Discretionary Portfolios. Transactions and positions taken in anticipation of profiting from a market view. In general, this is a limited activity at Xxxxxxx with no discretionary trading currently undertaken in support of the natural gas business and modest discretionary activity for oil. As discussed above, there are various transactions undertaken to procure and optimize oil supplies. There will remain some modest volume imbalances, however, since the daily xxxxxx are based on projected sales. In addition to these modest imbalances, there may be some other positions taken within the specified position limits that are not intended as part of a system or hedging requirement. These discretionary positions can be characterized in two high level categories: • Outright positions, i.e. net positions that result in an unbalanced position. Although Xxxxxxx tracks the outright positions on a daily basis, it handles long and short positions differently when identifying discretionary outright positions. • Xxxxxxx has ongoing sales requirements as part of its sales activities. As long as the outright long position remains within the risk limits (maximum of 500 KB or 500 NYMEX contract equivalents for oil and 250 NYMEX contract equivalents for natural gas), this position is not considered discretionary, as expected sales requirements can readily consume this volume in a relatively short time period. Consistent with our understanding of tax regulations, these outright long positions are considered part of Xxxxxxx’x system / system optimization requirements. • In contrast, outright short positions can be discretionary. If Xxxxxxx is going to take a short discretionary position, the transaction(s) are identified as discretionary on the day the positions are taken. The profitability associated with these positions will be tracked separately as discretionary until the positions are closed out. • In addition to the discretionary short position trades undertaken as a specific strategy, there can be modest short volume imbalances due primarily to the projected daily sales not meeting actual customer volume requirements. These resultant positions will not be part of the discretionary portfolio, as any discretionary trades will be Xxxxxxx Operating Resources LLC Risk Management Policy Privileged and Confidential - 12/5/2011 identified as such on the day the transactions are undertaken. For oil, Xxxxxxx’x approach to assess any short imbalances is to separate the refined products outright positions into three categories, i.e. distillates, gasolines, and heavy oils (primarily residual fuels). For each of these three groups, an allowable operating tolerance of 100,000 barrels is allowed. If this operating tolerance is exceeded on any day (again noting that each product group is treated separately), then Xxxxxxx will take all reasonable commercial steps to promptly balance the position within the tolerance levels, with an expectation that this balancing will generally occur by the close of the next business day. However, if it isn’t practical to balance the positions during the next business day due to market conditions or other factors, up to three business days is allowed to get the short positions within the defined operating tolerances. All positions that are part of this operating tolerance will remain part of the system / system optimization portfolios as originally classified. • Other discretionary oil positions are ones that are not associated with either the system supply or system optimization portfolios. As an example, a crack spread (net balanced position between crude oil and refined products such as RBOB and / or heating oil) would generally not be part of a system requirement and would be considered discretionary. Again, these positions will be specifically identified as a discretionary position on the day the trade is undertaken. • As indicated, there are no new discretionary natural gas positions now being taken, with the exception of ones associated with a small legacy leased storage position in the U.S. Gulf Coast. Since there are no new discretionary positions, the full natural gas Supply / Trading portfolio is used when comparing positions with the specified limits. Although no discretionary natural gas positions are taken the positions are still tracked on a daily basis. If an outright short position inadvertently exceeds 100 NYMEX contract equivalents on any day, the same general approach as used for oil will be used to balance the position within the operating tolerance. Again, the expectation is that the position will be brought within the 100 contract tolerance by the close of the next business day, with a maximum of three business days allowed to meet this requirement.
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Samples: Credit Agreement (Sprague Resources LP), Credit Agreement (Sprague Resources LP), Security Agreement (Sprague Resources LP)
Discretionary Portfolios. Transactions and positions taken in anticipation of profiting from a market view. In general, this is a limited activity at Xxxxxxx with no discretionary trading currently undertaken in support of the natural gas business and modest discretionary activity for oil. As discussed above, there are various transactions undertaken to procure and optimize oil supplies. There will remain some modest volume imbalances, however, since the daily xxxxxx are based on projected sales. In addition to these modest imbalances, there may be some other positions taken within the specified position limits that are not intended as part of a system or hedging requirement. These discretionary positions can be characterized in two high level categories: • Outright positions, i.e. net positions that result in an unbalanced position. Although Xxxxxxx tracks the outright positions on a daily basis, it handles long and short positions differently when identifying discretionary outright positions. • Xxxxxxx has ongoing sales requirements as part of its sales activities. As long as the outright long position remains within the risk limits (maximum of 500 KB or 500 NYMEX contract equivalents for oil and 250 NYMEX contract equivalents for natural gas), this position is not considered discretionary, as expected sales requirements can readily consume this volume in a relatively short time period. Consistent with our understanding of tax regulations, these outright long positions are considered part of Xxxxxxx’x system / system optimization requirements. • In contrast, outright short positions can be discretionary. If Xxxxxxx is going to take a short discretionary position, the transaction(s) are identified as discretionary on the day the positions are taken. The profitability associated with these positions will be tracked separately as discretionary until the positions are closed out. • In addition to the discretionary short position trades undertaken as a specific strategy, there can be modest short volume imbalances due primarily to the projected daily sales not meeting actual customer volume requirements. These resultant positions will not be part of the discretionary portfolio, as any discretionary trades will be Xxxxxxx Operating Resources LLC Risk Management Policy Privileged and Confidential - 12/5/2011 identified as such on the day the transactions are undertaken. For oil, Xxxxxxx’x approach to assess any short imbalances is to separate the refined products outright positions into three categories, i.e. distillates, gasolines, and heavy oils (primarily residual fuels). For each of these three groups, an allowable operating tolerance of 100,000 barrels is allowed. If this operating tolerance is exceeded on any day (again noting that each product group is treated separately), then Xxxxxxx will take all reasonable commercial steps to promptly balance the position within the tolerance levels, with an expectation that this balancing will generally occur by the close of the next business day. However, if it isn’t practical to balance the positions during the next business day due to market conditions or other factors, up to three business days is allowed to get the short positions within the defined operating tolerances. All positions that are part of this operating tolerance will remain part of the system / system optimization portfolios as originally classified. • Other discretionary oil positions are ones that are not associated with either the system supply or system optimization portfolios. As an example, a crack spread (net balanced position between crude oil and refined products such as RBOB and / or heating oil) would generally not be part of a system requirement and would be considered discretionary. Again, these positions will be specifically identified as a discretionary position on the day the trade is undertaken. • As indicated, there are no new discretionary natural gas positions now being taken, with the exception of ones associated with a small legacy leased storage position in the U.S. Gulf Coast. Since there are no new discretionary positions, the full natural gas Supply / Trading portfolio is used when comparing positions with the specified limits. Although no discretionary natural gas positions are taken the positions are still tracked on a daily basis. If an outright short position inadvertently exceeds 100 NYMEX contract equivalents on any day, the same general approach as used for oil will be used to balance the position within the operating tolerance. Again, the expectation is that the position will be brought within the 100 contract tolerance by the close of the next business day, with a maximum of three business days allowed to meet this requirement.
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