US shale oil drillers who purchased insurance to protect themselves against a bear market could get paid $26bn (£17.5bn, €24bn) in insurance money provided crude oil prices remain low.
The fair value of hedges held by 57 US firms in the Bloomberg Intelligence North America Independent Explorers and Producers index rose to $26bn as of 31 December 2014, a five-fold increase from the end of September 2014.
But the $26bn in insurance cover will not last forever. Most hedging contracts expire in 2015, according to company reports.
However, US oil companies have already raked in $2.4bn in the fourth-quarter of 2014 on their hedges, according to data compiled on the 57 companies in the Bloomberg Intelligence index.
While it is difficult to establish who will ultimately lose money on the trades, and how much they might, a few drillers do disclose the names of their counterparties, providing a glimpse of how the risk of plunging oil prices moved through the financial system, Bloomberg reported.
Over a dozen energy companies say they buy hedges from their lenders, including JPMorgan, Wells Fargo, Citigroup and Bank of America (BofA).
At the end of 2014, JPM had about $671.5m worth of derivatives exposure to five energy companies, including Pioneer Natural Resources, Concho Resources, PDC Energy and Antero Resources, according to company records. That figure reflects the amount JPM would have owed if the contracts were settled on 31 December, excluding any offsetting trades the lender made.
Meanwhile, Wells Fargo was on the hook for $460.9m worth of oil and gas derivatives for companies including Carrizo Oil & Gas, Pioneer, Antero, Concho and PDC, according to regulatory filings.
Nonetheless, systemic-risk concerns are unwarranted as commodities are typically smaller parts of banks' businesses when compared with lending and underwriting, and banks hedge their oil-price risk.
JPM had $2.57tn in assets at the end of 2014 compared with net liabilities for commodity derivatives of $2.3bn, excluding cash from settled trades and physical commodity assets, according to regulatory filings.
Wells Fargo had $1.69tn in total assets compared to net commodity liabilities of $241m.