A portfolio optimization model for a large number of hydrocarbon exploration projects

Author:

Bulai Vlad-Cosmin1,Horobeț Alexandra2

Affiliation:

1. Bucharest University of Economic Studies, Bucharest , Romania

2. The Bucharest University of Economic Studies, Bucharest , Romania

Abstract

Abstract Over the past few years the global oil and gas industry has been going through a severe market downturn. Despite recent signs of stabilization, oil prices have a long history marked by volatility. In this context, it is imperative for oil companies to optimize their capital allocation, as this might support risk mitigation. The purpose of this paper is to offer a tool that might support the strategic decision-making process for companies operating in the oil industry. Our model uses Markowitz’ portfolio selection theory to construct the efficient frontier for currently producing fields and a set of investment projects. These relate to oil and gas exploration projects and projects aimed at enhancing current production. The net present value is obtained for each project under a set of usersupplied scenarios. For the base-case scenario we also model oil prices through Monte Carlo simulation. We run the model for a combination of portfolio items which include both currently producing assets and new exploration projects, using data characteristics of a mature region with a high number of low-production fields. Our objective is to find the vector of weights (equity stake in each project) which minimizes portfolio risk, given a set of expected portfolio returns. The model is of particular interest for companies operating in Eastern Europe, or in any other mature region. It can also support divestment and acquisition decisions since these may place the company’s portfolio closer or farther away from the efficient frontier. The model is highly versatile and can be implemented on any software with an optimization package such as Microsoft Excel.

Publisher

Walter de Gruyter GmbH

Subject

General Earth and Planetary Sciences,General Environmental Science

Reference13 articles.

1. Allan, P. D. (2010, January). Stochastic analysis of resource plays: maximizing portfolio value and mitigating risks. In SPE Annual Technical Conference and Exhibition. Society of Petroleum Engineers.10.2118/134811-MS

2. Armstrong, M., & Jehl, B. (1999). Comparison of three methods for evaluating oil projects. Journal of petroleum technology, 51(10), 44-49.10.2118/57894-JPT

3. Ball, B. C., & Savage, S. L. (1999). Notes on exploration and production portfolio optimization. available for download from http://www.stanford.edu/~savage or http://www.ziplink.net/~benball.

4. BP (2017). BP Statistical Review of World Energy June 2017. Retrieved from https://www.bp.com/en/global/corporate/energy-economics/statistical-review-ofworld-energy.html.

5. Devinney, T. M., & Stewart, D. W. (1988). Rethinking the product portfolio: A generalized investment model. Management Science, 34(9), 1080-1095.10.1287/mnsc.34.9.1080

Cited by 1 articles. 订阅此论文施引文献 订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献

1. Optimal Investment in the Development of Oil and Gas Field;Mathematical Optimization Theory and Operations Research;2020

同舟云学术

1.学者识别学者识别

2.学术分析学术分析

3.人才评估人才评估

"同舟云学术"是以全球学者为主线,采集、加工和组织学术论文而形成的新型学术文献查询和分析系统,可以对全球学者进行文献检索和人才价值评估。用户可以通过关注某些学科领域的顶尖人物而持续追踪该领域的学科进展和研究前沿。经过近期的数据扩容,当前同舟云学术共收录了国内外主流学术期刊6万余种,收集的期刊论文及会议论文总量共计约1.5亿篇,并以每天添加12000余篇中外论文的速度递增。我们也可以为用户提供个性化、定制化的学者数据。欢迎来电咨询!咨询电话:010-8811{复制后删除}0370

www.globalauthorid.com

TOP

Copyright © 2019-2024 北京同舟云网络信息技术有限公司
京公网安备11010802033243号  京ICP备18003416号-3