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Plains Adds to its Hedging Position

BP DNR NFX

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Oil and gas company Plains Exploration & Production Co. continues to protect its oil and natural gas production from price fluctuation through its effective hedging program. The company released its current derivative positions. It aims to secure the majority of its production between 2013 and 2015 through hedging contracts.

The company intends to protect around 90% of its oil production (for the 2013 to 2015 period) through derivative instruments, like the three-way collars, swap contracts and put options.

Plains Exploration & Production has strengthened its hedging position since the second quarter 2012. Being an oil heavy company, with 92% of the total revenue coming from oil sales in the second quarter, the need to protect the returns from oil sales is made all the more acute in this present volatile price scenario.

We believe the recent acquisition of oilfields in the Gulf of Mexico (GoM) for $5.5 billion from British energy giant BP plc. (BP - Analyst Report) has also prompted Plains Exploration to add more derivative contracts to safeguard its increased production volumes from the acquired assets. These properties were producing 59,500 barrels of oil equivalent net per day at the end of July 2012.

We believe these contracts will not only safeguard Plains’ future production but also allow it to earn a secured return. This will further prompt the company to look for strategic future acquisitions. The Zacks Consensus Estimates for the third quarter and full year 2012 are 45 cents and $1.99 respectively.

Plains Exploration & Production retains a Zacks #3 Rank (Hold rating). The company competes with Newfield Exploration Co. (NFX - Analyst Report) and Denbury Resources Inc. (DNR - Analyst Report) among others.

Based in Houston, Texas, Plains Exploration & Production engages in the acquisition, development, exploration, and production of oil and gas properties primarily in the United States. The company was founded in 2002 and has 880 full time employees.
 

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