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Case Study: PETROM Optimizes Economic Development of Mature Eastern European Oil Fields & Maximizes Return to Shareholders
“With our newly integrated portfolio management system,we can efficiently analyze and more confidently forecast the outcome of several operational choices against key business model criteria.”
Gabriela-Georgeta Duta
Director
Portfolio & Economics Department
PETROM
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Merak software enables portfolio optimization by redesigning investment appraisal and risk analysis process
Challenge
Consolidate data for approximately 2,000 individual projects and 301 producing oil fields; standardize economic analysis procedure to calculate risk, cash flow, etc.; compare reserves forecasts for better investment decision making; identify and prioritize the best new projects to pursue quarterly/annually.
Solution
Implement the Schlumberger Merak planning, risk, and reserves software package as a corporate standard to
- create a central, secure database
- organize and optimize project portfolios
- perform project investment appraisals and rank top projects.
Results
Increased confidence in long-term portfolio decision making; identified risks at point of occurrence; optimized portfolios and allocation of resources; met production and other strategic targets with less capital expense (approximately 75% of anticipated capital budget).
Revamp economic and financial structure
Following its privatization and acquisition by OMV in 2004, PETROM launched an aggressive growth strategy to maximize the commercial success of the company’s mature Eastern European oilfield assets. A major objective was to create a level playing field for investing in Romanian projects by instituting standard, automated methods of appraisal and risk analysis to replace the various nonstandard cash flow forecasting spreadsheets previously used internally and externally. Issues such as missing or incomplete data would need to be addressed to ensure the availability of quality data key to accurate ranking of projects and project combinations. To reach these goals, PETROM needed to organize thousands of individual projects into manageable portfolios and migrate them to a unified database. In addition to an integrated system for investment analysis, a shift in corporate culture was required to place the focus on shareholder return on investment (ROI) and production maintenance.
Implement modern portfolio management techniques
Schlumberger Information Solutions (SIS) helped PETROM implement a communication, workflow, and data storage solution using components of the Merak software suite (Merak Capital Planning and Merak Peep modules). The software enabled out-of-the-box, high-level portfolio analysis reporting to management, creating economic cases that determined financial decisions for producing oil fields and potential projects. Standardized economic models were programmed into the system, allowing valid project combinations to be created and selected through a ranking procedure based on criteria such as production, OPEX, cost, budget, and KPIs for each operating area (region) or the entire E&P division. The software was further customized for seamless integration of Monte Carlo simulation, providing PETROM with probabilistic analytics (what-if scenarios) that could be quickly generated and viewed in an analysis grid or graphical format.
A major component of this solution was the Economics Portal, designed for speed as well as user-friendly access to PETROM project data, allowing up to five iterative steps in the optimization process within one week. The portal enables interactive planning, which allows regions to change their must-have or mandatory projects and project dependencies once they see reported optimization run results (i.e., rejected versus chosen projects). An online management dashboard was also provided, granting the same easy access at a summary level to top decision makers within the organization.
Achieved production and strategic targets at lower cost
The Merak implementation stretched the boundary of PETROM’s strategic planning practices, providing sophisticated business risk modeling techniques for performing companywide investment analysis rather than looking at single project details. These techniques can be applied effectively to long-term portfolio decision making as well as to near-term field development, capital investment, and budgetary decisions. The automated ranking feature in particular has demonstrated that production targets and other strategic targets are achievable with approximately 75% of the previously anticipated capital budget—a huge difference from manual ranking—even with less than perfect data.
As a result of data integration and standardization, PETROM gained confidence in the reliability of the underlying information as a basis for cash flow forecasting. The company can now quickly and accurately prioritize its project portfolios on a quarterly and annual basis, optimize the effect of the current year’s projects on the rolling 5-year forecast, and operate from a dynamic business model at both the corporate and the E&P division level. Value will continue to be gained as data analysis recycling and fast generation of different scenarios result in better investment decisions and financial performance over the coming years.
Schlumberger Information Solutions
Schlumberger Information Solutions (SIS) is an operating unit of Schlumberger that provides software, information management, IT, and related services. SIS collaborates closely with oil and gas companies to solve today’s tough reservoir challenges with an open business approach and comprehensive solution deployment. Through our technologies and services, oil and gas companies empower their people to improve business performance by reducing exploration and development risk and optimizing operational efficiencies.
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