Many casual followers of the energy space fear the words "hedging" and "energy company" thanks to Enron. In reality, hedging oil and gas production can be a very effective tool for a company, and can be a way that investors like you and I can analyze the future. Different types of companies can employ different hedging strategies, which is why you see LINN Energy and BreitBurn Energy Partners -- both exploration and production MLPs -- hedge a very large part of their production while Big Oil doesn't.
Even more interesting, though, is that we can use a company's hedging strategy to get a feel for oil and gas prices in the future. Tune into the video below and you can find out why Ultra Petroleum's decision to move away from gas hedging is a telling sign for the future of gas prices.
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The article Energy Investing 101: What Hedging Can Tell Us About a Company and Oil Prices originally appeared on Fool.com.
Fool contributor Tyler Crowe owns shares of LINN Energy. You can follow him at Fool.com under the handle TMFDirtyBird, on Google +, or on Twitter @TylerCroweFool. The Motley Fool recommends BreitBurn Energy Partners. It recommends and owns shares of Ultra Petroleum and has the following options on Ultra Petroleum: long January 2014 $30 calls, long January 2014 $40 calls, and long January 2014 $50 calls. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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