Investors' operating agreement under production sharing agreements

If the participants in a production sharing agreement are two or more investors, they must appoint one investor from among themselves - the operator of the agreement - to represent their interests in relations with the state.

For this purpose, investors are required to conclude an operating agreement (hereinafter referred to as the operating agreement) that regulates the relations between the operator of the transaction and other investors.

An operating agreement is not a joint venture agreement.

The purpose of an operating agreement is to create, acquire, dispose of, write off or liquidate property, conduct tender procedures, account for and distribute hydrocarbons, finance a participating interest for another investor, and finance obligations under a production sharing agreement.

The emergence of rights and obligations of the parties under operating agreements is due to the implementation of oil and gas activities.

At the same time, an operating agreement should not be considered a long-term contract.

The relationship between the parties under the operating agreement is based on a participation share in accordance with the appropriate share of produced hydrocarbons (compensatory, profitable hydrocarbons).

With the consent of the operator of the transaction (the main investor), a party to the operating agreement may transfer property, including equipment and materials, which it owns by right of ownership or other right, applied against obligations to pay payment claims or finance obligations.

Each party to the operating agreement is responsible for preparing its own accounting and tax reports (declarations) regarding activities related to production sharing agreements.

The provisions of the operating agreement do not limit the possibility of corrections, including because of audits or inventories.

In the operating agreement, the parties act at their own risk.

The operator (main investor) ensures risk management under the operating agreement.

In practice, the operator under operating agreements does not receive any remuneration, including neither profit nor loss.

Losses due to claims of third parties arising in connection with the operator's performance of obligations under the agreement are compensated by each party in a share proportional to the share of such party's participation.

In the event of failure by the investor to fulfill his obligations, the transaction operator sends a payment demand in the form of a notification of additional payments.

The parties to the operating agreement instruct the operator to sell (realize) each party's appropriate share of the produced hydrocarbons and to adjust transfer actual revenue.

The operating agreement shall be terminated in the following cases:

1) the expiration of its term.

2) if there is only one investor left under the operating agreement.

3) in the event of withdrawal from the concluded production sharing agreement.

4) unilateral termination of the production sharing agreement.