What is Joint Operating Agreement Drafting?
A joint operating agreement is a legal contract that explains how parties combine their resources and share the costs involved in managing and developing a shared asset or project. This type of contract is usually used in the oil and gas industry and energy projects.
It has to provide clarity on various aspects of their working arrangement, such as who will be in charge of daily operations and what funding terms apply.
Read the rest of this article to explore how to draft a joint operating agreement in detail, as well as how a qualified lawyer can assist you with the process.
What are Key Terms in a Joint Operating Agreement?
A joint operating agreement usually includes core information, such as the following:
- Scope. Explain what is involved in the agreement, what work will be conducted, and what activities are excluded.
- Interests. State each party’s share of costs, liabilities, and risks.
- Operatorship. This appoints one party or company to manage daily operations.
- Operating committee. This specifies the governing board for voting on major decisions.
- Defaults and remedies. You must specify what penalties apply if a partner doesn’t meet their defined duties.
- Cash calls. Explain when funds are required and how cash calls are calculated.
What are Tips for Drafting a Joint Operating Agreement?
Your joint operating agreement must clearly explain what the parties are responsible for and how to handle things that could go wrong during the agreement term. Here are some drafting tips to ensure a clear, comprehensive agreement.
Define the Agreement Scope
Make sure that there’s clarity and details about what the parties will try to achieve and identify the parties’ respective interests or participation percentages. Make sure the agreement scope is aligned with all other relevant documents, such as financing documents and shareholder agreements.
Explain the Operator’s Authority
An operator is someone appointed to run the daily activities and operations. The agreement should state how the operator is chosen and can be removed, as well as what specific activities they’ll complete. There should also be reporting obligations to ensure progress updates and operational reports are provided.
Outline Decision Making
The agreement should provide clauses about how the operating committee will make decisions, how frequently they should attend meetings and what voting thresholds there are for decisions. You should also consider how emergency decisions will be made and how deadlocks are handled.
Address Default and Remedies
If any obligations, such as those of a financial nature, aren’t met, the agreement should specify what happens. Outline what constitutes a default, such as failure to pay a cash call and breaches of the agreement terms. Explain remedies, such as charging penalties on overdue amounts. Make sure all remedies are aligned with the applicable laws.
Do You Need a Lawyer-Drafted Joint Operating Agreement?
Hiring a lawyer to draft a joint operating agreement for you ensures that it’s clear, defines how the parties will work together, and gives you peace of mind.
They’ll help you in various ways when drafting a joint operating agreement, such as by:
- Defining the roles and responsibilities of all parties. They’ll write clear, specific duties and obligations, avoiding any vague wording that could put you at risk.
- Establishing financial arrangements. They’ll explain exactly how costs, profits, and expenses are distributed and shared.
- Protecting the parties’ interests. This includes providing clauses that clearly achieve this, such as default remedies.
- Considering how disputes are handled. To prevent expensive legal conflict, a lawyer will set up clear dispute-resolution methods and procedures to quickly resolve disputes.
- Setting clear termination conditions. They’ll ensure you can end the agreement if required without surprise consequences.
- Ensuring legal compliance. A lawyer checks that all agreement terms are aligned with the applicable laws and regulations, preventing legal disputes.
- Providing clarification. A lawyer will answer your questions about any complex or unclear clauses in an agreement that the other party has drafted.
- Reviewing your contract. You can hire a lawyer to review a joint operating agreement you’ve already drafted, giving you peace of mind that it’s clear, detailed, and legally sound.
Where to Find a Lawyer for Joint Operating Agreement Drafting
If you want to hire a lawyer to draft a joint operating agreement, the process of finding a reputable one shouldn’t be a stressful or time-consuming endeavor. Use an online legal platform that makes it easy to connect to a range of lawyers who have experience in contract drafting and review.
ContractsCounsel is one of the largest online legal marketplaces that gives you access to a curated network of lawyers who have been vetted on the platform.
It’s easy to request that a lawyer on the platform drafts your joint operating agreement. Here are the steps to follow online:
- Go to the ContractsCounsel marketplace, where it’s free for you to post a request or project.
- Choose ‘One-time project’ and ‘Create or update contract.’ If you’re seeking a legal review of your agreement, select ‘Contract review’ instead.
- Post your project. Include some details of your contract or working arrangement so that you can match with the most suitable lawyers on the platforms.
- Wait for bids. Instead of searching for a lawyer, lawyers directly on the platform will send you multiple bids.
- Review the platform’s lawyer information. This includes the lawyers’ location, field of expertise, credentials, years of experience, and client ratings for previously completed projects on the platform.
- Select a lawyer who meets your requirements. You can hire them to draft your joint operating agreement for a flat fee.
