In any Divorce, involving “Oil and Gas”, the professional needs to be aware of the “special circumstances” that are present. If the oil and gas issue is present in the divorce due to one of the parties having mineral interests, there are tracing, depletion and reimbursement claims that will need to be considered. However, if the Oil and gas issue is present in the divorce due to one of the parties owning or in management of an Oil and Gas company, the moving parts that are present with the addition of Covid-19 are problematic, to say the least.
This writing focuses on three areas:
- the Oil and Gas professional that is an owner or in a management position of an oil and gas company,
- the historical financial representations made by this individual,
- and the Covid-19 impact on the Oil and Gas industry, in light of a looming divorce.
To begin with, you have an individual that is “all in” with the Oil and Gas industry. This is not a common personality type. And before anyone questions me for saying this, please know that I was once in the oil and gas industry before I became an attorney, so I have somewhat of an inside understanding about the Oil and Gas professional’s personality type. A Mental Health professional may be able to better explain this personality type.
Oil and Gas is boom or bust. There are short intermissions where “we are holding on,” but basically the Oil and Gas industry is a boom or bust endeavor. Most of us Texas attorneys have a basic understanding of that because, like most Texans, we have represented or know someone in the Oil and Gas industry. If the party is an owner or in upper management of an Oil and Gas company, he or she has probably worked through both boom and bust. This individual is typically smart, has survived a downturn, bust, and has reveled in the upturn, boom. The soon to be ex-spouse will distinctly remember the Oil and Gas individual talking about the millions of dollars that the company or an Oil and/or Gas well is worth. This was not totally true when the representation was made, considering the industry, but it will be remembered by the soon to be ex-spouse.
So, what happened this time? Oversimplified, in late 2016 OPEC, you have heard of them, agreed to cooperate with Russia to control world oil prices. OPEC+ was unofficially created. World oil production, from OPEC+ as well as non-OPEC+ producers was reduced, with Saudi Arabia making the biggest reduction. When Covid-19 reduced demand for oil on the world market OPEC+ met, in January 2020, and it was “agreed” that production would be reduced further. Russia did not agree to OPEC’s agreement, edict, or demand, whatever you want to call it. One of Russia’s pet peeves was that US producers, particularly west Texas oil producers, were producing all the oil they could and OPEC+ was reducing production to shore up world oil prices. Russia would not reduce production, and OPEC responded by removing limits on its production. Hence, we all saw $1.00/gal. gas prices. Bust.
Now this was all short lived. The world was hiding in place and demand for oil was going through the floor. After a couple of months of puffing up and telling the world that each player would produce oil at a much higher rate, cooler heads prevailed. With Covid-19 the world was just not using its usual amount of oil, no matter how cheap. In April 2020, OPEC, Russia and Mexico all agreed to cut production. Hence, we again see $1.50-$2.00 gas prices. Not exactly a boom, but they are not all going out of business. Thus, an intermission.
How has this affected divorce in Texas? If you were at the collaborative table or dealing with a property settlement offer, you were in a tough place. Negotiating a settlement in a divorce is a ticklish thing, even when the world is stable and the facts aren’t changing. The professionals are asking the parties to trust, verify and agree to a settlement. Professionals see retracting or changing an offer or counteroffer that is farther from the previous offer or counteroffer, as nonproductive. The parties see this as an insult, which destroys trust and sends them into an emotional place where they don’t make good decisions, dooming them to Final Trial. But even for the attorney that sees final trial as a good thing, the landscape and/or facts of the property side of these cases changes so fast and the future is so unpredictable that the judge is not really going to be able to help your client. The judge cannot create value where there is none.
Collaborative Divorce professionals and Litigating attorneys must work this type of case at a higher level. You have an individual that is in the Oil and Gas industry that you need to understand, to the extent that is possible. This Oil and Gas client is grappling with the world as it is and trying to survive in the Oil and Gas industry long enough to come out the other side. Oh, and by the way, there is this Divorce thing, where you still have the soon to be ex-spouse, who has lived a high lifestyle and been told for years how great things are and how great they will be in the future. Now, at the time when trust at its lowest, the soon to be ex-spouse’s side is being told that business interest is shockingly reduced in value or worthless. That is the emotional side of the negotiation.
The Oil and Gas industry facts are like the Texas weather, wait 5 minutes. Covid-19 created a perfect storm in which the biggest, toughest oil producing countries, could not over produce one another and wait to see who blinked first. They quickly found a solution for their mutual problem. An oil production war was not the answer. It was written that both Russia and Saudi Arabia have around a $500 Billion war chest. They could have gone to war and spent some, if not all, of their war chest, but when would the world want their oil in the future? They chose to hold on.
Oil and Gas interests do not have the value that they had a year ago. Some companies have gone away. The Oil and Gas interests will rebound, but when? This hard fact is a certainty if you are in a divorce with Oil and Gas interests. What is certain is that no one knows when there will be a rebound. Will it be slow, will it be fast? The questions are endless. This is a hard fact for a soon to be ex-spouse to swallow.
The Texas Divorce professional might want to take a page from the world oil producers. They made a deal which was the best for their respective interests given the Covid-19 world oil consumption. They did not use up their cash reserves in a long and protracted oil production war. They recognized that with Covid-19 the world just did not want their oil right now. They found a middle ground that gave them their best “Deal” under the current facts, knowing the current facts may change next quarter or next year. But they might not. The world oil producers are not working together as much as they are not engaging in “MAD”, mutually assured destruction. They cannot hang on and hope for the next quarter or the next year. In divorces, with the courts pushing to finalize cases, there may be no next quarter or year for the non-Oil and Gas client. Divorces are final. When a non-Oil and Gas spouse becomes an ex-spouse, they are usually out of the oil and gas industry in the future. If the soon to be ex-spouse is not accepting of the facts, both parties are at risk of burning up cash reserves and creating substantial debt, MAD.
There may be no cherry solution to this situation. The ability to create value in the negotiation will not be found on the current spread sheet line that sets out the Oil and Gas interest. But burning up the cash reserves or creating dept trying to change that fact can be financially devastating. As the world oil producers decided, divorcing parties should work on keeping the pie as big as possible. In most cases, there is still an acceptable solution out there. It is just not the “millions” that might have been there before Covid-19.