The standard of care is an important provision in any operating, management or services agreement because it sets forth the expectations of the parties as to how the contract should be carried out. It also functions as the benchmark by which the service provider’s performance under the contract will be measured. Parties on both sides of the table should have a clear understanding of what the standard of performance is under the contract and how it applies to the services provided.
In commercial contracts for energy industry operations, two different standards of care appear most often: The “reasonably prudent operator” standard and the “good and workmanlike manner” standard. We are seeing cases where there is (1) an interchangeability of a “reasonably prudent operator” standard with a “good and workmanlike” standard (or a redundancy of the two) and (2) a general lack of understanding as to what those standards mean. In this article, we explain the difference between the two standards and why they should not be viewed as interchangeable or redundant across all energy industry commercial contracts.
Given the high concentration of commercial contracts providing operations and services related to oil and gas, heavy infrastructure, petrochemicals and, increasingly, renewable energy projects located in Texas and Louisiana, we’ve chosen the body of law from those two states as the lens through which to examine these competing standards.
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