Hi Michael. Why are you more tolerant of PEY's hedges, than ARX's? PEY forward fixed for long periods, along with an expensive transportation contract that just expired yr end.
I am not. I have spoken to Darren Gee about Peyto's hedges. However, Peyto's approach is "dollar cost averaging" with new hedges put on every week replacing those that expire that week. There is a lot of evidence that over a full cycle "dollar cost averaging" works out well. Both Peyto and ARC ignore the reality that there is a secular gas shortage that will persist until there is a supply response and none is in sight. ARC's hedges are not sensible. Buying puts to protect cash flow needed to pay debt is fine but writing calls with unlimited potential losses is foolish. It is like putting $10 million of insurance on a $1 million house.
buying puts is great insurance tactic, but PEY also sells calls, and % hedged along with duration of hedge is > peers, including ARX. If PEY was to change tactics and put all FCF towards delevering, then rely on that as "insurance", I'd be a buyer for the NPV. Peeps looking at Q1 results and get excited, not realizing they're going to hemorrhage rest of this yr on realized hedging losses. Q1 aeco ave was only 4.4-4.8 or so (aeco 7 and 5) IIRC
There is no doubt Peyto will suffer from its hedges for the next few quarters, but its costs for the unhedged portion of its production and the 115% premium it gets for heat content of its gas will mitigate the hedging damage and the company will report strong results, like at record levels. Note the Peyto hedges vary seasonally with a higher percentage in the soft head and shoulders periods and less in the heating season.
Hi Michael. Why are you more tolerant of PEY's hedges, than ARX's? PEY forward fixed for long periods, along with an expensive transportation contract that just expired yr end.
I am not. I have spoken to Darren Gee about Peyto's hedges. However, Peyto's approach is "dollar cost averaging" with new hedges put on every week replacing those that expire that week. There is a lot of evidence that over a full cycle "dollar cost averaging" works out well. Both Peyto and ARC ignore the reality that there is a secular gas shortage that will persist until there is a supply response and none is in sight. ARC's hedges are not sensible. Buying puts to protect cash flow needed to pay debt is fine but writing calls with unlimited potential losses is foolish. It is like putting $10 million of insurance on a $1 million house.
buying puts is great insurance tactic, but PEY also sells calls, and % hedged along with duration of hedge is > peers, including ARX. If PEY was to change tactics and put all FCF towards delevering, then rely on that as "insurance", I'd be a buyer for the NPV. Peeps looking at Q1 results and get excited, not realizing they're going to hemorrhage rest of this yr on realized hedging losses. Q1 aeco ave was only 4.4-4.8 or so (aeco 7 and 5) IIRC
There is no doubt Peyto will suffer from its hedges for the next few quarters, but its costs for the unhedged portion of its production and the 115% premium it gets for heat content of its gas will mitigate the hedging damage and the company will report strong results, like at record levels. Note the Peyto hedges vary seasonally with a higher percentage in the soft head and shoulders periods and less in the heating season.