This third edition of the leading work on joint operating agreements (JOAs) provides a pragmatic examination of the provisions of a typical JOA in the order that. This books (Joint Operating Agreements: A Practical Guide [FULL]) Made by A Practical Guide [FULL] PDF files, Free Online Joint Operating. Any Joint Operating Agreement (JOA) requires an operator to conduct . Operating Agreements: A Practical Guide (Globe Law Business, London ) 89–
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1 For a comprehensive survey of this subject see P Roberts, Joint Operating Agreements: A Practical Guide (2nd edn., ) Globe Business, London. Joint Operating Agreements: A Practical Guide [Peter Roberts] on medical-site.info * FREE* shipping on qualifying offers. This new second edition provides a. Joint Operating Agreements Third Edition A Practical Guide Ebooks. Guide Ebooks Download PDF Joint Operating Agreements Third Edition A.
Parties that voted in favour of the failed project proposal can undertake the project on sole risk basis rather than joint operation and not withstanding its rejection by the JOC. The participating parties however, will share the costs, risks and benefits borne out of the project and will indemnify non participating parties from third parties claim in respect of the said project Taylor and Wilsor, The purpose of sole risk clause therefore, is to permit minority party or parties who was or were in support of project proposal which was rejected by JOC, to conduct the project without participation of majority and do so on his or their own risk.
The majority will take no part in such project as relate to costs and risks and also take no share in the benefits of the project. But most JOAs make provision as to measures which non participating majority can join the project operation later, usually on a high premium Styles, The clause is therefore aimed at protecting the economic interest of minority party or parties to JOAs by given them opportunity to conduct project in which they have an economic interest but was rejected by JOC.
Sole risk project is quite distinct from the joint operation projects of the whole JOA as such the participating parties to the project will make necessary arrangement on the conduct of the project so as not to jeopardise the conduct of joint operation. Operator is the most likely party to conduct sole risk project due to the nature of his percentage interest. While the sole risk project is in progress the Journal of Asian Business Strategy, 6 10 JOA will normally provide that the JOC composed of participating parties in the sole risk project should manage the project where operator is not a participating party Styles, JOA however, set out projects that can be conducted on sole risk basis which include: seismic, drilling, appraisal drilling, testing and development Mandler, The clauses are not applicable to works which are obligatory under the licence regime as all parties to the JOA agreed to pay its share for the obligatory works to keep the licence in operation Christopher, JOAs Functions and sole risk clauses The rationale behind JOA is to jointly share costs, risks and benefits in accordance with the percentage interest of all parties to the JOA during the life of the licence obtained from the Government.
Nevertheless, sole risk clauses allowed minority parties to conduct a project despite its rejection by the majority. The action of minority parties participating in sole risk project created a sub-venture within Joint Venture Bean, which obviously works contrary to the aims and functions of Joint Venture.
Conducting projects by minority on their own risk without contribution from the majority redefines the scope of the JOA with the minority parties relate in sub-venture and with the co-venturers in the JOA as whole.
The division however, would affect the smooth conduct of JOA as the sub-venture project participated by the minority may have an impact on the whole JOA as to issue of joint property, the taxation regime of the sole risk project and its results which will flow the sub-venture and JOA parties as whole Wilson, The sub-venture created by sole risk project will effect changes in rights and obligations of all parties to the JOA Bean, Some commentators maintained that the freedom accorded to minority parties to conduct project on their own risk will give them opportunity to drill and exploited licence, which is better than not drilling at all, especially where the duration of licence is short Monerey, And that the presence of such clauses reveals the inherent flexibility of unincorporated joint venture arrangement to allow the wish of one party or parties in the JOA to undertake a project not approved by JOC Christopher, For instance, in indemnity cases, possible claims against non-participating parties are enormous, especially in relation to tort committed, contract concluded by operator outside his authority or for breach of licence terms or statute Christopher, Christopher, This is usually a protection to minority parties who were not willing to participate in a particular project.
The difference between non consent clauses and sole risk clauses depend largely on the amount of support a project proposal received at the JOC Shaw, In both instances, there exists a non-participation of some parties. In non- consent clauses, the majority consented to conduct the project and will share the costs, risks and benefits if any in the project.
The non-participating parties were exonerated from any contribution Journal of Asian Business Strategy, 6 10 or risks. Non consent clauses are not usually provided for except in development of a discovery which involved high costs Taylor and Wilsor, The rational for non- inclusion was to encourage participation of all parties to joint approved works Christopher, Failure to pay within the time specified amount to default which has negative impact on the defaulter and the rest members.
