The worst offender is CNX who hedges for 5 years, not only selling massive upside, but with a shrinking real gas price. (assuming the hedges are pegged at nominal, not real values).
Thanks Michael for the educational column. Potential 3B loss for ARX is hard to comprehend. I decided to hold on to my shares after earnings despite the temptation to sell based on the disappointing news. Do you see mgmt lightening up on 2023 hedges ?
I hope so. The company has great assets and will produce improving results even with the hedges since the majority of their output is not hedged. The hedges cause an opportunity cost of about $3 billion (based on my review of their hedge book and my own arithmetic for which I take responsibility) and possibly as much as $5 billion. CFO Kris Bibby says they will continue to hedge but a lower percentage of their production when the current hedges roll off. I don't fear losses from ARX.TO shares, but prefer other names who get the full benefit of the higher commodity prices e.g., BIR.TOCJ.TO
Thanks for another good column on the negative impact of hedges. Some hedges in 2021 were probably forced by the lenders. But nearly all hedges for 2022 and beyond are by the managements.
It looks like you have a typo in a number in the first paragraph. "... you will never get less than $75 for the oil you produce and..." should have been "... you will never get less than $65 for the oil you produce and..."
The worst offender is CNX who hedges for 5 years, not only selling massive upside, but with a shrinking real gas price. (assuming the hedges are pegged at nominal, not real values).
Thanks Michael for the educational column. Potential 3B loss for ARX is hard to comprehend. I decided to hold on to my shares after earnings despite the temptation to sell based on the disappointing news. Do you see mgmt lightening up on 2023 hedges ?
I hope so. The company has great assets and will produce improving results even with the hedges since the majority of their output is not hedged. The hedges cause an opportunity cost of about $3 billion (based on my review of their hedge book and my own arithmetic for which I take responsibility) and possibly as much as $5 billion. CFO Kris Bibby says they will continue to hedge but a lower percentage of their production when the current hedges roll off. I don't fear losses from ARX.TO shares, but prefer other names who get the full benefit of the higher commodity prices e.g., BIR.TO CJ.TO
Thank you Michael !
Thanks for another good column on the negative impact of hedges. Some hedges in 2021 were probably forced by the lenders. But nearly all hedges for 2022 and beyond are by the managements.
It looks like you have a typo in a number in the first paragraph. "... you will never get less than $75 for the oil you produce and..." should have been "... you will never get less than $65 for the oil you produce and..."
Thank you. I corrected that error to $60 since you the premium you got for the call was offset by the premium you purchased buying the $60 put.
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