Home 2020 Sitting on a Pile of Cash? Crude Oil Prices are Going Higher!...

Sitting on a Pile of Cash? Crude Oil Prices are Going Higher! Here are 2 Stock to Follow in the Energy Sector


The energy sector has taken a beating in here, but as it turns out some of the independent Oil & Gas exploration and production companies have hedged their production at higher prices, and some are hedged out through Y 2021.

Marathon Oil Corp. (NYSE:MRO) announced its updated Y 2020 capital spending budget and hedging outlook on 8 April. The company’s revised capital budget of $1.3-B will make for a cumulative budget reduction of $1.1-B from its initial Y 2020 capital spending guidance, or approximately 50% below actual capital spending in Y 2019. Marathon plans to suspend further drilling activity in the Northern Delaware while it will continue to optimize development plans in The Bakken and Eagle Ford plays

MRO gave a hedging update with new and restructured hedges to protect near-term Crude Oil downside and basis differentials. While 3-Way collars on NYMEX WTI Crude were not in place for Q-2, they were for 80,000 BPD with a 55 floor for Q’s 3 and 4, but with sold puts at 48.00. It’s NYMEX WTI Crude 2-Way collars covered 40,000 BPD with a 32.89 floor and its fixed-price WTI Crude swaps in Q-2-2020 covered 60,000 BOD with a weighted average price of 30.73 BPD.

MRO has strong support at 4.09 and Key resistance at 12, it finished Wednesday at: 4.53 +.29, all 3 of my Key technical indicators have turned Very Bullish in here.

Noble Energy Inc. (NASDAQ:NBL) announced on 15 April its updated outlook with capital spending. The company maintained that it benefits from “a high-quality, low-decline portfolio, strong capital discipline, and an ability to flex spending as appropriate.” That included lower planned capital expenditures by an additional $350-M for Y 2020 to now range from $800 – 900-M, for a total cut from original expectations of 50% or so. Noble also identified an additional $125-M in cost savings from lease operating, gathering and transportation, production taxes, G&A and retiring assets.

NBL noted that cash-settled certain Y 2020 Crude Oil hedges that had reached maximum value had generated an additional $145-M in realized gains in Q-3, while it had also added new Southside hedge protection for the rest of Y 2020. It drew $1-B of its total unsecured $4-B revolving credit facility as of the end of Q-1 and lowered its dividend.

Noble addressed its hedges this way, as follows: Q-1 realized hedge gains totaled $207-M, including $145-M from the early settlement of certain Crude Oil hedges covering the remainder of Y 2020. Monetization of the early settlements was executed in March and consisted of 30 MBPD of 3-Way hedges, along with 24 MBPD of swaps and put options, the combination of which reached maximum value when WTI prices were lower than 48 bbl. For Q-2 of Y 2020, the Company has approximately 120 MBPD of swaps at an average price of 35.85 bbl WTI. 2-H of Y 2020 swaps include 38 MBPD in Q-3 at an average price of 36.80 bbl WTI and 15 MBPD for Q-4 at an average price of 51.91 bbl WTI. For 2-H of this year, the Company also has 53 MBPD of 3-Way hedges with floor protection of 25 per barrel WTI and a ceiling of 37.25 bbl.

NBL has strong support at 6.67 and Key resistance at 20.50, it finished Wednesday at: 7.25 +.53, 1 of my Key technical indicators has turned Bullish in here, my outlook is neutral with a Bullish bias.

As you can see there is a lot that goes into hedges. Many savvy participants in the oil patch saw their shares decline regardless of whether they were hedged. These are strong well managed companies with strong balance sheets, they will come out of this funk and see their stock prices head back to the old highs on the opening up and the rebalancing of the supply/demand issues.

Have a healthy day, Keep the Faith!

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S. Jack Heffernan Ph.D. Economist at Knightsbridge holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Crypto, Mining, Shipping, Technology and Financial Services.