For the proper conduct of joint operations it is common in the joint operating agreement ("JOA") to give the designated operator exclusive rights and obligations for the representation of the parties before the government in connection with the underlying concession.
In early 2014 the Commercial Court in England heard an application for an injunction sought by an operator against a non-operator which focussed on the JOA provisions which set out the rights of the operator and non-operators to interface with the government. Although this case went largely unnoticed1 it contains notable dicta which could have future relevance to the construction of such a clause in a JOA should it come before an English court again (and which could guide any arbitrators in respect of a JOA dispute on similar facts).
Euroil v Cameroon Offshore
The case 2 involved the granting of an interim injunction in favour of Euroil Ltd. ("Euroil") against Cameroon Offshore Petroleum SARL ("CAMOP"). Although the injunction was later overturned following the production of new information to the court by both parties 3, the court's interpretation of the clauses relevant to the circumstances leading to the granting of the injunction in the first instance will be considered for the purposes of this article.
Euroil and CAMOP were parties to a JOA in relation to the Etinde Permit which covered significant acreage offshore Cameroon. The Permit was constituted by a production sharing contract between the parties and the Cameroon government. Euroil held a seventy-five percent interest and CAMOP held a twenty-five percent interest. The Cameroon government had rights to acquire a twenty percent interest subject to future development.
In keeping with most JOAs, the JOA between the parties required decisions to be taken by a committee consisting of representatives of each party, with Euroil being responsible for the implementation of such decisions as operator. The JOA was governed by English law and provided for dispute resolution by arbitration under the rules of the London Court of International Arbitration.
At the time of the dispute leading to the granting of the injunction the Permit was in its exploration phase but, according to Euroil's submission, it was sufficiently clear that there were proven reserves such as to justify moving forward to the development and exploitation phase. In order to so move forward it became necessary for the parties to obtain an exploitation authorisation from the Cameroon government. This required the submission of an application and a detailed field development and production plan and budget ("FDP"). Euroil wished to take this step immediately but CAMOP wished first to drill two further appraisal wells, which Euroil deemed to be unnecessary, in order to satisfy the parties and the Cameroon government that the project should move forward to the next phase.
Although the parties disagreed, in early January 2014 Euroil and CAMOP approved and authorised the submission by Euroil of an FDP without the requirement to drill the further appraisal wells. Immediately thereafter however, CAMOP made reservations and raised objections to the Cameroon petroleum ministry by way of a letter detailing questions around the technical and financial competence of Euroil as operator, the requirement for further appraisal drilling and the extent to which all the resources which had been discovered were included in the FDP.
The JOA contained the following clauses:
"Unless otherwise directed by the Management Committee and except where otherwise provided in the Participation Agreement with respect to the Exploitation Committee, the Operator shall represent the Parties regarding any matters or dealings with the Government or third parties insofar as the same relate to the Joint Operations, provided that there is reserved to each Party the unfettered right to deal with the Government in respect of matters solely relating to its own Percentage Interest. The Operator shall provide the Parties with copies of any correspondence exchanged with the Government."
"Where the Operator has been informed or has reason to believe that matters of material importance to the Parties are to be discussed at a meeting with the Government or third parties it shall, where reasonably practicable, give notice of such meeting to the Parties and consult with them in relation thereto. Any Party shall be entitled to attend such meeting with the Government provided that the Operator shall lead the discussions with the Government."
Euroil argued that CAMOP's communication to the Cameroon petroleum ministry was a breach of the JOA and that Euroil had the exclusive right to communicate with the Cameroon governmental authorities in relation to the application for approval to move to the next stage of the project. Euroil argued that follow-up communications by CAMOP would be extremely damaging to the prospects of approval being granted, thus putting at risk the substantial investments already made in the project.
In light of an imminent governmental meeting at which Euroil and CAMOP would be in attendance, Euroil sought to restrain CAMOP from: (i) engaging in any correspondence with the Cameroon governmental authorities in respect of the Permit so far as these dealings related to joint operations; and (ii) making any communication to the Cameroon petroleum ministry. Euroil recognised that CAMOP should not be prevented from attending a meeting with the petroleum ministry provided it did not make any communication to that ministry. An ex parte application was made by Euroil to the Commercial Court in London for an injunction against CAMOP on 6 January 2014. The injunction was granted on that date, subject to some variations (including that CAMOP could communicate at the meeting, but only insofar as it did not contradict or undermine the application for the exploitation authorisation).
In considering Euroil's application the question arose as to what role, if any, CAMOP representatives who were entitled to attend such government meetings were entitled to take at such meetings (i.e. would they be permitted to have some input into the meeting, and would they be constrained in any way as to what they can say if the government asked questions of them?). The presiding judge, Males J, declared that the true construction of the provisions would be for the arbitrators to determine in accordance with the dispute resolution provisions in the JOA, but stated that it would be rather difficult to conclude that CAMOP's representatives could attend such a meeting but would be obliged to remain silent.
