Abstract

Risk of expropriation reduces investors, expected profit from overseas oil ventures, but possible compensation has little effect. In the event of expropriation, however, the quantum of compensation is intensely contested.

The wide disparity between valuations claimed by governments (net book value) And companies (DCF valuation) can be significantly reconciled. Book value requires certain adjustments, and the "Cinderella effect", the systematic overstatement of value, must be offset.

Indeed, except for windfall profits, net book value and DCF value in general will not differ greatly.

Introduction

Political risk — i.e. the risk of Political risk — i.e. the risk of expropriation without compensation, or with only inadequate compensation — is a very real spectre which affects investors, evaluation of foreign petroleum ventures.

In this paper we review the "worst-case scenario", i.e. the issue of determining compensation in the case where an oil-producing (" E and P") venture has been taken. This question is real because there are many such cases, and it is vexed because governments and companies differ so markedly over the standard of compensation.

The disparities are very large — in many cases over the last years the valuations advanced by the several Parties differ by factors of 10 and 20, and sometimes even more.

We focus here upon the questions related to valuation of lost oil properties as they would be perceived by arbitrators or nudges who must try to reconcile the conflicting claims of the governments and the companies.

The public record dealing with the valuation of foreign oil properties is quite limited. Most claims involving the taking of overseas oil Properties are adjudicated privately, and the awards are determined privately, and the awards are determined by arbitration panels or by special tribunals such as that convened for the several, quits large cases arising out of the Iranian revolution.

The absence of a public record has several consequences. First it limits the detail available to footnote ex post reviews and discussion; the subsequent discussion is based upon case experience, but is not specific to such cases and none are cited.

Second, according to practitioners, the absence of a public record also affects the conduct of such cases where expert testimony is not subject to ultimate external peer review. peer review.

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