Joint Venture Agreement Assignment.
A joint venture is an agreement between two or more parties to collaborate on a project or
a business venture (Killing, 2012). Within a joint venture financial benefits are shared amongst
the participants who also undertake to share any costs or risks that the joint venture may incur. A
joint venture is legally recognized as a separate business entity on its own, completely separate
from any other business activities that the partnering organizations may carry out in their individual capacities. The terms that govern the nature of the collaboration, the level of participation as well as the obligations to be undertaken by the partnering organization, are contained within a joint venture agreement (JVA).
Working within the joint venture framework has its advantages as well as disadvantages. Joint Venture Agreement Assignment.
One of the main benefits of working within a joint venture is that it offers access to new markets
and possibly new distribution channels. Joint ventures operate by sharing resources and expertise
and if one of the partnering organizations operates in new markets, other partners can benefit by
gaining access to hitherto untapped markets. This level of sharing also involves the distribution
channels enjoyed by each of the partnering organizations (Jaenicke, 2013). Joint ventures also
increase the business capacity of the partnering firms. Especially when concerning large projects,
individual firms may not be able to mobilize the required resources to undertake large projects
but through joint ventures, the sum of the partner’s resources enables them to undertake projects
they would have been unable to in their individual capacity. Joint ventures also help spread the
risks associated with a project between multiple partners which eases the financial hit that each
individual partner will have to bear. Joint Venture Agreement Assignment.
The main disadvantage of joint ventures is a lack of coordination and communications.
When strategy is not clearly communicated to all participating parties, the probability of
achieving the project objectives significantly reduce. Additionally, different partnering firms
may bring with them different and often conflicting, management styles as well as corporate
cultures (Refaat and Schmidt, 2016).
The Dusty Plains joint venture involves three partners IOC one, IOC two and the state
government of West Australia. In terms of shareholding, IOC one owns a 31% stake in the
project while IOC two owns a 20% stake, the majority shareholder is Western Australia’s
government with a shareholding stake of 49%. IOC one has the operational mandate with the
other two partners providing knowledge and expertise by providing skilled personnel. The initial
capital layout has been contributed by IOC one and IOC 2 representative to their shareholding
with the government of Western Australia contributing from their future earnings.
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1.1 SWOT ANALYSIS
A business in influenced by the environment within which it operates. This environment is
classified into two major categories, the internal environment and the external environment. The
internal environment refers to the factors within the organization that can be controlled while the
external environment refers to the factors occurring outside the environment that are out of its
control (David and David, 2016). Joint Venture Agreement Assignment.A clear understanding of these two aspects of the business environment is key for a business to carry out its decision making from a position of knowledge.
The SWOT analysis framework is a management tool that offers insight into the business
environment. SWOT analysis analyzes an organization’s strengths, weaknesses, opportunities
and threats; strengths and weaknesses deal with the business’s internal environment while opportunities and threats are concerned with the business’s external environment (Bull et al.,
2016). The main aim of the SWOT analysis framework is to provide information that will enable
n organization to maximize and take advantage of its strengths and opportunities while
formulating strategies to overcome its weaknesses and threats. This section will carry out a
comprehensive SWOT analysis of the Dusty Plains joint venture.
1.1.1 Strengths
An organization’s strengths refer to the characteristics or resources within the
organization that give it competitive advantage. Joint Venture Agreement Assignment.An analysis of the Dusty Plain joint venture reveals that one of its biggest strengths is its clear strategic plan. By virtue of involving multiple
business organizations, most joint ventures are plagued by strategic ambiguity. As with any other
business undertaking, the joint venture’s success or failure can be determined at the strategic
planning stage. This is because, a business venture’s strategic plan affects the direction that the
business will take and guides all decision making activities. With multiple actors (at least two)
being involved in a joint venture, the strategy formulation phase becomes slightly more
complicated. A clear strategic plan ensures that all stakeholders understand their roles and pull
together in one direction, making it easier for the joint venture to achieve its objectives. An
unclear strategic plan leaves a lot of room for conflicting individual interpretations by the
partnering organizations, creating an environment where conflicts can easily arise and joint
venture objectives are not achieved. The dusty Plains joint venture agreement is a well thought of
plan with clear strategic direction and organizational objectives. All aspects of the business
venture, from the drilling, to the regulatory considerations, stakeholder engagement and the
development of key and supporting infrastructure has been laid out in clear detail. Each partner’s
contributions and obligations are also outlined in the JVA. Joint Venture Agreement Assignment.
