Assignment on Global Oil and Gas Sector

2014-2016
Global oil and gas sector

Joint ventures 1
Contents
Introduction...........................................................................................................................................2
Main drivers behind the joint venture project........................................................................................3
Advantages of integrated joint venture..................................................................................................6
Disadvantages of integrated joint venture..............................................................................................8
Recommendations.................................................................................................................................9
Conclusion...........................................................................................................................................11
References...........................................................................................................................................12

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Introduction
Joint venture has gained popularity over the last few years not only in Nigeria but all over the
world. Fluctuation in the prices of commodities and difficulty in arranging the finance are
the two key issues that this sector has to face (Badiru, 2016)
In order to overcome this problem now all the entrepreneurs who are engaged in this
segment are coming into joint venture projects.
Large number of benefits are enjoyed by the oil and gas organisations after entering into joint
ventures. Some of them are – distribution of risk involved in different activities of the
business, maintaining market share and position (Onoh, 2017) from the analysis of the past
trends in the market it has been observed that 333 oil as well as gas projects are formed on
the basis of the joint venture.
There can be more than two partners depending upon the size of projects. By
involving more partners companies will be able give its better performance because of ease in
the availability of financial, human resource and in fracture (Akinlawon, 2017)
There are many forces due to which this sector has experienced downfall like, hurdles
that come at the time of planning, long time involved in satisfying each and every personnel,

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difficulty in maintain oversight on the capital projects. These all the problems occur
throughout the production cycle.
In 2014, KMG’s has shared that its production reached 27.7 in 2013 whereas, upward
trend can be seen in production of hydrocarbons within the first eight months of 2014. In the
same year total output of oil and gas has reached to 109 million but if we compare the
production of two period that it 2013 and 2017 there is a rise in overall production of both the
fuels by 5 percent (Rodrigues, et al., 2016).
In this report discussion will be carried on, main drivers of integrated joint venture,
advantages as well as disadvantages and recommendations for the joint venture projects.
Main drivers behind the joint venture project
There is a difference between a joint venture and partnership. Joint ventured refers to the
relationship between two or more than two Parties for a specific period of time (Klein, 2017)
Along with this there are different rules, regulations, laws and drivers of partnership and
joint venture. There are different types of joint ventures such as, integrated, non-integrated,
combination, equality and contractual joint ventures (Yan, 2016).
Integrated joint venture includes non-linier as well as complex projects. These
projects are divided into different parts between all the partners as per the contribution made
by them in the organisations in the terms of resources, capital and infrastructure (Wild, et al.,
2016) At the end, the amount of profit earned by the organisation is distributed among all the
mangers as well as employees according to the interest and contribution made.
Main drivers of integrated joint venture are (Ghandi, 2014.)

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 Ease in the availability of finance – oil and gas industries by entering into
joint venture can undertake all the big projects. Due to high requirement of
capital, infrastructure, heavy and costly equipment’s, man force and many
other things are easily available after the integration between two companies.
 Mitigation of risk – considering the fact that, “higher the risk, higher the
chances of earning profit” each and every entrepreneur wish to expand their
business operations but it’s not an easy task for a single entrepreneur
especially when it come to the segment which involves huge risk elements
(Stackhouse and Stewart, 2017). Risk factors are present in all the activities
that are undertaken by the firms. For example: SPDC, aim at contributing 40%
in total oil production of Nigeria. Company find it difficulty in attain the target
due to presence of high risk. To reduce the risk element from the business
SHELL, AGIP, ELF and NNPC entered in the joint venture.
 Ease in availability of technology – oil and gas industries requires high
capital investment as well as experts who can run and manage the technology
purchased by the organisation. Apart from this there are few firms which do
not have proper sources for raising finance. In such cases these oil and gas
industries try to integrate their business with those industries which not only
possess good quality technology but also the experts to manage and run the
plant successfully. For example: CHEVRON (Goggin, et al., 2017) is involved
in (CTV) that is, Chevron Technology Venture. Under this venture
organisations keeps on developing and procuring new and innovative
technology in order to strengthen core operations of the firm. To avail the
benefits of the same NNPC with the equity interest 60% integrated its business
with Chevron.

