 RUSSIA IN FACTS |
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10 November 2003 01:51
Country risk THE LEX COLUMN:
Is Russia a riskier place for an oil company than the UK? Concerns over the
potential appropriation of assets suggest an obvious answer. However, last
year's surprise increase in North Sea oil production tax was a reminder
that country risk exists even in politically stable nations.
Excluding tax matters, the UK is the third most attractive of 45
oil-producing regions according to rankings from PFC Energy, a
Washington-based consulting firm. PFC analyses five broad categories:
economics, politics, entry and operating conditions, and surprises.
Russia is slipping down the table as previously optimistic assumptions on the
rule of law are revised, but still holds a position in the middle of the
league. It stands well above Saudi Arabia and Kuwait, where the lack of
access granted to international companies drags down the ratings. Russia is
also better placed than Nigeria, which ranks poorly on corruption and the
threat of violence. These judgments can be challenged, but they highlight the
diversity of country risks.
Can the risks be mitigated? Maintaining a broad geographical portfolio of
assets is an important start. Downstream operations help offset production
exposure in unstable regions, while industry mergers have allowed companies
to diversify within existing production areas.
But, with oil fields in OECD countries maturing, the bulk of the world's
reserves are to be found in less-developed nations. Country risk is set to
become a more significant factor as oil companies look further afield to
replace depleted reserves. Investors operate on shorter horizons than oil
majors, but the current high level of crude prices offers comfort to set
against the risks. Should crude prices return to a lower level, investors may
become more wary of increased country risk in oil company portfolios.
[FTI [The Financial Times]] | | |
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