Contract 101
Know Your Contractual Obiligations and Exposures
Joint Operating Agreement with Gas Balancing Exhibit, Field Service Agreement, Gas Gathering, Transportation, and Lease Contract. Your organization probably has exposure to all of these, especially if you are an Operator!
The Lease Contract with the Royalty Owners can have different clauses for different Net Royalty Interests. Here are some lease provisions to be concerned about:
- Meter validation requirements
- Flare and Lease Use Reporting
- Security of volumes (theft, vapor recovery, environmental damages)
- Pressure issues at Flare, VOC, Separators, Heater Treater
Here are common clauses found in all leases:
- Royalty Clause
- Drilling and Delay Rental Clause
- Dry Hole, Cessation, and Continuous Drilling Clause
- Pooling Clause
- Surrender Clause
- Damage Clause
- Assignment Clause
- Force Majeure Clause
The Field Services Agreement with your Midstream or Gathering Contractor has some of these “T&Cs” to be concerned about:
- Metering in use
- Compressibility (line pressure of receiving product)
- Specific Gathering Services
- McF to MMBtus conversion calculations
- Meter Tolerance
- Operational balancing
- Return Meter volume
- Testing and Measurement
- Operational Control (regarding maintenance responsibilities)
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Why is it essential for my organization to be aware of contractual obligations and exposures, especially in the oil and gas industry?
Understanding contractual obligations and exposures is crucial to ensure compliance, protect financial interests, and maintain a transparent and efficient operation. This knowledge helps mitigate risks and potential disputes.
What are some key provisions to consider in lease contracts with royalty owners in the oil and gas sector?
Lease contracts may have varying clauses based on net royalty interests. Important provisions to be mindful of include meter validation requirements, flare and lease use reporting, security measures for volume protection, and pressure control at key operational points.
How can a team with 50 years of combined experience in contract compliance benefit our organization in capturing volumes and revenue?
A team with extensive experience in contract compliance can provide expert guidance in navigating complex contractual agreements, optimizing revenue streams, and ensuring that all volumes and revenue are accurately accounted for, helping to prevent revenue losses and disputes.