5 LEAP Leadership for Energy Automated Processing LEAP was formed in 2006 with the mission to: Promote efficient and reliable transaction processing within the energy trading industry by means of automation and standardization.Our founders are a group of oil majors, banks and independent traders.Benefits of automation: Accuracy & Timeliness Managed Risk Consistency Regulatory Credibility EfficiencyFor those of you who are not very familiar with LEAP – Leadership for Energy Automated Processing…. Here’s some background:LEAP was formed in 2006 with the mission to:Promote efficient and reliable transaction processing within the energy trading industry by means of automation and standardization.Accuracy & Timeliness – minimize operational incidentsConsistency – reduce operational riskEfficiency – scale up the business while containing operating costsManaged Risk – manage counterparty, operational and market riskRegulatory credibility – provide real commitment to industry best practicesNEXT SLIDEBetter Access to Customers, Capital and Profitability!
6 The LEAP Board of Directors Co-Chair:Gary SpenglerChevron, USJames MurdochShell, UKTreasurer:David PorterGlencoreSecretary:Karen Mikkelborg NexenJim BrushGoldman SachsCesar CovarrubiasPMIGordon FraserMorgan StanleyTom LulloBPKevin MasucciHessCarolien RuiterMercuriaJone SlutasStatoilMary Dortenzio(as D. Porter designee when required)Joann Bonanno(as G. Spengler nominee when required)Patty GiedrisShell, US(as J. Murdoch nominee when required)LEAP is made up of folks from the oil majors, banks, and independent trading houses.Chevron and Shell currently Co-Chair the LEAP Board of Directors, with James Murdoch, from Shell UK being the other Co-Chair.NEXT SLIDE
7 Members of the Executive Committee Co-Chair James Murdoch Shell, UKTone Vaila StatoilCo-Chair Gary Spengler Chevron, USKaren Mikkleborg Nexen, Calgary ABCesar Covarrubias PMILEAP ECBlandine Lewine Glencore, USDavid Porter Glencore, USIn addition to the LEAP Board of Directors, we also have an Executive Committee, again with a good cross section from industry representation.We also have good presence in both the US and the UK. Our intent is to influence business on a global basis.NEXT SLIDEDavid Knipe BP, UKJohn Herd Glencore, UK
8 LEAP Accomplishments – A Brief History ISDA adopts v2, creating U.S. Crude Oil and Refined Petroleum Products AnnexPipeline Contracts Master 1.0LEAP Master 2.1Canadian Addendum 2.3bLEAP Settlements White Paper draftLEAP DELIVERYJAN-06|JAN-07|JAN-08|JAN-09|JAN-10|JAN-11|Annex CMarine Annex 1.0First physical oil match on ICE eConfirmICE eConfirm for Physical Crude Oil in CanadaLEAP Master 2.0 adds US crudeCanadian Addendum 2.2Over the past 6 years LEAP has accomplished some significant milestones in the area of automation and standardization.For those of you who may have attended the previous ISDA session, you’ll be interested to hear that LEAP has very good coordination with ISDA.ISDA has leveraged LEAP’s crude Master as the starting point for their physical oil annex. We continue to share as we progress, such as Canadian annex.Master agreements provide the ability to incorporate numerous contracts ( ) under one electronic agreement. This has the key benefit of mitigating potential risk, and improving efficiencies across front-mid-and back office.NEXT SLIDENavarik contributes electronic Inspection Data standard
10 The LEAP 2011 Initiatives LEAP Prime Initiatives NW European Barge Contract(Annex)NA Rail / Truck Contract(Annex)Pipeline BookoutsLEAP Prime InitiativeseDocs (Electronic Cargo Docs)RINs GT&C’sSecondary InitiativesContract Matching RedesignInspection Data StandardizationDodd Frank: Issues and ImpactAutomated OTC Margin MatchingSettlement MatchingSome of you may be aware of LEAP’s key initiatives for 2011 shown under the Prime Initiatives.ObjectivesUS Pipeline Bookouts – objective is to automate the current manual processs for US refined products pipelinesRINS – Renewable Identification Number – There is a need for a clear interpretation and standardization of RINS trading And, given current annual renewable fuels volume is mandated to increase approx. 180% by 2022, developing a set of balanced General Terms & Conditions (GT&Cs) will greatly benefit all companies involved.Broker Matching – Broker Confirms are often the primary vehicle for trade verification so trade details need to be timely & accurateeDocs – electronic cargo documentation – industry adoption of electronic documents to replace existing manual, multi-copy, and paper-based processN.A Rail/Truck Contract annexNW European Barge Contract annex - Both these annexes were added to the priority list following the last LEAP General Meeting, held in London in Sept. The objective of both is to publish a Trade Annex based on the LEAP Master Agreement.NEXT SLIDEBroker Matching
11 Other Potential LEAP Initiatives Possible Future DevelopmentSettlement MatchingAutomated OTC Margin MatchingDodd Frank Implications & ImpactsIn addition to the primary and secondary initiatives, we have several other potential future developments, which will be driven by industry needs identified by the LEAP board members.NEXT SLIDEInspection StandardsContract Matching Redesign
