A producer needed long-tenor hedges on 800+ wells to support an acquisition. By prioritizing actual volumes over optimistic decline curves, AlphaX Sky ensured accuracy and protected hedge economics.
Situation
- A producer was seeking to hedge a significant portion of its PDP production for five or more years to ensure adequate cashflow to repay debt used for an acquisition.
- The asset package had over 800 wells that were in one basin.
- The borrower was required to hedge oil, natural gas, and the NGLs as part of the loan covenants.
Challenges
- The tenor and high volume of hedges require that the forecasted production is accurate so that the borrower does not end up over hedged.
- Traditional engineering workflows relied on hyperbolic back-casting and Qi-based economics and several wells that had high economic value exhibited low, inconsistent actual production.
- The acquisition price reduces the tolerance for error as the higher market valuations typically mean that producers will need to hedge more volume to ensure repayment on the debt.
How AlphaX Sky Helped
- Separated existing assets from the acquisition to avoid blended misinterpretation.
- Pulled API-level data for PDPs, targets, and regional competitors.
- Applied Arps for vertical wells strictly as an engineering comparison baseline.
- Used AI-derived distributions (mean, P50, P99) where data quality permitted.
- Performed well-level spot checks on high-value wells to validate EUR realism.
- Preserved actual production and enforced decline logic without curve back-casting.
- Enabled conservative scenario overrides (“automatic”) without discarding wells.
Quantitative Outcomes
- Over 800 wells evaluated with material discrepancies identified between borrower EURs and actual production on multiple wells.
- Low-rate gas wells (~1,000 Mcf/d) shown to be materially overvalued under aggressive curves.
- Conservative scenarios reduced projected volumes by 30–50% on select high-risk wells.
Impact
- The result of altering the curves on certain wells helped to shape the hedge profile to be more consistent with the cumulative production reality and not the curve artifacts.
- The higher asset valuation was identified before hedge execution, so it was a known fact going into the deal which required longer tenor hedges to support cash flow.
- The process helps to protect hedge economics while supporting the structured financing.
Call to Action
If hedging or lending decisions depend on long-dated production certainty, AlphaX Sky replaces curve-driven optimism with volume-based reality.