EBF 301
Global Finance for the Earth, Energy, and Materials Industries

Lesson 11 Introduction

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Overview

On December 2, 2001, Enron Corp., at the time the world's largest energy trading company, declared bankruptcy, causing a loss of $11 billion dollars for its shareholders and billions more for its trading counterparties. At the time, it was the largest bankruptcy filing in US history. As events unfolded and the investigations took place, it was revealed that there were several "off-sheet," "paper" companies churning-out false earnings. These were "mark-to-market," unrealized earnings, that had no cash gains associated with them. Ultimately, it was a lack of controls, or a failure to adhere to them, that allowed this to occur. Top executives at Enron were convicted and sent to prison, and their outside auditors, Arthur Andersen, would go out of business.

In this lesson, we will learn about other famous cases where financial disasters took place due to a lack of controls and oversight. We will explore concepts such as "mark-to-market," and "value at risk," both financial risk measures that are mandatory for today's publicly-traded energy companies who deal in financial derivatives.

Learning Outcomes

At the successful completion of this lesson, students should be able to:

  • Be familiar with some of the famous case studies that prompted the need for risk control measures;
  • Describe how and why risk controls were implemented in the energy industry;
  • Define risk control responsibilities and key risk measures;
  • Recognize a proper risk control structure.
  • Critically evaluate a case study to determine lack of controls, mistakes made,  and recommendations for what might have been done to prevent or remedy the situation. 

What is due for this lesson?

This lesson will take us one week to complete. The following items will be due Sunday at 11:59 p.m. Eastern Time.

  • Lesson 11 Quiz
  • Lesson 11 Case Study Activity
  • Fundamental Factors

Questions?

If you have any questions, please post them to our General Course Questions discussion forum (not email), located under Modules in Canvas. The TA and I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate.