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July 26, 2018

Understanding NAESB Master Agreement for Natural Gas and NGLs

by Miki Kolobara, Esq.

The U.S. natural gas market is experiencing an unprecedented transformation.  With the technological advancements in shale exploration, combined with increasing exports of natural gas, natural gas liquids (“NGL”) and liquified natural gas (“LNG”), the volumes of natural gas traded in the physical and financial markets are significantly increasing.  LNG expansion is increasing the global participation in the U.S. natural gas markets, including the number of market participants with different financial and operational capabilities.  This, in turn, is increasing the importance of properly identifying, quantifying, and managing the legal, regulatory, operational, and financial risk associated with natural gas marketing.

The NAESB master agreement for purchase and sale of natural gas and NGL is the most frequently used umbrella agreement in the natural gas industry.  Market participants across the natural gas marketing chain such as natural gas producers, gathering and processing companies, pipelines, power and gas utilities, and various commercial and industrial end users rely on the NAESB to memorialize their purchases, sales, and exchanges of natural gas and NGLs.  In order to properly manage exposures using the NAESB master agreement, market participants need to understand the relevant legal, credit, and operational aspects of the natural gas business.

I am pleased to announce that I will be conducting an in-depth and practical analysis of the NAESB master agreement, overview of the most critical special provisions, transaction confirmations, and credit support issues relevant to successfully drafting and negotiating NAESB documentation on October 4-5, 2018 in Houston.

This seminar will provide a detailed review of the NAESB provisions and identify the most relevant shortcomings that can be remedied in the special provisions to the master agreement.  It will also provide insight into the best practices and standards for drafting effective transaction confirmations, netting agreements, and asset management agreements frequently used in the gas marketing process.  This seminar also will outline some practical steps to addressing the relevant operational issues such as natural gas capacity curtailments, force majeure events, natural gas buy-backs, and bookouts.  Additionally, the seminar will outline the best practices for managing various risk aspects of the Dodd-Frank Act, FERC and CFTC anti-manipulation rules, as well as the relevant court rulings impacting natural gas trading and compliance.

Seminar attendees will learn about:

 NAESB master agreement provisions:

  • Review all standard provisions and identify potential shortcomings.
  • Analyze some common NAESB special provisions and examine the best practices for ensuring legal certainty and enforceability of the NAESB documentation.
  • Identify some practical steps to ensure enterprise wide consistency and uniformity of the NAESB provisions.
  • Examine various operational factors impacting NAESB transactions including, but not limited to selling and buying natural gas at illiquid delivery points, pipeline curtailments and force majeure events, natural gas buy-backs and swing volume adjustments, asset management agreements and capacity releases, buying and selling intra-day gas, volumetric adjustments in physically settled transactions, and many more.
  • Outline the best practices for drafting and negotiating NAESB special provisions and transaction confirmations, credit support documentation, and cross-product and cross-affiliate master netting agreement in the current regulatory environment.
  • Identify enterprise-wide best practices to ensure a proper transaction execution, contract management, and regulatory compliance.
  • Review some prohibited market practices such as disruptive trading practices, uneconomic trading, wash trading, and spoofing.
  • Examine potential exposure areas caused by inadequate NAESB documentation.

 

Credit Risk Management and Bankruptcy Considerations:

  • Understanding the NAESB implications on credit, collateral, and margin documentation.
  • Developing and implementing consistent terms and conditions for responding to margin/collateral calls and demands for adequate assurance.
  • Examining the pros and cons of various credit terms and conditions often embedded in standardized energy contracts and definitions including material adverse change, adequate assurances, and exposure calculation.
  • The application of bankruptcy law and principles to forward contracts, physically settled commodity options, netting agreements, and exchange agreements in light of the latest regulatory changes.
  • The latest court rulings on energy trading matters, including the status of cross-affiliate setoff provisions in energy trading agreements.

 

Identifying the Best Industry Practices for Creating and Implementing Effective NAESB documentation:

  • Perform a cross-functional review to ensure that all NAESB documents including transactions confirmations, special provisions to the NAESB master agreement, NAESB credit support annex, and corporate guarantees are consistent with the best industry practices.
  • Identify key steps required to ensure that all personnel including traders, originators, contract administrators, and credit and risk professionals are familiar, and stay compliant with the relevant NAESB provisions.
  • Establish and maintain effective contract management training for the front, middle and back offices.
  • Review and modify natural gas, LNG, and NGL trading and hedging strategies to meet the new regulatory requirements.
  • Identify the best industry practices to ensure that there is sufficient emphasis on creating and maintaining a culture of compliance both internally and externally.

 

Practical Considerations for Identifying and Drafting NAESB Provisions for Particular Type of Market Participants:

  • Review and analyze the key operational and legal concerns relevant to natural gas producers, gathering and processing companies, pipelines, marketers and liquidity providers, local distribution companies, power generators, LNG facility operators, and various commercial and industrial users.
  • Identify and implement checks and safeguards at key steps of trading or hedging to ensure that the right questions are being asked to preclude the company from creating unnecessary legal and/or financial exposure during the bid week trading, buying or selling residue gas at the processing facilities, entering into fixed price sales at the illiquid delivery points, or executing purchase and sales during the relevant price index closing period.
  • Examine recent regulatory and court decisions regarding natural gas transactions and documentation.

This Seminar will benefit a wide variety of organizations and professionals in both physical and financial natural gas, NGL, and LNG markets.  Natural gas producers, gatherers and processors, pipelines and storage companies, utilities, natural gas, NGL and LNG marketers, commercial and industrial energy users, merchant generators, clearing brokers, and hedge funds, will gain valuable insights.  This seminar will also be highly beneficial for energy executives, traders, originators, risk and credit managers, auditors, contracts administrators, government regulators, attorneys, schedulers and asset operators.  Anyone who wants a solid understanding of what can be done now to minimize the legal and financial exposure under the NAESB transactions while, at same time, ensuring their companies’ compliance, will benefit.

To register, follow the link below:

http://kolobaralaw.com/energy_trading_news.html

 

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