Professionalism and Ethics

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9 Professionalism and Ethics

9.1 WHAT IS A PROFESSION? A profession is a career or occupation based on specialized education and training. The purpose of a profession is to provide disinterested counsel or service for a defined compensation independent of other business gain. Examples of professions include accounting, surveying, medicine, dentistry, actuarial science, law, architecture, and engineering. Professions share several characteristics including: • • • • •

being a full-time occupation; having a specialized course of study; being governed by local and national associations; having codes of professional conduct; and having state or other governmental licensing regulations.

The existence of state regulatory bodies governing the practice of a profession (and deciding who can be admitted into a profession) limits access to that profession. This bestows a limited monopoly on the practice of that profession. If, e.g., the state or other governmental entity requires a medical doctor to approve prescriptions for certain medicines, the required training, testing, and licensing of medical doctors provides a kind of limited monopoly. Similarly, requiring a licensed professional engineer to certify a certain type of document or to certify design aspects of buildings restricts those who can practice certain aspects of the profession.

Can you imagine a situation in which a company would employ medical doctors or attorneys who were not educated and licensed to governing standards? They would be limited to only doing certain internal activities that did not affect the public and would not enjoy the privileges of the profession. We would assume that would be unusual. But in the case of petroleum engineering, it is in fact the norm! Most states do not require the licensing of engineers who are employees of a company that does not offer to perform engineering services to the public. By contrast, almost all petroleum engineers in Canada seek to become licensed. Some people refer to licensed professional engineers as “registered” engineers; the term licensed more correctly conveys the concept. The authors strongly encourage professional licensure of practicing engineers.

9.2 ETHICS In this section, we address engineering ethics while trying to focus on the specific items most critical for petroleum reservoir engineers. The Society of Petroleum Engineers (SPE)1 is the largest professional organization that represents 1

The mission of the SPE is “. . .to collect, disseminate, and exchange technical knowledge concerning the exploration, development and production of oil and gas resources, and related technologies for the public benefit; and to provide opportunities for professionals to enhance their technical and professional competence.”

© 2012 Elsevier Inc. All rights reserved.

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petroleum engineers including more reservoir engineers than any other organization. Engineering ethics deals with the standards of professional conduct for engineers with respect to the engineer’s responsibility to the public, to his employer and clients, and to the profession of engineering. The SPE Guide for Professional Conduct summarizes these obligations.

9.2.1 Guide for Professional Conduct Preamble.. Engineers recognize that the practice of engineering has a vital influence on the quality of life for all people. Engineers should exhibit high standards of competency, honesty, integrity, and impartiality; be fair and equitable; and accept a personal responsibility for adherence to applicable laws, the protection of the environment, and safeguarding the public welfare in their professional actions and behavior. These principles govern professional conduct in serving the interests of the public, clients, employers, colleagues, and the profession. The Fundamental Principle.. The engineer as a professional is dedicated to improving competence, service, fairness, and the exercise of wellfounded judgment in the ethical practice of engineering for all who use engineering services with fundamental concern for protecting the environment and safeguarding the health, safety, and well-being of the public in the pursuit of this practice. Canons of Professional Conduct • Engineers offer services in the areas of their competence and experience, affording full disclosure of their qualifications. • Engineers consider the consequences of their work and societal issues pertinent to it and seek to extend public understanding of those relationships. • Engineers are honest, truthful, ethical, and fair in presenting information and in making public statements, which reflect on professional matters and their professional role. • Engineers engage in professional relationships without bias because of race, religion,

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gender, age, ethnic or national origin, attire, or disability. Engineers act in professional matters for each employer or client as faithful agents or trustees disclosing nothing of a proprietary or confidential nature concerning the business affairs or technical processes of any present or former client or employer without the necessary consent. Engineers disclose to affected parties any known or potential conflicts of interest or other circumstances, which might influence, or appear to influence, judgment or impair the fairness or quality of their performance. Engineers are responsible for enhancing their professional competence throughout their careers and for encouraging similar actions by their colleagues. Engineers accept responsibility for their actions; seek and acknowledge criticism of their work; offer honest and constructive criticism of the work of others; properly credit the contributions of others; and do not accept credit for work not their own. Engineers, perceiving a consequence of their professional duties to adversely affect the present or future public health and safety, shall formally advise their employers or clients, and, if warranted, consider further disclosure. Engineers seek to adopt technical and economical measures to minimize environmental impact. Engineers participate with other professionals in multidiscipline teams to create synergy and to add value to their work product. Engineers act in accordance with all applicable laws and the canons of ethics as applicable to the practice of engineering as stated in the laws and regulations governing the practice of engineering in their country, territory, or state, and lend support to others who strive to do likewise. —Approved by the Board of Directors, September 26, 2004

CHAPTER 9 The SPEE has also published2 an extensive documentation on Ethics including a discussion of special issues for expert witnesses. State licensing boards often provide both guidelines and training in practical ethics applications. Common concerns for engineers in ethics issues in the practice of engineering or in expert witness situations are all addressed in the SPE Canons and the SPEE Principles. The engineer never tries to practice outside his areas of expertise when offering services “to the public” or to clients. Full and accurate disclosure of qualifications and experience are essential. The engineer’s re´sume´ should be kept up to date, not for the purpose of seeking employment elsewhere, but to accurately summarize his experience and capabilities. An engineer working for a large oil company may well be asked to work outside his areas of expertise and certainly may do so as long as his employer knows that he is learning as he goes and he should not be in responsible charge of such projects until he has gained greater experience. The consulting engineer must not offer engineering services except when he is fully qualified to do so. The engineer must be fastidious in avoiding even the appearance of a conflict of interest. Such conflicts can arise subtly and things that may appear not to be a conflict to the engineer may appear so to his client. It is important to address any potential conflict as early as possible. Are you involved in making a decision on a vendor but have a relative or close friend as an employee of that vendor? Do you own any shares (usually outside of a mutual fund) in any company that you have the potential to do business with? Have you been the beneficiary of any significant entertainment or other thing of value from someone your company may do business with? In one case, an oil company employee (A) was recommended for a significant SPE award by another oil company engineer (B) who subsequently was involved in negotiations with (A). 2

On their website at: http://www.spee.org/images/PDFs/ ReferencesResources/SPEE%20Discussion%20and%20 Guidance%20on%20ethics.pdf

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If you were A’s supervisor, would you want to know that it was B who recommended A?

9.3 THE ENGINEER AS AN EXPERT WITNESS There is an old joke about experts. The definition of an expert is broken down into two parts, “ex” meaning a “has been” and “spurt” meaning a “drip under pressure.” In fact, “expert” refers to having specialized skills and expertise that enable others to rely on the expert’s efforts and his opinions. Engineers and specifically reservoir engineers are called on as experts under a number of circumstances to provide expertise, recommendations, and testimony. These might include recommendations before a regulatory body, as testimony in litigation, in arbitration or mediation, or before government agencies promulgating regulations or investigating. In each case, engineering testimony may ultimately sway major decisions whose financial impact on his or her employer or client could dramatically exceed the value of purely technical recommendations. No matter how intelligent, well educated, and published an engineer might be, it is his or her credibility and communication skills that are most valuable in the role of expert. The vast bulk of reservoir engineering expert testimony is in litigation matters. Far more lawsuits are filed than there are arbitration cases or even contested regulatory hearings. In lawsuits, there may be one or more plaintiffs and one or more defendants. Each side may hire a host of experts in a wide variety of areas. The reservoir engineer as expert is often asked to opine about his interpretation of facts, views of whether or not certain actions or failure to perform certain actions rose to certain (often legally defined) standards. He may be asked to estimate reserves (whether proved, probable, possible, or some other definition) and the value of a certain property. He is often asked to estimate what the quantity or value of recoverable hydrocarbons were or are under certain leases and what the

