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Msg  342250 of 359255  at  7/29/2021 4:32:06 PM  by

upstreamer


How EQT destroyed billions in value with hedges

EQT down 10% today after reporting $1.3B of hedging losses for the quarter and revealing that 80% of 2022 volumes have been hedged with most of those being swaps at $2.77/mmbtu.  Many more billions of hedge losses to go if the strip holds up.  Below is the CEO's response to a question in today's earnings call regarding the horrible new hedges.  It looks like they are more concerned with making the rating agencies happy than generating value for shareholders.  But to their credit, six of the eleven board members are now women.
 
 

Toby Rice

Yes. This is Toby. So, I can walk through the hedging and thought process behind it. So, you will see we have added approximately 650 Bcf of swaps. And if you take the Alta volumes that we inherited, that was about 150 Bcf. So, you got about 500 Bcf that we are really thinking through what’s the best way to get our hedges and meet our strategic goals that allow us to strengthen our balance sheet, reach our leverage targets and be able to start returning capital to shareholders. We have a view that we take when we make these decisions, and our view was closer to $3. I think when you look at the swaps that we did for that period, it was closer to $3, which aligned with our view. But the question is, why not collars. The use of swaps really solidifies the free cash flow from those hedges, which has the effect of improving our floor, very helpful with the rating agencies to underwrite the free cash flow that we have to assist in us regaining our investment-grade balance sheet. The next question is, well, why not just do puts, and we looked at that. And at that price, at around $3 NYMEX, to put a put in place, the premium would be anywhere from $0.25 to $0.45. So, to put a put in place and give exposure to upside, you are really taking a view that gas prices will be $3.35 and $3.40. That was not in line with our view at the time. We did not account for the weather events there. But that was the thought process behind the decision that we made on the hedging.

 


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Replies
Msg # Subject Author Recs Date Posted
342257 Re: How EQT destroyed billions in value with hedges burghguy 1 7/29/2021 4:55:25 PM
342262 Re: How EQT destroyed billions in value with hedges romm 3 7/29/2021 5:10:23 PM
342266 Re: How EQT destroyed billions in value with hedges alertmeipp 1 7/29/2021 5:38:36 PM


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