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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 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.
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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