Risk Controls and Accounting in the Natural Gas Industry PDF

Bauer College of Business at the University of Houston Focus on the Natural Gas Industry Risk Credit – Controls – Accounting © Rise Services 2017 Gas Industry Fundamentals Gas Industry Fundamentals...

Bauer College of Business at the University of Houston Focus on the Natural Gas Industry Risk Credit – Controls – Accounting © Rise Services 2017 Gas Industry Fundamentals Gas Industry Fundamentals Risk Layers Across The Value Chain (Operational, Financial, Administrative) © Rise Services 2017 Risk and Credit Management © Rise Services 2017 Types of Risk Operational Risk Risk of mistakes and/or fraud resulting in financial exposure. Field Operations (Accidents) Traders (Relationships Risk) Transaction Confirmations Online Trading (Black Book) Supply Chain Operations Traders (Relationships Risk) Transaction Confirmations Online Trading (Black Book) Scheduling and Storage Mistakes and Omissions Financial Risk Risk of financial exposure due to market fluctuation Protecting against rising or falling charges Locking in margins Mark to Market daily tracking © Rise Services 2017 Credit and Other Risk Credit Risk Risk of non-performance of financial commitments. Credit Limits (Receivable) Liquidity Limits (Payable) Mark to Market (MtM Report) Accts Payable and Receivable Hedge Trades (Complete Picture) Other Risk Technical Security Data Environmental © Rise Services 2017 Mark-to-Market Reporting Locked May 20, 2010 © Rise Services 2017 Middle Office – Controls and Compliance © Rise Services 2017 Middle Office – Dynamic Growth In recent years the Middle Office of the Natural Gas (Energy) Industry has become one of the fastest growing sectors in our industry. As our Industry becomes more fast paced and risk adverse, the role of the Middle Office becomes more and more vital. Controls and Compliance Auditors’ Role Management’s Role Technology's Role Government’s Role © Rise Services 2017 Middle Office – Controls and Compliance © Rise Services 2017 Auditors’ Roles Auditors must insure that: Controls designed to protect the company from harm are in place Controls should in included: o Detective o Corrective (From Sarbanes – Oxley Act) o Preventive o GAAP When issues are identified, new safeguards are put in place Auditors involve Management on a timely basis Types of Audits Internal External Jurisdictional Governmental © Rise Services 2017 Management’s Roles Management must insure that: Controls are constantly monitored and enforced Staff is aware of Controls and their importance o Staff Meeting o Directives o Participation Management must be open and transparent Types of Controls Volumetric Balancing Pricing Validations Required Information Limits are being adhered to Forecast vs Actuals © Rise Services 2017 Technology’s Roles Technology provides the engine: Automation has greatly enhanced Auditing Automated detection does not tire and is lighting fast Automated seamless End-to-End Process Technology monitoring Technology Types of Automated Controls Credit Limits Volumetric Balancing Contract Quantities Accounting Results © Rise Services 2017 Government’s Roles The Government has always played an important role in working to insure that industry is conducting their business in a manner conducive for the good of the public. Government normally acts after the issue occurs Partial or Total Regulations Sarbanes – Oxley Act Detective (Identifies Problems) Corrective (Solutions to Problems) Preventive (Deters Problems) Dodd – Frank Act Daisy Chain Collapse ( Affordable Housing Acts) © Rise Services 2017 Dodd – Frank Act 2010 © Rise Services 2017 Back Office – Accounting / Settlement © Rise Services 2017 Basic Accounting Model © Rise Services 2017 Accounting Process Seamless End-to-End Process © Rise Services 2017 Seamless Process © Rise Services 2017 Operational Transactions © Rise Services 2017 Accounting Transactions Operational Transactions are Seamlessly Flowed to Accounting. This Ensures Accuracy. © Rise Services 2017 Accounting Statements Financial Statements Balance Sheet, Income Statement, Cash Flow, MtM Balance Sheet – Position at a point in time (Current Position) Income Statement – Profit and Loss for a period (Historical Results) Cash Flow Statement – Cash Position and Forecast (Current and Future) Mark to Market (MtM) – Accounting (Outlook) (Project Future Results) Current Month vs. Prior Period – True-up (Prior Period Adjustments) Affected Parties Staff Personnel and Management Stockholders / Investors / Lenders Potential Investors / Lenders Trading Partners / Suppliers / Customers © Rise Services 2017 Payables and Receivables Accounts Payable – Commodity Charges (Deal Capture) Purchases Transport Processing Storage Accounts Payable – Demand Charges (Fixed Costs) Purchases Transport Storage Accounts Receivable – Commodity Revenues (Deal Capture) Gas Sales Liquid Sales © Rise Services 2017