In a new report, analysts at Wunderlich took an in-depth look at oil and gas exploration and production (E&P) companies and their hedging strategies beyond this year. Analysts point out that many companies missed out on better hedging opportunities that were available when oil prices were higher, but a handful of names are extremely well-hedged moving forward.
Apocalyptic Hedging
Many companies that missed opportunities to hedge at higher oil prices are now scrambling to hedge against an “apocalyptic scenario,” in which oil prices stay well below $50 for an extended period of time.
“Back when oil prices were in the $80s and $70s per barrel, nearly everyone that we spoke with sought only to hedge ‘opportunistically’… unfortunately, that turned out to mean ‘not at all’ at those prices as the commodity continued to fall,” analysts explain.
Best-Hedged 2015-2016 Names
As a result of poor judgment, only a handful of E&P names have strong hedges through 2016.
A large number of companies have hedges over 70 percent of production for 2015, including Memorial Resource Development Corp ROSE 2.21%.
Looking out to 2016, the number of strongly-hedged companies falls off dramatically. Only Pioneer (67 percent), Halcon (53 percent) and PDC (49 percent) have 2016 oil hedges around 50 percent of production or greater.
2017 And Beyond
Moving beyond 2016, very few E&P names have small oil and/or natural gas hedges in place.
The report names Memorial as the most hedged company in 2017 and mentions Gastar Exploration Inc GST 3.96%, Whiting Petroleum Corp (NYSE: WLL), Synergy Resources Corp (NYSE: SYRG), Gulfport Energy Corp (NASDAQ: GPOR), PDC, Pioneer and Bill Barrett as other companies with modest hedges beyond 2016.
Least Hedged In 2016 And Beyond
The report named the following companies as names lacking sizable hedges if low oil and gas prices persist beyond 2015:
- Approach Resources Inc (NASDAQ: AREX)
- Chesapeake Energy Corp (NYSE: CHK)
- Cimerex Energy Co (NYSE: XEC)
- Continental Resources Inc (NYSE: CLR)
- Earthstone Energy Inc (NYSE: ESTE)
- Emerald Oil Inc (NYSE: EOX)
- Energen Corp (NYSE: EGN)
- EOG Resources Inc (NYSE: EOG)
- Magnum Hunter Resources Corp (NYSE: MHR)
- RSP Permian Inc (NYSE: RSPP)
- Denbury Resources Inc (NYSE: DNR)
- Northern Oil and Gas Inc (NYSE: NOG)
- SandRidge Energy Inc SD 5.73%
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