Research Article Open Access

Influence of Environmental Risk on the Financial Structure of Oil and Gas Projects

Bagilya Karsybayeva1 and Alberto De Marco2
  • 1 COSMI Kazakhstan LLP, Astana, Republic of Kazakhstan, A. Baitursynova Street, Block A-2, Kazakhstan
  • 2 Department of Management and Production Engineering, Politecnico di Torino, Corso Duca degli Abruzzi 24, 10129 Turin, Italy

Abstract

The risk profile of a Build-Operate-Transfer (BOT) project affects its debt service ability. In particular, the total risk profile of an oil and gas project is heavily influenced by its environmental risk exposure. However, this risk is often not given a considerable weight in risk analysis, resulting in underestimation of project’s total riskiness and consequent overestimation of the debt capacity. This study is aimed at understanding the dependence of the capital structure of oil and gas BOT projects on environmental risk exposure and proposes a methodology for incorporating such important risk into the total risk rating process to determine the debt leverage. As a result, it is shown that integrating environmental risks into the risk score of a project yields higher values of risk exposure, which may lead to a lower debt-to-equity ratio.

American Journal of Applied Sciences
Volume 10 No. 1, 2013, 97-106

DOI: https://doi.org/10.3844/ajassp.2013.97.106

Submitted On: 15 September 2012 Published On: 22 January 2013

How to Cite: Karsybayeva, B. & Marco, A. D. (2013). Influence of Environmental Risk on the Financial Structure of Oil and Gas Projects. American Journal of Applied Sciences, 10(1), 97-106. https://doi.org/10.3844/ajassp.2013.97.106

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Keywords

  • Environmental Risk
  • Oil and Gas
  • Project Financing
  • Project Management
  • Risk Assessment
  • Risk Rating