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impact of various actions might have been. He can be asked to hypothesize within his area of expertise and estimate values under alternative scenarios. One of the authors was asked to opine as to what the level of understanding of reservoir heterogeneity and its impact on recovery were in the early 1930s! The most important part about serving as an expert witness is to tell the truth. The way a reservoir engineer understands an oil and gas system may mean that explaining what the truth is to nonexperts may require analogies or simplifications. But the essential thing is to never stray from the truth. None of these opinions are being offered at random. Each tends to be a part of a strategy by one side to prevail over the other (or at least minimize damages). There is something very important for engineering experts to recognize. Your job as an expert is not to be an advocate for your side! Your job is to use your expertise to present clear and compelling testimony that the conclusions you have reached are correct. The most important part about serving as an expert witness is to tell the truth. The way a reservoir engineer understands an oil and gas system may mean that explaining what the truth is to nonexperts may require analogies or simplifications. But the essential thing is to never stray from the truth. Your job may well include pointing out factual and technical errors made by “the other side.” There are definite risks in doing this. The expert runs the risk of losing his own credibility if he is perceived to be an advocate. Few things diminish an expert’s perception of independence than repeated or ad hominem attacks on the work of other experts, no matter how well deserved. When consultants are hired as independent experts, they are often retained by the attorneys representing the client. Remember that you don’t “represent” the client. The attorneys represent the client and they will not be under oath during your testimony. Even if you are testifying on behalf of your employer as an expert, you

must be able to withstand questioning by opposing counsel as to your credibility and your conclusions. It is not uncommon for counsel to suggest that since you owe your livelihood to your employer, you would be willing to say or do anything to help them avoid a highly negative outcome in the litigation matter and the resulting “stain” on your career. You will need to be able to assert your nonnegotiable commitment to the truth in a convincing manner. There are several occasions in which a reservoir engineer might be called on to testify (usually by deposition but also at trial) in a capacity other than as an expert. Fact witnesses testify as to actual facts that they have knowledge of and do not render opinions. Opposing counsel may well try to solicit expert opinions from a fact witness who is not obligated to provide them. Company employees are often called on to answer questions (interrogatories) on behalf of their employer and to testify about certain records.

9.3.1 Credibility and Credentials Your credentials are essential to establishing credibility. Without proper credentials, you may not be allowed to testify as an expert. You will want to have a re´sume´ that is current and emphasizes your education, experience, special qualifications, publications, professional society memberships and activities, awards, etc. The expert witness re´sume´ is different from the re´sume´ an engineer might use to seek a new job. The sole goal of the expert witness re´sume´ is to convince the reader that the expert is very well qualified to render an opinion on the matters at hand. The expert witness re´sume´ will have absolutely no typographical errors and avoids aggrandizement. In particular, the expert should avoid touting prior success in litigation matters. “I have testified in ten lawsuits and my clients have won more than $200 million in those suits”—While this might seem to be a good thing (and the attorneys who hire experts might well be impressed), the opposing counsel may

CHAPTER 9 skewer this expert who is clearly an advocate and willing to say or do anything to keep his record intact for his side! Activity in appropriate professional societies or analogous organizations is important. Recognition by peers, peer-reviewed papers, participation as a leader or organizer in workshops and forums all improve the expert witness re´sume´. These activities do much more than that. They make it possible for the expert to interact with other professionals who are likely to be experts in the field. They may provide referrals of consulting work or be useful sources of information. Unlike nonexperts, expert witnesses are expected to be able to analyze and evaluate the expertise of others and can rely on “hearsay” evidence. Engineering experts who solely testify in litigation matters would be wise to have a conventional consulting practice of some type to avoid being labeled a “professional expert” and the negative perception that conveys. Because the credibility of an expert witness is of absolute importance, a few ethical issues for engineers are worth revisiting. The engineer as expert witness never testifies beyond his area of expertise. It is hard to overstate the importance of this fact. Some engineers may be tempted to do “too much,” stretching their real expertise for a variety of reasons. Everything the expert witness does can ultimately affect his credibility. Expect that anything you say or write or post in a blog, forum, Facebook entry, Youtube video, past testimony or reports, letter to the editor, or any other venue will be found by opposing counsel and potentially become a source of embarrassment, contradiction, or other issue in credibility. The same can be said of any unusual hobbies, affiliations, with extreme or even mildly controversial organizations, etc. Marketing efforts that make the expert appear to be an advocate or tout the expert’s success can also diminish credibility.

9.3.2 Compensation and Payments Expert witnesses are typically compensated at hourly or daily rates which must be disclosed.

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If the expert’s rate is low compared to other experts (even if it is far more than jurors might earn), the jury may discount the testimony of the bargain expert. High rates for experts who are well prepared and professional do not generally diminish the jury’s opinions of the expert and may, in fact, enhance it. There might be a negative perception by the jury if the expert’s rate is vastly greater than all other experts. Regardless, the client paying the bills will want the lowest reasonable rates possible. Compensation for expert testimony should be limited to “time and materials.” There should not be compensation “at risk,” depending on the outcome of the case. Plaintiff’s attorneys routinely accept cases in which all or most of their compensation rests on a successful outcome in the matter. The expert hired by the plaintiff’s attorneys should not be compensated in this way as it has the perception (if not the reality) of coloring his testimony. Further, it is critical that the expert insist on being paid in a timely manner. If the expert has a great deal of money owed to him, particularly by a plaintiff or a smaller company, opposing counsel can make a great deal of it. Q: Now Mr. Engineer, you stated that so far you have invoiced Plaintiff Corp. a little over $210,000, correct? A: Yes. Q: Is that a pretty significant amount of money for you? A: Well, yes. Q: and if Plaintiff Corp. doesn’t prevail in this lawsuit, you might not get paid, correct? A: I am confident that I will get paid. Q: Good for you. But if Plaintiff Corp. wins, there won’t be any problem getting paid now, will there? A: Like I said, I am confident that I will get paid. Q: But it is clearly in your own personal financial interest to testify to anything you can to make sure you get this “significant amount of money” paid to you, isn’t it?

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The engineering expert who works for a large consulting firm is less sensitive to this exposure than the expert working for a small firm with fewer clients. One approach for an engineering expert is to have a “replenishing retainer” in a reasonable amount. The anticipated monthly expenditures are often considered reasonable amounts. Alternatively, it is appropriate to insist that the firm or company hiring the expert pay all invoices in a very timely manner, usually within 30 days.

9.3.3 The Expert Report Most experts will be required to generate expert reports. These are unlike conventional technical reports.3 The typical expert report references the litigation and provides (among other things): • • • • • •

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the expert’s qualifications; information and materials considered in forming opinions; compensation; background facts; summary of opinions; basis for the expert opinion (which can and should be as long as is needed to support the opinions); a signature, often with the Licensed Engineering stamp or seal; the expert witness re´sume´; a list of other cases in which the expert has provided testimony at trial or by deposition (if required); tables and figures as required supporting the opinions.

