Dynamic Hedging Strategies

By Christopher S. Lang, Senior Vice President

Hedge it, and forget it? A passive approach to hedging production may have been the norm in days gone by, but producers who fail to dynamically manage their hedge portfolios in the current market environment are leaving money on the table and accepting unnecessary risks.

Just 20 years ago, a small minority of producers hedged oil and gas price risk. Today, most producers hedge a portion of their production to address cash-flow concerns or lock in opportunities. Basic hedging instruments such as fixed-price swaps, puts and calls are popular tools for managing risk because they are effective, liquid, transparent and simpler to communicate to a broad group of stakeholders. And hedging products are expanding to address location-based risk, the increased production of liquids, and transport optimization.

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