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 Timely availability of required resources – an organisation can function in
appropriate way only if its production department gets all the resources in
appropriate quantity and within the specific time frame. Integrated joint
ventures help the project developer not only in procuring the resources on time
but also in obtaining sufficient capital and skills for making improvement in
existing resources in order to maximise its potential (Johnson, et al., 2017) For
example: NNPC comes joined its business with Pan Ocean by signing (PSC)
production sharing contract on OML 147.
 Ensuring Optimization in supply chain management – its easy to optimised
supply chain by pooling the assets of participants. Entrepreneur have to incur
different types of costs, but there are very few costs among them that can be
reduced, one of them is the cost involved in supply chain. Joint venture
facilitate in reducing overall distribution cost special in the case if, incoming
partner is dealing in the similar manufacturing line (Ross, 2016).
No oil and gas organisation can run for the longer period without exercising control over
its supply chain in order to ensure timely delivery of its components such as
petroleum, gases, crude oil and many more things.
 Optimum strategic decisions – “it’s better to have two heads rather than
one”. In the present scenario it’s not easy for the organisations to attain strong
footing for the longer period in the market without taking appropriate strategic
decisions.
In 2016, Oil and gas industries have to face many challenges because of decrease in the
prices of oil. In order to survive in the market and to maintain same position NNPC

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entered into joint venture with Pan Ocean. This will help the organisation in not only
developing appropriate strategy but also in taking decisions for the same.
Helps in maintaining position in the market – by accruing the assets of the new oil and gas
industry under the joint venture agreement will help in grasping all the opportunity on time.
Further this help in establishing as well as maintaining strong position in the market. For
example: NNPC has reduced oil prices in the year 2015 which helped it in maintaining its
market share and its position (Iledare, 2017)
Advantages of integrated joint venture
1. Opportunities – integrated joint venture makes an organisation strong enough
to grasp the opportunities available in the market because after the combining
entities become strong enough in the terms of resources that they become
capable to undertake new responsibilities available in the external environment
for example NNPC after the integration has contributed 80% in the total fuel
production (Iledare and Fubara, 2017).
2. Better approach to new resources – starting a business with the integration
will help the organisation to obtain specialised team members, machines,
equipment’s and capital. Apart from there are few technologies which required
high funding. Such technologies can be accrued by the combine funding.
3. It involve short time span – these agreements are made for the short period
so, in case if disputes occur or they lose their interest to work together then
they legally get separated.

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Reduce the chances of risk and overall cost - business are surrounded by many kinds of
risk. Element of risk may be in entering into new venture, signing new deal, trusting new
supplier, and many other situations. No businessmen can remove the risk parentally from the
business but they can reduce it through joint venture. This will help not only reduce the
expenses of the firm but it will also facilitate in distribution of risk on all the personnel for
example: Chevron largest producer of petroleum throughout its journey had faced and
overcome many problems because of risk factor in oil extraction (Gonzales, et al., 2016).
4.
5. Easy to exit – there are many ways to end the joint venture agreement some of
them are – consolidation, completion of projects, apart from this there are
many creative ways through which it is easy to escape.
6. Increase market share – as integrated joint venture can involve two or more
than two organisations and each and every firm have its own share in the
market but, when these combine and form one giant size then it will be easy
for them to provide more services, product to the customers and all these
things will eventually increase their share in the market.
7. Helps in building good network – as one cannot excel in all the business
operations so, with the help of integration oil and gas organisations will be
able to access many other areas and new streams which will help them after
the joint venture will comes to end.
8. Diversification become easier – every businessmen wants to expand its
business over the sea but being an individual entity they may fail to convert
their dreams into reality or may take so long time to allocate all the required
resources that are needed to establish a new venture. These chose results in
miss the opportunity to diversify their existing line. For example: there are

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many industries that are only involve in extraction process but after the
integration with the other industry they can purify the fuel and supply them in
the market.
9. International projects – expanding the business has become a dream of every
businessmen, but there are many hurdles that occur in its path some of them
are- lack of knowledge about other countries rules, regulations, business laws
and taxation policies but joint venture helps to fix all the problems for example
NNPC expanded its business tremendously (Lopez, 2016)
10.Research and development – oil and gas industries have to incur huge
financial resources in research as well as on development. It’s not easy for an
individual to procure all the funds from the market so, in such cases joint
venture helps in arrangement of funds for research and development (Warner
and Sullivan, 2017).
Disadvantages of integrated joint venture
 Uncertain objectives – in the case of integrated joint venture projects large
number of personnel’s are involved in it and it’s not easy to consult everyone.
Due to this objects that are set by the organisations are 100 percent vague as,
they are not communicated properly. This results in chaise as well as in
confusion.
 Inflexible – after the integration no firm can take the decisions isolated, this
reduces the overall flexibility of the organisation. Sometime it may prove to be
dangerous for the organisation because there are few decision which are
needed to be taken with in a specific time frame.

