An Integrated Risk Management Model for an Oil and Gas Company


Authors: António Quintino, João Carlos Lourenço, Margarida Catalão-Lopes

Abstract: Oil and gas companies’ returns are heavily affected by price fluctuations. In financial terms, the “price in—price out” dynamics influence companies’ gross margins and impact to a high extent on their multiyear budgets and accomplishment of goals. Due to world scale size and geographically scattered organizations oil and gas companies use separate hedging tactics to protect each of their business units (e.g. crude oil production, oil refining and natural gas) from the risk associated with the fluctuation of prices. The present research compares, for an oil and gas company, the results of using a “hedging at business unit level” approach with the results of employing a “hedging at company level” approach, by finding the best derivatives portfolios through coherent risk measures and stochastic optimization. The analysis is subsequently extended to a utility based approach, where the company’s risk tolerance is included.

Pages: 80-87

DOI: 10.46300/9103.2022.10.13

International Journal of Economics and Statistics, E-ISSN: 2309-0685, Volume 10, 2022, Art. #13

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