Gas groups tap derivatives deals for cash US oil and gas producers are making complex structured derivatives deals with investment banks to bring forward revenue by unlocking the value of their long-term hedging contracts. Companies are increasingly turning to the agreements to generate cash to fund drilling and land purchases, as low natural gas prices leave the industry facing a cash squeeze this year. Derivative contracts purchased by gas producers nine months or more ago have soared in value as the price of natural gas has halved. Investment banks are offering to purchase those contracts, which can be resold to other gas producers, and in return pay the companies above market value for their output this year. Analysts say that companies are in effect taking on more risk to avoid cutting back on investment. "What is common among firms making these deals is that they will not generate sufficient cash flow to fund their planned investment this year," said Biju Perencheril, analyst at Jefferies. These structured deals allow companies to release cash, but leaves them more vulnerable to gas price swings in the future. Quicksilver Resources, a midsized Texan oil and gas producer, sold nearly all of its hedge contracts for production in 2016 to 2021. Those contracts are valuable because they guaranteed a price of $6.21 per million British thermal units (mBtu), while natural gas currently trades at about $2.50 per mBtu. In return its banks have written contracts guaranteeing Quicksilver a price of $5.75 per mBtu, for more than two-thirds of its expected production this year. That will generate an additional $50m in cash flow in 2012, according to the company. "This was a good way of monetising the unexpectedly high mark-to-market value of our hedging contracts," said David Erdman, an investor relations manager at Quicksilver. It gives us cash this year when we need it. "The structure does increase our exposure in the future," he added, "but the banks involved also provide our credit lines, and wouldn't be doing this if they thought it was too risky." It is not unusual for oil and gas companies to sell future production, or cash in valuable derivative contracts, to fund expansion. However, the low natural gas price and the rising price of land in highly contested shale oil and gas plays, mean the industry faces a large funding shortfall this year, estimated at $14bn by analysts. That has led to increasingly complex derivative structures. Forest Oil, a larger Texas-based oil and gas producer, for example, has structured a deal that could see it receive as much as $5.80 per mBtu for natural gas in 2012, according to SEC filings. But in return the company could be required to sell gas at set prices in 2013. Forest Oil did not respond to requests for comment. One analyst said it was impossible to model the impact on future earnings, but producers were having to "act creatively," to plug funding gaps.