Tap Oil Hedges Its Oil Contract To Lock In Future Revenues

  • Apr 12, 2019 AEST
  • Team Kalkine
Tap Oil Hedges Its Oil Contract To Lock In Future Revenues

Tap Oil Limited (ASX: TAP) announced on 12th April 2019 that the board members of the company decided unanimously to lock in some of the recent oil prices and safeguard some portion of the revenue and Manora reinvestment plans against a significant oil price retreat.

The oil prices in the international market are currently above $70, and the company is proceeding with cautions and hedging the position.

Oil prices are picking up strength over the supply constraint in the global market amid voluntary production cut from OPEC members and the United States sanctions on significant oil exporting countries such as Iran and Venezuela. Apart from the production cut by OPEC and sanctions on oil exporting countries, the recent break out of civil war in Libya is also widening the supply gap; which in turn, is supporting the oil prices in the global market.

However, the United States is ramping the Shale oil production, which could possibly fill some of the gaps in the supply chain and in turn, can exert the pressure on oil prices. The building shale production in the United States and economic reforms by the OPEC members could hamper the crude oil prices, which is currently well above the break-even price of many economies, i.e., $60 per barrel and is sufficient for oil operating companies to strengthen their balance sheets.

Tap decided to cash in the opportunity and entered a commodity hedging instrument with BP Singapore Pte Limited, a subsidiary of the mammoth BP group which sees oil prices bullish and then stagnant over the long run. The hedging instrument covers 110,625 barrels of Manora crude oil, which is due to be lifted between the fifth month of the year 2019 and the last month of the year 2019.

As per the company, the total covered barrels in the contract represents around 40% of anticipated Manora sales in May 2019 and 25% during July to December 2019.

Tap recently secured a major Offtake agreement for Manora oil Fields.

Tap also mentioned that the company refers to Manora crude price against Dubai crude prices and hedged the same. Tap Limited mentioned that the company planned the heading in such a manner that will protect it against oil price fall below US$60.0 per barrel and cap the exposure to price increases up to US$75.0 per barrel.

The contract includes:

80,625 barrels of buy puts at a price of US$60 per barrel (Dubai oil) for the scheduled lifting months during the period from July to December 2019 and 80,625 barrels of sell calls at a strike price of US$75.0 (Dubai oil) per barrel for the same month.

Apart from the above hedge against the Dubai crude, the company scheduled an oil lifting of circa 250,000 barrels, which consists of 75,000 barrels of Tap’s share, in the second week of May 2019. The company also arranged a swap of 30,000 barrels at a Dubai price of US$69.10 per barrel.

The stock of the company closed the day’s session at A$0.100 (as on 12th April 2019), up by 3.1%.


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