OPEN ACCESS
Development of the oil and gas business is inextricably linked to large-scale investment programs. Large-scale flow of capital funds, long duration of projects, as well as the external environment’s high uncertainty for oil and gas businesses bring about the high-risk investing; and therefore, it becomes urgent to develop methodological tools for risk management issues. The authors’ approach to risk man- agement of capital investments allows an individual to estimate the risk level of an investment project on the basis of a ratings model, and to evaluate the need for capital to cover potential losses on the basis of the target level of financial stability and long-term strategy of the company. The authors’ technique of RAROC (risk adjusted return on capital) analysis of investment projects allows to calculate the risk-adjusted return on investment and to carry out the selection of projects that contribute most to the creation of value and screen out those projects that destroy the company value. The results can be used by management of oil companies, investors, and analysts in financial decision-making.,
economic capital, investment project, investment risks, oil and gascompany, probability of default, value management.
[1] Schroeck, G. & Marc, W., Calculation of risk-adjusted performance measures in credit markets. In Elektronische Dienstleistungswirtschaft und Financial Engineering—2, Internationale FAN-Tagung, Munster: Schuling Verlag, pp. 139–151, 1999.
[2] Schroeck, G., Risk Management and Value Creation in Financial Institutions, John Wiley & Sons - Business & Economics, p. 332, 2002.
[3] Merton, R.C., On the pricing of corporate debt: the risk structure of interest rates. Journal of Finance, 29, pp. 449–470, 1974. http://dx.doi.org/10.1111/j.1540-6261.1974.tb03058.x
[4] Vasicek, O., Loan portfolio value. Credit Portfolio Models, 15, pp. 160–162, 2002.
[5] Gorby, M.B., A risk-factor model foundation for rating-based bank capital rules. Journal of Financial Intermediation, 25, pp. 199–232, 2003.
[6] Gmurman, V., Probability theory and mathematical statistics. High School, 1, p. 479, 1997.
[7] Domnikov, A., Khomenko, P. & Chebotareva, G., A risk-oriented approach to capital management at a power generation company in Russia. WIT Transactions on Ecology and the Environment, 1, pp. 13–24, 2014.
http://dx.doi.org/10.2495/ESUS140021
[8] Scannella, E., Bank lending in project finance: the new regulatory capital framework. International Journal of Economics and Finance, 5(1), pp. 218–229, 2013.
[9] Ohlson, J.A., Financial ratios and the probabilistic prediction of bankruptcy. Journal of Accounting Research, 18(1), pp. 109–131, 2012. http://dx.doi.org/10.2307/2490395
[10] IAS 39 Financial Instruments: recognition and measurement.
[11] Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework (BCBS).
[12] Domnikov, A., Khodorovsky, M. & Khomenko, P., Optimization of finances into regional energy. Economy of Region, 2, pp. 248–253, 2014. http://dx.doi.org/10.17059/2014-2-24
[13] Gurtler, M. & Heithecker, D., Multi-Period defaults and maturity effects oneconomic capital in a ratings-based default-mode model. Finanz Wirtschaft, 5, pp. 123–134, 2005.
[14] Khodorovsky, M., Domnikov, A. & Khomenko, P., Optimization of financing investments in a power-generation company. WIT Transactions on Ecology and the Environment, 190, pp. 45–54, 2014. http://dx.doi.org/10.2495/EQ140061
[15] Peter, C., Estimating loss given default – experiences from banking practise. Springerlink, 2, pp. 143–175, 2006.
[16] Bellovary, J.L., Giacomino, D.E. & Akers, M.D., A review of bankruptcy prediction studies: 1930 to Present. Journal of Financial Education, 33, pp. 1–43, 2007.