2010 ENERGY TRADING AND MARKETING IN REVIEW

Transcription

1 2010 ENERGY TRADING AND MARKETING IN REVIEW RETROSPECT The most significant human capital related news during 2010 in the energy industry was the stable hiring in front office trading, marketing and origination positions even though recent large divestitures and sales of large energy portfolios occurred creating some redundancies experienced a scaled back hiring market early in the year and began increased hiring in 3 rd quarter. Cross hiring within energy our organization experienced a 37% increase in Q3 and Q4 combined as compared to Q1 and Q2. The estimated total turnover across our contacts and candidates was 24%. Another item worth addressing is the change in bonuses (year end). Few individuals received the top of the % payout in 2010, but there was a good payout to very senior and executives contributing to the bottom line numbers and managing consistency in profitable teams. There was reported more conservative bonuses than have been experienced in recent years with the majority in front office roles. The commercial energy market saw significant changes and included continued large energy portfolios bought/sold and newly formed mergers and new hedge fund/trading start ups. As for expansions in new markets, we saw UK based organizations building Houston based marketing and trading teams, gas merchants and producers expanding into power and oil, and agri businesses enter energy commodities trading businesses. A FEW NOTEABLE INDUSTRY CHANGES: RBS/Sempra Sale - RBS Sempra completed the sale to J.P. Morgan of its global metals and oil businesses, as well as its European natural gas and power businesses, Noble Group agreed to acquire the San Diego-based Sempra Energy Solutions unit of RBS Sempra, and in December Societe Generale acquired the remainder of RBS Sempra Commodities North American business, including infrastructure and more than 100 front and mid office specialists. Key moves out of RBS included David Messer, Frank Gallipoli and Rob Feilbogen all held senior executive roles are establishing a merchant commodity-trading business in Stamford. Concord Energy launched North America Oil Marketing business hiring Jackie Heckman to spearhead and grow the business. Concord also hired former BP and National Fuels Gas Sales Specialists as an ongoing expansion of End User Gas Business led by Jim Krebs Calpine acquired Conectiv Chuck Watson formerly with Eagle formed new energy merchant Twin Eagle Wells Fargo launched a power trading and marketing desk in Charlotte, N.C., and hired Norma Autry-Cook, a former Constellation Energy originator, to lead the effort John Ragland led the energy launch last year. Ragland s background includes gas, power and oil. Gunvor opened Houston trading office - Castor, Hiring Mike Loreman as Head of Coal and Emissions GenOn Energy, the company formed by the combination of Mirant and RRI Energy, began trading on the New York Stock Exchange

2 Plains All American Pipeline LP a Denver based company acquired Nexen s crude oil marketing business, located in Northwestern North Dakota and Northeastern Montana, of Nexen Holdings USA Inc, an oil and gas exploration and production company and a unit of Nexen Inc. Goldman Sachs purchased Nexen s gas book and offered packages to select gas marketers. Enserco launched power marketing business after hiring Kyle Smith in July, followed a few months later by team hire of Lance Titus and Jeff Heit which reunited the former Integrys Energy West Power Trading Team Lance and Jeff served a short term with EDF to assist the transition of the portfolio purchased from Integrys. Constellation established mandates to hire cross gas trading hiring gas traders mainly with emphasis on physical gas trading/hedging. Commodities desks may see three changes occur in 2011 during bonus season and it may not be what you think. One change that we are seeing is a chasm in the talent market. The specialists that are in demand are market specialists with consistency and valued market relevancy. The other side is the low producing or redundancy in seats. Organizations will have higher expectations in performance and consistency. Therefore, top grading may be utilized more than we have seen in recent history. Another key change is more aggressive attempts to retain valued key talent. This is being implemented in a variety of ways (particularly new to wall street banks). The most common is longer term deferred bonus compensation, and greater % of pnl promises for greater opportunity in earnings for Another method is increase in base salary in trade off for smaller bonuses. Though the aim of the organization is to put on golden handcuffs and retain their most valued talent, it caused a surprising amount of disapproval. The outcome may be a more movement of impact players. Where the buying company can match or exceed the deferred compensation, this may create unintended consequences for the organization attempting to retain their top people. The third change is how some will read the recent layoffs in the market as redundancy, economic challenges, or regulation/compliance related with an organization. It is our experience that even with organizations that are letting good talent go, the same organization is still hiring. During bonus time, companies are focusing their human capital evaluations on where profit centers are greatest and where there is the most forecast for profits in 2011 forward and rewarding their key players with surprisingly good bonus payouts. Therefore, there is a high demand for top performers. It is clearly no longer enough for a commodity specialist to be good, you must be very good and demonstrate consistent pnl above market in the area of your specialty and that market must be a thriving market. Now with that being said, if you are an organization looking for that impact player consistently hitting above the numbers, you must be willing to pay for them. Although I disagree with other search firms which see the talent market as a buyers market in general, I do see that the market for top producers is truly a buyers market. The great chasm is commodity/energy specialists doing a high quality job in a high demand space and those just doing their job. This can be a risk specialist who has complex deal review capabilities with ability to impact trading/deal decisions, or, a west power trader consistently making $10MM 30MM+ annually even in tough years. Here is where the commercial energy market is more like the NFL: If you want the impact players, you must be willing to pay for them. On the other hand, if it s just headcount, there is less of a buy out to pay for a moderate producer or second tier candidate. I suggest you decide clearly your game plan in hiring before you set out to hire.

