Abstract
Following the acquisition of 51% of Petrom by OMV in December 2004, the management team saw an opportunity to completely redesign their overall investment appraisal process aiming to bring it to a level comparable with the best in the industry. In particular, with the advent of the Sarbanes Oxley (SOX) legislation in the US, Petrom management wanted to achieve a level of consistency and transparency that would meet or exceed the highest international standards.
The processes in place under state ownership were focused primarily on production maintenance and lacked the economic and financial discipline required to simultaneously maximize return to shareholders. The implementation of a modern project appraisal and investment analysis system was therefore a major imperative of post-acquisition change management. In this situation availability of quality data was a major barrier to progress, however it was felt that establishing a level playing field was one of the keys for success.
Following the implementation of a suitable standard framework a business model was built for the entire Petrom E&P division using commercial software. This model was then used to forecast the outcome of several operational choices against three key strategic targets. The model contained details of more than 1,700 projects and producing fields and allowed Petrom to simulate prioritization or delay of any part of the program while honoring the links and dependencies between individual options. Goal seeking optimizers were used to find solutions that best fulfilled the corporate production target whilst staying within the established regional annual budget expenditures and other KPI's. The analysis ultimately led to selection of projects that would achieve the production and operating expenditure targets whilst requiring well below the anticipated capital budget in two of the three organizational Regions of the Romanian operations.
The paper describes how the application of business modeling practices, that have been applied effectively to long term portfolio decision making, can also be used for near term field development, capital investment, modernisation and budgetary decisions. The implementation stretched the boundaries of current practice and showed that significant insight can be gained; in particular the results show what can be achieved with far less than perfect data. An additional outcome was the accelerated development of several Petrom personnel in the application of modern business methods.
