Joint Venture Audits Valuation

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A key tool for exploration and production companies to maximize value of non-operated assets, recover or save costs and detect early warning signs of compliance related issues

Joint Venture Audits: A key tool for exploration and production companies

Joint ventures in the upstream sector are a privileged contractual scheme used by oil and gas companies to diversify risks, especially inherent to the exploration phase, and reduce capital investments across several assets and countries. Joint operating agreements (JOA) govern joint ventures and establish the respective rights and obligations of the operating partner and the non-operating partner(s). This agreement also grants non-operators the right to audit the accounts and records related to the joint account.

The main purpose of the audit is to ensure that costs charged by the operator to the joint account and financed by the non-operator(s) are actual and reasonable according to the accounting procedures defined within the JOA, and represent a tangible benefit for the joint venture. However, beyond the primary objectives, Duff & Phelps’ approach to joint venture audits in upstream assets ensures operator compliance with all agreements, including production sharing agreement obligations, and validates compliance with the JOA for the following: 

  • Bank guarantees
  • Insurance
  • Commingling of funds
  • Overhead cost allocation
  • Intercompany charges (no-gain/no-loss and arm’s length transactions)
  • Cash management
  • Ensuring there is no cost duplication between direct and indirect costs 
  • Assessing potential existing contingencies related to labor 
  • Supplier or environmental issues

Duff & Phelps undertakes a sophisticated due diligence approach based on our thorough understanding and deep expertise of the business and the underlying accounting flows. Our approach involves interviewing the main operational managers, analyzing the operator’s procurement process and challenging cost allocations using alternative methods and industry best practices. 

By applying our proven approach, as compared to mere clerical auditing and data compiling, Duff & Phelps has successfully helped non-operator clients recover significant amounts of money and save future costs.

Our team is flexible, responsive, integrated and, at the same time, autonomous—all important attributes to ensure we meet client expectations. Based on our experience, constant support from pre-fieldwork preparation through final negotiations has also shown a significant positive impact in the overall audit outcome.

By engaging Duff & Phelps, our clients not only achieve their financial objectives but protect their relationship with their counterparties that could be eroded if the audit was conducted directly by the non-operator(s)’ internal teams.

The industry’s capital intensity and current uncertainties due to the COVID-19 pandemic are negatively impacting prices. Oil and gas companies are expected to pay very close attention to cost deviations and over-financing situations, particularly in non-operated assets, as control is almost limited to the JOA’s audit rights.

Duff & Phelps’ oil and gas advisory team provides a bespoke solution with an extensive track record of more than 300 joint venture assets reviewed globally across various jurisdictions, asset types and scenarios.

To download our brochure, please click here or contact one of our sector professionals.

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