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Technological innovation has changed the landscape of domestic natural gas production from shortage to surplus. The result: a glut of natural gas and historically low prices.
While many producers have successfully hedged against this risk to date, as older hedges roll off, many companies are unable to obtain replacement hedges at attractive prices. Some have even resorted to monetizing their in-the-money hedges to raise capital today (and borrowing against the future). In order to meet capital obligations, some natural gas companies are forced into selling reserves exactly when gas prices are at record lows — creating a buyer’s market for the acquisition of distressed natural gas assets.
Excerpt from Law360, May 29, 2012. To view the full article, click here (subscription required).