Know Your Contracts

Throughout my oil and gas career, I have been fortunate to work with a number of leaders and mentors who taught me the importance of spending the time to understand the contracts we negotiated and to do the little things right. If you are subject to fifty-page contract, you and your entire team should pay close attention to the details and know the dates and triggers of the contract inside and out. 

One of the most memorable deals I have seen is when one party failed to pay close attention to the details and made a major mistake.   The deal involved a large package of oil and gas assets. The contract involved deviated from the standard due diligence period to which most were accustomed.  The due diligence period in the contract said the notice of benefits and defects were due 180 days after closing. The first party used 180 days to calculate the deadline.  For example, if this deal closed on 1/20/20, then 1/20/20 plus 180 days is 7/18/20. Seems like simple stuff, right? The second party assumed 180 days equaled 6 months. So, in the 1/20/20 closing example, the counterparty calculated 7/20/20 as the deadline.  The party using 6 months sent a letter claiming there were over $100 million in defects two days late. By miscalculating and failing to meet the deadline, they essentially gave up their rights under the contract to claim defects.  “I missed the deadline.” is not something you want to have to go in and tell a client or boss, especially when millions of dollars are at stake.

There is a huge lesson here. Oftentimes, we find ourselves being too busy and feeling like there isn’t enough time in the day. It is important that we don’t allow that feeling to cause us to let our guard down and miss seemingly simple, but significant details. The best way to avoid this is to always put safeguards into place and make sure to know your contracts.

Does anyone else have a story about contracts that would be a good read and helpful for others think about?