An old adage of traders says that "the only place you will find a perfect hedge is in a Japanese garden." Nonetheless, hedging has become an important part of the oil and gas industry, especially for producers.
Producers – particularly midsize and smaller ones – have fairly recently become more accustomed to hedging their production, at least in part, for price risk and, potentially, basis risk. Indeed it seems that, during the past 10 years, banks have increasingly required such hedging practices as part of the financing of a company's product. As a consequence, many producers have implemented more formal hedging programs and corresponding risk policies. As part of this trend, large banks and energy companies have become an increasingly important part of this segment to provide producers choices among hedge providers in implementing their hedging programs and in seeking greater liquidity in the marketplace.
Read the full article at ogfj.com.