Who can speak to the Regulator when Participants disagree

The High Court was recently asked to grant an interim injunction in a case where the non-operator participant in an oil and gas JOA, not being comfortable with the operator’s decisions, wished to communicate with the government regulator directly. The case raises an interesting question about who can speak to the regulator when participants in a JOA disagree.

Facts

The Joint Operating Agreement (JOA) between EurOil and CAMOPi stated that decisions were to be taken by a management committee consisting of a representative from each party. The Production Sharing Contract (PSC) provided for an operating committee consisting of a representative from the Contractor Group (which EurOil filled as Operator, being responsible for implementing decisions made by the management committee under the JOA) and a representative from the Cameroon State.

EurOil wished to move from the exploration phase of the PSC to the development and exploitation phase, and had prepared the necessary application. CAMOP had reservations about both the plan and EurOil’s capability to deliver it, although it agreed at the management committee on 3 January 2014 that the development plan should be submitted to the Government. CAMOP wrote to the Cameroon State oil regulator (Societe Nationale des Hydrocarbures (SNH)) on 4 January 2014 expressing its reservations and concerns.

Issues

The JOA contained very similar provisions to the Oil and Gas UK Model Form JOA clause 6.6ii, with the additional provision that EurOil should lead discussions with the Government in any meetings. On that basis, EurOil submitted that CAMOP’s communication to SNH was in breach of the JOA and asked the court to prevent CAMOP from further written communications with the authorities, and from speaking at meetings with SNH, whilst it brought arbitral proceedings against CAMOP.

Decision

The court held that this matter should be decided by the arbitration tribunal and granted the interim injunction in the first hearing on 6 January 2014.

In the return hearing on 14 January 2014 however, the judge set aside the injunction and held that his initial decision to grant the order was incorrect given further evidence relating to previous correspondence between the parties and the government, which proved that this was part of ongoing dialogue between SNH and the parties in relation to joint operations.

Comment

This case grants a rare public insight into what can occur when a JOA relationship breaks down. The subject matter, that of approval of an expensive development programme and, underlying that, the fitness of EurOil as Operator, is one that often provokes significant points of difference between JOA partners, especially in respect of their interface with the relevant government department or national oil company.

It is not clear if the additional wording in the JOA in relation to the operator leading discussions with the government weakened EurOil’s case for its right to exclusive representation in discussions with SNH. However, JOA parties would be advised to seek advice in relation to their respective rights and obligations under a JOA before contacting a regulator to express a different view from that agreed in the Operating Committee or seeking to prevent another participant from doing so.

Transcripts of the hearings can be found here and here.

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i The Parties: (1) EurOil Limited (the Operator of the Etinde permit, offshore Cameroon); and (2) Cameroon Offshore Petroleum SARL (CAMOP) (the non-Operator), together the Contractor Group.

ii This clause states that the Operator shall represent the JOA partners in discussions with governments or third parties in relation to joint operations, with each JOA partner having the unfettered right to deal with the government in relation to its own percentage interest. This is very similar to the AIPN equivalent. The Operator must provide any material correspondence with government to the other JOA partners and inform them about any meetings with government or third parties where material matters are to be discussed. Any JOA partner is entitled to attend such a meeting. The Oil and Gas UK Model Form JOA requires, in addition, any material correspondence with governments to be provided to the other JOA partners in advance and consent from each JOA partner obtained as to the contents of such correspondence.