hedging
hedging
Could you please explain what you mean by Rosetta's "costless collars" with a $55 floor and an $85 ceiling? How does that tie into the actual % of output that Rosetta has hedged? Finally, although I kind of have an idea why any mgt does not hedge !00% of production, in this environment, why wouldn't they? Thanks.
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mdwitte
Re: hedging
Hedging is like insurance...can you buy fire insurance AFTER raging forest fire is bearing down on your area? Maybe, but it would be VERY expensive. This crash in crude prices was unforeseen just a few months ago...now it is too late to hedge. Also, keep in mind, hedging limits the upside...so if prices had spiked, investors would be blaming mgt for hedging away the potential upside profit...jmho
Re: hedging
Just to clarify.........when a producer enters into a hedging contract to deliver X # of barrels of oil in 6 months at a certain price assuming they can have the production available at that time when/how do they get the $????
Re: hedging
I have notes on each company's hedges at the bottom of each forecast model.
Lot's of companies use "Costless Collars". They sell Call options on their oil or gas at a certain price (setting a "ceiling") and buy Put options for the same price (setting a "floor"). The net cost is zero, hence the name "costless". If the price of oil or gas stays between the Ceiling price on the Calls and the Floor price on the Puts, the options will expire worthless. Just like Puts and Calls on stock.
Rosetta Resources is expected to produce 21,330 bbls of oil per day in 2015
> They have a SWAP contract for 12,000 BOPD at $89.81/bbl, so that price is locked in.
> On December 16th the company added a collar for another 7,000 BOPD with a Ceiling of $85/bbl and a Floor of $55/bbl (based on the Louisiana Light Sweet (LLS) Index
ROSE also has quite a bit of their natural gas and NGL production hedged. See table at the bottom of the forecast model.
Hedges are financial contracts, the company does not actually deliver the oil to the counterparty. They just settle the hedge in cash on the expiration date on the hedge.
Actual production is sold in the field, usually under a marketing contact tied to an index. Most of Rosetta's production is sold under contracts tied to LLS, so they get a few dollars per bbl above WTI.
PS: There is zero risk of the counterparties not paying. There are margin requirements on the counterparties similar to the margin requirements for selling options on stocks.
Lot's of companies use "Costless Collars". They sell Call options on their oil or gas at a certain price (setting a "ceiling") and buy Put options for the same price (setting a "floor"). The net cost is zero, hence the name "costless". If the price of oil or gas stays between the Ceiling price on the Calls and the Floor price on the Puts, the options will expire worthless. Just like Puts and Calls on stock.
Rosetta Resources is expected to produce 21,330 bbls of oil per day in 2015
> They have a SWAP contract for 12,000 BOPD at $89.81/bbl, so that price is locked in.
> On December 16th the company added a collar for another 7,000 BOPD with a Ceiling of $85/bbl and a Floor of $55/bbl (based on the Louisiana Light Sweet (LLS) Index
ROSE also has quite a bit of their natural gas and NGL production hedged. See table at the bottom of the forecast model.
Hedges are financial contracts, the company does not actually deliver the oil to the counterparty. They just settle the hedge in cash on the expiration date on the hedge.
Actual production is sold in the field, usually under a marketing contact tied to an index. Most of Rosetta's production is sold under contracts tied to LLS, so they get a few dollars per bbl above WTI.
PS: There is zero risk of the counterparties not paying. There are margin requirements on the counterparties similar to the margin requirements for selling options on stocks.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: hedging
Thx, which leaves the last part of my question: Why not hedge 100% of production?
Re: hedging
Most of the upstream MLPs do hedge almost 100% of their production. See the profile on MEMP that I will be sending out tomorrow.
C-Corps don't hedge all of their production because they get hammered by the market during periods of rising prices. MLPs are more concerned in steady cash flows.
Hindsight is always 20/20.
C-Corps don't hedge all of their production because they get hammered by the market during periods of rising prices. MLPs are more concerned in steady cash flows.
Hindsight is always 20/20.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: hedging
MEMP has the following hedges in place for 2015:
> 96% of natural gas at $4.32/mcf
> 91% of crude oil at $90.79/bbl
> 80% of NGLs at $43.02/bbl
Plus, their production should be up more than 20% in 2015.
> 96% of natural gas at $4.32/mcf
> 91% of crude oil at $90.79/bbl
> 80% of NGLs at $43.02/bbl
Plus, their production should be up more than 20% in 2015.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: hedging
HOUSTON, Dec. 18, 2014 (GLOBE NEWSWIRE) -- Memorial Production Partners LP (MEMP) announced today that the board of directors of its general partner authorized the repurchase of up to $150 million of MEMP's common units.
"This common unit repurchase program reflects our Board of Director's and management's commitment to increasing unitholder value. We believe that at recent trading levels, repurchasing MEMP's common units is a prudent investment, and given our strong balance sheet, we can implement this program and still have sufficient liquidity to grow the partnership through accretive acquisitions and the development of our assets," said John A. Weinzierl, Chairman and CEO. "Further, despite the recent commodity price volatility, we remain confident in our ability to maintain distributions based on our strong asset base and best in class hedging program."
Under the program's terms, units may be repurchased from time to time at MEMP's discretion on the open market, through block trades or otherwise and are subject to market conditions, applicable legal requirements and other considerations. The authorization is effective immediately. The repurchase program does not obligate MEMP to repurchase any dollar amount or specific number of common units and may be discontinued at any time.
About Memorial Production Partners LP
Memorial Production Partners LP is a publicly traded partnership engaged in the acquisition, production and development of oil and natural gas properties in the United States. MEMP's properties consist of mature, legacy oil and natural gas fields. MEMP is headquartered in Houston, Texas. For more information, visit www.memorialpp.com.
"This common unit repurchase program reflects our Board of Director's and management's commitment to increasing unitholder value. We believe that at recent trading levels, repurchasing MEMP's common units is a prudent investment, and given our strong balance sheet, we can implement this program and still have sufficient liquidity to grow the partnership through accretive acquisitions and the development of our assets," said John A. Weinzierl, Chairman and CEO. "Further, despite the recent commodity price volatility, we remain confident in our ability to maintain distributions based on our strong asset base and best in class hedging program."
Under the program's terms, units may be repurchased from time to time at MEMP's discretion on the open market, through block trades or otherwise and are subject to market conditions, applicable legal requirements and other considerations. The authorization is effective immediately. The repurchase program does not obligate MEMP to repurchase any dollar amount or specific number of common units and may be discontinued at any time.
About Memorial Production Partners LP
Memorial Production Partners LP is a publicly traded partnership engaged in the acquisition, production and development of oil and natural gas properties in the United States. MEMP's properties consist of mature, legacy oil and natural gas fields. MEMP is headquartered in Houston, Texas. For more information, visit www.memorialpp.com.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group