what i want for christmas

I want ROC to close its hedge book if possible!

Currently, at time of writing, I have the spot oil price down to US$71.61 from a high of around US$87.00 per barrel less than 2 weeks ago, a US$15.39 turn around!
Source: http://www.321energy.com/

Position 31/3/10:

As at 31 March 2010, ROC's Hedge position was as follows:

"Remaining hedge positions for the period from 31 March 2010 to 31 December 2011 are:
..........Brent Oil Price Swaps
..........Volume...Weighted AverageBrent Price USD/BBL
2010.....880,988........67.42
2011.....875,997........63.71
.......1,756,985 .......65.57

Hedge book mark-to-market valuation at 31 March 2010 was a liability of US$32.0 million."

Source: http://www.rocoil.com.au/userData/docs/Reports/2010/Quarterly%20Report%20310310.pdf

Position 30/4/10:

During the AGM question time, it was reported that ROC outstanding hedge liability had blown out to US$38m as at 30 April 2010.

Position 31/12/09:

"As at 31 December 2009 ROC held Brent oil price swap contracts for approximately 2.1 MMBBL at an average price of US$66.00/BBL for the period to December 2011.".

and

"At the end of the period, the mark-to-market position of ROCs remaining oil price hedge book was a US$32.8 million liability (2008: US$14.1 million asset)"

(Source: page 51, ROC's 2009 Annual Report)

Thats a US$52M turn around in the oustanding liability from 31/12/08 to 30/4/10.


Position today:

The outstanding hedge liability is calculated against the equivalent positions in the forward market. However, if the forward market reflects the same US$15 fall in spot oil prices then ROC's outstanding libility may have fallen by about US$24.7 million to about US13.3M which is US$19.5M less than the position as at 31/12/09.

(US$24.7M = approx 1.65mmboe outstanding x US$15);
(US$13.3M = US$38M less US24.7M)

Consequently, for an outlay of just US$13.3, it may be possible for ROC to close out this hedge book.

Personally, with OPEC indicating a price target of between US$70 and US$80 per barrel, I think the risk to upside is much greater than the risk to downside from the current spot price of US$71.61 per barrel.

From memory, I believe that ROC initial took out the hedges as a condition of bank loans used to finance the purchase of Zhao Dong in 2006. However, with ROC now having a net cash position of US24.6M as at 31/03/10, it may be possible for ROC to pay out theses hedges.

I hope they take advantage of this drop in oil prices but don't expect they will. Just thought I would mention it.

Regards

SP