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The New AIPN 2012 Model Form Joint Operating Agreement—What’s New?

19 June 2012
Mayer Brown Article

After four years of research, consultation and drafting, the Association of International Petroleum Negotiators (AIPN) has published a new version of its model Joint Operating Agreement (2012 JOA), replacing the previous version (2002 JOA).

The 2012 JOA is expected to take over as the new international industry standard, and in this article we look at some of the key revisions made to the model form to reflect the latest commercial realities of the upstream oil and gas sector, particularly in light of events such as the Deepwater Horizon tragedy and the implementation of the UK Bribery Act 2010.

Operator’s Liability

The extent of an operator’s liability, both to third parties and to its non-operator partners, has long been a topic of debate, and has been brought into sharp focus recently by the legal fallout from the Deepwater Horizon explosion and oil spill. To what extent should an operator be liable for losses and liabilities—including third-party claims, environmental liabilities and clean-up costs—arising from joint operations?

The commercial starting point is generally that an operator should neither profit nor suffer loss from acting as operator, and the 2012 JOA maintains the default position from the 2002 JOA that an operator’s liability shall be limited to the amount of its participating interest share in the operations. This follows the commercial reality that no party would agree to act as operator without making a profit unless it could significantly reduce, or eliminate entirely, its exposure in performing that role.

The one exception to the limitation of liability, which is an optional provision in the model form but which is normally fiercely argued for by non-operators, is in the case of “gross negligence/willful misconduct” by the “senior supervisory personnel” of the operator. The 2012 JOA adds some optional wording to help define “senior supervisory personnel,” but the substance of the carve-out is unchanged and it remains a very narrow exception. Even if the operator does agree to its inclusion, the carve-out does not apply to consequential or environmental losses, so any environmental clean-up costs, for instance, will remain the joint responsibility of all parties.


Given the recent focus on decommissioning costs in mature oil and gas fields, particularly in the North Sea, it is no surprise to see significantly more detailed provisions in the 2012 JOA regarding decommissioning. The key objective of the new provisions is to ensure that one co-venturer does not bear a disproportionately large share of such costs.

The 2012 JOA requires decommissioning to be carried out “in accordance with good oil field practice” and all legal obligations, and the operator must now deliver to the operating committee an estimated decommissioning work program and budget at the outset of any development plan.

In terms of making adequate financial provision for future decommissioning costs, the 2002 JOA required the parties to negotiate a suitable security agreement, whereas the 2012 JOA contains an optional set of provisions, in Exhibit E, to deal with this at the outset. Exhibit E contemplates the creation of a trust fund, to which the parties are required to contribute whenever the operator issues a trust fund cash call. The parties can, as an alternative to payment, provide security.

Bribery and Corruption

This is another topic that has come to the fore recently, following the implementation of the UK Bribery Act (the Act) and the continued enforcement of the Foreign Corrupt Practices Act in the United States. The 2012 JOA bolsters the compliance protections already in place from the 2002 version.

New optional wording allows the parties to set the standard of “anti-bribery laws and obligations” to a level that would ensure compliance with the Act. This is to be recommended given the Act’s ability to impose liability on one party for acts committed by that party’s associates or co-venturers, which could include JOA partners. The most likely trigger event is the payment of a bribe to a public official.

The key protections include warranties as to past compliance, covenants as to future compliance and certain specific obligations on the operator. These include implementing suitable anti-bribery policies and procedures and ensuring that similar protections are included in all contracts with suppliers and other third parties.

The “teeth” of the new anti-bribery provisions come in the form of wide indemnities to cover any losses suffered by the non-breaching parties, and an optional provision entitling the non-operators to remove the operator for violating the anti-bribery laws and obligations.


JOA parties often devote a significant proportion of their negotiating time to the consequences of a default, specifically a failure by one party to satisfy a cash call. The drafting committee for the 2012 JOA paid particular attention to this area.

The most significant changes in the 2012 JOA concern the remedies available in the event of a default. The new model form preserves the existing remedies from the 2002 JOA—namely forfeiture, buy-out and enforcement of security—but also introduces a new remedy, the so-called “withering option.” Rather than forcing the defaulting party to forfeit its entire participating interest (which in some jurisdictions may be considered unenforceable), the withering option gives the non-defaulting parties the right, during an approved development plan, to acquire a part of the participating interest in the actual exploitation area to which the default relates. This “withering interest” is calculated by reference to a detailed contractual formula.

While the new drafting is complex and will likely require the parties to commit greater resources to the JOA negotiations, the withering option does bear certain advantages. As a remedy it is more proportionate than a complete forfeiture because it is measured against the extent of the default, and therefore avoids the enforceability concerns with “disproportionate” remedies. The new remedy also provides continuity by enabling the defaulting party to remain in the rest of the project.

Work Programs and Budgets

A further theme of the 2012 JOA is that the parties will in greater detail agree to the content, sharing and approval of all information relating to joint operations. This comes in response to concerns about operators not providing adequate and timely information to non-operators.

This is particularly the case for work programs and budgets, with new provisions prescribing the content to which operators must adhere and setting out how and when operating committee approval must be given to ensure that the operator is in a position to submit the work program and budget to the government when required to do so under the relevant production-sharing contract.

There is also the option for the parties to set different approval thresholds depending on whether the contract is in the exploration, appraisal, development or production phase, giving the JOA parties greater flexibility in the way that approvals are given.

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