JOINT OPERATING AGREEMENTS By RICHMOND OSEI-HWERE FACULTY OF LAW, KNUST

 Styles (2007) defines Joint Operating Agreement (JOA) as:  “the common means by which businesses come together as a joint venture in their search for and production of oil and gas both within the United Kingdom Continental Shelf (UKCS) and internationally”

 Driven by economics of oil exploration and exploitation.  High risk  High cost  Heavy frontloading of costs

 To mitigate risk and share in the outlay required for capital intensive exploration and exploitation.  Facilitates cost savings and economies of scale.  Helps mitigate political risk through co- venturing with national oil companies etc.

 Limited Liability Company  Partnership  Unincorporated Contractual Association / Unincorporated Joint Venture  It is the unincorporated joint venture which is used by the oil industry.

 Joint Bidding Agreement followed by Joint Operating Agreement

 Technical capability  Financial capability and stability  Political capability

 There is always a clause declaring that the association formed by a JOA is not a partnership.  The Court however look beyond labelling in construing whether or not a partnership exists.

 Black’s Law Dictionary defines partnership as  “A voluntary association of two or more persons who jointly own and carry on a business for profit”.  Section 1 of the UK Partnership Act, 1890 defines partnership as:  “the relations which subsists between persons carrying on a business in common with a view of profit”

 Section 2(3) of the UK Partnership Act, 1890 also provides that:  “the receipt by a person of a share of the profit of a business is prima facie evidence that he is a partner”  Section 3(3) of Ghana’s Incorporated Private Partnership Act, 1962:  “the sharing of the net profits of a business shall, prima facie, be evidence of a partnership”

 Sharing of profit creates a partnership but sharing of gross returns will not create a partnership.  Separate disposal of petroleum is an essential component of the claim that a JOA does not amount to partnership.  It is PRODUCTION not PROFIT which is shared

 Tax advantage  No mutual liability

 Interest Clause  Specifies the percentage interest of each party  All other rights and duties are borne in proportion to the extent of their proprietary interests in the license.  There is a clear statement of ownership of all property and materials

 The transfer of interest in a JOA is done by the process of novation and assignment  There are two classes of co-venturer:  The operator and  The non-operators

 The operator executes the collective will of the members of the joint venture and is responsible for day-to-day management of the joint operations.  The institutional link between the operator and non-operators is the Joint Operating Committee (JOC) on which all co-venturers sit.  The JOC is the decision making body of the Joint Venture.

 Major duties include  The preparation of programmes, budgets and AFEs;  The implementation of approved programmes;  The prompt provision to each of the co-venturers of reports, data and information  Payment of insurance premiums

 The operator as manager of the project and agent of the JOA, owes a duty of care to other members.  The operator must act as “a reasonable and prudent operator”  The operator must perform his role in “ a proper and workmanlike manner “ in accordance with “good and prudent oil and gas field practice”

 Operator is not remunerated for his services but may be liable for wilful misconduct or for failing to maintain insurance.  In Porter v Magill [2002] 2 AC 357(HL), the House of Lords defines wilful misconduct.  See Styles Joint Operating Agreement pg. 280

 “ Honest mistake” does not constitute wilful misconduct.  The mistake must have been reckless to constitute wilful misconduct

 Millet LJ defined fiduciary duties in Bristol and West Building Society v Mothew:  See Styles JOA page 284.  A fiduciary must act in good faith  A fiduciary must not make a profit out of his trust  He must not place himself in a conflict of interest situation

 JOA gives rise to fiduciary duties in two (2) ways: 1. Contractual relationship is joint, so there is an element of mutuality. Fiduciary relationship in this sense apply to all co-venturers. 2. The operator as an agent is automatically in a fiduciary relationship to the non-operators.

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