RE:Desperation MoveHoneyPot before talking about hedging, you should visit the following site and look at the future price of WTI.
https://futures.tradingcharts.com/marketquotes/CL_.html
The hedge price for WTI Dec 14 delivery is $96.82. $8 less than the current front month price.
The hedge price for WTI Dec 15 delivery is $88.84. $15 less tha the current front month.
What does this site tell you? Oil futures are currently in strong backwardation. The table shows the price that two traders agree to buy and sell oil for delivery on that date. Obviously the buyer figures WTI will be higher on that day. The seller believes the price would be lower. COS could not hedge SCO at US$103 since all future prices are lower. If the market were in cantango, hedging would make sense.
Since the futures curve has been such a poor predictor or future prices, why would a company agree to such a huge discount.
You may not have been around in 2002 when COS was issuing shares to fund the construction of Coker 8-3. They were under a lot of pressure from the banks and analysts to hedge since oil was at $25 and again in backwardation. The analysts felt that the price was going to go down. COS had a different view of the oil markets since at that time they were being advised by a pretty smart Texan whose name I currently forget. By the time that the coker was finished in mid 2006, WTI was at $70 and the analysts and banks were eating humble pie and COS shares were on their way to $170 pre split and divys were going up. As usual the analysts and banks were wrong and management got it right. Hedging is not in COSs DNA. The current CEO lived thru all that and I thinks continues the tradition and I agree with him.
With the cost of discovery for new oil in the $85 to $100 range, it is difficult to see the price drop below $95. Hence hedging is a losing proposition. As I noted in a much earlier post, many companies reported hedge losses fro Q1.
Namsoc