However, non-consent clauses relieved a party from being a defaulter despite non contribution and placed a greater burden on the rest of the participating members who will bear the costs, risks and benefits if any of the project in accordance with their percentage interest Styles, There is provision for penalty in case of late participation by non-consenting parties which is usually high.
The non-consent clauses directly work against aims and functions of JOA which is joint sharing of all costs, risks and benefits during the life of a licence Roberts, The clauses create a way for minority parties to invest their capital in another project they considered more important and more beneficial and opt for non-consent right.
Non consent clauses in JOA will not be applied to licence obligations, which parties accepted from the onset Shaw, The non-participation of minority parties to approved joint project placed greater burden on participation parties which works contrary to the underlying philosophy of JOA for common participation of parties throughout the life of the licence.
This has impact on the accounting book, profit sharing, penalty related issue and other activities of JOA. The participating parties recognised the enormous risks involved in oil and gas industry and want to mitigate such risks through joint venture.
The parties will contribute towards licence activities based on percentage interests and will share the liabilities and benefits on such percentage interests. However, JOA allows a party or parties to undertake a project on sole risk basis which JOC rejected through sole risk clauses. It also allows a party or parties to choose not to participate on a project approved by JOC through non consent clauses.
Both clauses allow non participation of some members to a certain project. But these clauses created a lot of complexities on the smooth conduct of JOA and work against the underlying philosophy of JOA which is joint sharing of risks, liabilities and benefits from the beginning to the end.
In view of the above, this paper recommends that parties shall from the onset recognised the consequences of JOA and couched the sole risk and non-consent clauses in a flexible manner that will not jeopardise the objectives of JOA.
It further recommends that both clauses should be retain in JOAs as they are important factors that always encourage parties to consent to JOAs from the onset, having in mind that certain options and rights are present when it comes to decisions reached by JOC. Views and opinions expressed in this study are the views and opinions of the authors, Journal of Asian Business Strategy shall not be responsible or answerable for any loss, damage or liability etc.
References Bean, G. Fiduciary duties and joint ventures, London: Clarendon Press, Christopher, P. Sole risk operation in petroleum joint ventures.
Finn, P. Joint ventures-good faith, unconscionability and fiduciary duties. IT and IBA Mandler, P. R, 4, Monerey, D. Sole risk in mining and petroleum ventures: An international perspective. AMPLA Peters, M. Why international oil companies choose to enter into joint operating agreement. Acta Juridica Hungarica, 53 2 , Roberts, P. Fault lines in the joint operating agreements: Decision making.
Care must be taken to ensure that the JOA has the necessary flexibility such that it can evolve and can react to the changing operational, commercial and regulatory circumstances which might arise over the lifetime of the concession. The involvement of the parties with the JOA will not end once the negotiation of the JOA — which is an exercise in its own right — has concluded and the JOA has been signed. Rather, the parties then need to implement the JOA and to apply it across their intended joint operations and for the duration of the concession.
Only then will the consequences of the positions which have been negotiated in the JOA truly become apparent to the parties and in light of this, real joint venture operational experience is an essential tool for the JOA negotiator.
Because the relationship between the parties is dynamic and will change over the lifetime of the JOA, as will the external environment in which the JOA resides, the 27 First principles JOA should reserve sufficient flexibility in its terms to cater for that evolution. The JOA cannot realistically be written upfront so that it is ready to cater for every change of circumstance which might occur over its lifetime, but the architecture of the JOA should be prepared such that it is sufficiently flexible to be able to accommodate the more obvious evolutions.
In one sense, the comprehensiveness of the JOA might be capable of being appreciated only towards the end of the lifetime of the underlying petroleum project, when the main body of the JOA and all of the various amendments, supplementary agreements and transfers of interests can be viewed together as a record of how or, indeed, whether the petroleum project was properly managed. The following examples are of some of the circumstances which should be addressed in the JOA.
If the reserves which are identified through the exploration and appraisal phase are not sufficiently commercial to merit going forward with a development plan 4. Over the longer term, if a development programme is undertaken, then the eventual outcome will be the production of petroleum up to the point where depletion of the reserves means that it is no longer economic to continue.
The JOA should contain the provisions necessary to facilitate these alterations and should also be able to respond to the introduction of new parties which might have different operational and economic philosophies from the traditional norm see below. Thus, the JOA might need to manage the opportunity for the parties to offer the use of their petroleum production, processing, storage or transportation infrastructure to a third party in exchange for a suitable tariff or the introduction of a unitisation programme 28 Peter Roberts see Appendix D , in which case the role of the JOA will need to be reconciled with the wider UUOA; or it may be that the parties decide to transform the overall petroleum production project into a quite different form of project 4.
