Time for VirtualOil 2.0?

Since our last VirtualOil update in May, oil prices have continued to take a beating. As the chart of the rolling five-year portfolio shows, much of our strip of options is now out-of-the-money and the average value per barrel of that optionality has sunk below $7. No surprise then that our Value-at-Risk (VaR) has also dropped dramatically – at this point, we have very little left to lose.

VirtualOil Rolling 5-Year Portfolio Aug 15

VirtualOil Rolling 5-Year Portfolio Aug 15

 

If VirtualOil were an actual physical company, we would be repatriating our ex-pats, shutting down projects, cutting capital spending budgets and, eventually, facing layoffs and restructuring. But as a virtual company based on a stack of options, we can virtually shut-in while we ride out the devastating situation inflicted on us by the global crude oil markets. Our initial options costs are sunk, but the potential for our wells to become profitable again remains.

Even though we are underwater, our portfolio is still valuable because the market continues to offer the probability that our options will exercise in the money. That’s quantifiable: We can calculate precisely our potential to perform in the options market. But does that mean holding is the right business decision?

The forward curve has shifted down and become steeper, and the markets are telling us that we could be underwater for much of the rest of this year, and almost all of next. Today (August 27), the first forward contract for WTI over our strike price of $50 is Nov 2016. It might make better sense to consider selling all of our forward options now, cash out VirtualOil and restructure the portfolio at a lower strike price, back in the money, while retaining upside potential.

Where an actual company in our situation would likely exit the market, our virtual status allows us to be nimble. Should we get out of our unprofitable structure and reset the portfolio? We’ll take it to our virtual board – stay tuned for the answer in next month’s edition.

See below for additional visualizations of VaR back-testing and varying vintages.

Assumptions

The hypothetical derivatives-based oil production firm VirtualOil simulates the performance of a generic crude oil asset, and delivers sectorial exposure to the commodity oil market. Specifically, the VirtualOil structure starts up with an investment of $350MM in monthly average price call options with a strike price of $50 per barrel on the price of WTI light sweet crude oil. The strip of options starts at 10,000 barrels per day and extends out for 5 years with a 20 percent average annual decline in underlying notional barrels, replicating a physical oil asset. VirtualOil initially holds notional crude oil reserves of approx. 10MM barrels. Monthly cash flow is generated when the daily average WTI price relative to the preceding month exceeds $50 per barrel. Cash flow is reinvested monthly at 5 percent and the project winds up when the reserves are depleted.

VirtualOil is managed in SAS® BookRunner with reports surfaced in SAS® Visual Analytics. Learn more about SAS® BookRunner’s state-of-the-art Commodity Trading & Risk Management capabilities. 

Disclaimer: This is a fictitious portfolio and is not a solicitation to trade.

Chart: VaR Backtesting

VirtualOil VaR Backtesting Aug 15

VirtualOil VaR Backtesting Aug 15

 

Chart: VirtualOil Jan 2011 Start Date Portfolio

VirtualOil Jan 2011 Start Date Portfolio Aug2015

VirtualOil Jan 2011 Start Date Portfolio Aug2015

 

Chart: VirtualOil Jan 2012 Start Date Portfolio

VirtualOil 2012 Start Date Portfolio Aug2015

VirtualOil 2012 Start Date Portfolio Aug2015

 

Chart: VirtualOil Jan 2013 Start Date Portfolio

VirtualOil 2013 Start Date Portfolio Aug2015

VirtualOil 2013 Start Date Portfolio Aug2015

 

Chart: VirtualOil Jan 2014 Start Date Portfolio

VirtualOil 2014 Start Date Portfolio Aug2015

VirtualOil 2014 Start Date Portfolio Aug2015

 

 

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Education Meets Big Data: The benefits of an SLDS

This is my final entry in the Education Meets Big Data blog series. Let’s review what we've covered so far…

In my first post, I explained that statewide longitudinal data systems (SLDSs) track student data from preschool through college and workforce across the state. SLDSs can be used to see one student’s growth over time, or, when data is aggregated, spot trends and drive behavior.

