Oil and Gas Producers' Cash Flows All About the Hedge

Second quarter cash flows at several North American oil & gas producers was propped up last quarter by a significant contribution from hedging gains, says Peters & Co. Limited.

The investment research firm said in a report Tuesday that 17% of Q2 cash flow generated by 16 companies in its coverage universe came from hedging gains. Stronger crude oil prices and higher prices for heavy oil were also positive contributing factors.

The folks at Peters & Co. wrote:

Seven of the 16 entities have greater than 25% of their respective cash flow coming from realized hedging gains, with the top three being EnCana (ECA) (55%), EOG (EOG) (51%) and Canadian Natural Resources (CNQ) (29%).

In aggregate, our coverage universe is expected to realize C$2.6-billion of hedging gains during the quarter.

Peters & Co. said integrated oils and oil sands companies are expected to see Q2 cash flows rise on average 17% from the first quarter.

Meanwhile, the Canadian large producer universe will see cash flow fall 2% quarter-over-quarter, and cash flows at U.S. large producers will remain flat.

Comments

[Buck East:]

As for NG-heavy producers, all carrying big debt (read: most) that rely on hedges are in serious trouble. How will they be able to continue to hedge above the cost of production in a world quite awash in NG?

Jul 15 12:14 PM

[The Greates...:]

Remember what happen when suddenly everyone had a computer? The market is flooded with crude oil and NG at the moment. Oil pricing has been on life support since Feb. Look for $35-40 a barrel by Dec-09, there is just not enough demand for it.

Jul 15 04:11 PM

[A Barrel Full:]

Crude has been more expensive in the second quarter however. The need for a hedge is less.

Natural gas, is however another story.

Jul 16 01:46 AM

[one eye:]

Wait until Congress gets involved. They are trying to do away with Oil Futures Trading by "Speculators". The ramification for Hedging by producers is as yet, unknown.

But if you find it difficult to hedge your product, will you be willing to sell for less because of the lack of Buyers or will you shut down CapEx and produce less or ??

How can Government Meddling be Good?

Jul 16 03:29 AM