CHAPTER 4 THE ETHICS OF NEGOTIATING AND FAIR DEALING WITH LANDOWNERS

• Jurisdiction: United States

Land and Permitting
(Jan 1994)
CHAPTER 4
THE ETHICS OF NEGOTIATING AND FAIR DEALING WITH LANDOWNERS
V. Ross Brown
Ashburton, Ltd.
Oklahoma City, Oklahoma

This paper discusses the buying of oil and gas leases or mining permits, the most basic negotiation between landmen and landowners in the exploration for oil, gas and other minerals. Such a negotiation may be conducted around a kitchen table, in a pick-up or in an elegant office, but wherever it takes place it is an economic negotiation and its purpose or goal is the execution of a contract. Although the conversation may begin with which team is favored in a Bronco or Rockies game, it eventually becomes a buyer and seller relationship, and society applies the contract law to the situation. Because this paper is being presented at the Rocky Mountain Legal Foundation Seminar, how the legal dimension of this relationship affects ethics will be included, but the citing of cases will not comprise a large part of this paper. It is not my purpose to deal with all legal aspects of this contractual negotiation, nor to rely on the law to determine the ethics of the negotiation, but rather to investigate several ethical aspects of the negotiation. Whatever ethics the participants bring to this negotiation should include some understanding of how the courts have viewed these negotiations. Presuming the negotiators' "ethics" include staying within the legal limits of the situation, this part of the law should be understood. But ethics involves more than staying within the limits of the law.

It has been my challenge to teach a class in ethics and negotiating in The University of Oklahoma's Petroleum Land Management Program for several years and this has provided me with a view of management education's serious interest in teaching ethics. Although business school professors are defining it and advising of its importance, I have not found an academic consensus on how to mix ethics and a buyer/seller negotiation. This lack of consensus has also been true of philosophers over the centuries. Rather than attack or defend others' definitions, I will suggest my own definition for the purposes of this paper. Ethics is herein defined as a code of conduct. Webster defines code as "an accepted set of rules and regulations."¹ We can all agree that rules involve the setting of limits. Ethics is about setting limits. The word conduct is taken Matthew Arnold's comments in Literature and Dogma, in which he states of conduct: "it is four-fifths of human life or five-sixths. But it is better to be under the mark than over it, so let us be content with three-fourths of human life. Eating, drink, ease, pleasure, money, the intercourse of the sexes, the giving free swing to one's temper and instincts, those are all matters with which conduct is concerned."² So let us agree that conduct is three-fourths of what we do — including the negotiation for oil and gas or mining leases. In this paper, ethics is defined as the rules or limits by which we govern our

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conduct. We might rename this paper Limits of Conduct and Fair Dealing for Landmen in Negotiating with Landowners. The remaining one-fourth of what we do goes on within our minds, governs our conduct and sets limits. To better understand codes of conduct, let us use that one-fourth and look to the past.

We cannot survey all of mankind's suggested codes of conduct, for each religion and each moral philosopher has offered its own. Plato and Christ, however, stand as towering figures in moral philosophy and religion. Perhaps they can be helpful.

Though Plato lived over two thousand years ago, the character of any western philosophy is still determined by the relation it bears to Plato.³ Plato, through his version of the Socratic dialogues, asked many questions which were unanswered.⁴ His continuing search for virtue, or the Good, usually ended in another question. Plato urged us to a never ending examination of our lives and our experience to find the virtues which should be the basis for a code of conduct, but he did not provide a code of conduct.⁵

Although the Old Testament is fully of specific dos and don'ts, Christ, in the New Testament, taught in non-specific parables or stories which lead the reader through situations in which one needs to think about what is right and wrong and about what He really meant. Some Bible commentaries say He spoke in riddles.⁶ If you can clearly understand the meaning of all the parables you are a better Bible student than I. Christ commanded us to love the neighbor as thyself,⁷ but in economic negotiations this is a real challenge. These great leaders of western thought urge us to seek the good or virtue and righteousness without clearly telling us how to limit our conduct today.

