Thinkabout who should assume the exploration risk in an oil production sharingagreement. In your discussion posting, be sure to address the following points: 1.How hasthis week’s material affected...

Oil Exploration Risk Analysis
Oil and gas exploration or hydrocarbon exploration is nothing but search by the petroleum
geophysicists and geologists for hydrocarbon deposits beneath earth’s surface, such as natural
oil and gas. Hydrocarbon exploration involves high risk investment and the risk assessment is
crucial for the fruitful portfolio management of exploration. The exploration risk is quite a
difficult concept and the confidence of presence is assigned based on five geological factors
which are source rock, migration, trap, seal or cap rock, and reservoir. The confidence is
based on models and/or data usually mapped on CRS Maps. The objective of such procedures
is required so the geologists can assess all geological factors objectively. Finally, it results in
simple maps which managers and non-geologists can easily understand and make their
exploration decision (Johnson, 1994).
Generally, the oil company supplies the services and know-how to a state from
exploration through the production phases for an agreed fee. A Risk Service Contracts is
established between both the parties. In these contracts, the oil company usually bears all the
exploration cost. The contractor has to bear all the risks and they are compensated once they
make commercial discovery. Additionally, a contractor is eligible to a certain amount of
share of profit but not share on production. The government allows a contractor recover its
cost through sale of oil or gas. The contractor may tend to negotiate to buy the oil at the
current world prices. The...