Males J also considered whether the right to represent the parties before the Cameroon government regarding 'any' matters or dealings with the government insofar as the same relate to the joint operations was effectively an exclusive right, subject only to the proviso relating to matters solely relating to an individual participant's own percentage interest. Males J held (as a provisional conclusion, whilst again noting that the true construction of the provisions would be a matter for the arbitrators) that the right would not be an exclusive right if by that it is meant that the other parties to the JOA who were entitled to attend a governmental meeting were required to remain silent at that meeting. Rather, said Males J, the provisions gave a right to the operator to be the representative of the parties and to take the lead in discussions with the government, but did not go as far as to rule out altogether any input at all from the non-operators:
"I am not prepared to hold that there is an exclusive right at any rate if by that it is meant that the other party to the joint operating agreement who is entitled to attend a meeting of the type described in clause 6.6.2 is required to remain silent at that meeting. It seems to me that the provisions of clause 6.6 must be read as a whole and that, at any rate as I currently understand the position, those provisions do give a right to the operator to be the representative of the parties and to take the lead in discussions with the Government, but do not go so far as to rule out altogether any input at all from the other party."
It can be inferred from Males J's dicta that JOA provisions which permit a non-operator to attend governmental meetings in a secondary capacity (i.e. as observer or non-lead party) and which purport to give the operator an exclusive right to represent the parties before the government could nevertheless be construed as not obliging the non-operator to refrain from making input into such a meeting.
Overturning the injunction
The case came before Males J again on 14 January 2014 so that CAMOP could put its case to the court. Males J had been provided with further evidence showing more detail of the circumstances as to how the dispute had originally arisen and was also provided with information on what had happened since the ex parte grant of the injunction:
- CAMOP had taken the view that, in light of the ex parte injunction, it could not safely input to the meeting other than in an observer capacity. CAMOP had communicated this position to the Cameroon petroleum ministry, leading to Euroil considering inviting the court to commence contempt proceedings.
- It was regarded by the Cameroon petroleum ministry as unacceptable that CAMOP was precluded from having input to the meeting.
Males J reached the conclusion that the injunction did not have the clarity and certainty which an injunction would require, the position was reached where the injunction would serve little purpose, and that the court's intervention would be striking the wrong balance. The original ex parte injunction was therefore discharged.
Common JOA provisions
The impact of the court's determination in Euroil v Cameroon Offshore Petroleum is considered upon the relevant provisions of two commonly used JOAs.
AIPN 2012 model form JOA
The JOA contains the following provision:
"In the conduct of Joint Operations, Operator shall have, in accordance with the decisions of the Operating Committee, the exclusive right and obligation to represent the Parties in all dealings with the Government with respect to matters arising under the Contract and Joint Operations. Operator shall notify the other Parties as soon as possible of the time, place, and agenda of such meetings. Subject to the Contract and any necessary Government approvals, Non-Operators shall have the right to attend any meetings with the Government with respect to such matters, but only as observers. Nothing contained in this Agreement shall restrict any Party from discussing with the Government any matter peculiar to its particular business interests arising under the Contract or this Agreement, but in such event such Party shall promptly advise the Parties, if possible before and in any event promptly after such discussions; provided that such Party has no duty to divulge to the other Parties any proprietary information involved in such discussions or any matters not affecting the other Parties."
This clause contains the following relevant components:
- Exclusivity: The operator has an exclusive right to represent the parties in dealings with the government.
- Non-operator participation: Non-operators have the right to attend meetings with the government, but only in an observational capacity. Additionally, a non-operator may discuss with the government matters peculiar to its particular business interests arising under the concession or the JOA.
Although the language in the clause clearly suggests that the non-operators' rights are limited to an observational capacity, in applying Males J's interpretation to this clause it is unlikely that the exclusivity right and the participation limitation would require that the non-operating parties could be compelled not to offer their input at governmental meetings.
Oil & Gas UK 2009 model form JOA
This JOA contains the following provision (which is substantively similar to the provision in the JOA in question in Euroil v Cameroon Offshore Petroleum):
"Unless otherwise directed by the Joint Operating Committee, the Operator shall represent the Participants regarding any matters or dealings with the Secretary and other governmental authorities or third parties in so far as the same relate to the Joint Operations, provided that there is reserved to each Participant the unfettered right to deal with the Secretary or any other governmental authorities in respect of matters relating to its own Percentage Interest."
"Where the Operator has been informed or has reason to believe that matters of material importance to the Participants are to be discussed at a meeting, it shall give as much advance notice as is reasonably practicable to the Participants of such meeting and consult with the Participants in relation thereto and any Participant shall be entitled to attend such meeting."
No further analysis is required given that Males J's opinions in the case were formed upon substantively the same provisions.
Conclusion
The dicta of the court in Euroil v Cameroon Offshore Petroleum will be directly relevant where a JOA is governed by English law and provides for the resolution of disputes between the parties through recourse to the court. The same dicta is likely to have a strongly persuasive effect on any arbitrators which are appointed to resolve disputes under the JOA. In either case the decision of the court should cause JOA parties to look again at the wording of their non-operator participation clauses, probably with a view to adjusting the customary wording in order to recognise the reality of the situation.
Footnotes
1. As of the date of this article, an internet search shows no material commentary on the Case other than the court records.
2. Euroil Ltd. v Cameroon Offshore Petroleum SARL [2014] EWHC 12 (Comm).
3. Euroil Ltd. v Cameroon Offshore Petroleum SARL [2014] EWHC 52 (Comm).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.