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Summary
- ADX Energy Limited (ASX:ADX) extended its hedge book on behalf of its wholly-owned subsidiary - ADX VIE GmbH.
- The Company secured hedging transactions with the global oil trading giant – BP, covering 80 per cent of the projected proven (1P) production of the subsidiary from January to 30 April 2021.
- ADX has deployed a hedging strategy to counter the oil market volatility and to maintain the cash flow for operational continuity.
ADX Energy Limited (ASX:ADX) extended the hedging position for the Austrian production in 2021 on behalf of ADX VIE GmbH – a wholly-owned subsidiary.
The Company has inked further hedging transactions with the global oil trading giant – BP for additional fixed price swaps from 1 January 2021 to 30 June 2021. The further swaps now represent 40 per cent of the ADX VIE GmbH’s proven (1P) production at an average Brent crude oil price of US$44.34 a barrel.
- The recent hedge transaction completed by ADX is an addition to the previously fixed price swaps contracted in June 2020, which now results in fixed price swaps covering more than 80 per cent of the forecast (1P) proven production of the subsidiary from January to 30 April 2021.
- Furthermore, with the recent transaction, nearly 40 per cent swaps are fixed at an average Brent price of USD 44.34 per barrel while the other 40 per cent is fixed at an average Brent price of USD 41.77 per barrel.
ADX suggested that while 80 per cent of the total production is secured under fixed swaps, the remaining 20 per cent would be priced at the prevailing Brent crude oil prices.
To Know More, Do Read: ASX-listed Oil & Gas Stocks Gap Down as Crude Oil 3-Day Run-up Snaps
The Hedging Strategy
The Company currently plans to deploy a hedging strategy to ensure the availability of sufficient revenue required to cover all field operating costs and overheads. Also, the current hedging strategy would provide ADX with means to maintain field and production enhancing well work.
Additionally, the Company suggested that an amalgamation of efficient field production, sale infrastructure (including tanks and pipelines), and long-lived, low decline and high-value oil production would further ensure strong cash flow from Gaiselberg and Zistersdorf fields over the long-term.
The Oil Volatility and the Hedge
ADX is currently aiming for cash flow continuity amidst spiking volatility in the crude oil space, and extension of the hedge book by the Company was to take advantage of a Brent crude oil price upswing early last week.
Crude Oil Volatility Index (Source: EODHD/Others Eikon Thomson Reuters)
The Brent crude oil futures spiked as the market reacted to an upbeat update from Pfizer Inc and BioNTech SE regarding a COVID-19 vaccine as well as positive news regarding world oil supply and demand during the last quarter.
Also Read: Why are Oil Search Shares soaring high
However, the oil market corrected sharply, snapping most of the three-day gain trail as forecasts from the International Energy Agency (IEA) concerning the oil demand once again dented market sentiments.
