Shale producers use various methods to hedge production but 43% are not fully covered, and most hedged at $50 a barrel
Apache drills for shale oil in west Texas's Permian Basin. Picture: REUTERS
With prices at three-year lows, shale producers also are exposed because they used options in such a way that their insurance erodes the more oil declines. The simplest is to purchase a put option that allows the holder to sell at a fixed price at a particular time, regardless of where oil prices are trading. That locks in a selling price of, say, $50 a barrel. Many shale producers used a more complex strategy, known as three-way collars.
RBC Capital Markets equity analysts said Marathon Oil hedged about 38% and Pioneer Natural Resources 54% of estimated 2020 production, using three-way collars. Marathon and Pioneer did not respond to requests for comment.
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