How Important Is ConocoPhillips’s Hedging Effectiveness?



ConocoPhillips’s hedging effectiveness

According to ConocoPhillips’s (COP) Form 10Q for 3Q16, COP reported a total non-cash and cash profit of ~$11.0 million on its commodity derivative instruments. Dividing that by ConocoPhillips’s E&P (exploration and production) revenues of ~$3.9 billion gives us a hedging effectiveness of ~0.28%.

In other words, in 3Q16, profits on hedging activities caused ConocoPhillips’s E&P revenues to rise ~0.28%. That’s much better than the previous quarter when its revenues fell ~4.0% due to losses on hedging activities.

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Oil and gas producers that reported losses on hedges

Almost all upstream companies are involved in hedging, but their hedging effectiveness varies due to derivative coverage, hedge types, and hedge prices. For 3Q16, upstream companies W&T Offshore (WTI), California Resources (CRC), and Stone Energy (SGY) have a hedging effectiveness of -0.38%, -3.3%, and -0.21%, respectively.


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