Mediation as a growing trend in oil and gas dispute resolution

Business law is becoming increasingly complex, and the oil and gas companies that experience litigation suits from lessees dissatisfied with their contract or experience may well find themselves facing additional complexities in court particularly since public policy favors an increase in production of oil and gas and may be less patient for traditional methods used in its production 1. It is in this manner that parties and courts will face new issues in covenant litigation, whilst parties will spend enormous amounts of time and money in endless litigation before eventuating in, potential future acrimony. This is the conventional litigious procedure that mediation succeeds in circumventing.

The benefits of mediation are well-known. According to Boulle, 2 for instance, surveys of those who have participated in mediation processes consistently reveal unanimous satisfaction with the service. It is to the description of mediation that this essay, therefore, proceeds, evaluating mediation in all its complexities, detailing the process of mediation, stating limitations to mediation, and describing alternatives. Finally, the essay concludes with a synopsis of the benefit of mediation to the industrial sector in general and to the industry of oil and gas in particular.

2. OVERVIEW of MEDIATION

This essay presents mediation as a favorable option to litigation. Mediation is defined as the situation where, in terms of a conflict, a non-biased third party professional steps in to formulate a win-win situation where both parties are enabled to understand the other's position and arrive at mutually desirable and fixed terms. Unlike similar interventions such as arbitration, counseling, and certainly legalistic, the facilitator refrains from actively involving himself or being advisory and acts in a purely facilitative position 3.

The benefits of mediation include the following:

Parties are made aware of each other's interest and priorities in a non-conflictual open setting.

Parties are enabled to healthily vent their emotion in a protected setting

Parties set themselves to work through an agreed upon agenda with a professional guiding their progression and development through these sessions

The roles of the constituents (or people involved in the case, such as other business partners etc.) are identified

Parties arrive at knowledge of a constructive resolution that can be used in future disputes 4

Increasingly popular, mediation is commonly used in a variety of fields with the business or commercial sector typically manifesting one of its largest uses of applications 5. In this manner, it is suggested that the oil and gas industry would profit enormously from adopting the medium, and the purpose of this essay is to elaborate on this thesis.

2.1 WHAT IS MEDIATION

Otherwise known as an alternative dispute regulation (ADR), mediation is a legal process where trained neutral professionals help two or more parties negotiate and come to some self-determined agreement regarding their particular dispute. Mediation is used in a variety of situation including commercial, domestic, legal, diplomatic, family, and workplace matters 6. The Internal Revenue Service, for instance, regularly favors mediation as a method to resolving its tax disputes 7 .

Confidentiality of sessions is a given with privacy allocated to concerned parties and leakage of information forbidden to members not connected to the case. As a non-adversarial strategy of dispute negotiation, sessions resemble a win-win agreement where parties, through help of the mediator, attempt to arrive at mutual benefit, rather than the outcome being a win-lose condition where one or other loses or where a third-party is compelled or chooses to intervene. The mediator must be wholly partial, and he or she uses various techniques to enable the parties to negotiate their dispute and differences.

The style of mediation falls into three categories. These are: evaluative, transformative, and facilitative. Evaluative mediation differs from the other two in that the practitioner evaluates the strength and weakness of each of the arguments in the eventuality that they should appear in court. Evaluative mediation, too, has as its objective settlement of the argument, whilst transformative mediation sees conflict as a crisis in communication and as an object to enable the parties to better their communication through conflict-resolution strategies with one another 8.

The benefits of mediation in this case include that they prevent the monetary expense of long-drawn out cases in court, as well as the stress associated with the manipulating and ordeal of the legal procedure. The amount of time is also circumvented - a court case can draw on for years whilst mediation may be resolved in several hours. Furthermore, the partners, can generally reach a more amicable, less acrimonious agreement than they would otherwise have accomplished via the legal profession where each abuses the other, and where a third party (most often the judge) would have to intervene to promulgate a decision that would necessarily be unsatisfactory to one or either of the parties. Mediation also offers strict confidentiality to the extent that the legal system cannot force a mediator to testify in court. Finally, mediation offers the possibility for multiple and flexible decisions to a dispute and grants parties the empowerment to arrive at the decision themselves. In a legal situation, however, the decision is enforced by an external source.

