JOA (Joint Operating Agreement) is the common term used to describe the Model Form Operating Agreement related to the exploration and production of oil and gas under certain leases (The Contract Area). It also provides a method for solving disputes, which may arise during the course of business as outlined in the JOA. The scope of this blog is not to cover the entire agreement, or its history, which would take volumes, but to give a snapshot of what the JOA covers and why it’s so important to those in the energy arena.
If you are a landman, you will not find the JOA filed in the courthouse. It is a contract executed between two or more parties defining the rights and obligations of the participants that is usually reviewed in the due diligence process. It is one of the first documents presented to a buyer in the evaluation of a possible purchase and sale, and is listed in the PSA (Purchase and Sale Agreement) and as an exhibit to the closing documents when the sale is finalized. It is often amended or customized by crossing out sections within the document, such as the right to preferential purchase for example, and adding addenda to it, such as burdens on production.
The key to understanding the JOA is first to simply read it, even though some portions may be foreign or confusing. Fellow attorneys and landmen report that personal experience with understanding JOA’s is in layers. Each time they utilized or reviewed a JOA, a bit more knowledge accumulated until a critical mass was reached leading to aha moments.
The current JOA of choice is Form 610-1989, a 17-page document with detailed provisions for the drilling, operation and production of oil and gas wells. It also designates the operator (and method for removal), and its responsibilities to the non-operators (or investors, of sorts). It provides remedies for a party’s failure to pay its share of expenses and provides for limits on a party’s rights with respect to transfer and acquisition of interests in the oil and gas leases in the Contract Area. Form 610-1989 also provides for identification and drilling of an Initial Well as well as proposals for drilling of subsequent wells. The form further explains the process for each non-operator to opt in or out of subsequent drilling.
For a more in depth look at JOA’s, or a course providing a fuller understanding, contact the state bar for your particular state, the AAPL, or your local Landman Association.
