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.
Penn West continues to employ derivative instruments on a portion of its production volumes spanning several quarters into the future. The company 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.