Instead of fully benefi tting from this year's stunning increase in natural gas prices,the fi nancial arrangements many producers use to protect themselves from a potential price collapse have some paying billions of dollars to sell their gas at well below-market value."This is of course one of the reasons why investment funds don't want to buy oil and gas companies,because they're poorly managed on the fi nancial side,"University of Houston Energy Economist Ed Hirs told Energy Intelligence."If your goal to own an oil and gas company as part of your portfolio is infl ation protection,but the company gives that away,why would you own the stock?"Using derivative contracts known as swaps,a producer can lock in a fi xed price for the gas it sells over a period by agreeing to pay a fl oating price-usually the spot market price-when the contract is settled.If the fl oating price falls below the contract's fi xed price,the producer's cash fl ow is protected,and it can profi t from the arrangement.But rising prices can lead to heavy losses.
展开▼
