Benchmarking and Beyond: Making Meaningful Comparisons in Oil and Gas
James Veron, Executive Director, Business Strategy, S&P Global Commodity Insights
Ian Longley, Director, GIS-pax
Even with the most robust dataset, comparing one oil and gas prospect to another can feel like comparing apples to oranges. Each E&P evaluates opportunities in a slightly different way, often at different levels of technical resolution. These differences have a material impact, and the issue gets worse in areas with low data, as there are more degrees of freedom. In these situations, comparing prospects can feel like comparing apples to pumpkins.
Even when you have lots of data in an area comparing one oil and gas prospect to another can feel like comparing apples to oranges because companies always evaluate opportunities in slightly different ways that are material and often it is done at different levels of technical resolution. This issue gets worse in areas with low data where there are even more degrees of freedom where it's more like comparing an apple to a pumpkin.
Proprietary data, public data and licensed or purchased data are all used in every E&P company's prospect maturation workflow. Integrating this data with other economic and commercial datasets becomes even more complex with annual price deck changes and continuous changes to local/country fiscal regimes.
Without a standardized dataset, meaningful comparisons, price assessments and risk management are nearly impossible. Collecting, standardizing and compiling a global dataset at scale is thus prohibitively time consuming and often impossible for most operators.
IHS Markit and GIS PAX have done the hard work by compiling data from 21,000 prospects and leads in the ArcPro-driven Portfolio Opportunity Ranker. This standardized, spatial dataset of the value, volume, risk and rank of the entire world's oil and gas prospects unlocks new potential for oil and gas portfolio optimization.
Compare prospects, peers, operators and countries to transform the unknown to known.
Benchmarking and beyond
Standardized comparisons provide valuable insight into every factor that impacts portfolio value:
- Geological, commercial and economic hydrocarbon volumes
- Play and prospect values at every oil price between US $10-$100
- Risk estimates of known prospects
- Ownership and partnership details at the block level
With Portfolio Opportunity Ranker, companies can calculate the true value of their portfolio based on volume, risk and commodity prices. Benchmarking against peers provides additional insight into a portfolio's value.
If a company's peers are out-performing them, is it because of geology, economics or both? While an asset's geology can't be changed, each company's tolerance for risk can impact the asset's value. A company with a high risk tolerance may have greater value in lower-quality acreage.
Economic factors, like proximity to infrastructure and country-specific operating costs, also have a significant impact on portfolio value. Operators in frontier plays like Mozambique or Guyana have very different risks and economics compared to operators in well-established plays like the North Sea.
A better understanding of how a company's portfolio ranks compared to peers can influence investment strategy. Companies can decide to invest, divest or maintain their strategy to follow the path of the strongest companies in their peer group.
POR's benchmarking tools can help inform M&A decisions. Companies who are considering an acquisition can view and analyze their target's entire oil and gas portfolio: ownership positions, partnerships, values and volumes. Ranking an M&A target's performance and value against their peers will show if they are a good buy or should be avoided.
Benchmarking tools also provide valuable insight into how a potential acquisition's portfolio might fit into a company's strategy in terms of risk and asset location. Companies with similar risk tolerances and basin experience will likely make a smooth transition. Conversely, underperforming, risky or low value assets should be avoided.
Location matters when it comes to the cost of doing business. Operating costs, infrastructure availability, pipeline access and regulations vary by country. In an emerging region like offshore West Africa, oil and gas prospects span several borders. With POR's benchmarking tools, companies can evaluate each country in the area. It is critical to get a full idea of differences in economics and legalities among nations before entering the play.
Government and regulatory bodies can also use this information to evaluate their own policies. They can see how their fiscal and legal requirements compare to neighboring countries and the rest of the world. If their country's policies are outdated or too restrictive, adopting new policies could attract valuable new foreign investment.
Compare with confidence
Make meaningful comparisons between operators, countries and oil and gas prospects with a standardized global dataset. Consistent methodologies eliminate the data biases and discrepancies that could lead to incorrect conclusions.
With the benchmarking tools in Portfolio Opportunity Ranker, it is easier than ever for operators to make informed decisions about their assets.
New from IHS Markit and GIS PAX: Portfolio Opportunity Ranker
Portfolio Opportunity Ranker uses the world's best E&P data and machine learning to identify, risk, value and rank 20,000 oil and gas prospects across the globe.
The tool is fully customizable, allowing users to incorporate their own data and local expertise. All calculations are editable and auditable.
Key features include:
- Polygons at the country, basin and block levels in a spatial platform
- YTF volumes values and rankings of the exploration potential in every proven charge area
- Risk, volume and value estimates of the world's known prospects
- Spatial predictions of volumes and values for global unidentified prospects
- Estimates of commercial yet to find volumes and values for all proven charge areas
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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