Under ideal circumstances the value of the JOV is created and protected by the operator, the NO is only an investor in the process. However, what will happen if the operator is incompetent, or makes some very poor decisions which destroy value?

There are three potential risk sources related to the execution of the JOV.

  • External Risks such as political, legal, regulatory, financial, technological, economic, natural and competitive environment.  A typical example could be a unilateral change to the tax regime by a host government which could destabilise the whole venture.
  • Internal risks such as governance, organizational structure, roles and accountabilities within the operator’s culture.   Typical examples could be that the operator does not have a risk management system in place or is severely understaffed.
  • Internal risks between the operator and the NO, such as cash calls, loss of trust and diverging strategies. A typical example could be a discovery in a nearby field operated by one on the parties in the JOV, which would alter the viability of the current venture for one party.

The figure below shows the risk sources in graphical form.

Risk Sources in a JOV

Risk Sources in a JOV

To answer the question posed at the beginning; value is created by the operator identifying and managing external risks to the venture. Value is protected by the operator recognising and responding to any internal risks, which affect its ability to manage external risk.

As a consequence of this polarisation the NO is very exposed to risks and has no ability to manage them.  The only place where the NO can have some influence is the “internal risks between the operator and NO”.  This risky relationship is in essence formalised and defined in the Joint Operating Agreement JOA.

Venture Risk Ltd, has the experience to identify and manage the risks and, through crystal clear reporting, enable the NO to bring these risks to the attention of the operator, usually through the technical committee route.  Central to our methods is there must be no double work, where for example the operator and NO have the same items on their risk registers.