FX Hedging at Hunting PLC
by Christopher Berris, Assistant Group Treasurer
Hunting PLC is an international energy services provider to the world’s leading oil and gas concerns in the upstream sector. Established in 1874, it is a fully listed public company traded on the London Stock Exchange. Global “upstream” activity is co-ordinated through Hunting Energy Services. With a large presence in North America, Europe and Asia, this has spawned a small but consistently successful E&P division in the USA.
Hunting PLC’s group treasury department is based in London, UK and provides treasury services across the group which spans the Americas, Asia, Middle East and Europe. As a GBP-based company, but with revenues in USD, one of treasury’s major activities is to translate USD revenues back into GBP, for which we use FX spot and forward transactions. In addition, we have a number of option-based products, such as average rate options to hedge P&L and instruments known as FX forward extra or forward plus. These are similar to a barrier option, but give us the potential to add some additional value to the transaction. They are zero cost and give us the right to buy GBP and sell USD at a fixed rate. This right becomes an obligation when cable reaches a certain limit rate. We also use FX swaps for cash management purposes swapping GBP into USD to fund short term USD deficits.
As a GBP based company, but with revenues in USD, one of treasury's major activities is to translate USD revenues back into GBP, for which we use FX spot and forward transactions.
Each business reports to treasury with their exposure information. We know the general annual trends for each business, but we need to be advised of exceptions in particular, such as capital expenditure or additional contracts from the previous year. Business units use different mechanisms for communicating with treasury, either telephone or email. In the future, we intend to move to a fully systems-based environment where deal requests can be made electronically in real time. Our policy is to hedge all exposures of $250,000 or above. We hedge forward, generally up to twelve months although in some exceptional cases we have exceeded this. In addition to exposure information, we receive a currency cash forecast per quarter for each business. We then look at exposures and liquidity requirements every week for the following month, and sell USD accordingly. Treasury operates as an in-house bank so we buy USD from the business unit, and deal in the market, with a back-to-back intercompany transaction. We deal both by telephone and using single-bank dealing systems. Over the next year, we intend to move to a multi-bank dealing system for FX dealing.