Oil and gas contracts are often complicated because of the laws and regulations surrounding the industry. On top of that, agreements are often interdependent, so one bottleneck could cause delays in all of your project agreements. This is why efficient contract management is essential in this sector. It allows companies to reduce risk, save time and money, and boost growth.
The role of contracts in the oil and gas sector
The whole oil and gas process from extraction to production requires joint efforts between companies, government, and property holders. Contracts ensure that the cycle is regulated and controlled while ensuring cooperation between the parties. However, energy projects are often complex with many interconnected components, meaning that agreements in this industry are equally complex and difficult to manage.
Oil and gas contract types
Many different agreements are used in the oil and gas industry due to the diversity of ownership and the need to share economic risk. When managing contracts in this field, it’s critical to know the different types of agreements and how they work together to ensure that you don’t make any mistakes that could lead to compliance issues.
These are the most common types of oil and gas contracts:
- Farm-outs and farm-ins (well trades)
- Well support
- Joint ventures
- Purchase or acquisition
- Seismic option
- Lease exchange
Contract management in the oil and gas industry
Projects often include several contractors in the energy industry where regulation compliance, design authority, and risk mitigation are essential for success. Considering that contracts are interdependent, a delay in one agreement could have a domino effect on others, creating delays and financial losses. Without an efficient contract management process, it’s easy to let these delays creep up, and as a result, your agreements aren’t as beneficial as they could be.
Here are some of the most common challenges with oil and gas contract management:
The EPA and EHS are cracking down on compliance standards and other regulations. This means that the oil and gas sector is facing issues with trying to remain fully compliant and sign agreements quickly. Plus, missed clauses or noncompliance has significant financial consequences in the form of hefty fines and legal penalties.
2. Insufficient risk mitigation
Risk involved in a project should be transferred to the responsible parties. Risk mitigation clauses often require input from material management, systems engineering, environmental law, and hazardous operations experts. Due to the complexity of the sector’s agreements, input from these experts should be given during the pre-execution phase. However, it’s often difficult to manage all these roles and interactions without strong contract management.
3. Lack of communication and collaboration
Contract managers need to communicate effectively with the contractors and the business’s expert technicians. However, relying on traditional collaboration and communication methods such as emails and phone calls makes it difficult. Since there is a lot of information shared back and forth during any oil and gas project, such as on-site issues, technical problems, etc. communicating over email takes a lot of time and increases the chances of an important detail being overlooked.
4. Disconnected audit trails
Management of change is a significant challenge throughout the contract management process. Changes to schedules, scope, and order variation add additional costs as the project progresses. However, if something happens onsite and someone fails to report the incident. It could lead to legal issues when the contract closeout starts.
Oil and gas contract management software
Contract management software is a helpful tool that automates the entire agreement process from creation to signature. This tool will help oil and gas companies resolve many of their contract management challenges as the process is automated and streamlined. This means that your company will face far fewer risks and can maintain compliance which will help you save money in the long run.
Here are some of the features of oil and gas contract management software:
1. Visibility and oversight
Contract management software for the oil and gas industry helps to ensure that all agreements are compliant and don’t have unnecessary risks involved. This software boosts visibility and oversight into your contract repository by allowing you to view the history of changes, versions, updates, comments, and approvals that took place during a contract cycle. That way, you can see if your contract isn’t missing any key clauses or includes any legally invalid terms.
2. Tracking deadlines
Deadlines need to be closely monitored in this industry due to the interconnectedness of each agreement. If one deadline is missed, all of your contracts could be delayed by a couple of days as well. A contract management platform helps to ensure that you don’t fall behind on any agreement deadlines through smart notifications and reminders.
3. Collaborate in real-time
Contract lifecycle management software allows for collaboration between contract managers and technical experts. Real-time communication and collaboration between these parties could decrease the amount of confusion and misunderstandings before sending approvals to the contractor. Additionally, this tool makes negotiation extremely efficient as each party involved can comment, redline, and approve agreements from a single destination.
4. Advanced security
There’s a lot of confidential information on oil and gas contracts. One breach could cost your company thousands of dollars in losses. When your contracts are stored on a cloud-based repository, you can ensure they are kept out of the wrong hands. Many contract management platforms use encryption and role-based permissions to store all private data in the repository safely.
Contracts in this industry are difficult to manage due to their complexity and interdependence. Contract managers often have to juggle many agreements for a single project, leading to missed deadlines and errors. A contract management tool will automate the entire lifecycle from start to finish, making it much easier to keep on top of your agreements. With features such as smart templates and eSignatures, you can create and close deals more efficiently than ever with less work on your end.
Advantages of contract management system in the oil and gas industry
Due to continual booms and busts, the oil and gas sector is often volatile and unpredictable. There is a heavy reliance on working capital and changing regulations from international and domestic governments, making it difficult to stay on top of all requirements. In this field, effective contract management allows you to maximize profitability while mitigating risk and noncompliance issues.
Integrating automated contract management tools allows you to streamline the entire agreement lifecycle, decreasing unnecessary spending and risk and helping you maintain compliance.