Joint Operating Agreements Research Articles

Financing of Renewable and Fossils Related Projects: A Critical Appraisal of Subsidies and Risks in South Sudan

The paper argues one of the greatest subjects in oil and gas industry known as project financing of renewable and fossils related projects. The importance of project financing is to assist in implementation of the projects related to renewable energy as well as fossil fuels. The paper appreciates the concept of subsidy and its various types. It argues impacts of implemented subsidies and related risks on the financing of new renewable energy projects amongst the developing countries. These impacts have been discussed on positive as well as negative wavelengths. Besides, the paper argues technical projects risks related with midstream and upstream oil and gas projects and found out that these risks are critical and must be identified and managed before commencing the projects. Moreover, the paper argues policy project risks related with downstream, midstream and upstream value-chain of oil and gas projects are imperative and must be addressed for successful project financing. While the paper notes various risks associated with projects financing of hydrocarbon resources, it analyses these risks, drawing similarities and variations between midstream and upstream oil and gas projects and offers ways of managing the risks. The paper dives on the importance of Joint Operating Agreements (JOAs) in projects financing. In addition, the paper assesses financing alternatives in stock to oil and gas upstream players and it discusses the financing of Liquid Natural Gas (LNG) product which is sold in South Sudan as Liquid Purified Gas (LPG) and known in other countries as Liquid Natural Gas (LNG). The successful model of financing LNG/LPG is through united single operation with financing separate parts of the entire value chain in oil and gas industry. The paper deploys a case study of South Sudan, process-tracing and empirical literature review as a methodology for this study. It concludes that project financing of renewable and fossils related projects must be urgently prioritized by the governments and private institutions. Risk’s analysis must be carried out prior to any project financing and all the associated risks must be avoided. The paper recommends that project financing for renewable and fossils related projects must be conducted by the governments in charge of hydrocarbon resources and Government of South Sudan should take responsibility to finance its projects in this capital and technological intensive oil and gas industry in addition to giving subsidies to relieve citizens and manage associated risks.

TAXING AS JOINT VENTURE OR PARTNER?

The Petroleum Income Tax Act of 1967 (PITA) is a reference point for taxation during the implementation of the Production Sharing Contract regime in Malaysia. The term person under the purview of the PITA encompasses partnerships, which, includes joint venture. The present study aims to elucidate the intricate interplay of relationships and transactions within a joint venture, with a specific focus on comprehending the underlying rationale for considering the entire joint venture as the chargeable person under the PITA, as opposed to taxing individual partners separately. The methodology is based on Research Onion Framework with qualitative research and inductive approach leveraging on action research. Analysing literature review to delves into the structural of the joint ventures and the preparatory measures aimed at ensuring the equitable participation of the involved parties in the joint venture arrangement, particularly in managing various alternative activities that may arise alongside the primary Joint Operating Agreement (JOA) activities, often manifesting as sole risk projects. The engagement in various non-monetary activities and the collective contributions of all partners, particularly in mitigating risks and ensuring the success of upstream exploration and production, are regarded as contributions that may not lend themselves to a straightforward division, which support the joint ventures as a chargeable person. The outcomes derived from this methodological approach culminate in a model that elucidates the rationale for taxing joint ventures as opposed to individual partners within the joint venture. This clarification is essential for all involved parties, including taxation agencies, industry stakeholders, and policymakers. Novelty: The study represents an initiative within Malaysia, to explore the interpretation of the PITA. The motivation was sparked by inquiries from industry stakeholders, who expressed apprehensions regarding the tax assessment processes, whether in the context of joint ventures or individual taxpayers.