The JOA will need to be able to respond to the emergence of each of these various phases in the lifecycle of the petroleum project. Where a party comes to hold an interest in another concession, that party may become interested to exercise its rights and to perform its obligations in respect of that other concession in preference to the concession to which the JOA relates.
This transition could open the door to investment by new entrants into those provinces. These new entrants might be smaller, more entrepreneurial energy companies in respect of which several factors must be considered in comparison with the participants of yore: they may be less financially sound than has been the norm; they may be less concerned by the risk of adverse reputational damage consequent upon a failure to perform their obligations in respect of a particular project; and their perception of what is customary in the negotiation and management of the traditional JOA relationship between the parties might be different.
This is not to say that any new entrant will lack the capacity to perform its obligations in a particular project, but the aggregation of commitments across a portfolio of projects could be a stretch and so the new entrant might apply some selective ordering as to how or indeed whether it chooses to meet all of those obligations. Taken together, these factors represent a risk that a party might at some point fail to perform its obligations in a particular project — a risk which the JOA that relates to such a project will need to address.
However, the JOA will not lend itself readily to being a vehicle which will address the risk to the parties of the expropriation of their concession interests. This is a matter which is better dealt with in the concession or under a separate investment protection agreement. The cost profile of the operations under the JOA will vary according to the nature of the activities to be undertaken. However, there will be relatively little capital expenditure, as the parties will rarely download capital items at this stage.
There will be no revenues from the production of petroleum which the parties can apply against their expenditures. In the development phase there will be no, or very low, operating expenditure and significant capital expenditure, as the necessary petroleum production, processing, storage and transportation infrastructure is acquired, constructed and installed; there will still be no revenues from the production of petroleum for the benefit of the parties.
In the production phase there will be the inevitable ongoing operational expenditure incurred in connection with running the petroleum production project, but no capital expenditure unless further development phase activities are undertaken or any installed infrastructure requires modification.
However, during this phase the parties should see the benefit of revenues from the production of petroleum, although these will eventually tail off as the rate of production from the petroleum deposit gradually declines. During this phase there will be no revenues from the production of petroleum for the benefit of the parties.
Duration In order to govern the inception of the JOA, the JOA will recite the date upon which the JOA is signed by the authorised representatives of the parties, and will also define the date upon which the JOA actually becomes effective and binding between the parties which might be later than the date of signature of the JOA in certain circumstances. The JOA will have a duration which principally tracks the duration of the underlying concession, although the duration of the JOA can precede and will go beyond the existence of the concession in certain circumstances, and certain of the terms of the JOA might also be declared to have continuing existence notwithstanding the termination of the JOA.
Consideration should also be given to the necessity for an agreement between the parties which regulates their relationship prior to the JOA coming into existence.
Because the business of the JOA is to enable the effective performance of the underlying concession 1. This will entail the simultaneous signature of the concession and the JOA, such that both documents have the same execution date.
If the duration of the concession is extended because of force majeure If for any reason the JOA is not ready to be signed by the parties on the same day that the concession is signed, the parties can always sign the JOA with a later execution date, but record their agreement that the JOA is deemed to have come into force on the earlier date which is the execution date of the concession. To suggest that the JOA would be deemed to have been effective back to the date on which the concession was originally granted to the first party would be too much of an artificiality and would cause the incoming party to be concerned about the allocation of historical liabilities which might have arisen in that intervening period.
The alternative option for timing the execution of the JOA is to provide that the parties will sign the JOA in advance of the award of the concession, and the JOA will recite a condition precedent to its effectiveness notably, that the concession is granted to the parties, with acceptable commercial terms, and is executed by the government and the parties as the holders of the concession.
When the concession is granted and is executed, this condition precedent will have been fulfilled and the JOA will automatically become live and effective between the parties. A further condition precedent which might be considered for insertion into the JOA is one which relates to the approval of the terms of the JOA by any government agency which has such responsibility, where the terms of the prevailing mineral law or of the concession so require,2 although as a practical measure the draft of the proposed JOA can be so approved before the JOA is actually signed by the parties such that the condition precedent will not be necessary.
The insertion of a condition precedent into any commercial agreement inevitably introduces a measure of uncertainty and for that reason the JOA should be careful to limit the number and scope of the conditions precedent which it imports. These additional conditions should be resisted, not least since they are unlikely also to appear as conditions precedent to the effectiveness of the concession and so they should not appear in the JOA for the sake of consistency.
Rather, the AIPN JOA assumes that the parties have already entered into the concession, and that the JOA will have effect from what 2 34 MC 40 5 , and the approval so required will be deemed given if the form of the JOA meets the defined minimum standards specified in the Open Permission Operating Agreements granted by the secretary of state for energy and climate change originally effective from December and reissued in April