Hedging
Penn West considers price hedging of oil and natural gas production to be a useful tool of risk management. Its uses include protecting planned capital budgets, safeguarding the economics of acquisitions and providing downside cash flow protection to support planned distributions.
During 2009, the Trust continues to employ derivative instruments on a portion of its production volumes spanning several quarters into the future. The Trust also secured hedges to fix the costs of electric power at its oilfield operations, improving its ability to project operating costs, netbacks and cash flows.
Penn West is careful and judicious in its hedging activities in order to preserve exposure to commodity price upside and avoid unreasonable opportunity costs.
Liquids Hedging
As of August 13, 2010
| 2010 | ||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | 2010 | 2011 | |
|---|---|---|---|---|---|---|
| Hedged volumes (bbl/d) | 35,000 | 35,000 | 35,000 | 35,000 | 35,000 | 30,000 |
| % Liquids production | 36% | 36% | 35% | 33% | 35% | 30% |
| Swaps | 0 | 0 | 0 | 0 | 0 | 0 |
| Swap price (US$/bbl) | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 |
| Collars | 35,000 | 35,000 | 35,000 | 35,000 | 35,000 | 30,000 |
| Average price: | ||||||
| ceiling (US$/bbl) | $75.72 | $75.72 | $75.72 | $75.72 | $75.72 | $92.55 |
| floor (US$/bbl) | $60.11 | $60.11 | $60.11 | $60.11 | $60.11 | $80.90 |
Natural Gas Hedging
As of May 3, 2010
| 2010 | ||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | 2010 | 2011 | |
|---|---|---|---|---|---|---|
| Hedged volumes (Gj/d) | 73,353 | 93,020 | 93,020 | 51,235 | 77,639 | 0 |
| % Gas production | 16% | 21% | 21% | 12% | 17% | 0% |
| Swaps | 0 | 0 | 0 | 0 | 0 | 0 |
| Swap price (CAD$/Gj) | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 |
| Collars | 73,353 | 93,020 | 93,020 | 51,235 | 77,639 | 0 |
| Average price: | ||||||
| ceiling (CAD$/Gj) | $8.97 | $8.29 | $8.29 | $7.30 | $8.29 | $0.00 |
| floor (CAD$/Gj) | $6.29 | $6.02 | $6.02 | $5.62 | $6.01 | $0.00 |
Power Hedging
As of May 3, 2010
| 2010 | ||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | 2010 | 2011 | |
|---|---|---|---|---|---|---|
| Hedged volume (MWh) | 80 | 90 | 90 | 90 | 88 | 90 |
| % Hedged | 77% | 87% | 87% | 87% | 85% | 87% |
| Fixed hedge price (CAD$MWh) | $72.56 | $70.09 | $70.09 | $70.09 | $70.65 | $63.16 |
Interest Rate Swaps
As of December 31, 2009
Notational Volume (millions) |
Remaining Term |
Pricing |
|---|---|---|
| $50 | Jan/10 - Jun/10 | 3.68% |
| $250 | Jan/10 - Nov/10 | 2.27% |
| $500 | Jan/10 - Dec/11 | 1.61% |
| $600 | Jan/10 - Jan/14 | 2.71% |
| $50 | Jun/10 - Jan/14 | 1.94% |
Foreign Exchange Forwards
As of December 31, 2009
Notational Volume (millions) |
Remaining Term |
Pricing (CAD/USD) |
|---|---|---|
| US $80 | 8 - Year Term: 2015 | 1.01027 |
| US $80 | 10 - Year Term: 2017 | 1.00016 |
| US $70 | 12 - Year Term: 2019 | 0.99124 |
| US $20 | 15 - Year Term: 2022 | 0.98740 |
Cross Currency/Interest Rates Swaps
As of December 31, 2009
Notational Volume (millions) |
Remaining Term |
Pricing |
|---|---|---|
| £57 | 10 - Year Term: 2018 | 2.0075 (CAD/GBP), 6.95% |
| £20 | 10 - Year Term: 2019 | 1.8051 (CAD/GBP), 9.15% |
| €10 | 10 - Year Term: 2019 | 1.5870 (CAD/EUR), 9.22% |