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No More Oil Hedging For Hess After $53B Chevron Acquisition

Chevron Corp. will end crude oil hedging following the completion of its acquisition of Hess Corp. in a $53-billion mega deal, Bloomberg reported on Monday. 

Chevron announced the acquisitions of Hess, a major feature in Guyana offshore production, on Monday, in the second mega merger announcement this month, following Exxon’s offer of a $59.5-billion all-stock deal for Pioneer Natural Resources. 

“We plan to discontinue the use of put options to hedge,” Chevron Chief Executive Officer Mike Wirth told Bloomberg on Monday. “That’s just a cost that we won’t incur as we put the two companies together.”

According to Bloomberg, Hess continues to hedge on the options market in order to guarantee a minimum price for its crude oil, noting that it had locked in a $70 price per barrel for West Texas Intermediate (WTI) crude and a $75 price for Brent crude for the rest of this year, accounting for 80,000 barrels and 50,000 barrels, respectively. 

Hedging crude has declined since the pandemic as American shale drillers have adopted a more disciplined approach to the markets.  

Now, with the escalation of tensions in the Middle East following the Hamas attack on Israel and Israel’s heavy-handed response, put options have seen their value decline. 

In 2021, while oil prices were rising, Hess took a big risk by hedging its position on 2022 crude against a future fall in prices. By the end of the third-quarter of 2021, Hess had doubled its hedging of Brent and increased its WTI hedging, resulting in losses. 

Bloomberg reports that in 2022, Hess paid nearly double to dump its hedges. 

Pioneer Natural Resources also reported losses of $2 billion in the third quarter of 2021 on hedging after oil prices rose faster than expected. 

By the second-quarter of 2022, shale companies were dumping their hedges as losses spiraled to a combined $42 billion

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By Charles Kennedy for Oilprice.com

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  • George Doolittle on October 23 2023 said:
    Reemergence of at least a duopoly very similar to the US telecom Industry after it was broken up in the 1980s from single player AT&T back then.

    Before the current highly competitive US oil industry all used to be simply Standard Oil and wasn't even a publicly traded Company but held in Family Trust for the Rockefeller Household.

    Horrific inflation upon all of the USA continues to rage away so how the US Federal Reserve responds to these awesome increases in market power in US energy will be worth watching. Long $ibm International Business Machines strong buy still.

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