U.S. natural gas producers have less of their production volumes hedged for the coming year than they did near the end of 2016, but S&P Global Ratings said they could pick up the pace.
Only 38% of gas production expected in 2018 by all the companies in S&P Global Ratings' universe is hedged, compared to 47% of gas production for 2017. "Companies have added substantially to their natural gas hedge positions since July 2017 when all rated E&P companies were only 27% hedged, speculative-grade companies hedged 41%, and companies rated 'B' and lower hedged 32%," S&P credit analyst Aaron McLean said in a Dec. 19 note. "Companies still have time this year to add more."
The average price of the hedge has also dipped slightly, from $3.21/MMBtu in 2017 to $3.16/MMBtu in 2018, S&P said.

Oil producers surveyed by S&P had 29% of their total production hedged at an average of $53 per barrel, compared to 34% hedged at $51/bbl at this time in 2016, with both prices trailing West Texas Intermediate crude's 40% jump to $58/bbl in November, S&P said.
But producers have not been quick to jump on oil's move up and restart idle rigs, S&P said.
"U.S. E&P companies are welcoming the hike in oil prices because it will provide an immediate boost to cash flows," the note said. "But we don't think the recent price lift will necessarily mean bigger budgets for next year. Our review of oil and natural gas prices and producers' hedge portfolios suggests a slower and steadier pace of capital spending and oil and natural gas production for 2018 as companies learn to live within cash flows that they realize might be tighter than current commodity prices indicate. We believe this is a prudent approach that will lead to mostly stable [credit] ratings over the next 12 months."
According to S&P's Dec. 19 analysis, the lower a company's credit rating, the more likely it is to hedge. Overall, companies in S&P's U.S. oil and gas universe had 29% of their oil and gas production hedged in 2018, but speculative-grade companies and those with B or lower credit ratings had more than 50% of their volumes hedged.
"The hedged percentage of production for all rated companies is relatively low because investment-grade E&P companies (those rated 'BBB-' and higher), including the major integrated oil and gas corporations, typically don't use financial hedging strategies to ensure cash flows," S&P said. "Speculative-grade E&P companies, on the other hand, tend to have less capacity to withstand extended price slumps and cash flow volatility, so they rely more heavily on hedges."
S&P Global Market Intelligence and S&P Global Ratings are both owned by S&P Global Inc.
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