Considering Geological and Political Factors: A Need for Oil and Gas Firms

by Quinn Zraley

Having a successful operation in a business entails the need to face risks that can be deemed as challenges that can eventually make or break the business. The same is true when an investor comes within the reach of another industry—most likely, one that he is not familiar with. It is always important to know what risks can be encountered in such industry and what are the ways to mitigate them. As for the oil and gas industry, management risk in general, as applicable to stocks, is not the only risk that must be taken into consideration. Let us take a closer look at the larger factors that this booming industry is facing.

Geological Factors: Extraction and Location

True enough, there were those times when it was so easy to have oil and gas, and companies did not worry about its production. But then again, time has come when there is an utmost need to do better exploration for the best interest of locating oil traps that can be drilled. The thing about this, though, is that not all locations have human-friendly surroundings. When worse comes to worst, it can be truly difficult to explore in a place that has high risks. There are now better ways to extract the resources needed in a particular area where it would have been too impossible at first thought. This is made possible by the help of modern gas extraction methods.

In terms of considering the geological factor of operating an oil and gas business, it has to be understood that it is not just about having a hard time in extracting deposits in a particular location. Aside from this, it also has something to do with the inaccessibility of the locations of such reserves. There are also cases in which the deposit underneath might be lesser than expected.

In order to mitigating the risks for this factor, geologists assigned in a project see to it that they perform tests regularly. They are the ones who provide their insights as to whether the location is suitable for digging and extraction of oil.

Political Factor: Regulatory Considerations

Politics also plays a vital role in the oil and gas industry. While some might think that this is just about the way that politics can bring about regulation in this industry, there are other things that necessitate consideration. One state may have a different point of view in terms of regulations and laws as compared to another. Most of the time, there are regulations that encompasses the mode by which an oil and gas firm can extract oil as well as locate and perform drilling. This political factor must be regarded with much importance most especially when the works are done in foreign countries or territories.

In order to take the edge off this factor, oil and gas firms are likely to choose countries that have stable systems in terms of politics. It is also ideal to go for countries or territories that allow and put into effect leases that are effective for a long time. But then again, there are those that do not have any inclination to the political atmosphere of a particular country or territory. Along this line is the possibility that the deals agreed upon during the start of the extraction of oil might be very different upon completion.

These two given factors are just two of the most important ones that companies in the oil and gas industry must bear in mind. Understanding how these can affect the operation is very crucial so as to maximize the processes of the business.

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