Tue 10 Mar 2015 16:28

Carnival report reveals fuel derivative strategy


Report shows that zero cost collars on Brent form the basis of Carnival's derivatives programme.



Cruise company Carnival Corporation & plc released its 2014 annual report last week, which included an overview of the company's fuel derivatives programme.

The annual report states that all of the derivatives used by Carnival are based on Brent prices, even though the company's expenses are for marine fuel. The report explains that "changes in the Brent prices may not show a high degree of correlation with changes in our underlying marine fuel prices".

Carnival uses zero cost collars on Brent, which it says "will act as economic hedges", though "hedge accounting is not applied". The report states that Carnival "will continue to evaluate various derivative products and strategies".

In 2014, Carnival posted a realised loss of $3 million on fuel derivatives, compared with a realised loss of $13 million in 2012 and no gains or losses in 2013.

Carnival's outstanding fuel derivatives on November 30, 2014, consisted of zero cost collars on Brent, which mature evenly over each month. The derivatives are detailed in the table below.

Maturities Transaction Dates Barrels (thousands) Weighted Average Floor Prices ($) Weighted Average Ceiling Prices ($) % of Estimated Fuel Consumption
Fiscal 2015 Nov-11 2160 80 114
Feb-12 2160 80 125
Jun-12 1236 74 110
Apr-13 1044 80 111
May-13 1884 80 110
Oct-14 1920 79 110
Total 10404 51
Fiscal 2016 Jun-12 3564 75 108
Feb-13 2160 80 120
Apr-13 3000 75 115
Total 8724 42
Fiscal 2017 Feb-13 3276 80 115
Apr-13 2028 75 110
Jan-14 1800 75 114
Oct-14 1020 80 113
Total 8124 39
Fiscal 2018 Jan-14 2700 75 110
Oct-14 3000 80 114
Total 5700 28


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