kpmg - caspian corridor conference 2014

Joint Ventures and PSA’s in the Caspian

Opportunities, Challenges,

….and improvements

Joint Ventures..... From Good Intentions to Joint Operating Success.

Opportunities….and challenges

■ The Caspian Corridor is extremely rich in opportunities:

■ Some of the largest oil & gas discoveries of the last 30 years,

■ Major Capital Investment programmes are ongoing (exploration, development, export pipelines).

■ Intense activity from the IOC’s, and Service Companies.

■ Large number of JV’s formed between IOC’s and NOC’s to deliver a project under a PSA or PSC.

■ Growing number of joint ventures between international (UK) service companies, OEMs and local enterprises – recognising the need and commercial benefits to be gained from local content.

■ Expected trend to see more interest from mid -size IOCs to partner as the region matures.

Joint Ventures..... From Good Intentions to Joint Operating Success.

Opportunities….and challenges

■ But also rich in challenges:

■ Projects are frequently delayed.

■ Several large developments are declared un-economical.

■ Relationships can be challenging.

■ Relationships with regulators can be a ‘cottage industry’.

■ Joint Venture structures are not always fit-for-purpose to deal with such set-backs.

Joint Ventures..... From Good Intentions to Joint Operating Success.

Typical Joint Venture Lifecycle“Key Performance Points”

■ There are numerous points for value creation and destruction

throughout the Joint Venture Lifecycle.

Joint Ventures..... From Good Intentions to Joint Operating Success.

Opportunities to improve....

Some classic issues

■ Heavy focus on the legalities of the deal (i.e. voting rights, equity, ownership, board positions etc.)

■ Quick to choose renegotiation if there is under-delivery.

■ This not always helped by legalistic, rigid PSA’s, PSC’s and JVA’s.

■ Limited focus on enabling delivery and smooth implementation.

■ Costly, complex, time-consuming governance.

■ Permits- and-Regulatory Compliance slow and time consuming .

■ Complex, but ineffective JOA’s (‘ lots of committees’, slow decisions’).

■ Cost recovery delays and disputes.

■ Bringing in new parties to solve delivery issues – ‘transacting improvements,’.

Joint Ventures..... From Good Intentions to Joint Operating Success.

Some options....but every JV is different

Opportunities to enhance NEW ventures

■ Flexible PSA’s and PSC’s ….. allowing gentle adjustments.

■ Greater emphasis on practical implementation.

■ Review barriers to implementation shortly after starting the project, and adjust

Opportunities to enhance EXISTING ventures

■ Implementation ‘blocker’ identification, enabling removal.

■ Fine-tuning a PSA or PSC - ‘small side-letter adjustment.’

■ Cost recovery optimisation exercise.

■ Exercise to streamline decision making,and formalise in a workable ‘side letter’, or a ‘governance refresh’.

…….delivered by a neutral party.

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