Extraction Oil & Gas’s hedging advantage
Extraction Oil & Gas (XOG) uses a variety of derivative instruments to manage fluctuations in crude oil and natural gas prices. XOG has in place a series of collars, fixed price swaps, and basis swaps on a portion of its expected crude oil and natural gas production.
For 3Q16, Extraction Oil & Gas recognized a net gain on commodity derivatives of $16.2 million. In this article, we’ll take a look at its existing crude oil hedges.
Crude oil hedges for 4Q16
For 4Q16, Extraction Oil & Gas (XOG) has 525 MBoe (thousand barrels of oil equivalent) of NYMEX WTI (West Texas Intermediate) crude oil hedged with swaps. These swaps have an average swap price of $38.70 per barrel.
Apart from its swaps, Extraction Oil & Gas has 839 MBoe of NYMEX WTI crude oil hedged with a collar strategy. In its collar strategy, XOG has sold—or shorted—call options with a strike price of $55.15 and bought—or went long on—put options with a strike price of $50.29.
In December 2016, WTI has overall derivative coverage for ~63% of forecasted crude oil production for 4Q16.
Crude oil hedges for 2017
For 2017, Extraction Oil & Gas has ~1,500 MBbls (thousand barrels) of NYMEX WTI crude oil hedged with swaps with an average swap price of $43.84 per barrel.
For 2017, XOG also has collars on ~6,650 MBbls of WTI crude oil. In its collar strategy, XOG’s hedged volume has average floor and ceiling prices of $47.68 per barrel and $55.88 per barrel, respectively.
Natural gas hedges for 2017
For 2017, Extraction Oil & Gas has ~25,420,000 MMBtu (million British thermal units) of natural gas hedged with swaps that have an average swap price of $3.06 per MMBtu. XOG does not hedge its natural gas liquids production, which comprises a relatively lower portion of its production mix and revenue mix.
Other upstream companies
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.