A 'Top Down' Approach for Applying Modern Portfolio Theory to Oil and Gas Property Investments

摘要

Petroleum companies commonly use a “bottom up” approachrnfor constructing and evaluating their petroleum portfolios, i.e.rnthe “fill the data cube approach.” Extensive information forrneach well is coded into the economic software including butrnnot limited to rock and fluid properties, production profiles,rnoperating and capital costs and then aggregated to fields, businessrnunits and finally the total petroleum asset base. Thisrnapproach requires a significant commitment in technical, managerialrnand computer resources “to fill the data cube;” seriouslyrnlimiting portfolio analysis to companies willing torncommit to those resources.rnAn alternative to the “bottom up” approach is the “top down”rnapproach. Financial fund managers on Wall Street use this “toprndown” approach for the construction of financial portfolios.rnThe financial analysts are first involved in making forecasts forrnthe economy, then for industries and finally for companies.rnThis same concept and process can be applied to the petroleumrnindustry, greatly reducing the effort to prepare for and conductrnportfolio analysis.rnOne of the touted benefits of the “bottom up” approach is thatrnit preserves the uncertainty in reservoir and economic propertiesrnand this uncertainty is included when conducting portfoliornanalysis. However, at some point in the analysis, one must realizernall that is being manipulated are aggregated distributions ofrnproperties. The central limit theorem suggests that these aggregatedrnproperties all tend toward a normal/lognormal distribution.rnThe “top down approach” recognizes and uses this insightrnin constructing portfolios.rnThis insight is combined with advanced production declinerncurves methods to generate a production profile consistent withrntheoretical reservoir response. The advanced productionrndecline curves include oil and gas phases for both radial andrnfractured flow regimes, thus assuring the modeled responsesrnare based on sound reservoir engineering principals usingrnprobabilistic reservoir properties. The production responsernwhen combined with probabilistic economic calculation createsrnan integrated stochastic reservoir and economic model.rnThese models can be combined to create a replicating portfoliornof a company's asset base. Portfolio analysis is performed onrnthis replicating portfolio, examining the current asset performance,rnas well as acquisition and divestiture candidates. Usingrnthis methodology significantly simplifies the process, reducesrnthe staff and computing resources required, dramaticallyrnspeeding the process. An asset class is further de-aggregatedrninto subsets and portfolio analysis conducted on an expandedrndescription of a company's asset portfolio for additional detailrnas required.