Our consultants regularly produce white papers and reports that provide commentary and analysis of industry news, topics and processes.
The Society of Petroleum Engineers Europe Ltd. is a not-for-profit, charitable organisation devoted to the safe and efficient exploration and production of crude oil and natural gas resources for the benefit of all humans.
Their endorsement is acknowledgement of our consulting expertise and thought leadership. You can download the abstract for each report below or get in touch to get the full published reports for free.
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Valuation of Swing Contracts by Least-Squares Monte Carlo Simulation
Taking gas contracts as an example, this paper seeks to (a) raise awareness of how flexibility creates value for both parties and (b) show how Least-Squares Monte Carlo Simulation can be used to quantify its value in dollar terms, from the perspective of both producer and buyer. Since the value of flexibility arises from the ability it gives to respond to fluctuations (such as in commodity prices), a useful model of swing contracts needs to reflect the nature of these fluctuations.
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North Sea Dominos
The Economic Dependencies of Infrastructure Assets and Their User-Fields. The future profitability and the ultimate hydrocarbon recovery of North Sea fields are largely dictated by the management of the infrastructure used to process and transport hydrocarbons. Optimisation of this infrastructure is therefore an important strategic objective for most North Sea players.
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Practical portfolio simulation: Determining the precision of a probability distribution of a large asset portfolio when the underlying project economics are captured by a small number of discrete scenarios
One of the great successes of modern financial risk modelling is the application of computing technology to simulate complex continuous probability distributions associated with the value metrics of real-life assets. The Monte Carlo simulation technique is the best known example and is widely applied by economists in the E&P industry.
However a Monte Carlo simulation in which project economics are aggregated into a large asset portfolio is rarely undertaken. The main reason is that present computing systems cannot handle the vast amounts of data generated in a Monte Carlo simulation of a large asset portfolio.
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Creating Efficient Portfolios that Match Competing Corporate Strategies
The process of portfolio optimisation provides guidance to decision makers on how to manage an asset base given corporate objectives, market conditions, and organisational capability. Many applications in the oil and gas industry are based upon Markowitz’s efficient portfolio theory. In the standard implementation of this framework, an efficient portfolio is defined as one that yields the highest value given a specific degree of risk.
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Valuing Oil and Gas Options by Least-Squares Monte Carlo Simulation
Least-Squares Monte Carlo simulation (LSM) is a promising new technique for valuing real options that has received little or no attention in the oil and gas industry. In this paper, we will demonstrate how LSM can handle more realistic valuation situations including the ability to (i) handle more realistic (probabilistic) price models and (ii) deal with multiple, possibly correlated, uncertain variables.
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Enhanced Economic Modelling by Correlated Stochastic Models of E&P Costs and Hydrocarbon Prices: the Limitations of Fixed Price Decks and the Versatility of Least-Squares Monte Carlo Simulation
As the E&P industry increasingly relies on probabilistic economic models in their decision making processes, the accuracy of the methodologies used becomes ever more critical. Enhancements can be achieved by improving the understanding of the interdependencies between different sources of uncertainty and the abandonment of fixed time series of either hydrocarbon prices or capital expenditures. Historical market data of hydrocarbon prices, steel prices and daily rig rental rates can be used to establish the correlation between different sources of market risk. Uncertainties can be defined as “fixed” or “dynamic”.
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A Game Theoretic Approach to Conflicting and Evolving Stakeholder Preferences in the E&P Industry
In the high-risk E&P industry, the profit of each stakeholder depends on the strategies of all. The optimal choice for one player may not be optimal for other players, who may opt to prevent it. These characteristics suggest using game theory to model decision situation in the E&P industry. In a business dominated by joint ventures and tight governmental regulation, an understanding of the interests and influence of all stakeholders is particularly important. Although the E&P industry is accustomed to develop complex economic models to obtain insight into the commercial attractiveness of joint ventures, the influence of other stakeholders is often ignored.
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Risk, Uncertainty and Investment Decision-Making in the Upstream Oil and Gas Industry
The research presented in this thesis is rooted within the existing decision theory and oil industry literatures. It contributes to one of the current debates in these literatures by providing evidence that in the operators in the UK upstream oil and gas industry there is a link between the use of decision analysis in investment appraisal decision making by organisations and good business performance.
It is commonly acknowledged that decision analysis is not as widely used by organisations as was predicted at its conception. One reason for this is that no study to date has shown that use of decision analysis techniques and concepts can actually help individuals or organisations to fulfil their objectives.
Despite over four decades of research undertaken developing decision analysis tools, understanding the behavioural and psychological aspects of decision making, and applying decision analysis in practice, no research has been able to show conclusively what works and what does not.
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