan Project in the Timor Sea - since 1999.
The project involves the construction and development of approximately A$8bn worth of infrastructure, involving two offshore platforms, floating storage facilities, a 500km sub-sea pipeline and the construction of a new LNG plant in Darwin.
Freehills has also been involved in the Treaty re-negotiations between Australia and East Timor and the United Nations, the negotiation of special tax arrangements with the Australian Tax Office and the East Timor authorities, which have involved the passage of project legislation in East Timor and the preparation of tax stability agreements between East Timor and each participant. 

Major deals: project financing

Duke Australia - pipeline financing
Mallesons acted for the joint lead senior debt arrangers of a A$900m gas pipeline financing for Duke Energy. The transaction involved both guaranteed and non-recourse tranches, with the ability for Duke to switch from the former to the latter as new projects are completed or acquired.  

Esperance Energy Project financing
Allens Arthur Robinson represented ANZIB Specialist Asset Management Ltd as sponsor and ANZ Infrastructure Services as arranger for the A$200m development of the Esperance Energy Project, a power station and gas pipeline near Esperance in Western Australia, by Esperance Power Station Pty Ltd and Esperance Pipeline Pty Ltd.

FIRM PROFILE

Climate change - lessons from Noah?

Ongoing scientific speculation about climate change is all
 rather unsettling. While some advocate geo-sequestration - a way of managing emissions by capturing CO2 emissions from industry, compressing them and pumping them deep into the earth - US scientist Gregory Ryskin suggests that natural violent 'chain-eruptions' of underground CO2, triggered by earthquakes or volcanoes, may have ended past civilisations. He cites Genesis 7:11: 'In the six hundredth year of Noah's life& were all the fountains of the great deep broken up, and the windows of heaven were opened&"
Whatever the merits of the scientific debate, climate change is a key issue on the global political agenda and governments are responding by implementing a range of measures to manage greenhouse gas emissions and help communities adapt to climate change. Australia, however, with its economic reliance on fossil fuels and a net exporter of energy, is travelling a different path from that of many other developed nations.
 
Australian position
Australia signed the Kyoto Protocol in 1998, but has not yet ratified it. According to the federal government, the Protocol is not an effective mechanism for dealing with climate change and ratifying it would not currently be in the national interest, as it would damage the international competitiveness of Australian industry.

Consistent with this stance, prime minister John Howard recently announced that his government would not, at least in the short term, introduce a mandatory carbon credit trading scheme even though other countries are establishing such schemes to meet their Kyoto Protocol emissions targets.

While the Federal government has committed to meeting Australia's emission target of 108% of 1990 emissions levels for the Kyoto Protocol's first commitment period (2008-2012), this target is not binding unless Australia ratifies the Protocol. 

The government is relying on a range of voluntary and incentive-driven emission reduction measures to reach the target. These include grants-based programs such as the Greenhouse Gas Abatement Programme, legislative initiatives such as the Mandatory Renewable Energy Target, introducing energy efficiency standards for consumer goods and encouraging voluntary emissions reduction under the Greenhouse Challenge programme.

Perhaps reflecting a lack of clear direction from the federal government, a number of states have introduced their own climate change initiatives. New South Wales was first off the mark with its Greenhouse Gas Abatement Scheme and Queensland proposes to follow suit with its 13% Gas Scheme. Both of these are certificate-based schemes aimed at reducing emissions from electricity generation. Some states have also introduced legislation recognising tradeable carbon sequestration rights in relation to forests and other vegetation.

Business considerations
Many businesses breathed a sigh of relief when the government announced it would not introduce an emissions trading scheme in the short term. It's short-sighted, however, for Australian businesses not to be concerned with climate change - government policy may change and climate change developments internationally are likely to impact on Australian companies that trade overseas. Sectors likely to be affected include mining, energy, minerals processing, transport, agriculture, forestry, water and tourism.

Economic studies on climate change commissioned by governments and industry groups haven't yet produced a clear consensus. Although cynics might suggest this is due to self-interest, it's more likely the result of the sheer complexity of assessing the impacts of climate change.

Some common themes and issues do emerge, however, and businesses need to incorporate climate change into their forward planning by considering:

• how to position themsleves to deal with an uncertain regulatory framework in the medium to long term, potentially involving a carbon trading scheme
• if there is scope to take early action to implement emissions reductions in the business, and if this will be an advantage or disadvantage
• what impact will the Kyoto Protocol and other international greenhouse measures have on Australian trade and, in particular, on the business's customers and suppliers
• if the business likely to face climate change-related legal action.

Fortunately, it's not all doom and gloom, with climate change expected to create opportunities for:

• development of renewable energy and emissions reduction technology and carbon sequestration mechanisms
• increased gas sales, especially LNG
• participation in international carbon credit markets and development of 'stapled-products' such as coal exports linked with a green credit.

Legal checklist
While there's not a lot of 'real' law in Australia related to climate change, businesses will need assistance with climate change issues, especially in relation to trade, regulatory, compliance and, possibly, litigation. These include:

• change of law and economic hardship clauses may need to allow for the introduction of emissions trading schemes or carbon taxes - this is particularly relevant to transportation and fuel and energy supply agreements
• limitation of liability clauses may need to exclude liability for climate change impacts
• planned 'green' transactions/projects should have legal certainty as to who is entitled to the 'green rights' and what can be done with those rights
• feasibility investigations for new projects may need to include an assessment of climate change risks
• there may be intellectual property issues associated with advancing technology
• compliance with greenhouse regulatory measures and environmental licensing obligations will be important
• standards of corporate governance and risk management may need to respond to climate change issues
• changing insurance conditions will need to be considered.

Written by Allison Hancock, partner and head, and researched by Justin Grove, lawyer, with Minter Ellison's renewable energy practice

The Kyoto Protocol

Over 1-11 December 1997, 160 countries met in Kyoto, Japan, to negotiate binding limits on greenhouse gas emissions (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride). 

'Kyoto Protocol to the United Nations Convention on Climate Change' established emissions targets for each participating developed country based to their 1990 emissions levels. Targets range from 8% reduction for European Union members to 10% increase for Iceland. Australia's target allows an 8% increase. To come into force, Kyoto Protocol needs ratification by at least 55 countries that together emit at least 55 % of the developed world's 1990 greenhouse gas emissions. Almost 100 countries have ratified the Protocol - Australia and the US have refused - and only Russia's ratification is needed to bring the Protocol into force.