Speaking Energy

Interstate oil, liquid and refined products pipelines regulated by the Federal Energy Regulatory Commission (FERC) will soon be able to raise their transportation rates (provided they were set using FERC’s popular Index rate methodology) in the wake of a significant new decision by the District of Columbia Circuit (the D.C. Circuit) in Liquid Energy Pipeline Association v. FERC (LEPA).

On June 28, 2024, in Loper Bright Enterprises v. Raimondo, the U.S. Supreme Court overruled Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., which for 40 years required court deference to reasonable agency interpretations of federal statutes in certain circumstances, even when the reviewing court would read the statute differently. The Court ended “Chevron deference” and held that courts “must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.” In doing so, the Court upended a longstanding principle of administrative law that is likely to make agency decisions more susceptible to challenge in the courts.

On February 29, 2024, President Joe Biden nominated three individuals to the Federal Energy Regulatory Commission (FERC or the Commission): Judy W. Chang (Democrat), David Rosner (Democrat) and Lindsay S. See (Republican). As noted in the White House announcement, “[b]y statute, the Federal Energy Regulatory Commission shall be composed of five members, with no more than three from the same political party,” and Lindsay S. See “is the nominee recommended by the Senate Minority Leader Mitch McConnell.”

2023 saw two megadeals in the oil & gas industry that have led to calls from environmental interest groups for the FTC to intervene despite a lack of obvious antitrust issues. Whether the FTC will sue to block the deals remains to be seen.

Policies and incentives supporting the energy transition, combined with strong oil & gas cashflows and growing concerns over energy security, have enhanced efforts to modernize the industry and invest in technologies that will accelerate decarbonization.

While the traditional reserve-based lending (RBL) market for domestic exploration & production (E&P) companies did not move significantly during 2023, it is noteworthy to observe a few trends.

It seems likely the year ahead will see only a modest rebound in mergers & acquisitions (M&A) activity. Among the challenges that remain for 2024, one challenge to further deal activity is the potential shortage of attractive assets coming to market. Another hindrance to the depth of the M&A markets is the ongoing—and widening—valuation gap between the big energy giants and the smaller producers that is now reaching historic levels.

The past year has been broadly characterized as one of limited public market activity and rising interest rates putting a dampener on access to capital. For the oil & gas industry, the volume of debt & equity offerings remained at historically low levels. With bank lenders and some institutional investors also continuing to retreat from the market, it has been a year in which alternative sources of capital have come to the fore.