Why Pioneer Will Not Hedge Its Oil Production In 2022

• Pioneer Natural Resources has decided not to hedge its oil production this year
• The company has already closed almost all of its hedges for 2022
• Its peer, Occidental Petroleum announced it would stop hedging in November

Pioneer Natural Resources has decided not to hedge its oil production this year, signaling that it expects robust fundamentals.

The company has already closed almost all of its hedges for 2022, Bloomberg reported, citing a regulatory filing, and added that the decision would cost the company some $328 million this year. The benefits from higher prices could, however, offset this.

Last year, IHS Markit reported U.S. shale oil producers faced billions in losses from hedging their output at lower than market prices.

According to the consultancy, even though crude oil is trading at over $70 per barrel in July, when the report came out, U.S. shale producers are selling their barrels for an average of $55 because that's the price they hedged their future sales at.

For the first half of the year, IHS Markit says, losses had reached $7.5 billion, but if oil prices remained around $75 per barrel, this could add another $12 billion during the second half of the year as demand continued to improve.

At the time, some oil producers were already growing wary of hedging. According to a Reuters report from July, the previous month had seen a surge in hedging, but in July, companies were opting for a wait-and-see approach as prices continued strong.

Occidental Petroleum announced it would stop hedging in November. The company noted prices remain elevated and carry substantial upward potential, which motivated the decision.

"Our current oil and gas hedges will expire by the end of this year, and we have not added any new hedges for future periods," said chief financial officer Rob Peterson during a call with analysts in early November.

At the time, Pioneer said it planned to significantly reduce hedging this year, expecting prices for oil of between $80 and $100 per barrel. CEO Scott Sheffield noted the decline in OPEC spare capacity, saying, "I do think that we're getting in a very, very tighter market over the next several years. Unused capacity in OPEC+ is going to be used up in the next two years." 

By Charles Kennedy for Oilprice.com

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