US upstream independents are relying on hedging to shelter their cash flows and help protect their balance sheets in 2017-18, reflecting a cautious outlook on oil and natural gas prices. A number of leading US producers strengthened their hedging programmes in the second quarter. Many of them have opted for "three-way collar" hedges, which are considered less risky. These hedges allow the producer to put in an additional floor price, or a put option, below the original position. The extra layer lowers the premium cost because the buyer of the hedge, usually a bank, stands to make a windfall gain if prices fall below the second floor.
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