RE:RE:RE:RE:RE:RE:RE:Future pricing: Would you hedge? How much?Another excellent reason not to overly hedge future production is the possibility of seeing royalty rate increase, indeed.
Prior 2009, royalty rates were over $1.50/Gj almost all the time.
If NatGas prices at AECO were to shoot over $6/GJ and stay there, most NatGas hedges under $4/GJ would bring negative cash flows. In other words, hedges looking good today would turn out ugly.
This is the sad part of not adapting a past winning recipe in a contango futures pricing, to the present and future environment of rising NatGas price. Peyto will keep losing hundreds of millions of $$$ again this year for staying confortable in their past.
Reminds me of Barrick Gold some years ago, before they decided to eliminate their costly hedge book...
What's needed here is simply to reduce Natgas hedges to around 50% instead of current 80%.
Simply by locking their new production sale price for a year in order to reduce the investment risk until it is paid off and let the remaining production unhedged.
This would bring Peyto CF profile back to a NatGas producer, not a fixe income product.
But aren't we all passengers on this ride?