Managing risk and return of upstream portfolios

✍ Scribed by Orman, Mark

• Publisher: John Wiley and Sons
• Year: 2007
• Weight: 874 KB
• Volume: 14
• Category: Article
• ISSN: 0743-5665
• DOI: 10.1002/gas.3410140702

✦ Synopsis

Managing Risk and Return of Upstream Portfolios

istorically, few exploration and production (W) H companies have generated high returns while plowing high percentages of cash flow back into capital expenditure. Nevertheless, with capital flow into upstream investment increasing, this very challenge faces many companies today.

Funding the right investments and avoiding the wrong ones is almost as important as being able to generate prospects in the first place. Senior management's principal responsibility is to ensure that capital is placed in a portfolio of investments that generates a return greater than its cost of capital. However, an effective portfolio management process can only be built on a solid foundation of project risking and valuation.

Funding the right investments and avoiding the wrong ones is

almost as important as being able to generate prospects in the first place.

Other industries that face high-risk, long-leadtime investments have honed these same skills to guide portfolio management decision making. In the January 1994 Haruard Business Review, the CFO