What is Portfolio Analysis for Oil & Gas?
Portfolio Analysis is about developing strategies that guide decision-making across a collection of “opportunities” (aka assets, projects, or decision units). It sounds simple but rarely is. A Portfolio Analyst often needs to solve tricky, complex problems with conflicting objectives, such as:
- How do I extract the most value possible from my assets, while staying within my capital budget and meeting my production target?
- What is the most value I can get from my portfolio while achieving net zero by 2050?
- How do I best grow production while minimizing my debt/cash flow ratio?
- What does my plan look like under different commodity prices? What would the optimal portfolio be in a low/high price environment?
- What is the likelihood that my plan will meet my cash flow target?
Many operational details will further complicate the analysis, and it is not uncommon for the corporate planning team to spend late nights and weekends pulling together data, working through plans, and preparing presentations.
Quorum’s Portfolio application, part of the Planning Space suite, can save the analyst a great deal of time and repetitive work while guiding towards a better solution for the business and getting everyone aligned on the path forward.
So how does it work?
The tool takes in data that describes the portfolio, such as production forecasts, cost/price assumptions, constraints, and inter-dependencies. By leveraging its optimization engine, Portfolio quickly finds the optimal solution (selection and timing of opportunities), subject to the constraints and dependencies given.
Examples: Maximize NPV subject to a 10-year capital budget, minimize CO2 emissions but keep my production flat, etc. And I need two years to get permits for this project, and those other ones can’t happen unless the initial pilot goes ahead, and so on.
This basically puts the analysis on steroids – instead of spending days (or weeks) running and comparing dozens of scenarios in an attempt to find the best one, the user tells the software to optimize on a target metric. It’s like an Excel goal seek function, but much more powerful and scalable because it can work with a large amount of data and honor many constraints and rules. In a few minutes, the software returns an optimal portfolio with associated data and dashboards for analysis and presentation.
Now the real work can begin. The analyst uses the model to test more theories. What if we acquire a new asset? How resilient is this portfolio if costs go up, or prices go down? How much risk are we taking on, and how can we reduce it?
The point here is that while Portfolio won’t necessarily get you straight to the summit of your mountain, it’s sort-of like taking a gondola lift up above the trees rather than starting your hike down in the forest. In addition to saving time and effort, your ability to see the terrain around you will help choose the right direction in which to climb. And just think of the arguments you won’t have with your hiking buddies when the path is clear rather than being lost in the trees. The most common feedback we get from Portfolio users is how well it aligns people on the strategy and path forward.
To summarize, Portfolio facilitates effective Portfolio Analysis by enabling customers to:
- Compile data from their different projects and opportunities
- Optimize their project choices - subject to their constraints, targets and dependencies
- Choose the best strategy for their business
- Easily test this strategy to gain insights and make better decisions