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Gold/Mining/Energy : Big Dog's Boom Boom Room

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To: RJA_ who wrote (97058)	2/22/2008 12:05:35 PM
From: seriousinvestor	Read Replies (1) of 206212

Actually while your information is correct your conclusion is wrong. There are 2 ways to hedge production. One is swaps which is in effect a forward sale at a fixed price and you are correct that with swaps you have no upside opportunity(also no downside risk). But a significant portion of LINE's hedges(I believe between 45-60%) are puts. With a put you pay some money upfront(which is non refundable) for the right to be able to sell at a specified price. However, if the market price of NG rises above the put price you can just let the put expire unexercised and sell at the market price. Therefore there is a significant upside opportunity and virtually no downside risk for the immediate future. I believe all the MLPs that use hedging strategies use both swaps(or collars) and puts although I'm sure the percentages vary for each one. For example, ENP leaves 1/3 unhedged, 1/3 with swaps(or collars) and 1/3 with puts so that 2/3 of production is hedged at some minimum price but 2/3 has no upside limit. For the record, I own LINE,ENP&CEP.

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