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NetThruPut Inc. (NTP). PRMIA Luncheon May 31/06. NTP Introduction. NTP is an electronic exchange that allows energy market participants to buy and sell online the most commonly traded crude oil types in Western Canada (physical volumes).

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Netthruput inc ntp

NetThruPut Inc.(NTP)

PRMIA Luncheon

May 31/06


Ntp introduction

NTP Introduction

  • NTP is an electronic exchange that allows energy market participants to buy and sell online the most commonly traded crude oil types in Western Canada (physical volumes).

  • Customers are Canada’s largest oil producers, marketers, refiners, and financial participants.

  • Full clearing anonymous exchange.

  • Originated within Enbridge in 1997 – commercial trading commenced Jan/99.


Ntp trading region

NTP Trading Region

Edmonton

Hardisty

Kerrobert

Milk River

Cromer

Source: Canadian Energy Pipeline Association – March 7, 2005


Ntp operations

NTP Operations

  • Trade approximately 260,000 bbls/day of physical oil (no financial products). Record volumes of 375,000 bpd for June/06

  • Annual notional value of Cdn$5-6B (primarily goes to delivery)

  • NTP’s system currently resides on 355 desktops at 90 companies in Canada.

  • NTP administers all pipeline nominations to ensure physical delivery.

  • List 40 oil grades at 5 trading hubs.

  • Complete clearing services.


Ntp trading screen

NTP Trading Screen


Ntp s clearing operations

NTP’s Clearing Operations

  • NTP administers open and secured lines under Board approved Credit Policy.

  • Unsecured credit lines primarily available to investment grade counterparties only. Remainder post margin to cover positions.

  • All open lines approved by insurer (EDC). Insurance will cover MtM and Contract Value losses.

  • System automatically halts any trades that would exceed credit limit.

  • No events of payment default in 7 year history.


Risk management

Risk Management

  • Risk management model based on industry best practices. Standard metrics used (contract value, MtM and VaR)

  • NTP system does not allow trades that could result in excess position.

  • Virtually all index based deals (i.e. WTI +/- a negotiated differential). Price movement risk limited to movement in differential.

  • Limited forward curves available for Canadian crude oil differentials.


Ntp clearing model

NTP Clearing Model


Benefits of netting

Benefits of Netting


Netting cont d

Netting Cont’d


Risk measurement example

Risk Measurement Example

Settled


Other risk factors

Other Risk Factors

  • Conservative VaR (99% and 5-10 days liquidation). Result of relatively illiquid market.

  • Customer reporting – shows summary credit usage by Contract Value, MtM and VaR

  • NTP building a forward curve for Canadian crudes– slow process! Use NTP price for MtM and prompt month VaR

  • U.S. Market - Platt’s and Argus pricing provides market in spot – nothing forward (proxy with Nymex rolls)


Risk benefits to shippers

Risk benefits to shippers

  • Allows them to mitigate credit risk through netting and diversification.

  • L/C participants get much more leverage – able to do more business.

  • High oil prices and few counterparties = unacceptable risk exposure

  • Reduces costs of capital, L/C fees, and use of bank lines.

  • Attractive to financial participants – further diversification.

  • NTP can also clear bilateral OTC transactions.


Future outlook on risk items

Future Outlook on Risk Items

  • Will do back-testing to see how well VaR measurements are covering movements

  • Look for correlations between various crude types to determine VaR offsets.

  • Continue to use NTP figures to enhance spot and forward curves for Canadian crudes.

  • Likely increase usage of margin to secure positions.


Netthruput inc ntp1

NetThruPut Inc.(NTP)

PRMIA Lunch

May 31/06


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