At times, however, mediation may prove unsatisfactory in that complaints remain unresolved or other issues emerge. In that case, issues not resolved by mediation are referred in court (via a process called litigation) and addressed by a magistrate, judge, or jury. Similarly, parties demanding a follow-up on mediation can also bring their complaint to court where their issue is addressed in a similar manner. There is more on this later.

2.2

WHY USE MEDIATION in the OIL and GAS INDUSTRY

Mediation is often used in commerce and business and is valuable to the enterprise since it helps individuals arrive at a win-win agreement at a minimum of cost and time. This is particularly so given today's complex legal environment where the rise of international trade law, continental trading blocs, the world trade organization and its opposing anti-globalization movement are just a few of the institutions that indicate the global legal complexity with which international businesses are faced today9.

Business people unschooled in the increasingly complexities and nuances of the law can be -- and are - regularly deceived by lawyers who, whether willfully unscrupulous or not, could readily lead vulnerable parties through lengthy and cost-consuming legalistic processes where a person's business would inevitably be squandered in the process. More so, legalistic procedures, by disappointing one of the parties, often fail to provide closure guarantees to the belligerent situation, and this can result in a potential spurt of the conflict at some future time. Since mediation is congruent to the amicable win-win situation, mediation seems to be a highly satisfactory resolution for the oil and gas industry to adopt. This is particularly so the commercial mediator helps parties arrive at a dignified and mutually respectful solution where the buying and selling proceeds under harmonious, satisfactory conditions in an amicable, confidant manner.

As with any business environment, the oil and gas company has problems that are typically its own. One of these involves the fact that it buys or leases land that promises to be an invaluable resource for producing gas or oil. The landowner, as lesser, authorizes the oil company, as lessee, to conduct operations on the landowner's land at the oil company's sole risk and expense, whilst, in return, the landowner receives certain consideration consisting primarily of a bonus and royalties 10.

If amicable, this oil and gas lease between landowner and company may last for generations -- both share mutual interest of profit from gas and oil production. However intermediate interests and goals of lesser and lessee may sometimes diverge and become quite vociferous and it is in this manner that disputes between lesser and lessee arise which will need to be legally adjudicated.11Business law has become ever more complex in terms of oil and gas due to demands from public policy that favors an increase in production of oil and gas and calling for changes in exploration, drilling, and enhanced recovery technologies, may be less patient for traditional methods used in its production 12. It is in this manner that parties and courts will face new issues in covenant litigation and, subsequently that enormous amounts of time and money will be spent in endless litigation whilst the business itself may be at risk.

As an extension, gas and oil companies may well find themselves faced with many legal issues that are unfamiliar and intimidating. These include: terms in oil and gas leases that are ambiguous and confusing 13; the nuances in which gas leases differ from those of oil leases: how royalties are calculated; the mineral rights in oil and gas lease; oil and gas lease terms; oil lease sale; and oil lease pooling. In a world that is becoming increasingly complex, and where oil and gas is becoming an increasingly valued resource, rules and regulations are added almost day by day. This can make the law a tortuous and torturous procedure.

Such disputes are often resolved under litigation, but litigation is costly and time-consuming as well as potentially erosive to what may have been at one time an aimicable relationship. It in this manner, therefore, that mediation is preferable.

2.3

ROLE of MEDIATOR in the INDUSTRY

Acting as a bridge between the parties, the mediator, arbitrarily, assumes either a purely facilitative role in which he restrains himself from interfering, or serves as an evaluator where he evaluates the nuances of the case and recommends a basis for settlement. However -- and this is where mediation differs from arbitration -- the mediator is limited from mandating a particular outcome which causes the mediation process to manifest itself as inherently non-binding 14.

A creative mediator practices extremely acute listening skills in order to tease out the interests that are most important to each party. To that end, he or she will identify different preferences amongst the parties and design a package where each party receives what it values most and concedes what it values less than the other party.

Focus will be not only on the interests and relationship of each party but also on cross-interests and cross-relationships that exist within the various departments and divisions of, for instance (taking the case of the oil and gas company), the lesser, as well as the inter-family or other interests that may exist, for instance, amongst the lessee. The mediator looks into the internal organizational processes and identifies potential blockages, bringing these open to the various parties and encouraging them to resolve these issues.

