hedgesHere is an example.
CJ prices should be about 75 dollars a bbl for their oil. Mixed sweet is trading for 90.95 WCS is 71.93.
So its all good you say problem is they would have corperate netbacks of lets say 45 . So they have about 18000 bbls of oi. gives them CF of 810,000 per day.
So now they went out and sold calls and bought puts. The puts give them the down side protection.
The calls are about 73 Canadian. Because there isn't a maket for our oil for options, they went to the US And Sold calls and bought puts on WTI . Because WTI at this moment trades close to a 100 can they have to pay every thing above 73 just like the other guy would have to pay if oil was below the put price. So for easy figuring they pay 25 dollars X13000 bbls a day. This works out to 325,000 a day. So instead of making 810,000 a day they have to subtract 325,000 to pay the option
Works out to 485,000 a day the company has . They have these hedges for 6 months works out to 58,500,000 they have to pay, so CF takes a big hit because of it.