Energy Risk Manager of the Year: Barclays Capital

A slew of innovative deals across the entire energy complex, including a groundbreaking credit structuring deal, has secured Barclays Capital Energy Risk's 2010 Energy Risk Manager of the Year award.

Barclays Capital's credit deal with one of the largest natural gas producers in the US - Chesapeake Energy Corporation - demonstrated the bank's ability to innovate in a credit-constrained environment. The deal was completed in June last year, and was recognised as one of Energy Risk's Deals of the Year in January.

In a similiar way to many other exploration & production companies dealing with the aftermath of the credit crisis, Chesapeake faced the challenge of meeting the hefty collateral requirements of its hedging counterparties, forcing it to maintain significant cash reserves on its balance sheet. Barclays Capital structured a credit facility in which 13 counterparties share the same collateral pool and trade under similar terms, allowing Chesapeake to hedge a substantially larger amount of its production.

"There's never been a deal like this before," says Craig Shapiro, global head of commodities sales at Barclays Capital. "Through the deal, we can hedge 80 to 90% of Chesapeake's production for the year ahead, and the cash flow certainty allows them to continue to grow in this difficult economic environment."

Providing energy distribution and refinery companies with alternative sources of capital has been a strong focus over the past year for Barclays Capital. "We help companies look away from the traditional bank and bond markets and find ways to allow them to use current assets to establish operating cash flow," says Shapiro.

Barclays Capital's energy team covers all facets of the oil, liquefied natural gas (LNG), power, natural gas and coal markets across Europe, the Americas and Asia. Over the past 12 months, the bank's physical crude oil and refined products platform has grown through the expansion of storage and transport capacity in several major hubs, including Cushing, ARA and Singapore.

"This year, we've seen an increased requirement from clients to be offered risk management solutions with a more physical commodity component," says Roger Jones, global head of commodities at Barclays Capital.

Barclays Capital's expanded services in LNG provides yet another example of the investment bank's ability to innovate. In December 2009, Barclays Capital entered an agreement with a client to market their LNG services accessing the Northeast Gateway Deepwater Port, offshore from Boston in Massachusetts Bay. Through fixed-price hedging mechanisms, the service helps the client offset risk while facilitating attractive prices for both the natural gas sellers and buyers in the US Northeast. Additional services include taking physical delivery, transport and optimisation of cargoes through profit-sharing between the parties. The service helps the client offset risk while enabling attractive prices for buyer and seller.

Over the past year, Barclays Capital has built upon its already three-year strong presence in the Canadian derivatives market by becoming more active in the physical side of the business.

"This isn't physical for physical's sake," says Jones. "Physical presence has given us the ability to risk manage some of the new areas of exposure that we have gained. It's allowed us to do a number of deals that we would not have been able to do in the derivatives space otherwise," he adds.

Further expansion into this region is planned for this year with the recently approved Canadian offices to be based in Toronto and Calgary. This will give Barclays Capital a major foothold in the Canadian energy market.

Barclays Capital's ongoing success in the energy and commodities space is down to the team's dedicated and consistent approach, says Jones. "What I'm proud of is that Barclays Capital has continued to be a solid, liquidity-providing counterparty and our solutions have been based around simple innovation in credit, asset and corporate deals. Even through the market's darkest of days, we've continued to be open for business."