Working with an oil production company, we faced the challenge of capital projects hampered by financial risks stemming from the latest financial downturn in Canada and the drop in oil price. The prevalent project development approach was a focus on large development projects with high capital costs, supported by an ingrained cultural belief that the approach was the most economical.

We established an analytical financial model of capital projects and quantified the correlation between available cash flow and capital project returns. We then worked closely with the technical team to develop new alternatives that respected the financial limitations of the company, met growth targets and maximized returns. Including the variability of free cash flow as a function of oil price in the model allowed us to quantify a benefit between 5% and 20% for the newly developed strategy.
 
Working closely with the technical development team allowed the solution to evolve from the ranks and achieve strong buy-in within the company. Supported by the quantitative analysis and the support of the internal technical team, our client changed the capital projects strategy and plans to execute the first of a series of projects under the new strategy when oil prices recover.