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ADX locks in oil hedge with BP

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Production in the Vienna Basin
Camera IconProduction in the Vienna Basin Credit: File

Austria-focused oil and gas producer, ADX Energy has protected itself against oil market jitters by locking in a hedged pricing position with supermajor BP for production from its Gaiselberg and Zistersdorf fields in the Vienna basin.

The deal comes as the ASX-listed ADX waits for test results from its Anshof-3 discovery that it hopes will push even more volume through its newly struck hedge facility.

The company said it had locked in a zero-collar hedging contract with BP with a pricing floor at US$73 per barrel, or “bbl” and a cap at US$82.60 per barrel. According to the company, oil price markets for Brent crude that remained above US$79/bbl enabled it to secure what it describes as an attractive price for its hedging contract.

Hedging is a strategy that many commodity producers, in this case oil, employ where they commit to forward sell a percentage of their output at predetermined prices. Hedging strategies can also include the use of ‘collars’ which provide for contracted sales within a certain price band – in the case of ADX’s deal, between US$73 and US$82.60/bbl. This protects the buyer and seller from any major move in prices, limiting both downside losses however also potential upside gains.

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ADX said its hedging strategy is to secure strong revenues flowing from its production operations which have resulted from an increased oil price whilst retaining some exposure to further upside in Brent crude oil pricing by retaining some unhedged production.

The company also said sustained production rates have placed it in a strong position to continue its oil and gas growth initiatives as well as compatible green energy production opportunities.

According to management the BP hedge meant ADX has locked in a price for approximately 35 per cent of production between 1 January and 31 March, 2022 scaling up to 60 per cent of production for April 2022 from its Gaiselberg and Zistersdorf fields in the Vienna basin.

The total volume of oil production covered by the zero-collar contract is 11,210 bbls during the 4-month period, the company said.

In November ADX reported a 154 per cent increase in 2P, or “Proved and Probable” reserves to 1,850,000 barrels of oil equivalent, or “boe”.

During the September 2021 quarter, average daily production was around 275 boe per day noting there was a 20 per cent drop due to pumping and well bore blockages that it had to rectify with a series of workovers.

ADX is also progressing feasibility work on its Vienna Basin green hydrogen production and storage project as well as its Geothermal Pilot Project in collaboration with Siemens Energy and RED Drilling - all part of its green energy initiatives.

The company remains in discussions with solar and wind turbine energy suppliers to provide off-peak power to a hydrogen demonstration plant it is considering near to ADX’s gas fields. The demonstration plant will utilise excess power in periods of peak production to generate hydrogen via electrolysis.

Locking in future production at the healthy US$73 mark should go a long way to reducing the risk to the ADX balance sheet as it looks to test the Anshof-3 discovery and pick more “low hanging fruit” from its under-optimised Gaiselberg and Zistersdorf fields.

Is your ASX-listed company doing something interesting? Contact: matt.birney@wanews.com.au

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