Exploring Joint Ventures from Every Angle

30 October 2017

Joint venture audit can result in real savings in the oil and gas industry, writes accountant IAN MCPHERSON of AAB, and it may well have applications in other sectors too.

Working exclusively with the oil and gas upstream sector, we see a large number of assets changing hands currently as the volume of transactions increases. Where we have audited those assets for many years, we often have a detailed knowledge of them, which is sometimes hard for an acquirer to pick up through their due diligence.

As joint venture auditors, we work for the partners of the operators running the assets and can draw upon a great deal of experience. Our staff members are not only skilled in finance, but understand the commercial arrangements in oil and gas and what constitutes best practice. Sometimes it’s too easy to get focused on the specifics of a transaction without standing back and considering all the areas which will really add value.

Some areas are inevitably contentious and subjective. The previous owner has one view and a new owner takes another. To have objective advice available can therefore make a real difference.

Of course, joint venture audits are not a statutory requirement and sometimes it may be that companies feel it’s not necessary. But in an environment in which costs, business models and commercial arrangements are changing, or you’re dealing with shared facilities, an audit should be really valuable.

We usually find that audits work best when there is a commercial focus, rather than simply seen as finance compliance exercises, as they tend to create greater value. It’s important to have the involvement of the right people though, who will typically be the asset representatives and commercial leads.

The principles really apply just as well to any other sector where joint ventures are commonplace. If there’s one organisation which runs the operation, but another which gives approval for expenditure and has audit rights, there will always be a case for a full auditing process. After all, one party wants to know that the other party is doing what they have agreed and allocating costs appropriately.

It’s therefore a principle that might certainly extend into renewable energy projects, which often operate as joint ventures, and possibly other sectors as business models evolve and collaboration increases.

In our experience, joint venture auditing results in cost savings for a client in 90% of cases, or – to look at it another way – the net amount they get back from identifying errors exceeds our fee. And, in the other 10% of cases, we find that the work still gives peace of mind.

For more information, please contact Ian McPherson (ian.mcpherson@aab.uk) or your usual AAB contact.

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