Oil and Gas Contract Management – How Can a CLM Help?
Contracts in the oil and gas industry? They’re a beast. With high stakes, massive projects, and a tangled web of legal complexities, it’s no wonder 83%1 of companies say contract management is their biggest headache. Whether you’re wrangling joint operating agreements, navigating production sharing contracts, or keeping service agreements in check, one thing is clear: doing it all manually is a disaster waiting to happen.
But here’s the good news: there’s a better way. Enter contract lifecycle management (CLM) software—a game-changer for oil and gas companies looking to tame the contract chaos. In this article, we’ll dive into the biggest challenges of contract management in this dynamic sector and explore how CLM software empowers companies to mitigate risks, ensure compliance, and optimize performance. Get ready to say goodbye to fragmented processes and hello to a whole new world of visibility, collaboration, and efficiency.
Critical Contract Types in the Oil and Gas Industry
The oil and gas industry relies on various contract types to manage the complex relationships between operators, service providers, suppliers, and other stakeholders. Understanding these critical contract types is essential for effective contract management in the energy sector.
Let’s look at some of the most common agreements used in oil and gas:
Joint Operating Agreements (JOAs)
JOAs are commonly used when multiple companies collaborate on an exploration or production project. These contracts outline each party’s rights, obligations, and financial contributions. JOAs help align the interests of all parties involved and establish a framework for shared decision-making and risk management.
Production Sharing Contracts (PSCs)
PSCs are agreements between a host government and an oil company, where the company bears the exploration and development costs in exchange for a share of the production. The host government retains ownership of the resources, while the contractor receives a portion of the oil or gas produced to recover costs and earn a profit. PSCs are prevalent in countries with significant state involvement in the energy sector.
Service Contracts
Service contracts are used when oil and gas companies hire specialized contractors to perform specific tasks, such as drilling, well maintenance, or equipment installation. These agreements outline the scope of work, performance standards, and compensation terms. Effective utility contract management requires careful oversight of service contracts to ensure quality, safety, and cost control.
Master Service Agreements (MSAs)
MSAs are long-term contracts establishing the general terms and conditions for future work between an operator and a service provider. These agreements streamline the contracting process by setting standard terms for pricing, liability, indemnification, and other key issues. When new projects arise, specific work orders or purchase orders are issued under the MSA, saving time and reducing legal review.
Exploration and Production (E&P) Licenses
Governments grant E&P licenses to oil and gas companies, allowing them to explore and extract hydrocarbons in a specific area. These contracts specify the duration of the license, royalty rates, and other obligations such as local content requirements or environmental standards. Successful energy contract management requires close monitoring of E&P license terms to ensure compliance and minimize risk.
Farmout Agreements
Farmout agreements are used when an oil and gas company transfers a portion of its ownership in a lease or concession to another party in exchange for certain benefits, such as funding for exploration or development. These contracts allow companies to share risks and costs, access new expertise or technologies, and optimize their portfolio of assets.
Key Contract Management Challenges in the Oil and Gas Sector
Inefficient manual processes lead to errors and wasted effort
Contract management for oil and gas often relies heavily on manual processes and tools like spreadsheets, emails, and shared drives. These outdated methods lead to significant inefficiencies and risks. When contract data is scattered across multiple sources, teams waste valuable time hunting for the latest versions and key details. This lack of a single source of truth also leads to duplication of effort, as different departments may inadvertently work on the same tasks without realizing it.
Manual data entry and version control also increase the risk of errors, which can have costly consequences in the high-stakes world of energy contracts. Aligning internal stakeholders and external parties during contract negotiation and approval becomes a time-consuming, error-prone process when relying on manual methods like emailing documents back and forth. Without a centralized platform for collaboration and negotiations, it’s difficult to keep everyone on the same page and drive contracts to completion efficiently.
Lack of visibility
Ever tried tracking down a contract change from six months ago—only to find five different versions, conflicting emails, and zero clarity on what’s final? Yeah, it’s a mess. And in an industry where one wrong clause can cost millions, that’s not just frustrating—it’s a real risk. When contracts are siloed within individual departments or systems, it becomes difficult for legal, procurement, finance, operations, and other functions to collaborate effectively. This lack of transparency leads to miscommunication, missed deadlines, and potential compliance risks.
For example, if procurement isn’t aware of the latest changes to a supplier contract, they may inadvertently order goods or services that don’t meet the updated specifications or pricing. Similarly, if legal doesn’t have visibility into contract expiration dates, they may fail to initiate renewal negotiations on time, leading to lapses in coverage. The complex and ever-evolving nature of industry regulations and standards adds another layer of difficulty. Ensuring that all contracts consistently adhere to the latest compliance requirements is a daunting task when contract data is fragmented and inaccessible.
Staying on top of milestones and performance
Oil and gas contract management requires diligent tracking of key milestones, deliverables, and performance metrics. However, simple calendar reminders make it challenging to stay on top of these critical details. Important dates can easily be overlooked, leading to missed deadlines and obligations.
This lack of proactive monitoring also makes it difficult to identify potential performance issues or compliance risks before they escalate. Without real-time visibility into supplier performance against SLAs and other contractual commitments, companies may not realize there’s a problem until it’s too late. Delayed or incomplete deliveries, quality issues, and other performance shortfalls can result in costly disputes, project delays, and damage to important supplier relationships.
A lack of automated alerts and notifications compounds these risks, as busy contract managers may not have time to manually check every milestone and metric.
