As a global hub for oil, Calgary draws top legal talent
Competition for oil sands-related business heats up in Cowtown
Legal Eagles: (l-r) Perry Spitznagel, Ron Deyholos, Ben Rogers, Ken Warren and Michael Thackray
Photograph by John Gaucher
Les Viner, managing partner of the venerable Torys law firm in Toronto, finally has his wish – a Calgary office for one of the country’s top legal institutions. The problem is that Viner is late to the game. Many of his legal competitors have had a 20-year head start in building their Calgary offices. So Viner, a native Calgarian who first practiced at Macleod Dixon in Canada’s oil and gas hub before obtaining his master in law from Harvard and settling in Toronto, has an uphill climb. He isn’t wasting any time, though. Since opening in March, Torys has grown to 16 lawyers, after poaching legal talent from staunch competitors Blake, Cassels & Graydon, one of the most successful of the Toronto law firms to enter the Calgary market 20 years ago, and his former firm, Macleod Dixon, among others.
It is one of the faster “greenfield” initiatives deployed by any law firm entering the Calgary market with an eye to building a legal business. But whether Torys can keep up the pace remains to be seen. Viner is optimistic. “It’s a great deal-doing city,” says Viner, whose 280-lawyer firm has offices in Toronto and New York, and is considered one of Canada’s blue-chip law businesses. “I think it is one of the two key economic centers in Canada, the other being Toronto.”
Viner is not alone in that assessment. Calgary is becoming a legal mecca for Canadian and even international law firms. And it is Canada’s – and in particular, Alberta’s – hydrocarbon wealth that is drawing the faithful. They are attracted by the billions of dollars in foreign investment that are flowing into the oil sands and shale gas projects, the mega-pipeline and mining projects needed to support that development and the arrival of most of the world’s important investment banks into the Calgary market. The zeroes at the end of the numbers are very, very attractive. Law firms flocking to this prairie city is the latest sign that Calgary has taken its place as a strategic oil and gas and economic center in North America and the world. “There’s acceptance that Calgary is going to have a prominent position in both the national and international energy business,” says Ken Warren, managing partner at Gowlings Calgary.
Indeed. While the economic downturn of 2008-2009 hit Canada’s oil patch hard, it didn’t change the size of the resource lying in the ground. Alberta still has 170 billion barrels worth of oil sands reserves. Once the recession eased up and corporate balance sheets improved, it was clear that development plans would rise from the ashes and there would be a need for law firms and the services they provide. “Alberta’s oil and gas industry is growing and it’s an important driver for Canada’s economy,” says Craig Hoskins, chair of the securities practice at Macleod Dixon, one of the original Calgary-based law firms. “In the last decade, there’s been an explosion of players in that space and that brings along with it a whole new category of capital-hungry, complex joint ventures and massive infrastructure. All of those things are legal intensive and that activity fuels a lot of development of the Calgary legal environment.”
Take the mining projects related to the oil sands sector as an example. They are huge and require major legal services, ranging from construction to project financing, corporate, securities and litigation. Suncor Energy Inc.’s decision last year to offload risk in the oil sands and do a joint venture with the Canadian arm of France’s Total SA was a complex deal, with Total investing $1.75 billion. The deal saw two energy giants acquire interests in each other’s major oil sands projects – Fort Hills, Joslyn and Voyageur – and create a joint venture to complete the Voyageur upgrader.
As Calgary has emerged as an international energy hub, it’s become clear to law firms that “to be part of the mergers and acquisitions deal flow, you need to be in Calgary,” says Ron Deyholos of Torys. A case in point was a May trade mission to China led by the city’s mayor, Naheed Nenshi, featuring a group of Alberta business leaders, including law firms, where it was suggested $150 to $180 billion of capital investment will be needed to develop Alberta’s energy opportunities. Without a Calgary presence, law firms weren’t getting an invitation to that trip. Macleod Dixon’s Hoskins says the era in the oil sands where “talented geologists grab some pieces and get some financing and start to explore the potential … is behind us.”
