Many companies devote considerable attention and effort tornportfolio optimization. Yet most of the literature and experiencerntells us that shareholders will not pay a premium forrndiversification and that investors mostly prefer pure plays.rnDiversification, integration and hedging help companies levelrnearnings and cash flows through economic cycles. Thernimproved stability assists with various stakeholderrnrelationships and lowers debt, salary and transaction costs.rnHowever, risk mitigation comes at a price. What is the netrnimpact to the shareholder? Models of typical oil and gasrncompanies and a typical investor household provide anrnestimation of the effects of portfolio management onrnshareholder value.rnIn optimizing a company’s asset and investment portfolios,rnwhat specifically should we be maximizing to best servernshareholder interests? This paper explores the effects of threernseveral portfolio strategies as seen from the stockholders’rnperspective: owning related and unrelated business units (e.g.,rnproduction and refining) and hedging product prices (e.g.,rnselling production forward). The simulation results providernreference points for selecting capital investment decision rulesrnand determining a present value discount rate.
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