Any venture dealing with the exploration and extraction of mineral deposits strives t
uncover commercially viable reserves. Setting up a drilling operation, from scratch, is extremely
expensive in terms of finding qualified personnel and building supporting infrastructure. The
Dusty Plains case study is testament to that, with the outlined infrastructure layout required
consuming the majority of the project’s $600 million budget. With this significantly vast capital
layout, it is a key strength for the joint venture to have three verified oil reserves that can
produce a daily output within the 30,000 and 50,000 barrel range for at least 5 years. This is a
significant advantage as it assures the shareholders of a return on their investment.
Oil exploration and extraction is one of the most heavily regulated industries. This is
largely due to the huge, and largely harmful, environmental impact that oil extraction (and other
mining operations) has. Environmental concerns include the stripping away of cover vegetation,
dust, exhaust fumes from machinery used, contamination of ground water reserves from leaking
oil and other chemicals, noise pollution as well as natural gas fumes released into the
atmosphere. These environmental concerns, in conjunction with other factors, make it very
difficult for drilling operations to get regulatory approval. It is therefore a significant strength
that the Dusty Plains JVA has already completed all its regulatory demands and has been cleared
to begin operations. The joint venture received its operating licence after signing the FID (Final
Investment Decision) document.
Working within the joint venture framework has also been a key strength for the project.
Based on the project’s magnitude, and the large capital requirement, it would have been
extremely difficult for either of the individual partners to undertake the project on their own. The
joint venture framework’s main advantage is the increased capacity achieved by the pooling
together of individually owned resources. With multiple organizations involved, it is much easier to raise capital, to mobilize required resources swiftly as well as to find skilled personnel. For the
dusty plains JVA, initial capital was raised by two partners, IOC one and IOC two; skilled
personnel and ideas will be contributed by all the three partners, as will any potential risks.
The Dusty Plains JVA is a public-private partnership due to the involvement of the state
government of Western Australia as the main shareholder. The participation of the Western
Australia government is a key strength of the JVA as they bring with them valuable region
specific knowledge. A lot of external environment elements, such as the legal environment, the
political environment and the social environment, require the involvement of a partner who
understands the region and its business environmental factors. The government of Western
Australia will be key in assisting the JVA understand the regions regulatory framework as it
concerns the project as well as provide an understanding of the local bureaucratic processes
involved. Joint Venture Agreement Assignment.
While briefly touched upon in earlier chapters, oil drilling has a very heavy
environmental impact. The various types of pollution, especially air pollution, noise pollution
and ground water contamination, would have an adverse effect on any nearby population
settlements. Traditionally, drilling operations are carried out in remote and geographically
isolated areas to minimize the effects on the rest of the population. The cost of relocating a large
nearby settlement often makes a drilling site economically unviable. The Dusty Plain JVA’s
drilling site is located 80 kilometres away from the nearest human settlement. This is an ideal
location as no relocation costs will be incurred by the project.
1.1.2 Weaknesses
Weaknesses refer to factors and shortcomings within an organization that reduce its
competitive advantage. One of the weaknesses that would increase the joint venture’s financial
cost is the isolated nature of the drilling site. The drilling site is located 80 kilometres away from
the nearby Dusty Plain settlement and lacks any utility coverage in terms of piped water,
electricity, sewerage services and communications infrastructure. Additionally, the only road that
connects the drilling site to the coastal town of Broom is described as a ‘bush road’ which would
not adequately support the JVA’s commercial activities in terms of transportation. Dusty Plains
is also too far away, and undeveloped, to provide housing for the contractors during the
construction phase as well as the permanent staff who will oversee the projects operations once
construction is completed. Broom’s coastal infrastructure is also nonexistent in terms of
supporting the oil transportation and loading. A brief outline of the infrastructure requirements
for the project to become fully operational include the construction of a pipeline, the construction
of a jetty for fuel loading at Broome, the provision of utilities at the drilling site, the construction
of administrative and residential buildings at the drilling site as well as the construction of a road
to connect the drilling site to Broome. These financial costs will significantly affect the overall
profitability of the business venture.
The Dusty Plain drilling project is a project of large magnitude. Its successful
implementation is heavily reliant on the provision of skilled workers both during the construction
phase as well as during its operational stage. The nearby population however does not provide
the required talent pool to support the project. Dusty Plains is a rural town with a population of
500 while Broome has a permanent population of 14,000. Within these nearby settlements, it
would be difficult to find a sizeable enough population of oil exploration and extraction specialists. This situation creates the necessity of sourcing labour from other parts of the country
which increases the hiring cost. Joint Venture Agreement Assignment.
