Joint Venture Portfolio Governance: Highlights from the London Roundtable


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GettyImages-501923431WATER STREET PARTNERS recently hosted its tenth annual Roundtable on JV Portfolio Governance for natural resource companies. Twenty industry executives, representing the oil and gas, mining, and chemicals sectors and collectively accountable for governing more than 700 non-operated ventures, gathered in Brown’s Hotel in London for this year’s installment to discuss what an approach to portfolio governance looks like today.

Four main topics were on the agenda:

1) Non-Operated Portfolio Governance Excellence: How much progress have natural resource companies made in recent years in putting in place the core practices to govern their portfolio of non-operated ventures? 

2) New Deal and Industry Trends, and Impact on Governance: What types of new ventures and forces are natural resource companies seeing, and how are these impacting the requirements of governing non-operated portfolios? 

3) Stock Market Announcement Effects: What types of venture announcements materially impact the share price of large natural resource companies, and what might companies do to better shape the narrative to investors? 

4) Corporate Social Responsibility Pressures on Non-Operated JVs: What impact are various external groups, from the Environmental Defense Fund to Transparency International, having?

This note shares some of the highlights from the conversation.


Water Street’s analysis of 45 natural resource companies shows that when benchmarked against our Standards of JV Portfolio Governance Excellence, only 13% of companies scored in one of the two top categories of “developing” or “developed,” while a full 60% are rated as “weak” or “non-existent.” Oil majors are the clear front-runners, making up 75% of the top-performing companies, while mining companies lag the farthest behind, with six of the seven miners in the dataset ranking as weak or non-existent.

Roundtable participants focused on two opportunities related to portfolio governance gaps. First was the failure of the upstream oil and gas industry to agree on standard metrics and approach for sharing data between operators and non-operators. This failure has spawned cottage industries within non-operators to re-calculate and re-enter Operator-provided data and to spend enormous time chasing Operators for more information and clarifications. There was tremendous enthusiasm in the room to develop an industry standard. The second opportunity was people management. Participants lamented that key non-operated roles, such as that of the Non-Operated Asset Manager, were not well-positioned within the companies and that the required competencies were not well-defined or screened. Participants also brainstormed ways to build resilience on non-operated teams, to make non-operated assets a more compelling career path, and to help re-orient those who are professionally unaccustomed to having the majority of their efforts not leading to direct impact. One participant compared their non-operated career track to an “exit launch,” where more than half of the people going in, leave the company altogether as a result of the commonly shared view that the Operated side of the business propels careers, while the Non-operated side is where people go to hide. As one participant shared, their organization had started to track the performance of “adopters’ and “non-adopters” of best practices in non-operated asset management across its portfolio of ~35 major upstream NOJVs and had seen convincing trends of better performance on MCP and other factors among the “adopter” teams. As more and more NOJV soft and influencing skills are sought and recognized on the operated business side, defining and nurturing non-operated competency and capabilities become that much
more critical.


Water Street’s recent analysis of petroleum industry trends pointed to three fundamental forces impacting non-operated portfolios. First, is the rise of new deal types, including regional consolidation ventures (such as Aker BP), contractor partnerships (such as Aramco’s JVs with oilfield service providers), and new energy partnerships, often with smaller technology-oriented companies. These new ventures introduce different partner dynamics, transaction terms, and governance demands than traditional op/non-op ventures. Second, is the changing strategy of national oil companies, such as ADNOC, Qatar Petroleum, and Saudi Aramco, which are pursuing international growth and synergies between domestic ventures that have historically been quite independent. Third, is the increasing realization that company portfolios include large numbers of non-core ventures – for instance, in R&D, shipping, terminals and industry infrastructure, sales and marketing, and emergency response. While the investment and revenue profile of these ventures may be small relative to production assets, they nonetheless can introduce significant risk or commercial value.

Roundtable participants agreed that non-core ventures have mostly existed outside their companies’ non-operated portfolio governance efforts – but recognized the need to include such ventures and those working on them in company-level non-operated venture reporting, training, and assurance. While non-core ventures may individually be smaller in financial terms, their sheer number, as well as the governance risks they introduce in the portfolio, make it important to include them in the organization’s structured JV portfolio governance framework. Usually, non-operated venture performance conversations revolve around specific assets that perform exceptionally well or exceptionally poorly, and, in most cases, frame the discussion in terms of the operated business’ successes and the non-operated business’ failures. Despite natural resource companies’ increased focus on non-operated governance in recent years, JV portfolio governance continues to confront challenges, including episodic senior sponsorship and failure to evolve beyond “the basics.”


Water Street’s initial analysis of the share-price impact of JV announcements for oil majors found that more than 50% of such announcements were associated with significant abnormal share-price returns – i.e., had a statistically significant impact on the company’s stock value. Of these, 62% had a positive abnormal return, and 38% had a negative abnormal return. Our analysis looked at three different types of JVs (new transactions, restructurings, and exits), operated and non-operated ventures, and deals in both the upstream and downstream. This work shows upstream ventures and non-operated positions being associated with more significant abnormal returns than other venture structures, and that positive returns being more frequent in new ventures and those where the company is the Operator or Lead Partner.

Roundtable participants generally hadn’t thought much about how investors view joint ventures, or how to better position venture announcements among that constituency. One participant, however, had spent the previous afternoon with 50 institutional investors as part of a broader management presentation. His experience was that investors lack a sophisticated understanding of non-operated ventures, and focus on the risk management governance aspect, still, tend to see such ventures as introducing additional risks, and want reassurances that these assets have access to and are using the company’s risk management and other core processes. Given the importance of JVs for parent companies’ stock market prices, it is not unthinkable to arm JV accountable executives with P&L and risk management responsibility for their JVs. While this concept was controversial for some, there is a trend of increasing scope for the role of that executive. 


Water Street has recently observed that various third-party stakeholders have awoken to the importance of non-operated ventures, and are starting to apply pressure to large natural resource companies to take greater accountability for these ventures from a corporate social responsibility (CSR) perspective. For instance, the Environmental Defense Fund, a leading U.S.-based environmental group, recently issued a white paper advocating for international oil and gas companies to extend their commitments to Greenhouse Gas reductions to their non-operated portfolios. Given that non-operated ventures account for 35-60% of the current production of Chevron, ExxonMobil, Shell, Total, and BP, this would have a material impact on corporate behaviors. Such thinking has also been seen in recent initiatives by Transparency International, which is looking at business ethics policies and assurance for non-operated ventures in high-risk markets.

Roundtable participants recognized the materiality of non-operated ventures to their companies – and understand why external stakeholders have started to extend their advocacy to this part of the portfolio. Different lobbying groups can hold non-operators responsible for failure to engage in CSR in the press and public consultations, thereby adding an additional layer of reputational risk for the non-operator. Representatives from the mining industry shared how their industry has organized around extending corporate social responsibility obligations to joint ventures under the guidance of the International Council on Mining and Metals. That said, the oil and gas industry representatives in the room had yet to feel the direct impact of those early efforts.

We will be exploring each of these topics in further depth in coming months.