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Oilfield Services: Complex Financial Reporting: Hedging with Derivatives

An oilfield services company (OFS Co.), engaged Opportune for assistance with implementing hedge accounting for their Euro denominated revenue contract. OFS Co. was concerned a strengthening U.S. dollar (USD) would erode the margin budgeted for the revenue contract.  Opportune provided guidance on hedge strategy development and presented the hedge accounting implications of each strategy.  OFS Co. entered into a foreign currency swap that was designated as a cash flow hedge. Opportune drafted the contemporaneous hedge accounting documentation and provided the ongoing effectiveness testing, ineffectiveness measurement, credit adjusted valuations, and balance sheet remeasurement calculations.

Additionally, OFS Co. maintains variable rate debt.  In order to reduce the variability of cash flows of the interest payments for this variable rate debt, OFS Co. entered into several interest rate swaps. Opportune assisted with the requirements to designate these interest rate swaps under cash flow hedge accounting. At a later date, OFS Co. extended the term of the debt and rolled the fair value of the existing hedges into new hedges. This transaction created a late designation, and OFS Co. requested Opportune’s expertise to understand if they would still qualify for hedge accounting, to explain the event to auditors, and to understand the future accounting treatment. Opportune provided documentation, quarterly effectiveness testing, ineffectiveness measurement, and credit adjusted valuation for these new hedge relationships.

Opportune uses its deep experience to help companies achieve hedge accounting.   Our experts work closely with management to reduce complexities and audit risk.  Our strategic methodology is designed to support our clients’ particular business objectives, including driving profitability while meeting transactional standards.  For more information click here.

Dean Price

PartnerOpportune LLP