The expert report should provide each of the opinions the expert intends to testify about; in practice, closely related opinions formed after completion of the report may be able to be given at trial. The expert report will be provided to opposing counsel who will ask their 3

Sadly, the art of writing technical reports is fading at many oil companies where E&P has apparently come to mean “e-mail and PowerPoint.”

experts to either formally rebut this report or help the attorney pick it apart during deposition and/or trial. The expert will be cross-examined and may be examined at length over the details of the report. The expert must be thorough in his analysis of the facts in forming an opinion. Where possible he will have visited the field or examined the wells or tools in question, carefully documenting his observations. He insists on being able to take the time required to formulate an opinion that is defensible and compelling. The expert is wise to avoid accepting cases with low budgets or deadlines that do not enable him to complete his work. Accepting such cases will necessarily result in opinions that are not as thorough as the expert would normally do. Such opinions will not be sufficiently compelling or defensible. The expert is careful to state conclusions clearly and to back them up with the necessary facts. It is not sufficient that you are a leading expert in your field to reach a conclusion. The facts and assumptions supporting that conclusion must be clearly articulated and able to stand up to cross-examination. This may be difficult for highly technical individuals without much experience as expert witnesses. The expert engineer is not an attorney and is not expected to understand every nuance of the law. However, it is vital that the engineer understand enough of the relevant law to make sure that his conclusions rise to the appropriate legal standards of sufficiency. If opposing counsel asks a question using legal jargon with which you are unfamiliar, it might be appropriate to ask for a definition, or at least preface an answer with your “layman’s understanding” of the law. It is vitally important that the engineer avoid using legal expressions and/or technical jargon in his report that he does not fully understand. In one example, an expert was questioned over some legal phrases he had used in his conclusions. He could not explain them. He had gotten the advice to use those terms from the attorney who had in fact written some of the sentences. “What other parts of your report

CHAPTER 9 did your attorney write for you?” was the embarrassing follow-up question. When asked about an invention, the attorney cross-examined an unprepared witness who was only offered to describe how a given technology was used. Questions he was asked included phrases such as “undue experimentation” and “obviousness.” The witness didn’t recognize these terms as having specific legal meanings in patent law and answered them (ignoring his own company’s counsel’s objections) in a way that was inconsistent with the legal definitions. You may have to produce any drafts that you make of your expert report. Do not destroy drafts that you do make. However, it is the author’s practice not to make any drafts. In the process of developing the report, the same document is appended, edited, and updated as the opinions are being formed. Copies of drafts are not provided and not printed out. On the occasions prior to the report being finalized, the attorneys retaining the expert can read the current version of the report on the expert’s computer, beamed up on the wall in their office or remotely via modern desktop-viewing software (e.g., Webex, GotomyPC, etc.) and make any comments. You can also anticipate being asked to disclose any suggested revisions, additions, or clarifications made by the attorneys. It is easy to explain that you added a few more sentences to explain a certain part of the opinion or reorganized the flow of the document at their suggestion. Accepting wholesale editing, revisions of the substance (particularly elimination of alternative theories and so forth) is unacceptable.

9.3.4 Depositions Most lawsuits do not go to trial. A great number of them do proceed to the “deposition” stage. A deposition is sworn testimony taken in advance of a trial. In general, the expert will only be examined by opposing counsel at a deposition with “his side” reserving questions for trial. Experts can expect depositions to have a court reporter present and (increasingly) a

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videographer who will record their testimony. Deposition testimony can be replayed (if videotaped) or read back at trial. If the expert says at trial, “I am not sure that anyone can estimate that accurately,” he may be faced with seeing himself on television saying, “I have estimated that number and believe it to be within the range of 40 to 45%.” Deposition testimony is always printed out and the expert has a certain amount of time to correct errors in the transcript. Do not waive your rights to review, correct, and sign the deposition transcript. At one time many attorneys had the philosophy that “you can’t win in a deposition, you can only lose.” Increasingly, as legal sophistication has grown more complex, deposition testimony has become a larger part of motions and other processes after deposition and before trials. Since most cases never proceed to trial, “making the case” at deposition becomes increasingly vital. Many cases are won or lost at the deposition stage. Regardless of whether at trial or deposition, the expert listens carefully to the question, takes as much time as necessary, and responds thoughtfully. While some questions may require a prompt and forceful answer, they are infrequent. The expert should remember that in almost all of the cases, the attorneys with whom he is working do not represent him. The expert is not usually represented by counsel. The attorney who hires the expert represents the client and will generally provide some assistance during the deposition. The expert’s conversations with counsel may or may not be privileged (as “work product”) and the expert may have to testify (if asked) about any conversations with counsel or others even during breaks. Do not be embarrassed to ask for a break at any time during a deposition that you need to stretch your legs or go to the bathroom. There are many subtle and not so subtle means that deposing counsel may use to wear down, agitate, or confuse experts. Do not volunteer extraneous information or try to assist counsel in formulating questions. Do not “agree” to limit your answers in any way, but particularly do

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not agree to “yes”, “no,” or “I don’t know.” Do not hold the deposition in your office and bring with you only those documents you are required to bring. You will typically have had to produce certain documents and it is essential that you do produce those. They can be produced as you normally keep them and it is generally not necessary that you produce reports that are organized in a specific way if that is not how you retain documents in the normal course of business. You may have to produce each copy of a report that has any differences at all. If you have a copy of opposing expert’s reports with your notes written on them, you may have to produce that copy. Keep this in mind before scrawling “What an idiot!” on a particularly poor conclusion.

9.3.5 Direct Examination Although most cases do not go to trial, the expert witness prepares for any litigation, arbitration, or similar as if he will have to be crossexamined in front of a jury, panel of experts, or judge(s) as appropriate. While some lawsuits (and this depends on the specific country and legal system involved), particularly intellectual property (IP) cases are heard by a judge, many civil cases are still decided by a jury. While the whole range of jurisprudence cannot be discussed here, some parts are particularly relevant to an expert witness. The majority of reservoir engineering expert witness roles will (hopefully!) be in civil or regulatory cases, rather than criminal cases. In such cases, the plaintiff (or in the case of a regulatory hearing the applicant) will present their case through direct examination of a series of witnesses including experts. Do not treat this as a battle of wits . . . You are not trying to “win” but rather to convey to the judge or jury that your conclusions are sound and can be relied on when deciding the facts.

A direct examination consists of counsel asking a series of questions to the witness who responds to them. Counsel should not essentially testify and ask the witness, “That’s correct, now isn’t it?” In some courts, counsel can ask very broad questions and the witness will be allowed to expound at length on his theories, assumptions, methodologies, and conclusions. Examples of direct examination questions that allow the expert to explain things to the jury include: Q: Dr. Jones, will you please explain to the jury what hydraulic fracturing is, how it works and why you believe that XYZ Corporation acted imprudently? A: Let me start with answering that question about hydraulic fracturing. Natural gas in the Cotton Valley sand reservoir that is the subject of this dispute occurs in very small pores in sandstone rock located about 10,000 feet below the earth’s surface. I have a sample of that rock here. You can see. . . Q: Ms. Ingleson, do you believe that the Upper and Lower Slippery Rock formations were improperly commingled by the defendants? A: Yes I do. Q: Please explain. Most courts allow “demonstrative exhibits” ranging from blown up copies of logs and maps to 3-D physical models to elaborate computer animations. The expert will make sure that any demonstratives he uses are clear, readily understandable for the information intended to convey, and working flawlessly. It is the experience of the authors that jurors tire of elaborate 3-D animations if used excessively. Properly operating physical exhibits that make a very specific point can be extremely convincing to jurors whose expertise does not include reservoir simulation, pressure transient analysis, or other technologies that may be used. The direct examination should offer no surprises to the expert. It is reasonable that counsel runs through the anticipated questions and responses in advance; however, the expert

CHAPTER 9 should not sound overly rehearsed. The expert should have his file at his fingertips and be able to back up and illustrate his assumptions and conclusions.

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9.3.6 Cross-Examination Following direct testimony, the opposing counsel has the right to ask questions of the expert. The rules and approaches vary in such examinations. Leading the witness is allowed. If an expert does not answer the actual question asked (a very common tactic), the cross-examining counsel may repeatedly ask the same question “. . .and I will keep on asking it until you answer the question I am asking, not the one your attorney wants you to answer.” Note that during cross-examination, counsel may seem friendly, hostile, bored, or confused. This is likely to be theatrical rather than real in the case of testimony in front of a jury. Crossexamination is in many ways the easiest part of the job for the well-prepared expert. Do not treat this as a battle of wits or as a chess match. You are not trying to “win” but rather to convey to the judge or jury that your conclusions are sound and can be relied on when deciding the facts. The expert should remember the following: •

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Listen very carefully to the question and answer the question asked. You might be surprised how often counsel will just make a statement and not have actually asked a question. Even more often there are multiple questions and you will want to make sure which question(s) you are answering. Do not volunteer extra information in your answers unless you are certain that such information is necessary to communicate your conclusions. Do not be forced into a “yes,” “no,” or “I don’t know” response. If a yes or no would be misleading to the jury feel free to say that you need to give a complete answer otherwise it could be misleading.

