Friday, August 15, 2008

Some Oil Companies Bet Wrong

One of the oldest bits of Wall Street wisdom is the adage that, behind all the smart sounding blather and forward looking statements, in reality "nobody knows anything."

Houston Chronicle business correspondent Loren Stefy could have just as easily used that as his hook for his recent story profiling three energy companies whose hedging on the price of oil cost them all of the upside in the recent price bubble, and put them into the red.

Consider Houston-based Newfield Exploration. In its second-quarter earnings release, Newfield said its production blew pastthe most optimistic forecasts, and it raised its full-year estimates by as much as 26 percent.
Yet the company reported a $244 million loss because of a "net unrealized loss on commodity derivatives of $508 million" before taxes.
In other words, it made a wrong-way bet on oil prices. So far this year, the stock's fallen 14 percent.
Anadarko Petroleum, based in The Woodlands and one of the country's biggest independent producers, has a similar story. Its derivatives losses ballooned to more than $1.6 billion before taxes, pullingnet income down to a measly $23 million compared with more than $1.3billion a year earlier.
Just like Newfield, Anadarko's shareholders have paid the price. Its
shares have fallen almost 13 percent so far this year.


As a general rule, consumers (Southwest and Continental, for example) want to hedge against rising prices, while producers (oil companies) want to hedge against lower ones. In this case, the producers seem to have protected themselves from record profits.


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1 comment:

Flatland Pastor said...

At least when you lay down a bet in Vegas you get dinner and a show.

AND they'll give you the odds line on any game you want to play.

Down on Wall Street "Ya pays yer money, ya takes yer chances!"

'Nuff said! (Until the next blown financial bet!)