Petroleum producers will find themselves increasingly vulnerable as the hedges shielding them from depressed oil and gas prices get trimmed lower next year, warned a report Tuesday from IHS.
The Douglas County information firm said just 11 percent of North American production will be hedged in 2016, down from the 28 percent covered in 2015.
The hedges in place for next year average $69.04 a barrel of oil and $3.83 per thousand cubic feet of gas. The price for a barrel of West Texas Intermediate crude surged Tuesday to $49.04, but remains depressed. Natural gas contracts for November delivery were running $2.48 per thousand cubic feet.
“Companies that missed the opportunity to lock in relatively higher oil prices during the second quarter of 2015 will face pressure to curtail drilling activity and CAPEX in order to avoid further balance sheet deterioration,” Paul O’Donnell, a principal equity analyst at IHS Energy, said in his report.
Capital spending by production firms is expected to drop to $45 billion in the second half of the year from $60 billion in the first half.
Smaller and medium-sized exploration firms have hedged a higher percentage of 2016 production, around a quarter, compared to large firms, which have just 6 percent of their future production hedged at higher prices.
Bill Barrett Corp. and Whiting Petroleum, both based in Denver, are among the more highly leveraged oil and gas producers that boosted their hedges for 2016 during the second quarter when prices were relatively higher, IHS said.
Aldo Svaldi: 303-954-1410, asvaldi@denverpost.com or @aldosvaldi
