RE:RE:RE:RE:RE:RE:RE:Future pricing: Would you hedge? How much?Wow! A very articulate writting that sums it all.
Music to my ears. Txs for taking the time to share your view, TerribleEng.
Hopefuly, someone at Peyto will read it and adjust its mechanical approach to hedging and dividends policy. The myopic view on the future has its cost, advantages and limits when the business environment changes.
The main objective of a hedging program is to reduce the risk of capex investments.
It is not to minimize risks of future cash flows. Hedging 80% of production when capex justify 40%, especially on a backwardation future curve, will place you in a corner. On the other hand, I think Peyto's BOD have learnt how financing dividends with borrowed money will bring your shares under $1 and lose confidence of the investment community.
Unrisk cash flows deserve riskless rate of return, 4-5% max nowadays.
Shareholders of a Natural gas producer are not there for a risk free rate of return. A long term government bond would do the job.
For now, the best is in the future for Peyto. It took over 20 years of hard work to position the company to where it is today. May the acquired experience make a big positive difference for what is to come.