On hedging

What I have questions about the hedging is not the number of barrels hedged, but the makeup of the hedges. I don't think that there is enough information for people to determine the actual impact on any company in the business.

For example, a company could be hedged and come up even worse than the numbers show depending on how the hedges were constructed.

The company sells a hedges oil in a swap using WTI and ends up paying say $25 a barrel as the price has soared.

However, a company produces oil in a grade and sourness that actually results in an actual price received less than the hedged or swap price.

For example a company buys puts for $45/ barrel of WTI. The company spent millions to protect the downside at $45, but those puts are based on, for example, WTI which is now around $70 a barrel. The puts are now worthless as the price of WTI is way above the put price.

When they sell the actual oil they produce they get a price of $40 a barrel after grade, sourness, and other transport costs are factored in. They hedged WTI, but not the actual price for the oil they sell.............

The price for the oil is less than the put price which didn't protect them one bit.

Comments???