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1 (09) AAPL CPL
AAPL CPL Chapter 9 Joint Operating Agreement
| Question | Answer |
|---|---|
| Burdens in excess of the fraction inserted must be borne by the party who contributed the lease. True or False | True |
| Subsequently created interests are any burdens not listed on Exhibit A or the JOA even if the interests are of record when the JOA was signed. True or False. | True |
| Are TITLE OPINIONS required prior to drilling? | Yes, by an attorney is required on the drill site tract. |
| May the operator use staff attorneys to examine title? | Yes, however the operator may NOT charge for staff attorneys. |
| What is our indication that title has been approved for drilling? | The PARTIES MUST AGREE that title is good enough to drill. |
| Is it ALWAYS best to modify Joint Operating Agreement to provide that ALL losses shall be joint losses? | No. If you have great title and are suspicious of the your partners title, then LEAVE IT AS IS. |
| The JOA is written to provide for individual loss regarding title failure. If your title fails, can you recover any of your previous expenditures? | Yes, DRILLING RELATED COSTS, out of production of YOUR SUCCESSOR in interest. |
| Does the operator have full control over operations? | Yes, but only as defined in the OPERATING AGREEMENT. The operator is clearly in full control as to drilling and testing operations. |
| Is the removal of an operator easy if all of the operators are in agreement? | No. Very, very difficult absent gross negligence or willful misconduct. |
| OPERATING AGREEMENT commit signers to the drilling of the initial test well. Identifies Operators and Non-Operators, The operator is in charge of day-to-day operations. | Yes |
| Is there a number to the number of wells that may be proposed at one time (or in a time frame) under the subsequent operations paragraph? | No. You may want to add such provision, "no well may be proposed hereunder within 90 days of completion of the previous well except... |
| Is an AFE required to propose drilling operations (subsequent to the initial well)? | No, but it is an industry practice. Just remember the clock starts when you receive paper notice - with or without AFE (Authorization for expenditure). AFE is a cost ESTIMATE. |
| JOA also provides for: | A) Well Information to furnish to the non-operators, including non-consenting non-operators are entitled to access to Contract Area and to well information for all operations. |
| JOA also provides for (in certain instances): | Establishes restrictions on a party desiring to sell its interest. The maintenance of uniform interest and preferential right provisions that most often impact a party's ability to sell or transfer its interest. |
| Does the COST ESTIMATE included with a PROPOSED OPERATION constitute a limitation of the amount the operator can spend conducting the operation? | No. |
| If a party is non-consent, must the consenting parties pick up their share of the non-consent? | No. |
| If the consenting parties DO NOT agree to pick up the interest non-consented, is the well canceled? | Yes. |
| Is the operator OBLIGATED to commence approved drilling orations? | No. Since the agreement states the well may be re-proposed if its not timely commenced, there MUST be NO hard obligation. |
| Does the operator operate the drilling of a well in which the operator has non-consented? | Consenting parties choose YES or NO. |
| If you go non-consent at the casing point, do you retain plugging and reclamation liability? | A.) Yes on the 1989 JOA form. B.) Yes/Maybe on the 1982 JOA form. |
| Does the operator operate a successful well (after completion) in which the operator non-consented? | Yes. |
| May an operator conduct RECOMPLETION operations without approval of all the parties if the estimated costs are within the "limitation of expenditure" amount? | No. "Limitation of Expenditures" does not apply to recompilations, just day to day "other operations." |
| What are the typical NON-CONSENT PENALTIES? | 100% (as written in the form) for new surface equipment and 300% for drilling and completion costs. The riskier the well, the more expensive. |
| Does non-consent, as to Zone B completion, keep you out of a later completion in Zone C? | No. You are entitled a separate election for EACH separate completion or recompletion operation. |
| Do non-consent parties have access to drilling/completion/production information? | Yes |
| Do non-consent parties have a right to take over a well before plugging? | Yes. Provided they PARTICIPATED in the drilling of the well. |
| May a well be plugged and abandoned without approval of all parties? | No. |
| May a party "ESCAPE" from an ergonomically questionable well (still producing)? | Yes. |
| Consent to drilling, using the commonly chosen option # 2, is only consent to participate to casing point? | True. |
| The CASING POINT ELECTION allows non-operators to have input as to the completion program. True or False. | False. This is when the OPERATOR is in control. Non-operators have the option to consent to the completion attempt or go non-consent. |
| Surrender of leases in the contract area REQUIRES consent of ALL parties. True or False. | True |
| If ALL parties do NOT participate in the renewal of a lease in the contract area, the renewal lease shall not be subject to the OPERATING AGREEMENT. True or False. | True. |
| The maintenance of UNIFORM INTEREST generally prohibits the sale of partial interests in less than 100% of the contract area, BUT is widely ignored and thought by some to be unenforceable. True or False. | True. |
| The preferential right to purchase allows parties to the JOA to match most offers from third parties to buy interests in the contract area. True or False. | True. |
| If a party defaults on its payments to operator, the remaining, non-defaulting parties may be required to pay their proportionate share of the default amount to operator. True or False. | True. |
| Is the term of the JOA for the life of any lease committed to the contract area? | Only if you choose option 1 (Article XIII) |
| GAS BALANCING AGREEMENTS provide for the equitable marketing of gas and are normally attached to the JOA. What are the normal make-up percentages allowed? | 25% to 50% |
| If no GAS BALANCING AGREEMENT is attached, the operator has the option but NOT THE OBLIGATION to market non-operator's gas. True or False. | True. |
| Acreage and cash contributions and option farmout agreements granted in support of any well drilled must be shared by ALL the Drilling Parties. True or False. | True. |
| What is the purpose of a JOA? | 1) Pools uncommitted Working Interest Owners into a unit. These units are generally the size of proration units, but unit can also be much larger. 2) Establishes the rights, duties, and obligations of the parties for conducting joint operations. |
| JOA Notes - Obligations of the parties for conducting joint operations. | A) Proposing Wells. B) Plugging Wells. C) Title Examination. D) Sale of Interests. E) Acquisition of Interests. F) Selling Production. |
| Typical Non-Consent risk penalty ranges from 300% to 500% and possibly higher. | True |
| May a producing well be recompleted in another zone without approval from all parties? | No. |
| May a party change its election to participate or not participate in a drilling operation prior to the commencement to such drilling operation? | No. There is no language that allows this. However, partners would let you change, depending on the circumstances. |
| There is NO cost overrun protection, absent modification to the JOA | True |
Created by:
MrCPL