Joint Operating Agreements. Peter Roberts
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The joint operations that are conducted under the auspices of the JOA will result in the creation of what is often referred to in the JOA as ‘joint property’. The broad intention of the JOA is that joint property will belong to all of the parties in the proportions represented by their participating interests.
The fifth round UK Continental Shelf model form (BNOC) JOA (see 1.7) applied a relatively simple definition of joint property, as “all property acquired or held for use in connection with the joint operations”. This definition was purposely simple yet all encompassing, and it is still used in the OGUK JOA.18
The AIPN JOA applies an expanded definition that covers physical infrastructure such as wells, facilities and equipment, materials, information, funds and property (other than hydrocarbons) that is held for use in the joint operations.19
In the CAPL JOA the definition of joint property includes the joint lands that the JOA governs and also all other tangible and intangible property held for the joint account.20
A definition of joint property is not applied in the AAPL JOA.
In an unconventional petroleum project the definition of joint property could be modified to include land and wider infrastructure interests (see Appendix 2).
Joint property can be disposed of by the operator, subject typically to operating committee approval (see 8.4) and the net sales proceeds accruing to the parties. This ability of the operator to freely dispose of joint property will also need to be read against the provisions of a production sharing contract which bestow property ownership upon the state (see Chapter 2).
If a civil law is selected to be the governing law of the JOA (see 20.4) then confirmation will be needed that the governing law permits the concept of joint property and allows the parties to hold joint property through an unincorporated association.21
1AIPN JOA preamble, §20.4; OGUK JOA §1.1.
2AAPL JOA §26.5.6; CAPL JOA §25.03.
3CAPL JOA §3.02.
4Such as the definition provided by Section 1159 of the Companies Act 2006 in respect of subsidiary companies and holding companies, which is applied in the OGUK JOA.
5OGUK JOA §9.8.2.
6AIPN JOA §1.1, §3.3(A); OGUK JOA §4.
7Burton v Camden LBC [2000] 2 AC 399.
8Cowcher v Cowcher [1972] 1 WLR 425.
9CAPL JOA §1.05A.
10AAPL JOA 610 §III B.
11AAPL JOA 710 §§2.29, 8.1.
12AAPL JOA §2.51.
13AAPL JOA §1.2.
14CAPL JOA §1.01.
15OGUK JOA §21.1.
16CAPL JOA §5.03.
17AMPLA JOA §11/Schedule 5.
18OGUK JOA §1.1.
19AIPN JOA §1.1.
20CAPL JOA §1.01.
21See Reg Fowler, “Joint Property and Joint Ventures; the Laws of Unintended Consequences” (2015) 8(31) International In-House Counsel Journal (IICJ).
4. Managing state participation
The JOA might need to legislate for the possible participation of an entity representing the interests of the state that has granted the concession, where the concession contains or is subject to a form of state participation right.
4.1 State participation in the concession and JOA
In respect of the relationship between the state and the parties, the conventional formulation is that the state grants the concession to the parties in their capacity as the concession holder (see Chapter 2), and may have a right of approval of the form of JOA that the parties propose to adopt in respect of their horizontal relationship. Thereafter, the need for compliance by the parties with any ongoing reporting, audit or approval obligations (in accordance with the terms of the prevailing petroleum law or of the concession) should represent the extent of the state’s relatively limited involvement in the business of the JOA.
It may be, however, that the state also wishes to participate in the concession directly as a concession holder and so could (through an appropriate nominee) become a party to the JOA, with its own defined participating interest, to reflect that intended participation. The right of such state participation could be recited in the terms of the prevailing petroleum law or within the concession, and might be exercised through a state entity that exists for just such a purpose.
The principal necessity for such participation is usually expressed as being so that the state can secure a direct share of the produced petroleum for itself at the point of production, as a consequence of which the overall level of rent extracted by the state from the grant of the concession will be increased.
Such participation might also be helpful to the state in that it offers a window on the parties’ activities that might not be open to the state solely in its capacity as the grantor of the concession. This will enable the state to observe first-hand how technical, financial and management decisions are made in the context of the JOA, and the state may then be able to apply these observations towards the better development of its own national oil company and to the growth of the indigenous petroleum sector.
If the terms of the prevailing petroleum law or of the concession oblige the concession holder to provide training, education or employment opportunities to local nationals, the information access that such an obligation might provide to the state might obviate the need for exercise of a participation right, if the state’s primary motivation is to secure information.
Despite being on both sides of the concession, the participation of a state entity as a concession holder, with a position as a party under the JOA, should not arouse too much excitement if the state entity’s capacities are made clear. The state entity will ostensibly be, and will behave and be treated as, a conventional party, subject to all of the rights and obligations that the JOA imparts (except that the application of the remedy that the JOA provides in respect of a party’s default might be more difficult to achieve in respect of a state entity; see 18.4).
The AIPN JOA expressly considers the prospect of the participation of a state entity. The AIPN JOA also applies an optional formulation1 whereby, rather than admit the state entity to become a new party to the existing JOA, a separate JOA is entered into between the parties and the state entity solely in respect of the state entity’s participation. However, implementing such a subsidiary JOA adds another layer of complexity to the operating arrangements (and does little to encourage good relations between the parties and the state). If the real intention behind doing so is to frustrate the state entity’s ability to access production information within the primary JOA, then it overlooks the audit and inspection rights that the state might already have under the terms of the prevailing petroleum law or of the concession.
It is also sometimes the case in practice that where a state entity becomes party to the JOA, the non-state parties will enter into a separate JOA, purely to regulate their own internal relationship.
An alternative formulation, which is sometimes recited, is that state participation could trigger the entry of the parties (including the state entity) into an entirely new JOA.
Usually