GREY:DPGYF - Post by User
Post by
zagorskon Jul 05, 2007 2:37pm
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Post# 13042213
Hedging and Production ........ Guru1
Hedging and Production ........ Guru1
Your views on hedging and production miss the mark by a wide margin.
DEE hedges about half of its production with a floor of about $8.00 and a ceiling of about $10.00. If the gas price is between $8 and $10 then the hedge will have no effect on DEE.
If the gas price is above $10 then DEE will lose a bit on one half years production but that is no big deal since at those prices DEE is making lots anyway.
If the gas price is below $8 ( as it is now ) then DEE will benefit by selling one half year's production at $8.
The increased production levels, lower gas prices and higher service costs tend to cause the higher cost producers who operate on marginal land holdings to go out of business. When these producers get out of the market then the stage is set for another ramp up in prices and production.
DEE IS NOT A HIGH COST MARGINAL PRODUCER. Its lands are low cost and highly productive. That is why it paid a big up front cost to buy into Bigfoot and Bigstone. It hedged half of its production at these levels in order to insure its large up front costs.
DEE will not be left selling all its reserves at these (low??) prices. They have barely scratched the surface in their drilling at Bigfoot. They have many years of drilling left on highly productive low cost properties. The gain it makes from hedging will go towards reducing its debt load.