3 Forward hiring focus: Many companies expect a stronger year in 2011 than previous year and plan to hire up as an investment in anticipated profits. Where energy trading is considered a core business and profit center, this means continued hiring and top grading with an emphasis on strategic and opportunistic hiring. We may see a focus on NG Originators hiring in the northeast in natural gas covering what is being called the super giant Marcellus Shale region in addition to other eastern territories. INTERNATIONAL AND DOMESTIC EXECUTIVE HIRES Deutsche Bank hired Stuart Smith, Head of Energy Sales for Australia and Southeast Asia in an ongoing commodity trading build in Asia. UBS appointed Kaushik Amin, former CEO of RBS Sempra Commodities, as Head of Fixed Income, Currencies and Commodities (FICC) trading in the Americas. Macquarie Group has appointed Thomas Hassen, a former senior Credit Suisse banker, as chairman of global oil & gas banking for Macquarie Capital. PPL Corp. promoted Robert Gabbard, senior VP of energy trading, to president of PPL EnergyPlus, its energy marketing and trading subsidiary. Gabbard replaces Joe Hopf, who is joining PSEG Energy Resources and Trade as president Fortistar appointed Roger Kelley, former President & CEO of the New York Power Authority, as managing director. Roger s extensive experience in the private and public sectors of the power industry will help Fortistar execute its aggressive growth strategy for efficient and renewable energy Jean Bourlot, a former managing director within Morgan s Stanley s commodities business, has joined UBS in London as global head of commodities Dong Energy hired a former executive at Gunvor International as head of market trading to develop and improve trading results at Denmark's biggest power generator. Dong Energy also hired Fredrik Bodecker (responsible for a team of 35 traders) Haakon Olafsson, the former Head of Trading for European power and natural gas at Credit Suisse Group AG, joined a venture run by EDF Trading Ltd. and Credit Agricole SA in a similar role Mark Strange, Managing Director and Head of European power and gas origination at Bank of America Merrill Lynch, has resigned to join Noble Group Olav Refvik, a former global head of oil trading at Morgan Stanley, is set to join Noble Group in London later this month as global head of oil and oil products trading. Noble hired Rupen Tanna, formerly co-head of Merrill Lynch Commodities Europe, as Head of Energy Trading in London. BAML will relocate Thomas Andersen, head of Asia-Pacific commodity trading in Singapore to London to become co-global head of crude oil and oil products sales and trading. He will co-run Merrill s global oil business with incumbent head Mitch Rubenstein, who is set to relocate back to Houston from London

