CWI (contract)

Incorrect. A CWI agreement involves risk sharing, not risk avoidance.

Correct! A CWI allows parties with different financial capabilities and expertise to work together.

Incorrect. While the carrying party has the initial financial burden, the CWI agreement outlines profit sharing.

Incorrect. The carrying party still needs to invest upfront capital, but the carried party is not required to.

Incorrect. This is a key characteristic of a CWI.

Correct! The carrying party receives the entire production until its investment is recouped.

Incorrect. This is a key characteristic of a CWI.

Incorrect. A defined carry period is a crucial part of a CWI agreement.

Incorrect. The carrying party typically has more control during the carry period.

Correct! The carried party benefits from not having to invest upfront capital.

Incorrect. Profit is not guaranteed and depends on project success and profit sharing terms.

Incorrect. The carried party still shares the risks of the project, although the carrying party bears the initial financial risk.

Incorrect. Access to expertise is a benefit for the carried party.

Correct! The carried party may have less control during the carry period.

Incorrect. This is an advantage, not a disadvantage, for the carried party.

Incorrect. The carried party has less financial risk upfront compared to a traditional investment.

Incorrect. Profit sharing is determined by the agreement and can vary.

Incorrect. The agreement usually specifies termination conditions.

Incorrect. CWI agreements can be used in various phases of oil and gas projects.

Correct! CWI allows companies to access projects without significant upfront investment.

Here's a possible solution to the exercise:

Benefits:

• Company A: Accesses drilling expertise from Company B, reducing the risk of project failure due to lack of expertise. They can also potentially receive a larger share of the profits until their investment is recouped.
• Company B: Gains access to a valuable project with limited upfront capital, potentially gaining a significant share of the profits in the long run. They also benefit from the financial stability and resources of Company A.

Challenges:

• Cost control and transparency: Company B may have limited control over project spending during the carry period, leading to potential disputes regarding cost recovery.
• Profit sharing calculations: Determining the exact point where Company A recoups its investment and profit sharing commences can be complex, leading to potential disagreements.
• Project priorities: Company A may prioritize projects with larger financial returns, potentially delaying or neglecting the development of the current project.

Minimizing Challenges:

• Clear and comprehensive contract: A detailed agreement outlining all terms, cost recovery mechanisms, profit sharing calculations, and dispute resolution procedures is essential.
• Regular communication and transparency: Open communication and transparency regarding project progress, cost management, and profit sharing is crucial to maintain trust and avoid disagreements.
• Joint decision-making: Involving Company B in key project decisions, even during the carry period, can help build trust and ensure their interests are considered.
• Performance incentives: Including incentives for cost savings and production increases can motivate both parties to work together towards a successful project.