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Arbitration and Joint Operating Agreements

Kevin O'Gorman, Mark Stadnyk, International Energy and Minerals Arbitration (2013)

The Joint Operating Agreement, or “JOA,” is a mainstay of modern complex oil and gas operations. This article 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 co-tenants. 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