Revenue analysis under uncertainty for a portfolio of a mineral oil company including a stochastic market model approach

Abstract

Retrospectively in year 2008 the financial crisis and hence, the oil price crisis had a significant impact on the whole energy sector. Oil and gas companies had big troubles to get not in financial distress and thereof financial risk management, and especially market price risks became for today’s companies and executives more and more important. A typical integrated oil and gas company is exposed to three main market price risks: Crack spread, commodity and foreign exchange (FX) risk. Commodity risks arise, if a company produce a resource and sell it on the global financial markets. So, the value of the production is exposed threw the quotation of global commodity exchanges, such the Chicago Mercantile Exchange, and currency quotation, such as EURUSD, depending on which foreign market the commodity is sold. For production companies, spread risks arise from the difference of the raw material price and processed material price. Consequently, sustainable cash flows from operating activities are necessary to be successful in the long run. Thus, risk management in purpose of hedging with financial derivative Instruments are main drivers for sustainable success. This master's thesis is a paper in the area of quantitative financial risk management, whose aim is to create a multivariate stochastic Monte Carlo model to quantify commodity price, FX rates and margin spread risks and implement the received distributions of the risk factors of the risk portfolio into a Cash Flow at Risk framework to evaluate the overall financial risk profile of the company. As an extension into the Cash Flow at Risk framework, a hedging framework was implemented, to simulated different derivative instrument strategies on the risk profile. At this, the framework was implemented as a software tool with a graphical user interface in the program language MATLAB. The developed framework describes a methodical approach to conduct risk analysis and quantify and hedge market price risks.