E&P field development projects are not always commercially viable – what happens when partners disagree?
International Arbitration, Middle East and Africa
After the consortium members of an Exploration & Production (E&P) field development project determined the project was commercially unviable, one partner filed a claim challenging the decision. We evaluated cost studies, development plans, and the decision-making process to assess the adequacy of exploration and appraisal work necessary to inform a risk-based decision on commercial viability. In addition, Baker & O’Brien prepared an expert report detailing the essential phases of E&P development projects and provided opinions on this project's technical and commercial aspects.
Exploration & Production (E&P) field development projects in the oil and gas industry typically involve multiple consortium members (equity partners) bound together under a Joint Operating Agreement (JOA). The JOA governs the consortium members' rights and responsibilities, including the Operator's appointment. Industry-standard JOAs provide:
- The use of Management Committee Meetings, Operation Committee Meetings, Technical Committee Meetings, and Financial Committee Meetings to establish forums for all partners to be involved with the field development and planning details;
- Opportunities for partners to present concerns or grievances as a field development progresses and the authority to remove/replace the Operator in situations of material breach(es);
- A voting structure for partners to decide on key investment decisions like committing more funds for additional exploration and appraisal work and declaring the commercial viability of a field development project.
Baker & O’Brien was engaged to review an E&P field development project where a minority JOA partner filed a claim against other JOA partners, including the Operator, for declaring the project commercially unviable. The critical issue was whether sufficient exploration and appraisal work had been carried out to make a risk-managed decision to fund additional work programs and continue with the field development project.
As part of our analysis, we reviewed the exploration and appraisal work carried out by the Operator, including cost studies, development plans, and minutes from the different committee meetings. Based on our analysis, we submitted an expert report explaining the critical phases of E&P development and opined on the technical and commercial aspects of the field development project.
John R. Rayne
- Oil & Gas Production
- Standard of Care / Commercial Contracts / Project Feasibility / Expert Witness Testimony / Arbitration / Offshore / Commercial Terms Review
- Middle East and Africa