[shallow sand]

I have read several articles claiming that most shale drillers (CLR excepted) have their production hedged in 2015 and 2016, and therefore they will largely be protected from the price crash until late 2016.

However, just read a seeking alpha article which explains many of the hedges are three way collars, which only provide limited protection on the downside. These hedges were favored as they have a much lower premium and assumed that oil prices would not fall below $75-80 WTI. However, now that the price is at $65, these are resulting in losses and will continue to do so dollar for dollar if the price continues to fall.

I think I understand how these work, but stand to be corrected by others who are more in the know. As an example, a company may be hedged at $90 WTI, but only as long as the price stays above $75. With a price of $65 they are hedged at $80, at $55 hedged at $70, etc.

I realize that companies are all over the place on hedges, but think this is potentially an important point not previously discussed.

Would be interested in other's knowledge of this subject.

[coffeeguyzz]

Hey, shallow. I think you got it right with your take on this, but as I've previously indicated, I'm not well versed in the financials in this industry. Looks like both Sanchez and Pioneer were hedging with a bit of limited exposure to the counterparties, all within a somewhat limited price range. Pretty clever if wide swings don't occur, I suppose.
Your post the other day concerning full/half cycle development in the shales seems primarily referring to capex, but on a kinda 'micro' level as pertaining to this field. The next six, twelve or more wells drilled/completed on a pad already hosting several producing wells would naturally incur far smaller expense than the originals. Heck, they have a bunch of wells already spudded and cased down to 6 or 7 thousand feet and just need the big rigs to finish drilling the laterals in 'batch' fashion.