Modelling Risks & Opportunities in Upstream Oil & Gas

The double whammy of the COVID-19 pandemic and the effects of the Opec+ price war is presenting what is rapidly becoming the upstream oil and gas sector’s biggest challenge to date.  

The combination of a dramatic drop in global consumption due to movement restrictions and lockdowns, with a market currently being flooded by Saudi Arabia and Russia with unnecessary over-volume, is translating into an oil crash like never seen before. 

A third critical element also in play is the comparatively unnoticed European gas price war. Here, Russia is competing for increased market share across a continent wary of supply dependency from a powerful neighbour that is positioning for greater geopolitical influence. COVID-19, leading to a lower demand for energy is likely to also exacerbate this situation. 

The unpredictability of these compounding impacts right up to just over a month ago highlights, now more than ever, how precarious investment decision–making and commitment has become in the oil and gas sector.   

As the sector begins to face the reality of these extreme market conditions, there will inevitably be asset and corporate risks to evaluate and very tough decisions to be made.  

Consequentially, for companies and investors in more fortunate positions with a longer term view, there will be opportunities to be pursued and realised. 

In an uncertain market, flexible and integrated modelling is essential to finance functions in oil and gas companies and investors as they prepare for the future against various economic and financial assumptions and scenarios.  

From the short-term to life–of–field longevity, modelled scenario outputs are invaluable in enhancing asset and corporate decision–making. Funding needs and debt capacity can be defined while evaluating various profiles of risk. With sensitive fine–tuning and bespoke assumption modelling, financial and economic performance is measured which may lead to the assessment of various acquisition and divestment opportunities. Asset activation and de-activation functionality in modelling further allows for the assessment of various purchasing scenarios. 

In this double or triple whammy market of uncertainty, E&P clients look to specialists to assist with their decision–making and planning processes for their upstream oil and gas financial projections and economic modelling services.  

One solution, Upstream FinMod from Anderson Anderson & Brown (AAB), is designed for upstream E&P companies, acquirers and investors and has flexibility for current and future needs.  

AAB’s bespoke model solution incorporates tailor-made assumptions and caters for companies holding a working interest in operated or non-operated interests, or both. Its operability is applicable at both asset and corporate levels.  

Alasdair Green, AAB’s Head of E&P explains: “Upstream FinMod has been used in a variety of acquisitions and working interest evaluation situations in recent years. It can assist companies, investors and acquirers when making crucial decisions in extreme circumstances such as the current crisis caused by COVID-19 and the global oil price war. 

“As an organisation, AAB has developed its agile and flexible working strategy over recent years and, as a result, Upstream FinMod is a service solution that is already being delivered remotely. 

“In the face of the current challenges one thing is certain – that companies and investors with the ability to effectively evaluate risks will be better positioned to make tough decisions and pursue opportunities.”