From exchange rate and interest rate fluctuations to rising commodity prices, energy services companies are exposed to multiple financial risks. National Bank of Canada can help protect your business against these risks by helping you establish a strategy that works for you.

Many people mistakenly believe risk management is only for large companies. Businesses of all sizes, however, can benefit from a hedging strategy. Now, with certain minimum consumption thresholds, a company can have price certainty for a 24- or even 36-month horizon. The benefits of this include steadier cash flow, better ratios, and more accurate budget forecasting.

NOW IS THE TIME TO PROTECT YOURSELF

The ideal time to protect yourself is when you are taking on risks, such as when signing a sales deal or negotiating a supply contract. That said, adopting a hedging strategy is a major, long-term move for a business, and as with any big decision, getting all stakeholders on board can be difficult. The recent collapse in energy prices, which are now nearing 2008 and 2009 post-recession lows, is a golden opportunity for energy-consuming businesses to rein in their supply costs.

These are challenging times for the oil and gas industry, and tighter controls of energy costs can have an enormous impact on a company’s earnings. Implementing a hedging strategy often calls for a change in philosophy within the organization. However, understanding the related risks and choices should be significantly easier given the issues currently facing the industry.

The drop in refined petroleum product prices has already affected demand in the U.S. and Canada, and other changes are occurring that will impact global production capacity and make it difficult to predict how long the downturn will last. The purpose of a hedging strategy is to eliminate price fluctuations and to protect your profit margin during uncertain times.

Derivatives products are used to transfer price risk from your business to financial markets. Used wisely, they constitute an efficient solution that fits well with a cautious management approach. Many different options exist and each offers different characteristics; National Bank focuses on solutions that offer great flexibility on volumes and dates and minimal impact on business’s liquidities. Our solutions cover many indices, such as crude oil, natural gas, diesel, and fuel prices, as well as propane; all indices can be covered in both Canadian and US dollars. Keep in mind a complete evaluation of your business’s needs is crucial in order to establish the right strategy and to select the best instruments to implement it.

Our team of commodity risk management experts can add value to your management process by offering you straightforward, effective, and reliable solutions. Our specialists in Calgary, Toronto, and Montreal and our strategic partners in every major Canadian city are available to serve you across the country. Please contact your National Bank Account Manager or Manager – International Trade to find out more.