Arbitration and Joint Operating Agreements: An Overview - Chapter 16 - Leading Practitioners’ Guide to International Oil & Gas Arbitration
Author(s):
Kevin O’Gorman
Mark Stadnyk
Page Count:
34 pages
Media Description:
1 PDF Download
Published:
August, 2015
Description:
Originally from The Leading Practitioners' Guide to International Oil & Gas Arbitration
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I. INTRODUCTION
The Joint Operating Agreement, or “JOA,” is a mainstay of
modern complex oil and gas operations. This chapter identifies the
typical structure and economic purpose of standard JOAs based on
industry models, discusses JOA dispute resolution and choice of law
issues, and provides an overview of common JOA disputes.
A. General Purpose of JOAs
The JOA governs the terms on which a mineral right, such as a
hydrocarbons license, is shared and exercised in practice by its cotenants.
Many JOAs allocate participating interest shares in such
assets between its parties. These participating interest shares affect
the extent of the parties’ stakes in costs, liabilities, and anticipated oil
and gas production.
The JOA generally covers the major operational stages of a
project: exploration, appraisal, development, production, and
decommissioning.1 It details operational and financial responsibilities
between a so-called operator and one or more non-operator(s) in
accordance with each party’s participating interest in the underlying
asset. As Professors Smith and Weaver observe, “[t]he primary
functions of the operating agreement are to designate one of the
parties as the operator, describe the scope of the operator’s authority,
provide for the allocation of costs and production among the parties
to the agreement, and provide for recourse among the parties if one
or more default in their obligations.”2 Thus, the JOA provides the
contractual process for regulating the relationship between the parties
involved. The JOA seeks to enhance certainty by defining the
complex rights and obligations of the parties. It also identifies
appropriate consequences and remedies for parties that act
inconsistently with the JOA’s terms. Both of these functions are
crucial to the efficient operation of jointly-owned assets. Yet,
implementing them in practice can lead to controversy, as will be
discussed in the following sections.
discussed in the following sections.