When Oil, Gas Portfolio Optimization Goes Too Far | Exploration & Production

A key expected strategy for surviving in a “lower-for-longer” price environment is portfolio optimization, shedding assets that do not fit a specific geographic strength, technical capability or risk profile. During the recent downturn, many oil companies migrated from cost reduction to portfolio rationalization. Several companies even optimized to the point of a single-basin focus, consolidating drilling activity to reduce costs, most often by retreating to the predictable returns available in onshore unconventionals.

But with the downturn now in its fourth year, it might be time to begin rethinking the upstream portfolio—this time with an eye toward optimizing for growth and consistent cash returns.

Divesting higher-risk assets was a smart move for many companies when prices fell quickly. But history shows us that prices are unpredictable. If prices were to rise over the next 10 years—perhaps due to geopolitical issues or even an unexpected increase in global demand—it makes sense to have a broader reserve base available for E&P.

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When Oil, Gas Portfolio Optimization Goes Too Far | Exploration & Production.