Continuing the Example
The Corporation decides that it can afford future investments of up to $2 billion in cumulative negative cash flow by 2005 and up to $2.5 billion in 2006.
We use the Query Device for CFATR2005wCum and set its minimum to be -2000 (millions). Likewise, we set CFATR2006wCum to a minimum of -2500. These constraints remove from selection all portfolios needing more than $750 MM in 2003 Capex. We also lost portfolios with > 1250 MMBOE in reserve additions(upper left chart) or > 1800 MM in NPV gain (second chart from left on the upper row).
In the chart in the upper right, we see we lost a good deal of Gas and Oil Production in 2007 by applying that cumulative cash flow constraint. We select one portfolio (#940 circled in orange) that provides the greatest Oil Production and one of the best Gas Production levels for 2007. That portfolio shows up as a yellow point in the other scatter plots and as a red line on the three left plots on the lower tier. We can see at a glance that the highest oil production portfolio (#940) delivers
- one of the highest finding costs of $1.25 per BOE (lower right chart),
- 1100 MMBOE reserves, in the middle of the pack (upper right chart)
- About $1500 MM NPV, slight better than the middle of the pack, in the NPV vs Capex chart,
- The best Cash flow in 2007
- And among the best cumulative cash flow in 2007-2010. (third from left on the bottom)
- The worst NPV at a 99% confidence (NPV.C99, second chart from left on the bottom). To maximize production in 2007, we must choose a risky portfolio when measured by NPV. Managers must decide whether this is an acceptable trade-off.
Instead of choosing one high Production Portfolio, we lasso many high production portfolios on the upper right Gas vs Oil 2007 production graph.
To better see the plots, we will zoom in on several of the charts on the surviving portfolios.
By further filtering, we can arrive at a handful of portfolios. Here we choose several portfolios at different levels of capex, but all near the efficient frontier of NPV and MMBOE as a function of Capex and reasonably high production and ROCE.
