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Chart in Focus: California Resources’ Hedging Effectiveness

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California Resources’ hedging effectiveness

According to California Resources’ (CRC) 10Q form for 2Q16, CRC reported a total (non-cash and cash) loss of ~$118 million on its derivative instruments. When divided by California Resources’ oil and gas revenues of ~$404 million, this results in negative hedging effectiveness of approximately -29%. In other words, in 2Q16, losses on hedging activities caused California Resources’ oil and gas revenue to decline by ~29%.

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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 Devon Energy (DVN), Range Resources (RRC), and Memorial Resource Development (MRD) have derivative coverage of ~32%, ~80%, and ~100%, respectively, of their forecast crude oil production for 2016.

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