INTRODUCTION

An authorisation for expenditure (AFE) is ‘ a form which is widely used in the oil and gas industry when wells are drilled by multiple parties ‘ that describes the proposed operation and estimates associated costs. AFEs play a role in most joint operating agreements; however, their importance varies significantly depending on a number of factors, including the relative bargaining strength of the parties, applicable law, and the requirements of the underlying granting instrument(s). Similarly, a work programme and budget addresses the proposed operations to be conducted by co-owners of hydrocarbon rights during a period of time and the estimated costs of those operations. In North America, AFEs generally play a more important role in determining the proposal and approval of, and budget for, operations. Outside of North America, AFEs typically work in tandem with work programmes and budgets to determine the identity, pace and cost of operations.

This distinction is indicative of (among other things) the philosophy that underlies the relationship of the parties to a joint operating agreement inside, and outside, of North America. The property ownership aspect of the North American exploration and production business, which is largely absent elsewhere, has generally resulted in joint operating agreements in which the parties surrender autonomy only to the minimum extent practicable. Outside of North America, there is generally a greater need for the co-owners of hydrocarbon rights to act in concert, and thus a more methodical approach to operations and contract awards. These general approaches are undoubtedly different (although, as noted below, the same basic result can be achieved using forms common to either approach), but the distinction between North American and non-North American joint operating agreements in this respect is more nuanced than is commonly supposed. A careful examination of a number of forms that are representative of their respective contexts, as well as actual agreements based on these forms, shows that the ‘ success ‘ of a system of operational proposals, budgeting and contracting should be judged as much on the ability of the system to thrive in its environment as on the ultimate results. In this light, the North American system has generally succeeded.