The next phase involves a whole new set of players with deep pockets who will develop those projects into scale. That’s attracting interest from law firms across the country, as they jockey for position to land lucrative new clients eager to be part of the play. Maureen Killoran, of Osler, Hoskin & Harcourt, says the city’s attraction for law firms is “the international money” and the “cream of the crop of senior issuers … that continue to come to Calgary.” She rattles off names of countries like an announcer at a bingo hall. Organizations with ties to France, Korea, Norway, Thailand, Abu Dhabi and China have all made multimillion-dollar investments in energy projects. No longer is Calgary simply drawing interest from American investors. “The last decade has seen a much broader diversity,” Hoskins says.
Scott “Rusty” Miller, who started the Calgary office of Ogilvy Renault, before it merged with Norton Rose, says demand for energy worldwide has grown and major energy centers are emerging. “Calgary is one of those world centers. It’s a jurisdiction that understands and deals with energy principles every day.” The political stability helps. Operating in the oil sands sector or Canada’s unconventional gas plays like the Horn River basin in northeastern B.C. is expensive, but unlike Venezuela or Libya, there is no threat of expropriation or civil unrest that can shut down projects. Companies can safely invest money here.
Calgary is also attracting head offices and the lucrative legal work that goes with them. Head offices require external law firms to handle a plethora of legal issues that arise. Investment banks also see Calgary as a hub. Many international investment banks have set up shop in the city. For example, Scotia Capital recently relocated its global energy solutions team to Calgary from New York.
Given that backdrop, it is no wonder that Torys finally opened an office in Calgary, a city that has been on Les Viner’s radar screen since an attempted three-way merger involving Torys, the New York firm Haythe & Curley and Bennett Jones in 2000. After much negotiation, Bennett Jones’s partners declined to join, leaving Torys to merge with Haythe in New York. Torys spent the past decade focused on getting the New York model right, taking the office down to around 30 lawyers from 75 with a focus on cross-border work, as opposed to a full slate of business law services. The firm also developed China and India strategies, where it has built working relationships with different law firms. Now the focus is squarely on Calgary. “There was a plan,” Viner says. “It’s not like I woke up and said Calgary is a good idea. Calgary is the last piece of the puzzle for us.”
Like the oil patch, the Calgary legal market is undergoing a transformation. The city has changed significantly since Viner practiced here in 1986. An important shift is that local-based firms, such as Burnet, Duckworth & Palmer, Macleod Dixon and Bennett Jones, have grown in size – with Macleod Dixon and Bennett Jones having expanded both domestically and internationally – but remain at the center of the Calgary deal pipeline.
However, over the past two decades, they have been joined by a growing number of “national” law firms, including Blakes, which now has a significant presence in Calgary and has cracked into the upper echelon of the business circles. Other important transaction-driven law firms, such as Stikeman Elliott and Osler, Hoskin & Harcourt, have set up shop in Cowtown. So have British Columbia firms like Heenan Blaikie, Fasken Martineau, Miller Thomson, and Davis. Those firms have all expanded into the city by hiring lawyers away from other firms. Others have used a different growth strategy: McCarthy Tétrault, Gowlings, Fraser Milner Casgrain, and Borden Ladner Gervais and McMillan all entered the city by merging with local practices.
One of the most recent arrivals was Ogilvy Renault in January 2010, which opened an office by hiring away lawyers from other firms and was led by Miller, former general counsel of Petro-Canada. The ink was barely dry on its lease when the firm, which has 450 lawyers, including 10 in Calgary, merged with the international law firm Norton Rose. “Most firms believe there is money to be made here,” says Ben Rogers, an energy lawyer at Norton Rose. Norton Rose is a giant in the legal business with 2,600 lawyers practicing in 39 countries. (By comparison, Canada’s largest law firm, Borden Ladner Gervais, has 781 lawyers, and its most international in terms of offices, are Blakes and Macleod Dixon, which each have offices in six countries, including Canada.) The Norton Rose-Ogilvy Renault merger is notable because it was the first major hookup between a Canadian and international law firm of note.
The question is: Will more mergers between Canadian and international law firms be in the offing? Law firm consultant Jordan Furlong, who runs the legal blog Law21, thinks so. “The door is now open,” he says, and there is interest in the Canadian legal market from abroad, spurred on by the energy sector. In fact, Canada is one of the few legal markets in the western world where law firms are actively recruiting lawyers and growing. From 2008 to 2010, law firms in Europe and the U.S. were shedding jobs by the thousands. Among law firms reportedly sniffing around the Canadian market are DLA Piper and Allen & Overy, a firm that Viner worked for in 1986 and 1987.
