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World Class Deal Flow

World Class Deal Flow. Process Validation Workshop. October 15, 1998. 7MM B/D Deal Flow. World Class Trading/Operations IT. Hard Assets. Additional Assets. Hydrocarbon Deal Flow. World Class Work Processes and Controls. 2-3x Deal Flow. Structural Long/Short

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World Class Deal Flow

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  1. World Class Deal Flow Process Validation Workshop October 15, 1998

  2. 7MM B/D Deal Flow World Class Trading/Operations IT Hard Assets Additional Assets Hydrocarbon Deal Flow World Class Work Processes and Controls 2-3x Deal Flow Structural Long/Short Positions And Imbedded Options Global Program Optimization Larger Positions; more options P&L Accountability/Management P&L Disaggregation Capability Trading/Operations People& Skills (Deal Engineers) Efficient Specialization Work Process Maintenance Data Capture & Understanding Industry Lowest Cost per Deal Competitor/Customer Understanding/Analysis Industry Lowest Marginal Risk/Deal Have Now but Alliance Synergy Improves Comes with Alliance Required Future Capability Deal Flow Ownership and Management World’s Largest Deal Flow $120MM/Year CIBT Potential Alliance-wide Multiple Market Effectiveness Benchmarking and Best Practices Implementation Global Optimization Organizational Structure & Human Systems World Class IT for Trading Book Management Crude & Products S/T Profit & Loss Work Processes & Controls Design/Implementation

  3. Design “To Be” Process Flows; Change Plan Evaluate “As Is” Value-Added Documents Implement Business Process Changes Project Phases 9/23/98 10/27/98 Est. 2/1/99 Project Management and Milestones Phase I Assessment Project Planning and Initiation Phase II Phase III Improve Ongoing Improvement Initiatives Related Projects Internal Audit Project Human Resources Project Information Technology Project Inventory Management Change Management: Stakeholder Communications & Quick Hits

  4. Today’s Objectives • Validate high level business model for Equiva • Identify and prioritize customer requirements • Identify key issues throughout the business model

  5. Ground Rules I. NO SACRED COWS; EVERYTHING IS CONFIDENTIAL II. TALK ABOUT PROBLEMS, NOT SOLUTIONS III. EVERY OPINION COUNTS IV. EVERYONE PARTICIPATES; DON’T DOMINATE V. RECORD EVERY ISSUE, QUANTITY OVER QUALITY VI. HAVE FUN!!

  6. Agenda Item Time I. Project Background or 1:00 - 1:10 “Why are we here anyway?” II. Introductions 1:10 - 1:30 III. Business Model Validation or 1:30 - 2:15 “What do we do around here?” Break 2:15 - 2:30 IV. Discussion of Customer Requirements or 2:30 - 3:00 “Who do we do it for?” Break 3:00 - 3:15 V. Issue Generation or 3:15 - 4:45 “What keeps us from doing it better?” VI. Wrap-up or 4:45 - 5:00 “What happens next?”

  7. Plan the Deal Make the Deal Execute the Deal Measure the Deal Settle the Deal Equiva Trading: High Level Business Model - “As Is” Every day is a new deal 4.0 Physical Trades 6.0 8.0 9.0 Ending Daily Position 1.0 Position - Review Yesterday - New Deals Review Risk Post Execution Program TPT Crude Movements 10.0 Accounting Activities Transportation & Marketing 2.0 Analytics - physical trades Buy/Sell Exchange Trading Exchanges Exposure Measurement on Paper Trades 5.0 Paper Trades 3.0 Analytics - paper trades Program TPT 7.0 Paper Execution 11.0 Post Deal Analytics Risk Risk 12.0 Dynamic Operational Risk Measures - exposure, ability to match, volumetric, basis risk Continuous improvement across the business Highly Individual “Custom” Processes More Structured “Common” Processes

  8. Plan the Deal Make the Deal Execute the Deal Measure the Deal Settle the Deal Equiva Trading: High Level Business Model - “As Is” Every day is a new deal 4.0 Physical Trades 6.0 8.0 9.0 Ending Daily Position 1.0 Position - Review Yesterday - New Deals Crude Movements - contract admin - scheduling - booking - recording Review Risk Post Execution - multiple books - measuring techniques - MTM Status - Stop Loss Program TPT Crude Crude 10.0 Accounting Activities - Settlement - Bookkeeping - Closing - FinancialReporting - Compliance Reporting - Reconciliation - Prior Period Adjustments Product Product Transportation & Marketing - contract admin - scheduling - booking - recording Feedstock Feedstock 2.0 Analytics - short term - long term Credit Market Analyses Int’l Int’l Buy/Sell Exchange Trading Exchanges Exposure Measurement on Paper Trades - multiple books - measuring techniques - MTM Status - Stop Loss 5.0 Paper Trades 3.0 Analytics Market Analyses Forward Curves Program TPT 7.0 Paper Execution 11.0 Post Deal Analytics Risk Risk 12.0 Dynamic Operational Risk Measures - exposure, ability to match, volumetric, basis risk Continuous improvement across the business Highly Individual “Custom” Processes More Structured “Common” Processes

