Or may he did and "patently ill-advised" and "grossly wrong" were compliments?
From The Gartman Letter:
"Finally, The Wall Street Journal yesterday had an article entitled "Hedges Clip Gas Producer's Earnings," wherein the journalist took Chesapeake Energy, Clayton Williams Energy, Devon Energy, Pioneer Natural Resources and a few other smaller cap energy companies to task for their losses they'd suffered on their hedging operations.
Several of these are clients of TGL, and most notably Chesapeake Energy, and we thought the tone of the article was patently ill-advised and grossly wrong. The article made it appear that the hedging operations of these energy companies were speculative in nature, and that they would have done better for their shareholders had they chosen not to hedge, which in almost all instances means having taken short positions in either the Brent, or WTI crude futures or perhaps in nat-gas futures. We suspect too that the article was prepared prior to the massive plunge in crude oil prices last week that suddenly turned these supposedly ill-conceived hedge programs into much more profitable once instead.
Hedging is given a bad name by articles such as his. WE suspect that many of the hedges were put into place when the companies in question borrowed large sums of money to undertake oil exploration programs. With costs high but with prices higher still, wise management acted to sell production for months or years forward, thus protecting the borrowing programs from going from ones that are profitable when begun to ones that might become massively un-profitable when half way through if crude oil prices fell. As the CFO of Pioneer Natural Resources said, defending his company's decision to hedge, "The hedging program in place allowed Pioneer to plan for drilling activity and make sure we can achieve our cash flow goals."
That is precisely what good, sharp businessmen and women are supposed to do: play for business activities that allow them to achieve their cash flow and earning's goals. To do otherwise is rank speculation and that is not the business they are supposed to be in. They are in the business of finding and distributing energy. If their shareholders wished management to speculate upon the direction of crude oil prices, would it not have been cheaper to shutter in all drilling activities, fire all employees, cancel all drilling rig leases, lease a quote machine or two and begin a program of organized gambling. Then, we supposed, the Wall Street Journal would have been satisfied."