Can we see a consensus on a code of conduct in today's world?

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There is plenty of evidence that executives and politicians have found codes of conduct which the law and society reject, but is there some standard or code of good conduct which is widely accepted? One often discussed code is that of political correctness which seems to say that your ethics and mine are different, but all codes of conduct have the same value.⁸ This point of view does not argue for agreement on a code of conduct. A further example of lack of consensus is Rush Limbaugh, who daily advocates family values on the radio, and the surgeon general, who is for very early sex education, two widely different codes of conduct. The views on the riots in South Central Los Angeles certainly reflect opposing codes of conduct.⁹ The present world offers wide disagreement as to acceptable codes of conduct. Perhaps Plato's search for the Good must go on.

Can we look in the future and hope to find a consensus on conduct or even a meaning of the Good? Children on a playground reflect a diversity of codes of conduct that lead to isolation or to fights or to hugs. Your children use you as models. If we see a lack of consensus on limits of conduct at the school ground, it means there is a lack of consensus among parents. It seems unlikely that the next generation will overcome its parents' differences in this area.

Because of the differences of opinion about codes of conduct in the past and in the present, man has attempted to set limits on the conduct of others. These attempts have led to inspiration, disagreement, and even to wars. We can only conclude that codes of conduct are sought by men both wise and unwise, but there has been disagreement on their limits, their acceptability and their enforcement. We are dealing with subjects which are difficult to define and agree upon, but which deal with setting limits to conduct. We do not like others to set these limits, but for society or business to survive and prosper, these limits must be set and, to some degree, accepted. Let us turn to our economic negotiation and discuss the limits on conduct that we can recognize.

What conduct is subject to limits in a landman/landowner negotiation? Buying a lease or permit can have significant economic consequences, because of the large amounts of dollars paid for bonus and in the potential value of royalty. The conduct we are discussing is conduct that, through negotiation, leads to more

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or less economic value for the parties involved. You keep the money or the other party gets it is the equation. The negotiation process may be the same whether you are negotiating in Bosnia or with your teen age son for the car,¹⁰ but the goals and stakes are different. We must speak then of the landman's goals for this negotiation. What kinds of deals should the landman be trying to make with the landowner?

It is the nature of oil and gas exploration as well as some mineral exploration that the parties to the negotiation will probably continue to deal with each other after the first deal is made. If production is found, there will be a continuing operational relationship. If not, there may be a later attempt to lease and often other leases to be bought in the area, and landowners do talk to each other. They also talk to other landman and your conduct will be discussed. The negotiating world is small and it is easy to know of a landman's reputation. For these reasons, it is vital that the deals you make enable you or your company to trade with the landowner again. This happens when the landowner perceives that a good deal has been made. But what is a good deal? This, like ethics, is a definition we must discover ourselves. My definition of a good deal is a deal in which everyone gets part of what they want, and the parties can trade with each other again. By accepting a goal of making good deals, outside limits to the conduct of the landman are created in the actual negotiation process.

Additional outside limits to the landman's conduct in this negotiating situation come from the Code of Ethics and Standards of Practice adopted by the American Association of Professional Landmen. Copies of these documents are included in Appendix A. Clear language in the Association's By-Laws states that the Code of Ethics has been established to inspire and maintain a high standard of professional conduct for the members of the association.¹¹ In regard to negotiating with landowners, the following part of the Code of Ethics and Standards of Practice are specific. From the Code of Ethics:

"Section 1. The Land Professional in his dealings with landowners, industry parties and others outside the industry shall conduct himself in a manner consistent with fairness and honesty, such as to

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maintain the respect of the public."¹²

and from the Standard of Practices:

2. It is the duty of the land professional to protect the members of the public with whom he deals against fraud, misrepresentation and unethical practices, he shall eliminate any practices which could by damaging to the public or bring discredit to the petroleum and mining or environmental...