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Memorial Resource Development: 100% Hedge Protection

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Memorial Resource Development

On April 11, 2016, Memorial Resource Development (MRD) presented at the IPAA (Independent Petroleum Association of America) OGIS (Oil and Gas Investment Symposium) in New York. In this final part of the series, we’ll see how Memorial Resource Development has restructured its hedges. It’s the only company that we’ve covered with a 100% hedge coverage for its 2016 production. We’ll also see how it’s solidifying its free cash flow.

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MRD’s hedge restructure

In 4Q15, Memorial Resource Development exchanged its existing 2018 crude oil (USO) (SCO) and natural gas (UNG) (UGAZ) (DGAZ) hedges. It exchanged a total volume of 270,896 mmBtue (million British thermal units equivalent) per day for new oil swaps in 2016. This related to 1,776 barrels per day at an average price of $95.93 per barrel. New NGL (natural gas liquids) swaps in 2016 related to 8,224 barrels per day at an average price of $44.55 per barrel.

The restructuring was exercised on a costless basis. Memorial Resource Development expects to re-hedge its expected 2018 production volumes. But that depends on the crude oil and natural gas price scenario in the future.

Memorial Resource Development’s 2016 hedges

After the restructuring, Memorial Resource Development became the only company that we’ve covered in this series that has hedged 100% of its expected 2016 production. MRD’s weighted average hedge price in 2016 is $3.76 per mmBtu (million British thermal units) of natural gas, $93.04 per barrel of crude oil, and $40.09 per barrel of natural gas liquids. The net effect of the restructuring will support MRD’s 2016 capital program and delineation plans. It will also generate additional free cash flow.

Below are the derivative coverages of some upstream companies’ productions:

Below are derivative coverages of some of the bigger players from the S&P 500 (SPY):

  • EQT (EQT): 42%
  • Range Resources (RRC): 42%
  • Cabot Oil & Gas (COG): 12%
  • Southwestern Energy (SWN): 10%

Ultra Petroleum (UPL) has no derivative coverage for its estimated 2016 production.

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