CommodityPoint CommodityAlert
Patrick Reames

Though non-binding, a report released yesterday by the Bipartisan Policy Center should provide momentum toward the lifting the deepwater drilling moratorium currently in place in the wake the of the Deepwater Horizon disaster.

The BPC, a Washington based non-profit think tank was founded by four former Senators, two each representing Democrats and Republicans, and has been dedicated to “develop and promote solutions that can attract public support and political momentum in order to achieve real progress”. The BPC was asked by the federal government’s National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling to review the effect of the moratorium and the response by both industry and the government.

Among the conclusions in the BCP report:
• “We (the BCP) believe that the need to impose a moratorium on deepwater drilling reflects how unprepared both government and industry were for an incident of this magnitude.”
• “The DOI’s (Department of Interior) drilling moratorium has served the productive purpose of allowing time for both industry and government to prepare for a safer, more vigilant, and dependable future for U.S. offshore drilling.”
• “We believe DOI and the industry have used this time effectively to develop a new regime for drilling in the Gulf of Mexico.”
• “We believe this new regime will provide an adequate margin of safety to responsibly allow the resumption of deep water drilling in the Gulf of Mexico.”

Among the new regulations being proposed and/or implemented by the DOI include the development of new comprehensive safety and environmental protection plans that cover each operator’s specific operations and assets, including new standards and inspection/certification requirements for blow-out preventers and casing/cementing programs (critical failure points in the Deepwater Horizon disaster). The proposed new regulations also require that drillers develop worst case scenario case studies for each deepwater well drilled.

The BPC notes that these and other proposed changes are not without substantial cost, concluding that “It is possible that the costs and technical sophistication needed to comply with these new requirements may discourage some rigs and companies from future operation in the Gulf of Mexico. Although this outcome would be unfortunate, we believe it is imperative that all companies be held to a consistent set of safety requirements.”

Given the vitriol, misinformation and finger pointing that has been associated with the blowout and its aftermath, it has been difficult to find reasoned discussion about the path forward for the industry. The involvement of a non-partisan third party to review the impact of the moratorium, and the joint response by industry and government, has shed a sterilizing light on the aftermath of an event that has been infected by emotional hyperbole and political gamesmanship. A rational, balanced review of the response to a terrible tragedy, such as that provided by the BPC, will help in advancing the development of improved practices and standards for safety and environmental protection. Once in place, these new practices and standards will allow the industry to move forward in developing much needed natural resources in a manner that minimizes the risks to both the environment and the workers in the gulf.

In response to an earlier blog posting about Opportune’s ETRM consulting practice that referenced sunsetting of ETRM systems, Stephen Schwarz, SVP of Product Management passed along a note saying, “Despite what some firms may be saying in the market, SunGard has no plans to discontinue support for the GMS product (formally known as Altra GMS)”. Please note that the referenced post has now been edited in light of this update from SunGard.

Quorum Business Solutions, Inc., recently announced that The Carlyle Group and Riverstone Holdings had made what the company calls a “significant” capital investment in the company. While none of the parties disclosed the size of the investment, it appears that the new investors did pick up a majority interest in the company.

Quorum has been a leader in the upstream oil and gas space for many years now, with solutions covering land management, production accounting, gas plant accounting and pipeline transaction management, just to name a few. They have also had a presence in the ETRM space with their gas and NGL marketing products.

While Carlyle notes in their announcement that this investment will provide a significant source of new capital to “foster Quorum’s continued growth as well as the breadth and depth of their product offerings”, its impossible to ignore the fact that Carlyle also owns Open Link Financials, having bought that company in November of last year. Is Carlyle just looking to increase their holdings in technology firms that service the energy space, or are they looking to leverage the synergies that might be found in a combination of market leaders in contiguous segments of the energy market value chain?

I met up with Marty Makulski this afternoon, one of two partners overseeing the Energy Supply and Trading practice at Opportune. Marty, who joined Opportune (along with fellow partner Don Jefferis) a little over 2 and half years ago, indicated that the company is seeing tremendous growth in the ETRM space.

According to Marty, the ETRM focused group has grown from 2 (Marty and Don) in December of 2007, to “more 50 people in our practice and we expect to leave the year with more than 70. At the end of next year, we expect to be over 100″. He indicated that they are seeing a lot of business coming from companies that are in need of project management skills and product specific knowledge for new system implementations, particularly for products that support crude, natural gas and power trading. “We’ve been fortunate in that we’ve been able to not only attract some of the top ETRM consulting talent from many of our competitors, but we also been able to bring on people that have deep product expertise from having worked for the top systems vendors in the space.”

Another significant line of new business for the practice is helping companies that are in the very uncomfortable position of using products that have been “end of life’d” by their vendors. According to Marty, they are helping several clients support the Tempest product and are working with several others that are facing similar decisions with other products.

Note: I have edited this post in response to a request from Opportune. Should you have any questions regarding the previous version of this post, please contact either Marty Makulski or Don Jefferis with Opportune.

