Question

Parker Oil Ltd. and Oil Exploration Ltd. agreed to explore the possibility of finding oil in a relatively open and accessible area near Parker Oil’s producing field. Parker Oil agreed to acquire an option to purchase the property and the underlying mineral and petroleum rights. Oil Exploration agreed to provide drilling equipment and surface crews to drill potential sites on the property. Parker Oil also agreed to pay for 30% of the costs of the drilling operations. The two companies agreed to share any profits on an equal basis. Oil Exploration Ltd. also provides drilling services on a straight contract basis to a number of other oil companies in the area. What type of formal relationship should the two corporations establish for the project? What issues should be addressed in the agreement. What risks does the relationship raise?

Answer 1

Joint venture is a contractual arrangement b/w two companies to do specific task. As oil exploration ltd agrees to provide some services and equipment, agreement should be made with specifying all the conditions, like which all are the part each company will be responsible for and clearly stating that the relationship is not one of partnerships.

Also Parker oil Ltd should consider the oil exploration companies business with other companies in the area, as oil exploration Ltd may take advantage of the due diligence of the business.