NetThruPut Inc. (NTP)

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NetThruPut Inc.(NTP)

• PRMIA Luncheon
• May 31/06

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NTP Introduction

• NTP is an electronic exchange that allows energy
  market participants to buy and sell online the
  most commonly traded crude oil types in Western
  Canada (physical volumes).
• Customers are Canadas largest oil producers,
  marketers, refiners, and financial participants.
• Full clearing anonymous exchange.
• Originated within Enbridge in 1997 commercial
  trading commenced Jan/99.

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NTP Trading Region
Edmonton
Hardisty
Kerrobert
Milk River
Cromer
Source Canadian Energy Pipeline Association
March 7, 2005
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NTP Operations

• Trade approximately 260,000 bbls/day of physical
  oil (no financial products). Record volumes of
  375,000 bpd for June/06
• Annual notional value of Cdn5-6B (primarily goes
  to delivery)
• NTPs system currently resides on 355 desktops at
  90 companies in Canada.
• NTP administers all pipeline nominations to
  ensure physical delivery.
• List 40 oil grades at 5 trading hubs.
• Complete clearing services.

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NTP Trading Screen
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NTPs Clearing Operations

• NTP administers open and secured lines under
  Board approved Credit Policy.
• Unsecured credit lines primarily available to
  investment grade counterparties only. Remainder
  post margin to cover positions.
• All open lines approved by insurer (EDC).
  Insurance will cover MtM and Contract Value
  losses.
• System automatically halts any trades that would
  exceed credit limit.
• No events of payment default in 7 year history.

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Risk Management

• Risk management model based on industry best
  practices. Standard metrics used (contract
  value, MtM and VaR)
• NTP system does not allow trades that could
  result in excess position.
• Virtually all index based deals (i.e. WTI /- a
  negotiated differential). Price movement risk
  limited to movement in differential.
• Limited forward curves available for Canadian
  crude oil differentials.

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NTP Clearing Model
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Benefits of Netting
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Netting Contd
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Risk Measurement Example
Settled
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Other Risk Factors

• Conservative VaR (99 and 5-10 days liquidation).
  Result of relatively illiquid market.
• Customer reporting shows summary credit usage
  by Contract Value, MtM and VaR
• NTP building a forward curve for Canadian crudes
  slow process! Use NTP price for MtM and prompt
  month VaR
• U.S. Market - Platts and Argus pricing provides
  market in spot nothing forward (proxy with
  Nymex rolls)

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Risk benefits to shippers

• Allows them to mitigate credit risk through
  netting and diversification.
• L/C participants get much more leverage able to
  do more business.
• High oil prices and few counterparties
  unacceptable risk exposure
• Reduces costs of capital, L/C fees, and use of
  bank lines.
• Attractive to financial participants further
  diversification.
• NTP can also clear bilateral OTC transactions.

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Future Outlook on Risk Items

• Will do back-testing to see how well VaR
  measurements are covering movements
• Look for correlations between various crude types
  to determine VaR offsets.
• Continue to use NTP figures to enhance spot and
  forward curves for Canadian crudes.
• Likely increase usage of margin to secure
  positions.

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NetThruPut Inc.(NTP)

• PRMIA Lunch
• May 31/06