Bryan Gundersen, Barrister, New Zealand.
The operator is responsible for conducting the joint operations subject to the control of the operating committee. The Joint Operating Agreement (JOA) will provide how information is to be provided to the operating committee so it can do this. However, the primary means of control by the operating committee is the approval of programmes and budgets.
This is because the operator cannot conduct any joint operations without a programme and budget approved by the operating committee. A JOA for exploration, development and production operations will provide for approval of exploration, appraisal, development and production programmes and budgets (although the exploration and appraisal programmes and budgets are often combined). The operator will submit the programme and budget to the operating committee which may approve, in the end or rejected. The operator is obliged and authorised to proceed with the operations as approved.
There can be differences in the programmes and budgets for the different stages: what should the control freaks look out for?
There must be an annual exploration programme budget which covers the minimum exploration work requirements under the relevant exploration payment. Look for provisions which deal with the situation where the operating committee cannot agree on what is to be done to comply with the permit work obligations e.g. should the operators proposals prevail or that of the joint venture parties with the largest participating interest?
There must be a programme and budget (which should be annual so as to coincide with internal budgets) for an appraisal of a discovery. Some parties like to have an annual programme and budget for both exploration and appraisal operations. However, control freaks should look out for this and consider how it impacts on its ability to undertake a sole risk appraisal operation.
If a discovery is made, there must be a development programme and budget for all operations required to bring the discovery on stream. Make sure that the operator may only propose the programme and budget if required by the operating committee as its preparation is a major and expensive exercise. The key points for control freaks are to first, ensure that the period for consideration of the proposed programme budget can be extended, if required, and secondly, ensure that there are rights of non-consent (not to participate in an approved programme and budget) and sole risk (to proceed notwithstanding it is not approved), and thirdly, endeavour to ensure that the procedures for approval and decision making on non-consent and sole risk can be undertaken in a manner consistent with internal processes. JOAs can be complex with tortuous procedures for approval and exercise rights of non-consent and sole risk. But a balance between complexity to achieve commercial perfection (such complexity leading to non-compliance) and simplicity (which maximises compliance) is required.
There should be an annual programme in budget for production which the operator is required to submit. The control freaks should ensure that the JOA provides for the circumstances where further development work is required during production operations. Also one has to bear in mind that parties who are developing or in a production stage, may also be exploring in another part of the permit area. Hence, there is a need for separate programmes and budgets and control freaks should ensure that the JOA is clear in that regard.
There is also the abandonment stage but that is another story.