Making energy industry joint ventures work: Toward improved governance and decision making

Published: August 18, 2011

Executive summary

Energy projects tend to be big, complicated, expensive, and risky. As such, they are often pursued through joint ventures and other multiowner entities, to spread the project’s risk and expense and to provide the resources and capabilities needed to cope with the complexity. But these structures are complicated themselves and are often bedeviled by strategic misalignment. The misalignment typically comes from divergent expectations among the varied owners about their respective roles. Partners also often have different agendas, which can quickly get in the way of a smooth-running project.

Shortcomings in governance and decision making add to the operating challenge. Often, when multi-owner structures are initially organized, insufficient attention is given to the many governance issues that will invariably arise. Similarly, decision-making processes are typically not designed to deal efficiently with complex, multi-stakeholder issues.

Dramatic improvements in the efficiency and effectiveness of joint ventures can be achieved in three ways. First, the partners need to clarify and communicate their strategic intent and objectives up front, at the time the arrangement is established. Second, they need to identify the roles that the project will require, and the capabilities available among all operating and non-operating partners to fill them, and then allocate assignments for each entity. Finally, they need to design a more powerful and relevant governance model and adopt a decision-making process that is iterative and tightly focused. These steps can also be taken in projects that didn’t start out with the proper safeguards in place and are now in need of them.

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Making energy industry joint ventures work: Toward improved governance and decision making

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