Mediations involving oil and gas cases share the same basic process as any mediation. However, given the current economic times and who the parties tend to be, they may call for a different approach. Lawyers and mediators who understand the traits of oil and gas executives and the nature of the business are much more likely to help their clients turn a dispute into a deal.
Given their varied nature, oil and gas cases may take the form of surface access disputes, royalty disputes and a wide variety of commercial disputes between companies. Commercial disputes, while complex, provide opportunities for business solutions that may not be present in other types of cases. Moreover, during a boom like those in the Permian Basin and the Eagle Ford Shale, every hour spent on a dispute is an hour of lost opportunity.
Parties to oil and gas cases often bring a number of unique characteristics to mediation. To begin with, the decision-makers tend to be relatively sophisticated and highly trained in specific areas like land and title, engineering or geology. The decision-maker’s background may make a significant difference in how he or she approaches a problem. Due to the nature of the oil and gas business, decision-makers are also often risk-takers who are not afraid to consider atypical solutions.
In addition to the decision-makers’ characteristics, the parties usually are accustomed to the creative solutions required to make complex deals happen. More than in most industries, they are interested in maintaining the possibility of future transactions with the adverse party. Because neither party knows when they will want to be in an area where the other is established, oil and gas entrepreneurs, while competitive, usually are not intent on burning bridges.
Few industries engender creative solutions more than the oil and gas business. These solutions may take the form of unique agreements like farmout agreements, term assignments, acreage trades, areas of mutual interest and a myriad of others. Forms of payment may include carried interests, production payments, back-in interests and, again, a host of others. The possibilities are seemingly infinite.
Accordingly, the mediator’s challenge is to harness the parties’ talents by applying oil and gas business dynamics to find a solution with which the parties can live and, perhaps, from which they even can prosper. Counsel and the parties best meet this challenge with advance preparation. Preparation can take many forms, but, in my experience, the following steps go a long way toward creating a solution that leaves the parties satisfied.
Deciding which people should attend the mediation is an important first step. Obviously, a decision-maker with authority must be present. The decision-maker needs access to a great deal of information, but this does not mean the data providers should attend.
Too many people in the room can inhibit the clear, efficient thinking required to make an important, real-time decision. Those providing data must work in advance to gather and summarize the data. It then may be useful for them to be available by phone or electronically should parties to the mediation need more data.
However, it is critical to have assistance available to document an unusual or complicated settlement. There is no hard and fast rule as to how much help is too much, but, at the outset, counsel should give careful thought to the topic.
Attorneys should pay some advance attention to what type of settlement might be available. What types of industry contracts might solve the problem? What does each side have that might interest the other? How has one side worked with the other side in the past? What have other parties been able to accomplish with them in the past? What kind of business does the client hope to do with the other party in the future? What is the client doing elsewhere that might apply to this situation?
Attorneys should answer these questions to generate and respond to opportunities; however, there is a danger of getting too enamored with a single idea and, consequently, disregarding other, previously unforeseen opportunities.
As a general rule, it is better for a settlement to be no more complicated than the problem bringing the parties to mediation. Oil and gas disputes, however, are often resolved with complex transactions going forward. This makes documentation at the end of a successful mediation critical. More often than not, the mediated settlement agreement contemplates further, more comprehensive document preparation. Nevertheless, the original agreement must be sufficient to avoid future conflict or re-trading.
Parties and their counsel are well served to consider in advance what the agreement should look like. For example, probable exhibits, such as forms of joint operating agreements or similar contracts, should be readily available for incorporation into the primary agreement.
In addition, property descriptions sufficient to satisfy the statute of frauds should be accessible. In the age of laptops and electronic communication, there is no reason to be without such information with a little advance preparation.
Everyone is tired at the end of a substantive mediation, yet the end is every bit as important as the beginning. Preparing in advance avoids mistakes when everyone is tired and ready to catch their planes.
Oil and gas executives and entrepreneurs make deals for a living. They intuitively understand the larger cost of disputes: lost time and opportunities. Re-framing a dispute as a deal-making opportunity greatly enhances the likelihood of a successful mediation. Lawyers and mediators can help guide discussions in this direction when possible. Hopefully, in the end, however, they will have the good sense to get out of the way and let the dealmakers do what they do best.