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2005 COPAS Accounting Procedure and the AAPL 610-2015 Operating Agreement
Questions have arisen regarding what changes, if any, should be considered when using the 2005 Accounting Procedure with the American Association of Professional Landmen (AAPL) 610-2015 operating agreement (JOA), and, more generally, what revisions are needed for horizontal wells. How can the forms be integrated? This section seeks to address these questions by exploring how the forms interrelate and overlap.
Affiliate Definition
Both the 2015 JOA and the 2005 accounting procedure forms define the term "affiliate." Affiliate was not defined in any of the AAPL 610 model form operating agreements when the Council of Petroleum Accountants Societies (COPAS) developed the 2005 accounting procedure, so COPAS used the definition in the AAPL 710-2002 operating agreement for offshore shelf properties. The definition in the 2015 JOA, in turn, is virtually identical to the 2005 accounting procedure definition. Article I.В of the 2015 defines affiliate to mean:
For a person, another person that controls, is controlled by, or is under common control with that person. For purposes of this definition, "control" means the ownership by one person, directly or indirectly, of more than fifty percent (50%) of the voting securities of a corporation or, for other persons, the equivalent ownership interest (such as partnership interests), and "person" means an individual, corporation, partnership, trust, estate, unincorporated organization, association, or other legal entity.
The definition of affiliate is one that is sometimes customized, although that is more likely to occur in agreements where there are unique circumstances, and/or operations with high exposure and high strategic value. Changes to the definition in either the operating agreement or the accounting procedure can create a conflict, so drafters will want to harmonize the definitions.
Affiliate Goods and Services
The 1989 JOA was the first one of the AAPL onshore forms to clearly address charges for affiliate goods and services. In fact, Article V.D.l of the 1989 form referred to "work performed by or materials provided by affiliates or related companies of the Operator," but it is not clear what constitutes a "related company." The language in the 2015 JOA (Article V.D.l) changed only slightly, to incorporate the defined term, Affiliate, as follows:
... All work performed by or materials provided by an Affiliate...