)
Articles Archive
 |
July 2004
Bridgeline Holdings Positions Itself For Growth
If the market gives us the opportunity, OpenLink's end-to-end trading, risk management, and logistics solution will enable us to significantly expand our business with a nominal increase in resources, says Hugh H. Connett, president of Bridgeline Holdings, L.P.
A short time ago, Bridgeline Holdings, L.P., a successful pipeline and natural gas merchant, faced a looming new challenge. Two large energy production and trading firms had formed Bridgeline in 2000 to operate about 1,000 miles of transmission and distribution pipelines in southern Louisiana, including 13 billion cubic feet of salt dome storage capacity and access to most of the pipelines gathering and delivering gas from the Gulf of Mexico.
The partnership is also a major gas merchant in Louisiana. Hugh H. Connett, Bridgeline's president, says: "We're a large physical player, moving in excess of 1 billion cubic feet per day to our end-user and pipeline markets, which include industrial accounts that generate power, refine crude, make plastics, and produce ammonia. That's our core business." Bridgeline had been operating on one of its owners' business software platforms, and enjoyed turnkey IT support from the company. That agreement was coming to an end, putting Bridgeline in the market for a stand-alone replacement system.
Connett says the existing computer applications were capable, but complex. "The business systems had evolved over the years to support energy and other commodity trading. It was technology that had been integrated together from perhaps a half dozen different operating systems, platforms, and databases. While the parts fit together quite well, they still were stand-alone applications that required a lot of communication interfaces and application support."
Connett adds, "We were in the market for a front-to-back, fully integrated application. We needed everything, front-, middle-, and back-office functionality, including a pipeline gas management system. As we examined and assessed the platforms available, OpenLink's Endur system became the first choice, with the understanding that we would be the beta-test partner for the new gMotion module and would be able to design and develop the pipeline system as well."
Bridgeline's specific needs
Connett says Bridgeline's computer applications mirrored the way most trading shops operate today. "There were a lot of translation, batch processing, and interface connections that companies have to manage across their deal-entry and risk management systems to their middle-office scheduling and nominations, and on into their back-office accounting."
Bridgeline wanted a system that would give it real-time position reports on the purchase and sales sides, including the pipe in between the two, which included both physical and financial exposure.
"We're an intrastate, unregulated pipeline company with a growing third-party shipper portfolio, as well as a merchant on that pipe, giving us the somewhat unique position where we have to manage all components of those inherent risks. We need to know that every single transaction that we conduct will aggregate up to a real-time position and a real-time balance, both physically and financially."
"What that means is that the old systems essentially were unworkable for us without significant IT and risk management resource support for much of the off-line processing that would be needed to give us access to that information. But a system such as Endur allows us to finally integrate our long and short positions' physical and financial exposures. It adds a whole new dimension to transaction, deal flow, and real-time position efficiency. If you are a trader trying to play the speculative market, you deal in the physical and financial market - like us, or you are managing a pipeline system, you basically wear some sort of risk exposure and therefore must manage it. With today's extremely volatile markets, you need to be able to quantify, capture, evaluate, and report that risk in a real-time manner. Most companies usually translate the word 'risk' as meaning 'expenses,' but it also can imply profits. If you can quantify all the areas where you can lose money, you also can quantify all the areas where you can make money or keep the value you have already created."
"Therein lies the tremendous flexibility of Endur's structure, which allows you to ultimately move transactions and shape your business into almost any possible configuration that you could imagine and then report on it accordingly. If we see our business change, if we see a new line of business develop or one drop away, or if we consolidate multiple lines of business, Endur allows us to take our data, re-characterize it, repackage it, and report on it."
