Portfolio Performance Management
Financial allocation by decision-makers on oil & gas projects focuses on exploiting the interplay between existing and potential projects to arrive at the optimal balance of investment, risk and reward. E&P investments face uncertainties in finding and developing hydrocarbons as well as uncertainties in commodity prices and geo-politics. An holistic management of risk is therefore crucial and portfolio tools and associated decision making processes can help address some of these questions.
Background
The holistic approach to portfolio analysis, taking into account all current and future capital investments, has long been discussed in academic papers and conferences. While there is theoretical justification to portfolio thinking in the E&P field, the necessary time consuming approach to evaluate E&P uncertainty means that a lighter, perhaps more intuitive approach, appears to be the preferred ‘option’ amongst the E&P professionals.
New Technology
There are new-style technology vendors entering the competitive market, challenging the established industry players. These newcomers have the potential to alter the manner in which oil companies manage their portfolio information. While portfolio management will always remain a core competency, the manner in which oil companies leverage portfolio tools to better understand their assets and improve cost efficiencies could alter the market landscape.
Process Implications
These tools allow companies to combine the output from the varied rigorous analytical tools that are used to value single investment options, into a single consistent ‘view’ of all the options. Web enabled data collection and viewing functions mean that capital investment decisions can be made in real time with the most up to date information on future and current projects.
For these technologies to be effective requires changes to capital allocation and portfolio management processes. The potential for increased granularity and transparency of information on capital projects needs to be carefully managed. Such tools can place a spot-light on individual option values and identify inconsistencies. Therefore we suggest that these new technologies can be used as a lever to implement corporate wide standard processes for option valuation and associated peer review.
How Paras can Help
Paras has many years experience in helping companies design and implement more effective business planning and capital allocation processes. Support from our world-class understanding of the portfolio management tools market completes our service. We are able to guide companies through designing the most effective processes enabled by the emerging new technologies.