Hedges Gone Awry…

Interesting article here about advanced financial accounting in the area of derivatives and hedging.

Chesapeake Energy Corp….compounded its troubles by taking a short-term gamble on gas prices that left it exposed to the worst gas market since 2001….The losses came mostly in the last few months of 2011 and first months of 2012 [on sales of derivative contracts against falling prices in natural gas]. And the removal of the hedges has left the company largely unprotected against low gas prices this year….Chesapeake’s plays in the market resemble the approach of a hedge fund more so than an exploration company, which usually buys swaps or other financial contracts to try to lock in prices for a year or two sop it can concentrate on finding and producing oil and natural gas….’We don’t hedge just to say we’re hedged, we hedge to make money,’ the company said in a recent presentation to investors.”



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