Abstract
Recent trends among major oil companies and independents have been consolidation through mergers and acquisitions and focus on key strategic core areas. The expressed goals have been to achieve synergy, reduce costs, and concentrate on areas with maximum expected value creation. This paper provides a model that endogenously determines the optimal numbers of projects to implement in an optimal number of areas. The decision of whether to invest in a project cannot be seen in isolation but must be linked with portfolio optimisation and the strategic core of the firm. Accounting for excess opportunity costs and monitoring costs, we demonstrate how financial volume, i.e., materiality, is decisive for companies' investment allocation decision and how implementing marginally profitable projects in low-tax areas may be part of an optimal solution.
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