Diversification of Portfolio of International Oil and Gas Assets using Cluster Analysis

Abstract

Improving the tools and mathematical methods to diversify the portfolio of oil and gas assets in the face of limited investment, high market volatility, increasing risks and uncertainties at the current level of technology development is a very urgent task. In order to form an effective investment portfolio, the authors proposed asset diversification using cluster analysis, which implies grouping sample objects according to a set of specific features. The method under consideration involves five stages of asset valuation in order to consider those assets in a three-dimensional space, taking into account the specifics of the oil and gas business, including determination of individual asset trajectory, performing spatial approximation, calculating the clustering coefficient, ranking the resulting pairs, and directly solving the portfolio formation optimization problem. This paper provides a reasonable set of metrics for diversification of the investment portfolio based on cluster analysis: main criterion - ∆PV, additional criteria - ∆Production, ∆OPEX/toe, ∆CAPEX/toe, characterized geological, environmental, social and economic aspects. Thus, the proposed methodology provides an opportunity to identify the most attractive investment projects, thereby allowing large oil and gas companies to diversify their business with minimal risk and maximum return on invested capital.