Selling an operated asset brings the traditional list of concerns and due diligence items, with none being more contentious and interrelated to the Buyer’s ultimate ability to operate that asset than the Joint Operating Agreement (“JOA”).

Unfortunately, with many legacy assets, an Operator may be operating with an outdated form of JOA or, even worse, no JOA at all. As a result, many times during the sales process, we face the unenviable task of negotiating or renegotiating the JOA alongside the sale.      

Some key considerations during this process include:

(1) Does the existing JOA adequately allow for the development of the assets under modern exploration techniques, or for instance, will it need to be reworked for horizontal development or a waterflood?

(2) Does the Subsequent Operations language allow for continued development for the successor Operator/Buyer, or was this language drafted in a threadbare fashion decades ago? and

(3) Does the Removal of Operator language adequately protect the successor Operator/Buyer, or was it drafted with the concept of the non-operating parties being close business partners with the Operator?

As the successor Operator/Buyer who is standing in the shoes of the Seller after acquiring the operated asset, careful attention and detail will have to be paid to each and every provision of the JOA. Moreover, the Buyer may want some limited contact with the non-operating parties to understand their willingness to allow for an amended JOA that is more protective of the prospective Buyer’s rights prior to closing.   

It is critical that a Seller provide both a summary of important JOA terms, along with a complete and executed copy with all exhibits, including the COPAS. The Seller should also be willing to address any concerns to assure prospective Buyers that their operations are feasible under the existing terms of the JOA or that an amendment is possible in the event of uncertainty regarding a specific issue.

RR&A is experienced in helping to analyze and improve complex JOAs as part of the sales process to assuage the parties that they’re entering into the transaction with a correct understanding of their respective rights and obligations under the terms of these agreements. We possess the requisite experience and dealmaking expertise to help guide a Seller through all the traditional Buyer concerns and work pragmatically to explain or amend existing JOA language as part of that process. Contact us today to help you with your transaction!