Contract Negotiations in the Oil and Gas Industry

Legal Compliance Resource
November 19, 2012 — 1,036 views  

Contract Negotiations in the Oil and Gas Industry

The oil and gas industry is one where a good lawyer can make a huge difference. The industry is very much about contracts. Different companies have land rights and they have mineral rights. Companies that want to operate within the business have to have good contracts that both reflect their wishes and reflect the strength of their bargaining. Negotiations within this industry often determine whether a company makes millions of dollars or only thousands of dollars. Often times, the oil & gas industry is dictate by joint operation agree, where companies agree to use the same physical facilities and certain other resources.

The Need for Reliable Contracts

The truth about litigation is that it is expensive. Companies understand that they do not want to go to court if they can help it. This is why so many companies hire good attorneys to work out their contracts. They need the certainty that comes along with a good, reliable contract. Good contracts are those that lay out the expectations of both sides. They are clear in language so that companies do not have any wiggle room to argue their way out of their obligations. When companies know that they can rely on contracts, they are able to plan for the future.

Negotiations Matter in the Contract Context

In addition to reliability, companies are looking for a strategic edge in contracting. They are looking to get as much of what they want without pushing the other side away. This is the art of negotiation. A good attorney will work with the other side to achieve a common goal. The only caveat is that he will be working to maximize the gains for his client. A skilled negotiator can end up saving a company millions of dollars on oil and gas contracts. When mineral rights are involved, it pays to get the contract right the first time.

The Cannibalistic Nature Of The Oil & Gas Industry

One thing to know about this industry is that companies are almost always combining in one way or another. Companies will buy out other companies. Bigger companies might merge to create one force. In some cases, the companies will work out joint operation agreements. This allows two struggling companies to cut costs by using many of the same physical resources. For all of these deals, good contracting and negotiation is absolutely necessary for the company to come out on top.

 

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