To provide themselves a cushion against sharp drops in oil prices, drilling companies often buy hedges—financial contracts that pay off when prices fall. Now a quirk of bankruptcy law has stripped some shale drillers of that insurance just when they need it most.
Houston-based Linn Energy, for example, bought contracts that guaranteed a price of $90 a barrel, even if prices were lower. It paid off: By the end of March, with oil below $45 a barrel, Linn’s hedges were worth $1.5 billion, making them among the company’s most valuable assets…
