Book Reviews

Model Form International Operating Agreement: An Analysis and Interpretation of the 1995 Form, by Andrew Derman, American Bar Association, Section of Natural Resources, Energy and Environmental Law, 1997, ISBN 1-57073-430-5, 144 pages

Joint ventures play a significant role in the upstream oil and gas industry, as mechanisms to share geological and political risk, to raise finance, mobilise complementary expertise and sometimes to provide a form for mandatory state enterprise participation. The "Joint Operating Agreement" is the standard form for dealing with the specific upstream oil and gas issues raised by joint ventures. My impression is that various regions of the world have produced somewhat distinct forms and practices - e.g. US / Texas, North Sea, but that there is an increasing convergence of at least the issues raised for negotiation and drafting and often also of solutions.

The national legal environment (e.g. Texas or English, Australian or Canadian Law) may play a certain role in shaping formulations in order to deal with judicial interpretation and precedent; the technical and economic factors prevailing in a particular region (e.g. the particular risks of abandonment in the deep waters of the North Sea) will have a role in setting up a particular configuration of risks and interests which call for a situation-specific negotiated solution.

There is also the influence of national legal, professional and corporate culture and history - such as the origin of UK Continental Shelf Joint Operating Agreements in the models once used by the no longer existing British National Oil Corporation or the influence of the US domestic precedents on the mainly, but not exclusively US-based Association of International Petroleum Negotiators (AIPN). But it appears that there may well be a move towards greater harmonisation of model contracts. If one could envisage a global model emerging, then one would look for influences from the AIPN on one side and non-US energy lawyers (mainly represented in the IBA / SERL) on the other. The AIPN prepared in 1990 a first international model, followed by a revised version in 1995 (itself reviewed by David Asmus in JENRL 144 (1) February 1996). This model - so Andrew Derman in his here reviewed commentary - are reportedly "widely adopted through the world". This claim is not implausible: While we do not know of any systematic study or survey on the use of particular JOA-models in international oil and gas practice, it may well be that the AIPN model may be, or become, a truly global model. Competitors, such as the UK practice, seem to be largely confined to UK Continental Shelf (see: Michael Taylor / Sally Tyne, Joint Operating Agreements, Longman London 1992; Martyn David (Ed) Upstream Oil and Gas Agreements, with precedents, London, Sweet and Maxwell 1996).

Andrew Derman has written what is in fact a commentary, article-by-article, of the AIPN-sponsored revised model JOA. As a senior negotiator with Oryx, and one of the founding and key directors of the AIPN, he is particularly well placed to explain the philosophy and debate behind the AIPN JOA formulations, but also to provide practical examples of how in particular the model agreement's alternatives could be used. Of particular value is his frequent reference to practical situations that have arisen in the context of contract implementation; again, as compared to the other approaches, it is of great value of having an experienced contract manager draw upon his experience not only in negotiating (and then leaving the agreement to others), but also in actually implementing the contract and living with the consequences of the negotiations. One particular advantage of the AIPN JOA is that it frequently does not only have one single text, but provides alternatives for various negotiating scenarios. Derman discusses the implications of the alternatives, often expresses his own preferences as to the particular selection. As all negotiated documents, the AIPN model is the product of diverse views among the drafters (mainly it seems US or Texas-based oil and gas lawyers and negotiators). Derman does not always agree with every formulation in the model JOA and his commentary allows him to express his own views, unencumbered by the compromise approach of the model JOA text. The model JOA and Derman's commentary are of particular interest with respect to some, relatively novel, issues: He advocates the full integration of a mandatory state enterprise apart from the association among the more homogeneous oil company parties. He also reflects on the issue of how to handle environmental liability and abandonment of offshore platforms and on the anti-bribery provisions which seek to implement the implications of the US Foreign Corrupt Practices Act.

If this model agreement should truly emerge as a global precedent, it is likely that commentaries such as Andrew Derman's will be of increasing importance as necessary to explain to lawyers and negotiators outside the US / Texas context the meaning and implications of contract language which is often steeped in the legal tradition of its homebase. Similarly, adaptation of this model to new circumstances may as well come through formal revision as through enlightened commentary. It would be helpful, and it is regrettable that JENRL has so far not been able to publish an "outside" view on the AIPN JOA. There is no doubt that international business needs to minimise its very high transaction costs, and models which are reasonable, practical, tested and which reflect a "global community" of negotiators can contribute greatly to reduce these transaction costs. Ideally, a revised AIPN contract would incorporate similar organisations (such as the IBA / SERL oil and gas committee) and representatives of both the large state oil companies and of the "emerging" oil companies in Russia, Asia and the Middle East. It would also be desirable if a truly "global" book on JOAs could be written, which should incorporate practice from the various regional strands and which also interprets the contract language in the light of relevant judicial and other practice and precedent. Such an undertaking, though, would probably require collaboration both from a globally oriented practitioner and from academics with comparative law competence.

T. Wälde, CEPMLP/Dundee