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Don’t try to “help” counsel (appearing to be) struggling to formulate a question. Wait a little before answering to allow your client’s counsel to register any objections. There may be something you need to hear in those objections and some of the objections should be raised for various legal reasons. In jury cases, listen to the questioner but answer speaking to the jury as a group. Your credibility with them is essential. Avoid the temptation to answer sarcastically or condescendingly. This is almost always perceived badly by juries and can come back and bite you. Get to the point quickly and do not try to be too cute by not answering the question. Simplify the complex. The engineering expert needs to be able to teach and explain complex concepts in a way that can be understood by jurors with little or no knowledge of the specific issues and varied educational levels. Answer the entire question. If the crossexamining attorney interrupts you before completing your answer you have every right to say “I haven’t finished my answer.” If you have to criticize the work or conclusions of opposing experts, do so clearly and explain what errors or faulty assumptions they made. Avoid criticizing them, their reputations, or their credentials unless you have solid factual evidence that is responsive to a question. • Q: Now Dr. Smith, you have stated that our expert Mr. Jones made numerous factual errors in his conclusions about the amount of hydrocarbons our client claims that the client you represent, Massive Oil Company, stole from us by drilling across the lease line. Are you and your lawyers trying to say that Mr. Jones is incapable of correctly calculating these numbers or are you calling him a liar? Or is this maybe just two experts with a different point of view and the truth is probably somewhere in the middle?

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(This question is based on a real question in a real case. What are the strengths and weaknesses of this expert’s response?) A: Before I can answer your questions I need to clarify a few things so that my answer will not be misleading to the jury. You referred to “my lawyers” and the “client I represent.” I was hired by the DC&H law firm to render an opinion as to what, if any drainage occurred in this matter and how much, if any damages arose from such drainage. They are not my lawyers and I do not represent the company. As you know from my scientific analysis and conclusions I do not believe that there was any theft of hydrocarbons and I have demonstrated that MOC did not drill across any lease lines. As to your question about Mr. Jones’ capabilities, I note that he is not a member of the SPE or SPEE and is not a licensed petroleum engineer. He is a facilities engineer by background and experience. His CV doesn’t show me any past jobs where he was in responsible charge of reserve calculations or economic evaluations. While I conducted an integrated 3-D reservoir simulation based on a carefully constructed static model, Mr. Jones used a method of ratios of areas on a map that failed to account for a variety of geological features and is theoretically incorrect. So whether or not Mr. Jones is capable of performing the correct calculations has yet to be seen, but I do not believe that he has the experience to evaluate my work or perform similar work. As to your second question, I do not believe that the differences in conclusions between Mr. Jones and I can fairly be represented as a difference of opinion between two experts. My conclusions are based on solid science and under cross-examination of Mr. Jones it became clear that his conclusions are based on theoretically and practically deficient approximations.

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If permitted, there may be a time when you can get up and draw something or derive something that might be responsive to a question being asked. Once when asked (for whatever reason) what the porosity of a stack of equally sized spheres would be, one of the authors responded “I do not recall the number, but I could derive it.” The opposing counsel gleefully agreed to allow this and provided a large pad visible to the jurors and markers. After successfully deriving this simple equation, the deflation in opposing counsel’s attitude was sufficiently visible to the jury that the expert’s conclusions were all accepted by the jury. Even if you can’t draw or derive, the most effective experts will find reasonable ways to get up out of the witness box. Coupled with effective visual aids and demonstrative examples, the effect will be memorable in establishing the expert’s credibility and helping jurors to remember the expert’s testimony. All demonstratives must be flawless in their execution and clear in the message they are designed to convey. Generally you should take the advice of your counsel but remember, you are the expert and your actions are independent. One expert spent the morning at trial in brilliant direct testimony. On returning to the trial for cross-examination (and having been reminded that he was still under oath), he had his suit buttoned and unbuttoned it just before sitting down. At that point he smiled at the jury and made very brief eye contact with them. The cross-examination was as follows: • Q: Dr. Roentgen, I noticed that you unbuttoned your suit coat just before you sat down and that you smiled at the jury just after you sat down—is that correct? • A: Yes sir. • Q: Did Mr. Dewey or one of the other attorneys on your side tell you to do that? • A: uh, yes. . .sort of, well yes. • Q: No further questions.

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Numbered lists are excellent ways to answer questions. They show the jury that your conclusion is well backed up by facts and that it is easy to understand. • Q: Now Dr. Muskat, you can’t actually tell whether or not Cornershoot Oil and Gas actually crossed the lease line on this horizontal well, can you? • A: Actually I can and there are five reasons, viz. First, the original directional survey clearly shows that the well path never crossed the lease line, Second, repeated case hole surveys have been conducted and while they could not physically go the entire length of the well path, they covered more than half of the horizontal lateral distance and closely match the original directional survey, Third, in order for the . . ..

9.3.7 Intellectual Property While intellectual property (IP) refers to a variety of things including copyrights, trademarks, etc., for most reservoir engineers as expert witnesses, IP is synonymous with patents. A patent is granted by a government to one or more inventors as a way to encourage and reward innovation. It is the exclusive legal right to use whatever is protected by the patent (whether it is a design for a packer or a process for optimizing oil recovery) for a period of time. The owner of the patent can use it exclusively, license it to others, or even simply prevent others from using it. The inventor does have to disclose the patent in appropriate detail that sufficiently talented readers could reproduce the patented tools or processes without “undue experimentation.” Patent law has a whole set of nomenclature unto itself. There are ordinary words that have specific legal meanings such as “obviousness” or “experimentation.” Less common phrases such as “one of ordinary skill in the art” suggest specific legal definitions and the expert may be called on to assist in a “Markman hearing” or

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similar activity in order to establish what claim and patent language really means. The meanings of specific words is often critical in determining validity of a patent or whether or not infringement occurred.

9.3.8 Junk Science Engineers as experts must utilize well-established and accepted scientific and engineering principles in reaching their expert conclusions. “Junk science” should be rejected by the Judge and not permitted before jurors. Examples that might suggest unacceptable testimony include: •

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testimony about a methodology that is not based on peer-reviewed and published methods; testimony about a methodology whose error rate cannot be estimated; testimony about a methodology that can’t be tested according to accepted scientific principles; testimony about a methodology that is not generally accepted by the scientific community.

A methodology that has only been used in other lawsuits would be particularly suspect. While various legal issues in the United States are at play, the challenging of an expert’s testimony under this general header is often called a “Daubert4 challenge” or a “Frye test,” the former becoming more commonplace. Sophisticated courts globally are adopting similar rules to preclude speculative technology and pseudoscience. The judge is usually the sole determinant of the success of a Daubert challenge. An expert engineer who loses such a challenge may not be able to testify again as an expert witness as opposing counsel will invariably bring up how the expert’s testimony was “thrown out for being junk science in such and such a case.” While there are 4

Daubert is pronounced “daw” like the first syllable in daughter and “burt” as in Bert and Ernie, the two reservoir engineers of Sesame Street fame. Don’t assume a French pronunciation in this case.

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few cases in which an expert will want to hire his own counsel, a serious Daubert challenge may well be one of them.

