Fossil fuel development, in particular oil and gas, promised vast riches in the past. Today it is exposing fossil fuel producers and their creditors to a massive stranded asset risk. Technological disruption with the rapid cost-reduction of renewable energy and storage technologies, in conjunction with the inevitability of increased climate action, are at the root of unprecedented uncertainties over the future of the sector. This paper proposes an innovative solution to this dilemma: a contract between international creditors and the government to leave certain hitherto undeveloped and unassigned oil and gas reserves in the ground for an initial 10-year period. In exchange, a participating government would receive debt relief. The amount could be calculated based on traditional oil industry methods of asset evaluation, applying them to future revenue profiles of governments with potential oil and gas projects.
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Table of contents
1 The Context: 2020 and Corporate Managed Decline
2 How to Structure the Value from an LITG Mechanism
3 The LITG Mechanism: How the Oil Industry Values Asset
4 Application to Government Revenue Profile
6 Difficulties and Objections