Oil and Gas Exploration and Production: Reserves, Costs, Contracts

Citation

Bhattacharyya, S. (2009), "Oil and Gas Exploration and Production: Reserves, Costs, Contracts", International Journal of Energy Sector Management, Vol. 3 No. 2, pp. 220-222. https://doi.org/10.1108/17506220910970614

It is widely known to all involved in the teaching and training of oil and gas economics and policies that there is a dearth of good reference books that is accessible to all readers. References like Masseron's (1990) book are outdated now and no recent book was available to fill the gap. The IFP‐School publication under review is sure to remove this void and would become a standard reference book in the industry for years to come. The book is written in a style that makes it accessible to everyone interested in the subject. It provides a great deal of authentic information and covers traditional as well as more recent issues related to the upstream side of the oil and gas industry. Although this is a translation of a French book, the translation was professionally managed, thereby ensuring an enjoyable reading experience. I was delighted to read this book and would recommend to everyone with an interest in the subject. This will surely be an asset for personal and conventional libraries.

The book is organised in eight chapters. Chapter 1 (Petroleum: a strategic product) provides the history of and developments in the oil industry covering a period of more than 100 years. This chapter carefully combines the history with economic logic and explanations and sets the scene for a better understanding of the subject. Anecdotes, photos, boxes and charts truly supplement the text and were successful in enlivening the long eventful history of the industry. The chapter ends with a discussion on the new developments in deep offshore, non‐conventional oil and bio‐fuels.

Chapter 2 introduces to the processes involved in exploration and production. This is a short chapter but provides a highly readable overview of the geological aspects, and technicalities related to exploration and production. The pictures and diagrams are used judiciously to provide a visual effect where required. Clearly, this chapter is very accessible to non‐technical persons as well.

Chapter 3 discusses the concepts and definitions of hydrocarbon reserves and provides an understanding of present knowledge of reserves of various hydrocarbons – conventional and non‐conventional. The geographical distribution of reserves is also presented. The chapter then considers the production of reserves and the effects of technology, and economics on the reserves. A brief discussion about the Hubbert's peak is given and a note of caution is provided in a box to guard against the indiscriminate use of the concept. Once again, the chapter is written in a non‐mathematical language that makes it accessible to the wider audience.

Chapter 4 presents the costs and investment trends in oil and gas upstream activities. The chapter provides a detailed treatment of costs involved in exploration, development, production and transport. The cost elements are clearly identified for onshore and offshore activities as well as for LNG and examples are given to indicate the cost ranges. This chapter is highly informative and the practical case examples provide added value.

Chapter 5 deals with the governance of exploration and development activities in the oil and gas industry. The chapter provides a non‐technical review of the main elements of a contract by grouping the provisions into four broad categories, namely:

1. 1.

   technical, operational and administrative provisions;

2. 2.

   economic, taxation, financial and commercial provisions;

3. 3.

   legal provisions; and

4. 4.

   miscellaneous provisions.

The chapter also gives an overview of the alternative forms of governance mechanisms, namely concession systems, production sharing contracts, and other arrangements (e.g. service contracts, buyback contracts, etc.). The economic effects of alternative forms of governance on the activities are also presented towards the end of the chapter. Inclusion of this chapter makes the book more relevant to students and general users who would like to gain an insight into the operations and the practical arrangements prevailing in the industry. The non‐technical presentation of somewhat complex contractual arrangements makes the chapter highly accessible any reader.

Chapter 6 introduces the decision making tools for exploration and production investment decisions. This chapter involves a limited amount of mathematics to introduce the concepts of discounting and probability. It also introduces the concept of decision‐trees but in line with the rest of the book, this chapter has been kept simple. This chapter on the decision support system is essential for a complete understanding of the industry activity but for a deeper understanding the reader needs to consult a complimentary book by Babusiaux and Pierru (2005)[1].

Chapter 7 introduces the information‐related issues for hydrocarbon exploration and production. The accounting systems used for this business is presented and various ratios and indicators that can be used for a comparative analysis of the competitors are discussed. Finally, Chapter 8 covers the health, safety and environmental aspects related to hydrocarbon exploration and production. The material included in the last two chapters is not normally covered in any standard reference book on the subject and accordingly, they form one of the special features of this book. Anyone interested in the subject will appreciate them very well and this knowledge is essential for an overall understanding of the industrial activities covered in the book.

Overall, the book has been designed to serve the purpose of a standard reference book. The book is smartly presented and surely has benefited from the participation of the specialists from the total group. The access to privileged information, photos and knowledge has enriched the book substantially. Readers with more mathematical skills would have benefited if some annexes dealt with the formalisations of some ideas.

I have already recommended this to my students and have found it a very useful volume for my teaching. I strongly believe that the book will emerge as the preferred reference for all students and followers of the hydrocarbon industry. This is accessible to anyone with or without any prior knowledge of the industry.