A major weakness in the project is posed by the 6 landowners on whose land the pipeline
is to be constructed on. The success of the project is heavily reliant on their cooperation both
during the pipeline construction phase as well as during the project’s operational phase. Their
insistence on having the pipeline be constructed underground increases the construction costs
significantly, other costs associated with the land owners include compensation for disruption
during the construction phase as well as ongoing payments for the location of the above ground
maintenance stations on their property. Of particular concern is the un-finalized agreement on
way access along the pipeline which would come at further financial cost.
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1.1.3 Opportunities
Opportunities refer to external environment elements that an organization can exploit and
leverage to increase its overall competitiveness. One of the biggest opportunities that the Dusty
Plains JVA can exploit is the discovery, and exploitation of additional oil reserves adjacent to the
drilling site. Expert reports have been ‘cautiously optimistic’ about the potential discovery of
further oil reserves adjacent to the three confirmed oil reserves. An outline of the infrastructure
requirements for the project, with the three existing oil wells has proven to be massive. The
discovery of further oil reserves will come at a much smaller marginal infrastructure cost as most
of the supporting infrastructure such as roads, pipeline and loading jetty will have already been
put in place. Aggressive efforts need to be made by the JVA in term of exploratory activity to
increase the joint ventures oil output and fully take advantage of the infrastructure investment
already incurred. Another cost saving opportunity lies in the local sourcing of skilled labour. In the initial
stages, the JVA has no option but to source their skilled labour from other parts of the country as
the local population is not sufficiently trained in oil exploration and extraction. However, with
the JVA’s overall strategic plan including the construction of a training centre, the venture could
reduce their hiring costs significantly in the future if they train the local population, including the
indigenous communities, on the necessary skills required in the operation and maintenance of the
project. Locally sourced labour will come at a cheaper cost to externally sourced labour and the
company would increase its profitability by reducing its operational costs.
The success of any project is greatly affected by its level of community engagement. This
is particularly true for a drilling project whose geographical footprint encompasses a wide area
and involves the cooperation of both private land owners and community land. If the JVA is
going to continue with its exploratory efforts, it will have to gain the cooperation of adjacent
land owners (be they private individuals or communities). Additionally, any further expansion,
including the construction of another pipeline, will be heavily dependent on the nearby
community. It is for this purpose that the company needs to engage the nearby community
positively to seize the opportunity to expand upon its site. The initial infrastructure developments
that are required for the project’s operation, such as the provision of utilities and the road
construction will be of great benefit to the community that resides near the drilling site,
particularly in the Dusty Plains settlement. Further efforts need to be made to earn their
continued friendship and collaboration. The construction of schools, medical care centres and the
extension of the utilities to Dusty Plains would go a long way towards encouraging cooperation
between the project and its nearby community. The proposed jetty on the Indian Ocean also offers a lot of opportunity for the projects
growth. Joint Venture Agreement Assignment.There is a lot of competition in terms of crude oil suppliers within the Australian domestic market. With an estimated daily output of 30,000 – 50,000 barrels, and the potential for
expansion with future successful exploratory efforts, the project needs to diversify its buyers to
ensure that it has a constant demand for its oil. From its Broome harbour loading jetty, the
company can access multiple lucrative international markets including the entirety of the
Oceania region, South Asia, China (Lin and Xie, 2013) as well as South East Asia nations.
