Perspectives: Oil and Gas Companies Continue to Hedge

[Editor's note: A version of this story appears in the July 2022 issue of Oil and Gas Investor magazine.]

Hedging remains a mainstay activity for many oil and gas producers to protect cash flows and manage operating budgets. However, these hedge programs and coverage levels were in place before price increases that occurred in early 2022. This resulted in the 30 largest public oil and gas E&P companies recording an overall total derivative liability of $26.8 billion as of March 31, 2022.

Price volatility is ever-present in oil and gas markets and encourages producers to have an effective hedging program in place. Other than a couple of short-lived dips, prices for NYMEX WTI futures climbed steadily through 2021. The lowest futures price for oil in 2021 was over $47/bbl. Natural gas prices made strong gains in 2021, even trading above $6/MMBtu for multiple days in October 2021. The average natural gas spot price in 2021 was $3.72/MMBtu, which is nearly $1.60/MMBtu higher than the 2020 average.

The following is a survey of the 30 largest public E&P companies and their hedging activities as disclosed in their Dec. 31, 2021, 10-K filings. It also includes comparisons to the same survey done in the prior year.