Drilling Deep Into A Hidden Risk: Production Sharing Agreements and Joint Ventures
By Toby Duthie, Partner, Forensic Risk Alliance
With the increasing zeal of post-recession regulatory enforcement, compliance breaches have become one of the key risks facing businesses and individual executives. This risk exposure very much includes the area of Bribery and Corruption - both deal-specific (such as during cap-ital-raising or a M&A transaction) and at an operational level (including logistics, procurement and distribution channels). Increasingly, it is not just the USA that prosecutes these matters, but Germany, the UK and Switzerland as well as many other non-Western regulators. Brazil and China are also becoming especially active, while in Africa, regulatory scrutiny is increasing quickly - for example, in Nigeria, Guinea and Gabon. Also we have seen a dramatic increase in scrutiny from in multi-lateral or international financial instructions (such as the World Bank, The African Development Bank, European Investment Bank etc.) – most significantly if one such organization determines that a breach has occurred, it may debar the company from partic-ipating in projects which they fund or guarantee – often if one such institution debars a compa-ny then the others follow suit automatically.
Oil and Gas companies, especially some would argue non US-ones, operating in Africa have been the main focus of US prosecutors, and examples of prosecutions both corporate and indi-vidual abound. Indeed, six of the top 10 Department of Justice settlements relate to the Oil and Gas sector. Both Production Sharing Agreements (PSAs) and Joint Ventures (JVs) expose Oil and Gas companies to risk: these exposures manifest both at the outset as bids are finalised and terms negotiated, as well as during the life of the agreement itself.
PSAs and JVs can take various forms and the purpose of this article is not to look at the legal structure per se. In essence both are... continued on page two >