Why international oil companies choose to enter into joint operating agreement

Abstract

This essay brings forth the nature of Joint Operating Agreement’s (JOA) and its key features. The key features of JOA answer the question so as to why do powerful players as international oil companies choose to enter into such agreements. JOA’s are used in capital intensive resource industries by those companies who want to restrict their exposure, particularly in limiting cost or liability. Investmental forethought necessitates a mix of participants who contributes towards fi nancing, intelligence, access to market and access to project itself. The usual form of association establishing the framework within which exploration for, and exploitation of, resources takes place is the JOA which is often considered to be a form of joint venture. The JOA can be considered the joint venture par excellence as its structure is found in most contractual joint ventures.1 Joint ownership of an oil and gas interest can be created through several factual scenarios.2 The most common is when owners of respective oil and gas leases pool their interests3 to meet a standard spacing unit that is legislatively prescribed.4 Furthermore, another common reason for joint ownership is the economic risk of an unprofi table well.5 Mineral depletion has required investors to drill deeper than ever before to obtain production.6 This type of drilling operation is an expensive undertaking.7 As a result of these costs even the largest companies will seek a joint investor to share the risk and cost of