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Wednesday, June 20, 2018

Some Companies Pay the Price for Hedging Oil at $55

From Reuters:
Many top U.S. shale oil producers are missing out on the rally in oil prices to more than $70 a barrel - because they sold their oil through futures contracts at about $55 last year when that looked like a good deal. Now, it looks cheap. 
Those hedged bets will hold down revenues and further frustrate Wall Street investors, who have been disappointed by slow returns from the booming Permian Basin in west Texas. 
The top 25 shale producers will forego about $1.7 billion in combined revenues in the second quarter with oil prices at about $70, according to Denver-based consultancy PetroNerds. Many of those producers used hedges that guaranteed them between $55 and $58 a barrel.

Some west Texas producers face a second profit-limiting dynamic: They are forced to cut prices because the region’s production is overwhelming its pipeline network, raising transportation costs.
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