Risk vs. Return Considerations for International Oil Exploration and Development Licenses

Over the years, many forms of exploration and production agreements have been developed by governments throughout the world. The agreements can differ widely in terms of form, severity, and flexibility.

Although the different forms of agreements may provide similar results to each other under assumptions of a given level of success, the results can differ markedly with variance from that level of success, both in terms of tempering downside exposure and limiting the upside opportunity.

A company should evaluate a potential exploration/production opportunity and its related agreement over a range of possible outcomes in assessing the prospect's overall attractiveness.