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How Was Stone Energy’s Operational Performance in 3Q16?

PART:
1 2 3 4 5 6 7 8 9 10 11
Part 7
How Was Stone Energy’s Operational Performance in 3Q16? PART 7 OF 11

Understanding Stone Energy’s Hedging Activities

Stone Energy’s hedging advantage

For 3Q16, crude oil hedging activities increased Stone Energy’s (SGY) average realized crude oil price by $3.4 per barrel. As we saw in part five of this series, excluding hedges, the 3Q16 average realized price for SGY’s crude oil production was $42.1 per barrel. This means that the commodity hedging activities increased SGY’s average realized crude oil price by ~8%.

Understanding Stone Energy’s Hedging Activities

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Similarly, in 3Q16, natural gas hedging activities increased SGY’s average realized natural gas price by ~18%. Stone Energy doesn’t hedge its natural gas liquids production, as it constitutes a relatively lower portion of its production mix and revenue mix. Refer to parts five and six of this series for more information.

Stone Energy’s hedges for the remainder of 2016

As of November 7, 2016, SGY has fixed price swaps and two-way collars on NYMEX WTI (West Texas Intermediate) crude oil. In its fixed price swaps hedging strategy, SGY has fixed price swaps on NYMEX WTI (West Texas Intermediate) crude oil at weighted average prices of $49.75 per barrel, $52.78 per barrel, and $90.00 per barrel for 1,000 barrels per day. Thus, Stone Energy’s fixed price hedges are beneficial to the company, as these hedges are initiated at higher prices than the current NYMEX WTI crude oil price of $49.44 per barrel.

As of November 7, 2016, SGY also has two-way collars on NYMEX WTI (West Texas Intermediate) crude oil for 1,000 barrels per day. In its collar strategy, SGY has sold call options with a strike price of $54.75 and bought put options with a strike price of $45.00. Overall, as of November 2016, SGY has derivative coverage for ~23% of forecasted crude oil production for 4Q16.

Other upstream companies

Other upstream companies like Bonanza Creek Energy (BCEI), EOG Resources (EOG), and Parsley Energy (PE) have used a three-way collar strategy to hedge their 2016 production. The Energy Select Sector SPDR ETF (XLE) generally invests at least 95% of its total assets in oil and gas related equities from the S&P 500.

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