'It's a Good Starting Point'

Paul Morton, Associate (Solicitor), Herbert Smith Freehills, explains model oil and gas contracts and how beneficial they can be.

What are model oil and gas contracts?

It is a template agreement that provides a starting point for the negotiation of the most standard contract required in the upstream oil and gas industry. The model contracts are not finished products. If you look at the model form contracts themselves even in their drafting, it provides for different alternative clauses, different optional provisions depending on how the parties want to structure the projects. It is up to the parties to take the model contract and tailor them to the particular needs of their project. There is a huge diversity of oil and gas projects and so the documentation of the model form needs to be flexible to be adaptable to those different kinds of projects.

The contract serves as a template or a starting point for most common contracts that are required to put in place petroleum projects whether in Cameroon or in the United States.

For instance, you will always have gas transportation and gas sales agreements etc. What the International Association for Negotiating Petroleum Contracts (AIPN) is doing is to provide a template for these types of contracts. They are more reformed contracts so that when you start negotiating about a particular project, you will then take it as a starting point and tailor to a particular project and to the particular negotiating positions of the different parties.

What is needed to come up with this model contract?

The model contract takes a lot of time to prepare. For instance, the model form joint operating agreement which is commonly used in the upstream oil and gas industry had a version of it which came out in 2002 and until 2012; there were regular meetings and workshops to develop a revised version of that which came out in 2012. So, there is a lot of time that is devoted by members of AIPN whose representatives come from Law Firms, Petroleum Industries, governments and national oil companies. It is opened to members of the AIPN to participate in the drafting committees of the model contracts.

What are the advantages to a country like Cameroon aspiring for emergence?

It gives you a very good starting point among the players in the oil and gas industry. If you have stakeholders whether they are AIPN companies or government that may come from different countries and may have different legal cultures, it gives a common starting point for what becomes an industry norm position. It saves a lot of time in negotiating contracts. If you were to imagine having to negotiate gas sales or transportation agreements or even a joint operating agreement from square one, it would take a lot of time to get to a position whereby the investor or the international oil company is comfortable that they know what their rights and obligations are as well as the sponsor. Most of the stakeholders in the oil and gas industry are quite familiar with the AIPN model form and so if you have to negotiate a joint operating agreement, it would be a much easier process because there is a starting point where everyone is already familiar on what the basic positions are. You also have to negotiate individual provisions to be adapted to the project and there will be different considerations for different projects but it gives you a good starting point and saves a lot of time.

Which are some difficulties often encountered in negotiating oil and gas contracts?

It is just like any other contractual negotiations wherein different parties would have different interest. That is the underlying basis of any joint venture or of any business transaction. Reason why gas sales agreements would be in place for 20, 30 years. These are long-term contracts with a lot at stake for all the parties.

What justifies the holding of the Yaounde workshop?

There is a long tradition of holding model form workshops which seek to explain the reasons behind model forms, where they come from and how they work with the aim of broadening the base of understanding among stakeholders in the oil and gas industry. We have not many of such sessions in Sub-Saharan Africa. Nigeria has had sessions in the past but in Francophone Africa, there has never been one of these model form sessions. For that reason, there is a great desire to take that first step. Reason why we are in Yaounde.