Joint operating agreements

Oil and gas exploration and production is an expensive process beset with a variety of risk. An exploration well may find nothing, meaning that that the entire cost of the drilling has been “thrown away”; cost increases or falling oil price may make a project that has been commenced uneconomic; or something may go disastrously wrong, resulting in massive financial liability. In order to spread the risk of such eventualities, as well as for other ancillary reasons, exploration and production companies tend to work together cooperatively in joint ventures. This chapter discusses the contract –the Joint Operating Agreement – by which these joint ventures implemented. The chapter describes and critically comments upon the key features of these agreements, including issues such as whether these contracts constitute a partnership, the role of the operator and of the Opcom, the consequences of default and of disagreement within the joint venture, the regulation of pre-emption and the state’s role in e.g. approving the operator and controlling the transfer of a stake in a JOA.