Many casual followers of the energy space fear the words "hedging" and "energy company" thanks to Enron. In reality, hedging oil and gas production can be a very effective tool for a company, and can be a way that investors like you and I can analyze the future. Different types of companies can employ different hedging strategies, which is why you see LINN Energy (NASDAQOTH:LINEQ) and BreitBurn Energy Partners (NASDAQOTH:BBEPQ)-- both exploration and production MLPs -- hedge a very large part of their production while Big Oil doesn't.
Even more interesting, though, is that we can use a company's hedging strategy to get a feel for oil and gas prices in the future. Tune into the video below and you can find out why Ultra Petroleum's (NASDAQ:UPL) decision to move away from gas hedging is a telling sign for the future of gas prices.
The Motley Fool recommends BreitBurn Energy Partners. It recommends and owns shares of Ultra Petroleum and has the following options on Ultra Petroleum: long January 2014 $30 calls, long January 2014 $40 calls, and long January 2014 $50 calls. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.