Understanding Devon Energy’s Hedging Activities



Devon Energy’s hedging advantage

In 4Q15, crude oil and bitumen hedging activities increased Devon Energy’s (DVN) average realized crude oil and bitumen price by $24.36 per barrel. Excluding hedges, the 4Q15 average realized price for DVN’s crude oil and bitumen production was $29.31 per barrel. This means that commodity hedging activities increased DVN’s average realized crude oil and bitumen price by ~83%.

According to DVN’s 4Q15 earnings press release, its revenues from oil, natural gas, and natural gas liquids sales totaled $1.1 billion in 4Q15. Cash settlements related to oil and natural gas hedges caused revenue to rise by more than $700 million in the same quarter.

Article continues below advertisement

DVN’s 2016 hedges

In 2016, DVN has call options on NYMEX West Texas Intermediate crude oil for 19,000 barrels per day at a weighted average price of $73.18 per barrel. As of December 31, 2015, DVN has derivative coverage for only ~3% of forecast crude oil production for 2016.

For 2016, DVN has fixed price swaps on natural gas for 55,000 mmBtu (million British thermal units) per day at a weighted average price of $3.17 per mmBtu.

DVN’s production costs

For 4Q15, DVN’s filed level operating cost, which includes its lease operating expense (or LOE) and production tax, was $8.82 per boe (barrel of oil equivalent), ~20% lower compared to 4Q14.

In 4Q15, DVN’s LOE was $7.66 per boe, ~18% lower compared to 4Q14. Other S&P 500 (SPY) upstream companies such as ConocoPhillips (COP), Cabot Oil & Gas (COG), and Hess (HES) have LOEs of $10.75 per boe, $5.6 per boe, and $15.12 per boe, respectively.


More From Market Realist