Joint Ventures in Oil and Gas Industry: Chevron Case Study

Estimated reading time: 4 minutes

 

 

Joint ventures are no strangers to the oil and gas and energy industry. As much as 71% of upstream investment is spent through alliance or JV relationships. There has also been a recent shift towards innovative deal terms and structures due to global factors such as commodity prices, geopolitical relations and new technologies.

So why do joint ventures work well for oil & gas? JVs are especially useful for the oil and gas industry due to the nature and size of investments made in the industry. With that, JVs provide a way for companies to converge and innovate at lower risk. Energy companies are also able to tap on the strengths of tech companies and work together to gain a competitive advantage.

 

Here are 5 advantages of joint ventures for oil and gas:

• New insights and expertise

When both companies come together, they able to bring their own strengths and capitalise on them. JVs allow the two parties from different markets to pool their resources, technical know-how and capital, to develop the resources into a better ground-breaking product.

• Both parties share the risks and costs

When projects are requiring a big amount of capital investments, JVs provide an option to provide better access to funding and cost exposure in case of a cost overrun. JVs are also able to mitigate risks, especially when investing into a new region or tapping into an unprecedented technology. Hence, JVs are used to reduce exposure and the ongoing investment required.

• Access to technology

One way to gain access to proprietary technology is by participating in a JV-style agreement. Especially for projects that are based on technological expertise, companies opt to work together with technology companies to leverage on their expertise.

• Penetrating new markets

To get around regulatory requirements when working with foreign companies, JVs allow access to new markets and regions that require the company to be in business with local stakeholders.

• Maximum flexibility and limited liability

In a JV, both companies are still able to innovate on new products without losing focus on their core business. Also, JVs are a flexible arrangement where both parties can easily exit the agreement anytime they wish.

 

The recent joint venture trends for oil and gas look into the rise of niche E&P firms that can optimise and extract unique value for each stage in the lifecycle. Other creative new joint ventures include optimising asset portfolios, monetizing mature assets and the need to access capital at reasonable cost.

 

Case Study: Chevron and Technology Joint Ventures

At Chevron, they are applying new technologies such as data mining and advanced robotics to improve plant operations. They can incorporate new technologies to measure generator performance, as well as plant preventive maintenance. As these technologies are not typically made for O&G industry, JVs and partnerships allow energy companies to adapt and gain access to emerging technologies.

Chevron has partnered with MAANA, an IoT analytics platform, to incorporate its digital knowledge platform into O&G and industrial companies for CAPEX and OPEX gains. MAANA’s platform allows its customers to “de-silo knowledge to develop decision models in mass scale”. In 2018, Maana has raised over $70m, demonstrating the demand for the company’s cutting-edge digital knowledge technology.

 

With challenging market conditions, fierce competition and increasing complexity of projects, organisations are looking to ways to effectively deliver on their projects. Amid these challenges, organisations are seeking to share risk on major capital projects, and JVs are and will continue to be the way to do so for the near future.

 

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Managing Joint Ventures in Oil and Gas is a 2-day training course held from 30-31 March 2020 (Kuala Lumpur). This course aims to discuss and provide an understanding of the principles & ideas to influence your JVs to be more aligned and constructive. Also learn how to maximize value and find the best solution for the overall partnership for both parties.