While the oil and gas business is the primary force attracting law firms, they are also actively building their own businesses and preparing for possible future consolidation. That means establishing offices in Canada’s five major commercial and government centers: Vancouver, Calgary, Toronto, Montreal and Ottawa. According to the Canadian law magazine Lexpert, out of Canada’s top 25 law firms by size, 17 have offices in Calgary – two less than Toronto. The eight that aren’t yet in Calgary remain largely regional firms with a focus mostly on Atlantic Canada, Quebec and Ontario.
Three Toronto firms notable for their absence from the Calgary scene are Toronto’s Cassels Brock & Blackwell, Davies Ward Phillips & Vineberg and Goodmans. Davies, one of Canada’s premier merger and acquisitions law firms, has long been rumored to be Calgary-bound, but so far it hasn’t taken the plunge. “It’s something we look at from time to time, but it’s not something that we determined that we will do,” says Davies managing partner Shawn McReynolds. “It’s an important market for Canada and for the legal community. We’ve been doing transactions in Alberta for as long as the firm has existed without having an office on the ground. We continue to look at the market closely.”
Dale Lastman, managing partner of Goodmans, a firm that has its fingers in many Bay Street pies, says his outfit isn’t ready yet to follow the herd to Calgary. “The oil patch is pretty busy and they see the opportunity. I don’t know if it’s working. Once one goes, it seems a whole bunch of them go. I am not sure they have really good reasons for doing it.”
One of the reasons firms wouldn’t move to Calgary is to avoid upsetting their current referral network. There are still stand-alone firms in Calgary and Toronto that need to refer work back and forth. Concerns about offending the referral pipeline are also at play in mergers with international law firms. Can the Calgary market sustain more law firms or is it saturated? The view on that is decidedly mixed. Brock Gibson, the first Calgary-based lawyer to be appointed chairman of Blake, Cassels and Graydon, says the market is “a well-served dynamo. It is not an easy thing to come into this market and grow internally. We have been at it 30 years, other competitors slightly less.”
In those 30 years, his firm has grown to just under 100 lawyers. The hope by Torys and Norton Rose is that they can grow to 30 lawyers or more in the next few years. That seems ambitious based on track records of other firms that have moved into the city. Bennett Jones managing partner Perry Spitznagel says, “There is always room for more talent,” but adds, “At some point the market becomes saturated.” He notes the talent pool isn’t necessarily growing. It’s the same lawyers doing the work and there is simply a reshuffling of the existing talent. But Scott Cochlan, who joined Torys from Blakes, is more optimistic that Calgary will remain a hot landing spot for the legal profession. “We are in the early stages of shuffling the deck. I think there’s going to be a lot more movement. New players will continue to come and grow.”
The legal talent pool is finite, so new entrants either have to bring in lawyers from away, who lack connections in the city, or they have to grow their own legal roster by hiring fresh recruits out of law school who take years to train. The more popular alternative is to steal talent from the other guy – a strategy that is certainly in play in Calgary. Law firms can also buy market share, but that doesn’t necessarily build a sustainable business. That’s because law firms are based as much on culture and people as they are in files and clients.
“The thinking is that you can come to Calgary and just because you have a physical presence you can open the door and clients will start walking in. But Calgary is enormously relationship driven,” says Michael Thackray, whose former law firm Thackray Burgess became the Calgary office of McMillan when that Eastern-based firm entered the Calgary market via a merger with Thackray. When he was shopping his former law business, one of his biggest concerns was preserving its culture. He said had he merged it with a local firm, “the Thackray Burgess culture would have been extinguished immediately.” By choosing an outsider it’s been able to preserve its culture.
What law firm will be the next to enter Alberta’s oil patch is anybody’s guess. But there’s a good chance that Torys won’t be the last to set up shop despite the challenges. The business opportunities in Calgary can’t be ignored. “It’s early days but so far so good,” Viner says. “The entire firm is thrilled. It’s a great place to do business.”