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A Deep Dive into Devon Energy’s Operational Performance

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Part 8
A Deep Dive into Devon Energy’s Operational Performance PART 8 OF 15

Devon Energy’s Hedging Effectiveness

Devon Energy’s hedging effectiveness

According to Devon Energy’s (DVN) 1Q17 financials, DVN reported total (non-cash and cash) profit of ~$232 million on its derivative instruments. When divided by Devon Energy’s oil and gas revenues of ~$1.3 billion, this results in positive hedging effectiveness of ~18%.

Devon Energy’s Hedging Effectiveness

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In 1Q17, gains on hedging activities caused Devon Energy’s oil and gas revenues to increase ~18%. This is much better than 4Q16 when Devon Energy reported negative hedging effectiveness of about -15%.

Other upstream players

Almost all upstream companies are involved in hedging, but their hedging effectiveness varies due to derivative coverage, hedge types, and hedge prices. DVN’s peer Southwestern Energy (SWN) has derivative coverage of ~60% of its forecasted 2017 production. 

The SPDR S&P Oil and Gas Exploration & Production ETF (XOP) invests at least 80% of its total assets in oil and gas exploration companies.

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