Company Peer Group Analysis – North American E&Ps fourth-quarter 2019 hedging update: Oil price crash puts hedge positions in the spotlight
23 Mar 2020 - Upstream Companies and Transactions | Insight
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Thomas WilsonThomas WilsonAssociate Director
Hedging is in the spotlight following the oil price collapse. At the end of fourth quarter 2019, the overall IHS Markit Company Research North American E&Ps had 32% of 2020 estimated oil production hedged at an implied realized oil price of $52.41/bbl, and 36% of estimated natural gas production hedged at an implied realized price of $2.72/Mcf. While these hedges offer some protection, they cover only one-third of estimated production volumes overall. Unfortunately, next year’s oil production is essentially unhedged. Looking at the peer groups, the Large North American E&P peer group had 27% of 2020 estimated oil production hedged, while Midsize US E&Ps had 47% and Small US E&Ps had 55% hedged. Generally speaking, the oil-focused Midsize and Small E&Ps had more hedge protection, a positive given their weaker balance sheets versus the Large North American E&Ps. With all three groups hedged at average strike prices above $51 per barrel, hedged volumes will provide welcome support to cash flow, especially to companies that need it the most during this trying time. Not all hedges provide equal protection. With the depth of the oil price decline, three-way collars are proving to be not quite as “costless” as advertised. Companies that hedged their oil with the most three-way collars and are not as protected includes: Occidental Petroleum, Parsley Energy, and Pioneer Natural Resources. The Permian E&P peer group hedged 50% of estimated 2020 oil production at $51.36/bbl, plus oil-basis swaps covering an additional 22% of production. The 2020-basis-swap hedge discount for the differential between WTI Midland and WTI Cushing declined to a $0.54/bbl average. The Appalachian peer group’s natural gas hedge position was stable versus the previous quarter, with 64% of 2020 production hedged at an implied price of $2.77/Mcf.
Article Information
Companies
Antero Resources Corporation; Apache Corporation; Cabot Oil & Gas Corporation; Callon Petroleum Company; Canadian Natural Resources Limited; Centennial Resource Development, Inc.; Chesapeake Energy Corporation; Cimarex Energy Co.; CNX Resources Corporation; Comstock Resources Incorporated; Concho Resources Inc.; ConocoPhillips; Continental Resources, Inc.; Devon Energy Corporation; Diamondback Energy Inc.; EOG Resources Incorporated; EQT Corporation; Extraction Oil & Gas, Inc.; Gulfport Energy Corporation; Hess Corporation; Laredo Petroleum, Inc.; Marathon Oil Corporation; Matador Resources Company; Murphy Oil Corporation; Noble Energy Incorporated; Oasis Petroleum Inc.; Occidental Petroleum Corporation; Ovintiv Inc.; Parsley Energy, Inc.; PDC Energy, Inc.; Pioneer Natural Resources Company; QEP Resources, Inc.; Range Resources Corporation; SM Energy Company; Southwestern Energy Company; Whiting Petroleum Corporation; WPX Energy Inc.
Locations
Appalachia (United States); North America; Permian (United States); United States of America
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Company Peer Group Analysis – North American E&Ps fourth-quarter 2019 hedging update: Oil price crash puts hedge positions in the spotlight