The upstream oil and gas industry is a dynamic and critical sector in today’s economy. Operating in a competitive market under public scrutiny, these companies must also navigate a complex legal environment. To gain a clearer understanding of the litigation challenges faced by the industry, we analyzed approximately 1,000 cases dating back to 2019 involving 44 large upstream oil and gas companies. This analysis provides valuable insights into the types and frequency of legal disputes, highlighting key trends in an industry known for its litigious nature. These findings offer a unique perspective on what companies can anticipate and how they can prepare to address the evolving legal landscape.
Our analysis encompassed various legal processes, including lawsuits, appeals, arbitration, and mediation. We examined cases involving various jurisdictions
and analyzed the roles of plaintiffs and defendants. Furthermore, we delved into specific aspects of legal proceedings, such as depositions
and the discovery phase.
Our research analyzed 44 sizeable upstream oil and gas companies, comprising 38 publicly traded and six privately held entities. Covering the period from 2019 to 2024, the study focused on cases reported in SEC filings and widely used financial databases. Of the approximately 1,000 cases reviewed, 7% were associated with private companies, while 93% originated from the 38 public companies. Notably, as the data highlights, a significant portion of these cases came from just five major players in the upstream sector. Publicly traded upstream companies are disproportionately represented in the total number of cases, reflecting their heightened exposure to legal challenges.
Public companies face outsized litigation risks for several reasons. Public companies have stricter reporting requirements, creating far-reaching consequences when things go wrong, or errors are made. For example, a financial misstatement that might be resolved privately for a smaller, non-public company can escalate into an investor lawsuit claiming fraud or misrepresentation in a highly visible public setting. Additionally, the heightened visibility of public companies to regulators, communities, and activist groups increases their exposure to legal challenges. Public companies operate in the spotlight and, as such, are more vulnerable to scrutiny from other external groups. Individuals in local communities and larger activist organizations also target public companies due to their size and widespread presence across large regions of the country.
Throughout our research, we were able to broadly place each case into one of three categories:
Contractual
- Many of these cases stem from ambiguous lease terms, unpaid or underpaid royalties to RI owners, or general disagreements over responsibilities.
- Example: Plaintiffs allege that large public producer underpaid royalties by subtracting various gathering, transportation and processing fees from the gross revenue amount and would then calculate royalties based on the net amount, in disagreement with the plaintiff’s lease with the producer.
Financial/Fraud
- Cases in this category relate to legal conflicts such as shareholder class action lawsuits, accounting misstatements, or claims of fraudulent reserve disclosures.
- Example: A large exploration and production company was accused of making materially false and misleading statements regarding the company’s profitability and the general size of a purportedly significant play in the Permian basin.
Labor
- This category pertains to cases covering wrongful termination, unsafe working conditions, or wage disputes.
- Example: An employee working on a well pad exposed to freezing temperatures for a 14-hour shift experienced frostbite on his hands, rendering him unable to work. Employee sues producer for unsafe working conditions.
A distinction should be made for class action lawsuits. These lawsuits typically have an outsized impact on the amount of litigation a company must put up with due to their significant financial and reputational impact. An example in our dataset includes a securities class action lawsuit against a major upstream producer’s acquisition of another large upstream producer. The plaintiffs allege that the misrepresentation of synergies expected to be gained through the acquisition of the target erased nearly $1 billion in shareholder value in a single day when the acquirer released its third-quarter earnings, showing that no synergies had been created and inefficiencies had been created as a result of the transaction, the plaintiffs also allege. In the days following this earnings release, the acquirer's stock price continued to drop, wiping out more than half of the company's value from when the deal was announced. This case and numerous others from landowners, investment funds, and individual shareholders are ongoing. This example underscores the far-reaching consequences class action lawsuits can have, not only in immediate financial losses but also in the long-term erosion of shareholder trust and market confidence. As the case remains unresolved, it serves as a reminder of the need for accurate disclosures and strategic due diligence, particularly during high-profile transactions.
The upstream industry is inherently litigious because of its operational, financial, and regulatory complexity and global importance. Given the amplified disclosure requirements and stakeholder scrutiny, this factor is amplified for publicly traded companies in this industry. The implications for companies cannot be overstated. Operationally, litigation leads to project delays and shutdowns. Financially, high legal costs and settlements erode the company's financial standing. Last but not least, reputational damage from negative media attention can impact both stakeholder and shareholder relations. This analysis of legal cases involving 44 major upstream oil and gas companies reveals a complex and litigious environment, particularly for publicly traded entities. The findings highlight the frequency and diverse nature of legal challenges, encompassing contractual disputes, financial irregularities, and labor issues. Public companies face heightened scrutiny and legal risks due to increased regulatory burdens, heightened public visibility, and the potential for significant financial and reputational damage from class action lawsuits. Understanding these trends is critical for upstream companies to proactively mitigate legal risks, optimize operational and financial performance, and maintain a strong reputation in a challenging and ever-evolving legal landscape.