Cost Oil: To reimburse the contractor for capital investments and operating costs. For the National Petroleum Investment Management Services (NAPIMS), which executes joint operations and other exploration and production activities for NNPC and oversees the federation’s interest in the joint operating agreements in 2017, total revenue stood … All rights and liabilities arising in connection with the PL will be shared between the licensees in proportion to their PI. An operator may be removed only for ‘good cause’ by the affirmative vote of a majority interest (based on ownership) of non-operators, after excluding the voting interest of the operator. ost is recoverable with crude oil in the event of commercial find, with. Where the PL is divested to smaller companies, they are more likely to go bankrupt than major companies. The federal government often defaults on payment of cash calls because of the need to develop other areas of the economy. Usually, this is allocated according to the party’s percentage/participating interest (PI) under the JOA. It is the agreement that hands over and transfers a certain interest in a property to another person. However, the operator is exonerated except for ‘gross negligence or willful misconduct’. [21] P Roberts, ‘Fault-lines in the Joint Operating Agreement: Forfeiture’ (2008) 274I.E.L.R. In many cases it extended over the whole land in the nation. rofit Oil: The balance after deduction of Tax Oil and Cost Oil, which is, o be shared between the NNPC and the contractor in an agreed. These multi-national Exploration & Production companies are operating predominantly in the on-shore Niger Delta, coastal offshore areas and lately in the deepwaters. NNPC signs agreement with NAOC on 4 OMLs On September 26, 2019 12:04 am In News The Nigerian National Petroleum Corporation (NNPC) has signed … It is an agreement born in response to the funding problem faced by the old JV arrangement as well as the desire of the Nigerian government to open up the sector for more foreign participation. Each JOA is built on the presumption that the burden of financial operations shall be shared. The company is usually given rights only in respect of crude oil and sometimes natural gas. This article will consider: Across the world, the activities of exploration, development, production and marketing of oil and gas, and their associated products, are conducted within the framework of host government laws and commercial contracts. The ‘institutional link’ between the operator and the non-operator is the Joint Operating Committee (JOC/OPCOM) on which all the parties to the JOA sit.[10]. The remainder is then shared between the national oil company (NOC) of the oil-producing country and the company in a predetermined proportion. The area was often very large. [23] The strike was called off on 24 May 2015. The operator is the party that implements the collective will of the JV and is responsible for the day-to-day management of the operations. Joint Operating Agreements (JOA) The JOA is the basic, standard agreement between the NNPC and the operators. Article 2.4.2[13] provides: ‘In the event that the operator commits any material breach of, or fails to observe or perform, any material obligation on its part contained in this agreement the operator may also be removed by any of the non-operators holding participating interest of at least 60%, giving notice in writing to the operator.’, Article 2.2.1[14] vests significant authority in the operator on how joint operations should be consulted. This is important in order to prevent unnecessary interference with the contract by the Minister of Petroleum. There are four different types of Petroleum Arrangements operating in the Nigerian Oil and Gas Industry. The agreement calls for the development of the lease or the premises by one of the parties to the agreement, who is designated as operator or unit operator for the joint account. Future JVs should be incorporated as recommended above so that government is no longer saddled with the responsibility of cash call payment. It makes for more effective technology transfer, since the host country is likely to become more familiar with the practical aspects of the petroleum industry. [17] M Taylor and Sally Tyne, Taylor and Windsor on Joint Operating Agreements (2nd ed, Longman 1992) p 48. Participation enables the host country to exercise more control on the operations of its industry. When such default occurs, one or more of the non-defaulting parties have to step in to meet the defaulter’s share of the expenditure. It is common in the oil industry to have a JV between the host country and the international oil company. Information gathered that the revocation of the operating licence of Shell by the president was in line with the Joint Operating Agreement (JOA) signed by the joint venture partners. The other party is known as a non-operator. Article 2.2.1 provides: ‘The operator shall conduct all joint operations with utmost good faith and in a good and workmanlike manner in accordance with good industry practice and the applicable regulations shall apply to all operations hereunder.’, ‘The operator or its affiliate shall not be liable, beyond such liability accruing to its participating interest, for any loss or damage which results from joint operations unless such loss or damage results from gross negligence, and or wilful misconduct on the part of its directors or supervisory staff, provided, that under no circumstances shall the operator or its affiliates be liable to non-operator for reservoir damage or pollution or for any consequential losses or damages whatsoever or howsoever occurring including, but not limited to, lost production or lost profits. The other partners in this JV are Shell Petroleum Development Company (30%), NNPC (55%,) and Total E&P Nigeria (10%). Major operators will be looking to