Allegro for Petroleum Maximizing Opportunity in a Dynamic Marketplace

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1 Risk Management Commodities Trading Physical Logistics Regulatory Compliance Business Intelligence We require state-of-the-art technology to support our expanding business and our entry into refined products trading... Allegro s approach to software deployment aligns perfectly with our priorities as we rapidly launch our trading desk later this year. The Allegro system also provides the operational control, trading efficiencies, and the analytical tools we need to optimize our decision making. -- Said A. Al-Hadrami Chief Executive Officer Aramco Trading Allegro for Petroleum Maximizing Opportunity in a Dynamic Marketplace While speculation stirs over whether the price of oil has finally hit rock bottom, there is no question that cheap oil is playing out globally in a drama that will affect every player in the liquid hydrocarbons market. Crude oil prices have plunged roughly by half since mid-2014, signaling hard times for producers and governments, while the general public experiences relief at the pump. The boom in US production, along with increased output in Russia and the recent rise of Africa as a growing supplier, has created a surplus of crude oil, along with a surplus of opportunities and concerns for companies trading in energy commodities worldwide. However, at the same time as a surplus of low-priced crude has flooded the market, the global demand for refined fuel products is expected to continue to grow, spurring a continued increase in the production of various fuel products. The net result is that, despite the cooling off of rapid growth in exploration and related production, the underlying elements of the petroleum liquids lifecycle continues to be robust, as the demand for fuels continues to necessitate the continued growth of production and refining. An additional effect of the rapid production growth and subsequent large increases of crude supply in record numbers has been a scramble to manage those inflated inventories, especially with respect to a company s ability to know where and how much crude they hold. Ultimately, demand for refined products is increasing, and in times of low crude prices and excessive inventories, refiners stand to make gains by operating at a lower cost of business. The smart downstream players are focused on driving capital and operating efficiency to preserve their margins and maintain the reinvestment rates necessary to grow production of their refined products.

2 Consider the following: FACT: Cheap oil has strengthened the US dollar, affecting other nations that price oil and refined products based on the USD. Managing a Nation s Strategic Petroleum Reserve When the DM Petroleum Operations Company (DM), who provides management and operating services to the U.S. Department of Energy for the Strategic Petroleum Reserve, needed to replace its manual trading and inventory tracking processes with a more integrated and automated system, they chose Allegro. The scale of the SPR required a secure, flexible software platform capable of providing realtime views of complex petroleum inventory movements. DM also needed software that offers specialized functionality to adapt to a unique set of processes and regulations. DM selected Allegro to deploy a comprehensive crude oil inventory tracking and valuation system to meet its needs. With a single platform, DM users have the ability to view and analyze key inventory data from all points across the complex operations. The Allegro solution allows DM to reduce manual processes and redundant data entry associated with multiple storage locations, and to eliminate errors with a single point of entry and consistent real-time metrics for all users. The SPR s massive inventory volumes and complex storage network demands visibility into current inventory, internal movements, and external drawdowns, when required. Allegro provides the transparency to optimize decision making and maintain drawdown (or crude oil release) readiness for the U.S. Department of Energy. TAKEAWAY: The strength of the USD is making oil and refined products more expensive for buyers who use other currencies, creating a competitive opening for companies that employ smart hedging strategies. FACT: Even with a slowing of rapid production growth, the EIA forecasts that both refined fuels consumption, and the associated production of refined products will continue to grow through 2015 and beyond. TAKEAWAY: Regardless of price volatility, the growth of crude production, refining and all the associated trading and logistics will continue to be significant. FACT: Even as Saudi Aramco and OPEC aggressively maintain their production levels, depressed oil prices have put a damper on oil exporting and global energy production. New oil projects are being put on hold. Many companies are delaying capital expenditures. TAKEAWAY: With low spot and high future delivery prices, a potential market opportunity exists to employ a store and sell later approach. Companies that have full visibility into their positions will be able to leverage this tactic and reduce market risk. FACT: The fall in prices is effectively redistributing income from net-exporting countries to net-importers, generally giving rise to economies in Japan, China, India and across Europe. TAKEAWAY: Energy-related businesses operating in these areas of the world stand to gain from a blend and extend strategy, taking advantage of low prices by extending futures contracts based on a more focused portfolio analysis. FACT: With low oil prices come low transportation and manufacturing costs. Companies that sell products and services stand to gain, but so do refiners, who can expand margins by shrewdly managing their assets and logistics. TAKEAWAY: Depending on your relationship to the price of oil, improved visibility into the movement of assets across your energy supply chain can greatly impact the profitability of your operations. FACT: Energy self-sufficiency vs. import-dependence is affecting geopolitical relationships worldwide. Energy is more than an economic commodity; it is a strategic one. TAKEAWAY: As governments trade oil for security, geopolitical changes affect P&Ls. Energy companies trading in global commodities must therefore keep a tight rein on profits and losses, in order to effectively execute their business strategies.

