Michael R. GoldmanApril 30, 2015

                    

                                                                         

                                                                         

                                      

ETHICAL ISSUES IN THE OIL PATCH

SPE FORT WORTH SECTION

RESOURCES

1. Texas Engineering Practice Act (Subchapter C: Professional Conduct and Ethics)

2. National Society of Professional Engineers (Code of Ethics for Engineers)

3. National Academy of Engineering (Various Online Scenarios)

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OUTLINE

1. Duty to be objective and truthful

2. Conflict of Interest

3. Use of your name for improper purposes

4. Duty to Safeguard Life, Health and Property

5. Confidential Information

6. Expert Testimony

7. Unlawful Practice of Engineering

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DUTY TO BE OBJECTIVE AND TRUTHFUL

■ Scenario One: ■ You are the environmental engineer for XYZ Co. which is permitted

to discharge into a local stream (via a TPDES permit) which then flows into a local lake

■ You just prepared you quarterly report which indicates the discharge slightly exceeds legal limitations.

■ Minor violation likely only impact a few fish, but will cost $200,000 to fix the plant

■ Your boss says this is a mere “technicality” and asks you to “adjust” the data to show you are in compliance.

■ You boss says “We can’t afford the $200,000 and it might costs some jobs.”

■ Our competitors are doing it, why can’t we.

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DUTY TO BE OBJECTIVE AND TRUTHFUL

■ Scenario One: ■ What should you do?

■ How many people have a stake in how you respond?■ TCEQ – they evaluate data provided by engineers. Would they think this is a mere

technicality?

■ Would local residents who swim in the lake think this a mere technicality?

■ What if every industry in the area similarly adjusted for “mere technicalities”?

■ Sections 137.57 of Texas Engineering Practice Act■ Engineers shall issue statement only in an objective and truthful manner.

■ Section II (3) National Society of Professional Engineers■ Engineer shall be objective and truthful in professional reports, statements or

testimony.

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STATUTORY DISCLOSURE REQUIREMENTS

■ 16 TAC § 3.20 requires operators of well sites and pipeline facilities to immediately report leakage as well as other potentially harmful circumstances

■ Tex. Nat. Res. Code § 40.101 requires notification of unauthorized discharge of oil

■ Texas Water Code § 26.039 requires notification of accidental discharges and spills

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DUTY TO BE OBJECTIVE AND TRUTHFUL

■ Scenario Two: ■ An engineer that values oil and gas properties for estate tax filings is

engaged to assist a representative of a wealthy deceased person.

■ The engineer is “strongly encouraged” to keep the appraisal low to get in a lower tax bracket.

■ Gain favor of client and stick it to the IRS?

■ If challenged by IRS and a higher value is determined is he a loser or hero for making a valiant effort?

■ Who’s to know other than the IRS and Estate representatives?

■ What should you do?■ Same ethical duties to be objective and truthful apply

■ Should play it straight – whether his work product is ever known by the public or his clients is immaterial.

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CONFLICT OF INTERESTS■ Scenario Three:

■ An engineer and geologist specialize in evaluating oil and gas properties.

■ They are approached by a promoter who packages producing properties for sale.

■ The promoter wants to join forces and split the proceeds.

■ While not verbalized, there is a suggestion that the valuation should be as high a possible.

■ Should they join forces?

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CONFLICT OF INTERESTS■ Scenario Three:

■ Section 137.57 of Texas Engineering Practice Act■ A conflict of interests exists when an engineer accepts employment when

a reasonable probability exists that the engineer’s own financial, business property, or personal interests may affect his professional judgment

■ An engineer may accept such engagement only if:■ All parties are fully informed of the conflict in writing

■ The opposing side confirms knowledge of the conflict in writing

■ Section III (5) of National Society of Professional Engineers■ Engineer shall not accept commissions or allowances, directly or

indirectly, from contractors or other parties in connection with work for which the engineer is responsible.

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USE OF YOUR NAME FOR IMPROPER PURPOSES

■ Scenario Four: ■ An engineer is asked to do an reserve evaluation for a

client.

