A month ago, ConocoPhillips warned it would book a $600-million impairment to its first-quarter profits from its acquisition of Concho Resources and, as Reuters reported at the time, related oil price hedges. Now, it is emerging that Concho is not the only one that hedged too early.
When the price of crude oil began to recover last year after a devastating first half of the year, U.S. oil producers began to hedge their 2021 output at higher prices. They hedged less than normally, Rystad Energy noted in an October report, at 41 percent of their forecast production in 2021. But they hedged this at an average of $42 per barrel of crude. That compared with a bottom hedging price of $56 per barrel for 2020 production Rystad said in its report. Then prices climbed higher but, it seems, many oil producers continue hedging at low prices into 2021.
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U.S. oil and gas operators face billions of dollars in hedging losses that will weigh on first quarter earnings as this year’s oil-price recovery left dozens selling their oil at below market prices.
Companies including Cimarex Energy Co XEC.N and Concho Resources that locked in prices on some of their volumes when prices rebounded last year to around $40 per barrel missed some of the price jump, and Concho owner ConocoPhillips COP.N paid millions of dollars to unwind those contracts.
Benchmark U.S. crude prices CLc1 have doubled from year-ago levels, averaging over $58 a barrel for the quarter ended March 31. Hedges and a February freeze that temporarily slowed output, are expected to crimp the benefits of higher prices as U.S. oil producers report earnings in coming days.
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(Reuters) - U.S. oil and gas operators face billions of dollars in hedging losses that will weigh on first quarter earnings as this year s oil-price recovery left dozens selling their oil at below market prices.
Companies including Cimarex Energy Co and Concho Resources that locked in prices on some of their volumes when prices rebounded last year to around $40 per barrel missed some of the price jump, and Concho owner ConocoPhillips paid millions of dollars to unwind those contracts.
Benchmark U.S. crude prices have doubled from year-ago levels, averaging over $58 a barrel for the quarter ended March 31. Hedges and a February freeze that temporarily slowed output, are expected to crimp the benefits of higher prices as U.S. oil producers report earnings in coming days.