Joint Operating Agreements. Peter Roberts
by the state
This chapter also addresses the complexities for the drafting and management of the JOA which arise when participation in the joint venture changes by reason of transfers or withdrawals in a way which is not recognised by the state under the terms of the relevant concession agreement.
Petroleum licence regimes have a certain predictability because they are governed by a standard set of statutory rules with the intention of creating a level playing field for participating bidders in each licensing round. Those statutory rules govern the process for the tender, as well as the terms of the licence to be awarded. The rules will also set out the cases where the licence holder must obtain state approval for its actions, and may specify the conditions on which such approvals may be granted or withheld. Importantly, the licence is not a contract but an instrument of administrative law. The rights and obligations it grants are not contractual but statutory, and the licence is interpreted in accordance with statutory and not contractual rules of construction. While some production licence regimes provide for dispute resolution by arbitration, it is more usual for disputes to be handled through the administrative courts of the granting jurisdiction. The licence term is likely to be standard, subject to extensions. For the purposes of a JOA, it means that its terms can be adapted to the statutory rules for approvals of work programmes and budgets, decommissioning, drilling, licence extensions and relinquishments of licence areas in a manner which is generally fit for purpose for any licence of any particular licensing round.
The same cannot be readily said about concession agreement regimes because it is impossible to make general statements about their characteristics. Every jurisdiction using the concession agreement regime adopts its own approach for permitting petroleum exploration and production under the terms of the concession agreement. Many regimes offer concession agreements by public tender, against a standard form of concession agreement which is largely non-negotiable. However, where it is necessary to attract foreign investment for more complex projects, a production sharing agreement may be offered on bespoke terms which are negotiated. Myanmar for example grants production sharing agreements by bidding rounds.
The only legitimate conclusion to draw is that the JOA must be adapted carefully to be consistent with the specific concession agreement which the joint venture shall perform. This may involve a two-stage process, whereby the joint venture enters into a JOA to govern its participation in the relevant bidding round, and then adapts that JOA to be consistent with the final form of concession agreement which it signs if successful.
A consistent theme of concession agreements is that the contractor is required to submit work programmes and budgets for approval by a management committee on which the state is represented and routinely has a blocking vote. This may extend to include the right to approve annual work programmes and budgets, separate exploration and appraisal and development programmes and budgets, or both. In this way, the state acts as an additional partner, and a particularly influential one, because the operator is unlikely in practice to be able to conduct petroleum operations without the state’s approval, even if the JOA operating committee is fully supportive of the operator’s proposals. This changes the dynamic of operating committee decisions. Every meeting of the management committee must be preceded by an operating committee meeting at which the joint venture mandates the operator to represent the joint venture’s interests and negotiate its position with the state. The operating committee must be ready to participate in an iterative process, during which the joint venture’s position as approved by the operating committee is proposed to the state, and the state’s counterproposals are taken back to the operating committee by the operator for approval by the joint venture, before a work programme and budget can be thrashed out which meets the requirements of the state and the joint venture. This adds significant time and complexity to the process. Minority partners in the joint venture may exploit the need for state approval in order to raise issues with the state which they were unable to deploy successfully in the operating committee. This may be particularly relevant for national oil companies participating in the joint venture who may be tempted to invite the state to adopt their arguments and positions in the management committee, if they were unsuccessful in the operating committee. The potential for such a conflict of interest is discussed below. Euroil Ltd v Cameroon Offshore Petroleum SARL is a particular example of this problem, where the defendant, CAMOP addressed its concerns to the Cameroon petroleum regulator, despite the obligation in the JOA to allow the operator to act as exclusive representative of the joint venture before the state.2
Commonly, model JOAs such as the AIPN JOA define the scope of joint operations in terms of the operations approved pursuant to the concession agreement. In other words, the operator’s mandate to act on behalf of the joint venture is effectively the same as the joint venture’s mandate from the state under the concession agreement. Accordingly, the operator is not entitled or obliged to perform a work programme and budget approved by the operating committee unless and until the same work programme and budget is approved by the state under the concession agreement. This has attractive symmetry, but may not be appropriate in all cases. It exposes the operator to significant liability, if the state claims the operator acted outside its mandate under the concession agreement, which may in turn encourage the joint venture non-operators to claim the operator is in breach of its mandate under the JOA. This could have very serious ramifications for the operator if it resulted in liability for the joint venture under the concession agreement to which the non-operators may refuse to contribute, arguing that the partial release and indemnity