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Abstract

The addition and rapid growth of North American shale oil production on global supply channels coincided with the recent global oil price collapse. Independent oil producers have shown themselves to be instrumental in the tight oil production growth and movement towards US oil independence. Predicting the industry‚Äôs capability to maintain and further develop domestic shale oil production requires an understanding of financial and operational resilience. Equity investors, like debt providers, have contributed to firm capital structure scalability in a cyclical industry. The risk of firm default during an energy price trough is critical for equity and debt valuations. This paper investigates the effect of hedging programs by a homogeneous group of independent, domestic-focused tight oil producers on firm distance to default. In order to determine if hedge programs influence firm financial distress metrics, forty-four domestic tight oil producers were analyzed over a five-year period (2011–2015), utilizing a balanced fixed effect panel model. Results conclude that hedge volumes exhibit a significant positive interaction with firm distance to default, supporting previous research.