THE A.A.P.L MODEL FORM OPERATING AGREEMENT

Transcription

1 THE A.A.P.L MODEL FORM OPERATING AGREEMENT AN OVERVIEW AND LEGACY CONSIDERATIONS Presented by: Brent Chicken Partner Fox Rothschild

2 ROADMAP Overview of the A.A.P.L Model Form Operating Agreement Typical additions addressing modern horizontal well oil and gas exploration and development

3 MODEL FORM JOA STRUCTURE Five Main Model Form JOA Parts Title page Table of contents Preamble Articles Additional provisions in Article XVI (special provisions)

4 ACCURATE COMPLETION OF MODEL FORM JOA There are numerous blanks to fill-in and options to choose from Each option has a proper application and potential operational and legal consequences

5 MODEL FORM JOA: TITLE PAGE Date: Insert an effective date for the Model Form JOA, which should be earlier than the date inserted in Article VI.A (Initial Well) Operator: Insert proper legal name and verify consistency with operator named in Preamble and Article V Contract Area: Insert legal description of the lands covered by Model Form JOA

6 A good quick reference guide MODEL FORM JOA: TABLE OF CONTENTS

7 MODEL FORM JOA: PREAMBLE Properly identify the operator of the Contract Area by full and correct name

8 MODEL FORM JOA: ARTICLE I Definitions

9 MODEL FORM JOA: ARTICLE II Model Form JOA Exhibits There are eight (8) exhibits included in the Model Form JOA, in a check-box format Model Form JOA Exhibit A Identification of lands, wells and/or substances covered, including depth or formation restrictions Names, addresses & other contact information of parties

10 MODEL FORM JOA: ARTICLE II (CON T.) Model Form JOA Exhibits (cont.) Model Form JOA Exhibit B A form oil and gas lease to be used for acquisition of leasehold interests covering unleased minerals in contract area

11 MODEL FORM JOA: ARTICLE II (CON T.) Model Form JOA Exhibits (cont.) Model Form JOA Exhibit C Council of Petroleum Accountant Societies ( COPAS ) accounting procedure

12 MODEL FORM JOA: ARTICLE II (CON T.) Model Form JOA Exhibits (cont.) Model Form JOA Exhibit D Covers insurance matters between parties Model Form JOA Exhibit E Gas balancing agreement

13 MODEL FORM JOA: ARTICLE II (CON T.) Model Form JOA Exhibits (cont.) Model Form JOA Exhibit F Certification of non-discrimination and non-segregation of facilities Model Form JOA Exhibit G Tax partnerships

14 MODEL FORM JOA: ARTICLE II (CON T.) Model Form JOA Exhibits (cont.) Model Form JOA Exhibit H Miscellaneous additional exhibit(s)

15 MODEL FORM JOA: ARTICLE III Interests of Parties Article III.A: Oil and Gas Interests Designed to impose Exhibit B oil and gas lease terms on mineral interests owned by Model Form JOA parties

16 MODEL FORM JOA: ARTICLE III (CON T.) Interests of Parties (con t.) Article III.B: Interests of Parties in Costs and Production Designed to provide proceeds distribution and burden predictability and limits Provides basis for treatment of interests acquired by Model Form JOA parties subsequent to the effective date

17 MODEL FORM JOA: ARTICLE IV Titles Article IV.A: Title Examination Provides requirements for acquisition of Contract Area attorney s title opinion and allocation of costs for the same Article IV.B: Loss or Failure of Title Provides the procedure for identifying and handling title defects

18 MODEL FORM JOA: ARTICLE V Operator Article V.A: Designation and Responsibilities of Operator Again provides the proper name of the operator designated on the Model Form JOA Title Page and Preamble Provides basis for reasonably prudent operator duties and obligations, and the standard(s) for the same

19 MODEL FORM JOA: ARTICLE V (CON T.) Operator (con t.) Article V.B: Resignation or Removal of Operator Provides procedure for operator resignation Provides basis and procedure for operator removal Provides procedure for selecting successor operator Article V.C: Employees and Contractors Expressly allows operator control over the selection, labor and compensation of employees

