Resolving disputes between co-venturers in energy projects Ben Holland Legal Energy Forum, Kyiv, 30 November 2016

A Common International Scenario… Your company owns 50% of a large international oil and gas licence. The joint venture has also been awarded a large number of licences for wind farm projects. The other joint venture party, a UK company, also has a 50% share, but you do not always agree on their investment priorities. The other party has agreed to act as the “Operator” party in the joint venture, under a contractual “joint venture agreement”. The other party is always asking for more funds, and the relationship is becoming difficult.

A Dispute Arises over Operator Performance Your joint venture partner fails to implement an agreed oilfield drilling programme that you feel strongly about and which the partners had agreed to put into place. This breach by the Operator leads you to lose the chance to benefit from additional revenues from the asset. You can see no reason why the agreed work has not been done as agreed, and want to recover damages from the Operator for the decision not to do the work.

A Dispute Arises over Operator Performance What are the standards of workmanship and prudence expected of the Operator? Under what circumstances can the Operator be liable for its failure to conduct the agreed works? Is liability limited to circumstances of “Wilful Misconduct” or “Wilful Default”? Is the clause a limitation clause and should this mean it is narrowly defined? Can the Operator be liable for loss of production, loss of revenues or loss of profits?

A Dispute Arises over Cash Calls Instead of undertaking the agreed drilling works, your joint venture partner instead spends a large amount on updates to the equipment used by the asset. You do not fully agree with these update works, even though your company approved these at the time. You are temporarily unable to pay your share due to cashflow issues, and announce that you cannot pay. Your joint venture partner threatens to take all of your share in the project over for itself.

A Dispute Arises over Cash Calls Were the cash calls properly approved? Is the asset producing? What are the agreed restrictions on voting rights and participation for “default”? Is the forfeiture of the asset an exorbitant remedy? Does the law of the joint venture agreement allow the other party to take all of your share in the project for itself?

A Dispute Arises over Withdrawal Although your company later pays in full, plus interest, because of these disagreements, the other party says it will no longer act as the Operator and stops work. The other party wants to force your company to take over all of these responsibilities. You do not want to do this. You consider that the Operator has not properly complied with the right to withdraw, as the local government has not agreed to this. You therefore also refuse to do the work, so that nothing is happening in relation to the asset.

A Dispute Arises over Withdrawal What are the restrictions on withdrawal of the Operator set out in the joint operating agreement (and the licence/concession agreement)? Is it necessary for a replacement Operator to have agreed to take over? What provisions are included in the joint venture agreement to prevent a deadlock? What impact can this have on the licence/concession agreement itself? Can this lead to the relinquishment of the entire asset?

Any Questions? Contact Ben Holland Squire Patton Boggs (UK) LLP 7 Devonshire Square, London, EC2M 4YH T +44 20 7655 1176 ben.holland@squirepb.com