The implications of being novated into joint operating agreements

The common law of 'novation' was examined. Novation involves the making of a new contract in substitution of the original contract, thereby creating contractual privity between the assignee and the creditor. It is not a transfer of a liability from the original debtor (assignor) to the assignee, but rather it is a new contract in place or substitution of the old contract, thereby extinguishing the original debtor's obligation to the creditor and creating a new obligation between the assignee and the creditor. The concept of novation is reviewed as it relates to the oil and gas industry before and after the introduction of the Industry Agreement Assignment Procedure. The implications of being novated into joint operating agreements are explained and the restraints on alienation and the exemptions in common oil and gas agreements are reviewed. Compliance issues, and certain practical considerations of novation are also examined