Ch. 10 of INTERNATIONAL PETROLEUM LAW AND TRANSACTIONS | Owen L. Anderson, Jacqueline L. Weaver, John S. Dzienkowski, John S. Lowe, Keith B. Hall, Frédéric Gilles Sourgens
Ch. 10 of INTERNATIONAL PETROLEUM LAW AND TRANSACTIONS
first Edition

Ch. 10 of INTERNATIONAL PETROLEUM LAW AND TRANSACTIONS

by Owen L. Anderson, Jacqueline L. Weaver, John S. Dzienkowski, John S. Lowe, Keith B. Hall, Frédéric Gilles Sourgens

ISBN: 978-1-943497-39-3

Most large petroleum projects are awarded to a consortium of investors that jointly bid for the right to explore and develop so that they can better spread risks. One investor is designated as the operator of the project; the others are non-operators. Chapter 10, Intra-Industry Contracts, discusses the joint operating agreement or farmout agreement that governs the respective rights and duties of the operator and non-operators.

OWEN L. ANDERSON is a Distinguished Oil & Gas Scholar at the University of Texas School of Law, Co-Academic Director of the Kay Bailey Hutchison Center for Energy Law & Business at the University of Texas, and the Eugene Kuntz Chair in Oil, Gas, & Natural Resources Emeritus and George Lynn Cross Research Professor Emeritus at the University of Oklahoma College of Law. He is an Honorary Senior Fellow at the University of Melbourne Faculty of Law; a member of the Honorary Lecturer and Principal Researcher of the Centre for Energy, Petroleum and Mineral Law and Policy at the University of Dundee; and a Visiting Professor at the University of Sydney. He has authored over 100 articles, several books, and treatises on water law and domestic and global petroleum law. He is Editor-in-Chief of the Texas Title Standards and a lifetime Honorary Trustee of the Rocky Mountain Mineral Law Foundation and member and former officer of the Association of International Petroleum Negotiators (AIPN), form and style editor of AIPN model contracts, and founding member of the editorial board of the AIPN-Oxford University Journal of World Energy Law and Business. He a life member of the National Conference of Commissioners on Uniform State Laws, a member of the American Law Institute, and a trustee of the Energy and Mineral Law Foundation. He is a member of the Texas, Oklahoma, and North Dakota bars and an arbitrator and consultant on oil and gas law and policy.

JACQUELINE L. WEAVER is Professor Emerita at the University of Houston Law Center, where she held the A.A. White Professor of Law chair until her retirement in 2017. Her teaching and research interests cover oil and gas law, energy law and policy, international petroleum, and environmental and natural resources law. She is the co-author of Smith & Weaver, Texas Law of Oil and Gas (a three-volume treatise); Energy, Economics and the Environment (a casebook on U.S. energy, including FERC regulation of pipelines); and several books on international petroleum transactions and Texas oil and gas law. She has won many teaching awards. She has lectured on topics in international oil and gas in Africa (Uganda, Ghana, Namibia, and Angola), Kazakhstan and India (as a Fulbright scholar), Lisbon, and Bangkok. She has written articles on offshore safety after the Macondo disaster in the Gulf of Mexico, energy markets, sustainable development in the international petroleum industry, comparative unitization laws, energy policy, and traditional oil and gas law topics. Professor Weaver holds a B.A. in Economics from Harvard University and a J.D. degree from the University of Houston.

JOHN S. DZIENKOWSKI is the John F. Sutton, Jr. Chair in Lawyering and the Legal Process and a Professor of Law at the University of Texas School of Law in Austin, Texas. He began his teaching career at Tulane Law School in New Orleans and joined the Texas faculty in 1988. He has been a visiting professor at a number of law schools and has lectured in numerous countries. John teaches and writes in the areas of professional responsibility of lawyers, real property, international energy transactions, and oil and gas taxation. He also was the recipient of the Texas Exes Faculty Teaching Award at the Law School in 2005. He is a four-term member of the drafting committee of the Multistate Professional Responsibility Examination. He has authored and edited numerous books and articles on a variety of legal ethics and natural resource topics. He is the long-time co-chair of the biannual Parker Fielder Oil and Gas Taxation Conference, co-sponsored by the University of Texas School of Law and the Internal Revenue Service.

