SWN has high debt , Banks required hedges .... SWN purchase of CHK lands has not worked out that well .......
Many Gassers are required to hedge due to terms of their Bank Loans ..... CNX had a big hoopla when they almost fully hedged production for several years forward ,,, they touted their free cash flow locked in for years ...... Good plan but boring to many Investors ....... Where is the upside when prices rise ???? The other bash on CNX is the number of years left of tier 1 well sites left .....
Who establishes a gas companies tier 1 well sites? Is it what the gas company says it is? Are there standards set by "someone" for these tier levels? CNX can say, and most likely accurately, that all of their leased area is tier 1 "Utica". Some is tier 1 or 2 Marcellus. The drilling technology used can dictate the success of a well in any of the tier levels. Is it based upon contiguous leased acres allowing for long laterals or less sharing of revenue from a well with other gas companies? Just interested in what Wall Street thinks about a gas company`s classification of their leases.
That someone declaring tier 1 lands is the Company's Engineering Dept or a Engineer hired by the Producer ... Tier 1 is an opinion based cost of drilling the well vs the expected production / revenue of the well ... Companies love to present their outfits in very glowing terms ,,,, its really important to learn as much as possible from each producing basin that one might invest in .... Quality of wells vary , acre by acre .. Its a very competitive world out there , usually the lowest cost producer with a large footprint has the advantage ...
What does CNX's hedging mean, if anything, for CNX royalty holders?
EDIT: Sorry, I don't know why this didn't reply to the comment I tried to reply to.
Less payment than if the price were more market oriented.
This is an interesting point now. How does a gas company designate which gas is exposed to what amount of gas for hedging purposes? Is it by well, pad or unit or just applied over-all by percentage to all total company wide production during a period of time? It doesn`t seem fair if landowner A is chosen to receive X dollar hedged amount for selling their gas vs. landowner B who is receiving market pricing consideration. How does this get differentiated?
Don't know but would guess it is related to which way the gas gets sold, which pipeline and where it is sent to processing. Different locations might get rather different prices and thus royalties. I would hope that if lease terms are the same for mineral owners in the same well, they would all get the same price. Maybe somebody knows more.
I have one old well that has part of its production under one contract (or something) and part under another. Get paid different prices for the same month production, from different contracts.
Hope to learn more.
Interesting discussion , I would guess the hedge is formed at Henry Hub , How it affects Individual Royalty Holders is a very good question ..... As a 21 year full time energy Investor , sites like this help me learn about the Industry , inch by inch ...Gas over $8 today , very good for this time of year ... least hedged outfits are printing Cash
NG still seems to be holding near $8. How does the future look for the remainder of this year and next year? The gas companies that are spending money now at high prices what will they do when prices begin to drop again? LNG & Europe markets seem to be the driving force behind prices now.
Many gassers now need $3 or better to break even as inflation is causing higher production costs ... Gas is priced close to $9 this morning , WOW ..... CHK went ex dividend today with a yield in the 10% range .... Debt is aggressively lower in producers ... Shell Cracker now opening its valves , good for AR , possibly SWN .... Wind generation has been lower , less gas to coal switching due to world coal prices .. These are the glory days for gassers .... Jan 2023 future price over $9 .. WOW ...
I suspect NG prices will not recede back to $3 now. In my view the industry would not be able to operate with a profit at those low levels. Is it possible for gas prices to end next year above $9? Next year will be an interesting year for the gas industry? Can they sustain their growth??