3 Meeting the Challenges Head On What s Keeping You Up At Night? Am I profitable? Am I accurately managing my P&L? What are my positions? Do I have visibility into trade data and pricing? How do I effectively manage exposure to market, price and operational risks? How can I best manage my inventory, especially in terms of complex logistics management? We have found in the Allegro Platform an innovative, sophisticated and adaptable system to meet our needs in the Trading Market. Operational agility is a top priority for CEPSA Trading and key to sustaining competitive advantage. We are convinced that Allegro s technological innovation will help us to achieve our business goals. -- Charo Cepero Finance, Risk & Operations Manager CEPSA Trading With massive transformation in hydrocarbon markets worldwide, price volatility will continue to dominate market concerns. Energy companies must therefore reduce cost and exposure wherever they can, which generally means improving visibility and control across the full position lifecycle. Clearly, spreadsheets and manual processes will not be up to the task. It will take powerful software to support timely and informed decision-making, particularly in the areas of logistics, accounting, portfolio management and risk abatement. Companies that can find a cheaper way to get product from source to market will reap a competitive advantage. This means scheduling the best route or carrier for the job, considering all options, which requires transportation-specific tools to help visualize movement capture and actualization of assets. As product moves through the cycle, managers must then be able to accurately track and capture costs incurred (and payments due) for services along the way. Event-based fees, gathering fees, pipeline tariffs, trucking and handling costs, quality fees, storage, detention and demurrage costs in multiple currencies all affect the floating price producers pay to get their assets from point A to point B. What s more, effectively tracking these costs is essential to achieving accurate netback and profit and loss calculations. The complexity of data involved in managing these processes cannot be overstated. As pricing, qualities, delivery terms, position constraints and other factors weigh into the equation, the ability to manage positions becomes most challenging. The need for a comprehensive position reporting engine, capable of accurately valuing and disaggregating complex transactions and assets within a portfolio, is essential to success. Only as managers gain insight into positions, with accurate profit and loss reports spanning various timeframes, can they implement and monitor position limits effectively in such a fluid environment. Certainly, the key to real-time position reports is having an accurate, real-time view of the enterprise, so that timely, profitable decisions can be made. As changes in logistics occur, integrity of information across all parties, including buyers, sellers, traders, producers, shippers, regulatory bodies and other business partners is essential. In fact, it could be stated that the only way to manage exposure and minimize risk in such a rapidly changing and unpredictable marketplace is to deploy a reliable, end-to-end, single source solution one that provides a single version of truth. Given the state of the industry and the opportunities and risks at stake, no successful trader will be able to survive without a proven commodity trading and risk management (CTRM) solution offering real-time intelligence and decision-making support.

4 Solution Brief Petroleum Business Transformation with Allegro for Petroleum: Optimizing Value from Trade to Cash Allegro & the Hydrocarbon Lifecycle Allegro for Petroleum is a proven, integrated CTRM solution designed to help any liquidsbased business, including crude, refined products and NGLs, gain value by better managing the full lifecycle of physical and financial positions, from trade capture, position reporting, logistics and settlement: Improve the Planning and Management of Physical Assets: Allegro makes it easy to build shipment plans, as well as schedule complex physical movements across multiple carrier modes and routes. The software includes standard features that facilitate managing physical logistics, from shipment capture to actualization, with changes to quantities, dates, qualities, densities, etc., automatically updated in physical position and valuation reports. Gain Visibility for Reliable Insights: Allegro provides a holistic portfolio view, utilizing many tools, including what-if analysis, forecasting, hedging, value-at-risk, mark-tomarket, price exposure, credit exposure and more. Make Better Decisions: As a single integrated solution, Allegro automatically updates all changes in associated mark-to-market valuations, profit and loss, exposure and physical position reports, including delivery dates and quantities that drive changes in physical positions, inventory management, event-based pricing, etc. As a result, business decisions can be consistently based on the most current, relevant data available. Manage Inventory Valuation and Accruals: Allegro software simplifies the process of calculating inventory net valuation, net forward, netback and profit margins by linking all shipments and positions for improved visibility and an integrated approach to risk management. Execute Effective Hedging Strategies: Allegro s hedging capabilities reduce exposure to risk in both physical and financial positions with a fully integrated and automated hedge accounting solution. The solution complies with recent global regulatory accounting standards and provides advanced tools for analysis and reporting. Control Operational Risk: Through fully integrated and automated logistics operations management, Allegro provides schedulers and other professionals with advanced tools, including workflows, approvals, messages, audits and more, to help drive efficiency and reduce risk across the enterprise. Embed Regulatory Compliance into Business Processes: Allegro s comprehensive compliance solutions integrate all energy business processes into one platform, tracking, archiving and directly reporting required information to regulatory bodies for accurate auditing and business accountability. Capture, Control and Confirm Physical and Financial Trades: Allegro trade execution software provides rapid deal capture across all transaction types, from simple deal structures through the most complex, for improved control and efficiency. Access Key Data in Real-Time: Allegro s Decision Metrics component provides powerful processing capabilities and built-in, end-to-end connectivity, giving users access to key internal and external trading and business data in real-time; users can create and monitor key performance indicators (KPIs) in real-time via any web browser or tablet device.

