(f)Withdrawal
In some cases, the consortium members might not be able to reach unanimous agreement as to which concession they wish to apply for jointly and/or upon the terms of the intended concession application. In such an event it is common for the JSBA to provide a process which results in a proposal being made, but where any parties not supportive of such a proposal can elect not to participate by withdrawal from the consortium. Where less than all the original parties participate, the participating interests in the proposal will require recalculation and each participating party will normally be allocated a greater participating interest than that which it had originally contemplated at entry into the JSBA, save for where third parties are introduced to the application (see above) in place of the non-participating parties so as to avoid the remaining parties increasing their respective stakes.
The parties to the JSBA should therefore recognise that it is possible that they may finish the bid process holding a greater participating interest than they originally started with. A party wishing to avoid such a situation must pay careful attention to the recalculation formula and should negotiate the JSBA to protect against this.
The timing of the ability of a party to exercise a right of withdrawal is an important consideration. Where a party wishes to withdraw from the JSBA in the period prior to the closing date for the concession award, it is normally important to keep that party bound by the exclusivity restrictions imposed upon it in relation to making other applications during the concession award round, and in relation to confidentiality.
The JSBA might also specify prohibited periods, in respect of which the withdrawal right cannot be applied (such as after the application for the award of the concession has been submitted).
(g)Default
The default provisions under the JSBA should operate such that if a member of the consortium defaults in the performance of the JSBA (such as by not paying its proportionate share of the joint study and/or bid costs), that default does not jeopardise the intended concession application for the other members of the consortium. In most cases, the default provisions are not dissimilar in effect to those which are found in a JOA (see Chapter 18). In the event of a default under the JSBA the operator will notify the default to all of the parties and the non-defaulting parties will make good the default amount. It is, however, prudent to adjust the default provisions in the JSBA so that in the event of a default prior to the closing of the concession award round, the defaulting party is obliged to remain a party to the JSBA, to support any application being made by the consortium, and to do all things required to support the award of the concession to the consortium (since it could be that the defaulting party is essential to the success of the consortium’s application in the eyes of the state).
It is therefore sensible to draft the default provisions such that only after the
concession award process has concluded will the defaulting party then forfeit its interest to the other consortium members, through a deemed withdrawal. This will also be without prejudice to the right of the other parties to make a claim for damages suffered in consequence of the acts or omissions of the defaulting party.
Once the business of negotiating the terms of the JOA has concluded, the parties will sign the JOA and will record in the JOA the date that is agreed to be the date upon which the JOA was so signed. This execution date will appear in the opening paragraphs of the JOA, but this will not actually be the date upon which the JOA will become effective if there are any conditions precedent to the effectiveness of the JOA that have to be fulfilled (see below).
If for any reason the JOA is not ready to be signed by the parties on the same day that the concession is executed, then the parties can always sign the JOA with a later execution date, but they can also record their agreement that the JOA is deemed to have come into force on the earlier date that is the execution date of the concession.2
This approach is possible where the concession is granted to multiple parties at the outset, where those same parties will be party to both the concession and the JOA. This approach will not be appropriate, however, where the concession is initially granted to a single party and the JOA becomes necessary only later when another party is admitted to the concession. To suggest that the JOA would be deemed to have been effective back to the date on which the concession was originally granted to the first party would be too much of an artificiality, and would cause the incoming party to be concerned about the allocation of historical liabilities that might have arisen in that intervening period.
The alternative option for timing the execution of the JOA is to agree that the parties will sign the JOA in advance of the award of the concession, and that the JOA will specify a condition precedent to its effectiveness (notably, that the concession is granted to the parties, with acceptable commercial terms, and is executed by the state and the parties as the holders of the concession). When the concession is granted and is executed then this condition precedent will have been fulfilled and the JOA will automatically become live and effective between the parties.
A further condition precedent that might be considered for insertion into the JOA is one relating to the approval of the terms of the JOA by any state agency that has such responsibility, where the terms of the prevailing petroleum law or of the concession so require, although as a practical measure the draft of the proposed JOA can be so approved before the JOA is actually signed by the parties, so that the condition precedent will not be necessary.
The term ‘effective date’ is sometimes used to describe the date on which any conditions precedent to the effectiveness of the JOA have been satisfied (or waived by the person for whose benefit the condition precedent is expressed to apply), such that the JOA then becomes fully unconditional and effective. Paradoxically, the AIPN JOA uses the term ‘effective date’ to mean the execution date (see above).
The insertion of a condition precedent into any commercial agreement inevitably introduces a measure of uncertainty and for that reason the JOA should be careful to limit the number and scope of the conditions precedent that it imports.
Once the door has been opened to the introduction of a condition precedent in respect of the execution of the concession, there may be a temptation for the parties to consider inserting other conditions precedent to the effectiveness of the JOA (such as the securing by a party of any financing that might be necessary to enable that party to meet the costs of performing its obligations under the concession and the JOA, or the agreement of outline terms for the sale and/or transportation of any resultant quantities of produced petroleum, or the delivery of legal opinions regarding certain aspects of the JOA). These additional conditions should be resisted, not least since they are unlikely also to appear as conditions precedent to the effectiveness of the concession and so they should not appear in the JOA for the sake of consistency.
The AIPN JOA makes no provision for the introduction of any conditions precedent to the effectiveness of the JOA. Rather, the AIPN JOA assumes that the parties have already entered into the concession, and that the JOA will have effect from the date of its execution.3 Neither does the OGUK JOA include an express conditions precedent formulation. Rather, the OGUK JOA assumes that the concession has been granted