Energy Works is forming a joint venture (JV) with Big Oil, Inc. for the extraction of proved oil reserves in the artic. Both ventures wish to share in the risks and rewards of this venture, while benefiting from each others technical expertise and sharing of key assets. Energy Works will contribute a floating production storage and offloading facility (FPSO), valued at $100 million, along with $20 million in cash, to the venture in exchange for a 50% equity interest.

Big Oil will contribute its arctic drilling permit, also valued at $100 million, along with $20 million in cash, to the venture in exchange for a 0% equity interest. Assume that the cost basis of the contributed assets is the same as the fair values of theses assets. Profits and losses of the venture will be shared based upon the quit interest held by each investor.

Operations of the joint venture will be overseen by its Board of Directors. Each venture will receive two seats on the Board, for a total of four seats, and all significant decisions of the JV require the unanimous consent of the Board, with any dispute to be settled by an independent arbitrator (binding arbitration). The Board has appointed Energy Works to manage the day-to-day operations of the FPSO facility. Additionally, both ventures will provide employees and managerial personnel with technical expertise to perfom day-to-day operations for the JV. Energy Works will not receive separate compensation for its role as manager. The joint venture will be legally organized as an LLC.

1. In your opinion, what are some of the most critical resources that Richard should consider and key questions he should ask in his effort to understand this proposed transaction?

2. Assume that you have been asked to review a lease agreement to determine whether it should be classified as a capital lease or as an operating lease. In this case, knowing that this is a unique type of transaction that may be governed by its own set of rules, you should begin by searching for guidance specific to this type of transaction. Your first researchable question for this contract might be: Should the lease agreement be classified as an operating lease or as a capital lease? What browse path might be an appropriate starting point for this question?

3. Take a moment to practice identifying a single, researchable question for the following issues:

a) A company ships its widgets to a customer on December 31 but has not yet collected payment from the customer. The customer has promised to pay within 30 days but has never purchased good with this company before. Researchable question?

b) A customer is suing the local grocery store for a slip-and-fall incident. The grocery store believes the lawsuit will likely be considered frivolous and rejected by the court. The grocery store must decide whether to record or disclose this matter. Researchable question?

Can I get some ideas or answers for theses questions?