Summary
The process of portfolio optimization provides guidance to decision makers
on how to manage an asset base given corporate objectives, market conditions,
and organizational capability. Many applications in the oil and gas industry
are based upon Markowitz's (1952) efficient-portfolio theory. In the standard
implementation of this framework, an efficient portfolio is defined as one that
yields the highest value given a specific degree of risk.
A corporate decision maker will aim, however, to select a portfolio that
meets several often-competing objectives (i.e., maximize portfolio value while
minimizing capital expenditure). The optimal portfolio choice given one
constraint is typically not optimal given one of the competing constraints.
This requires the portfolio manager to identify and select those portfolios
that best meet all corporate constraints. Deciding which portfolio to develop
is often compounded by there being several portfolios having similar economic
characteristics. However, these portfolios can generally be differentiated by
strategy, which may depend on nonfinancial attributes such as the geographic
location of the assets or on geological settings that might require different
engineering expertise.
In this study, a large set of exploration portfolios and their attributes
have been simulated. Through applying a series of simple and transparent
filters, a few portfolios can be identified that meet all the corporate
constraints. After a shortlist has been created, the portfolios can easily be
characterized by strategy, and the tradeoffs between them can be assessed.
© 2010. Society of Petroleum Engineers
View full textPDF
(
562 KB
)
History
- Original manuscript received:
5 December 2009
- Meeting paper published:
9 March 2010
- Manuscript approved:
4 February 2010
- Published online:
27 April 2010
- Version of record:
27 April 2010
View Cart