How Contract Lifecycle Management Software Empowers Oil and Gas Companies
CLM software provides a powerful solution to the complex challenges of contract management in the oil and gas industry. CLM platforms offer a centralized, automated approach that boosts efficiency, reduces risk, and unlocks valuable insights for energy companies.
Centralized Repository and Powerful Search Tools Boost Productivity
One of the key benefits of oil and gas contract management software is the ability to store all contracts in a secure, centralized repository. This single source of truth eliminates the need for manual searches through scattered shared drives, ensuring that the latest versions are always accessible. Users can quickly find any contract, clause, or key date using intuitive search functionality and customizable filters.
Advanced OCR (Optical Character Recognition) capabilities extract data from scanned legacy contracts, making it easy to digitize and search paper agreements. With all contract information at their fingertips, legal, procurement, and business teams can work more efficiently and make informed decisions faster.
This centralized approach also reduces duplication of effort and inconsistencies between departments, as everyone is working from the same up-to-date data.
Enhanced Contracting and Approval Processes
No more chasing approvals in endless email chains. A solid CLM system automates routing, stores everything in one place, and speeds up the process— – closing deals faster and keeping you compliant without the headaches. A contract management system for the oil and gas industry enhances contract creation and approval processes, reducing cycle times and improving compliance. Preapproved template libraries and standardized clause language ensure that new contracts are authored quickly and consistently. Users can automatically populate agreements with relevant data from integrated systems like CRM and ERP, reducing manual data entry and errors. Automated workflows intelligently route contracts to the right reviewers and approvers based on predefined business rules, eliminating manual handoffs and bottlenecks.
Reviewers can collaboratively redline and negotiate contracts within the CLM platform, maintaining a full audit trail of changes. Electronic signature capabilities enable fast, secure contract execution, while automatic storage and indexing keep the contract repository up to date.
Proactive Insights and Alerts
CLM software provides oil and gas companies with the real-time visibility and proactive insights needed to effectively manage risk and optimize performance. Configurable dashboards offer a clear overview of key metrics like contract status, expiration dates, compliance issues, and supplier performance. This enables managers to quickly identify and address potential problems before they escalate.
Automatic alerts notify relevant stakeholders of upcoming deadlines, helping to prevent missed milestones and autorenewals. Customizable reports provide deep insights into contract data, such as supplier spend, negotiated discounts, and SLA compliance.
This actionable intelligence helps procurement and supply chain teams make data-driven decisions to optimize costs, mitigate risks, and strengthen supplier relationships. Energy industry software with AI capabilities can even analyze contract terms and performance data to identify high-risk clauses or underperforming suppliers, providing proactive recommendations for improvement.
Must-Have Features in an Oil and Gas Contract Management System
Flexible workflows for unique approval processes
A well-setup contract management system should offer highly configurable workflows that adapt to each company’s specific approval hierarchies and protocols. Look for a solution that allows you to easily set up complex approval routing rules based on parameters like contract value, type, risk level, or business unit. This flexibility ensures that the right stakeholders are involved at the right time, while automated reminders and escalations keep the process moving forward efficiently.
The system should also support parallel and serial approvals, as well as out-of-office delegations and conditional routing logic. By tailoring workflows to your unique needs, you can accelerate contract cycles while maintaining necessary oversight and compliance.
Seamless integration with key enterprise systems
To unlock the full value of contract management software, the system must integrate seamlessly with your existing enterprise applications. Deep, bi-directional integrations with CRM, ERP, procurement, and accounting systems eliminate data silos and manual rekeying of information. For example, an integration between your CLM and ERP ensures that contract terms flow automatically into purchase orders and invoices, reducing errors and saving time.
Connecting your CRM allows sales teams to generate contracts directly from opportunities, while pipeline data flows back into the CLM for more accurate revenue forecasting. These integrations enable more intelligent contract creation, execution, and analysis, while providing a single source of truth for contract-related data across the enterprise.
Powerful security to protect sensitive data
Given the high-stakes nature of oil and gas contracts, data protection and access controls are paramount when selecting a contract management system. Look for a solution that is ISO 27001 certified and uses industry-standard encryption both at rest and in transit. The platform should offer granular, role-based access controls to ensure that users can only view and edit contracts and fields relevant to their responsibilities. Features like single sign-on (SSO), two-factor authentication, and detailed audit trails further enhance security by streamlining access management and providing visibility into user actions.
For added peace of mind and business continuity, consider a cloud-based CLM solution that offers high availability, disaster recovery, and secure backups. With robust security measures in place, you can protect your sensitive contract data while enabling secure collaboration across the enterprise.
Wrap Up
Contract management in the oil and gas sector demands precision and control, especially when managing high-value agreements and navigating complex regulations. Relying on outdated processes exposes your business to avoidable risks, missed milestones, and inefficiencies. CLM software provides the tools you need to overcome these challenges—centralized access, automated workflows, and proactive alerts keep your contracts organized and your teams aligned.
Malbek’s CLM platform goes beyond basic contract management by delivering AI-driven insights, seamless integrations with your existing systems, and unmatched configurability to meet your unique business needs. With Malbek, you can simplify complex approval workflows, proactively manage compliance, and unlock valuable data for better decision-making. From joint operating agreements to supplier contracts, Malbek ensures your team has the power to turn contracts into a competitive advantage.
1: https://www.enverus.com/wp-content/uploads/2019/02/2018_Oildex_OpenContract_Whitepaper.pdf
