Hedging advisory firm of the year: Mercatus Energy Advisors

Boutique sets up offices in Asia and Europe and expands into LNG and coal

Mike Corley, Mercatus Energy Advisors

Energy Risk Awards 2016

When he founded Mercatus Energy Advisors, formerly known as EnRisk Partners, in 2007, Mike Corley never envisioned that his hedging and risk management advisory firm would expand onto the global stage. By the end of this year, the company will be operating out of four offices globally, after having just one in Houston a little more than a year ago.

"When I started the company, I thought we would be primarily focused on the US, Canada and a little bit of Mexico," says Corley, Houston-based principal of Mercatus. "Going international was never the plan on day one."

What caused the change was the steady drumbeat of client calls from around the world, particularly in emerging markets, where corporate commodity hedging programmes have a relatively short history. Today Mercatus has more clients contacting it from outside North America than inside, Corley says. As a result, the firm opened offices in Singapore and Copenhagen in 2015, and it plans to open another in Oklahoma City later this year.

"We were getting lots of international clients contacting us in Houston, and that's not a practical location to run an international business," Corley says. "I was flying to Asia or Europe or the Middle East every three weeks, so it wasn't sustainable."

Another reason for the growing interest has been the rising importance of US producers in global energy markets. In February, the first cargo of liquefied natural gas (LNG) to be exported from the lower 48 states left Houston-based Cheniere Energy's Sabine Pass terminal in Louisiana, and more liquefaction facilities are expected to come online in the next several years as consumers around the world seek access to cheap US shale gas. "Lots of our growth has been a result of many people looking for North American expertise because they're getting involved in North America for the first time," Corley says.

In particular, many Asian energy firms are starting to buy LNG from the US and want to improve their understanding of US physical gas markets, he explains. Advising such firms is a natural fit for Mercatus. "Half of our team used to trade natural gas in the US, so that was really one of our core skills," Corley says. "A lot of international LNG clients were looking for companies that had an international presence but specific expertise in US natural gas, so we had the right skills at the right time."

Besides opening new offices, Mercatus has moved into new commodities. Having focused initially on crude markets and oil-producer hedging strategies, the firm added coverage of LNG and coal last year. The move into coal took place because of Mercatus's work with electricity firms, particularly in Asia, where many power plants still burn diesel or fuel oil. To better serve such clients, Mercatus brought in a veteran coal trader to work with them on coal hedging strategies, Corley says.

Airlines have been another area of focus for Mercatus, particularly in the developing world, where many carriers are still growing rapidly, unlike their more mature counterparts in North America and Europe. For example, Mercatus has worked with a national airline in Asia that had experienced significant losses from its fuel-hedging activities in recent years. Mercatus worked with the airline to revise its strategy and develop a plan to execute it going forward.

In some cases, Mercatus works with clients that have little to no experience in hedging. Corley and his team build such clients' hedging programmes from the ground up, educating them, helping the firms develop their commodity risk management strategies and crafting implementation plans. "One of our clients had never hedged before, so we had to go in and educate the board on how to effectively build and manage a front, middle and back office," he says.

Mercatus often finds its services in great demand. "If you're in a small island country, the chance of finding someone that has significant energy trading and risk expertise is pretty low," Corley says. "Usually there will be a treasurer or an engineer who has worked their way up and learned the industry on their own, but the markets are simply becoming too complex to rely on that anymore."

While plenty of other risk advisory shops – not to mention Big Four consulting firms – offer similar services, Corley says his independence and his focus on out-of-the-way places has borne fruit for Mercatus. "Most people doing things similar to what we do are in Houston or New York, so the further you get from those places, there is plenty of opportunity for growth," he says.