Arbitration and Joint Operating Agreements: An Overview - Chapter 16 - Leading Practitioners’ Guide to International Oil & Gas Arbitration

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Kevin O’Gorman

Mark Stadnyk

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34 pages

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August, 2015

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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.