JOHN S. LOWE holds the George W. Hutchison Chair in Energy Law and is a Professor of Law at Southern Methodist University. Professor Lowe has taught courses on oil and gas law, oil and gas contracts, and international petroleum transactions at SMU’s Dedman School of Law since 1987. He also served as Senior Associate Dean for Academic Affairs from 2009 to 2014. He worked as an Administrative officer for the Malawi Government for two and a half years in a program funded by USAID and the Ford Foundation after Harvard law school, then practiced law privately for five years. He was a member of the faculty at the University of Toledo from 1975 to 1978. He then joined the faculty of the University of Tulsa, where he served as professor and associate director of the National Energy Law and Policy Institute. Professor Lowe has been a visiting professor at the University of Texas, a Distinguished Visiting Professor of Natural Resources Law at the University of Denver, the Visiting Judge Leon Karelitz Chair of Oil and Gas Law at the University of New Mexico, and the Visiting Borden Ladner Gervais LLP Chair of Energy Law and Policy at the University of Alberta on a Fulbright grant. He presently holds appointments as an Honorary Lecturer and Principal Researcher of the Centre for Energy, Petroleum and Mineral Law and Policy at the University of Dundee, as a Senior Fellow of the Faculty of Law at the University of Melbourne, and as a Visiting Professor at the University of Sydney. He has also been an International Legal Advisor for petroleum issues in the Commercial Law Development Program of the U.S. Department of Commerce, and has lectured at universities and advised governments around the world. Lowe is a former Chair of the Section of Environment, Energy, and Resources Law of the American Bar Association and a former President of the Rocky Mountain Mineral Law Foundation. He is a member of the commercial arbitration panels of the American Arbitration Association, the International Centre for Dispute Resolution, and the CPR Institute of Dispute Resolution, as well as an editor or author of many articles and books, including Cases & Materials on Oil & Gas Law, Oil & Gas in a Nutshell, Oil & Gas Law & Taxation, and Kuntz Law of Oil & Gas.

KEITH B. HALL is the Campanile Charities Professor of Energy Law at Louisiana State University (LSU), where he serves as Director of the Mineral Law Institute and Director of the John P. Laborde Energy Law Center. He teaches Mineral Rights, International Petroleum Transactions, Civil Law Property, and Energy Law & Regulation. He has also taught Advanced Mineral Law and an Energy Law Seminar that focuses on environmental issues relating to oil and gas development. His publications have focused on oil and gas leases, pooling and unitization, hydraulic fracturing, and induced seismicity that is associated with oil and gas activities. He is co-author of a textbook on oil and gas law that is used in U.S. law schools and also is co-author of a book published by the American Bar Association on the legal issues relating to hydraulic fracturing. He is a frequent speaker at national and international oil and gas conferences. In prior years, Professor Hall has taught International Petroleum Transactions as a Visiting Professor at Baku State University in Azerbaijan, International Energy Transactions as a Visiting Professor at the University of Pittsburgh Law School, and Introduction to Mineral Law as an adjunct professor at Loyola Law School in New Orleans. Before joining the LSU Law School faculty, he practiced law for 16 years, with a focus on oil and gas litigation and transactions. Professor Hall is the Editor-in-Chief of the Institute for Energy Law’s Oil & Gas E-Report. He serves on the Rocky Mountain Mineral Law Foundation’s Board of Directors, the Association of International Petroleum Negotiators’ Educational Advisory Board, and the Executive Committee of the Energy & Mineral Law Foundation. He is a former Chair of the Oil & Gas Committee of the American Bar Association’s Section of Environment, Energy and Resources. He also is a registered professional engineer (inactive).

FRÉDÉRIC G. SOURGENS is the Senator Robert J. Dole Distinguished Professor of Law and Director of the Oil and Gas Law Center at Washburn University School of Law. Freddy serves as Editor-in-Chief for Oxford University Press’s InvestmentClaims.com reporter of investor-state arbitral decisions. He has authored or edited over 80 publications. His works have been cited in international legal proceedings and affirmatively relied upon by courts and arbitral tribunals including by the Constitutional Court of Portugal. His most recent books are Evidence in International Investment Arbitration (with Kabir Duggal and Ian Laird) (Oxford University Press: 2018) and Decarbonisation and the Energy Industry: Law, Policy and Regulation in Low-Carbon Energy Markets (with Tade Oyewunmi, Penelope Crossley, and Kim Talus) (Hart Publishing: 2020). He is currently co-authoring The Transnational Law of Renewable Energy (with Teddy Baldwin and Catherine Banet) (Oxford University Press, under contract, forthcoming 2022). Freddy has served as counsel in numerous precedent-setting international legal disputes.


