Hedging advisory firm of the year: Aegis Energy Risk

Energy Risk Awards 2018: Digital innovation pays off for US hedging advisory firm

Chris Croom, Aegis Energy Risk

At a time when many hedging advisories are diversifying into related activities such as physical flow management or trading, Aegis Energy Risk remains focused squarely on its core discipline of supporting client hedging, investing heavily in technology to advance its offering.

It’s a strategy that avoids any conflict of interest between its business and that of its clients, and one that means all investment is channelled into its core activities, says Chris Croom, chief executive of Aegis Energy Risk. “We have chosen to stay focused on our core and deploy capital in ways that keep us aligned with our clients – all of the time.”

A major landmark for the firm last year was the launch of its cloud-based dashboard – known as ‘Flow’ – designed to help oil and gas firms better manage their hedge portfolios. The technology has proved extremely popular with clients and helped secure its high retention rate, believes Bryan Sansbury, Aegis Energy Risk’s chief operating officer. Client numbers doubled over the course of 2017, as did staff headcount, the firm says.

“Flow gives our clients full insight into their hedge portfolio, counterparties, production profiles and price curves,” Sansbury says. “We have created transparency, made it easy for clients to work with their data and opened up a distribution channel for us to continually introduce new capabilities.”

Flow uses data visualisation to deliver complex and real-time information that could impact cashflow risk. It potentially offers opportunities to improve hedge portfolios, tracking compliance with lender requirements and managing counterparty risk. Flow also provides a summary view of derivatives positions and valuations, and gives a more in-depth view of hedge coverage and gaps, valuation metrics and hedge structures.

The firm’s considerable investment in this digital channel has been well worth it, Sansbury believes.

“This is one of those investments that was simply the right thing to do for our clients,” he says. “The reaction we are receiving is far beyond our expectations. The ability to access this information at any time from any device is game-changing for our clients – and it absolutely helps our win rate and client retention.”

Flow gives our clients full insight into their hedge portfolio, counterparties, production profiles and price curves. We have created transparency, made it easy for clients to work with their data and opened up a distribution channel for us to continually introduce new capabilities

Bryan Sansbury, Aegis Energy Risk

Additionally, the firm has developed online hedging tools that enable clients to take a more quantitative approach to hedging, rather than a qualitative or emotive approach that Aegis commonly sees, it says. Sophisticated cashflow models allow clients to calculate more precisely how much and when they want to hedge. For example, rather than traditional hedge strategies based on hedge rates of around 75% of production for the first year, 50% for the second and 25% three years out, Aegis’s models can be used to plan hedges that protect a certain level of cashflow or profit, or to cover upcoming costs such as a drilling programme.

The firm organises its advisory services under four major disciplines: market fundamentals; hedge strategy and execution; back-office operations; and digital insights.

“We have created meaningful differentiators in each discipline,” says Sansbury. “We are out front with our research and publications, utilising cashflow modelling tools that allow us to create hedging strategies tailored to individual client needs, executing efficiently by virtue of being in the markets each day, and running a truly scalable back office from a cloud-based energy trading and risk management platform.”

The four-pillar strategy it puts forward is also flexible. Aegis has developed the model in a modular way to suit the demands of clients, who may well have some of the disciplines covered themselves.

“A year or so ago we were bringing the full service offering to every client and we noticed that every client has a different need,” says Croom. “By virtue of constructing our offering to hit any of those four disciplines individually it has opened up new conversations. Clients might have a good handle on the market, understand how to hedge, and have relationships with counterparties. But they have under-invested in their back-office platforms, and don’t have a digital channel to get insight. We can work with clients in ways that fill gaps they feel are most important.”

Launched in 2013, the firm was built to scale up through large initial outlays in trading and risk management platforms and through the use of Amazon Web Services cloud offering. The firm also invested in its market analytics team which, as well as producing research, led the cashflow modelling effort.

 “With all of this in place, we go to bed every night knowing we have the best people in the industry, our firm can scale, our data is protected and our clients are well cared for,” says Sansbury. “We have been investing ahead of the curve since the first day we founded this business, and will continue to do so.”