Navigating Oil & Gas Joint Venture Disputes: Insights from an Accounting Expert

Oil and gas Joint Ventures (JVs) present a unique set of challenges when disputes arise. Such disputes often revolve around two key areas:

1. Production and distribution
2. Construction of infrastructure

Jacqui Record, a Senior Managing Director and accounting expert with extensive experience in disputes and investigations in the Middle East, has provided her valuable insights into these common types of oil and gas JV disputes, the challenges they pose from a loss assessment perspective, and the potential approaches for resolution.

Understanding the Types of Oil & Gas JV Disputes

There are two common categories of oil and gas JV disputes:

1. Production and Distribution Disputes: These disputes often involve multinational oil companies and their JV partners, which may include government entities or parastatals. The disagreements focus on cost and overhead recoveries related to production sharing agreements and oil field development projects.

2. Infrastructure Construction Disputes: Particularly prevalent in the Middle East, these disputes arise when JVs are formed among various construction partners engaged in large-scale oil and gas infrastructure projects. Contentious issues include profit and loss sharing, delays, variations, and phase removals.

Common Challenges in Loss Assessment

While the factual contexts of these disputes may vary, there are several common challenges that significantly impact the assessment of losses:

• Contract vs Reality: JV contracts often outline specific options and scenarios for dispute resolution. However, the actual operations and circumstances can deviate significantly from the contract. Factors such as the expertise of a specific JV partner for certain project phases or market forces influencing cost-sharing agreements can alter the agreed-upon framework. Determining the basis for loss assessment becomes complex when contractual terms diverge from actual operations.
• Equality of Risk and Reward: JVs are typically established to distribute risks and rewards evenly among partners. However, as projects progress, the distribution may deviate from the initial agreement. This imbalance can complicate the application of recourse clauses designed to address such situations. Evaluating losses on an equal and fair basis becomes a crucial aspect of the assessment process.
• Complex Data and Responsibility: The oil and gas industry involves complex data management, particularly concerning production figures and market assessments. Disputes may arise due to the intricate nature of data presentation by oil and gas entities for internal purposes. Additionally, identifying which party in the JV bears responsibility for certain operations and the corresponding data can become a source of confusion.

Addressing the Challenges

There is no silver bullet solution to addressing these challenges. However, the following may be helpful pointers:

• Pragmatism: the changing nature of JV operations requires a flexible legal approach to adapt to evolving circumstances. Understanding the practical implications of operational shifts becomes essential in constructing legal strategies.
• Tribunal considerations: the tribunals' approach to addressing financial equality in different jurisdictions varies. Professionals should be familiar with the specific jurisdiction's legal landscape and precedents to ensure a fair evaluation of claims related to financial equality.
• Understanding and using data: gaining a comprehensive understanding of the complex data provided by oil and gas entities is critical. Scrutinize the data in detail, consider the systems involved, and use real data rather than forecasts to enhance the credibility and reliability of loss assessments.

This article follows on from our LIDW 2023 panel discussion on Joint Venture Disputes in the Oil & Gas Sector. The panel of experts included: Geoff Walker from the Ankura JV & Partnership Practice; David Holloway, Partner and Head of Advocacy, Al-Tamimi & Co; Shai Wade, Partner and Head of International Arbitration, RPC; and, Jacqui Record, Senior Managing Director, Disputes & Economics, Ankura.

If you would like further information about any of the challenges highlighted in this article or our LIDW 2023 panel event then please contact James Caulfield, james.caulfield@ankura.com.

© Copyright 2023. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.