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 Involvement – although as per the agreements it can be assured that all the
companies will be paid equally but it’s hard to ensure their equal involvement
in the decisions as well in many urgent task of the organisations.
 Culture differences – two companies that came in the joint venture might
differ in culture (Taiwo, 2016). Due to the difference in the culture, people
may possess different tastes, preferences, believes, and way of working in the
organisation. All these thing can cause conflicts, differences between them for
example: culture of NNPC and PAN Ocean is completely different.
 Difficulty in maintaining balance – it’s not easy for oil and gas industries to
maintain balance in their work especially when more than two organisations
are the part of integration. This imbalance can be seen in certain segments
such as, assets, investment and human resource.
 Chances of conflicts – at the time of joint venture as per the agreement
everyone is given equal opportunity but sometimes it happens that a strong
firm tries to exercise its control over the weaker once and this leads to
conflicts.
 Complexity – integrated joint venture projects are very complex and big, this
creates stress which sometimes become difficult to handle.
 Splitting the work – it’s not easy to divide these projects because of their
giant size. Whereas, an individual is not enough capable to handle everything.
Theses all the things give birth to management problem with in the industries.
Recommendations
 There are many liabilities that new company had to fulfil just after joint the
organisation so, in spite of taking guarantee, organisation should try to build
trust over them. This will help in maintaining good relations.

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 In the oil and gas organisations there are many other requirements other than
capital and staff members so, in spite of taking decisions regarding enter into
joint venture on the basis of only these two factors many other things should
be taken into consideration such as, image of the organisation, their links with
the suppliers and many more (Plater, et al., 2016) There are many hideous task
that are involved in oil and gas companies so it’s important to take an
insurance in order to overcome the risk factors. Apart from this consortium
members names should be there on the papers, complexity of the project
should be made clear before entering into any kind of an agreement. This will
help in establishing clarity in the work.
 Although it’s not an easy to split the task due to their immense size so, there is
the need to appoint experts who can divide the tasks on the basis of
capabilities and resources available with the enterprise.
If oil and gas industries are engaging in international joint venture (Harrigan, 2015)
 Then they should take care of the culture with which they are integrating. It
will help them in developing understanding between the work and the
employees. Further it will help the organisation in introducing new changes
without any conflicts between the staff members.
 Proper planning should be done so, that both the industries as well as, its
members can have a clear vision. This will help in attaining objectives and
goals on time.
 Safe side plan should be made in advance in case if consortium members
become insolvent (Kerzner, 2014).

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Conclusion
From the above analysis it can be concluded that, during the year 2014-2016 there are
many oil and gas industries that had entered in the joint venture in order to perform their
business activities efficiently and effectively. This was the main reason because of which
NNPC integrated with hell, Mobil, Chevron, Agip, Elf and Texaco. After the integration
organisation was able to gives its 97% contribution in crude oil.
Although there are many disadvantages of coming into integrated joint venture but
still it has benefited and helped many oil and gas industries to reach new heights by sharing
risk, ease in the availability of finance, human resources, in fracture and many other things.
Despite of all this partners should take care that at the time of entering into joint venture they
have to make appropriate contribution in cost and share the profit as per there equality
interest in that particular venture.

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.
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Taiwo, R., 2016. COGNITIVE VERBS AND STANCE TAKING IN NIGERIAN JOBS AND CAREERS PORTALS
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Badiru, A.B. and Osisanya, S.O., 2016. Project management for the oil and gas industry: a
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Gonzales, D., Gulden, T.R., Strong, A. and Hoyle, W., 2016. Cost-Benefit Analysis of
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Joint ventures 14
Iledare, O. and Fubara, S.A., 2017, July. Pragmatic Joint Venture Financing Options in
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Lopez, R.A.M., 2016. Understanding changes in performance of an oil-sector joint venture
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diversity dimensions (Master's thesis). (Lopez, 2016)
Onoh, J.K., 2017. The Nigerian oil economy: From prosperity to glut. Routledge (Onoh,
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Joint ventures 15
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