In the midst of the COVID-19 pandemic and plummeting oil prices, oil and gas operators are living through one of the most capital-constrained environments in memory. These developments, on top of what were already short-of-ideal conditions for oil and gas E&P companies, will force operators to confront not only their own capital shortfalls, but also those of their co-working interest owners. Given these conditions, operators and non-operators alike would be well served to review the particular pressure points under the 1989 A.A.P.L. Model Form Operating Agreement ("1989 JOA") in light of a cash-strapped environment, in particular: (i) the provisions in relation to liens on the parties' interests in the contract area, (ii) the other remedies provided to address a default by a working interest owner, (iii) other possible commercial resolutions to address a party's desire to delay or minimize capital expenditures, and (iv) the impact of the "Other Operations" clause on an operator's ability to conduct repairs and expend funds not directly related to drilling operations. This paper sets forth key considerations with respect to the above as a primer on such points.
Read "Operating Alongside Cash Strapped Co-Working Interest Owners."
Originally published May 21, 2020
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