uploads///CRC Q Hedges

Understanding California Resources’ Crude Oil Hedging Activities


Sep. 2 2016, Updated 10:04 a.m. ET

California Resources’ crude oil hedging advantage

For 2Q16, crude oil hedging activities increased California Resources’ (CRC) average realized crude oil price by $2.29 per barrel. As we discussed in part five of this series, excluding hedges, the 2Q16 average realized price for CRC’s crude oil production was $41.41 per barrel. This means that commodity hedging activities increased CRC’s average realized crude oil price by ~6%.

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California Resources’ 3Q16 hedges

For 3Q16, CRC has a two-way collar, long put, and fixed price swap on Brent-based crude oil. In its two-way collar on Brent-based crude oil, CRC has hedged a volume of 19,000 barrels per day. In this collar strategy, CRC has sold call options with a strike price of $55.08 and bought put options with a strike price of $50.65. As of August 30, 2016, for the NYMEX (New York Mercantile Exchange) WTI (West Texas Intermediate) crude oil price of $47.30 per barrel, this collar will result in a realized price of $50.65 per barrel.

In its long put hedging strategy, CRC has bought put options with a strike price of $50.65 for a volume of 9,000 barrels per day. In its fixed price swap hedging strategy, CRC has fixed price swaps on Brent-based crude oil at the weighted average price of $61.25 per barrel for a volume of 1,000 barrels per day. Overall, as of August 3, 2016, CRC has derivative coverage for ~33% of the forecast crude oil production for 3Q16.

Other upstream companies

Upstream peers Bonanza Creek Energy (BCEI), EOG Resources (EOG), and Parsley Energy (PE) have used three-way collar strategies to hedge their 3Q16 production. The Energy Select Sector SPDR ETF (XLE) generally invests at least 95% of its total assets in oil and gas related equities from the S&P 500.


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