Responsibilities of the Contractual Obligations

Subject: Law
Pages: 5
Words: 1129
Reading time:
4 min
Study level: College


Global energy provision and the sustainability of development rely upon the production, supply and distribution of oil and gas – to a great extent. Due to the vital nature of this sector, there is a pressing need for changes: adapting to the changes in production, markets, locations and methods. These changes are in response to market changes and geopolitical uncertainties, thus the formulation of oil and gas laws, which govern the dynamics of production. Further, the lifecycle of oil and gas production requires interplay, cooperation and collaboration between different parties, thus the need for a complex contractual framework. This paper is a discussion of the resolutions to be established between three contracting parties, who have got into dispute over the responsibilities of the contractual obligations to one another. The paper will also present different judgments for the case – in the case the issues were judged on the basis of different contractual agreement legislation, namely 1989 AAPL and 2012 AIPN (Smith et al. 600-605).

Should the result in Seagull be different under the terms of the 1989 AAPL Operating Agreement?

The result from the case involving Seagull would have been totally different, if only it were to be argued out on the basis of the 1989 AAPL operating agreement guidelines. The case is largely, one that would be argued out on the basis of the clause on, Payment and accounting; remedies on default. According to the provisions of this guideline, the operator is supposed to pa the operating costs in a prompt manner, then pass the cost onto the non-operators. The costs should be allocated to each of these parties in accordance to their levels of interest or the expressly agreed upon provision within the “accounting procedure.” This procedure agreement is attached to the contractual agreement as “Exhibit C” to the operating agreement between the contracting parties. The operator, who, in this case is Seagull – is allowed to request for the payment of the costs in advance. In the aspect of recovering these costs from the non-operating agents, the operator is entitled to the following rights. These rights are exercised in the cases that the non-operators fail to meet their obligations as specified under the operating agent (Smith et al. 600).

From the Seagull case, Seagull who is the operating agent is entitled to the following rights – towards recovering the costs borne, from the non-operating agents who failed to meet their financial obligations. These include Eland and Nor-Tex. However, on the basis of the provisions of the clause on “interests of the parts in costs and production,” Eland is not answerable to the payment of the costs. This is mainly based on the knowledge that they have transferred the interest held to Nor-Tex. From transferring such interests – Eland is freed from the royalty burden and is not liable to receive any payment as royalties. On such a basis, the owner of the royalties – who is Nor-Tex, should be liable for meeting such expenses (Smith et al. 601).

The rights of Seagull in pursuing Nor-Tex include charging the costs on the unpaid amounts, as expressly indicated under the accounting procedure. This simply, means that Seagull is able to recover such costs from the amounts to be offered as royalties or interest on Nor-Tex’s investment. Seagull is also, allowed to sue Nor-Tex so that they may recover the amounts owed. In this case, it is expressly clear that the suit will hold that Nor-Tex should have met the cost obligations like all other lessees. As a result, the court would hold Nor-Tex responsible, and not lay any responsibility on Eland. The principle that would secure Seagull is that – of the surrender of the interests held in the investment, as well as any benefits to be drawn from the venture. Also, there is an implied contractual agreement that, all the responsibilities of the investor are surrendered upon the sale of the interests held, therefore their transfer to the new investment owner (Smith et al. 602, 603).

The operator is also allowed the rights to exercise the operator’s lien or require contribution from the remaining non-operator agents. However, these two take effect; in the case the non-operator agent in question is not able to meet such obligations. The reason for the difference in the results from the consideration of the varied interests – among the three parties is mainly because – the 1989 AAPL provisions laid the duty of meeting the costs to the owner of the royalties resulting, and not any other party. The owner of the royalties, in this case, is Nor-Tex and not Eland (APIN 69-74; Smith et al. 604,605).

Should the result in Seagull be different under the terms of the 2012 AIPN Operating Agreement?

In the case the Seagull case were to be argued out on the basis of the 2012 AIPN operating agreement, the following would be the difference in results. As per the article (no 12) on the transfer of interest or rights and changes in control, Eland had transferred all its rights to Nor-Tex. According to provision 12.2.B, upon transfer – the transfer of all participating interests, the successor shall be viewed as the non-operator in question. However, as per article 12.2.C both the transferring party and the transferee are liable to other parties, for the participating interest shares of the financial obligations borne by the transferring agent. This, expressly, shows that both Eland and the transferee Nor-Tex are liable to the financial obligations of meeting the costs to Seagull. Under the terms of these provisions, both Eland and Nor-Tex are responsible for meeting the financial obligations to be borne from the interests transferred from Eland to Nor-Tex. This will be the case taken for the recovery of the obligations to be met by the two agents to Seagull, mainly because the obligations in question do not fall within the exempted case. The exemption case, would only involve the parties under contract. Such a case would include the case where the obligations in question are those of abandoning wells or proportions of wells, plugging as well as the costs associated to decommissioning deals where the transferring party is the main player (APIN 69-74).


The case in question involves three parties: Seagull, Eland, and Nor-Tex who are in a dispute over non-paid operating costs. As per the agreement between the operator and the transferring part (Eland) the costs were to be met as the case was, with other lessees. After the sale of the total interest, the new owner of the interests, Nor-Tex has declined paying the expenses. On the basis of the 1989 AAPL operating agreement, Nor-Tex is completely answerable, as they own the interests and the royalties to be accrued from the interests. On the basis of the 2012 AIPN operating agreement, both Nor-Tex and Eland are liable for the costs, as the obligation of meeting the costs falls into the responsibility array of both.

Works Cited

APIN. “2012 model International Joint Operating Agreement.” Model JOA approved (2012): 69-74. Print.

Smith, Earnest et al. International Petroleum Transactions. Colorado: Rocky Mountain Mineral Law Foundation, 1993: 600-605 Print.