4 Nomura has hired Iain Lawson, formerly with Citi, as head of commodity structuring for Asia Societe Generale expanded its European commodities team with several hires in London and Paris. The hires include Jon Therkleson, former head of European energy marketing at BOA ca, who has joined SocGen in London as a senior oil marketer within the European flow hedging team Noble hired Monika Budjonova, as head of power in London. AEP., the biggest U.S. coal consumer, named Nicholas K. Akins as president, assuming one of the titles held by Michael G. Morris, who intends to retire as chief executive officer, currently oversees all of AEP plants as EVP for generation POWER NOTEABLES The hiring market saw the most movements in the following markets: NE, with an emphasis on PJM power trading. ERCOT trading was the second biggest focus followed by the west. Coal and emissions was next in line with limited hiring, and we saw limited hiring in the MISO space. In power, the rise in nuclear generation was the largest absolute fuel-specific increase from 2009 to Increased natural gas-fired generation was the next largest fuel-specific rise as it was up 5.6 percent Generation from wind sources was the third-largest absolute fuel-specific increase, as the total was up 16.9 percent. Coal-fired generation was the largest absolute fuel-specific decline from 2009 to 2010 as it was down 5.0 percent. Generation from conventional hydroelectric sources was the next largest "fuel-specific" drop as it was down 11.7 percent. Petroleum liquid-fired generation was down 32.0 percent compared to a year ago, and its overall share of net generation continued to be quite small compared to coal, nuclear, natural gas-fired, and hydroelectric sources. Full report available from EIA Executive Summary. POWER MOVES Scotia Capital has hired Seth Keller and Boyd Nelson, directors at New Harbor in New York, to launch a U.S. power & utilities investment banking coverage group in New York. Deutsche Bank hired Hank Jones as Head of Power Origination and Robert Strobel as a Senior Marketer Deutsche Bank hired Ricson Chai as an ongoing emphasis building a strong fundamentals and physically knowledgeable think tank supporting trading Citigroup hired several energy trading and marketing professionals out of Constellation and Credit Suisse including Jeff Blice covering the Midwest Joe Kirkpatrick left Citi to head up Northeast power trading for merchant LDH Energy Vitol hired Dylan Seff as head of power trading to spearhead US power trading, Eric Elder to head up ERCOT trading and Sundar Shankar, power options trader. Macquarie hired Terry Embury to start up ERCOT desk following the purchase of Integrys Energy s electric trading and marketing portfolio EDF acquired the renewable book. Noble hired Dana Volpe, formerly VP of Origination, power sales and marketing at RBS Sempra

5 Morgan Stanley continued to build its newly launched energy desk in Vancouver led by Margolis covering west NA. Citi hired Drew Inman to head of ERCOT trading Citi also hired Bo Clayton to cover NE and ERCOT as a senior marketer Scott Connelly joined Transalta along with his team of 3 traders in Canada to cover the western north America markets, trading power. Morgan Stanley hired Martin Schultz, a trading strategist in Vancouver alongside west trading team Bunge hired Jeff Ader, as business development manager in White Plains, responsible for structured transactions with a focus on coal BAML hired Derek Gosnay, a west power trader and Paul Choi west power origination RBC hired Chris Noon as head of east power trading GAS AND OIL NOTEABLES Dominating the news for much of the spring of 2010 was the BP spill with concerns of how the global producer would come out regarding the cost impact on the structure of the organization globally. As the year end reports came out, the clean up and recovery of marine life and water quality in the gulf are recovering sooner than anticipated in original timelines and data. Although other costs related to the spill are very costly to the organization (They sold assets worth $20bn, many of them mature oil and gas fields, partly to raise cash to pay for spill-related costs), BP is still a major producer and marketer globally. In supply news, it is clear the Marcellus shale is the mother lode of natural gas in the United States, now estimated to be the second-largest gas reserve in the world with more than 500 trillion cubic feet of estimated recoverable reserves. Obama recently acknowledged the vast potential of the natural gas resources in the United States. Aubrey McClendon of Chesapeake Energy stated in a 60 Minutes segment that we have recently proved up the equivalent of twice the oil reserves in Saudi Arabia with U.S. natural gas shale formations - led by the Marcellus shale. It will take five to 10 years for the infrastructure and demand to catch up with the new shale gas reserves under development. This will be the century of natural gas as we aggressively and environmentally consciously develop these new reserves worldwide. As we do so, the United States can become almost completely energy self-sufficient in the next five to 10 years, generating vast wealth for our nation The predominant hiring in gas was seen in the northeastern part of North America. The secondary region was a focus on mid continent hiring. GAS AND OIL MOVES: Citi hired Vladi Pimenov to cover west basis trading Gavilon hired Prem Ramamirtham to head up natural gas trading

