A private oil and gas company in Latin America invited us to analyze and rethink its strategic exploration and production plan in order to identify development alternatives that would accelerate its growth. Through working together with the client’s leadership team and with expert technical professionals, we were able to develop a strategy with a higher expected value in the incorporation of reserves and production levels. To achieve this result, the analysis of uncertainties without biases, as well as solid and reliable information in the characterization and evaluation of portfolio alternatives was essential.

Context

The underestimation of uncertainties, along with the existence of weak points, or insufficient maturity in the project evaluation process or high-impact decisions, significantly affect the results during execution. 

The client had experienced these symptoms in previous periods and considered it imperative to increase trust and transparency of the alternatives and risks of its accelerated development plan. 

Approach

The first step was to ensure alignment within the leadership team regarding the priority that each attribute (e.g., CAPEX, IRR, NPV, risk exposure, execution capacity, etc.) of the strategic plan should have, as well as in its restrictions and/or dealbreakers. This allowed a common language and “equation” prior to the analyses, giving certainty and transparency of the objective function to be solved during the process.

Subsequently, and in conjunction with different client areas and teams, innovative and exhaustive strategies were generated that covered the entire space of possible actions, visualizing the implications – and opportunities – that the different uncertainties represented. Based on proprietary Tandem methods and tools, a stochastic economic model was structured that allowed – through different sensitivity analyzes – to identify the variables with greatest impact and influence to ensure effectiveness in the assembly of contingent alternatives in order to comply with the defined restrictions. The stochastic model also allowed simulating thousands of scenarios to evaluate NPV distributions of the different strategies and thus, be able to learn from them and rethink the strategy.

Finally, a hybrid strategy was consolidated, combining different levels of uncertainty and value, in order to integrate a diversified portfolio with a greater probability of expected impact and controlled risk. This clear and forceful strategy was translated into a communication, implementation and monitoring plan to ensure transparency throughout the process.

Results

The solidity and confidence of the strengthened strategic plan was achieved, allowing to increase the value and attractiveness of the company for its acquisition, based on an accelerated plan for the incorporation of reserves and production levels.