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Wall St. Jl. Energy ReportThe Wall Street Journal Energy Journal Oil Companies Gain From Hedging By Christopher Harder Here’s your morning jolt of news, insight and analysis on the global energy business. Send us tips, suggestions and complaints: EnergyJournal@wsj.com Sign up for this newsletter: http://on.wsj.com/EnergyJournalSignup HEDGES BECOME INCOME SOURCE Oil producers are turning to financial bets to raise cash, Nicolle Friedman and Erin Ailworth report. While hedges are typically held until they expire, some companies are starting to close them out early, enabling them to reap gains, sometimes hundreds of millions of dollars, bankers and traders said. Others are adjusting hedges to better protect themselves against possible further price drops. Oil companies are still making money from oil and natural gas, but many need additional cash to make debt payments amid the decline in crude prices. Cashing out of hedges provides a one-time windfall but could leave producers in a tight spot if oil prices remain in a prolonged slump as many market watchers expect. Companies are also potentially leaving money on the table if they take profit on contracts but then oil prices fall further. The moves come as the number of financially stressed companies has swelled to a 4˝-year high as the oil price decline slams energy companies, Matt Jarzemsky reports. The number of companies with the worst below-investment-grade debt ratings rose to 184 in February, the highest count since November 2010, and remained at that level in March, according to Moody’s Investors Service. The 25 oil-and-gas and oil-services companies listed accounted for 13.6% of the total this month, their highest share ever. Forbes writes that it’s time to stop supporting “zombie” oil companies. Separately, Mexican national oil company Petróleos Mexicanos agreed to its first major investment since an overhaul opened the energy sector to private investors last year. BlackRock Inc. and First Reserve Corp. will supply about $900 million for a 45% stake in a pipeline project that will bring U.S. natural gas to central Mexico. Brazil’s state-run oil firm Petroleo Brasileiro SA, riven by a corruption scandal, appointed Luciano Coutinho, head of the country’s development bank, as its new chairman. OIL PRODUCERS RETREAT FROM CHINA Royal Dutch Shell PLC is among oil companies that are scaling back investments in China amid falling prices and expensive and geologically risky projects, Brian Spegele reports. “These companies thought $100 oil was going to stay,” said Gordon Kwan, regional head of Asia-Pacific oil-and-gas research at Nomura. “They have to prioritize the projects based on returns, and the projects in China tend to be lower return, other things being equal, simply because of higher costs.” China’s natural gas market remains a gray area for investors, Abheek Bhattacharya reports. Despite reforms, Beijing still regulates gas more tightly than oil, and it’s unclear whether the price of gas has stuck to a 2013 formula. MARKETS Oil prices fell on Friday on profit-taking and a strong U.S. dollar but the escalating conflict in Yemen was still capturing the attention of the market. Prices surged on Thursday after Saudi Arabia and its allies launched airstrikes against Iran-linked Houthi militants in Yemen. Analysts, however, said that the impact of the turmoil on oil supply would be minimal and won’t change the fundamental picture of an oversupplied global market. Read our latest market report at wsj.com. |
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