(Bloomberg) -- Chevron Corp. said it will no longer use put options to hedge the crude oil production it’s acquiring from Hess Corp. once the deal completes. 

Hess is one of a handful of major US oil players that still participates in the options market to guarantee a minimum price for its barrels. In its most recent earnings report, published in July, the company had contracts in place that locked in $70 a barrel for about 80,000 barrels a day of WTI production, and $75 for about 50,000 barrels of Brent production for the rest of this year. 

The move will be the latest retreat from a US driller in the hedging space. In the first years of the US shale boom, producers would use swaps and options markets to lock in prices for their supply during rallies. It was a boon for banks and brokers, while often distorting the shape of the oil futures curve due to the sheer scale of the transactions. 

Since prices have surged from the pandemic lows, a combination of capital discipline and corporate mergers means that there are ever-fewer players in the space, sapping liquidity in parts of the curve. 

“We plan to discontinue the use of put options to hedge,” Chevron Chief Executive Officer Mike Wirth said on a call after the deal was announced. “That’s just a cost that we won’t incur as we put the two companies together.”

Last year, Hess paid nearly double to remove some of the hedges it had purchased in order to gain exposure to surging oil prices. It was not immediately clear what would happen to the company’s current outstanding hedges. The value of put options relative to the bullish call options has sunk in recent weeks amid the Israel-Hamas war.   

Oil majors typically do not run large hedging programs as their operations — which include refining — act as a natural way to manage risk. Any losses from selling their crude cheaper can be offset by stronger profit margins from refining.

The Chevron deal is the second major oil acquisition this month and comes on the heels of Exxon Mobil Corp. agreeing to buy Pioneer Natural Resources Co. for $59.5 billion. But Pioneer had already closed out almost all its hedges last year on the belief that prices would stay elevated for years to come. 

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