El Paso Corp. restructured and expanded its hedging program that supports its 2007 gas production, and CEO Doug Foshee expressed optimism about the company's 2007 outlook.
"Our expanded hedge program provides support on approximately 210 Bcf of 2007 domestic natural gas production with an average floor price of $7.64/MMBtu," said Foshee. "Importantly, 121 Bcf of the hedged volumes have an average capped price of $11.80/MMBtu, while the remainder of our 2007 production will retain unlimited upside. The risk management steps that we have taken, along with high expectations for our pipeline and E&P [exploration and production] businesses, provide us with a great deal of confidence about our 2007 outlook."
For 2007 El Paso has 55 Bcf of collars with an $8/MMBtu floor and $16.89 ceiling; 89 Bcf of floors at $7.50/MMBtu; and 66 Bcf of fixed-price swaps at $7.53/MMBtu.
None of the derivatives used to provide price risk management are subject to margin calls. The 89 Bcf of floors do not qualify for hedge accounting and are marked to market in El Paso Marketing and Trading's economic hedge book. Prior to the expansion of the program, El Paso had 130 Bcf of collars for 2007 with an $8/MMBtu floor and $16.02/MMBtu ceiling. In addition, the company had fixed-price swaps on 5 Bcf of production with an average hedge price of $3.57/MMBtu.
In the third quarter El Paso's E&P segment earnings rose 10% to about $186 million, excluding a hedging loss (see Daily GPI, Nov. 7).
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