Welcome to Mobius Risk Group.
The commodity space in general and the energy market in particular are faced with a number of challenges including capital availability, technological efficiency and regulatory burden. Dodd Frank and new banking reserve capital regulations are affecting capital availability in the traded market as well as in the producer, industrial, manufacturing and chemical sectors. These changes are reflected in less market transparency, changes in liquidity in various parts of the curves for different instruments and increased volatility in basis markets (natural gas and crude differentials), and changing the composition of capital providers to upstream and downstream players. Additionally, the regulatory changes continue to affect short and mid-term liquidity while making longer term capital planning more difficult thereby adding risk and therefore cost to longer term, structural commodity and energy based opportunities.
The energy technology sector continues to overcome regulatory hurdles to add evidence that “the market works”. The E in E&P is soon going away to paraphrase our Chief Risk Officer Paul Smith. The efficiency of fracking specifically and drilling and completion costs generally has impacted the market by effectively establishing “in ground” storage. Producers can maintain hole pressure and react to price changes more efficiently. The operational implication is that trend volatility in the markets is being replaced by short term extreme volatility. This increase in volatility without supporting macro trend price moves will continue to put added pressure on management teams. To quote Mr. Buffet “Only when the tide goes out do you discover who’s been swimming naked”. The inability of price to bail out management and capital decision making will continue to create opportunities for discerning management teams and capital providers.
The regulatory inefficiencies also extend to the extensive and complex reporting requirements added to today’s management teams. Not only should management teams be able to look at their dashboard and understand where they are relative to financial performance, credit usage and counterparty performance but also their regulatory compliance and reliable end of period reporting.
The combined impacts of the aforementioned create an environment for management teams that requires a higher service level for a decidedly lower cost structure. We look forward to exploring how Mobius can assist you in becoming more strategic in your commodity and energy matters and more tactical in delivering the entire value of your plans through effective and non-conflicted market advice, execution services and state of the art reporting.
Eric J. Melvin