Swiss Re New Markets (SRNM)and Houston based energy giant Enron have combined their expertise to create a new and innovative risk management product for “financing of a specific portfolio of natural gas reserves.”
“Developed jointly with Enron’s Global Risk Markets (EGRM) group, the financing employed a combination of derivatives, insurance and bank credit to finance future production of 160 billion cubic feet over a five year period from a portfolio of working interests in fields located primarily in Texas, Louisiana and New Mexico,” said the announcement.
Both SRNM and Enron are acknowledged leaders in the creation of innovative risk management techniques, and by combining their expertise they’ve come up with a product which transfers the risk of future “production of certain reserves into a market that can more efficiently analyze, price and warehouse risk than previously available in the capital markets.”
SRNM director Chuck Zabriskie explained that, ” the solution relied upon us of probabilistic analysis and an insurance product to create a synthetic oil & gas production loan with production for bank lenders if actual production fall significantly below reservoir estimates over the life of the financing.”
In addition to its general energy industry expertise, Enron agreed to hedge “the gas prices over the life of the financing to eliminate volatility with respect to the future price of natural gas.”
Both companies said that, while this was a first of its kind arrangement, it could be used in the future to structure similar risk management solutions.
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