MANAGING RISK IS A KEY ACTIVITY FOR FIRMS. IN A SAME WAY, RISK MANAGEMENT HAS ALWAYS BEEN AN INTEGRATED PART OF OIL AND GAS INDUSTRY ACTIVITIES. OIL AND GAS INDUSTRY IS PRONE TO UNCERTAINTY. COMPANIES IN THE OIL AND GAS INDUSTRY MUST DEAL WITH THEIR OWN UNIQUE SET OF RISKS, WHETHER NATURAL, MAN-MADE OR OPERATIONAL, AS PART OF THEIR DAILY OPERATIONS, HUMAN CAPITAL DEFICIT, WORSENING FISCAL TERMS, COST CONTROLS, COMPETITION FOR RESERVES, POLITICAL SOME RISKS IN OIL & GAS INDUSTRIES ARE CONSTRAINTS ON ACCESS TO RESERVES, UNCERTAIN ENERGY POLICY, DEMAND SHOCKS, CLIMATE CONCERNS, SUPPLY SHOCKS, ENERGY CONSERVATION & ETC. RISKS ARE INHERENT IN EVERY FORWARD-LOOKING BUSINESS DECISION. AS A RESULT, THERE HAS BEEN A GREAT DEAL OF WORK DONE AND RESOURCES INVESTED IN RISK MANAGEMENT IN THE OIL AND GAS INDUSTRY IN RECENT YEARS.
THIS RISKS ENCOUNTERED BOTH UPSTREAM AND DOWNSTREAM NEED TO BE ADDRESSED TO ENSURE COMMERCIAL VIABILITY OF AN OIL AND GAS PROJECT. IN THE UPSTREAM SECTOR, THE INDUSTRY IS CHARACTERIZED AS “HIGH-RISK” INDUSTRY DUE TO THE SIZEABLE INVESTMENT LEVEL, GEOLOGICAL UNCERTAINTIES AND OTHER RISKS RELATED TO FISCAL AND POLITICAL UNCERTAINTIES WITH HOST PRODUCING COUNTRIES.
FIRMS WHICH ACT IN OIL & GAS INDUSTRIES, USE FROM DIFFERENT TOOLS TO HEDGE AND MANAGE THEIR RISK. ONE IMPORTANT TOOL IN RISK MANAGEMENT IN OIL & GAS INDUSTRIES IS CONTRACT. NOWADAYS OIL & GAS INDUSTRY USE FROM CONTRACTS TO MANAGE THE RISKS. CLAUSES THAT PUT IN A CONTRACT SET TO HEDGE RISKS THAT CAN BE HARMFUL. THEREFORE IN THIS PAPER WE TRY TO EVALUATE USEFULNESS OF CONTRACTS TO MANAGE THE RISK OF FIRMS. WE THINK THAT CONTRACTS CAN MANAGE SOME RISKS BUT SOME RISKS ARE OUT OF THE CONTROL IN THE CONTRACTS. FOR THIS GOAL, AT FIRST WE HAVE AN OVERALL EVALUATION OF RISK THAT AFFECTED FIRMS. IN CONTINUE THE EXISTENCE CONTRACT WILL BE DEFINED AND EXAMINE THAT WHETHER THIS TOOL IS USEFUL TO MANAGE THE OIL & GAS INDUSTRIES OR NOT.