Risk & Sensitivity Analysis

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As a leader in commodity research and in-depth industrial analysis, GLJs mathematical and statistical modeling capabilities consistently push the boundaries of what can be done with the immense data generated in the petroleum world.  Not bound to the portfolio of any one industry player, our team has knowledge of the larger and more pervasive economic trends throughout the industry, and can eliminate the noise to deliver results. With such a long history of experience analyzing the petroleum industry, GLJ can orchestrate immense data volumes - decades worth of data from around the world - to build sensitivities unlike any tools available today, bringing clarity to the profound challenges facing professionals in any specialization.

Exploration Risk Analysis

GLJ’s geoscience and engineering professionals have experience in prospect and play assessments both internationally and domestically. Our exploration consulting services include the identification, documentation and estimation of exploitable hydrocarbon resources on projects ranging in size from a single prospect to the evaluation of a complete exploration portfolio.

An important component of these assessments is the analysis of the explorations risks. There is a high degree of risk and uncertainty in the exploration for oil and gas. The purpose of risk assessment is to estimate the probability of a commercial discovery prior to drilling a mapped exploration prospect. GLJ analyzes the potential value of exploration prospects/plays by relating risk and uncertainty to the potential reward of a discovery. Quantification of risk and uncertainty can direct exploration by ranking opportunities and potential rewards in terms of barrels or an expected monetary value.

Risks associated with exploring for oil and gas include:

  • geological
  • development
  • political
  • environmental

Geological and development risk are generally quantified in assessing an exploration prospect. Uncertainty relates to the range in the size of the potential hydrocarbon accumulation.

GLJ will evaluate a combination of geological factors in assessing prospect risk.

GLJ uses a probabilistic approach in its volumetric analysis which provides a range in undiscovered petroleum initially-in-place (UPIIP) and prospective resources.

Economic Sensitivities

GLJ is often requested to build economic sensitivities on producing assets and prospective development to assist our clients gain more informed risk and value expectations. While we can certainly provide specific deterministic sensitivity analyses as requested, probabilistic sensitivities on commodity pricing, capital costs, operating costs and fiscal conditions allow our clients to understand a range of possible outcomes and make better decisions. Scenario analysis of the impact and likelihood of royalty structure changes, regulatory decisions or facility construction can educate stakeholders on the best path forward when the future is unclear.

Examples of how our probabilistic sensitivities can be applied include:

  • Drilling program comparison
  • Business intelligence and peer group analysis
  • Robust acquisition and divestiture scoping studies
  • Portfolio and efficient frontier analysis
  • Portfolio analysis
  • Hedge evaluation

GLJ has a strong track record of providing our clients with the understanding they need in the environment of imperfect information that our industry offers us.

Commodity Price Risk Analysis

In preparing our independent commodity price forecasts and to serve specific requests from our clients, GLJ conducts ongoing analysis of oil, gas and NGL market fundamentals. GLJ examines past and expected future trends in supply and demand at the global, market and regional levels and maintains informed supply and demand growth or contraction expectations. GLJ incorporates analysis of financial markets, commodity futures markets, options pricing and, where available, hedging behavior of both buy-side and sell-side market participants.

In addition to preparing independent commodity price forecasts, GLJ also builds price sensitivity and risk models to serve specific requests from our clients and to inform our own forecasts. Using futures and options market prices along with stochastic processes, GLJ maintains a probabilistic outlook of future prices using stochastic processes and can answer questions like:

How likely is it that the WTI oil price will average 60 USD/bbl or higher next year?

Or,

What Henry Hub gas price can I be 90% confident will be exceeded next year?