Allegro has posted a number of new wins recently for their Allegro 8 product set. Allegro’s announcements through the first half of the year include wins with both new and existing customers including Russian coal producer Suek AG, Source Gas, SouthWest Airlines, and Genesis Energy. You can read more at Allegro’s website.

When viewed in context with earlier announcements from Solarc and Triple Point, it certainly appears that the market for CTRM products is showing new found strength.

As I alluded to in an earlier blog posting, Micheal Schwartz, Triple Point’s CMO, indicated that the company has seen record sales in the first half of 2010, with 20 new license deals done in the 2nd quarter alone, half of which were to existing clients of the company’s products and the other half to net new customers. According to Mr Schwartz, these new sales contributed to a 31% growth in revenues and a 60% growth in EBITDA in the first half of the year.

The company has seen increasing business across all their products and geographies; although, clearly, the acquisition of Softmar has made a significant contribution to the company’s recent success, bringing in new business with shipping companies such as Maestro Shipping, Atlas Shipping, Practica Shipping, United Arab Chemical Carriers, and Prime East. Other significant deals for the company this year including Commodity XL licenses for OGE Energy Resources, Louis Dreyfus Highbridge Energy, Incitec Pivot, Cima Energy and Hess.

Matthew Simmons, one of the more colorful, and controversial, voices in the energy industry was found dead at his home yesterday in North Haven, Maine.

Mr. Simmons was a frequent speaker at many industry events. Though he founded several successful companies, including Simmons and Co. International, he is probably best known for his book “Twilight in the Desert” in which he argued that the Saudis were at peak crude production and that there were insufficient reserves and productive capacity in the rest of the world to offset impending production declines. Most recently he had founded the Ocean Research Institute, which according to their website, is “a think-tank and venture capital fund addressing the challenges of U.S. offshore renewable energy”.

I had the opportunity to visit with Mr. Simmons on occasion at various industry events and always found him to be very gracious and well informed. His always interesting insights will be missed.

A CommodityPoint CommodityAlert
Patrick Reames

Every company that trades commodities is using some type of system capture their trades, manage their positions, and account for the value of the trades. That’s not to say that all the systems being used are created equal —they are most certainly not, after all a paper ledger book can be considered a system. Fortunately, ledger books have gone the way of buggy whips, and now when the term “system” is used, it implies that some form of computer software. “Software”, though, is a pretty broad term and can, and does, mean everything from Excel spreadsheets to a highly sophisticated commercially produced software packages that can cost up to tens of millions of dollars.

Regardless of its form, every CTRM system is intended to provide the following core capabilities for any trading organization:

• System of record—What did we do? Who did we do it with?
• Decision support—Given that we’ve done what we have, what should we do next?
• Trade accounting—Who do we owe and how much? Who owes us and how much?

And, should that trading company manage inventories of physical commodities:

• Logistics management—How do I take inventory from here and sell it there?

Experience has shown that spreadsheets, given the complexities of today’s markets and increasingly intrusive regulations and reporting requirements, are really not a viable option as a core CTRM system. Though their flexibility and general ease of use make them useful as a decision support tool, their inherent lack of transactional integrity prevent them being serious contenders for the role of system of record.

More and more, the world of CTRM has become one of commercially produced software. The systems supplied by the leading vendors do provide the key functionality necessary to capture the business of trading, and many also provide the capability to manage the logistics of physical commodities. However, though broad in their capabilities, CTRM systems rarely if ever live in isolation. In fact, our research has shown consistently that while CTRM systems form the core of the technical architecture for trading organizations, those systems are increasingly being integrated with other software products in order to address the seemingly infinite number of variables and complexities associated with today’s markets—such things as managing massive amounts of external data, preparing regulatory reports, or modeling complex assets like generation or storage. For example in the area of commodity risk management, our latest research indicates that 95 percent of traders rely on two or more systems, with more than 80 percent utilizing three or more.

These other software systems, what we at CommodityPoint call Ancillary CTRM Products, include those that facilitate data collection, analytics, asset modeling, reporting, market interfaces and numerous other functions that are not covered by, or are not adequately addressed in the core CTRM product that may be in use in any given trading shop. These ancillary systems are more and more becoming necessary components in the overall infrastructure used to manage the business of commodity trading, and new vendors and new products are constantly joining the CTRM market.

In order to help the market place gain some insight as to what specific solutions are available, CommodityPoint is developing a follow-on publication to our very successful SourceBook of CTRM Vendors and Solutions (available for free download here. This new report, appropriately titled SourceBook of Ancillary CTRM Products, will be the market’s first and only comprehensive catalog of those systems that provide increased functionality or enhance the existing capabilities and utility of large scale CTRM systems. In this publication, we’ll be cataloging the many products available and categorizing the universe of systems, including Data Management, Integration, Analytics, Reporting, Scheduling and Settlement, and Market Data and Analysis. We are about to launch the data collection phase of this effort and intend to have the new SourceBook available as a free download in a couple of months.

