I've seen information about "hedge" positions that several gas companies have. Can anyone explain this to me-----are the positions simply financial investments, or do the companies actually have contracts with a natural gas buyer to sell the company its gas at that price? For example, one gas company lists one of its hedges as:
Natural Gas
$/Mcf
Region Mcf/Day Fixed Floor Ceiling Duration

Gulf Coast 8,811 $12.20 Jan. 2009-Dec. 2009
Gulf Coast 8,811 $10.22 $13.39 Jan. 2009 -Dec. 2009

Does this mean that if the gas company sells its gas during bid week for, say, $7.00/Mcf, that it will actually receive $5.20 more per Mcf if it is part of the fixed price contract or $3.22 more per Mcf if it is part of the second contract above? If so, how do you tell which contract the gas is a part of? The reason I ask is that in my lease agreement, I added the language that my royalty would be a percentage of the higher of the market value or gross proceeds received by Lessee at the point of sale. I defined market value as the higher of: (a) the sale price which the gas company or its affiliate negotiated in an existing contract and where the gas would be used to satisfy a portion of that contract; or (b) the price or value which is equal to the reported on-shore spot purchase price being paid during the month of production by purchasers of gas produced in the Texas Gulf Coast area to be determined on a monthly basis, by reference to the index spot gas price.
I was later told that the hedge contracts the company had were simply financial investments (i.e., not actual contracts for the sale of their particular gas).
Since reading this Haynesville post, I'm beginning to think the hedges are for actual sales of the company's gas.
Can anyone straighten me out? Help. Thanks.

Tags: Contract, Hedges, Lease, Market, Price, Value, Wellhead

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