6 Deutsche Bank hired Skip Thevenot, Director of Midwest and MidCon Gas Trading - Brent Blanar also joined to team up with Skip as a west basis gas trader Bunge hired Brian Rickers to cover northeast natural gas trading Iberdrola hired Colton Haas as a west natural gas basis trader Barclays hired a financial products team Troy Black and Paul Dunsmore Mercuria continued hiring as a build up in Houston of commodities trading desks Andrew Helm, an LNG and natural gas trader Centaurus hired Hunter Shively to head up fundamental research Citi hired Nicole Louvar Alejandro Soto as head of midwest gas traders and gulf trader Ramiro Castro BAML hired Will Harris as head of corporate commodities sales for the Americas BAML hired Brad Banky as a gas options trader and Mike Barham as a senior power vol trader. UBS has hired a David Glover, head of energy marketing, covering oil and gas hedges - also hired were Joseph Graham and Doug Wittenberg. Enserco hired Scott Shields as Managing Director to head up East US Gas Marketing and Origination Noble hired Ben Sutton to cover west gas trading, also hired to trade gas Gregg Penman, Arnon Storfer, head of eastern Canada gas trading; Mike Sieckhaus, head of western Canada gas trading and Dave Graham, a natural gas trader covering Canada. Glencore hired Todd Lines, an AECO natural gas basis trader Noble hired David Loe, gulf coast natural gas originator and Walter Sadjak, a senior Texas and gulf coast physical gas originator RBC Capital hired Reuben Govender a natural gas volatility trader RBC hired Sarathi Roy, managing director and head of oil derivatives trading J Aron hired Mark Bodley as a crude oil marketer J.P. Morgan in Calgary has hired Ken Krug, formerly head of U.S. and Canadian oil trading at Goldman Sachs. Glencore hired Jonathan Goldberg, a refined oil products trader in New York. BAML in Calgary hired Ken Bowen as director, oil origination in Calgary. Macquarie hired Nikhil Dhir, an oil options trader Mercuria hired Joe Garcia, a senior fuel oil and crude oil trader

7 Credit Suisse hired Scott Shelton, a director in commodities hedge fund sales with emphasis on crude oil & gas Concord Energy hired Jackie Heckman as head of oil marketing REGULATORY: We saw 2010 continue to bring a year of SEC looking at proprietary trading under the regulatory microscope. Several organizations have already begun implementing policy changes in response to changes. As an example, Bank of America spokesman has announced they have recently adopted "a number of policy changes to ensure the separation of proprietary and other trading and to address the SEC's concerns," including moving proprietary traders to other areas following recent SEC allegations. The Dodd-Frank Act rule-making process has continued apace since enactment of the legislation in July However, in spite of the regulators progress in several major areas, significant concerns remain for energy market players. Pauline McCallion reports in Risk Magazine. The summary of the issues are tight timelines and role definitions, future impact and unintended consequences. The full article is available via Energy Risk by article author Pauline Mc Callion. Some organizations have hired advocates as a voice in regulatory matters and to watch future legislative activities and work with General Counsel to discuss the issues as it impacts trading businesses and liaison. A new title is Commercial Regulatory Manager where the mandate is to monitor rules and regulatory issues, watch for new legislation and meetings which will impact the trading and marketing rules and liaison with Exchanges and Regulatory Authorities and advising the Company on issues related to its trading activities regulatory updates, general counsel and trading as well as trading support teams.. As quoted by industry experts, whoever you have doing this job for you now, may or may not be the right person for 2011 and forward. The recommendation is that you have a team on board covering the various issues impacting your organizations ability to continue making profits within compliance of regulations. If you do not have a team with a commercial background and regulatory compliance capabilities, we recommend you adopt a hiring strategy for your organization in WRAP UP In wrap up, JRP Group is well suited to help you with your top grading, backfill and strategic hiring needs in 2011 and beyond. Contact us to discuss a full search where we will map the market to offer targeted search in context of the talent market and full service search, selection and placement services. If you do not have our capabilities statement, simply make the request and we will gladly send one to you. Disclaimer: No part of this material may be reproduced without the permission of JRP Group. Commodity trading involves a high degree of risk and the risk of loss is substantial, therefore all the information is based on research and market conversations which are subjective. The information contained here has been obtained from sources believed to be reliable, it is not necessarily complete and its accuracy cannot be guaranteed. JRP Group is involved with the human capital markets only and does not deal in the actual physical or financial trading, marketing or related commercial activities. A list of sources used here or in other JRP Group material; Energy Risk, Sparkspread, EIA, Forbes, Bloomberg, Platts. This is does not include individuals and may not be complete as we are constantly adding new research.