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The Improvement in Agreement Failure in the Oil Industry with Bitcoin

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The traditionally paper-based process for exchanging agreements is rife with risk and inefficiency. Platforms with blockchain for oil trading provides the best bitcoin trading experience with a low initial deposit. In addition, the withdrawals on this platform are quick with extraordinary security. In the past, this has led to many failures – leading to disputes and production disruptions when oil prices are volatile.

Bitcoin offers an entirely new way to securely, quickly, and verifiably exchange agreements anywhere in the world. It heralds the advent of “blockchain” technology, and new ways enterprises transact business. Bitcoin is poised to change everything about how transactions are made across industries — including how we extract and produce oil. 

In the below-mentioned portion, we’ll explore the potential motivations for oil companies to adopt bitcoin and how it could benefit the industry by facilitating more efficient, secure and verifiable supply chains. We’ll also consider how oil companies’ adoption of bitcoin could shape future developments in the relatively nascent blockchain technology.

Rethinking Oil Contracts

Standard oil contracts (or “tenders”) are a paper-based process that virtually all of the world’s major oil companies use to make commercial decisions about future investments, supply contracts and joint ventures. Unfortunately, the process is slow, expensive and ripe for fraud and graft. It often involves many complex legal documents and multiple copies of those documents, time-consuming and expensive shipping and storage, physical signatures, and all potential for loss or tampering.

 A critical step in the oil tender process is getting counterparties to agree on the terms of an agreement. In the past, this has generally been done using a combination of back-and-forth negotiations and drafting by lawyers from both parties. As a result, there is a substantial time lag between when the contract is signed and when it is executed – sometimes as many as several months.

Oil companies are under constant pressure to reduce costs, increase production and minimize legal liability. However, the existing process for creating and exchanging contracts is a significant hurdle to achieving these goals. As bitcoin is best known, smart contracts offer a way to create software that automatically executes agreements between two parties.

The enormous potential of bitcoin to improve entire industries has been recognized by many companies in recent months, including the U.S. bank Wells Fargo, which launched its bitcoin exchange last year, and the Wall Street investment bank Cantor Fitzgerald, which recently began accepting bitcoin for its services. Like most blockchain technologies, smart contracts are digital software programs that self-execute their agreements. They can do so despite the actions or inactions of any party involved in the contract.

How are intelligent contracts decreasing contract failure in the oil and gas industry?

Smart contracts allow one party to self-execute its contract without authorization from another party. It means intelligent contracts can be executed by companies as soon as they are written, eliminating the delays in contractual execution caused by signing them and then going through legal review. Smart contracts reduce duplication of effort and time spent on administrative tasks during the contract creation phase. When two parties agree on agreement terms and trade value, they enter that information into a smart contract.

Binding and Exclusive contracts in the oil and gas industry:

A binding contract is an agreement that specifies performance or payment obligations between two parties but does not include all the agreement details. These types of contracts are generally used where there is a priority dispute between the parties (i.e., there is no dispute as to whether performance has been achieved). The most common example of this situation is with EPC contracts, where a contractor can agree to perform specific engineering services on a fixed price with no other terms but may want to negotiate additional terms once the work is complete (such as additional engineering services or different scope).

When entering an exclusive contract, one party agrees that another party will be bound by specified terms and conditions for any future award. Smart contracts are designed to allow parties to agree on more than just legal enforceability but also what rights and obligations will be granted by a smart contract. As a result, almost any industry can use them, be it oil and gas, automotive sourcing, aviation logistics, or retail banking. In addition, intelligent contracts avoid the need for trust between parties because there is no need for negotiation over all of the terms in an agreement pre-contract. 

Smart Contracts in Oil Industry:

Smart contracts are the natural way to address problems in the oil industry. Smart contracts offer an option that eliminates the complexity and high costs associated with traditional contract agreements while simultaneously allowing parties to control the execution of their business relationship under certain circumstances. Requesting intelligent contracts in the oil industry:

For oil companies, smart contracts are an excellent way to increase transparency and boost efficiency. Intelligent Contracts can reduce contracting costs by reducing delays and increasing efficiency. 

One recent report estimated that for some types of construction projects worth $1 million to $10 million, intelligent contract execution could reduce the total cost by 10%. Increased transparency, which reduces risk and increases trust among traders. Smart contracts are designed to record what is agreed between parties.