Further abroad include the Indian subcontinent market as well as eastern Africa seaboard. All
these markets are located within the Indian Ocean and can provide adequate demand for the
crude oil produced by the Dusty Plains JVA
1.1.4 Threats
Threats refer to the external environment elements that would negatively affect an
organization’s competitiveness. One of the biggest threats facing the Dusty Plain JVA is the non
negotiable 24 month completion time. While contract negotiation is a difficult process, a
business entity needs to avoid committing itself to potentially unrealistic delivery timelines. The
JVA oil drilling operations are being constructed on a proverbial blank slate. There is no existing
support infrastructure, utility services, housing facilities, pipeline and the coast based
infrastructure for oil storage and oil loading into tanker vessels. Joint Venture Agreement Assignment.Considering the time it would take to make the construction site ready to house and support contractors, and the multiple
construction projects that will be running simultaneously the 24 month period seems a bit
unrealistic. This assessment does not factor in any unforeseen problems that could delay the
construction. Every project, even those occurring at a much smaller scale, need to have a time
allowance that accommodates any potential mishaps during the project development phase (Rotich, 2014). The company has already agreed with its buyers on the date of the first shipment,
which if violated will incur a $500,000 daily fine before fully agreeing upon the terms of the
pipeline way access with the landowners on whose property the pipeline will be built on. All
these circumstances create a situation that increase the likelihood of the organization not meeting
its delivery date and incurring massive fines as a result. This is the biggest threat that the project
faces
Working with contractors has its benefits and disadvantages. While contractors make the
project development stage more convenient for an organization, there dependability is often
difficult to predetermine. One of the biggest shortcomings of the JVA’s overall strategic plan is
its lack of clarity on contractor engagement. The company has two options, offer the entire
project to one contractor who will oversee the entirety of the construction projects or hire
multiple specialist contractors for the different projects. Both options threaten the timely
completion of the project as per the 24 month deadline. Multiple specialist contractors may result
in faster deliver as they deal with individual projects they are familiar with but the oversight
process will be difficult and this lack of oversight might result in some contractors carrying out
sub standard work. Hiring one contractor is easier in terms of oversight but if they are
incompetent the entire project is in jeopardy. The lack of clarity of the contractors creates
another major threat to the project’s timely completion. Joint Venture Agreement Assignment.
In recent years, the international oil prices have been extremely volatile (Van Robays
2016). In determining the project’s economic viability, the JVA must have analyzed
comparatively the expected costs associated with developing and maintain the project against the
future earnings from the extracted oil. If oil prices significantly drop; the project might end up being a loss making venture and the investors will not get a return on their investment.
Therefore, constantly fluctuating oil process could be a significant threat to the project.
1.2 MANAGEMENT OF OPPORTUNITIES AND THREATS
Understanding the opportunities and threats identified in the SWOT analysis is only the
initial step towards the successful implementation of the tool, once and understanding has been
reached, strategies need to be formulated in order to swiftly take advantage of the opportunities
as well as to overcome the challenges that are brought by the threats (Hollensen, 2015).
1.2.1 Opportunities
One of the identified opportunities in the project is the potential for further oil reserves
being discovered adjacent to the three productive oil reserves. To take advantage of this
opportunity, the project needs to aggressively increase its exploratory efforts around the
discovered oil reserves. Pre-emptive purchase of property that has been identified to have an
increased likelihood of yielding oil needs to be done before oil discovery. The company needs to
step up its community engagement (Kolopack and Parsons, 2015) with both private land owners
and community land owners to facilitate this increased exploration and potential land purchasing
agreements. Joint Venture Agreement Assignment.
Another identified opportunity is the potential for sourcing skilled labour from the nearby
local community, which would reduce hiring costs. The project needs to set up a training facility
where the local community members could be trained on the required skill sets for the
management, maintenance and operation of the oil exploration, drilling and transpiration
processes. The Indian Ocean located loading jetty also offers the JVA with an opportunity to serve
lucrative international markets that can be accessed via the Indian ocean, particularly in the
southern parts of Asia and the markets on the African continent’s eastern seaboard. Once the
project enters its operational stage, the JVA needs to run a sustained international marketing
effort targeted at potential markets that can access the loading jetty to increase demand for its
crude oil.
1.2.2 Threats
The biggest threat facing the project is the seemingly unrealistic timeline for completion,
and the potential for incurring heavy fines if late completion occurs. While most contracts cannot
be renegotiated, the JVA needs to attempt to push back the scheduled completion time with its
buyers by at least six months. Failure to this, negotiations with contractors should have a
stipulation that fines them for ay late delivery thereby reducing the burden of lateness fines from
the company and transferring it to the contractor(s). This solution would also address the threat
of contractor dependability.
While oil prices are dictated by market forces outside the JVA’s control, the issue of
price volatility could be addressed by increasing the capacity of the storage tanks so that oil
reserves can be withheld when prices drop to economically unviable levels and sold once the
price stabilizes
2.0 STAKEHOLDER ANALYSIS
The most simplified definition of a stakeholder states that a stakeholder is an individual, or a
group of individuals, that either affect, or are affected by the operations of an organization.
Anyone who is affected, or affects and organization can be considered to be a stakeholder. Joint Venture Agreement Assignment.
