(Bloomberg) — Shale explorers are facing almost $12 billion in losses this year from bad bets on oil after a global rally, according to BloombergNEF.

Of the 50 U.S. drillers surveyed by BNEF, Devon Energy Corp., Pioneer Natural Resources Co. and Diamondback Energy Inc. are on track to rack up the steepest losses, with more than $1 billion in underwater hedges apiece. The sector as a whole hedged almost one-third of estimated 2021 output and the practical impact is that they are locked in to reap about $5 less than the American benchmark crude, West Texas Intermediate.

“One of the negatives of this quarter has been some horrible hedging; guys locked in at $42 a barrel,” Paul Sankey, the veteran oil-industry analyst and founder of Sankey Research LLC, said during an interview on Bloomberg TV.

Hedging helps producers of raw materials mitigate the risk of major price fluctuations and lock in relatively stable cash flows. But the practice carries the risk of leaving money on the table during bull markets.

The losses haven’t been limited to crude drillers. EQT Corp., America’s biggest natural-gas producer, irritated investors last week by boosting hedges at a time when the commodity also is surging. The company already has booked a $1.3 billion non-cash second-quarter loss on swaps and options contracts.

© 2021 Bloomberg L.P.

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