Navigating the Depths: Due Diligence in Oil & Gas Contract Drafting

Jim Bergman

In the high-stakes world of oil and gas, contracts are more than just legal formalities—they’re the bedrock of billion-dollar ventures, cross-border partnerships, and long-term operational success. At the heart of every well-drafted agreement lies a rigorous process: due diligence.

Why Due Diligence Matters

Due diligence in contract drafting is the process of thoroughly investigating and verifying all relevant information before finalizing a deal. In the oil and gas sector, where assets are complex and liabilities can be buried deep in decades-old agreements, this step is not just prudent—it’s essential.

Failing to conduct proper due diligence can lead to costly surprises: undisclosed environmental liabilities, unclear title rights, or unfavorable legacy clauses that could derail operations or trigger litigation.

Key Areas of Focus

– Asset Verification

Whether acquiring exploration rights or purchasing producing assets, companies must confirm the existence, ownership, and operational status of the assets. This includes reviewing geological data, production histories, and regulatory filings.

– Title and Land Rights

Land ownership and mineral rights can be tangled, especially in jurisdictions with layered legal systems. A thorough title review ensures that the seller has the authority to transfer rights and that there are no encumbrances or competing claims.

– Environmental and Regulatory Compliance

Environmental liabilities can be hidden landmines. Due diligence should include environmental assessments, permits, and compliance histories to avoid inheriting costly cleanup obligations.

– Contractual Obligations and Liabilities

Reviewing existing contracts—such as joint operating agreements, service contracts, and equipment leases—is critical. These documents may contain change-of-control clauses, indemnities, or obligations that survive the transaction.

– Corporate and Financial Health

If the transaction involves acquiring a company rather than just assets, due diligence must extend to corporate governance documents, financial statements, litigation history, and tax compliance.

Best Practices

– Start Early: Much of the due diligence can and should begin before a purchase agreement is signed. Early insights can shape negotiation strategies and pricing.

– Use Technology: AI-powered document review platforms can accelerate the process and reduce human error, especially when dealing with thousands of pages of legacy contracts.

– Cross-Functional Teams: Legal, financial, technical, and environmental experts should collaborate to ensure a 360-degree review of the deal.

Summary Thoughts

In oil and gas, the devil is always in the details. Due diligence isn’t just about checking boxes—it’s about uncovering the full story behind an asset or entity. When done right, it empowers companies to negotiate from a position of strength, avoid costly pitfalls, and build contracts that stand the test of time.

Your thoughts?

Unknown's avatar

Published by Jim Bergman

Jim Bergman is a commercial contract professional with global experience spanning the USA, Latin America, UK, Europe, China, South Korea, Japan, India, SE Asia, the Middle East, Africa and Australia. He has worked on a wide range of direct and indirect spend categories in numerous sectors, developing a deep knowledge of services, goods and technology procurement and sales. Across this wide array of commodity and services experience, Jim has found the keys to success in maximizing value for money through customer-supplier relationships founded on innovative category management and strategic sourcing practices, key performance metrics and measures, as well as Total Cost of Ownership principles and collaborative contracting tenets. He has shared his knowledge through advisory engagements, as well as in developing and delivering training programs both on-line and in classrooms, in both open-enrollment and internal environments. Jim has assisted his clients through all phases and steps of contracting, negotiation, strategic sourcing and bidding processes, demonstrating value generation in excess of $250 million. His audiences and clients have included over 7,000 attorneys and commercial professionals students from over 1,000 corporations and public-sector entities.

Leave a comment