Joint Operating Agreements
Knut Kaasen
Knut Kaasen 2015
1. Presentation of the animal
2. Link to the License
3. Main content of JOA
4. What type of animal is the JV?
5. The cash call system
6. The management committee
7. The operator
Knut Kaasen 2015
Purpose in
general
-
Need to
cooperate
-
Just main issues
International
basis
-
Knut Kaasen 2015
Joint ventures
require JOAs
Recognisable
contents
Norwegian
flavour
-
Strong link to PL
-
State control
-
Standard content
HOW ?
«The licensees shall
… enter into the
enclosed:
- Joint Operating
Agreement
Any subsequent
supplements to,
amendments of or
exceptions from
these agreements
are subject to the
Ministry’s approval.»
Knut Kaasen 2015
WHY ?
The “Holy Trinity”
of Norwegian Petroleum
Regulations
The
Production
licence
(PL)
Consequences?
- Forced marriage
-
The
JOA
The
Joint
Assets
In all respects
binding upon the
participants,
even if
unanimously
want to deviate
HOW ?
«The licensees shall
… enter into the
enclosed:
- Joint Operating
Agreement
Any subsequent
supplements to,
amendments of or
exceptions from
these agreements
are subject to the
Ministry’s approval.»
Knut Kaasen 2015
WHY ?
The “Holy Trinity”
of Norwegian Petroleum
Regulations
The
Production
licence
(PL)
Consequences?
- Forced marriage
-
The
JOA
The
Joint
Assets
In all respects
binding upon the
participants,
even if
unanimously
want to deviate
The JOA in general
The Mangement
Committee decides it all
The Operator carries
out day-to-day
management
Obl. to contribute funds
Relevant
carachteristics
(” sufficient funds to cover
all expenses relating to the
activities of the joint
venture”)
Joint liability
(primarily several liability )
Profits ”in kind”
(no joint sales profit)
Budget, plan, decision
Knut Kaasen 2015
(extensive provisions)
The JOA in general
The Mangement
Committee decides it all
The Operator carries
out day-to-day
management
Obl. to contribute funds
Relevant
carachteristics
(” sufficient funds to cover
all expenses relating to the
activities of the joint
venture”)
Joint liability
(primarily several liability )
Profits ”in kind”
(no joint sales profit)
Budget, plan, decision
Knut Kaasen 2015
(extensive provisions)
Joint venture
on the cost
side, but not on
the income
side
The JOA in general
The Mangement
Committee decides it all
The Operator carries
out day-to-day
management
Obl. to contribute funds
Relevant
carachteristics
(” sufficient funds to cover
all expenses relating to the
activities of the joint
venture”)
Joint liability
(primarily several liability )
Profits ”in kind”
(no joint sales profit)
Budget, plan, decision
Knut Kaasen 2015
(extensive provisions)
Joint venture
on the cost
side, but not on
the income
side
Ther duty to
contribute is
essential
DEFINITIONS
Knut Kaasen 2015
I
THE JOINT VENTURE
II
FINANCE
III
THE ACTIVITIES
IV
FIELD DEVELOPMENT
V
SOLE RISK OPERATIONS
VI
DISPOSAL OF PETROLEUM
VII
ASSIGNMENT ETC.
VII
MISCELLANEOUS PROVISIONS
“Less a legal
animal
than a
commercial
one”?
Knut Kaasen 2015
Generally:
- joint operations for a common objective,
- limited in terms of timeframe, legal basis, material objectives
Economically:
The level of production is decided,
resulting in need for covering
investment capital and operations costs,
which both are covered by the “cash call” system
(Like in most JVs in extractive industries)
Decisions:
-
Majority decides,
except field development etc.
Liability:
twds. third parties: Joint and several liability for joint operations
Knut Kaasen 2015
“The joint venture established pursuant to
this Agreement shall not be considered to
be a company, cf. […] (the Companies Act)
Section 1-1 fourth paragraph.”
