Joint Operating Agreements. Peter Roberts
Sea Fund) is the mandatory state partner in licences granted for the exploration for and the production of petroleum in Denmark. There is also a prescribed form of accounting procedure (see Chapter 9). These documents are available at www.ens.dk.
•Greenland – in Greenland the government (Naalakkersuisut), acting through the Ministry of Industry and Mineral Resources, has a prescribed form of JOA for use locally. A state-owned entity, Nunaoil A/S, is a mandatory participant. Model form JOAs have been prescribed for each Greenland licensing round since 2002. There is also a prescribed form of accounting procedure and a split operator co-operatorship agreement (see 7.6). These documents are available at www.govmin.gl/petroleum.
•Norway – in Norway, petroleum exploration and production operations can be undertaken by private sector participants, subject to the grant of an appropriate licence by the state. Joint licensees are required to cooperate through a form of JOA approved by the Norwegian Petroleum Directorate (NPD). There is also a prescribed form of accounting procedure. These documents are available at www.npd.no.
1.8 JOA evolution and economics
(a)JOA evolution
The JOA is (or, at least, should be) a living contract, which regulates an active and ongoing relationship for a long term. 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 that 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 that 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 JOA should reserve sufficient flexibility in its terms to cater for that evolution. The JOA cannot realistically be written so that from the outset it is ready to cater for every change of circumstance that 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 at 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 whether the petroleum project was properly managed.
The following list includes some of the circumstances of possible evolution that should be addressed in the JOA.
•Petroleum reserves – the most obvious factor in the evolution over the lifetime of the JOA will be the profile of the reserves of petroleum within the concession area. If the reserves that are identified through the exploration and appraisal phase are not sufficiently commercial to merit going forward with a development plan, then the concession might be surrendered and so the JOA will come to an early end (see 5.4). 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. At this point, there are several options for consideration which the JOA should address: to wind down the JOA at that later stage and to enter the decommissioning phase; to undertake a reservoir enhancement programme and seek an extension to the concession and so the JOA; or to re-characterise the JOA for other purposes (see 6.3).
•Parties and interests – over time, there may be transfers of interests in the JOA or withdrawals from the JOA (see Chapter 14), state participation in the JOA (see 4.1) or a change in the identity of the operator (see 7.5). The upshot of all of this is that the persons that together constituted the parties at the start of the JOA could be very different from those that are there at the end of the JOA’s life. The JOA should contain provisions necessary to facilitate these alterations, and should also be able to respond to the introduction of new parties that might have different operational and economic philosophies from the traditional norm (see below). The participating interests of the parties in the JOA (see 3.2) could also change over time. This evolution could happen because of a party’s withdrawal, transfer, default and forfeiture or simply the aggregation of interests by one of the parties.
•Scope – the JOA will be written with a particular purpose in mind, but it may also need to be flexible in respect of the operational matters that it addresses. 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 (see 6.2) or the introduction of a unitisation programme (see Appendix 3), in which case the role of the JOA will need to be reconciled with the wider unitisation and unit operating agreement. Alternatively, it may be that the parties decide to transform the overall petroleum production project into a quite different form of project (see 6.3). 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.
•Alternative interests – the JOA reflects the participation of the parties in joint operations in the concession area. Where a party comes to hold an interest in another concession, that party may become interested in exercising its rights and performing its obligations in respect of that other concession in preference to the concession to which the JOA relates. Therefore, the JOA needs to address the reconciliation of a party’s interest in more than one petroleum project, both positively (such as through an exclusive operations provision; see Chapter 13), and negatively (such as through a meaningful default remedy; see Chapter 18), and also through a wider consideration of the applicable fiduciary duties (see 7.8).
•Economic conditions – the economic perspective that surrounds the concession and the JOA over their respective lifetimes will also need to be kept under constant supervision. As many of the world’s traditional petroleum producing provinces (the UKCS is a good example) move into a pattern of maturity and decline, the traditional private sector participants in those provinces are increasingly looking to focus on their investments elsewhere, and therefore might be prepared to sell up certain of their asset interests. 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 could be quite different. This is not to say that any new entrant will lack the capacity and/or the commitment 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 that the JOA that relates to such a project