Commodity Price Risk, Foreign Exchange and Cash Management Case Study

Commodity Price Risk, Foreign Exchange and Cash Management Case Study

  • A rapidly growing oil company that was aggressively ramping up production
  • Funding conditions included pre-requisite hedging of commodity price risk
  • The majority of income was in USD and the majority of costs were in AUD
  • Balance sheet risk on a USD denominated bond
  • No official/documented treasury or risk management policy in place
  • Decision making was ad hoc and often knee Jerk.

Rochford was engaged to:

  • Construct a treasury policy covering the multifaceted nature of the company’s financial risks
  • Develop management reporting process and templates
  • Create a process of weekly exposure reporting to a risk management committee
  • Upskilled internal resources on treasury risk management
  • Provide independent mark to market (MTM) reports of derivative positions
  • Work with the finance function to develop a cash management policy and maximise returns of AUD and USD deposits while maintaining sufficient liquidity
  • Work with the finance function to develop an FX risk management strategy aligned with the company’s pricing mechanism and invoice process
  • Advise on the execution and structure of medium term strategic hedges
  • Monthly policy compliance board reporting.

Outcomes:

  • Management could focus on growing the business confident in the knowledge strategic objectives would not be compromised by market risks
  • The business went from no official treasury function, to a function that was equipped with the skills, resources, policies and processes to manage all the financial risks of business and deliver a tangible result to the bottom line.