Creating Complex Monsters: Joint Operating Agreements and The Logical Invalidity of Treasury Regulation 1.502-1(b)

For McKenzieA familiar mathematical axiom holds that the shortest distance between two points is a straight line. Indeed, in most any human endeavor simplicity should be encouraged and complexity discouraged. Modem armies, for example, adhere to acronyms intended to remind leaders and followers alike to strive for simplicity in an effort to conserve energy and avoid misunderstandings. It can be stated intuitively that complexity inevitably excludes understanding in a certain portion of the intended audience. Those who engineer complexity understand it best, but understanding decreases as one moves farther from the source until the thing engineered is not understood at all. More importantly, complexity causes unnecessary expense, it results in a diversion of resources, and, by the weight of its own process, obscures the original goal to the ultimate extent that the goal is deemed unworthy of achievement.The Internal Revenue Code has never been hailed as an example of the mathematical axiom concerning the shortest distance between the status quo and a desirable result. In fairness though, complexity in the Code is often in response to other factors, including complexity in financial transactions. The latter complexity is not necessarily without purpose. It is often employed, for example, to provide assurances between trading partners who do not trust one another or, as is the wont of lawyers, in an exercise in overkill designed to anticipate every possible contingency. Complexity is also sometimes used in an effort to shield, hide, or recharacterize the nature of income generated by a particular transaction. Thus, in its own complexity, the Code is often necessarily designed to root out the true character of a given transaction. Sometimes the Code is designed to allow a narrow way to achieve a desirable goal and simultaneously avoid undesirable side effects. All of this, in simple terms, is only to say that whenever a particular provision or regulatory requirement is characterized by, fosters, encourages, or condones complexity, there ought to be an apparent and sound justification.

Improving the Joint Venture Relationship and Working Culture in the Nigeria Oil & Gas Industry

The focus of this research is to investigate the working culture and the relationship between joint venture (JV) partners in the Nigerian oil industry and its impact on JV project performance. The major international oil companies (IOC) having JV with the Nigeria National Petroleum Company (NNPC) in Nigeria are ExxonMobil, Royal Dutch Shell, Total, Chevron, and ENI. An organizational working culture can be said to be the organization’s belief system, thought processes, the attitude of the employees, their ideologies, and the organizational principles of doing things. The research methodology used is a qualitative questionnaire based on a systematic random sampling of targeted participants both in and out of the Nigerian oil and gas industry. The research analyzes the root cause of the inefficiency experienced in the Nigerian oil industry, which is responsible for JV project delays, recent divestment by the IOCs, frequent community-related work stoppages at JV project sites, sabotage of oil pipelines, and the un-restfulness in the Niger Delta area. The research work is intended to inform the need for cultural change in JV operations in Nigeria oil and gas industry by providing information on the existing JV working culture, partners relationship under the current joint operating agreement (JOA) vis a vis best global practices and to make recommendations to the Nigerian populace especially the new board of director that will be appointed early 2022 following the new petroleum industrial bill (PIB) that has just been signed into law. This article is to provide information for the required restructuring and define the effective and efficient relationships and working culture under a new JOA. The result obtained established the fact that the existing working culture and relationship between the JV partners in the Nigerian oil and gas industry are not only unsustainable but unfit to deliver individual or joint venture interest. The JV operations must be incorporated as a legal entity having its own organization, dedicated management, and a workforce that will develop a positive working culture focused on achieving the JV goals and objectives.

A global review of joint operating agreement disputes

Abstract The article identifies and analyses disputes that frequently arise from Joint Operating Agreements (JOAs) in the upstream oil and gas (O&G) business from around the globe. The topics discussed in this article are: • a brief introduction to JOAs, their use in the O&G industry, and their key principles and provisions • the development and use of model JOAs and Accounting Procedures; • customary industry practice regarding JOAs • O&G law regarding JOAs; • a review of reported court judgments and international arbitral awards that dealt with JOA disputes; and • an analysis of the trends in JOA disputes and lessons that can be drawn from those sources.

