BBQ, very good question. I believe you're basically asking about the effect of hedges that are good versus hedges that are bad cancelling each other out. For example, what happens if we hedge at $80 today and for the next six months the price of oil stays at exactly $100, followed by an immediate second hedge at $80 and the next six months the price of oil goes immediately to $60 and stays there. In other words, being $20 to the good on one, exactly balanced out by $20 to the bad on the other.

In the long run, is this any different than selling the oil for $60 for six months and for $100 for six months? In abstract terms, ie. total revenue (ignoring minor timing, interest, and implementation fees) then no, we'd realize approximately the same overall revenue.

However, one advantage is in income smoothing. There are three main useful types of financial statements in GAAP accounting:

- income statement

- balance sheet

- cash flow statement

The balance sheet is important because it tells you where you stand at a point in time, basically a snapshot of what you're worth.

The income statement is important because it tells you if you're getting better or worse. It defines performance over a period of time, and helps forecast where your budget will be in the future.

The cash flow statement is because you need money in the bank to continue operations (in a general sense). For example, if you have a business that is going to make $100,000 in four of the next five years, and lose $300,000 in one of the next five years, you could be happy or sad. Cash flow predicts the timing of the amount of cash in the bank. If your four years at $100,000 profit are the first four, and the last is the $300,000 loss, then you're laughing - at the end of five years, you'll have money in the bank. However, if the $300,000 loss is in your first or second year, you'll see that your bank account will run out of money at certain times, which means you either secure outside funding or go bankrupt. Cash flow is obviously a more important concept the closer your business gets to insolvency.

So anyway, income smoothing isn't critical, but it is useful on a number of levels: comfort, planning and budgeting, reassuring bankers, etc. So in that abstract sense, getting an average over the full period of time rather than some really good months and some really bad months is better for the company.