Interdependencies Among E&P Projects and Portfolio Risk Management

Abstract

Abstract Risk management through portfolio optimization requires the avoidance of positive correlation and exploitation of negative correlation among the individual assets in the portfolio. In developing a portfolio of E&P projects, some such interdependencies arise from geotechnical factors that are generally recognized, such as projects in the same play or trend being likely to have similar geologic uncertainties (e.g. source or seal) or correlated reservoir properties. Other correlations, however, are more difficult to recognize, let alone quantify. These include such above-ground uncertainties as: changes in environmental or operating regulations at the national and state levels; changes in the transportation network, processing or refining capacities, or end-use demand; evolution of exploration and recovery technologies; and changes in fiscal regimes or the policies of countries in the same market. Any of these can enhance or detract from the project's ability to compete with other projects, so can directly influence their viability. A new method for estimating the interdependencies that arise from such factors, based on reservoir-on-reservoir competition as evaluated by summary simulation of actual reservoir properties, technologies, costs, logistics, etc., is described, along with worked examples to demonstrate the changes in optimal choices attributable to consideration of above-ground uncertainties and the interdependencies they create.