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Chart in Focus: Denbury Resources’ Hedging Effectiveness

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Denbury Resources’ hedging effectiveness

Per Denbury Resources’ (DNR) form 10Q for 2Q16, DNR reported a total (non-cash and cash) loss of about -$98 million on commodity derivative settlements. When divided by Denbury Resources’ operating revenues of ~$247 million from crude oil and natural gas sales, this figure results in hedging effectiveness of about -40%.

In other words, in 2Q16, losses on hedging activities caused Denbury Resources’ oil and gas revenues to fall ~40%.

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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 forecasted crude oil production for 2016.

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