uploads///NBL Hedges

Understanding Noble Energy’s Hedging Activities

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Jan. 14 2016, Updated 2:07 a.m. ET

Noble Energy’s hedging advantage

According to Noble Energy’s (NBL) 3Q15 10-Q filing, it realized gains on commodity derivatives of $284 million for the quarter. These commodity derivatives include hedges on crude oil, natural gas, and natural gas liquids. The realized gain of $284 million on commodity derivatives stands at ~36% of the company’s 3Q15 operating revenue of $801 million. For 2015, Noble Energy had derivative coverages of 83% and 56%, respectively, for crude oil and US natural gas.

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Noble Energy’s 2016 hedges on natural gas

Noble Energy has hedged its 2016 natural gas production within the United States. As shown in the above chart, for 2016, the company has fixed price hedges on natural gas for 40,000 MMBtu (British thermal units in millions) per day at a price of $3.60 per MMBtu and 30,000 MMBtu per day at a price of $4.06 MMBtu.

Noble Energy also has variable price hedges for natural gas. As an example, on January 6, 2016, the closing price of natural gas was $2.29 per MMBtu. These variable price hedges with hedge volumes of 90,000 MMBtu per day, 30,000 MMBtu per day, and 30,000 MMBtu per day would have resulted in realized natural gas prices of $2.88 MMBtu, $3 MMBtu, and $3.5 MMBtu, respectively.

Noble Energy’s lower hedge volume for crude oil hedges was ~36% lower in 2016 than in 2015. The company hedged these volumes at much lower prices using fixed-price and variable-price derivative instruments.

Production costs

For 3Q15, Noble Energy’s total production cost including lease operating expenses, production taxes, and transportation and gathering was only $6.74 per BOE (barrel of oil equivalent), which is ~14% lower than the cost in 3Q14. In 3Q15, Noble Energy’s lease operating expenses were only $3.81 per BOE.

Oil and gas producers

S&P 500 (SPY) upstream companies Murphy Oil (MUR), Pioneer Natural Resources (PXD), and EOG Resources (EOG) have lease operating expenses of $9.62 per BOE, $6.82 per BOE, and $5.60 per BOE, respectively.

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