(PL art. 1)
Knut Kaasen 2015
5.1 The main points of the economics
of the JV
- Capital basis:
No working capital, no joint income by joint
sales of product, necessary funds by “cash calls”
- Joint assets: “The Holy Trinity
- Profits: Gained by individual “lifting”
- Tax: No “ring fence”, no joint tax levied on JV
Knut Kaasen 2015
5.2 The basis for the cash call
- Generally
Decisions by the MC
based on rolling budget system
- Implies
that important aspects are
• budget provisions
• voting provisions
• scope of JOA
Knut Kaasen 2015
5.3 Consequences of default
- non-defaulting parties obliged to advance the
defaulted amount
- loss of right to vote in MC (after 5 days)
- loss of right to lift petroleum in kind
- obligation to pay penal interest
- obligation to assign participating interest
Knut Kaasen 2015
5.4 Are the default remedies
effective?
- tail end production / abandonment
phase
- loss of right to vote
Knut Kaasen 2015
The general role of the MC
“The management committee is the supreme body of the joint
venture. Each Party shall contribute to the management and
control of the joint venture activities.”
Knut Kaasen 2015
- “The management committee itself shall deal with and decide
matters pertaining to:
[…]
c) All matters pertaining to co-operation with licensees of
other licence areas;
[…]
e) Any other matter being submitted for consideration by
any of the Parties;
f) Any other matter as specified in this Agreement; and
g) Procurement and contract strategy, […]”
(JOA 1.3)
«x» and «y» are decided by the Ministry
based on
- likely constellations within group
- the group should not become impotent
- encouraging opposing views
- protecting minority interests reasonably
«Unless otherwise specified in this Agreement,
a decision by the management committee is
adopted when at least [y] of the Members
representing at least [x] % of the participating
interests have voted in favour of a proposal…»
Knut Kaasen 2015
Knut Kaasen 2015
removal of operator
limits for exceeding budgets
thresholds for competitive bidding
gas lifting and balancing agreement
WHEN do the voting rules apply:
THE SCOPE OF THE JOA
The area where
• the minority may be forced into activity by
the majority
(the alternative being to withdraw/sell)
• The minority may be forced into non-activity
by the majority
(the alternative being “sole risk”)
• the state has the upper hand regarding the
rules of the joint venture
Knut Kaasen 2015
WHEN do the voting rules apply:
THE SCOPE OF THE JOA
The scope is defined by reference to
- time,
- place and
- subject matter
of activities adopted by majority
Add up to one important criterion:
The point of the JOA is to enable to
participants to benefit from the rights provided
by the PL and to fulfill the obligations imposed
on them by the PL
Knut Kaasen 2015
6.4
Limits within the scope: Issues
not subject to majority control
The decision as to whether to
develop a proven deposit
is not subject to voting at all.
Knut Kaasen 2015
«sole risk operations»
allow certain activities to be undertaken
at the sole risk of participants
that do not constitute a quorum
General role in JV
“ The Operator shall carry out and administer the day
to day management of the joint venture activities.”
“The activities shall be carried out in accordance with
- the terms of this Agreement,
- the decisions of the management committee,
- the conditions specified in the Production
Licence,
- applicable law and other resolutions made by
the authorities.”
Knut Kaasen 2015
WHO ?
- Appointed in PL
- Criterions?
“NON PROFIT”
“The Operator shall in its capacity as such
neither have profit nor loss
through the execution of its duties,
unless otherwise provided in this Agreement.”
Removal / resignation
Partner Forum
Knut Kaasen 2015
“The Operator shall establish a partner forum
for joint ventures having the same operator.”
WHO ?
- Appointed in PL
- Criterions?
“NON PROFIT”
“The Operator shall in its capacity as such
neither have profit nor loss
through the execution of its duties,
unless otherwise provided in this Agreement.”
Removal / resignation
Partner Forum
Knut Kaasen 2015
“The Operator shall establish a partner forum
for joint ventures having the same operator.”
Why attractive position?
- better to control premises for
decisions than to decide?
- detailed insight/control
- experience
Knut Kaasen 2015