Joint venture and joint operating agreements in Iran: legal aspects

Abstract Under current Iranian laws and regulations there is a requirement for an upstream petroleum contract to be managed by a joint venture entity and so the conclusion of a joint venture agreement (JVA) is compulsory in such petroleum projects. In this research article we first discuss the rules governing JVAs and the statutory requirements of such agreements in Iran. Then, by studying the relevant rules, we consider the advantages and disadvantages of the both unincorporated and incorporated forms of JVA and finally we discuss some of the implications of the JVA regarding tax, accounting procedures and fiduciary duties. We also consider the role played by unincorporated joint ventures and the joint operating agreement (JOA) in Iran.

Verifying the extent of plumes from produced formation water: a Wheatstone case study

Chevron Australia Pty Ltd operates the Wheatstone liquefied natural gas facility in Western Australia under a Joint Operating agreement. Hydrocarbons from Wheatstone, Iago and Julimar-Brunello fields are sent to the Wheatstone Platform (the Platform), located ~50 km north of the Montebello Islands, for dewatering and dehydration before being transported onshore for final processing. Produced formation water (PW) is processed (treated) and, once criteria are met, discharged overboard. PW at Wheatstone is predicted to rapidly dilute in the receiving ocean to concentrations below water quality criteria (Australian and New Zealand Environment Conservation Council guidelines and ecotoxicology), though empirical evidence is needed to verify the actual discharge risk. Seawater (i.e. cooling water, CW) is also abstracted for cooling duty on the Platform, chlorinated and discharged. This paper describes a field verification campaign aimed at understanding PW and CW behaviour in the water column post-discharge, dilution with distance and whether numerical modelling of dilutions is accurate. The campaign was designed to evaluate plume characteristics by monitoring both entrained PW constituents (i.e. hydrocarbons and metals) and using a Rhodamine WT tracer dye. Monitoring of these constituents was done using an array of sampling techniques, including fluorometry, remotely operated vehicles and discrete water samplers. Results indicate rapid dilutions post PW and CW discharge, with dye fluorometry proving a valuable tool for understanding plume characteristics. Water sampling data interpretation indicated dilutions were likely orders of magnitude greater than anticipated, likely due to variable flow effects and turbulence induced by the Platform structure for PW, and the influence of entrained air within the plume for CW.

PETROLEUM PRODUCTION SHARING CONTRACTS IN THE MIDDLE EAST: APPLICATION OF ECONOMIC EVALUATION AND DECISION-MAKING MODELING

In this Study, the evolution and history of petroleum contracts is discussed with a focus on the recent major shift witnessed from Joint Operating Agreements (JOA) and Concession contracts to Production Sharing Agreements (PSA) due to the increase in the complexity of operations and funding difficulties especially from the government’s side. In addition to that, the fiscal system of PSA’s is studied as a legal instrument to allocate risk between the parties, identify ownership of assets, commitments and operational control. This study aims to figure out the application of economic evaluation for PSA’s using Discounted Cash Flow Analysis (DCF) which is considered to be powerful in evaluating the investment performance by calculating Net Present Value (NPV) of cash flows and the Internal Rate of Return (IRR). The estimated production profile submitted in the PSA of interest was exaggerated. When a Monte-Carlo Simulation was run the riskier profile (P10) was the closest to the PSA production forecast. However, in such agreements usually the mid case scenario (P50) is taken into consideration. The NPV for the first 10 years in this project is around $0.45 Billion compared to the total NPV calculated using the economic model $1.26 Billion. However, the recent instability of the oil price in the last 10 years what causes this project in particular not to meet the target so far. The IRR calculated for the 10 years period is almost the hurdle rate 10% and this is again due to the unexpected NPV due to the oil price. To reduce the uncertainty, pilot projects needs to be conducted in the first year in smaller spacing to allow for the response to be detected faster and then develop a Field Development Plan (FDP).

The compliance dilemma: economic sanctions and the AIPN Model Form International Joint Operating Agreement

Abstract The current AIPN Model Form International JOA (the ‘Model Form’) does not sufficiently address circumstances and issues arising from economic sanctions, and the global contemporary trend demonstrates a significant increase in the use of sanctions by both multi-national governing bodies and nation-states. The USA implements unilateral economic sanctions more than any other country, and because US sanctions are often designed to prevent petroleum-related business with targeted countries and parties. Accordingly, this article (i) analyzes the impact US economic sanctions may have on the ability of international JOA members to both comply with sanctions and protect their interests under the JOA, and (ii) proposes certain definitions and a number of additional provisions the Model Form can adopt to address the issues arising from economic sanctions and protect the each party's interests.

