Advanced Analytics Power Optimal Hedge Recommendations

Situation

Attempting to navigate the recent volatility in the natural gas markets, this Natural Gas Producer hoped they could wait out the turbulent market without action, believing prices were likely as low as they would go.

However, a short time later, prices fell further, and their inaction put them in a more challenging spot.

Without sufficient visibility into the market, this producer struggled to quantify their risk and maintain confidence in their hedging strategy.

With the situation now dire, they engaged AEGIS for assistance.

Solution

Hedging programs for producers typically aim to secure revenue and mitigate price risk. Therefore, it was important for AEGIS to help this natural gas producer re-examine their hedging goals and current hedging program.

AEGIS immediately leveraged its Recommend module to the client based on the challenges uncovered with meeting their current goals. Recommend is a powerful market analytics capability within the AEGIS platform that enables a company to mathematically align its hedging strategy with market conditions and targeted financial objectives.

For this client, Recommend translated natural gas prices to a range of revenue outcomes with specific confidence levels based on the client's assets and market data.

Empowered by this advanced functionality within the platform, the management team used bottom-line financial success metrics to drive hedge decisions rather than the prior pitfall of price picking.

For example, this client established a minimum revenue target with a 95% confidence level to trigger hedge decisions.

When market changes result in revenue estimates below the minimum threshold, the AEGIS Recommend module calculates specific hedge recommendations that lift the minimum revenue to acceptable levels while quantifying the cost-benefit of different strategies.

Outcome

According to this Natural Gas Producer, the technology AEGIS employed exceeded their expectations.

The Recommend module within the AEGIS platform helped tremendously in mitigating their downside risk because the driving information that allows risk to be quantified is easily accessible.

This systematic approach to hedging allowed them to regain control of their hedging program amid extreme volatility in Natural Gas markets. More importantly, they continue to hold monthly check-ins with the AEGIS team to retest and reassess their current strategy against quantifiable metrics and goals.

This process ensures that they are up to date on market moves and ready to act when necessary. Proactive hedging recommendations provided by the AEGIS technology and team allow for a more strategic and less reactionary risk management program.

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This case study is not indicative of future performance or success. Commodity interest trading involves risk and, therefore, is not appropriate for all persons; failure to manage commercial risk by engaging in some form of hedging also involves risk. Past performance is not necessarily indicative of future results. There is no guarantee that hedge program objectives will be achieved. Neither this trading advisor nor any of its trading principals offer a trading program to clients, nor do they propose guiding or directing a commodity interest account for any client based on any such trading program. Hedge advisory services are performed by the registered commodity trading advisor AEGIS-CTA, LLC, a wholly-owned subsidiary of AEGIS Hedging Solutions, LLC. This case study is not required to be and has not been, filed with the Commodity Futures Trading Commission ("CFTC"). The CFTC does not pass upon the adequacy or accuracy of this commodity trading advisor disclosure. Consequently, the CFTC has not reviewed or approved this case study.