Environmental and Energy Law Blog

Thursday, July 19, 2018

What is the Texas Oilfield Anti-Indemnity Act?

Oil drilling operations can expose operators to liability for a number of issues, including personal injury, property damage, pollution, and other damages. One way in which parties mitigate these risks is the inclusion of an indemnity clause in their drilling contracts. An indemnity clause is a contractual transfer of risk between parties to either prevent loss or compensate for a loss which might occur due to a specified event. In Texas, such clauses are limited by a law called the Texas Oilfield Anti-Indemnity Act. Below is an overview of the Act.

Specifics

As noted above, the Texas Oilfield Anti-Indemnity Act prohibits certain types of indemnity clauses in oil and gas contracts. Specifically, the Act prohibits:

  • A covenant, agreement, or promise;

  • Contained in or affecting;

  • An agreement pertaining to a well for gas or oil;

  • If it purports to indemnify a party for damage resulting from the concurrent or sole negligence of the indemnitee;

  • Arising from death, personal injury, or property injury.

Exceptions

Although indemnity agreements regarding gas and oil are void pursuant to the above law, Texas provides several exceptions to the prohibitions contained in the Texas Oilfield Anti-Indemnity Act. In fact, the Texas Oilfield Anti-Indemnity Act allows participants to circumvent its prohibitions via an agreement between parties for the procurement of insurance coverage for the indemnity obligations. Therefore, when a party agrees to an indemnity provision that is covered by the aforementioned insurance, such an agreement is valid to the extent of the coverage limits that each party has expressly agreed to procure for the benefit of the other contracting party. However, it is important to note that when the parties obtain different levels of insurance, the indemnity obligations are limited to the lesser amount of insurance procured.

Texas Oil and Gas Attorney

Oil and gas laws are always changing. Therefore, it’s imperative that those involved in the energy industry have reliable, experienced, and knowledgeable legal representation to help guide them through the ever-changing Texas energy landscape. In the areas of oil and gas, it’s particularly important to ensure that all contracts are properly drafted. Oil and gas contracts are sophisticated documents, and it’s important that they are drafted in a manner that ensures the rights and responsibilities of all parties involved. In addition, it is important that parties seeking to limit liability craft their agreements around the prohibitions of laws such as the Texas Oilfield Anti-Indemnity Act and the Texas Express Negligence Doctrine. At the Law Office of C. William Smalling, P.C., we are highly experienced in the drafting and review of oil and gas contracts, including surface use agreements, joint operating agreements, farm-out agreements, master service agreements, drilling contracts, licensing agreements for use of seismic or technical data, and nondisclosure agreements. If you are in need of expert oil and gas legal representation, contact us today for a consultation.


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