Power in-house

Oil and gas company Eni UK is lucky enough to have an in-house legal team capable of seeing it through some hairy times recently. Husnara Begum gives the lowdown

Daragh Fagan, Eni UK’s (formerly Agip (UK)) legal manager for the North Sea business unit, says his team’s overriding philosophy is closeness to his “client”. He adds that his team takes great pride in offering his client, ie Eni UK, all-round legal services, including advising on core joint ventures and commodity trading.
Eni UK’s parent company, Italian energy giant Eni SpA, also has a medium-sized legal department, comprising around 20 lawyers. Nevertheless, the UK legal function is fairly autonomous. Indeed, Fagan reports to the Eni UK regional vice-president for the North Sea business unit, David Thomas, and only has a dotted reporting line to Eni’s Milan-based general counsel Paolo Formica.
Eni UK has tripled in size after its recent takeover of the petroleum and production company British-Borneo Oil & Gas and Lasmo, the London-based oil and gas exploration company, for £788m and £2.7bn respectively. As a result, Eni UK became the sixth-largest UK offshore producer and a major trader and supplier of gas in northwest Europe.
After the two acquisitions were completed in 2001, Fagan’s team spent several months integrating the companies. That work included merging the Eni UK and Lasmo legal teams last July. The newly merged department comprises seven qualified lawyers (including Fagan), two trainees and two company secretaries. Together they are responsible for advising more than 70 offshore oil and gas joint ventures and managing a corporate structure of more than 100 companies controlling activities in a dozen countries, from Brazil to Australia.
The make-up of the team is varied and includes lawyers who have joined either from large City firms or from in-house positions. Fagan argues that the lawyers in Eni UK’s legal team are versatile because none of them lean towards a particular practice area.
He says that he is happy with the current size of his team, although he thinks it may shrink slightly in the future. “I don’t think the UK business justifies that many lawyers indefinitely. However, it’s not a question of making anyone redundant. Instead we might move people overseas,” he says. He adds that Eni UK could also achieve this through natural wastage.
Over the past 18 months, Eni UK’s legal department has played a crucial role in protecting the company from the risks arising out of the collapse of Enron and TXU. Eni UK was exposed to both insolvencies because both companies were counterparties to gas trades in the UK. But Enron, Eni UK’s second-largest customer, made more of an impact because Eni UK had entered into a long-term gas sales contract with the now defunct company.
“Neither was company-threatening, but Enron was much more of a material situation,” says Fagan. Enron was the sole purchaser of gas from Eni UK’s second-largest field, so when Enron went belly-up, Eni UK was left with gas that it could not sell to anyone else, as the company had no method of transporting the gas from the field to the shore. Consequently, Eni UK’s legal team had to negotiate critical interim arrangements with Enron’s administrators to continue to produce and sell gas. Otherwise it would have had to shut the field. “We actually came out of it ahead because we didn’t lose any money,” says Fagan.
The legal team has also helped Eni UK pursue a programme aimed at rationalising its portfolio of assets in order to concentrate its activities in fewer fields, but ones that are more material in size. “It’s like organising your cupboard,” says Fagan. This involved selling, buying and swapping assets in 14 deals involving interests in 24 oil and gas fields in the UK for a total value of £250m. Most of the legal support was provided in-house with minimal assistance from external lawyers.
Eni UK does not have a formal panel and, surprisingly, outsources only around 5 per cent of its legal work. Most is farmed out to Aberdeen-based Paull & Williamson, which assisted the company on assigning the various exploration licences and joint venture agreements in relation to the £250m portfolio deals. The firm won instructions from Eni UK after participating successfully in a beauty parade 18 months ago to advise the company on the portfolio deals.
However, last month Eni UK’s principal contact at Paull & Williamson, energy partner Stephen Millar, moved to CMS Cameron McKenna’s Aberdeen office and took some of the company’s work with him. Despite this, Fagan says he will continue to instruct the firm because its charge-out rate is relatively competitive. His new contact at Paull & Williamson is Bruce McLeod, who joined the firm as a partner from BP, where he was the commercial and operations manager for the Northern business unit.
Additionally, Norton Rose advises on large-scale corporate transactions. For instance, a team led by corporate finance partner Laurence Levy advised Eni SpA on the British Borneo and Lasmo transactions between 2000 and 2001 respectively. The City firm is also retained by Eni UK to advise on employment and property issues.
Freshfields Bruckhaus Deringer is also a longstanding adviser to Eni UK, handling pensions-related work and litigation. Notably, the magic circle firm has worked with the company on matters arising out of Enron.
In addition to helping with two major acquisitions and the involvement in the portfolio deals, Fagan also spent time liaising with external lawyers in connection with litigation worth millions of pounds.
The company also inherited Herbert Smith, which is advising it in connection with the seven-year case of BHP Billiton Petroleum & ors v Dalmine SpA, after it acquired Lasmo, the second plaintiff in the dispute. Dalmine, the manufacturer of the steel pipes that were laid in the Liverpool Bay area of the Irish Sea, eventually admitted that it fraudulently misrepresented the quality of the steel from which the pipes had been manufactured. Billiton’s victory centred on Herbert Smith, with a team led by Charles Plant, finding one piece of paper – the ‘smoking gun’ – that proved Dalmine had been fraudulent.
Daragh Fagan
Legal Manager for the North Sea Business Unit
Eni UK Limited
Organisation: Eni UK Limited