20 MODEL FORM JOA: ARTICLE V (CON T.) Operator (con t.) Article V.D: Rights and Duties of Operator Sets forth the specific duties and rights of operator, both operationally and contractually

21 MODEL FORM JOA: ARTICLE VI Drilling and Development Article VI.A: Initial Well Provides for insertion of the anticipated date for commencement of initial well operations, legal description of the exact well location and target subsurface formation

22 MODEL FORM JOA: ARTICLE VI (CON T.) Drilling and Development (con t) Article VI.B: Subsequent Operations Provides the procedure by which operations beyond the initial well are to be proposed and conducted Provides the procedures when not all Model Form JOA parties elect to participate in a given operations proposal

23 MODEL FORM JOA: ARTICLE VI (CON T.) Drilling and Development (con t) Article VI.B: Subsequent Operations (con t.) Provisions also address stand-by costs and operational order preference Article VI.C: Completion of Wells Provisions address the scope of a Model Form JOA party s election to participate in a proposed operation Article VI.D: Other Operations Contains provisions limiting the costs operator can expend on nondrilling operations

24 MODEL FORM JOA: ARTICLE VI (CON T.) Drilling and Development (con t) Article VI.E: Abandonment of Wells Provides detailed procedures for the abandonment of wells Article VI.F: Termination of Operations Allows the parties to set minimum ownership percentages for termination of operations Article VI.G: Taking Production in Kind Provides options for dealing with gas imbalancing issues

25 MODEL FORM JOA: ARTICLE VII Expenditures and Liability of Parties Article VII.A: Liability of Parties Provides basis of the legal relationship between the parties Article VII.B: Liens and Security Interests Provides the parties with the necessary rights to assert real and personal property liens to secure payment of operations costs Article VII.C: Advances Provides the operator with the ability to cash call non-operators provided certain requirements are met

26 MODEL FORM JOA: ARTICLE VII (CON T.) Expenditures and Liability of Parties (con t.) Article VII.D: Defaults and Remedies Available in addition to the lien and security interest provisions of the Model Form JOA, provides the mechanisms through which the parties may recoup costs from breaching parties Article VII.E: Rentals, Shut-In Well Payments and Min. Royalties Provides direction as to the obligations of the parties to pay these costs and receive information regarding the same Article VII.F: Taxes Provides obligation for operator to pay taxes

27 MODEL FORM JOA: ARTICLE VIII Acquisition, Maintenance or Transfer of Interest Article VIII.A: Surrender of Leases Provides mechanism for how oil and gas leases are surrendered and the procedure for the same being taken over by other parties Article VIII.B: Renewal or Extension of Leases Provides mechanism for how oil and gas leases are to be renewed and/or extended Article VIII.C: Acreage or Cash Contributions Provides procedure for situations where a party is receiving third party funds or leasehold/mineral interests that will fall under the parties agreement Article VIII.D: Assignment & Uniform Interest Maintenance Provides requirements for interest assignment and limitations on same

28 MODEL FORM JOA: ARTICLE VIII (CON T.) Acquisition, Maintenance or Transfer of Interest (con t.) Article VIII.E: Waiver of Partition Rights Prevents parties owning undivided interests in committed assets from seeking partition of the same at common law Article VIII.F: Preferential Right Requires parties to offer interest being sold to third party to other Model Form JOA parties first

29 MODEL FORM JOA: ARTICLE IX Internal Revenue Code Election Provides additional tax obligations and rights for operator

30 MODEL FORM JOA: ARTICLE X Claims and Lawsuits Provides operator with right to settle claims without approval of non-operators, up to a dollar amount set by parties in this provision

31 MODEL FORM JOA: ARTICLES XI & XII Force Majeure Covers those matters which will be considered to stay the performance of the parties respective Model Form JOA duties and obligations Notice Provides specific procedures for giving required/allowed notices to other Model Form JOA parties

