IHS Says Hedging Woes Ahead for E&Ps in 2016 & 2017

A new study from oil and gas powerhouse research firm IHS says there’s problems ahead for U.S. drillers because of hedging. Hedging is a complicated trading activity that reduces risk. In plain English, drillers lock in prices for the gas they will sell in the future–several months or even years in advance–today. On the up-side they get a lot more money for their gas. One of the masters of hedging in the Marcellus/Utica is Antero Resources (see Antero Resources 4Q15 Update: NatGas Sales Averaged $4.40/Mcf). On the down side, you’re not able to lock in prices that earn you a profit. That’s the situation facing drillers as hedges in 2016 and 2017 “roll off” and companies are negotiating new contracts that just aren’t all that great. According to IHS’ “Comparative Peer Group Analysis of North American E&Ps” (unfortunately we don’t have a full copy) in 2016 will see a decline in hedging, and 2017 will be even worse…

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