US Crude Oil Near $50: Why Denbury Resources Might Be in Trouble

Oil-weighted stocks are sensitive to oil

The following oil-weighted stocks could be sensitive to oil’s price movements based on their correlations with US crude oil active futures in Q2 2019 so far:

  • Hess (HES): 73.8%
  • Denbury Resources (DNR): 68%
  • Carrizo Oil & Gas (CRZO): 67.7%
  • California Resources (CRC): 67%
  • ConocoPhillips (COP): 66.6%

US Crude Oil Near $50: Why Denbury Resources Might Be in Trouble

All of these oil-weighted stocks are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). They operate with production mixes of at least 60.0% in liquids based on their latest quarterly production data. Liquids include crude oil, condensates, and natural gas liquids.

Denbury Resources and US crude oil below $50

In this quarter so far, US crude oil prices have fallen by double digits, and Denbury Resources has fallen the most among oil-weighted stocks. Last quarter, Denbury Resources had a production mix of around ~97% in oil, and the rest in natural gas. As of May 31, DNR had hedged around 40,500 barrels per day for Q2 2019, approximately 68% of last quarter’s oil output. The weighted average floor prices for NYMEX WTI crude oil and Argus LLS (Light Louisiana Sweet) stood at $57.19 and $64.22 per barrel, respectively.

However, a large chunk of NYMEX WTI hedge was done by a three-way collar bearing a threshold price of $48.84 per barrel. On June 12, WTI crude oil prices settled at $51.14 per barrel. If WTI crude oil active futures fall below the threshold prices, it might concern DNR’s stock prices. For Argus, a large portion was covered by swaps. DNR’s EPS are expected to grow by ~20% in Q2 2019 sequentially.