■ The engineer is concerned about how the client will use the report and what representations he will make about it.

■ The engineer is willing to provide the client with a verbal account of the study but is reluctant to put his findings in writing.

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USE OF YOUR NAME FOR IMPROPER PURPOSES

■ Scenario Four: ■ What should he do?

■ Should he prepare a written report and protect himself with usual language that restricts his client’s use of the report?

■ If he does not prepare a written report has he done his client a disservice?

■ Should he refuse to do the study altogether?

■ Section 137.63 of Texas Engineering Practice Act■ Engineer shall exercise reasonable diligence to prevent the association of

his name with a venture that the engineer knows, or should know, is engaged in fraudulent, deceitful or dishonest practice

■ Section III (1) of National Society of Professional Engineers■ Engineer shall not permit the use of their name in a business venture they

believe is engaged in fraudulent or deceptive practices.

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DUTY TO SAFEGUARD LIFE, HEALTH AND PROPERTY

■ Scenario Five (persistent engineer): ■ You a civil engineer .■ While driving home one day, you notice a large chlorine gas storage tank

by an urban area.■ This is a disaster-in-the making.■ Do you have a duty to do something about this?■ This is not part of your job? Not in your area of expertise?■ This really happened.■ Engineer went to the local government, they told him to go the to

company■ The Company told him it was none of his business.■ Section 137.55 of Texas Engineering Practice Act

■ Engineers shall be entrusted to protect the health, safety, property and welfare of the public.

■ Section II (1) of National Society of Professional Engineers■ Engineer shall hold paramount the safety, health, and welfare of the public.

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CONFIDENTIAL INFORMATION

■ By nature of professional duties, engineers (and attorneys) are privy to highly sensitive information about our clients and employers

■ Information about compliance with applicable laws

■ Knowledge of release of contamination from property owned and operated by clients

■ Knowledge of potential prospects, etc.

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CONFIDENTIAL INFORMATION

■ Scenario Six: ■ While employed with XYZ company you learn confidential reserve

information related to a prospect by your company.■ You are hired by a competitor.■ Can you use the confidential information you learned at XYZ company? ■ Section 137.61 of Texas Engineering Practice Act

■ Engineer may reveal confidential information only with a fully informed client’s or employer’s consent, or

■ When required by law or a court, or ■ If left undisclosed, would constitute a threat to the health, safety or welfare of

the public■ Otherwise, cannot disclose the information to the advantage of your new

employer.■ Section III (4) of National Society of Professional Engineers

■ Engineer shall not arrange for new employment in connection with a specific project for which the engineer has gained particular and specialized knowledge.

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EXPERT TESTIMONY

■ Scenario Seven: ■ You have been asked to provide expert testimony in a lawsuit on a

highly technical engineering matter.■ The area of testimony is not one that has been tested for which there

is much if any data to support your conclusion.■ What do you do?

■ Section 137.59 of Texas Engineering Practice Act■ Engineer should not base an opinion that contrary to generally accepted

scientific and engineering principles■ Opinion should contain quantitative values and shall be supported by

adequate modeling or analysis of the phenomena described

■ Section II (3) of National Society of Professional Engineers■ Engineer’s opinions must be founded upon knowledge of the facts and

competence in the subject matter.

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UNLAWFUL PRACTICE OF ENGINEERING

■ Scenario Eight: ■ You are not a licensed engineer, but you hold yourself out to be one.

You also claim to have a PhD, when in fact you do not.

■ Finally, you seek involvement of the EPA to further your Clients’ interests.

■ Did this ever happen?

■ Section 1001.401 and 137.63 of Texas Engineering Practice Act■ Person cannot claim to be an engineer if they are not licensed to do so.

■ Engineer shall not aid or abet, directly or indirectly, any unlicensed person or business entity in the unlawful practice of engineering.

■ Section II of National Society of Professional Engineers■ Engineer shall not aid or abet the unlawful practice of engineering by a person

or a firm.

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QUESTIONS?

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