OVERVIEW

A catastrophic safety or environment incident can cripple both the reputation and financial capacity of a participant in the petroleum industry quicker and more absolutely than almost any other risk. All participants in a petroleum field, whether operators of a facility or non-operating titleholders, can suffer loss and incur liability following such an incident and must manage this risk. Managing the risk associated with a health, safety and environment (HSE) incident involves balancing the severity of the consequences of an incident with the likelihood of occurrence and the costs of implementing preventative measures. Understanding the regulatory regime in the jurisdiction of operations to assess the scope and extent of liability for an HSE incident is key to managing HSE risk. It is also important to understand the role of the relevant regulator and the regulator ’ s powers to enforce strict regulatory compliance even before a severe HSE incident occurs.

The complexity of managing HSE risk increases with the number of parties involved in activities within a field, as operator or owner of a facility, contractors and non-operating participants. Where exploration or production activities occur under a JOA, the consequences of a severe HSE incident for each participant highlights the inherent tension between operators and non-operators and the tension between accepted principles of risk allocation under a JOA and general principles of risk allocation under which the party best able to manage or control a risk bears that risk.

Yet participants have only recently begun to give detailed consideration to HSE matters in JOAs, which is also reflected in recent model form JOAs. For example, the Association of International Petroleum Negotiators first incorporated a specific HSE provision in its 2002 Model Form International Operating Agreement to reflect industry practices. The HSE provisions have continued into the AIPN 2012 Model Form JOA (AIPN JOA). The AIPN JOA, as the most commonly used model agreement internationally for off shore production, provides a good starting point for analysing the HSE provisions under a JOA.