9.4 FCPA CONSIDERATIONS No discussion about reservoir engineering and ethics would be complete without mention of the United States Foreign Corrupt Practices Act, commonly referred to as the “FCPA.” Enacted in 1977, the FCPA has become a significant regulatory enforcement tool of the US Department of Justice, particularly in the last 10 years. Much of the enforcement focus has been aimed at the oil and gas industry, particularly since oil and gas exploration and production in countries known for corruption has increased. Most countries that do significant business globally have similar statutes or can be expected to have them. The statute is an attempt by the United States to eliminate corruption in the international business arena by punishing US companies and citizens who attempt to act corruptly in business transactions outside the United States. The FCPA makes it a criminal offense for a US publicly traded company, its officers, directors, employees, representatives or stockholders, and US citizens to bribe (or offer to bribe) a foreign public official in order to obtain or retain business or obtain an improper business advantage. The FCPA also contains provisions requiring publicly traded companies to maintain accurate books and records and a system of internal controls to ensure that the assets of the company are utilized in accordance with management’s direction. It is important to note that no value has to actually change hands in order to violate the antibribery provision of the FCPA. An offer, scheme, or promise to pay or give something of value (even in the future) may constitute a violation of the antibribery section of the FCPA. Moreover, bribery can take many forms, including the payment of money or anything else of value, such as “in kind” items or services. Bribes, kickbacks, giving, or promising to give, anything of value in an attempt to influence the

action or inaction of a foreign government official can lead to a violation of the FCPA. This prohibition extends to payments made through consultants, agents, or any other representative when the person or company that benefits from the payment knows, or has reason to believe, that some part of the payment will be used to bribe or otherwise influence a foreign public official. An improper act by an agent will generally be interpreted as an improper act by the company employing the agent. The definition of a foreign public official under the FCPA is broad and includes any officer or employee of a foreign government or any department agency or instrumentality of the foreign government. This includes employees of state-owned companies and members of royal families, who may lack “official” authority but maintain ownership or managerial interests in government industries or government-controlled companies as well as foreign political parties. It also includes customs, immigration, and transportation officials in foreign countries. The FCPA is not an obscure statute that is rarely enforced. The US Department of Justice continues ramping up enforcement proceedings against US companies and citizens, particularly in the petroleum industry. Corporate employees, managers, and officers may be imputed with sufficient knowledge for a violation of the antibribery section of the FCPA if they deliberately insulate themselves through willful blindness, deliberate ignorance of, or conscious disregard of suspicious actions by the company or its personnel. This can lead to a criminal prosecution of the corporate entity and the individuals associated with the improper actions. The magnitude of FCPA penalties has risen dramatically in recent years. In late 2008, Siemens AG pleaded guilty to a series of FCPA violations and agreed to pay at least $800 million in fines and disgorgement of prior profits. Halliburton agreed in early 2009 to pay $559 million to the US government to settle charges that one of its former units bribed Nigerian officials associated with the construction of a gas plant. Numerous companies will pay significant

CHAPTER 9 fines related to FCPA violations associated with the “oil for food” program in Iraq. A significant number of individuals have been and are being prosecuted as well, with many serving jail time. Corruption of public officials robs nations of jobs and prosperity and is morally and ethically repugnant. The reservoir engineer working in the global environment may see instances of corruption that range from the very modest to criminal acts and must be prepared and knowledgeable enough to behave with the utmost integrity. As statutes and situations change, the engineer is wise to update himself regularly on relevant statutes dealing with the countries in which he is employed and working.

9.5 ETHICS GONE AWRY, ETHICAL DILEMMAS What goes wrong and why? While overt unethical behavior that rises to the level of fraud occurs, there are a wide range of other ethical lapses. The following two cases are inspired by actual cases with the circumstances changed to protect the guilty; all the names are fictitious. The first case has enough issues in it that it is provided as a starting place for discussions. A few additional cases are inspired by cases copyrighted by the National Society of Professional Engineers.5 While the original cases may or may

5

The copyright notice associated with the NSPE cases states “This opinion is based on data submitted to the Board of Ethical Review and does not necessarily represent all the pertinent facts when applied to a specific case. This opinion is for educational purposes only and should not be construed as expressing any opinion on the ethics of specific individuals. This opinion may be reprinted without further permission, provided that this statement is included before or after the text of the case.” The cases are found at http://wadsworth.com/phil osophy_d/templates/student_resources/0534605796_harri s/cases/Cases.htm#Cases%20exclusively%20on%20the% 20site and were originally titled “Whose Witness?” “Gift Giving,” and “Forced Ranking.” The website has numerous example cases of ethical controversies involving engineering.

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not be inspired by actual cases, the three presented here are wholly fictitious.

9.5.1 The Case of the Unintended Consequences of Success Bonuses Larry Transient and Chuck Strikeslip worked together as engineering and geological consultants, respectively, for many years at a major oil company. When it was acquired and they were asked to move in order to stay employed in the new company, they “took the package” and each started consulting firms. While they have separate companies, they share an office and routinely work together on projects. They often let one or the other companies do the invoicing and both have business cards for their colleague’s company. They both bill consulting by the hour, but Chuck spends his unbilled time generating prospects and has successfully sold several of them for combinations of cash and overrides. An investor (Bob Bigbelt) has engaged both of them to help him “get in the oil business” and has committed to pay a minimum number of consulting hours each month at a small discount from their “going rates.” Bob has also orally committed to what could be potentially large success bonuses based on the investor obtaining certain levels of reserves (both proved and probable). Larry and Chuck don’t have much experience in the kind of prospects Bob wants them to look at, but they have both “seen a lot” in their careers. After killing a lot of deals, Chuck spots one that has some really complex-looking seismic but (at first review) appears to have an excellent-looking structure with a fault and threeway structural closure below an idle oilfield in a Latin American country. The nearest wells are almost 50 miles away but are at approximately the same depth and produce pretty well. Unfortunately, they don’t have access to the seismic on the nearby fields and the nearest deep sonic logs raised more questions than answers. Chuck initially considers this as no

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more than a good lead. Nonetheless, Bob is ecstatic. His investors seem to be willing to “roll the dice” and ask Larry to do a “success case” evaluation which (to no one’s surprise) looks very attractive. Bob is working on making the deal happen and his investors are pushing for results. Larry observes that Chuck’s maps look better with every revision. Chuck now refers to a “drillable prospect.” Larry has never questioned Chuck’s objectivity before, but now he is a little concerned. The deal looks like they will have to buy the old field and Bob wants a rejuvenation plan for the field. According to the records, some of the wells were producing as much as 35 50 BOPD when the field was abandoned. When Larry suggests a site visit, Bob declines as he has hired Paulo Producer (an “operations guy”) in country to check everything out. Paulo will also share the success bonus. While Bob was supposed to get “all the records” of the producing field, what he got were some structure maps, illegible logs in a many time photocopied crosssection, some decline curves, and a series of well tests dated long after production was supposed to have ended. There was no clear indication of what workovers had been done or when. Bob’s instructions were to come up with a rejuvenation plan including data gathering but to make sure and present a “success case” for the rejuvenation plan. Larry’s success case looks fantastic. He and Chuck can now calculate that they could each potentially earn more on this project than they had managed to accumulate in their retirement plans. Larry and Chuck are now supposed to fly to New York to meet with the investors before the group finalizes an offer for the properties. This shocks Larry. Larry has essentially done the evaluation using cost numbers he referred to as “placeholders” and were essentially semieducated guesses. Paulo hasn’t answered any questions about the conditions of the field or provided any more data. His comfort level with Chuck’s maps is (for the first time in his career) not very high. Larry realizes that he would never even have dreamed of

recommending a deal like this to his prior employer. Then he learns that Chuck’s wife is ill and that Chuck’s mediocre insurance is not going to pay nearly all of the costs he is about to incur. Larry’s retirement plan is off 35% from its peak. But whenever he brings up the risks and uncertainties to Bob, he gets the same response. “Great Larry, I am glad you have identified these. We are going to take the right steps to mitigate these. Just make sure you lead off with the success case because these guys want to first see the ‘size of the prize’.” With everyone wanting to make the deal happen, it hardly seems fair that Larry has to stop it. The plane to New York leaves tomorrow. What does Larry do? What went wrong here? A lot. First, Larry and Chuck have significant conflicts of interest. Even if all of the investors knew about them (which it turns out they did not), such conflicts can cloud judgment and color thinking. Larry and Chuck were both making recommendations outside their real areas of expertise. Neither had “helped set someone up in the oil business” before and the type of prospects and operations were new to them. As a result, Larry underestimated costs by large margins. The conditions on the ground resulted in multiyear delays before any efforts could be made to restore production. Workovers on several wells resulted in high water cuts and uneconomic wells. Paulo never gave any negative information to Larry or Chuck, but a trip to the field would have shown Larry the rusted heater treaters, leaky water tanks, and obvious signs of salt water leakage over the years. Were Larry and Chuck using best practices in the evaluations? Of course not. Placeholders as cost estimates? Larry knew that real oil companies would have to spend the time and money to justify projects. They were instead using what their client asked them to use. This is a significant ethical breach. The engineer’s duty is to use best practices, not just “do what they are asked.” Were Larry and Chuck objective? The question answers itself.

