uploads/2016/01/MUR-Hedges1.jpg

Understanding Murphy Oil’s Hedging Strategy

By

Updated

MUR’s hedging

According to Murphy Oil’s (MUR) 3Q15 10Q filing, it registered a mark-to-market gain of ~$11 million on crude oil derivative contracts in 3Q15. This amount is insignificant considering the total exploration and production revenues of ~$666 million.

Article continues below advertisement

MUR’s future hedges on crude oil

MUR has hedged its 4Q15 and 2016 crude oil production within the US. As shown in the above chart, for 4Q15, MUR has hedged 15,000 barrels per day of crude oil production from the Eagle Ford Shale at a price of $63.30. For 2016, MUR has hedged 20,000 barrels per day of crude oil production from the Eagle Ford Shale at a price of $51.01.

Considering MUR’s 4Q15 production guidance, it has derivative coverage for total forecasted oil production of ~12% only. Also, assuming 2016 oil production remains more or less like 2015, MUR has derivative coverage for total forecasted oil production of ~15% only.

MUR’s future hedges on natural gas

MUR has also hedged its Western Canada natural gas production from Montney as follows:

  • 65 million cubic feet per day at 4.13 Canadian dollars per thousand cubic feet for 4Q15
  • 59 million cubic feet per day at 3.19 Canadian dollars per thousand cubic feet for 2016

Considering MUR’s 4Q15 production guidance, it has derivative coverage for total forecasted natural gas production of ~16% only. Also, assuming its 2016 natural gas production remains more or less like 2015, MUR has derivative coverage for total forecasted natural gas production of ~14% only.

Article continues below advertisement

MUR’s production costs

For 3Q15, MUR’s LOE (lease operating expenses) for worldwide oil and gas production were $9.62 per barrel of oil equivalent, which is ~24% lower when compared with 3Q14. For 3Q15, MUR’s general and administrative costs fell by 12% year-over-year.

Oil and gas producers

Pioneer Natural Resources (PXD), another S&P 500 (SPY) upstream company, has production costs of $11.62 per barrel of oil equivalent, whereas Noble Energy (NBL) has production costs of only $6.74 per barrel of oil equivalent. Occidental Petroleum (OXY) has worldwide cash operating costs of $11.15 per barrel of oil equivalent.

Advertisement

More From Market Realist