Hedging a “$7.6 billion lifeline” for North American producers in 2020 – new report

Source: Evaluate Energy

Evaluate Energy’s latest report shows that 72 U.S. and Canadian companies gained a combined $7.6 billion thanks to settled oil and gas derivatives in 2020.

This represented a much welcome 11 per cent boost in revenues, which – on a pre-hedging basis – had fallen from $100 billion in 2019 to just $70 billion in 2020 after prices crashed.

“This 11 per cent boost was a lifeline for struggling producers in 2020,” said Isabelle Li, report co-author and senior analyst at Evaluate Energy. “Of course, this 11 per cent average is across the whole year. When prices hit rock bottom in the second quarter, hedging was an even more important crutch, boosting revenues by over 35 per cent in that three-month period alone.”

Early 2021 came with oil price increases, however, and will likely see focus shift from these 2020 hedging gains to derivative-related losses being recorded.

“Our data shows that hedging will cause some producers to miss out on short-term gains that could have been made with oil prices climbing at the start of 2021,” continued Li.

“It is, however, tough to criticize any company taking a cautious approach to 2021 before year-end 2020 even if losses are now recorded. As we’ve made clear throughout our report here, favouring long-term planning over potential short-term gains is a strategy that may well appeal much more to some investors given the prices and volatility witnessed only 12 months ago.”

The new report includes:

  • Top 10 companies – per cent increase in revenues thanks to 2020 derivative settlements
  • Average prices of oil derivatives in 2021
  • Average volumes of oil hedged under swaps, collars and three-way collars in 2021
  • The expected impact of 2021 positions on impending Q1 2021 results and the rest of the year to come.

Download Evaluate Energy’s latest report at this link.

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