White Papers Next Generation Integrated Treasury and Trading fo | Page 3

Next Generation Integrated Treasury & Trading

A ComTechAdvisory Whitepaper

THE ROLE OF TREASURY
Energy producers, traders and consumers today face a challenging trading environment with
more regulatory oversight, lower prices, increasing costs and almost constant volatility. As a
result forward thinking energy companies are already adopting a more closely integrated treasury and trading approach, a potentially overlooked opportunity by many. Typically, trading and
treasury are separate areas of business with limited or no integration between them. The traders
work to sell commodities at the best price or to profit from trading, while the treasury function
with its concern over available cash, navigating future investments and doing so in the right
currency and at the right location, has a range of responsibilities, including FX and IR hedging,
broader credit management, debt and capital management and more. Usually, the treasury department gets a fixed time view of trading positions to work with and can miss opportunities to
protect profits or control costs as a result as these exposures change rapidly. Even large oil and
gas majors have experienced the situation where trading has a good month but FX rates moved
against them to give an entirely different result. Despite believing that they were hedged, FX markets went against the company leaving it with significantly eroded traded profits.
Almost all energy companies face the challenges of
operating in multiple markets and across multiple jurisdictions. Operations may be spread across multiple
geographies such that they must manage FX variations proactively to protect margins and in many instances, may also have to deal with a variety of legal
restrictions on funding its overseas offices operations
adequately. These complications and intricacies extend into other areas of the treasury function including
loans, debt, investment and collateral requirements.
However, by optimally managing these and similar
challenges, companies can actually increase efficiency and margins. Most Exploration & Production companies face an even larger problem in that their operations around the globe almost all involve exposure to
local currency fluctuations in terms of operating costs.

As a result, over the last 12-18 months, there has
been a move in many businesses to centralize their
treasury functions but, despite considerable improvements in the treasury management functionality on offer in the market, many treasury departments continue to utilize a number of poorly integrated suboptimal
software solutions for areas such as currency hedging, investment management, collateral management
and so on. These are often supported by the use of
the ubiquitous spreadsheet, either as internally developed tools, or as points of ‘integration”. Not only does
this add appreciable costs to the business in terms of
software support & maintenance, people and development but also, it inhibits optimization and margin
protection while increasing the inherent risk of not being able to react swiftly to events such as the recent
BREXIT fallout.

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