Strictly: Drilling II Message Board

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Strategies & Market Trends : Strictly: Drilling II

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To: Frank Pembleton who wrote (4665)	11/30/2001 8:37:09 AM
From: russwinter	Read Replies (3) of 36161

I would think that the standard position producers have with Enron are OTC vanilla forward sales or hedges? And no doubt most of these sales were established at higher prices. If Enron can't fulfill those contracts (counterparty failure), then those favorable prices are lost, and the hedgers can just get in line with everybody else. The 64K question: what does this do to NG and oil production (new drilling is a given now) going forward? If you are the CEO of a natural gas producer, and you now realize that those $4.00 contracts with Enron for next summer's delivery, aren't worth the paper they were written on, and you now face $2.50 or worse (below the cost of replacement in most cases), what would you do? If it were me, I'd turn most (leave enough to cover skeleton expenses) of it off, and wait for a better day.

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