Joint Operating Agreements. Peter Roberts
issue seriously in connection with any technology or know-how which they wish to make available under licence to the joint venture for the purpose of operations. If that party charges the joint venture for the costs of developing such technology or know-how, and those costs are recovered under the terms of the concession agreement, the state will expect at least to acquire a licence to use such technology or know-how, possibly after the expiry of the concession agreement, even though it is not a party to the JOA and not bound by the licence terms the joint venture parties have negotiated between themselves (see Chapter 15).
For the purposes of the JOA, the parties should consider distinguishing between information relevant exclusively to the concession area, of primary usefulness to the state, and technical information which is of portable value, and of primary usefulness to the parties for deployment in other ventures. The prudent course may be for them to cost recover only the cost of acquiring information relevant to the concession area, which they may, by law or by the terms of the concession agreement, be obliged to share with the state, while not cost recovering the cost of acquiring or sharing technical information which they wish to be free to use in their wider operations.
As mentioned above, the concession agreement is likely to provide for the joint venture to pay significant sums to the state, in terms of signature bonuses and bonuses payable on declaration of a commercial discovery. Likewise, the concession agreement sets out the terms on which the joint venture is obliged to invest, by way of minimum initial work obligations, and subsequently in accordance with a field development plan. Such investments are likely to qualify for protection under bilateral or multilateral investment protection treaties which may grant the investors directly enforceable remedies against the host state in the event of nationalisation or breach of the concession agreement.
It may be complicated for the joint venture to enforce such remedies, however, because the available remedies will differ depending on which investment treaty or treaties are applicable; the available investment treaties are, in general terms, those treaties to which each joint venture party’s home state is signatory. Several investment treaties are likely to be relevant to any one international joint venture and orchestrating action under those treaties by the joint venture is complicated because the terms of those treaties differ. For that reason, it would be prudent for the joint venture parties to consider their investment protection options at the outset of the concession agreement and to put in place an agreement for the joint management of their investment treaty rights, and the logical place for this would be the JOA – unless the parties expect a parastatal entity shall be party to the JOA in due course.
2.11 Exclusive operations and non-consent
Exclusive operations and non-consent are discussed in detail in Chapter 13. The key observation for present purposes is that the state is unlikely to agree to amend the concession agreement to release the non-consenting parties from joint and several liability in respect of the sole risk or non-consent operations in which they do not participate. There is no advantage to the state in doing so. The point was made in 2.5 on liability that concession agreement holders are each obliged to the state to make investments and conduct petroleum operations. The concession agreement is likely to be blind to the distinction which the joint venture parties make under the JOA between joint operations and exclusive operations. Under the concession agreement, exclusive operations will form part of the joint venture’s overall work programmes and budgets for which each joint venture party is jointly and severally liable, whether they participate in such operations under the JOA or not.
Chapter 13 discusses the indemnities which the consenting parties grant to the non-consenting parties in respect of such operations. Non-consenting parties have a particular exposure to exclusive operations, because they have no control over these operations but bear the same liability to the state under the concession agreement – on joint and several terms – for those operations as the consenting parties. The joint venture parties should therefore consider whether the indemnity arrangements are sufficiently robust to protect the non-consenting parties and whether the consenting parties should provide security to back up those indemnities.
The joint venture parties should also take into account that joint operations may be delayed by the need for the state’s approval of a work programme and budget where the sticking point in that programme and budget is an exclusive operations component which proves difficult to agree with the state. Likewise, consideration should be given to how the operator is mandated by the operating committee to represent the joint venture in negotiations with the state with respect to exclusive operations. There is a conundrum – the state will expect the operator to represent the entire joint venture in respect of the work programme and budget, whereas the non-consenting parties only wish to approve and be responsible for that component which represents joint operations. This will be particularly difficult if the operator has declined to conduct the exclusive operation (as some model JOAs permit it to do; see Chapter 13), but only the operator is authorised to present the programme and budget under the concession agreement, which must address joint operations and exclusive operations in a combined proposal.
1There are exceptions to this principle. In 2016, the UK government introduced new obligations for offshore infrastructure owners to maximise economic recovery from the UK Continental Shelf (see 16.2 (e)).
2Euroil Ltd v Cameroon Offshore Petroleum SARL [2014] EWHC 12 (Comm).
3Euroil Ltd v Cameroon Offshore Petroleum SARL [2014] EWHC 52 (Comm).
4Richard Hooley, “Controlling Contractual Discretion” (2013) 72 The Cambridge Law Journal 65–90, doi:10.1017/S0008197313000019.
5Ross River Ltd and another v Waverley Commercial Ltd and others [2013] EWCA Civ 910.
6Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Ioannis Kent (AKA John Kent) [2018] EWHC 333, see paras 159–66.
7See also Cavendish Square Holding BV v Talal El Makdessi, Parking Eye Limited v Beavis [2015] UKSC 67 which explains how a penalty may be legitimately imposed to protect a legitimate interest inadequately protected by ordinary contractual damages or other remedies at law.
8It should be borne in mind that each partner will separately lift and sell its entitlement to cost petroleum and profit petroleum with the result that the operator has no access to the cash flow from those sales, as a means of offsetting unpaid cashcalls (see 18.4 (b)).
3. Parties, participating and carried interests and collateral support
Essential to the proper working of the JOA is the identification of the persons that will be party to the JOA. The management of the admission of new parties to, and the withdrawal (or even the expulsion) of parties from, the JOA is addressed separately elsewhere (see Chapter 14).
The JOA should also set out an express quantification of each party’s interests under the JOA, which is done typically through the participating interests mechanism. This in turn leads to the need to consider how joint property is held between the parties.
The JOA should also reference the role of any persons that might support the obligations of the JOA’s parties through the provision of collateral support.
(a)Defining the parties
The JOA will