Oil And Gas Exploration Project Portfolio Optimization

Modern portfolio theory that had developed for half a century in western country has now been coming to the mature, simultaneously, it has widely been putting into economic practice. But the theory is used much to the stock investment and rarely to the projects investment. Facing the traits of high risk and the large investment about the exploration projects, this paper applies modem portfolio theory to the exploration projects and creates portfolio that will help the budget allocation and minimum risk.Optimization analysis selects portfolio on the basis of single project assessment and illuminates the tradeoffs between risk and return—finding the portfolio that had the minimum risk for a given rate of return or the portfolio that had the maximum rate of return for a given risk, which is core idea of portfolio, which makes the relationship of the projects come to the theory's attention and utilizes diversification to disperse the risk of the projects. ,On the basis of the modern portfolio theory and the traits of the oil and gas exploration projects, this paper firstly analyzes the characteristic of the exploration portfolio and then brings out the theory frame of the exploration portfolio involving the single project assessment—economics and risk evaluation, the model building and the solution of the model, in the end the paper makes some suggestions about the efficient management of the exploration portfolio.The exploration portfolio analysis process given by the paper can solve the problem of the portfolio selection and the budget allocation. This process also can be used to the budget allocation of the production projects in the petroleum industry and the projects in the other industry.