Dore Law - October 2019

THE D or É R eport

D ore L aw G roup . net

OCTOBER 2019

MASTER SERVICE AGREEMENTS: When to Bargain the Terms

Master Service Agreements (aka MSAs) are useful for establishing the broad terms between companies working together in exploration, drilling, and production. The MSA provides general terms and conditions that will govern each of the various, separate projects that will be performed during the term of the MSA. As the work begins, work orders (setting out the details of the work to be performed) are typically signed for specific jobs, but it is the MSA that ultimately governs the rights and responsibilities of the parties. The major areas of concern are the warranties and indemnities your company is agreeing to provide to the customer. Additionally, the terms of the of MSA may dictate when and how your company will receive payment, when and how your customer can dispute payment and withhold funds owed to you, and where and how you can seek legal relief. Failing to negotiate the terms of an MSA in a rush to get the customer can be a big mistake. When reviewing an operator’s MSA, oilfield services companies should pay special attention to any language purporting to contract away their company’s right to file a mineral lien for unpaid services on the operator’s property. While the case law on whether a party can contract away its statutory right to file a mineral lien is sparse to say the least, a federal bankruptcy court in the Northern District of Texas recently issued an oral opinion stating that such contractual waiver of a party’s Chapter 56 mineral lien rights was indeed enforceable.

While this unreported opinion of a federal bankruptcy judge has limited precedential value, services companies should keep in mind that Texas courts are “pro-freedom of contract” and, unlike Chapter 53 (mechanic’s and materialman’s liens), Chapter 56 does not contain an express prohibition on contractual waivers. It is always best to demand that such language be amended to allow the services company to file a lien when its rights thereto arise directly from the operator’s failure to pay the service company. If the operator demands that the language bar the service company from filing a lien on amounts disputed by the operator, then you should make sure the invoice dispute language is as narrow and restrictive as possible. Such restrictions should allow only bona fide, good faith disputes by operator and only after it provides written notice to the service company detailing such dispute within a reasonable time frame. Here is another tip for in-house counsel and credit managers at oilfield services companies: If your company frequently provides equipment or services that are not furnished directly to the drill site, such as housing and telecommunications equipment for an off-site housing yard, make sure to have a due diligence system in place that will allow you to find the name of the well(s) and lease(s) being serviced from that off-site location. For example, such a due diligence system may consist of using your own work order forms which require your employees, or even the customer, to set out the identifying

information of the property on which the goods and/or services will be furnished. This in turn will allow your outside legal counsel to prepare and file a proper Chapter 56 mineral lien on those properties when the operator or contractor fails to pay your company for its goods and services. In general, under Chapter 56 of the Texas Property Code, any activity that helps facilitate the potential production of oil and gas will constitute a “mineral activity.” Case law supports your right to file a mineral lien in such a situation, and courts have found a variety of services to constitute “mineral activity” including catering services to an offshore rig, plumbing work incorporated into the living quarters of an offshore platform, and rentals of equipment or casing. A little due diligence upfront can go a long way when, and if, things turn sour down the road! Of course, many more terms in an MSA are important to your business, especially when the job doesn’t go as expected. Doré Rothberg McKay represents more oilfield services companies than any law firm in Texas. We offer a very affordable fixed- fee service to review most MSAs for you in 48 hours for only $500 . Our legal staff understands the issues and best practices because we are constantly looking at Master Service Agreements from across the industry and from operators of all sizes.

-Andrija “Andre” Stanojcic

281.829.1555 • 1

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