Integrated Project Management for Hydrocarbon-Portfolio Analysis and Optimization
Authors: Denney Dennis 
Published: February 2015

This article, written by Technology Editor Dennis Denney, contains highlights of paper SPE 100967, "Applying Integrated Project-Management Methodology to Hydrocarbon-Portfolio Analysis and Optimization," by Sholarin E. Adekunle, Curtin University of Technology, prepared for the 2006 SPE International Oil & Gas Conference and Exhibition in China, Beijing, 5–7 December.
Aligning hydrocarbon investments with constantly shifting business goals and priorities is a major challenge for E&P staff. There are many factors that can contribute to project failure, resulting in large investments to improve the predictability, producibility, and quality of evaluations. While, techniques such as estimating, risk assessment, process management, deliverables management, and project management improve project execution, they do not address the critical issue of scheduling or that of achieving satisfactory cost performances. This study explored the strategic significance of modern portfolio theory and its applicability to various oil and gas investments.

Introduction
Petroleum exploration and field development deal with many unknowns. Risks and uncertainties associated with income and life-cycle-cost factors [such as potential reserves, capital expenditures, operating expenditures, production rate, oil and gas pricing, geological success ratios, and intervention vessel expenses (especially for subsea wells)] make it difficult to forecast earnings and cash flow for prospects. Managing risk in petroleum ventures is very important, with the possibility of massive cost overruns and delays.
Decision making and project management are disciplined work processes that can be measured and optimized with uniform templates and procedures. A project profile outlining the ideal outcome reduces decision analysis because proposed solutions are aligned directly to goals, not solutions. Decisions, therefore, must be made in full alignment with the project's ideal intended outcome. This paper demonstrates balancing the strategic value of projects, financial return, and risk profile to select an optimal portfolio before commit-ting funds and resources.

Applying Project-Management Principles
Although upstream petroleum operations are not a traditional area for conventional practice of project-management techniques, recent literature has shown an increasing rate of embracing project-management principles in exploration, drilling, and production operations. Project management has been defined as applying knowledge, skills, tools, and techniques to project activities to meet project requirements. Project management is accomplished through the application and integration of various management processes; knowledge areas; and technical and management skills, methods, and techniques, which facilitate a successful project outcome.
A project can be considered as a temporary endeavor undertaken to create a unique product, service, or result. Here, a temporary project has a definite beginning and end, and a unique product, service, or result is different in some distinguishing way from all other products, services, or results. Oil exploration and field development are temporary endeavors that have the ultimate goal of producing hydrocarbons and, therefore, fit within the definition of a project. It begins when a creative idea is moved officially into the concept-evaluation phase and ends when a field is abandoned.