Less Than 11% Of Oil Volumes Hedged Out To 2021 Are At Sub-US$30 Prices

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Prices may have plummeted below US$30/bbl in Q1, but this did not result in a monumental shift in hedging strategy among North American oil producers.

This is according to the latest Evaluate Energy hedging report that was built using oil derivative data extracted from the Q1 reports of 102 U.S. and Canadian oil and gas producers. The data focuses on oil hedging under fixed swap, collar and three-way collar derivatives. The report can be downloaded at this link.

As Q1 came to an end, oil futures had fallen significantly below US$30/bbl. North America’s oil producers, however, did not all rush together as a group to suddenly hedge future production at these low prices.

Evaluate Energy’s report shows that just 11 per cent of all oil volumes hedged by the end of the period were covered by derivatives with a price of US$30/bbl or under.* Another 17 per cent was hedged at lower than US$40/bbl, with the remaining 71 per cent hedged at higher prices.

Source: Evaluate Energy Hedging Review, June 2020

“Normally, it would be very difficult to deduce exactly when a derivative was agreed and find new arrangements from one quarter to the next using the data alone, with many assumptions needed to carry out any kind of analysis,” said Mark Young, co-author of the report and senior analyst at Evaluate Energy. “At times where commodity benchmark prices quickly change up or down, however, it is easier to be more precise in pinpointing newer arrangements.”

To see how much hedging was agreed in response to the price crash in early 2020, the report examined the prices of all derivatives in place at the end of Q1 and makes the assumption that the lower the price of the derivative, the later in the Q1 period — and therefore deeper into the crash and pandemic — it was signed.

“The data suggests that the overall impact of new hedging undertaken in Q1 will be low for the rest of 2020 and 2021,” added Young. “For the next couple of years, many companies will still benefit from the positions they had in place for oil before Q1 began.”

The report looks at the possible reasons for low activity at US$30/bbl and shows that there are certain companies among the group of 102 U.S. and Canadian producers with a far greater level of hedging at these low prices than others.

For more information on the analysis and to access this Evaluate Energy report, please click here.

* Volumes hedged under US$30 include fixed swaps with a price lower than US$30, and collars or three-way collars with a floor price lower than US$30. Daily volumes calculated for 275 days remaining in 2020 from April 1.