Tuesday, December 12, 2017

E&P Portfolio Strategies in Downturn

Flexibility of Portfolio and Swiftness of Response - Key to Survival

Upstream E&P companies create portfolios as part of long term strategy. They may play in Exploration/Appraisal, Development and Production/Rejuvenation or all of them, depending on their; strategy, maturity of business, risk tolerance and access to capital. They create flexibility in portfolio by diversifying assets geographically, geologically and along maturity in life cycle. The companies that came out least scathed during recent downturn were the ones that were swift to respond and had the most flexible portfolios.

In this environment, maximizing cash-flow (CFFO) and production takes priority over maximizing NPV or reserves. Hence reduction in Unit Operating Cost (OPEX) in producing assets becomes as important a factor as reduction in UDC (CAPEX) in the development assets. Common portfolio strategies reported during downturn that helped staying focused on long term outlook, while managing short-term challenges were; Focus on Near-field Exploration, divestment of non-core assets and unaffordable development projects, acquisition of new production and delay or divestment of D/R commitments

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