Joint ventures, alliances & strategic investments have become common transactions in all sectors of the Energy Industry, whether at the level of project sponsors or between service contractors. These transactions are most frequently employed where the participants consider that a successful outcome is best achieved under an arrangement that spreads risk, incorporates know-how or satisfies local content requirements. Most frequently, these arrangements occur at the project level, however, so-call ‘global’ alignments are becoming more common.
Under these arrangements the participants retain their separate ownership and management. These considerations, as well as the contribution of human, technical and financial resources from each participant, are determined through assessment and planning. Often these discussions are preceded by a solicitation for an expression of interest or competitive tender. Selection is based on an assessment of critical factors most relevant to the successful performance of the project. There is also a growing trend in many emerging economies for a ‘local content’ requirement as a means for the transfer of know-how and to create opportunities for domestic enterprises.
Special provisions for allocation of risk and reward based on goals related to cost, schedule, performance, safety and environmental care add another dimension to these arrangements. In addition, specific issues regarding funding, and accounting and auditing are incorporated into the documentation. Finally, specialized methods of financing based on securitization of assets and cash flow have evolved to suit nature of these types of projects.