11 Comments
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Rusty Nail's avatar

The table of hedging by company I find very useful. Thank you for the research!

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Steve Broman's avatar

Than

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Roland1963's avatar

So you see BTE hedge losses continuing?

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Michael Blair's avatar

Until their hedge book expires

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Roland1963's avatar

Michael, no concept on hedge structures. Any idea when they full are out of hedges. Thanks for what you do to educate us.

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jim's avatar

Best article yet. Would've liked to see vet added. They've lost a tremendous amount on hedges for corrib property but will still make off like bandits. I would've thought Meg's cheap hedges for Nat gas would've provided more upside. Not sure if you included those.

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Michael Blair's avatar

Yes, MEG had a great benefit from fixing its natural gas inputs before the run up in prices. Not all "hedging" is bad, but there has to be a reason for the "hedge" and sensitivity analysis to see if it makes sense. That is what has been missing in ARC.

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MP's avatar

Isn't it true that management in some cases is morally swayed by their bank to hedge due to debt owing. Basically they are forced to hedge more than they would like to.

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Michael Blair's avatar

Correct. The best "hedge" is a zero debt balance sheet with a cash reserve. Like Birchcliff's current plan, Pine Cliff's ongoing plan, Cardinal Energy's stated objective. There is plenty of evidence that debt is toxic to oil & gas companies, particularly smaller ones. The failures of Bellatrix, Pengrowth and Lightstream are good examples of great assets being lost to bankruptcy courts by excess use of debt, and the near failure of Penn West (now Obsidian) followed the same path.

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Derek Cheung's avatar

Excellent analysis Michael. I like your view of benefit versus cost of hedging. Well articulated. I'm going to exit my pey position and split between bir.to and sde.to. makes far more sense as both will essentially be debt free in a few months

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Michael Blair's avatar

They both printed strong quarters and should beging to benefit today.

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