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re: Continental Resources unwinds its crude hedges - takes $433MM gain, goes naked
Posted on 11/13/14 at 12:37 pm to cwill
Posted on 11/13/14 at 12:37 pm to cwill
quote:
Hedging is about risk, you're not trying to predict or outsmart the market. It's an acknowledgment that you don't know.
They had over $100 million in oil/fuel oil inventory and used it for risk purposes. If you hedge at a certain price (say $100) and market goes up ($110 so your inventory price goes up also) I don't see how you are protecting yourself. If you are hedging 100% of your inventory you just lost $10/bbl.
1
Posted on 11/13/14 at 2:19 pm to JasonL79
It's about securing a cash flow stream and locking in profits. The banks and PE firms that finance the independents will gladly give up that $10 of upside to ensure they don't lose $10+ on the wrong side.
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