RE: SQZ 'hedging'3 Oct 2021 15:43
QC,
Agree that, upon reflection SQZ could have done better, downside is the consequences of our hedging we have put in place from now, will probably be with us until 2023 too :-( No doubt we used BP's trading arm to facilitate our hedging, lucky them !!
Worst still, set against our very poor 18,900boepd for H1 production .... hedging works out at significantly percentage of our overall production and hence greater impact on our FCF and accounts.
Usually, hedging as you mentioned QC, should be used as "an instrument that mitigates part or all of the financial risk associated with a financial or operational exposure.." Commonly to cover know costs or as a requirement of a loan facility .... as we are debt free, the latter should be discounted. Yes, no-one could have foreseen the stratospheric rise of gas price but a rise was expected ..... Historically SQZ have benefited from hedging, although it looks like its going to be a long, long time until we do again.
Said it before, will say it again, recent hedging decisions, be it 'puts' or lack of 'swaps', or indeed hedging as much, may have not been the best ..... 4/10 for effort ! . However, we are where we are.
Plus-side, should SQZ get their fingers out and significantly up production then maintain it (from the recently reported dismal interim levels), SQZ will most certainly benefit considerably should elevated gas prices prevail .... !! Getting un-hedged production to >80% will be amazing and I for one would welcome that with open arms ..... From recent interim's RNS, "around 80% of the Company's projected oil and gas production is unhedged..! .... Bring it on asap.
aimo & dyor
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