Kosmos presentation (lot`s of Senegal), page-6

Hi Mr.H

Thanks for that, and after HKP's remarks and also CV's I have been looking into it too. I had thought, but did say I wasn't sure, that hedges contracts for real oil delivery were somehow separate from the futures contract market but no, it looks like its all done through that market. Many complex strategies available it seems, spreads etc bit too hard for me!

Having said that, taking out a simple long dated contract to deliver remains a speculative position requiring down payments and margin payments if the contract position shifts in value against you.

So a sell contract taken out now to deliver oil for $50 in the future will gain in value if the oil market falls (MTM - Market to Market gain) and fall in value if the oil market rises (MTM - Market to Market loss). It does also have a positive time value component in that it will over time gradually gain value if the oil market stays the same, but in the end it is in effect a speculative position and can't I think be regarded as an asset except at those points in time where it has, as in the Kosmos example moved in the right direction for you, (MTM $238m or whatever it was in their presentation). If it moves the wrong way it could become a liability.

I do hope I've got that kind of right but, like you, I'd much prefer someone else with more specialist knowledge took this on

pj