CHAPTER 9 Larry and Chuck got on the plane and they made their presentations. Larry made a strong point that there were major risks in the project and they could not be certain of being able to successfully rejuvenate the field and that exploration was intrinsically risky. One investor asked Larry how many times he had been involved in rejuvenating fields and he honestly answered “more than a dozen.” The next question was “how many of them were unsuccessful?” to which he honestly answered “none of them.” He wanted to point out the differences but the investors only asked about the success cases. They asked how much “running room” these opportunities had and Bob produced a map neither Larry or Chuck had ever seen before showing five more fields with “rejuvenation potential.” Larry and Chuck got down payments of more than $200,000 each on their success bonuses when the deal closed. The total success fee would be tied to results but Bob reminded them that “It should have two commas in it!” They got little further consulting work until something went awry and Bob occasionally paid them for their time. He made it clear that he thought they should be working “like he was” to capture the potential of the project and earn the rest of the success bonuses. A year later when the project had become a money sinkhole, the first workover produced over 98% water from a zone that had no record of injection or production and was updip to most of the estimated incremental oil. Larry was dispatched to the field and uncovered most of the bad news. Paulo had basically been dishonest from day one, holding back records with potentially damaging news. Paulo was fired and Bob hired a less optimistic operations guy. An excellent study was unearthed just after Paulo was fired showing very small opportunities for rejuvenation. Even these turned out to be optimistic. Bob was fired by the investor group when Chuck finished remapping the deep prospect. It had disappeared. What should have been done differently and when?

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9.5.2 How Much of Your Expertise Belongs to Your Employer? Employees are to act in “professional matters for each employer or client as faithful agents or trustees disclosing nothing of a proprietary or confidential nature concerning the business affairs or technical processes of any present or former client or employer without the necessary consent.” Exactly what knowledge of business affairs or technical processes belong to the employer and what is the knowledge and experience of the engineer? Consider the following illustrations. Acquisition Expertise Walks out the Door? • Engineer Lisa heads the M&A group for Buy-um-up Oil & Gas. As such, she has studied essentially all of the small independent oil and gas operators in North America. She knows their assets, production, and potential. Her bosses rely on her analysis to negotiate deals and have given her increasingly responsible roles. She has built an amazing database but no one else but Lisa can really navigate it. Her contact list includes all of the top managers of the large independents. At the SPEE Conference, Lisa met the President of BigAcqPetro. They are very interested in hiring her and Lisa is ready to make the move which allows her to relocate to a very desirable location and make a lot more money. BAP has made it clear that they want her to do “essentially the same things” she is doing at BOG but on “a larger scale.” Her boss at BOG went ballistic when she tendered her resignation as they were in the middle of an acquisition project. Lisa points out that they are always in the middle of such a project and that the projects take months to complete. Her boss takes some time and comes back with the following list of things Lisa cannot do at her new employer and he wants her to agree to them in writing. These include: • She cannot take her database or any information from the database with her.

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She has to stay at BOG long enough to train someone to be able to use the database (no one has been identified yet). • She cannot take her contacts list with her. • She cannot work with BAP on acquiring any companies BOG has considered for acquisition. • She cannot use BOG’s “approach” to acquiring fields for BAP. Which (if any) of these requirements is Lisa ethically obligated to do? Should she sign an agreement? What should BAP do?. •

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Top Employee Starts Consulting Firm • Technology Bob worked for a major oil company in the R&D department where he helped develop an intelligent well system that was subsequently licensed to a service company, IntelliWellGroup. He joined IWG and built the consulting arm of the service company that was instrumental in helping them sell more tools. The software he developed allows operators to optimize how intelligent wells are developed. IWG management allowed him a lot of time to write papers and attend conferences where he became well known in the intelligent well community. Bob has decided to start an independent consulting company along with two of his employees, effectively gutting IWG’s consulting arm. • Bob knows he cannot take any trade secrets with him including the software he developed at IWG. He does think he can recreate similar software and maybe even better software that can handle IWG’s as well as competitor’s tools. Bob knows he learned this capability on IWG’s dime and wonders about his ethical obligations. • Bob is a little concerned about hiring his coworkers. He had planned not to do so but to hire some people from other companies. However, when he hinted about his plans to the guys working for him at IWG, they were enthusiastic about joining him. Bob realizes

that IWG will not only lose some consulting revenue but may lose market share. Bob knows IWG’s strategies for getting the most money from oil companies and expects he will be hired to help get “better deals” from IWG and its competitors. In the past, Bob’s team has always recommended IWG. Now he plans on being agnostic as to vendor and being able to recommend any vendor without bias. He realizes that his past association with IWG may mean that he will have to bend over backwards to give other vendors a fair chance in his recommendations. Bob plans on contacting the other industry experts he has met at SPE ATWs, forums, and other meetings to market his consulting services.

What ethical concerns should Bob consider? Which of these are likely to lead to ethical breaches? What limits to Bob’s plans would you suggest?

9.5.3 Whose Witness Anyway? Maria Hotshot is the acknowledged world expert in shale gas wells from an engineering perspective. She has designed and evaluated every aspect of horizontal wells and hydraulic fracturing and has spent the last decade of her 30 years in the industry working on shale gas projects around the world. While she is highly sought after as a consultant, it is her expertise and demeanor as an expert witness that has enabled her to testify at several high-profile lawsuits. After one case, her testimony was so effective that the opposing (losing) side immediately asked to retain her on another matter. After lunch, Maria returns to her office to find telephone messages and e-mails. The first are from a local plaintiff’s attorney. His e-mail text was as follows: Dr. Hotshot, My name is Mark Cheatham and I represent Shale Guys, Inc (SGI). We have a great deal of acreage in the Marcellus and

CHAPTER 9 had willing investors to help us drill that acreage. Instead we farmed out some of the acreage to Big Oil & Gas Company as they represented they had great expertise in developing this acreage. They were obligated to drill several wells to earn certain interests but they really messed up. They didn’t do a geomechanical study and drilled the well improperly. They also messed up the frac jobs. Now they refuse to drill the other wells and our investors have soured on the deal because of the awful job BOGCO did. SGI is going to have to drill wells to maintain their valuable acreage position. Please call me immediately to discuss this further as we are sure we’d like to hire you in this case. We expect you can show what they did wrong and calculate how much damages we have suffered as a result of their failure to act as a prudent operator. Sincerely, Mark Cheatham Sr. Counsel DC&H Law Firm The other message was from a large firm Maria knew well and had been deposed by. It simply said that they represented a large shale gas producer in a case against another company and wanted to discuss the possibility of retaining her and to call. Questions: 1. Whose expert witness would you prefer to be? Why? 2. Which call will you return first? Why? 3. In deciding which, if either, caller to favor as expert witness, what kinds of questions will you ask yourself? What ethical questions, if any, will you ask? It is important that the expert not allow attorneys to explain their theories of the case in too much detail prior to being retained. In some cases, attorneys deliberately expose potential experts to information that might taint their abilities to serve for the other side. Others

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might retain multiple experts only to eliminate them as potential experts for the other side. This is particularly risky in areas where a few experts are particularly well known and few alternatives exist. Finally, it is not advisable that the expert solely represents plaintiffs or solely represents defendants. Experts who do will be characterized as “hired guns” that only can see cases from one point of view.

