Commodity Correlation "Double Helix"

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Commodity Correlation "Double Helix"

[ Edited ]

Introduction

Recently, I was paired with Austin-based Energy Consultant and Energy Complex journalist Dallas Salazar as part of the MVP Mentoring Program for Microsoft Data Journalists. The purpose of this program is to assist journalists in leveraging and using Power BI for their work as well as helping these journalists to improve their technical skills around Power BI features and functionality. In short, Mr. Salazar developed a fascinating thesis and supporting model around enterprise risk for Oil & Gas exploration and production corporations. I provided the technical muscle to help improve the model and its presentation.

 

Description

The following is how Mr. Salazar describes his model and the value it provides:

 

“The “Double Helix” model, which is constructed and executed via Microsoft Power BI’s “SandDance” data-visual, is intended to demonstrate visually – using three dimensions across an x, y, and z-axis – an Oil & Gas exploration and production company’s [“E&P”] enterprise-risk to its highly variable environment. Further, it’s meant to do this while factoring in ancillary risk measures which help determine what return the enterprise can generate for investors, if any, at which prevailing variable inputs. The Double Helix backs out marketing programs, investor relations programs, and statistical massaging to produce a model of E&P enterprise-risk which in parallel produces a quantifiable risk measure. Effectively, the Double Helix model provides viewing parties a “DNA” of the underlying E&P in which viewing parties can begin to predictively asses risk and can prescriptively determine risk-management measures.

The Double Helix, which is a joint venture of many parties and which is the culmination of many technologies, was born out of a necessity to better manage default risk in the progressively riskier global Energy Complex. The same foundational technologies which are allowing of the Double Helix model in execution have also, through innovation and evolution, helped contribute to a global commodity pricing crisis which has caused a step-change in risk for the global Energy Complex; risk which can be quantified by historic spikes in Energy Complex bankruptcies and by historic capital destruction. Never before has the ability to predictively model risk and to prescriptively determine risk management measures been more important. Given the ability to assign a “visual-DNA” to each enterprise, using the Double Helix, viewing parties can now do this. While risk must always be managed dynamically, taking in many disciplines and many theory considerations, having a DNA with which to begin to assess predisposed conditions of variable risk is hugely powerful and, ultimately, could lead to an entirely new, entirely evolved way of protecting capital exposure.”

 

Dallas Salazar

 

Insights

  • First, make sure that “Oil” is displayed in the “Commodity” slicer and that “Comstock Resources, Inc (CRK)” is selected within the “Company” slicer.
  • Next, within the SandDance visual, click on the lightbulb icon to open the “Insights panel”. The first panel essentially shows oil price versus stock price at a high level. The stacks within the visual are essentially the count of how many times the stock price for CRK was at a certain value when the commodity price (oil) was at a certain price. The next panel increases the detail related to the commodity price, essentially increasing the number of “bins” for the commodity price aggregation.
  • One can clearly see a “hole” in the visual between the commodity prices of $50 and $74. According to Mr. Salazar, this shows that CRK is essentially a relatively unhealthy company within this range of commodity prices and this is due to CRK’s relatively immaturity as an oil exploration and production company.
  • One can contrast CRK with a much more mature corporation, Chevron Company (CVX), by selecting Chevron from the “Company” slicer. Here, there are not such gaping holes visible owing to the fact that Chevron has a much more mature portfolio of products that allows the company to perform well at a wider range of commodity prices.
  • Now switch back to CRK in the “Company” slicer
  • The next two panels demonstrates the ability to select an individual component of a stack within the SandDance visual and see related “Net Debt/EBITDA” and “Total Debt/EBITDA” information at that point in time as well as date information for the selected element.

Supporting Links

 


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