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Precautions to be taken in drafting Oil & Gas Industry Contracts - Essay Example

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This research is being carried out to evaluate and present precautions to be taken in drafting oil & gas industry contracts. The easy way to shift the risk in O&G industry is to employ contractors to alter common law approach as a risk management process…
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Precautions to be taken in drafting Oil & Gas Industry Contracts
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Download file to see previous pages This essay discusses that Oil & Gas industry is a unique industry as it involves a high risk aspect of exploitation and exploration, high capital –intensive character of the industry, geographic ambit of operations and assets, environmental issues, up-date technology needs, safeguard issues, downstream brand advertising, size and range of employee base, political predispositions,etc. Oil & Gas industry engrosses the granting many contracts like project feasibility study, construction, supplies, civil and offshore contracts, mainly through subcontracts. If the turnkey contract is implemented, then the contract has the responsibility of defining in a strict, complete and definite manner the works to be covered and risk to be borne in the contract itself. In the oil and gas sector, the definitive goal of any operator is to exploit maximum revenues by efficient and rapid discovery of petroleum and gas resources with no or minimal disruption. Contractual process in Oil and Gas (O&G) industry is a lengthy and time-consuming process , fixing the accountability and granting damages to the affected parties is normally considered to be a hectic task given the nature of the industry which is symbolised by subcontracting. To achieve their business goal, operators in O&G industry is well aware that risks in the industry can be administered and controlled when the same has been unequivocally distributed to one or more parties. It is to be noted that risks can be covered by taking appropriate insurance policies, but this involves an additional financial burden to the operators. The easy way to shift the risk in O&G industry is to employ contractors to alter common law approach as a risk management process. (4). LOGIC of UK has published a standard contract (boilerplate contract) through its 2nd Edition, October 2004 for the oil & gas industry in UK. This is a standard contract, and the contract employs English law .However, now, all references to UK needs’ have been withdrawn, and it can be employed on a global basis. For drafting contracts for oil and gas industry , the lawyers will use boilerplate contract like the one designed by Logic .It connotes to any interchangeable ,” one size fits all” provision. While drafting the contract, more significance has to be given to the areas like the notice clauses, the choice of law clauses, the force majeure clauses, the delegation and the assignment provision. These clauses are significant as it will give a road map, informing the parties concerned their relationships and how to administer the contract. (2) Some of the main advantages of the boilerplate contracts are that it contains many clauses either override or restates the common law provisions and is being in use by the relevant companies for long time. It is having drafting efficiency and to costs fewer pounds and takes less time to input the standard clauses into the contract. By incorporating the conditions available in the boilerplate contracts will help to avoid errors. Further, a standard clause is well known to business and legal community, thereby minimising the costs of reassessing and negotiating the provisions, as well as fostering a analogues interpretation. (2) Some critics allege that the poorly outlined boilerplate clauses may result in issues instead of finding a solution while execution of a contract. A poorly drafted contract will no doubt will result in the litigation which is not only time-consuming and also expensive. Thus, there is a need to give more careful attention to each and every boilerplate clauses, including how it is going to be interpreted in the case of future litigation. (2) For the risk allocation, common law provision is followed in O&G contracts and, where there is no specific contract and the general law pertaining to tort, contract/delict will be applicable. With the operative word being ‘negligence”, the liability stems from the fault or infringement of duty in such cases. ...Download file to see next pagesRead More
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