Portfolio management has become an important aspect of oil and gas business planning to support the efficient allocation of capital. As oil and gas becomes more difficult and expensive to find, petroleum companies are looking to portfolio management for providing both a more streamlined business planning process and an advantage over the competition in the industry. However, portfolio management has traditionally been deployed at a corporate planning level and has often missed the opportunity to consider the operational reality at the asset team or regional level. Each capital investment decision must be consistently evaluated for its ability to contribute to the corporate strategy while maximizing the usage of available resources. The aim of this study is to show how an integrated portfolio management solution can provide benefits when used at every stage in the asset development life cycle (from exploration through to production and abandonment) as well as at different levels in the corporation (asset teams through business units to corporate planning) to drive more efficient and effective business planning. This robust, integrated approach to portfolio management will drive more efficient investment across the corporation. The methodology can be applied to business planning processes at the asset team, the business unit, and at the corporate level within any petroleum company. The first section provides the best practices in maturing opportunities as producing, development, and exploration properties are evaluated consistently in the context of the company portfolio. The second section of the study covers some specific examples in which the asset development plan is put together to create typical drilling and rig schedules with operational issues such as dependencies between assets and facilities resource constraints. The third section looks at various portfolio management techniques to define the long-term corporate strategy and bridge it with short-term operational constraints to determine an optimized portfolio. The study concludes with specific recommendations on integrated portfolio management practices at every level in the organization to ensure that the corporate strategy is aligned with available resources. This integrated approach to portfolio management will allow corporate planners to balance long-term strategic goals with operational constraints from the business unit down to the asset team. It will result in a more balanced and diversified portfolio and drive better decisions in the capital allocation process.
Upstream oil and gas is a very capital intensive business. Shareholders look for profitability and growth against a backdrop of declining production and decreasing new play sizes. Optimal project selection is necessary to maximize the potential of any portfolio or business plan. The main goal of a Business Plan is to select a portfolio of projects (drilling, exploration, etc.) that maximizes value (and minimizes risk) and satisfies all constrains faced by management (drilling rig availability, facilities capacity, capital availability, human resource availability, etc.) These problems can be expressed in the form of a set of linear or non/linear equations such that global optimum values can be determined using Linear Programming or Genetic Algorithms. In this paper we will show how these techniques can be used to solve optimization problems utilizing a combination of both techniques and the use of software designed for that purpose. In our case study, we were able to define and implement a plan that increased expected production, reduced capital requirements by 20%, kept the activity within the capacity of the drilling rigs and facilities available and clearly prioritized the proven undevelop reserves within a maximum of 5 years for planned development. The total time invested on designing the plan was less than 5 days and the execution became clear to all the parts involved via a tool to share the information. The plan as designed was executed in 2011 flawlessly.
Over the last decade, breakthroughs in new oil and gas technologies have helped access untapped resources and allowed for their economic production. Through horizontal drilling and new completion techniques, gas trapped in low permeability tight shales is now accessible. Higher world gas prices have made gas liquefaction economic, facilitating transport of liquefied natural gas (LNG) to overseas markets. Technology, coupled with supply and demand, has initiated a new generation of mega-projects around the globe. These projects encompass the entire supply chain, from field development to pipelines feeding the LNG facilities, to shipping the product to market. As the global market for natural gas continues to grow, there is tremendous investment potential. However, due to complexities involved, accurate modeling is critical to understand the best investment strategy and to minimize risk. This paper will explore the intricacies involved in modeling upstream field development and the scenarios required to provide reasonable estimates of the upstream asset that will feed the rest of the LNG chain. We will look at the entire upstream asset from the investor's point of view, including investment required, growth potential, and long-term sustainability. We will compare how different decisions in field selection and development rate impact overall value. This paper will highlight the importance of using technical expertise, high quality data and specialized modeling software to produce a meaningful representation of an upstream development plan.
In the oil and gas industry, the term "business planning" brings visions of late nights, additional meetings, and countless hours spent collecting and reconciling large amounts of data. This negative connotation has been reinforced over the years as companies struggle to pull together the information they need to create realistic and achievable plans and to forecast future development to guide the growth of their business. It is unfortunate that business planning has such a bad reputation as it is critical to the success of any company in any industry. In business planning, the goals are simply to select the best projects from a portfolio of opportunities to maximize the return on investment, while being able to effectively communicate the details of how the different scenarios were created to provide confidence in the decision to invest. This paper describes a case study in which one of Occidental Oil and Gas Corporation (Oxy BU) business units improved a few key elements in their business planning process which helped them create a more realistic, higher return plan, faster. The Oxy BU saw the potential rewards that improvements to their planning process could generate by improving their planning efficiency, reducing errors, and breaking out of the same painful cycle they had experienced in previous years. In this paper, we present the results of the improved workflow, focusing on those which were seen to have the largest impact on results including:Data consistency:Consistent capture and reporting of data across all teamsMinimize bias:P50 curves developed, compared, and reviewed across teamsRisk analysis:Improved ability to account for granular risk factors across planType well scheduling:Increased ability to rapidly build, explore, and turn-around new scenariosOpportunity selection:Increased value of the portfolioVisibility of the plan:Increased communication and buy-in from teamsTime to market data:More realistic view of cash flows and activitiesResource balancing:Increased confidence in ability to execute the plan Using this new approach, the Oxy BU planning team was able to turn around three different investment scenarios, numerous development strategies, and create a five-year, long-range plan that the entire management team could present and stand behind.
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