How Hedging Activities Benefit Cimarex Energy



Cimarex Energy’s hedging advantage

According to Cimarex Energy’s (XEC) 3Q15 10Q filing, the company’s realized gains on commodity derivatives were ~$2 million for the quarter. These commodity derivatives include hedges on crude oil and natural gas. The realized gain of ~$2 million on commodity derivatives stands at only ~0.6% when compared with CNX’s 3Q15 operating revenue of ~$356 million. For 4Q15, XEC has no derivative coverage for crude oil, natural gas liquids, or natural gas.

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XEC’s 2016 hedges on crude oil

As shown in the above chart, XEC has variable price hedges for its 2016 crude oil production. As an example, on February 5 with a crude oil closing price of $31 per barrel, these variable price hedges with hedge volumes of 273,000 barrels for 1Q16, 273,000 barrels for 2Q16, 276,000 barrels for 3Q16, and 276,000 barrels for 4Q16 would have resulted in a realized crude oil price of $41 per barrel.

Assuming XEC’s 2016 crude oil production remains more or less like 2015, it has derivative coverage for total forecasted oil production of ~6% only.

XEC’s production costs

For 3Q15, XEC’s total production cost, which includes LOE (lease operating expense), production taxes, G&A (general and administration), and transportation and gathering, was $1.73 per Mcfe (million cubic feet equivalent), which is ~24% lower when compared with 3Q14. In 3Q15, XEC’s LOE was $0.64 per Mcfe.

Oil and gas producers

Other S&P 500 (SPY) upstream companies like Murphy Oil (MUR), Pioneer Natural Resources (PXD), and EOG Resources (EOG) have LOEs of $9.62 per boe (barrel of oil equivalent), $6.82 per boe, and $5.6 per boe, respectively.


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