Oil and Gas Law: How to Manage Legal Risk Across the Energy Sector

Securing drilling rights in the upstream segment requires the acquisition of mineral leases from federal, state, or private landowners, and the terms of each lease establish the royalty rate, the primary term during which drilling must commence, and the operational obligations the lessee must satisfy to maintain the lease in good standing. A company that fails to pay royalties accurately or drill within the primary term risks lease termination.

Mineral rights and mineral rights ownership counsel can advise on the specific mineral rights acquisition, leasing strategy, and drilling rights requirements and develop the mineral rights leasing and drilling rights acquisition strategy.

Offshore drilling on the Outer Continental Shelf is governed by the Outer Continental Shelf Lands Act, which authorizes the Bureau of Safety and Environmental Enforcement to issue drilling permits and enforce safety and environmental regulations, and a company that commences drilling without the required permits or fails to maintain blow-out prevention equipment in proper working order faces permit suspension, civil penalties, and potential criminal liability. The National Environmental Policy Act requires the preparation of an environmental impact statement before the government can approve a major offshore leasing program or a site-specific drilling permit.

Energy and environmental law and land use and real estate counsel can advise on the specific oil and gas regulatory legal framework and develop the upstream regulatory compliance and land use strategy.

Energy regulatory and environmental compliance and litigation counsel can advise on the specific offshore drilling compliance and environmental permit requirements and develop the offshore drilling environmental compliance strategy.

The Oil Pollution Act of 1990 imposes strict liability on the responsible party for an offshore facility spill for all removal costs and natural resource damages, and the statutory liability cap can be eliminated and replaced with unlimited liability if the spill was caused by gross negligence, willful misconduct, or violation of an applicable federal safety or operating regulation. The Deepwater Horizon disaster demonstrated that deepwater oil spills can result in liability exposure in the tens of billions of dollars, including costs for well containment, shoreline cleanup, natural resource damage assessment, and economic loss claims.

Environmental liability and environmental law compliance counsel can advise on the specific Oil Pollution Act liability and deepwater spill remediation obligations and develop the OPA liability defense and oil spill remediation strategy.

A joint operating agreement governs the rights and obligations of the parties to a petroleum exploration and production venture, including the designation of an operator, the allocation of costs and revenues among the working interest owners, and the remedies available to non-operating parties when the operator fails to meet its obligations. The JOA's force majeure clause determines whether a non-performing party can avoid liability when regulatory actions, extreme weather events, or geopolitical developments prevent or delay operations.

Project finance and energy and construction counsel can advise on the specific joint operating agreement and contractual risk allocation requirements and develop the JOA compliance and project risk allocation strategy.

A growing number of state and local governments have filed lawsuits against major oil and gas companies seeking damages for climate-related harms attributable to the defendants' production of fossil fuels, and companies defending these suits must assess whether federal law preempts state climate claims and whether the claims are barred by the applicable statute of limitations. The SEC's climate disclosure rules require public companies to disclose material climate-related risks, greenhouse gas emissions, and the financial impacts of climate-related events, creating obligations that oil and gas companies must satisfy while managing the risk that their disclosures will be used as evidence in climate litigation.

Climate change and environmental and climate change counsel can advise on the specific energy transition litigation and climate compliance defense requirements and develop the climate litigation defense and energy transition compliance strategy.

The ESG disclosure obligations applicable to oil and gas companies include the SEC's climate disclosure rules, state-level requirements, international reporting standards, and the expectations of institutional investors who condition capital access on satisfactory ESG performance. Decommissioning obligations are a significant and often underestimated liability in the oil and gas industry, because the cost of properly plugging abandoned wells, removing offshore platforms, and restoring drill sites can far exceed the financial assurance posted with the government.

ESG compliance and carbon emissions compliance counsel can advise on the specific ESG disclosure obligations and decommissioning liability risks and develop the ESG disclosure compliance and decommissioning liability management strategy.

International oil and gas contracts, including production sharing agreements and joint operating agreements with national oil companies, are typically governed by the laws of the host country and provide for dispute resolution through international arbitration administered by institutions such as the International Centre for Settlement of Investment Disputes, the International Chamber of Commerce, or the London Court of International Arbitration. An oil and gas company entering into a long-term production sharing agreement with a host government must assess the political stability of the host country, the enforceability of international arbitration awards, and the risks that changes in the host country's tax or regulatory regime will reduce the profitability of the project.

International arbitration and international dispute resolution counsel can advise on the specific international petroleum arbitration and cross-border dispute risks and develop the international petroleum arbitration and contract dispute resolution strategy.

An oil and gas company that receives a notice of violation from the Bureau of Safety and Environmental Enforcement, an Environmental Protection Agency administrative complaint, or a Department of Justice subpoena must promptly assess its legal obligations with respect to document preservation, regulatory cooperation, and voluntary disclosure, and should retain experienced legal counsel immediately to manage the response. Proactive engagement with regulators through voluntary compliance programs, self-disclosure of identified violations, and cooperation with government investigations can significantly reduce the severity of penalties and the risk of facility shutdown orders.

Energy capital markets and energy transition counsel can advise on the specific regulatory enforcement defense and government investigation response requirements and develop the oil and gas regulatory enforcement defense strategy.