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%.
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.