BAKU, Azerbaijan, August 17. US shale oil producers are forecast to lose more than $10 billion in derivative hedging losses if oil prices stay around $100 per barrel, Trend reports via Rystad Energy, an independent energy research and business intelligence company from Norway.
“Many shale operators offset their risk exposure through derivative hedging, helping them to raise capital for operations more efficiently. Those who hedged at lower prices last year are in line to suffer significant associated losses as their contracts mean they cannot capitalize on sky-high prices,” the report said.
However, record-high cash flow and net income have been widely reported by US onshore exploration and production (E&P) companies, despite the hedging, Rystad Energy noted.
According the company, currently these operators are adapting their strategies and negotiating contracts for the second half of 2022 and 2023 to current high prices, so if oil prices fall next year, these companies will be able to benefit and, are likely to have even stronger financial indicators.
“Operators currently have 42 percent of their total guided and estimated oil output for 2022 hedged at a West Texas Intermediate (WTI) average floor of $55 per barrel. Overall, producers have hedged 46 percent of their expected crude oil output for the year. In the second quarter, companies reported an average negative hedging impact of $21 per barrel on their realized crude prices – the value they receive for production minus any negative hedging impact,” the report noted.
The US oil and gas hedging strategy is closely monitored as the most important barometer of cash flows, especially given the sharp price volatility over the past few years, which allows investors and lenders to apply for financing, Rystad Energy added.
“Operators have already increased the cover for their expected oil volumes in 2023 to 17 percent, with many targeting 20 percent to 40 percent of output to be secured with derivatives. Significantly, 2023 contracts would limit hedging losses at $100 per barrel WTI to only $3 billion compared to $10.2 billion in 2022,” the report concluded.
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