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What Is an Oil Partnership?

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  • Written By: Geri Terzo
  • Edited By: Lauren Fritsky
  • Last Modified Date: 19 November 2016
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    Conjecture Corporation
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Drilling for oil and transporting the fossil fuel requires the cooperation of many skilled laborers who know how to operate heavy and dangerous equipment. In order to increase oil production from the ground or ocean, companies might team up with one another to share resources, expertise, and profits. If a merger and acquisition is not the preferred course of action, an oil partnership or joint venture between two companies may be formed instead. A partnership could include each company taking a cash or stock position in the other and deals are not limited to domestic ventures.

Reserves for oil are not limited to the Middle East; they extend throughout Europe and the U.S., for example. An oil partnership could be done as an international deal. Two or more leading oil companies from different nations could obtain minority equity stakes in one another and pursue designated drilling opportunities together. Drilling restrictions for environmental or political reasons may prevent an entire nation from bidding on a partnership opportunity.

If an energy entity is a government-controlled entity, it is also possible for that company to partner with an oil driller in the private sector. Clear benefits should be apparent for both parties involved in an oil partnership. One entity, for example, might introduce greater drilling technology to the equation, while the other company might be host to vast oil reserves that are opened up to both parties.

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An oil partnership may exist not only between companies, but also countries. An oil-rich nation may open up pieces of land for drilling and invite energy companies from other countries to bid for opportunities. All of the countries that are in a position or invited to participate in drilling oil in the host nation may not have the backing of the domestic government to pursue those projects. Such a situation might spark debate between oil executives and legislatures in a region.

Continued demand for oil around the world is an impetus for companies combining resources in many cases. A company may declare its willingness to form an oil partnership with another entity in an oil-rich nation, for instance, to demonstrate some commitment to a region and opportunities. Government policy could interfere with the feasibility for two companies located in different parts of the world to create a joint venture of any kind, however. Even with the law on its side, a visiting company that has invested in another entity to explore oil reserves should expect to adhere to the laws of the host country.

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