This paper looks at the problems facing the international oil explorationist and host Governments in 1992, under a cloud of low oil prices and failing company profits, yet with more quality acreage available worldwide than for many years, especially with the emergence of the CIS states as prospective 'hunting grounds' for the western oil company.
Given the extent of the spread of opportunities available to companies and recognition of the increasing need to justify, on economic grounds, progress with any licence application this paper suggests two approaches that companies can adopt to rank the opportunities available, and maximise the value, on an after risk basis, of their (limited) international exploration budget : subjective rating by factor or the Risk/Reward balance.
Both of these approaches include measures of prospectivity and measures of local cost and fiscal effects in providing an overall exploration rating which can be used by companies to rank the available opportunities.
Governments in 1992 are having to compete with each other to secure exploration funds, particularly as companies devote an increasing amount of time in assessing the prospects in the CIS. This paper shows how, by modifying their fiscal regimes, they can readily affect the Risk/Reward balance and provide incentives which will continue to attract exploration when the prospectivity of the country is not perceived as relatively high, yet maintain the Government take as the prospectivity improves.
There are ill winds blowing round the international oil industry at the moment - fears of declining oil prices, oversupply and, stemming from these, lack of funding for new E and P projects. The winds are fanned by collapsing oil company profits, uncertainty and gloom about short-term economic prospects and a general perception that the light at the end of the tunnel is that of the approaching train. You will not find many optimistic forecasts about oil prices in the year 2000.
At the same time, there is an abundance of opportunities for the international explorationist. Many areas which have hitherto been regarded as essentially closed to foreign exploration companies, either because the acreage has been left unexplored or any exploration and production has been conducted almost solely by the national oil company, are now encouraging participation by western companies. The emerging states of the CIS are the most important additions to this list, but recent widespread acreage offerings in countries such as Vietnam, Myanmar and Argentina, for example, have also attracted a lot of interest. In tandem, major company rationalisation plans seem to be leading to a glut of worldwide farm-in opportunities.
How is all this affecting the international oil exploration industry? What is happening to licensing activity and the terms under which companies are acquiring acreage? How can both companies and Governments adapt to this new climate for international exploration? It is the purpose of this paper to examine these questions.