ArrowHead revolutionizes valuation in the oil and gas sector by employing asset-by-asset roll-ups at market prices, resulting in a market-based, bottom-up valuation that encompasses the collective value of all assets. This approach enhances traditional metrics, able to offer, for those who need it, a probabilistic method with joint probability distributions, ensuring precise calculations that surpass simple summation and provide comprehensive insights for informed decision-making.
In the oil & gas sector, fundamental microeconomics is the only way to foretell price, quantities, capacity additions, retirements, and basis throughout the world. We harness our distinctive microeconomic methods and models to quantify them for decision makers. Using unified models that incorporate all existing and prospective supply chains from source rock to burnertip, we develop coherent and correct price and issue runs. We are able to run multiple scenarios, each weighted by a probability, to develop a probability distribution over key results.
New project development shares similarities with asset valuation, yet it is a forward-looking endeavor that necessitates a comprehensive assessment of market dynamics that will prevail after the infrastructure is operational and generating energy. Crucially, the process entails quantifying the potential profitability of various developments, factoring in diverse market drivers, project capital costs, project operating costs, losses, emissions, and other assumptions. This evaluation serves as the linchpin for deciding whether to proceed with a project and identifying the most advantageous development options aligned with business objectives.
In the volatile oil & gas sector, trading increases and decreases significant inherent risks, more so when there are yet unseen phenomena such as the transition to decarbonized fuels. To consistently make profitable decisions, understand price differentials between regions and times (known as basis), and develop probability distributions over price and basis that are not solely subjective, is key. ArrowHead models offer a thorough analysis of causal interdependence, which can lead to covariance among product and factor prices, allowing companies to assess their true and correct exposure to price movements, not just a simplifying guess.
