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What to Know about California Resources' Key Fundamentals

PART:
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Part 8
What to Know about California Resources' Key Fundamentals PART 8 OF 20

Understanding California Resources’ Crude Oil Hedging Activities

California Resources’ crude oil hedging advantage

In 3Q16, crude oil hedging activities increased California Resources’ (CRC) average realized crude oil price by $1.30 per barrel. 

As we saw earlier in the series, excluding hedges, the 3Q16 average realized price for CRC’s crude oil production was $41.73 per barrel, meaning that commodity hedging activities increased CRC’s average realized crude oil price by ~3%.

Understanding California Resources’ Crude Oil Hedging Activities

Understanding California Resources’ Crude Oil Hedging Activities

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4Q16 hedges

For 4Q16, CRC has two-way collar, short call, and fixed price swap strategies on Brent crude oil. In its two-way collar on Brent crude oil, CRC has a hedged volume of 3,000 barrels per day. By way of this collar strategy, CRC has sold call options at a strike price of $53.62 and bought put options at a strike price of $50.00. Given Brent crude’s December 21, 2016, price of $54.51 per barrel, this collar should result in a realized price of $53.62 per barrel.

In its short-call hedging strategy, CRC has sold call options at a strike price of $53.62 for a volume of 22,000 barrels per day.

In its fixed price swap hedging strategy, CRC has fixed price swaps on Brent crude at a weighted average price of $49.71 per barrel for a volume of 39,000 barrels per day.

Overall, on November 11, 2016, CRC had derivative coverage for ~50% of its forecast crude oil production for 3Q16.

Other upstream companies

Other upstream companies such as Bonanza Creek Energy (BCEI), EOG Resources (EOG), and Parsley Energy (PE) have used three-way collar strategies to hedge their 4Q16 productions. 

The Energy Select Sector SPDR ETF (XLE) generally invests at least 95% of its total assets in oil and gas equities from the S&P 500.

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