Newspaper article THE JOURNAL RECORD

Hedging Habits Are a Window to Corporate Personality

Newspaper article THE JOURNAL RECORD

Hedging Habits Are a Window to Corporate Personality

Article excerpt

OKLAHOMA CITY - What kind of person is running the company? You can tell a lot by how he hedges.

A driller's hedging profile can illustrate a lot about a company and its executives' personalities, said University of Tulsa energy business professor Tom Seng. Typically an oil and gas company shows its hedging positions prominently on its website if it's proud of what it has done, he said.

Drillers with a higher portion of their commodities hedged can insulate themselves from volatile prices.

"Otherwise you are taking on commodity price risk," Seng said.

Some local oil and gas companies were less risk-averse than others when it comes to protecting returns, he said. Hedging at least 50 percent of one's petroleum production is an unwritten rule for a conservative approach.

Range Resources Corp. is one of the most well-protected among U.S. drillers. The company has 80 percent of its natural gas production hedged through 2017.

Seng worked in the oil and gas industry for more than three decades, including about 20 years as an energy trader for major companies, including Oneok Inc. and Superior Pipeline Co., the midstream division of Unit Corp. His energy commodity trading students at TU are required to analyze a public company's hedging program and make recommendations.

Devon Energy Corp.'s program is well-thought-out, even though there are fewer hedges compared to Range, Seng said. The company has crude hedged at $51.79 through the end of 2017.

Chesapeake Energy Corp.'s program did not provide detailed pricing in its most recent financial filing, so it's difficult to examine how changes in prices affected the company, Seng said. The company had hedges in place, which shows the company is trying to stabilize revenue for its production, he said.

Chief Financial Officer Nick Dell'Osso said Chesapeake hedged about 75 percent of its projected production through 2016, and has added hedges for 2017. That helps the company make its cash flow less risky, he said in an Aug. …

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