Managing Energy Price Risk in Today’s Complex World

April 22, 2013

Platts

• A McGraw-Hill Financial Company

• Leading global provider of energy, petrochemicals, and metals information—founded in 1909

• 900+ employees

• 15 offices worldwide: New York, London, Singapore, Houston, Dubai, Sao Paulo, Sidney, Moscow, Beijing, Tokyo, Buenos Aires

Risk Data Services

PFCICE Settlement

Data

M2M

Risk Services

Risk Data Services. A global business. 350 customers. Over 300 curves produced every day.

Risk management is an imperative

• Choosing not to manage a known risk is a risk management decision.

• As is not diligently trying to asses the true risks facing your organization.

Once a risk management strategy is implemented,Measuring and reporting results becomes critical.

Risk Management in Energy Sector

• Companies in this sector manage a vast array of risks depending on the nature of their operation.

• One common is the financial risk incumbent with a business tied to the value of commodity.– Will it go up?– Will it go down?

• Another, is the risk associated with the credit worthiness of your counterparties.– Will they deliver?– Will they pay?

When is a “hedge” not a “hedge”? – That is the question!

IFRS 13 Fair Value Measurement - Hierarchy

Level 1 Quoted prices in active markets for identical assets and liabilities. Level 1 inputs must be used without adjustment whenever available.

Level 2 Inputs not included within Level 1 that are observable for the asset or liability either directly or indirectly.

Level 3Unobservable inputs, including the entity’s own data, which are adjusted if necessary to market participants’ assumptions.

Level “oops” : Out of hedge accounting correlation band

Forward Curves

Key Input to Trade

Decisions

Mark-to-Market

P&L

Risk Measurement

Stress Testing the existing

positions

Financial Reporting

Inputs for Derivative

pricing models

Counterparty Credit

Exposure and collateral

Investment Decisions

Importance of Forward Curves

Platts M2Ms Gas and Power Forward Curves

• Use PFC curves and ICE settlement prices

• National Coverage (79 gas, 48 peak and off peak power)

– Editorial hubs—liquid, covered by Platts editors in PFC– Market hubs—liquid, exchange traded, not covered by PFC– Proxy hubs—very illiquid forward trading, liquid spot trading– Sold in easy to buy regional and custom curve packages

• Monthly granularity – including balance of current month for gas

• Daily curves go out 120 months, and once a month we stretch them out to 20 years.

• Broadest Implied Volatility and Correlation coverage in the market using sophisticated hybrid methodology utilizingmarket / historically implied data.

• Independent daily assessments: crude and refined oil products

• Over 100 individual curves, including crack spreads, differentials, and time spreads

• Assessments up to 3 calendar years forward, and up to 36 months granularity.

• Platts market-on-close (MOC) timed assessments:

• Asia – 16:30 Singapore• EMEA – 16:30 London• USA – 15:15 New York

• Market commentary and analysis of oil price developments

Industry leading follow the sun curves that restate all the major curves at each regional time stamp

Platts Global Oil Forward Curve Coverage

PFC Oil Americas

PFC Oil Europe, Middle East, Africa

PFC Oil Asia

Follow the Sun (FTS) Curves

• PFC Oil curves produced once a day (except for Brent and Dubai) at their corresponding timestamp

• Customers with global portfolios have the need to mark to market positions at their headquarter location– Require updated versions of (say) Asian curves at London and NY

timestamps• Follow the Sun curves

– An add on product to PFC Oil to be launched in 2013– Will provide quantitative updates of PFC curves, not assessed at the

current timestamp– Brent and Dubai (assessed thrice a day) to be used as anchor curves

Bespoke Long-Term Oil and Product Curves

• Customers require long-term (up to 20 years or more) curves for oil and products—M&A applications, asset impairment testing, etc.

• Platts capable of producing long term oil curves– Settlement data on Brent and WTI used from the ICE– Brent and WTI curves extended in a conjugated, arbitrage free way– Other curves linked to these two parent curves

Bespoke Long-Term Brent and WTI Curves

Implied Volatility Surface Example

Platts RDS Contact Information:

Marc Karstaedt, Senior Director – Global Trading Services, PlattsEmail: Marc_Karstaedt@Platts.comPhone: + 1 713 419-6146

Dr. Anguel Grigorov, Director - Risk Data Services, PlattsEmail: anguel_grigorov@platts.comPhone: + 1 713 655-2219

Paul Waine, Director - Risk Data Services, PlattsEmail: Paul_Waine@Platts.comPhone: + 44 20 7176 6342