How to avoid aches and pains in your joint ventures

Abstract

The Australian oil and gas industry is in a period of substantial challenges, including a significant decline in oil prices, fluctuating spot gas prices, a relentless drive for operating efficiency, and tight capital allocation, together with increased regulatory scrutiny and a reputation for below-standards productivity. On the upside, these market challenges provide significant opportunities for companies to bring in new investors, implement new operating models, apply innovation to update processes and practices, and restructure activities. Making material step-changes, requires companies to review, amend, and update joint venture operating agreements (JVOAs).

KPMG has worked with many of Australia’s leading oil and gas companies on a range of joint venture engagements. This extended abstract outlines why JVOAs need to be reviewed with respect to the following key opportunities and challenges:

• Fast-changing global business operating models.

• Available cost savings by eliminating inconsistent management and operating models between joint ventures.

• Planning for potential restructuring, including separation of infrastructure (e.g. plants, pipelines, support) from reserve ownership.

• Sharing of services (e.g. maintenance and logistics) between unrelated joint ventures.

• Transparency of costs and asset performance.

• Improved joint venture governance (not more or over-governance) between participants to attract investment.

• Effective resourcing, noting the right transition of capabilities between deal-makers and joint venture operators.

With this extended abstract the authors aim to provide ideas for consideration. Each of these ideas will impact JVOAs. The authors’ proposition is that now is the right time to complete a comprehensive review of JVOAs to enable organisations to move fast as new and innovative opportunities arise.