With oil prices stuck at low levels for the foreseeable future, exploration and production (E&P) companies must increase their productivity. Some E&P companies have already shown they can do this, driving up their production even as their capital spending has declined. Others have had a harder time, a fact reflected in their falling production numbers.
As E&P companies adjust to the new price environment, they could benefit from strategic portfolio management. Strategic portfolio management is a framework in which analytical tools and a set of clearly defined ongoing meetings are used to identify which assets, programs, and wells E&P companies should invest in. It encourages companies to make all of their decisions using a capabilities lens. At a time of severe capital constraints, strategic portfolio management keeps E&P companies on track by doubling as a control mechanism and a significant booster of performance.
In an industry as capital-dependent as oil exploration and production, there is a tremendous advantage in an approach that ensures a company gets the most from its invested capital. Strategic portfolio management is such an approach, helping companies avoid overinvesting in bad assets and underinvesting in good ones. Depending on an E&P company’s maturity, strategic portfolio management could increase the company’s production by 10 to 20 percent while reducing capital/ development costs by as much as 10 percent. Its potential impact on companies’ earnings and production is significant.
The discipline needed for strategic portfolio management might not be necessary in a world of $100-per-barrel oil. But those days are gone, and they’re not coming back anytime soon.