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Producers - Oil and gas exploration and production companies. These companies develop reserves to extract crude and natural gas out of the ground. Their main goal for hedging is to stabilize cash flows. Producers need hedges that secure their budgets and allow them to grow their business. R^2’s objective is to help producers understand how commodity prices might impact performance and to develop hedge strategies that will assist in the achievement of targeted goals.


Midstream Companies - Midstream companies generally acquire one feedstock and process it into a different product. These include natural gas processing, biofuel, synfuel, and gas to liquids facilities. Profit margins are usually driven by the spread between feedstock costs and the sale price of their products. Midstream companies hedge their feedstock as well as the product in order to manage the cost and timing differential between the purchase and sale transactions.


MLP’s - Master Limited Partnerships are limited partnerships that are publicly traded. Often their cash flows are derived from real estate, natural resources, and commodities. There are usually two groups involved, one that provides the capital and the second that manages and operates the assets. MLPs buy assets, develop and operate them for a few years with the longer term goal of maximizing cash flow and distributions. MLPs typically will not have consistent production or cash flow growth in the early stages, but hedge 100% of their expected production for the next three to five years.


Private Equity - Private equity groups invest in startups and acquisitions, with the longer term goal of divesting these assets. They target investment opportunities that have compelling business plans presented by experienced management teams. By providing capital and strategic support, many private equity firms are partially invested in multiple companies.


Utilities and LDC’s - Gas utility companies and LDC’s (local distribution companies) hedge to manage the risk of price spikes and to smooth out their exposure to unexpected price changes. In order to reduce volatility from month to month, they may hedge by entering into long term fixed physical contracts or financial hedges. Prices can change drastically due to weather driven fundamentals, which are often temporary in nature. In order to avoid those short term price spikes, locking in prices for as long as 3-5 years can help manage that risk.


End Users - End users include both commercial and industrial consumers of various fuel types. They may have strict budgetary requirements if fuel costs represent a significant component of operating costs. By hedging, end users can manage their budgets efficiently without disruptions to normal business operations.