Hedging Gas Prices in Marcellus/Utica – Who Hedges & How Much?

S&PS&P Global Market Intelligence recently conducted research on 10 of the largest Marcellus/Utica drillers to discover which have “hedged” their 2017 production, and for how much. Hedging is a concept of pre-selling the gas you produce at a price you agree to now, in advance. Although that may sound risky, it’s actually an exercise in risk avoidance. It’s less risky to lock in favorable prices in advance rather than wait and potentially get far less. How do these drillers know what the prices will be a year from now? They don’t know, for sure, but there is something called the forward market, that predicts what prices will be at future dates. In fact, traders create contracts now based on prices in the future, and those contracts are reported by various news and data services, like NGI’s Forward Look publication. The S&P analysis finds that Antero Resources has hedged all of its 2017 production–in fact MORE than all (111% of it). National Fuel Gas Company’s Seneca Resources has hedged or pre-sold 87% of its 2017 production. A related and important question is, How much does it cost these drillers to produce their gas? Profit is the difference between what it costs to produce an Mcf (thousand cubic foot) of gas and what you get paid for it. Below is a VERY interesting table outlining those details for 10 of the top drillers in the Marcellus/Utica…

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