Integrating Technology and Organizational Alignment for a Portfolio Implementation
Authors: Carpenter Chris 
Published: November 2017

This article, written by JPT Technology Editor Chris Carpenter, contains highlights of paper SPE 187162, “People and Process: Integration of Technology and Organizational Alignment for Successful Implementation of a Strategic Capital Investment Portfolio,” by David S. Fulford, Gregory P. Starley, and Michael Berry, Apache; Derrick W. Turk, Terminus Data Science; and James R. DuBois, 3esi-Enersight, prepared for the 2017 SPE Annual Technical Conference and Exhibition, San Antonio, Texas, USA, 8–11 October. The paper has not been peer reviewed.

Choosing the best projects to fund is easy. The true challenge is weighing the complexities of the projects that are at the threshold for funding in a capital-constrained environment. One exploration-and-production (E&P) company has found that implementing and sustaining a portfolio process require technical solutions and application of best practices for three critical elements: production forecasting, project modeling and economic evaluation, and portfolio management and decision making.

Introduction

When capital is a limited resource, a bottoms-up approach to budget proposals does not provide a clear view to the optimal suite of projects to fund. Fig. 1 illustrates this concept, in which each business unit (BU) submits an independent budget for funding consideration. While the sum of the requests is, for this example, $6 billion, the corporation only has $4 billion to provide in order to meet cash-flow expectations.

While each budget proposal may contain many projects that surpass internal economic hurdles, the total sum of requested capital among all submitted budgets cannot be provided. In contrast, the corporate portfolio has clear sight of which projects contribute to corporate values, goals, and targets, and can deselect marginal projects in order to meet the total capital constraint. This approach is particularly important and effective in exercising capital discipline. 

Optimization of the portfolio is an exercise in linear optimization maximize total discounted net present value. Establishing a corporate portfolio is about more than merely the tools used for linear optimization of the opportunities. A portfolio must start with solutions for the complexities involved in the characterization of the projects themselves, evaluation of uncertainty and thresholds for decisions, and discretization of possible outcomes into cash flows that may be evaluated in the portfolio. 

Business challenges involved in successful implementation of a corporate-portfolio process include accurate production forecasting, project  modeling and economic evaluation, portfolio management, and assessment of organizational alignment and resources (e.g., how decentralized BUs can coordinate effectively with others within a larger organization).

Solutions (Technology)

Production Forecasting. Monte Carlo simulation methods have been applied for both unconventional and conventional reservoirs. For unconventional-resource plays, a Markov chain Monte Carlo (MCMC) machine-learning technique is used to create more-objective production forecasts.