North American exploration and production companies enter a year of commodity-price weakness with just 15% of their total production hedged, reports IHS Energy.
For the 51 companies in a study sample, the combined hedge protection will fall to 4% in 2017.
“In 2016 and 2017, we see a significant decline in hedging protections, which means more companies are exposed to the current depressed prices and market conditions,” says Paul O’Donnell, study author and principal analyst at IHS. “For most companies in the sector, 2016 is going to be another very tough year as plunging revenues lead to balance-sheet deterioration and financial pressures mount.”
Among all North American E&P companies in the study, hedging in 2016 covers 14% of oil and 18% of natural gas production this year. The 2017 projections are 2% of oil and 7% of gas.
In the US, small E&P companies have the most protection this year—47% of oil production hedged at $74.31/bbl and 46% of gas at $3.43/Mcf, according to the study. In the fourth quarter of 2015, small companies hedged 77% of oil production at $83.15/bbl and 58% of gas at $3.67/Mcf.
Midsize US E&P companies this year have 43% of oil production hedged at $60/54/bbl and 26% of gas at $3.34/Mcf.
Large US companies have hedged 6% of oil output at $53.85/bbl and 16% of gas at $3.58/Mcf.
Most large companies, the study notes, are unhedged in 2016 and 2017 but have greater balance-sheet strength providing bigger financial cushions than smaller companies possess.