Joint Operating Agreements. Peter Roberts
specifically defined. This earlier relationship between those parties may be recorded in a very simple form of joint venture agreement popularly known as an area of mutual interest agreement (AMIA). The AMIA will do little more than recite the desire of the parties to consider joint development opportunities in certain areas and is unlikely to contain the provisions that would indicate the reality that the AMIA is often the very earliest ancestor of a fully termed JOA. At the time of going to press the AIPN is in the process of settling a model form AMIA.
The AMIA might simply recognise that several parties have a generally consistent alignment in some particular regard. Beyond that, the AMIA might deny that it is intended to create any legally binding obligations (other than an undertaking of confidentiality or the commitment to negotiate together in good faith) between the parties, although (depending on what has been agreed between the parties) it is also possible that the AMIA might go to the other end of the scale and impose extensive exclusivity commitments.
The JOA might provide that its effectiveness will also signal the termination of any pre-existing agreement, such as the JSBA21 or any AMIA, but for the sake of good order this trigger event for co-termination should be recorded expressly in the JSBA (or AMIA); not least since there may be persons that are party to the JSBA (or AMIA) that do not go on to become party to the JOA and that would not be bound by the termination of the JSBA (or AMIA) where that termination is expressed to be effective only through the JOA.
Any exchanges of data that take place between companies that might ultimately become parties to a JOA and that in the interim have decided to enter into a JSBA or an AMIA in respect of their relationship should be protected by undertakings of confidentiality between those companies. A JSBA usually contains such undertakings, and the terms of an AMIA might contain such undertakings. In the absence of a JSBA or an AMIA, there may be an earlier confidentiality agreement that has been entered into between the companies, to address this specific issue. Model form confidentiality agreements are widely available in the upstream petroleum projects sector.22
(b)The joint study and bid agreement
The ostensible sequence of events is that the JSBA governs the relationship of the parties prior to the award of a concession, while the JOA governs the relationship of the parties after the award (assuming that the application is successful).
It is common for the JSBA to set out the terms which will govern the behaviour of the consortium running up to the award of the concession. Agreeing those terms in the JSBA allows possible contentions between the consortium members to be identified early on and addressed before the concession is awarded. Investing time in settling the content of the JSBA helps avoid a fractious consortium and costly inefficiencies later if a JOA is subsequently required.
The content of a JSBA is always a product of the time available prior to the submission of the concession application. The JSBA is typically drafted with a premature finish line in mind – the concession award. Instead, the parties should agree in the JSBA sufficient detail such that it can be used to operate the joint venture between the consortium members until when the JOA is agreed and becomes effective.
A consortium could consider applying for several different concessions. In such circumstances the consortium could decide to appoint different operators to different concessions, based on considerations of location, expertise and economic efficiency. In this case the JSBA draughtsman will have the challenge of crafting a JSBA which satisfactorily identifies that different operators are appointed to different concessions, with different rules applying in respect of bidding for different concessions, with different operational terms applying until such times as the relevant JOAs are agreed. This will not be an activity devoid of complexity.
Prior to the commencement of the negotiation of the JSBA, the parties should assess what they each offer to the consortium (and also what they expect each of the others to offer). These discussions invariably involve the disclosure of commercially sensitive information, thus necessitating the entry by the parties into a confidentiality agreement before the making of detailed disclosures.
It may be that a certain party brings significantly more value to the consortium than the others if it is in sole possession of certain high value information. In order for that party to disclose such information to the consortium it may seek more comfort in respect of the maintenance of its confidentiality than is the norm in a standard confidentiality agreement (by, for example greatly limiting the circumstances in which permitted disclosures can be made and applying indemnity, consequential loss liability and account of profit provisions for losses arising from a proven breach). The parties should therefore consider that there may be some debate in the negotiation of the confidentiality agreement, and the parties with less (or no) confidential information to share will accordingly be less concerned about the confidentiality aspects of their relationship. Additionally, the parties should be aware that there could be AMIAs (see above) already in existence which bind potential consortium members. The effect of these pre-existing arrangements on the composition of the intended consortium will need to be considered carefully. It is not uncommon that due to time pressures, while still negotiating the JSBA, a consortium could find itself at the point of making a concession application without the agreed JSBA in place. In this circumstance there is the risk that a party might not act in the spirit of what the parties are attempting to agree in the JSBA, for example, by focusing its resources on another potential application in the concession award round or by not taking certain actions prior to an intended deadline. This will waste time and deflect attention from the matters in hand. In reality there is no substitute for agreeing the JSBA as soon as possible. A more detailed analysis of JSBAs and their role as a precursor of the JOA is provided in 5.1.23
A popular theory in the international oil and gas industry is that the generation of a commercial contract from the starting point of using an established model form contract helps to reduce transaction costs and increases transacting efficiency by minimising the scope for protracted negotiation and the need for novel contract drafting. This is not untrue, but neither should reliance upon a model form contract be used as an excuse for an unthinking adherence to any particular position which that particular model form contract offers.
In the upstream petroleum projects sector there are certain model form JOAs that might be considered as a starting point in the documentation of a joint venture for a particular project. As is the case for any model form contract, such model form JOAs represent an amalgamation of the various views held by those responsible for the preparation of those model forms. Which of these views are represented in the model JOA will depend on which side of the operator/non-operating parties’ perspective has prevailed in the preparation of the particular model form JOA.
Thus when the parties come to draft the JOA that will apply to their petroleum project, they will usually start with a consideration of a model form JOA that they think is the best analogue for their particular situation, rather than drafting a bespoke agreement from a standing start.
The model form JOA that the parties base their discussions on will not be perfectly fit for purpose, but it will be (or, at least, should be) negotiated and modified to reflect the nuances of the particular joint venture and the particular petroleum project. It will also need to be modified to fit with the terms of the underlying concession and of the prevailing petroleum law (see Chapter 2). This will inevitably make the terms of JOAs different between different jurisdictions and different projects, although many of the substantive issues that apply across JOAs will be similar.
Arguably, it might be less essential to set out in detail preferred approaches to substantive issues in a JOA between experienced petroleum sector participants that already share similar values. However, the prospect of the initial or later admission of entrants into the joint venture that are not so experienced or of state entities (see 4.1)