ABSTRACT

Risk analysis is critical to successfully exploring and developing oil and gas properties in today's turbulent environment. Risk analysis should go beyond deciding whether to drill a well, however; it also should be used to determine a company's strategy. Strategic planning is needed to set the direction of a company, improve profitability, allow the company to divest itself of unprofitable projects, and concentrate resources where they will do the most good.

The strategic classification method matches the quality of an oil and gas opportunity with a company's ability to pursue it. Several types of risk are quantified, including technical, economic, environmental, political, and competitive. These are subsequently benchmarked against historical risk and actual well results. Risk factors fall into two categories: those external to the company environment, which cannot be changed; and those internal to the company, which can. Opportunities and threats are external factors that affect a company's ability to make a profit but cannot be controlled. Strengths and weaknesses, which measure a company's internal ability to pursue a project, can be controlled. External and internal criteria are matched to determine the strategic classification of the project. By strategically classifying opportunities, a company can determine whether to strengthen its position, dilute its interest, or withdraw altogether. It can also be used to determine strategy such as concentrating in frontier areas versus more mature areas or increasing or divesting assets. Use of a strategic project classification will ensure that resources, both human and monetary, are used to maximize profitability and in accordance with company goals.

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