9.5.4 Forced Rankings6 Part One.. Jim Peters leaned back in his office chair and sighed with relief. Supervisor of the specialized petrophysics group, he had just finished writing the last of the annual performance appraisals on his 12-person team for BOGCO. Nearing the end of his first year as supervisor, this was Jim’s first experience in appraising employees. Nevertheless, he felt he had done his appraisals well. He had held a thorough performance review discussion with each individual, going over progress toward specific annual objectives established early in the year. These discussions were open, frank, and, Jim believed, of value to him and to each employee. BOGCO’s appraisal forms required giving each employee a ranking of: High Achiever, Excellent, Satisfactory, Marginal, or Deficient. Each ranking requires a supporting, written justification. Jim ranked 8 of his 12 people at either High Achiever or Excellent. He ranked only one as Marginal, and he ranked the other three as Satisfactory. A ranking of Deficient was interpreted as a signal the employee was going to be terminated. Jim delivered his appraisals to his immediate supervisor, Jason “Mac” McDougal, manager of Advanced Reservoir Characterization at BOGCO. Mac had to review Jim’s appraisals along with those of his other sections, approve them, and submit them to the Human Resource 6

This example is based closely on the NSPE examples: http://wadsworth.com/philosophy_d/templates/student_reso urces/0534605796_harris/cases/Cases/case60.htm

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Director for BOGCO’s E&P group. Jim assumed Mac would quickly and easily approve his appraisals. Much to Jim’s surprise, Mac stormed into Jim’s office a few days later, threw the appraisals on his desk and exclaimed: “Jim, these appraisals just won’t do! You’re overrating your people! You know I have to force-rank everyone in ARC and turn that ranking in with all the appraisals. It looks to me like you’ve tried to assure that all your people will be placed high in the forced ranking. I want these appraisals rewritten and your ratings adjusted to something that more closely approximates a ‘normal distribution’— you ought not to have more than a couple of High Achievers and probably a couple of Marginals or Deficients. I want the revised appraisals back on my desk by the end of the working day tomorrow! Understand?” Jim felt frustrated, disillusioned, and disappointed by this turn of events. It seemed to him the appraisal system was being manipulated to produce an expected result and was not truly reflecting the performance of people. He also felt pressed for time, since he had the next day fully committed to other projects. What options do you think Jim has? Which do you think he should select? Explain. Part Two.. Jim Peters worked late into the night to meet Mac McDougal’s deadline. As he approached the end of his task, he grew careless and changed two Excellents to Satisfactory without changing his comments on their performance. Jim submitted his revised appraisals to Mac and went back to the daily routine of supervising the Petrophysics Section. Mac appeared satisfied with the revised appraisals and submitted them (along with his forced ranking) into the normal chain of approval. Some weeks later, the appraisals were returned to Jim, who then scheduled individual appointments with each of his people to inform them of their appraisal ratings and discuss plans for subsequent improvement. Jim’s individual meetings went reasonably well until he met with Pete Evans. (Pete’s appraisal was one that had the changed rating without revised comments.) Pete listened to Jim

as they reviewed the appraisal and finally burst out, “Jim, your comments seem to sound like I’m an excellent performer but you only rated me ‘satisfactory’!” Jim had been afraid of such an observation but hadn’t carefully thought out a response. He simply blurted out, “I had to reduce most of the ratings I gave to conform to the distribution management expects!” Pete stormed out of Jim’s office muttering: “I thought my appraisal was supposed to motivate me to improve! It sure as heck didn’t!” Discuss Jim’s handling of his reappraisal task. What might he have done differently that would have had better results? What would you suggest that he do now? What changes, if any, do you think XYZ should make in its appraisal system? What ethical issues are raised?

9.5.5 Gifts and Entertainment Everyone agrees that we should not steal. Everyone agrees that we should not accept bribes. But not every case is black or white. Consider the following in the context of “not stealing”: 1. breaking into a store and taking $3000 in merchandise; 2. “borrowing” a friend’s car and failing to return it; 3. taking a bicycle that someone had forgotten to lock; 4. developing a computer program on company time for your company, and then patenting a considerably improved version of the program under your own name; 5. borrowing a book from a friend, keeping it by mistake for a long time and then failing to return it (you discover the book after your friend has moved overseas, and you decide to keep it); 6. using some ideas you developed at Company A for a very different petrophysical application at Company B; 7. using some management techniques at Company B that were developed at Company A;

CHAPTER 9 8. picking up a quarter that you saw someone drop on the street; 9. failing to return a sheet of paper (or paper clip) you borrowed; 10. picking up a quarter that someone (you don’t know who) has dropped on the street. Essentially, no one views 1 3 as anything but theft (stealing). Similarly, the last two seem unlikely to be considered theft. Probably most people would consider example 4 a type of theft. Example 5 is something many of us might have done. We might say that the action is justified, because the expense and trouble to us of returning the book is probably greater than the value of the book to our friend. This might be especially true if we knew the book was old and out of date. We would probably resist the use of the word “theft” to describe our action. Examples 6 and 7 might be considered less clear examples of theft than example 8, except for the potentially large amount of money involved in these two examples. One of the considerations that makes the determination of what is and is not theft so difficult is that there is no single criterion that can be used to decide the issue. The most obvious such criterion is the monetary value of the property in question. But this criterion will not always work. Snatching a dollar bill from an old lady is more clearly an example of theft than using an idea one developed at Company A for a very different application at Company B, even though the latter example involves vastly greater sums of money than the first. A variety of considerations are relevant, monetary value being only one. Similar consideration can be applied to bribery. We all agree that accepting bribes is a violation of professional ethics, but we may not always find it easy to determine what is and is not a bribe. Certainly, not all examples of accepting gifts and amenities qualify as accepting bribes, just as not all cases of taking another’s property should be considered theft. Determining when a rule against taking bribes

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is being violated requires common sense, discrimination, and powers of moral deliberation. These kinds of abilities should be a part of one’s professional training. The following examples are designed to serve as discussion points for evaluating a “gray” issue.7

9.5.6 The Bribery Coast Case C-X.. Tom had been one of the most successful leaders of drilling, reservoir, and completion teams in the company. No one was surprised when he was promoted and named the asset manager of a large team designed to drill hundreds of deep horizontal wells in a sour tight gas play. He had full P&L authority and supervised the drilling, G&G, reservoir, completion and production engineering, and field operations leaders. Although his HR, legal, and financial leaders technically reported to their functional leads, they all considered themselves to be part of his team in no small part because of Tom’s inspirational style of leadership. Tom’s prior experience proved invaluable as the team exceeded expectations time and again. As he examined drilling performance, he identified three new technologies in bits, directional drilling, and completions that were particularly applicable. All three were provided by the same vendor. After a few test wells, the performance of these technologies was proven and even led to improved HSE performance. After spending quite a bit of money on the new tools, the executive sales representative (Jim) of the service company supplying the technology introduced himself to Tom and invited him on a very nice fishing trip to South America. While Tom had no direct purchasing responsibilities and had only wanted the technologies to improve performance, he did love fishing. Tom’s company policies do not specifically prohibit such gifts and he knows people at his level had accepted similar entertainment 7

This example is modeled loosely on the NSPE example in: http://wadsworth.com/philosophy_d/templates/student_ resources/0534605796_harris/cases/Cases/case72.htm

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before. He also knows that his new supervisor had accepted far more generous entertainment in the past. Should he accept the fishing trip? The first thing to notice about this case is that it is not a paradigm case of bribery. In fact, it is not a case of bribery at all. We might define bribery as remuneration for the performance of an act that is inconsistent with the work contract or the nature of the work one has been hired to perform. Tom did not act contrary to his obligations to his employer, and in fact he acted in accordance with his obligations. Furthermore, the gift was offered after Tom’s recommendations and without any prior knowledge and expectation of the gift. Case C-1.. The following might qualify as a paradigm case of a bribe. We shall call it C-1. Tom was promoted to asset manager and went to lunch with his old friend Jim. Jim started taking Tom and his wife to fairly lavish dinners and offered him a number of amenities if he would recommend the bits and directional work from his company. The technology was nearly comparable but more expensive than what they had been using. Tom was willing to try them based on Jim’s recommendations. Jim then invited Tom on a very nice fishing trip to South America.8 Even though the original case (C-X) is not a bribe, it does involve accepting a large gift that has some analogies with a bribe. In order to see this, consider the following case, which has very few, if any, analogies with a true bribe. We shall call it C-10. Case C-10.. Tom was promoted to the new asset manager position and realized right away that existing technologies and processes used by the company would not allow him to reach the company’s aggressive production and profitability goals. Tom’s prior experience proved 8

