What Financial Risk Did Kosmos Energy, LTD Face?

Companies in the oil and gas industry face many risks ranging from political risks to supply and demand risks. However, oil companies involved in offshore drilling are subject to even more risks. There is no way of avoiding these risks, therefore these companies must address them in hopes of minimizing the effects related to a mishap resulting from one of these risks. The process of offshore drilling starts with verifying the exact location of oil reserves. Solid petroleum deposits often take the form of oil shale or tar sands. We call liquid petroleum crude oil and gaseous petroleum natural gas. Most reserves are trapped between precisely 500 and 25,000 feet. The location of these fossil fuels presents a challenging factor for those involved
These include risk involving financial transactions and its exposure to loan default. Financial risk is typically used to reflect an investors uncertainty of collecting returns and the potential for monetary loss.” What financial risk did Kosmos Energy, LTD face? Investors and corporations are looking for a place to make a return on money invested and at the time of Kosmos’ investment decision crude oil was the attractive investment. Crude oil barrel prices were jumping from $10 to $15 per barrel per day which helped influence Kosmos Energy in feeling confident enough to assume the risk involved in the harsh environments of offshore drilling. According to Jeffrey Harris, Managing Director – Warburg Pincus, Chairman Kosmos Board of Directors, “Risk is an important piece of this. Just the notion of Kosmos looking for oil in a country that had never had it before was extremely risky. There was a high probability that you would invest some amount of money, and you’d get nothing back. But if they were successful at achieving what their goal was, that the prize would be very, very large, and hence the reason to do it.” Here Jeff was discussing Kosmos’ decision to take on the Jubilee Field project in Ghana. This is the perfect example of the financial risks companies face when
Reputational risk can occur through a number of ways: directly as the result of the actions of the company itself; indirectly due to the actions of an employee or employees; or tangentially through other peripheral parties, such as joint venture partners or suppliers. In addition to having good governance practices and transparency, companies also need to be socially responsible and environmentally conscious to avoid reputational risk.” One of the biggest threats to a company involved in offshore drilling is the risk of an oil spill. On April 20th, 2010, one of the largest global oil companies, BP, faced this crisis. This disaster claimed the lives of 11 workers from the Deepwater Horizon. “For 87 straight days, oil and methane gas spewed from an uncapped wellhead, 1 mile below the surface of the ocean.” This is labeled as the worst environmental disasters in US history. An estimated 4.2 million barrels spilled into the ocean. Five years after the spill, the clear blue gulf waters full of marine life paints an unclear picture of what really occurred that day. While BP argues the effects of the oil spill and is eager to point out that the Gulf of Mexico appears to be healing itself, their reputation is still tarnished. According to Geoff Morrell, BP’s Vice President of Communications, “there is no data that suggests there are any long-term population level impacts to any