32 MODEL FORM JOA: ARTICLE XIII Term of Agreement Provides two (2) options for the term of the Model Form JOA

33 MODEL FORM JOA: ARTICLE XIV Compliance with Laws and Regulations Articles XIV.A-C: Laws, Regulations, Orders, Governing Law & Regulatory Agencies Requires full and timely compliance with all applicable laws and regulatory orders by operator, and makes Model Form JOA subject to the same

34 MODEL FORM JOA: ARTICLE XV Miscellaneous Articles XIV.A-C: Laws, Regulations, Orders, Governing Law & Regulatory Agencies Requires full and timely compliance with all applicable laws and regulatory orders by operator, and makes Model Form JOA subject to the same

35 MODEL FORM JOA: ARTICLE XVI Other Provisions Designed to allow Model Form JOA parties to insert specific/controlling additional terms

36 MODEL FORM JOA: HORIZONTAL DRILLING EDITING The Model Form JOA does not address horizontal drilling operations Modifications and additions are often made if horizontal drilling is contemplated 36

37 MODEL FORM JOA: HORIZONTAL DRILLING EDITING (CON T.) Article I Definitions Updated to include horizontal drilling references and language AFE: Include directional drilling costs Deepen, Sidetrack and Plug Back: Include language to address horizontal drilling differences Drillsite: Include surface and bottomhole locations 37

38 MODEL FORM JOA: HORIZONTAL DRILLING EDITING (CON T.) Additional Article I Definitions Lateral: The horizontal segment of the wellbore where the wellbore deviates from a vertical orientation Horizontal Well: May cite to statutory or regulatory definition of particular state, if available 38

39 MODEL FORM JOA: HORIZONTAL DRILLING EDITING (CON T.) Additional Article I Definitions (con t.) Multi-Lateral Well: A horizontal well containing more than one lateral from the same wellbore radiating in different directions or targeting different subsurface formations (definition should express the objective formation) Total Measured Depth: The vertical depth of the wellbore combined with the length of the lateral segment of the wellbore Vertical Well: A well drilled, completed or recompleted other than a horizontal or multi-lateral well 39

40 MODEL FORM JOA: HORIZONTAL DRILLING EDITING (CON T.) Article IV Titles Drillsite: Title examination must cover entire DSU 40

41 MODEL FORM JOA: HORIZONTAL DRILLING EDITING (CON T.) Article V Rights and Duties of Operator Information: Prevent non-consenting party receipt 41

42 MODEL FORM JOA: HORIZONTAL DRILLING EDITING (CON T.) Article VI Drilling and Development Initial Well: The surface location, depth and horizontal depth should be provided Completion of Wells; Reworking and Plugging Back: Option 1 should be checked if drilling horizontal wells 42

43 MODEL FORM JOA: HORIZONTAL DRILLING EDITING (CON T.) Article VI Drilling and Development Non-Consent Penalty: Appropriate penalty given planned operations Completion of Wells; Reworking and Plugging Back: Option 1 should be checked if drilling horizontal wells 43

44 MODEL FORM JOA: HORIZONTAL DRILLING EDITING (CON T.) Article VI Drilling and Development Relinquishment: May be used in place of or in conjunction with nonconsent penalties Farmout: May also be used to curb non-participation 44

45 MODEL FORM JOA: HORIZONTAL DRILLING EDITING (CON T.) Article VI Drilling and Development Deepening: Similar to vertical recompletion Sidetracking: Vertical and horizontal wellbores considered one operation 45

46 MODEL FORM JOA: HORIZONTAL DRILLING EDITING (CON T.) Article XVI Special Provisions Priority of operations regarding horizontal wells A list of elections regarding the priority of further operations in the event of non-consent may be included 46

47 It is vital to: CONCLUSION / Q&A Pay close attention to accurate completion of each section of the Model Form JOA Consider additions if horizontal drilling is contemplated

48 Brent D. Chicken Partner Fox Rothschild LLP th St., Ste Denver, CO