Relationship within the Context of Joint Ventures

As mentioned previously, NOCs and IOCs typically work together under JV structures. This is a contrast to some other industries such as the aircraft industry where Boeing and Airbus are standalone companies that assemble products in their own facilities. Today most large oil fields are explored and developed by joint ventures where several international oil companies and national oil companies form partnerships. One of the IOCs is usually chosen as the operator of the field and manages the overall process and procurement. The operator heads the ‘Operation Committee’, selects the OSCs and submits the choice to its partners. The allocation of an oil services contract is decided together with JV partners. When an international oil company is known for its experience in a given area, operators or other JV partners would expect that international oil company to have more input on decisions related to that area. Partners approve the choice of the OSCs as well as the costs involved. In JVs, costs are paid upfront and all expenses are submitted to annual audits at the end of the year. For smaller amounts up to a certain limit, the operator has the sole authority to make decisions. Above the agreed amount, tender selections are submitted to ‘bid committees’. Because the choice of OSC is made with JV partners, the progress of services is regularly communicated to the partners. In recent years, the front-end loading concept has gained prominence in the industry. In front-end loading, IOCs do extensive analysis during the E&P appraisal phase and most decisions regarding supply chain are decided up front following these analyses.

There are different configurations and competitive pressures in the joint venture structure. The type of investment and relationships with OSCs are related. An IOC’s positioning is different when working alone, in a JV or with an NOC. The IOC might have more flexibility in a joint venture where NOCs are not involved, as NOCs might impose additional conditions such as local content requirements.

 
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