Introduction     Rules     Agreement       Sale of Assets    Joint Venture

It is common practice in the oil industry for oil companies to partner in each other’s wells and geological plays. They do this to "spread their risk." Having a 50% investment in two projects is less risky than having a 100% investment in one project. Having a 33% stake in three projects is less risky than a 50% stake in two projects. Therefore most oil wells and plays are actually owned by several companies, not just one.

To create these partnerships, most parts of the oil world have created a fill-in-the-blanks agreement that encompasses many of the possibilities of how the partnership could be formed. The agreement specifies how much each partner should pay, how much of the revenue each partner should receive, who will be the operator (the day-to-day decision maker of the project), and what will be the fees for administration. The agreement can have other provisions, such as specifying conditions for drilling nearby wells, penalties for not paying the bills on time, and ability for one partner to sell their share of the project to another oil company.

The advantage of these "standardized" agreement are two-fold. The representatives negotiating the details of the partnership need not be lawyers to make a legal agreement. Once a representative gets some experience with these agreements, he can quickly make other deals without having to write a new agreement each time. Legal expenses are reduced with such a system. As well, the wording of these agreements is usually based on more experience of making oil deals than any one individual can acquire in a lifetime. The wording has proven itself in law courts and has been enhanced by the experience of deals gone bad.

In OilFinancier, you will be using a standardized agreement to make your partnerships. To some financiers, this agreement will seem quite complicated, but the agreements in the real world of oil deals are much more intensive than what you will work with on this website.

You probably will stumble a bit with this agreement on your first two or three deals. But after you get this practice, you will move through them quite quickly. Just be patient with yourself.

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