In the next post, I shared an interview with Armistead Sapp, one of the authors of the book Implement, Improve and Expand Your Statewide Longitudinal Data System, where he discussed state funding, big data and overcoming challenges with patience and persistence.

In my last post, I shared key steps for preparing your SLDS. Those key steps can also be generalized and used for any data management system for analysis and reporting.

For this final blog in the series, let’s understand the benefits behind an SLDS. Simply put, the SLDS allows for streamlined question asking and answering. Here are a few examples showing how teachers, administrators, state legislators and policy makers can use an SLDS to impact student success. Read More »

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How energy is tackling big data and the Internet of Things

183825003With presidential candidates targeting alternate energy development, the Clean Power Plan officially in place last month, and the rapid evolution of connected devices and the Internet of Things -- life in the energy sector is even more interesting than usual. To catch up on the latest developments, I sat down with one of our energy experts, Alyssa Farrell. Here are the highlights from our conversation:

How has the energy sector evolved over the past few years?
Alyssa: The energy sector is seeing new entrants, often competitive, along many parts of the utility value chain. As a result, relationships with customers are more important than ever. Whether it’s improving reliability or delivering personalized energy services, today’s utility executive is focused on improving customer experience and customer satisfaction. To deliver on that expectation, utilities need to modernize internal systems to capture new customer insights regardless of which operational system created the relevant data.

How are utilities making use of big data and the Internet of things”?
Alyssa: Utilities have had a big data challenge for many years, but they solved it by continually increasing the size of their operational technology systems. The Internet of Things is bringing those large operational technology systems together with IT (networks and analytical software). For utilities, this can lead to enhanced “sense and respond” capabilities, placing more real-time intelligence in the hands of grid operators. Another example is enabling more personalized energy services, such as Jason Handley from Duke Energy recently described in this YouTube video.

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The Internet of Things at your local library

Will the Internet of Things (IoT) create a web of connected devices that make our lives better or an infinite infestation of annoying devices invading our privacy for no good reason? I don't know.

I do know that the answer is going to depend less on the technology and more on the people involved in creating a connected world. We could ask the people who will decide all of this but most of them are busy with their 5th grade homework.

Of course, they are not all that young. Many are already in middle school, high school, or college, but they are the ones who will shape the IoT. The Maker Generation. A group of do-it-yourself self-starters who don’t have any respect for the professional and academic boundaries between hardware and software or art and science. They will decide what the IoT will be. If you don't believe me, ask Mark Zuckerberg.


The question is: How can we educate this next generation to use the tools and technologies they will need to make a positive impact? And not just some of them, but all of them. If we are going to preserve the chance that the IoT will be “of the people, by the people, and for the people,” we are going to need to be sure that we provide open access to these technologies to all of them, every student, every learner.

In the world of software, the answer is simple: The Internet. We can get SAS in the hands of any student in 5 minutes or less at no cost to any student. SAS is already on-demand.  Just a handful of clicks and SAS will spin up an instantiation of SAS Studio for any student or lifelong learner. 

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Sustainability: Where’s it heading?

From the public debate over Amazon’s workplace culture to the Security and Exchange Commission’s approval of the CEO-to-worker rule, it’s been an interesting few weeks for those of us who care about sustainable organizations. Clearly people have strong feelings about what companies owe society and how front-line workers should be treated.

When the SEC rule finally goes forward, publicly traded companies will have to disclose what their CEO makes relative to the median compensation of their workers. It seems like something any company could easily figure out on a spreadsheet, but it actually took five long years for this measure to see the light of day. While it won’t take effect until 2017, the rule is already causing quite a stir in the corporate world. Some think it will bring real change, while others find it useless or even potentially harmful.

As for me, I feel hopeful. Count me among those who are shocked by the fact that as of 2013, US CEOs were making 300 times more than typical workers (up from 20 times as much in the 1960s). The divide is growing, and that’s a problem for society. When gaps are big, people tend to fall through.

