Joint Operating Agreements. Peter Roberts
•Accounting – in a partnership, accounts will be kept showing the profit and the loss of the business of the partnership. In a JOA, despite the operator having an obligation to keep accounts for the benefit of the parties in accordance with the terms of the accounting procedure (see Chapter 9), those accounts will differ significantly in their nature from true partnership accounts. Thus, the parties can examine the accounts maintained by the operator under the JOA so as to determine the costs incurred and the petroleum produced in association with the joint operations, but those accounts are unlikely to give an indication of the overall profit (or loss) that has been generated under the JOA for the benefit of all of the parties collectively. There is also legal authority under Australian law for the proposition that the absence of partnership accounts will be indicative of the absence of a partnership.10 However, if the scope of the JOA is extended to generating income from third parties from the use of infrastructure used for the joint operations which is then shared among the parties (see 6.2), or if the JOA employs a construction whereby any profits earned by the operator through a federal contracting programme are declared and shared among the parties (see 11.4), then in either case this might require a form of accounting to show profits (or losses) accruing to the parties that is more akin to conventional partnership accounts.
•Commitment – each partner has the right to participate in the management of the partnership business,11 which is similar to the participation rights granted to the parties under the JOA through the operation of the operating committee (see 8.1) and the parties’ information rights (see 15.3). Further, similar to the voting control regime at the operating committee (see 8.4), issues arising in connection with the partnership business can be decided by a majority of the partners, except that changes in the nature of the partnership business will require the unanimous approval of all the partners.12 In a partnership agreement, it is usually required that each partner devote the majority of its time to the prosecution of the partnership business and for there to be joint effort between the partners. The Partnership Act also provides that if a partner carries on a competing, similar business, it must account to the partnership for the profits made in that competing business13 (and in many partnership agreements the idea of a partner being allowed to carry on a competing business is simply unthinkable). The existence of any exclusive operations provisions in the JOA (see Chapter 13), by which a party might be able to decline to participate in a proposed joint operation or to propose an operation of its own, is not obviously compatible with this partnership principle. The presence in the JOA of any provisions expressly recognising the ability of the parties to participate in other, potentially competing business ventures is also inconsistent.
However, if the JOA does not countenance the possibility of exclusive operations, or does not recognise the possibility that a party might have an interest in a commercial venture outwith the JOA, there might be a reduced ability to refute the suggestion that the JOA relationship is a partnership.
•Employees – a partnership is (acting through its partners) capable of employing persons directly.14 In contrast, in a JOA, any employees who are engaged in the performance of the joint operations are employed directly by the operator (see 7.3) or directly by another of the parties and seconded in to the operator to assist (see 20.9). The joint venture represented by the JOA is not an entity capable of granting an enforceable contract of employment to an employee.
•Property interests – a partnership is capable of holding property,15 but a partner will not own a divisible share in that partnership property. Rather, a partner’s interest in the partnership property will be capable of realisation only when the partnership is eventually dissolved, the partnership property is sold and any surplus remaining after the liabilities of the partnership have been met is returned to the partners.16 In the JOA, once there is some joint property in the JOA relationship then the parties will be entitled to an undivided interest in that joint property, which will be owned by the parties according to their respective participating interests (see 3.2).
•Liability on transfer – under the JOA, where there is a transfer of interests the usual provision in the relevant novation agreement is that the transferor will, as between all parties, be discharged from any continuing liabilities after the effective date of the transfer of interests to the transferee (see 14.2). Similar provisions will apply in respect of the retirement of a partner from a partnership by agreement of the partners.17 However, the implication of the continuing responsibility of a party for liabilities associated with the decommissioning programme under the JOA (see Chapter 16) means that the transferor will not enjoy a full discharge from its continuing liabilities.
•Termination – under the Partnership Act, a partnership can be dissolved by any partner giving notice to the other partners of an intention to dissolve the partnership,18 or at the option of any partner if any other partner becomes bankrupt.19 In contrast, no such power or right exists in a party’s favour in the termination provisions in a typical JOA (see 5.4). Furthermore, under the Partnership Act, the partnership will also be dissolved if it has been entered into for a single adventure or undertaking and that adventure or undertaking has terminated.20 This approximates to the loss of the concession in respect of the JOA, except that even if the concession terminates, the JOA can continue to subsist in certain circumstances and the scope of the JOA might always be modified or extended (see 6.3).
The view of most commentators is that the JOA is not, in substance, a partnership between the parties. In the JOA the operator essentially conducts business on behalf of all the parties, whereas in a true partnership all of the partners are supposed to contribute their effort equally.
The JOA represents a platform for the combination of several separate persons that are all interested in carrying on a business for profit, where that platform will imply some commonality of interests between those persons – each party has the objective of making a profit from the enterprise that the JOA represents – but that is not the same as saying that there is a joint profit motive between all of the parties together.
However, this can be a fine point to make, and much will depend upon the wording and the management of the particular JOA being analysed; in particular, the extent to which expenses and produced petroleum are shared by the parties. If that JOA applies to at least some of the further refinements as discussed above, it might be taken closer towards being argued to be a partnership by any person (whether a party or a third party) that might have a reason for wanting to do so.
The principal intention is that the JOA will govern the relationship of the parties in respect of the period from the grant of the concession. However, this intention does not recognise the reality that in the run-up to the grant of the concession the parties may well have already been working together in seeking to secure the grant of that concession and in the negotiation of the terms of their JOA. To accommodate this, the prospect of undertaking investment into a petroleum project on a consortium-based approach might also necessitate the governance of the relationship between the parties during the precursor period.
(a)Preliminary agreements
The parties might enter into what is popularly called a joint study and bid agreement (JSBA) to legislate for this initial phase of their relationship, when they will together investigate the basis of a possible application for (study), and actually make their application (bid) for, the grant of a concession. The JSBA relates to a point at which a group of parties have already made the decision jointly to submit a bid for a particular concession that they have identified, but going back even further in time before that point, those same parties might already have formed a loose affiliation jointly to pursue certain development opportunities that