HNR Acquisition Corp Expands Oil Price Hedging Program
- Expansion of the oil price hedging program to cover debt service requirements and operating expenses
- Use of swaps and collars in the hedging program, with approximately 60% swaps and 40% collars
- Current hedges are at least $70.00 per barrel, with some collars as high as $91.90
- Increase in total hedged oil volume to 268,000 barrels for 2024 and 2025
- Plans to add more hedging contracts as market prices dictate favorably priced hedging instruments
- None.
Insights
The expansion of HNRA's oil price hedging program is a strategic move that reflects the company's risk management philosophy in the volatile oil market. By increasing the proportion of oil production that is hedged, HNRA is seeking to secure a stable cash flow, which is crucial for meeting debt obligations and covering operating expenses, especially in the face of potential oil price declines.
The use of swaps and collars in their hedging portfolio is a balanced approach. Swaps provide certainty with a fixed price, while collars offer a range of prices that can protect against significant drops but still allow for profit from price increases within the established ceiling. This mix ensures that HNRA has both stability and the potential to benefit from favorable price movements.
From an energy market perspective, the current hedging positions with a floor of at least $70.00 per barrel, against lift costs of $17.00 to $18.00 per barrel, suggest a strong margin that can support robust operating cash flow. This hedging strategy could be seen as a positive signal to investors regarding the company's financial resilience and operational efficiency.
HNRA's decision to expand its hedging program is indicative of proactive financial management. Hedging is a financial strategy used to mitigate risk and in the context of oil production, it serves to shield the company from unpredictable market swings. The CFO's statement highlights the financial prudence of securing a significant volume of oil sales at a price that exceeds the estimated lift costs, which implies a healthy margin and contributes to the company's financial stability.
For stakeholders, the implications are twofold: in the short-term, the hedging program provides assurance that the company can withstand market volatility without compromising its financial obligations. In the long-term, it could contribute to a more predictable and potentially more attractive financial performance, which is often rewarded by the market with a more stable stock price.
The financial details provided, such as the hedging of 268,000 barrels across 2024 and 2025, offer transparency and allow for a clearer assessment of the company's future cash flow and risk exposure. This level of disclosure is beneficial for investors who are evaluating the company's financial health and investment potential.
HNRA's approach to hedging demonstrates a comprehensive risk management strategy that is attuned to the inherent uncertainties of the oil market. By setting hedges at a level that covers debt service and operating expenses, the company is effectively insulating itself from catastrophic financial impacts that could result from a sudden downturn in oil prices.
The rolling two-year period for reviewing hedges, with a three-to-six-month evaluation cycle, shows a dynamic approach to risk assessment, allowing the company to adjust its hedging positions in response to market developments. This agility in risk management can provide a competitive edge, as it allows HNRA to respond to market changes more quickly than companies with a more static hedging strategy.
Furthermore, the CEO's comments on the flexibility of their hedging approach underscore the importance of adaptability in today's global oil market, which is influenced by a complex interplay of production, consumption and geopolitical factors. The company's ability to adapt its hedging strategy in real-time could mitigate risks more effectively and capitalize on favorable market conditions, which is a key aspect of sound risk management practices.
HOUSTON, TX / ACCESSWIRE / January 25, 2024 / HNR Acquisition Corp (NYSE American:HNRA) (the "Company" or "HNRA") is an independent oil and gas company focused on the acquisition, development, exploration and production of oil and gas properties in the Permian Basin. Today, HNRA announces the expansion of its oil price hedging program.
The hedging strategy of the Company is to maintain a sufficient level of pricing hedges for sales of oil production to cover (i) debt service requirements, and (ii) a base level of operating expenses in the event oil prices were to decrease dramatically. The level of pricing hedges for future oil production is targeted to responsibly balance the coverage protection for downward market fluctuations with the potential benefit from upward market fluctuations on current and future-expansion of oil production.
HNRA's hedging program is based on a rolling two-year period where the Company reviews, on a rolling three-to-six-month basis, the level that is hedged as additional oil production comes online. If there are dramatic increases in oil prices, the Company will evaluate the benefits of adding more hedges to lock in higher sale prices.
"I like the flexibility of our hedging approach. Not only does the program provide some downward protection, it allows HNRA to take advantage of upward market conditions," said Dante Caravaggio, President and CEO of HNRA. "Oil prices are a reflection of world-wide production and consumption levels, and driven by the global political environment. Our hedging plan allows us to take advantage of the ever-changing landscape."
The Company uses two types of hedging instruments: (i) swaps where the price is fixed regardless of market price; and (ii) collars where the price is subject to a minimum floor/put price and a maximum ceiling/call price. The Company's current hedging portfolio consists of approximately
Mitch Trotter, CFO of HNRA, on the status of the hedging program stated, "All of HNRA's current hedges are at least
"The hedges currently in place provide HNRA downward market fluctuation protection to cover its debt service obligations and fixed operating costs which is a good financial position to be in at this time," Mitch Trotter, CFO of HNRA continued. "Having a significant volume of oil sales hedged at
About HNR Acquisition Corp
HNRA is an independent upstream energy company focused on maximizing total returns to its shareholders through the development of onshore oil and natural gas properties in the United States. HNRA's long-term goal is to maximize total shareholder value from a diversified portfolio of long-life oil and natural gas properties built through acquisition and through selective development, production enhancement, and other exploitation efforts on its oil and natural gas properties. On November 15, 2023, HNRA acquired its operating entity, LH Operating, LLC, whose assets include interests in the Grayburg-Jackson oil field in the prolific Permian Basin in Eddy County, New Mexico.
HNRA's Class A common stock trades on the NYSE American Stock Exchange (NYSE American:HNRA). For more information on HNRA, please visit the Company website: https://www.hnra-nyse.com/
Forward-Looking Statements
This press release includes "forward-looking statements" that involve risks and uncertainties that could cause actual results to differ materially from what is expected. Words such as "expects," "believes," "anticipates," "intends," "estimates," "seeks," "may," "might," "plan," "possible," "should" and variations and similar words and expressions are intended to identify such forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Such forward-looking statements relate to future events or future results, based on currently available information and reflect the Company's management's current beliefs. A number of factors could cause actual events or results to differ materially from the events and results discussed in the forward-looking statements. Important factors - including the availability of funds, the results of financing efforts and the risks relating to our business - that could cause actual results to differ materially from the Company's expectations are disclosed in the Company's documents filed from time to time on EDGAR (see www.edgar-online.com) and with the Securities and Exchange Commission (see www.sec.gov). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Investor Relations
Michael J. Porter, President
PORTER, LEVAY & ROSE, INC.
mike@plrinvest.com
SOURCE: HNR Acquisition Corp
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FAQ
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