Professor and Director of the Division of Economics and Business at the Colorado School of Mines specializing in the areas of strategic decision making, business strategy, and risk management, with a particular emphasis on applications in the petroleum sector.
Main research interests are in the areas of petroleum valuation, corporate risk management, and the integration of decision analysis and portfolio management in the corporate context.
Relying on technical developments in the areas of decision analysis, finance and business strategy. provides clients with the ability to improve their decision quality and create value.
Today’s petroleum firms face an increasingly competitive and risky business environment.
Managers are regularly confronted with a wide array of exploration, development and acquisition options, each of which comes with tremendous financial risk and uncertainty. Should they pursue that additional drilling lease in the Gulf of Mexico? How much should they pay for seismic information on that potential new oil field in Oklahoma? Should they co-venture or go it alone on that fracking opportunity in Pennsylvania?
The resource itself is increasingly limited, and capital is scarce. With each decision they make, there are millions of dollars on the line.
To remain competitive, companies must effectively maximize returns and minimize risks. For oil companies, deployment of capital includes the portfolio of properties in which they invest, and the type, timing, and magnitude of the investments they make in these properties.
The decision-making process is complex and conceptually difficult. Strategic and financial decisions are closely linked and have a direct impact on the capital and business markets. Managers must focus now as never before on the ultimate value created by each of their corporate and business level strategies. It’s become increasingly important to build strong links between strategy and finance. While this is no easy feat as it must involve the entire organization, such links can significantly mitigate risk and improve performance.
Traditionally, in the oil and gas industry, deterministic thinking has dominated, and this is still the case in many situations. Managers do their best to predict a specific outcome based on a basic cause-and-effect flow of events. While this approach has merit in a simple straightforward situation, it doesn't work very well in an industry characterized by a high degree of uncertainty and risk.
Probabilistic analysis combines uncertainty with deductive reasoning and probability theory. To make choices that truly embody their firm’s overall objectives, yet also reflect their resource constraints, a growing number of oil and gas managers now use the probabilistic model. A variety of methods based in statistics and probability can break the review process down into specific components that reveal the many potential ways each opportunity might play out, and how that outcome might interact with others in the company’s portfolio. Those methods are detailed in the Best Practices for this topic.
Advanced decision-making techniques make it possible for managers to:
Develop more effective investment strategies and action plans.
Learn to think more "probabilistically," so that uncertainty and risk are factored into the decision model.
Systematically assess exploration and production risks and uncertainties.
Measure the value of seeking additional information.
Understand the value of portfolio analysis in exploration and production.
Communicate and implement a consistent risk policy.
Develop clear guidelines for making exploration and production choices.
Better evaluate the firm's position relative to a strategic plan.
Communicate the overall decision-making process to the team.
As they make decisions, managers must carefully consider the firm’s strategic business objectives, its risk tolerance, and the complexities of the overall business environment. Managers who utilize advanced decision-making tools acquire a more accurate and detailed view of the potential overall picture associated with each opportunity, and can likewise make better informed project and portfolio evaluations.