DYNAMIC PERFORMANCE MANAGEMENT IN THE UPSTREAM OIL INDUSTRY

This is a study about investments in the upstream oil industry. The goal is to describe how investments that lead to oil and gas production, are made. The study of oil supply is central, because it represents 60% of the world’s primary energy supply. It is vital for energy renewables policy makers, in order to assess oil supply scenarios and adjust incentives for lower fossils consumption. It is also important for consuming countries. Previous studies have stressed the importance of market volatility for investment appraisal in the UK; irreversibility of investments; and remaining reserves as main drivers of investment and production in the UK. My study differs, since my results can be compared (over decades) with a diverse production set in the international market: a small US company; a large company; a country; two regions; and OPEC. My hypothesis is that expected profit per barrel and market share are production and investment drivers. I have used the Dynamic Performance Management method, as it fits the process followed by managers in the oil industry. That is, focus on end results, while balancing resources for sustained growth. I have built and tested a dynamic model which replicates the production attained by the above mentioned firms, regions, and OPEC, over decades. I claim that expected price per barrel and market share are the drivers of investment and production. This study contributes to the literature in investments, petroleum and system dynamics, by integrating the three fields.