E&P Portfolio Strategies in Downturn
Updated: Nov 27, 2020
Flexibility of Portfolio and Swiftness of Response - Key to Survival
Upstream E&P companies create portfolios as part of their long term strategy to create flexibility in the portfolio. The companies 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.
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Companies create flexibility in their portfolio by diversifying assets geographically, geologically and along the maturity lifecycle. The companies that came out least scathed during recent downturn were the ones that were agile and swift to respond to the changes and had the most flexible portfolios.
In this environment, maximizing cash-flow from operations (CFFO) and production takes a priority over maximizing NPV or reserves. Hence reduction in Unit Operating Cost ($/boe) or OPEX in producing assets, becomes as important a factor, as reduction in unit development cost ($/boe) or CAPEX in the development assets.
Most 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 through M&A
Delay or divestment of D&R commitments
Competitive scoping in the capital projects to make them affordable