Portfolio management as a new approach on improvement of financial resources' allocation: A case study of the National Iranian Oil Company (NIOC)

Abstract

The National Iranian Oil Company (NIOC) is one of the largest exploration and production (E and P) oil companies in the world, which enjoys numerous investment opportunities. The selection and formation of the projects’ basket (portfolio) of this industry needs some considerations on decision making tools, key targets, priorities and constraints of NIOC. Due to NIOC’s vision, which is to be one of the excellent commercial companies of the world in production, refining and export of oil and gas, the necessity of keeping the production level unchanged and enhancing the abilities of production by fields developments and improving the recovery factor, are very important. As regards numerousity of investment opportunities at different stages of exploration, development, exploitation and production, considering all constraints, are not feasible without applying scientific methods. According to these, the model of this paper considers the government expectations, strategies, national targets, priorities and constraints of NIOC and evaluates economic risks of projects, economic evaluation of portfolio, applying MERAK products (for a few pilot projects) in the oil industry and finally, determines the optimum basket of the projects. For implementing the system, an organization is required in each planning departments of NIOC. This system as a decision support system (DSS) is able to use the current data, the government and ministry’s strategies, the policies of CEO and other budgetary and financial considerations, and determines the investment priorities and optimum portfolio of NIOC. Key words: Risk management, portfolio management, upstream industries, software, decision support system.