Download Energy Marketing

Energy Marketing
The Challenge of Creating Value
Griff Jones
President & CEO
Twin Eagle Resource Management
September 10, 2014
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Energy Marketing: What you must get right…
 Must Have an Edge – hopefully more than one
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Can be relationships, knowledge, product structuring, asset rights, etc.
 Strong, Long-term, and Diverse Customer Relationships
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Not enough to just focus on customer requirements
Competitors may win deals but harder for them to take your relationships
Employees must “buy in” and work as a team to support this goal
Many customers create additional network value
 Solid and Agile Commercial Capabilities
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Must be able to provide better services that combine many strengths
Do not limit capabilities to the very liquid markets and products
Integration from energy producer to consumer is important
Markets and customer needs change quickly – so must your game plan
 Integrity
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Reputation matters -- Be consistently honorable, reliable, and equitable
 Risk Management
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Do not jeopardize business through excessive market risk, not responding to
regulatory changes, lack of financial forecasting, etc.
Hedge the intrinsic value, then focus on optimization and arbitrage
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Energy Marketing: Combining Capabilities
Value Chain Approach
Sourcing &
Supply
Upstream & Downstream
Access to the following:
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Supply from point of
origin; wellhead and
generator
Supply from pools,
interconnections, and
ISO’s
Logistics &
Storage
Best in class ability to
provide reliable deliveries
receipts and storage by
the following:
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Storage facilities
Transmission
Transportation
Asset
Management
Risk Management
Creative Solutions
Experienced Asset Management
Team.
Risk Management Experts
Customer Driven Solutions
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Physical & Financial Experts
Dispatch & Logistic Specialist
Physical & Financial
Logistical
Enterprise Assessment
- Exposure Analysis
- Risk Mitigation
Creative Structures
Optimal Hedging Tools
Commodity Banking
Custodial Services
Monetization Strategies
- Principal or Agent
- PPA Negotiations
- Capture Optionality
- Financing Support
 Customers often require a mix of supply, asset management, logistics, and risk
management expertise (e.g. full requirements gas supply, generation mgmt.)
 Physical logistics and asset management capabilities allow Twin Eagle to offer
services that are very customized and often difficult for competitors to replicate
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Twin Eagle Development Path
Twin Eagle
Today
Company Formation and Franchise Development
2010
• Formation of Twin
Eagle Resource
Management, LLC
by Chuck Watson
and Griff Jones in
September
• $75 million Credit
Facility from BNP
Paribas
2011
• CHK equity
investment in TERM
• Credit Facility
increased to $175
million
• Strategic alliance to
market CHK gas
• LS Power equity
investment in TERM
• Strategic alliance
formed w/LSP
Energy Mgmt
Agreements
2012
• Purchase of Enserco
Energy, LLC (Denver)
• Acquired Coal & Crude
businesses
• $60 million equity
contribution from
existing partners
• Expanded Gas & Power
business
• Acquired Enbridge Gas
Services in Appleton
• Credit Facility increased
to $325 million
2013
• Refocus wholesale
marketing on Gas and
Power activities
• Focusing Midstream
efforts on Rockies and
Gulf Coast
• Completed Wyoming
rail facility for manifest
service and storage
tanks in Texas
• Admitted Crestwood as
partner in WY facility
• $35 million Credit
Facility for the
Midstream entity
2014
• Experienced record
earnings in Q1
• Completed sale of
ENCOA, TERM’s retail
business
• Purchased majority
interest (60%) in Frac
Resources
• Closed Equity Investment
in TERM by Five Point
Capital Partners and GSO
Capital Partners, a
subsidiary of Blackstone
• Acquired Gold Spur
Trucking, LLC
• Acquired assets of JP
Falco, LLC
Accomplishments have resulted in a significant franchise
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Twin Eagle Business Profile – diversified approach to market
 Two primary business segments provide broad North American energy marketing & logistics services
 350 employees (255 Midstream, 95 Wholesale) with offices in Houston, Denver, Appleton (WI),
Universal City (TX), and Calgary
Wholesale Marketing
Services
Footprint
& Volumes
Recent
Events
Midstream
Natural Gas
Power
Logistics Assets
Leasehold Gathering
End-user marketing
Producers services
Logistics services
Risk management
• Retailer supply
• Generator hedging
and services
• Environmental hedges
• Crude & Frac Sand
Transloading and Storage
• Crude Trucking
• Crude & Gas Gathering
• Spot and term
marketing (crude, sand)
• Pipeline, rail, and truck
logistics
20 Bcf firm storage
~1 Bcf firm transport
>2 Bcf/d physical sales
>100 independent
producer relationships
• Solid capabilities
throughout North
America
• Commercial services
for 9,232 MW power
generation
• Strong presence in
PJM, MISO, ERCOT,
WECC, NEISO
• 24hr real-time
operations desk
• ~30,000 bpd crude asset
throughput
• 15 crude terminals
(WY,ND,MT)
• ~130 trucks active in
Bakken, Permian, Eagelford
• 3 frac sand terminals
• Crude storage at Pt. Arthur
• Bakken and Rockies
concentration, but
expanding to other
regions (TX shale basins)
• Added staff to
increase presence in
Marcellus and Texas
• Expanded exclusive
power plant gas supply
arrangements
• Sold retail power book
• Adding Rockies fullrequirements load
• Commencing services
to >2000 MW of new
Texas generation
• Acquired 60% of Frac
Resources (Q1-14)
• Acquired Gold Spur
Trucking (Q2-14)
• Purchased JP Falco crude
trucking assets (Q2-14)
• Pursuing storage and
pipeline capacity rights
adjacent to growing
shale basins
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• ~20,000 bpd marketed
crude
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Twin Eagle’s Gas Contractual Assets