The Endur/gMotion solution
Connett says a major advantage of Endur was that it could be combined with OpenLink's recently developed gMotion, a robust gas scheduling application that supplements the Endur transaction management system. Together, they cover the entire life cycle of physical natural gas transactions. Bridgeline and OpenLink engaged in a joint agreement to complete the gMotion gas scheduling application as well as enhance the product to manage Bridgeline's intrastate "on-system" pipeline requirements. Connett says the agreement contained some risks for Bridgeline - it being the product's first customer -but company officials were confident that any problems could be overcome. "We knew if we could get that pipeline piece in there, we would have a platform that would rival none."
Matthew Frye, managing director of OpenLink, says the partnership with Bridgeline is a milestone for his company. "It marks our entry into the gas scheduling and pipeline operations sector of the North American energy market and is proof that gMotion is already winning the battle against many legacy scheduling systems," he said. "We are now able to offer energy companies - and asset-based organizations, in particular -the first and only straight-through-processing (STP) natural gas solution that covers it all: deal capture, risk management, scheduling, operations, and accounting."
Frye further says that the departure of the mega-traders in the energy commodity market has left a void that is being filled by smaller, regional operators similar to Bridgeline. Most of them are using a mixture of different software applications supplied by outside vendors or a combination of internally developed spreadsheets. Those applications are not always very compatible or well co-ordinated and, as a result, they seldom are very efficient. In many cases, these companies simply have neglected to make the essential investments to rebuild or update their systems. Or, in some instances, they are assuming additional business functions beyond the scope of their existing systems.
Frye says that, rather than succumb to the temptation of installing even more disparate applications, the best solution for those companies is a from-the-bottom-up approach that adds the necessary modules in the context of the same database structure, enabling the use of the same database functionality across all of the different modules.
An STP framework has a number of advantages. It fully integrates front-, middle-, and back-office functions. It enables the complete sharing of transaction data across the company. It allows any authorized employee in any department to review and/or update a record that has been entered into the application. And STP permits real-time updates of trading transactions, a major advantage in a marketplace where commodity prices are constantly fluctuating.
Facing the future
Endur became Bridgeline's system of record on January 1, 2004, after several months of running parallel with the former system. It is still too soon for Bridgeline to quantify all the benefits it derives from Endur and gMotion, but Connett has noted some obvious improvements.
"After we get past the learning curve, we expect some major efficiencies from the integration of the application itself. If the market gives us the opportunity, OpenLink's end-to-end trading, risk management and logistics solution will enable us to significantly expand our business with a nominal increase in resources."
"I am already starting to see some of its influence on our business. Endur is changing our daily processes by eliminating some old processes, and streamlining others, and providing us real-time information on our operations. Additionally, the mid-office group is gaining a smoother end-of-month close process, credit risk exposure is fully integrated into the platform, and the real-time position engine (RTPE) is providing instant updates to all deal exposure during extremely volatile trading days."
"It allows us to put values on every position, evaluate the net and aggregate exposure, and report on all transactions in our daily profit and loss statement. This includes both physical and financial, across all instruments as well as pipeline and storage exposure."
Connett says another key advantage is that Endur keeps an excellent audit trail of transactions. The 2002 Sarbanes-Oxley (SOX) Act requires public companies to keep such data for seven years. Even if a company is privately owned and not SOX regulated, Endur provides a good safety barometer. "We want to be able to review transactions and evaluate when and how they happen and/or how and when they are modified. Endur keeps a very detailed audit trail. In most systems, you have to add application layers to create an audit trail. Endur's built in functionality allows you to go as deep as you want." Another feature is that Endur's architecture provides extensive flexibility.
Connett says, "Because the architecture is very open, it does require you to spend time to configure the system, and this can be quite challenging. You can't just click on the 'install wizard' button. However, this openness allows you to reap great benefits from the system. You have almost any avenue available to you, and Endur can be customized to characterize your business almost any way you desire. The value statement here is we will never be constrained by our systems regardless of how much our business grows or changes. We're extremely pleased to have such a powerful tool in our hands."
Copyright © 2004 Incisive Financial Publishing.
All rights reserved.
Used by permission.
First published in Energy Risk's Technology Special Report - July 2004
)