STAKES IN CONTEST OF RISK SET TO RISE

Stakes look set to rise in the worldwide contest of risk known as oil and gas exploration.

Isolated Iraq and isolationist Iran are edging back toward the game. In different ways and to different degrees, each country recently has made explicit its desire for exploration and development capital from abroad.

AGENTS OF INSTABILITY

The overtures haven't progressed far in a world that views the countries as agents of international instability. How long this might remain so is anyone's guess.

If they come about, however, these would not be standard entries onto the world's lineup of exploration and development prospects. Compared with the Viet Nams, the Myanmars, and the many other once closed countries that recently have warmed to outside upstream capital, Iraq and Iran are megaprospects.

A coarse analogy can put this into perspective. Let the world's I trillion bbl of estimated oil reserves represent prospectivity in broad terms-the allure to mobile capital of upstream projects of any kind. The analogy isn't perfect since it cannot account for rank exploration frontiers, where there are no reserves. But it will suffice for purposes of illustration.

Now think of global prospectivity as a single dollar. Individual countries hold widely varying shares of that dollar. Each decides whether to place its share on the table in the contest for capital. If it does not, it either finances upstream petroleum work on its own, or it doesn't perform the work at all.

Out of this metaphorical dollar, Saudi Arabia receives a quarter; the United Arab Emirates, Iran, Iraq, and Kuwait a dime each. The rest of the dollar divides into nickels, one each to the former Soviet Union, Venezuela, Mexico, the entire Asia-Pacific region, the Western Hemisphere excluding Mexico and Venezuela, all of Africa, and Western Europe plus the rest of the world.

At present, coins squarely on the table before global risk-takers, representing generally accessible targets for upstream capital, add up to only 20: the four nickels represented by Asia-Pacific, the non-Venezuelan and non-Mexican Western Hemisphere, Africa, and Western Europe and the rest of the world. Governments of U.A.E.'s oil-producing members have international partners but do not actively seek newcomers.

FSU states have flashed their nickel abroad but have yet to pry much of it loose from the vestigal grip of central planning. Other coin holders, such as Venezuela and Kuwait, seem tempted to enter the game but so far have not done so in any major way. International competition for exploration and production rights thus centers on only one fifth of global prospectivity.

It is no small matter, therefore, when new dimes approach the contest. Iraq now says that only the U.N. trade embargo stands between international oil companies and production sharing contracts covering prime parts of its resource. And when Iran signed a preliminary agreement with a unit of Conoco Inc. for offshore developments deal promptly quashed by the U.S. government--it was telling the world it wanted to play its dime. Both countries desperately need capital.

DOUBLING THE STAKES

If allowed into the game, these two dimes would double the oil and gas prospectivity at play internationally. They would, in effect, increase the investment scale of the oil business-and the potential rewards for taking risks in that business-by the same proportions.

Politics makes such a doubling of stakes hypothetical for now. But it's not too soon for industry leaders to ponder the possible effects on their business. They could be huge.