Reg Fowler, Peter Roberts and Eduardo G Pereira, The AIPN Joint Operating Agreement: a Practical Guide

Reg Fowler, Peter Roberts and Eduardo G Pereira, The AIPN Joint Operating Agreement: a Practical Guide

Sole Risk Provisions in Joint Operating Agreements for Unconventional Oil and Gas Development

This article discusses independent operations in the context of unconventional oil and gas resources. It considers how the Canadian Association of Petroleum Landmen (CAPL) and the Association of International Petroleum Negotiators (AIPN) have reacted to this. It provides a detailed analysis of the differences between the 2015 CAPL Operating Procedures and the 2014 AIPN Unconventional Resources Operating Agreement. Particular focus is given to permissible independent operations under each agreement, the timing of those independent operations, and the penalties given to a non-participating party. The article concludes by discussing the importance of drafting customized sole risk provisions in some situations, given that unconventional resource development often varies from project to project.

Joint operating agreements in oil and gas industry: The consequence of sole risk and non consent clauses to joint operation

The paper examines the Joint Operating Agreement (JOA) with a view to ascertaining the purposes of sole risk and non-consent clauses in JOA and their incompatibility or otherwise with the joint objectives of the agreement. The nature of Oil and Gas Industry is such that involved very huge costs and project risks are enormous, especially where the project requires new infrastructure for successful undertaking. Even the few Oil companies that are capable of conducting such projects are usually not willing to take the huge risks alone. For such reasons therefore, Oil Companies in other to mitigate its various levels of costs and risks make joint applications for licence acreage. The purpose of this application is to enable two or more companies to share costs, risks and benefits in agreed proportions in the licence acreage regime they obtained together. The method commonly used by Oil Companies in achieving these joint objectives is through JOA. The paper adopts doctrinal methodology where relevant primary and secondary data were utilised. The paper observed that parties to JOA used sole risk and non-consent clauses in order allow dissenting parties an opportunity to benefit from their omission without terminating the main agreement of the parties. The paper recommends that parties shall from the onset recognise the consequences of JOA and couched the sole risk and non-consent clauses in a flexible manner that will not jeopardise the objectives of JOA. That is to say, the clauses should not be used in a manner that will defeat the major aim of the parties’ relationship.

Intellectual property in the petroleum production and exploration sector—the other hidden asset

According to IBISWorld (2013), 7.7% of Australia’s A$11 trillion assets are natural resources and 5.4% is intellectual property. Despite this intellectual property is overlooked as a valuable asset in the oil and gas industry. As the means of extraction become more complex, the methods and tools needed for the purpose can give one company an edge over another. Intellectual property rights help to protect that competitive advantage. Companies need to have a strategy for the early identification, management and protection of this asset. Customers, contractors and joint venture partners can create intellectual property ownership issues that must also be identified and properly managed. This extended abstract provides: a framework for establishing a robust intellectual property management strategy for companies in the exploration and production sector; identification of key intellectual property assets of businesses in the sector; a review of industry specific challenges, such as the requirement under WA’s Petroleum and Geothermal Energy Resources (Environment) Regulations 2012 to disclose trade secrets and commercially sensitive material about downhole substances; and, consideration of model agreements used in the sector, such as the AMPLA Model Petroleum Exploration Joint Operating Agreement.

