Safeguarding Your Operations: Best Practices for the Oil & Gas Industry to Prevent Litigation

Everyone enters a business relationship with optimism and an expectation that the person ordering goods or services will promptly pay for those goods and services; however, even the best of relationships can turn sour when funds are scarce and wells are dry.

The old adage “it is better to have and not need than to need and not have” still rings true. It is always best to document all business dealings (and hope they are not needed) than to allow customers to dispute thousands or millions of dollars owed because of insufficient records.

The oil and gas industry operates in a highly regulated and often contentious environment, where multimillion-dollar projects, complex supply chains, and environmental scrutiny converge. Whether you're a small upstream operator or a multinational service provider, avoiding legal disputes and ensuring compliance begins with smart, strategic operations. This article outlines five core areas where disciplined practices can protect your business.

1. Best Record-Keeping Practices

In oil and gas, where contracts can span years and payments can involve multiple tiers of subcontractors, meticulous record keeping is not optional—it’s essential.

Key Practices:

• Standardized Invoicing: Create invoice templates that include job numbers, well names, lease names, location(s), time logs, material breakdowns, and supporting documentation such as delivery tickets or work approvals. Be specific and avoid vague line items to reduce invoice disputes.
• Chain of Custody: Log who received, reviewed, and approved each invoice. In litigation, proving your process can be as important as the invoice itself, and the person signing off on the invoices can become a key fact witness.
• Get it in Writing: If there is a change order, if someone prematurely terminates an equipment rental agreement, if you notify a customer that they are in breach of a contract (whether a credit agreement or Master Service Agreement), make sure there is a corresponding written document. This can include formal contract amendments, emails, or even text messages. A written document is more difficult to dispute than an oral agreement.

Tip: Periodically audit your invoice system. Missing approvals or unsupported costs are among the most common causes of litigation and withheld payments in the industry.

2. Safeguarding Company Information

From proprietary drilling techniques to sensitive contracts with operators or landowners, the oil and gas sector is rich with intellectual property and business-critical data that should be protected from outside sources.

Best Practices:

• Cybersecurity Protocols: Implement two-factor authentication, encrypted communications, and routine network monitoring. Employees working at remote sites or using mobile devices should follow strict access protocols.
• Access Controls: Only authorized personnel should access sensitive operational, contractual, or financial documents. Use role-based access levels in your document management system and regularly update permissions.
• Employee Training: Conduct regular training on phishing, data handling, and password management. Field staff are often the most vulnerable to social engineering attacks.
• NDAs and Confidentiality Clauses: Every employee, subcontractor, and partner should sign robust nondisclosure agreements—especially during the bidding and development phases.

Tip: Don’t assume your vendors are protecting your information. Ask about their data security policies and make cybersecurity part of your vetting process.

3. Clear Communication

Misunderstandings between teams or with third parties can quickly escalate into costly delays or legal disputes. In a high-stakes, high-complexity industry like oil and gas, precision in communication is key.

Internal Communication:

• Daily Briefings and Logs: Especially in field operations, maintain communication logs that track decisions, safety incidents, and scope changes. Include the nature of work done each day on field tickets.
• Documentation of Changes: Any change to project scope, cost, or schedule should be documented and communicated in writing—preferably through formal change orders.

External Communication:

• Consistent Messaging: Ensure that clients, regulators, and landowners receive consistent and accurate information on projects.
• Client Relations: Prompt, clear communication with customers and operators builds trust and reduces disputes. Don’t delay bad news—share it with a plan for resolution. If the customer stops responding to communications and stops making payments as required by the terms of the contract or invoices, it may be time to speak with an attorney.

Tip: Never assume verbal communication is sufficient. If it’s important, document it.

4. Pre-Suit Mediation: Resolving Disputes Without Court

Litigation is time-consuming, expensive, and often public—none of which benefits companies operating in a reputation-sensitive industry like oil and gas. Pre-suit mediation offers a path to resolution that is collaborative and confidential.

When to Use It:

• Contract Disputes: Payment issues, scope disagreements, or performance claims.
• Operational Conflicts: Disputes over land use, environmental incidents, or joint venture disagreements.
• Employment Issues: Allegations of wrongful termination or discrimination.

How It Works:

• Both parties agree to meet with a neutral third party (mediator) who facilitates discussion and compromise.
• Mediation is non-binding, which means the outcome is only enforceable if both parties agree.
• Mediation can often preserve business relationships and lead to creative solutions unavailable in court.

Tip: Include a mandatory mediation clause in your service contracts and vendor agreements. This can save significant legal costs and open the door to earlier resolution.

5. Legal Risk Assessment

Are your contracts current? Do they have clear dispute resolution and indemnity clauses? In a dynamic legal environment—shaped by global politics, environmental regulation, and labor laws—routine legal risk assessments are critical. Conduct an annual review of your customers’ payment track record, open communications, and willingness to resolve disputes early to assess whether the business relationship is worth continuing. A small upfront investment can prevent catastrophic losses later.

Conclusion

Legal disputes and regulatory penalties can be devastating to oil and gas companies, particularly in an era of intense scrutiny and market volatility. But by embracing best practices in record keeping, data security, communication, and legal risk assessment, companies can proactively reduce their exposure and focus on what matters most: safe, efficient, and profitable operations. For leaders in the oil and gas industry, the message is clear: Strong systems prevent weak outcomes. Investing in your processes today means avoiding costly consequences tomorrow.

To work with attorneys who understand how to keep you protected, give us a call or contact us through our website: (281) 829-1555. Doré Rothberg – Houston & Fort Worth Law Firm.