5 Secure the Future with Allegro for Petroleum No one knows exactly where oil prices are headed, but wherever you stand in the grand scheme, stand strong with Allegro. Expanding into New Markets When Saudi Aramco, the world s biggest producer of crude oil, decided to move beyond its roots and develop a team devoted to the worldwide trade of refined products, they turned to Allegro. Saudi Aramco is a fully integrated global petroleum enterprise that engages in exploration and production, refining, distribution, shipping and marketing. Managing one of the largest proven reserves of conventional crude oil, Saudi Aramco also owns and operates an extensive network of refining and distribution facilities, and one of the world s largest fleets of supertankers. In order to optimize its growing global refinery business, Saudi Aramco created Saudi Aramco Product Trading Company (Aramco Trading) to buy and sell refined products. To meet that goal, Aramco Trading required enterprise software to manage its refined products trading, logistics, reporting, and compliance functions. Allegro provided Aramco Trading an integrated solution for front-to-back office trading and operations, which included: Enterprise risk management across the commodity and asset portfolio, including advanced reporting, monitoring and analytics. Efficiency and accuracy in regulatory compliance and risk control. Seamless communication between trading activities and the SAP accounting system. Streamlined trading processes and transparency into key data, including physical and financial global positions. A flexible platform with the capacity to scale with business growth and support changing needs. Ultimately, Allegro provided Saudi Aramco with the operational control, trading efficiencies, and the analytical tools needed to optimize their overall decision making. Allegro takes more than three decades of industry-specific experience and puts it on fastforeword with Allegro for Petroleum, the solution of choice for companies that seek a competitive advantage in the ever-changing and dynamic hydrocarbon marketplace. The software is designed to consistently anticipate market needs in a comprehensive and componentbased solution. It can be deployed on-premise, in-the-cloud or in any hybrid combination. And, it is supported by a consulting team that understands the liquids market and remains well-versed in all the ways the industry is transforming, so that you can respond appropriately to future events. As proof, Allegro s dedicated research and development team is focused on providing solutions that meet market requirements quickly, with robust, flexible tools. From front office to back, Allegro accounts for the realities of operating in a dynamic marketplace, serving as a secure partner for tomorrow with solutions that work well today. Allegro for Petroleum At-a-Glance From wellhead to point-of-sale, Allegro for Petroleum facilitates the complete commodity trading and risk management lifecycle. Commodity Trading: With Allegro, your traders will gain the rapid deal capture, trader decision support tools and superior market insight they need to arbitrage opportunities, expand margins and manage a greater volume of both physical and financial deals, from capture and confirmation to settlement, on a single platform. Ability to manage any variety of transaction types Accurate contract management and reporting Complete portfolio visibility and position management Automated deal capture allowing for complex book and legal entity structures Operations and Logistics: Allegro s Equity Production component provides the automated data management producers need to ensure profitable decision-making and visibility among business groups. The component delivers a simplified way of managing the marketing of oil production. Allegro s Logistics component makes it easy to build complex product movement plans, as well as manage any changes to the original plan, automatically updating valuations, exposure, profit and loss and other reports based on best available data. Ability to optimize production portfolio through robust capabilities and reporting sets Real-time wellhead deal updates, edits and revisions Insight into product forecasts for more accurate scheduling and position management Estimated inventory calculations via nominations, volume and values for all inventory types, storages, in-transits and exchanges Decision support managing high volume operational data across multiple wells, terminals, fields, states, regions, delivery options, etc. Multi carrier mode includes vessel, barge, truck, rail, pipeline

