CHAPTER 11 OIL AND GAS EXPLORATION CONTRACTS IN GEOLOGICALLY COMPLEX AREAS
| Jurisdiction | United States |
(Nov 1980)
OIL AND GAS EXPLORATION CONTRACTS IN GEOLOGICALLY COMPLEX AREAS
Chevron U.S.A., Inc.
Denver, Colorado
Although as recently as ten years ago the Overthrust Belt was considered to have little potential for oil production, it has achieved considerable publicity because of recent substantial commercial discoveries. Although the ultimate extent of its importance as an oil and gas producing province is yet to be determined, it is probably safe to say that it will be a very significant part of the energy future of the United States.
Day to day operations in the Overthrust Belt are not conceptually different from day to day operations in other producing provinces. Leases are obtained, titles cleared, deals made and wells drilled as in any other basin.
Although the concept follows a standard format, in practice, life is not so simple. Topographic and climactic conditions combine to greatly increase the investment required to drill even a simple well. The presence of large amounts of federal acreage managed by diverse federal agencies and the proliferation of regulations affecting operations on same dictate that the ways in which many companies are used to operating cannot be used here.
The geologic complexities of the Overthrust Belt require that an Operator exercise great care that contracts affecting his leases are fully understood. The high structural closure, thick producing columns and small areal extent of most Overthrust Belt fields tend to insure that small mistakes in the drafting of contracts can have large effects on real or potential revenues.
This paper does not purport to engage in an exhaustive analysis of all potential contract problems which may occur in the Overthrust Belt. It will deal only with a few particular problems which seem to occur with annoying regularity and which can usually be avoided by careful drafting. The problems are not unique to the Overthrust Belt, however, they are almost common in the province.
Force Majeure
Those who have operated in the Overthrust Belt are painfully aware that a variety of sources can provide delays. Among these are unavailability of rigs, governmental delays and access problems.
Most Operators will require that any contract contain some form of a force majeure clause, typically structured similar to the following:
"If FARMEE is rendered unable, wholly or in part, by force majeure to carry out its options and obligations under this agreement, other than the obligation to make money payments, FARMEE shall give to FARMORS prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon, the options and obligations of the FARMEE, so far as they are affected by the force majeure shall be extended and/or suspended, as applicable, during the continuance of the force majeure. FARMEE shall use all reasonable diligence to remove the force majeure situation as quickly as practicable.
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The requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts, or other labor difficulty by FARMEE contrary to its wishes; how all such difficulties shall be handled shall be entirely within the discretion of FARMEE.
The term "force majeure", as here employed, shall mean an act of God, strike, lockout, or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, governmental action, governmental delay, restraint or inaction, unavailability of equipment or fuel, and any other cause, whether of the kind specifically enumerated above or otherwise, which is not reasonably within the control of the party claiming suspension."
This is a fairly complete force majeure clause. It is somewhat deficient, however, in that it lacks a good definition to cover the most common delay or inaction situation in the Overthrust Belt, i.e., delay in obtaining a drilling permit. No starting or stopping time is defined.
It is arguable that the inaction resulting from failure to obtain a drilling permit commences when the application for permit to drill is filed even though some time lag is always necessary for this process. This author has yet to see a force majeure clause which adequately covers the permit delay situation although the situation arises continually in the Overthrust Belt; however, the following sentence is submitted as a suggestion for...
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