That there is always some uncertainty of outcome associated with knowing whether a concession interest area contains commercially recoverable reserves of petroleum is one of the few certainties which exists in the business of exploring for and producing petroleum. To be successful, upstream companies must mitigate this uncertainty of outcome to the greatest extent possible.This article examines the manner in which an upstream company is able to mitigate such uncertainty of outcome by divesting all or part of its interest in a concession or a project through a farm-out agreement. The farm-out agreement will need to reconcile the competing interests of the farming-out party (which seeks to mitigate the uncertainty of outcome by shifting the risk to the farming-in party) and the farming-in party (which itself seeks to mitigate the uncertainty of outcome by leaving as much of that risk as possible with the farming-out party).Certainty v. potentialThe lifecycle of any upstream petroleum project can be characterised according to three essential phases:exploration and appraisal (as the petroleum prospectivity of the concession interest is assessed);project development and petroleum production (assuming that there are commercially realisable volumes of petroleum in the concession interest area); anddecommissioning and abandonment (as the petroleum production and transportation… Read full this story
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De-Risking Petroleum Exploration and Production – the Farm-Out Agreement have 305 words, post on www.natlawreview.com at April 29, 2014. This is cached page on CuBird. If you want remove this page, please contact us.