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Abstract
Stress Testing Your Portfolio of Exploration Projects
Abstract
The best exploration portfolio is the aggregation of projects that best meets or exceeds key corporate objectives, usually though maximizing value and minimizing financial risk. Unfortunately, the annual results of exploration portfolios are notoriously volatile and of particular concern when that volatility results in the objectives not being met. Fortunately, there may be a way to predict the possibility of this type of disappointing outcome.
Cardiac stress tests have been conducted for many years by cardiologists. They are designed to identify a possible but not obvious weakness in the cardiac system under controlled conditions before it occurs in daily life. This concept is now applied in the financial industry via the Dodd Frank Act Stress Test (DFAST). Many non-financial companies are now designing stress tests of their own (Vaughan, 2008). Instead of just doing financial analysis on a mean case, companies now consider scenarios where disappointing combinations of different events combine together. The stress test will increase confidence that the portfolio will generate results required within designated controls (Schmieder, 2011).
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