Joint Operating Agreements. Peter Roberts
4 deals with specific JOA issues that arise where the state participates in the joint venture, usually through a parastatal entity or national oil company. This chapter addresses the role of the state as the counterparty under the concession agreement, in a sense acting as the client for whom the oil companies act as contractor. The dynamic of the concession agreement is very different to that of an engineering procurement and construction contract, because the oil companies act as investors and are responsible for the costs of exploration, development and production, and are rewarded in kind or in cash only in the event of success.
For the purpose of negotiating a JOA and adapting it to be suitable to the context of the concession agreement, the significant differences between the concession agreement regime and a petroleum production licence regime and their relevance to the terms of a JOA are summarised in Table 2.1. The chapter that follows discusses the implications for the structure and terms of the JOA.
Table 2.1. Differences between regimes and their relevance to JOA terms
| Section 2.2 Applicable terms | Petroleum production licence | Concession agreement | Implications for JOA |
| Standard terms | Uniform regime established by statutory rules for each licensing round | Bespoke regime negotiated between state and contract holders, possibly based on a standard agreement | Consider adapting the JOA to the specific terms of the concession agreement as negotiated |
| Scope of licence/ concession | Scope of petroleum operations limited only by licence terms | Scope of petroleum operations typically defined by scope of concession agreement and subject to approval by the state, via WP&Bs | State acts as an additional approver with an effective veto on WP&Bs. Consider need for iterative process for joint venture and state approval of WP&Bs |
| Targets and controls | Joint venture under no legal obligation to achieve profitability, investment or production targets1 | Contract holders will likely have an obligation to maximise economic production. Contract holders may be required to deliver upon a field development plan, requiring continued investment on a multi-year basis | Consider strengthening provisions to resolve deadlock in approving WP&B and including long-term budget provisions |
| Section 2.3 Operator rights and duties | |||
| Governance | Petroleum operations set by the operating committee, subject only to limited state approvals (eg drilling, development and decommissioning plans) | Petroleum operations finally set and approved by the concession agreement management committee | Reconsider the operator’s mandate to represent the joint venture in negotiations with the state |
| Section 2.4 State participation in governance | |||
| Approvals and decision making | State’s influence is limited to regulatory exercise of statutory discretions; therefore participation in the joint venture of a parastatal entity is less significant | State has significant influence in approving WP&Bs and other critical decisions. Participation by parastatal entity in the joint venture as well will likely give rise to conflicts of interest | Review the JOA terms applicable to confidentiality, conflict of interest, audit rights and management of litigation |
| Section 2.5 Liability | |||
| Basis for liability to the state | Grounds for revocation of licence limited to breach of its terms or applicable law. Liability to state in damages only will be limited to breaches of statutory duties | Concession agreement is likely to include a wider range of obligations, breach of which may lead to termination and/or damages | JOA should mandate operator to take steps to avoid breaches of the concession agreement, to require parties to act consistently with the concession agreement |
| Exclusions of liability to the state | No contractual exclusions or limitations of liability; no force majeure excuse | Specifically negotiated liability regime; force majeure clause | Consider adapting the liability and force majeure clauses; ensure that the operator’s liability under the concession agreement can be cascaded |
| Section 2.6 Disposal of petroleum | |||
| State’s role as lifter of petroleum in production sharing regimes | No state interest in produced petroleum | In production sharing regimes, state will lift (or expect joint venture parties to lift) its production share | JOA should allow for the state to be party to petroleum lifting agreements and for the parties to allocate responsibility for lifting and marketing state share (if required) |
| State’s role as lifter of petroleum in risk service agreements | No state interest in produced petroleum | In risk service agreements, the state lifts and markets hydrocarbons | JOA may not need to address parties’ obligation to lift hydrocarbon shares |
| Cost recovery and cost petroleum | No cost recovery; no cost petroleum | Approved contract holders’ costs are recoverable through the contract holders’ cost petroleum allocation | Consider the need for separate budgets for non-approved/non-cost recoverable costs. Consider operator’s liability for non-recoverable costs. Review JOA accounting procedure |
| Section 2.7 Property and ownership | |||
| Ownership of infrastructure and materials | Joint venture acquires and retains title and the right to dispose of all infrastructure constructed and materials purchased for joint operations | To the extent the contract holders recover the corresponding costs, all infrastructure and materials constructed or purchased for joint operations are transferred into the ownership and ultimately custody of the state | Reconsider JOA language on joint property and insurance |
| Section 2.8 Decommissioning | |||
| Allocation of responsibility for decom-missioning | Joint venture is responsible for the decommissioning and abandonment of joint infrastructure | Joint venture responsible for contributing to the costs of decommissioning, but decommissioning operations may be carried out by the state after expiry of the concession agreement |
The JOA may need to remain in force, albeit partly, until infrastructure |