Joint Operating Agreements -- Current Issues

May 22, 2002

Introduction

The proposal for and conduct of operations are the primary souce of disagreement and litigation under AAPL Model Form Operating Agreement Form 610. This Model Form Operating Agreement has been in use in sustantially the same form since the first Form 610-1956. The AAPL Model Form Operating Agreement has been amended and revised several times to address some of the controversies arising under its terms, however, its construction and application continues to be a souce of controversy between operators and non-operators. Form 610-1989 is a 17-page document with detailed provisions for the drilling, operation and production of oil and gas wells. And yet, because of the complex nature of the activities covered by an operating agreement, an operating agreement cannot cover in detail every aspect of drilling, operation and production. Nor can an operating agreement executed in 1975 (or in 1989, for that matter), and still in effect today, anticipate all of the changes in technology and the changes in how the oil and gas industry conducts its business.

The purpose of this paper is to examine how both initial and subsequent operations are proposed and conducted under the terms of an operating agreement. Unless otherwise provided, references in this paper will be to the AAPL Model Form Operating Agreement Form 610-1989. An integral part of this analysis is an examination of the relationship between the Operator and the Non-Operators as it relates to authority and liability under the Model Form Operating Agreement Form 610. As part of this examination, this paper will analyze the issues raised in recent litigation concerning operations under the operating agreement.

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