3. PROCEDURE for MEDIATION and LIMITATIONS to MEDIATION

The procedure for mediation, often, differs from one mediator to another depending on the mediator's specific style and personality. On the whole, however, mediation commonly includes the following stages:

There is a controversy between two or more parties and a mediator is brought in to convene, to listen, to help the parties arrive at a mutually agreeable form of solution.

Each of the parties explains and details their story

The issues are identified by a facilitator

Respective interests and objectives are clarified and abundantly specified.

Mediator helps parties perceive subjective evaluations in a more objective manner.

Mediators helps parties arrive at options

The facilitator, too, assists parties in evaluating strengths and weakness of their various options and assess potential effects of these options

Proposed solutions are adjusted and refined

Agreements are finally drawn up and implemented in a formal draft. 15

At times, however, mediation may prove unsatisfactory in that the mediator is considered subjective by one of the parties, or complaints remain unresolved, or other issues emerge. In that case, issues not resolved by mediation are referred in court (via a process called litigation) and addressed by a magistrate, judge, or jury. Similarly, parties demanding a follow-up on mediation can also bring their complaint to court where their issue is addressed in a similar manner.

4.

MEDIATIONS and OTHER FORMS of DISPUTE SETTLEMENT

Not all disputes lend themselves well to mediation.16 Both parties, for instance, have to be open to mediation, as well as each either possessing legal representation or neither possessing legal representation at the time of their meeting a mediator. (if each has a legal representative, both representatives should be present during the sessions).

Finally the legal capacity of the parties must, of course, be considered before mediation is entered upon. Mental illness or disability and, of course, the age of a minor preclude mediation from serving as an option. In such a case, alternatives to mediation consist of the following options each of which will be discussed below17.

4.1

ARBITRATION

Mediation differs from arbitration in that whilst the mediator does not impose a solution on either one of the parties, an arbitrator does, and this decision is recognized by the court and is legally binding.

The arbitrator hones in on the prime issue of the conflict, and, in the event that negotiation and mediation fail, actively steps in to resolve the conflict. He or she then renders a written report presenting her decision, which, then, becomes binding and resilient to appeal or to judicial review.

Arbitration has its advantages in that it offers a more relaxed and, therefore, less-stressful environment than does litigation. Its rules of evidence are more realized than are those, for instance, of mediation or counseling. It is less adversarial than is litigation, and there is more open dialogue between the arbitrator and the respective parties than there is in a litigating environment. More so, since the arbitrator adopts an interventionist approach, the entire program is most effectively slanted to settle disputes in a cost-effective and time-reducing manner, and, in this way, it is similar to that of mediation. Its benefits are auspicious for the underrepresented businessperson who benefits from its relaxed rules of evidence and from its arbitral setting, and he, therefore, has a better opportunity to more fully and confidently present his case. On the other hand, since arbitration is a more structured program than negotiation or mediation, it can be more legally challenging for the individual since arbitration presents more procedures and obstacles than mediation does thus possibly intimidating the untrained business person in communicating her case. Finally, since the arbitrator's decision is binding, this can be both advantageous and disadvantageous for both parties concerned: advantageous in that it provides closure to the case, whilst disadvantageous in that it lacks flexibility to re-open or maneuver if necessary, and the arbitrator's decision may be seen as unjustified and biased to one or more of the parties18.

Although arbitration is valued in that it is generally considered time eliminating, large and complex cases can manifest the same costly and time-consuming characteristics that are manifest in litigation thus arbitration may provide little improvement in that area.

Arbitration (otherwise known as binding arbitration) is generally conducted in front of one or three arbitrators and often resembles a mini-trial with rules of evidence. More formal than mediation, it is less costly and less time-consuming than litigation and generally stands as bridge between the two 19.

Occasionally, mediation and arbitration are conjoined with a different individual representing the part of each.

4.2

LITIGATION

The conduct and operation of a lawsuit is called litigation. The only manner in which litigation may resemble mediation is that it is a form of dispute resolution, otherwise it is utterly opposite in that mediation seeks to empower parties to arrive at a win-win solution formed between themselves with the aid of a facilitator, whilst litigation involves a third party (the judge, attorney, or jury) intervening and imposing a decision that will be unsatisfactory to, at least, one of the involved members.