Negotiating and entering into contracts is an inevitable part of every business.  As almost anyone who has gone through the process can attest, starting with the right type of contract is one of the most important first steps. Different categories of contracts have been developed over the years to apply to most business arrangements, but picking the right contract (or combination of contracts and contract terms) to enter into will lead to smoother negotiations and a finished product that appropriately addresses the legal and commercial terms that the parties are expecting.

In the oil patch, using the right type of contract is crucial. By way of example, it may “technically” work for an Operator to simply purchase goods or services under a form Purchase Order (“PO”), but without detailed Terms and Conditions (“T’s & C’s”) that both parties have read and understood, the parties may later find themselves embroiled in a costly dispute if something doesn’t work out the way one of the parties expected.

One of the first questions I ask my clients when they need a contract for goods or services is whether or not this is a single, standalone transaction or the beginning of a relationship.  If you buy (or sell) one piece of standard equipment or have one discreet service performed and you will never see the other party again, then a simple contract or even a pre-printed PO or work order with basic T’s & C’s may be wholly appropriate.  If, instead, you are establishing a longer-term relationship where the Operator has the ability to call out a variety of goods, services or rentals (collectively, “Work”), then a master agreement that addresses all facets of the potential Work and provides the flexibility to request multiple types of goods or services from the same vendor would be a better choice. 

With every additional wrinkle, new considerations need to be addressed. If the equipment is not standard, and instead it reflects or incorporates the proprietary Intellectual Property (“IP”) rights of the provider,  a License Agreement may be appropriate, clearly setting forth ownership of IP, limits of use, and associated data and confidentiality protections. Or if instead the vendor collects and transmits data that is then processed to provide reports or which can be accessed through an online portal, then perhaps a Software as a Service (“SaaS”) agreement would be the preferred starting point. If instead of one piece of equipment, the intent is that you will need the vendor to provide a certain number of goods every month, or that you will buy all of the goods that the vendor can furnish, then perhaps a Supply Agreement would be more appropriate.

In some instances, the vendor may only offer rental equipment, in which case a Master Rental Agreement may be all you need, allowing the Operator to rent equipment from time to time, as necessary. Or if they provide no goods of any kind and only provide consulting or advice, then perhaps a Consulting Services Agreement is the right fit, focusing more on the professional standards of the vendor than physical performance or risks of injury.

As you can imagine, each of the foregoing may be combined to address a specific situation. If, for example, you are bringing in a consultant using its proprietary software to analyze your data, then a Consulting Services Agreement that includes License and SaaS terms may be the perfect fit to cover the rights and risks that would be implicated by engaging that consultant.

In many cases, oil and gas Operators should start with a Master Services Agreement (“MSA”). Most MSAs target wellsites or field sites, but you can customize them to cover off-site Work or a mix of on-site and off-site Work. An MSA is a foundation for ordering and accepting Work, invoicing and processing payments, and allocating risk between both parties. Often, MSAs include confidentiality and intellectual property terms, or you can modify a base form to address these aspects as needed. Once you finalize the MSA, a purchase or work order signed by both parties will initiate Work. When you operate in the oil and gas sector and face numerous vendors offering a wide range of goods and services, a customizable MSA simplifies your supply chain management.

If necessary and appropriate to the Work being performed, the modular nature of an MSA can allow you to flesh out additional terms through schedules or addenda. As an example, if a vendor sells or rents equipment, installs it at wellsites, and then that equipment feeds data to a cloud-based platform where proprietary algorithms digest that data and the Operator can access it via laptop in real time, a standard MSA would likely be inadequate to address all of the risks and potential eventualities that such Work would present. However, a well-crafted MSA with a SaaS addendum and/or specific licensing terms, or even an MSA coupled with a separate License Agreement that governs the off-site and technological aspects of the transaction, would ensure that all your bases are covered.

Here at RR&A, we’ve worked with vendors and Operators for most of our careers, and we have negotiated thousands of contracts crafted to fit the Work, protect our clients’ rights, and minimize their risks. So when you are looking to secure a contract, give us a call to guarantee that you start off on the right foot.