“One thing we can’t do is predict price,” he says. “Invariably you’re going to be wrong.”
For that reason, Linn hedges its production on a 5-year time horizon, meaning that the company has locked in an average price for much of its future production through 2016. It’s a strategy that takes a long view in the hopes of riding out short-lived volatile price shocks. However, it does leave the company vulnerable to being on the wrong side of a trade.
“There were some times, like in early 2008 we were at an 8 dollar gas hedge book [when prices were above 12 dollars] and it didn’t look like such a good position.”
But Ellis is quick to note that within 6 months of that, prices plummeted.
“We looked like heroes,” he adds.
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