Evaluating Oil and Gas Contracts: 7 Key Factors to Consider

In the oil and gas industry, contracts are more than legal documents, they’re the foundation of every exploration, development, and production agreement. Whether you’re negotiating a new Production Sharing Contract (PSC), reviewing Joint Operating Agreements (JOAs), or conducting due diligence on existing assets, a clear understanding of contractual terms is essential.

At Navigator Petroleum Consulting, we help operators, investors, and stakeholders evaluate oil and gas contracts through a multidisciplinary lens, bringing together legal, technical, and financial expertise to reduce risk and protect project value. In this blog, we’ll explore the seven key factors to consider when evaluating oil and gas contracts.

The fiscal structure of a contract is one of its most impactful components. It dictates how revenue is distributed between the host government and the operator and directly influences the project’s economic viability. Key elements to review include royalty rates, cost recovery caps, tax responsibilities, and profit oil splits. Contracts with complex or unclear fiscal mechanisms can diminish profitability and expose stakeholders to unexpected financial obligations. Navigator Petroleum helps clients assess and model different fiscal scenarios to determine whether the terms align with both operational realities and long-term ROI expectations.

Operational governance determines how decisions are made and who controls critical functions such as drilling, budgeting, and vendor selection. Contracts should clearly define the operator’s authority and the structure of joint operating committees (JOCs). Decision-making thresholds, whether simple majority, supermajority, or unanimous, should align with the risk levels of the decisions involved. At Navigator, we help companies evaluate whether the governance framework supports efficient operations and equitable stakeholder input, especially in joint ventures or multi-party projects.

Regulatory alignment is non-negotiable. Contracts must comply with local laws, environmental regulations, and government mandates on local content. This could include employing local labour, using domestic suppliers, or investing in community infrastructure. It’s also crucial to ensure that environmental impact assessments (EIAs), emissions controls, and decommissioning responsibilities are clearly spelled out. Navigator Petroleum Consulting ensures your contract is structured to meet host country regulations, minimizing legal risk and avoiding costly project delays.

Transparent cost-sharing arrangements are critical for trust and accountability between partners. Contracts should define how operational and capital expenditures are divided, outline what expenses are recoverable, and include detailed audit provisions. Without the ability to audit or question expenditures, non-operating partners may be left in the dark. Navigator supports clients in structuring cost terms that provide clarity, reduce disputes, and ensure that financial controls are in place from day one.

A strong contract anticipates risks before they arise. This includes clearly defined force majeure clauses that cover events like natural disasters, political unrest, or pandemics. Insurance obligations and liability provisions should also be explicitly laid out. Furthermore, the contract should define how disputes are handled, whether through arbitration, mediation, or local courts. With deep industry experience, Navigator Petroleum helps clients evaluate whether their contracts offer adequate protection against known and unknown risks.

Regular reporting is essential to keeping all parties informed and aligned. Contracts should specify how often production data, revenue reports, and compliance updates must be submitted. It’s also important to assess whether the reporting formats and timelines are practical, and what consequences apply for missed deadlines or inaccurate reporting. Navigator helps clients implement performance tracking frameworks that align with contractual obligations while supporting operational efficiency and transparency.

Navigating the complexities of oil and gas contracts requires more than legal knowledge, it demands insight into operational realities, fiscal modeling, regulatory compliance, and long-term strategic planning. At Navigator Petroleum Consulting, we bring all of that together.

Our team works closely with operators, investors, and stakeholders to evaluate contracts from every angle, whether you’re entering new partnerships, negotiating with governments, or conducting due diligence on existing assets. We help identify risks, clarify responsibilities, and optimize terms so that your contracts support, not hinder, your project goals.

With deep expertise across upstream, midstream, and downstream operations, Navigator Petroleum ensures your oil and gas contracts are structured to protect value, reduce uncertainty, and position your project for success. Contact us today to learn how we can support your next contract evaluation or negotiation.