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An exploration and production company will produce and deliver natural gas in North Dakota, delivering into a pipeline in Wyoming. The company seeks to hedge

  1. An exploration and production company will produce and deliver natural gas in North Dakota, delivering into a pipeline in Wyoming. The company seeks to hedge its exposure to potential changes in the natural gas price it will receive. a) What type of basis risk does the company face?

b) How might the company construct such a hedge?

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