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Case Study: Strategic Economic and Financial Analysis Examines Value and Risk



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"Merak Capital Planning will improve the decisions made by Woodside."
Darryl Kingsley,
corporate portfolio coordinator,
Woodside Petroleum Ltd.



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The efficient frontier graphed in blue against sample portfolios from the genetic algorithm and randomized portfolio generator that passed (green) and failed (red) the goals.


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Goal Performance shows the portfolio mean value in red and the probability of achieving the goal in dark blue for each defined strategic goal in dark green, against base-business producing projects in light blue.

Portfolio Management Success at Woodside with Merak Capital Planning

Challenge
Woodside Petroleum Ltd. sought a more efficient resource allocation to incorporate probabilistic financial forecasts to ensure that maximum value was achieved—while minimizing risk.

Solution
Merak Capital Planning* software helped Woodside to take charge of its decision-making process. With its link to the standard Merak Peep* economic software package implemented by Woodside, various technical and price scenarios were integrated into a single distribution of economic indicators and time series outcomes.

Results
Woodside has a portfolio management process that examines various strategies and analyzes the probability of meeting its strategic targets.

Seamless, dynamic link to economic and financial data
Woodside Petroleum Ltd., Australia’s largest independent exploration and production company, was searching for a better way to plan its investment portfolio. Woodside managers sought a more efficient resource allocation—specifically people and capital—with a solution that aligned with their corporate strategy. The solution also needed to incorporate probabilistic financial forecasts to ensure that maximum value was achieved—while minimizing risk.

While its existing system could analyze financial data and approximate risk, Woodside wanted an application that also had a seamless, dynamic link to its economic and financial data through Merak Peep economic evaluation and decline analysis software. For these reasons, Woodside evaluated Merak Capital Planning strategic portfolio management software from Schlumberger Information Solutions (SIS), to gain new insights into how to achieve its corporate planning goals.

Intelligent problem solving
Merak Capital Planning software helped Woodside to take charge of its decisionmaking process. With its link to the standard Merak Peep economic software package implemented by Woodside, various technical and price scenarios were integrated into a single distribution of economic indicators and time series outcomes. From this comprehensive data set, Woodside could then optimize its portfolio on a risk/return basis.

Woodside used the extensive Merak Capital Planning analysis tools, with sophisticated optimization algorithms such as linear programming and a genetic algorithm, to quickly calculate, search for, and display an “efficient frontier” of possible asset portfolios. These portfolios were then compared to one another, and decisions were made based on each portfolio’s relative risk and potential return.

The ability to set strategic targets, in terms of explicit goals and constraints, and the capacity to measure the probability of attaining those targets, enabled Woodside’s key decision makers to work towards improving their processes in order to meet those goals.

Comprehensive planning system
The success of Merak Capital Planning at Woodside is largely attributed to Woodside’s effective process for gathering economic data from its asset teams to Merak Peep in a consistent and timely fashion. Since Merak Capital Planning is tightly integrated with Merak Peep, the data flow was streamlined, permitting Woodside to spend less time inputting data and more time analyzing various portfolios generated by the advanced algorithms of Merak Capital Planning. “What if” scenarios could be considered, in order to capture uncertainties and explore alternate portfolio options.

Many oil companies today are struggling to meet elevated expectations from multiple stakeholders. Woodside has a system in place to meet this challenge by implementing a portfolio management process that examines various strategies and analyzes the probability of meeting its strategic targets. Woodside’s dedicated corporate team has established an efficient planning system that ensures the success of this approach. By incorporating Merak Capital Planning into its planning process, Woodside is now able to
  • analyze different portfolios to select those with the best balance of value and risk
  • understand its ability to achieve strategic targets
  • spend its time analyzing many diverse alternatives—not on collecting data
  • identify portfolios with different levels of risk that meet its strategy.

Related resources
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