Balance needed in operating agreements

Dec. 11, 2000
Owing to delivery delays, I am rarely able to make timely comments on OGJ articles.

Owing to delivery delays, I am rarely able to make timely comments on OGJ articles. I am a Nigerian upstream consultant whose geological/engineering education and 25-year, preconsulting work experiences were with American institutions and organizations. For someone who had to pay (monetarily in school and, to euphemize, culturally at work) for acquired knowledge, the article by J. B. McArthur, et al., (OGJ, Oct. 23, 2000, p. 74) on Joint Operating Agreements (JOAs) vis-a-vis Joint International Operating Agreements (JIOAs) appears unjustifiable and inadvertently demeaning.

The main thrust of the article (that the American, operator-favoring JOA "so widely used in their domestic projects does not become the standard governance vehicle for their international projects") results from an expectation of operatorship becoming more vested in national and indigenous oil companies rather than the previous, and current, domination by multinationals. From the authors' concept, that "a deal's outer limits are determined by the parties' perceptions of fairness as well as their alternatives," one should conclude that what is good for the goose would also serve the gander. If JOSs have been perceived as equitable so far, there is little justification for the proposed revisions as a result of role reversals, provided that a lowering of operational standards (and therefore, increment of risks) is not involved.

Considering the article's citation of foreign enrollment in petroleum engineering graduate programs at the Universities of Texas and Texas A&M (probably representative of all such US schools), the latter caveat should be inconsequential. This is supported by similar trends for published enrollment statistics (e.g., the AAPG) in upstream geoscience disciplines. Unless American and other developed countries' universities now award degrees to foreign students without their fulfilling all requirements, there should be adequate foreign (meaning Third World?) manpower to ensure no lowering of operational standards.

In a fairly homogenous culture like the US, the innumerable parameters of both hydrocarbon habitats and exploitation make the inclusion of a variety of options necessary to the general JOA format. Operator-favoring aspects of JOAs can also be justified by the greater responsibility placed on the operator than on other stakeholders. Obviously, the JIOA format for a more-diversified international environment cannot be more specific than what had been obtained in JOAs. I believe that the onus of ensuring there are no loose ends (options in accounting, engineering, intra-party liabilities, etc.) lies with the parties to the agreement since no "single set of standards" can ever accommodate the variables of international upstream activities. As part of the industry's adaptations to a changed technological and business environment, the reality of technology transfer and morally defensible demands by nations for more direct control of their resources should be fully acknowledged.

K. M. O. Sagoe
E-gas Petroleum & Geosciences
Lagos, Nigeria