If you’re a vendor of a product that supports the process of commodity trading and risk management, we do want to make sure you and your products are included in this new CommodityPoint SourceBook. It costs nothing to be listed, so please do contact Mark Tredway, Director of Business Development at mtredway@utilipoint.com and he will ensure your company and products are covered.

Press Release

Brno, Czech Republic and Houston, TX—August 2, 2010—CommodityPoint, A Division of UtiliPoint International, Inc. focused on research, analysis and consulting around global wholesale commodity markets and trading & risk management technologies, has released a landmark report on alternative delivery mechanisms for Commodity Trading and Risk Management (CTRM) software. The report looks at the rising popularity in some segments of the industry for delivery mechanisms such as Software as a Service (SaaS), hosting and leasing as opposed to the more traditional on premise licensing model. The report is available for free on the UtiliPoint and CommodityPoint websites. This research and subsequent report were sponsored and supported by Allegro Development, Aspect Enterprise Solutions, IHS, Navita, Open Acess Technology International (OATI), and SolArc.

“While the traditional installed-software model is still dominant in the CTRM space, the rise and success of vendors specializing in web-delivery of comprehensive functionality serving trading ard risk management points to a growing acceptance of the SaaS model. While much of these software companies’ success has been found in selling to those mid-sized and smaller trading companies looking for an affordable solution, we have seen several larger trading shops adopt SaaS deliveried systems, perhaps indicating a weakening of many of the long-held objections to that model,” according to Patrick Reames, Managing Director, CommodityPoint, The Americas.

“Our study shows that delivery mechanisms such as SaaS are being utilize more than one might have originally thought,” said Dr. Gary M. Vasey, Managing Director, CommodityPoint, Europe and AsiaPac. “While there is significant resistence to SaaS, hosted and leased models among many larger traders who express a strong desire to retain control over data and access to applications, a majority of respondents to the survey see value in exploring other options. For vendors offering or specializing in delivery of SaaS/hosted CTRM solutions, the findings of the study appear to point to a very bright future.“

To download the report, please visit www.utilipoint.com/reports/Alt_Delivery_CTRM.asp

About CommodityPoint
CommodityPoint is a division of leading energy and utilities analyst and consulting firm, UtiliPoint International, Inc. CommodityPoint provides Commodity Trading & Risk Management (CTRM) research, analysis and consulting services. Our services bring insight into business issues, trends, processes and technology, to energy companies, utilities, banks, brokers, funds, investors and vendors, enhancing their competitive position and supporting critical business decisions. Our team provides expert analysis of market trends and, in particular, the technologies and applications supporting those that participate in regional or global commodity markets. Our principal analysts, Dr. Gary Vasey and Patrick Reames, bring years of practical experience to their roles. With offices in Europe and the United States, and backed by an experienced research team, our organization provides an unparalleled view of the marketplace. Visit CommodityPoint online at www.commodity-point.com.

About UtiliPoint International, Inc.
For more than 75 years, UtiliPoint International®, a wholly owned subsidiary of Midas Medici Group Holdings, Inc. (OTCBB:MMED), has been a trusted source of insight into the energy and utilities industry. With more than 500 clients worldwide, we are the leading provider of research and advisory services for the energy sector. Our company is comprised of industry experts from around the world with diverse backgrounds in utility generation, transmission and distribution, retail markets, mergers and acquisitions, new technologies, venture capital, information technology, outsourcing, renewable energy, regulatory affairs and international issues. UtiliPoint International, Inc. is headquartered in Albuquerque, New Mexico, USA and can be found on the Web at www.utilipoint.com.

UtiliPoint International, Inc. Corporate Headquarters
6000 Uptown Blvd, N.E. Suite 314 | Albuquerque, NM 87110 USA
Phone: 505.244.7600 | Fax: 505.244.7568 | E-mail: contactus@utilipoint.com

UtiliPoint® International is a wholly owned subsidiary of
Midas Medici Group Holdings, Inc. (OTCBB:MMED)

I met up with Mike Muse, president of Woodlands Solutions, last week to get a look at the company’s Phoenix ETRM product and catch up on the latest developments with the company. According to Mike, since they laid down the first line of code about a year and half ago, Woodlands has signed 3 customers for Phoenix, with 2 in production and the third, signed in March of this year, due to be in production next month. Given the time and effort to build a new product from the ground-up, this is a fairly remarkable achievement. Mike indicated that all 3 are using the product for managing natural gas marketing activities, with one of the three looking to also bring power into the system.

While the product was clearly designed to initially address the needs of gas marketers, with strong deal management and risk capabilities, Mike indicated they are continuously adding new capabilities and, with the support of their current clients, are broadening the product’s reach very quickly to address all aspects of not only natural gas trading and marketing, but also bringing additional commodities, like the previously mentioned power, into the system.