uploads///MRO Q Hedging Effectiveness

How Effective Have Marathon Oil’s Hedging Strategies Been?


Dec. 16 2016, Updated 1:38 p.m. ET

Hedging effectiveness

According to Marathon Oil’s (MRO) form 10-Q for 2Q16, MRO reported total (non-cash and cash) loss of about $88 million on its derivative instruments. When divided by Marathon Oil’s oil and gas revenues of ~$941 million, this results in hedging effectiveness of about -9%.

In other words, in 2Q16, losses on hedging activities caused Marathon Oil’s oil and gas revenue to decrease 9%.

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Other upstream players

Almost all upstream companies are involved in hedging, but 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), for example, have derivative coverages of ~32%, ~80%, and ~100%, respectively, of their forecasted crude oil production for 2016.

Now let’s discuss lifting costs.


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