A disciplined approach

E&P companies tend not to strategically hedge in a rising market. But there are good reasons for them to do so, and some are sticking to their hedging strategies, despite suffering losses on their derivatives contracts. By Joe Marsh

Pure oil and natural gas producers often do not hedge energy prices – other than one-off hedges on specific acquisitions – in a bull market. They and their investors want to take advantage of any price upside. But some companies that actively hedge – such as Houston companies Petrohawk Energy and Plains Exploration – have stuck to consistent strategies, despite the hedging losses they have suffered in recent months.

Petrohawk’s strategy is to consistently hedge some 50%–70% of its oil and