Based on an analysis of numerous financial reports of U.S. oil and gas companies filed with the SEC and discussions with selected issuers, Standard & Poor’s Ratings Services found that just about all U.S. oil and gas producers and refiners use derivatives to manage risks related to oil and gas commodity prices, albeit at varying degrees, using a variety of financial instruments and hedging practices, according to a report published today by Standard & Poor’s titled, “U.S. Oil And Gas Sector Makes Extensive Use Of Commodity Derivatives.”
“The market for crude oil, natural gas, and certain petroleum products as well as for derivative contracts, whose values are based on these commodities, is well developed and liquid,” said Standard & Poor’s credit analyst Sherman Myers.
Derivatives used in the oil and gas sector include forwards, futures, swaps, and options (including collars).
“Our findings indicate that it is challenging to assess market risk related to derivatives because of the variation and limitations of current financial disclosures,” said Mr. Myers.
In addition, Standard & Poor’s said that the quality of disclosures related to derivatives and risk-management activities in the financial statement footnotes and other required disclosures varies widely among rated issuers.
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Source: Standard & Poor’s