There are many good hedging strategies in existence, but true value lies in a strategy’s ability to manage expectations as well as economic uncertainty. Since communicating hedge program intent is as important as reporting its performance, our strategy begins at the top and stresses clarity and transparency at all levels throughout the organization.
Our approach:
- Work with senior management, investors, and other stakeholders to understand the company’s natural risk position, how it is impacted by its assets and strategies, and how its contracts around those assets may further impact its risk position;
- Assist senior management to define an overall corporate risk tolerance and express it in the manner most meaningful to stakeholders (e.g., percent of EBITDA, cash flows, covenants and debt thresholds, or other relevant financial metrics);
- Design a hedge strategy to manage the commodity risk against the stated risk tolerance, with strategic elements such as preferred instruments, tenor, entry/exit points, volumes, accounting dispensation, and key tools and metrics used to monitor the hedge program’s success;
- Develop and document the commodity risk management intentions in the form of a focused and actionable hedging policy; and
- Implement the right communication tools to ensure the intention behind hedging decisions are well-understood by both internal and stakeholders alike.