  9. Customer Requirements

  10. Customer Requirements

  11. Customer Requirements

  12. Customer Requirements

  13. Additional Customer Requirements

  14. Additional Customer Requirements

  15. Generating Issues Ask yourself these questions to help generate issues about your job, department or interfaces with other parts of the Alliance. 1. What do you need to accomplish your job? Is it easy to get? 2. What barriers make it difficult for you to accomplish your job? 3. What information do you have to recheck? 4. What information do you wish you had sooner? 5. What part of your job do you wish you could do better or faster? 6. What part of your job is most tedious or burdensome? 7. What do you give or receive from others? Is it really useful?

  16. Next Steps Remaining Phase I Activities • Conduct interviews to collect additional issues • Categorize and prioritize issues; identify quick hits • Use issues to develop opportunities, prioritize Phase II objectives • Develop project structure, team responsibilities and charter for Phase II

  17. Appendix • Additional Deal Flow Background Information • Additional Project Information

  18. How Can Deal Flow Add Value to the Alliance? In Line Transactions Refinery Crude Feeds Pipeline Movements Intermediates $ $ Marine Movements $ $ $ Low Marginal Risk Systems Scale Economies $ Term Crude Structural Longs Inter-regional Optimizations $ Equiva Trading Creating Value Through Assets & Capabilities Refinery Products Lease Crude Imbedded Options Efficient Specialization $ Competitor Understanding Structural Shorts Truck Movements Market Intelligence $ $ Internal Optimizations Exchange Management Components $ $ $ Spot Crude $ Exchange Balances Futures Options Swaps

  19. Estimated S/T Worst to Best Profitability Range +/- $0.08/B: Winners: $0.04 to Good, Losers: ($0.04) Hurt Estimated Additional Alliance S/T Driven Profit Potential $/B .0075 .0075 .005 .01 .01 Assume 15% Overlap .005 .01 Based on 7MM B/D Deal Flow

  20. Capabilities are Essential to Capture the Benefits from Large Deal Flow Equiva Trading Value Added Potential Requires Increasing Capabilities Market Effectiveness Global Optimization Structure Benchmarking Best Practices S/T P&L Accountable World Class IT Work Processes & Controls S/T Cost Driven Service Agent Increasing Deal Flow

  21. Much of the value potential would ultimately reside outside of Tradeco ...…. but will need to be documented by Tradeco and internal customers Total Deal Flow 21.5 52.5 79.5 111.0 120.7

  22. Appendix • Additional Deal Flow Background Information • Additional Project Information

  23. Project Objectives • Optimize both TPT and program trading operations • Identify critical control points in trading activities • Define profit potential available through world class deal flow processes • Define robust, yet flexible, processes to achieve Alliance growth objectives • Incorporate comprehensive compliance reporting and controls • Define and enable measures needed to measure processes • Define and implement “quick hit” opportunities • Enable continuous process change and improvements • Manage change and communicate common vision to Equiva employees and Alliance partners

  24. Project Scope The scope below will be refined in the assessment phase of the project… • Document work processes for “life of deal” • Begins with need for a deal and deal analytics • Ends with financial settlement and performance measurement • Define processes for all business units, i.e.: • Domestic crude • Foreign crude • Feedstocks • Products • Risk Management • Involve 80-100 Alliance staff during the project • Target to complete project within 18-22 weeks depending on access to Equiva business unit resources

  25. Mission/Objectives • Goals • Applications Capabilities and Gaps Internal Inputs Detailed Process Analysis Target Environment Design Envisioning Workshops Process Design Change Actions • Process Mapping • Findings • Issues • Opportunities • Systems • Technical Infrastructure • Organization • Skills • Measures • Culture • Recommendation • Cost/Benefit • Barriers/Enablers • Implementation Plan • To Be Processes External Inputs • Best Practices • Guest Resources Phase II Overview Phase II Activities

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