Oilfield Master Service Agreements
For those who have spent any time working in the oilfield industry, whether as a representative of an E&P company or a service provider, odds are that you have heard of MSAs. Master Service Agreements (commonly referred to as “MSAs”) are pervasive in the industry and it is rare that a service provider can get approved as a preferred vendor without first having an MSA in place. It is therefore critical - not only for securing business but also for the implications that their terms can have on the financial wellbeing of an organization - that anyone being asked to sign an MSA review its terms carefully and negotiate to protect its interests. There is, of course, a delicate balance between protecting one’s interests in negotiations and not overreaching to the point of frustrating the deal. This is where having the benefit of experienced legal counsel – particularly someone who has worked in-house and has lived this balance – can be a valuable resource.
Forrest Gordon is former Senior Legal Counsel for an oilfield service company and has negotiated dozens of Master Service Agreements to completion. If you have interest in engaging our services for MSA work, or any of our other practice areas, please call our office at 800-683-4258 to schedule an appointment or fill out this contact form.
More on Master Service Agreements:
A Master Service Agreement is a legal agreement between two parties that sets forth the legal terms and conditions that will govern all work performed there-under. Since MSAs contain primarily legal terms, they are often accompanied by work orders that supply the commercial terms. Whereas work orders are typically issued on a per job basis, an MSA - once agreed to - can be relied upon for all future work between the parties until such time as the MSA expires or is terminated in accordance with its terms. So MSAs promote efficiency by merging all of the legal terms negotiated by the parties into a single document that can be applied to all work performed thereunder. Additionally, a well-drafted MSA clearly defines the rights and obligations and the allocation of risk between the parties. Having the benefit of this information allows decision-makers to better quantify their exposure upfront and, in turn, make more informed business decisions with which to proceed commercially. Finally, by addressing certain fact patterns particular to the oilfield, MSAs give the parties foresight into how issues will be resolved between them, should they arise. This common understanding takes some of the guesswork out of how situations will unfold and, ultimately, means a reduced likelihood that those situations escalate into litigation.
Although MSAs can take on varying forms depending on the party supplying the initial draft of the document, there is an industry standard framework that most oilfield MSAs adhere to. Most address the following material terms: (i) how work is ordered, (ii) warranties provided and remedies available, (iii) payment terms, (iv) lien rights, (v) indemnity structure, (vi) insurance requirements, (vii) consequential damages, (viii) termination rights and (ix) choice of law.
Indemnities, in particular, get a lot of attention in the oilfield. Typically, parties agree to either a “knock for knock” or “negligence based” indemnity structure (or some hybrid of the two). A “Knock for knock” indemnity structure means that the parties are generally responsible for their own people and property (and for those parties falling within its group), regardless of fault. In a “negligence based” indemnity structure, fault is the central inquiry to determining the parties’ rights and obligations. It is also common in oilfield MSAs for the parties to “carve out” from the general indemnity structure, and address separately, certain high dollar exposure issues such as: pollution, contamination, blowouts, wild wells, damage to wellbore or reservoir, loss of minerals, seismic events and subsurface trespass. However, regardless of the indemnity structure employed or if any carve outs are made, it is crucial to understand that what can be agreed to in contract may be limited by law. In other words, even though two parties may agree to a certain allocation of risk on paper, it may be found to be unenforceable if subsequently challenged in court. This is another reason why having counsel knowledgeable in oilfield MSAs can be of value to your organization.
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Updated on 6/6/2016