Loss of capital
A JV member may lose some or all of the capital committed to a joint venture. No outcome, level of production, cash flow or tax benefit is assured. Participation should be considered only with capital whose loss would not change your financial plans.
Commodity price risk
Revenue depends on the prices of oil, natural gas and natural gas liquids, which are volatile and influenced by global supply and demand, geopolitical events, weather, regulation and economic conditions. A property can perform as expected and still produce less revenue than anticipated if prices fall.
Reserve and production estimates
Estimates of recoverable reserves and future production are engineering judgments based on available data and assumptions. They are inherently uncertain and may be revised. Actual production may be materially lower than estimated, and wells may decline faster than expected or fail to produce in commercial quantities.
Operational risk
Oil and gas operations involve hazards including mechanical failure, blowouts, fires, spills, equipment breakdown, well control problems and adverse weather. Recompletions, workovers and other redevelopment work may not succeed. These events can cause delays, increased costs, reduced production or loss of a well.
Additional costs and funding obligations
Working-interest owners are generally responsible for their proportional share of all costs of a property, including drilling, completion, equipment, operating expenses, repairs, cost overruns and eventual plugging and abandonment. Actual costs may exceed estimates. A JV member may be required to fund additional amounts, and failure to do so may result in penalties or loss of some or all of the member’s interest as set out in the governing documents.
Liability exposure
A working interest held directly or through an entity that does not limit liability may expose the holder to liabilities arising from operations, including environmental, regulatory and plugging obligations, potentially in excess of the capital committed. Insurance may not cover all risks or may be insufficient. You should review this exposure with your own legal counsel, particularly if you have asset-protection planning in place.
Illiquidity and transfer restrictions
There is no public market for interests in Summit Ventures joint ventures, and none is expected to develop. Interests are subject to restrictions on transfer under securities laws and the governing documents. JV members should expect to hold their interests for several years and may be unable to sell when they wish, or at all.
Tax risk
Anticipated tax treatment may not be available or may be limited by the circumstances of the taxpayer or of the project, including the excess business loss limitation, the at-risk rules, the alternative minimum tax, recapture on disposition and state law. Tax laws and their interpretation may change, possibly with retroactive effect, and the Internal Revenue Service may challenge positions taken. Any decision should make sense on the project’s operating merits without relying on tax benefits.
Regulatory and environmental risk
Oil and gas operations are subject to extensive and changing federal, state and local regulation, including environmental, permitting, safety and reporting requirements. Changes in law or regulation, or in their enforcement, may increase costs, delay operations or reduce production.
Reliance on Summit Ventures and operators
JV members rely on the judgment, experience and integrity of Summit Ventures and the operators it engages. The loss of key personnel, poor decisions or the financial difficulty of an operator or counterparty could adversely affect a project.
Conflicts of interest
Summit Ventures and its affiliates may have interests that differ from those of JV members, including in the allocation of opportunities, time and resources among projects, and in compensation arrangements. The offering documents describe material conflicts of interest and how they are addressed.
Concentration
A joint venture may hold interests in a limited number of properties in a limited number of geographic areas. Poor performance of a single property or area may have a significant effect on the venture.
Participation obligations
Summit Ventures structures its ventures as entrepreneurial joint ventures. JV members hold governance rights and are expected to take part in material decisions, as described in the governing documents. Members who are unable or unwilling to participate should not join a joint venture.