rid themselves of their less productive assets: there is little incentive to stay as the petroleum lease (PL) is no longer an asset but a liability due to impending decommissioning costs. recommendations regarding the JOA and Petroleum Act. In return, the company paid specified costs and taxes. • can be: co-lessees of pooled mineral interests. The Joint Operating Agreement (JOA) is a participation agreement that enables the federal government, represented by the Nigerian National Petroleum Corporation (NNPC), to actively participate in the Nigerian petroleum industry. There is a need for national legislation or regulation on JOAs, spelling out: The powers conferred on the minister resulted in her having undue influence on the parties to the contract. The duration is normally for an initial period of 20 years. Since most major decisions involving undertaking a new operation, or terminating an existing one, are subject to other express agreement provisions, the JOA has the effect of giving the operator control over how operations are to be conducted on a day-to-day basis once approved, but not the ability, as a general rule, to determine which operations should be undertaken at the joint expense of the parties. Typically, the fee oil and gas estate is owned in several undivided fractional shares. According to the NNPC, the proposed budget was to support the 2021 JV/PSC/SC forecasted production of 1.639mpbd of oil and condensate per day, and 6.532bn standard cubic feet of monetised gas per day. [5] Oil And Gas Operations: Rights And Obligations (The Nation Newspaper, 20 October 2015) p 32. The JOA is expected to represent an amalgam of the varying interests of the respective parties to the JOA. The operator for the joint operations is designated in the JOA. It sets the guidelines /modalities for running the operations. The joint venture established pursuant to this Agreement shall not be considered to be a company, cf. It is on the premise of the above section 35 of the Petroleum Act[4] that the JOA is executed between the federal government, represented by NNPC, and licensees/lessees. [6], The JOA spells out the legal relationship among concurrent owners of licences, leases or concessions, as the case may be, and lays down the rules and procedure for the joint development licences, leases or concessions for the benefit of the concurrent owners.[7]. In other cases, the landowner may own the title. charge interest on the borrowed funds in respect of unpaid amounts, as authorised under the accounting procedure; require a ‘contribution’ from the remaining non-operators. It is different from the MOU. They were in respect of very large areas of land of the host country. There are two classes of party to a JOA: the operator and the non-operators. The Nigerian National Petroleum Corporation (NNPC) and Enforcement of Zero Gas . This contract enables government to participate[22] in the petroleum industry in the form of a JV with other companies. That major policy shift was also to ensure for the company a minimum profit margin of $2.30/bbl; after tax and royalties on the company's equity crude. However, some pitfalls have been identified that need to be amended to enable the government to benefit optimally from the JOA. It is different from the MOU. Following the election and payment as aforesaid, such operations shall be carried out as joint operations.’, The operator is required to pay bills promptly, and then request the appropriate portion of such charges from the non-operators on the basis specified in an accounting procedure which is attached as an exhibit to the JOA.[19]. Government realizes that investment can only thrive in a peaceful atmosphere. The JOA governs the relationship between the parties, including budget approval and supervision, crude oil lifting and sale in proportion to equity, and funding by the partners. The financial and technical challenges and risks of upstream operations compel oil and gas companies to spread the risks and to minimise costs. As such, the right to explore, exploit, appraise and produce oil and gas is rarely exercised by a single entity. The rights of operator removal are subject to stringent restrictions. The partnership is contracted through a Joint Operating Agreements (JOA) which is a basic, standard agreement between the NNPC and Total in Nigeria. The most important duty of all parties to a JOA is to provide funds when they are requested under a cash call. Fax: +44 (0)20 7842 0091, Public and Professional Interest Division, Anti-Corruption Strategy for the Legal Profession, International Human Rights Fact-Finding Guidelines. JVs can take the form of a corporation, limited liability company or partnership. [10] G Gordon, et al (eds), Oil and Gas Law – Current Practice and Emerging Trends (Edinburgh University Press 2007) at p 277. (i) the right of the Federal Government to take natural gas produced with crude oil by the licensee or lessee free of cost at a flare or at an agreed cost and without payment of royalty; (ii) the obligation of the licensee or lessee to obtain the approval of the Federal Government as to the price at which natural gas produced by the licensee or lessee (and not taken by the Federal Government) is sold; and, (iii) a requirement for the payment by the licensee or lessee of royalty on natural gas produced and sold.’