UK Shale Gas Prospects – Preparing Bespoke Joint Operating Agreements and Gas Sales Agreements (Part II)

The first part of this article, published in the last issue of 2013, examined how a conventional joint operating agreement (JOA) will need to be modified to reflect the nuances of a UK onshore shale gas project. This second part of the article examines how a conventional gas sales agreement (GSA) will need to be modified to reflect the nuances of such a project, assuming that the parties to the shale gas project have by their development efforts liberated sufficient volumes of gas to constitute commercial quantities that are available for sale or supply.The ecological credentials and energy efficiencies of natural gas as a feedstock for power generation, in comparison with combusting coal or fuel oil, are well known. In the United Kingdom, the anticipated boom in shale gas production has been earmarked by several commentators as a feedstock for power generation, in preference to reliance on the vagaries of imported gas. The production characteristics of shale gas will require a different means of contracting for the supply of gas for power generation, however, in comparison with supplies from conventional gas sources.Because of a combination of delays in the new-build nuclear programme, the forced retirement of ‘dirty’ fossil-fuel-burning power plants and the lack of predictable reliability around power generated from renewable energy sources, the UK is increasingly looking towards natural gas (in any form) as a feedstock for power generation. As such, a decline in the rate of indigenous natural gas production from conventional offshore gas fields has led to increased reliance on gas imported from abroad in the form of LNG, and with that comes the exposure of the UK to the need to compete in global gas markets and so to the associated risks of uncertainty of gas supply. Consequently, the prospect of being able to rely on significant volumes of proximate and readily available domestic shale gas as a feedstock for power generation has an obvious appeal.

Structuring your farmin in an unconventional world

This extended abstract and its presentation explore the legal aspects of good planning and implementation of a successful farmin—from the perspectives of the farmor and the farmee. Among other things, this extended abstract addresses the common and some unusual farmin obligations and structures available to achieve the purpose of the farmin. A common issue is when the tenement interest is transferred—the presentation discusses at the implications. The position under relevant tax and state duty rulings are also examined. The presentation further addresses the farmin program and structuring impacts of force majeure, permit commitments, and overlap in a multistage farmin; and, the development of a joint operating agreement (JOA) that could start during or after farmin obligations are completed. The implications of different majority voting percentages in an operating committee under a JOA, which starts about the same time as a farmin in which participating interest shares increase in stages (also be briefly examined).

UK Shale Gas Prospects – Preparing Bespoke Joint Operating Agreements and Gas Sales Agreements (Part I)

The rapid recent growth in the scale of shale gas exploitation in the United States has been revolutionary, with the capacity to transform the country from a gas importer to a gas exporter. Other countries with shale gas deposits have recognised the potential and have been investigating their own opportunities for exploration and exploitation. This is particularly so in the United Kingdom, where recent government pronouncements have propelled shale gas to the forefront of the energy agenda (but not without some societal debate and disagreement about the wisdom of doing so). This article has two parts, to be published in this and in the next issue of the Journal. The first part of this article examines how a conventional joint operating agreement (JOA) will need to be modified to reflect the nuances of an onshore shale gas project. The risk and the cost of developing a shale gas project could compel project developers to band together to share the burden, and the prospect of investing into such projects could also be attractive to non-operational investors. Thus, a joint venture could be created between the various interested parties, and the terms of the JOA will be critical. The second part of the article, which will be published in the first issue of 2014, examines how a conventional gas sales agreement (GSA) will need to be modified to reflect the nuances of an onshore shale gas project. The ecological credentials and energy efficiencies of natural gas as a feedstock for power generation, in comparison with combusting coal or fuel oil, are well known. Shale gas production is often earmarked as a feedstock for power generation, in preference to reliance on the vagaries of imported gas. The composition and production characteristics of shale gas will require a different means of contracting for the supply of gas for power generation, however, in comparison with conventional gas. Each of the JOA and the GSA must evolve from the offshore, conventional gas project world to which they typically relate in order to meet the requirements of an onshore shale gas project for two particular reasons:the essential operational characteristics of an onshore shale gas project will demand such an evolution if each of the JOA and the GSA is intended to be properly suited to the needs of the project; anda participant in a joint venture that has experience of shale gas development from a particular jurisdiction will expect to work within the terms of a bespoke JOA and GSA. Recognising that some project participants might be new to the business of shale gas development means that some education as to how the shale gas JOA and GSA each needs to be different could be essential.Of course, not every provision within each of the JOA and the GSA will need to be modified to apply to an onshore gas sales project, but some evolution will be needed.

