Well its a split decision. They are not unhedged, and the hedges go out to 3/31/14 on 50% of estimated production. That is the good news. But I read the s-1A last evening and scanned it again after your comment, and I find no trace of any mention of oil or oil pricing or the BOE equivalent for wet gas. All the verbiage is on nat gas pricing. I think these are dry gas wells.
Good news is hedges are at $6.82/MCF in sub $3 market. Bad news is its only 50% and it may well be that the subordination targets will not be hit. See the recent post above on what Oppenheimer was saying, 3rd Qtr could drop below sub target and they used $3.35/MCF they said.
Through June 30, 2012, about 35% of ECT's production is hedged thru swaps at $ 6.82. Also through June 30, about 12% of production is hedged thru floors at $ 5.00. So the net hedge price is somewhere in the high $ 5 range, but only through June 30, 2012. After June 30, 2012 and thru June 2014, about 50% of production is hedged, but all of these hedges are floor hedges at $ 5.00. See page 89 of the July 2010 prospectus or page 54 of the April 2011 prospectus.
ECT estimates that it gets about 15 cents above market for its gas, so unless nat gas prices rise really quickly, I assume the avergae price it will get for its gas is somewhere around $ 4 from July 2012 thru June 2014. The projected distributions in the prospectus were based on high $ 5 and low $ 6 gas in 2012. So I assume that's the cause of the downgrade.
Yeah they do say 50% in one place in the S-1A but in looking at the schedule it appears that they aggregated up from the start, and the hedges do seem to roll down over time. This is not in my opinion one of the better written prospectus. Its difficult at times to figure out exactly what it is they are saying.