15 Recent / Current Activity US Pipeline BookoutsObjectivesAutomate the current manual process for US refined product pipelinesCreate a standard communication processLeverage Transport4, the de facto standard transaction hub for 12 US pipelines since 1997BenefitsAutomatically identify trades that can be offset against one anotherFind more complex bookouts & minimize product shipped (save $)A clear method for communicating changes to the book or conversions to physical deliveryCreation of an audit trail maintained by a disinterested third-part (T4)Applicable to other petroleum types (crude, NGL) and markets (cargo, non-US), assuming user participation is gainedRecent / Current ActivityDevelopment activity: parameters are well understood, production level software would be ready in 11 months;Require critical mass of users, operational consensus, funding and compliance with Dodd FrankLEAP’s GoalTo save companies money by minimizing product shipped by pipeline via an automated solutionProvide an audit trail where none exists today
16 Recent / Current Activity RINs (‘Renewable Identification Number’ – as applies to Renewable Fuel Standard Program )ObjectivesThere is a need for clear interpretation and standardization of RINs tradingthe need for a set of balanced GT&Cs that at a minimum, address indemnifications, clarification of RFS2 standards and compliance, risk protectionsBenefitsCurrent annual renewable fuels volume is 13 Billion gallons and is mandated to increase to 36B Gals by 2022, developing a set of balanced GT&C’s now will greatly benefit all companies involved.Recent / Current ActivityAnnual Renewable Volume Obligation (RVO) is set yearly by the EPA for each RFS participant organizationRIN’s are used to verify each party has met its annual RVOBP and Morgan Stanley are key participants of this Initiative .LEAP’s GoalTo develop a set of balanced GT&Cs that will address RIN’s.Involvement to include Non-LEAP members
17 Recent / Current Activity Broker MatchingObjectivesBroker Confirms are often the primary vehicle for trade verificationMatch broker trade details timely and accuratelyMatching Canadian activity - currently being done on derivatives, US physical products and crudes.BenefitsMinimize human error; prompt detection of trade discrepancies; improve accuracyImprove Process Efficiency: Average 5 mins to process a trade, ~10% contain discrepanciesSpend work time resolving discrepancies rather than checking correct tradesRecent / Current ActivityBrokers (US and European) have been signing up at rate of 1 per monthLEAP’s GoalProgress this Initiative, we are seeking additional participation and development
18 eDocs (Electronic Cargo Documentation ) ObjectivesIndustry Adoption of electronic documents to replace existing manual, multi-copy, and paper based processReduce lost time in document generation, transport, tracking, validation, and (ultimately) invoicingBenefitsOverall document accuracy, speed in cargo ownership transition and validationReduced demurrage, reduced need for LOI’s, allows for timely invoicing, trade transparency (regulatory interest here)Reduces incurred working capital costs when indemnities are requiredRecent / Current ActivitySupport of several large integrated Oil Companies already existsPilot activity is already underway.LEAP’s GoalLEAP’s goal is to accelerate, expand, and automate the processProgress this Initiative: We are seeking adoption of standardized electronic documentation across the industry (oil companies, ship owners)
19 NA Rail / Truck Contract - Annex ObjectivesPublish a Trade Annex based on the LEAP Master AgreementWork with vendors to implement electronic matching, and to encourage voluntary adoption within the Industry of these agreementsBenefitsReduction of manual effort, errors, and a savings of time & costsAllows the capture of economies of scaleRecent / Current ActivityV2.1 Pipeline Master publishedV2.3a Canadian Addendum publishedV1.0 US Marine Annex publishedNWE ARA Barge contract Master drafted and reviewedUser Guide publishedLEAP’s GoalGain better understanding of the roadblocks to adoptionLeverage the knowledge gained in past NA contract workProgress adoption and the use of electronic contract matching
20 NW European Barge Contract - Annex ObjectivesPublish a Trade Annex based on the LEAP Master AgreementWork with vendors to implement electronic matching, and to encourage voluntary adoption within the Industry of this agreementBenefitsStandardization of termsReduction of manual effort, errors, and a savings of time & costsAllows the capture of economies of scaleRecent / Current ActivityV2.1 Pipeline Master publishedV2.3a Canadian Addendum publishedV1.0 US Marine Annex publishedUser Guide publishedLEAP’s GoalGain better understanding of the roadblocks to adoptionDevelop common wording acceptable to allProgress adoption and the use of electronic contract matching
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