What Is a Petroleum Joint Venture?

Mary McMahon

A petroleum joint venture is a temporary partnership between oil and gas companies for the purpose of exploration and development of natural resources. The companies create a legal contract and are bound by relevant laws in the region while they work together. Such ventures are very common in regions with oil and gas deposits, and may include companies from foreign countries who want to work together on projects like the development of a site or the installation of a refinery facility.

A petroleum joint venture is a temporary partnership between oil and gas companies.
A petroleum joint venture is a temporary partnership between oil and gas companies.

In the petroleum joint venture model, both parties agree to be partners on a specific project, operating independently otherwise. They share assets, risks, and benefits associated with a venture. Earnings and other issues associated with different business operations do not play a role in the petroleum joint venture, as these projects are not covered under the partnership agreement. The limits of the partnership are clearly established in the contract to avoid confusion and create a clear understanding of legal liability.

Such short term partnerships can be formed for a number of reasons. A foreign oil and gas company might want to use a petroleum joint venture to tap into a market it might otherwise have difficulty accessing. It can work with a domestic company to develop a site, and establish a track record in the country through its work. With this experience, it can start to apply for contracts and leases on its own to develop more of a foothold in the nation.

Another reason for a petroleum joint venture can be asset inequalities. A small oil and gas company may not be able to afford the expenses associated with site development, but could control a potentially valuable site or facility. Rather than leasing it out and losing potential revenues, it might propose a joint venture with a larger company. The big company can provide the asset backing for the project, while the smaller company provides the site, and both share in the proceeds.

Notable petroleum joint venture agreements can be the subject of reports in trade publications and financial magazines. In some cases, they may make their way into the mainstream media because they are a matter of general public interest. Investors and other interested parties can look up joint venture involvement if they want to learn more about a specific company and the projects it has under development. Publicly traded companies must disclose their business operations in regular filings and these can be a valuable research resource for investors and regulators.

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