Tuesday, March 17, 2015 Houston, TX 10:30 11:45 a.m. BUILD YOUR HOUSE ON A SOLID FOUNDATION: BASIC CONTRACT DRAFTING FOR THE OIL FIELD Presented by Harold J. Flanagan, J.D. Partner Flanagan Partners LLP Lawyers, risk managers, contract analysts, and supply chain personnel spend hours drafting and negotiating the more complicated and high-profile portions of oil and gas service contracts, such as insurance, bodily injury indemnity, and pollution liability. While much attention is paid the particulars of such provisions, often the basics of good contract drafting are minimized or ignored. When these basics are neglected, the negative consequences can be significant: surprised executives, uninsured losses, disappointing profits, and even impaired careers. This session will identify the foundations for drafting oil and gas service contracts, addressing compatibility with other contracts, standards of performance, the proper use of definitions, termination strategies, payment issues, and the treatment of affiliates. The presentation will not only provide a general basic contracts class for the beginner but also a strong foundation for drafting and negotiating contracts at all levels. Copyright 2015 International Risk Management Institute, Inc. 1 www.irmi.com
Notes This file is set up for duplexed printing. Therefore, there are pages that are intentionally left blank. If you print this file, we suggest that you set your printer to duplex. 2
Harold J. Flanagan, J.D. Partner Flanagan Partners LLP Harold J. Flanagan is a founding partner of Flanagan Partners LLP in New Orleans, Louisiana, and a former shareholder in the Maritime, Oilfield, and Insurance Section of the New Orleans office of Liskow & Lewis. Mr. Flanagan s practice includes both contracts and litigation in the areas of insurance coverage and recovery, construction, admiralty, oil and gas production, casualty, and commercial matters. He has extensive experience in contract drafting for oil and gas producers and is frequently called upon to investigate casualties and advise clients on matters involving well blowouts, explosions, drilling rig and vessel accidents, and various other oil field tort claims. In addition, he has extensive experience in drafting construction contracts and litigating construction disputes for contractors and property owners. Mr. Flanagan graduated from Loyola University with a B.S. in business management in 1984 and from the Loyola School of Law in 1995, cum laude. For the past 11 years, he has taught insurance law at Tulane Law School. His outstanding service to the school was recognized when he was awarded the Monte M. Lemann Distinguished Teaching Award in 2003 and 2010. Mr. Flanagan lectures and writes frequently in the areas of oil and gas law, construction contracts and litigation, and insurance coverage. 3
Notes This file is set up for duplexed printing. Therefore, there are pages that are intentionally left blank. If you print this file, we suggest that you set your printer to duplex. 4
BUILD YOUR HOUSE ON A SOLID FOUNDATION: BASIC CONTRACT DRAFTING FOR THE OILFIELD Presented by Harold J. Flanagan March 17, 2015 Maxims Basic considerations Risk allocation Other specific concerns Conclusion OVERVIEW 2 5
MAXIMS 3 CONTRACT DRAFTING Can my mechanic understand it? How will it look blown up to poster size and highlighted in yellow? Has it been proofed at least 24 hours after the last edit? 4 6
UNDERLYING CONSIDERATIONS Lawyers: any port in a storm Impact of industry custom Battle of the forms 5 CONTRACT REVIEW Read every word Spell check is not perfect Search for other client s name Check entity names on Secretary of State s website 6 7
WRITING FUNDAMENTALS Never use a long word where a short one will do If it is possible to cut out a word, cut it Avoid terms that require specialized knowledge to understand Use of defined terms 7 8
BASIC CONSIDERATIONS 8 BASIC CONSIDERATIONS What is going to be done? What is the standard? How will payment work? How will I get out of this if I don t like it? What law will apply? Primacy 9 9
BASIC CONSIDERATIONS Using the wrong contract creates risk o Risk allocation o Other assumptions Use the right contract Multipurpose contract may be a partial solution 10 BASIC CONSIDERATIONS What kind of contract? o Master service agreement o Drilling o Compressor o Purchase/rental o Construction contract o Professional services contract 11 10
RISK ALLOCATION 12 GENERAL INDEMNITY Allocation of fault usually based on ownership, not fault Range of risk allocation schemes (models) o Unilateral o Narrow reciprocal o Broad reciprocal o Hybrid Most common is some sort of reciprocal framework No strict rule; general tendencies only What is the nature of the work? 13 11
RISK ALLOCATION/INSURANCE Indemnity for own fault Heavy burden on indemnitee Magic language Applicable law will be critical Particular jurisdictional requirements Texas standard 14 GENERAL INDEMNITY Strict liability Conspicuousness requirements Contractual liability Punitive damages/gross negligence Attorney s fees Unseaworthiness Loading/unloading 15 12
BASIC INSURANCE PROVISIONS Waiver of subrogation Additional insured Coverage should be primary for risks assumed Extend all protection to group 16 INSURANCE PITFALLS Minimum limits are not a limitation or restriction on indemnity Limit insurance coverage to the extent of Indemnity Breach of contract to obtain coverage Other insurance clauses Custom insurance certificate form 17 13
EVEN MORE DRAFTING CONSIDERATIONS Know your jurisdiction Insurance sometimes provides more protection Belt and suspenders approach Savings/severability clause Choice of law 18 14
OTHER SPECIFIC CONCERNS 19 MEDIATION AND ARBITRATION The basics: what are you getting into? The FAA rules supreme The scope Get the details o The arbitrators o The procedure o The rules o The limitations 20 15
PERFORMANCE ISSUES Scheduling Warranty Efficiency/quality Specifications Liquidated damages 21 DEFAULT AND TERMINATION Avoid it Prepare for it o For convenience o For cause 22 16
DISPUTED INVOICES AND LATE PAYMENT Sooner or later, it s going to happen Remove the leverage Planning ahead 23 USEFUL MISCELLANEA Venue Applicable law Fees Non-waiver Notice General severability 24 17
CONCLUSION Go back to the basics Can you deliver what you promised? Beware boilerplate/form contracts What do you really want? Listen to the other guy 25 18