Oil and gas joint ventures—exit mechanisms and key issues

The following Energy practice note provides comprehensive and up to date legal information covering:

  • Oil and gas joint ventures—exit mechanisms and key issues
  • Joint ventures
  • Avoiding common JV pitfalls
  • Withdrawing from an oil and gas project
  • Issues to consider when exiting a JV project
  • Conclusion

Oil and gas joint ventures—exit mechanisms and key issues

Joint ventures

 It is very common for an oil and gas project to be structured as a joint venture (JV), particularly so in relation to upstream projects. This is due to a variety of reasons, such as:

  1. to better manage ongoing capital expenditures and distribute risk between different parties, which allows them to participate in high-value, larger scale projects (which they would not be able to access alone)

  2. to better be able to access capital funding

  3. to pool resources, skills and technology

  4. to diversify and strengthen a company’s portfolio in increasingly volatile markets

  5. to enter new markets and/or overcome regional regulatory requirements (eg requiring to partner up with local companies prior to be able to establish operations there) and be able to access local knowledge in cross-border projects

Despite there being strong reasons to form a joint venture in the oil and gas industry, available data shows that the average JV takes 18 months to establish and that the vast majority of them survives less than 5 years, with some studies suggesting that the failure rate for joint venture relationships is as high as 70%. This is because these advantages are not in practice easily implemented, due to the fact that most joint ventures are cross-border, multi-party and multi-cultural.

A significant drop in oil prices, as recently experienced and

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