Abstract
Portfolio models can serve as an assessment tool for the optimal assignment of capital between the potential investment projects in the various conditions for upstream companies. This process is crucial for any company if it wants to balance the short-term goals and seeks to maximize long-term value of the company. The paper aims to present a practical model of forming oil upstream company's portfolio. The unique feature of this model is an individual approach to investment plan forming in a context of three types of projects: exploration, oil production and infrastructure projects. This is due to the individual approach which is used for comparison of all projects by using of universal set of indicators. Suggested model uses the multi-criteria selection mechanism by means of aggregating the key estimating indicators into the final project rank score. In that way the task of forming investment project's portfolio of upstream company is a linear programming problem that is solved by simplex method. In the paper the model forms consolidated investment portfolio that takes into account decision makers' preferences in setting of limits for resources.Keywords: Simplex method, optimizing the investment, project's ranking indicator, decision-making mechanism, optimization model, investment portfolio, upstream companyJEL Classifications: O13, L22DOI: https://doi.org/10.32479/ijeep.7965
Highlights
According to the IEA (International Energy Agency, 2018), since 2014 the global oil demand has been on an upward trend
We propose to classify the investment projects in the model in order to form an optimal portfolio for real investments in oil company
The presented model is suitable for optimizing the medium-term investment plan in upstream companies
Summary
According to the IEA (International Energy Agency, 2018), since 2014 the global oil demand has been on an upward trend. It is difficult to implement due to significant investment reduction in 2014-2016 years that affected to the overall level of oil production. The intensive investments both in the greenfields and the brownfields are essential to production increase. It should be noted that the most brownfields in Russia are on the last stage of reservoir development or contain tight oil and gas. For the production of such oil companies have to increase the investments into the drilling of horizontal and directional wells and their reconstruction. The long-term expansion program of oil companies involves the expansion of hydrocarbon resource base due to the implementation of capital-intensive and high-risk exploration projects
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