What is a Joint Operating Agreement?
Liability for exploring and developing an oil and gas block is usually undertaken on a joint and several basis by a group of oil and gas contractors by way of an unincorporated joint venture under a licence, production sharing agreement or some other analogous arrangement with the relevant government or national oil and gas body/company.
A joint operating agreement (“JOA”) is the joint venture agreement between the contractors: it allocates, generally on a several basis, the liabilities and responsibilities between the contractors and sets out a contractual framework for undertaking the exploration and development operations.
Case law on how these ubiquitous commercial arrangements in the oil and gas industry should be interpreted, particularly those governed by English law which is widely used internationally, is therefore important.
The Taqa Bratani v Rockrose Case 2020
There is little case law on joint operating agreements so for that reason alone the Taqa Bratani case is special. The combination of the use of arbitration (in which proceedings and awards are often kept confidential) and early settlement of cases for reputational reasons means that judgements on joint operating agreements are rarely public.
The Taqa Bratani case concerned the interpretation of various joint operating and similar agreements (“the JOAs”) in the North Sea governed by English law before the English High Court.
The claimants (various oil and gas companies) maintained that they were entitled to act under the terms of the JOAs to terminate the operatorship of the defendant without being obliged to justify or give reasons for their decision.
The defendants maintained that the express terms of the JOAs on which the claimants relied were impliedly qualified by obligations not to exercise their powers capriciously or arbitrarily and only in good faith and, in consequence, only in the best interest of the block or blocks in question.
Judge Pelling QC held that the express terms of the JOAs on the facts of this case conferred an absolute right on the non-operator participants in the joint venture to terminate the operatorship of the defendant on the minimum notice set out in the JOA.
Key Practical Considerations
The Court confirmed that relevant words of a JOA are to be construed in its documentary, factual and commercial context assessed in the light of various factors including the natural and ordinary meaning of the relevant provision, so it is important to clearly and unambiguously state in the JOA the precise rights and obligations of the parties.
The Court treated the JOAs as “at least arguably” as “relational contracts”. However, on the facts of this case there was no implied duty of good faith. English courts (unlike certain civil law jurisdictions) continue to be reluctant to imply a general duty of good faith on the parties.
When using a standard-form oil and gas JOA developed by industry bodies such as the model JOA published by Oil and Gas UK or the Association of International Petroleum Negotiators (“AIPN”) 2012 JOA (Richard Temple is currently participating in the drafting committee of the AIPN to update the 2012 AIPN JOA), take care to choose the appropriate options so their express wording applies. For example, the 2012 AIPN JOA includes an option for the non-operator participants to remove the operator without cause by affirmative vote (similar to the Taqa Bratani case). However, the parties need to have chosen this option for their JOA otherwise it will not apply.
If your project involves a JOA or similar joint venture arrangement, Richard Temple has a lot of experience on such projects and will be very pleased to assist in guiding you through the process. He can be reached on the details below.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.