Q&A with R^2 - Successful Hedge Programs

January 13, 2015
Q: Why should an oil and gas firm hedge its production?
A: Most firms that hedge do so to ensure their future cash flows. With a well-designed hedge program, a company can be confident that it will achieve budgetary success regardless of swings in commodity prices.

Q: What is the hallmark of a successful hedge program?
A: Successful hedge programs are powered by robust analytics. All too often, managing commodity risk with derivatives is an opaque and confusing endeavor because firms have inaccurate or incomplete information. R^2 has invested heavily in analytical talent and data systems, including SunGard's Kiodex Risk Workbench. Through us, clients have a world-class commodities risk management solution, supported by a team of experts. Due to our uncompromising emphasis on systems and personnel, our clients have all of the necessary data and risk analytics at their fingertips when making hedge decisions.

Q: How does R^2 ensure that its interests are properly aligned with those of its clients?
A: Conflicts of interest abound in financial consulting arrangements unless preventing them is made a priority. As an independent entity that surveys counterparties, we are incentivized to get the right hedges at the best prices for our clients. We contractually align our interests with our clients’ interests. Many clients subscribe to R^2 services under a retainer agreement.This "fee for services" model allows R^2 to eliminate many potential conflicts of interest embedded in “fee for transactions” models employed by many of our competitors. Our clients have confidence that R^2 is focused on providing the highest level of independent and objective consulting services possible.

Q: Why does R^2 call itself a full service risk consultancy?
A: We offer a la carte services in each of the following areas:
(1) risk advisory;
(2) transactional support;
(3) deal capture;
(4) valuation and reporting; and
(5) research and analysis.
The majority of our clients engage with us in all five under a retainer agreement.

Q: Tell me about the typical R^2 clientele that you help.
A: We are proud to service producers, midstream companies, MLPs, private equity firms, utilities, government agencies, and end users with their hedging needs. We enjoy a client retention rate of nearly 100%, with many new clients being referred to us by existing ones. The confidence that our clients place in us to help them with the critical challenges related to their hedging activities is our most important achievement.

Q: Tell me about R^2’s track record in the performance of its clients’ hedge portfolios.
A: Our clientele has been paid for hedging. Our clients’ hedge programs have not only reduced risk to their cash flows but have added to their bottom lines. Hedges held by R^2 clients have generated over $3 billion in receipts since 2008. Open positions are valued at more than $6.7 billion. Reference the Hedge Performance page for a monthly Hedge Profits chart from 2008-2017.

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