By Liz Hampton

(Reuters). Despite oil and gas prices reaching multi-year records, U.S. shale producer are likely to earn the best earnings since the onset the coronavirus epidemic. This is provided they don’t tie sales to lower prices.

Oil and gas prices that are sky-high will boost the bottom lines of energy companies, rewarding those who persevered through the crisis. Oil prices averaged $71 per barrel and were almost 80% more than last year. They also sold at a record $5/million British Thermal Units (mmBTU), which was a new high since 2014.

Reports by EQT Corp (NYSE) show that the biggest oil and natural gas producers are launching results. Hess Corp (NYSE:). Continental Resources (NYSE:), Pioneer Natural Resources EOG Resources (NYSE 🙂 and (NYSE 🙂 will be reporting the following week.

Pioneer’s share earnings could reach $3.94 from 17cs last year. Continental earnings were estimated at $1.20 compared to a loss 16 cents per share in the same time last year according to Refinitiv IBES.

Although commodity prices can be an income elixir for companies, there are some instances when they face earnings charges from making wrong-way wagers. Hedges refer to selling future output at lower prices than the market average.

EQT Corp is expected to post a loss of 5 cents per share, after reporting a loss of 15 cents in the third quarter 2020. Pioneer Natural Resources warned Monday that it will report losses in hedging of 501 million dollars for this quarter and more than $2 billion so far this fiscal year.

Chris Duncan, an equity analyst at Brandes Investment Partners stated, “The only thing that will stop a blowout quarter” and that roughly 50% of production volumes had been hedged.

Enverus, an energy tech company, anticipates $6 billion of pre-tax losses due to third quarter commodity hedges among 64 North American oil producers. Enverus data indicates that those firms have lost $10.5 billion on derivatives over the first six months of this year.

Enverus expects that oil and gas producers will report a free cash flow of $11.9 million for the quarter. However, loss-making hedge books could reduce this value by 32%.

(Click here https://graphics.reuters.com/USA-OIL/OIL/jnpwewkjrpw for an earnings chart)

EOG Resources, a producer of Shale, recently stated that it expected to report losses of $494 millions on its hedges. EQT Corp said earlier this year it hedged 80% at below $3 per Million British Thermal Units, which is far below the market. Apache’s parent company, APA Corp (NASDAQ:), said that it expected $37 million losses.

Josh Young is chief investment officer for Bison Interests, an energy investor. He stated that overhedging such as these producers do impairs their competitiveness in a rising prices environment.

Continental Resources limits its hedge, but last quarter it increased its dividend, and resumed its $1 billion share purchase program.

Un spokesperson declined to comment.

Hedges are not only for shareholders who may be disappointed by higher prices but they can also help companies stay on solid financial ground.

John Kempf, credit analyst at Fitch Ratings said that “credit investors who we’ve spoken to lately are worried about whether issuers will unwind their hedges.” Creditors don’t want to take on price risk.