What Was Denbury Resources’ Hedging Effectiveness?



Denbury Resources’ hedging effectiveness

According to Denbury Resources’ (DNR) 10Q for 1Q16, it reported profits of ~$72 million on crude oil (USO) derivative settlements. Divided by Denbury Resources’ operating revenues of ~$188 million from crude oil and natural gas sales, this results in hedging effectiveness of ~38%.

In other words, in 1Q16, hedging activities helped Denbury Resources increase its operating revenue by 38%.

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Other upstream players

Almost all upstream companies are involved in hedging, but their hedging effectiveness varies due to derivative coverage, hedge types, and hedge prices. Upstream companies like Devon Energy (DVN), Pioneer Natural Resources (PXD), and Memorial Resource Development (MRD) have derivative coverages of ~32%, ~80%, and ~100%, respectively, of their crude oil production forecast for 2016.


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