TransGas Storage
Calgary Office
Empire
ANR Storage
Renaissance
Panhandle Storage
West Springfield
Wallingford
NGPL Storage
Appleton Office
MichCon Storage
Dawn Storage
Pittsburg Office
Washington 10
OPP
University Park
North & South
Richland
Dominion
Storage
Stryker
NICOR Storage
Chicago Office
Questar Clay
Basin Resevoir
Panhandle
Storage
Denver Office
PG&E Gill Ranch
West Deptford
TGT Storage
Rock Springs
CG
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Riverside
Panhandle Storage
SoCal Storage
Harquahala
Panhandle
Storage
WORSHAM Storage
Enel
TERM Office Locations
KM Texas
Fortistar
Bastrop
NGPL TEXOK
Storage
Storage: 20 Bcf
Moss Bluff Storage
Pine Prairie Storage
Petal Storage
EMA: 9,232 MW
Egan Storage
TECO
Houston Office
TERM Gas Transport
Highgate
TERM EMA
TERM Wind EMA
Transport: 1 Bcf/d
Sandy Creek
Temple I & II
TERM Managed Gas Storage
Paris
Sherman
Frontera
Total Transport:
Total Storage:
Total EMA’s:
1.97 billion
19 Bcf
9,232 Mw
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Marketing Business: Diversity Protects Value
“It is the part of a wise man to keep himself today for tomorrow and not venture all
his eggs in one basket”
- Don Quixote
A. Multi-commodity Capabilities
• Allows cross-commodity opportunities -- e.g. management of power generation
• Increases depth of market knowledge (fundamental linkages between markets)
• Profits from crude, gas, and power marketing are not correlated; decreasing risk and
helping avoid “boom-bust” financial results
B. Multi-region Presence
(but allocate resources based on level of opportunity in each region)
• Weather can cause the “right market to be in” to be hard to forecast
• Customers have needs that often cross regions
• Transport crosses regions creating a need for expertise at both ends of the pipe
C. Build a Team with Diverse Skillsets Across Full Value Chain
• Takes strong physical operations, marketing, risk management all working together
• The best opportunities may shift over time up and down the value chain
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Daily Gas Sales Volume by Region: Aug. 2013 – Jul. 2014
Well balanced portfolio approach across all regions
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Market Trends Create Opportunities
A. Increasing Compliance Requirements & Risk (e.g. Dodd Frank)
• Significant investment in IT, staff, consulting, & training
• As more transactions are cleared, collateral forecasting becomes more important
• Ability to take on compliance tasks from customers has added margin and loyalty
B. Bank Pull-back from Energy Markets (e.g. Barclays, JP Morgan)
• Liquidity for hedging has temporarily declined
• Customers need capable marketers more now than five years ago
C. Booming Shale Production
• Some regional price spreads are much more volatile, creating asset
opportunities, but also a need for careful risk management
• Producers are increasingly holding transport capacity, but need help optimizing
• Market is getting bigger as low prices drive increased demand (e.g. LNG,
chemical production) creating incremental marketing opportunities
• LNG and rising exports to Mexico create a need for marketers with the logistic
resources and capabilities to manage large and varying supply requirements
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Market Trends Can Create Opportunities
D. Coal Generation Retirements
• Coal steadily being replaced by gas and renewable generation
• Shift creates opportunity to partner with new generators to provide gas supply
and energy management services to help deliver power into market
E. Midstream Asset Value
• Need for new infrastructure and high multiples driving investment
• Midstream asset value can be enhanced by marketing capabilities
• Marketing relationships can help identify opportunities to deploy capital
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Potential Pitfalls: Marketing is Not Easy
A. Insufficient Capitalization & Collateral Capacity
• Credit has a cost and is larger for those with weak balance sheets
• Margin requirements can vary a lot based on market prices, contract terms, and
exchange requirements – must have adequate credit facility
• Many good companies have faltered due to a liquidity squeeze
B. Non-Compliance
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Financial penalties are increasing
FERC, NERC, ISOs, CFTC, and many others
Customers and lenders want partners with strong compliance cultures
Non-compliance distracts management from growing the business
C. Reliance on Trading Profits
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The best use of risk capital is to support customer transactions
A focus on trading can take the marketers eye off the ball
Market knowledge and risk management expertise is needed to be a strong
marketer, but placing large bets on market direction is not
Large trading presence can make customers concerned about a conflict of interest
Trading inconsistent with building a steady-earning, origination focused business
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Potential Pitfalls (continued)
D. Trying to be Everything to Everyone
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Focus on regions, products, and services that are scalable
Want markets that allow you to hedge
Cost structure that is built for one deal is not that attractive
Preference markets that provide collateral offsets
E. Lack of Alignment
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Investors that are not committed to growing the company can create risk
Employees and business leaders must share same view not only on financial goals
but also about how to achieve them
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Contact Us
Photograph by George Courcier
Alaska – Homer Twin Eagles
Houston Office:
Denver Office:
8847 W. Sam Houston Pkwy, N.
Houston, Texas 77040
713.341.7300 – phone
713.341.7303 – fax
1900 16th Street, Suite 450
Denver, CO 80202
303.566.3403 – phone
303.568.3250 – fax
Canada Office:
Other:
250 – 6th Avenue SW, Suite 300
Bow Valley Square 4
Calgary, Alberta T2P 3H7
403.984.5353 – phone
403.930.5344 – fax
[email protected]
www.termna.com
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