Charez Golvala

licence and may be limited to other types of projects. If at a later date a nonconsenting party wishes to rejoin that part of the venture, it will normally have to
buy its way back in by picking up its share of the cost, commonly together with some
sort of time-based additional charge. Sole risk clauses are also limited to certain types
of projects depending on the phase of development of the field overall. The operator
will usually operate a sole risk project, particularly if joint property is used, and there
will be provisions to ensure that joint operations take priority. As with non-consent,
there will be penalties for rejoining the venture at a later time, commonly based on
a multiple of the original cost. Buying back into the venture at a multiple effectively
represents a risk premium to the sole risk parties which can be paid from cash or
production or a mixture of both. Finally, provisions for dealing with the sole risk area
when liaising with regulators and third parties will be included in the joint operating
agreement.
Sole risk and non-consent provisions are not universal in joint operating
agreements and in practice are often used as a means of leverage in negotiation
rather than for the practical operation of the field. They are useful as a hedge against
changing circumstances but need to be carefully reviewed so that, if used in practice,
they do not create more harm than good.
3.3

Leaving the joint venture withdrawal and default

There are normally three ways in which a party can leave a joint operating
agreement. A party may choose to transfer its interest, withdraw from the joint
venture completely or, in circumstances where a party is in default of its obligations,
compulsorily forfeit its interest in the joint operating agreement. Forfeiture is the
ultimate price paid for failure to contribute a percentage interest share of the cost of
the joint venture. The consequences of default usually escalate over time, beginning
with the party losing all rights under the joint operating agreement a period of time
after the default has occurred. For as long as the default continues, a party in default
will not receive information, be entitled to attend and vote at joint operating
agreement meetings or take its share of petroleum. A defaulting party will have the
right to make good its default within a period of time and will usually have to pay
interest (sometimes at a high rate) on the amount overdue. If the default continues
for a further specified period, the defaulting party may be obliged to forfeit its
interest under the joint operating agreement and transfer that interest to its coventurers.
If one party is in default, the other parties to the joint operating agreement will
be required to pay the sums in default, each in the proportion that its percentage
interest bears to the total of the non-defaulting parties percentage interests. Any
failure to pay these additional sums is normally treated as a default itself. Upon a
defaulting party forfeiting its rights, co-venturers will have the right to acquire the
defaulters interest in the proportion that their percentage interests bear to the total
percentage interests of those parties exercising their right to acquire. Those parties
continuing with the joint venture are unlikely to want to take up the withdrawing
participants interests if those interests are subject to an encumbrance (such as net
production interests or overriding royalties) and may wish to renegotiate other

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