Joint Operating Agreements: A Practical Guide

305 Pages·2010·2.09 MB·English

by  Peter Roberts

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A Practical Guide
Peter Roberts
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A Practical Guide
Peter Roberts
Author
Peter Roberts
Publisher
Sian O’Neill
Editor
Carolyn Boyle
Marketing manager
Alan Mowat
Production
John Meikle, Russell Anderson
Publishing directors
Guy Davis, Tony Harriss, Mark Lamb
Joint Operating Agreements: A Practical Guide
is published by
Globe Law and Business
Globe Business Publishing Ltd
New Hibernia House
Winchester Walk
London SE1 9AG
United Kingdom
Tel [phone]
Fax [phone]
Web www.globelawandbusiness.com
Printed by Antony Rowe Ltd
ISBN 978-1-905783-31-1
Joint Operating Agreements: A Practical Guide
© 2010 Globe Business Publishing Ltd
All rights reserved. No part of this publication may be reproduced in any material form (including
photocopying, storing in any medium by electronic means or transmitting) without the written

permission of the copyright owner, except in accordance with the provisions of the Copyright,
Designs and Patents Act 1988 or under terms of a licence issued by the Copyright Licensing Agency
Ltd, 6-10 Kirby Street, London EC1N 8TS, United Kingdom (www.cla.co.uk, email: [email protected]).
Applications for the copyright owner’s written permission to reproduce any part of this publication
should be addressed to the publisher.
DISCLAIMER
This publication is intended as a general guide only. The information and opinions which it contains
are not intended to be a comprehensive study, nor to provide legal advice, and should not be treated
as a substitute for legal advice concerning particular situations. Legal advice should always be sought
before taking any action based on the information provided. The publishers bear no responsibility for
any errors or omissions contained herein.
Cert no. SGS-COC-002953
Table of contents
Introduction 7 5. Exclusive operations 65
5.1 Defining ‘exclusive
Glossary 9 operations’
5.2 Exclusive operations
1. First principles 11 mechanics
1.1 Mineral laws and concessions 5.3 Excluding exclusive
1.2 The role of the JOA operations
1.3 The logic for a joint venture
1.4 Model form contracts 6. The operator 79
1.5 North American leasehold 6.1 The operator’s advantage
interests 6.2 Selection of the operator
1.6 Incorporated joint ventures 6.3 Role of the operator
1.7 Evolution in the JOA 6.4 Removal of the operator
1.8 The JOA’s economic profile 6.5 Hybrid operators
2. Duration 33 7. The operating committee 95
2.1 Commencement and term 7.1 The role of the OpCom
2.2 Surviving provisions 7.2 Mechanics of the OpCom
2.3 Pre-JOA arrangements 7.3 Subcommittees
2.4 Chronology of the JOA 7.4 Voting control

3. Parties and participating 43 8. Cost control and 105
interests contracting
3.1 The parties 8.1 Work programmes
3.2 Collateral support and budgets
3.3 Participating interests 8.2 Authority for expenditure
3.4 Government participation 8.3 Contract awards
3.5 Carried interests 8.4 In-kind contributions
3.6 Illustrative agreements 8.5 Affiliate services contracts
8.6 Federal contracts
4. Scope 55
4.1 Joint operations 9. Petroleum allocation, 121
4.2 Excluded operations lifting and disposal
4.3 Expanding the JOA’s scope 9.1 Petroleum allocation
9.2 Petroleum lifting
9.3 Petroleum disposal
10.Transfers 129 15.5 Jurisdiction
10.1 Transfers under 15.6 Consolidation
applicable law 15.7 Sovereign immunity
10.2 Transfer mechanics
in the JOA 16.Accounting procedure 215
10.3 Pre-emption rights 16.1 Accounting principles
10.4 Change of control 16.2 Contents of the
10.5 Affiliate transfers accounting procedure
16.3 Accounting procedure issues
11.Withdrawal 147
11.1 The withdrawal principle 17.Other provisions 223
11.2 Withdrawal mechanics 17.1 Confidentiality and
11.3 Partial withdrawal announcements
11.4 Consequences of withdrawal 17.2 Corporate and social
responsibility
12.Liabilities 155 17.3 Entire agreement and
12.1 The operator’s liability to amendment
the parties 17.4 Force majeure
12.2 Liability of the parties 17.5 Governing law
12.3 Third-party liabilities 17.6 Health, safety and
12.4 Liabilities and insurance the environment
12.5 Indemnity obligation 17.7 Insurance
limitations 17.8 Litigation management
12.6 General liability 17.9 Notices
17.10 Secondment
13.Decommissioning 171 17.11 Taxation
13.1 The decommissioning phase 17.12 Third-party involvement
13.2 The regulatory regime 17.13 Warranties and
13.3 Decommissioning security representations
13.4 Decommissioning and

