Joint Operating Agreements. Peter Roberts
to the JOA as it exists as at the execution date (see 5.2), through the opening recitals in the JOA. Further detail regarding each party will also be supplied through the notices provisions in the JOA (see 20.8).
These provisions will record the initial parties to the JOA, but where during the lifetime of the JOA there are any changes in the identity of the parties, the JOA will not explicitly track such changes. Consequently, the history of changes in the identities of the parties to the JOA will be discoverable only from an analysis of the JOA and the documents that record any later transfers of interests or any changes of name in respect of a party. Where a JOA has been in existence for some time, the forensics of establishing the chain of title through the parties over the years can be a formidable task.
A more certain (but not a common) approach is to require the operator to append to the JOA a schedule of the current parties from time to time, and to revise and circulate that schedule to all parties in the event of any changes in the identity of any of the parties. This change might also be recited through a combined novation and amendment agreement (see 14.1), which will be supplementary to the JOA.
The definition of a party should be expressed to include that party’s successors in title and permitted assignees,1 and the JOA should be expressed to pass to the benefit of any such successors or assignees.2 In the latter case, any requirement in the JOA for a novation agreement as a condition to the transfer of the interests of a party under the JOA to another person (see 14.1) should ensure that such a transition to an assignee is expressly effected. The reference to successors in title is intended to ensure that where a party undergoes any event of merger, amalgamation or other corporate transformation, the JOA will continue to bind that party or any party that is the product of such an event.
One of the parties to the JOA will typically be agreed by the other parties to act as the designated operator in the performance of the joint operations (see Chapter 7). Thus, this party will have two distinct capacities under the JOA: as the operator and as a party.3 The role as operator is quite distinct from the role as party, and undertaking the role of operator should afford no special privileges to the party in its capacity as a party. How this duality of interests operates in practice is demonstrated, for example, by the cashcall or invoice request mechanisms under the JOA (see 10.4), whereby the operator will cashcall or invoice request all of the parties, including itself, for the costs of conducting the joint operations.
The parties will be keen to preserve the financial and operational integrity of their joint venture, and consequently the ability of a party to transfer its interests under the JOA to a third party will usually be closely controlled within the JOA. This aspect is addressed in detail in Chapter 14. Any nervousness about the identity of a new party to the JOA will abate where a party withdraws from the JOA (see 14.7), or commits a default which results in its interests being forfeited (see 18.7), as in either case the interests of the departing party are intended to pass to the remaining (non-defaulting or non-withdrawing) parties (although in each case there could be a new nervousness about the economic impact of the enhanced interests of the remaining parties).
(b)Concession and JOA party symmetry
Because the JOA represents the horizontal relationship between the parties with regard to, and in respect of their interests in, the concession (see Chapter 2), the popular expectation is that there will be complete symmetry between the concession-holders and the parties to the JOA. This is usually the case, but this is not always necessarily so.
•Non-JOA parties – there may be persons who are party to the concession but who are not also party to the relevant JOA. Examples of this include: on the UKCS, where a licence awarded for the exploration for and production of petroleum governs more than one operating interest area (or block), the parties to each particular block will have their own JOA, and any other persons (recorded on the licence but not also participants in the particular block) will not be party to that JOA; where a party has withdrawn from the JOA or has been deemed to withdraw from the JOA through forfeiture but in either case a corresponding withdrawal from the concession has not been effected; where a state entity that is named as a concession-holder will not be party to an ancillary JOA which was entered into to manage a state participation right (see 4.1); or where a representative of the state has executed the concession solely in the capacity of the grantor of a stabilisation right to the concession-holder parties.
•Non-concession parties – it may be that some of the parties to the JOA are not also party to the relevant concession. This happens, for example, where the JOA includes the appointment of a contracted operator that signs on to the JOA (see 7.6); where any collateral support (see below) given by a person in respect of a party’s commitments under the JOA is recited within the terms of the JOA rather than separately; where a party has withdrawn from the concession but remains party to the JOA to attend to any remaining matters; or where the JOA continues after the termination of the concession in order to address residual matters between the parties (see 5.5).
(c)Affiliate interests
It may be that two or more of the parties to the JOA are affiliates (according to the definition of an affiliate under the terms of the JOA or by reference to the governing law of the JOA;4 see 20.4).
Depending upon the degree of parental company control that is exercised over those affiliated parties, if they are likely to vote as a bloc then they might be regarded as a single, consolidated party for the purposes of any voting control mechanism that requires the vote of more than one party.5 However, it might be that those affiliated parties could want to vote differently in respect of a particular proposal, which possibility would question the viability of such consolidation in the JOA.
The JOA could apply particular provisions to affiliates in respect of affiliate contracts (see 11.3), transfers of operatorship and transfers of interests to affiliates (see 14.2) and confidentiality disclosures to affiliates (see 15.1). The change of control provisions in the JOA (see 14.5) are intended to address the situation where a party ceases to have the affiliation which it had at the time when it first became party to the JOA.
3.2 Participating and carried interests
(a)Identifying the participating interests
Except where a concession is held by a single entity or an incorporated entity most concessions do not create an individual interest in respect of each concession-holder (although some concessions do so, and where this is the case there should be symmetry between the participating interests which are recited in the concession and in the JOA). Rather, the concession will be awarded to all the persons that together constitute the concession-holder, with joint and several liability between those persons (see 17.4). Therefore, it will be a responsibility of the JOA to create the individual interests of the parties.
As a result, what is sometimes called the ‘interests provision’ in the JOA will specify the participating interest of each party. Each party’s participating interest will represent the undivided, individual interest of a party (expressed as a percentage of the aggregate of the participating interests of all the parties) under the JOA in the totality of the rights and obligations that are derived from the concession.6
Table 3.1. Division of participating interest
1. Except where otherwise provided in this agreement, the participating interest of each party is as of the effective date as follows:
| Party |
Participating interest
|