1. Companies A and B (the parties) set up a separate vehicle (entity H) and a Joint Operating Agreement (JOA) to undertake oil and gas exploration, development and production activities in country O. The main feature of entity H’s legal form is that it causes the separate vehicle to be considered in its own right (i.e. the assets and liabilities held in the separate vehicle are the assets and liabilities of the separate vehicle and not the assets and liabilities of the parties). Country O has granted entity H permits for the oil and gas exploration, development and production activities to be undertaken in a specific assigned block of land (fields). The shareholders’ agreement and JOA agreed by the parties establish their rights and obligations relating to those activities. The main terms of those agreements are summarized below. Shareholders’ agreement The board of entity H consists of a director from each party. Each party has a 50 per cent shareholding in entity H. The unanimous consent of the directors is required for any resolution to be passed. Joint Operating Agreement (JOA) The JOA establishes an Operating Committee. This Committee consists of one representative from each party. Each party has a 50 per cent participating interest in the Operating Committee. The Operating Committee approves the budgets and work programmers relating to the activities, which also require the unanimous consent of the representatives of each party. One of the parties is appointed as operator and is responsible for managing and conducting the approved work programmes. The JOA specifies that the rights and obligations arising from the exploration, development and production activities shall be shared among the parties in proportion to each party’s shareholding in entity H. In particular, the JOA establishes that the parties share: 

a) the rights and the obligations arising from the exploration and development permits granted to entity H (e.g. the permits, rehabilitation liabilities, any royalties and taxes payable); 

b) the production obtained; and

 c) all costs associated with all work programmes. The costs incurred in relation to all the work programmes are covered by cash calls on the parties. If either party fails to satisfy its monetary obligations, the other is required to contribute to entity H the amount in default. The amount in default is regarded as a debt owed by the defaulting party to the other party. Instructions Give detail analysis to determine whether the above arrangement is a joint venture or joint operation. NB saying only a joint venture or joint operation does not entitle you unless you support your choice with deep analysis and justification for why you selected that

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Answer It is a joint operation The reason is The key distinction between a joint operation and a joi... View the full answer