Oil and gas exploration and production is a complex and risky business where the success or failure of each project relies on numerous, fluctuating variables. When RAG, an oil and gas company based in Austria, realized that its spreadsheet-based system was no longer adequate, it moved to Quantrix Modeler to evaluate not only new projects, but also to generate company’s entire international Exploration & Production Portfolio and business plan.
Rohöl-Aufsuchungs Aktiengesellschaft’s (RAG) core areas of business are oil and natural gas exploration and production (E&P) and gas storage. With operations in Germany, Hungary, Poland, and Romania in addition to Austria, RAG has produced more than 15 million metric tons of crude oil and 24.5 billion cubic meters of natural gas during the past decades.
The company has increased its exploration and production acreage internationally, and recognized that it needed to look beyond its spreadsheet-oriented approach: not only were the spreadsheets becoming too large and complex to manage, they were hard to audit, and could not be integrated. It chose Quantrix Modeler to help manage its business priorities:
- Speed and agility in creating multiple scenarios for new projects, including on various contractual terms, pricing scenarios, production, investment schedules, and cost assumptions
- Flexibility in modeling non-standard projects such as gas-to-power, production sharing agreements and structured acquisitions, divestiture deals, as well as specific fiscal systems
- Capability to integrate its three models - Project Economics, E&P Business Plan, and E&P Portfolio - to create an integrated business plan
For new projects, RAG uses Quantrix to develop models that use multiple input parameters. These include global assumptions such as oil and gas prices, exchange rates, and inflation; specific country assumptions, such as for taxes and royalties; and project assumptions including production, investment, and other various costs.
Project assumptions, in particular, are usually updated frequently as new information becomes available. Because Quantrix separates the input matrices from the calculation matrices, building multiple views is fast and easy.
“Our biggest business question is ‘what if’ – what if we change these parameters? What if we get this production?” says Tahir Tahirov, Economics & Portfolio Manager, RAG. “With Quantrix, we can simply add a project category, generate new case of the project - upside or downside - and the logic of the model applies to it. We can evaluate exploration projects using probabilities of success or failure of each scenario of our project.”
RAG also has built Quantrix models to manage the complexities of ongoing contracts. “Oil and gas has thousands of contractual terms, royalties, and taxes, and different countries have different fiscal systems,” says Tahirov. “Each contract is unique.” Quantrix enables RAG to model profit sharing for multiple project investors, both public and private, and to track all data required to report to finance.
The company links all of its models using Quantrix’ DataLink: Its Project Economics model includes information on work program and production, capital investment, P&L, and cash flow. This model displays simultaneous results for three price paths and three participation cases, along with its 'what if' scenario analyses.
Data flows into its E&P Portfolio model, which includes its portfolio production forecast, drilling program, and economic information. This model enables the company to compare and rank projects as well as analyze the value of projects, countries, and regions. It also tracks the impact of each project to the portfolio as a whole, along with calculating uncertainty and risk.
This model feeds in the company’s E&P Business Plan, which includes short- and long-term business plans, cash flow, and financial statements. This model helps RAG track changes in business plan versions, and analyze its plan against actual numbers. Cash flow is linked across all three models.
The switch from spreadsheets to Quantrix has given RAG far greater insight into its business finances, and increased its confidence in decision-making. “Before Quantrix, we really didn’t have portfolio economics,” says Tahirov. “Now we know the risk impact of each project on the portfolio, and can test them against the business plan.”