Joint Operating Agreement Applicability And Enforceability Of Default Provisions

A Joint Enterprise Agreement (JAA) is based on the principle of shared risk and costs. (2) One of the most important issues dealt with by the JOA is therefore the financial commitment of the parties within the consortium. Maintaining financial resources under the JOA allows the consortium to conduct its joint operations. (3) Conversely, a member`s failure to comply with these obligations could jeopardize the viability of the JOA, even though a party at the JOA could legally/contractually challenge certain commitments and/or payments inconsistent with the terms of the joa or the applicable law. (4) In the context of oil operations, the objective of the default rule is to ensure the security and stability of the financial contributions required for the duration of the specific project. (5) It is therefore essential that the JOA apply a provision defining the so-called “defect” situation (standard determination). This is a common approach in the oil industry (6), but the precise definition of failure and implementation of such a provision may vary between the different JOA models available in the sector. (7) On the other hand, a default provision (including its corrective measures) may not be applicable in a phase of “commercial value” (i.e. after a commercial discovery and before the decommissioning phase). (11) This paper analyzes the second concern about the applicability of the standard determination. “The Brazilian pre-salt case: governmental interference and challenges for potential joint ventures” Journal of Energy – Natural Resources Law (2017) (with Fernando Gregio Londke, LĂ©via Amorim). Standard provisions are generally included in Joint Enterprise Agreements (JAAs) in oil transactions.

In addition to other provisions of the treaty, the default provisions recall the obligation of the parties to share costs and highlight the consequences of a possible default. However, transnational oil contracts and their default provisions may not be uniformly applicable in all legal orders, which depends heavily on factors, including the specific provisions of the provision and jurisdiction`s compliance with civil or common law systems. Despite the fact that the usefulness of a default provision depends on its applicability, this issue remains largely unresolved in the context of international oil transactions in a series of common and civil jurisdictions. This article examines the reasons for the operators` decision to include a standard provision in an AYA, the issues arising from the possible inability to apply such provisions in all jurisdictions and, finally, the series of remedies available for late payment remedies that go beyond forfeiture, including buyouts, pledges, deferrals of interest or withdrawals. While the term “default” was completely absent from the JOA a few decades ago, many JOA model forms now contain sophisticated provisions that define default and define the corrective measures applicable to its occurrence. (12) Each type of remedy has its own characteristics (benefits and weaknesses). (13) However, despite the chosen remedy, a standard provision should have a commercial motivation (i.i…. However, regardless of the standard form used, the two main critical problems for standard determination are the commercial reasons for the use of such a provision and its applicability. (8) On the one hand, the loss provision must be used in a phase where the heritage or the predetermined project has commercial value. (9) Therefore, the likelihood of a member default varies depending on the phase of the joint transactions and the associated costs.