Control over joint operations

JointOperatingAgreement(JOA)

Purpose of the Joint Ventures and use of a Joint

Operating Agreement

Joint Ventures (JV) have come to play a significant role in the upstream oil and gas industry, as a means to share risk, to raise finance, to mobilize complementary expertise and sometimes to provide a form of mandatory state participation. As far as risk is concerned, even major international oil companies partner for large projects, especially for offshore projects.

There is no legal definition of a JV, but there is a set of structures under which it can be established. It can take the form of either a new entity, a strategic alliance or a contractual partnership. Contractual arrangements, in the form of Joint Operating Agreements (JOAs), are the most common form of joint venture in the oil and gas industry.

Provisions of a JOA

A JOA is basically a contract between two or more parties establishing the terms of a JV between them, under which petroleum – either oil or gas – joint operations are conducted.

The contract usually provides for the following:

· scope of the JOA

· percentage interests of the parties

· appointment, powers and liability of the operator

· provision of reports and information

· role and procedures of the operating committee

· schedules and budgets

· authorizations for expenditure (AFEs)

· accounting procedures and right of audit

· contract approval procedures

· sole risk operations

· insurance and conduct of litigation

· disposal of petroleum

· confidentiality and announcements

· default and forfeiture

· restrictions on assignment

· transfers to affiliates

· pre-emption rights

· provision for abandonment costs

Scope of the JOA

Joint operations extend to exploration, development and production but clearly exclude such matters as joint financing, marketing or sales. Treatment, storage and transportation are also beyond the scope of the JOA and are usually addressed in separate agreements.

Percentage interests of the parties

A clause of the JOA normally provides for the extent of the individual obligations of the parties to contribute to the funds required to carry out operations, as well as their share

in the jointly owned buildings and equipment and their share

of production.

The Operator

Under the JOA, one of the parties is appointed as operator and is given day-to-day responsibility for the conduct of the operations. The party with the largest percentage interest is usually appointed, simply because it is the most concerned by the success of the JV. A notable exception is the JV in which a state company owns the largest participation and entrusts a private company, usually more technically competent, with the conduct of operations.

Control over joint operations

Joint operations are placed under supervision of an operating committee in which all parties are represented. The operator's representative normally exercises the function of chairman.

The operator is required by the JOA to provide all parties with reports, data and information concerning the progress of operations. Public announcements are prepared by the operator but should by approved by the committee, with the exception of necessary announcements (e.g. involving the danger of pollution, loss of life, etc.).

The operating committee is entrusted with the overall supervision and control over all matters pertaining to the joint operations. The operator is required to organize meetings at regular intervals, to distribute an agenda and circulate information related to the issues for discussion.

Decisions are taken according to a voting procedure. Votes are proportional to the percentage interest of the parties and decisions are normally passed when those in favor have an aggregated percentage interest higher than a specific amount called passmark. Some decisions however, and particularly when the passmark is low, may require unanimity.

Дата добавления: 2015-11-14