Oil and Gas Joint Operating Agreements: Default Provisions, A Dilemma by Default

English law is often the law of choice in complex and high value contracts where issues such as remedies, default, limitation of liability and financing are paramount. Further, English law affords JV partners comfort that their JV agreement will be construed in accordance to its own terms and cannot be declared void on technical grounds as no codified structure exists. However, as the attitudes of the English courts remain uncertain on the question of forfeiture and whether such a remedy would be held to be a penalty, JV partners must tread carefully when agreeing the default provisions in their JOA. Therefore whilst it may be tempting for JV partners to choose the alternative default provisions to forfeiture (namely, withering options and buy-out provisions) on the pretext that this will bring JV partners on safer ground, these provisions themselves may in fact hide some risks more commonly associated with outright forfeiture clauses.

Interests in Joint Operating Agreement: Can You Eat Your Cake and Have it? The Nigerian Case Study

Just as with most legal principles, the dominant influence of Roman law and English Common Law are almost inevitable. The traditional disparity between the capabilities of such concepts as ‘assignment’ and ‘novation’ with respect to transferring both sides of a legal relationship - burden and benefit - did not abate with the intricate contract matrix that came to greet the discovery of oil. Stakeholders in various jurisdictions have discovered, to their amazement, that the risks inherent in the oil business do not deter a hard line approach by the courts in holding as immaterial their ideals for engaging in a corporative petroleum operation by way of a Joint Operating Agreement (JOA), hence the aching problem: how do I cease from being continually liable for post-assignment obligations even years after I have alienated my interests? By adopting an analytical and comparative methodology, we have examined the impetus with which the concepts operate under common law with particular emphasis on post-assignment liabilities and thereafter showed what the current legal situation in Nigeria under the relevant JOA is and how it has rendered ineffective the common law dichotomy.

Atheory of Quality Competition in Newspaper Joint Operating Agreements

Newspaper Joint Operating Agreements (JOAs) are long-term, inflexible contracts between metropolitan daily newspapers in the same market. These contracts maintain two editorial voices while combining all business operations of the two competitors in order to capture many of the scale economies that have put an end to newspaper competition in most markets. The question we address is what, if anything, drives newspapers to compete editorially once a JOA is formed? With contract terms that run in the tens of years, one might reasonably question whether incentives exist to prod the partners to continue rigorous competition. Our study of JOA contracts indicates that the history of JOAs is filled with instances of unprogrammed renegotiations and that how the partners fare in these negotiations appears to be driven by each party's relative success in the market since the agreement was initiated. In essence, forming a JOA does not resolve the issue of which newspaper will remain in the marketplace once the JOA terminates. Editorial competition throughout the life of the JOA resolves this issue.

Collusion and the Political Differentiation of Newspapers

Abstract: We analyse a newspaper market where two editors first choose the political position of their newspaper, then set cover prices and advertising tariffs. We build on the work of Gabszewicz, Laussel and Sonnac (2001, 2002), whose model of competition among newspaper publishers we take as the stage game of an infinitely repeated game, and investigate the incentives to collude and the properties of the collusive agreements in terms of welfare and pluralism. We analyse and compare two forms of collusion: in the first, publishers cooperatively select both prices and political position; in the second, publishers cooperatively select prices only. We show that collusion on prices reinforces the tendency towards a Pensee Unique discussed in Gabszewicz, Laussel and Sonnac (2001), while collusion on both prices and the political line would tend to mitigate it. Our findings question the rationale for Joint Operating Agreements among US newspapers, which allow publishers to cooperate in setting cover prices and advertising tariffs but not the editorial line. We also show that, whatever the form of collusion, incentives to collude first increase, then decrease as advertising revenues per reader increase.