CREATING AND PROTECTING VALUE FOR AN OIL PRODUCER

Client: Large Oil & Gas Production Company

 

Problem: Increase the likelihood that revenues would remain sufficiently high to fully fund the client’s capital requirements

 

Solution: R^2 provided the client with a comprehensive risk map. The client’s production profile was modeled to develop an accurate assessment of how price risk might impact financial performance. With base-, high- and low-case revenue estimates by year, the client developed a clear understanding of their risk tolerance in budgetary terms over the life of the projects under consideration. R^2 worked with the client to identify specific hedge volume targets by year and recommended appropriate hedge instruments. Once a hedge strategy was approved by management, R^2 assisted with the implementation of the hedges by negotiating, witnessing and recording the transactions in our database.

 

Conclusion: Total revenues either met or exceeded the client’s budgetary requirements. Between 2009 and 2012 the client was able to fully fund their expansion activities without the need for unplanned borrowing. During this period, client revenues grew from $600 MM to $2 BB as success through the drill bit increased production. Whenever production updates were provided, R^2 updated our analytical models to keep the client abreast of its changing risk profile. Increased production allowed the client to place additional hedges, stabilizing the client’s revenues at ever increasing levels. In the first eight months of 2013, client revenues totaled $1.46 BB. R^2 enhanced the client’s ability to quantify and manage commodity price risk. This allowed them to concentrate on growing their business and become a leading oil and gas producer.