Evolution Petroleum Corporation has recently announced that it has put a limited oil price protection program in place, from July until December 2015. The quantity hedged is 1100 bpd, which represents approximately two-thirds of expected sales volume for this period.
Half of the hedged quantities (550 bpd) have a floor price of US$54.00/bbl and a ceiling price of US$66.50/bbl. The balance of the hedged quantities, or 550 bpd for the six-month period, have a floor price of US$56.00/bbl and a ceiling price of US$61.60/bbl. The remaining one-third of projected sales from the company’s developed assets will continue to receive market prices. All hedges are based on West Texas Intermediate (WTI) pricing. The company elected to not hedge the basis differential to Light Louisiana Sweet (LLS) crude pricing at this time. The LLS premium versus WTI has averaged over US$4.00/bbl since the beginning of the calendar year.
NGL plant planned at the Delhi Field
With the US$24 million capital expenditure commitment associated with the planned NGL plant at the Delhi Field through the summer of 2016, combined with an ongoing common stock dividend program of approximately US$6.6 million per year, the Board of Directors determined that these limited hedges were prudent, given the volatility and uncertainty in near-term commodity prices.
Comment from Evolution Petroleum Corporation
Robert Herlin, CEO of Evolution Petroleum Corporation, noted: "The company has not hedged its production in recent years. However, given the relatively large capital expenditure obligation for the NGL plant and our desire to maintain our current dividend prior to startup of the plant, we saw compelling reasons to hedge approximately two-thirds of our expected sales volumes in the near term. Once operational in the second half of 2016, the NGL plant is expected to increase cash flow substantially. In the longer-term, we believe that there is a reasonable case for higher oil prices and, therefore, prefer to retain that price exposure and potential value for our shareholders."
Adapted from press release by Cecilia Rehn
Read the article online at: https://www.hydrocarbonengineering.com/refining/17062015/evolution-petroleum-initiates-limited-oil-price-hedging-programme/