Risk:reward sharing contracts in the oil industry: the effects of bonus:penalty schemes

Alexander G. Kemp*, Linda Stephen

*Corresponding author for this work

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

Partnering and alliancing among oil companies and their contractors have become common in the oil industry in recent years. The risk:reward mechanisms established very often incorporate bonus/penalty schemes in relation to agreed base values. This paper examines the efficiency requirements of such schemes. The effects of project cost and completion risks on the risk:reward positions of field investors and contractors with and without bonus/penalty schemes are examined with the aid of Monte Carlo simulation analysis. The schemes increase the total risk for contractors and have consequence for their cost of capital and optimal risk-bearing arrangements within the industry.

Original languageEnglish
Pages (from-to)111-120
Number of pages10
JournalEnergy Policy
Volume27
Issue number2
DOIs
Publication statusPublished - Feb 1999

Keywords

  • project cost and completion risks
  • risk : reward sharing
  • bonus/penalty schemes
  • Monte Carlo simulation and project risks

Cite this

Risk:reward sharing contracts in the oil industry : the effects of bonus:penalty schemes. / Kemp, Alexander G.; Stephen, Linda.

In: Energy Policy, Vol. 27, No. 2, 02.1999, p. 111-120.

Research output: Contribution to journalArticle

@article{1b557a0c5add4194bffec0279dc2b01a,
title = "Risk:reward sharing contracts in the oil industry: the effects of bonus:penalty schemes",
abstract = "Partnering and alliancing among oil companies and their contractors have become common in the oil industry in recent years. The risk:reward mechanisms established very often incorporate bonus/penalty schemes in relation to agreed base values. This paper examines the efficiency requirements of such schemes. The effects of project cost and completion risks on the risk:reward positions of field investors and contractors with and without bonus/penalty schemes are examined with the aid of Monte Carlo simulation analysis. The schemes increase the total risk for contractors and have consequence for their cost of capital and optimal risk-bearing arrangements within the industry.",
keywords = "project cost and completion risks, risk : reward sharing, bonus/penalty schemes, Monte Carlo simulation and project risks",
author = "Kemp, {Alexander G.} and Linda Stephen",
year = "1999",
month = "2",
doi = "10.1016/S0301-4215(98)00069-X",
language = "English",
volume = "27",
pages = "111--120",
journal = "Energy Policy",
issn = "0301-4215",
publisher = "Elsevier BV",
number = "2",

}

TY - JOUR

T1 - Risk:reward sharing contracts in the oil industry

T2 - the effects of bonus:penalty schemes

AU - Kemp, Alexander G.

AU - Stephen, Linda

PY - 1999/2

Y1 - 1999/2

N2 - Partnering and alliancing among oil companies and their contractors have become common in the oil industry in recent years. The risk:reward mechanisms established very often incorporate bonus/penalty schemes in relation to agreed base values. This paper examines the efficiency requirements of such schemes. The effects of project cost and completion risks on the risk:reward positions of field investors and contractors with and without bonus/penalty schemes are examined with the aid of Monte Carlo simulation analysis. The schemes increase the total risk for contractors and have consequence for their cost of capital and optimal risk-bearing arrangements within the industry.

AB - Partnering and alliancing among oil companies and their contractors have become common in the oil industry in recent years. The risk:reward mechanisms established very often incorporate bonus/penalty schemes in relation to agreed base values. This paper examines the efficiency requirements of such schemes. The effects of project cost and completion risks on the risk:reward positions of field investors and contractors with and without bonus/penalty schemes are examined with the aid of Monte Carlo simulation analysis. The schemes increase the total risk for contractors and have consequence for their cost of capital and optimal risk-bearing arrangements within the industry.

KW - project cost and completion risks

KW - risk : reward sharing

KW - bonus/penalty schemes

KW - Monte Carlo simulation and project risks

U2 - 10.1016/S0301-4215(98)00069-X

DO - 10.1016/S0301-4215(98)00069-X

M3 - Article

VL - 27

SP - 111

EP - 120

JO - Energy Policy

JF - Energy Policy

SN - 0301-4215

IS - 2

ER -