The financial fall of Enron Corp. and resulting legal scandal hasn't changed how oil and gas company corporate attorneys operate, but it does emphasize the fundamental basics "of what we've been doing all along," said a panel of six energy attorneys last week in Houston.
Daily interaction between an energy company's legal department and its business operations "is where compliance [with federal and state regulations] starts," said Neal S. Sutton, senior vice-president of administration, general counsel, and secretary of Smith International Inc., Houston, at the meeting hosted by Texas Lawyer, a business publication.
Frederick J. Plaeger II, vice-president and general counsel for Burlington Resources Inc. in Houston, said he continues to emphasize to his staff and outside attorneys that it is their duty "to make sure the company operates both legally and ethically."
It's the corporate attorney's business to "bring up issues that may not be in the best interest of the company" and to "emphasize openness and full communication in keeping with [US Federal Trade Commission] requirements and public sentiment to make sure financial [and other] statements are transparent and easily understood," he said.
"These are the familiar lessons that we've all preached to clients," said Keith R. Fullenweider, senior vice-president and deputy general counsel for Houston-based Dynergy Inc. "For the next few years, we'll have a more receptive audience."
Because of Enron, US companies now are prone "to be a little more open in their disclosures than simply doing the minimum of what they were required to do in the past," Sutton said.
"We're now testing the collateral requirements of [energy] trading agreements as never before," said Brent C. Bailey, senior vice-president and general counsel for energy services at Duke Energy Corp., Charlotte, NC, who formerly served as senior counsel at Enron Capital & Trade Resources.
"Due diligence now has a level of excitement never seen before," agreed Lias J. Steen, general counsel for North American operations at Schlumberger Ltd.'s Oilfield Services division in Sugar Land, Tex.
Legal, accounting relationships
The flap between Enron and its outside accounting firm, Arthur Andersen LLP, emphasizes the inherent dangers of relying too heavily on any single outside firm for either accounting or legal assistance, said Steen. Such a relationship can make the service provider or the client too dependent upon the other, he said.
"A healthy tension" between a company and its outside legal and accounting advisors is necessary to "encourage" advisors "to say 'no' when they need to," said Scott E. Rozzell, executive vice-president and general counsel for Reliant Energy Delivery Group, a unit of Reliant Energy Inc., Houston.
On the other hand, the Enron fallout may have "put a hole in the bottom" of efforts to adapt to US business the "multiple-discipline practices" combining legal, accounting, and other professions, that have proven popular in Europe, committee members said.
Plaeger expects to see greater emphasis on proper training among the audit committee of outside directors on many corporate boards in the future.
A "reasonable" amount of work is required of such committees, and it would be helpful if a retired or former attorney were included among members, said Fullenwider.
Committee members said they generally expect more consolidation within the energy industry in coming years. But some said the number of prospective buyers is likely to diminish in today's more conservative climate. As a result, said Fullenweider, "Some distressed companies will not be saved."
