Joint Operating Agreements

Introduction 7 Glossary 9 1. First principles 13 1.1 Mineral laws and concessions 1.2 The role of the JOA 1.3 Hybrid concession/JOA structures 1.4 The logic for a joint venture 1.5 Model form contracts 1.6 North American leasehold interests 1.7 Evolution of the JOA 1.8 The JOA’s economic profile 2. Incorporated joint ventures 27 2.1 Introducing the incorporated joint venture 2.2 The role of the shareholder agreement 2.3 Incorporated and unincorporated joint ventures together 3. Duration 35 3.1 Commencement 3.2 Term and termination 3.3 Surviving provisions 3.4 Pre-JOA arrangements 3.5 Chronology of the JOA 4. Parties and participating interests 45 4.1 The parties 4.2 Affiliates 4.3 Participating interests 4.4 Joint property 4.5 State participation 4.6 Carried interests 4.7 Illustrative agreements 5. Scope 57 5.1 Joint operations 5.2 Excluded activities 5.3 Expanding the scope 5.4 Definition of the scope 5.5 Modification of the scope 6. Exclusive operations 69 6.1 Defining exclusive operations 6.2 Exclusive operations mechanics 6.3 Buy-back rights 6.4 Excluding exclusive operations 7. The operator 83 7.1 The operator’s advantage 7.2 Selection of the operator 7.3 The role of the operator 7.4 The locus of the operator 7.5 Removal of the operator 7.6 Hybrid operators 8. The operating committee 101 8.1 The role of the operating committee 8.2 Operating committee mechanics 8.3 Subcommittees 8.4 Voting control 9. Budgets, cashcalls and payments 113 9.1 The funding cycle 9.2 Work programmes and budgets 9.3 Authorities for expenditure 9.4 Cashcalls and invoice requests 9.5 Payment obligations 9.6 Dealing with default 10. Contracting 127 10.1 Procurement options 10.2 Third-party contracts 10.3 Affiliate contracts 10.4 Federal contracts 10.5 Contributions in kind 10.6 Awarding of contracts 11. Petroleum allocation, lifting and disposal 137 11.1 Petroleum allocation 11.2 Petroleum lifting 11.3 Petroleum disposal 11.4 Production-sharing contract allocation 12. Transfers 147 12.1 Transfers under applicable law 12.2 Transfer mechanics in the JOA 12.3 Incomplete transfers 12.4 Pre-emption rights 12.5 Change of control 12.6 Affiliate transfers 13.Withdrawal and surrender 165 13.1 The withdrawal principle 13.2 Reconciling withdrawal with the concession 13.3 The mechanics of withdrawal 13.4 Withdrawal and continuing costs 13.5 Partial withdrawal 13.6 The consequences of withdrawal 13.7 Use of the withdrawal mechanism 14. Liabilities 179 14.1 The operator’s liability to the parties 14.2 Liability allocation between the parties 14.3 Liability for exclusive operations 14.4 Third-party liabilities 14.5 Liabilities and insurance 14.6 General liability 15. Decommissioning 193 15.1 The decommissioning phase 15.2 The regulatory regime 15.3 Collateral support for decommissioning costs 15.4 Decommissioning and the JOA 15.5 Decommissioning on the UK continental shelf 16. Default 207 16.1 Consequence of default 16.2 Definition of default 16.3 Reaction to default 16.4 Remedies for default 16.5 Mortgage and lien protection 16.6 Interest sales 17. Forfeiture 223 17.1 Meaning of forfeiture 17.2 Forfeiture as a penalty 17.3 Relief against forfeiture 17.4 Anti-deprivation 17.5 Forfeiture of the concession 17.6 Forfeiture by any other name 17.7 Withering interest forfeiture 18. Dispute resolution 239 18.1 Dispute resolution principles 18.2 Dialogue 18.3 Expert determination 18.4 Arbitration 18.5 Litigation 18.6 Arbitration or litigation? 18.7 Consolidation 18.8 Confidentiality 18.9 Jurisdiction 18.10 Sovereign immunity 19. Accounting procedure 251 19.1 Model form accounting procedures 19.2 Accounting principles 19.3 Contents of the accounting procedure 19.4 Accounting procedure issues 20. Other provisions 259 20.1 Confidentiality and announcements 20.2 Corporate and social responsibility 20.3 Entire agreement and amendment 20.4 Force majeure 20.5 Governing law 20.6 Health, safety and the environment 20.7 Insurance 20.8 Litigation management 20.9 Notices 20.10 Secondment and teams 20.11 Taxation 20.12 Third-party involvement 20.13 Warranties and representations Appendices A: Model form JOAs 281 A1. Industry forms B: Operator and non- operating party perspectives 285 B1. The operator’s perspective B2. The non-operating parties’ perspective B3. Reconciling the operational perspectives B4. To operate or not C: The joint study and bid agreement 293 C1. The rationale for a JSBA C2. Preparing for entry into a JSBA C3. The content of a JSBA C4. Migration to a JOA C5. Exclusivity C6. Third parties and transfers C7. Application procedure and voting C8. Withdrawal C9. Default C10. Warranties D: Partnership and the JOA 301 D1. Definition and consequences of partnership D2. The JOA as a partnership E: Farm-outs and the JOA 307 E1. The role of the FOA E2. Issues with the FOA F: Unitisation and the JOA 317 F1. The mechanics of unitisation F2. An example of unitisation F3. The UUOA and the JOA G: Subdivisions 329 G1. Subdivision of the concession area G2. Subdivision of the concession H: Fiduciary duties and the JOA 333 H1. Defining and applying a fiduciary duty H2. Fiduciary duties in the JOA H3. Managing fiduciary duties in the JOA I: Collateralisation of the JOA 343 I1. The need for collateral support I2. Collateralisation from the outset I3. Collateralisation upon a farm-out I4. Decommissioning security I5. Exclusive operations I6. Forms of collateral support I7. Collateral support across the project lifecycle J: Unconventional petroleum JOAs 351 J1. Understanding the operational premise J2. Definition of petroleum J3. The role of the operator J4. Defining joint property J5. Scope J6. Ongoing project development J7. Exclusive operations J8. Withdrawal J9. Options for petroleum commercialisation J10. Health, safety and environmental issues, and operator liabilities J11. Operator liability J12. Unitisation and joint development opportunities J13. Decommissioning About the author 361 Index 363