According to a new energy company performance analysis by IHS, oOil and gas hedging protections for North American exploration and production (E&P) companies will fall by 11% of total production volumes in 2016. Many E&P companies will be at risk of financial stress, IHS says.

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The report reviewed oil and gas hedging protections in place for 48 small to large North American E&P companies for the second-half of 2015 and full-year 2016. Hedging in the second half of 2015 was largely unchanged as E&Ps had 28% of total production hedged for the remainder of the year.

According to the analysis, the weighted-average hedged prices in place for 2016 are $69.04 per barrel of oil and $3.83 per thousand cubic feet (MCF) of gas. Small- and mid-sized E&Ps increased 2016 hedging the most for first-half 2015, while large E&Ps remain unhedged.

North American E&Ps remain largely exposed to low prices in 2016, with 11% of their total production hedged for the year, and at hedged prices “significantly below” those locked in for 2015, says Paul O’Donnell, principal equity analyst at IHS Energy and report author. For smaller companies, less hedging and low oil prices are a risky combination for 2016. The companies that did not lock in higher oil prices during Q2 of 2015 face pressure to curtail drilling activity and CAPEX, O’Donnell says.

He says that capital spending for the North American E&P group will drop 25% in the second half of 2015, from approximately $60 billion to $45 billion. The small North American E&Ps have hedged 25% of estimated 2016 total production. With high debt and minimal hedging, EXCO Resources and Comstock Resources are at risk of liquidity issues if low prices prevail, IHS says.

The highest risk for financial stress are high-debt companies with low-hedge protection in 2016, such as SandRidge Energy and Ultra Petroleum. Large North American E&Ps hedged 6% of 2016 production and will rely on stronger balance sheets to weather the low prices, says O’Donnell.

Companies that missed comparatively higher prices in Q2 will likely be exposed to market prices next year. The companies that layered in additional hedging appear to have made the correct choice, according to the report.