For Drillers, Low Prices Have a $26 Billion Upside

Shale drillers didn’t count on prices staying high forever. While oil traded for more than $90 a barrel last year, many bought insurance against a crash. Now that prices have plunged more than 50 percent in less than a year, drillers have started to collect. They netted at least $2.4 billion from hedges in the fourth quarter of last year, according to data compiled by Bloomberg, and they stand to collect as much as $26 billion if crude stays depressed.

The insurance—in the form of derivatives contracts—was sold by the same Wall Street banks that financed the biggest energy boom in U.S. history, including Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Wall Street passed on the risk to hedge funds, airlines, oil refiners, and utilities. “The folks who were willing to sell it were left holding the bag when prices moved,” says John Kilduff, partner at Again Capital, an energy hedge fund.