OT22068 - Interest and Financing

Lending Practice. Reservoir Risk.

One of the major risks to be built into the future projections is the reservoir risk. Over the years there have been a number of occasions when reservoir maintenance has required unexpected and unpredicted costs. There have also been some occasions when reservoirs have ceased to flow as predicted. The reservoir risk is reduced if any lending is based on a number of fields rather than just one field. The mathematics of probability, given equal values produces a very much lower order of risk for three reservoirs together than for three separately. Thus a given total net production value may support a higher level of debt if three different reservoirs support it than if there is only one big field. It is better to have your eggs in more than one basket.