HARRY W. SULLIVAN, JR., Contributing Author, is an International Energy Attorney based in Dallas, Texas, where he is an Executive Professor at Texas A&M School of Law and an Adjunct Professor at SMU’s Dedman School of Law. He also works as the Assistant General Counsel for Kosmos Energy in their West Africa exploration activities. His previous experience includes 14 years as Senior Counsel-International in the International E&P Legal Group of ConocoPhillips, Of Counsel with Thompson & Knight LLP, 15 years as Chief Counsel-International and Senior Counsel for Atlantic Richfield Company and five years as Senior Counsel for Sun Oil Company. Mr. Sullivan has a J.D. degree from Louisiana State University School of Law and an LL.M. degree from Southern Methodist University’s Dedman School of Law. He is licensed to practice law in the states of Louisiana and Texas and before the Supreme Court of the United States, and he is Board Certified in Oil, Gas and Mineral Law in Texas. He is also admitted as a Solicitor in England and Wales. His practice and experience focuses on the upstream and midstream oil and gas industry, both in the U.S. and internationally, in more than 25 countries. 

© Copyright 2020 by the Rocky Mountain Mineral Law Foundation.  All rights reserved.

Author Affiliations and Bios
Conditions for Use and Copyright
Dedication
Preface and Acknowledgments
Acronyms, Initialisms, and Standardization
Chapter Bibliographies
Index
Chapter One OVERVIEW OF THE INTERNATIONAL PETROLEUM INDUSTRY
Chapter Two SOVEREIGNTY AND HOST GOVERNMENT CONTROL OF PETROLEUM AND MINERALS
Chapter Three DOMESTIC EXTRATERRITORIAL LAW
Chapter Four PETROLEUM LEGAL REGIMES
Chapter Five HOST GOVERNMENT FISCAL SYSTEMS
Chapter Six HOST GOVERNMENT CONTRACTS - NON-FISCAL PROVISIONS
Chapter Seven OIL SPILLS, OFFSHORE SAFETY SYSTEMS, AND DECOMMISSIONING
Chapter Eight SUSTAINABLE DEVELOPMENT: INDIGENOUS RIGHTS, HUMAN RIGHTS, AND COMMUNITY IMPACTS
Chapter Nine DISPUTE RESOLUTION - INVESTMENT AND COMMERCIAL
Chapter Ten INTRA-INDUSTRY CONTRACTS
10.1 - Introduction
10.2 - Precontracts
10.3 - Confidentiality Agreements
10.3.1 - Confidentiality Without a Confidentiality Agreement
10.3.2 - Confidentiality by Contract
10.3.2.1 - Duration of Confidentiality
10.3.2.2 - What Is Confidential
10.3.2.3 - How May Confidential Data Be Used
10.3.2.4 - Remedies for Breach
10.4 - Study and Bid Agreements
10.4.1 - The Parties
10.4.2 - Organizing the Study and Bid Group
10.4.3 - Preparing the Report
10.4.4 - Evaluation of the Study and Bid Report and Preparation of the Bid
10.5 - Farmout and Participation Agreements
10.5.1 - Conditions Precedent to the Farmout Agreement Becoming Effective
10.5.1.1 - Host Government (HG) Approval
10.5.1.2 - Other Approvals
10.5.1.3 - Operating Agreements
10.5.1.4 - Environmental Assessment
10.5.1.5 - Satisfying Conditions Precedent
10.5.2 - How the Farmee Earns the Right to an Assignment
10.5.3 - When Is the Interest Farmed Out Transferred
10.5.4 - What Happens if the Farmor or Farmee Fails to Perform
10.6 - Joint Operating Agreements
10.6.1 - The Operator’s Rights and Duties
10.6.2 - Non-Operators’ Remedies for an Operator’s Poor Performance
10.6.2.1 - Damages Recovery
10.6.2.2 - Operator Removal
10.6.2.3 - Other Controls over the Operator
10.6.3 - The Operating Committee
10.6.4 - Performing the Contract
10.6.4.1 - Awarding Contracts
10.6.4.2 - Authority for Expenditures
10.6.4.3 - The Accounting Procedure and the Joint Account
10.6.4.4 - Default
10.6.5 - Sole-Risk and Non-Consent Operations
10.6.6 - Dealing with Production
10.6.7 - Limitations on Transfer of Contract Rights
10.6.7.1 - HG Approval
10.6.7.2 - Minimum Participating Interest
10.6.7.3 - Objections for Cause
10.6.7.4 - Preemptive Rights
10.6.7.5 - Completion of the Transfer
10.7 - Conclusion
Chapter Eleven SEISMIC, DRILLING, AND WELL-SERVICES CONTRACTS
Chapter Twelve CRUDE OIL MARKETING AND SALES
Chapter Thirteen NATURAL GAS MARKETING AND SALES
Chapter Fourteen THE FUTURE OF THE PETROLEUM INDUSTRY AND CLIMATE CHANGE