Into the Unknown: Expert System Guides Energy Transition Strategy

Abstract

Most E&P companies have publicly stated some form of ‘carbon reduction’ planning as they communicate their strategies to stakeholders. Internal efforts for reducing carbon generation might include reduced flaring, pipeline integrity improvements, or carbon sequestration for which E&P companies have the experience and skill sets to adequately evaluate. Other companies have committed to more extensive and fundamental changes to their business models – potentially necessitating a need to expand into historically ‘non-E&P’ energy sectors, such as wind, solar, or hydrogen businesses. The expertise to explore these types of strategic decisions can potentially be acquired through hiring or acquisitions but is often insufficient from within the ranks of typical E&P firms. This can make the initial exploration into these ‘possible’ alternatives risky and / or inadequately informed. As an aid to companies entering the renewables space, the following paper describes a portfolio modelling approach to assessing clean energy business alternatives. Renewable energy characteristics, including investment profiles, cost structures, and location specific efficiencies and returns (economics) are incorporated into a portfolio model as based on ‘expert guidance’ and publicly available data sets. This model makes it possible to capture the characteristics of the existing hydrocarbon business (production, cash flows, capital investments, etc.) and layer in ‘possible’ alternatives for wind, solar, or carbon offset investment alternatives. This modelling allows decision makers to begin exploring possible investments in these sectors without the requirements for large investments in new personnel, acquisitions, or other costly steps. A simple portfolio model representing a conventional E&P organization has been developed and expanded to include possible sampling of renewable energy projects. This model provides a means of selecting from various investment options (either manually or utilizing a linear optimization routine) and assessing the performance characteristics across multiple metrics. The model includes operational and economic descriptions of renewable energy investment alternatives, including investments in onshore wind, offshore wind, solar photovoltaics, concentrated solar, and carbon offset and sequestration projects. The key drivers and assumptions for these investment alternatives are based on current industry trends and cost structures and are clearly noted and open for revision or customization to a company's specific location or existing business knowledge as needed. This paper will demonstrate how these techniques can assist in positioning company decision makers for more informed entry or exploration of new business options as these opportunities evolve. The methods combine proven techniques in portfolio assessment (utilizing linear optimization and Monte Carlo simulation) with ‘expert’ guidance as to the characteristics of clean energy businesses. A process for continuous model refinements and improvements is outlined, allowing decision makers to maintain an ‘evergreen’ perspective of potential strategic alternatives in renewables.