Marathon Oil’s hedging advantage
In 4Q16, crude oil hedging activities increased Marathon Oil’s (MRO) North American E&P (exploration and production) average realized crude oil price by $0.32 per barrel.
As we saw earlier in this series, excluding hedges, the 4Q16 average realized price for MRO’s North American E&P crude oil production was $45.89 per barrel, meaning that commodity hedging activities increased MRO’s North American E&P average realized crude oil price by 0.70%.
1Q17 hedges: Three-way collar
In 1Q17, Marathon Oil has had a three-way collars on NYMEX WTI (West Texas Intermediate) crude oil for 50,000 barrels per day. In its three-way collar strategy, MRO has sold (or shorted) call options at a strike price of $58.42 and bought (or longed) put options at a strike price of $50.30.
This strategy also has a third element, wherein MRO sold its put options at a strike price of $43.50. On April 13, 2017, for the NYMEX WTI crude oil price of $53.18 per barrel, these variable price hedges resulted in a realized price of $53.18 per barrel each.
Apart from the above-mentioned hedges, in 4Q16, Marathon Oil also sold call options at a strike price of $61.91 on NYMEX WTI crude oil for 35,000 barrels per day.
On December 31, 2016, MRO had derivative coverage for ~74% of its forecast North American E&P crude oil production for 1Q17.