Defaults under oil and gas joint operating agreements (JOAs) - in particular, failures to pay cash calls - have been rife as a result of the recent oil price decline, leading to the inevitable question: 'Is the best solution to forfeit the defaulting party's interest?' From a legal viewpoint, the enforceability of JOA forfeiture clauses will be of paramount importance when weighing up the pros and cons of forfeiture. Traditionally, since forfeiture clauses require the defaulting party's interest in the joint venture to be transferred to the non-defaulting parties without compensation, they have risked falling foul of the English law rule against penalties. The Penalty Rule prevents the enforcement of a remedy for breach of contract which acts as a penalty against the defaulting party.
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