Occasionally, it is desirable to model a hedge situation, where a set volume rate has been guaranteed to an external source at a standard, non-market rate. PHDWin can model the economic effects of the hedged volumes by creating a normal standard case with a particular set of options. To create the standard case: 1. Open the File menu and select the Import Data or Create New Cases option. 2. Select Single Case in the top of the Data Wizard window options and Standard Case as the Case Type. 3. Input the necessary case name (a name such as “Hedged Volumes” will allow the user to easily find this case within the Case List) and add any additional desired information in the first screen. Click the Next button. 4. Do not apply any Economic Scenario, and input 100% (1.0) for both Working Interest and Revenue Interest. Click the Next button. 5. Select a desired Reserve Class and Category (or simply leave as default) and choose “None” for the Major Phase Projection. It will be more effective to input the hedged volumes after the case is created. Click the Finish button.
Once the standard case has been created, the user has two basic methods for how to model their hedged values. A brief overview for each method is listed below. Click the respective link of each method for detailed setup instructions. Method 1: Enter the hedge volumes under the standard Gas and/or Oil products. This allows the user to use our default reports for displaying the hedged volumes and their respective revenue. The drawback here is that it will skew the Price value on Summary levels of reports that include the Hedge Case. Method 2: Enter the hedge volumes under custom Hedge Gas and/or Hedge Oil products. The user can run the Detailed User Defined Report to report hedged volumes and revenues, separately from the standard Gas and Oil products. This means the Gas and Oil prices on summaries will not be affected by the hedge values. The drawback is that the hedge volumes are not included in any of the other standard economic reports and hedge revenue will only report as Miscellaneous Revenue. Both methods should result in the same overall Cash Flow discounted and undiscounted values. This is purely a preference for how the volume and revenue elements are reported.
1
Input the hedged volumes either into the Monthly History table of the Case Editor (recommended) or on the graph using a projection. To input hedged volumes into the Monthly History table: 1. 2. 3. 4.
Open the Editor Menu and select the Products Tree option. Double-click the line in the Products Tree for the hedged product (Gas or Oil.) In the Projection area, click the Scheduled radio button. In the Case Editor, open the Monthly History tab and input hedged volumes on a monthly basis from beginning to end (even into the future).
To project hedged volumes in the graph: 1. Open the Graphs Menu and select the Display option. 2. Click the Forecast Mode icon
to display the Forecast/ARPs window.
3. Click the Add Segment icon and then enter the projection parameters for the hedged volumes and click the Accept button. Once the volumes have been entered the case still needs the proper economic settings. To set hedged economics case options in the Case Editor: 1. Go to the Prices tab and enter the hedged (set) price under the appropriate Gas or Oil product. 2. Go to the Expenses tab and enter the market (unset) price as an Op Cost for the same product selected in step 1. a. Entering a hedged price under Prices and the market price as an Expense allows PHDWin to calculate the difference between the two price decks for you. As an alternative, you can manually calculate the difference between the two price decks and enter that value as the Price (positive or negative) with no Expenses. 3. On the Expenses tab set the ECL After button to be linked to EndHist or EndPrj, depending on how the hedged volumes were entered. If the hedged price is lower than the market price, this will allow the case to run negative and display the opportunity cost. 4. Go to the Taxes tab and enter 0% tax on each product line. 5. Go to the Eco Options/Report Exclusions tab and select the third option, “Exclude Volumes from Summary Reports Only,” in the Exclusion Options area. This will avoid double dipping on the hedged volumes for summary reports. The Hedge Case is complete at this point. Reports can be run on the hedge case by itself to see the value of just the hedged volumes, or as part of a group of cases to see the effect of the hedged volumes on the economics of those wells.
2
Create the Hedge Oil or Hedge Gas products in the Products Tree. To create a new product in the Products Tree: 1. Open the Editor menu and select the Products Tree option. 2. Click the Add button at the bottom of the Products Tree window. This will open a list of available products to add, as well as a field for creating a new product. 3. Set the radio button to “Create a new Product” and type in the name of your hedge product (ex. Hedge Gas). Then click the Create button at the bottom of the window. 4. The Product Stream Properties window will open up with the Behavior settings for your new product. a. Product Type should be set to Volume-based Product b. Set Product Phase to match the hedge product, Gas for Hedge Gas, Liquid/Solid for Hedge Oil. c. Set the History and Projection settings as Scheduled for both.
d. Click on the Cash Flow tab of the Product Stream Properties window. e. Check the boxes for Revenue and Op Cost. f. Click the Save button at the bottom of the window to finish creating the product. 5. You should see the new hedge product listed on the Products Tree under the group of Cumulative products.
3
Now that we’ve created the hedge product, we can go to the Case Editor and enter the hedge volumes on the Monthly History tab. You will have to find the hedge product on the list of Other products and then drag it to one of the display columns to enter those volumes.
Once the volumes have been entered the case still needs the proper economic settings. To set hedged economics case options in the Case Editor: 1. Go to the Prices tab and enter the hedged (set) price under the appropriate hedge product. 2. Go to the Expenses tab and enter the market (unset) price as an Op Cost for the same product selected in step 1. 3. On the Expenses tab set the ECL After button to be linked to EndHist. If the hedged price is lower than the market price, this will allow the case to run negative and display the opportunity cost. 4. Go to the Taxes tab and enter 0% tax on the hedge product line. 5. Go to the Eco Options/Report Exclusions tab and select the third option, “Exclude Volumes from Summary Reports Only,” in the Exclusion Options area. The Hedge Case is complete at this point. Reports can be run on the hedge case by itself to see the value of just the hedged volumes, or as part of a group of cases to see the effect of the hedged volumes on the economics of those wells.
4
The value of the Hedge Case will report as Miscellaneous Revenue without any hedged volumes on the majority of our canned Economics reports. To display the hedge volumes on its own report with hedge column headers instead of appearing as Miscellaneous Revenue use the Detailed User Defined Report. This report includes any two products of your choice, including custom products such as Hedge Gas. The steps to run a User Defined report are as follows:
1. Go to the Reports and Views menu and select User-Specified Output Columns (do NOT click Select and Run, you do not want to go to the Reports and Views window where you run reports). 2. Under Revenue and Product Volumes select any two products you like. Do the same for the Expense tab.
3. Go to the Reports and Views menu and choose Select and Run to open the Reports and Views window where you see the list of reports to run. 4. Select the Detailed User Defined Report and run the report. This report option should not be used for a mix of standard cases and hedge cases, it’s best to use it only for getting a detailed output on the Hedge Case.
5
Some users have suggested modeling a Hedge Revenue product instead of Hedge Gas or Hedge Oil. The big drawback to this option is that scheduled volumes for the Hedge Revenue product have to all be entered as positive values, so it becomes difficult to model a Hedge Case with a loss. You can work around it by changing the price on the Hedge Revenue product from positive to negative as needed, but that is more maintenance for the user.
6
