Executing projects on schedule is particularly important in the Deepwater, where massive capital investment coupled with first oil delays has a pernicious impact on project NPV. Oil companies, nevertheless, routinely farm-out equity in order to reduce investment risk, hoping partners will not increase development timing risk. This paper addresses the implications of partner selection on project execution time, thus providing firms a rigorous foundation of knowledge upon which to formulate partnering and portfolio management strategy.

This study is the result of both qualitative and quantitative analysis. The quantitative analysis is presented here, including the design and confirmative testing of a predictive causal model incorporating empirical deepwater joint venture (JV) field data and structural equation modeling (SEM) methods. The database used in this paper included all Deepwater JVs globally.

A number of findings emerged from the statistical analysis, highlighting the impact of partner selection on project delivery time. I found that neither the number of partners within a JV, nor the operator's equity ownership above a controlling interest had a significant effect on first oil timing. Operator experience, however, had a significant beneficial impact on development time, whereas non-operator experience within the JV had no impact. While non-operators may have limited impact on a JV's development speed, the experience non-operators gain within a JV is critical to their effectiveness as future operators. Remarkably, an operator's past non-operational experience is more beneficial to JV project delivery time than their past operational experience. Thus, the best operators have been (and continue to be) active non-operators. These results suggest that the benefits of a diversified holding of operated and non-operated projects include not only fiscal portfolio risk reduction but also enhanced project management.

This study presents quantitative evidence that portfolio risk reduction through equity diversification (i.e., farm-out strategies) does not reduce project value via revenue delays. Furthermore, this research quantifies the benefits of non-operator ownership. Practitioners may find this research useful to optimize their JV portfolios and develop strategies for partner selection. Governments can use these findings to help construct natural resource development policy (lease sale guidelines).

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