Hedge Optimization: Balancing Strategy with Proper Accounting
A Course Tailored for Energy Companies Addressing Hedging Activities, Derivative Instruments, and Fair Value
October 29-30, 2018 | Chicago, IL
Companies involved in oil and gas and electricity markets should appreciate the significant effects that price volatility in these sectors can have on reported earnings. And given the availability of derivative tools relating to these prices, the choice is clear: Either operate in a disciplined, business-like fashion by taking the required actions to understand these risks relating to these prices and manage them… or do nothing and hope for the best.
In fact, a variety of hedging strategies can be applied to address these exposures, but managers have to know how. They need to understand the various hedging objectives that are possible. Then, once a specific objective is determined, they need to identify the hedging tool that will appropriately satisfy this goal.
They also need to fully appreciate the accounting ramifications of their decisions. Although GAAP allows for alternative accounting treatments, some are better than others. Specifically, hedge accounting provides readers of financial statements with a more transparent view of the intended risk management objectives. This treatment, however, is not automatic. Qualifying for hedge accounting requires the execution side of the business and the reporting side to view the strategies through the same lens – i.e., reflecting the rules and sensibilities of the authorities that dictate accounting guidance.
This course is designed to meet that need. It explains the various gas, oil, and electricity derivative contracts that can be used to control the associated risks. It details how these contracts work and how they should be used, how they are priced, and how to account for them. Case examples, problem-solving illustrations and case studies are used throughout the course to enhance the understanding of the material.
- Differentiate between alternative derivative structures, and their related hedge objectives
- Recognize how derivatives are priced, how they work, and how they’re traded
- Identify prospective outcomes associated with different hedging strategies
- Distinguish between allowable accounting treatments and appreciate requirements to qualify for the most advantageous presentation
EUCI has been accredited as an Authorized Provider by the International Association for Continuing Education and Training (IACET). In obtaining this accreditation, EUCI has demonstrated that it complies with the ANSI/IACET Standard which is recognized internationally as a standard of good practice. As a result of their Authorized Provider status, EUCI is authorized to offer IACET CEUs for its programs that qualify under the ANSI/IACET Standard.
EUCI is authorized by IACET to offer 1.0 CEUs for this event.
Upon successful completion of this event, program participants interested in receiving CPE credits will receive a certificate of completion.
Course CPE Credits: 12.0
There is no prerequisite for this Course.
Program Level: Beginner/Intermediate
Delivery Methood: Group-Live
Advanced Preperation: None
EUCI is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit.
Requirements for Successful Completion of Program
Participants must sign in/out each day and be in attendance for the entirety of the conference to be eligible for continuing education credit.
Case studies and PowerPoint presentations will be used in this program.
Monday, October 29, 2018
12:30 – 1:00 p.m. :: Registration
1:00 – 1:15 p.m. :: Overview and Introductions
1:15 – 2:45 p.m. :: Building Blocks of Derivatives
- Future/Forward Contracts
- Pricing determinants
- Margins and cash flow considerations
- Profit/Loss payoffs
- Hedging vs. speculation
- Option Contracts
- Basic nomenclature
- Expiration day outcomes
- Alternative hedge constructions
- The Lexicon of Option Traders
- An intuitive approach to option models
- The jargon of the marketplace: delta, gamma, theta, vega
2:45 – 3:00 p.m. :: Afternoon Break
3:00 – 4:45 p.m. :: Building Blocks of Derivatives (cont’d)
- What is a SWAP?
- SWAP terminology
- Pricing SWAPS
- Risk Management Strategies and Tactics
- Alternative tools for alternative objectives
- Static vs. dynamic hedging
Tuesday, October 30, 2018
8:00 – 8:30 a.m. :: Continental Breakfast
8:30 – 10:15 a.m. :: Hedging Oil, Gas, and Electricity Exposures: Risk Management and Accounting Treatments
- Review of Derivative Instruments
- Alternative contract designs
- Derivatives pricing
- Strategic uses
- Derivatives Accounting
- Definition of covered derivatives
- Embedded derivatives
- Alternative accounting treatments
- Cash flow accounting
- Fair value accounting
- Default accounting treatment
- Prerequisites for qualifying for hedge accounting
- Hedge effectiveness concerns
- Disclosure requirements
10:15 – 10:30 a.m. :: Morning Break
10:30 a.m. – 12:00 p.m. :: Hedging Oil, Gas, and Electricity Exposures: Risk Management and Accounting Treatments (cont’d)
- Market Analysis
- Fundamental, technical and historical price analysis
- Oil, natural gas and electricity supply/demand dynamics
- Importance of Risk Management
- Developing risk management infrastructure
- Types of risks
- Defining objectives
12:00 – 1:00 p.m. :: Group Luncheon
1:00 – 2:45 p.m. :: Hedging Oil, Gas, and Electricity Exposures: Risk Management and Accounting Treatments (cont’d)
- Pricing Alternatives
- Cost components of natural gas, electricity & diesel
- Index, fixed, cap & collar pricing
- Hedge Application Strategies and Practical Examples
- Hedging inventories vs hedging sales
- Basis considerations
- Achieving alternative hedge objectives
- Swap example
- Cap example
- Collar example
2:45 – 3:00 p.m. :: Afternoon Break
3:00 – 4:45 p.m. :: Hedging Oil, Gas, and Electricity Exposures: Risk Management and Accounting Treatments (cont’d)
- Miscellaneous Topics
- Hedge strategy components overview
- Budget/rate management
- Value strategy development
- Time management
- Tool diversification
- Sample hedge strategy
- Q & A
4:45 p.m. :: Course Adjourns
Dr. Ira Kawaller, Managing Director, HedgeStar
Ira Kawaller is a Director at HedgeStar — a Minneapolis-based firm that offers strategic and accounting services relating to derivative contracts. Immediately prior to joining HedgeStar, he had founded his own consulting services with the same focus. Prior positions included employment with Chicago Mercantile Exchange, J. Aron & Company, AT&T, and the Board of Governors of the Federal Reserve System. Dr. Kawaller served on the board of Hatteras Financial Corp (which merged with Annaly Capital Management Inc.) and participated on their risk committee and compensation committee. He has also served on a variety of professional boards and committees, including board of the International Association of Financial Engineers (now the International Association for Quantitative Finance) and the Financial Accounting Standard Board’s Derivatives Implementation Group. Dr. Kawaller has held adjunct professorships at Columbia University and Polytechnic University.
Dan Conrath, Senior Vice President – FCM Division, INTL FCStone Financial Inc.
Dan Conrath is Senior Vice President at INTL FCStone Financial Inc., FCM Division. With some 25 years of experience in energy price risk management, he has led advisory projects for many of the largest utilities in the U.S. Mr. Conrath has significant practical experience in guiding utilities and energy-intensive companies on the best application of risk management methodologies for their respective cultures and risk tolerances. He became a partner at Risk Management Inc, now part of INTL FCStone Financial Inc., FCM Division, in 1992. He oversees the execution of approximately $16 billion (notional value) in energy contracts for INTL FCStone clients each year. Mr. Conrath holds a BS from the University of Illinois (Urbana-Champaign).
Millennium Knickerbocker Hotel
163 E Walton Pl
Chicago, IL 60611
Reserve your room:
please call 1-800-621-8140
Room Block Reserved For:
Nights of October 28 – 30, 2018
Room rate through EUCI:
$209.00 single or double plus applicable taxes
Make your reservations prior to October 9, 2018.