6 Solution Snapshot Allegro s holistic, trade-to-cash solution tracks the entire commodity lifecycle for accurate P&L visibility Allegro provides position visibility across commodities with integration to trade data, pricing and inventories for optimal decision making. Allegro reduces market, price and operational exposure with sophisticated analytics and risk management tools. Allegro provides logistics management with real-time integration to field data across multiple carrier modes. Planning of physical movements Managing product movements Risk Management: Allegro s valuation engine has the ability to value positions in real-time and automatically push the data to users in all reports. Valuation reports provide a net overall, real-time, view of the full portfolio across all commodities and transaction types, including physical and financial, buys, sells, swaps, etc. based on best available data. In addition, the user has the ability to run on-the-fly simulations on any Allegro valuation or position report, including stress-test of quantity, price, market price, etc. Mark-to-market calculations provide the total value of the portfolio based on a user-defined forward benchmark Profit and loss reports show total value of positions inclusive of purchase/sales prices, hedges, secondary costs, as well explanations for profit and loss changes Produce market or price exposure down to each individual pricing date, displaying details of each underlying index Value-at-risk calculation of total correlated portfolio value or subsets for specific trading periods Disaggregation of FX exposure down to each underling currency traded Credit calculation of exposure to each counterparty, based on limits, collateral, etc. Simulation capabilities to stress-test portfolio inputs Reporting Streamlined report preparation providing more time for valuable analysis and decision-making Improved inventory reporting by categories, exchanges, in-transit, line-fill, etc. Volumetric commitment reports by plant, pad, tank, dock, etc. Mark-to-market reporting for all inventory types, including in-transit and exchanges Improved netback calculations for reporting accurate, auditable data Accounting: Allegro allows you to validate physical, financial and other information associated with commodity transactions and logistical movements, from deal capture to settlement, across various trading, contracts, logistics, hedge and net valuation support processes. Reduced back-office bottlenecks put emphasis on efficiency rather than corrections Accurate netback calculations capture all transactions throughout the commodity lifecycle Production tax reporting for all jurisdictions Accurate, on-system calculation of contractual agreements, including complex pricing structures and fees for maximum creativity One, integrated transaction management platform and system-of-record for managing business processes from trade to cash A single source of truth supporting business integrity at all levels Includes valuing of all inventory items Complex tax data calculations for accurate settlement and invoicing

7 Managing Growth and Complexity When Ecopetrol, Colombia s largest integrated oil company, began experiencing a significant increase in number of physical trades along with logistics operations that were simultaneously growing in volume and complexity, they turned to Allegro. The growing complexity of the business processes around trade capture and operations planning and management were demanding more time and effort from Ecopetrol s International Trading department, reducing the time available for higher value added tasks such as market analysis, opportunity identification and deal negotiation. Regulatory Compliance: The extreme complexity of energy organizations, markets, transactions, contracts and accounting rules generate special challenges in complying with the regulatory ambiguities of such legislation as Sarbanes-Oxley, Hedge Accounting, Dodd-Frank, EMIT, REMIR, FERC Reporting and others. Without accurate internal audits and proper governance, companies involved in the commodities business can be exposed to significant risk. The key is to embed compliance into every business process across the organization, quickly and cost-effectively. Allegro s comprehensive compliance solutions accomplish this by integrating all business processes into a single platform, eliminating the need for off-system solutions, while enabling the ongoing implementation of intelligent hedging strategies. Automated report preparation for reduced compliance cost and improved efficiency Complete audit trail from wellhead to point-of-sale Fully compliant with Sarbanes-Oxley, Dodd-Frank, EMIT, REMIR, etc. Controls Integrated support of policy controls leading to immediate event notification for better risk management improved transparency Improved team management with pre-defined limits for trade types and other attributes Messaging and alerts for trades outside of limits Improved handling of all types of transactions, including 3rd party inventory for more holistic inventory management The Opportunity Is Now The business of producing, trading, supplying, refining and marketing hydrocarbon commodities is as much an art form as it is a science. Allegro for Petroleum effectively combines the best of both, making it is possible to secure a competitive advantage in today s extremely challenging and ever-evolving marketplace. Reduce risk, improve margins, control cost and create efficiency across the supply chain. Transform your business with Allegro for Petroleum, the superior solution for managing crude, NGLs and refined products. For more information go to or call us at North America Europe +44(0) Asia Pacific Allegro is a leading provider of commodities risk management software for power and gas utilities, refiners, producers, traders and commodity consumers. With more than 30 years of deep industry expertise, Allegro provides real-time intelligence and decision-making capabilities, from the source of the commodity (ground), through transportation, to the commodity consumer. Allegro s software provides the global intelligence companies need to manage physical and financial positions, and to optimize their assets and portfolios using tools that quantify and mitigate risks. Headquartered in Dallas, Texas, Allegro has offices in Calgary, Houston, London, Singapore, Sydney and Zurich, along with a global network of partners Allegro Development Corporation. All rights reserved. All trademarks and copyrights are the property of the respective owners. All Allegro information, images and graphics are the property of Allegro. This material cannot be duplicated or distributed without express written permission of Allegro Development Corporation. Allegro is a registered trademark of Allegro Development Corporation.