Discussion of this paper is invited. Three copies of any discussion should be sent to the Society of Petroleum Engineers office. Such discussions may be presented at the above meeting and, with the paper, may be considered for publication in one of the two SPE magazines.


Contracts for ownership and operation of joint interest gas handling facilities and processing plants are called as a class, processing plants are called as a class, Construction and Operation Agreements. These contracts seek agreement among the parties on the definition of EQUITY and provide contractural mechanics to achieve this EQUITY. The engineers' participation on a contract task force appears in participation on a contract task force appears in four general areas of the agreement: Definitions, Ownership Parameters, Distribution of Costs and Expenses, and allocation of Production and/or Services. The objective of the paper is to acquaint those engineers called to such task force duty with the problems to be anticipated and solutions devised by existing contracts in the Southwest.


Every engineer engaged in the production of petroleum at sometime in his career finds himself enmeshed in the toils of Joint Operation. It follows, therefore, that the engineer should familiarize himself with the fundamental types of joint operating contracts. Most familiar are those agreements creating field unitization operations, for which there are numerous references in the literature. Another class of legal document is the contract most commonly associated with the joint interest operation of gas plants and facilities. Such a document is generally known as a Construction and Operation Agreement, or briefly, the C and O. This paper covers four major areas of this contract calling for an engineer's attention.


Before proceeding to the areas, we should review some of the thoughts and theories underlying and leading to the formation of the C and O. Contracting owners, seeking to choose one of themselves to construct and operate a facility, have before them certain goals: first, to develop a definition of "Equity" for the situation; second, to construct a mechanism to achieve and maintain this defined "Equity;" and third, to preserve for the contract life a factor I call "effective timelessness." By this last, I mean the ability of the contract to maintain current applicability for two decades with respect to depleting reserves, changing owners, major construction additions, changed process, and on, ad infinitum. The contracting process, and on, ad infinitum. The contracting owners most usually work through their appointed individual agents, who serve on an owners committee and have various degrees of owner authority. (For the purpose of this discussion, we shall consider the agent and the owner to be synonymous.)

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