- ADX Energy Ltd (TSX:ADX) has entered into a hedging agreement with BP for 40% of Austrian gas fields Gaiselberg and Zistersdorf.
- Oil hedged at an average price of $50.60 per barrel
- Company is future proofing for COVID-19
- Hedging agreement designed to protect against a volatile international crude oil market
- ADX Energy was trading at $00.70 at close of market
ADX Energy Ltd (TSX:ADX) has announced it will hedge the equivalent of 40% of it’s Austrian subsidiary’s oil production for 10 months to BP.
The hedging instruments will be Brent swaps, a market tool used to swap future crude oil production for a fixed price rather than the variable market price.
The agreed price will be $50.64 per barrel for a period of 10 months from 01 March 2020 to 31 December 2020.
This follows a clear strategy from ADX to develop a robust hedging strategy to cover the majority of the operating costs associated with their Austrian subsidiary.
ADX have been working towards the implementation on this hedge for some time, in the hopes it will incentivise further investment into the fields.
They have only owned these Austrian fields since December 2019.
They are however a relatively stable, mature gas field with a low production cost.
ADX are a very minor player, with a market cap of just over $5 million.
They are trying to hedge against suspected price volatility in the crude oil market this year, by engaging in this aggressive hedging policy.
ADX are also clearly very confident they can deliver the required production from the field, as these are mature fields offering stable well returns.
By having onshore, multi well production, they can be confident in their ability to deliver on their part of the agreement.
The Gaiselberg and Zistersdorf gas fields have already delivered ADX $1.7 million in revenue through the first quarter of 2020.
These funds have already been earmarked for life-extension works at the site.
The ADX Energy stock price at close was $0.07 per share.