Abstract

A method for managing the asset portfolio of an oil E and P company is proposed based on marketing planning techniques proven within the commercial sector. A multi-tiered approach is adopted to allow consideration of assets, both producing and prospective, within a regional, national or basinal context. The use of life-cycle concepts, gap analysis and directional policy matrices to evaluate and rank assets is illustrated through reference to a typical diversified North Sea portfolio. The implementation of these techniques within a company environment is also discussed. As well as allowing properties at different stages of maturity to be compared, appropriate strategies on how to manage the assets at each stage of development can be deduced from the categorisation introduced by the policy matrices. The method presented also allows the forecasting of potential shortfalls in production and facilitates strategic planning decisions to change the nature and size of the portfolio. The method is considered to be rigorous and rational and constitutes an improved, auditable technique for E and P portfolio management.

Introduction

The central idea of marketing has been described as a matching between a company's capabilities and the demands of its customers in order to achieve the objectives of both parties. In view of the conceptual difficulty in defining a "customer", the marketing concept has not previously been considered to be particularly applicable to the upstream sector oil exploration and production (E and P) companies. The demand for their end product, or unrefined petroleum fluids, is reasonably certain under today's conditions, at least at the prevailing price. The vendor has little control over this price, especially for oil, which is generally linked to benchmark crude prices via an adjustment for quality and the point of sale.

Despite this apparent mis-match, many of the problems facing the marketing function are essentially similar to those facing upstream E and P companies. The essential nature of the challenge to both parties is the identification of competitive advantage and the implementation of strategies to benefit from such. Despite the establishment of a link between long term profitability and an effective approach to marketing planning it is considered surprising that eight out of ten companies prefer to "stick with forecasting, budgeting and financial husbandry. In the search for competitive advantage, some of the following questions will invariably be addressed:

What exactly is the corporate goal, or "mission"? What level of growth of revenues and/or reserves is required by the company or shareholders and what mix of development, acquisition and cost control is necessary to achieve that growth? What are the relative strengths and weaknesses of the company, and its competitors? What is the expected level of growth, or indeed decline, in production volumes? How can a diverse product or asset range be compared on an equivalent scale such as easily to gauge its overall impact on the company and indicate effective management strategies to maximise its value?

To answer these questions, the marketing function has developed a number of tools which have proven themselves effective in circumstances where competition for market share has been arguably far more intense that in the oil sector.

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