Challenge
After a merger, a major oil and gas company found it was left with multiple trading systems, which were not well coordinated and supported only limited types of trading. A previous analysis had supported more ambitious trading approaches, along with systems to match. But senior management was worried that risk could not be controlled, and trading would interfere with system operations with these more ambitious approaches. Decision Strategies was brought into the project to help the client decide whether or not to move forward with a more ambitious approach and, if so, at what level to do so.
Solution
Decision Strategies met with client executives to determine the primary objectives of their trading strategy. Through extensive interviews and strategic analysis, we found that headcount requirements, working capital necessary for trading, and corporate confidence in traders were the foremost issues of the project.
Using this information, we helped the client team develop strategic options to meet the stated objectives. Those options included: merely overhauling the current trading tools and processes; commercializing the optionality of currently-owned assets; or extending commercial activities to new products, services and areas. Our value analysis of the various strategic options found that:
- Improved data quality alone paid for the system overhaul
- The risk and system disruption from trading around operating asset optionality was small and manageable, while potential profits were significant
- The current trading approach was so conservative that increasing trading ambitions brought no additional downside risk
Result
The project team was able to add $800M in value based on the profitability of additional trading activities that were made possible by deploying an enhanced trading system.