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How can we make SAS blogs better? Take the survey

old blog home page

Remember when the SAS blogs looked like this?

How long have you been reading SAS blogs? And do you have thoughts on how we can improve them?

In 2007, we launched the SAS blog program with just one blog and a handful of bloggers. Today, we have more than 30 blogs and hundreds of active bloggers. As we continue to grow, we want to make sure it's still easy for you to find the content you need to become better SAS users and analytical leaders.

That's why we're asking for your input in this survey about the SAS blog program. It should take about 10 minutes to complete, and it gives you an opportunity to tell us what you want to see and do on the SAS blogs.

Whether you read every post via RSS or just check in occasionally to read a few updates from your favorite blogger, we want to hear your thoughts. Think about what you've seen on other blog sites, and what you want to see more of on our blogs - and let us know.

Take the SAS blog survey now, and share it with your colleagues. Read More »

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Behind the scenes with SAS R&D

While much of what they say is over my non-technical head, one thing is clear: SAS research and development team members are clearly excited by the new capabilities they have added to the newest release of SAS Analytics.

Their pride of accomplishment is plain to see -- even by me -- in this video montage that has 14 developers and testers describing what they see as the most important features in their product portfolio. Their commitment and enthusiasm shines.

Among the products are: the SAS Forecasting client, SAS Enterprise Miner and the brand new SAS Factory Miner. New open source analytics integration with SAS has also been added to meet evolving customer requirements.

Be sure and watch to the end of the short video to see another example of how the leader in analytics exceeds expectations.

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Why should you use visual analytics?

Are you eager to explore and understand your data? Do you want to improve processes and drive more revenue? Do you want to work with data using an intuitive, easy-to-use interface? This is now possible with visual analytics, technology which combines analytics with interactive visualizations.

As published in a recent TDWI Best Practices report, Visual Analytics is one of the hottest trends in BI because it empowers your employees to analyze more data faster and more frequently -- resulting in the discovery and sharing of new insights, and who doesn’t want that!?

Are you still a bit sceptical about incorporating visual analytics into your standard reports? And how it will be governed and maintained? Let me explain how visual analytics perfectly complements your other BI initiatives when applied correctly.

Let’s start from this quadrant where we have Ad-Hoc Discovery/Prototyping (read visual analytics) and industrialized reports on one axis and governance on the other. There are two areas where you as an organization want to be active -- and two areas you want to stay away from: The upper left and lower right. You DO NOT want high governance when you want to discover data and prototype -- and you don’t want low governance on your company’s industrialized reports.

selfservice-governance-v1

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¡Viva el tango! (and the adoption of analytics!)

Business adoption of analytics and technology is like a tango.No matter where I go in the world, I’m constantly amazed by the similarities in business challenges facing organizations around the globe.

One of the most common is getting business users to actually adopt and use the insights gained from the great work performed by analytics teams and IT organizations.

I recently had the privilege of visiting the vibrant and cosmopolitan Buenos Aries. This city embodies a wonderful mix of cultures, perhaps best seen it its famed tango.

As someone keenly interested in helping organizations transform themselves and gain maximum value from their data, my conversations with South American business leaders got me thinking about how to solve this challenge. And about the tango.

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Communications service providers: Are you ready for digital transformation?

TP0001-090The term “disruptive technologies” frightens many organizations, but to companies like Alibaba, Uber, Airbnb and Facebook, it’s the secret to their success. These four companies from unrelated industries have one major commonality: They don’t “own” anything, at least not in the traditional sense. What they provide is a digital service, and these service offerings have transformed their respective industries.

These companies exemplify disruptive technologies because they each identified a way to meet a consumer need that was outside of their industry’s traditional activities (i.e. value chain), or delivered services in a new way. For example, with Uber, instead of hailing a cab you simply punch a few keys on your mobile device and a car is waiting for you by the time you exit your building. Read More »

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