Quote:
Originally Posted by Enoch Root
They could if they wanted to (easily). Assuming Heep is right (no reason not to) and they didn't hedge it all, that is simply because they didn't feel they needed to. Because they easily could have.
Easy math example:
You have $120M in expected revenues (CAD) for the coming year, and
$100M in expenses (USD, and the exchange rate is 1.000)
So an operating margin of $20M.
If the CAD slides to 1.1000, your expenses rise to $110M (CAD) and you have lost half of your operating margin.
However, if you execute $100M in forward contracts now (while the currency is still 1.000 ), you will lock in your expenses at $100M and guarantee your operating margin of $20M.
Anyone who doesn't do this (or do something - there are far more sophisticated options) is an idiot. If you can hedge away a risk for free and you don't, well you deserve whatever happens to you.
Considering at least some - if not all - of the owners are in the O&G business, it is safe to assume they are intimately familiar with all kinds of hedging strategies.
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Aporeciate the explanation (truly). Question, I assume (potentially incorrectly) that future expenses, I.e. Next years contracts, or at the very least new contracts can't be hedged until signed? If so, would it be fair to suggest that the owners will be less able to protect their margins moving forward should the dollar remain weak?