the JOA Appendices
14.Default 185 A. Operator and 243
14.1 Definition of ‘default’ non-operator perspectives
14.2 Reaction to a default A.1 The operator’s perspective
14.3 Remedies for default A.2 The non-operating
14.4 Forfeiture parties’ perspective
14.5 Default remedies generally A.3 Reconciling the operational
perspectives
15.Dispute resolution 205 A.4 To operate or not
15.1 Dispute resolution
mechanisms B. Partnership and the JOA 251
15.2 Dialogue B.1 Definition and consequences
15.3 Expert determination of ‘partnership’
15.4 Arbitration and litigation B.2 The JOA as a partnership
C. Farm-outs and the JOA 257
C.1 The purpose of the FOA
C.2 Issues with the FOA
D. Unitisation and the JOA 265
D.1 The mechanics of unitisation
D.2 The UUOA and the JOA
E. Sub-divisions of the JOA 277
and concession
E.1 Sub-division in principle
E.2 The mechanics for
sub-division
E.3 Separate concessions
F. Fiduciary duties 281
and the JOA
F.1 Defining and applying
a fiduciary duty
F.2 Fiduciary duties in the JOA
F.3 Managing fiduciary duties
in the JOA
About the author 291
Index 293

Introduction
The joint operating agreement (JOA) is one of the cornerstone contracts in the
petroleum projects world and is often the starting point for further essential
agreements relating to the business of crude oil and natural gas production,
processing, sales and transportation.
The JOA enables long-term, collaborative developments to be undertaken
between groups of companies and government interests which have come together
(often from diverse legal, commercial, cultural and political backgrounds) to share
the high costs and risks that are inevitable in major petroleum exploration and
production projects. The JOA establishes common operational standards for
application to developed jurisdictions and to emerging markets.
The intention of this book is to offer a pragmatic examination of the provisions
of a typical JOA in the order in which they customarily appear, to review the key
issues that apply to the operation of any JOA and to consider the positions that are
taken in the various leading industry model-form contracts. The perspectives of the
operator and the non-operator are addressed, along with a consideration of certain
domestic and international standards which will apply to any petroleum project.
The first part of this book (Chapters 1 to 17) examines the background to why a
JOA might be necessary and then considers the essential provisions in any JOA,
generally in the order in which those provisions are found. It begins with an
examination of when in time the JOA starts and becomes fully effective and how

long the JOA thereafter remains in force. Consideration is then given to who the
parties are and what their interests in the JOA will be; what the scope of the JOA is;
who is appointed to act as the operator and how the interests of the non-operating
parties are represented; how the JOA’s activities are effectively controlled and
accounted for; how the interests of the parties under the JOA can be transferred; how
liabilities will be allocated between the parties to the JOA; and how to deal with any
defaults, decommissioning activities and disputes as they arise.
The second part of this book (Appendices A to F) contains a series of broader
commentaries which are relevant to some of the key issues which beset any JOA and
to the position which the JOA occupies in the context of a wider petroleum project.
The analysis in this book assumes that the decision of a group of companies to enter
into a joint venture in order to explore for and produce petroleum is based on their
desire to enter into an unincorporated joint venture, which will be recorded in the terms
of the JOA. This book does not focus on the terms of an incorporated joint venture,
except by way of illustration of the differences between the two joint venture structures.
7
Introduction
The law as stated in this book is current to December 31 2009. Change is a
constant in this area of law and practice, and thus at the date of going to press: the
programme of modification in respect of the 2002 issue of the Association of
International Petroleum Negotiators (AIPN) JOA and also in respect of the 2004 issue
of the AIPN accounting procedure (1-04) is ongoing; the first instance decision in
Colour Quest v Total regarding a person’s ability to be indemnified in respect of its
own negligence (12-02) is subject to appeal; the UK Bribery Bill (17-02) has yet to
become law; and the practical consequences of the implementation of the Rome 1
Convention (17-05) remain to be seen.
Finally, this book is dedicated with love to my girls: Tabitha, Christie and Kitty.

8
Peter Roberts
Glossary
The following terms are used in this book:
AAPL JOA The model form JOA issued by the American
Association of Professional Landmen.
Abandoned mine Methane which is released by coal mining
methane (AMM) operations and resides in worked and abandoned
mine workings.
AIPN JOA The model form JOA issued by the Association of
International Petroleum Negotiators.
American Petroleum The measure, expressed in °, of the weight of
Institute (API) gravity hydrocarbon relative to water, which is then
applied to grade produced petroleum.
Associated gas Natural gas which exists in solution with, and is
typically produced in association with, crude oil
(to be contrasted with non-associated gas, which
is produced in its own right).

Bitumen Crude oil in a semi-solid or solid form which has
an API gravity below 10°.
CAPL JOA The model form JOA issued by the Canadian
Association of Petroleum Landmen.
Coal bed methane Methane which is produced by drilling into
(CBM) unworked underground coal seams, sometimes
also known as coal seam gas (CSG).
Condensates Pentanes which exist as a liquid at ordinary
atmospheric pressure and temperature.
9