If the “nice fishing trip” appears to be too valuable to be justified by many of the participants, it can be replaced by “golf at an exclusive country club” or “tickets to the Kentucky Derby.” The important thing is that the thing being offered is more valuable than routine entertainment but not completely over the top.

invaluable as the team exceeded expectations time and again. As he examined the drilling performance, he identified three new technologies in bits, directional drilling, and completions that were particularly applicable. All three were provided by the same vendor. After a few test wells, the performance of these technologies was proven and even led to improved HSE performance. After a large contract had been let to the vendor, the salesman came by and introduced himself, giving Tom a flash drive with the company’s logo on it worth less than twenty dollars. It is obvious that there is a continuum of cases here, all the way from C-1 which is a clear case of bribery to C-10 which is clearly not a case of bribery. Now the question is: What place in the continuum do we assign to C-X? Should we call it C-2, indicating that it is very close to C-1 so that it should probably be considered morally wrong? Or should it be labeled C-9, in which case it probably should not be considered morally wrong? Or should we give it some number in between? Finally, in C-X, should Tom take the fishing trip? In order to begin thinking about this question, consider some of the characteristics of C-1. 1. While Tom may not have had direct authority for specifying the bits and directional work, his reputation allowed him to do so. 2. The salesman approached Tom and made the offer before the work was specified or purchased. 3. The work performed was not clearly superior to less costly alternatives. 4. There was a causal relationship between the offer of the amenities and Tom’s decision. In other words, Tom requested that Jim’s services be used as a direct result of Jim’s offer. 5. Even though C-1 involves bribery, the company will probably benefit from an ongoing cordial relationship with suppliers, which Tom specified. For example, obtaining service will probably be easier. (We shall assume this to be the case.)

CHAPTER 9 6. Tom rarely accepts amenities from suppliers with whom he does not do business. (We shall assume this.) 7. Knowledge of the gift may influence others to buy from Jim, even if Jim’s product is not the best. 8. The gift was for a substantial amount of money. 9. Even if there had been no actual corruption, there was certainly the appearance of corruption. For example, consider IBM’s test: “If you read about it in your local newspaper, would you wonder whether the gift just might have something to do with a business relationship?” By this test, there was the appearance of corruption. (In this case, of course, the appearance was not misleading.) C-10, we shall assume, shares only characteristic #5 with C-1, but C-X shares characteristics 5 and 7 9 with C-1. We shall assume that in C-X, Tom often accepts amenities from suppliers after a deal is completed, even if the supplier has not won the sale. How would you evaluate Tom’s action in C-X? Do you think it crosses the line between morally acceptable and morally unacceptable conduct? We shall give several arguments on both sides and then leave it to you to come to a final decision. But before giving these arguments, one observation may be helpful. There are going to be cases that are unclear in terms of their moral permissibility. Although there are clear cases at either end of the spectrum and even some near the middle that can be decided with reasonable conviction, there are some cases that are so ambiguous that they must be decided arbitrarily. This is true in the law, and it is also true in morality. To use a common analogy, there is dusk or twilight as well as daytime and night. If there is any specific point in time where night becomes day or day becomes night, it must be set arbitrarily. This does not mean that there is no difference between day and night, however. It does not even mean that some of the areas of transition are unclear. Most of us would

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probably say sunrise is more like day than night. Late dusk is probably more like night than day. But what about late evening? Better still, precisely when does day become night? We could set a time. We could say that it is when we have to turn on our car lights when driving, for example. But for other purposes, a different time might be more appropriate. So the moment of transition is not only arbitrary, but it may be arbitrarily set at different times for different purposes. Now there are a number of cases which we could probably agree on in terms of their location in the continuum. For example, if the offer of the trip had been made before Tom made his recommendation, we would probably agree that Tom should not have accepted the offer. We might want to call this C-2. Let us suppose that Tom still recommended Jim’s services because he genuinely believed they were the best, so that Jim’s offer of a trip to South America was not the cause (or at least not a necessary precondition) of Tom’s recommendation. In this case, Jim’s offer clearly was a bribe, but Tom did not make his decision because of the bribe. Nevertheless, Tom probably should not accept the offer. Now let’s consider some of the arguments, beginning with arguments that C-X should be considered morally impermissible. Arguments For and Against Tom’s Action Arguments Against Tom’s Action of Accepting the Invitation 1. The tendency in Western morality—and probably morality throughout the world—is to increase restrictions on bribery. This implies that the restrictions on actions closely related to bribery would also be increased. Most large oil companies have well-defined rules in gift giving and gift receiving. 2. The size of the gift is morally troubling. 3. Knowledge of the gift could influence others to buy from Jim, even if Jim’s products are not the most appropriate for them. This might operate as a kind of bribe-ahead-oftime for other people in Tom’s business unit, even if Tom had no idea he would be offered

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a trip. They might say, “If we buy from Jim, we can expect a nice gift.” 4. Knowledge that Tom accepts after-the-fact gifts may give him a reputation as being someone who can be “bought.” 5. In morality, one of the important questions to ask is whether you would be willing for others to do the same thing you did. If every salesman offered gifts to people who bought—or recommended the purchase of— his products, and every purchaser accepted the gifts, the practice would of course become universal. Our first reaction is to say this would neutralize the influence of the gifts. You could expect a bribe from somebody, no matter whose product you recommended. Thus, Tom might have been offered a nice trip to South America by whatever salesman made the sale. But this begins to look like extortion if not bribery: a salesman has to offer something to even have his product considered. Furthermore, smaller companies might not be able to offer the lavish gifts and so might not have their products considered. This would harm the competitive process. Furthermore, the gifts would probably tend to get larger and larger, as each salesman tried to top the other one. Thus, the general acceptance of the practice would have undesirable consequences. Arguments in Favor of Tom’s Action of Accepting the Invitation 1. We have already pointed out that Tom’s action cannot be an example of accepting a bribe in the true sense of the term. In order to be a true bribe taker, Tom would have had to make his decision because of Jim’s offer. Since the trip was offered after Tom’s decision and Tom did not know about the trip ahead of time, the trip could not be a bribe in the true sense. 2. Tom’s company may stand to benefit from the personal relationship between Tom and Jim. It may make it easier to get replacement improved service and to get other types of service from Jim’s company.

3. Business life should have its “perks.” Business and professional life involves a lot of hard work. Fishing trips and similar amenities add spice to life that is important in terms of job satisfaction and productivity. In fact, accepting such gifts was apparently the norm at Tom’s company at his level and higher. 4. Accepting the kinds of gifts that Tom took advantage of is quite common in Tom’s industry. It adds very little to the cost of the product. Any industry large enough to provide these complex and costly products and service in the first place would be able to afford such gifts without financial strain. 5. It is true that, in taking the moral point of view, we must assume that everybody has a right to do what we do. But if every salesman offered trips and every person in Tom’s position accepted them, no harm would result. Things would equalize. There might be a kind of “extortion” here, but this is just a word. You have to ask what harm is done. Note that each side has legitimate reasons for the decision made. Many shades of gray could be introduced in this case such that there will always be a marginally acceptable case for any reader. While we can agree that even the perception of bribery is to be avoided, there is always a softer version of the story that makes the decisions borderline appropriate. The reader is encouraged to think responsibly about this issue; it is at least similar to issues they will almost certainly encounter as soon as they begin their professional careers. These cases are based loosely on an NSPE copyrighted case, which provides considerable additional content, references, and discussions on gift giving and bribery.9

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