Shale Producers Face $42 Billion In Hedging Losses

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By Julianne Geiger

  • BloombergNEF: hedging losses are mounting in U.S. shale.
  • Hess Corp found itself spending $325 million in March to exit hedges at a serious loss.
  • Shale giant Pioneer lost $2 billion to exit hedges last year.

With earnings season underway, America’s shale producers are expected, almost across the board, to report stellar earnings, but as Bloomberg reports, they’ll also be taking huge losses from hedging against falling oil prices.

In total, BloombergNEF estimates that through next year, U.S. shale companies will face $42 billion in oil and gas hedging losses, based on 2021 data. That means that while balance sheets might remain intact, companies will spend big to exit positions.

BloombergNEF notes that Hess Corp found itself spending $325 million in March to exit hedges at a serious loss, while Pioneer paid a similar amount to exit and lost $2B on hedges last year, while EOG lost $2.8 billion in Q1.

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Dropping those hedges could mean a lot more revenue for shale producers this year; however, there’s a substantial amount of risk that comes with that if oil prices fall and no hedges are in place.

“These large companies, their balance sheets are so much cleaner and their risk appetite is higher,” Bloomberg quoted Enverus analyst Andy McConn as saying. “They’ve recognized the demand from investors for exposure to the near-term prices. And so all those things considered, they’re saying, it’s worth our interest to just get rid of hedges.”

Smaller Appalachian natural gas companies are also feeling the hedging pain, with less ability to manage it.

Pennsylvania-based EQT recorded $3 billion in losses on derivatives that were not designated as hedges, according to the Post Gazette, while CNX lost some $1.7 billion in the first quarter, compared with $1 billion in losses for Texas-based Range Resources.

For 2022, EQT has some 65% of its production hedged. For 2023, it has nearly half hedged, but gas prices are still rising.

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By Julianne Geiger for Oilprice.com

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