Oklahoma energy user LSB Industries buys production assets
Oklahoma City-based LSB Industries is taking hedging a step further by calculating how much it will cost to drill natural gas wells, not just estimating how much fuel they will produce.
“It's a win-win for both us and LSB,” Clearwater President Tony Say said. “For Clearwater, it clears us of all our debt and left us with some really nice cash to invest in the Marcellus further.”
Natural gas prices plummeted in early 2012 as rapidly increased production combined with a warmer-than-average winter to flood the markets with available fuel.
Production has since dropped as the industry refocused on more expensive crude oil and natural gas liquids.
“Is gas going to be $10? I don't think so, but it could very well be over $5,” Say said. “That could change the economics of a fertilizer plant. To hedge against those numbers, forward-thinking companies like LSB are buying resources. I think you'll see more of that in the future.”
It's an interesting experiment.
And now seems the time to try it.
With low natural gas prices, the cost of investing in natural gas production is relatively low. If prices stay low, the newest venture will be less profitable, but LSB's chemical costs also will be low.
If, however, natural gas prices climb, the company's expenses will go up, but it will profit from its Pennsylvania natural gas wells.
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