The Association of International Energy Negotiators (AIEN) have recently released their latest version of their standard form JOA (AIEN JOA 2023). As usual, it includes Guidance Notes that have been released at the same time.
Despite its international moniker, the AIEN JOA is heavily influenced by North American practice and is therefore not commonly found in the UK (the OEUK has an equivalent version) but it is the most often used model globally, and, while there is nothing overtly surprising in the 2023 version, recent geo-political events and significant updates in industry practice have resulted in changes which are at least worthy of a quick look:
The clauses which address the issue of GHG emissions are not detailed – they include a definition of greenhouse gases, oblige the operator to conduct operations in a manner which mitigates their emissions and to report on GHG emission data in line with internationally recognised guidelines – but their importance lies in the fact that they were included at all. The model form JOA is intended to act a foundation for negotiating the terms of a long term legal relationship, and to include clauses on GHG emissions illustrates that, at the very least, oil companies (IOC) can and should have a role in climate governance. Ultimately, their effectiveness will not simply depend on how many IOCs include them in their JOAs, but on how far the Operators and other Participants develop these terms into non-contractually based practices of good climate governance.
For the first time, the JOA contains provisions on Human Rights. They are few, and very general but the Drafting Committee felt their inclusion was important. Their definition of Human Rights comes from several sources: the UN Declaration of Human Rights (1948), the ILO Declaration and Fundamental Principles and Rights at Work, and the UN Guiding Principles on Business and Human Rights (Part II).
Previous iterations of the AIEN JOA (2012 and 2002 being the most commonly active) did not contain anything on economic sanctions, but the current conflict in Ukraine and the Russian invasion last year has certainly brought the issue far enough into the foreground for it to warrant the drafting of several provisions:
- Generally, it defines economic sanction laws as being those of the state of their – and their parent companies’ – place of business. There is also the option of adding broader wording that recognises sanction laws of large and influential bodies (namely, the UN and the EU, as well as the laws of the United States and the United Kingdom).
- There is an express obligation for Operators to establish and implement policies which ensure compliance with relevant economic sanction laws. There is also the optional wording which obligates Operators to impose similar requirements on any of its contracts. Additionally, there is express wording that exonerates parties from performing duties under the JOA if they violate economic sanction laws – this explicitly includes failure to pay joint account charges where such non-payment is a requirement under sanction law (ordinarily this would result in a default). The Force Majeure provision has also been amended to provide relief from the requirement to meet payment obligations if they violate sanction law.
- The JOA also takes into consideration how frequently mergers and changes to company control take place within the industry, doing so on two levels: first, it prohibits M&A transactions which fall foul of relevant sanction laws; second, parties which do violate sanctions as a result of a change of control are to be treated as defaulting parties until the violation has been corrected.
- Finally, there is optional wording which expands the JOA’s withdrawal provisions to permit parties to withdraw when one of the other participants has violated sanction laws. In doing so, their rights would not be assigned to the sanctioned party.
Decommissioning provisions have been significantly broadened, particularly Exhibit E (which is entirely optional): legacy wells are now explicitly considered, specifically within the context of decommissioning costs (legacy wells are wells in production prior to the JOA coming into effect – possibly historically abandoned at some point – and which continue to produce for the joint venture). Parties to the JOA also have more powers to ensure that the venture’s decommission obligations are satisfied.
The withering interest provisions have survived the new iteration of the JOA, but are now optional. Additionally, defaulting parties are now obliged to hold their interest in trust for the non-defaulting parties.
The new JOA now includes a risk-based premium, which is payable by non-consenting parties of exclusive operations who decide to exercise their ability to reinstate their previously relinquished rights to the operation – this was identified as a gap by the Drafting Committee. An additional alternative was also added which turns an exclusive operation into a joint operation if the total combined participating interest is equal to or greater than the passmark.