Investing in Energy: A Primer on the Economics of the Energy Industry

Importance of Reserves

One of the more significant challenges for an independent oil company (IOC) is growing its reserve base. In Chapter 6, we will review the industry standards for measuring and determining hydrocarbon reserves. Growing the reserve base becomes increasingly complex when one considers that virtually 80 percent of global reserves are owned by state-owned or national oil companies (NOCs). Therein lays the challenge. IOCs must work with NOCs to drill and extract hydrocarbons where sovereign nations own the mineral rights. Several Middle East NOCs are susceptible to geopolitical risk where oil or gas production may be potentially at risk. In 2011, Middle East turmoil in Libya and Egypt are excellent cases of production disruption ...