Shale Driller Posts Rare Negative Revenue After Hedging Losses

Vine Energy Inc. reported negative revenue of $64.5 million in the second quarter, leading to a $360 million loss for the period, according to a Friday filing with the U.S. Securities and Exchange Commission. The main culprit for the negative revenue was $274 million in unrealized derivative losses in the quarter, along with $24 million in realized losses.

The loss underscores how commodity hedging can be a double-edged sword for equity investors seeking to ride the wave of rising energy prices. Even as U.S. natural gas futures rose 50% this year, companies that locked in forward contracts before the rally are now stuck accepting prices well below market levels.

For example, Vine said in its earnings report it has forward-sold swaps through 2025 at prices between $2.31 and $2.62 per million British thermal units. Many of those future contracts are now priced well above $3.

“What you’re seeing is the change in the value of the hedge book,” the company said in an emailed statement. “It’s entirely non-cash so no impact whatsoever on free cash flow.”

To be sure, just because the company booked unrealized losses this quarter doesn’t mean those derivatives won’t pay off in the long run if the gas rally peters out. And Oklahoma City-based Chesapeake Energy Corp. doesn’t seem to mind the hedges — it announced Wednesday that it was buying the Haynesville-focused Vine in a $2.2 billion deal.