Country risk analysis

This paper reports that the oil industry has been an internationally based industry that has been heavily dependent on outside financing sources. Historically, financing came from investment houses that, in most cases, participated in the projects as equity investors. However, investment companies can no longer satisfy the capital requirements of the current high level of exploration and development activities. The current trend is to involve commercial banks on a purely lending basis. Commercial banks, by their nature, are risk averse. In the case of oil and gas exploration and production they are asked to take not only technical risk and price risk but geopolitical risk as well. Methods have been developed by commercial banks to reduce technical and price risks to point which enables them to be comfortable with a loan. However, geopolitical risks are more difficult to assess. The risk associated with many countries are the nationalization of the investment, new tax restrictions, restriction of currency movements, and/or revisions to the production sharing agreements