. Joint Operating Agreement The Joint Operating Agreements (JOA) is the basic, standard agreement between the NNPC and the operators. The JOA provide a set of rules for the conduct of operations under the PL. It is also an arrangement whereby the oil company receives the exclusive right to explore for petroleum and, if petroleum is discovered, to produce, market and transport it. These owners then execute oil and gas leases to multiple lessees, who then own the associated leasehold estate in undivided fractional shares. London, EC4A 4AD They give companies the opportunity to outlay their investment in multiple ventures and thus increase their chances of finding and exploiting oil and gas. It has been used for a long time in many parts of the world to transfer interests in land and resources from one party to the other. crude and $1.35/bbl for NNPC's equity crude. SPDC is the operator of this JV. The JOA is indeed one of the most important agreements in the development of oil and gas resources. There should also be a comprehensive review of the JOAs at least every three to five years. ties are to share in the cost of operations. This review should address all the issues/challenges in the JOA, ensuring a synergy between the provisions of the amended petroleum laws and the JOA. [23] Leadership Newspaper of 19 May 2015; Vanguard of 19 May 2015. International Bar Association [6] Jimena Marvan, ‘The changing shape of a Joint Venture/Partnership Agreement and how you can effectively prepare for its evolving structure within your terms: A Case Study from Mexico’ www.oilandgas.com/strategy-manager accessed 14 May 2013. [22] Section 35 of the Petroleum Act, Cap P10, L.F.N 2004. Fifty per cent of future JOAs should be IJVs, similar to the NLNG model. Joint Operating Agreements (JOA) The JOA is the basic, standard agreement between the NNPC and the operators. It is now called by various names, such as licence or lease, but it is still the most widely used type of agreement. The intention of government then was to attract more investments than that already made. For instance, the PSC is a responsible for some of the fears expressed over the JV more so as the nation was opening the Frontier areas such as the Inland basins and Deep/ Ultra Deep Waters.​. It said that the agreement covered Shell's 30 per cent interest in oil mining leases (OMLs) 4, 38 and 41, covering approximately 2,650 square kilometres in the north-western Niger Delta. NNPC could assign their right to operate to any of the parties to the JOA and also take over operatorship when the need arises. THE TERM: NNPC Shall mean Nigerian National Petroleum Corporation API Shall … The result is that any given oil and gas property is typically concurrently owned by numerous cotenants. All parties share in the expenses of the operations and in the proceeds resulting from the development. ne of the partners is designated the operator, he NNPC reserves the right to become an operator. The partners involved in the joint venture are the NNPC with the ownership of 55% shares in the OML 11, Shell, Total and Agip, with the ownership of 30%, 15% and 5% respectively. The above shall not relieve operator from exercising utmost diligence in accordance with good oil field practice in selecting, training and supervising its employees, contractors and agents.’. In the event of a commercial find, Contractor's costs are recouped in line with procedures enunciated in the contract. Such a vote shall not be deemed effective until a written notice has been delivered to the operator by a non-operator, detailing the alleged default and that the operator has failed to cure the default. The operations can be handled by fewer employees and equipment thereby promoting greater efficiency. Concession is one of the main interests that can be created. It sets the guidelines /modalities for running the operations. Such a breach will cause real financial difficulty to the other parties who will have to make good the shortfall. Rather, companies form joint ventures (JVs) to share the expenditure, risk, property and production (if successful) in proportion to their respective participating interest. These concessions had certain characteristics. One major difference between the SC and PSC is that SC covers only the OPL, the PSC may span two or more OPLs at a time. concessions, production sharing contracts (PSCs) and JOAs; the JOA’s challenges, benefits and burdens; and. It is an agreement between two owners or among several concurrent owners for the operation of a leasehold for oil, gas or other minerals. The development of these contractual agreements is a reflection of the readiness of the Nigerian government to respond to trends in he global oil and gas industry as well as tackle inherent problems emanating in old arrangements. It sets the guidelines/modalities for running the operations. The Nigeria government has always had anticipate the global oil and gas industry by ensuring a dynamic approach to drawing up rules and fiscal regimes which make the industry one of the most competitive and investor friendly throughout the world. These lessees then often assign undivided fractional shares of those oil and gas leases to third parties. It is the agreement that hands over and transfers a certain interest in a property to another person. rs are discussed and policy decisions are taken at. However, the burden of payment of cash calls has meant the federal government has not enjoyed the full benefits of the JOA. These clauses typically permit some members of the group to proceed with certain types of work without the dissenters. In Nigeria, the concession granted to Shell in 1938 was in respect of the entire mainland of Nigeria. Figure 1 shows that the NNPC holds 60% in all the joint ventures except the venture operated by Shell, in which NNPC holds 55%. It usually had exclusive ownership of the oil and gas and was free to dispose of them as it deemed fit. The IJV would fund the JV operations; the government can then enjoy the full benefits of the JOA by obtaining maximum economic returns while participating/exercising control over petroleum operations in Nigeria. The declaration of PI is one of the essential provisions of the JOA. the joint operating agreement • a joint operating agreement (joa) is usually entered into after period of negotiation among the participants. 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