2.1 Stakeholder Identification
As the people who either affect, or are affected by a business, it is important for an
organization to identify its stakeholders and understand the nature of their relationship and/or
influence within the organization (Speller, 2016). Stakeholder identification provides the basis
for further stakeholder analysis. Looking into the Dusty plains case studies, the following are the
project stakeholders:-
i. The Project’s shareholders
The project’s shareholders are the most significant stakeholders as they are responsible for
providing the capital to set up the project, creating the operational strategy for the project and the
chief financial benefactors of the projects earnings. The shareholders both affect the project’s
operation and are affected by its performance outcomes. The three project shareholders are IOC
one, IOC two and the State Government of Western Australia.
ii. The Project’s Contractors
As the group of individuals responsible for the construction phase of the project, the success
of the project is entirely dependent on the contractor(s) hired.
iii. The Adjacent Community
The adjacent community are another significant stakeholder, in that they both affect the
project’s operation and are affected by the project. In terms of the individual groups that the community can be split into; the land owners’ collaboration is required for the continued
operation of the pipeline as well as future exploratory efforts; other members of the community
stand to benefit from training offered by the JVA as well as future employment opportunities; the
infrastructure developments positively benefit the community; any environmentally harmful
effects brought upon by the project will affect the community members.
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iv. The government of Australia
Both the commonwealth of Australia and the local governments within which the project is
under their jurisdiction are stakeholders in the JVA. In terms of taxation income, the government
will benefit from the tax income earned from oil sales as well as the income tax from the wages
of the employees. In terms of regulatory control, the government wields a lot of influence on the
operation of the project. Joint Venture Agreement Assignment.
v. Buyers
As the JVA’s sole source of sales revenue, the buyers (whether domestic or international)
wield a lot of influence in the project’s operations. The quality standards maintained by the
company in turn affects them as it determines the nature of the product that they buy.
2.2 Stakeholder Mapping
Stakeholder mapping categorizes the stakeholders as per their level of influence and interest
(Looser, 2015). It is important to carry out stakeholder mapping as it provides the necessary
information used to determine how to manage each stakeholder. Analyzing the stakeholders
along interest and influence metrics gives four distinct categories
i. Low Interest, Low Influence
These are the stakeholders that have minimal interest in the operations of an organization and
are relatively uninfluencial in terms of affecting its operations. As per the identified stakeholders,
those that would fit within this category are members of the community who are not interested in
employment opportunities and are not land owners.
ii. Low Interest, High Influence
These are the stakeholders that can greatly influence an organization’s operations but have
minimal interest in its activities. The stakeholders that fit within this category are the buyers
(clients) whose sales revenue greatly influences the company while their interest in its operations
is minimal.
iii. High Interest, Low Influence
These are stakeholders that are greatly interested in the activities of an organization but are
not in a position to influence them. As per the indentified stakeholders, the local community
(except the land owners) fit within this category as they benefit from the infrastructure
development, education, employment opportunities as well as being affected by the project’s
environmental impact. While they are interested in the project, they have minimal influence over
it.
iv. High Interest, High Influence
These are the stakeholders that are simultaneously interested in an organization and wield
enough power to greatly influence it. The land owners, the share holders and the government are
the three stakeholders that fit this category.
2.3 Stakeholder Communications Strategy
Stakeholder mapping provides the template from which communications strategies can be
developed (Shirey, 2012). The high interest, high influence stakeholders need to be constantly
engaged by the organization. Therefore, when dealing with shareholders, government
representatives and adjacent land owners, face to face meetings should be the preferred mode of
communication as it allows the project managers to engage with this important stakeholder
group.
When dealing with high interest, low influence stakeholders, such as the local community
in the case study, the main aim for communication is to keep them informed. Engagement on a
personal level is unnecessary. Therefore, electronic media (such as radio broadcast or social
media interaction) could be an effective communication strategy for them.
When dealing with low interest, high influence stakeholders, such as clients; the main
aim of their commutation strategy is to keep them satisfied. Communication can be done via
conference calls (for major buyers) or a newsletter (physical or electronic). These methods are
effective as they do not overly engage a stakeholder that has minimal interest.
When dealing with low interest, low influence stakeholders; such as indifferent members
of the community, the best strategy is to monitor their feedback. Social media pages as well as
other electronic modes of communication need to be kept open to allow them to communicate
whenever they need to be heard. Joint Venture Agreement Assignment.
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Economics and Statistics. Joint Venture Agreement Assignment.