Abstract

As Rate of Reserve Replacement continues to be challenged, International Oil Companies (IOCs) face competition from other IOCs as well as from entrepreneurial national oil companies (NOCs) aggressively looking to develop assets domestically and overseas. A disproportionately large fraction of reserves are controlled by a few NOCs, and downstream resources are similarly pursued by NOCs and IOCs alike. Evaluation of potential countries or regions targeted for reserves replacement objectives must be made based on assessment of key risk factors for mid to long timeframe.

Country Risk Assessments for new country or region entry decisions serve as a crucial decision point in determining viability of project or project portfolio from a location perspective, but such assessments typically tend to be time consuming, complex, somewhat subjective, and often do not provide a basis for any objective comparison between candidate countries or regions.

Using a matrix of weighted risk factors this model presents a simplified approach for objectively assessing a potential country or region under consideration, and provides a basis for apples-to-apples comparison between shortlisted countries or regions. This approach is applicable to IOCs, NOCs, or Service Companies alike. Based on a relevance-weighted approach this model can assist in quick screening before further due diligence is embarked on. This not only accelerates decision-making for such investment considerations, but also provides input for later detailed project risk management.

Introduction

The hunger for oil continues to rage, undaunted by ever-climbing crude prices. Today's tight supplies are primarily because of surging world economy and growing demand, particularly in Asia and Middle East. Technological advances have made it possible to explore and exploit resources that were previously beyond reach, or simply uneconomic - but higher cost of development coupled with resource nationalism and regulatory uncertainty by NOCs and host governments have made it harder to bring supplies to market quickly. Amidst the feeding frenzy the reserve replacement challenge gets tougher with each passing day. As easier plays are tapped, the hurdle simply gets raised in terms of geographic, political, energy security, economic, or technical challenges that must be surmounted in order to reach the next barrel of crude. Today's realities appear to be more on management of above-ground risk in developing, transitional and politically unstable countries than managing below-ground risk. Figure 1 shows average annual change in consumption of crude oil and natural gas liquids in major world regions and countries in million of barrels per day. For example; in OECD Europe, oil consumption increased from 13.7 MMbbl/d in 1990 to 15.5 MMbbl/d in 2005 (a net increase of 1.8 MMbbl/d). Oil consumption is expected to increase by only 0.1 MMbbl/d in next 15 years in OECD Europe. On the other hand, in Russia and FSU countries, oil consumption is expected to dramatically increase in next 15 years after a long and continuous decline in consumption levels in these countries. In addition, developing Asia and the Middle East is expected to reshape the future oil market.

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