Houston-based Copano Energy LLC. expanded its commodity risk management portfolio through the purchase of Houston Ship Channel Index natural gas call spread options to hedge a portion of its net operational short position in gas when operating in a processing mode at its Houston Central Processing Plant.

The call spread options represent the purchase of gas call options and the concurrent sale of call options for the same volumes at a higher strike price. The call spread options will be settled monthly over a five-year period beginning January 2007 and ending December 2011. The company purchased the call spread options on Nov. 21 from two investment grade counterparties in accordance with its risk management policy. These options were implemented as cash flow hedges to mitigate the impact of increases in natural gas prices on the company’s Texas Gulf Coast Processing segment. Copano paid about $9.2 million for the options.

The call strike (buy) price is $8/MMBtu in 2007, $8.15 in 2008, $7.75 in 2009, $7.35 in 2010 and $6.95 in 2011. Call volumes for the same years, respectively, are 11,400 MMBtu/d, 9,400, 8,000, 7,100 and 7,100. In each case the call strike (sell) price is $10/MMBtu.

Copano is a midstream natural gas company with gathering, intrastate pipeline and processing assets in the Texas Gulf Coast region and in central and eastern Oklahoma. Copano acquired interests in three South Texas gathering systems from Williams in 2002 (see Daily GPI, Feb. 1, 2002).

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