RE:RE:RE:RE:High 19.60 Low 15.77The way it works is:
1 - hedges get mark to market at the end of the quarter. So say oil/gas finished at $100/$7 at the end of the quarter, then the hedging losses for that quarter are the new market value of the hedges minus the old market value. This is an accounting loss.
2 - hedges that expired in the quarter will still be accounted for in the accounting loss, but they will also impact cash flow for the quarter. This quarter it was a $250mm cash flow impact, which is huge.
3 - if oil/gas stay at $100/$7 for the rest of the year there will be no more accounting losses, but in the quarter that the hedges roll off there will be cash flow impacts.
Does that make sense? Ultimately cash flow is the important piece and there is no getting away from those impacts, although I would imagine their hedges might be somewhat frontloaded in the year.
Was just thinking about this on my walk. A lot of the troublesome hedges come from the VII acquisition. It was still a brilliantly timed acqusition by ARC mgmt but unfortunately we will just need to work through this hedge book. Without hedging this quarter would have seen $1bn in cash from ops which is amazing. As we move towards the latter part of the year I would predict that we will get closer to this number, although production is still about 35% hedged I think.
Hope that helps.