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Brave New Industry: Re-Characterising Petroleum Joint Venture Risks
Matt R Lady BA, LLB (Hons)
Project submitted in partial fulfilment of the requirements for the degree of MSc (Energy and Resources), UCL School of Energy and Resources, Australia
Effectively managing legal risk in the upstream petroleum industry requires the use of complex, precise and sometimes novel contractual arrangements. This dissertation examines two important tools of risk management in this industry: joint ventures and contractual indemnities. Part I examines the nature of the joint venture and the risks associated with this common form of business arrangement in the upstream petroleum industry. I argue that joint venture participants may be exposed to significant legal risk due to the immature development of this form of agreement in Australia. Part II considers critically the role, scope, and enforceability of contractual indemnities in upstream petroleum agreements. In sum, I argue that these essential risk management tools possess hidden dangers and may not be the panaceas to legal risk they are often thought to be. A case study of select upstream contracts is undertaken to demonstrate the hazards of over-reliance on contractual indemnities to manage legal risk and to identify methods to harden indemnities against defeasance. I conclude that contractual indemnities and joint ventures can provide significant benefits to parties to upstream petroleum projects, and, when thoughtfully drafted and executed, they serve as powerful instruments to allocate legal risk and efficiently enable participants to execute complex and capital intensive business ventures. However, as recent events have increased stakeholder scrutiny of upstream firms, there is a pressing need to understand clearly the limitations and risks of joint ventures and contractual indemnities if firms are fully to appreciate their potential liability should disaster strike. This is the goal of this dissertation.