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Title: Risk and profitability optimization of investments in the oil and gas industry
Authors: Domnikov, A.
Khomenko, P.
Chebotareva, G.
Khodorovsky, M.
Issue Date: 2017
Publisher: Ural Federal University
WIT Press
Уральский федеральный университет
Citation: Risk and profitability optimization of investments in the oil and gas industry / A. Domnikov, P. Khomenko, G. Chebotareva, M. Khodorovsky // International Journal of Energy Production and Management. — 2017. — Vol. 2. Iss. 3. — P. 263-276.
Abstract: Finding an optimum ratio of return and risk of investment projects is the key problem in overcoming the unfavorable conditions of oil prices and the reduction of profitability of the oil and gas industry. Search for investment opportunities associated with the potential willingness of oil companies to raise funds in new projects, leading to the need for improved tools maximize the return of investment activity in the conditions of uncertainty and risk. In the article the authors propose an original approach which allows solving the problem of formation of a portfolio of investment projects that achieve the maximum return on the risks assumed. The approach includes a method for determining the credit quality of the investment project on the basis of probability of default. This method is based on a comprehensive multivariate analysis of the investment project. Factors model aimed at the country and regional analysis, identification of foreign exchange, operational, technological and financial risks of the project and obtaining the integral evaluation of the project credit. The approach also includes economic capital modeling based on the MV-model (Merton-Vasicek-model), allowing achievement of the target level of creditworthiness of an oil and gas company in the long run. The proposed method of estimating project profitability is based on RAROC (risk-adjusted return on capital) methodology which enables calculation of profitability of projects based on their riskiness. The results can be used by management of oil and gas companies, investors and analysts in making financial decisions.
Keywords: DEFAULT
ISSN: 2056-3272 (paper format)
2056-3280 (online)
DOI: 10.2495/EQ-V2-N3-263-276
metadata.dc.description.sponsorship: The work was supported by the Act 211 Government of the Russian Federation, contract № 02.A03.21.0006.
Origin: International Journal of Energy Production and Management. 2017. Vol. 2. Iss. 3
Appears in Collections:International Journal of Energy Production and Management

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