Reuters
U.S. gas producers skimped on price hedges and now face a reckoning
A rout in natural gas prices will hurt first-quarter earnings and cash flows at gas producers as hedges – the industry’s version of price insurance – were inadequate to offset the expected losses, analysts and industry experts said. Producers starting the year with fewer hedges than historically will have to sell more gas at the market rate of about $2.45 per million British thermal units (mmBtu), below the breakeven prices for producing gas in some regions, and that may force some companies to reduce drilling and put off completing wells. Hedges, or contracts that lock in prices for future output, help producers protect cash flows against price swings, helping them drill and complete wells – crucial at a time when Europe has looked to the United States for gas.
