In the energy industry, it is common for parties to enter into legal agreements directing drilling and day-to-day operations of oil and gas wells. These agreements are commonly known as master service agreements.
Master Service Agreements and Indemnity
These agreements detail the rights and obligations that each party has during drilling operations. Prior to 1985, parties involved in the production of minerals could enter into agreements that required indemnification. This meant that parties could avoid liability for not only the other’s negligence, but from their own negligence as well.
Texas Oilfield Anti-Indemnity Act
As a response, the Texas legislature passed the Texas Oilfield Anti-Indemnity, codified in Tex. Civ. Prac. & Rem. Code § 127.003. The act provides that any agreement to indemnify pertaining to an oil and gas well is void if it purports to indemnify a person against damage caused by the sole or concurrent negligence of the indemnitee. Tex. Civ. Prac. & Rem. Code Ann. § 127.003 (West).
The Exception
Indemnity clauses may escape voidability through an express agreement that the parties will each obtain and maintain insurance covering their respective indemnity obligations.
If the parties agree to a mutual indemnity provision covered by insurance, the agreement is valid to the extent of the coverage and dollar limits each party has agreed to obtain for the benefit of the other party. If the parties carry unequal levels of insurance, indemnity is limited to the lower amount. Unilateral insurance agreements are only valid if they are in writing and the insurance does not exceed $500,000. Tex. Civ. Prac. & Rem. Code Ann. § 127.005 (West).
Conclusion
Texas has a unique anti-indemnity law when it comes to oil and gas contracts. If you are looking to enter into one of these contracts, talk to an attorney with experience in the field.
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