Home Energy company Third Quarter Profits Should Shine For Unhedged Shale Producers

Third Quarter Profits Should Shine For Unhedged Shale Producers

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A workover rig maintains an oil well in the Permian Basin oil production area near Wink, Texas, U.S. August 22, 2018. Photo taken August 22, 2018. REUTERS / Nick Oxford

October 26 (Reuters) – With oil and gas prices at multi-year highs, U.S. shale producers are poised to generate the highest profits since the start of the coronavirus pandemic, as long as they don’t lock in not the sales tied to much lower prices.

Staggering oil and gas prices will fill the bottom lines of energy companies, rewarding investors who have resisted the pandemic. US crude averaged around $ 71 a barrel, almost 80% more than a year ago, and natural gas sold for over $ 5 per million British thermal units (mmBTU), a price never seen since 2014.

The biggest oil and gas producers are kicking off the results this week, with reports from EQT Corp (EQT.N) and Hess Corp (HES.N). Continental Resources (CLR.N), Pioneer Natural Resources (PXD.N) and EOG Resources (EOG.N) will report the following week.

Pioneer earnings per share could reach $ 3.94, up from 17 cents last year, and Continental earnings are estimated at $ 1.20, down from a loss of 16 cents per share in the same period last year , according to Refinitiv IBES.

While commodity prices are an elixir of profits, some companies face charges on profits from reverse betting due to hedges or selling future production at below-average prices. Marlet.

EQT Corp, which has hedged heavily, is expected to report a loss of 5 cents per share, compared to a loss of 15 cents per share in the third quarter of 2020. Pioneer Natural Resources on Monday warned it would report hedge losses of $ 501 million. dollars for the quarter, and over $ 2 billion in losses so far this year. Read more

“The only thing that will prevent a quarter from blowout is the hedging situation,” said Chris Duncan, equity research analyst at Brandes Investment Partners, adding that approximately 50% of production volumes were hedged for the quarter. .

Energy technology company Enverus expects total pre-tax losses of about $ 6 billion from commodity hedges in the third quarter among the 64 North American oil and gas producers it tracks. These companies lost some $ 10.5 billion in derivatives in the first half of the year, according to data from Enverus.

Enverus expects oil and gas producers to report free cash flow of $ 11.9 billion for the quarter, with deficit hedge books reducing that value by 32%.

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Shale producer EOG Resources (EOG.N) recently warned it would report a loss of $ 494 million on its hedges. EQT Corp said earlier this year that it had covered 80% of this year’s production at less than $ 3 per million UK thermal units, well below market prices. Apache’s parent company, APA Corp, said it expected losses of $ 37 million.

“Excessive hedging like some of these producers have done is compromising their ability to compete in a rising price environment,” said Josh Young, chief investment officer at energy investor Bison Interests.

Continental Resources, which is limiting its coverage, increased its dividend in the last quarter and resumed a billion dollar share buyback program.

A spokesperson declined to comment.

While shareholders may complain about missing higher prices, hedges can help keep companies on a secure financial footing by setting prices to pay for drilling expenses.

“Credit investors we spoke with recently are concerned that issuers may unwind their hedges,” said John Kempf of credit firm Fitch Ratings. “Creditors don’t want to take the price risk.”

Reporting by Liz Hampton in Denver; Editing by Lincoln Feast.

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