Hedging LossesGents,
Thought I saw some folks here earlier discussing the Q1 23 hedging book so thought I might clarify:
1. approx $150MM in realized losses - these are legacy hedges that have been out of the money for a long time and rolled off this quarter, which ARC had to settle with cash. This affects the cash flow statement but not the income statement.
2. $260MM unrealized gains - from an accounting perspective the hedging position gained in value by this amount. This is a non cash value. What this means is that the amount ARC may have to settle in cash over the future life of its hedge book has decreased by roughly $260MM this quarter, ignore time value/discounting.
3. approx $110MM net gains from hedging this quarter. point #2 minus point #1.
While the cash figure is important, from a value perspective we should be looking at the $260mm in gains as a net benefit to us as that is what will future realized losses from hedgign. It is important to note that ARC currently has only net $80mm in risk management liabilities on the balance sheet. Absent a large rise in commodity pricing this should result in very low realized losses in future quarters, giving a bump to free cash flow, although some of these are realted to FX no doubt due to their debt being USD denominated.
However, at current commodity prices and their relatively low hedge coverage, we should be hoping for maximal hedging losses in the future so that the 25% of their book not hedged can do much better. Overall I don't think hedges should be much of a topic for discussion in future quarters.