OT02120 - Oil Industry accounting: joint venture accounting - IFRS

Companies that have adopted IFRS will generally apply IFRS 11 Joint Arrangements.

A joint arrangement is defined as an arrangement of which two or more parties have joint control. It has the following characteristics:

• The parties are bound by a contractual arrangement.
• The contractual arrangement gives two or more of those parties joint control of the arrangement.

A joint arrangement can be either a joint operation or a joint venture.

A joint operation is defined as a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators.

A joint venture is a joint arrangement whereby the parties that have the joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers.

Joint control is defined as the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The type of joint arrangement most commonly found in the oil and gas industry is a jointly controlled operation.

A summary of the accounting treatment within the individual entity accounts is provided in OT02121. More detailed information can be found in IFRS 11.

Tax treatment

For CT purposes ‘joint venture’ activities are treated as part of a company’s business and trading activities and are reflected in the returns and supporting accounts and computations filed by the individual company.

For PRT the tax unit is the individual participator but the scheme is field-based and recognises joint venture activity. For example, Schedule 5 OTA 1975 provides for PRT expenditure relief to be claimed on a field basis by the field “responsible person” on behalf of the joint venture participants. This will normally be the person who has been appointed the operator under the Joint Operating Agreement (JOA).